UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission File Number: Not Yet Issued
Reg. No. 33-69762
CONSOLIDATED HYDRO, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1138478
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
680 WASHINGTON BOULEVARD, STAMFORD, CONNECTICUT 06901
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (203) 425-8850
Securities registered pursuant to Section 12(b) of the Act: NONE
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 pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant is not available since there is no public market for the stock.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class A Outstanding as of September 15, 1997
- - - ----------------------------- ------------------------------------
Common stock, $.001 par value 1,285,762
Class B Outstanding as of September 15, 1997
- - - ----------------------------- ------------------------------------
Common stock, $.001 par value NONE
Page 1 of 97
Exhibit Index begins on page 85
<PAGE>
CONSOLIDATED HYDRO, INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business............................................................3
Item 2. Properties..........................................................21
Item 3. Legal Proceedings...................................................21
Item 4. Submission of Matters to a Vote of Security Holders.................21
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters........................................22
Item 6. Selected Financial Data.............................................24
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................27
Item 8. Financial Statements................................................41
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................71
PART III
Item 10. Directors and Executive Officers of the Registrant..................71
Item 11. Executive Compensation..............................................76
Item 12. Security Ownership of Certain Beneficial Owners and Management......80
Item 13. Certain Relationships and Related Transactions......................82
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K....85
<PAGE>
PART I
ITEM 1. BUSINESS
Consolidated Hydro, Inc. ("CHI", and together with its consolidated
subsidiaries, the "Company") has, since its establishment in 1985, been
principally engaged in the development, operation and management of
hydroelectric power plants. Based on operating megawatts, the Company is the
largest independent hydroelectric power producer in the United States.
As of June 30, 1997, the Company owned, operated or leased 90 projects in
the United States and Canada, with aggregate capacity of approximately 343
megawatts. In addition, the Company and a joint venture partner have begun
construction on a 15-megawatt hydro project in Newfoundland, Canada that is
expected to commence commercial operation in the fall of 1998.
Currently, all of the Company's revenue is derived from the ownership and
operation of hydroelectric facilities. The Company believes that its existing
hydroelectric business will continue to provide a relatively stable revenue
stream, but that major future hydro opportunities will be limited for a variety
of reasons explained below. Therefore, the Company believes that a significant
proportion of future revenue and earnings increases will depend on the success
of its industrial infrastructure business activities. See "-- Hydroelectric
Business" and "-- Industrial Infrastructure Business".
Commencing in November 1995, the Company began to diversify its business
activities to include the development, ownership, and operation of industrial
infrastructure facilities. In addition, the Company in 1996 completed a
management reorganization and initiated a financial restructuring that it
expects to complete by the end of calendar year 1997. The intent of its
diversification, reorganization, and restructuring programs has been to
significantly reduce or eliminate corporate debt, reduce overhead and operating
costs, and position itself to take advantage of new business opportunities
occasioned by electric industry restructuring in the U.S. and by other trends
within its target customer group which includes industrial companies and
electric utilities. The Company will seek to capitalize on these new
opportunities in energy-related products and services by taking advantage of its
existing technical and financial expertise and using its geographic presence in
most U.S. regions to realize economies of scale in administration, operation,
maintenance and insurance of facilities.
On September 15, 1997, CHI commenced a case under chapter 11 of the
Bankruptcy Code. None of CHI's subsidiaries has commenced a case under the
Bankruptcy Code. See "--Financial Restructuring of CHI" and Item 3, "Legal
Proceedings".
CHI is a Delaware corporation. The Company's executive and administrative
offices are located at 680 Washington Boulevard, Stamford, Connecticut 06901,
and its telephone number is (203) 425-8850.
FINANCIAL RESTRUCTURING OF CHI
CHI's highly leveraged capital structure and substantial future cash
requirements have made it difficult for the Company to establish the
creditworthiness and credibility necessary to consummate industrial
infrastructure and other new business transactions. Specifically, commencing on
September 30, 1998, cash dividends become payable on the Company's existing 13
1/2% Cumulative Redeemable Exchangeable Preferred Stock (the "Series H Preferred
Stock") and on January 15, 1999, cash interest becomes payable on the Company's
existing 12% Senior Discount Notes due 2003, Series B (the "Senior Discount
Notes"). The Company believes it will be unable to satisfy such dividend and
interest payment obligations on a timely basis as well as meet the Company's
other obligations, including accrued and unpaid dividends since issuance under
the Company's 8.0% Senior Convertible Voting Preferred Stock (the "Series F
Preferred Stock"), and its capital expenditure and working capital requirements
at such time. In addition, the Company anticipates that it will be unable to
satisfy the principal payments on its Senior Discount Notes at their maturity in
2003 and to redeem the Series H Preferred Stock at its 2003 redemption date. In
order to capitalize on the expertise and capabilities it believes it has in the
industrial and hydro power areas, the Company concluded that it was necessary to
deleverage its capital structure. To that end, the Company in the fall of 1996
entered into discussions with substantial holders of its Senior Discount Notes
and Preferred Stock (as such term is defined below) in an effort to restructure
the Company's significant financial obligations. On March 20, 1997, the Company,
at a meeting with certain holders of CHI's Senior Discount Notes, announced an
outline for its current business strategy and made a proposal to restructure its
outstanding debt and equity.
3
<PAGE>
On June 4, 1997, CHI, the holders of a majority of the Series F Preferred
Stock, CHI's Junior Convertible Voting Preferred Stock (the "Series G Preferred
Stock") and the Series H Preferred Stock (the Series F Preferred Stock, the
Series G Preferred Stock and the Series H Preferred Stock being collectively
referred to herein as the "Preferred Stock") and an informal committee of
institutions that own, or represent beneficial holders that own, approximately
89.2% of CHI's outstanding Senior Discount Notes (the "Unofficial Bondholders'
Committee") reached an agreement in principle on the terms of a restructuring to
be accomplished pursuant to a plan of reorganization for CHI (the "Plan of
Reorganization") under chapter 11 of the Bankruptcy Code. On August 8, 1997,
CHI, pursuant to a disclosure statement, dated August 8, 1997 (the "Disclosure
Statement"), commenced a prepetition solicitation of votes by the holders of
Senior Discount Notes and Preferred Stock to accept or reject the Plan of
Reorganization. Under the Plan of Reorganization, the holders of Senior Discount
Notes and Preferred Stock were the only holders of impaired claims and impaired
equity interests entitled to receive a distribution and, therefore, pursuant to
section 1126 of the Bankruptcy Code, were the only holders entitled to vote on
the Plan of Reorganization. At the conclusion of the 32-day solicitation period,
the Plan of Reorganization had been accepted by holders of 100% of the Senior
Discount Notes and by holders of greater than 97% of the Series F Preferred
Stock, greater than 97% of the Series G Preferred Stock and greater than 98% of
the Series H Preferred Stock, that voted on the Plan of Reorganization.
On September 15, 1997, CHI commenced a case under chapter 11 of the
Bankruptcy Code (the "Chapter 11 Case") in the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court") and filed the Plan of
Reorganization and the Disclosure Statement. None of CHI's subsidiaries has
commenced a case under the Bankruptcy Code. Pursuant to an order of the
Bankruptcy Court signed on September 15, 1997, a hearing before the Bankruptcy
Court to consider confirmation of the Plan of Reorganization is scheduled to be
held on October 23, 1997. CHI anticipates (but can give no assurance) that, if
the Bankruptcy Court enters an order confirming the Plan of Reorganization on or
about October 23, 1997, the Plan of Reorganization will become effective before
December 31, 1997 (the date of such effectiveness being the "Effective Date").
Through the implementation of the Plan of Reorganization on and after the
Effective Date, it is anticipated that CHI's most significant financial
obligations will be restructured as follows: $202 million in face amount of
outstanding Senior Discount Notes will be converted into, among other things,
$15 million in cash and 100% of the shares of CHI's new common stock, consisting
of shares of new class A common stock (the "New Class A Common Stock") and
shares of new class B common stock (the "New Class B Common Stock", and together
with the New Class A Common Stock, the "New Common Stock"), to be issued on the
Effective Date, subject to dilution from the New Warrants and the Management
Options (each as described below); the holders of the Preferred Stock will
exchange such stock for warrants to purchase up to 12.5% of the New Common
Stock, consisting of class B warrants (the "New Class B Warrants") and class C
warrants (the "New Class C Warrants, " and together with the New Class B
Warrants, the "New Warrants"), subject to dilution from the Management Options;
and CHI's old common stock will be cancelled. CHI's senior management will
receive options to purchase up to an aggregate of 7.5% of the Class A Common
Stock, (the "Management Options"), subject to dilution from the New Warrants.
See Part II, Item 5, "Market for the Registrant's Common Equity and Related
Stockholder Matters" for information with respect to the New Common Stock, New
Warrants and Management Options. As a result of the restructuring, it is
anticipated that other than a working capital facility to be entered into as of
the Effective Date, CHI will not have any significant debt obligations after the
Effective Date.
If the Bankruptcy Court confirms the Plan of Reorganization, CHI shall be
deemed to have adopted, on the Effective Date, the Amended CHI By-Laws and a
Restated CHI Certificate of Incorporation, each of which has been filed in the
Bankruptcy Court as an exhibit to the Plan of Reorganization. Pursuant to CHI's
Restated Certificate of Incorporation, as of the Effective Date, CHI's name will
be changed from Consolidated Hydro, Inc. to CHI Energy, Inc. and the fiscal
year-end will be changed from June 30 to December 31.
4
<PAGE>
HYDROELECTRIC BUSINESS
Until the establishment of its CHI Power, Inc. subsidiary in November 1995
to pursue industrial energy and related opportunities, the Company had been
engaged exclusively in the development, acquisition, and operation of
hydroelectric facilities and currently derives all of its revenues from this
source. The Company's operating hydroelectric projects are located in 15 states
and one Canadian province. The U.S. projects are clustered in four regions: the
Northeast, Southeast, Northwest and West, with a concentration in the Northeast,
a region characterized by relatively consistent long-term water flow and power
purchase contract rates which are higher on average than in most other regions
of the country. Additionally, the Company operates three projects with an
aggregate capacity of 80 megawatts in Ontario, Canada pursuant to an operations
and maintenance ("O&M") contract and has begun construction of a 15-megawatt
hydroelectric project in Newfoundland.
CHI has developed what it believes to be an efficient "hub" system of
project management designed to maximize the efficiency of each facility's
operations. The economies of scale created by this system include reduced costs
related to centralized administration, operations, maintenance, engineering,
insurance, finance and environmental and regulatory compliance. The Company's
hub system and operating expertise have enabled it to successfully integrate
acquisitions into its current portfolio and increase the efficiency and
productivity of its projects. The Company has found that the most efficient way
to operate its projects is to have several projects in a geographic area with
operators who can go to any of the projects as needed. Each of the Company's
regions is broken up into several smaller areas for purposes of assigning
project operators. To address more technical matters the Company bases
maintenance people and other technicians at its hubs, with more sophisticated
equipment and a more widely varied inventory of spare parts and supplies than
are kept at an individual project, all available for dispatch to each project.
To date, the Company has expanded primarily by acquiring existing
conventional hydroelectric facilities in the United States. On June 30, 1997,
the Company had a 100% ownership or long-term lease interest in 55 projects (145
megawatts) including 4 projects held for sale or decommissioning, a partial
ownership interest in 11 projects (82 megawatts) and O&M contracts with 24
projects (116 megawatts). CHI sells substantially all of the output from these
projects, excluding the Canadian projects, to public utility companies pursuant
to take and pay power purchase agreements. These contracts vary in their terms
but typically provide scheduled rates throughout the life of the contracts,
which are generally for a term of 15 to 40 years from inception. See "-- Power
Purchase Agreements". In 1996, the Company significantly reduced the carrying
value of certain of its assets. See Part II, Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General".
The Company also has been a developer of pumped storage hydroelectric power
plants in the United States. By cycling water between upper and lower
reservoirs, a pumped storage hydroelectric facility is able to convert low value
off-peak energy into high value peak power. However, as a result of continued
restructuring of the U.S. electric power industry and other events which have
created a climate of uncertainty regarding the future structure of the U.S.
electric power industry, the Company in 1996 wrote down virtually all of its
previous investments in pumped storage development. The Company will limit its
pumped storage development activities to the minimum necessary to maintain the
viability of the pumped storage projects currently in development while
completing an assessment designed to determine which of these projects, if any,
have future value.
Factors Affecting the Hydroelectric Business. CHI's initial strategy when
it was established in 1985 was to consolidate the ownership and operation of
small, independently-owned hydroelectric plants in the U.S. During the late
1970's, development of small hydroelectric power facilities was stimulated by
rising oil prices, the enactment by Congress of the Public Utility Regulatory
Policies Act of 1978 ("PURPA") and the adoption of the regulations thereunder,
and certain tax incentives, including the business energy tax credit and the
investment tax credit. PURPA reduced regulatory procedures for small non-utility
power production facilities (known as "Qualifying Facilities" or "QFs") and
required electric utilities to purchase power from such facilities at a price
based on the purchasing utility's full avoided cost, which is equal to the
incremental cost that would have been incurred if the utility had generated the
energy itself or purchased it from another source. See "-- Energy and
Environmental Regulation - Energy Regulation".
Hydroelectric power is a reliable, cost-effective and non-polluting source
of energy that generally offers the following advantages: (i) it is a proven
technology that has existed essentially unchanged for many years; (ii) it uses
water as a renewable, non-depleting, and non-polluting source of energy; (iii)
it has relatively low operating and labor costs, with no fuel costs; (iv)
hydroelectric power facilities typically have economic lives of 50 years or
more; and (v) hydroelectric power facilities can produce other beneficial
impacts such as recreational enhancements, flood control and water supply
management. The disadvantages of hydroelectric power include seasonality,
5
<PAGE>
dependence on satisfactory levels of precipitation and water flow, a factor
which creates difficulty in predicting generating levels for discrete periods,
and, in some cases, environmental impact on both aquatic life and certain
recreational uses near facilities.
By the time CHI was organized in July 1985, the hydroelectric power
industry had already entered a transition period. Fragmented ownership,
inefficient operating practices, inappropriate capitalization, and the loss of
certain tax incentives for small hydro project development led many early
developers to leave the industry. Starting in 1985 with an operating portfolio
of 6 small projects totaling 5 megawatts of capacity, CHI grew rapidly in terms
of numbers of projects and megawatts owned and operated, as well in terms of
gross revenues. At that time, the Company anticipated that the electric utility
industry would remain heavily regulated and noncompetitive, that purchased power
rates for output from QF projects such as the Company's would not decline, and
that hydropower, as a renewable resource, would generally be viewed favorably by
regulators. Similarly, the Company anticipated successful development of its
pumped storage projects (which were not QFs) based on a utility industry
structure and climate that would motivate utilities to offer long-term contracts
for the output from these projects.
Beginning in the early 1990s, however, the electric power industry in the
United States began to undergo significant structural changes, evolving from a
highly regulated industry dominated by monopoly utilities to what will become a
deregulated, competitive industry providing energy customers with an increasing
degree of choice among sources of electric power supply. Reductions in prices
for electricity, increased efficiency of combustion turbines and other competing
technologies and the deregulation and restructuring of the electric power
industry created a climate of uncertainty with respect to future power prices
and made it more difficult to obtain long-term power purchase contracts, thereby
severely limiting the Company's near-term opportunities to acquire or develop
additional hydroelectric capacity at acceptable rates of return. At the same
time, competition for the acquisition of available hydroelectric assets has
intensified, with the Company's competitors including a broad range of other
independent power producers and many well-capitalized domestic and foreign
industry participants such as utilities, equipment manufacturers and affiliates
of industrial companies, many of whom are aggressively pursuing power
development programs and have relatively low return-on-capital objectives.
CHI believes that future growth opportunities in its hydroelectric business
are limited and will primarily consist of: (i) potential acquisition of
additional hydroelectric projects of significant size, possibly as the result of
utility asset divestitures; (ii) contract operation, maintenance and management
of hydroelectric projects for others; and (iii) potential project development
opportunities, primarily in Canada and certain overseas markets. The Company
intends to pursue such opportunities on a selective basis, based on the
likelihood of success and expected return on investment.
6
<PAGE>
CONVENTIONAL HYDROELECTRIC PROJECTS
The following tables set forth the Company's projects as of June 30, 1997
with 100% ownership, with partial ownership and with O&M contracts:
PROJECTS WITH 100% OWNERSHIP AS OF JUNE 30, 1997
(INCLUDING SALE-LEASEBACKS)
<TABLE>
<CAPTION>
POWER
PURCHASE FERC DATE OF CHI
AGREEMENT LICENSE APPROXIMATE ACQUISITION OR
EXPIRATION EXPIRATION CAPACITY IN COMMENCEMENT OF
PROJECT LOCATION POWER PURCHASING ENTITY DATE DATE MEGAWATTS OPERATIONS(1)
- - - ------- -------- ----------------------- ------------ ----- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Apalache......... Greer, SC Duke Power Co. Dec. 1997(2) Jul. 2024 0.40 May 1989
Aziscohos (3).... Wilson Mill, ME Central Maine Power Co. Jul. 2008 Mar. 2025 5.31 Jun. 1988
Barber Dam....... Boise, ID Idaho Power Co. Jul. 2022 Nov. 2023 4.14 Dec. 1992
Bear Creek....... Shingletown, CA Pacific Gas & Electric Dec. 2015 Exempt 3.20 Feb. 1990
Beaver Valley.... Beaver Falls, PA Dusquesne Power Open Ended(4) Exempt 1.30 Feb. 1995
Black Canyon..... Gooding, ID Idaho Power Co. May 2019 Exempt 0.10 May 1993
Boott(3)......... Lowell, MA Commonwealth Elec. Apr. 2023 Apr. 2023 24.82 Dec. 1986
Canal Creek(10).. Joseph, OR Pacific Power & Light Dec. 2020(5) Exempt 1.13 Aug. 1991
Coneross......... Seneca, SC City of Seneca Mar. 1998 Mar. 2015 0.90 May 1989
Crescent......... Russell, MA Town of Groton Oct. 2009(9) May 2024 1.50 Feb. 1995
Dewey's Mill..... Hartland, VT Vermont Power Exchange Jul. 2015 Dec. 2032 1.90 Aug. 1993
Dexter........... Dexter, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 4.30 Feb. 1995
Diamond Island... Watertown, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 1.20 Feb. 1995
Dietrich Drop.... Dietrich, ID Idaho Power Co. Jul. 2022 Apr. 2037 4.77 Dec. 1992
Eagle & Phenix(6).....Columbus, GA Fieldcrest Cannon Jun. 2006 Feb. 2009 4.26 Jun. 1991
Ferguson Ridge(10)....Joseph, OR Pacific Power & Light Dec. 2020(5) Exempt 1.44 Aug. 1991
Fowler #7........ Fowler, NY Niag. Mohawk Power Corp. Dec. 1998(8) Oct. 2002 .90 Feb. 1995
Fries............ Fries, VA Virginia Elec. Power Jan. 1999 May 2020 5.21 May 1989
Co. & Apalachian
Power Co.
Geo-Bon II....... Lincoln County, ID Idaho Power Co. Mar. 2020 Exempt 1.00 Jun. 1994
Glendale......... Stockbridge, MA Town of Groton Oct. 2009(9) Oct. 2009 .70 Feb. 1995
Goodyear Lake.... Milford, NY NY State Elec. & Gas Aug. 2010 Feb. 2019 1.30 Feb. 1995
Corp.
Great Falls Lower Somersworth, NH Public Serv. Co. of NH Dec. 2011 Apr. 2022 1.29 Jul. 1985
Hailesboro #3.... Fowler, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt .90 Feb. 1995
Hailesboro #4.... Fowler, NY Niag. Mohawk Power Corp. Dec. 2023 Dec. 2002 1.80 Feb. 1995
Hailesboro #6.... Fowler, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt .90 Feb. 1995
High Falls....... Franklin County, NY NY State Elec. & Gas Dec. 2002 Jan. 2026 1.75 Oct. 1993
Corp.
High Shoals...... High Shoals, NC Duke Power Apr. 2012 Exempt 1.56 Jul. 1993
Kelley's Falls... Manchester, NH Public Serv. Co. of NH Dec. 2005 Mar. 2024 0.45 Dec. 1985
Kings River...... Fresno, CA Pacific Gas & Electric Jan. 2021 Jul. 2037 1.35 Jun. 1994
Kinneytown....... Seymour, CT CT Light & Power Nov. 2016 Exempt 2.36 Nov. 1986
LaChute Lower(3). Ticonderoga, NY Niag. Mohawk Power Corp. Dec. 2015 Exempt 3.60 Dec. 1987
LaChute Upper(3). Ticonderoga, NY Niag. Mohawk Power Corp. Dec. 2015 Exempt 4.90 Dec. 1987
Lawrence......... Lawrence, MA New England Power Co. Dec. 2011(7) Nov. 2028 16.80 Jul. 1986
Long Shoals...... Long Shoals, NC Duke Power Nov. 1999 Exempt 0.75 Jul. 1993
Low Line Rapids.. Kimberly, ID Idaho Power Co. Jun. 2022 Exempt 2.80 Dec. 1992
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
POWER
PURCHASE DATE OF CHI
AGREEMENT FERC LICENSE APPROXIMATE ACQUISITION OR
EXPIRATION EXPIRATION CAPACITY IN COMMENCEMENT OF
PROJECT LOCATION POWER PURCHASING ENTITY DATE DATE MEGAWATTS OPERATIONS(1)
- - - ------- -------- ----------------------- ------------ ----- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Milstead........ Milstead, GA Municipal Elec. Auth. Apr. 2000 Exempt 1.00 Jul. 1993
of GA
Ottauquechee.... N. Hartland, VT Vermont Power Exchange Sept. 2017 Exempt 1.89 Jun. 1994
Pelzer Lower.... Williamston, SC Duke Power Co. Sept. 1998(2) Nov. 2017 3.30 Feb. 1990
Pelzer Upper.... Pelzer, SC Duke Power Co. Sept. 1998(2) Nov. 2017 2.00 Feb. 1990
Piedmont........ Piedmont, SC Duke Power Co. Dec. 1997(2) Dec. 2018 1.00 May 1989
Prather Ranch(10) MacDoel, CA Pacific Power & Light Dec. 2012 Exempt 0.10 Feb. 1990
Rollinsford..... Rollinsford, NH Public Serv. Co. of NH Sept. 2013 Aug. 2021 1.49 Oct. 1986
Rock Creek II... Twin Falls, ID Idaho Power Co. Jul. 2019 Aug. 2036 1.90 Dec. 1992
Salmon Falls.... South Berwick, ME Public Serv. Co. of NH Dec. 2006 Licensing in 1.20 Jul. 1986
Progress
Scotts Flat..... Nevada City, CA Pacific Gas & Electric Dec. 2004 Exempt 0.83 Feb. 1990
Theresa......... Theresa, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 1.30 Feb. 1995
Upper Little
Sheep Joseph, OR Pacific Power & Light Dec. 2020(5) Exempt 4.44 Aug. 1991
Creek(10).......
Victory Mills... Saratoga, NY Niag. Mohawk Power Corp. Dec. 2025 Apr. 2024 1.66 Dec. 1986
Walden.......... Walden, NY NY State Elec. & Gas Nov. 1998 May 2022 2.82 Apr. 1986
Corp.
Ware Shoals..... Ware Shoals, SC Duke Power Co. Dec. 1997(2) Sept. 2001 6.20 May 1989
West Hopkinton.. West Hopkinton, NH Public Serv. Co. of NH Nov. 2012 Exempt 1.00 Jul. 1985
Willimantic I... Willimantic, CT CT Light & Power Dec. 2018 Nov. 2025 0.77 Dec. 1991
Willimantic II.. Willimantic, CT CT Light & Power Dec. 2018 Sept. 2025 0.77 Dec. 1991
Woodside I...... Norris, SC Duke Power Co. Dec. 1997(2) Non-Jurisdictional 0.40 May 1989
Woodside II.... Cateechee, SC Duke Power Co. Dec. 1997(2) Non-Jurisdictional 0.44 May 1989
Number of Projects: 55 Megawatt Subtotal: 145.50
======
</TABLE>
- - - -------------------------
(1) Whichever is later.
(2) The terms of the power purchase agreements relating to these projects may
be extended for an additional five years at negotiated rates at the
option of the Company.
(3) These projects are subject to sale-leaseback arrangements pursuant to
which the Company is the lessee.
(4) Agreement remains in effect as long as Duquesne Power's tariff with PA
Public Utility Commission remains valid and effective.
(5) Includes utility's option to extend for an additional three years.
(6) Revenue is derived pursuant to a lease arrangement.
(7) The term of the Lawrence power purchase agreement may be extended through
2028 at the option of the purchasing utility.
(8) The term of the power purchase agreement for this project may be extended
for an additional 20 years at the option of the utility.
(9) May be extended by mutual agreement
(10) These projects are classified as Assets to be disposed of at June 30,
1997. See Notes 2 and 20 of the Notes to Consolidated Financial
Statements for additional information.
8
<PAGE>
PROJECTS WITH PARTIAL OWNERSHIP AS OF JUNE 30, 1997(1)
<TABLE>
<CAPTION>
POWER PURCHASE APPROXIMATE DATE OF CHI
AGREEMENT FERC LICENSE PROJECT ACQUISITION OR
EXPIRATION EXPIRATION CAPACITY IN COMMENCEMENT
PROJECT LOCATION POWER PURCHASING ENTITY DATE DATE MEGAWATTS OF OPERATIONS(2)
- - - ------- -------- ----------------------- ---- ----- --- ----- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Copenhagen........ Copenhagen, NY Niag. Mohawk Power Dec. 2023 Exempt 3.30 Feb. 1995
Corp.
Denley Dam........ Lyonsdale, NY Niag. Mohawk Power Dec. 2026 Exempt 1.50 Feb. 1995
Corp.
Hillsborough...... Hillsborough, NH Public Serv. Co. of NH Jul. 2004 Exempt 1.20 Nov. 1989
Lacomb............ Lacomb, OR Pacific Power & Light Dec. 2022 Exempt 0.96 Feb. 1990
Lower Saranac..... Saranac, NY NY State Elec. & Gas Oct. 2029 May 2027 9.30 Jun. 1992
Port Leyden....... Lyonsdale, NY Niag. Mohawk Power Dec. 2026 Exempt 2.00 Feb. 1995
Corp.
Pyrites........... Canton, NY Niag. Mohawk Power Dec. 2023 Aug. 2023 8.20 Feb. 1995
Corp.
Rock Island....... Lyonsdale, NY Niag. Mohawk Power Dec. 2026 Exempt 1.90 Feb. 1995
Corp.
Sheldon Springs... Sheldon, VT Vermont Power Exchange Aug. 2016 Sept. 2024 24.97 Sept. 1993
Slate Creek....... Lakehead, CA Pacific Power & Light Dec. 2018(3) Exempt 4.20 May 1990
Twin Falls........ North Bend, WA Puget Power & Light Co. Dec. 2025 Apr. 2035 24.00 Apr. 1989
Number of Projects: 11 Megawatt Subtotal: 81.53
============
</TABLE>
- - - -------------------------
(1) Projects with Partial Ownership are defined as those projects in which
the Company has an equity (or equivalent) investment of less than 100%.
(2) Whichever is later.
(3) The power purchase agreement for this project may be extended through
2023 at the option of the utility.
PROJECTS WITH OPERATION AND MAINTENANCE CONTRACTS AS OF JUNE 30, 1997(1)
<TABLE>
<CAPTION>
APPROXIMATE PROJECT
PROJECT LOCATION CAPACITY IN MEGAWATTS DATE OF O&M CONTRACT
------- -------- --------------------- --------------------
<S> <C> <C> <C>
Barker Mill Lower.. Auburn, ME 1.50 Jul. 1996
Barker Mill Upper.. Auburn, ME 0.95 Jul. 1996
Brown's Mill....... Dover-Foxcroft, ME 0.59 Jul. 1996
Champlain Spinners. Whitehall, NY 0.70 Aug. 1996
Combie North....... Grass Valley, CA 0.30 Feb. 1990
Combie South....... Grass Valley, CA 1.50 Feb. 1990
Damariscotta....... Damariscotta, ME 0.46 Jul. 1996
Eustis............. Eustis, ME 0.25 Jul. 1996
Gardiner........... Gardiner, ME 1.00 Jul. 1996
Great Works........ South Berwick, ME 0.53 Jul. 1996
Iroquois Falls..... Ontario, Canada 21.49 Apr. 1994
Island Falls....... Ontario, Canada 38.40 Apr. 1994
Lower Wilson....... Greenville, ME 0.57 Jul. 1996
Mechanic Falls..... Mechanic Falls, ME 1.30 Jul. 1996
Milo............... Milo, ME 0.60 Jul. 1996
New Dam............ Sanford/Alfred, ME 0.78 Jul. 1996
Norway............. Norway, ME 0.32 Jul. 1996
Old Falls.......... West Kennebunk, ME 0.47 Jul. 1996
Pittsfield......... Pittsfield, ME 1.05 Jul. 1996
Pumpkin Hill....... Lowell, ME 0.95 Jul. 1996
Schaads............ San Andreas, CA 0.28 Feb. 1990
Terminus........... Tulare County, CA 17.00 Apr. 1995
Twin Falls......... Ontario, Canada 20.25 Apr. 1994
Weeks Falls........ North Bend, WA 4.34 Jun. 1990
Number of Projects: 24 Megawatt Subtotal: 115.58
=========
</TABLE>
(1) These are projects where the Company's only current significant interest is
through operation and maintenance contracts.
Total Number of Projects: 90
Total Megawatts Owned, Leased or Operated: 342.61
=========
9
<PAGE>
Sale of Hydroelectric Facilities. On December 23, 1996, the Company sold 15
of its 100% owned hydroelectric facilities in Maine, aggregating 11.32
megawatts. In connection with this sale, the Company executed a contract to
operate and maintain the facilities for an initial period of up to 15 years. See
Note 4 of the Notes to Consolidated Financial Statements.
Power Purchase Agreements. As of June 30, 1997, substantially all energy
and capacity of the Company's existing majority-owned projects in the United
States was being sold to 18 public utilities pursuant to take and pay long-term
power purchase agreements with remaining terms ranging from approximately 6
months to 28 years. The Company's power purchase agreements generally require
the utility company to purchase all energy delivered by the relevant facility.
These power purchase agreements generally do not provide for termination prior
to expiration except in the case of either continuing nonperformance by the
Company or certain events of bankruptcy or insolvency of the project subsidiary.
The Company's power purchase agreements have either fixed or fluctuating
rates or a combination thereof. Fluctuating rate and combination rate contracts
are generally based on avoided costs or a percentage thereof, and typically
incorporate minimum prices which enable the Company to benefit from increases in
energy prices but insulate it against significant decreases. The Company's fixed
rate contracts often contain: (i) blended rates typically based on projected
annual avoided costs averaged over a 15 to 30 year period; or (ii) an escalation
factor that reflects estimated increases in projected annual avoided cost over
the term of the contract. The escalation factor is often indexed to the Gross
Domestic Product ("GDP") deflator. The Company also has contracts that provide
for fixed rates or escalating fixed rates for up to 20 years, followed by
adjustable rates based on a fixed percentage of actual annual avoided costs for
the remaining term. Certain power purchase contracts provide for different rates
based on-peak or off-peak generation of energy. As the Company's existing
contracts mature or change from fixed rates to rates based on avoided cost, the
Company will receive lower prices for its power to the extent that the currently
low market price for electricity continues. Prices for electricity remain low as
a result of reductions in the cost of power produced from natural gas due to
lower natural gas prices and technological improvements which have lowered the
capital cost and increased the efficiency of combustion turbines and other
competing technologies. Federal regulators and a number of states, including
some in which the Company operates, have opened access to the transmission grid
and are exploring ways to further increase competition in electricity markets by
such means as customer choice of generation suppliers at the retail level.
Although the character and extent of this deregulation are as yet unclear, the
Company expects that these efforts will increase uncertainty with respect to
future power prices and make it more difficult to obtain additional long-term
power purchase contracts.
All of the Company's existing hydro facilities in the United States are QFs
under PURPA, which requires utilities to purchase power from QFs, and exempts
QFs from most utility regulatory requirements. Pursuant to PURPA, electric
utilities are required to purchase power from QFs at prices based on the
utilities' current avoided cost. Implementation of the regulations is delegated
to state public utility commissions which may, at their discretion, establish
long-term rates for a specified period higher than short-term avoided costs or
may provide other kinds of incentives to QFs. In recent years, a number of
utilities have begun to challenge certain provisions of PURPA as no longer
appropriate in the current U.S. energy market. See "-- Energy and Environmental
Regulation".
10
<PAGE>
The following table sets forth the Company's power sales by customer, the
majority of which are utilities, for the year ended June 30, 1997:
<TABLE>
<CAPTION>
COMBINED
REVENUES OF
REVENUES OF PROJECTS
PROJECTS IN REVENUES OF 100% OWNED
CONSOLIDATED PROJECTS ONLY AND
RESULTS OF PARTIALLY PARTIALLY
OPERATIONS % OWNED % OWNED %
---------- - ----- - ----- -
<S> <C> <C> <C> <C> <C> <C>
Niagara Mohawk Power Corp...................... $10,285,472 20.3 $5,326,023 21.5 $15,611,495 20.7
Commonwealth Electric Co....................... 10,685,185 (1) 21.1 -- -- 10,685,185 14.2
Vermont Electric Power Producers, Inc.......... 1,660,296 3.3 7,691,327 31.1 9,351,623 12.4
Puget Power.................................... -- -- 7,462,800 30.2 7,462,800 9.9
New England Power Co........................... 6,183,617 12.2 -- -- 6,183,617 8.2
N.Y. State Electric & Gas Corp................. 1,591,550 3.1 3,460,248 14.0 5,051,798 6.7
Central Maine Power Co......................... 4,615,333(2) 9.1 -- -- 4,615,333 6.1
Duke Power Co.................................. 3,427,923(1) 6.8 -- -- 3,427,923 4.6
Idaho Power Co................................. 3,257,541 6.4 -- -- 3,257,541 4.3
Public Service Co. of NH....................... 1,979,942 3.9 346,356 1.4 2,326,298 3.1
PacifiCorp..................................... 1,817,503 3.6 374,327 1.5 2,191,830 2.9
All other customers............................ 5,161,035(2) 10.2 72,240 0.3 5,233,275 6.9
Total $50,665,397 100.0% $24,733,321 100.0% $75,398,718 100.0%
</TABLE>
(1) Includes business interruption revenue representing lost generation
recoverable from an insurance company as a result of an insurance claim.
See Note 17 of the Notes to the Consolidated Financial Statements for
additional information.
(2) Includes revenue of $1,605,158 and $273,872 from Central Maine Power Co.
and Bangor Hydroelectric Co., respectively, generated by certain projects
sold during the year. See Note 4 of the Notes to Consolidated Financial
Statements for additional information.
Substantially all of the Company's existing power purchase agreements
contain scheduled rates for delivered energy through 1998 or later, which
protects the Company from decreases in energy prices and avoided costs from
current levels until such time when the scheduled rate portion of the contract
expires. Thereafter, certain contracts expire and others provide for prices
based upon avoided cost. In general, the scheduled rates exceed the current
avoided cost for delivered energy. Lower avoided costs of energy could
significantly reduce the rates received by the Company under a particular
contract once the period of scheduled rates terminates and could make it more
difficult in the future for the Company to obtain contracts which can
economically support development of new projects.
The following table summarizes the actual or expected basis for determining
future rates which are anticipated to be in effect under current and anticipated
future power purchase arrangements for the Company's existing consolidated
projects. To develop the information below, the Company first computed the
average annual revenue for each project included in consolidated power sales
revenues using actual revenues for each of the three years in the period ended
June 30, 1997. This "revenue mix" was then applied to each of the respective
project's power purchase agreement terms on the assumption that the Company's
consolidated project portfolio and average revenue mix remains unchanged for the
ten-year period shown in the table. Power purchase agreements which expire
during the ten-year period shown are assumed to result in revenues based upon
avoided costs for the period subsequent to contract expiration. The information
shown below is not intended to represent actual future results, but is believed
to be indicative of the portion of existing revenue that will be subject to
avoided cost risk during the period shown. No assurance can be provided as to
what the actual avoided cost risk will be for the period shown.
11
<PAGE>
<TABLE>
<CAPTION>
% OF CURRENT % OF CURRENT REVENUES
REVENUES SUBJECT TO SUBJECT TO RATES
MINIMUM FIXED OR DETERMINED PURSUANT TO
CALENDAR YEAR-END SCHEDULED RATES(1) AVOIDED COST
----------------- ------------------ ------------
<S> <C> <C>
1998............................................................ 93.4 6.6
1999............................................................ 86.8 13.2
2000............................................................ 85.5 14.5
2001............................................................ 66.6 33.4
2002............................................................ 66.6 33.4
2003............................................................ 64.2 35.8
2004............................................................ 64.2 35.8
2005............................................................ 63.2 36.8
2006............................................................ 62.9 37.1
2007............................................................ 61.0 39.0
</TABLE>
(1) Includes contracts with GDP or other similar adjustment provisions.
In recent years, several public utility companies have approached
independent power producers (each an "IPP"), including the Company, to
renegotiate specified rates in their power purchase agreements alleging that
these agreements force the utilities to purchase power from IPPs at rates higher
than current avoided cost, resulting in higher rates to consumers. Niagara
Mohawk Power Corporation ("NIMO"), a customer of the Company which accounted for
approximately 18.4% and 20.3% of consolidated power sales revenues in fiscal
1996 and fiscal 1997, respectively, has in the recent past issued statements and
taken action, including legal action, indicating its desire to be relieved of
its obligations under contracts with IPPs that NIMO considers uneconomic. In
March 1997, NIMO announced that it reached preliminary agreements to restructure
power purchase agreements with 19 IPPs. However, neither the Company nor any of
its subsidiaries participated in these negotiations, and the impact of the
announced settlements on the Company, if any, is unknown. NIMO has also
unilaterally imposed a "generation cap" on three of the fifteen power purchase
agreements it has with the Company, alleging reduced rates for power produced
over a cap specified by the utility and withholding approximately $0.6 million
of revenues to date. In response, the Company, in conjunction with other IPPs,
has sought redress in court and expects the case to be decided during fiscal
year 1998.
Although the Company believes that its power purchase agreements are valid,
binding and enforceable contracts, and economic when analyzed over the life of
such contracts, and that the arguments raised by the utilities fail to
acknowledge that IPP power is still often less expensive than alternative
sources and less expensive than rates that might prevail had the utilities built
their own additional capacity, there can be no assurance additional customers of
the Company will not attempt to modify their contracts with the Company and, if
such attempts succeed, that any such modifications will not have a material
adverse effect on the Company's future revenues. Additionally, increased
competition in the electricity industry might cause certain utilities to become
higher credit risks. Although the ratings of the debt securities of many of the
utilities which purchase power from the Company are currently investment grade,
there can be no assurance of the long-term creditworthiness of any of the
Company's customers. Should any customer fail, it might be difficult for the
Company to replace an existing long-term contract with such a customer with a
new contract with another customer on similar economic terms in the current
environment. See Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
Precipitation, Water Flow and Seasonality. For hydroelectric facilities,
the amount of energy generated at any particular facility depends upon the
quantity of water flow at the site of the facility. Dry periods tend to reduce
water flow at particular sites below historical averages, particularly if the
facility has low storage capacity. Excessive water flow may result from
prolonged periods of higher than normal precipitation or sudden melting of snow
packs, possibly causing flooding of facilities and/or a reduction of generation
at such sites until water flows return to normal. In cases of reduced or excess
water flow, energy generation at such sites may be diminished. Pursuant to the
Company's power purchase agreements, any diminished energy generation will have
an adverse effect on revenues from that facility. While the Company does not
have business interruption insurance to cover lost revenues as a result of
drought or dry periods, the Company maintains business interruption insurance to
cover, among other things, the loss of revenues above certain deductible levels,
and subject to applicable insurance policy sub-limits and overall limits,
arising from interruption of electricity generation due to damage caused by
flooding and other catastrophic events.
12
<PAGE>
Production of electricity by the Company is typically greatest in its third
and fourth fiscal quarters (January through June), when water flow is at its
highest at most of the Company's projects, and lowest in the first fiscal
quarter (July through September). The Company normally shuts down selected
operations for periods during the relatively dry first fiscal quarter in order
to perform routine maintenance. The amount of water flow in any given period
will have a direct effect on the Company's production, revenues and cash flow.
INDUSTRIAL INFRASTRUCTURE BUSINESS
In November 1995, the Company established a subsidiary, CHI Power, Inc.,
for the purpose of developing, acquiring, operating and managing industrial
energy facilities and related industrial assets in such sectors as pulp and
paper, petroleum refining, chemicals, textiles, and other energy-intensive
industries (the Company's "industrial infrastructure business"). James T.
Stewart, former president of CRSS Inc., an independent power development
company, was employed to head the subsidiary. Other individuals with experience
in industrial energy project development, finance, management, and operations
have also joined the Company in senior positions. The Company believes that
diversification into the industrial market, if successful, would permit the
Company to move away from relying exclusively on hydropower ownership and
operation where the business climate is driven largely by legislation and
regulation and the structural industry trends described above and where
acquisition and development opportunities are believed to be limited.
Effective July 1, 1996, Mr. Stewart was elected Chairman and Chief
Executive Officer of the Company and began an organizational restructuring
which, among other things, integrated the Company's traditional pursuit of
additional hydropower business with development of its new industrial
infrastructure business. The Company believes that it possesses expertise in
certain areas, obtained through the hydropower business, that is readily
transferable and applicable to the industrial infrastructure business, including
project operation, management, administration, and financial structuring. This
expertise can be combined with that of recently hired Company personnel with
direct industrial project experience. In addition, the Company has offices in
several U.S. states as well as Canada, affording a geographic base from which to
pursue the new business.
The Company seeks to acquire or develop the energy and infrastructure
assets of energy and capital-intensive entities in industries such as pulp and
paper, textiles, chemicals and petroleum refining companies. Such assets may
include assets used to produce electricity, steam, or chilled water, or
facilities used for chemical recovery, storage, and water and wastewater
treatment. These assets are typically "non-core" assets that are necessary but
ancillary to the customer's primary, or "core", manufacturing activities. By
"outsourcing" its non-core infrastructure assets to the Company, the customer
may derive a financial benefit and may also benefit from the opportunity to
focus its resources on its core business, while the Company may benefit from the
long-term revenue stream resulting from such an arrangement.
CHI's industrial infrastructure business is strongly related to energy
production but is not traditional cogeneration or independent power plant
development. In the traditional cogeneration model, a developer finances and
builds a power plant at an industrial facility, typically producing electricity
that is sold at wholesale to the local electric utility and steam that is sold
at retail to the industrial company. In contrast, CHI's industrial
infrastructure business can involve a wide range of capital-intensive "utility"
infrastructure assets, such as steam generators, air compressors, storage
facilities, water management systems, and chemical recovery boilers. The
transaction may, but need not necessarily, include electricity generation. The
customer may seek to receive cash for, or "monetize," such assets if already
existing, or to construct such assets, either new or as an upgrade or expansion
of existing facilities. CHI will acquire or develop the assets, operate and
manage them, and sell back the resulting product (steam, chilled water,
compressed air, electricity, etc.) to the customers under a long-term contract,
generally at retail, although individual project circumstances may include the
sale of electricity to utilities.
The Company believes that the potential market for its industrial
infrastructure business in North America is very large, represented by
approximately $40 billion in annual energy-related expenditures and $50 billion
in annual capital expenditures on the part of companies in energy-intensive
manufacturing sectors such as pulp and paper, petroleum refining, chemicals, and
textiles. While the Company believes it possesses the expertise to successfully
complete transactions in this market, no such transactions have been completed
as of September 15, 1997 and there can be no assurance that any such
transactions will be completed in the future.
13
<PAGE>
ENERGY AND ENVIRONMENTAL REGULATION
Energy Regulation. The Company is subject to federal and state (or in
Canada, provincial) energy laws and regulations in connection with the
development and operation of its hydroelectric and industrial projects.
Depending on the project, these laws and regulations may govern the ownership
structure of the projects, the rates, terms and conditions under which the
Company may sell electric output from the projects to utilities or other
customers, and the procedures under which these projects are constructed and
operated. In the U.S., federal laws that affect the Company's business include:
(i) the Federal Power Act of 1935 ("FPA"); (ii) the Electric Consumer Protection
Act of 1986 ("ECPA"); (iii) the Public Utilities Holding Company Act of 1935
("PUHCA"); (iv) PURPA; and (v) the National Energy Policy Act of 1992
("NEPAct"). A brief discussion of the impact of these laws on the Company
follows.
Under the FPA, substantially all of the Company's existing hydroelectric
projects are subject to varying degrees of regulation by the Federal Energy
Regulatory Commission ("FERC"), either as projects licensed by FERC or
determined by FERC to be exempt from licensing requirements. FERC license
compliance requirements and other regulatory requirements under the FPA can be
complicated and expensive and can subject the Company to future regulatory
requirements the nature and costs of which are currently unknown.
The exemptions afforded by PURPA to QFs from extensive federal and state
regulation are important to the Company and its competitors. Except for the
projects which have been declared to be exempt wholesale generators ("EWG"),
each of the operating conventional hydroelectric projects in the U.S. that the
Company currently owns, operates or in which it has an investment meets the
requirements under PURPA for being a QF. As an owner of QFs, the Company is
exempt from many of the provisions of the FPA and PUHCA. However, some larger
hydroelectric facilities (if acquired or developed by the Company) would not
qualify as QFs. In addition, the Company believes that certain industrial energy
facilities that it may acquire or develop in the future may not be QFs. The
Company does not intend for its industrial energy facilities to be principally
engaged in the sale of electric power to electric utilities at wholesale rates.
However, to the extent they may sell such power, they may be subject to
regulation by FERC or by the public service commissions in the states in which
they operate or sell power.
Electric Industry Restructuring. In recent years the federal government and
many state governments have begun consideration of proposed legislation or
regulations that would partially or wholly deregulate the electric power
industry and institute competition at the level of retail electricity customers.
In April 1996, FERC issued Order No. 888 which, among other things, requires
electric utilities to file open access tariffs that offer others the same
transmission services that the electric utilities provide themselves, encourages
the establishment of Independent System Operators ("ISOs") as a means of fair
administration of an open-access transmission system, and provides for utility
recovery of investments that utilities do not expect to recover from their
ratepayers under deregulation ("Stranded Costs"). In late 1995, the California
Public Utility Commission issued an electric utility restructuring plan that
implements retail customer choice in phases beginning in 1998 and requires
divestiture of certain utility generating assets. Many other states (including
New York among those in which the Company has significant interests) have
considered, or are believed likely to consider, plans for electric utility
restructuring that may include asset divestiture, ISOs, retail customer choice,
and Stranded Cost recovery, although the details of such plans may vary
considerably from state to state and may be in conflict with another state's
plans or with FERC's Order No. 888. In 1996 and 1997, several bills were
introduced in Congress that attempt to deal with electric industry restructuring
on a nationwide basis, some of which set a deadline for enactment of full retail
customer choice and the repeal of PURPA and PUHCA in states that provide for
full retail electric competition. The Company believes that such restructuring,
including significant elements of retail competition, is likely within the next
few years with a variety of potential impacts both positive and negative on the
Company. In the area of acquiring and developing industrial energy facilities,
removing restrictions on retail sales of energy to industrial customers is
likely to enhance the Company's prospects for completing transactions with such
customers. In the area of hydroelectric generation, it is uncertain to what
extent the Company's smaller hydroelectric facilities would be competitive in a
fully deregulated energy market without the current benefits of PURPA that
require electric utilities to purchase the output from these facilities. While
the Company believes that its existing long-term power purchase contracts with
utilities are legally binding for the duration of the contracts, there can be no
assurance that the provisions of these contracts will not be affected by future
legislation or regulation dealing with electric industry restructuring. (see "--
Power Purchase Agreements").
14
<PAGE>
Environmental Regulation. The Company is subject to extensive federal,
state (in Canada, provincial) and local environmental laws and regulations
applicable to the development and operation of its projects. Environmental laws
and regulations may affect the Company's operations by delaying construction of
a project or, although the Company has never experienced such an event, the
closing down of an operating project for a period of time. In addition,
environmental laws and regulations may affect the development time, site
selection and permitting of new projects. The development of a power generation
project typically requires numerous licenses, permits, approvals and
certificates from governmental agencies. Procedures followed by certain of these
permitting authorities may be affected by political factors.
The Company monitors applicable environmental laws and regulations and
evaluates its facilities for compliance with applicable standards. Based on
current trends, however, the Company expects that environmental and land use
regulation will become more stringent. Accordingly, the Company plans to
continue to place a strong emphasis on the development and use of its available
technology to minimize potentially harmful effects on the environment that may
result from the operation of its facilities. In addition, the Company has
developed expertise and experience in obtaining necessary licenses, permits and
regulatory approvals.
The Company's hydroelectric facilities are subject to environmental
regulatory requirements pursuant to their FERC licenses or exemptions or, in the
case of facilities not subject to FERC jurisdiction, applicable state
environmental requirements. The Company's prospective industrial energy
facilities are likely to be subject to federal and state laws and regulations
governing atmospheric emissions and, in some cases, governing the discharge of
effluents into water bodies. Environmental regulatory requirements for such
facilities are often complex, and specific requirements are dependent upon the
nature of the individual project and site.
COMPETITION
In its hydroelectric business, the Company competes with a number of
smaller and regional independent hydroelectric development companies and, on
occasion, with other independent energy producers, utilities and utility
subsidiaries for the rights to acquire, develop or operate additional
conventional hydroelectric projects, which may cause fewer projects to be
available at prices that will permit the level of return on investment which the
Company seeks. Recent years have seen an increase in competition for available
properties from large, well-capitalized companies, thereby driving down
competitive rates of return and making it more difficult for the Company to
successfully acquire additional projects.
In its industrial energy business, the Company competes with a large number
of well-capitalized companies, including many U.S. and foreign electric
utilities and their affiliates, which are also attempting to serve the energy
needs of industrial companies. However, the Company believes that there are
relatively few companies seeking to serve the industrial energy market in the
same manner as the Company, principally through requirements-based contracts and
by offering multiple products and services.
PROPERTIES OWNED AND LEASED
The Company leases its administrative offices at 680 Washington Boulevard,
Stamford, Connecticut under a lease calling for annual payments of approximately
$170,000 per year. Additional administrative offices and maintenance facilities
are leased in Houston, Texas; Greenville, South Carolina; Anderson, California;
Boise and Twin Falls, Idaho; Andover, Massachusetts; North Bend, Washington; and
Montreal, Canada, with aggregate annual rental payments of approximately
$200,000. The Company owns administrative offices in Lawrence, Massachusetts and
Dexter, New York and a maintenance facility in Sanford, Maine.
In addition to the foregoing, the Company owns and leases real estate in
California, Connecticut, Idaho, Massachusetts, Maine, New Hampshire, New York,
Ohio, Oregon, Pennsylvania, Washington, Virginia, South Carolina, North
Carolina, Vermont, and Georgia. Except for certain small non-hydroelectric real
estate parcels, this additional real estate constitutes property used in the
hydroelectric generating projects operated by the Company. In the case of each
of the conventional hydroelectric projects owned or leased by the Company, the
project generally consists of a dam, water rights and interests and rights in
real estate sufficient for the purposes of operating the facility, a powerhouse
for the generation of electricity and other necessary equipment. Except as
listed in the table entitled "Projects with Partial Ownership as of June 30,
1997" under "Conventional Hydroelectric Projects" above, such property and the
federal and state permits and licenses are owned or leased by one or more
subsidiaries of the Company or various limited partnerships in which such
15
<PAGE>
subsidiaries are the sole general and limited partners. The water rights held by
the Company are subject to various restrictions and limitations with respect to
environmental and other matters. In the opinion of management, none of such
restrictions will have a material adverse effect on the business or operations
of the Company.
EMPLOYEES
The Company employs approximately 141 full-time and 92 part-time and
temporary employees as of September 15, 1997. The Company's current employees
are not represented by a collective bargaining group, and management considers
its relations with employees to be good.
CERTAIN RISK FACTORS
Certain statements contained in this Form 10-K that are not related to
historical facts may contain "forward looking" information, as that term is
defined in the Private Securities Litigation Reform Act of 1995. Such statements
are based on the Company's current beliefs as to the outcome and timing of
future events, and actual results may differ materially from those projected or
implied in the forward looking statements. Further, certain forward looking
statements are based upon assumptions of future events which may not prove to be
accurate. The forward looking statements involve risks and uncertainties
including, but not limited to, the uncertainties relating to the Company's
existing debt, industry trends and financing needs and opportunities; risks
related to hydroelectric, industrial energy, pumped storage and other
acquisition and development projects; risks related to the Company's power
purchase contracts; risks and uncertainties related to weather conditions;
uncertainties related to the Company's Chapter 11 Case; and other risk factors
detailed herein and in other of the Company's Securities and Exchange Commission
filings. Certain of these risks are discussed more fully below and should be
carefully considered along with the other matters described herein.
High Leverage; Deficiency of Earnings to Fixed Charges and Preferred Stock
Dividends; Maturing Obligations. The Company is currently highly leveraged,
primarily as a result of a management buyout in 1988 (the "Management Buyout")
(see Part III, Item 13, "Certain Relationships and Related Transactions -- GECC
Relationship"), the refinancing of debt and capital in 1993 and the limited
recourse and non-recourse debt financing of the acquisitions of its conventional
hydroelectric power plants. As of June 30, 1997, the Company's total liabilities
were $433.3 million, including $114.4 million of mandatorily redeemable
preferred stock, its total assets were $243.6 million and its stockholders'
deficit was $189.7 million. For each of the years ended June 30, 1997, 1996,
1995, 1994, and 1993, the earnings (before fixed charges, provisions for income
taxes, extraordinary items and cumulative effect of accounting change) and net
of non-cash charges to cover fixed charges ratios were 1.36, 1.61, 1.34, 1.32,
and 1.08, respectively. For the years ended June 30, 1997, 1996, 1995, 1994, and
1993, the deficiency of earnings (before fixed charges, preferred stock
dividends, provision for income taxes, extraordinary items and cumulative effect
of accounting change) net of non-cash charges to cover fixed charges and
preferred stock dividends were $14.3 million, $5.2 million, $13.1 million, $13.1
million, and $16.9 million, respectively. See calculations in Item 6, "Selected
Financial Data", Footnotes 10 and 11.
Restrictions Imposed by the Company's Existing Indebtedness. The Indenture
relating to CHI's existing Senior Discount Notes (the "Indenture") and the
certificate of designation relating to CHI's existing Series H Preferred Stock
(the "Certificate of Designation") as well as CHI's existing working capital
facility (the "DnB Facility") with Den norske Bank ("DnB") (see Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Summary of Indebtedness") contain certain restrictive covenants.
But for the commencement of CHI's Chapter 11 Case, such restrictions would
affect, and in many respects would significantly limit or prohibit, among other
things, the ability of the Company to incur recourse indebtedness, make
prepayments of certain indebtedness, pay dividends, make investments, engage in
transactions with stockholders and affiliates, issue capital stock of restricted
subsidiaries, create liens, sell assets and engage in mergers and
consolidations. The covenants are subject to various exceptions which are
generally designed to allow the Company to continue to operate its business
without undue restraint and, therefore, are only limited prohibitions with
respect to certain activities. There can be no assurance that if the financial
restructuring of CHI were unsuccessful, the Company would be able to comply with
covenants and other restrictions contained in the Indenture, its other
indebtedness and the Certificate of Designation.
Leveraged Project Financing. The Company's existing hydroelectric projects
are and its future hydroelectric and industrial projects, if any, would likely
be financed using a variety of structures primarily consisting of limited
recourse or non-recourse debt. As of June 30, 1997, the Company had $100.3
million (exclusive of the Boott project operating lease) of direct project
financing obligations that are limited recourse or non-recourse to CHI. As
16
<PAGE>
limited recourse or, except to the extent set forth below, non-recourse
obligations, each such obligation is structured to be fully serviced out of each
applicable project's cash flow, generally without any claim against CHI's
general corporate funds. In the event of a project default and assuming CHI is
unable or chooses not to cure such default within applicable cure periods (if
any), the lenders or lessor would generally have rights to the facility, related
contracts and all licenses and permits necessary to operate the facility and, in
the event of foreclosure after such a default, the Company might not retain any
interest in such project.
Certain project acquisitions have been financed by General Electric Capital
Corporation ("GECC"), which has required the guarantee of CHI Acquisitions, Inc.
("CHI Acquisitions"), a subsidiary of CHI which is the parent of each of the
entities formed to acquire such projects. Thus, each such project is vulnerable
in the event of a default by any of the other projects owned indirectly by CHI
Acquisitions. Although all of this guaranteed financing has been repaid, a tax
indemnity and performance guarantee relating to one project will remain (see
Note 11 of the Notes to Consolidated Financial Statements for additional
information with respect to the tax indemnity). Certain other projects acquired
by CHI Acquisitions II, Inc. ("CHI Acquisitions II"), a subsidiary of CHI, were
financed by CHI Acquisitions II with two loans from GECC (see Note 6 of the
Notes to Consolidated Financial Statements for additional information). One such
loan has been secured by the projects acquired and the other loan by the cash
flows of certain other projects of which CHI Acquisitions II is the parent. In
addition, there can be no assurance that, in respect of any financing of
projects in the future, GECC will not require CHI Acquisitions, CHI Acquisitions
II or another subsidiary of CHI to guarantee or otherwise secure the
indebtedness in respect of such future projects, rendering projects owned by
such guaranteeing subsidiary vulnerable in the event of a default in respect of
any one of such projects.
Net Losses; No Assurance of Future Profitability. The Company incurred the
following net losses for each of the last five fiscal years: $5.4 million for
the fiscal year ended June 30, 1997; $88.3 million for the fiscal year ended
June 30, 1996 (including $87.2 million of a non-cash charge for the impairment
of long-lived assets); $16.3 million for the fiscal year ended June 30, 1995
(including a $1.3 million of a non-cash charge for the impairment of long-lived
assets); $33.6 million for the fiscal year ended June 30, 1994 (including $19.2
million for a non-cash charge related to a cumulative effect of an accounting
change); and $10.8 million for fiscal year ended June 30, 1993. These results
were due primarily to the effects of the debt and other costs associated with
the extensive acquisition program carried on since the Company's inception, the
1988 Management Buyout and, with respect to the fiscal year ended June 30, 1993,
the recapitalization and the refinancing and accounting requirements associated
with their respective components, and with respect to fiscal year ended June 30,
1996, the charge for the impairment of long-lived assets. There can be no
assurance of the future profitability of the Company.
Dependence on Precipitation and Effects of Variations in Water Flow and
Seasonality. The amount of hydroelectric energy generated at any particular
conventional hydroelectric facility depends upon the quantity of water flow at
the site of the facility. In cases of reduced or excessively high water flow,
energy generation at such site may be diminished, particularly if the facility
has low storage capacity. Pursuant to the Company's power purchase agreements,
any diminished energy generation will have an adverse effect on revenues from
that facility. In the three years prior to 1996, the Company experienced low
water flow relative to long-term indications at many of its facilities. The
effect on revenues of the lower than average flows was most adverse in the
Northeast, a region in which a majority of the Company's projects are located
and where the Company's rates received for power sales are highest on average.
The Northeast region experienced below average water flows during 1995, 1994 and
1993, while experiencing above average flows in 1997 and 1996. While the Company
does not have business interruption insurance to cover lost revenues as a result
of drought or dry periods, the Company carries business interruption insurance
to cover, among other things, the loss of revenues above certain deductible
levels and subject to applicable insurance policy sub-limits and overall limits
arising from interruption of electricity generation due to damage caused by
flooding. There can be no assurance that such coverage will remain available on
acceptable terms.
Production of electricity by the Company is typically greatest in its third
and fourth fiscal quarters (January through June), when water flow is at its
highest level at most of the Company's projects, and lowest in the first fiscal
quarter (July through September). The amount of water flow in any given period
will have a direct effect on the Company's production, revenues and cash flow.
Changes in Applicable Rates; Energy Price Declines. From 1998 through 2007,
rates paid to the Company pursuant to power purchase agreements representing
approximately 39.0% of the Company's average power sales revenues for the fiscal
year ended June 30, 1997, will be affected by changes from scheduled rates to
17
<PAGE>
rates based on the applicable utilities' then current avoided cost. Use of
avoided cost is driven by either the specific terms of certain power purchase
agreements or the expiration of the remaining agreements during the period
presented and the assumed utility purchase of project generation, in accordance
with the requirements of PURPA and the regulations adopted thereunder. A
utility's avoided cost rate is equal to the incremental cost that would have
been incurred if the utility had generated the energy itself or purchased it
from another source. Consequently, the Company's revenue at such time will be
adversely affected if the then current utility avoided cost is lower than the
scheduled rate previously in effect.
The majority of the generating capacity of the Company's operating projects
is contracted through 2020. However, if energy prices remain at current levels
or decline, the rates negotiated by the Company for new contracts, contract
rates based upon utility avoided costs or extensions of existing contracts could
be adversely affected.
Dependence on Commonwealth Electric Company ("CEC"), Central Maine Power
Company ("CMP"), NIMO, New England Power Company ("NEPCO") and Duke Power
Company ("Duke"); Creditworthiness of the Company's Customers. A substantial
portion of the Company's power is sold to five customers pursuant to various
long-term power purchase agreements. Sales to CEC, CMP, NIMO, NEPCO and Duke
represented approximately 21%, 9%, 20%, 12% and 7%, respectively, of the
consolidated revenues of the Company for the fiscal year ended June 30, 1997. In
the recent past, NIMO has issued statements indicating its desire to be
relieved of its obligations under contracts with independent power producers
that NIMO considers uneconomic. While offering to renegotiate such contracts,
NIMO has in the past proposed that, should negotiations fail and NIMO be unable
to gain alternative economic relief, NIMO would seek to take possession of
associated projects through the power of eminent domain and has indicated that
it would consider the possibility of restructuring under chapter 11 of the
Bankruptcy Code should its proposal prove unachievable. The Company understands
that the ratings of the debt securities of NIMO were lowered to below investment
grade following NIMO's filing of a proposal with the New York State Public
Service Commission on October 6, 1995. In March 1997, NIMO announced an
agreement-in-principle with owners of forty-four of its power sales contracts
with IPPs in exchange for a combination of cash and NIMO stock. NIMO has not
offered to buy out any of the Company's power sales contracts in conjunction
with the group buy-out offer and the Company does not know what effect, if any,
the proposed buy-out will have on the Company's contracts with NIMO. There can
be no assurance of the long-term creditworthiness of any of the Company's
customers.
Energy and Environmental Regulation. All of the Company's existing
operating hydroelectric projects, while exempt from public utility regulation,
are subject to varying degrees of regulation by FERC and state agencies.
Substantially all of the Company's generating capacity has either been licensed
or granted an exemption from licensing as required under the FPA. There is no
guarantee that a FERC license can be obtained or renewed. Although the Company
has not encountered significant difficulties in transferring, amending or
obtaining licenses, there can be no assurance that it will not encounter
significant difficulties in this regard in the future, nor can there be any
assurance that existing regulations will not be revised or that new regulations
will not be adopted or become applicable to the Company that could have an
adverse effect on its operations.
The Company's activities require numerous permits, approvals and
certificates from appropriate federal, state and local government agencies as
well as compliance with certain environmental protection legislation and the
FPA. While the Company believes it has obtained the requisite approvals for its
existing operations and that its business is operated in accordance with
applicable law, it remains subject to a varied and complex body of regulations
that both public officials and private individuals may seek to enforce. Such
laws and regulations may affect operations by delaying construction or forcing a
temporary or permanent closure of a project and may affect site selection or
permitting of new projects. Based on current trends, the Company expects that
environmental and land use regulation will become more stringent. There can be
no assurance that existing regulations will not be revised or that new
regulations that could have an adverse effect on its operations will not be
adopted or become applicable to the Company nor can there be any assurance that
the Company will be able to obtain all necessary licenses, permits, approvals
and certificates for proposed projects or that completed facilities will comply
with all applicable statutes or regulations.
18
<PAGE>
Uncertainty as to Future Opportunities in Hydroelectric Business. The
Company believes that opportunities to continue to expand its conventional
hydroelectric generation business through the acquisition of additional
facilities and the securing of O&M contracts are likely to be limited. There can
also be no assurance that the Company will be able to take advantage of such
opportunities on terms acceptable to it, nor can there be any assurance that the
Company will be able to obtain financing with respect to such opportunities. In
addition, a number of industry issues, including issues related to the
availability, term and pricing of future power purchase agreements and higher
acquisition prices resulting from increased competition in certain segments are
limiting and are expected to continue to limit the Company's near-term
opportunities to acquire additional hydroelectric capacity at acceptable rates
of return. See Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources".
In addition, the Company believes that near-term prospects for successful
development of new hydroelectric facilities in North America are severely
limited due to regulatory restrictions that increase the cost of hydroelectric
development combined with the current energy market, in which low energy prices
do not make hydroelectric development economically attractive. The development
of new hydroelectric projects includes certain risks not associated with the
purchase of operating facilities, including licensing, environmental,
engineering, equipment, power sales, construction and distribution risks, as
well as implementation risks such as cost overruns, delays and performance
risks. There is no assurance that the Company will be able to raise development
capital and obtain satisfactory project development agreements, construction
contracts, power purchase agreements, licenses and permits or financing
commitments with respect to the projects currently under development or any
projects that the Company might wish to develop in the future. Further, there
can be no assurance that equity or non-recourse or limited recourse development
capital, similar to that which the Company has used generally to finance
development projects, is currently available or will be available on a similar
basis in the future. If the Company terminates a project, it would generally not
be able to recover its investment in such a project and would expense all
capitalized development costs incurred in connection therewith.
Uncertainty as to Future Opportunities in Industrial Infrastructure
Business. Recognizing the barriers to continued growth in its hydroelectric
business, in November 1995, the Company established a subsidiary, CHI Power,
Inc., for the purpose of developing, acquiring, operating and managing
industrial energy facilities and related industrial assets in such sectors as
pulp and paper, petroleum refining, chemicals, textiles, and other
energy-intensive industries. The Company has integrated its hydroelectric and
industrial businesses and has begun to seek opportunities for providing
energy-related products and services to industrial and utility customers in an
effort to respond to changing market conditions. Such opportunities, if
available, will permit the Company to move away from relying exclusively on
hydropower ownership and operation where the business climate is driven largely
by legislation and regulation and certain adverse trends and where the Company
currently believes that acquisition and development opportunities are limited.
Currently, all of the Company's revenue is derived from the ownership and
operation of hydroelectric facilities. The Company believes that opportunities
exist for industrial energy transactions and that it possesses the required
technical and development expertise to complete such transactions successfully.
As of September 15, 1997, the Company had not completed any such transaction,
and there can be no assurance that any such transaction will occur.
Significant Holders. As of September 15, 1997, Morgan Stanley Leveraged
Equity Fund, II, L.P. ("MSLEF II') owned 80.0% of the Company's Series F and
Series G Preferred Stock which currently has 25 votes per share and which would,
if converted, currently represent 48.8% of CHI's common stock on a fully diluted
basis. Madison Group, L.P. ("Madison") owns 17.8% of the Company's Series F and
Series G Preferred Stock which would, if converted, currently represent 10.8% of
CHI's common stock on a fully diluted basis. See Part III, Item 12, "Security
Ownership of Certain Beneficial Owners and Management". The general partner of
MSLEF II and Morgan Stanley & Co. Incorporated ("Morgan Stanley") are both
wholly owned subsidiaries of Morgan Stanley Group Inc. ("MS Group"), and two of
the directors of the Company are officers of Morgan Stanley.
As a result of such ownership and certain rights of MSLEF II and Madison
(together, the "Investors"), pursuant to CHI's Restated Certificate of
Incorporation and the Amended and Restated Stockholders, Option holders and
Warrant holders Agreement, dated as of March 25, 1992, among CHI and certain
stockholders, optionholders and warrantholders of CHI, MSLEF II would be in a
position, acting either separately or together with Madison, under certain
circumstances to control the affairs of CHI. In addition, the Investors have
granted each other certain first refusal rights in the event one of them
approves a sale of CHI to an independent third party.
It is anticipated that, as of the Effective Date, certain holders of the
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Senior Discount Notes will receive distributions of the New Common Stock
representing in excess of five percent (5%) of the outstanding shares of the New
Common Stock. For a list of such holders, see Part III, Item 12, "Security
Ownership of Certain Beneficial Owners and Management." If holders of
significant numbers of shares of the New Common Stock were to act as a group,
such holders could be in a position to control the outcome of actions requiring
stockholder approval. This concentration of ownership could also facilitate or
hinder a negotiated change of control of reorganized CHI and, consequently, have
an impact upon the value of the New Common Stock. In that regard, all holders of
New Common Stock will be subject to a new stockholders' agreement (the "New
Stockholders' Agreement"), which agreement includes, among other things, certain
"drag along" and "tag along" rights.
Risk of Non-Confirmation of the Plan of Reorganization. Although CHI
believes that the Plan of Reorganization will satisfy all requirements necessary
for confirmation by the Bankruptcy Court, there can be no assurance that the
Bankruptcy Court will reach the same conclusion. Moreover, there can be no
assurance that modifications of the Plan of Reorganization will not be required
for confirmation or that such modifications would not necessitate the
resolicitation of votes.
Risk of Non-Occurrence of the Effective Date. Although CHI believes that
the Effective Date may occur soon after the date that the Bankruptcy Court
confirms the Plan of Reorganization (the "Confirmation Date"), there can be no
assurances as to such timing. Moreover, if the conditions precedent to the
Effective Date have not occurred or been waived within sixty days after the
Confirmation Date, the Bankruptcy Court, upon notification from CHI, may vacate
the order confirming the Plan of Reorganization, in which event, the Plan of
Reorganization would be deemed null and void, and CHI may propose to solicit
votes on an alternative plan of reorganization that may not be as favorable to
parties in interest as the Plan of Reorganization.
Effect of CHI's Chapter 11 Case on Its Subsidiaries. CHI does not
anticipate the commencement of the Chapter 11 Case for any of its operating
subsidiaries or affiliated entities which own the hydroelectric projects set
forth in Schedule I to the Disclosure Statement dated August 8, 1997, attached
hereto as Exhibit 2.1. CHI does not believe that the Chapter 11 Case will
adversely affect the businesses of such entities. Nevertheless, if the Chapter
11 Case is protracted, the possibility of adverse effects on such entities may
increase. Although CHI does not believe that creditors or customers of
substantially all, if not all, of its subsidiaries and affiliated entities which
own the hydroelectric projects have the legal right to take actions with respect
to such entities due to the commencement of the Chapter 11 Case by CHI, certain
of such creditors or customers may attempt to take certain actions nonetheless.
In the event such creditors or customers seek to do so, the subsidiaries and
related entities will not have the benefit of the automatic stay provisions of
the Bankruptcy Code. Although there can be no assurance, CHI believes that such
actions would not have a material adverse effect on the business or financial
condition of CHI.
20
<PAGE>
ITEM 2. PROPERTIES
The information concerning properties required by Item 2 is set forth in
Part I, Item 1, of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
CHI is currently a debtor in possession in a chapter 11 reorganization case
(no. 97-1924(SLR)) pending in the United States Bankruptcy Court for the
District of Delaware and has obtained certain routine relief from the Bankruptcy
Court attendant thereto. Since the commencement of the Chapter 11 Case on
September 15, 1997, the Bankruptcy Court has had jurisdiction over CHI and its
assets, wherever located. The Judge presiding over the Chapter 11 Case is the
Hon. Sue L. Robinson, United States District Court Judge. Although the
management of CHI believes that the Plan of Reorganization will satisfy all
requirements necessary for confirmation by the Bankruptcy Court, there can be no
assurance that the Bankruptcy Court will reach the same conclusion.
On September 2, 1997, a shareholder of CHI filed a civil action against
CHI, certain of its current and former officers and directors and Morgan Stanley
& Co., Incorporated in Connecticut Superior Court, Judicial District of
Stamford, entitled Charles J. Lindsay v. Consolidated Hydro, Inc., et al.,
alleging, among other things, that the such officers and directors of CHI
breached their fiduciary duty to the holders of CHI's class A common stock by
proposing a Plan of Reorganization which eliminates CHI's old common stock. If
successful, the lawsuit could potentially result in modification or termination
of the Plan of Reorganization. However, CHI's management believes that this
lawsuit is without merit.
In addition, the Company is involved in various legal proceedings which are
routine litigation matters incidental to the conduct of its business. CHI's
management currently believes that none of this litigation, if determined
adversely to the Company, would have a material adverse effect on the financial
condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the year ended
June 30, 1997. On August 8, 1997, the Company distributed a Disclosure Statement
to holders of Senior Discount Notes and Preferred Stock for the purpose of
obtaining acceptance of the Plan of Reorganization prior to the filing of a case
under chapter 11 of the Bankruptcy Code. As of September 9, 1997, the
overwhelming majority of the holders of Senior Discount Notes and Preferred
Stock voted to accept the Plan of Reorganization.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of September 15, 1997, the number of holders of record of the class A
common stock of CHI was 56, and no shares of class B common stock were
outstanding. There is no public market for CHI's common stock. No dividends were
declared on either class of CHI's common stock in fiscal 1997 or 1996.
Pursuant to the Plan of Reorganization, it is expected that on the
Effective Date 20,000,000 shares of New Common Stock will be authorized as
follows: 9,085,517 shares of New Class A Common Stock and 914,483 shares of New
Class B Common Stock to be issued on the Effective Date and 10,000,000
additional shares of New Common Stock which may be issued as either New Class A
Common Stock or New Class B Common Stock, as applicable. Of the 10,000,000
shares of New Common Stock which are being authorized on the Effective State but
not issued, 1,337,127 shares will be reserved for issuance if, as and when the
holders of the New Warrants exercise such warrants and 810,811 shares of New
Class A Common Stock will be reserved for issuance, if as and when, the holders
of Management Options exercise such options.
The following is a description of the two classes of New Common Stock, the
two classes of New Warrants and the Management Options to be issued on the
Effective Date, as well as a summary of the principal provisions of the
registration rights agreement (the "Registration Rights Agreement") and the New
Stockholders' Agreement to become effective on the Effective Date (each such
document is being filed as an exhibit to this Form 10-K):
New Class A Common Stock. Pursuant to the Plan of Reorganization, on the
Effective Date, it is expected that 9,085,517 shares of New Class A Common Stock
will be issued and distributed to substantially all of the holders of Senior
Discount Notes and 810,811 shares of New Class A Common Stock will be reserved
to satisfy the obligation of reorganized CHI under the Management Options. For a
discussion of the Management Options, see "--Management Options." Each share of
New Class A Common Stock will entitle its holder to one vote. Holders of New
Class A Common Stock will have the right to participate proportionately in
dividends, if any, distributed by reorganized CHI.
New Class B Common Stock. Pursuant to the Plan of Reorganization it is
expected that, on the Effective Date, 914,483 shares of New Class B Common Stock
will be issued and distributed to a holder of Senior Discount Notes. Each share
of New Class B Common Stock will entitle its holder to one-hundredth (1/100) of
one vote. Holders of New Class B Common Stock will have the right to participate
proportionately in dividends, if any, distributed by reorganized CHI. The New
Class B Common Stock is being issued to a holder of Senior Discount Notes, at
such holder's request, to provide to such holder reduced voting rights in
reorganized CHI. Pursuant to the Restated Certificate of Incorporation of CHI,
upon any transfer of shares of New Class B Common Stock, the shares of New Class
B Common Stock will automatically convert into an equal number of shares of New
Class A Common Stock.
New Series B Warrants. The New Series B Warrants, which will be issued to
the holders of Preferred Stock on the Effective Date and expire on the sixth
anniversary of the Effective Date, entitle such holders to subscribe for the
purchase of up to an aggregate of 7.5% of the New Common Stock, subject to
dilution due to the issuance by reorganized CHI of shares of New Common Stock
pursuant to the exercise of the New Series C Warrants or the Management Options
by the holders thereof. The New Series B Warrants are exercisable for up to 1%
of the New Common Stock of reorganized CHI if, as and when the total capital
(debt and equity) invested in industrial infrastructure projects (as described
in Part I, Item 1, "Business -- Industrial Infrastructure Business") that either
(i) close within 3 years from the Effective Date or (ii) are subject to a
legally binding and enforceable agreement between reorganized CHI or any of its
subsidiaries and a party sponsoring a development or acquisition of such
industrial infrastructure projects within such 3 year-period and thereafter
close within the term of the New Series B Warrants, equals $60 million. The
additional New Series B Warrants exercisable for the remaining 6.5% of the New
Common Stock vest incrementally if, as and when the total capital invested in
industrial infrastructure projects increases from $60 million to $450 million
within the time periods set forth above. The exercise price per share of the New
Common Stock subject to the New Series B Warrants will be $10 (subject to
adjustment as provided in the next sentence). The New Series B Warrants will
have customary antidilution provisions and protections against certain
extraordinary distributions.
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<PAGE>
New Series C Warrants. The New Series C Warrants, which will be issued to
the holders of Preferred Stock on the Effective Date and expire on the eighth
anniversary thereof, entitle such holders to subscribe for the purchase of up to
an aggregate of 5.0% of the New Common Stock, subject to dilution due to the
issuance by reorganized CHI of shares of New Common Stock pursuant to the
exercise of the New Series B Warrants or the Management Options by the holders
thereof. The exercise price per share of the New Common Stock subject to the New
Series C Warrants will be determined by reference to the accreted value of the
Senior Discount Notes as of September 15, 1997 (the date CHI commenced its
Chapter 11 Case), which is approximately $183 million. The exercise price per
share of the New Common Stock, subject to the New Series C Warrants will be
approximately $18.36 (subject to adjustment as provided in the next sentence).
The New Series C Warrants will contain customary antidilution provisions and
protections against certain extraordinary distributions.
Management Options. The Management Options, which will be issued to certain
members of reorganized CHI's management on the Effective Date pursuant to a 1997
stock option plan and management option agreements (the "1997 Stock Option Plan
and Management Option Agreements") and expire on the seventh anniversary
thereof, will be exercisable for the purchase of up to an aggregate of 7.5% of
the New Class A Common Stock, subject to dilution due to the issuance by
reorganized CHI of shares of New Common Stock pursuant to the exercise of the
New Series B Warrants or the New Series C Warrants by the holders thereof. The
Management Options will contain customary antidilution provisions and
protections against certain extraordinary distributions. For a more detailed
discussion of the Management Options, see Part III, Item 11, "Executive
Compensation as of the Effective Date -- 1997 Stock Option Plan and Management
Option Agreements."
Registration Rights Agreement. Each person or entity receiving a
distribution of New Common Stock, New Warrants or New Common Stock issued upon
the exercise of the New Warrants or the Management Options pursuant to the Plan
of Reorganization will be entitled to become a party to the Registration Rights
Agreement. Under the Registration Rights Agreement, which has been filed in the
Bankruptcy Court as an exhibit to the Plan of Reorganization, holders of the New
Common Stock and New Warrants (including shares of New Common Stock issued upon
the exercise thereof) will be entitled to certain demand and incidental (or
"piggyback") registration rights, and holders of the Management Options will be
entitled to certain incidental (or "piggyback") registration rights with respect
to shares of New Class A Common Stock issued upon the exercise thereof. The
Registration Rights Agreement will contain customary suspension, "hold back",
indemnification/contribution and priority provisions.
New Stockholders' Agreement. Under the terms of the Plan of Reorganization,
each holder (including each original recipient and transferee of an original
recipient or other transferee) of the New Common Stock and of the New Common
Stock issued upon exercise of the New Warrants or the Management Options
(collectively, the "New Securities") is bound by the New Stockholders'
Agreement, which has been filed in the Bankruptcy Court as an exhibit to the
Plan of Reorganization. The New Stockholders' Agreement contains certain
provisions relating to the size and composition of the Board of Directors of
restructured CHI. See Part III, Item 12, "Directors and Executive Officers of
the Registrant -- Directors and Executive Officers as of the Effective Date." In
addition, the New Stockholders' Agreement provides that each holder of New
Common Stock is entitled to participate on a pro-rata basis in any sale of 50%
or more of the outstanding New Common Stock and that each holder of New
Securities (including, in certain circumstances, holders of New Warrants and
Management Options) may be required to sell its New Securities in any sale of
66-2/3% or more of the New Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
The following Income Statement and Balance Sheet Data has been derived from
financial statements audited by Price Waterhouse LLP, independent accountants.
The data set forth below should be read in conjunction with the Consolidated
Financial Statements for the fiscal years ended June 30, 1997, 1996, 1995, 1994,
and 1993, and the related Notes thereto, and Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations":
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands, Except Per Share Amounts)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenue
Power generation revenue $50,665 $ 49,761 $39,387 $36,184 $32,776
Management fees and operation & maintenance revenue 5,395 4,986 4,326 5,677 2,501
Equity income in partnership interests and other 1,320 737 245 335 ---
----------- --------- --------- -------- --------
partnership income
Total revenue 57,380 55,484 43,958 42,196 35,277
----------- --------- --------- -------- --------
Costs and expenses
Operating 18,015 17,957 15,895 16,466 11,762
General and administrative 8,422 6,447 6,799 7,285 5,204
Charge for employee and director equity
participation programs (1) 100 259 339 670 1,075
Depreciation and amortization 8,661 9,846 9,625 8,679 7,601
Lease expense 5,764 6,072 5,753 5,386 5,230
Charge for impairment of long-lived assets 87,202 1,272 -- --
----------- --------- --------- -------- --------
83
Total costs and expenses 41,045 127,783 39,683 38,486 30,872
----------- --------- --------- -------- --------
Income/(loss) from operations 16,335 (72,299) 4,275 3,710 4,405
Interest income 1,661 1,032 1,416 1,052 987
Other income 434 368 185 107 186
Interest expense (29,591) (26,876) (21,778) (18,980) (13,868)
Minority interests in loss/(income) of consolidated
subsidiaries -- 2,063 (15) 100
----------- --------- --------- -------- --------
3
Loss before income taxes, extraordinary
items and cumulative effect of accounting change (11,161) (95,712) (15,899) (14,126) (8,190)
Benefit/(provision) for income taxes 119 7,381 (377) (264) (319)
----------- --------- --------- -------- --------
Loss before extraordinary items and cumulative
effect of accounting change (11,042) (88,331) (16,276) (14,390) (8,509)
Extraordinary items (2)
Gain/(loss) on early extinguishment of debt
(net of income tax of $3,414) 5,658 -- -- -- (2,269)
----------- --------- --------- -------- --------
Loss before cumulative effect of accounting change (5,384) (88,331) (16,276) (14,390) (10,778)
Cumulative effect of accounting change (3) -- -- -- (19,204) --
----------- ----------- --------- -------- ---------
Net loss $ (5,384) $ (88,331) $ (16,276) $(33,594) $(10,778)
=========== ========== ========= ========= =========
Net loss applicable to common stock $ (31,275) $ (112,063) $(38,384) $(54,281) $(29,007)
=========== ========== ========= ========= =========
Net loss per common share -- before extraordinary
items and cumulative effect of accounting change $ (28.72) $ (87.45) $(30.21) $(27.70) $(21.12)
Net loss per common share -- primary and fully
diluted(4) $ (24.32) $ (87.45) $(30.21) $(42.87) $(22.91)
Cash dividends per common share -- -- -- -- --
</TABLE>
24
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<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands, Except Per Share Amounts)
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Megawatts operated 342.61 343.66 379.08 329.08 220.98
Capital expenditures
Cost of acquisitions and partnership interests $-- $ -- $35,503 $15,230 $ 16
Cost of development expenditures 2,045 1,968 6,086(5) 8,319(5) 10,580 (5)
All other capital expenditures associated with operating
projects, including changes in other long-term
assets net 9,226 3,460 2,288 (332) 4,244
Interest, net (6) 27,930 25,844 20,362 17,928 12,881
Cash interest, net (7) 6,962 7,725 4,702 4,009 11,514
Net debt (8) 237,579 242,786 237,196 190,678 159,865
Ratios and Other Data:
EBDIAT (9) 25,613 25,376 15,696 13,166 13,267
EBDIAT/Interest, net (10)
2,317 468 4,666 4,762 1.03
EBDIAT/Cash interest, net 3.68 3.28 3.34 3.28 1.15
Net debt /EBDIAT 9.28 9.57 15.11 14.48 12.05
Net debt and mandatorily redeemable preferred
stock/EBDIAT 13.74 13.45 20.51 19.98 16.68
Deficiency of earnings to fixed charges (11) 11,350 97,417 18,850 16,429 8,743
Deficiency of earnings to fixed charges and preferred
stock dividends (12) 37,241 121,149 40,958 37,117 26,972
BALANCE SHEET DATA:
Cash and cash equivalents 32,502 23,834 16,682 14,155 42,617
Current assets 41,003 33,041 25,454 24,649 49,467
Current liabilities 13,924 16,061 13,602 9,990 22,465
Total assets 243,628 244,657 330,617 286,827 286,521
Long-term debt 262,615 260,158 248,887 201,620 189,186
Mandatorily redeemable preferred stock 114,372 84,690 72,401 61,428 98,604
Stockholders' (deficit)/equity (189,679) (168,627) (66,641) (38,414) 5,472
</TABLE>
- - - ---------------
(1) This non-cash charge accounts for the equity entitlements granted to
certain key employees and certain directors pursuant to both the
arrangements surrounding the conversion of the class B common stock to
class A common stock and the vested entitlements under the Performance
Unit Plan pursuant to the Stock Option Plan. See Notes to Consolidated
Financial Statements for the fiscal years ended June 30, 1997, 1996 and
1995 (the "Consolidated Financial Statements").
(2) The fiscal 1993 amount consists of premiums paid and the write-off of
certain debt issuance costs associated with the early extinguishment of
debt, which included the repurchase of $13,195,000 principal amount of
13% Debentures and the repayment of approximately $20,435,000 principal
amounts of GECC project indebtedness. The fiscal 1997 amount results from
the purchase of a non-recourse project term loan, $14,500,000 at June 30,
1996, for $5,000,000, including certain required reserves and closing
costs of approximately $500,000. The gain recorded is net of certain
transaction costs of approximately $187,000 and income tax of $3,414,000.
(3) Represents the adoption of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes. See Note 2 of the Notes to the
Consolidated Financial Statements.
(4) See Note 2 of the Notes to Consolidated Financial Statements for
information on losses per common share.
(5) These amounts are substantially funded with proceeds from (i) outside
lenders on a non-recourse basis or (ii) sales of CHI equity securities,
primarily through the Recapitalization.
(6) Interest, net is defined as interest expense less interest income.
(7) Cash interest, net is defined as cash interest less interest income.
(8) Net debt is defined as total debt less cash and cash equivalents (which
include restricted cash that, at the end of each period presented, has
ranged from $4.3 million to $13.2 million and was $8.3 million at June
30, 1997).
(9) EBDIAT is defined as income/(loss) from operations plus depreciation,
amortization, other non-cash charges to income and other income. EBDIAT
and EBDIAT ratios are not measures of performance or financial condition
under generally accepted accounting principles, but are presented to
provide additional information related to fixed charge service
capability. EBDIAT should not be considered in isolation or as a
substitute for other measures of financial performance or liquidity under
generally accepted accounting principles.
(10) Computations resulting in a ratio of less than one are disclosed as a
deficiency and represent the dollar amount of EBDIAT required to attain a
ratio of one-to-one.
(11) For the purpose of calculating the deficiency of earnings to fixed
charges, earnings are determined by adding fixed charges (excluding
capitalized interest) to loss before provision for income taxes,
extraordinary items and cumulative effect of accounting change. Fixed
charges consist of interest expense, amortization of debt issuance costs
and the imputed interest on the Company's Boott facility lease, which is
accounted for as an operating lease. These deficiencies
25
<PAGE>
primarily reflect non-cash charges. An analysis of such non-cash
charges and the resulting ratio or reduced deficiency adjusted for such
charges follows.
(12) For the purpose of calculating the deficiency of earnings to fixed
charges and preferred stock dividends, earnings are determined by adding
fixed charges (excluding capitalized interest) and preferred stock
dividends to loss before provision for income taxes, extraordinary items
and cumulative effect of accounting change. Preferred stock dividends
consist of the cumulative undeclared dividends on Series F and G
Preferred Stock and dividends and accretion on the Series H Preferred
Stock. These deficiencies primarily reflect non-cash charges. The
analysis of such non-cash charges is the same as that set forth in the
preceding footnote and the resulting ratio or reduced deficiency adjusted
for such charges follows:
<TABLE>
<CAPTION>
Year Ended June 30
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-cash interest $ 19,709 $ 18,629 $ 16,610 $ 14,629 $ 1,401
Depreciation and amortization 8,661 9,846 9,625 8,679 7,601
Other non-cash (gains)/charges, net (5,475) 87,461 1,611 670 1,075
----------- ----------- ---------- ---------- ----------
$ 22,895 $ 115,936 $ 27,846 $ 23,978 $10,077
======= ======= ====== ====== ======
Resulting ratio of earnings
to fixed charges 1.36 1.61 1.34 1.32 1.08
Year Ended June 30,
1997 1996 1995 1994 1993
-------- ---- ---- ---- ----
(Dollars in Thousands)
Resulting ratio of earnings
to fixed charges and
preferred stock dividends -- -- -- -- --
Deficiency of earnings
to fixed charges and
preferred stock dividends $14,346 $5,213 $13,112 $13,139 $16,895
</TABLE>
26
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Consolidated Hydro, Inc. ("CHI", together with its consolidated
subsidiaries the "Company") is principally engaged in the development, operation
and management of hydroelectric power plants. The Company's operating
hydroelectric projects are located in 15 states and one Canadian province. In
November 1995, the Company established a subsidiary, CHI Power, Inc., for the
purpose of developing, acquiring, operating and managing industrial energy
facilities and related industrial assets.
The Company's existing U.S. projects are clustered in four regions: the
Northeast, Southeast, Northwest and West, with a concentration in the Northeast.
CHI has developed what it believes to be an efficient "hub" system of project
management designed to maximize the efficiency of each facility's operations.
The economies of scale created by this system include reduced costs related to
centralized administration, operations, maintenance, engineering, insurance,
finance and environmental and regulatory compliance. The hub system and the
Company's operating expertise have enabled the Company to successfully integrate
acquisitions into its current portfolio and increase the efficiency and
productivity of its projects.
The Company has expanded primarily by acquiring existing hydroelectric
facilities in the United States. On June 30, 1997, the Company had a 100%
ownership or long-term lease interest in 55 projects (145 megawatts), a partial
ownership interest in 11 projects (82 megawatts), and operations and maintenance
("O&M") contracts with 24 projects (116 megawatts).
On December 23, 1996, the Company sold 15 of its 100% owned hydroelectric
facilities ("CHI Maine"), located in the Northeast region. In connection with
the disposition, the Company executed a contract to operate and maintain the
facilities for an initial period of up to 15 years. See Note 4 to the
Consolidated Financial Statements included herewith.
CHI sells substantially all of the electric energy and capacity from its
U.S. projects to public utility companies pursuant to take and pay power
purchase agreements. These contracts vary in their terms but typically provide
scheduled rates throughout the life of the contracts, which are generally for a
term of 15 to 40 years from inception.
In fiscal 1996, the Company wrote down the carrying values of its pumped
storage development assets, certain investments in partnerships which own
hydroelectric facilities and certain of its conventional hydroelectric assets to
$0.1 million, $0.8 million and $26.0 million, respectively. The Company has
determined that it is highly unlikely that it will successfully develop its
pumped storage projects. See "Fiscal Year Ended June 30, 1996 Compared to Fiscal
Year Ended June 30, 1995 - SFAS 121 - Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
In addition, during fiscal 1997, the Company wrote off certain development
costs and wrote down the carrying value of certain conventional hydroelectric
assets to $1.9 million as these assets are considered assets to be disposed of.
Also in fiscal 1996, the Company began to seek opportunities to provide
energy-related products and services to industrial and utility customers in an
effort to respond to changing market conditions. Such opportunities, if
available, would permit the Company to move away from relying exclusively on
hydropower ownership and operation in a business climate driven largely by
legislation and regulation and the structural industry trends described above,
in which the Company currently believes that acquisition and development
opportunities are increasingly limited, particularly with regard to
hydroelectric facilities. Currently, all of the Company's revenue is derived
from the ownership and operation of hydroelectric facilities. See "--Liquidity
and Capital Resources".
Power Generation Revenue
The Company's revenues are derived principally from selling electrical
energy and capacity to utilities under long-term power purchase agreements which
require the contracting utilities to purchase energy generated by the Company.
The Company's present power purchase agreements have remaining terms of up to 30
years. Fluctuations in revenues and related cash flows are generally
attributable to changes in projects in operation, coupled with variations in
water flows and the effect of escalating and declining contract rates in the
Company's power purchase agreements.
27
<PAGE>
Management Fees and Operations & Maintenance Revenues
O&M contracts, from which management fees and operations and maintenance
revenues are derived, generally enable the Company to maximize the use of its
available resources and to generate additional income.
Equity Income In Partnership Interests and Other Partnership Income
In accordance with generally accepted accounting principles, certain of the
Company's partnership interests are accounted for under the equity and the cost
methods of accounting. Fluctuations in equity income and other partnership
income are generally attributable to variations in results of operations and
timing of cash distributions of certain partnerships.
Operating Expenses
Operating expenses consist primarily of project-related costs such as
labor, repairs and maintenance, supplies, insurance and real estate taxes.
Operating expenses include direct expenses related to the production of power
generation revenue as well as direct costs associated with O&M contracts which
are rebillable to applicable third party owners directly or not rebillable since
they are covered through an established management fee.
Lease Expense
Lease expense includes operating leases associated with some of the
hydroelectric projects as well as leases for the corporate and regional
administrative offices. Certain leases provide for payments that are based upon
power sales revenue or cash flow for specific projects. Hence, varying project
revenues will impact overall lease expense, year-to-year.
28
<PAGE>
CERTAIN KEY OPERATING RESULTS AND TRENDS
The information provided in the tables below is included to provide an
overview of certain key operating results and trends which, when read in
conjunction with the narrative discussion that follows, is intended to provide
an enhanced understanding of the Company's results of operations. These tables
include information regarding the Company's ownership of projects by region as
well as information on regional precipitation. As presented, the Company's
project portfolio is concentrated in the Northeastern United States, a region
characterized by relatively consistent long-term water flow and power purchase
contract rates which are higher than in most other regions of the country.
This information should be read in conjunction with the Consolidated
Financial Statements and the related Notes thereto, included herein.
Power Producing Facilities
<TABLE>
<CAPTION>
AS OF JUNE 30,
1997 1996 1995
---- ---- ----
MWS #PROJECTS MWS #PROJECTS MWS #PROJECTS
--- --------- --- --------- --- ---------
<S> <C> <C> <C> <C> <C> <C>
Northeast:
100% Ownership (1) 90.88(4) 29(4) 102.20 44 104.72 45
Partial Ownership (2) 52.37 8 52.37 8 52.37 8
O&M Contracts (3) 92.16(4) 19(4) 80.14 3 80.14 3
--------- ---- --------- ---- ---------- ----
Total 235.41 56 234.71 55 237.23 56
====== === ====== === ====== ===
Southeast:
100% Ownership (1) 27.42 13 27.42 13 27.42 13
Partial Ownership (2) -- -- -- -- -- --
O&M Contracts (3) -- -- -- -- -- --
--------- ---- --------- ---- ---------- ----
Total 27.42 13 27.42 13 27.42 13
====== === ====== === ====== ===
West:
100% Ownership (1) 5.48 4 1.35 1 1.35 1
Partial Ownership (2) 4.20 1 8.33 4 8.33 4
O&M Contracts (3) 19.08 4 19.08 4 51.98 6
--------- ---- --------- ---- ---------- ----
Total 28.76 9 28.76 9 61.66 11
====== === ====== === ====== ===
Northwest:
100% Ownership (1) 21.72 9 21.72 9 21.72 9
Partial Ownership (2) 24.96 2 24.96 2 24.96 2
O&M Contracts (3) 4.34 1 6.09 2 6.09 2
--------- ---- --------- ---- ---------- ----
Total 51.02 12 52.77 13 52.77 13
====== === ====== === ====== ===
Total:
100% Ownership (1) 145.50(4) 55(4) 152.69 67 155.21 68
Partial Ownership (2) 81.53 11 85.66 14 85.66 14
O&M Contracts (3) 115.58(4) 24(4) 105.31 9 138.21 11
----------- ---- ----------- ---- ---------- ----
Total 342.61 90 343.66 90 379.08 93
====== === ====== === ====== ===
</TABLE>
- - - ------------
(1) Defined as projects in which the Company has 100% of the economic interest.
(2) Defined as projects in which the Company's economic interest is less than
100%.
(3) Defined as projects in which the Company is an operator pursuant to O&M
contracts with the project's owner or owners. The Company does not have any
ownership interest in such projects.
(4) Reflects the sale of 15 projects (11.32 megawatts) on December 23, 1996,
and the addition of those same projects as O&M contracts.
29
<PAGE>
Selected Operating Information
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED JUNE 30,
1997 1996 1995
-------------- --------------- ------------
<S> <C> <C> <C>
Power generation revenues
(thousands) (1) $ 50,665 $ 49,761 $ 39,387
Kilowatt hours produced
(thousands) (1) 663,920 647,664 532,063
Average rate per kilowatt hour (1) 7.6(cent) 7.7(cent)(2)(3) 7.4(cent)(2)(3)
</TABLE>
- - - ---------
(1) Limited to projects included in consolidated revenues.
(2) Excluding the fiscal 1996 and 1995 results of the CHI Maine projects, the
average rates per kilowatt hour were 7.6(cent) and 7.2(cent)for the
fiscal years ending June 30, 1996 and 1995, respectively.
(3) Excluding the fiscal 1996 and 1995 results of the HDG projects, the
average rates per kilowatt hour were 7.9(cent)and 7.5(cent)for the fiscal
years ending June 30, 1996 and 1995, respectively.
Precipitation, Water Flow and Seasonality
The amount of hydroelectric energy generated at any particular facility
depends upon the quantity of water flow at the site of the facility. Dry periods
tend to reduce water flow at particular sites below historical averages,
especially if the facility has low storage capacity. Excessive water flow may
result from prolonged periods of higher than normal precipitation, or sudden
melting of snow packs, possibly causing flooding of facilities and/or a
reduction of generation until water flows return to normal.
Water flow is generally consistent with precipitation. However, snow and
other forms of frozen precipitation will not necessarily increase water flow in
the same period of such precipitation if temperatures remain at or below
freezing. "Average", as it relates to water flow, refers to the actual long-term
average of historical water flows at the Company's facilities for any given
year. Typically, these averages are based upon hydrologic studies done by
qualified engineers for periods of 20 to 50 years or more, depending on the flow
data available with respect to a particular site. Over an extended period (e.g.,
10 to 15 years) water flows would be expected to be average, whereas for shorter
periods (e.g., three months to three years) variation from average is likely.
Each of the regions in which the Company operates has distinctive precipitation
and water flow characteristics, including the degree of deviation from average.
Geographic diversity helps to minimize short-term variations.
During 1995, the Company had experienced low water flow relative to
long-term indications at many of its facilities. The effect on revenues of the
lower than average flows was most adverse in the Northeast, the region in which
the majority of the Company's projects are located and where the Company's rates
received for power sales are highest, on average.
Water Flow by Region (1)
TWELVE MONTHS ENDED JUNE 30,
1997 1996 1995
-------------- -------------- ----------------
Northeast Above Average Above Average Below Average
Southeast Average Average Above Average
West Below Average Above Average Above Average
Northwest Above Average Above Average Below Average
- - - ---------
(1) These determinations were made based upon water flow in areas where the
Company's projects are located and may not be applicable to the entire
region.
30
<PAGE>
Production of energy by the Company is typically greatest in its third and
fourth fiscal quarters (January through June), when water flow is at its highest
at most of the Company's projects, and lowest in the first fiscal quarter (July
through September). The amount of water flow in any given period will have a
direct effect on the Company's production, revenues and cash flow.
The following tables, which show revenues from power sales and kilowatt
hour production by fiscal quarter, respectively, highlight the seasonality of
the Company's revenue stream. These tables should be reviewed in conjunction
with the water flow information included above.
Power Generation Revenues (1)
<TABLE>
<CAPTION>
FISCAL 1997(2) FISCAL 1996 (2) FISCAL 1995 (2)
-------------------- ------------------- -----------------
$ % $ % $ %
<S> <C> <C> <C> <C> <C> <C>
First Fiscal Quarter $8,855 17.5 $5,363 10.8 $ 7,471 19.0
Second Fiscal Quarter 13,271 26.2 12,355 24.8 7,503 19.0
Third Fiscal Quarter 15,078 29.8 15,744(3) 31.6 13,437(5) 34.1
Fourth Fiscal Quarter 13,461 26.5 16,299(3) 32.8 10,976(5) 27.9
----------- ------- ---------- -------- ---------- -------
Total $50,665 100.0 $49,761(4) 100.0 $39,387(3) 100.0
====== ===== ========== ===== ======= ========
</TABLE>
- - - -----------
(1) Limited to projects included in consolidated revenues.
(2) Includes business interruption revenue of $88, $840 and $604 representing
claims for lost generation recoverable from an insurance company for the
fiscal years ended June 30, 1995, 1996 and 1997, respectively.
(3) Includes $4,252, $1,763 and $1,744 of power generation revenues from the
CHI Maine projects, which were sold on December 23, 1996, for the fiscal
year ended June 30, 1995 and for the three months ended March 31, 1996
and June 30, 1996, respectively.
(4) Includes $5,131 resulting from the acquisition of HDG, for the fiscal
year ended June 30, 1996.
(5) Includes $789 and $1,164 resulting from the acquisition of HDG in the
third and fourth fiscal quarters, respectively.
Kilowatt Hours Produced (1)
<TABLE>
<CAPTION>
FISCAL 1997(2) FISCAL 1996(2) FISCAL 1995(2)
----------------- ------------------- ------------------------
kWh % kWh % kWh %
<S> <C> <C> <C> <C> <C> <C>
First Fiscal Quarter 125,197 18.9 80,596 12.4 105,456 19.8
Second Fiscal Quarter 166,323 25.0 160,088 24.7 103,428 19.4
Third Fiscal Quarter 193,576 29.2 195,540(3) 30.2 171,280(5) 32.2
Fourth Fiscal Quarter 178,824 26.9 211,440(3) 32.7 151,899(5) 28.6
---------- ----- ----------- ----- ---------- -----
Total 663,920 100.0 647,664(4) 100.0 532,063(3) 100.0
======= ===== ========== ==== ========== =====
</TABLE>
- - - -------------
(1) Limited to projects included in consolidated revenues.
(2) Includes the production equivalent of 600, 15,335 and 9,412 kWh of the
business interruption revenue recoverable as a result of insurance claims
for the fiscal years ended June 30, 1995, 1996 and 1997, respectively.
(3) Includes 44,645, 19,310, and 19,106 kWh from the CHI Maine projects,
which were sold on December 23, 1996, for the fiscal year ended June 30,
1995 and for the three months ended March 31, 1996 and June 30, 1996,
respectively.
(4) Includes 80,883 kWh resulting from the acquisition of HDG, for the fiscal
year ended June 30, 1996.
(5) Includes 12,302 and 18,254 kWh resulting from the acquisition of HDG, in
the third and fourth fiscal quarters, respectively.
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
Operating Revenues
Power Generation Revenue. The Company's power generation revenue increased
by $0.9 million (1.8%), from $49.8 million to $50.7 million for the fiscal years
ended June 30, 1996 and 1997, respectively. Excluding the effects of the sale of
CHI Maine on December 23, 1996, power generation revenue increased by $4.4
million (9.5%), from $46.3 million to $50.7 million for the fiscal years ended
June 30, 1996 and 1997, respectively.
The Northeast region experienced increased revenues of $3.9 million due to
well above average water flows and precipitation for the fiscal year ended June
30, 1997 as compared to slightly above average water flows and precipitation for
the fiscal year ended June 30, 1996.
31
<PAGE>
The Southeast region experienced a minimal increase of $0.1 million.
The West and Northwest regions (combined) experienced increased revenues of
$0.4 million primarily as a result of well above average water flows and
precipitation in the Northwest region, as compared to slightly above average
water flows and precipitation in the Northwest region for the fiscal year ended
June 30, 1996, coupled with the addition of three newly-consolidated projects in
the West region on January 1, 1997.
The average rate earned by the Company decreased by 0.1(cent) (1.3%) from
7.7(cent) to 7.6(cent) per kilowatt hour in The 1996 fiscal period versus the
1997 fiscal period, respectively, primarily as a result of variations in the
production mix and contract rates among the various projects. Excluding the
fiscal 1996 results of CHI Maine, revenue per kilowatt hour remained constant at
7.6(cent) in the 1996 fiscal period versus the 1997 fiscal period, respectively.
Management Fee and Operations & Maintenance Revenues. Management fees and
O&M contract revenue increased by $0.4 million (8.0%) from $5.0 million to $5.4
million for the fiscal years ended June 30, 1996 and 1997, respectively.
Excluding the addition of the CHI Maine O&M contract, management fees and O&M
contract revenue remained relatively constant, decreasing by $0.1 million (2.0%)
from $5.0 million to $4.9 million for the fiscal years ended June 30, 1996 and
1997, respectively.
Equity Income in Partnership Interests and Other Partnership Income. Equity
income in partnership interests and other partnership income increased $0.6
million (85.7%) from $0.7 million to $1.3 million for the fiscal years ended
June 30, 1996 and 1997, respectively. The increase is primarily due to increased
revenues earned by partnership interests in the Northeast region as a result of
above average water flows and precipitation for the fiscal year ended June 30,
1997 as compared to the fiscal year ended June 30, 1996.
Costs and Expenses
Operating Expenses. Operating expenses increased by $0.1 million (0.6%)
from $17.9 million to $18.0 million for the fiscal years ended June 30, 1996 and
1997, respectively. Excluding the effects of the sale of the CHI Maine projects
and the fiscal 1997 addition of the CHI Maine O&M contract, operating expenses
increased by $0.4 million (2.3%), from $17.2 million to $17.6 million for the
fiscal years ended June 30, 1996 and 1997, respectively. The increase was
primarily due to (i) an increase in revenue related expenses resulting from
increased power generation; (ii) an increase in insurance premiums; (iii) an
increase in the provision for uncollectable accounts receivable and (iv) smaller
increases in other operating costs, partially offset by: (i) a decrease in
salaries and benefits resulting from a decrease in operating employees in the
West region, coupled with an increase in the allocation of company-wide
operating labor charged to capitalized projects; (ii) a decrease in expenses
related to insurance deductibles during the current fiscal year and (iii) a
decrease in non-recurring environmental and regulatory expenses.
General and Administrative Expenses. General and administrative expenses
increased $2.0 million (31.3%) from $6.4 million to $8.4 million for the fiscal
years ended June 30, 1996 and 1997, respectively. The increase was primarily due
to: (i) costs associated with the formulation of financial restructuring options
for the Company; (ii) the effect of expensing, rather than capitalizing, certain
pumped storage business development costs for the six months ended December 31,
1996 and (iii) an increase in other business development costs, partially offset
by (i) a decrease in administrative salaries and benefits resulting from a
reduction in severance accruals made for a former officer of the Company and
(ii) a decrease in industry related membership dues.
Depreciation and Amortization. Depreciation and amortization decreased $1.1
million (11.2%) from $9.8 million to $8.7 million, for the fiscal years ended
June 30, 1996 and 1997, respectively. The decrease was primarily due to a
write-down of impaired assets in fiscal 1996 as a result of the implementation
of SFAS 121 and the cessation of depreciation expense taken on assets to be
disposed of for the fiscal year ended June 30, 1997 as compared to the fiscal
year ended June 30, 1997.
Interest Expense
Interest expense increased by $2.7 million (10.0%), from $26.9 million to
$29.6 million for the fiscal years ended June 30, 1996 and 1997, respectively.
Excluding the fiscal 1996 results of the CHI Maine projects, interest expenses
increased by $2.8 million (10.4%) from $26.8 million to $29.6 million for the
fiscal years ended June 30, 1996 and 1997, respectively. The increase is
primarily due to the increasing principal balance of the Company's 12% Senior
Discount Notes due 2003, Series B (the "Senior Discount Notes") which resulted
in a corresponding increase in interest expense and the effect of expensing
interest on loans related to pumped storage development for the six months ended
December 31, 1996, which had previously been capitalized during the six months
ended December 31, 1995.
32
<PAGE>
Issuance of Series F and G Preferred Stock
Effective February 28, 1996, the Company issued 1,279 shares each of its 8%
senior convertible voting preferred stock ("Series F Preferred") and its 9.85%
junior convertible voting preferred stock ("Series G Preferred") to Ms. Carol H.
Cunningham in exchange for shares of Summit Energy Storage Inc. common stock (or
vested options therefor) owned by Ms. Cunningham pursuant to a 1992 agreement.
The financial statement impact of this exchange is not material.
SFAS 121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of
The Company implemented SFAS 121 during the fiscal year ended June 30, 1996
and, as a result, the Company recorded an impairment charge of $87.2 million as
a component of the Company's loss from operations. Included in the impairment
charge was an amount related to certain assets to be disposed of. During fiscal
1997, the carrying value of certain of those assets has been adjusted upward by
$0.7 million to reflect the actual sale price of the assets. In addition, the
Company wrote down the carrying values of certain development costs and certain
of its conventional hydroelectric assets held for disposal resulting in a
combined impairment charge of $0.8 million. Each of the above described
adjustments has been included in Charge for impairment of long-lived assets on
the Statement of Operations for the fiscal year ended June 30, 1997.
Minority Interests in Loss of Consolidated Subsidiaries
The Company recognized a benefit of approximately $2.1 million for the
fiscal year ended June 30, 1996 resulting from the recognition of minority
shareholders' interest in the loss of certain consolidated subsidiaries related
to the write-down of pumped storage business development assets in accordance
with SFAS 121 which reduced the value of minority interests recorded by the
Company to zero.
Benefit for Income Taxes
The Company recognized deferred benefits for income taxes (excluding
current provisions) of $8.0 million and $1.0 million for the fiscal years ended
June 30, 1996 and 1997, respectively. For the fiscal 1996 period, the deferred
tax benefit related to the write-down of certain long-lived assets in accordance
with SFAS 121. For the fiscal 1997 period, the deferred benefit for income tax
relates to certain factors, principally due to an increase in the amount of net
operating loss ("NOL") expected to be utilized during the NOL carryforward
period.
Extraordinary Gain on Early Extinguishment of Debt
On October 30, 1996, the Company arranged to have a financial institution
purchase a $13,759 non-recourse project term loan (the "Old Loan") relating to
four of its existing hydroelectric projects for $5,000, including certain
required reserves and closing costs of $500 (the "New Loan"). An additional
$2,000 credit facility is also available under the New Loan for up to one year
to finance certain project enhancements. A subsidiary of CHI was assigned an
interest in the balance of the Old Loan on a basis fully subordinated to the New
Loan. As a result, the Company has recorded a $5,658 Extraordinary gain on early
extinguishment of debt, net of certain transaction costs of approximately $187
and income tax of $3,414, on its Statement of Operations for the fiscal year
ended June 30, 1997.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
Operating Revenues
Power Generation Revenue. Power generation revenue increased by $10.4
million (26.4%) from $39.4 million to $49.8 million for fiscal 1995 and 1996,
respectively. Excluding the results of HDG, acquired on February 16, 1995, power
generation revenue increased $7.2 million (19.3%) from $37.4 million to $44.6
million.
The Northeast region experienced increased revenues of $6.6 million due to
above average water flows and precipitation in the current fiscal year as
compared to below average water flows and precipitation in the prior fiscal
year.
The Southeast region experienced decreased revenues of $0.1 million due
primarily to flood damage and continued repairs at certain of its facilities.
33
<PAGE>
The West and Northwest regions (combined) experienced increased revenues of
$0.7 million in the current fiscal year as compared to the prior fiscal year
primarily as a result of above average water flow and precipitation in the
Northwest region, an area which contributes significantly to total revenues of
the combined regions..
The Company as a whole experienced increased revenue per kilowatt hour of
0.3(cent) (4.1%) from 7.4(cent) to 7.7(cent) in The 1996 fiscal period versus
the 1995 fiscal period, respectively. Excluding the results of HDG, revenue per
kilowatt hour increased by 0.4(cent) (5.3%) from 7.5(cent) to 7.9(cent),
primarily as a result of variations in the production mix and contrACt rates
among the various projects.
Management Fees and Operation & Maintenance Revenues. Management fees and
O&M contract revenue increased by $0.7 million (16.3%) from $4.3 million to $5.0
million for fiscal 1995 and 1996, respectively. Excluding the results of HDG,
management fees and O&M contract revenue increased by $0.3 million (7.1%) from
$4.2 million to $4.5 million. The increase was primarily due to revenue
generated from an increase in project management base fees coupled with an
increase in rebillable capital expenditures at a Northeast O&M facility.
Equity Income in Partnership Interests and Other Partnership Interests.
Equity income in partnership interests and other partnership income increased by
$0.5 million (250.0%) from $0.2 million to $0.7 million for the fiscal years
ended June 30, 1995 and 1996, respectively. Excluding the results of HDG, equity
income in partnership interests and other partnership income remained relatively
constant at $0.1 million for the fiscal years ended 1995 and 1996.
Costs and Expenses
Operating Expenses. Operating expenses increased by $2.0 million (12.6%)
from $15.9 million to $17.9 million for fiscal 1995 and 1996, respectively.
Excluding the results of HDG, operating expenses increased $0.9 million (6.0%)
from $14.9 million to $15.8 million. The increase was primarily due to time
spent by certain management personnel (who previously charged their time to
general and administrative and other activities) on operating activities
partially offset by (i) an overall decrease in insurance premiums due to a
change in carriers effective on July 1, 1995 and (ii) a reduction in
expenditures related to regulatory requirements in the Northeast region.
General and Administrative Expenses. General and Administrative expenses
decreased by $0.4 million (5.9%) from $6.8 million to $6.4 million for fiscal
1995 and 1996, respectively. Excluding the results of HDG, general and
administrative expenses decreased $0.6 million (8.8%) from $6.8 million to $6.2
million. The decrease was primarily due to (i) a decrease in third party
acquisition costs related to a cessation or decline in acquisitions prospects
which were actively pursued during the prior year, partially offset by
acquisition related activity of the Company's newly formed subsidiary (CHI
Power, Inc.), coupled with the expensing of pumped storage development costs
which were previously capitalized; (ii) a decrease in travel, meetings, and
seminars as part of an overall cost reduction effort made by the Company; and
(iii) a reduction in time spent by certain management personnel on general and
administrative activities offset by an increase in administrative salaries and
benefits due to costs associated with CHI Power, Inc., coupled with a severance
accrual for the Company's former President.
34
<PAGE>
Depreciation and Amortization. Depreciation and amortization increased by
$0.2 million (2.1%) from $9.6 million to $9.8 million for fiscal 1995 and 1996,
respectively. Excluding the results of HDG, depreciation and amortization
decreased $0.6 million (6.7%) from $9.0 million to $8.4 million. The decrease
was primarily due to a write-down of impaired assets in fiscal 1996 as a result
of the implementation of SFAS 121 (see "-- SFAS 121 -- Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
Note 5 of the Notes to Consolidated Financial Statements).
Interest Expense
Interest expense increased by $5.1 million (23.4%) from $21.8 million to
$26.9 million for fiscal 1995 and 1996, respectively. Excluding the results of
HDG, interest expense increased $2.9 million (14.2%) from $20.4 million to $23.3
million. The increase was primarily due to the increasing principal balance of
the Senior Discount Notes which resulted in a corresponding increase in interest
expense and the effect of expensing interest (for the second half of fiscal
1996) that had been capitalized during the prior fiscal year.
SFAS 121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of
The Company implemented Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ("SFAS 121") in the second quarter of fiscal 1996. This
statement establishes accounting standards for determining impairment of
long-lived assets and long-lived assets to be disposed of. The Company
periodically assesses the realizability of its long-lived assets and evaluates
such assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets (or group of assets) may not be
recoverable. For assets in use or under development, impairment is determined to
exist if the estimated future cash flow associated with the asset, undiscounted
and without interest charges, is less than the carrying amount of the asset.
When the estimated future cash flow indicates that the carrying amount of the
asset will not be recovered, the asset is written down to its fair value.
In light of the Company's planned sale of certain of its conventional
hydroelectric projects, recent industry trends (including the continued decline
in electricity prices and other factors stemming from the deregulation of the
electric power industry), the timing of the expiration of the fixed rate period
of some of its long-term power sales contracts and other indications of a
decline in the fair value of certain of its conventional hydroelectric projects,
the Company determined that certain of these projects (including properties
which are not included among those to be sold) were impaired pursuant to the
criteria established under SFAS 121. The Company also determined that due to the
factors noted above, as well as its current financial position, it is highly
unlikely that the Company will successfully develop its pumped storage projects.
As a result of the factors noted above, in fiscal 1996 the Company recorded
an impairment charge of $87.2 million as a component of its loss from
operations. In addition, a deferred tax benefit and a benefit for minority
interests in loss of consolidated subsidiaries of $7.9 million and $2.1 million,
respectively, were recorded as of that date. Of the total charges, $38.5 million
was attributable to pumped storage development assets, resulting in an aggregate
remaining carrying value of such assets of $0.1 million, $44.9 million was
attributable to certain conventional hydroelectric assets, resulting in an
aggregate remaining carrying value for such written down assets of $26.0
million, and $3.8 million was attributable to an other than temporary decline in
the value of certain investments in partnerships which own hydroelectric
facilities, resulting in an aggregate remaining carrying value of such assets of
$0.8 million. In accordance with SFAS 121, the carrying value of these written
down assets now reflects management's best estimate as to their fair value,
although there can be no assurance that future events or changes in
circumstances will not require that such assets, or other of the Company's
assets, be written down in the future.
In conjunction with the adoption of SFAS 121, during the third quarter the
Company re-evaluated the useful lives of certain property, plant and equipment
and intangible assets. This resulted in a reduction of the estimated useful
lives of these fixed and intangible assets. This change had the effect of
increasing the loss from operations and the loss net of tax benefit by
approximately $0.5 million for the year ended June 30, 1996.
Minority Interests in Loss of Consolidated Subsidiaries
The Company recognized a benefit of approximately $2.1 million for the year
ended June 30, 1996 resulting from the minority shareholders' interest in the
loss of certain consolidated subsidiaries related to the write-down of pumped
storage development assets in accordance with SFAS 121 (discussed above).
35
<PAGE>
Benefit for Income Taxes
The Company recognized a deferred tax benefit of approximately $8.0 million
for the year ended June 30, 1996. The benefit relates to the write-down of
certain long-lived assets in accordance with SFAS 121 (discussed above). The
effective tax rate of the deferred benefit recognized from the write-down
differs from the federal statutory rate due to the reduction of deferred tax
liabilities offset by the increase in the valuation allowance attributable to
tax assets related to net operating loss carryforwards. The valuation allowance
increased due to the reduction of taxable temporary differences for book
depreciation and amortization previously projected to be recognized during the
net operating loss carryforward period.
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
Operating Revenues
Power Generation Revenue. Power generation revenue increased $3.2 million
(8.8%) from $36.2 million to $39.4 million for fiscal 1994 and 1995,
respectively. Excluding the 1995 results of HDG, acquired on February 16, 1995,
power generation revenue increased $1.2 million (3.3%) from $36.2 million to
$37.4 million.
The Northeast region experienced decreased revenues of $0.8 million
primarily attributable to unusually low water flow in the fourth quarter of
1995. The Southeast region had a $1.5 million increase in revenues, primarily
attributable to the effects of above average water flow in 1995 versus below
average in 1994. The West and Northwest regions combined, experienced increased
revenues of $0.5 million, primarily resulting from the full year effect of the
acquisition of two projects aggregating 2.4 megawatts in June 1994, coupled with
above average water flows for the West region in 1995 versus below average in
1994.
The Company as a whole experienced decreased revenue per kilowatt hour of
0.4(cent) (5.1%) from 7.8(cent) to 7.4(cent) in The 1995 fiscal period versus
the 1994 fiscal period, respectively. Excluding the results of HDG, revenue per
kilowatt hour decreased 0.3(cent) (3.8%) from 7.8(cent) to 7.5(cent), primarily
as a result of variations in the production mix and contraCT rates among the
various projects.
Management Fees and Operations & Maintenance Revenues. Management fees and
O&M contract revenue decreased by $1.4 million (24.6%) from $5.7 million to $4.3
million for fiscal 1994 and 1995, respectively. Excluding the 1995 results of
HDG, management fees and O&M revenues decreased $1.5 million (26.3%) from $5.7
million to $4.2 million, primarily due to higher than normal revenues earned in
1994, relating to significant special work performed at a Northeast O&M
facility, offset slightly by the full-year addition of a Northeast O&M, which
realized base fees plus an additional incentive fee.
Costs and Expenses
Operating Expenses. Operating expenses decreased by $0.6 million (3.6%)
from $16.5 million to $15.9 million for fiscal 1994 and 1995, respectively.
Excluding the 1995 results of HDG, operating expenses decreased $1.6 million
(9.7%) from $16.5 million to $14.9 million, primarily due to a reduction in the
rebillable expenses incurred relating to the significant special work performed
in 1994 at a Northeast O&M facility, as discussed above, offset by: (i) a
significant increase in insurance premiums; (ii) an increase in necessary
repairs needed to maintain operations at several Southeast projects; and (iii)
the recognition of self-insurance deductibles associated with insurance claims.
General and Administrative Expenses. General and Administrative expenses
decreased by $0.5 million (6.8%) from $7.3 million to $6.8 million for fiscal
1994 and 1995, respectively. There was no material impact on general and
administrative expenses resulting from the acquisition of HDG. The decrease was
primarily related to the write-off of acquisition costs in 1994 as a result of a
change in Company policy regarding the treatment of such costs.
Depreciation and Amortization. Depreciation and amortization increased by
$0.9 million (10.3%) from $8.7 million to $9.6 million for fiscal 1994 and 1995,
respectively. Excluding the 1995 results of HDG, depreciation and amortization
increased $0.3 million (3.4%) from $8.7 million to $9.0 million, primarily due
to the full-year effect of the acquisition of three projects in the fourth
quarter of fiscal 1994, coupled with the completion of capital projects related
to the Company's existing facilities.
Charge for Impairment of Long-Lived Assets. The Company wrote off
approximately $1.3 million of its investment in two pumped storage projects
during fiscal 1995 as compared to no write-offs in fiscal 1994.
36
<PAGE>
Interest Expense
Interest expense increased by $2.8 million (14.7%) from $19.0 million to
$21.8 million for fiscal 1994 and 1995, respectively. Excluding the 1995 results
of HDG, interest expense increased $1.4 million (7.4%) from $19.0 million to
$20.4 million, primarily due to the increasing principal balance of the Senior
Discount Notes which resulted in a corresponding increase in interest expense.
Cumulative Effect of Accounting Change
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109") on a
prospective basis. The adoption of SFAS 109 resulted in the recognition of a
deferred credit of $27.6 million, an increase to fixed and intangible assets of
$7.0 million and $1.4 million, respectively, and a charge in 1994 reflecting the
cumulative effect of a change in accounting principle of $19.2 million or $15.17
per share.
LIQUIDITY AND CAPITAL RESOURCES
As more fully described in the Consolidated Financial Statements and
related Notes thereto, the cash flow of the Company was comprised of the
following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
-------------- ---------------- ---------------
<S> <C> <C> <C>
Net cash provided by/(used in):
Operating activities.............. $ 14,172 $ 16,750 $ 14,328
Investing activities.............. 731 (5,720) (43,629)
Financing activities.............. (6,235) (3,878) 31,828
-------------- ---------------- --------------
Net increase in cash and cash equivalents $ 8,668 $ 7,152 $ 2,527
============= ================= ===============
</TABLE>
For the year ended June 30, 1997, the cash flow provided by operating
activities was principally the result of the $5.4 million net loss for such
period, adjusted for $21.2 million of non-cash interest and other charges, $8.7
million of depreciation and amortization and a $0.3 million increase to the
provision for uncollectible accounts receivable, offset by a $5.7 million gain
on early extinguishment of debt, a $1.0 million deferred tax benefit, a $2.9
million decrease in accounts payable and accrued expenses, $0.7 million of
undistributed earnings of affiliates and a $0.4 million increase in prepaid
expenses and other current assets. The cash flow provided by investing
activities was primarily attributable to $12.1 million of net cash proceeds
received from the sale of the CHI Maine assets, offset by $4.4 million of
investments in upgrading existing conventional projects, a $4.9 million increase
in investments and other long term assets and $2.0 million investment in
conventional development during fiscal 1997. The cash flow used in financing
activities was primarily due to the repayment of $6.3 million of project debt
(See - "Summary of Indebtedness") and , offset by a $0.2 million increase in
other long-term liabilities.
Cash provided by operating activities decreased by $2.6 million for the
year ended June 30, 1997 as compared to the year ended June 30, 1996. The
decrease resulted from a $0.5 million increase in income before depreciation and
amortization, non-cash interest and other charges, charge for employee and
director equity participation programs, non-cash charge for impairment of
long-lived assets, benefit relating to deferred tax liabilities, extraordinary
gain on early extinguishment of debt, minority interests in loss of consolidated
subsidiaries, provision for uncollectible accounts receivable and undistributed
earnings of affiliates, offset by a $3.1 million decrease resulting from
variations in other operating items (receivables, prepaid expenses, accounts
payable and accrued expenses).
For the year ended June 30, 1996, the cash flow provided by operating
activities was principally the result of the $88.3 million net loss for such
period, adjusted for an $87.2 million non-cash charge for impairment of
long-lived assets, and benefits of $8.0 million and $2.1 million for deferred
tax and minority interests in loss of consolidated subsidiaries, respectively,
resulting from such impairment charge, $0.3 million in undistributed earnings of
affiliates and a $1.6 million increase in accounts receivable, offset by $9.8
million of depreciation and amortization, $18.2 million for non-cash interest
and other charges and a $1.4 million increase in accounts payable and accrued
expenses. The cash flow used in investing activities was primarily attributable
to $2.2 million of capital expenditures, a $2.4 million investment in
conventional and pumped storage development and a $1.2 million increase in
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<PAGE>
investments and other long-term assets during fiscal 1996. Of the pumped storage
and conventional development expenditures, approximately $1.6 million was
attributable to capitalized interest costs and $1.0 million was attributable to
the funding of committed development capital for the Summit and other pumped
storage projects. The cash flow used in financing activities was due primarily
to repayment of $4.3 million of project debt (see "--Summary of Indebtedness"),
offset by a $0.3 million increase in other long-term liabilities.
Cash provided by operating activities increased by $2.4 million for the
year ended June 30, 1996 as compared to the year ended June 30, 1995. The
increase resulted from a $6.4 million increase in income before depreciation and
amortization, non-cash interest and other charges, charge for employee and
director equity programs, non-cash charge for impairment of long-lived assets,
benefit relating to deferred tax liabilities, extraordinary gain on early
extinguishment of debt, minority interests in loss of consolidated subsidiaries,
provision for uncollectible accounts receivable and undistributed earnings of
affiliates, offset by a $4.0 million decrease resulting from variations in other
operating items (receivables, prepaid expenses, accounts payable and accrued
expenses).
For the year ended June 30, 1995, the cash flow provided by operating
activities was principally the result of the $16.3 million net loss for such
year offset by $15.7 million from a charge for non-cash interest, $9.6 million
of depreciation and amortization, a $1.3 million non-cash charge for impairment
of long-lived assets, $2.4 million of a decrease in accounts receivable and $1.4
million of an increase in amounts payable and accrued expenses. The cash flow
used in investing activities was primarily attributable to $35.5 million
utilized for the acquisitions of the HDG projects and the $6.1 million
investment in pumped storage and conventional development and $2.9 million of
capital expenditures during fiscal 1995. Of the pumped storage and conventional
development expenditures, approximately $1.7 million was attributable to
capitalized interest costs, $0.6 million was financed through non-recourse debt
and approximately $2.9 million was attributable to the funding of committed
development capital for the Summit project. The cash flow provided by financing
activities was largely due to the $35.9 million of additional debt incurred in
connection with the HDG acquisition offset by repayment of $4.9 million of
project debt.
38
<PAGE>
SUMMARY OF INDEBTEDNESS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OUTSTANDING AS OF
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
--------------------- -------------------- --------------------
<S> <C> <C> <C>
Company debt, excluding non-recourse
debt of subsidiaries $ 169,813 $ 151,131 $ 134,506
Non-recourse debt of subsidiaries 100,268 115,489 119,372
Current portion of long-term debt (7,466) (6,462) (4,991)
------------ ------------ ------------
Total long-term debt obligations $ 262,615 $ 260,158 $ 248,887
============= ============ =============
</TABLE>
In October 1993, one of the Company's former senior lenders, Den norske
Bank AS ("DnB"), provided the Company with a $20.0 million unsecured working
capital facility (the "DnB Facility"), which originally had an expiration date
of June 30, 1997. The DnB Facility is pari passu with the Senior Discount Notes.
Under certain limited circumstances, pursuant to the terms of the credit
agreement, DnB had the right, upon notice to the Company, to limit any further
borrowings under the DnB Facility and require the Company to repay any and all
outstanding indebtedness thereunder within one year from the date DnB provides
such notice to the Company.
On December 3, 1996, the Company amended the DnB Facility (the
"Amendment"), which Amendment, among other things, waived previous defaults by
the Company, changed the final expiration date of the DnB Facility to June 30,
1998, reduced (in steps) the total commitment under the DnB Facility from
approximately $5.9 million at June 30, 1996 to zero at June 30, 1998, limited
the use of the DnB Facility solely to letters of credit and modified certain
financial covenants. Since the execution of the Amendment, the Company has
reduced the outstanding letters of credit under the DnB Facility to
approximately $3.1 million in accordance with the terms of the Amendment. The
Company does not currently expect that it will require a revolving credit
facility for additional working capital during fiscal 1997.
The electric power industry in the United States is undergoing significant
structural changes, evolving from a highly regulated industry dominated by
monopoly utilities to a deregulated, competitive industry providing energy
customers with an increasing degree of choice among sources of electric power
supply. The Company will seek to become a provider of reliable, low-cost energy
and related products and services to industrial and utility customers, by taking
advantage of its existing technical and financial expertise and using its
geographic presence to realize economies of scale in administration, operation,
maintenance and insurance of facilities.
Nevertheless, the performance of the Company in the future will be affected
by a number of factors, in addition to the structural changes to the electric
power industry described above. First, the Company competes for hydroelectric
and industrial energy projects with a broad range of electric power producers
including other independent power producers of various sizes and many
well-capitalized domestic and foreign industry participants such as utilities,
equipment manufacturers and affiliates of industrial companies, many of whom are
aggressively pursuing power development programs and have relatively low
return-on-capital objectives. Opportunities to acquire or develop power
generation assets on favorable economic terms in such an environment are
increasingly limited, particularly with regard to hydroelectric facilities.
Second, the Company is highly leveraged and its debt service obligations, the
cash portion of which commence in January 1999, along with its preferred stock
obligations, the cash portion of which commence in September 1998, make it
difficult to source capital on favorable terms that would allow the Company to
successfully pursue significant acquisition and development opportunities. Such
leverage and debt service obligations also make it difficult to establish the
creditworthiness necessary to develop projects and in several recent instances
have adversely affected the Company's ability to obtain contracts to develop
products and services for its industrial and utility customers.
Federal regulators and a number of states, including some in which the
Company operates, have opened access to the transmission grid and are exploring
ways in which to further increase competition in electricity markets, most
notably by instituting customer choice of power suppliers at the retail level.
Although the character and extent of this deregulation are as yet unclear, the
Company expects that these efforts will increase uncertainty with respect to
future power prices and make it more difficult to obtain long-term power
purchase contracts.
Commencing on September 30, 1998, however, cash dividends become payable on
the Company's 13 1/2% Cumulative Redeemable Exchangeable Preferred Stock (the
"Series H Preferred Stock") and on January 15, 1999, cash interest becomes
payable on the Company's Senior Discount Notes. CHI
39
<PAGE>
believes it will be unable to satisfy such dividend and interest payment
obligations on a timely basis as well as meet CHI's other obligations, including
accrued and unpaid dividends since issuance under the Series F Preferred Stock,
and its capital expenditure and working capital requirements at such time. In
addition, CHI anticipates that it will be unable to satisfy the principal
payments on its Senior Discount Notes at their maturity in 2003 and to redeem
the Series H Preferred Stock at its 2003 redemption date.
On March 20, 1997, the Company, at a meeting with certain holders of the
Senior Discount Notes (the "Bondholders"), announced an outline for its current
business strategy and made a proposal to restructure its outstanding debt and
equity. Subsequently, the Bondholders formed a committee to discuss a possible
restructuring with the Company (the "Unofficial Bondholders' Committee"). On
June 4, 1997, CHI reached an agreement in principal with the Unofficial
Bondholders' Committee on the terms of a proposed restructuring to be
accomplished pursuant to a plan of reorganization for CHI under chapter 11 of
the Bankruptcy Code (the "Plan of Reorganization"). On August 8, 1997, pursuant
to a disclosure statement dated August 8, 1997, CHI commenced the solicitation
of votes from holders of Senior Discount Notes and Preferred Stock for the
acceptance or rejection of the Plan of Reorganization. This solicitation was
conducted prior to the filing by CHI of a case under chapter 11 of the
Bankruptcy Code so as to significantly shorten the pendency of the case and to
simplify its administration. The solicitation was successfully completed on
September 9, 1997, and CHI commenced the chapter 11 case on September 15, 1997
in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). None of CHI's subsidiaries has commenced a case under the
Bankruptcy Code.
Under the proposed Plan of Reorganization, CHI's Senior Discount Notes,
will be converted into, among other things, $15 million in cash and 100% of the
shares of CHI's new common stock to be issued on the Effective Date (the "New
Common Stock"), subject to dilution from the New Warrants and the Management
Options (each as described below); the holders of Preferred Stock will exchange
such stock for warrants to purchase up to 12.5% of the New Common Stock (the
"New Warrants"), subject to dilution from the Management Options; and CHI's old
common stock will be cancelled. CHI's senior management will receive options to
purchase up to an aggregate of 7.5% of the New Class A Common Stock (the
"Management Options"), subject to dilution from the New Warrants. In addition,
certain members of CHI's senior management team are expected to enter into new
employment agreements in connection with the restructuring.
It is a condition of the proposed Plan of Reorganization that CHI have
credit available under a working capital facility, to provide reorganized CHI
with (i) access to letters of credit for projects, (ii) working capital to meet
its ordinary and peak requirements and (iii) additional borrowings to support
future projects. However, satisfaction of this requirement may be waived by the
Bankruptcy Court subject to prior waiver by CHI and the Unofficial Bondholders'
Committee.
Certain statements contained herein that are not related to historical
facts may contain "forward looking" information, as that term is defined in the
Private Securities Litigation Reform Act of 1995. Such statements are based on
the Company's current beliefs as to the outcome and timing of future events, and
actual results may differ materially from those projected or implied in the
forward looking statements. Further, certain forward looking statements are
based upon assumptions of future events which may not prove to be accurate. The
forward looking statements involve risks and uncertainties including, but not
limited to, the uncertainties relating to the Company's existing debt, industry
trends and financing needs and opportunities; risks related to hydroelectric,
industrial energy, pumped storage and other acquisition and development
projects; risks related to the Company's power purchase contracts; risks and
uncertainties related to weather conditions; and other risk factors detailed
herein and in other of the Company's Securities and Exchange Commission filings.
See Part I, Item 1 "--Certain Risk Factors".
40
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
- - - ------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Consolidated Hydro, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Consolidated
Hydro, Inc. and its subsidiaries at June 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Notes 1 and 20, Consolidated Hydro, Inc., the parent company,
filed a plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code on
September 15, 1997. None of the Company's subsidiaries has commenced a case
under the Bankruptcy Code. The outcome of the bankruptcy proceedings is not
presently determinable. Accordingly, the accompanying financial statements do
not include any adjustments or provide for the consequences of the bankruptcy
proceedings.
/s/ Price Waterhouse LLP
New York, New York
September 26, 1997
41
<PAGE>
CONSOLIDATED HYDRO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 and 1995
(Amounts in thousands except share and per share amounts)
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C> <C> <C>
OPERATING REVENUES:
Power generation revenue $ 50,665 $ 49,761 $ 39,387
Management fees and operations & maintenance revenues 5,395 4,986 4,326
Equity income in partnership interests and other partnership income 1,320 737 245
----------- ----------- ----------
57,380 55,484 43,958
----------- ----------- ----------
COSTS AND EXPENSES:
Operating 18,015 17,957 15,895
General and administrative 8,422 6,447 6,799
Charge for employee and director equity participation programs 100 259 339
Depreciation and amortization 8,661 9,846 9,625
Lease expense to a related party 3,549 3,532 3,495
Lease expense to unrelated parties 2,215 2,540 2,258
Charge for/adjustment to impairment of long-lived assets 83 87,202 1,272
----------- ----------- ----------
41,045 127,783 39,683
----------- ----------- ----------
Income/(loss) from operations 16,335 (72,299) 4,275
INTEREST INCOME 1,661 1,032 1,416
OTHER INCOME 434 368 185
INTEREST EXPENSE ON INDEBTEDNESS TO RELATED PARTIES (10,519) (9,927) (7,001)
INTEREST EXPENSE ON INDEBTEDNESS TO UNRELATED PARTIES (19,072) (16,949) (14,777)
MINORITY INTERESTS IN LOSS OF CONSOLIDATED SUBSIDIARIES --- 2,063 3
----------- ----------- ----------
Loss before benefit/(provision) for income taxes and extraordinary item (11,161) (95,712) (15,899)
BENEFIT/(PROVISION) FOR INCOME TAXES 119 7,381 (377)
----------- ----------- ----------
Loss before extraordinary item (11,042) (88,331) (16,276)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT (NET OF INCOME TAX OF $3,414) 5,658 --- ---
----------- ----------- ----------
NET LOSS $ (5,384) $ (88,331) $ (16,276)
=========== =========== ==========
NET LOSS APPLICABLE TO COMMON STOCK:
Net loss $ (5,384) $ (88,331) $ (16,276)
Dividends declared on preferred stock (14,911) (13,057) (11,433)
Accretion of preferred stock (857) (857) (857)
Undeclared dividends on cumulative preferred stock (10,123) (9,818) (9,818)
----------- ----------- ----------
$ (31,275) $ (112,063) $ (38,384)
=========== =========== ==========
NET LOSS PER COMMON SHARE:
Loss before extraordinary item $ (28.72) $ (87.45) $ (30.21)
Extraordinary item 4.40 --- ---
----------- ----------- ----------
$ (24.32) $ (87.45) $ (30.21)
=========== =========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 1,285,762 1,281,516 1,270,614
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
42
<PAGE>
CONSOLIDATED HYDRO, INC.
CONSOLIDATED BALANCE SHEET
As of June 30, 1997 and 1996
(Amounts in thousands except share and per share amounts)
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6
------- -------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents unrestricted $ 24,247 $ 10,598
Cash and cash equivalents restricted 8,255 13,236
Accounts receivable, net 6,803 7,854
Prepaid expenses and other current assets 1,698 1,353
------------ ----------
Total current assets 41,003 33,041
PROPERTY, PLANT AND EQUIPMENT, NET 125,954 126,133
FACILITIES UNDER DEVELOPMENT 100 1,217
INTANGIBLE ASSETS, NET 47,785 50,746
ASSETS TO BE DISPOSED OF 1,914 15,066
INVESTMENTS AND OTHER ASSETS 26,872 18,454
------------ ----------
$ 243,628 $ 244,657
============ ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 6,458 $ 9,599
Current portion of long-term debt payable to a related party 3,234 2,305
Current portion of long-term debt and obligations under capital leases payable
to unrelated parties 4,232 4,157
------------ ----------
Total current liabilities 13,924 16,061
LONG-TERM DEBT PAYABLE TO RELATED PARTIES 90,918 87,406
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES PAYABLE TO UNRELATED PARTIES 171,697 172,752
DEFERRED CREDIT, STATE INCOME TAXES AND OTHER LONG-TERM LIABILITIES 42,396 38,461
COMMITMENTS --- ---
MANDATORILY REDEEMABLE PREFERRED STOCK, $.01 PAR VALUE, AT REDEMPTION
VALUE OF $1,000 PER SHARE, JUNIOR IN LIQUIDATION PREFERENCE TO SERIES F
PREFERRED STOCK:
Series H, 136,950 shares authorized, issued and outstanding ($119,923 and $105,012 liquidation
preference in 1997 and 1996, respectively) 114,372 98,604
------------ ----------
Total liabilities and mandatorily redeemable preferred stock 433,307 413,284
------------ ----------
STOCKHOLDERS' DEFICIT:
Preferred stock, $.01 par value, at redemption value of $1,000 per share:
Series F, 56,279 and 55,000 shares authorized issued and outstanding in 1997 and 1996,
respectively ($56,279 and $55,000 liquidation preference in 1997 and 1996, respectively) 49,356 49,356
Series G, 56,279 and 55,000 shares authorized issued and outstanding in 1997 and 1996,
respectively($56,279 and $55,000 liquidation preference in 1997 and 1996, respectively) 49,356 49,356
Class A common stock, $.001 par value, 9,000,000 shares authorized, 3,831,683
and 4,576,925 unissued
shares reserved, 1,834,235 and 1,834,235 shares issued and 1,285,762 and 1,285,762 shares
outstanding for the years ended 1997 and 1996, respectively 2 2
Class B common stock, $.001 par value, 1,000,000 shares authorized, 246,510
unissued shares reserved,
no shares issued and outstanding --- ---
Additional paid-in capital, including $5,966 related to warrants 13,497 13,497
Accumulated deficit (280,579) (259,427)
------------ ----------
(168,368) (147,216)
Less: Deferred compensation (250) (350)
Treasury stock (common: 548,473 shares), at cost (21,061) (21,061)
------------ ----------
Total stockholders' deficit (189,679) (168,627)
------------ ----------
$ 243,628 $ 244,657
------------ ----------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
43
<PAGE>
CONSOLIDATED HYDRO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 and 1995
(Amounts in thousands except share and per share amounts)
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,384) $ (88,331) $ (16,276)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Non-cash interest and other charges 21,179 18,181 15,660
Charge for employee and director equity participation programs 100 259 339
Non-cash charge for/adjustment to impairment of long-lived assets 83 87,202 1,272
Benefit relating to deferred tax liabilities (1,032) (7,951) ---
Extraordinary gain on early extinguishment of debt (5,658) --- ---
Depreciation and amortization 8,661 9,846 9,625
Minority interests in loss of consolidated subsidiaries --- (2,063) (3)
Increase in the provision for uncollectible accounts receivable 287 176 ---
Undistributed earnings of affiliates (696) (317) ---
(Increase)/decrease in accounts receivable (47) (1,575) 2,366
Increase in prepaid expenses (375) (40) (5)
(Decrease)/increase in accounts payable and accrued expenses (2,946) 1,363 1,350
---------- ----------- ---------
Net cash provided by operating activities 14,172 16,750 14,328
---------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of acquisitions --- --- (35,503)
Proceeds from disposition of assets 12,063 --- ---
Cost associated with disposition of assets (61) --- ---
Cost of development expenditures (2,045) (2,381) (6,086)
Decrease in long-term notes receivable --- 179 567
Increase in long-term notes receivable --- (58) (319)
Capital expenditures (4,358) (2,230) (2,905)
(Increase)/decrease in investments and other long-term assets (4,868) (1,230) 617
---------- ----------- ---------
Net cash provided by/(used in) investing activities 731 (5,720) (43,629)
---------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of refinancing costs (310) --- ---
Long-term borrowings from related parties --- --- 35,900
Long-term borrowings from unrelated parties 149 120 1,168
Payments to a related party on long-term borrowings (2,304) (269) (488)
Payments to unrelated parties on long-term borrowings (3,999) (4,018) (4,402)
Increase/(decrease) in other long-term liabilities 229 289 (350)
---------- ----------- ---------
Net cash (used in)/provided by financing activities (6,235) (3,878) 31,828
---------- ----------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 8,668 7,152 2,527
CASH AND CASH EQUIVALENTS, AT BEGINNING OF THE YEAR 23,834 16,682 14,155
---------- ----------- ---------
CASH AND CASH EQUIVALENTS, AT END OF THE YEAR $ 32,502 $ 23,834 $ 16,682
========== =========== =========
</TABLE>
(continued)
44
<PAGE>
CONSOLIDATED HYDRO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 and 1995
(Amounts in thousands except share and per share amounts)
(continued)
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest paid to a related party $ 4,275 $ 2,720 $ 1,406
========== ========== =========
Interest paid to unrelated parties $ 5,047 $ 6,865 $ 6,309
========== ========== =========
Income taxes, net $ 288 $ 622 $ 349
========== ========== =========
SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
INVESTING:
The Company acquired the common stock or hydroelectric assets of certain entities
amounting to the following:
Fair value of assets acquired $ 28 $ --- $ 49,165
Cash paid --- --- 35,503
---------- ---------- ---------
Liabilities assumed $ 28 $ --- $ 13,662
========== ========== =========
</TABLE>
FINANCING:
Series H mandatorily redeemable preferred stock increased $857 for the years
ended 1997, 1996 and 1995, as a result of the accretion of the difference
between the fair market value at issuance and the redemption value.
Series H mandatorily redeemable preferred stock increased $14,911, $13,057 and
$11,433 for the years ended June 30, 1997, 1996 and 1995, respectively as a
result of declared dividends which increased the liquidation preference of the
series H preferred stock.
Long-term debt and obligations under capital leases increased by $20,066,
$17,913 and $15,515 for the years ended June 30, 1997, 1996 and 1995,
respectively, as a result of non-cash interest.
The Company issued 1,279 shares of series F preferred stock and 1,279 shares of
series G preferred stock in exchange for shares of stock in a majority owned
subsidiary of the Company.
In connection with the disposition of certain assets by the Company, long-term
debt was reduced by approximately $1.2 million.
The accompanying notes are an integral part of the consolidated
financial statements.
45
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED HYDRO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY/(DEFICIT)
FOR THE YEARS ENDED ENDED JUNE 30, 1995, 1996 and 1997
(Amounts in thousands except shares and per share amounts)
PREFERRED STOCK COMMON STOCK
--------------- ------------
TOTAL
NUMBER NUMBER ADDITIONAL STOCKHOLDERS'
OF SHARES REPORTED OF SHARES PAR PAID-IN ACCUMULATED DEFERRED TREASURY EQUITY/
OUTSTANDING AMOUNT OUTSTANDING VALUE CAPITAL DEFICIT COMPENSATION STOCK DEFICIT)
----------- --------- ----------- ----- --------- ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE JUNE 30, 1994 110,000 $ 98,712 1,266,298 $ 2 $ 12,877 $ (128,616) $ (328) $ (21,061) $ (38,414)
Annual dividend of $83.48 per
share, mandatorily redeemable
Series H Preferred (11,433) (11,433)
Accretion of Series H
Preferred (857) (857)
Issuance of common stock and
related deferred compensation 12,400 620 (620) ---
Recognition of board of directors
and employee compensation
expense related to the
issuance of common stock 110 110
Compensation expense related to
conversion of Performance Unit
Plan to Stock Option Plan in 1993 229 229
Net loss (16,276) (16,276)
------- ------ --------- --- ------ --------- ---- ---------- ---------
BALANCE JUNE 30, 1995 110,000 98,712 1,278,698 2 13,497 (157,182) (609) (21,061) (66,641)
Annual dividend of $95.34
per share, mandatorily
redeemable Series H Preferred (13,057) (13,057)
Accretion of Series H Preferred (857) (857)
Issuance of Class A common
stock, $.001 par value 7,064
Recognition of board of
directors and employee
compensation expense related to
the issuance of common stock 160 160
Compensation expense related
to conversion of Performance
Unit Plan to Stock Option
Plan in 1993 99 99
Net loss (88,331) (88,331)
------- ------ --------- --- ------ --------- ------ -------- ----------
BALANCE JUNE 30, 1996 110,000 98,712 1,285,762 2 13,497 (259,427) (350) (21,061) (168,627)
Annual dividend of $108.88
per share, mandatorily
redeemable Series H Preferred (14,911) (14,911)
Accretion of Series H Preferred (857) (857)
Recognition of employee
compensation expense related
to the issuance of
common stock 100 100
Issuance of preferred stock 2,558
Net loss (5,384) (5,384)
------- -------- --------- --- -------- ----------- ------- ---------- -----------
BALANCE JUNE 30, 1997 112,558 $ 98,712 1,285,762 $ 2 $ 13,497 $ (280,579) $ (250) $ (21,061) $(189,679)
======= ======== ========= === ======== =========== ======= ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
46
<PAGE>
CONSOLIDATED HYDRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or
as otherwise noted)
NOTE 1 - ORGANIZATION
Consolidated Hydro, Inc., ("CHI", and together with its consolidated
subsidiaries, the "Company") has, since its establishment in 1985, been engaged
principally in the development, operation and management ("O&M") of
hydroelectric power plants. As of June 30, 1997, 1996 and 1995, it had ownership
interests in, leased and/or operated projects with a total operating capacity of
343, 344 and 379 megawatts ("MW"), respectively. Commencing in November 1995,
the Company began to diversify its business activities to include the
development, ownership and operation of industrial infrastructure facilities.
Currently, all of the Company's revenue is derived from the ownership and
operation of hydroelectric facilities.
In 1992, the Company entered into an agreement (the "Purchase Agreement")
with The Morgan Stanley Leveraged Equity Fund II, L.P. and Madison Group, L.P.
(collectively, the "Investor Group") that provided for, among other things, the
sale to the Investor Group of $110.0 million of newly issued convertible
preferred stock and certain warrants (the "Recapitalization") (Note 13). Among
other terms and conditions of the Purchase Agreement and in conjunction with the
Recapitalization, approximately $34.3 million of the Company's outstanding
indebtedness and related accrued interest, including approximately $2.9 million
of project debt, was retired and approximately 36% of the Company's outstanding
common stock and all issued warrants were redeemed.
In 1993, the Company completed the sale of 12% Senior Discount Notes due
2003, Series B (the "Senior Discount Notes") and preferred stock with attached
warrants for an aggregate sale price of $182.4 million and retired approximately
$138.7 million of existing debt and preferred stock with an additional $9.5
million of debt called pursuant to a minimum 30-day redemption notification in
June 1993 and repaid in July 1993 (the "Refinancing").
On September 15, 1997, CHI commenced a case under chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") and filed the plan of reorganization (the
"Plan of Reorganization") and the disclosure statement dated August 8, 1997 (the
"Disclosure Statement"). Pursuant to an order of the Bankruptcy Court signed on
September 15, 1997, a hearing before the Bankruptcy Court to consider
confirmation of the Plan of Reorganization is scheduled to be held on October
23, 1997. CHI anticipates (but can give no assurance) that, if the Bankruptcy
Court enters an order confirming the Plan of Reorganization on or about October
23, 1997, the Plan of Reorganization will become effective before December 31,
1997 (the date of such effectiveness being the "Effective Date").
Through the implementation of the Plan of Reorganization on and after the
Effective Date, it is anticipated that CHI's most significant financial
obligations will be restructured as follows: $202 million in face amount of
outstanding Senior Discount Notes will be converted into, among other things,
$15 million in cash and 100% of the shares of CHI's new common stock, consisting
of shares of new class A common stock (the "New Class A Common Stock") and
shares of new class B common stock (the "New Class B Common Stock", and together
with the New Class A Common Stock, the "New Common Stock"), to be issued on the
Effective Date, subject to dilution from the New Warrants and the Management
Options (each as described below); the holders of the Company's preferred stock
will exchange such stock for warrants to purchase up to 12.5% of the New Common
Stock (the "New Warrants"), subject to dilution from the Management Options; and
CHI's old common stock will be cancelled. CHI's senior management will receive
options to purchase up to an aggregate of 7.5% of the New Class A Common Stock
(the "Management Options"), subject to dilution from the New Warrants. As a
result of the restructuring, it is anticipated that, other than a working
capital facility to be entered into as of the Effective Date, CHI will not have
any significant debt obligations after the Effective Date.
47
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Consolidated
Hydro, Inc., its subsidiaries, the majority of which are wholly owned, and
partnership interests. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain amounts have been reclassified in
1996 and 1995 to be in conformity with 1997 presentation.
USE OF MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE
Power generation revenue is recognized based on power delivered at rates
stipulated in the respective power contracts. Emerging Issues Task Force (EITF)
Issue 91-6, "Revenue Recognition of Long-Term Power Sales Contracts" addressed
and reached consensus on certain revenue recognition questions raised by the
terms and pricing arrangements of long-term power sales contracts between
non-utility power generators and rate-regulated utilities. The Company is in
compliance with the accounting treatments discussed and the consensus reached.
Management fees and operations and maintenance revenues are earned in
conjunction with operation and maintenance services provided to third parties
under contractual agreements. Costs associated with rendering these services are
included in operating expenses.
EQUITY INCOME FROM PARTNERSHIPS AND OTHER PARTNERSHIP INCOME
In accordance with generally accepted accounting principles, certain of the
Company's partnership interests are accounted for under the equity method and
the cost method of accounting.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with maturities
when purchased of three months or less to be cash equivalents. A portion of cash
is restricted by specific project-related agreements, which generally mandate
that cash must first be utilized solely for funding operations and/or the
payment of debt associated with the project. As a result, restricted cash is
generally not available for general corporate purposes.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost (Note 8). Renewals and
betterments that increase the useful lives of the assets are capitalized. Repair
and maintenance expenditures that increase the efficiency of the assets are
expensed as incurred.
Plant and equipment are depreciated on the straight-line method over the
estimated useful lives of the respective assets (generally 50 years for dam and
appurtenant structures and 30 years for mechanical and electrical equipment).
Depreciation expense was $5,654, $6,042 and $5,872 in 1997, 1996 and 1995,
respectively.
ASSETS TO BE DISPOSED OF
The Company has reached agreements to sell or decommission four
hydroelectric facilities located in California and Oregon and classifies these
assets as Assets to be disposed of at June 30, 1997. These assets are stated at
the lower of their carrying amount or fair value less estimated costs to sell.
See Note 20 for further discussion.
48
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FACILITIES UNDER DEVELOPMENT
Costs associated with facilities under development, including acquisition
costs of property, plant and equipment, intangible assets and investments are
transferred to construction in progress or investments as appropriate, upon the
commencement of construction. Facilities under development are those that have
not yet commenced the construction phase primarily because all the requisite
permits and contracts have not yet been obtained and generally represent a
higher level of risk than those projects under construction.
INTEREST CAPITALIZATION
The Company capitalizes interest costs associated with the development and
construction of its facilities. Interest capitalized in 1997, 1996 and 1995 is
disclosed in Note 11.
INTANGIBLE ASSETS
Intangible assets principally include costs incurred in connection with
power purchase agreements, Federal Energy Regulatory Commission ("FERC")
licenses and goodwill, all of which are capitalized and amortized on a
straight-line basis over the periods to be benefited by such costs, ranging from
3 to 40 years (Note 9). Amortization expense was $3,007, $3,804, and $3,753 in
1997, 1996 and 1995, respectively. Legal, compliance and other related
expenditures incurred in connection with the maintenance of power purchase
agreements and FERC licenses are capitalized and amortized over the remaining
term of the applicable contract or license. Management periodically reviews
intangibles, including goodwill, for potential impairments.
BUSINESS DEVELOPMENT COSTS
. The Company expenses all business development related costs as incurred.
Until a viable purchase and sale agreement, or other material project
development documents are signed in respect of a prospective transaction. From
thereon, all third party, project specific, business development related costs
are capitalized.
TREASURY STOCK
The Company accounts for treasury stock under the cost method.
INCOME TAXES
The Company provides for deferred income taxes based on differences in
reporting certain income and expense items for federal income tax and financial
reporting purposes. The Company accounts for energy and investment tax credits
using the flow-through method as a reduction of the provision for federal income
taxes in the year in which such credits are utilized. The Company accounts for
income taxes under the liability method required by Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109").
NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing the net loss for the
year, adjusted for accretion of preferred stock and preferred dividends, by the
weighted average number of common shares outstanding. Common stock equivalents
are not included in the computation of net loss per common share as they would
be antidilutive to the computation.
49
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128") which
adjusts the reporting of earnings per share ("EPS") for financial statements for
periods ending after December 15, 1997. Under SFAS 128, the reporting of primary
EPS will be replaced by "basic" EPS, which is calculated by dividing the income
available to common stockholders by the weighted average number of common shares
outstanding for the period, without consideration for common stock equivalents.
Fully diluted EPS will be replaced by "diluted" EPS, which will be similar to
fully diluted EPS as previously computed. Due to the Company's generation of
losses, there is no difference anticipated between primary EPS as reported by
the Company and "basic" EPS as computed under SFAS 128.
NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist principally of investments in short term
interest bearing instruments and because of the short maturity of these items,
the carrying amount approximates fair value.
LONG-TERM INVESTMENTS
The carrying value approximates fair value for certain investments based on
their near - term maturity. These investments in escrow are classified as
long-term in the Balance Sheet due to restrictions imposed under certain
contractual agreements. For other investments, for which there are no quoted
market prices, a reasonable estimate of fair value could not be made without
incurring excessive costs. These investments are mainly in affiliates of the
Company and are accounted for on the cost basis. The investment amounts in the
chart below are exclusive of investments accounted for under the equity method
of $8,177 and $7,512 in 1997 and 1996, respectively.
LONG-TERM DEBT AND REDEEMABLE PREFERRED STOCK
Market rate obligations consist of long-term debt obligations that
approximate their fair value because of interest rates which fluctuate with
market rates.
The fair value of fixed rate obligations is based on discounted future cash
flows using rates currently available to the Company for non-recourse
project-finance loans with similar terms and average maturities. Loans related
to the Company's pumped storage development assets have a fair value based on
the prospects for the development of and fair value of such assets.
The fair value of the Senior Discount Notes and the Company's 13%
Cumulative Redeemabale Exchangeable Preferred Stock ( the "Series H Preferred")
could not be reasonably estimated at June 30, 1996 because there was no public
market for these securities. At June 30, 1997, the fair values of the Senior
Discount Notes and Series H Preferred are based on the midpoint of a range of
values prepared by a third party in connection with the reorganization (Note 1
and Note 20).
50
<PAGE>
NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------- ----- ----------- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and cash equivalents 32,502 32,502 23,834 23,834
Long-term investments for which it is:
practicable to estimate fair value 8,184 8,184 2,973 2,973
not practicable 10,501 -- 7,949 --
Long-term debt:
market rate obligations 33,208 33,208 34,890 34,890
fixed rate obligations 26,518 27,631 23,989 24,725
pumped storage obligations 15,905 100 14,420 100
refinanced obligations -- -- 14,500 4,500
Senior discount notes 169,813 81,400 151,131 --
Series H preferred stock 114,372 882 98,604 --
</TABLE>
NOTE 4 - SALE OF CONSOLIDATED HYDRO MAINE, INC.
On December 23, 1996, the Company through its wholly owned subsidiary, CHI
Universal, Inc., a Delaware corporation ("CHI Universal"), sold Consolidated
Hydro Maine, Inc., a Delaware corporation ("CHI Maine"), to Ridgewood Maine
Hydro Partners, L.P., a Delaware limited partnership (the "Partnership"). CHI
Maine owned and operated 15 hydroelectric projects located in the State of Maine
with an aggregate capacity of 11.32 megawatts (the "Projects"). The sale was
made pursuant to an Agreement of Merger dated as of July 1, 1996 (the "Merger
Agreement"), by and among CHI Maine, CHI Universal, Ridgewood Maine Hydro
Corporation and the Partnership. These assets were reported at their carrying
value of $11.3 million in Assets to be disposed of on the Balance Sheet as of
June 30, 1996.
On the Closing Date (as defined in the Merger Agreement), all of the issued
and outstanding capital stock of CHI Maine was sold to the Partnership for cash.
After final adjustments, the total sale price aggregated approximately $12.9
million and the Partnership assumed a long-term lease obligation of
approximately $1.2 million related to one of the Projects. In fiscal 1997, the
carrying value was adjusted upward by $0.7 million as a result of adjustments to
the final sales price of the assets (Note 5).
The following unaudited pro forma financial information for the fiscal year
ended June 30, 1997 and 1996 has been prepared assuming the disposition of CHI
Maine occurred at the beginning of the periods presented.
(Unaudited)
Twelve Months Ended June 30,
1997 1996
---- - ----
(Pro forma) (Pro forma)
Operating Revenues $ 56,350 $ 51,967
======= =======
Net loss $ (5,742) $(71,486)
======= =======
Net loss per common share $ (24.60) $ (74.30)
======= =======
Weighted average number of common shares 1,285,762 1,281,516
======== ========
51
<PAGE>
NOTE 5 - ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121
"ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF" ("SFAS 121")
The Company implemented SFAS 121 in the second quarter of fiscal 1996. This
statement establishes accounting standards for determining impairment of
long-lived assets and long-lived assets to be disposed of. The Company
periodically assesses the realizability of its long-lived assets and evaluates
such assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets (or group of assets) may not be
recoverable. For assets in use or under development, impairment is determined to
exist if the estimated future cash flow associated with the asset, undiscounted
and without interest charges, is less than the carrying amount of the asset.
When the estimated future cash flow indicates that the carrying amount of the
asset will not be recovered, the asset is written down to its fair value.
In fiscal 1996, in light of the Company's planned sale of certain of its
conventional hydroelectric projects, recent industry trends (including the
continued decline in electricity prices and other factors stemming from the
deregulation of the electric power industry), the timing of the expiration of
the fixed rate period of some of its long-term power sales contracts and other
indications of a decline in the fair value of certain of its conventional
hydroelectric projects, the Company determined pursuant to SFAS 121 that certain
of these projects (including properties which are not included among those to be
sold) were impaired pursuant to the criteria established under SFAS 121. The
Company also determined that due to the factors noted above, as well as its
current financial position, it is highly unlikely that the Company will
successfully develop its pumped storage projects.
In fiscal 1996, the Company recorded an impairment charge of $87.2 million
as a component of its loss from operations. In addition, a deferred tax benefit
and a benefit for minority interests in loss of consolidated subsidiaries of
$8.0 million and $2.1 million, respectively, were recorded as of that date. Of
the total charges, $38.5 million was attributable to pumped storage development
assets, resulting in an aggregate remaining carrying value of such assets of
$0.1 million, $44.9 million was attributable to certain conventional
hydroelectric assets, resulting in an aggregate remaining carrying value for
such written down assets of $26.0 million, and $3.8 million was attributable to
an other than temporary decline in the value of certain investments in
partnerships which own hydroelectric facilities, resulting in an aggregate
remaining carrying value of such assets of $0.8 million.
In fiscal 1997, the Company recorded an impairment charge of $0.1 million
as a component of income from operations. The total charges include an upward
adjustment of $0.7 million to the carrying value of the CHI Maine assets as a
result of adjustments to the final sales price of the assets, a $0.4 million
charge attributable to certain conventional hydroelectric assets held for
decommissioning resulting in a carrying value of such assets of $1.9 million,
and a $0.4 million charge attributable to the write-off of certain development
costs, resulting in a carrying value of zero. The new carrying value of these
written down assets now reflects management's best estimate as to their fair
value although there can be no assurance that future events or changes in
circumstances will not require that such assets, or other of the Company's
assets, be written down in the future.
In conjunction with the adoption of SFAS 121, during the third quarter of
fiscal 1996, the Company re-evaluated the useful lives of certain property,
plant and equipment and intangible assets. This resulted in a reduction of the
estimated useful lives of these fixed and intangible assets. This change had the
effect of increasing the loss from operations and the net loss, net of tax
benefit, by approximately $1.0 million and $0.5 million for the years ended June
30, 1997 and 1996, respectively.
52
<PAGE>
NOTE 6 - ACQUISITIONS
The Company accounts for acquisitions in accordance with the purchase
accounting method. The results of operations for these acquired hydroelectric
projects are included in the accompanying Consolidated Statement of Operations
commencing with the acquisition date.
On February 16, 1995, the Company, through a wholly owned subsidiary, CHI
Acquisitions II, Inc., a Delaware corporation formerly known as HDG
Acquisitions, Inc. ("CHI Acquisitions II"), purchased 100% of the issued and
outstanding capital stock of Hydro Development Group, Inc., a New York
corporation ("HDG"). The stock of HDG was purchased pursuant to a Stock Purchase
Agreement, dated as of December 19, 1994 (the "HDG Purchase Agreement") among
CHI Acquisitions II, HDG and the holders of 100% of the issued and outstanding
capital stock of HDG (the "Sellers") for a total cost of $49.2 million,
comprised of a net cash payment of approximately $35.5 million including CHI's
closing costs, plus certain assumed debt and other liabilities of approximately
$2.7 million and $11.0 million, respectively. HDG's assets include certain
general partnership interests in operating hydroelectric projects. The
acquisition is disclosed in the fiscal 1995 Consolidated Statement of Cash
Flows.
HDG owns either directly, through subsidiaries or through general
partnerships, interests in a total of 16 operating hydroelectric projects with
an aggregate capacity of approximately 33 MWs (the "HDG Projects"). The HDG
Projects are located in the states of New York, Massachusetts and Pennsylvania.
All 16 HDG Projects have power purchase agreements in place that extend for
terms ranging from approximately 5 to 30 years. CHI continues to operate the HDG
Projects according to the terms of their licenses, contracts and permits.
CHI Acquisitions II financed this acquisition through existing cash and two
term loans aggregating $35.9 million provided by Global Projects and Structured
Finance Corporation ("GPSF"), a unit of General Electric Capital Corporation
("GECC"). These two loans are comprised of the "A Loan" in aggregate principal
amount of $29.0 million which is a variable rate loan for a term of 8 years, and
the "B Loan" in the aggregate principal amount of $6.9 million which is a fixed
rate loan for a term of 18 years (Note 11).
53
<PAGE>
NOTE 6 - ACQUISITIONS (CONTINUED)
In February 1990, the Company acquired all of the common stock of TKO
Power, Inc., a California Corporation ("TKO"). TKO was the General Partner and
Limited Partner in certain operating hydroelectric projects located in
California, aggregating approximately 4 MW of capacity. As of January 1, 1997
these partnerships were dissolved and all of the assets were transferred to a
100% owned subsidiary of the Company. Assets of $28 were transferred and
liabilities of $28 were assumed in connection with this transaction. The
transfer was accounted for in accordance with the purchase accounting method.
Pro forma financial information has not been included, as the acquisition is
immaterial to the consolidated financial results of the Company.
In 1988, the Company entered into a $240.0 million acquisition facility
agreement (the "Acquisition Facility") with GECC to provide funds for future
acquisitions. All rights related to the Acquisition Facility terminated on March
25, 1997.
NOTE 7 - POWER GENERATION CONTRACTS
The Company operates facilities which qualify as small power production
facilities under the Public Utility Regulatory Policies Act ("PURPA"). PURPA
requires that each electric utility company, operating at the location of a
small power production facility, as defined, purchase the electricity generated
by such facility at a specified or negotiated price.
The Company sells substantially all of its electrical output to public
utility companies pursuant to long-term power purchase agreements ("PPAs"), of
which the remaining terms range between 6 months and 28 years. Consolidated
power generation revenues, by major customer, for the years ended June 30, 1997,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- ----------
<S> <C> <C> <C>
Commonwealth Electric Co. $ 10,685 $ 9,528 $ 8,509
Niagara Mohawk Power Corporation 10,285 9,139 4,865
New England Power Co. 6,184 5,133 4,942
Central Maine Power Co. 4,615 8,341 6,312
Duke Power Co. 3,428 3,581 3,701
All other customers 15,468 14,039 11,058
-------------- -------------- --------------
$ 50,665 $ 49,761 $ 39,387
============== ============== ==============
</TABLE>
During 1997, 1996 and 1995, the amount shown for Commonwealth Electric Co.
includes approximately $212, $72 and $290, respectively, of business
interruption revenue representing lost generation recoverable from an insurance
company as a result of an insurance claim. During 1997 and 1996, the amount
shown for Duke Power Co. also includes approximately $419 and $767,
respectively, of business interruption revenue from an insurance company as a
result of an insurance claim (Note 17).
On October 6, 1995, Niagara Mohawk Power Corporation ("NIMO"), a customer
of the Company which accounted for approximately 20.3% and 18.4% of consolidated
power sales revenues in fiscal 1997 and fiscal 1996, respectively, submitted a
proposal to the New York State Public Service Commission. NIMO proposed that it
be relieved of its obligations under contracts with independent power producers
("IPPs") that NIMO considers uneconomic. In March 1997, NIMO announced that it
reached preliminary agreements to restructure power purchase agreements with 19
IPPs. However, neither the Company nor any of its subsidiaries participated in
these negotiations, and the impact of the remaining agreements on the Company,
if any, is unknown.
54
<PAGE>
NOTE 7 - POWER GENERATION CONTRACTS (CONTINUED)
The Company has certain PPAs with Duke Power Company and the City of
Seneca, related to projects located in the Southeast region, that expire in
fiscal 1998, commencing in December 1997. Upon expiration of the PPA, the
existing customers are required under PURPA to continue to purchase the
electrical output of each project. However, the output will be sold to the
related customers at avoided cost rates that are substantially lower than the
rates currently in effect under the PPA. The effects of these reduced rates are
not considered to be material to the consolidated results of the Company.
Increased competition in the electricity industry might cause certain
utilities to become higher credit risks. Although the ratings of the debt
securities of many of the utilities which purchase power from the Company are
currently investment grade, there can be no assurance of the long-term
creditworthiness of any of the Company's customers. Should any customer fail, it
might be difficult for the Company to replace the existing long-term contract
with a new contract on similar economic terms in the current environment.
NOTE 8 - PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment includes assets acquired or refinanced under
capitalized lease obligations of $24,455 and $27,525 at June 30, 1997 and 1996,
respectively (Note 11).
Property, plant and equipment comprise the following at June 30, 1997 and
1996:
1997 1996
-------------- --------------
Land $ 3,738 $ 3,610
Dam and appurtenant structures 71,101 68,953
Mechanical and electrical equipment 70,738 69,785
Buildings and other 4,777 4,381
Construction in progress 1,851 534
-------------- --------------
152,205 147,263
Less - accumulated depreciation (26,251) (21,130)
-------------- --------------
$ 125,954 $ 126,133
============== ==============
55
<PAGE>
NOTE 9 - INTANGIBLE ASSETS
Intangible assets comprise the following at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Range of
1997 1996 Asset Lives
------- ----- ------- ----- -----------
<S> <C> <C> <C>
Power purchase contracts $ 23,958 $ 24,243 3 - 32 years
FERC licenses 16,234 16,066 4 - 40 years
Goodwill 17,740 17,740 40 years
Other intangibles 7,881 7,933 3 - 40 years
------------- -------------
65,813 65,982
Less - accumulated amortization (18,028) (15,236)
------------- -------------
$ 47,785 $ 50,746
============= =============
</TABLE>
The majority of the Company's projects have been issued FERC licenses
(extending through years ranging from 2001 to 2037) or have qualified for
exemption from FERC licensing. Additionally, certain of the Company's projects
aggregating 0.8 MW are not subject to licensing or exemption. An exemption
exists for the duration of the life of the facility.
NOTE 10 - ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The Company reviews its accounts receivable for future collectability. As
of June 30, 1997 and 1996, allowance for doubtful accounts on certain
receivables was approximately $382 and $176, respectively. Accounts receivable
comprise the following at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- ---------
<S> <C> <C>
Accounts receivable trade $ 3,956 $ 6,512
Accounts receivable O&M contracts, net 780 739
Accounts receivable insurance claims 1,335 198
Accounts receivable other, net 732 405
------------ ------------
$ 6,803 $ 7,854
======= =======
Accounts payable and accrued expenses, inclusive of related party payments
due to GECC, comprise the following at June 30, 1997 and 1996:
1997 1996
------------ -----------
Accrued interest $ 1,226 $ 2,320
Accounts payable 218 1,006
Accrued lease expense payable to a related party 1,595 1,746
Accrued compensation 945 1,027
Accrued severance (Note 19) 198 1,141
Other accrued expenses 2,276 2,359
------------ ------------
$ 6,458 $ 9,599
============ ============
</TABLE>
56
<PAGE>
NOTE 11 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and capitalized lease obligations comprise the following at
June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Parent Company Debt:
Debt guaranteed or issued by the Parent Company directly - 12% Senior
Discount Notes due 2003, non-cash interest computed on
the basis of semi-annual compounding through July 15, 1998, after
which interest, computed on the face value, becomes
payable semi-annually in cash. $169,813 $151,131
------------ ------------
169,813 151,131
------------ ------------
Non-Recourse Debt of Subsidiaries secured by project assets unless otherwise
noted:
Capitalized lease obligations maturing at various dates through 2008. 24,455 27,525
Term loan agreement with an investor due in quarterly payments through 2003,
interest payable at the CP Rate, as defined, plus a margin of 4.0%,
(9.62% and 9.42% at June 30, 1997 and 1996, respectively).
27,584 28,522
Term loan agreement with an investor due in quarterly payments through
2013, interest payable at a fixed rate of 11.59%. 5,254 6,621
Term loan agreement with a bank, principal due in semi-annual payments
through 2007, interest due quarterly on current loan balance at the
London Interbank Offered Rate ("LIBOR"), as defined, plus a margin of
1.25% (interest at 6.69% at June 30, 1996). Interest due quarterly on
overdue principal payments of $1,624 at June 30, 1996 at the prime rate,
as defined, plus a margin of 2.0% (interest at
10.25% at June 30, 1996). -- 14,500
Term loan agreement with a bank, principal due in quarterly payments
through 2008, beginning on September 30, 1997. Interest due
quarterly at a fixed annual rate of 10.17% through October 29, 2003
and thereafter through maturity, at the U.S. Treasury Note Rate, as
defined, plus 390 basis points. 5,000 --
Note payable to an insurance company, due in monthly payments through
2007, interest at 12.7%. 6,858 7,619
Note payable to an insurance company, due in quarterly payments
through 2003, interest at 11.25%. 6,538 6,795
Term loan agreement with a bank, due in quarterly payments through 2006,
interest at LIBOR, as defined, plus a margin of 2.0%
(interest at 7.78% and 7.47%, at June 30, 1997 and 1996, 2,211 2,700
respectively).
</TABLE>
57
<PAGE>
NOTE 11 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Unsecured notes payable to investors , interest payable annually at
various rates. 5,902 4,972
Term loan agreement with a bank, due in quarterly payments through 2006,
interest at LIBOR, as defined, plus a margin of 2.0% (interest at 7.78%
and 7.47% at June 30, 1997 and 1996,
respectively). 1,766 1,801
Unsecured notes payable to investors , interest payable annually at the
prime rate, as defined (8.50% and 8.25% at June 30, 1997 and 1996,
respectively) for certain notes and 15% for other notes.
4,299 3,968
Security deed held by the previous owners of a hydroelectric facility,
due June 18, 1999. Interest payable monthly at a fixed rate of
11.5%. 1,000 1,000
Notes payable to an insurance company, due in quarterly payments
through 2005, interest rate at 8.5%. 787 850
Term loan agreement with a bank, due in quarterly payments through 2006,
interest at LIBOR, as defined, plus a margin of 2.0% (interest at 7.78%
and 7.47% at June 30, 1997 and 1996,
respectively). 1,283 1,470
Term loan agreement with a bank, due in quarterly payments through 2006,
interest at LIBOR, as defined, plus a margin of 2.0% (7.78%
and 7.47% at June 30, 1997 and 1996, respectively). 364 396
Unsecured notes payable to private investors, due December 31, 1999 and
2003, including accrued interest. Interest accrues annually at 12%. A
minimum of 3.6% of such interest is due in cash each December 31 and if
not paid, accrues interest at a penalty rate
equal to the stated rate plus 3.0%. 820 730
Other long-term liabilities with various rates and maturities. 6,147 6,020
------------ ------------
100,268 115,489
------------ ------------
Total debt and obligations under capital leases 270,081 266,620
Less current portion (7,466) (6,462)
------------ ------------
Total long-term debt and obligations under capital leases $262,615 $260,158
======= =======
</TABLE>
58
<PAGE>
NOTE 11 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
Total interest charges associated with the above obligations were $29,780,
$28,581 and $24,729, of which $189, $1,705 and $2,951, was capitalized in
conjunction with the development and construction of hydroelectric facilities in
1997, 1996 and 1995, respectively. The aggregate long-term debt payments due
each fiscal year ending June 30, including capitalized lease obligations, net of
amounts representing interest totaling $11,238, are as follows:
1998 $ 7,466
1999 6,154
2000 5,478
2001 5,894
2002 6,215
Thereafter 238,874
-------------
$270,081
========
The Senior Discount Notes were issued as part of the Refinancing, at a
substantial discount from their principal amount and provide for cash payment of
interest commencing January 15, 1999. The issue price represents a yield to
maturity of 12% computed on a basis of semi-annual compounding until reaching
face value in 1998, after which interest becomes payable semi-annually at the
stated 12% rate. The Senior Discount Notes are due July 15, 2003 but may be
redeemed at any time on or after July 15, 1998 at the Company's option, in whole
or in part, at 100% of their principal amount plus accrued interest. The Senior
Discount Notes contain restrictive covenants providing for limitations on
indebtedness and restrictions on payments of dividends or distributions of
capital stock, among other restrictions. See Note 1 and Note 20 for effects
resulting from the implementation of the Plan of Reorganization on and after the
Effective Date.
In October 1993, one of the Company's former senior lenders, Den norske
Bank AS ("DnB"), provided the Company with a $20.0 million unsecured working
capital facility (the "DnB Facility"), which originally had an expiration date
of June 30, 1997. On December 3, 1996, the Company amended the DnB Facility (the
"Amendment") which Amendment, among other things, waived previous defaults by
the Company, changed the final expiration date of the DnB Facility to June 30,
1998, reduced (in steps) the total commitment under the DnB Facility from $5.9
million at June 30, 1996 to zero at June 30, 1998, limited the use of the DnB
Facility solely to letters of credit and modified certain financial covenants.
The DnB Facility contains certain affirmative and restrictive covenants
which are generally consistent with the terms of the Senior Discount Notes and
the preferred stock. As of June 30, 1997, the Company was in compliance with its
covenants, as amended, under the DnB Facility. The Company's September 15, 1997
chapter 11 filing with the Bankruptcy Court resulted in an event of default
under the DnB Facility. Subsequently, DnB notified the Company that it will take
no action to enforce it's remedies for such default.
The outstanding letters of credit under the DnB Facility totaled $3,091 and
$5,941 as of June 30, 1997 and 1996, respectively. Fees on each outstanding
letter of credit are computed as follows: (i) 2.0% per annum on the available
amount of such letter of credit, payable quarterly in arrears; (ii) standard
charges in connection with the issuing, administering, amending, processing or
paying any letter of credit; and (iii) costs of confirmation, requested by any
beneficiary, in the amount not to exceed 1/2 of 1.0% per annum based upon the
available amount of the letter of credit.
As of June 30, 1997, capitalized lease obligations consist primarily of two
lease financing transactions on three of the Company's projects. As a result of
the initial transactions, $22,274 in dam and appurtenant structures and $12,239
of mechanical and electrical equipment, in the aggregate, were capitalized. The
leases have initial terms that extend through 2003 and 2008, with renewal
options in minimum one and five year increments. These leases require that lease
payment reserves, with provisions for escalations in the event certain power
sales rates are not attained, be maintained for the respective terms of the
leases. Certain of these reserves must be in cash with the balance in either
cash or letters of credit from an acceptable issuer.
59
<PAGE>
NOTE 11 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
To the extent that it is anticipated that the minimum cash components will
not be used to fund operation expenses or lease payments in the next fiscal
year, these minimum cash components have been included in Investments and other
assets in the accompanying Consolidated Balance Sheet. Further, in connection
with one of the leases, the Company has provided a tax indemnity of an amount
not to exceed $2,750 to the extent certain specified tax benefits, as defined,
are not available to one of the owner participants, as defined. Minimum rental
commitments under these leases for the five years following June 30, 1997 are
included in the table above.
In conjunction with the acquisition of HDG, the Company entered into a
Credit and Reimbursement Agreement dated February 15, 1995, with GECC (Note 6).
The agreement provides for two term loans, the A Loan and B Loan, a revolving
credit facility, and two letters of credit in support of HDG project
obligations. The A Loan, with an outstanding principal balance at June 30, 1997
of $27,584, is secured by the stock and assets of the HDG projects. The B Loan,
with an outstanding principal balance at June 30, 1997 of $5,254, is secured by
certain other projects owned by the Company (Note 20). Each of these loans is
non-recourse to the Company. The agreement also provides for a $3,000 revolving
credit facility through 2013, to be drawn as necessary to pay principal and
interest due on the term loans in the case of insufficient funds resulting from
unusually low water flow. The $3,000 revolving credit facility shall bear
interest at a rate equal to the CP Rate, as defined, plus a margin of 5%. GECC
has also provided two letters of credit totaling $350 in support of certain HDG
projects.
As of June 30, 1996, non-recourse project loans, aggregating $14,500,
remained in default. The $14,500 term loan agreement with a bank was assumed in
conjunction with the acquisition of certain hydroelectric assets. On October 30,
1996, the Company arranged to have a financial institution purchase this
non-recourse project term loan, $13,759 at the date of purchase, (the "Old
Loan") for $5,000, including certain required reserves and closing costs of $500
(the "New Loan"). An additional $2,000 credit facility is also available under
the New Loan for up to one year to finance certain project enhancements. A
subsidiary of the Company was assigned an interest in the balance of the Old
Loan on a basis fully subordinated to the New Loan. As a result, the Company
recorded a $5,658 Extraordinary gain on early extinguishment of debt, net of
certain transaction costs of approximately $187 and income tax of $3,414, on its
Statement of Operations for the fiscal year ended June 30, 1997.
The New Loan, which matures in the year 2008, accrues interest at a fixed
rate of 10.17% per annum through October 29, 2003. Thereafter, through October
30, 2008, interest accrues on a quarterly basis, at a rate equal to the three
year U.S. Treasury Note Rate plus 390 basis points. Principal and interest
payments are to be made quarterly in arrears and mandatory prepayments, if
required, are to be made annually. Costs associated with obtaining the New Loan
have been capitalized and are included in Intangible assets, net on the
Company's Balance Sheet as of June 30, 1997.
The $6,858 note payable to an insurance company was assumed in connection
with an acquisition by the Company. Pursuant to the terms of the note,
substantially all of the acquired hydroelectric assets (approximately $18,900
and $19,300 at June 30, 1997 and 1996, respectively) have been pledged as
security.
The $6,538 note payable to an insurance company was assumed in connection
with another acquisition by the Company. Pursuant to the terms of the note,
substantially all of the acquired hydroelectric assets (approximately $11,786
and $9,526 at June 30, 1997 and 1996, respectively) have been pledged as
security.
The $2,211 term loan agreement (the "Loan Agreement") with a bank was
entered in connection with the acquisition of certain hydroelectric facilities.
The Loan Agreement is secured by the stock of the Company's subsidiary which
acquired the hydroelectric facilities and the subsidiary's interest in certain
limited partnerships as well as certain notes payable, by these limited
partnerships, to the Company.
60
<PAGE>
NOTE 11 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
The $5,902 notes payable to investors relates to the financing for the
Company's majority-owned subsidiary, Summit Energy Storage Inc. ("Summit").
Certain warrants were also issued by Summit as part of the terms of these notes.
Interest is payable annually at December 31 at the prime rate of interest, as
defined (8.50% and 8.25% at June 30, 1997 and 1996, respectively) for certain
notes and 10% for other notes. Unpaid interest balances are added to the
outstanding principal at each December 31, and accrue interest at the applicable
note interest rate.
The $1,766 term loan agreement was originally assumed by the Company as an
interim loan in conjunction with the acquisition of a hydroelectric facility.
The $4,299 notes payable to investors relates to the financing for one of
the Company's pumped storage development projects, River Mountain. Interest is
payable annually on December 31, at the prime rate of interest, as defined, for
certain notes and 15% for other notes. Unpaid interest balances are added to the
outstanding principal at each December 31, and accrue interest at the applicable
interest rate.
The $1,000 security deed is secured by substantially all of the related
hydroelectric facility's assets (approximately $1,800 and $1,400 at June 30,
1997 and 1996).
The $787 note payable to an insurance company was assumed in connection
with an acquisition by the Company. Pursuant to the terms of the note,
substantially all of the acquired hydroelectric assets (approximately $1,500 and
$1,400 at June 30, 1997 and 1996) have been pledged as security.
The $1,283 term loan agreement was originally assumed by the Company as an
interim loan in conjunction with the acquisition of a hydroelectric facility.
Pursuant to the terms of the agreement, substantially all of the acquired
hydroelectric assets (approximately $4,800 and $5,500 at June 30, 1997 and 1996)
have been pledged as security.
The $364 term loan agreement was undertaken by the Company in connection
with the acquisition of a hydroelectric facility. Pursuant to the terms of the
note, substantially all of the acquired hydroelectric assets (approximately
$1,400 and $1,100 at June 30, 1997 and 1996) have been pledged as security.
The $820 notes payable to private investors relates to the financing for
CPS for which warrants were also issued to the holder for the purchase of 10% of
CPS common stock. Interest accrues annually at 12%. A minimum of 3.6% of such
interest is due in cash each December 31 and if not paid, accrues interest at a
penalty rate equal to the stated rate plus 3.0%.
NOTE 12 - MANDATORILY REDEEMABLE PREFERRED STOCK
Series H Preferred, issued under the Refinancing for $70,299, is recorded
net of issuance costs of $3,083 and the value attributed to the detached
warrants of $5,916. The recorded value of the Series H Preferred at June 30,
1997 and 1996 was adjusted to reflect non-cash dividends declared of $14,911 and
$13,057, respectively. In addition, the recorded value in each year was also
adjusted by $857, representing accretion of the issuance costs and attached
warrant value in 1997 and 1996, which is being accreted over 10.5 years to the
redemption date.
See Note 1 and Note 20 for effects resulting from the implementation of
the Plan of Reorganization on and after the Effective Date.
61
<PAGE>
NOTE 13 - CAPITAL STOCK
SERIES F AND SERIES G PREFERRED STOCK
In fiscal 1992, the Company consummated the Recapitalization pursuant to
the terms of the Purchase Agreement dated March 25, 1992 between the Company and
the Investor Group.
Under the terms of the Purchase Agreement, dated March 25, 1992, the
Investor Group purchased 55,000 shares of 8% Senior convertible voting preferred
stock ("Series F Preferred"), 55,000 shares of 9.85% Junior convertible voting
preferred stock ("Series G Preferred") and certain warrants, which have since
expired, for an aggregate purchase price of $110,000. Immediately prior to the
closing date of the Purchase Agreement, the Company exchanged class A common
stock for all shares of the then existing class B common stock on a one-for-one
basis and accelerated the issuance of 451,202 warrants deemed effective and
earned by GECC pursuant to the Acquisition Facility. Concurrent with the
issuance of the Series F Preferred and Series G Preferred, the Company approved
and issued warrants to the Investors (the "Investor Warrants") to purchase
809,192 shares of its class A common stock at a purchase price of $0.001 per
share. The Investor Warrants were never exercised and expired on March 25, 1997.
In addition, warrants for issuance to certain members of management (the
"Management Warrants") were approved concurrent with the issuance of the Series
F and Series G Preferred. The Management Warrants were never issued and expired
on March 25, 1997.
The Investor Group's $110,000 was allocated $54,975 to the Series F
Preferred, $54,975 to the Series G Preferred and $50 to the Investor Warrants.
The carrying value of the stock was reduced by $11,242 representing costs
associated with the issuance, allocated evenly between the two series. The
Series F Preferred and Series G Preferred are convertible into the Company's
class A common, subject to certain specified conditions, at the option of the
holder, through March 25, 2007 at a per share rate equivalent to the liquidation
preference ($1,000) divided by the conversion price (initially $40 per share,
subject to adjustment, as defined).
In February 1996, Ms. Carol H. Cunningham, the Company's then Executive
Vice-President and Chief Development Officer, exercised her option under an
existing agreement with the Company to have the Company issue 1,279 shares of
Series F Preferred and 1,279 shares of Series G Preferred in exchange for shares
of Summit stock (or vested options therefore) owned by Ms. Cunningham. The
Company subsequently issued such shares of Series F Preferred and Series G
Preferred with an effective date of February 28, 1996.
Dividends on the Series F Preferred and Series G Preferred are cumulative
(amounting to $51,029 and $40,906 at June 30, 1997 and 1996, respectively) and
are payable annually in arrears upon declaration by the Company's Board of
Directors. The cumulative undeclared dividends in arrears per share as of June
30, 1997 were $413.33 for the original 55,000 shares of Series F Preferred and
$107.11 for the 1,279 shares of Series F Preferred issued subsequently, and
$508.92 for the original 55,000 shares of Series G Preferred and $131.88 for the
1,279 shares of Series G Preferred issued subsequently. The cumulative
undeclared dividends in arrears per share as of June 30, 1996 were $333.33 and
$410.42 for the Series F Preferred and Series G Preferred, respectively. Under
certain specified conditions constituting a "Trigger Date", as defined in the
Restated Certificate of Incorporation of the Company, the holders will be
entitled to convert any or all accrued and unpaid dividends into shares of class
A common stock by dividing such dividends by 85% of the Market Price, as
defined, of the class A common stock. The Company may redeem the Series F
Preferred and Series G Preferred, at its option: (i) anytime subsequent to March
25, 2000; or earlier (ii) if a public trading market for the Company's common
stock exists, the market value exceeds $60 per share, and the Investor Group,
upon redemption, will receive a minimum internal rate of return on their
investment of 30%. The redemption price will be equal to $1,000 per share plus
all accumulated and unpaid dividends. A public trading market for the class A
common stock is deemed to exist only if 30% of the fully diluted common stock,
owned by other than certain related parties, is freely tradable without further
registration.
62
<PAGE>
NOTE 13 - CAPITAL STOCK (CONTINUED)
LIMITATIONS ON DIVIDENDS AND STOCK PURCHASES
The Company has reserved 246,510 shares of class B common stock for
issuance upon exercise of the Class B Warrants. The Purchase Agreement requires
that shares of unissued class A common stock be reserved in the amount necessary
to satisfy all of the obligations of issuance in the event of a conversion of
the Series F Preferred and Series G Preferred and/or the redemption of any
outstanding warrants, or a total of 3,831,683 and 4,576,925 shares at June 30,
1997 and 1996, respectively. It further provides for certain limitations
including limits on indebtedness, capital expenditures, investments, loans and
advances and further equity transactions.
SERIES H PREFERRED STOCK
In fiscal 1993, the Company completed the Refinancing under which 136,950
shares of Series H Preferred were issued. The Series H Preferred ranks senior to
all classes of common stock and the Series G Preferred stock and junior to the
Series F Preferred. The Series H Preferred is mandatorily redeemable on December
31, 2003 at $1,000 per share, plus accrued interest and unpaid dividends.
However, it may be redeemed, at the Company's option, any time after June 30,
1998, in whole or in part, at the then current liquidation preference plus all
accrued and unpaid dividends.
The initial liquidation preference of the Series H Preferred was $513.32
per share at issuance on June 22, 1993 and current liquidation preference was
$875.67 per share on June 30, 1997. The liquidation preference will be increased
as form of payment for declared dividends required quarterly in arrears,
computed based on the then current liquidation preference, until increasing the
liquidation preference to $1,000 per share on June 30, 1998, after such time the
dividends will become payable in cash from legally available funds, when, and if
declared by the Board of Directors.
The Company may, at its option, on any scheduled dividend payment date
occurring on or after June 30, 1998, exchange the Series H Preferred, in whole,
for debentures with a principal amount of $1,000, bearing interest at 13.5%,
payable quarterly. The debentures would be general unsecured liabilities of the
Company and would rank junior to the Notes. The exchange debentures would be
issued in $1,000 principal amounts for each $1,000 of liquidation preference of
the Series H Preferred and a cash sum will be paid for all accrued but unpaid
dividends.
In the event the Company fails to make the required dividend payments, the
dividend rate rises 0.25% per quarter, to a maximum of 16.5%, until paid in
full. Among other restrictions and covenants, the Series H Preferred provides
for limitations on the payment of dividends or distribution of capital stock of
any of its Restricted Subsidiaries, as defined. After June 30, 1998, in the
event that cash dividends on the Series H Preferred are in arrears and unpaid
for more than six quarters, whether or not consecutive, the Board of Directors
of the Company will be increased by two directors and the holders of the
majority of the Series H Preferred, voting separately as a class, will be
entitled to elect two directors of the expanded Board of Directors. Such voting
rights and Board membership will continue until such time as all dividends in
arrears on the Series H Preferred are paid in full.
CHANGE IN CAPITAL STRUCTURE
On September 15, 1997, CHI commenced a case under chapter 11 of the
Bankruptcy Code and simultaneously filed the Plan of Reorganization. If the Plan
of Reorganization is confirmed by the Bankruptcy Court, CHI will emerge from
bankruptcy with a substantially different capital structure. The Plan of
Reorganization is described in Note 1 and Note 20.
63
<PAGE>
NOTE 14 - EMPLOYEE EQUITY PROGRAMS, DIRECTOR COMPENSATION AND 401(K) PLANS
EMPLOYEE EQUITY PROGRAMS
The Company maintains a Stock Option Plan (the "SOP"). The SOP will be
replaced with a new stock option plan as of the Effective Date. The SOP provides
for a maximum number of 350,000 options, each to purchase one share of class A
common. Options are at the discretion of the Board of Directors on the basis of
exercise prices equal to fair market value, as defined, at the time of the
grant. Options granted prior to December 31, 1992 ratably vest daily over 5
years, however, options granted on December 31, 1992, and after, ratably vest
annually over 5 years. Vesting for certain options, under certain defined
circumstances, may be accelerated.
At June 30, 1997, 1996 and 1995, unvested SOP grants at less than Fair
Market Value, as defined, and converted from a pre-existing employee equity
program, amounted to zero, zero, and $99, respectively.
During fiscal 1997, and 1996 , no options to purchase stock were granted.
In fiscal 1995, options to purchase 47,000 shares of the Company's class A
common, exercisable at $50 per share, were granted to employees pursuant to the
SOP. Included in the charge for employee and director equity participation
programs were vested SOP grants valued at zero, $99 and $229 in 1997, 1996 and
1995, respectively. Since the exercise price is equivalent to the Fair Market
Value, as defined, at the time of issuance, no related compensation expense has
been recorded.
Transactions for 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Outstanding, beginning of year 268,781 323,286 279,805
Granted during the year -- -- 47,000
Forfeitures (44,734) (54,505) (3,519)
------------ ------------ ------------
Outstanding, end of year 224,047 268,781 323,286
======= ======= =======
Options eligible for exercise, end of year
(at prices ranging from $13.50 to $50.00 per share) 174,314 184,973 207,147
======= ======= =======
Options available for grant, end of year 125,953 81,219 26,714
======= ======= =======
</TABLE>
64
<PAGE>
NOTE 14 - EMPLOYEE EQUITY PROGRAMS, DIRECTOR COMPENSATION AND 401(K) PLANS
(CONTINUED)
Pursuant to an employment agreement dated November 1, 1994 between the
Company and an executive member of management, the Company granted 10,000 shares
of class A common at a purchase price of $.001 per share. The Company has the
right to repurchase these shares at a nominal price under certain defined
circumstances. As discussed below, deferred compensation related to this
issuance was recorded in 1995 and is being recognized ratably over a five-year
vesting period, per the terms of the agreement.
DIRECTOR COMPENSATION
Effective January 1, 1995, the Board of Directors approved a calendar year
1995 compensation package for all non-management board members entitling them to
receive $20 annual compensation in one of the following forms selected at their
discretion: (i) a $20 grant of class A common based upon $50 per share or (ii) a
$10 grant of class A common based upon $50 per share plus an annual retainer of
$10 paid quarterly. Director compensation in the form of 0 and 2,400 shares of
class A common was issued and $18 and $20 was paid as of June 30, 1996 and 1995,
respectively. Certain board members have elected to have their stock
entitlements issued to the employer or partnership with which they are
affiliated. In conjunction with this stock issuance, deferred compensation was
recorded and is being recognized over a calendar year. Effective January 1,
1996, compensation for non-management board members was suspended.
In fiscal 1996, there was no deferred compensation recorded related to the
above mentioned stock issuances to the board of directors and a member of
executive management. Included in the charge for employee and director equity
participation programs were vested board of directors and executive employee
stock grants valued at $160 in 1996.
Effective September 30, 1996, the Board of Directors reinstated compensation
for non-management directors of the Company as follows: (i) $10 annual retainer
payable quarterly in advance and (ii) $1.5 payable for each Board meeting
attended. There is no additional compensation for attendance or participation in
meetings of Board committees or for participation in any teleconference Board
meeting. In fiscal 1997, the Company paid $59.5 for non-management director
compensation.
401(k) PLAN
The Company provides a defined contribution 401(k) plan which covers
substantially all of its domestic employees subject to certain prequalification
requirements. Costs of the plan were charged to operations as compensation
expense in 1997, 1996 and 1995.
65
<PAGE>
NOTE 15 - TAXES
On September 15, 1997, CHI commenced a case under chapter 11 of the
Bankruptcy Code and simultaneously filed the Plan of Reorganization. If the Plan
of Reorganization is confirmed by the Bankruptcy Court, the Company's Tax NOL
carryforwards will be significantly reduced, due to the discharge of
indebtedness under the Plan of Reorganization, and may be subject to a new
annual limitation. The Plan of Reorganization is described in Note 1 and Note
20.
The benefit/(provision) for income and franchise taxes consists of the
following for the years ended June 30:
<TABLE>
<CAPTION>
1997 1996 1995
------------- --------------- ----------
<S> <C> <C> <C>
Federal income taxes $ (408) $ (283) $ (220)
State income and franchise taxes (505) (287) (157)
Deferred tax benefits (2,382) 7,951 --
------------- ------------- --------------
$(3,295) $ 7,381 $ (377)
============= ============= ==============
The benefit/(provision) for income and franchise taxes differs from an
amount computed by applying the statutory income tax rate to pre-tax income, as
follows, for the years ended June 30:
1997 1996 1995
------------- ------------- ----------
Tax benefit at US statutory rate $ 731 $ 32,542 $ 5,405
State income tax expense (352) (156) (57)
State franchise tax expense (153) (131) (100)
Losses without current tax benefit (3,113) (24,591) (5,405)
Alternative minimum tax (408) (283) (220)
----------- ------------- ------------
$ (3,295) $ 7,381 $ (377)
============ ============= ============
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities as of June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss $21,925 $22,865
Tax credits 4,237 5,851
Lease payment obligations 9,504 10,480
Original issue discount 22,235 15,598
Pumped storage development 8,624 15,785
costs
Valuation reserve (50,056) (49,266)
----------- -----------
Total deferred tax assets, net $16,469 21,313
----------- -----------
Deferred tax liabilities:
Tangible asset basis difference $36,205 $38,863
Intangible asset basis difference 11,457 11,097
----------- -----------
Total deferred tax liabilities 47,662 49,960
----------- -----------
Net deferred tax liability $31,193 $28,647
=========== ===========
</TABLE>
66
<PAGE>
NOTE 15 - TAXES (CONTINUED)
The deferred tax benefit of approximately $8.0 million for the year ended
June 30, 1996 relates to the write-down of certain long-lived assets in
accordance with SFAS 121 (see Note 5). The effective tax rate of the deferred
benefit recognized from the write-down differs from the federal statutory rate
due to the reduction of deferred tax liabilities offset by an increase in the
valuation allowance attributable to net operating loss carryforwards.
The valuation allowance increased by $790 primarily due to an increase in
the gross deferred tax asset relating to original issue discount, the future
benefits of which are not more likely than not to be realized, offset by
reductions in other gross assets as a result of tax attribute expirations and
tax basis reductions.
At June 30, 1997, 1996 and 1995, the Company had net operating loss ("NOL")
carryforwards for federal income tax purposes ("Tax NOL") of approximately
$64,485, $67,300 and $72,900, respectively, expiring through fiscal 2011. Of the
amounts at June 30, 1997, the Company has available acquired federal income tax
net operating loss ("Acquisition NOL") carryforwards in the amount of
approximately $6,432 representing unused losses accumulated by certain entities
prior to their acquisition by the Company. These NOLs, which expire in varying
amounts beginning with fiscal 2001, are restricted in terms of utilization.
At June 30, 1997, the Company has approximately $1,764 of investment, energy
and AMT credits available to reduce future income taxes for federal income tax
reporting purposes expiring during fiscal 2001 through 2003. Additionally, the
Company has available investment, energy and AMT credits in the amount of
approximately $2,473, representing unused credits accumulated by certain
entities prior to their acquisition by the Company. These credits, which are
restricted in terms of utilization, will begin to expire in fiscal year 1998.
The utilization of $20,400 of the Company's Tax NOL carryforwards is
limited under current law to a maximum annual amount of approximately $3,400
plus the portion of this annual limitation not utilized in any prior year. As of
June 30, 1997, the aggregate amount of these NOLs which have accumulated under
this calculation and are available to be utilized currently is approximately
$14,800. The amount of the above noted tax credits which can be utilized in any
one future fiscal year is also restricted in the same manner as the restricted
Tax NOL carryforwards. Any future utilization of the Acquisition NOL or tax
credit carryforwards noted above would be reflected as a retroactive reduction
of goodwill, to the extent thereof, in accordance with the purchase method of
accounting.
NOTE 16 - COMMITMENTS
OPERATING LEASE COMMITMENTS
The Company has several non-cancelable operating leases expiring through
2078. The majority of these leases require annual lease payments based upon a
percentage of gross or net revenues, as defined in the respective lease
agreements, and provide for minimum annual payments to the lessor.
Minimum rental commitments under non-cancelable operating leases for the
five fiscal years following June 30, 1997 are approximately $4,900 per year.
67
<PAGE>
NOTE 16 - COMMITMENTS (CONTINUED)
PUMPED STORAGE DEVELOPMENT
The Company has concluded that the prospects for successfully developing
its pumped storage projects are remote, and is currently limiting its pumped
storage activities to the minimum necessary to maintain the long-term viability
of these projects and the monitoring of market conditions relevant to the
projects. The Company has reduced the carrying value of its pumped storage
development assets to $0.1 million as a result of the adoption of SFAS 121 in
fiscal 1996.
INDEMNIFICATIONS
In connection with the financing of certain projects, it has been assumed
that certain tax benefits will be available. In the event that all or part of
certain tax benefits are subsequently determined to be unavailable, the related
project subsidiary and, in limited circumstances, the Company and/or
intermediate subsidiary thereof have agreed to indemnify for such lost tax
benefits. As of June 30, 1997, no claims have been made. It is management's
opinion that future material claims are unlikely.
NOTE 17 - INSURANCE CLAIMS
In August 1995, the Company experienced a property damage claim as a result
of a tropical storm. The claim, covered under the Company's umbrella property
and business interruption insurance policy, involves five projects located in
South Carolina, including Apalache, Lower Pelzer, Piedmont, Upper Pelzer and
Ware Shoals. The total claim as of June 30, 1997 was $3,462, of which
approximately $419 and $767 were recorded as business interruption revenue and
$1,607 and $669 were related to recoverable property damages at June 30, 1997
and 1996, respectively. The Company has received two partial payments of the
claim, totaling $2,127 and of the total payment received, $79 and $767 related
to business interruption revenue earned and $1,114 and $166 (net of the $100
self-insurance deductible) related to recoverable property damages incurred in
fiscal 1997 and 1996, respectively. As of June 30, 1997, the Company has
recorded a receivable of $1,335, of which $340 relates to business interruption
revenue earned and $995 relates to recoverable property damages incurred for the
Lower Pelzer project.
NOTE 18 - RELATED PARTY TRANSACTIONS
The Company has agreed to purchase certain specific and nonspecific project
related equipment, aggregating $3,000, from Asea Brown Boveri AS (formerly known
as EB Corporation), a related party company and/or an affiliate thereof, if and
when such equipment is required. Management believes that the prices to be paid
for the aforementioned equipment will be at prices substantially equal to those
which would be paid to an independent third party vendor.
GECC is a minority stockholder of and significant lender and provider of
partnership equity to the Company and/or its projects, through project
financings, including the HDG transaction. Transactions indicated on the face of
the financial statements as related party transactions include those with GECC.
68
<PAGE>
NOTE 18 - RELATED PARTY TRANSACTIONS (CONTINUED)
Transactions indicated on the face of the financial statements as related
party also include transactions with Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), affiliates of which are investors in the Company through The Morgan
Stanley Leveraged Equity Fund II, L.P.
On October 13, 1994, the Company engaged Morgan Stanley to provide the
Company with financial advice and assistance. In connection with that
assignment, Morgan Stanley has explored various options to increase shareholder
value including a possible sale of the Company or interests therein. The Company
has incurred approximately zero, $2 and $298 of fees to Morgan Stanley as of
June 30, 1997, 1996 and 1995, respectively.
NOTE 19 - EXECUTIVE EMPLOYEES
Effective June 30, 1996, Olof S. Nelson resigned as Chairman of the Board
of Directors, Director, President and Chief Executive Officer of the Company as
well as each of the executive and director positions Mr. Nelson held with any of
the Company's subsidiaries and affiliates. As a result of Mr. Nelson's
resignation, a severance accrual was established as of June 30, 1996 in the
amount of approximately $1.1 million and as of June 30, 1997, $0.2 million
remains.
NOTE 20 - SUBSEQUENT EVENTS
DECOMMISSIONING OF CONVENTIONAL HYDROELECTRIC ASSETS
In September 1997, the Company through its wholly owned subsidiary, Joseph
Hydro Company, Inc., a Delaware corporation ("Joseph"), terminated the PPA with
PacifiCorp, the purchasing utility, relating to three of its projects located in
Oregon, aggregating 7.01 MW of capacity (the "Joseph Projects"). Joseph received
a cash payment of $2,815, pursuant to the Termination Agreement between Joseph
and PacifiCorp, to terminate production and delivery of power from the Joseph
Projects, surrender the PPA and remove all facilities associated with the Joseph
Projects in accordance with certain terms and conditions. After payment of
certain fees, transaction and removal costs totaling approximately $915, the
Company applied the remaining approximately $1,900 as a pre-payment on the GECC
B Loan (the "GECC Loan") as the assets of the Joseph Projects secure the GECC
Loan (Note 11). The Company expects to substantially complete the removal of
all facilities of the Joseph Projects by the end of calendar 1997. These assets
are included at their carrying value of $1,900 in Assets to be disposed of on
the Balance Sheet as of June 30, 1997.
69
<PAGE>
NOTE 20 - SUBSEQUENT EVENTS (CONTINUED)
RESTRUCTURING OF COMPANY
On June 4, 1997, CHI, the holders of a majority of the preferred stock
and an informal committee of institutions that own, or represent beneficial
holders that own, approximately 89.2% of CHI's outstanding Senior Discount Notes
(the "Unofficial Bondholders' Committee") reached an agreement in principle on
the terms of a restructuring to be accomplished pursuant to the Plan of
Reorganization under chapter 11 of the Bankruptcy Code. On August 8, 1997,
pursuant to the Disclosure Statement, CHI commenced a prepetition solicitation
of votes by the holders of Senior Discount Notes and preferred stock to accept
or reject the Plan of Reorganization. Under the Plan of Reorganization, the
holders of Senior Discount Notes and preferred stock were the only holders of
impaired claims and impaired equity interests entitled to receive a
distribution, and therefore, pursuant to section 1126 of the Bankruptcy Code,
were the only holders entitled to vote on the Plan of Reorganization. At the
conclusion of the 32-day solicitation period, the Plan of Reorganization had
been accepted by holders of 100% of the Senior Discount Notes that voted on the
Plan of Reorganization and by holders of greater than 98% of the Series F,
greater than 97% of the Series G and greater than 97% of the Series H Preferred,
that voted on the Plan of Reorganization.
On September 15, 1997, CHI commenced a case under chapter 11 of the
Bankruptcy Code in the Bankruptcy Court and filed the Plan of Reorganization and
the Disclosure Statement. None of CHI's subsidiaries has commenced a case under
the Bankruptcy Code. Pursuant to an order of the Bankruptcy Court signed on
September 15, 1997, a hearing before the Bankruptcy Court to consider
confirmation of the Plan of Reorganization is scheduled to be held on October
23, 1997. CHI anticipates (but can give no assurance) that, if the Bankruptcy
Court enters an order confirming the Plan of Reorganization on or about October
23, 1997, the Plan of Reorganization will become effective before December 31,
1997.
Through the implementation of the Plan of Reorganization on and after the
Effective Date, it is anticipated that CHI's most significant financial
obligations will be restructured as follows: $202 million in face amount of
outstanding Senior Discount Notes will be converted into, among other things,
$15 million in cash and 100% of the shares of CHI's new common stock, consisting
of shares of New Class A Common Stockand shares of New Class B Common Stock to
be issued on the Effective Date, subject to dilution from the New Warrants and
the Management Options; the holders of the preferred stock will exchange such
stock for warrants to purchase up to 12.5% of the New Common Stock, subject to
dilution from the Management Options; and CHI's old common stock will be
cancelled. CHI's senior management will receive options to purchase up to an
aggregate of 7.5% of the New Class A Common Stock, subject to dilution from the
New Warrants. As a result of the restructuring, it is anticipated that, other
than a working capital facility to be entered into as of the Effective Date, CHI
will not have any significant debt obligations after the Effective Date.
If the Bankruptcy Court confirms the Plan of Reorganization, CHI will be
deemed to have adopted on the Effective Date the Amended CHI By-laws and a
Restated CHI Certificate of Incorporation, each of which has been filed in the
Bankruptcy Court as an exhibit to the Plan or Reorganization. Pursuant to CHI's
Restated Certificate of Incorporation, as of the Effective Date, CHI's name will
be changed from Consolidated Hydro, Inc. to CHI Energy, Inc. and the fiscal
year-end will be changed from June 30 to December 31.
70
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXISTING DIRECTORS AND EXECUTIVE OFFICERS
The names of the executive officers ("Executive Officers") of CHI and its
principal subsidiaries and the directors of CHI (the "Directors"), their ages as
of June 30, 1997, and positions with CHI are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - - ---- --- --------
<S> <C> <C>
James T. Stewart 49 Chairman, Chief Executive Officer and Director
Edward M. Stern 38 President, Chief Operating Officer and Secretary
Michael I. Storch 45 Executive Vice President -- Strategy and Development
Pascal J. Brun 48 Senior Vice President -- Canadian Development
Mary V. Gilbert 35 Senior Vice President and Chief Financial Officer
Daniel S. Pease 42 Senior Vice President -- Operations
Rickey J. Cashatt 45 Senior Vice President and General Manager, CHI Power, Inc.
Frank T. Giacalone 46 Senior Vice President -- Development, CHI Power, Inc.
Patrick J. Danna (1) 38 Vice President, Treasurer and Controller
J. Christopher Hocker 46 Vice President -- Corporate Affairs
Neil A. Manna 34 Vice President -- Finance, Controller and Treasurer
Nissan Boury 51 Director
Charles J. Micoleau 55 Director
Colin F. Raymond 27 Director
Frank V. Sica 46 Director
Michael H. Walkup 45 Director
</TABLE>
- - - ---------------
(1) Mr. Danna resigned from his position at the Company, effective July 18,
1997.
71
<PAGE>
The Executive Officers of the Company are elected by the Board of Directors
and serve at their discretion with no fixed term of office, except for Mrs. Mary
V. Gilbert, Mr. James T. Stewart, Mr. Michael I. Storch, and Mr. Edward M. Stern
who serve under certain employment contracts, the terms of which are discussed
in Item 11.
James T. Stewart, Chairman and Chief Executive Officer -- Mr. Stewart
joined CHI in November 1995 as President and Chief Executive Officer of CHI
Power, Inc., a newly-formed CHI subsidiary. He was elected Chairman and Chief
Executive Officer of the Company effective July 1, 1996. Prior to joining CHI,
Mr. Stewart had more than 25 years of experience in the energy industry. He
joined the engineering and construction firm of CRS Sirrine in 1985 as senior
Vice President, responsible for creating its power division. In 1988 he became
President and Chief Executive Officer of CRSS Capital, its independent power
subsidiary, and was responsible for developing more than $800 million in energy
assets at seven sites, with more than 1,300 equivalent megawatts. He became
President of CRSS, Inc., the parent company, in 1994. Mr. Stewart holds a
Bachelors degree in chemical engineering from Penn State University, a Masters
degree in chemical engineering from the University of Pittsburgh, and is a
registered Professional Engineer.
Edward M. Stern, President, Chief Operating Officer and Secretary -- Mr.
Stern was named to his current position with the Company in September 1996. He
previously served as Executive Vice President, Secretary and General Counsel of
CHI with primary responsibility for the company's legal, human resources,
communications, financial, acquisitions, risk management and environmental and
regulatory compliance functions. Prior to joining CHI in April 1991, Mr. Stern
was a Vice President with BayBank, Inc., a northeastern financial services
organization, where for six years he specialized in energy project finance,
foreclosures, debt restructurings and asset management. He received JD and MBA
degrees from Boston University. Mr. Stern is a member of the Massachusetts Bar
and the Federal Energy Bar.
Michael I. Storch, Executive Vice President -- Strategy and Development --
Mr. Storch began his employment with CHI in June 1987. He is responsible for
strategic planning relative to the future development and growth of the Company.
Previously, he was responsible for operations of hydroelectric facilities owned
by CHI and its affiliates, and for financial matters related to the Company,
including its existing operations, acquisitions, and development. Before joining
CHI he served as Vice President -- Corporate Development for G.O. Holdings
Management, Inc., a management company controlled by Anglo-French financier Sir
James Goldsmith. For the preceding ten years, he was employed by the accounting
firm of Price Waterhouse in various capacities, last serving as Senior Audit
Manager. Mr. Storch holds a Bachelor of Business Administration degree from
Baruch College. He is a member of the American Institute of Certified Public
Accountants and the New York State Society of Certified Public Accountants.
Pascal J. Brun, Senior Vice President of CHI; President, CHI Canada Inc. --
Mr. Brun joined CHI in June 1988. He is currently responsible for acquisition,
development and operation of hydroelectric facilities in Canada. Previously, he
served as CHI's Vice President for Corporate Development, responsible for
acquisition of operating projects in the United States and Canada. Prior to
joining CHI, he was a Vice President for the SNC Group, Ltd., a large Canadian
engineering and construction company, and a Project Manager for T. Pringer &
Sons, Engineers. He holds Bachelors and Masters degrees in Applied Sciences from
Laval University and an MBA degree from the University of Montreal.
Mary V. Gilbert, Senior Vice President and Chief Financial Officer -- Mrs.
Gilbert joined CHI in July 1996 as Senior Vice President of Finance for CHI
Power, Inc. She was named to her current position in January 1997 and is
presently responsible for the Company's accounting, tax, financial reporting,
treasury, human resource and information systems functions. Prior to joining
CHI, she served in several capacities with CRSS Inc., most recently as Vice
President, Controller of the parent company. Previously she had served as Chief
Financial Officer of CRSS Capital, its independent power subsidiary. Prior to
joining CRSS, Mrs. Gilbert was employed by Ernst and Young for six years, last
holding the position of audit manager. Mrs. Gilbert received a Bachelor of
Science degree in accounting from the University of Colorado at Boulder. She is
a Certified Public Accountant and is a member of the American Institute of
Certified Public Accountants and the Texas Society of Certified Public
Accountants.
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<PAGE>
Daniel S. Pease, Senior Vice President -- Operations -- Mr. Pease joined
CHI as a Construction Manager in 1986, and was made Vice President of
Construction in 1988 before advancing to his current position in 1992. In his
previous capacity, he was responsible for planning and managing construction
related to Company-owned facilities, and for advising on engineering and
construction aspects of development and acquisition opportunities. Currently, he
is responsible for management of all of the Company's operating hydroelectric
facilities, as well as for engineering and construction activities of the
Company. Prior to joining CHI, he was a construction supervisor for Walsh
Construction Company of Connecticut, serving on several major hydroelectric and
nuclear construction projects. He holds a BS degree from the University of
Connecticut.
Rickey J. Cashatt, Senior Vice President and General Manager, CHI Power,
Inc. -- Mr. Cashatt joined CHI in January 1996. He is currently responsible for
the construction and operation of industrial energy facilities of the Company,
as well as providing development support. Before joining CHI Power, Mr. Cashatt
was a senior project manager for Destec Engineering Inc., responsible for
directing the development and construction of simple cycle and combined cycle
plants in the United States and internationally. Mr. Cashatt also served as a
project manager with similar responsibilities for CRS Sirrine Engineers, Inc.
prior to his employment at Destec Engineering, Inc. He began his career with
International Paper Company, responsible for hydroelectric and combustion power
plant installation and upgrades. Mr. Cashatt holds a degree in electrical
engineering from North Carolina State and is a registered professional engineer.
Frank T. Giacalone, Senior Vice President, Development, CHI Power, Inc. --
Mr. Giacalone began his employment with CHI in November 1995. He is responsible
for the marketing and business development functions of the Company that include
domestic and international opportunities of both hydro and industrial energy
projects. Prior to joining CHI, Mr. Giacalone most recently served as a senior
business developer for CRSS Inc. where he was responsible for the development
and negotiation of energy and industrial transactions. Prior to that he held
numerous senior development positions with other energy companies, beginning his
career with General Electric Company. Mr. Giacalone holds a degree in mechanical
engineering from Widener University and is a registered professional engineer.
J. Christopher Hocker, Vice President -- Corporate Affairs -- Mr. Hocker
joined CHI in November 1990 as Director of Communications. Currently, he
coordinates CHI's business development efforts and also is responsible for
internal and external communications relating to the Company and its major
projects in development and for public affairs related to the Company's
involvement in national industry associations. He currently is a Director of the
National Hydropower Association. Prior to joining CHI, he was an independent
consultant specializing in communications related to the energy and
environmental industries. His previous experience also includes serving as
Marketing Manager for Morrison-Knudsen Engineers, Inc., specifically related to
hydroelectric, environmental, and transportation projects. Mr. Hocker received a
BA degree from Stanford University in 1973.
Neil A. Manna, Vice President --Finance, Controller and Treasurer -- Mr.
Manna joined CHI in 1990 as Assistant Controller. He is currently responsible
for day to day financial control of the Company, including accounting, treasury
and tax, as well as the Company's budgeting and risk management functions. Prior
to joining CHI he served as Controller for the sales promotion division of
Marketing Corporation of America, and also served as an audit senior for the
accounting firm of Price Waterhouse. Mr. Manna received a Bachelors degree in
accounting from the University of Connecticut in 1985 and an MBA degree with a
concentration in finance from Fairfield University in 1996. He is a Certified
Public Accountant and a member of the American Institute of Certified Public
Accountants.
Nissan Boury, Director -- Mr. Boury has been a Director of CHI since
January 1997. He is a Managing Director and founder of Claremont Capital
Corporation, a private equity investment firm based in New York City. Claremont
is the Manager of Madison Group, L.P., an investment fund registered in
Delaware. From 1980 to 1991, prior to forming Claremont, Mr. Boury was a
Managing Director and partner of E.M. Warburg, Pincus & Co., Inc., a financial
services firm specializing in private equity and money management with over
$10.0 billion in assets under management. Mr. Boury serves on the Board of
Directors of Kiowa Resources, Inc., Wyatt, Inc., Radiant Industries, Inc. and
Aqua Clear Industries, Inc. Mr. Boury received his BS and MBA degrees from New
York University.
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<PAGE>
Charles J. Micoleau, Director -- Mr. Micoleau has been a Director of CHI
since 1985. He is a partner in the law firm of Curtis Thaxter Stevens Broder &
Micoleau of Portland, Maine. He has been associated with this firm since 1978,
and his practice has been primarily associated with energy, environmental, and
regulatory law. He has represented a broad range of independent energy producers
and has been actively involved in the development of federal and state law
governing private energy sales. From 1970 to 1978, Mr. Micoleau was a member of
the staff of former Senator Edmund Muskie of Maine. He received his Bachelors
degree from Bowdoin College in 1963, his Masters degree in international finance
from The Johns Hopkins University in 1965, and his JD degree in 1977 from The
George Washington University.
Colin F. Raymond, Director -- Mr. Raymond has been a Director of CHI since
January 1997. He is an Associate of Morgan Stanley and Morgan Stanley Capital
Partners III, Inc. Previously, Mr. Raymond was an Associate with Wolfensohn &
Co. and J.P. Morgan & Co.'s corporate finance division. He also serves on the
Board of Directors of ARM Financial Group Inc. Mr. Raymond received his BA in
Economics from the University of Michigan in 1992.
Frank V. Sica, Director -- Mr. Sica has been a Director of CHI since 1992.
He is currently a Managing Director of Morgan Stanley, and has been with Morgan
Stanley since 1981, originally in the Mergers and Acquisitions Department and,
since 1988, with the Merchant Banking Division. He is a Director and a Vice
Chairman of MSLEF II and a Director of numerous companies including ARM
Financial Group, Inc., CSG Systems International, Inc., Fort James Corporation,
Pagemart, Inc., Pagemart Wireless, Inc. and Kohl's Department Stores, Inc. He is
also President of Morgan Stanley Ventures. Prior to joining Morgan Stanley, Mr.
Sica was an officer in the U.S. Air Force. He received a Bachelors degree from
Wesleyan University in 1973 and an MBA degree from the Tuck School of Business
at Dartmouth College in 1979.
Michael H. Walkup, Director -- Mr. Walkup has been a Director of CHI since
1988. He has been portfolio manager of The Witt-Touchton Company, a private
investment partnership in Tampa, Florida, since 1985, and has been employed by
that firm since 1982. He is also President of The Witoco Venture Corporation.
Mr. Walkup has obtained a BS degree in business administration, MBA degree, and
Masters degree in accountancy from the University of South Carolina.
There are no family relationships among the Directors and officers.
The Board of Directors has established an Executive Compensation Committee
comprised of Messrs. Sica and Walkup and an Audit Committee comprised of Messrs.
Walkup, Sica and Micoleau.
DIRECTORS AND EXECUTIVE OFFICERS AS OF THE EFFECTIVE DATE
Pursuant to CHI's Restated Certificate of Incorporation and the New
Stockholders' Agreement, the Board of Directors of reorganized CHI will consist
of seven Directors as follows: Morgan Stanley will have the right to designate
two Directors; Swiss Bank Corporation ("SBC") will have the right to designate
two Directors; management of CHI will have the right to designate two Directors;
and there will be one independent Director designated by the remaining members
of the Board of Directors. Procedures governing the nomination and election of
members of the Board of Directors are subject to a New Stockholders' Agreement,
dated as of the Effective Date.
As of the Effective Date, the initial Board of Directors of CHI will
only have five Directors, with Morgan Stanley and SBC each reserving the right
to appoint one of its two designees at a date following the Effective Date. The
initial members of the Board of Directors of restructured CHI will be as
follows: James T. Stewart (Chairman and CEO), Edward M. Stern (President & COO),
Michael J. Petrick (a Morgan Stanley designee), James DuPlessie (a SBC designee)
and one independent Director. The identity of the independent Director and the
compensation to be paid to the members of the Board of Directors of CHI will be
disclosed at, or immediately prior to the Confirmation Hearing.
74
<PAGE>
The business experience of each of the directors and executive officers
as of the Effective Date (other than those whose experience is described above)
under "Existing Directors and Officers" during the past five years is as
follows:
Michael J. Petrick, Director -- Mr. Petrick is currently a Managing
Director in the fixed income division of Morgan Stanley & Co. Incorporated, and
has been with Morgan Stanley since 1989. Prior to joining Morgan Stanley, Mr.
Petrick was a Vice President and Portfolio Manager for First Interstate Bancorp
in Los Angeles. Mr. Petrick received a BA in Economics and Chemistry from
Grinnell College in 1984 and an MBA degree from the University of Chicago in
1987.
James DuPlessie, Director -- Mr. DuPlessie is currently an Executive
Director of Swiss Bank Corporation. He has been with Swiss Bank Corporation
since January 1996. Previously, Mr. Duplessie was an Executive Director of
O'Connor & Associates. He received a BA in Economics from Washington and Lee
University in 1981, an MBA from Tulane University in 1984 and a JD from
Wake Forest University in 1987.
The existing Executive Officers of CHI will continue to serve as the
Executive Officers of reorganized CHI.
There are no family relationships among the contemplated Directors and
officers of reorganized CHI.
It is anticipated that the Board of Directors of restructured CHI will
establish an Executive Compensation Committee and an Audit Committee.
75
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
HISTORICAL EXECUTIVE COMPENSATION
The following table sets forth the compensation of the named Executive
Officers for services rendered during the fiscal years ended June 30, 1997, 1996
and 1995 of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Other Annual All Other
Name and Fiscal Compensation ($) Compensation Stock Option Compensation
Principal Position Year Salary Bonus ($) Grants (#) ($)
- - - ------------------ ---- ------------ ---- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
James T. Stewart(1)........................ 1997 300,000 250,000 -- -- 1,620(5)
Chief Executive 1996 156,365(2) -- -- -- 108,750(2)
Officer and Chairman 1995 -- -- -- -- --
Edward M. Stern(3)........................ 1997 231,762 165,000 6,150 -- 120(5)
President and 1996 188,846(4) -- 8,900 -- 20,221(5)
Chief Operating Officer 1995 165,000 40,000 7,920 7,500 10,214(5)
Michael I. Storch.......................... 1997 244,408 60,000 5,525 -- --
Executive Vice President 1996 226,216(4) -- 12,150 -- 17,500(5)
-- Strategy and Development 1995 222,175 40,000 7,870 -- 17,500(5)
Pascal J. Brun............................. 1997 120,524 52,822 4,969 -- 221(5)
Senior Vice President 1996 117,907(4) -- 2,464 -- 401(5)
-- Canadian Development 1995 119,050 19,000 2,500 2,000 375(5)
Mary V. Gilbert(6)......................... 1997 124,615(7) 52,500 -- -- 264(5)
Senior Vice President and 1996 -- -- -- -- --
Chief Financial Officer 1995 -- -- -- -- --
</TABLE>
- - - --------------------------
(1) Mr. Stewart was elected Chief Executive Officer and a Director of the
Company as of July 1, 1996.
(2) Annual Compensation represents salary from November 1, 1995, the
commencement of Mr. Stewart's employment with the Company. Further, all
Other Compensation is comprised of a $50,000 sign-on bonus paid to Mr.
Stewart pursuant to an employment agreement dated November 1, 1995 naming
Mr. Stewart President and Chief Executive Officer of CHI Power, Inc. and
an accrued bonus of $58,750 pursuant to an employment agreement naming
Mr. Stewart Chief Executive Officer of the Company as of July 1, 1996.
(3) Mr. Stern was elected President and Chief Operating Officer of the
Company in September 1996.
(4) As of January 1, 1996, the Company has added the value of all
perquisites, except for 401(k) matching contributions and life insurance
premium payments covered under the senior management benefits policy,
into each executives base salary. Through December 31, 1995, these
perquisites were either excluded by definition from this table, or
included in Other Annual Compensation or All Other Compensation.
(5) Comprised of life insurance premiums paid by the Company on behalf of
each Executive Officer.
(6) Mrs. Gilbert was elected Senior Vice President and Chief Financial
Officer of the Company in January 1997.
(7) Annual Compensation represents salary from July 15, 1996, the
commencement of Mrs. Gilbert's employment with the Company.
STOCK OPTION GRANTS
There were no grants of stock options under the Company's stock option
plans to James T. Stewart, Edward M. Stern, Michael I. Storch, Pascal J. Brun or
Mary V. Gilbert as of the end of fiscal year ended June 30, 1997 and it is
anticipated that there will be no options granted for the period from July 1,
1997 until the Effective Date. See "Executive Compensation as of the Effective
Date -- 1997 Stock Option Plan and Management Option Agreements".
There were no options that remained unexercised as of the end of fiscal
year ended June 30, 1997.
76
<PAGE>
Employment Contracts and Special Employment Arrangements. In June 1996, Mr.
Nelson resigned as Chairman of the Board of Directors, Director, President and
Chief Executive Officer of CHI as well as executive and director of each of the
Company's subsidiaries and affiliates. In conjunction with such resignation CHI
and Mr. Nelson entered into a termination agreement which superseded Mr.
Nelson's employment agreement. Pursuant to the termination agreement, Mr. Nelson
received a payment of $500,000 and in addition to certain other customary
benefits, he will receive an additional monthly payment of approximately $24,000
for a period of twenty months commencing in August, 1996.
In November 1995, the Company entered into an employment agreement with Mr.
James T. Stewart pursuant to which Mr. Stewart became President and Chief
Executive Officer of the Company's newly-formed, wholly-owned subsidiary, CHI
Power, Inc. In July 1996, the Company entered into a new three year employment
agreement (subject to automatic one year renewals absent notice of intent not to
renew) with Mr. Stewart which superseded the prior agreement. The new agreement
provides that Mr. Stewart will serve as the Company's Chief Executive Officer,
that the Company will use its best efforts to see that he is elected to the
Company's Board of Directors, and that he will receive an annual salary of
$300,000, which may be increased annually at the discretion of the Board. In
addition, upon execution of the new agreement Mr. Stewart received a bonus
payment of $58,750 and upon the achievement of certain targets to be agreed upon
by Mr. Stewart and the Board, Mr. Stewart will be eligible to receive annual
bonuses of up to 100% of his annual salary plus equity incentives to be
determined by the Board. In the event Mr. Stewart's employment is terminated by
CHI during the term of the employment agreement (other than in certain specified
circumstances) Mr. Stewart will receive monthly severance payments equal to the
monthly salary (excluding bonuses) for a period equal to the earlier of (A) the
date Mr. Stewart obtains subsequent employment and (B) the later of (i) the
second anniversary of Mr. Stewart's date of termination and (ii) the expiration
of the term of the employment agreement. As of the Effective Date, the new
agreement will be superseded by the employment agreements described in
"Executive Compensation as of the Effective Date - Employment Contracts and
Special Employment Arrangements", below.
In January 1997, the Company entered into employment agreements with
Messrs. Edward M. Stern and Michael I. Storch and Mrs. Mary V. Gilbert. The
agreements continue through June 1999 and are subject to automatic one year
renewal periods absent notice of intent not to renew. These superseded existing
agreements with Messrs. Stern and Storch, dated November 1994 and March 1992,
respectively. Under the terms of the agreements, Messrs. Stern and Storch and
Mrs. Gilbert are to receive annual salaries of $238,800, $249,900 and $150,000,
respectively, which may be increased annually at the discretion of the Board. In
addition, at the discretion of the Board, the executives shall be eligible to
receive annual incentive bonuses upon the achievement of certain goals and
objectives. Mr. Stern and Mrs. Gilbert will be eligible to receive bonuses of
this type of up to 75% and 50% of their base salaries, respectively. The
executives are also eligible to receive equity incentives to be determined by
the Board. In the event the executive's employment is terminated by the Company
during the term of the employment agreement (other than in certain specified
circumstances) the executives will receive monthly severance payments equal to
the executive's monthly salary (excluding bonuses) for a period equal to the
earlier of (A) the date the executive obtains subsequent employment and (B) the
later of (i) the second anniversary of the executives date of termination and
(ii) the expiration of the term of the employment agreement. As of the Effective
Date, each of these agreement will be superseded by the employment agreements
described in "Executive Compensation as of the Effective Date Employment
Contracts and Special Employment Arrangements", below.
Director Compensation. Compensation of Directors is discussed in Note 14 of
the Notes to Consolidated Financial Statements contained herein under Part II,
Item 8.
Senior Management Benefits Policy. In 1992, CHI's Board of Directors
adopted a Senior Management Benefits Policy covering certain of the Company's
executive officers listed herein (the "Participants") (see Part III, Item 10)
which offers severance, supplemental life insurance and supplemental disability
insurance benefits subject to entering into a non-competition agreement. In
1996, the Company expanded the eligibility under the policy to include officers
of certain of its subsidiaries. Each Participant is entitled to, under certain
circumstances, between 12 and 26 weeks of severance pay. In addition, each
Participant shall be provided with $150,000 of supplemental term life insurance,
or such other amount or type of insurance as determined by the Board of
Directors, and supplemental disability benefits of up to one year subject to a
maximum aggregate benefit of $200,000. To the extent that benefits under the
Senior Management Benefits Policy duplicate benefits which a Participant is
entitled to receive under any other arrangement with the Company, such benefits
will not be additive.
77
<PAGE>
Stock Option Plan. Under CHI's Stock Option Plan, a committee composed of
directors not eligible to participate in the Stock Option Plan or other
stock-based compensation plans of CHI (the "Committee") is authorized to grant
non-qualified options to purchase shares of CHI's Common Stock to key employees
(including officers) as additional compensation for their services to the
Company. In addition, options qualifying as "incentive stock options" under
Section 422 of the Code may be granted to employees of the Company. Options for
up to 350,000 shares of CHI's Common Stock in the aggregate may be granted prior
to termination of the Plan on May 31, 2002, subject to adjustment in the event
of a stock split, stock dividend or other change in the Common Stock or the
capital structure of the Company. Options that expire unexercised may again be
issued under the Stock Option Plan subject to the foregoing limitations.
Options shall be exercisable over such period determined by the Committee,
but no option may remain exercisable more than ten years from the date of grant.
All options granted under the Stock Option Plan will be nontransferable other
than by will or the laws of descent and distribution, and each option is
exercisable, during the lifetime of the optionee, only by the optionee. Options
may be exercised for up to 12 months following termination of service under
those circumstances where such termination of service is due to convenience of
either the employee or the Company, retirement, permanent disability or death,
except where the employee has been terminated for cause, in which event such
options may be exercised for three months following such termination of
employment, subject in any case to the foregoing limitation on the maximum term
of options granted under the Stock Option Plan. The purchase price of Common
Stock in the case of an incentive stock option shall be such amount as may be
determined by the Committee, but in no event less than the fair market value of
such Common Stock on the date of grant, and in the case of a non-qualified stock
option, such amount as may be determined by the Committee, but in no event less
than the par value of such shares of Common Stock. The purchase price of Common
Stock subject to an option may be paid in cash, options or stock of the Company,
or a combination thereof, except where the employee has been terminated for
cause or such employee has terminated employment at such employee's convenience,
in which case a cashless exercise is subject to a penalty.
The Stock Option Plan also permits the satisfaction of federal income tax
or other tax withholding obligations arising on the exercise of an option by the
withholding of shares of Common Stock acquired under such option.
The Committee has discretion to determine the key employees who shall
participate in the Stock Option Plan, the number of shares of Common Stock
subject to options to be awarded to each participant, the vesting schedules of
options, the terms and conditions, if any, upon which such options may be
awarded and all other matters arising in the administration of the Stock Option
Plan.
As of June 30, 1997, 224,047 options have been granted and remain
outstanding of which 174,314 options have been vested, at exercise prices
ranging from $13.50 to $50 per option.
As of the Effective Date, CHI's Stock Option Plan will terminate, and will
be replaced with CHI Energy, Inc. 1997 Stock Option Plan. See "Executive
Compensation as of the Effective Date -- 1997 Stock Option Plan and Management
Option Agreements".
1992 Warrants/Special Stock Option Plan. Under the terms of the
Recapitalization, the Company approved and issued warrants to MSLEF II and
Madison (the "Investor Warrants") and approved warrants for issuance to certain
members of management (the "Management Warrants") (collectively, the "1992
Warrants"), to purchase 809,192 and 448,222 shares of its Class A Common Stock,
respectively. The 1992 Warrants allow for the purchase of the Company's Class A
Common Stock at a purchase price of $.001 per share. The 1992 Warrants were
never exercised and expired on March 25, 1997.
As of the Effective Date, the 1992 Warrants (and any rights relating
thereto) will be cancelled.
EXECUTIVE COMPENSATION AS OF THE EFFECTIVE DATE
Employment Contracts and Special Employment Arrangements. On the Effective
Date, CHI will enter into employment agreements with James T. Stewart, Edward M.
Stern, Michael I. Storch and Mary V. Gilbert. The agreements will provide that
each of the aforementioned officers will serve as the respective officer as set
forth opposite their names listed on the table entitled "Summary Compensation
Table" above. The respective terms of the employment agreements are between two
78
<PAGE>
and three years. Post-Effective Date base compensation for each of the executive
officers executing employment agreements shall be as follows: (1) James T.
Stewart - $325,000; (2) Edward M. Stern - $250,000; (3) Michael I. Storch -
$250,000; and (4) Mary V. Gilbert - $180,000. In addition to base compensation,
the executive officers of reorganized CHI will be eligible for (i) an annual
bonus of up to 150% of base salary (depending on each executive's compensation
arrangement), (ii) participation in benefit plans, (iii) Management Options and
(iv) disability and death benefits. For a discussion of the Management Options,
see "1997 Stock Option Plan and Management Option Agreement," below. If an
executive officer's employment is terminated by reorganized CHI during the term
of the employment agreement (other than in certain circumstances) such executive
will receive monthly severance payments equal to the executive base compensation
(excluding bonuses) for a period equal to the earlier of (i) the second
anniversary of the date of termination and (ii) nine months following the date
on which the term of the employment agreement expires.
Director Compensation. The compensation of the Directors has not been
determined at this time. The amount of any compensation and the identity of the
independent Director will be disclosed at or immediately prior to the
confirmation hearing.
Senior Management Benefits Policy. It is anticipated that the Senior
Management Benefits Policy will be in effect after the Effective Date.
79
<PAGE>
1997 Stock Option Plan and Management Option Agreements. Pursuant to the
Plan of Reorganization, it is expected that, prior to the Effective Date, the
Board of Directors of CHI will adopt the 1997 Stock Option Plan and Management
Option Agreements. As of the Effective Date, Management Options to acquire New
Class A Common Stock at an exercise price of $10 per share of New Class A Common
Stock are being granted pursuant to the Management Option Plan to certain CHI
employees (including each of the executive officers mentioned above). The
Management Options entitle such holders to purchase up to an aggregate of 7.5%
of the New Class A Common Stock, subject to dilution due to the issuance by
reorganized CHI of shares of New Common Stock pursuant to the exercise of the
New Warrants. The Management Options will vest and become exercisable as
follows:
Effective Date - 33 1/3% of the Management
Options
First Anniversary - 22 2/9% of the Management
Thereof Options
Second Anniversary - 22 2/9% of the Management
Thereof Options
Third Anniversary - 22 2/9% of the Management
Thereof Options
The Management Options will also become vested and exercisable upon a
change in control of reorganized CHI. The Management Options granted as of the
Effective Date will terminate on the seventh anniversary of the Effective Date
unless terminated at an earlier date following termination of an optionee's
employment. No employee of reorganized CHI will be eligible under the 1997 Stock
Option Plan and Management Option Agreements to be granted Management Options to
purchase more than 350,000 shares of New Class A Common Stock.
80
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
EXISTING SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of CHI's class A common stock as of September 15, 1997 (i) by each
person known by the Company to own beneficially more than 5% of the common stock
of CHI; (ii) by each person known by the Company to own beneficially more than
5% of the outstanding voting Preferred Stock of CHI; (iii) by each director and
certain executive officers of CHI; and (iv) by all executive officers and
directors of CHI as a group. Except as otherwise indicated, each named person
has voting and investment power over the listed shares, and such voting and
investment power is exercised solely by the named person or shared with a
spouse.
<TABLE>
<CAPTION>
TITLE OF NUMBER OF PERCENT OF CLASS AS OF
NAME OF STOCKHOLDER OR DIRECTOR CLASS SHARES SEPTEMBER 15, 1997
- - - ------------------------------- ----- ------ ------------------
<S> <C> <C> <C>
(i) More than 5% of Voting Common Stock of CHI
The Fiduciary Company(A) Class A 595,306 14.52% (H)
Madison Group, L.P. Class A (B) 500,000 12.20% (H)
The Morgan Stanley Leveraged Equity Fund II, L.P. Class A (C) 2,250,000 54.88% (H)
NAME OF
TITLE OF NUMBER OF PERCENT OF SERIES AS OF
NAME OF STOCKHOLDER OR DIRECTOR SERIES SHARES SEPTEMBER 15, 1997
- - - ------------------------------- ------ ------ ------------------
(ii) More than 5% of Voting Preferred Stock of CHI
Madison Group, L.P........................................... Series F 10,000 17.77%
Series G 10,000 17.77%
The Morgan Stanley Leveraged Equity Fund II, L.P............. Series F 45,000 79.96%
Series G 45,000 79.96%
NUMBER OF
SHARES OR PERCENT OF COMMON STOCK
TITLE OF SHARE AS OF
NAME OF STOCKHOLDER OR DIRECTOR CLASS EQUIVALENTS SEPTEMBER 15, 1997
- - - ------------------------------- ----- ----------- ------------------
(iii) Common Stock held by each director and certain executive officers of CHI
and related parties (G)
Michael I. Storch Class A 109,185 2.66%
Edward M. Stern (D)(F) Class A 34,600 .84%
Charles J. Micoleau(E) Class A 2,438 .06%
Michael H. Walkup Class A 400 .01%
(iv) All executive officers and directors of CHI and
related parties as a Group 192,236 4.61%
</TABLE>
- - - ---------------
(A) The Fiduciary Company beneficially owns 595,306 shares of class A common
stock by virtue of its power to vote and dispose of such shares. The
economic interest in (i) 313,505 of such shares is owned by a trust for
the benefit of the descendants of Olof S. Nelson, (ii) 146,969 of such
shares is owned by a trust for the benefit of descendants of Robert B.
Milligan, Jr. a former director of the Company and former affiliate at
Madison Group, L.P. and (iii) the remainder of such shares is owned by
certain other trusts. Mr. Nelson and Mr. Milligan disclaim beneficial
ownership of these shares. Mr. Milligan is an affiliate of the Fiduciary
Company.
(B) Represents the number of class A common shares which Madison Group, L.P.
has beneficial ownership based upon the exercise of its conversion right
attached to its ownership of Series F and G Preferred Stock.
(C) Represents the number of class A common shares of which MSLEF II has
beneficial ownership based upon the exercise of its conversion rights
attached to its ownership of Series F and G Preferred Stock.
(D) Except as noted in footnotes (E) and (F), all shares are represented by
vested, exercisable stock options.
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<PAGE>
(E) 1,550 of Mr. Micoleau's shares are held by an IRA in trust for his
benefit.
(F) Includes 10,000 shares of class A common stock which may be repurchased
by the Company for a nominal price, under certain defined circumstances.
(G) Excludes certain stock entitlements earned as director compensation which
certain directors have relinquished all beneficial interests in. See Note
14 of the Notes to Consolidated Financial Statements.
(H) Ownership percentages are calculated in accordance with SEC Rule 13d -
3(d)(1) and, therefore, exclude the dilutive effects of outstanding
warrants, stock options and cumulative convertible dividends.
Consequently, these percentages do not represent ownership on a fully
diluted basis as disclosed in Part I Item 1 "Business".
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AS OF THE EFFECTIVE DATE
It is anticipated that through the implementation of the Plan of
Reorganization, as of the Effective Date, CHI's old class A common stock and
CHI's Preferred Stock will be cancelled. The holders of CHI's Senior Discount
Notes will be issued shares of New Common Stock on the Effective Date consisting
of approximately 9,085,517 shares of New Class A Common Stock and 914,483 shares
of New Class B Common Stock.
The following table sets forth certain information regarding the
approximate beneficial ownership of CHI's New Common Stock as of the Effective
Date by each person which CHI anticipates to beneficially own more than 5% of
the New Common Stock of CHI.
<TABLE>
<CAPTION>
PERCENT OF
COMMON STOCK
AS OF THE
NAME OF STOCKHOLDER TITLE OF CLASS NUMBER OF SHARES EFFECTIVE DATE
------------------- -------------- ---------------- --------------
<S> <C> <C> <C>
Morgan Stanley & Co., Incorporated Class A 3,610,000 36.1%
Swiss Bank Corporation and Affiliates Class A 3,136,000 31.4%
Merrill Lynch Asset Management Class A & Class B 1,520,000 15.2%
Stonehill Investment Corp. Class A 656,000 6.6%
Gem Capital Class A 605,000 6.1%
</TABLE>
82
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RECAPITALIZATION AND THE MSLEF II AND MADISON RELATIONSHIPS
In early 1992, CHI sold to Madison and MSLEF II $55.0 million aggregate
liquidation value of the Series F Preferred Stock and $55.0 million aggregate
liquidation value of the Series G Preferred Stock and, together with the Series
F Preferred Stock, the "Investor Preferred Stock"). The terms of the Investor
Preferred Stock provide that, upon the occurrence of certain events (beyond
applicable cure periods, if any), including the failure by CHI to pay, when due,
a dividend or redemption payment on the Investor Preferred Stock, the breach by
CHI of any material covenant set forth in the purchase agreement relating to the
sale of the Investor Preferred Stock, the breach by CHI, in any material
respect, of any representation or warranty made in the purchase agreement
relating to the sale of the Investor Preferred Stock, the bankruptcy of CHI or
any of its significant subsidiaries, unsatisfied judgments (not covered by
insurance) in excess of $0.5 million against CHI or any of its subsidiaries,
failure by CHI to meet certain performance criteria and default by CHI or any of
its subsidiaries on any indebtedness of CHI (including the Notes) or any such
subsidiary other than any default on subsidiary indebtedness that is not
material to CHI and causes no cross default to other CHI or subsidiary
indebtedness (each an "Investor Event of Non-Compliance"), the Investors will
have the right to designate a majority of CHI's Board of Directors. As a result
of the failure of the Company to meet certain of the aforementioned performance
criteria, the Investors are entitled to declare an Investor Event of
Non-Compliance.
In connection with the Recapitalization, CHI and all of its stockholders,
optionholders and warrantholders entered into an Amended and Restated
Stockholders, Optionholders and Warrantholders Agreement, dated as of March 25,
1992. After giving effect to the use of proceeds of the Refinancing and an
amendment to such stockholders agreement to be executed in connection with such
use of proceeds to delete the provisions thereof relating to rights granted to
GECC as a preferred stockholder, such stockholders agreement includes
restrictions on CHI's ability to submit to a vote of stockholders matters
customarily decided by a board of directors; provisions requiring that the Board
of Directors initially consist of eight directors, five of which shall be
unaffiliated with the Investors; provisions entitling the Investors to appoint
two representatives to the Board of Directors so long as they hold an aggregate
of 10% of CHI's fully-diluted voting equity, excluding the 1992 Warrants and any
unexercisable or out-of-the-money options, warrants or convertible securities
(the Investors having separately agreed that if either of them ceases to hold
$2.0 million aggregate liquidation preference of Investor Preferred Stock (or an
equivalent amount of converted Common Stock), then the other Investor will be
entitled to appoint both representatives); restrictions on transfers of shares
held by other stockholders; and "demand" and "piggyback" registration rights for
the Investors with respect to certain securities of CHI, including the shares of
class A common stock issuable upon conversion of the Preferred Stock and the
exercise of the 1992 Warrants. such stockholders agreement, as so amended,
further provides for control of CHI by the Investors in those situations where
there has occurred an Investor Event of Non-Compliance pursuant to CHI's
Restated Certificate of Incorporation. In addition, such stockholders agreement
provides that such governance provisions would be binding on the holders of
voting equity, principally with respect to liquidation proposals. As of the
Effective Date, such stockholders agreement will be of no further force and
effect.
Morgan Stanley, an affiliate of MSLEF II, received an investment banking
fee from CHI in connection with the Recapitalization. Frank V. Sica, a Managing
Director of Morgan Stanley, and Colin F. Raymond, an Associate of Morgan
Stanley, are members of the Board of Directors of CHI.
In March 1996, Robert B. Milligan, Jr., a principal of the former general
partner of Madison resigned as a member of the Board of Directors of CHI and
certain of the Company's affiliates for which he served as a board member. In
January 1997, Nissan Boury was named to the CHI Board as Mr. Milligan's
replacement.
83
<PAGE>
MORGAN STANLEY & CO. INCORPORATED
On October 13, 1994, the Company engaged Morgan Stanley to provide the
Company with financial advice and assistance. In connection with that
assignment, Morgan Stanley has explored various options to increase shareholder
value including a possible sale of the Company or interests therein. The Company
had incurred approximately $0, $0 and $0.3 million of fees to Morgan Stanley as
of June 30, 1997, 1996 and 1995, respectively, for such financial services.
Morgan Stanley also acted as Placement Agent in the Refinancing and received
placement fees in connection therewith. As of June 30, 1997, the Placement Agent
holds 44,303 shares of the Series H Preferred Stock for its own account.
GECC RELATIONSHIP
As a result of a Management buyout financed by GECC in 1988, GECC was a
principal stockholder of CHI until consummation of the Refinancing (See Part
III, Item 12, "Security Ownership of Certain Beneficial Owners and Management").
As part of the Refinancing, the Company purchased substantially all of GECC's
equity position in CHI and terminated a $24.0 million working capital facility
previously provided by GECC.
As of June 30, 1996, approximately $85.0 million of the GECC Acquisition
Facility remained available to fund future acquisitions of the Company, subject
to specific project financing approvals. All rights related to the Acquisition
Facility terminated on March 25, 1997. In addition to minor common stock
ownership interest, GECC has, through original investments and potential maximum
investments (e.g. letters of credit, revolving credit facilities), invested,
loaned or committed approximately $230.0 million to the Company.
ASEA BROWN BOVERI
The Company has agreed to purchase certain specific and nonspecific project
related equipment, aggregating $3 million, from Asea Brown Boveri IS ("ABB", the
parent company of Asea Brown Boveri AS), a stockholder of CHI (see "Principal
Stockholders"), if and when such equipment is required.
Summit Energy Storage, Inc. ("SES") has a memorandum of understanding (a)
to buy equipment and services from an ABB subsidiary within its area of
competency, other than civil engineering and construction management, on
customary arm's-length terms on a cost-plus or other mutually agreed basis, (b)
permitting such subsidiary to designate an SES board member and (c) pursuant to
which such subsidiary invested approximately $1.4 million and received preferred
stock with equivalent liquidation value and attached warrants to purchase common
stock held by CHI. The same ABB subsidiary made aggregate bridge loans totaling
approximately $1.0 million to SES and received additional warrants to purchase
unissued SES common stock. On a fully diluted basis, the warrants, if exercised,
would give ABB approximately 7% of SES common stock.
CURTIS THAXTER STEVENS BRODER & MICOLEAU
Charles J. Micoleau, a member of CHI's Board of Directors, is a partner in
the law firm of Curtis Thaxter Stevens Broder & Micoleau ("Curtis Thaxter"),
which provides certain legal services to the Company. For the fiscal year ended
June 30, 1997, the Company paid such firm approximately $0.3 million for legal
fees and expenses. In addition, other partners of Curtis Thaxter, John W.
Bernotavicz and Michael B. Peisner, are Assistant Secretaries of the Company and
certain of its subsidiaries. Curtis Thaxter is entitled to preferred stock of
SES with a liquidation value of $0.2 million, plus accrued dividends on such
stock, plus warrants for less than one percent of the fully diluted common stock
of SES, as deferred compensation for work done in connection with the
development of the Summit project. Members of Curtis Thaxter, exclusive of Mr.
Micoleau, are the beneficial owners of an aggregate of 2,143 shares of the
Company's Common Stock for which they paid cash.
84
<PAGE>
OTHERS
CHI has entered into an agreement (the "Put and Call Agreement") with SES
Partners, L.P., a Delaware Limited Partnership (the "Partnership"). Pursuant to
the Put and Call Agreement, the Partnership has the right to sell to CHI in
certain circumstances (the "Put"), and CHI has the right to purchase from the
Partnership in certain circumstances (the "Call"), an option to purchase an
approximately 1.1% as of September 15, 1997 equity interest in SES (the
"Interest") from an existing shareholder of SES (the "Option"), which the
Partnership purchased from such shareholder. If the Put is exercised by the
Partnership (which it may do upon, among other things, initial funding of
construction financing of the Summit Project ("Project Financing"), abandonment
of Summit by SES or a sale by CHI of its equity interest in SES), then CHI would
issue approximately 6,000 shares of its class A common stock in exchange for the
Option, which would have an exercise price of $0.7 million. If the Call is
exercised by CHI (which it may do upon Project Financing), then CHI would pay
the greater of 70.0% of the fair market value of the Interest or the purchase
price of the Option ($0.3 million) for the Interest. CHI has also acquired an
option (the "Acres Option") to purchase from Acres approximately 115 shares
representing 7.1%, as of September 15, 1997, of the outstanding equity of SES.
Additionally, CHI has entered into an agreement pursuant to which SES Partners
II, L.P., a Delaware limited partnership (the "Milligan Partnership") acquired
from CHI a warrant (the "Milligan Warrant") pursuant to which, upon the
happening of certain events, the Milligan Partnership has the right to purchase
approximately 37,600 shares of Class A Common Stock of CHI, subject to customary
antidilution protection. Additionally, the Milligan Partnership has granted to
CHI an option to require the Milligan Partnership to sell the Milligan Warrant
to CHI for cash. CHI has granted to the Milligan Partnership an option (the
"Acres Option Call"), pursuant to which, upon the happening of certain events,
the Milligan Partnership has the right to either (i) transfer the Acres Option
to the Milligan Partnership or (ii) convey 100% of the economic benefits of the
Acres Option (net of certain expenses) to the Milligan Partnership in cash
immediately upon the liquidation of the SES equity interests underlying the
Acres Option, which shall occur as soon as practicable after the exercise of the
Acres Option Call by the Milligan Partnership. Certain Executive Officers and
Directors of CHI and certain of their affiliates are limited partners of the
Milligan Partnership. As of the Effective Date, the (i) Put and Call Agreement
dated as of June 20, 1993, by and among CHI , SES Partners, L.P. and Summit
Energy Storage Inc., (ii) Call Agreement dated as of November 1, 1993, by and
among CHI, SES Partners II, L.P. and Summit Energy Storage Inc. and (iii)
Warrant Agreement dated as of November 1, 1993, between CHI and SES Partners II,
L.P. will be of no further force or effect.
Witoco Venture Corporation ("Witoco"), a stockholder of CHI loaned SES $0.5
million in December 1991 and received a non-recourse note and attached warrants
in connection with the development of the Summit project.
Michael Walkup, President of Witoco, is also a member of CHI's Board of
Directors.
The Company believes that all of the foregoing transactions are on terms
that are no less favorable to the Company than could have been obtained from an
unaffiliated third party in a similar transaction.
85
<PAGE>
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K PAGE
(a) 1.Financial Statements
Report of Independent Accountants 41
Consolidated Statements of Operations for the three years
ended June 30, 1997 42
Consolidated Balance Sheet at June 30, 1997 and 1996 43
Consolidated Statement of Stockholders' Equity for the three years
ended June 30, 1997 44
Consolidated Statement of Cash Flows for the three years
ended June 30, 1997 45
Notes to Consolidated Financial Statements 47
(a) 2.Financial Statement Schedules
All financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
Individual financial statements of the Registrant have been omitted because
consolidated financial statements of the Registrant and all its subsidiaries are
furnished.
(a) 3.Exhibits
Exhibit No. Description
- - - ----------- -----------
2.1 Disclosure Statement dated August 8, 1997
2.2 Plan of Reorganization under Chapter 11 of the Bankruptcy Code
of Consolidated Hydro, Inc.
3.1 Form of Restated Certificate of Incorporation of Consolidated
Hydro, Inc. (to be adopted as of the Effective Date)
3.2 Form of By-Laws of CHI Energy, Inc. (to be adopted as of the
Effective Date)
+3.3A Certificate of Amendment of Restated Certificate of
Incorporation
+3.3B Restated Certificate of Incorporation and amendment thereto and
Bylaws, as amended, of Consolidated Hydro, Inc.
+3.4 Certificate of Designation of 13-1/2% Cumulative Redeemable
Exchangeable Preferred Stock, Series H, par value $0.01 per
share, of Consolidated Hydro, Inc.
+3.5 Certificate of Incorporation and Bylaws of Summit Energy Storage
Inc.
10.1 Form of Stockholders Agreement (to be adopted as of the
Effective Date)
10.2 Form of Registration Rights Agreement (to be adopted as of the
Effective Date)
10.3 Form of Employment Agreement (to be adopted as of the Effective
Date)
10.4 CHI Energy, Inc. 1997 Stock Option Plan and Management Option
Agreement (to be adopted prior to the Effective Date)
10.5 Form of Series B Warrant (to be adopted as of the Effective
Date)
10.6 Form of Series C Warrant (to be adopted as of the Effective
Date)
86
<PAGE>
+10.7 Power Purchase Agreement between Boott Hydropower, Inc. and
Commonwealth Electric Company, dated January 10, 1983 and
amendment dated March 6, 1985
+10.8 Participation Agreement dated as of December 1, 1985 among Boott
Hydropower, Inc., General Electric Credit Corporation,
Corporation Investments, Inc. and United States Trust Company of
New York, as Owner Trustee and amendment thereto dated as of
February 26, 1988
+10.9 Lease Agreement dated as of December 1, 1985 between United
States Trust Company of New York, as Owner Trustee, and Boott
Hydropower, Inc. and amendments thereto dated as of December 12,
1986 and February 26, 1988
+10.10 Power Purchase Agreement between Lawrence Hydroelectric
Associates, Essex Company and New England Power Company
(Lawrence Project), dated January 1, 1985
+10.11 Mortgage and Security Agreement from Lawrence Hydroelectric
Associates to New England Power Company, dated January 1, 1985
+10.12 Indenture of Mortgage, dated as of September 8, 1981, between
Lawrence Hydroelectric Associates and State Street Bank and
Trust Company, Trustee, and Supplemental Indentures dated as of
January 1, 1985, October 1, 1987 and July 1, 1988
+10.13 Agreement between International Paper Company and Niagara Mohawk
Power Corporation (LaChute Lower Project), dated March 7, 1986
+10.14 Agreement between International Paper Company and Niagara Mohawk
Power Corporation (LaChute Upper Project), dated March 7, 1986
+10.15 Participation Agreement dated as of December 31, 1987 among
LaChute Hydro Company, Inc., Philip Morris Credit Corporation,
the Financial Institutions listed on Schedule II thereto, The
Connecticut Bank and Trust Company, National Association, as
Indenture Trustee, and The Connecticut National Bank, as Owner
Trustee
+10.16 Lease Agreement dated as of December 31, 1987 between LaChute
Hydro Company, Inc. and The Connecticut National Bank, as Owner
Trustee
+10.17 Indenture and Amended and Restated Building Loan Mortgage and
Security Agreement dated as of December 31, 1987 between The
Connecticut National Bank, as Owner Trustee and The Connecticut
Bank and Trust Company, National Association, as Indenture
Trustee
+10.18 Tax Indemnification Agreement dated as of December 31, 1987
between LaChute Hydro Company, Inc. and Philip Morris Credit
Corporation
+10.19 Tax Indemnification Agreement dated as of December 31, 1987
between LaChute Hydro Company, Inc. and General Electric Capital
Corporation
+10.20 Power Purchase Agreement between Androscoggin Reservoir Company
and Central Maine Power Company (Aziscohos Project), dated
October 23, 1984
87
<PAGE>
+10.21 Participation Agreement dated as of September 1, 1988 among
Aziscohos Hydro Company, Inc., NYNEX Credit Company, The CIT
Group/Equipment Financing, Inc., The Connecticut National Bank,
as Indenture Trustee, and Meridian Trust Company, as Owner
Trustee
+10.22 Lease Agreement dated as of September 1, 1988 between Meridian
Trust Company, as Owner Trustee, and Aziscohos Hydro Company,
Inc.
+10.23 Indenture, Mortgage and Security Agreement dated as of September
1, 1988 between Meridian Trust Company, as Owner Trustee and The
Connecticut National Bank, as Indenture Trustee
+10.24 Indenture of Lease dated as of January 15, 1986 between
Aziscohos Hydro Company, Inc. and Androscoggin Reservoir
Company, and amendments thereto dated March 13, 1986 and as of
September 1, 1988
+10.25 Collateral Assignment of Lease dated September 1, 1988 between
Aziscohos Hydro Company, Inc. and Central Maine Power Company
+10.26 Tax Indemnification Agreement dated as of September 6, 1988
between Aziscohos Hydro Company, Inc., Consolidated Hydro, Inc.
and NYNEX Credit Company
+10.27 Purchase Power Agreement dated December 29, 1987, between Duke
Power Company and Riegel Power Corporation as assigned to
Aquenergy Systems, Inc. by Assignment dated July 27, 1988
+10.28 Note Purchase Agreement between UNUM Life Insurance Company of
America and Aquenergy Systems, Inc. dated as of November 1, 1988
+10.29A Mortgage and Security Agreement dated as of November 1, 1988
from Aquenergy Systems, Inc. to The Connecticut Bank and Trust
Company, National Association, as Trustee (Ware Shoals Project)
+10.30 Loan Agreement dated June 18, 1991, between Fieldcrest Cannon,
Inc. as lender and Eagle & Phenix Hydro Company, Inc. as
borrower setting forth terms and conditions for the loan
evidenced by the Promissory Note described in item A above
+10.31 Security Deed dated June 18, 1991 from Eagle & Phenix Hydro
Company, Inc. to Fieldcrest Cannon, Inc. as security for the
Promissory Note described item A above
+10.32 Security Agreement dated June 18, 1991, between Eagle & Phenix
Hydro Company, Inc. as grantor and Fieldcrest Cannon Inc. as
secured party as security for the Promissory Note described in
item A above
+10.33 Lease agreement dated January 18, 1991, between Eagle & Phenix
Hydro Company, Inc. as lessor and Fieldcrest Cannon, Inc. as
lessee
+10.34 Agreement for the sale of electricity to Virginia Electric &
Power Company dated July 29, 1988, between Virginia Electric &
Power Company and Aquenergy Systems, Inc.
88
<PAGE>
+10.35 Deed of Trust and Security Agreement dated as of November 1,
1988 from Aquenergy Systems, Inc. to The Connecticut Bank and
Trust Company, National Association, as Trustee (Fries Project)
+10.36A Purchase Power Agreement between Duke Power Company and Pelzer
Hydro Company, Inc. dated February 15, 1991 (Upper Pelzer)
+10.36B Purchase Power Agreement between Duke Power Company and Pelzer
Hydro Company, Inc. dated February 15, 1991 (Lower Pelzer)
+10.37 Second Amended and Restated Certificate and Agreement of Limited
Partnership of Catalyst Slate Creek Hydroelectric Partnership,
dated as of July 18, 1989 and Amendment No. 1. dated as of May
9, 1990 thereto
+10.38 Restated and Amended Power Purchase Agreement between Catalyst
Slate Creek Hydroelectric Partnership and PacifiCorp, dba
Pacific Power & Light Company and Utah Power & Light Company,
dated May 8, 1990
+10.39 Lease Agreement dated September 9, 1986, between Wallowa Hydro
Associates, Ltd. as lessee and Roy & Wilfred Daggett as lessors
as amended on April 13, 1988, as assigned to Joseph Hydro
Company, Inc. by Assignment and Assumption of Leases dated July
31, 1991
+10.40 Lease Agreement dated September 9, 1986, between Wallowa Hydro
Associates, Ltd. as lessee and Rex W. and Zela G. Ziegler as
lessors as amended on April 13, 1988, as assigned to Joseph
Hydro Company, Inc. by Assignment and Assumption of Leases dated
July 31, 1991
+10.41 Lease Agreement dated August 8, 1986 between Wallow Hydro
Associates, Ltd. as lessee and Dale L. Potter as lessor, as
assigned to Joseph Hydro Company, Inc. by Assignment and
Assumption of Leases dated July 31, 1991
+10.42 Amended and Restated Power Purchase Agreement dated July 31,
1991, between Joseph Hydro Company, Inc. and PacifiCorp Electric
Operations
+10.43 Agreement between Wallowa Valley Improvement District No. 1 and
Cook Electric, Inc. dated January 6, 1981, as amended on
February 2, 1982, December 13, 1982, December 27, 1982,
September 13, 1983, and July 31, 1991, as assigned to Joseph
Hydro Company, Inc. by Assignment and Consent Agreement dated
July 31, 1991
+10.44 Agreement between Joseph Hydro Associates, Ltd. and the Little
Sheep Creek Property Owners Association as assigned to Joseph
Hydro Company Inc. by Assignment and Assumption of Contracts
dated July 31, 1991
+10.45 American Arbitration Association Order No. 75 110 0110 85 dated
September 16, 1983, as assigned to Joseph Hydro Company, Inc. by
Assignment and Assumption of Contracts dated July 31, 1991
+10.46 Contract between the Connecticut Light and Power Company and
Kinneytown Hydro Company, Inc. (Kinneytown Project) dated
December 2, 1986
89
<PAGE>
+10.47 Open-End Electricity Purchase Agreement Mortgage and Security
Agreement between Kinneytown Hydro Company, Inc. and the
Connecticut Light and Power Company dated April 29, 1988
+10.48 Amended and Restated Agreement of Limited Partnership, dated as
of December 22, 1989, of Twin Falls Hydro Associates, L.P.
+10.49 Tax Indemnification Agreement, dated as of December 22, 1989,
between The Connecticut National Bank, as LP Trustee, and CHI
Acquisitions, Inc. (Exhibit G to item 10.48)
+10.50 Agreement between New York State Electric & Gas Corporation and
Walden Power Corporation dated as of August 2, 1982
+10.51 Lease between Barbara Gurman Lewis and Walden Power Corporation
dated as of August 24, 1982
+10.52 Lease between the Village of Walden and Walden Power Corporation
dated as of August 5, 1982
+10.53 Stock Subscription Agreement dated as of March 30, 1988 among
Consolidated Hydro, Inc., Summit Energy Storage Inc., Acres
International Corporation, Commonwealth Securities and
Investments, Inc. and seven individuals
+10.54 Memorandum of Understanding between Kvaerner Brug A/S, Boving &
Co., Limited, EB Kraftgenerering a.s. (Powergeneration), and
Consolidated Hydro, Inc., dated April 12, 1988
+10.55 Agreement between Kvaerner Brug A/S, Boving & Co., Limited, EB
Kraftgenerering a.s. (Power generation), Summit Energy Storage
Inc., dated April 12, 1988
+10.56 Agreement between Kvaerner Brug A/S, Boving & Co., Limited, EB
Kraftgenerering a.s. (Power generation), Consolidated Hydro
Inc., Summit Energy Storage Inc., dated April 12, 1988
+10.57 Agreement for Energy Services for Summit Energy Storage Project
between Summit Energy Storage Inc. and Acres International
Corporation dated March 30, 1988
+10.58 Letter Agreement dated March 30, 1988 between Summit Energy
Storage Inc. and Acres International Corporation
+10.59 Mitigation Agreement between Summit Energy Storage Inc. and the
City of Norton, Ohio dated May 14, 1990
+10.60 Memorandum of Understanding concerning commitment to lease
between Summit Energy Storage Inc. and Ohio Edison Company,
dated October 8, 1991
+10.61 Agreement concerning specified facility transmission and
dispatching service between Summit Energy Storage Inc. and Ohio
Edison Company, dated October 8, 1991
90
<PAGE>
+10.62A Technical Services Agreement dated June 5, 1992 between Summit
Energy Storage Inc. and Morrison Knudsen Corporation
+10.62B Promissory notes dated March 19, 1990 (a) in the principal
amount of $658,500 from Summit Energy Storage Inc. to EB
Kraftgenerering a.s. and (b) in the principal amount of $341,500
from Summit Energy Storage Inc. to Kvaerner Hydro Power A/S
+10.63 Promissory note dated May 30, 1991 in the principal amount of
$110,000 from Summit Energy Storage Inc. EB Kraftgenerering a.s.
(Powergeneration)
+10.64 Promissory note dated November 26, 1991 in the principal amount
$500,000 from Summit Energy Storage Inc. to Witoco Venture
Corporation
+10.65 Promissory note dated October 31, 1991 in the principal amount
of $277,778 from Summit Energy Storage Inc. to Andrea Rich, in
her capacity as Trustee of the Howard Rich Trust for the benefit
of Daniel Rich
+10.66 Promissory note dated October 31, 1991 in the principal amount
of $222,222 from Summit Energy Storage Inc. to Andrea Rich, in
her capacity as Trustee of the Howard Rich Trust for the benefit
of Joseph Rich
+10.67A Letter agreements between Summit Energy Storage Inc. and Curtis
Thaxter Stevens Broder & Micoleau dated June 15, 1988, August
29, 1990 and June 21, 1991
+10.67B Kidder, Peabody & Co., Incorporated Fee Letter, dated September
5, 1989
+10.68 Letter Agreement dated September 26, 1989 between Consolidated
Pumped Storage, Inc. and JDJ Energy Company, Inc.
+10.69 Conveyance, Pledge, Security and Shareholders Agreement dated as
of September 15, 1990 among Consolidated Pumped Storage
Arkansas, Inc., Consolidated Pumped Storage, Inc. and JDJ Energy
Company, Inc.
+10.70 Loan Agreement and Supply Commitment dated as of September 28,
1990 among Consolidated Pumped Storage Arkansas, Inc.,
Consolidated Pumped Storage, Inc. and Voith Hydro, Inc.
+10.71 Loan Agreement and Supply Commitment dated as of December 18,
1991 among Consolidated Pumped Storage Arkansas, Inc.,
Consolidated Pumped Storage, Inc. and Siemens Power Ventures,
Inc.
+10.72A Warrant to purchase up to 10 shares of common stock of
Consolidated Pumped Storage, Inc. issued to Andrea Rich
+10.72B Securities Purchase Agreement between Consolidated Hydro, Inc.,
and BCC Brown Finance (Curacao) N.V., dated June 29, 1992
+10.73 Employment Agreement between Consolidated Hydro, Inc. and Olof
S. Nelson dated March 25, 1992
91
<PAGE>
+10.74 Employment Agreement between Consolidated Hydro, Inc. and
Michael I. Storch dated March 25, 1992
+10.75 Employment Agreement between Consolidated Hydro, Inc. and Carol
H. Cunningham dated March 25, 1992
+10.76A Side letter with Carol H. Cunningham dated March 25, 1992
+10.76B Incentive Compensation and Transition Employment Agreement for
the Eagle and Phenix projects, dated December 18, 1992
+10.77 Stockholders, Optionholders and Warrantholders Agreement among
Consolidated Hydro, Inc. and its stockholders, optionholders and
warrantholders dated March 25, 1992
+10.78 Purchase Agreement dated March 25, 1992 among Consolidated
Hydro, Inc., Madison Group, L.P., and The Morgan Stanley
Leveraged Equity Fund II, L.P.
+10.79 Amended and Restated Acquisition Facility Agreement between
Consolidated Hydro, Inc. and General Electric Capital
Corporation dated March 25, 1992
+10.80 Note Pledge and Security Agreement between General Electric
Capital Corporation and CHI Acquisitions, Inc., dated June 22,
1993
+10.81 Amendment and Agreement among General Electric Capital
Corporation, and its subsidiaries, dated June 22, 1993
+10.82 Reimbursement Agreement between CHI Acquisitions, Inc.,
Consolidated Hydro Southeast, Inc., Joseph Hydro Company, Inc.,
and General Electric Capital Corporation, dated June 22, 1993
+10.83 Kidder, Peabody & Co. Letter Agreement, dated July 19, 1991
+10.84 Participation Agreement dated September 9, 1993 among CHI
Acquisitions, Inc., Sheldon Springs Power Company, Sheldon
Vermont Hydro Company, Inc., GECC and Aircraft Services
Corporation
+10.85 Agreement of Limited Partnership of Sheldon Springs Hydro
Associates, L.P. dated September 9, 1993
+10.86 Loan Agreement dated September 10, 1993 among Missisquoi
Associates, Sheldon Springs Hydro Associates, L.P. and GECC
+10.87 Long-Term, Firm Levelized and Non-Levelized Purchase Agreement,
executed on July 23, 1986, between Vermont Power Exchange, Inc.
and Missisquoi Associates
+10.88 Revolving Credit Agreement among Consolidated Hydro, Inc., as
the Borrower, the Banks Listed in Schedule I and Den norske Bank
AS, as Agent, dated as of October 14, 1993
+10.89 Warrant Agreement dated as of November 1, 1993, between
Consolidated Hydro, Inc. and SES Partners II, L.P.
92
<PAGE>
+10.90 Stock Option Plan
+10.91 Form of Stock Option Agreement
+10.92 Form of Indemnifications Agreement
+10.93 Form of Amended and Restated Indenture for the Notes between
Consolidated Hydro, Inc. and Shawmut Bank Connecticut, National
Association, as trustee
+10.94 Form of Exchange Debenture Indenture (including form of
debenture)
+10.95 Registration Rights Agreement, dated June 15, 1993, between
Consolidated Hydro, Inc. and Morgan Stanley
++10.96 Credit and Reimbursement Agreement dated as of February 15, 1995
among CHI Acquisitions II, Inc., Hydro Development Group Inc.,
Beaver Valley Power Company, Littleville Power Company, Inc.,
Consolidated Hydro Southeast, Inc., Pelzer Hydro Company, Inc.,
Joseph Hydro Company, Inc., Slate Creek Hydro Company, Inc., CHI
Acquisitions, Inc., the Lenders from time to time party thereto,
and General Electric Capital Corporation, as Agent for the
Lenders.
+++10.97 Deed of Trust, Assignment of rents and Fixture Filing dated as
of May 10, 1990 between Slate Creek Hydro Associates, L.P.
(f/k/a Catalyst Slate Creek Hydroelectric Partnership), in favor
of First American Title Insurance Company, trustee, f/b/o
General Electric Capital Corp. ("GECC"), recorded in Book 2595,
Page 805, as assigned by GECC to CHI Acquisitions, Inc. by
Assignment of Beneficial Interest Under Deed of Trust, dated
February 15, 1995, recorded in Book 3260, Page 629, as amended
by Modification of Deed of Trust, dated February 15, 1995,
recorded in Book 3260, Page 635, as further assigned by CHI
Acquisitions, Inc. to Slate Creek Hydro Company, Inc., by
Assignment of Deed of Trust dated February 15, 1995, recorded in
book 3260, Page 647, and as further assigned by CHI
Acquisitions, Inc. to GECC by Assignment of Beneficial Interest
Under Deed of Trust dated February 15, 1995 and recorded in Book
3260, Page 651.
+++10.98 Mortgage from Pelzer Hydro Company, Inc. to General Electric
Capital Corporation, dated as of February 15, 1995.
+++10.99 Power Purchase Agreement by and between Niagara Mohawk Power
Corporation and Pyrites Associates, dated as of April 22, 1985,
as amended by First Amendment dated as of March 22, 1993.
+++10.100 Lease Agreement between Pyrites Associates (lessee) and St.
Lawrence County Industrial Development Agency, dated June 1,
1985 and recorded in Book 992, Page 742, as amended by First
Amendment dated June 3, 1993 and recorded in book 1072, Page
921.
+++10.101 Pyrites Project Agreement dated November 18, 1982 between Hydro
Development Group Inc. and Hydra-Co Enterprises, Inc.
+++10.102 Cataldo Hydro Power Associates Partnership Agreement dated
October 12, 1983.
93
<PAGE>
+++10.103 Agreement of Limited Partnership of Black River Hydro
Associates, dated as of November 23, 1983, as amended by First
Amendment dated as of October 14, 1984 and undated, unexecuted
Second Amendment.
+++10.104 Amended and Restated Power Purchase Agreement - Port Leyden
Plant by and between Black River Hydro Associates and Niagara
Mohawk Power Corporation, dated as of October 15, 1984, as
amended by amendments dated October 15, 1984 and June 18, 1993,
respectively.
+++10.105 Lease by and between Lewis County Industrial Development Agency
(Lessor) and Black River Hydro Associates (Lessee), dated
02/01/85 and recorded in Liber 454 of Deeds, Page 191, as
amended by amendments dated 04/01/86, 05/26/88 and 07/07/93,
respectively, the latter being recorded in Liber 565 of Deeds,
Page 51.
+++10.106 Indenture of Trust, Mortgage and Assignment given by Lewis
County Industrial Development Agency to Chase Manhattan Bank,
N.A., dated 02/01/85, as supplemented by instruments dated
04/01/86, 10/31/91 and 07/07/93, the latter being recorded in
Liber 393 of Mortgages, Page 165.
+++10.107 Power Purchase Agreement by and between Hydro Development Group
Inc. and Niagara Mohawk Power Corporation, dated December 16,
1993 (Dexter, Copenhagen and other Projects).
+++10.108 Mortgage Restatement Agreement between Hydro Development Group
Inc. and General Electric Capital Corporation dated February 15,
1995 and recorded in the Jefferson County Clerk's Office in
Liber 1362, Page 033.
+++10.109 Project Agreement by and between Hydro Development Group, Inc.
and Hydra-Co Enterprises, Inc., dated November 18, 1982.
+++10.110 Agreement by and between Hydro Development Group, Inc., and
Hydra-Co Enterprises, Inc. dated as of May 23, 1994.
+++10.111 Employment Agreement between Consolidated Hydro, Inc. and Edward
M. Stern dated November 1, 1994.
+++10.112 Termination Agreement between Consolidated Hydro, Inc. and Olof
S. Nelson dated June 27, 1996.
+++10.113 Employment Agreement between Consolidated Hydro, Inc. and James
T. Stewart dated July 1, 1996.
10.114 Employment Agreement dated as of January 1, 1997, by and between
Consolidated Hydro, Inc. and Michael I. Storch.
10.115 Employment Agreement dated as of January 1, 1997 by and between
Consolidated Hydro, Inc. and Edward M. Stern.
10.116 Employment Agreement dated as of January 14, 1997, by and
between Consolidated Hydro, Inc. and Mary V. Gilbert.
94
<PAGE>
10.117 Amendment dated as of July 1, 1996 to the Revolving Credit
Agreement between Consolidated Hydro, Inc. and Den norske Bank
ASA
10.118 First Amended and Restated Credit Agreement dated as of October
15, 1996 between Lyon Credit Corporation and BP Hydro Finance
Partnership.
++++10.119 Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Consolidated Hydro Maine, Inc., CHI Universal,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
++++10.120 Letter of Agreement, dated November 15, 1996, amending Agreement
of Merger, dated as of July 1, 1996, by and among Consolidated
Hydro Maine, Inc., CHI Universal, Inc., Consolidated Hydro,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
++++10.121 Letter Agreement, dated December 3, 1996, amending Agreement of
Merger, dated as of July 1, 1996, by and among Consolidated
Hydro Maine, Inc., CHI Universal, Inc., Consolidated Hydro,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
+++++10.122 Amended Engagement Letter, dated as of May 30, 1997, between
Consolidated Hydro, Inc. and Houlihan Lokey Howard and Zukin,
Inc.
10.123 Bill of Sale dated June 13, 1997, between TKO Power, Inc. and
Ralphs Ranches, Inc.
10.124 Termination Agreement dated September 9, 1997, between Joseph
Hydro Company, Inc. and PacifiCorp.
10.125 Purchased Power Agreement between Duke Power and Mill Shoals
Hydro Company, Inc., dated August 12,1997.
12.1 Statements regarding computation of ratios
21.1 List of Subsidiaries of Registrant
27.1 Financial Data Schedule
95
<PAGE>
+ Incorporated by reference to the respective exhibit to the
Company's Registration Statement on Form S-1 (File No. 33-69762).
++ Incorporated by reference to the Company's Current Report on Form
8-K dated May 2, 1995.
+++ Incorporated by reference to the Company's report on Form 10-K for
the fiscal year ended June 30, 1996.
++++ Incorporated by reference to the Company's Report on Form 8-K
dated December 23, 1996, as amended by Form 8-K/A dated March 7,
1997.
+++++ Incorporated by reference to the Company's Current Report on Form
8-K dated June 4, 1997.
96
<PAGE>
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on December 23,
1996, reporting the disposition of Consolidated Hydro Maine, Inc.
The required pro-forma financial statements were filed in an
amendment to the report on March 7, 1997.
The Company filed a Current Report on Form 8-K on March 20, 1997,
reporting the meeting of certain holders of the Company's 12%
Senior Discount Notes, announcing an outline for its current
business strategy and a proposal to restructure its outstanding
debt and equity.
The Company filed a Current Report on Form 8-K on June 4, 1997,
reporting the attainment of an agreement-in-principle for a
restructuring plan with an unofficial committee of bondholders
representing a majority of the 12% Senior Discount Notes and the
Series F, G, and Series H Preferred Stock.
97
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONSOLIDATED HYDRO, INC.
(Registrant)
Date: September 26, 1997 By: /s/ James T. Stewart
--------------------------
James T. Stewart
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
by: /s/James T. Stewart
--------------------------------
James T. Stewart Chairman and Chief Executive Officer September 26, 1997
by: /s/ Edward M. Stern
--------------------------------
Edward M. Stern President, Chief Operating Officer and Secretary September 26, 1997
by: /s/ Mary V. Gilbert
--------------------------------
Mary V. Gilbert Senior Vice President, Chief Financial Officer September 26, 1997
(principal financial officer)
by: /s/ Neil A. Manna
--------------------------------
Neil A. Manna Vice President --Finance, Controller September 26, 1997
and Treasurer (principal accounting officer)
by: /s/ Nissan Boury
--------------------------------
Nissan Boury Director September 26, 1997
by: /s/ Charles J. Micoleau
--------------------------------
Charles J. Micoleau Director September 26, 1997
by: /s/ Colin F. Raymond
--------------------------------
Colin F. Raymond Director September 26, 1997
by: /s/ Frank V. Sica
--------------------------------
Frank V. Sica Director September 26, 1997
by: /s/ Michael H. Walkup
--------------------------------
Michael H. Walkup Director September 26, 1997
</TABLE>
98
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- - - ----------- -----------
2.1 Disclosure Statement dated August 8, 1997
2.2 Plan of Reorganization under Chapter 11 of the Bankruptcy Code
of Consolidated Hydro, Inc.
3.1 Form of Restated Certificate of Incorporation of Consolidated
Hydro, Inc. (to be adopted as of the Effective Date)
3.2 Form of By-Laws of CHI Energy, Inc. (to be adopted as of the
Effective Date)
+3.3A Certificate of Amendment of Restated Certificate of
Incorporation
+3.3B Restated Certificate of Incorporation and amendment thereto and
Bylaws, as amended, of Consolidated Hydro, Inc.
+3.4 Certificate of Designation of 13-1/2% Cumulative Redeemable
Exchangeable Preferred Stock, Series H, par value $0.01 per
share, of Consolidated Hydro, Inc.
+3.5 Certificate of Incorporation and Bylaws of Summit Energy Storage
Inc.
10.1 Form of Stockholders Agreement (to be adopted as of the
Effective Date)
10.2 Form of Registration Rights Agreement (to be adopted as of the
Effective Date)
10.3 Form of Employment Agreement (to be adopted as of the Effective
Date)
10.4 CHI Energy, Inc. 1997 Stock Option Plan and Management Option
Agreement (to be adopted prior to the Effective Date)
10.5 Form of Series B Warrant (to be adopted as of the Effective
Date)
10.6 Form of Series C Warrant (to be adopted as of the Effective
Date)
<PAGE>
+10.7 Power Purchase Agreement between Boott Hydropower, Inc. and
Commonwealth Electric Company, dated January 10, 1983 and
amendment dated March 6, 1985
+10.8 Participation Agreement dated as of December 1, 1985 among Boott
Hydropower, Inc., General Electric Credit Corporation,
Corporation Investments, Inc. and United States Trust Company of
New York, as Owner Trustee and amendment thereto dated as of
February 26, 1988
+10.9 Lease Agreement dated as of December 1, 1985 between United
States Trust Company of New York, as Owner Trustee, and Boott
Hydropower, Inc. and amendments thereto dated as of December 12,
1986 and February 26, 1988
+10.10 Power Purchase Agreement between Lawrence Hydroelectric
Associates, Essex Company and New England Power Company
(Lawrence Project), dated January 1, 1985
+10.11 Mortgage and Security Agreement from Lawrence Hydroelectric
Associates to New England Power Company, dated January 1, 1985
+10.12 Indenture of Mortgage, dated as of September 8, 1981, between
Lawrence Hydroelectric Associates and State Street Bank and
Trust Company, Trustee, and Supplemental Indentures dated as of
January 1, 1985, October 1, 1987 and July 1, 1988
+10.13 Agreement between International Paper Company and Niagara Mohawk
Power Corporation (LaChute Lower Project), dated March 7, 1986
+10.14 Agreement between International Paper Company and Niagara Mohawk
Power Corporation (LaChute Upper Project), dated March 7, 1986
+10.15 Participation Agreement dated as of December 31, 1987 among
LaChute Hydro Company, Inc., Philip Morris Credit Corporation,
the Financial Institutions listed on Schedule II thereto, The
Connecticut Bank and Trust Company, National Association, as
Indenture Trustee, and The Connecticut National Bank, as Owner
Trustee
+10.16 Lease Agreement dated as of December 31, 1987 between LaChute
Hydro Company, Inc. and The Connecticut National Bank, as Owner
Trustee
+10.17 Indenture and Amended and Restated Building Loan Mortgage and
Security Agreement dated as of December 31, 1987 between The
Connecticut National Bank, as Owner Trustee and The Connecticut
Bank and Trust Company, National Association, as Indenture
Trustee
+10.18 Tax Indemnification Agreement dated as of December 31, 1987
between LaChute Hydro Company, Inc. and Philip Morris Credit
Corporation
+10.19 Tax Indemnification Agreement dated as of December 31, 1987
between LaChute Hydro Company, Inc. and General Electric Capital
Corporation
+10.20 Power Purchase Agreement between Androscoggin Reservoir Company
and Central Maine Power Company (Aziscohos Project), dated
October 23, 1984
<PAGE>
+10.21 Participation Agreement dated as of September 1, 1988 among
Aziscohos Hydro Company, Inc., NYNEX Credit Company, The CIT
Group/Equipment Financing, Inc., The Connecticut National Bank,
as Indenture Trustee, and Meridian Trust Company, as Owner
Trustee
+10.22 Lease Agreement dated as of September 1, 1988 between Meridian
Trust Company, as Owner Trustee, and Aziscohos Hydro Company,
Inc.
+10.23 Indenture, Mortgage and Security Agreement dated as of September
1, 1988 between Meridian Trust Company, as Owner Trustee and The
Connecticut National Bank, as Indenture Trustee
+10.24 Indenture of Lease dated as of January 15, 1986 between
Aziscohos Hydro Company, Inc. and Androscoggin Reservoir
Company, and amendments thereto dated March 13, 1986 and as of
September 1, 1988
+10.25 Collateral Assignment of Lease dated September 1, 1988 between
Aziscohos Hydro Company, Inc. and Central Maine Power Company
+10.26 Tax Indemnification Agreement dated as of September 6, 1988
between Aziscohos Hydro Company, Inc., Consolidated Hydro, Inc.
and NYNEX Credit Company
+10.27 Purchase Power Agreement dated December 29, 1987, between Duke
Power Company and Riegel Power Corporation as assigned to
Aquenergy Systems, Inc. by Assignment dated July 27, 1988
+10.28 Note Purchase Agreement between UNUM Life Insurance Company of
America and Aquenergy Systems, Inc. dated as of November 1, 1988
+10.29A Mortgage and Security Agreement dated as of November 1, 1988
from Aquenergy Systems, Inc. to The Connecticut Bank and Trust
Company, National Association, as Trustee (Ware Shoals Project)
+10.30 Loan Agreement dated June 18, 1991, between Fieldcrest Cannon,
Inc. as lender and Eagle & Phenix Hydro Company, Inc. as
borrower setting forth terms and conditions for the loan
evidenced by the Promissory Note described in item A above
+10.31 Security Deed dated June 18, 1991 from Eagle & Phenix Hydro
Company, Inc. to Fieldcrest Cannon, Inc. as security for the
Promissory Note described item A above
+10.32 Security Agreement dated June 18, 1991, between Eagle & Phenix
Hydro Company, Inc. as grantor and Fieldcrest Cannon Inc. as
secured party as security for the Promissory Note described in
item A above
+10.33 Lease agreement dated January 18, 1991, between Eagle & Phenix
Hydro Company, Inc. as lessor and Fieldcrest Cannon, Inc. as
lessee
+10.34 Agreement for the sale of electricity to Virginia Electric &
Power Company dated July 29, 1988, between Virginia Electric &
Power Company and Aquenergy Systems, Inc.
<PAGE>
+10.35 Deed of Trust and Security Agreement dated as of November 1,
1988 from Aquenergy Systems, Inc. to The Connecticut Bank and
Trust Company, National Association, as Trustee (Fries Project)
+10.36A Purchase Power Agreement between Duke Power Company and Pelzer
Hydro Company, Inc. dated February 15, 1991 (Upper Pelzer)
+10.36B Purchase Power Agreement between Duke Power Company and Pelzer
Hydro Company, Inc. dated February 15, 1991 (Lower Pelzer)
+10.37 Second Amended and Restated Certificate and Agreement of Limited
Partnership of Catalyst Slate Creek Hydroelectric Partnership,
dated as of July 18, 1989 and Amendment No. 1. dated as of May
9, 1990 thereto
+10.38 Restated and Amended Power Purchase Agreement between Catalyst
Slate Creek Hydroelectric Partnership and PacifiCorp, dba
Pacific Power & Light Company and Utah Power & Light Company,
dated May 8, 1990
+10.39 Lease Agreement dated September 9, 1986, between Wallowa Hydro
Associates, Ltd. as lessee and Roy & Wilfred Daggett as lessors
as amended on April 13, 1988, as assigned to Joseph Hydro
Company, Inc. by Assignment and Assumption of Leases dated July
31, 1991
+10.40 Lease Agreement dated September 9, 1986, between Wallowa Hydro
Associates, Ltd. as lessee and Rex W. and Zela G. Ziegler as
lessors as amended on April 13, 1988, as assigned to Joseph
Hydro Company, Inc. by Assignment and Assumption of Leases dated
July 31, 1991
+10.41 Lease Agreement dated August 8, 1986 between Wallow Hydro
Associates, Ltd. as lessee and Dale L. Potter as lessor, as
assigned to Joseph Hydro Company, Inc. by Assignment and
Assumption of Leases dated July 31, 1991
+10.42 Amended and Restated Power Purchase Agreement dated July 31,
1991, between Joseph Hydro Company, Inc. and PacifiCorp Electric
Operations
+10.43 Agreement between Wallowa Valley Improvement District No. 1 and
Cook Electric, Inc. dated January 6, 1981, as amended on
February 2, 1982, December 13, 1982, December 27, 1982,
September 13, 1983, and July 31, 1991, as assigned to Joseph
Hydro Company, Inc. by Assignment and Consent Agreement dated
July 31, 1991
+10.44 Agreement between Joseph Hydro Associates, Ltd. and the Little
Sheep Creek Property Owners Association as assigned to Joseph
Hydro Company Inc. by Assignment and Assumption of Contracts
dated July 31, 1991
+10.45 American Arbitration Association Order No. 75 110 0110 85 dated
September 16, 1983, as assigned to Joseph Hydro Company, Inc. by
Assignment and Assumption of Contracts dated July 31, 1991
+10.46 Contract between the Connecticut Light and Power Company and
Kinneytown Hydro Company, Inc. (Kinneytown Project) dated
December 2, 1986
<PAGE>
+10.47 Open-End Electricity Purchase Agreement Mortgage and Security
Agreement between Kinneytown Hydro Company, Inc. and the
Connecticut Light and Power Company dated April 29, 1988
+10.48 Amended and Restated Agreement of Limited Partnership, dated as
of December 22, 1989, of Twin Falls Hydro Associates, L.P.
+10.49 Tax Indemnification Agreement, dated as of December 22, 1989,
between The Connecticut National Bank, as LP Trustee, and CHI
Acquisitions, Inc. (Exhibit G to item 10.48)
+10.50 Agreement between New York State Electric & Gas Corporation and
Walden Power Corporation dated as of August 2, 1982
+10.51 Lease between Barbara Gurman Lewis and Walden Power Corporation
dated as of August 24, 1982
+10.52 Lease between the Village of Walden and Walden Power Corporation
dated as of August 5, 1982
+10.53 Stock Subscription Agreement dated as of March 30, 1988 among
Consolidated Hydro, Inc., Summit Energy Storage Inc., Acres
International Corporation, Commonwealth Securities and
Investments, Inc. and seven individuals
+10.54 Memorandum of Understanding between Kvaerner Brug A/S, Boving &
Co., Limited, EB Kraftgenerering a.s. (Powergeneration), and
Consolidated Hydro, Inc., dated April 12, 1988
+10.55 Agreement between Kvaerner Brug A/S, Boving & Co., Limited, EB
Kraftgenerering a.s. (Power generation), Summit Energy Storage
Inc., dated April 12, 1988
+10.56 Agreement between Kvaerner Brug A/S, Boving & Co., Limited, EB
Kraftgenerering a.s. (Power generation), Consolidated Hydro
Inc., Summit Energy Storage Inc., dated April 12, 1988
+10.57 Agreement for Energy Services for Summit Energy Storage Project
between Summit Energy Storage Inc. and Acres International
Corporation dated March 30, 1988
+10.58 Letter Agreement dated March 30, 1988 between Summit Energy
Storage Inc. and Acres International Corporation
+10.59 Mitigation Agreement between Summit Energy Storage Inc. and the
City of Norton, Ohio dated May 14, 1990
+10.60 Memorandum of Understanding concerning commitment to lease
between Summit Energy Storage Inc. and Ohio Edison Company,
dated October 8, 1991
+10.61 Agreement concerning specified facility transmission and
dispatching service between Summit Energy Storage Inc. and Ohio
Edison Company, dated October 8, 1991
<PAGE>
+10.62A Technical Services Agreement dated June 5, 1992 between Summit
Energy Storage Inc. and Morrison Knudsen Corporation
+10.62B Promissory notes dated March 19, 1990 (a) in the principal
amount of $658,500 from Summit Energy Storage Inc. to EB
Kraftgenerering a.s. and (b) in the principal amount of $341,500
from Summit Energy Storage Inc. to Kvaerner Hydro Power A/S
+10.63 Promissory note dated May 30, 1991 in the principal amount of
$110,000 from Summit Energy Storage Inc. EB Kraftgenerering a.s.
(Powergeneration)
+10.64 Promissory note dated November 26, 1991 in the principal amount
$500,000 from Summit Energy Storage Inc. to Witoco Venture
Corporation
+10.65 Promissory note dated October 31, 1991 in the principal amount
of $277,778 from Summit Energy Storage Inc. to Andrea Rich, in
her capacity as Trustee of the Howard Rich Trust for the benefit
of Daniel Rich
+10.66 Promissory note dated October 31, 1991 in the principal amount
of $222,222 from Summit Energy Storage Inc. to Andrea Rich, in
her capacity as Trustee of the Howard Rich Trust for the benefit
of Joseph Rich
+10.67A Letter agreements between Summit Energy Storage Inc. and Curtis
Thaxter Stevens Broder & Micoleau dated June 15, 1988, August
29, 1990 and June 21, 1991
+10.67B Kidder, Peabody & Co., Incorporated Fee Letter, dated September
5, 1989
+10.68 Letter Agreement dated September 26, 1989 between Consolidated
Pumped Storage, Inc. and JDJ Energy Company, Inc.
+10.69 Conveyance, Pledge, Security and Shareholders Agreement dated as
of September 15, 1990 among Consolidated Pumped Storage
Arkansas, Inc., Consolidated Pumped Storage, Inc. and JDJ Energy
Company, Inc.
+10.70 Loan Agreement and Supply Commitment dated as of September 28,
1990 among Consolidated Pumped Storage Arkansas, Inc.,
Consolidated Pumped Storage, Inc. and Voith Hydro, Inc.
+10.71 Loan Agreement and Supply Commitment dated as of December 18,
1991 among Consolidated Pumped Storage Arkansas, Inc.,
Consolidated Pumped Storage, Inc. and Siemens Power Ventures,
Inc.
+10.72A Warrant to purchase up to 10 shares of common stock of
Consolidated Pumped Storage, Inc. issued to Andrea Rich
+10.72B Securities Purchase Agreement between Consolidated Hydro, Inc.,
and BCC Brown Finance (Curacao) N.V., dated June 29, 1992
+10.73 Employment Agreement between Consolidated Hydro, Inc. and Olof
S. Nelson dated March 25, 1992
<PAGE>
+10.74 Employment Agreement between Consolidated Hydro, Inc. and
Michael I. Storch dated March 25, 1992
+10.75 Employment Agreement between Consolidated Hydro, Inc. and Carol
H. Cunningham dated March 25, 1992
+10.76A Side letter with Carol H. Cunningham dated March 25, 1992
+10.76B Incentive Compensation and Transition Employment Agreement for
the Eagle and Phenix projects, dated December 18, 1992
+10.77 Stockholders, Optionholders and Warrantholders Agreement among
Consolidated Hydro, Inc. and its stockholders, optionholders and
warrantholders dated March 25, 1992
+10.78 Purchase Agreement dated March 25, 1992 among Consolidated
Hydro, Inc., Madison Group, L.P., and The Morgan Stanley
Leveraged Equity Fund II, L.P.
+10.79 Amended and Restated Acquisition Facility Agreement between
Consolidated Hydro, Inc. and General Electric Capital
Corporation dated March 25, 1992
+10.80 Note Pledge and Security Agreement between General Electric
Capital Corporation and CHI Acquisitions, Inc., dated June 22,
1993
+10.81 Amendment and Agreement among General Electric Capital
Corporation, and its subsidiaries, dated June 22, 1993
+10.82 Reimbursement Agreement between CHI Acquisitions, Inc.,
Consolidated Hydro Southeast, Inc., Joseph Hydro Company, Inc.,
and General Electric Capital Corporation, dated June 22, 1993
+10.83 Kidder, Peabody & Co. Letter Agreement, dated July 19, 1991
+10.84 Participation Agreement dated September 9, 1993 among CHI
Acquisitions, Inc., Sheldon Springs Power Company, Sheldon
Vermont Hydro Company, Inc., GECC and Aircraft Services
Corporation
+10.85 Agreement of Limited Partnership of Sheldon Springs Hydro
Associates, L.P. dated September 9, 1993
+10.86 Loan Agreement dated September 10, 1993 among Missisquoi
Associates, Sheldon Springs Hydro Associates, L.P. and GECC
+10.87 Long-Term, Firm Levelized and Non-Levelized Purchase Agreement,
executed on July 23, 1986, between Vermont Power Exchange, Inc.
and Missisquoi Associates
+10.88 Revolving Credit Agreement among Consolidated Hydro, Inc., as
the Borrower, the Banks Listed in Schedule I and Den norske Bank
AS, as Agent, dated as of October 14, 1993
+10.89 Warrant Agreement dated as of November 1, 1993, between
Consolidated Hydro, Inc. and SES Partners II, L.P.
<PAGE>
+10.90 Stock Option Plan
+10.91 Form of Stock Option Agreement
+10.92 Form of Indemnifications Agreement
+10.93 Form of Amended and Restated Indenture for the Notes between
Consolidated Hydro, Inc. and Shawmut Bank Connecticut, National
Association, as trustee
+10.94 Form of Exchange Debenture Indenture (including form of
debenture)
+10.95 Registration Rights Agreement, dated June 15, 1993, between
Consolidated Hydro, Inc. and Morgan Stanley
++10.96 Credit and Reimbursement Agreement dated as of February 15, 1995
among CHI Acquisitions II, Inc., Hydro Development Group Inc.,
Beaver Valley Power Company, Littleville Power Company, Inc.,
Consolidated Hydro Southeast, Inc., Pelzer Hydro Company, Inc.,
Joseph Hydro Company, Inc., Slate Creek Hydro Company, Inc., CHI
Acquisitions, Inc., the Lenders from time to time party thereto,
and General Electric Capital Corporation, as Agent for the
Lenders.
+++10.97 Deed of Trust, Assignment of rents and Fixture Filing dated as
of May 10, 1990 between Slate Creek Hydro Associates, L.P.
(f/k/a Catalyst Slate Creek Hydroelectric Partnership), in favor
of First American Title Insurance Company, trustee, f/b/o
General Electric Capital Corp. ("GECC"), recorded in Book 2595,
Page 805, as assigned by GECC to CHI Acquisitions, Inc. by
Assignment of Beneficial Interest Under Deed of Trust, dated
February 15, 1995, recorded in Book 3260, Page 629, as amended
by Modification of Deed of Trust, dated February 15, 1995,
recorded in Book 3260, Page 635, as further assigned by CHI
Acquisitions, Inc. to Slate Creek Hydro Company, Inc., by
Assignment of Deed of Trust dated February 15, 1995, recorded in
book 3260, Page 647, and as further assigned by CHI
Acquisitions, Inc. to GECC by Assignment of Beneficial Interest
Under Deed of Trust dated February 15, 1995 and recorded in Book
3260, Page 651.
+++10.98 Mortgage from Pelzer Hydro Company, Inc. to General Electric
Capital Corporation, dated as of February 15, 1995.
+++10.99 Power Purchase Agreement by and between Niagara Mohawk Power
Corporation and Pyrites Associates, dated as of April 22, 1985,
as amended by First Amendment dated as of March 22, 1993.
+++10.100 Lease Agreement between Pyrites Associates (lessee) and St.
Lawrence County Industrial Development Agency, dated June 1,
1985 and recorded in Book 992, Page 742, as amended by First
Amendment dated June 3, 1993 and recorded in book 1072, Page
921.
+++10.101 Pyrites Project Agreement dated November 18, 1982 between Hydro
Development Group Inc. and Hydra-Co Enterprises, Inc.
+++10.102 Cataldo Hydro Power Associates Partnership Agreement dated
October 12, 1983.
<PAGE>
+++10.103 Agreement of Limited Partnership of Black River Hydro
Associates, dated as of November 23, 1983, as amended by First
Amendment dated as of October 14, 1984 and undated, unexecuted
Second Amendment.
+++10.104 Amended and Restated Power Purchase Agreement - Port Leyden
Plant by and between Black River Hydro Associates and Niagara
Mohawk Power Corporation, dated as of October 15, 1984, as
amended by amendments dated October 15, 1984 and June 18, 1993,
respectively.
+++10.105 Lease by and between Lewis County Industrial Development Agency
(Lessor) and Black River Hydro Associates (Lessee), dated
02/01/85 and recorded in Liber 454 of Deeds, Page 191, as
amended by amendments dated 04/01/86, 05/26/88 and 07/07/93,
respectively, the latter being recorded in Liber 565 of Deeds,
Page 51.
+++10.106 Indenture of Trust, Mortgage and Assignment given by Lewis
County Industrial Development Agency to Chase Manhattan Bank,
N.A., dated 02/01/85, as supplemented by instruments dated
04/01/86, 10/31/91 and 07/07/93, the latter being recorded in
Liber 393 of Mortgages, Page 165.
+++10.107 Power Purchase Agreement by and between Hydro Development Group
Inc. and Niagara Mohawk Power Corporation, dated December 16,
1993 (Dexter, Copenhagen and other Projects).
+++10.108 Mortgage Restatement Agreement between Hydro Development Group
Inc. and General Electric Capital Corporation dated February 15,
1995 and recorded in the Jefferson County Clerk's Office in
Liber 1362, Page 033.
+++10.109 Project Agreement by and between Hydro Development Group, Inc.
and Hydra-Co Enterprises, Inc., dated November 18, 1982.
+++10.110 Agreement by and between Hydro Development Group, Inc., and
Hydra-Co Enterprises, Inc. dated as of May 23, 1994.
+++10.111 Employment Agreement between Consolidated Hydro, Inc. and Edward
M. Stern dated November 1, 1994.
+++10.112 Termination Agreement between Consolidated Hydro, Inc. and Olof
S. Nelson dated June 27, 1996.
+++10.113 Employment Agreement between Consolidated Hydro, Inc. and James
T. Stewart dated July 1, 1996.
10.114 Employment Agreement dated as of January 1, 1997, by and between
Consolidated Hydro, Inc. and Michael I. Storch.
10.115 Employment Agreement dated as of January 1, 1997 by and between
Consolidated Hydro, Inc. and Edward M. Stern.
10.116 Employment Agreement dated as of January 14, 1997, by and
between Consolidated Hydro, Inc. and Mary V. Gilbert.
<PAGE>
10.117 Amendment dated as of July 1, 1996 to the Revolving Credit
Agreement between Consolidated Hydro, Inc. and Den norske Bank
ASA
10.118 First Amended and Restated Credit Agreement dated as of October
15, 1996 between Lyon Credit Corporation and BP Hydro Finance
Partnership.
++++10.119 Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Consolidated Hydro Maine, Inc., CHI Universal,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
++++10.120 Letter of Agreement, dated November 15, 1996, amending Agreement
of Merger, dated as of July 1, 1996, by and among Consolidated
Hydro Maine, Inc., CHI Universal, Inc., Consolidated Hydro,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
++++10.121 Letter Agreement, dated December 3, 1996, amending Agreement of
Merger, dated as of July 1, 1996, by and among Consolidated
Hydro Maine, Inc., CHI Universal, Inc., Consolidated Hydro,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
+++++10.122 Amended Engagement Letter, dated as of May 30, 1997, between
Consolidated Hydro, Inc. and Houlihan Lokey Howard and Zukin,
Inc.
10.123 Bill of Sale dated June 13, 1997, between TKO Power, Inc. and
Ralphs Ranches, Inc.
10.124 Termination Agreement dated September 9, 1997, between Joseph
Hydro Company, Inc. and PacifiCorp.
10.125 Purchased Power Agreement between Duke Power and Mill Shoals
Hydro Company, Inc., dated August 12,1997.
12.1 Statements regarding computation of ratios
21.1 List of Subsidiaries of Registrant
27.1 Financial Data Schedule
<PAGE>
+ Incorporated by reference to the respective exhibit to the
Company's Registration Statement on Form S-1 (File No. 33-69762).
++ Incorporated by reference to the Company's Current Report on Form
8-K dated May 2, 1995.
+++ Incorporated by reference to the Company's report on Form 10-K for
the fiscal year ended June 30, 1996.
++++ Incorporated by reference to the Company's Report on Form 8-K
dated December 23, 1996, as amended by Form 8-K/A dated March 7,
1997.
+++++ Incorporated by reference to the Company's Current Report on Form
8-K dated June 4, 1997.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- - - ----------------------------------------------------X
IN RE :
: CHAPTER 11
CONSOLIDATED HYDRO, INC., : CASE NO. 97-1924 (SLR)
:
DEBTOR. :
:
- - - ----------------------------------------------------X
DEBTOR'S DISCLOSURE STATEMENT PURSUANT TO SECTION 1125 OF
THE BANKRUPTCY CODE RELATING TO DEBTOR'S PLAN OF REORGANIZATION
---------------------------------------------------------------
WEIL, GOTSHAL & MANGES LLP
ATTORNEYS FOR THE DEBTOR
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
(212) 310-8000
AND
RICHARDS, LAYTON & FINGER, P.A.
ATTORNEYS FOR THE DEBTOR
ONE RODNEY SQUARE
WILMINGTON, DELAWARE 19899
(302) 685-6541
DATED: STAMFORD, CONNECTICUT
AUGUST 8, 1997
<PAGE>
THIS SOLICITATION IS BEING CONDUCTED TO OBTAIN SUFFICIENT ACCEPTANCES OF A PLAN
OF REORGANIZATION BEFORE THE FILING OF A VOLUNTARY REORGANIZATION CASE UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE. BECAUSE A CHAPTER 11 CASE HAS NOT YET BEEN
COMMENCED, THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY
COURT AS CONTAINING ADEQUATE INFORMATION WITHIN THE MEANING OF SECTION 1125(A)
OF THE BANKRUPTCY CODE. FOLLOWING THE COMMENCEMENT OF ITS CHAPTER 11 CASE,
CONSOLIDATED HYDRO, INC. EXPECTS TO PROMPTLY SEEK AN ORDER OF THE BANKRUPTCY
COURT (I) APPROVING THIS DISCLOSURE STATEMENT AS HAVING CONTAINED ADEQUATE
INFORMATION AND THE SOLICITATION OF VOTES AS HAVING BEEN IN COMPLIANCE WITH
SECTION 1126(B), AND (II) CONFIRMING ITS PLAN OF REORGANIZATION.
DISCLOSURE STATEMENT
DATED AUGUST 8, 1997
SOLICITATION OF VOTES ON
THE PLAN OF REORGANIZATION OF
CONSOLIDATED HYDRO, INC.
from the holders of Consolidated Hydro, Inc.'s outstanding
12% SENIOR DISCOUNT NOTES DUE 2003
SERIES F 8% SENIOR CONVERTIBLE PREFERRED STOCK
SERIES G 9.85% JUNIOR CONVERTIBLE PREFERRED STOCK AND
SERIES H 13.50% CUMULATIVE REDEEMABLE EXCHANGEABLE PREFERRED STOCK
================================================================================
THE VOTING DEADLINE TO ACCEPT OR REJECT THE PLAN OF
REORGANIZATION IS 5:00 P.M., EASTERN TIME, ON SEPTEMBER 9,
1997, UNLESS EXTENDED.
================================================================================
<PAGE>
HOLDERS OF CLAIMS AGAINST AND EQUITY INTERESTS IN
CONSOLIDATED HYDRO, INC. ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THE
MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT UNDER "RISK FACTORS" PRIOR TO
VOTING. IN MAKING ITS VOTING DECISION, EACH HOLDER MUST RELY ON ITS OWN
EXAMINATION OF CONSOLIDATED HYDRO, INC. AND THE TERMS OF THE PLAN OF
REORGANIZATION, INCLUDING THE MERITS AND RISKS INVOLVED. HOLDERS SHOULD NOT
CONSTRUE THE CONTENTS OF THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL,
BUSINESS, FINANCIAL, OR TAX ADVICE AND SHOULD CONSULT WITH THEIR OWN ADVISORS.
CONSOLIDATED HYDRO INC. IS RELYING ON SECTION 3(A)(9) OF
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), TO EXEMPT FROM
REGISTRATION PURSUANT TO SUCH ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS THE OFFER OF NEW COMMON STOCK AND NEW WARRANTS WHICH MAY BE DEEMED TO
BE MADE PURSUANT TO THE SOLICITATION. THE NEW COMMON STOCK AND NEW WARRANTS TO
BE ISSUED ON THE EFFECTIVE DATE WILL NOT HAVE BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") UNDER THE SECURITIES ACT
OR UNDER ANY STATE SECURITIES OR "BLUE SKY" LAW AND WILL BE ISSUED IN RELIANCE
UPON THE EXEMPTION FROM THE SECURITIES ACT AND EQUIVALENT STATE LAW REGISTRATION
PROVIDED BY SECTION 1145(A)(1) OF THE BANKRUPTCY CODE. SEE ARTICLE XI, BELOW,
ENTITLED "SECURITIES LAW MATTERS" FOR INFORMATION ON CERTAIN REGISTRATION RIGHTS
TO BE GRANTED TO RECIPIENTS OF NEW COMMON STOCK AND NEW WARRANTS.
NEITHER THE NEW COMMON STOCK NOR THE NEW WARRANTS TO BE
ISSUED ON THE EFFECTIVE DATE HAVE BEEN APPROVED OR DISAPPROVED BY THE COMMISSION
OR BY ANY STATE SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL, OR
REGULATORY AUTHORITY, AND NEITHER THE COMMISSION NOR ANY SUCH AUTHORITY HAS
PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DISCLOSURE STATEMENT OR UPON THE MERITS OF THE PLAN OF REORGANIZATION.
CERTAIN STATEMENTS CONTAINED IN THIS DISCLOSURE
STATEMENT, INCLUDING PROJECTED FINANCIAL INFORMATION AND OTHER FORWARD-LOOKING
STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE
THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES. FORWARD-LOOKING
STATEMENTS ARE PROVIDED IN THIS DISCLOSURE STATEMENT PURSUANT TO THE SAFE HARBOR
ESTABLISHED UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND
SHOULD BE EVALUATED IN THE CONTEXT OF THE ESTIMATES, ASSUMPTIONS, UNCERTAINTIES,
AND RISKS DESCRIBED HEREIN.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT
ARE MADE AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED.
THE TERMS OF THE PLAN GOVERN IN THE EVENT OF ANY
INCONSISTENCY WITH THE SUMMARIES IN THIS DISCLOSURE STATEMENT.
THE INFORMATION IN THIS DISCLOSURE STATEMENT IS BEING
PROVIDED SOLELY FOR PURPOSES OF VOTING TO ACCEPT OR REJECT THE PLAN OR OBJECTING
TO CONFIRMATION. NOTHING IN THIS DISCLOSURE STATEMENT MAY BE USED BY ANY ENTITY
FOR ANY OTHER PURPOSE.
<PAGE>
TABLE OF CONTENTS
-----------------
GLOSSARY..............................................................iii
I. INTRODUCTION.......................................................... 1
A. WHO IS ENTITLED TO VOTE................................... 2
B. SUMMARY OF VOTING PROCEDURES.............................. 3
II. OVERVIEW OF THE PLAN.................................................. 6
III. GENERAL INFORMATION................................................... 12
A. CHI'S BUSINESS............................................ 12
1. General....................................... 12
2. Organizational Structure of CHI............... 12
3. The Hydroelectric Projects.................... 12
4. Power Purchase Agreements..................... 13
5. Industrial Infrastructure Business............ 14
6. Pumped Storage Development.................... 14
7. Employees..................................... 14
B. CHI'S SIGNIFICANT DEBT.................................... 15
1. The Senior Discount Notes..................... 15
2. The DnB Facility.............................. 15
3. Intercompany Indebtedness..................... 16
C. CHI'S EQUITY STRUCTURE.................................... 16
1. Series F Preferred Stock and Series G
Preferred Stock.............................16
2. Series H Preferred Stock...................... 17
3. Common Stock.................................. 18
D. MORGAN STANLEY............................................ 18
IV. FACTORS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11
CASE AND NEW BUSINESS STRATEGY...................................... 18
A. THE CHANGING HYDRO BUSINESS............................... 18
i
<PAGE>
B. CASH DIVIDENDS AND CASH INTEREST DUE IN 1998-1999........ 20
C. NEW BUSINESS STRATEGY.................................... 20
D. THE 1996-97 PREPETITION NEGOTIATIONS..................... 23
V. ANTICIPATED EVENTS DURING THE CHAPTER 11 CASE........................ 23
A. COMMENCEMENT OF THE CHAPTER 11 CASE...................... 23
B. ADMINISTRATION OF THE CHAPTER 11 CASE.................... 23
C. CREDITORS' COMMITTEE..................................... 24
D. CONFIRMATION HEARING..................................... 24
E. BAR DATE................................................. 24
VI. THE PLAN OF REORGANIZATION........................................... 25
A. INTRODUCTION............................................. 25
B. ADMINISTRATIVE EXPENSES.................................. 26
C. PRIORITY TAX CLAIMS...................................... 27
D. CLASSIFICATION AND TREATMENT OF CLAIMS AND
EQUITY INTERESTS.....................................27
E. SECURITIES TO BE ISSUED PURSUANT TO THE PLAN............. 33
1. New Common Stock............................. 33
2. New Series B Warrants........................ 34
3. New Series C Warrants........................ 34
4. Management Options........................... 35
F. EXECUTORY CONTRACTS AND UNEXPIRED LEASES................. 35
1. General...................................... 35
2. Insurance Policies........................... 36
3. Indemnification Obligations.................. 36
4. Compensation and Benefit Programs............ 36
5. Retiree Benefits............................. 37
6. Rejection of Certain Put and Call
Agreements............................ 37
G. IMPLEMENTATION OF THE PLAN............................... 37
1. Cancellation of Certain Securities........... 37
2. Issuance or Reservation of New Securities.... 37
3. Registration Rights.......................... 39
4. Effectuating Documents and Further
Transactions.......................... 39
5. Corporate Action............................. 39
ii
<PAGE>
H. METHOD OF DISTRIBUTIONS UNDER THE PLAN................... 39
1. Date and Delivery of Distributions........... 39
2. No Fractional Shares......................... 40
3. Distributions to Holders as of the
Distribution Record Date.................. 40
4. Surrender of Existing Securities and
Agreements................................... 41
5. Hart-Scott-Rodino Act Filing Requirements.... 41
6. Waiver of Enforcement of Priority............ 42
I. PROCEDURES FOR TREATING DISPUTED CLAIMS AND EQUITY
INTERESTS................................................ 42
J. OTHER PLAN PROVISIONS.................................... 43
1. Exculpation.................................. 43
2. Exemption From Transfer Taxes................ 43
3. Limited Releases............................. 44
4. Dissolution of Committee..................... 45
5. Compliance with Tax Requirements............. 45
6. Vesting and Liens............................ 45
7. Discharge of CHI............................. 45
8. Permanent Injunction......................... 45
9. Retention of Jurisdiction.................... 46
10. Amendment or Modification of the Plan........ 46
11. Votes Solicited in Good Faith................ 46
VII. VOTING PROCEDURES AND REQUIREMENTS................................... 47
A. VOTING DEADLINE.......................................... 47
B. HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE.. 48
C. VOTE REQUIRED FOR ACCEPTANCE BY A CLASS.................. 48
D. VOTING PROCEDURES........................................ 49
1. Holders of Claims in Class 3 and Equity
Interests in Classes 7, 8 and 9....;;;;.... 49
2. Withdrawal of Ballot or Master Ballot........ 51
VIII. CONFIRMATION OF THE PLAN............................................. 52
A. CONFIRMATION HEARING..................................... 52
iii
<PAGE>
B. REQUIREMENTS FOR CONFIRMATION OF THE PLAN............... 53
1. Statutory Requirements...................... 53
2. Unfair Discrimination and Fair and
Equitable Tests..............................54
3. Feasibility................................. 56
4. Best Interests Test......................... 57
C. EFFECTIVENESS OF THE PLAN............................... 59
1. Conditions Precedent to Effectiveness....... 59
2. Effect of Failure of Conditions............. 60
3. Effect of Confirmation...................... 60
IX. GOVERNANCE AND MANAGEMENT OF REORGANIZED CHI........................ 61
A. GOVERNANCE AND MANAGEMENT OF REORGANIZED CHI............ 61
1. General..................................... 61
2. Board of Directors of Reorganized CHI....... 61
3. Executive Officers of Reorganized CHI....... 62
4. Employment Agreements of Executive Officers
of Reorganized CHI..................... 63
5. Restated Certificate of Incorporation and
Amended By-laws of Reorganized CHI...... 63
B. OWNERSHIP OF REORGANIZED CHI............................ 63
C. MANAGEMENT OPTION PLAN.................................. 64
1. General..................................... 64
2. Tax Consequences............................ 65
X. RISK FACTORS........................................................ 67
A. CERTAIN BANKRUPTCY LAW CONSIDERATIONS................... 67
1. Failure to Satisfy Vote Requirement......... 67
2. Risk of Non-Confirmation of the Plan........ 68
3. Risk of Non-Occurrence of the Effective Date 68
4. Effect of CHI's Chapter 11 Case on Its
Subsidiaries.......................... 68
iv
<PAGE>
B. FACTORS AFFECTING THE VALUE OF THE SECURITIES TO BE ISSUED
UNDER THE PLAN......................................... 68
1. The Industrial Infrastructure Business....... 68
2. The Hydroelectric Industry................... 69
3. Capital Requirements......................... 70
4. Variances from Projections................... 71
5. Lack of Trading Market........................71
6. Dividend Policies............................ 71
7. Significant Holders.......................... 72
C. CERTAIN TAX MATTERS...................................... 72
XI. SECURITIES LAW MATTERS............................................... 72
A. THE SOLICITATION......................................... 72
B. ISSUANCE OF NEW SECURITIES UNDER THE PLAN................ 73
C. REGISTRATION RIGHTS...................................... 74
D. STOCKHOLDERS' AGREEMENT.................................. 74
XII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.................. 74
A. CONSEQUENCES TO CHI...................................... 75
1. Cancellation of Debt......................... 75
2. Limitations on NOL Carryforwards and
Other Tax Attributes....................... 76
3. Alternative Minimum Tax...................... 78
B. CONSEQUENCES TO HOLDERS OF SENIOR DISCOUNT
NOTE CLAIMS............................................ 79
1. Gain or Loss................................. 79
2. Distributions in Discharge of Accrued OID.... 80
3. Subsequent Sale of New Common Stock.......... 81
4. Withholding.................................. 81
C. CONSEQUENCES TO HOLDERS OF OLD PREFERRED STOCK........... 81
1. Potential Dividend Characterization.......... 82
2. Sale or Exchange Treatment................... 83
3. Proposed Regulations......................... 83
v
<PAGE>
D. CONSEQUENCES TO HOLDERS OF OLD COMMON STOCK............. 84
XIII. VALUATION........................................................... 84
A. ESTIMATED LIQUIDATION VALUE OF ASSETS................... 84
B. REORGANIZATION VALUE.................................... 85
C. NEW WARRANTS AND MANAGEMENT OPTIONS VALUES.............. 87
XIV. FINANCIAL INFORMATION............................................... 89
A. GENERAL................................................. 89
B. CHANGE IN FISCAL YEAR................................... 89
C. SELECTED FINANCIAL DATA................................. 89
D. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................... 89
E. RECENT PERFORMANCE...................................... 90
XV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION
OF THE PLAN....................................................... 90
A. LIQUIDATION UNDER CHAPTER 7............................. 90
B. ALTERNATIVE PLAN OF REORGANIZATION...................... 91
XVI. CONCLUSION.......................................................... 91
vi
<PAGE>
EXHIBITS
PLAN OF REORGANIZATION...................................................... A
CONSOLIDATED HYDRO, INC. ANNUAL REPORT ON FORM 10-K......................... B
CONSOLIDATED HYDRO, INC. QUARTERLY REPORT ON FORM 10-Q...................... C
PROJECTED FINANCIAL INFORMATION............................................. D
LIQUIDATION ANALYSIS........................................................ E
SCHEDULE
CHI'S HYDROELECTRIC PROJECTS................................................ 1
vii
<PAGE>
GLOSSARY
The following glossary contains certain important terms
used throughout this Disclosure Statement. If there are any inconsistencies
between the definitions used in the Plan and the definitions used in this
Disclosure Statement, the definitions in the Plan are controlling.
Bankruptcy title 11 of the United States Code, as amended from time to
Code time, as applicable to the Chapter 11 Case.
Bankruptcy the United States District Court for the District of Delaware
Court having jurisdiction over the Chapter 11 Case and, to the
extent of any reference under section 157 of title 28 of the
United States Code, the unit of such District Court under
section 151 of title 28 of the United States Code.
Bankruptcy the Federal Rules of Bankruptcy Procedure as promulgated by
Rules the United States Supreme Court under section 2075 of title 28
of the United States Code, and any Local Rules of the
Bankruptcy Court.
Business Day any day other than a Saturday, Sunday or any
other day on which commercial banks in New York, New York are
required or authorized to close by law or executive order.
Chapter 11 Case the case under chapter 11 of the Bankruptcy Code commenced by
CHI, styled In re Consolidated Hydro, Inc.
Claim as defined in section 101(5) of the Bankruptcy Code.
Class A the authorized class A common stock, par value $0.001 per
Common Stock share, issued by CHI.
Commencement the date on which CHI commences the Chapter 11 Case.
Date
Company collectively, Consolidated Hydro, Inc. and its consolidated
subsidiaries.
Confirmation the date on which the Confirmation Order is signed by the
Date Bankruptcy Judge.
Confirmation the order of the Bankruptcy Court confirming the Plan pursuant
Order to Section 1129 the Bankruptcy Code.
Distribution the day that is three Business Days from and after the
Record Date Confirmation Date.
viii
<PAGE>
Effective Date the first Business Day on which the conditions specified in
Section 11.1 of the Plan have been satisfied or waived.
Equity Interest an interest in CHI evidenced by Old Preferred Stock, Old
Common Stock, Old Warrants, Old Options or other instruments
evidencing an ownership interest in CHI, whether or not
transferable.
Industrial as defined in Section III.A.5, entitled "Industrial
Infrastructure Infrastructure Business."
Business
Management options to purchase 810,811 shares of New Class A Common Stock
Options pursuant to the provisions of the Management Option
Agreements to be entered into under the Management Option
Plan.
MS Leveraged The Morgan Stanley Leveraged Equity Fund II, L.P., an
Equity affiliate of Morgan Stanley, Dean Witter, Discover & Co., and
a holder of Series F Preferred Stock and Series G Preferred
Stock.
New Class A the class A common stock of Reorganized CHI authorized and to
Common Stock be issued pursuant to the Plan. The New Class A Common Stock
will have a par value of $.01 per share and such rights with
respect to dividends, liquidation and other matters as are
provided for by applicable nonbankruptcy law or in the
Restated CHI Certificate of Incorporation and the Amended CHI
By-Laws. Each share of New Class A Common Stock will have one
vote.
New Class B the class B common stock of Reorganized CHI authorized and to
Common Stock be issued pursuant to the Plan. The New Class B Common Stock
will have a par value of $.01 per share and such rights with
respect to dividends, liquidation and other matters as are
provided for by applicable nonbankruptcy law or in the
Restated CHI Certificate of Incorporation and the Amended CHI
By-Laws. Each share of New Class B Common Stock will have
one-hundredth (1/100) of one vote.
New Common collectively, the New Class A Common Stock and the New Class B
Stock Common Stock.
New Series B warrants issued by Reorganized CHI to purchase 810,811 shares
Warrants of New Common Stock pursuant to the provisions of the
Series B Warrant Agreement, the form of which is annexed to
the Plan as Exhibit E.
New Series C warrants issued by Reorganized CHI to purchase 526,316 shares
Warrants of New Common Stock pursuant to the provisions of the
Series C Warrant Agreement, the form of which is annexed to
the Plan as Exhibit F.
New Warrants collectively, the New Series B Warrants and the New Series C
Warrants.
ix
<PAGE>
Old Common all authorized and issued Class A Common Stock, authorized
Stock class B common stock issued by CHI, Old Options and Old
Warrants, including any right, contractual or otherwise, to
acquire any common stock of CHI, existing prior to the
Commencement Date.
Old Preferred collectively, the Series F Preferred Stock, the Series H
Stock Preferred Stock, and the Series G Preferred Stock.
Pro Rata Share a proportionate share, so that the ratio of the consideration
distributed on account of an Allowed Claim or Allowed Equity
Interest in a Class to the amount of such Allowed Claim or
Allowed Equity Interest is the same as the ratio of the amount
of the consideration distributed on account of all Allowed
Claims or Allowed Equity Interests in such Class to the amount
of all Allowed Claims or Allowed Equity Interests in such
Class.
Reorganized CHI Energy, Inc., or any successor thereto by merger,
CHI consolidation or otherwise, on and after the Effective
Date.
Schedules the schedules of assets and liabilities to be filed by CHI
pursuant to section 521 of the Bankruptcy Code and Bankruptcy
Rule 1007, including any amendments and modifications thereto
through the Confirmation Date.
Senior Discount the 12% Senior Discount Notes due 2003 issued pursuant to that
Notes certain Indenture, dated as of June 15, 1993, as amended
and restated in the Amended and Restated Indenture as of
February 7, 1994.
Series F the Series F 8% Senior Convertible Preferred Stock issued
Preferred Stock pursuant to that certain Purchase Agreement,
dated March 25, 1992, among CHI, The Morgan Stanley Leveraged
Equity Fund II, L.P. and Madison Group, L.P.
Series G the Series G 9.85% Junior Convertible Preferred Stock issued
Preferred Stock pursuant to that certain Purchase Agreement,
dated March 25, 1992, among CHI, The Morgan Stanley Leveraged
Equity Fund II, L.P. and Madison Group, L.P.
Series H the Series H 13.5% Cumulative Redeemable Exchangeable
Preferred Stock Preferred Stock governed by the Certificate of
Designations for the Series H Preferred Stock.
Voting Record August 8, 1997.
Date
x
<PAGE>
I.
INTRODUCTION
------------
Consolidated Hydro, Inc. ("CHI") is soliciting
acceptances of its chapter 11 plan of reorganization (the "Plan") attached as
Exhibit A to this Disclosure Statement. This solicitation is being conducted at
this time in order to obtain (prior to the commencement of a chapter 11 case)
sufficient acceptances to enable the Plan to be confirmed by the Bankruptcy
Court pursuant to the provisions of the Bankruptcy Code. CHI anticipates that a
pre-commencement solicitation will significantly simplify, shorten, and reduce
the cost of the administration of the Chapter 11 Case. CHI does not intend to
commence chapter 11 cases for any of its subsidiaries. Unless otherwise defined
herein or in the Glossary, all capitalized terms used herein shall have the same
meanings ascribed to them in the Plan.
CHI is commencing this solicitation after several months
of discussions with (i) an informal committee of substantial bondholders,
consisting of Morgan Stanley & Co. Incorporated ("Morgan Stanley"), Swiss Bank
Corporation ("SBC"), Merrill Lynch Asset Management and Stonehill Investment
Corp. (collectively, the "Unofficial Bondholders' Committee"), (ii)
representatives of The Morgan Stanley Leveraged Equity Fund II, L.P. ("MS
Leveraged Equity"), a significant holder of both the Series F Preferred Stock
and Series G Preferred Stock, and (iii) certain significant holders of the
Series H Preferred Stock. The members of the Unofficial Bondholders' Committee
have been represented by Wachtell, Lipton, Rosen & Katz.
THE PLAN IS THE PRODUCT OF NEGOTIATIONS AMONG THE
COMPANY, MEMBERS OF THE UNOFFICIAL BONDHOLDERS' COMMITTEE, REPRESENTATIVES OF MS
LEVERAGED EQUITY AND REPRESENTATIVES OF MORGAN STANLEY, A HOLDER OF
APPROXIMATELY 32.4% OF THE SERIES H PREFERRED STOCK. CHI'S BOARD OF DIRECTORS,
CHI'S MANAGEMENT, THE UNOFFICIAL BONDHOLDERS' COMMITTEE, MS LEVERAGED EQUITY AND
MORGAN STANLEY, A SIGNIFICANT HOLDER OF THE SERIES H PREFERRED STOCK, STRONGLY
SUPPORT THE PLAN AND CHI STRONGLY URGES YOU TO VOTE TO ACCEPT THE PLAN.
Attached as Exhibits to or accompanying this Disclosure
Statement are copies of the following:
1. The Plan (Exhibit A);
2. Consolidated Hydro, Inc. Annual Report on Form
10-K, dated September 30, 1996 (Exhibit B);
3. Consolidated Hydro, Inc. Quarterly Report on Form
10-Q, dated May 14, 1997 (Exhibit C);
1
<PAGE>
4. Projected Financial Information (Exhibit D); and
5. Liquidation Analysis (Exhibit E).
In addition, a ballot for the acceptance or rejection of
the Plan is enclosed with this Disclosure Statement for those holders of Claims
and Equity Interests that CHI believes are entitled to vote to accept or reject
the Plan.
A. WHO IS ENTITLED TO VOTE
-----------------------
Under the Bankruptcy Code, only classes of claims or
equity interests that are impaired are entitled to vote to accept or reject a
proposed chapter 11 plan. Classes of claims or equity interests in which the
holders of claims or interests will not receive or retain any property under a
proposed chapter 11 plan are deemed to have rejected the plan. The holders of
claims or equity interests that are unimpaired under a proposed chapter 11 plan
are deemed to have accepted the plan.
The creditors and equity interest holders that
beneficially own, AS OF THE AUGUST 8, 1997 VOTING RECORD DATE, any of the
following securities issued by CHI, are entitled to vote on the Plan:
12% Senior Discount Notes due 2003 (Class 3)
Series F 8% Senior Convertible Preferred Stock (Class 7)
Series H 13.50% Cumulative Redeemable Exchangeable
Preferred Stock (Class 8)
Series G 9.85% Junior Convertible Preferred Stock (Class 9)
Claims in each of Class 1 (Other Priority Claims), Class
2 (Secured Claims), Class 4 (DnB Claims), Class 5 (General Unsecured Claims) and
Class 6 (Intercompany Claims) will, to the extent unpaid prior to the Effective
Date, be rendered unimpaired or reinstated in accordance with section 1124 of
the Bankruptcy Code. Holders of Claims in those Classes are deemed to have
accepted the Plan.
Equity Interests in Class 10 will be cancelled and will
receive no distributions under the Plan. Therefore, the holders of Equity
Interests in Class 10 are deemed to have rejected the Plan.
CHI is soliciting acceptances only from holders of
Allowed Claims and Allowed Equity Interests in Classes 3, 7, 8 and 9.
2
<PAGE>
The Bankruptcy Code defines "acceptance" of a chapter 11
plan by a class of claims if holders of at least two-thirds in amount, and more
than one-half in number, of the claims of that class that actually vote, accept
the Plan. Acceptance of the Plan by a class of equity interest holders requires
the acceptance by the holders of two-thirds of the total number of shares or
interests held by the equity interest holders of that class that actually vote.
For a discussion of these matters, see Article VII "Voting Procedures and
Requirements," and Section VIII.C.1, "Conditions Precedent to Effectiveness."
As Class 10 (Old Common Stock) is deemed to have
rejected the Plan, CHI is requesting confirmation of the Plan under section
1129(b) of the Bankruptcy Code. Section 1129(b) of the Bankruptcy Code permits
the confirmation of a plan of reorganization, notwithstanding the rejection of
such plan by one or more impaired classes of claims or equity interests, if it
does not discriminate unfairly and is "fair and equitable" with respect to the
rejecting class.
Liabilities incurred in the ordinary course of business
by CHI after the Commencement Date that are described in the Plan as
Administrative Expense Claims will be paid by CHI in accordance with the terms
and subject to the conditions of any agreements governing, instruments
evidencing or other documents relating to such transactions. Holders of
Administrative Expense Claims are not entitled to vote to accept or reject the
Plan.
B. SUMMARY OF VOTING PROCEDURES
----------------------------
To be counted, your vote must be received by The Altman
Group, Inc., CHI's voting agent (the "Voting Agent"), so that it is received by
the Voting Agent at the following address, before the VOTING DEADLINE OF 5:00
P.M. (EASTERN TIME) ON SEPTEMBER 9, 1997:
CONSOLIDATED HYDRO, INC.
c/o The Altman Group, Inc.
60 East 42nd Street
New York, New York 10165
(212) 681-9600
DO NOT RETURN YOUR NOTES OR SECURITIES WITH YOUR BALLOT.
IF YOU ARE, AS OF AUGUST 8, 1997, THE VOTING RECORD DATE, THE BENEFICIAL OWNER
OF 12% Senior Discount Notes (Class 3), Series F 8% Senior Convertible Preferred
Stock (Class 7), Series H 13.50% Cumulative Redeemable Exchangeable Preferred
Stock (Class 8) or Series G 9.85% Junior Convertible Preferred
Stock (Class 9) you are entitled to vote.
IF YOUR NOTES OR SHARES ARE REGISTERED IN YOUR OWN NAME:
Please complete the information requested on the Ballot, sign, date, and
indicate your vote on the
3
<PAGE>
Ballot, and return the Ballot in the pre-addressed, postage-paid
envelope so that it is actually received by the Voting Agent before
the Voting Deadline.
IF YOUR NOTES OR SHARES ARE REGISTERED IN "STREET NAME"
AND:
YOUR BALLOT HAS ALREADY BEEN SIGNED (OR
"PREVALIDATED") BY YOUR NOMINEE (YOUR
BROKER, BANK, OTHER NOMINEE, OR THEIR
AGENT): Please complete the information
requested on the Ballot, indicate your vote
on the Ballot, and return your completed
Ballot in the enclosed pre-addressed
postage-paid envelope so that it is actually
received by the Voting Agent before the
Voting Deadline;
OR
YOUR BALLOT HAS NOT BEEN SIGNED (OR
"PREVALIDATED") BY YOUR NOMINEE (YOUR
BROKER, BANK, OTHER NOMINEE, OR THEIR
AGENT): Please sign the Ballot, complete the
information requested on the Ballot, date
and indicate your vote on the Ballot, and
return the Ballot to your nominee in
sufficient time for your nominee to then
forward your Ballot to the Voting Agent so
that it is actually received by the Voting
Agent before the Voting Deadline.
IF YOU ARE, AS OF THE VOTING RECORD DATE, THE NOMINEE FOR A BENEFICIAL OWNER of
12% Senior Discount Notes (Class 3), Series F 8% Senior Convertible Preferred
Stock (Class 7), Series H 13.50% Cumulative Redeemable Exchangeable Preferred
Stock (Class 8) or Series G 9.85% Junior Convertible Preferred Stock (Class 9),
please follow the instructions below:
Please forward a copy of this Disclosure
Statement and the appropriate Ballot to each beneficial owner, AND:
ALL BALLOTS THAT YOU HAVE SIGNED (OR
"PREVALIDATED") should be completed and
returned by the beneficial owners directly
to the Voting Agent so that such Ballots are
received by the Voting Agent prior to the
Voting Deadline.
ALL BALLOTS THAT YOU HAVE NOT SIGNED (OR
"PREVALIDATED") must be collected by you,
and you should complete the appropriate
Master Ballot, and deliver the completed
Master Ballot so that it is actually
received by the Voting Agent prior to the
Voting Deadline.
4
<PAGE>
IF YOU ARE A SECURITIES CLEARING AGENCY: PLEASE ARRANGE
FOR YOUR RESPECTIVE PARTICIPANTS TO VOTE BY EXECUTING AN OMNIBUS PROXY IN THEIR
FAVOR.
Entities not voting to accept the Plan will be bound by
the Plan if it is accepted by the requisite holders of Claims and Equity
Interests, as described in Article VII "Voting Procedures and Requirements," and
confirmed.
If you are a creditor or a holder of an Equity Interest
entitled to vote on the Plan and did not receive a Ballot, received a damaged
Ballot or lost your Ballot, or if you have any questions about this Disclosure
Statement, the Plan or the procedures for voting on the Plan, please call The
Altman Group, Inc. at (212) 681-9600.
For detailed voting instructions, see Article VII,
below, entitled "VOTING PROCEDURES AND REQUIREMENTS" and the instructions
accompanying your Ballot.
5
<PAGE>
II.
OVERVIEW OF THE PLAN
--------------------
The following table briefly summarizes the
classification and treatment of Claims and Equity Interests under the Plan.
<TABLE>
<CAPTION>
SUMMARY OF CLASSIFICATION AND TREATMENT
oF CLAIMS AND EQUITY INTERESTS1
====================================================================================================================================
Estimated
CLASS Type of Claim Treatment Percent
Recovery
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Compensation and Unimpaired; to be paid in full, in Cash, on the Effective Date, or in 100%
-- Reimbursement, and accordance with such terms as may be mutually agreed to by the holder
Other Administrative and CHI.
Expense Claims
- - - -----------------------------------------------------------------------------------------------------------------------------------
Priority Tax Claims Unimpaired; except to the extent that a holder of an Allowed Priority Tax 100%
-- Claim has been paid by CHI prior to the Effective Date or agrees to a
different treatment, each such holder will be paid, at the sole discretion of
Reorganized CHI, (i) in full by Reorganized CHI in the ordinary course
of business in accordance with the terms and conditions of any law,
regulation, agreement, instrument or other document relating to such
claims or (ii) deferred Cash having a value, as of the Effective Date,
equal to such Allowed Priority Tax Claim, over a period not exceeding
six years after the date of assessment of such Allowed Priority Tax
Claim.
- - - -----------------------------------------------------------------------------------------------------------------------------------
1 Other Priority Claims Unimpaired; to the extent unpaid prior to the Effective Date and except to 100%
the extent that a holder of such a claim agrees to a different treatment,
each Allowed Other Priority Claim shall be rendered unimpaired or
reinstated in accordance with section 1124 of the Bankruptcy Code.
- - - -----------------------------------------------------------------------------------------------------------------------------------
2 Secured Claims Unimpaired; except to the extent that a holder of such a claim agrees to a 100%
different treatment, each claim shall be rendered unimpaired or reinstated in
accordance with section 1124 of the Bankruptcy Code.
- - - -----------------------------------------------------------------------------------------------------------------------------------
<FN>
1. This table is only a summary of the classification and treatment of Claims
and Equity Interests under the Plan. Reference should be made to the entire
Disclosure Statement and the Plan for a complete description of the
classification and treatment of Claims and Equity Interests.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Estimated
CLASS Type of Claim Treatment Percent
Recovery
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3 12% Senior Discount Impaired; accreted claim, as of the Commencement Date, to be 52.2%2
Notes due 2003 exchanged for:
o 100% of the New Common Stock, subject to dilution from the
New Series B Warrants and New Series C Warrants, and also
subject to dilution from the Management Options; and
o $15 million plus the Unofficial Bondholders' Committee
Expenses in Cash distributed as follows:
(i) $10,000,000 plus the Unofficial Bondholders' Committee
Expenses on the Effective Date;
(ii) up to $5,000,000 payable out of Excess Cash and the
proceeds of the Working Capital Facility (to the extent
permitted by the lender under the Working Capital Facility)
on or before December 31, 1997; and
(iii) if the payment set forth in subsection (ii) is not
made in full by December 31, 1997, the balance of the
$5,000,000 payment on or before March 31, 1998, with interest
thereon at the Prime Rate from December 31, 1997 until the date
the balance is paid in full.
- - - ------------------------------------------------------------------------------------------------------------------------------------
4 DnB Claims Unimpaired; except to the extent that DnB agrees to a different treatment, 100%
the DnB Claims shall be rendered unimpaired or reinstated in accordance
with section 1124 of the Bankruptcy Code.
- - - ------------------------------------------------------------------------------------------------------------------------------------
5 General Unsecured Unimpaired; to the extent unpaid prior to the Effective Date and except to 100%
Claims the extent that a holder of such a claim agrees to a different treatment,
each Allowed General Unsecured Claim shall be rendered unimpaired or
reinstated in accordance with section 1124 of the Bankruptcy Code.
- - - ------------------------------------------------------------------------------------------------------------------------------------
6 Intercompany Claims Unimpaired; to the extent unpaid prior to the Effective Date and except to 100%
the extent that a holder of such a claim agrees to a different treatment,
each Allowed Intercompany Claim shall be rendered unimpaired or
reinstated in accordance with section 1124 of the Bankruptcy Code.
- - - ------------------------------------------------------------------------------------------------------------------------------------
<FN>
2. The estimated recoveries for holders of Allowed Senior Discount Note
Claims are based upon the midpoint of the current estimates of the value of
the New Common Stock to be issued under the Plan and the $15 million Cash
payment (without taking into account the Unofficial Bondholders' Committee
Expenses) under the Plan without any discount with respect to the timing of
such payment. The market and economic conditions upon which the value of
the New Common Stock is based are beyond the control of CHI, and therefore,
the actual results achieved necessarily may vary (higher or lower). If the
value of the New Common Stock varies from the current estimates, the
estimated percent recovery will also change. Such variation may be material
and adverse.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
ESTIMATED
CLASS Type of Interest TREATMENT PERCENT
RECOVERY
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7 Series F 8% Senior Impaired. The Series F Preferred Stock will be treated pari passu with 0.7%5
Convertible Preferred Series G Preferred Stock and Series H Preferred Stock.3 The preferred
Stock Interests liquidation preference and accrued dividends will be exchanged for:
o New Series B Warrants - which entitle the holders to
purchase in the aggregate approximately 224,387 shares
or approximately 2.1%4 of the New Class A Common Stock
(subject to dilution as set forth below); and
o New Series C Warrants - which entitle the holders to
purchase in the aggregate approximately 145,655 shares
or approximately 1.4%4 of the New Class A Common Stock
(subject to dilution as set forth below).
The New Series B Warrants and the New Series C Warrants have the terms and
conditions described below.
- - - ------------------------------------------------------------------------------------------------------------------------------------
8 Series H 13.50% Impaired. The Series H Preferred Stock will be treated pari passu with 0.7%5
Cumulative Series F Preferred Stock and Series G Preferred Stock.3 The preferred
Redeemable liquidation preference and accrued dividends will be exchanged for:
Exchangeable
Preferred Stock o New Series B Warrants - which entitle the holders to purchase
Interests in the aggregate approximately 346,525 shares or
approximately 3.2%4 of New Common Stock (subject to
dilution as set forth below); and
o New Series C Warrants - which entitle the holders to purchase in
the aggregate approximately 224,937 shares or approximately
2.1%4 of New Common Stock (subject to dilution as set forth
below).
The New Series B Warrants and the New Series C Warrants have the terms and
conditions described below.
- - - ------------------------------------------------------------------------------------------------------------------------------------
<FN>
3. If Class 8 (Series H Preferred Stock) votes to reject the Plan, each Class of
Old Preferred Stock will not be treated pari passu. Instead, the holders of
Allowed Series F Preferred Stock Equity Interests will receive, in addition to
the treatment described in the chart above, the treatment that otherwise would
have been provided to Class 9 (Series G Preferred Stock) and Class 9 will
receive no distribution. The distributions to Class 8 (Series H Preferred Stock)
will not change regardless of whether Class 8 votes to accept or reject the
Plan.
4. The percentage and number of New Series B Warrants and New Series C
Warrants to be distributed to each of Classes 7, 8 and 9 are based upon the
accrued liquidation preference of the Series F Preferred Stock, the Series G
Preferred Stock and the Series H Preferred Stock as of the Commencement Date.
For purposes of this Disclosure Statement, CHI has projected that the
Commencement Date will be September 30, 1997. To the extent that the
Commencement Date is later or earlier than September 30, 1997, the actual
percentage and number of New Series B Warrants and New Series C Warrants to be
distributed may vary. Such variation is not likely to be material.
5. The estimated recoveries for holders of Equity Interests in Classes 7, 8
and 9 on their respective allowed claim amounts, as of the Commencement Date are
based upon the midpoint of the current estimates of the value of the New Series
B Warrants and the New Series C Warrants to be issued under the Plan. The market
and economic conditions upon which the values of the New Series B Warrants and
New Series C Warrants are based are beyond the control of CHI, and therefore,
the actual results achieved necessarily may vary (higher or lower). If the value
of the New Series B Warrants and/or New Series C Warrants varies from the
current estimates, the estimated percent recovery will also change. Such
variation may be material and adverse.
</FN>
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
ESTIMATED
CLASS Type of Interest TREATMENT PERCENT
RECOVERY
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9 Series G 9.85% Junior Impaired. The Series G Preferred Stock will be treated pari passu with 0.7%8
Convertible Preferred Series F Preferred Stock and Series H Preferred Stock.6 The preferred
Stock Interests liquidation preference and accrued dividends will be exchanged for:
o New Series B Warrants - which entitle the holders to purchase in
the aggregate approximately 239,899 shares or approximately
2.2%7 of the New Class A Common Stock (subject to dilution as
set forth below); and
o New Series C Warrants - which entitle the holders to purchase in
the aggregate approximately 155,724 shares or approximately
1.5%7 of the New Class A Common Stock (subject to dilution as
set forth below).
The New Series B Warrants and the New Series C
Warrants have the terms and conditions described below.
- - - ------------------------------------------------------------------------------------------------------------------------------------
7 Summary Description New Series B Warrants: N/A
---------------------
8 of New Warrants
and Amount: Warrants exercisable for up to 7.5%, or a total of
9 810,811 shares, of New Common Stock (subject to
dilution as set forth below).
Term: 6 years from the Effective Date
Price: $10 per share
Vesting Exercisable for up to 1% of the New Common Stock
Schedule: if, as and when the total capital (debt and equity)
invested in industrial infrastructure projects
that either (i) close within 3 years from the Effective
Date or (ii) are subject to Definitive Agreements (as
such term is defined in the Series B Warrant Agreement)
within such 3 year period and thereafter close within
the term of the warrants, equals $60 million.
The additional New Series B Warrants exercisable for
the remaining 6.5% of the New Common Stock will vest
incrementally if, as and when the total capital
invested in industrial infrastructure projects
increases from $60 million to $450 million within the
time periods set forth above.
Dilution and Subject to dilution from the New Series C Warrants
Protections: and the Management Options; customary antidilution
provisions and protections against Extraordinary
Dividends (as defined in the Series B Warrant
Agreement).
<FN>
6. See Footnote 3, supra.
7. See Footnote 4, supra.
8. See Footnote 5, supra.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
ESTIMATED
CLASS Type of Interest TREATMENT PERCENT
RECOVERY
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
7 Summary Description New Series C Warrants: N/A
---------------------
8 of New Warrants
and (continued) Amount: Warrants exercisable for up to 5%, or 526,316 shares,
9 of the New Common Stock (subject to dilution as set
forth below).
Term: 8 years from the Effective Date
Price: $18.45 per share9
Dilution and Subject to dilution from the New Series B Warrants
Protections: and the Management Options; customary antidilution
provisions and protections against Extraordinary
Dividends (as defined in the Series C Warrant Agreement).
- - - ------------------------------------------------------------------------------------------------------------------------------------
10 Old Common Stock Impaired; no distributions; Old Common Stock will be cancelled. 0%
Interests
====================================================================================================================================
</TABLE>
THE CONFIRMATION HEARING
- - - ------------------------
If the Plan is approved by the requisite number and
amount of Claims and Equity Interests, as applicable, CHI will file its Chapter
11 Case and request that the Bankruptcy Court schedule a hearing to consider the
confirmation of the Plan (the "Confirmation Hearing") as soon as possible, at
the United States Bankruptcy Court, 824 Market Street, Sixth Floor, Wilmington,
Delaware 19801 or such other location as the Bankruptcy Court directs.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT
ARE MADE AS OF THE DATE HEREOF UNLESS ANOTHER TIME IS SPECIFIED HEREIN, AND THE
DELIVERY OF THIS DISCLOSURE STATEMENT SHALL NOT CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE INFORMATION STATED SINCE THE DATE HEREOF. HOLDERS OF
CLAIMS AND EQUITY INTERESTS SHOULD CAREFULLY READ THIS DISCLOSURE STATEMENT IN
ITS ENTIRETY PRIOR TO VOTING ON THE PLAN.
FOR THE CONVENIENCE OF HOLDERS OF CLAIMS AND EQUITY
INTERESTS, THIS DISCLOSURE STATEMENT SUMMARIZES THE TERMS OF THE
PLAN, BUT THE PLAN ITSELF QUALIFIES ALL SUMMARIES. IF ANY
INCONSISTENCY EXISTS BETWEEN THE PLAN AND THIS DISCLOSURE STATE-
- - - --------
[FN]
9. The exercise price of the New Series C Warrants will be based on the accreted
claim of the holders of the Senior Discount Notes as of the Commencement Date.
For purposes of the Disclosure Statement, CHI has projected that the
Commencement Date will be September 30, 1997. To the extent that the
Commencement Date is later or earlier that September 30, 1997, the exercise
price of the New Series C Warrants will vary. Such variation is not likely to be
material.
</FN>
10
<PAGE>
MENT, THE TERMS OF THE PLAN ARE CONTROLLING. THIS DISCLOSURE STATEMENT MAY NOT
BE RELIED ON FOR ANY PURPOSE OTHER THAN TO DETERMINE WHETHER TO VOTE TO ACCEPT
OR REJECT THE PLAN, AND NOTHING STATED SHALL CONSTITUTE AN ADMISSION OF ANY FACT
OR LIABILITY BY ANY PARTY, OR BE ADMISSIBLE IN ANY PROCEEDING INVOLVING CHI OR
ANY OTHER PARTY, OR BE DEEMED CONCLUSIVE EVIDENCE OF THE TAX OR OTHER LEGAL
EFFECTS OF THE PLAN ON CHI OR HOLDERS OF CLAIMS OR EQUITY INTERESTS. CERTAIN OF
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT, BY NATURE, ARE FORWARD
LOOKING AND CONTAIN ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT
SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES. ALL HOLDERS OF CLAIMS AND
EQUITY INTERESTS SHOULD CAREFULLY READ AND CONSIDER FULLY ARTICLE X "RISK
FACTORS" BEFORE VOTING TO ACCEPT OR REJECT THE PLAN.
SUMMARIES OF CERTAIN PROVISIONS OF AGREEMENTS REFERRED
TO IN THIS DISCLOSURE STATEMENT DO NOT PURPORT TO BE COMPLETE AND ARE SUBJECT
TO, AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO, THE FULL TEXT AND TO
ALL OF THE PROVISIONS OF THE APPLICABLE AGREEMENT, INCLUDING THE DEFINITIONS OF
CERTAIN TERMS CONTAINED IN SUCH AGREEMENT.
CHI BELIEVES THAT THE PLAN ENABLES IT TO SUCCESSFULLY
REORGANIZE AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND PROVIDES FOR THE BEST
RECOVERIES TO HOLDERS OF CLAIMS AND EQUITY INTERESTS. ESSENTIALLY, THE NET
RESULT OF THE PLAN IS TO DELEVERAGE THE BUSINESS OF CHI BY ELIMINATING
APPROXIMATELY $202 MILLION IN FACE AMOUNT OF DEBT BY EXCHANGING SUCH DEBT FOR
THE NEW COMMON STOCK AND CASH AND CONVERTING $280.6 MILLION OF PREFERRED STOCK
INTO WARRANTS FOR UP TO A MAXIMUM OF 12.5% OF THE NEW COMMON STOCK OF
REORGANIZED CHI, IF CERTAIN SPECIFIED CONDITIONS ARE SATISFIED.
11
<PAGE>
III.
GENERAL INFORMATION
-------------------
A. CHI'S BUSINESS
--------------
1. GENERAL
CHI and its operating subsidiaries (collectively, the
"Company") are principally engaged in the development, operation and management
of hydroelectric power plants throughout the United States and in Canada.
Founded in 1985, the Company is the largest independent hydroelectric power
producer in the United States, based on operating megawatts. As of June 30,
1997, the Company owned, operated or leased 91 hydroelectric projects in the
United States and Canada, with aggregate capacity of approximately 343 megawatts
and has one 15-megawatt project under construction in Canada.
The Company's hydroelectric projects are located in 15
states and two Canadian provinces. The United States hydroelectric projects are
clustered in four regions: the Northeast, Southeast, Northwest and West, with a
concentration in the Northeast, a region characterized by relatively consistent
long-term water flow and power purchase contract rates which are higher on
average than in most other regions in the country. Additionally, the Company
operates three hydroelectric projects with an aggregate capacity of 80 megawatts
in Ontario, Canada pursuant to an operations and maintenance contract, and has
begun construction of a 15-megawatt hydroelectric project in Newfoundland,
Canada in partnership with a Canadian paper company.
2. ORGANIZATIONAL STRUCTURE OF CHI
CHI is a holding company which owns interests in
numerous entities which own directly or indirectly various interests in the
hydroelectric projects. CHI has 81 direct and indirect wholly-owned
subsidiaries, in both corporate and non-corporate forms. In addition, CHI has
less than a 100% ownership interest in 6 corporate subsidiaries. CHI also has
less than 100% ownership interest in 17 partnerships and joint ventures. Each of
the Company's hydroelectric projects is owned by one or more, of the foregoing
entities. The Company's hydroelectric projects, as of June 30, 1997, are listed
on Schedule 1 to this Disclosure Statement.
3. THE HYDROELECTRIC PROJECTS
As of June 30, 1997, the Company had a 100% ownership
interest or long- term lease interest in 55 hydroelectric projects (145
megawatts), a partial ownership interest in 11 hydroelectric projects (82
megawatts), operations and maintenance ("O&M") contracts with 25 hydroelectric
projects (116 megawatts) and one hydroelectric project (15 megawatts)
12
<PAGE>
under construction. CHI sells substantially all of the output from these
hydroelectric projects, excluding the operating Canadian hydroelectric projects,
to public utility companies pursuant to take and pay power purchase contracts.
These contracts vary in their terms but typically provide scheduled rates
throughout the life of the contracts, which are generally for a term of 15 to 40
years from inception. Currently, all of the Company's revenue is derived from
the ownership and operation of hydroelectric facilities.
The hydroelectric projects were financed using a variety
of structures primarily consisting of limited recourse or non-recourse debt. As
of June 30, 1997, the Company had $100.3 million (exclusive of the Boott project
operating lease) of direct project financing obligations that are limited
recourse or non-recourse to CHI. Such obligations are structured to be fully
serviced out of each applicable project's cash flow, however, many of the
projects are cross-defaulted. In the event of a project default and assuming CHI
is unable or chooses not to cure such default within applicable cure periods (if
any), the lenders or lessor would generally have rights to the facility, related
contracts and all licenses and permits necessary to operate the facility and, in
the event of foreclosure after such a default, the Company might not retain any
interest in such project. As of June 30, 1997, the Company is not aware of, and
does not believe that there are, any events of default which exist at any
project.
4. POWER PURCHASE AGREEMENTS
As of June 30, 1997, substantially all energy and
capacity of the Company's existing majority-owned hydroelectric projects in the
United States is sold to 19 public utilities pursuant to take and pay long-term
power purchase agreements with remaining terms ranging from approximately 6
months to 28 years. The Company's power purchase agreements generally require
the utility company to purchase all energy delivered by the relevant facility.
These power purchase agreements generally do not provide for termination prior
to expiration except in the case of continuing nonperformance by the
project-owning entity and certain events of bankruptcy or insolvency of the
project subsidiary.
The Company's power purchase agreements have either
fixed or fluctuating rates or a combination thereof. Fluctuating rates and
combination rate contracts are generally based on avoided costs,10 or a
percentage thereof. The Company's fixed rate contracts often contain (i) blended
rates typically determined as of the date of the contract based on projected
annual avoided costs averaged over a 15 to 30 year period; or (ii) an escalation
factor that reflects estimated increases in projected annual avoided costs over
the term of the contract.
- - - --------
10. Avoided cost generally means the costs that the utility would otherwise
incur in (i) producing the incremental energy itself or (ii) purchasing energy
from another source.
13
<PAGE>
All of the Company's existing hydroelectric facilities
in the United States are qualifying facilities (each a "QF") under the Public
Utility Regulatory Policy Act of 1978 ("PURPA"), which requires utilities to
purchase power from QFs, and exempts QFs from most utility regulatory
requirements. Pursuant to PURPA, electric utilities are required to purchase
power from QFs at prices based on the utilities' current avoided cost. In recent
years, a number of utilities have begun to challenge certain provisions of PURPA
as no longer appropriate in the current U.S. energy market.
5. INDUSTRIAL INFRASTRUCTURE BUSINESS
In November 1995, the Company established a subsidiary,
CHI Power, Inc. ("CHI Power"), for the purpose of developing, acquiring,
operating and managing industrial energy facilities and related industrial
assets in such sectors as pulp and paper, petroleum refining, chemical,
textiles, and other energy-intensive industries (the "Industrial Infrastructure
Business"). The Company has begun to seek opportunities for providing
energy-related products and services in an effort to respond to changing market
conditions. Such opportunities, if available, will permit the Company to move
away from relying exclusively on hydroelectric power.
For a more detailed discussion of the Industrial
Infrastructure Business, see
Section IV.C, below, entitled "New Business Strategy."
6. PUMPED STORAGE DEVELOPMENT
As of June 30, 1997, the Company held interests in the
development of four pumped storage facilities through its majority-owned
subsidiaries Consolidated Pumped Storage, Inc. and Summit Energy Storage Inc.
The Company has concluded however, that the prospects for successfully
developing its pumped storage prospects are remote, and is currently limiting
its pumped storage activities to the minimum necessary to maintain the viability
of the Summit and River Mountain projects and the monitoring of market
conditions relevant to the projects with the intention of pursuing commitments
from utilities for the balance of the projects' capacity. In fiscal year 1995,
the Company wrote off its $1.3 million investment in two of its early stage
pumped storage development projects, Boulder Valley and Lewis River. In fiscal
year 1996, in conjunction with its implementation of Statement of Financial
Accounting Standards No. 121 Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, the Company additionally wrote off
all but $0.1 million of its remaining pumped storage investments, amounting to a
write-off of $38.5 million in such fiscal year.
7. EMPLOYEES
As of June 30, 1997, CHI had approximately 250 employees
(including part- time and seasonal personnel) at its corporate headquarters and
various facilities. None of the
14
<PAGE>
employees are subject to collective bargaining agreements. The Company maintains
offices in Stamford, Connecticut (Corporate Headquarters); Houston, Texas (CHI
Power Headquarters); Andover, Massachusetts; Greenville, South Carolina;
Montreal, Quebec; and North Bend, Washington, in addition to other operations
and maintenance facilities.
B. CHI'S SIGNIFICANT DEBT
----------------------
The significant debt of CHI generally consists of
obligations under or pursuant to (i) the Senior Discount Notes, (ii) the DnB
Facility and (iii) intercompany indebtedness.
1. THE SENIOR DISCOUNT NOTES
In June 1993, the Company raised $182.4 million through
an offering in reliance on Rule 144A of the Securities Act, comprised of $112.1
million from the sale of 12% senior discount notes due 2003 (the "Old Notes")
and $70.3 million from the sale of 13,695 units. Each unit consisted of 10
shares of 13.5% cumulative redeemable exchangeable series H preferred stock (the
"Old Series H Preferred Stock") and 18 warrants (the "Old Class B Warrants") to
purchase Class B common stock (the "Class B Common Stock") of the Company. Each
Class B Warrant entitled the holder to purchase one share of Class B Common
Stock at an exercise price of $40 per share. The Class B Warrants detached and
became separately transferable from the Old Series H Preferred Stock at the
close of business on November 22, 1993.
In February 1994, the Company consummated an offer to
exchange the Old Notes and the Old Series H Preferred Stock for the Senior
Discount Notes and the Series H Preferred Stock. The forms and terms of the old
and new securities are identical, except that: (i) each of the Senior Discount
Notes and the Series H Preferred Stock are registered under the Securities Act
and hence do not bear the legend restricting the transfer thereof; and (ii)
holders of each of the Senior Discount Notes and the Series H Preferred Stock
are not entitled to certain rights of holders of the Old Notes and Old Series H
Preferred Stock, respectively, under a registration rights agreement.
2. THE DNB FACILITY
In October 1993, one of the Company's former senior
lenders, Den norske Bank AS ("DnB"), provided the Company with a $20 million
unsecured working capital facility (the "DnB Facility"), which had an initial
expiration date of June 30, 1997. The DnB Facility is pari passu with the Senior
Discount Notes. Under certain limited circumstances, pursuant to the terms of
the agreement, DnB had the right, upon notice to the Company, to limit any
further borrowings under the DnB Facility and require the Company to repay any
and all outstanding indebtedness thereunder within one year from the date DnB
provides such notice to the Company. Throughout 1996, the Company and DnB
negotiated
15
<PAGE>
an amendment to the DnB Facility to extend the maturity date thereof and reduce
the outstanding indebtedness under the facility.
Effective July 1, 1996, the Company and DnB agreed on an
amendment to the DnB Facility, which amendment, among other things, changes the
final expiration date of the DnB Facility to June 30, 1998 from June 30, 1997,
reduces (in steps) the total commitment under the DnB Facility from
approximately $6.0 million at September 30, 1996 to $2 million at July 31, 1997,
to zero at June 30, 1998, limits the use of the facility to letters of credit
only and modifies certain financial covenants.
The DnB Facility contains certain affirmative and
restrictive covenants which are generally consistent with the terms of the
Senior Discount Notes and the Old Preferred Stock. As of August 1, 1997, the
aggregate amount of letters of credit outstanding under the DnB Facility was
approximately $2 million.
3. INTERCOMPANY INDEBTEDNESS
As of the Commencement Date, CHI's long-term debt
includes an unsecured demand note, dated June 23, 1993 (the "CHI/Finance Note"),
issued to CHI Finance, Inc. ("CHI Finance"), a wholly-owned subsidiary of CHI.
Interest on the CHI/Finance Note accrues at the rate of 7% per year. As of June
30, 1997, approximately $300.1 million was outstanding under the CHI/Finance
Note. The net amount of the Intercompany Claims of CHI Finance against CHI,
including amounts owed on the CHI/Finance Note, is approximately $326.6 million,
as of June 30, 1997 (the "CHI Finance Claims").
Other than the CHI Finance Claims, the Claims of the
Nondebtor Subsidiaries against CHI are not significant. As of June 30, 1997, in
the aggregate CHI has a net receivable from the Nondebtor Subsidiaries, other
than CHI Finance, of approximately $60.1 million. In addition, as a result of
CHI's centralized cash management system, at any given time certain of the
Nondebtor Subsidiaries may hold Intercompany Claims.
C. CHI'S EQUITY STRUCTURE
----------------------
As of June 30, 1997, CHI has three series of preferred
stock issued and outstanding (Classes F, G, and H) and one series of common
stock issued and outstanding (Class A). In addition, as of June 30, 1997, CHI
had certain outstanding warrants and options to purchase the common stock of CHI
at prices ranging from $13.50 to $50.00.
1. SERIES F PREFERRED STOCK AND SERIES G PREFERRED STOCK
Series F Preferred Stock and Series G Preferred Stock,
were sold to MS Leveraged Equity and Madison Group, L.P. ("Madison") as part of
a recapitalization of CHI in March 1992. MS Leveraged Equity and Madison
purchased 55,000 shares of Series F
16
<PAGE>
Preferred Stock, 55,000 shares of Series G Preferred Stock and certain warrants
to purchase common stock for an aggregate purchase price of $110 million. At all
times since March 1992, substantially all of the Series F Preferred Stock and
Series G Preferred Stock have been owned by MS Leveraged Equity and Madison.
The Series F Preferred Stock and the Series G Preferred
Stock are convertible into Class A Common Stock, subject to certain specified
conditions, at the option of the holder, through March 25, 2007, at a per share
rate equivalent to the liquidation preference ($1,000) divided by the conversion
price (initially $40 per share, subject to adjustment). Dividends on the Series
F Preferred Stock and the Series G Preferred Stock are cumulative (amounting to
approximately $50.8 million at June 30, 1997) and are payable annually in
arrears upon declaration by CHI's Board of Directors. The cumulative undeclared
dividends in arrears per share as of June 30, 1997, was $413.33 for the original
55,000 shares of Series F Preferred Stock and $107.11 for the 1,279 shares of
Series F Preferred Stock issued subsequently, and $508.92 for the original
55,000 shares of Series G Preferred Stock and $131.88 for the 1,279 shares of
Series G Preferred Stock issued subsequently. The Series F Preferred Stock
liquidation preference, as of June 30, 1997, of $1,413.33 per share for the
original 55,000 shares and $1,107.11 for the 1,279 shares issued subsequently,
is senior to the Series G Preferred Stock liquidation preference of $1,508.92
per share for the original 55,000 shares and $1,131.88 for the 1,279 shares
issued subsequently.
2. SERIES H PREFERRED STOCK
The Series H Preferred Stock was sold to public
investors in connection with the June 1993 refinancing and the sale of the
Senior Discount Notes. The Series H Preferred Stock ranks senior to all classes
of common stock and the Series G Preferred Stock and junior to the Series F
Preferred Stock. The Series H Preferred Stock is mandatorily redeemable on
December 31, 2003, at $1000 per share, plus accrued and unpaid dividends. It may
be redeemed, at the Company's option, however, at any time after June 30, 1998,
in whole or in part, at the then current liquidation preference plus all accrued
and unpaid dividends. The initial liquidation preference of the Series H
Preferred Stock was $513.32 per share at issuance on June 22, 1993, and, as of
June 30, 1997, the liquidation preference was $875.67 per share. The liquidation
preference will be increased as a form of payment for declared dividends
required quarterly in arrears, computed based on the then current liquidation
preference, until increasing the liquidation preference to $1,000 per share on
June 30, 1998, after which time the dividends will become payable in cash from
legally available funds.
At all times since June 1993, there have been 136,950
shares of Series H Preferred Stock issued and outstanding. Some of the members
of the Unofficial Bondholders's Committee hold Series H Preferred Stock.
17
<PAGE>
3. COMMON STOCK
There are two series of CHI common stock. Class A Common
Stock and the Class B Common Stock. As of June 30, 1997, there are 1,285,762
shares of Class A Common Stock issued and outstanding. As of June 30, 1997,
there are no issued and outstanding shares of Class B Common Stock.
D. MORGAN STANLEY
--------------
As of June 30, 1997, MS Leveraged Equity owns
approximately 78.0% of each of the Series F Preferred Stock and Series G
Preferred Stock which currently has 25 votes per share and which would, if
converted, currently represent approximately 48.8% of the Class A Common Stock
on a fully diluted basis (exclusive of cumulative undeclared dividends). The
general partner of MS Leveraged Equity is a wholly owned subsidiary of the
Morgan Stanley, Dean Witter, Discover & Co. ("MS DWD"), and two of the directors
of the Company are officers of Morgan Stanley, another wholly-owned subsidiary
of MS DWD. As a result of these relationships, Morgan Stanley and its affiliates
have significant influence over the management policies and corporate affairs of
the Company. In addition, as of June 30, 1997, Morgan Stanley owns approximately
36.2% of the Senior Discount Notes, and approximately 32.4% of the Series H
Preferred Stock. Assuming the Plan is confirmed, Morgan Stanley will continue to
have significant influence over the management and policies of the Company after
the Effective Date.
IV.
FACTORS LEADING TO THE COMMENCEMENT OF
THE CHAPTER 11 CASE AND NEW BUSINESS STRATEGY
---------------------------------------------
A. THE CHANGING HYDRO BUSINESS
---------------------------
CHI's initial strategy assumed continuation of a
regulated, noncompetitive utility industry in which small power producers would
be entitled to produce and be paid for power under PURPA, and that renewable
technologies such as hydro would receive preferential treatment. The Company
(along with many electric industry observers in the mid-1980's) anticipated that
purchased power rates would continue to rise, or at least, not decline
significantly. On the basis of these assumptions, CHI expected that its
hydroelectric projects would be able to provide sufficient revenue to cover
operating expenses and debt service, after which time it was contemplated the
hydroelectric projects would provide substantial unencumbered cash revenues to
CHI.
Similarly, the Company anticipated successful
development of its Summit and other pumped storage projects (which were not QFs)
based on a utility industry structure and
18
<PAGE>
business climate that would motivate utilities to offer long-term (30 year)
contracts for the output from these projects.
Certain trends in the power industry gradually developed
that are at odds with CHI's initial perception and strategy:
o Increasing environmental regulation of hydroelectric
development and operation, creating additional costs
and making new hydro development in the U.S. extremely
rare.
o Increasing deregulation and restructuring of
utilities, leading to a climate of
uncertainty throughout the power industry
and a growing belief by utilities that
long-term commitments for purchased power,
such as from the Company's pumped storage
projects, were neither desirable nor
necessary.
o Increasing competitive bidding for assets,
combined with the increasing domination of
the independent power industry by utility
affiliates and other larger,
well-capitalized companies, leading to lower
project returns and reducing the number of
attractive acquisition opportunities
available to CHI.
o Decreasing wholesale prices for electricity
as a result of increasing competition,
surplus generating capacity, more efficient
generating technology, and the emergence of
natural gas-fired power plants as a
preferred resource due primarily to the
decline of natural gas prices in real terms.
o Increasing criticism of PURPA as an
impediment to a market-based, competitive
industry, due to the fact that many existing
QF power sales contracts provide for rates
in excess of current market prices for
electricity.
o Attempts by certain utilities (such as
Niagara Mohawk Power Corporation) to
significantly modify the provisions of
long-term QF power sales contracts to obtain
rates far lower than those specified in the
contract, accompanied in some cases by
threats to abrogate these contracts.
The foregoing conditions contributed to the Company not
achieving its cash flow projections over the past few years. Although the
Company believes that future cash flow will be sufficient to satisfy all of the
project-level obligations, such cash flow will not
19
<PAGE>
achieve the levels that are projected to be necessary to satisfy CHI's corporate
debt and equity obligations in the future.
B. CASH DIVIDENDS AND CASH INTEREST DUE IN 1998-1999
-------------------------------------------------
The Company is highly leveraged, primarily as a result
of the 1992 recapitalization, the refinancing of debt and capital in 1993 and
the limited recourse and non-recourse debt financing of the acquisitions of its
conventional hydroelectric power plants. As of March 31, 1997, the Company's
total liabilities were $425 million, including $110.2 million of mandatorily
redeemable preferred stock, its total assets were $245 million and its
stockholders' deficit was $180 million.
The Company expects that, through calendar 1998, it will
generate sufficient cash flow from existing operations to meet its capital
expenditure and working capital requirements. Commencing on September 30, 1998,
however, cash dividends become payable on the Series H Preferred Stock and on
January 15, 1999, cash interest becomes payable on the Senior Discount Notes.
Without the reorganization contemplated by the Plan, the Company does not
believe it will be able to meet such obligations when due. In addition, the
Company anticipates that it will need to obtain financing to make the principal
payments on the Senior Discount Notes at their maturity in 2003 and to redeem
the Series H Preferred Stock in 2003.
C. NEW BUSINESS STRATEGY
---------------------
In light of the foregoing, the Company began an internal
reorganization and cost cutting program aimed at streamlining operations and
reducing general and administrative (G&A) expenses. The existing hydro portfolio
was evaluated for potential opportunities to reduce operating costs or make
cost-effective improvements. Certain assets were targeted for divestiture for
the purposes of eliminating marginally-performing facilities and improving
overall efficiency. In addition, major overhead cost reductions were made,
including reduction of salaries and other compensation of certain senior
management personnel, relocation of the corporate headquarters office, and
achieving significant savings on insurance costs.
To respond to the trends in the hydroelectric business,
as discussed above, CHI decided in 1995 to diversify from its "hydro-only"
focus. As an initial step, CHI hired James T. Stewart as president and chief
executive officer of CHI Power (a new subsidiary), based in Houston, Texas. Mr.
Stewart had previously been president of CRSS, a successful independent power
developer specializing in the development, acquisition, and financing of
industrial energy assets. CRSS had been the first company to project finance
such assets on a requirement basis, rather than a "take or pay" contract. In
establishing CHI Power, CHI's goal was to reduce dependence on hydro and to
create additional opportunities for profitable
20
<PAGE>
growth based on Mr. Stewart's experience and reputation combined with existing
CHI capabilities, many of which are transferable to the new industrial energy
business.
CHI's Industrial Infrastructure Business is strongly
related to energy production, but is not traditional cogeneration or independent
power plant development. In the traditional cogeneration model, a developer
finances and builds a power plant at an industrial facility, typically producing
electricity that is sold at wholesale to the local electric utility and steam
that is sold at retail to the industrial company. In contrast, CHI's industrial
business can involve a wide range of capital-intensive "utility" infrastructure
assets, such as steam generators, air compressors, storage facilities, water
management systems, and chemical recovery boilers. The transaction may, but need
not necessarily, include electricity generation. The customer may seek to
receive cash for, or "monetize," such assets if already existing, or to
construct such assets, either new or as an upgrade or expansion of existing
facilities. CHI will acquire or develop the assets, operate and manage them, and
sell back the resulting product (steam, chilled water, compressed air,
electricity, etc.) to the customers under a long-term contract, generally at
retail, although individual project circumstances may include the sale of
electricity to utilities.
CHI's principal value-creation in such a transaction is
in the following areas:
o CHI's technical and management capabilities
that cover a wide range of technologies and
industrial assets, which enhance reliability
and reduce production costs.
o The financial structure that CHI provides to
the customer, offering lower-cost capital,
than would be available if the customer were
to invest in the assets directly, due to the
Company's ability to provide financing with
a high percentage of debt relative to
equity.
o CHI can structure the transaction so that it
may be project financed based on the
production expectations of the individual
manufacturing plant or mill.
o When based on "requirements" rather than a
"take or pay" contract, this structure
achieves off-balance sheet treatment of the
transaction for the customer, avoiding a
long-term debt obligation or its equivalent
at the corporate level and creating a
potential credit enhancement opportunity.
CHI's business development efforts in the industrial
energy and infrastructure area are focused primarily on companies in industrial
sectors characterized by high energy consumption and capital-intensive
manufacturing operations. The potential market for such business in North
America is represented by a total of more than $40 billion in annual
21
<PAGE>
energy-related expenditures and $50 billion in annual capital spending among
such industries as pulp and paper, petroleum refining, chemicals, textiles, and
other energy-intensive manufacturers. By capturing even a small fraction of this
market, CHI will realize significant annual growth in total revenue, cash flow,
and other financial criteria.
Another key ingredient in CHI's transformation into a
multi-product energy company was an organizational restructuring. Under its new
Chairman and Chief Executive Officer, James T. Stewart, management has put into
effect key aspects of the new organization, including the following elements:
o Appointment of a President/Chief Operating Officer,
Edward M. Stern, responsible for company-wide
administration and project operations. Reporting to
the President and Chief Operating Officer are the
Chief Financial Officer and the heads of U.S. hydro
operations, U.S. industrial operations, and Canadian
operations.
o Creation of an integrated Business
Development unit, reporting directly to the
Chairman/CEO, responsible for all growth
activities Company- wide. These include
sales, marketing, and communications related
to development, acquisitions, and major O&M
contracts for both industrial and
hydroelectric projects in the United States,
Canada and elsewhere.
The purpose of this organizational structure is to
promote full integration of the industrial and hydroelectric areas of the
Company, while at the same time encouraging all members of senior management to
focus on their own established areas of special skill and expertise.
Despite the Company's efforts to develop the Industrial
Infrastructure Business, the Company's overleveraged capital structure and
substantial cash requirements commencing in 1998 have made it difficult for CHI
to establish the creditworthiness necessary to consummate industrial
infrastructure projects. In order to capitalize on the expertise that it
believes it has in the hydro and industrial businesses and thereby maximize the
value of the Company, the Company determined that it was necessary to deleverage
its capital structure. To that end, the Company entered into discussions with
substantial holders of the Senior Discount Notes and Old Preferred Stock in an
effort to restructure the Company's significant financial obligations. By
addressing its financial disadvantages (as discussed above) as early as
practicable, CHI hopes to create significant additional value through new
business growth. The Company believes that with the proper business and
financial structure in place, it can take advantage of near-term opportunities
in the marketplace.
22
<PAGE>
D. THE 1996-97 PREPETITION NEGOTIATIONS
------------------------------------
In the fall of 1996, CHI retained Weil, Gotshal & Manges
LLP and Houlihan Lokey Howard & Zukin Inc. ("Houlihan Lokey"), as its legal
advisor and financial advisor, respectively, to provide advice concerning such a
restructuring. In April, 1997, the Unofficial Bondholders' Committee, whose
membership includes four institutions controlling approximately 89.2% of the
Senior Discount Notes, was organized. Those institutions are:
Morgan Stanley & Co., Incorporated (through
representatives of its Fixed Income Division)
Swiss Bank Corporation
Merrill Lynch Asset Management
Stonehill Investment Corp.
The Unofficial Bondholders' Committee retained Wachtell,
Lipton, Rosen & Katz to advise the committee in connection with a possible
financial restructuring.
Over a period of several months, CHI negotiated the
terms of a financial restructuring with the Unofficial Bondholders' Committee
and concurrently negotiated with the holders of a majority of each series of the
Old Preferred Stock. On June 4, 1997, the parties ultimately reached an
agreement in principle on the terms of a financial restructuring to be
accomplished pursuant to the Plan under chapter 11 of the Bankruptcy Code.
V.
ANTICIPATED EVENTS DURING THE CHAPTER 11 CASE
---------------------------------------------
A. COMMENCEMENT OF THE CHAPTER 11 CASE
-----------------------------------
If the solicitation occurring pursuant to this
Disclosure Statement results in the acceptance of the Plan by holders of the
requisite number of Claims and Equity Interests, CHI intends to commence the
Chapter 11 Case. Following the Commencement Date, CHI will continue to operate
its business and manage its properties as a Debtor in Possession pursuant to
sections 1107 and 1108 of the Bankruptcy Code.
B. ADMINISTRATION OF THE CHAPTER 11 CASE
-------------------------------------
o OPERATIONAL MATTERS. On the Commencement Date, CHI
will request that the Bankruptcy Court enter a series of orders designed to
minimize any disruption of business operations and to facilitate its
reorganization.
23
<PAGE>
o PAYMENT OF DEBT INCURRED IN THE ORDINARY COURSE OF
BUSINESS. The objective of the Chapter 11 Case is to restructure the outstanding
indebtedness to institutional creditors holding the Senior Discount Notes and
the Old Preferred Stock held by institutional equity security holders. It is
essential to the Plan that relationships with trade vendors and other holders of
debt incurred in the ordinary course of business, and relationships with
employees and consultants, not be disrupted or impaired. In that connection, CHI
will request that the Bankruptcy Court enter an order authorizing CHI to pay, in
its discretion, all undisputed indebtedness and obligations (other than the
indebtedness or liabilities that are impaired and to be restructured under the
Plan) incurred in the ordinary course of business as such indebtedness and
obligations mature in accordance with their terms, and to pay salaries, wages,
benefits and other amounts owed to employees and consultants. These include
obligations that were, or may have been, incurred prior to the Commencement
Date.
o CASH MANAGEMENT. CHI will request that the Bankruptcy
Court enter an order authorizing CHI to continue its current cash management
system. The order would allow CHI to fund the Company's day to day obligations,
such as payroll, taxes, employee benefits and insurance, and to allocate and
collect a share of such costs from the various Nondebtor Subsidiaries.
C. CREDITORS' COMMITTEE
--------------------
Pursuant to section 1102 of the Bankruptcy Code, the
United States Trustee is required to appoint a committee of Creditors holding
unsecured claims. In light of the prepackaged chapter 11 plan, the existence and
likely continued functioning of the Unofficial Bondholders' Committee, and CHI's
request for an order authorizing it to pay prepetition ordinary course
liabilities (with certain exceptions), it is possible that the United States
Trustee may elect in the exercise of its discretion not to appoint a statutory
committee of unsecured creditors.
D. CONFIRMATION HEARING
--------------------
CHI anticipates that as soon as practicable after
commencing the Chapter 11 Case, it will seek an order of the Bankruptcy Court
scheduling the hearing to consider confirmation of the Plan. CHI anticipates
that notice of the hearing will be published in the Wall Street Journal
(National Edition) and the New York Times, and will be mailed to all known
holders of claims and equity interests, at least twenty-five days before the
date by which objections must be filed with the Bankruptcy Court. See Section
VIII.A, below, entitled "CONFIRMATION OF THE PLAN -- Confirmation Hearing."
E. BAR DATE
--------
In accordance with the provisions of the Bankruptcy Code
and Bankruptcy Rules, CHI will request that the Bankruptcy Court enter an order
(the "Bar Date Order")
24
<PAGE>
establishing the last date and time by which proofs of claims (other than claims
of governmental authorities) against, and proofs of equity interests (other than
equity interests of holders of Old Common Stock) in, CHI must be filed (the "Bar
Date"). Additionally, CHI expects it will request that the Bar Date Order
provide that, unless otherwise ordered by the Bankruptcy Court, claims arising
from the rejection of executory contracts and unexpired leases subsequent to the
Bar Date are to be filed no later than thirty (30) days after the latest to
occur of (a) notice of entry of an order approving such rejection or (b) notice
of entry of the Confirmation Order. CHI anticipates that a notice of the Bar
Date will be published in Wall Street Journal (National Edition) and the New
York Times, and that a proof of claim form or proof of equity interest form, as
the case may be, and instructions for its completion will be mailed to all known
holders of claims and equity interests subject to the Bar Date Order, at least
twenty days before the Bar Date.
Since holders of Old Common Stock are to receive no
distributions under the Plan, CHI will request that the Bar Date Order exclude
the holders of such equity interests from the requirement to file proofs of
equity interests.
VI.
THE PLAN OF REORGANIZATION
--------------------------
A. INTRODUCTION
The Plan provides for a major restructuring of CHI's
financial obligations. In essence, the Plan (i) exchanges $202 million in face
amount of the Senior Discount Notes for 100% of the New Common Stock (subject to
dilution from the exercise of the New Warrants and the Management Options) and
$15 million plus the Unofficial Bondholders' Committee Expenses in Cash, (ii)
issues New Series B Warrants and New Series C Warrants to purchase up to 12.5%
of the New Common Stock in exchange for all of the Old Preferred Stock, (iii)
cancels the Old Common Stock and (iv) provides for the issuance of the
Management Options under the Management Option Plan. The New Common Stock and
New Warrants are described in detail in Section VI.E, below, entitled
"Securities to Be Issued Pursuant to the Plan." The result of the restructuring
will be that Reorganized CHI will have no significant debt obligations, other
than the New Working Capital Facility to be entered into as of the Effective
Date. CHI believes that such a deleveraging is necessary to permit the Company
to compete effectively in today's economic environment.
CHI believes that the Plan will (i) enable the Company
to more effectively pursue its business strategy including the development of
the Industrial Infrastructure Business and (ii) provide the best opportunity for
recoveries for the holders of the Senior Discount Notes and the Old Preferred
Stock. CHI believes that creditors and equity interest
25
<PAGE>
holders will receive at least as much, if not more, in value under the Plan than
they would receive in a chapter 7 liquidation.
In order to reach a substantially consensual plan and
with the consent of the members of the Unofficial Bondholders' Committee, a
portion of the value that might otherwise have been distributed to the holders
of the Senior Discount Note Claims (Class 3) if the absolute priority rule was
enforced, has been allocated to holders of Equity Interests in Classes 7, 8 and
9 on a Pro Rata basis. In the event that Class 8 rejects the Plan, however, CHI
will ask the Bankruptcy Court to confirm the Plan under section 1129(b) of the
Bankruptcy Code as to Classes 8, 9 and 10 and provide for the alternative
treatments for Classes 7 and 9, as described below. The treatment provided for
the holders of Equity Interests in Class 8 will not change regardless of whether
such Class votes to accept or reject the Plan.
The Plan is attached as Exhibit A to this Disclosure
Statement and forms a part of this Disclosure Statement. The following is a
summary of the Plan.
B. ADMINISTRATIVE EXPENSES
-----------------------
Administrative expenses are the actual and necessary
costs and expenses of the Chapter 11 Case that are allowed under sections 503(b)
and 507(a)(1) of the Bankruptcy Code. Those expenses will include the
postpetition salaries and other benefits for CHI's employees, postpetition rent
for its headquarters, amounts owed to vendors providing goods and services to
CHI during its chapter 11 case, tax obligations incurred after the Commencement
Date, and certain statutory fees and charges assessed under section 1930,
chapter 123, title 28, United States Code. Other administrative expenses include
the actual, reasonable fees and expenses of CHI's advisors and the advisors to
any official committees appointed in, and incurred during, the chapter 11 case.
Administrative expenses representing liabilities
incurred in the ordinary course of business by CHI, consistent with past
practice, will be paid by CHI in accordance with the terms and conditions of the
particular transaction and any related agreements and instruments. All other
Administrative Expenses Claims will be paid, in full, in Cash, on the Effective
Date or as soon thereafter as is practicable, or on such other terms to which
CHI and the holder of such administrative expense claim agree.
CHI, which is a holding company, has relatively few
direct operating expenses, other than payroll. Accordingly, CHI anticipates that
most of the Administrative Expense Claims will be paid as they come due during
the Chapter 11 Case and that the administrative expenses to be paid on the
Effective Date will, for the most part, comprise the allowed fees and expenses
incurred by professionals retained in the case and the costs attendant to CHI's
assumption of executory contracts and unexpired leases under the Plan.
26
<PAGE>
CHI estimates that the Allowed Administrative Expense Claims for professional
fees and expenses will be approximately $750,000.
All payments to professionals for compensation and
reimbursement of expenses and all payments to reimburse expenses of members of
statutory committees will be made in accordance with the procedures established
by the Bankruptcy Court and Bankruptcy Rules relating to the payment of interim
and final compensation and expenses. The Bankruptcy Court will review and
determine all such requests.
C. PRIORITY TAX CLAIMS
-------------------
Priority Tax Claims are unsecured Claims asserted by
federal and state governmental authorities for taxes specified in section
507(a)(8) of the Bankruptcy Code, such as certain income taxes, property taxes,
excise taxes, and employment and withholding taxes. These unsecured claims are
given a statutory priority in right of payment. CHI estimates that on the
Effective Date, the Allowed amount of such claims will aggregate $110,000.
Except to the extent that a holder of an Allowed
Priority Tax Claim has been paid by CHI prior to the Effective Date or agrees to
a different treatment, each holder of an Allowed Priority Tax Claim will be
paid, at the sole discretion of Reorganized CHI, (i) in full by Reorganized CHI
in the ordinary course of business in accordance with the terms and conditions
of any law, regulation, agreement, instrument or other document relating to such
claims or (ii) deferred Cash, having a value as of the Effective Date equal to
such Allowed Priority Tax Claim, over a period not exceeding six years after the
date of assessment of such Allowed Priority Tax Claim.
D. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS
-----------------------------------------------------------
1. Class 1 -- Other Priority Claims - Other Priority Claims
--------------------------------
are Claims which are entitled to priority in accordance
with section 507(a) of the Bankruptcy Code.
Pursuant to the Plan, to the extent unpaid prior to the
Effective Date and except to the extent that a holder of
an Allowed Other Priority Claim agrees to a different
treatment, each Allowed Other Priority Claim will be
rendered unimpaired or reinstated in accordance with
section 1124 of the Bankruptcy Code.
CHI estimates that there will not be any unpaid Allowed
Other Priority Claims.
27
<PAGE>
2. Class 2 -- Secured Claims - Class 2 consists of the
-------------------------
allowed Secured Claims against CHI. Secured Claims
consist of all Claims that are secured by a lien,
pledge or security interest in CHI's real or personal
property. CHI is aware of approximately four Secured
Claims. The Secured Claims include claims relating to
security deposits held by landlords pursuant to leases
of CHI's corporate offices in Stamford, Connecticut;
Andover, Massachusetts; and Houston, Texas.
Pursuant to the Plan, except to the extent that a holder
of an Allowed Secured Claim agrees to a different
treatment, each Allowed Secured Claim will be rendered
unimpaired or reinstated in accordance with section 1124
of the Bankruptcy Code, notwithstanding any contractual
provision or applicable nonbankruptcy law that entitles
the holder of an Allowed Secured Claim to demand or
receive payment of such Allowed Secured Claim prior to
the stated maturity of such Allowed Secured Claim from
and after the occurrence of a default.
CHI estimates that the Secured Claims will aggregate
$150,000.
3. Class 3 -- Senior Discount Note Claims - Class 3
--------------------------------------
consists of the Allowed Claims of the holders of the
Senior Discount Notes.
Pursuant to the Plan, each holder of an Allowed Senior
Discount Note Claim will receive, in full satisfaction
of such Allowed Senior Discount Note Claim, its Pro Rata
Share of (i) 10,000,000 shares of New Common Stock and
(ii) $15 million plus the Unofficial Bondholders'
Committee Expenses in Cash distributed as follows:
(A) $10,000,000 plus the
Unofficial Bond-
holders' Committee
Expenses on the
Effective Date;
(B) up to $5,000,000
payable out of
Excess Cash and the
proceeds of the
Working Capital
Facility (to the
extent permitted by
the lender under the
Working Capital
Facility) on or
before December 31,
1997; and
(C) if the payment set
forth in subsection
(B) is not made in
full by December 31,
1997, the balance of
the $5,000,000
payment on or before
March 31, 1998, with
interest thereon at
the Prime Rate from
December 31, 1997,
until the date the
balance is paid in
full.
28
<PAGE>
All distributions to holders of Allowed Senior Discount
Note Claims will be allocated first to the original
principal amount of such Claim (as determined for
federal income tax purposes) and then, to the extent the
consideration exceeds such amount, to the remainder of
such Claims.
CHI estimates that the aggregate Claims in Class 3, as
of the Commencement Date, will be approximately $184.5
million (assuming a Commencement Date of September 30,
1997), which amount is computed by compounding the
original principal amount of the Senior Discount Notes
semi-annually at 12% per year through the Commencement
Date. The original principal amount was approximately
$112 million. The difference between the face amount of
the Senior Discount Notes and the accreted value as of
the Commencement Date represents unmatured interest,
which pursuant to section 502 of the Bankruptcy Code, is
not allowed.
For a discussion of the New Common Stock, see subsection
VI.E.1, below, entitled "Securities to Be Issued
Pursuant to the Plan -- New Common Stock," and Article
XIII, below, entitled "VALUATION".
4. Class 4 -- DnB Claims - Class 4 consists of the Allowed
---------------------
Claims of DnB. The DnB Claims relate to a letter of
credit facility which expires on June 30, 1998.
Pursuant to the Plan, except to the extent that DnB
agrees to a different treatment, the DnB Claims will be
rendered unimpaired or reinstated in accordance with
section 1124 of the Bankruptcy Code, notwithstanding any
contractual provision or applicable nonbankruptcy law
that entitles DnB to demand or receive payment of the
DnB Claims prior to the stated maturity of such Claims
from and after the occurrence of a default.
CHI estimates that on the Commencement Date, the Claims
in Class 4 will approximate $2 million.
5. Class 5 -- General Unsecured Claims - Class 5 consists
-----------------------------------
of Allowed General Unsecured Claims which may include
the Claims of trade creditors for goods and services
provided to CHI prior to the Commencement Date, Claims
for breach of contract, damages Claims from the
rejection of unexpired leases and executory contracts
and certain tax indemnity Claims.
Pursuant to the Plan, to the extent unpaid prior to the
Effective Date and except to the extent that a holder of
an Allowed General Unsecured Claim agrees to a different
treatment, each Allowed General Unsecured Claim will be
rendered unimpaired or reinstated in accordance with
section 1124 of the Bankruptcy Code.
29
<PAGE>
CHI estimates that on the Commencement Date, Allowed
Claims in Class 5 will aggregate no more than $170,000.
6. Class 6 -- Intercompany Claims - Class 6 consists of the
------------------------------
General Unsecured Claims of any entity which is a direct
or indirect subsidiary of CHI or is controlled by CHI.
The Class 6 Claims primarily result from CHI's
centralized cash management system and the
recapitalizations of CHI.
Pursuant to the Plan, to the extent unpaid prior to the
Effective Date and except to the extent that a holder of
an Allowed Intercompany Claim agrees to a different
treatment, each Allowed Intercompany Claim will be
rendered unimpaired or reinstated in accordance with
section 1124 of the Bankruptcy Code.
CHI estimates that on the Commencement Date, Allowed
Claims in Class 6 will aggregate approximately $332
million.
7. Class 7 -- Series F Equity Interests - Class 7 consists
------------------------------------
of Allowed Equity Interests evidenced by Series F
Preferred Stock.
Pursuant to the Plan, on the Effective Date, each holder
of an Allowed Series F Equity Interest as of the
Distribution Record Date will receive, in full
satisfaction of such Allowed Equity Interest either:
(i) if Class 8 votes to accept the Plan, such
holder's Pro Rata Share of the Series F
Distribution; or
(ii) if Class 8 votes to reject the Plan, such
holder's Pro Rata Share of (x) the Series F
Distribution and (y) the Series G
Distribution.
The Series F Distribution is determined by calculating
the percentage that the preferred liquidation preference
of the Series F Preferred Stock (as increased by the
aggregate liquidation preference of all accrued and
unpaid dividends, whether declared or not) is of the
aggregate liquidation preferences and applicable
dividends of all of the Old Preferred Stock, and
multiplying that percentage by the aggregate number of
New Series B Warrants and New Series C Warrants to be
distributed to all holders Old Preferred Stock under the
Plan. The Series G Distribution is determined by a
similar calculation which is discussed in Section VI.D.9
below. Based on the foregoing calculations, if Class 8
votes to accept the Plan it is estimated that each
holder of an Allowed Series F Equity Interest will be
entitled to its Pro Rata Share of 224,387 New Series B
Warrants and 145,655 New Series C Warrants. In the event
that Class 8 votes to reject the Plan, it is estimated
that each holder of
30
<PAGE>
an Allowed Series F Equity Interest will be entitled to
its Pro Rata Share of 464,286 New Series B Warrants and
301,379 New Series C Warrants.
CHI estimates that the aggregate liquidation preference
of the Equity Interests in Class 7, as of the
Commencement Date, will be approximately $80.3 million.
For a discussion of the New Series B Warrants and New
Series C Warrants, see subsections VI.E.2 and VI.E.3,
below, entitled "Securities to Be Issued Pursuant to the
Plan -- New Series B Warrants" and "Securities to Be
Issued Pursuant to the Plan -- New Series C Warrants,"
respectively.
8. Class 8 -- Series H Equity Interests - Class 8 consists
------------------------------------
of Allowed Equity Interests evidenced by Series H
Preferred Stock.
Pursuant to the Plan and regardless of whether Class 8
votes to accept or reject the Plan, on the Effective
Date, each holder of an Allowed Series H Equity Interest
as of the Distribution Record Date will receive, in full
satisfaction of such Allowed Equity Interest, such
holder's Pro Rata Share of the Series H Distribution.
The Series H Distribution is determined by calculating
the percentage that the preferred liquidation preference
of the Series H Preferred Stock (as increased by the
aggregate liquidation preference of (x) all pay-in-kind
dividends declared and paid and (y) all accrued and
unpaid dividends, whether declared or not) is of the
aggregate liquidation preferences and applicable
dividends of all of the Old Preferred Stock, and
multiplying that percentage by the aggregate number of
New Series B Warrants and New Series C Warrants to be
distributed to all holders of the Old Preferred Stock
under the Plan. Based on the foregoing calculations, it
is estimated that each holder of an Allowed Series H
Equity Interest will be entitled to its Pro Rata Share
of 346,525 New Series B Warrants and 224,937 New Series
C Warrants.
The treatment provided to the holders of Equity
Interests in Class 8 is unaffected by the acceptance or
rejection of the Plan by holders of such Equity
Interests.
CHI estimates that the aggregate liquidation preference
of the Equity Interests in Class 8, as of the
Commencement Date, will be approximately $124.0 million.
For a discussion of the New Series B Warrants and New
Series C Warrants, see subsections VI.E.2 and VI.E.3,
below, entitled "Securities to Be Issued
31
<PAGE>
Pursuant to the Plan -- New Series B Warrants" and
"Securities to Be Issued Pursuant to the Plan -- New
Series C Warrants," respectively.
9. Class 9 -- Series G Equity Interests - Class 9 consists
------------------------------------
of Allowed Equity Interests evidenced by Series G
Preferred Stock.
Pursuant to the Plan, on the Effective Date, each holder
of an Allowed Series G Equity Interest as of the
Distribution Record Date will receive, in full
satisfaction of such Allowed Equity Interest, either:
(i) if Class 8 votes to accept the Plan, such
holder's Pro Rata Share of the Series G
Distribution; or
(ii) if Class 8 votes to reject the Plan, the
holders of Allowed Series G Equity Interests
will not receive any distribution on account
of such Equity Interests.
The Series G Distribution is determined by calculating
the percentage that the preferred liquidation preference
of the Series G Preferred Stock (as increased by the
aggregate liquidation preference of all accrued and
unpaid dividends, whether declared or not) is of the
aggregate liquidation preferences and applicable
dividends of all of the Old Preferred Stock, and
multiplying that percentage by the aggregate number of
New Series B Warrants and New Series C Warrants to be
distributed to all holders of the Old Preferred Stock
under the Plan. Based on the foregoing calculations, it
is estimated that if Class 8 votes to accept the Plan,
each holder of an Allowed Series G Equity Interest will
be entitled to its Pro Rata Share of 239,899 New Series
B Warrants and 155,724 New Series C Warrants.
CHI estimates that the aggregate liquidation preference
of the Equity Interests in Class 9, as of the
Commencement Date, will be approximately $85.8 million.
For a discussion of the New Series B Warrants and New
Series C Warrants, see subsections VI.E.2 and VI.E.3,
below, entitled "Securities to Be Issued Pursuant to the
Plan -- New Series B Warrants" and "Securities to Be
Issued Pursuant to the Plan -- New Series C Warrants,"
respectively.
10. Class 10 -- Old Common Stock Equity Interests - Class 10
---------------------------------------------
consists of equity interests evidenced by Old Common
Stock, which includes Old Options, Old Warrants and any
other right, contractual or otherwise, to acquire any
common stock of CHI, existing prior to the Commencement
Date.
32
<PAGE>
Pursuant to the Plan, the holders of Old Common Stock
Equity Interests will not receive any distributions on
account of such Equity Interests. On the Confirmation
Date, and in accordance with Section 9.1 of the Plan,
the Old Common Stock certificates and any rights
relating thereto will be cancelled without further
action under any applicable agreement, law, regulation,
order or rule, and the Old Common Stock evidenced
thereby will be extinguished.
E. SECURITIES TO BE ISSUED PURSUANT TO THE PLAN
--------------------------------------------
THE NEW COMMON STOCK ISSUED PURSUANT TO THE PLAN AND THE
NEW COMMON STOCK OBTAINED UPON THE EXERCISE OF THE NEW SERIES B WARRANTS, NEW
SERIES C WARRANTS AND THE MANAGEMENT OPTIONS, AND THE RIGHTS OF ANY HOLDER
THEREOF ARE SUBJECT TO AND LIMITED BY THE PROVISIONS OF THE STOCKHOLDERS'
AGREEMENT, DATED AS OF THE EFFECTIVE DATE, BY AND AMONG CHI ENERGY, INC. AND
EACH OF THE STOCKHOLDERS OF CHI ENERGY, INC. (THE "STOCKHOLDERS' AGREEMENT").
FOR A DISCUSSION OF THE STOCKHOLDERS' AGREEMENT, SEE SECTION XI.D. BELOW,
ENTITLED "STOCKHOLDERS' AGREEMENT."
1. NEW COMMON STOCK
Pursuant to the Plan, on the Effective Date, 20 million
shares of New Common Stock will be authorized as follows: 9,085,517 shares of
New Class A Common Stock, 914,483 shares of New Class B Common Stock and
10,000,000 additional shares of New Common Stock which may be issued as either
New Class A Common Stock or New Class B Common Stock, as applicable. Of the
10,000,000 shares of New Common Stock which are being authorized on the
Effective Date but not issued, 1,337,127 shares will be reserved for issuance
if, as and when the holders of the New Series B Warrants and New Series C
Warrants exercise such warrants.
a. NEW CLASS A COMMON STOCK
Pursuant to the Plan, on the Effective Date, 9,085,517
shares of New Class A Common Stock will be issued and distributed to
substantially all of the holders of Allowed Claims in Class 3 and 810,811 shares
of New Class A Common Stock will be reserved to satisfy the obligation of
Reorganized CHI under the Management Options. For a discussion of the Management
Options, see Section IX.C below, entitled "Management Option Plan."
Each share of New Class A Common Stock will entitle its
holder to one vote. Holders of New Class A Common Stock will have the right to
participate proportionately in dividends, if any, distributed by Reorganized
CHI.
33
<PAGE>
b. NEW CLASS B COMMON STOCK
Pursuant to the Plan, on the Effective Date, 914,483
shares of New Class B Common Stock will be issued and distributed to a holder of
Allowed Class 3 Claims.
Each share of New Class B Common Stock will entitle its
holder to a one- hundredth (1/100) of one vote. Holders of New Class B Common
Stock will have the right to participate proportionately in dividends, if any,
distributed by Reorganized CHI.
The New Class B Common Stock is being issued to a holder
of Allowed Class 3 Claims, at such holder's request, to provide to such holder
reduced voting rights in Reorganized CHI. Upon any transfer of shares of New
Class B Common Stock, the shares of New Class B Common Stock automatically
convert into an equal number of shares of New Class A Common Stock.
2. NEW SERIES B WARRANTS
The New Series B Warrants, which will be issued to the
Holders of Allowed Claims in Classes 7, 8 and 9 on the Effective Date and expire
on the sixth anniversary of the Effective Date, entitle such holders to
subscribe for the purchase of up to an aggregate of 7.5% of the New Common
Stock, subject to dilution due to the issuance by Reorganized CHI of shares of
New Common Stock pursuant to the exercise of the New Series C Warrants and the
Management Options by the holders thereof. The New Series B Warrants are
exercisable for up to 1% of the New Common Stock of Reorganized CHI if, as and
when the total capital (debt and equity) invested in industrial infrastructure
projects that either (i) close within 3 years from the Effective Date or (ii)
are subject to Definitive Agreements (as such term is defined in the Series B
Warrant Agreement) within such 3 year period and thereafter close within the
term of the warrants, equals $60 million. The additional New Series B Warrants
exercisable for the remaining 6.5% of the New Common Stock vest incrementally
if, as and when the total capital invested in industrial infrastructure projects
increases from $60 million to $450 million within the time periods set forth
above. The exercise price per share of the New Common Stock subject to the New
Series B Warrants will be $10. The New Series B Warrants will have customary
antidilution provisions, and protections against Extraordinary Distributions (as
such term is defined in the Series B Warrant Agreement).
3. NEW SERIES C WARRANTS
The New Series C Warrants, which will be issued to the
Holders of Allowed Claims in Classes 7, 8 and 9 on the Effective Date and expire
on the eighth anniversary thereof, entitle such holders to subscribe for the
purchase of up to an aggregate of 5.0% of the New Common Stock, subject to
dilution due to the issuance by Reorganized CHI of shares of New Common Stock
pursuant to the exercise of the New Series B Warrants and the Management Options
by the holders thereof. The exercise price per share of the New
34
<PAGE>
Common Stock subject to the New Series C Warrants will be determined by
reference to the accreted value of the Senior Discount Notes as of the
Commencement Date, which is approximately $185 million. The exercise price per
share of the New Series C Warrants will be approximately $18.45 (assuming a
Commencement Date of September 30, 1997) and such warrants will have the benefit
of customary antidilution provisions, and protections against Extraordinary
Distributions (as such term is defined in the Series C Warrant Agreement).
4. MANAGEMENT OPTIONS
The Management Options, which will be issued to certain
members of CHI's management on the Effective Date pursuant to the Management
Option Plan (as such term is defined herein) and expire on the seventh
anniversary thereof, will be exercisable for the purchase of up to an aggregate
of 7.5% of the New Class A Common Stock, subject to dilution due to the issuance
by Reorganized CHI of shares of New Common Stock pursuant to the exercise of the
New Series B Warrants and the New Series C Warrants by the holders thereof. The
Management Options will have the benefit of customary antidilution provisions,
and protections against Extraordinary Distributions (as such term is defined in
the Management Option Plan).
For a more detailed discussion of the Management
Options, see Section IX.C, below, entitled "Management Option Plan."
F. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
----------------------------------------
1. GENERAL
Pursuant to sections 365(a), 365(f) and 1123(b)(2) of
the Bankruptcy Code, all executory contracts and unexpired leases that exist
between CHI and any person shall be deemed assumed by Reorganized CHI, other
than those executory contracts and unexpired leases (i) which have been assumed
pursuant to an order of the Bankruptcy Court entered prior to the Confirmation
Date, (ii) which have been rejected pursuant to an order of the Bankruptcy Court
entered prior to the Confirmation Date, (iii) as to which a motion for approval
of the rejection of such contracts or leases has been filed and served prior to
the Confirmation Date, or (iv) which are set forth in Schedule 7.1 to the Plan.
Entry by the Clerk of the Bankruptcy Court of the Confirmation Order will
constitute approval, pursuant to section 365(a) of the Bankruptcy Code, of such
rejections and assumptions by CHI pursuant to the Plan.
The Plan requires that all Claims for damages, if any,
arising from the rejection of an executory contract or unexpired lease be
evidenced by a proof of claim that is filed with the Bankruptcy Court and served
upon attorneys for CHI no later than thirty (30) days after the later of (i)
notice of entry of an order approving the rejection of such contract
35
<PAGE>
or lease and (ii) notice of entry of the Confirmation Order. Failure to file a
timely proof of claim will result in such Claim being forever barred.
2. INSURANCE POLICIES
For purposes of the Plan, each of CHI's insurance
policies and any agreements, documents or instruments relating thereto are
treated as executory contracts under the Plan. Notwithstanding the foregoing,
distributions under the Plan to any holder of a Claim covered by any of such
insurance policies and related agreements, documents or instruments that are
assumed hereunder, will be in accordance with the treatment provided under
Article VII of the Plan. Nothing contained in Section 7.6 of the Plan will
constitute or be deemed a waiver of any claim, right or cause of action that CHI
may hold against the insurer under any policy of insurance, or against the
holder of a Claim covered by insurance policies.
3. INDEMNIFICATION OBLIGATIONS
Pursuant to the Plan, the obligations of CHI to defend,
indemnify, reimburse or limit the liability of present and former directors,
officers or employees who were directors, officers or employees, respectively,
on or after the Commencement Date against any Claims or obligations pursuant to
CHI's certificates of incorporation or by-laws, applicable state law or specific
agreement, or any combination of the foregoing, will survive confirmation of the
Plan, remain unaffected thereby, and not be discharged irrespective of whether
indemnification, defense, reimbursement or limitation is owed in connection with
an event occurring before, on or after the Commencement Date. As of the date
hereof, to the knowledge of CHI, no Claims giving rise to a right of
indemnification have been asserted against any director, officer, general
partner, partner, employee, or consultant who provides management personnel or
who serves as a member of management of CHI.
4. COMPENSATION AND BENEFIT PROGRAMS
Except as provided in Section 7.1 of the Plan and unless
otherwise modified, terminated or rejected prior to the Effective Date, all
employment, consulting and severance practices and policies, and all
compensation and benefit plans, policies, and programs of CHI applicable to its
directors, officers, employees, consultants or independent contractors,
including, without limitation, all savings plans, retirement plans, health care
plans, severance benefit plans, incentive plans, workers' compensation programs
and life, disability and other insurance plans are treated as executory
contracts under the Plan and are assumed pursuant to sections 365(a) and
1123(b)(2) of the Bankruptcy Code.
36
<PAGE>
5. RETIREE BENEFITS
Payments, if any, due to any person for the purpose of
providing or reimbursing payments for retired employees and their spouses and
dependents for medical, surgical, or hospital care benefits, or benefits in the
event of sickness, accident, disability, or death under any plan, fund, or
program (through the purchase of insurance or otherwise) maintained or
established in whole or in part by CHI prior to the Commencement Date will be
continued for the duration of the period CHI has obligated itself to provide
such benefits, subject to the terms of such plan, fund or program, including any
reservation of rights to amend or otherwise modify such plan, fund or program.
For a discussion of the Company's retirement plans and
pension plans, reference is made to Note 14 "Employee Equity Programs, Directors
Compensation and 401(K) Plans" to Item 8 "Financial Statements" and to Item 10
"Directors and Executive Officers of the Registrant" in the Annual Report on
Form 10-K annexed as Exhibit B to this Disclosure Statement.
6. REJECTION OF CERTAIN PUT AND CALL AGREEMENTS
Pursuant to the Plan, the Put and Call Agreements
between (i) CHI and SES Partners, L.P. I and (ii) CHI and SES Partners, L.P. II,
are treated as executory contracts and, pursuant to sections 365(a) and
1123(b)(2) of the Bankruptcy Code, are rejected as of the Effective Date.
G. IMPLEMENTATION OF THE PLAN
1. CANCELLATION OF CERTAIN SECURITIES
On the Effective Date, (i) all Old Common Stock then
issued and outstanding or held in CHI's treasury and (ii) if Class 8 votes to
reject the Plan, all Series G Preferred Stock, will be cancelled and
extinguished, and no consideration will be paid or delivered with respect
thereto, in all events without any action on the part of CHI, Reorganized CHI or
any other entity. The share certificates or any other instruments evidencing any
Old Common Stock Equity Interest or Series G Stock Equity Interest, if Class 8
votes to reject the Plan, will be deemed cancelled without further action under
any applicable agreement, law, regulation, order or rule and the obligations of
CHI under any agreement or certificate of designation governing such Equity
Interests will be discharged.
2. ISSUANCE OR RESERVATION OF NEW SECURITIES
a. NEW COMMON STOCK. The issuance of 10,000,000
shares of New Common Stock as follows by
Reorganized CHI is authorized without
further act or action under applicable law,
regulation, order or rule:
37
<PAGE>
(1) 9,085,517 shares of New Class A Common
Stock to be issued to substantially
all of the holders of the Senior
Discount Notes; and
(2) 914,483 shares of New Class B
Common Stock to be issued to a
holder of the Senior Discount
Notes.
b. NEW COMMON STOCK ISSUABLE PURSUANT TO NEW
WARRANTS AND MANAGEMENT OPTIONS. 2,147,938
shares of New Common Stock issuable pursuant
to the New Series B Warrant Agreement, New
Series C Warrant Agreement and Management
Option Plan, as applicable, are reserved for
issuance by Reorganized CHI without further
act or action under applicable law,
regulation, order or rule and reserved as
follows:
(1) 810,811 shares of New Common Stock,
to be reserved for the New Series B
Warrants;
(2) 526,316 shares of New Common Stock to
be reserved for the New Series C
Warrants; and
(3) 810,811 shares of New Class A Common
Stock to be reserved
for Management Options.
c. NEW WARRANTS AND MANAGEMENT OPTIONS. The
issuance of New Series B Warrants, New
Series C Warrants and Management Options as
follows by Reorganized CHI is authorized
without further act or action under
applicable law, regulation, order or rule:
(1) 810,811 New Series B Warrants;
(2) 526,316 New Series C Warrants; and
(3) 810,811 Management Options.
In addition to providing for the issuance of the New
Common Stock, the restated certificate of incorporation of Reorganized CHI will
authorize 10 million shares of preferred stock, par value $0.01. After the
Effective Date, the Board of Directors of Reorganized CHI may authorize the
issuance of one or more series of such preferred stock for such corporate
purposes as the Board of Directors of Reorganized CHI may deem appropriate, and
fix the voting powers, designations, preferences, and other rights to the full
extent permitted by law.
38
<PAGE>
3. REGISTRATION RIGHTS
Each person or entity receiving a distribution of New
Common Stock, New Warrants or New Common Stock issued upon the exercise of the
New Warrants or the Management Options pursuant to the Plan, will be entitled to
become a party to the Registration Rights Agreement. For a more detailed
discussion of the Registration Rights, see Section XI.C, below, entitled
"SECURITIES LAW MATTERS -- Registration Rights; Listing."
4. EFFECTUATING DOCUMENTS AND FURTHER TRANSACTIONS
CHI or Reorganized CHI is authorized to execute,
deliver, file or record such contracts, instruments, releases, indentures and
other agreements or documents and take such actions as may be necessary or
appropriate to effectuate and further evidence the terms and conditions of the
Plan and any notes or securities issued pursuant to the Plan.
5. CORPORATE ACTION
On the Effective Date, all matters provided for under
the Plan that would otherwise require approval of the shareholders or directors
of CHI or Reorganized CHI, including, without limitation, the issuance of New
Common Stock, the New Warrants and the Management Options, the effectiveness of
the Restated CHI Certificate of Incorporation and the Amended CHI By-laws, the
election or appointment, as the case may be, of directors and officers of
Reorganized CHI pursuant to the Plan and the authorization and approval of the
Management Option Plan, the Registration Rights Agreement, the Stockholders'
Agreement and the Employment Agreements will be deemed to have occurred and will
be in effect from and after the Effective Date pursuant to the applicable
general corporation law of the state of Delaware, without any requirement of
further action by the shareholders or directors of CHI or Reorganized CHI. On
the Effective Date or as soon thereafter as is practicable, Reorganized CHI
will, if required, file its Restated CHI Certificate of Incorporation with the
Secretary of State of Delaware, in accordance with the applicable general
corporation law of the state of Delaware. As of the Effective Date, CHI will
change its corporate name from "Consolidated Hydro, Inc." to "CHI Energy, Inc."
H. METHOD OF DISTRIBUTIONS UNDER THE PLAN
1. DATE AND DELIVERY OF DISTRIBUTIONS
Except as otherwise ordered by the Bankruptcy Court or
provided in the Plan, distributions to be made on a specified date will be
deemed to have been made on that date if actually made on the later of that date
or the date on which such Administrative Expense Claim, Claim or Equity Interest
is Allowed, or as soon thereafter as practicable.
39
<PAGE>
Cash payments to be made by Reorganized CHI will, at
Reorganized CHI's option, be made by check drawn on a domestic bank or by wire
transfer from a domestic bank.
Subject to Bankruptcy Rule 9010, all distributions will
be made to the addresses set forth on the Schedules unless superseded by the
proofs of claims or equity interests filed by such holders (or at the last known
addresses of such holders if no proof of claim or equity interest is filed or if
CHI has been notified in writing of a change of address).
No payment of Cash less than one hundred dollars
($100.00) will be made by Reorganized CHI to any holder of a Claim unless a
request therefor is made in writing to Reorganized CHI. Any Claim in respect of
unclaimed property distributable under the Plan must be made before the first
anniversary of the Effective Date. After such date, all Claims in respect of
such unclaimed property will, pursuant to section 347(b) of the Bankruptcy Code,
be discharged and forever barred from assertion against Reorganized CHI and its
property.
2. NO FRACTIONAL SHARES
No fractional shares of New Common Stock or fractional
New Warrants or Cash in lieu thereof will be distributed under the Plan. When
any distribution on account of an Allowed Claim or Allowed Equity Interest
pursuant to the Plan would otherwise result in the issuance of a number of
shares of New Common Stock or New Warrants that is not a whole number, the
actual distribution of shares of New Common Stock or New Warrants will be
rounded as follows: (i) fractions of 1/2 or greater will be rounded to the next
higher whole number and (ii) fractions of less than 1/2 will be rounded to the
next lower whole number. The total number of shares of New Common Stock or New
Warrants to be distributed to a Class of Claims or Equity Interests, as the case
may be, will be adjusted as necessary to account for the rounding provided in
Section 5.1(e) of the Plan.
3. DISTRIBUTIONS TO HOLDERS AS OF THE DISTRIBUTION RECORD DATE
As at the close of business on the Distribution Record
Date, the claims register (for Claims) and the transfer ledgers (for Old
Preferred Stock) will be closed, and there will be no further changes in the
record holders of any Claims or Old Preferred Stock. CHI and Reorganized CHI
will have no obligation to recognize any transfer of any Claims or Old Preferred
Stock occurring after the Distribution Record Date. CHI and Reorganized CHI will
instead be entitled to recognize and deal for all purposes under the Plan with
only those record holders stated on the claims register (for Claims) and
transfer ledgers (for Old Preferred Stock) as of the close of business on the
Distribution Record Date.
40
<PAGE>
4. SURRENDER OF EXISTING SECURITIES AND AGREEMENTS
Each holder of a share certificate, bond or other
instrument evidencing a Claim or Old Preferred Stock shall surrender such share
certificate, bond or similar instrument to Reorganized CHI, unless such
requirement is waived by Reorganized CHI. No distribution of property hereunder
will be made to or on behalf of any such holders unless and until such share
certificate, bond or similar instrument is received by Reorganized CHI or the
unavailability of such share certificate, bond or similar instrument is
established to the reasonable satisfaction of Reorganized CHI or such
requirement is waived by Reorganized CHI. Reorganized CHI may require any holder
that is unable to surrender or cause to be surrendered any such share
certificates, bonds or similar instruments to deliver an affidavit of loss and
indemnity and/or furnish a bond in form and substance (including, without
limitation, with respect to amount) reasonably satisfactory to Reorganized CHI.
Any holder that fails within the later of one year after the Confirmation Date
and the date of Allowance of its Claim or Old Preferred Stock Equity Interest
(i) if possible, to surrender or cause to be surrendered such share certificate,
bond or instrument, (ii) if requested, to execute and deliver an affidavit of
loss and indemnity reasonably satisfactory to Reorganized CHI and (iii) if
requested, to furnish a bond reasonably satisfactory to Reorganized CHI, will be
deemed to have forfeited all rights, claims and causes of action against CHI and
Reorganized CHI and will not participate in any distribution hereunder.
5. HART-SCOTT-RODINO ACT FILING REQUIREMENTS
The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), requires the parties to certain business
combination, acquisition, and/or change- in-control related transactions to
provide the United States Federal Trade Commission and Antitrust Division of the
Department of Justice with certain information about the business of the parties
involved and the proposed transaction. Any entity which will receive a
distribution of New Common Stock under the Plan that satisfies the tests
outlined below may be required, prior to the receipt of such shares, to file a
Premerger Notification and report pursuant to the HSR Act. In general, in the
absence of an available exemption, if (i) an entity entitled to a distribution
of New Common Stock under the Plan would own, at the Effective Date, New Common
Stock that exceeds $15 million in value (i.e., the statutory size of transaction
threshold), and (ii) certain jurisdictional tests are satisfied relating to the
amount of sales or assets (i.e., the size) of the acquiring person, the HSR Act
would require that such entity file a Premerger Notification and Report Form and
delay completion of the acquisition of New Common Stock pursuant to the Plan
until the expiration of the applicable waiting periods under the HSR Act. The
staff of the Premerger Notification Office of the Federal Trade Commission has
taken the position that the "debt workout" exemption to the HSR Act, codified at
16 C.F.R. ss. 802.63(a), is not available to entities who desire to exchange
debt claims for voting securities of an issuer if such entities acquired the
debt claims after the issuer has filed for bankruptcy or after it otherwise
becomes virtually certain that the debt of the issuer would be converted into
voting securities. Accordingly, such
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exemption would not apply to such entities and such entities may be required to
observe the notification and waiting period requirements of the HSR Act. If such
waiting periods have not expired or been terminated as of the Effective Date,
Reorganized CHI may retain, or be required to deliver such entities' shares of
New Common Stock into an escrow account, pending the expiration or termination
of such waiting period. Holders of the Senior Discount Notes are urged to
consult with their legal counsel to determine whether the requirements of the
HSR Act will apply to the distribution to such entities of shares of New Common
Stock under the Plan.
6. WAIVER OF ENFORCEMENT OF PRIORITY
Generally, the Plan does not take into account relative
priority of the Equity Interests in Classes 7, 8 and 9 as set forth in the
Restated Certificate of Incorporation of Consolidated Hydro, Inc. and any
subordination provisions relating thereto. Pursuant to the Plan and if Class 8
votes to accept the Plan, (i) on the Effective Date, (a) all holders of Class 7
Equity Interests will be deemed to have waived any and all priority and
subordination rights that they may have with respect to distributions to holders
of Class 8 Equity Interests and Class 9 Equity Interests pursuant to the Plan,
and (b) all holders of Class 8 Equity Interests will be deemed to have waived
any and all priority and subordination rights that they may have with respect to
distributions to holders of Class 9 Equity Interests; and (ii) the confirmation
of the Plan will permanently enjoin, effective as of the Effective Date, (x) all
holders of Class 7 Equity Interests from enforcing or attempting to enforce any
such rights with respect to the distributions under the Plan to the holders of
Class 8 Equity Interests and Class 9 Equity Interests, and (y) all holders of
Class 8 Equity Interests from enforcing or attempting to enforce any such rights
with respect to the distributions under the Plan to the holders of Class 9
Equity Interests. Notwithstanding the foregoing provision, if Class 8 votes to
reject the Plan, such provision will not apply, and will be of no effect, to the
holders of Class 8 Equity Interests.
I. PROCEDURES FOR TREATING DISPUTED CLAIMS AND EQUITY INTERESTS
Unless otherwise ordered by the Bankruptcy Court after
notice and hearing, CHI or Reorganized CHI will have the exclusive right (except
as to applications for allowances of compensation and reimbursement of expenses
under sections 330 and 503 of the Bankruptcy Code) to make and file objections
to proofs of Administrative Expense Claims, Claims, and Equity Interests. CHI or
Reorganized CHI shall serve a copy of each objection upon the holder of the
Administrative Expense Claim, Claim, or Equity Interest to which the objection
is made as soon as practicable, but in no event later than thirty (30) days
after the Effective Date.
Notwithstanding any other provision of the Plan, if any
portion of a Claim or Equity Interest is Disputed, no payment or distribution
provided under the Plan will be made
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on account of any of such Claim or Equity Interest, unless and until such
Disputed Claim or Disputed Equity Interest becomes Allowed.
Payments and distributions to each holder of a Claim or
Equity Interest that is Disputed, or is not Allowed, to the extent that such
Claim or Equity Interest ultimately becomes Allowed, will be made in accordance
with the provisions of the Plan governing the class of Claims or Equity
Interests in which such Claim or Equity Interest is classified. As soon as
practicable after the date that the order or judgment of the Bankruptcy Court
Allowing any Disputed Claim or Disputed Equity Interest, or any other Claim or
Equity Interest that was not previously Allowed becomes a Final Order,
Reorganized CHI will distribute to the holder of such Claim or Equity Interest
any payment or property that would have been distributed to such holder if the
Claim or Equity Interest had been Allowed as of the Effective Date, without any
interest on such payment or property.
J. OTHER PLAN PROVISIONS
1. EXCULPATION
None of CHI, Reorganized CHI, the members of any
official committee of unsecured creditors appointed in the Chapter 11 Case, the
Unofficial Bondholders' Committee, Morgan Stanley, and their respective members,
officers, directors, employees, attorneys, advisors, agents, general partners,
partners of any of the foregoing, or consultants who provide management
personnel or who serve as members of management of CHI, shall have or incur any
liability to any holder of an Administrative Expense Claim, Claim or Equity
Interest for any act or omission in connection with, or arising out of, the
formulation and negotiation of the Plan, the pursuit of confirmation of the
Plan, the consummation of the Plan, or the administration of the Plan or the
property to be distributed under the Plan, except for willful misconduct or
gross negligence, and, in all respects, CHI, Reorganized CHI, the members of any
official committee of unsecured creditors appointed in the chapter 11 case, the
Unofficial Bondholders' Committee, Morgan Stanley, and each of their respective
members, officers, directors, employees, attorneys, advisors, agents, general
partners, partners, and consultants who provide management personnel or who
serve as members of management of CHI, shall be entitled to rely upon the advice
of attorneys and other professional advisors with respect to their duties and
responsibilities under the Plan.
2. EXEMPTION FROM TRANSFER TAXES
Pursuant to section 1146(c) of the Bankruptcy Code, the
issuance, transfer, or exchange of notes or equity securities under the Plan,
the creation of any mortgage, deed of trust, or other security interest, the
making or assignment of any lease or sublease, or the making or delivery of any
deed or other instrument of transfer under, in furtherance of, or in connection
with, the Plan, including any merger agreements or agreements of consolidation,
deeds, bills of sale, or assignments executed in connection with any of the
transactions
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contemplated under the Plan shall not be subject to any stamp, real estate
transfer, mortgage recording, or other similar tax.
3. LIMITED RELEASES
a. RELEASEES. All present and former officers
and directors of CHI and any other persons who serve or served as members of
management of CHI, all members of the Unofficial Bondholders' Committee, all
present and former officers, directors and other persons who serve or served as
members of the management of any member of such committee, and all advisors or
consultants of, or to, CHI and the Unofficial Bondholders' Committee.
b. LIMITED RELEASES OF RELEASEES AND OTHER PARTIES.
Except as otherwise provided in the Plan, as of the Effective Date, each of CHI,
the Debtor in Possession and each holder of a Claim against, or Equity Interest
in, CHI or the Debtor in Possession releases all Releasees, the lenders under
the DnB Facility, the holders of the Senior Discount Notes, the holders of the
Old Preferred Stock and the holders of the Old Common Stock, from claims,
obligations, rights, causes of action and liabilities held by CHI, the Debtor in
Possession or such holder against such individuals and entities, whether known
or unknown, existing or hereafter arising, based in whole or in part upon any
act or omission or other event occurring prior to the Commencement Date or
during the course of the Chapter 11 Case, including through the Effective Date,
in any way relating to CHI, the Debtor in Possession, the Chapter 11 Case, the
Plan, the DnB Facility Agreement, the Senior Discount Notes, the Old Preferred
Stock and the Old Common Stock, and the ownership, management and operation of
CHI.
c. LIMITED RELEASE BY RELEASEES AND OTHER PARTIES.
Except as otherwise provided in the Plan, as of the Effective Date, each of the
Releasees, the lenders under the DnB Facility, the holders of the Senior
Discount Notes, the holders of the Old Preferred Stock and the holders of the
Old Common Stock, releases each of CHI, the Debtor in Possession, and each
holder of a Claim against or Equity Interest in CHI or the Debtor in Possession,
in each case in any capacity, from claims, obligations, rights, causes of action
and liabilities held by such Releasee, the lenders under the DnB Facility, the
holders of the Senior Discount Notes, the holders of the Old Preferred Stock and
the holders of the Old Common Stock against CHI, the Debtor in Possession or any
such Releasee or holder, whether known or unknown, existing or hereafter
arising, based in whole or in part upon any act or omission or other event
occurring prior to the Commencement Date or during the course of the Chapter 11
Case, including through the Effective Date, in any way relating to CHI, the
Debtor in Possession, the Chapter 11 Case, the Plan, the DnB Facility Agreement,
the Senior Discount Notes, the Old Preferred Stock and the Old Common Stock, and
the ownership, management and operation of CHI.
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d. BINDING EFFECT OF RELEASES. On the Effective
Date, each Releasee and each holder of a Claim and each holder of an Equity
Interest will be deemed to have agreed to the provisions of Section 8.1 and 8.2
of the Plan, and will be bound thereby for all purposes whatsoever.
4. DISSOLUTION OF COMMITTEE
Any statutory committee(s) appointed in CHI's chapter
11 case will be dissolved on the Effective Date.
5. COMPLIANCE WITH TAX REQUIREMENTS
CHI and Reorganized CHI will comply with all withholding
and reporting requirements imposed by any taxing authority of appropriate
jurisdiction, and all distributions hereunder will be subject to such
requirements.
6. VESTING AND LIENS
On the Effective Date, Reorganized CHI will be vested
with the assets of CHI, free and clear of all Claims, liens, security interests,
and Equity Interests, subject only to outstanding Claims, liens, and security
interests that are authorized under the Plan. On the Effective Date, all liens
against, and security interests in, any assets and properties of CHI, except to
the limited extent provided in the Plan, will be extinguished.
7. DISCHARGE OF CHI
The rights afforded in the Plan and the treatment of all
Claims and Equity Interests in the Plan will be in exchange for and in complete
satisfaction, discharge and release of Claims and Equity Interests of any nature
whatsoever, including any interest accrued on such Claims from and after the
Commencement Date, against CHI and the Debtor in Possession, or any of its
assets or properties. Except as otherwise provided herein, (i) on the Effective
Date, all such Claims against, and Equity Interests in, CHI will be satisfied,
discharged and released in full, and (ii) all persons will be precluded from
asserting against Reorganized CHI or its assets or properties any other or
further Claims or Equity Interests based upon any act or omission, transaction
or other activity of any kind or nature that occurred prior to the Confirmation
Date.
8. PERMANENT INJUNCTION
Except as otherwise expressly provided in the Plan or
the Confirmation Order, all entities who have held, hold or may hold Claims
against, or Equity Interests in, CHI will be permanently enjoined, on and after
the Effective Date, from (i) commencing or continuing in any manner any action
or other proceeding of any kind with respect to any such Claim or
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Equity Interest, (ii) the enforcement, attachment, collection or recovery by any
manner or means of any judgment, award, decree or order against CHI on account
of any such Claim or Equity Interest, (iii) creating, perfecting or enforcing
any encumbrance of any kind against CHI or against the property or interests in
property of CHI on account of any such Claim or Equity Interest and (iv)
asserting any right of setoff, subrogation or recoupment of any kind against any
obligation due from CHI or against the property or interests in property of CHI
on account of any such Claim or Equity Interest. Such injunction will extend to
successors of CHI (including, without limitation, Reorganized CHI) and its
respective properties and interests in property.
9. RETENTION OF JURISDICTION
The Bankruptcy Court will retain jurisdiction over CHI's
chapter 11 case for, among other things, the purpose of determining all disputes
relating to Claims, Equity Interests, and other issues presented by or arising
under the interpretation, implementation, or enforcement of the Plan, and to
determine matters pending on the Effective Date.
10. AMENDMENT OR MODIFICATION OF THE PLAN
CHI may alter, amend, or modify the treatment of Claims
or Equity Interests provided for under the Plan to the extent provided in the
Bankruptcy Code, or as agreed or consented to by the holders of such Claims or
Equity Interests.
A holder of a Claim or Equity Interest that has accepted
the Plan will be deemed to have accepted the Plan as modified if the proposed
modification does not adversely change the treatment of such claim or equity
interest.
CHI reserves the right to revoke and withdraw the Plan
at any time prior to entry of the order confirming the Plan, in which event it
will be deemed null and void in all respects.
11. VOTES SOLICITED IN GOOD FAITH
The Plan provides that upon entry of the Confirmation
Order, CHI will be deemed to have solicited votes on the Plan in good faith and
in compliance with the Bankruptcy Code, and, pursuant to section 1125(e) of the
Bankruptcy Code, CHI, the members of the Unofficial Bondholders' Committee, and
each of their respective affiliates, agents, officers, directors, employees,
advisors, and attorneys will be deemed to have participated in good faith and in
compliance with the Bankruptcy Code in the offer, issuance, sale, and purchase
of securities offered and sold under the Plan, and therefore, will have no
liability for the violation of any applicable law, rule, or regulation governing
the solicitation of votes on the Plan or the offer, issuance, sale or purchase
of the securities offered and sold under the Plan.
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VII.
VOTING PROCEDURES AND REQUIREMENTS
----------------------------------
A. VOTING DEADLINE
---------------
IT IS IMPORTANT THAT THE HOLDERS OF CLAIMS IN CLASS 3,
AND THE HOLDERS OF EQUITY INTERESTS IN CLASSES 7, 8 AND 9 EXERCISE THEIR RIGHT
TO VOTE TO ACCEPT OR REJECT THE PLAN. All known holders of
Claims and Equity Interests entitled to vote on the Plan have been sent a Ballot
together with this Disclosure Statement. Such holders should read the Ballot
carefully and follow the instructions contained therein. Please use only the
Ballot that accompanies this Disclosure Statement.
CHI has engaged The Altman Group, Inc. as its Voting
Agent to assist in the transmission of voting materials and in the tabulation of
votes with respect to the Plan. FOR YOUR VOTE TO COUNT, YOUR BALLOT MUST BE
RECEIVED AT THE FOLLOWING ADDRESS NO LATER THAN THE VOTING DEADLINE OF 5:00
P.M., EASTERN TIME, ON SEPTEMBER 9, 1997:
CONSOLIDATED HYDRO, INC.
C/O THE ALTMAN GROUP, INC.
60 EAST 42ND STREET
NEW YORK, NEW YORK 10165
(212) 681-9600
IF YOU MUST RETURN YOUR BALLOT TO YOUR BROKER, OR
THE AGENT FOR YOUR BROKER, YOU MUST RETURN YOUR BALLOT TO
THEM IN SUFFICIENT TIME FOR THEM TO PROCESS IT AND RETURN IT TO
THE ABOVE-ADDRESS BY THE VOTING DEADLINE.
IF A BALLOT IS DAMAGED OR LOST, YOU MAY CONTACT CHI'S
VOTING AGENT, THE ALTMAN GROUP, INC., TO REQUEST A REPLACEMENT BALLOT. ANY
BALLOT WHICH IS EXECUTED AND RETURNED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE
OR REJECTION OF THE PLAN WILL BE DEEMED AN ACCEPTANCE OF THE PLAN. IF YOU HAVE
ANY QUESTIONS CONCERNING VOTING PROCEDURES, YOU MAY CONTACT THE VOTING AGENT AT
THE ADDRESS SPECIFIED ABOVE OR BY TELEPHONING: (212) 681- 9600.
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Additional copies of this Disclosure Statement are
available upon request made to the Voting Agent:
The Altman Group, Inc.
60 East 42nd Street
New York, New York 10165
(212) 681-9600
B. HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE
-------------------------------------------------------
The Claims and Equity Interests in the following Classes
are impaired under the Plan and entitled to receive a distribution;
consequently, each holder of such claim or equity interest, as of the AUGUST 8,
1997 VOTING RECORD DATE established by CHI for purposes of this solicitation,
may vote to accept or reject the Plan:
Class 3 -- Senior Discount Note Claims
Class 7 -- Series F Equity Interests
Class 8 -- Series H Equity Interests
Class 9 -- Series G Equity Interests
Each holder of a Claim in Class 3 should vote the face
amount of the Senior Discount Notes it holds. Notwithstanding the use of the
face amount of the Senior Discount Notes for voting purposes, for allowance
purposes, only the accreted value of the Notes, as of the Commencement Date,
will be Allowed. Pursuant to section 502(b)(2) of the Bankruptcy Code, any Claim
for unmatured interest will not be Allowed.
C. VOTE REQUIRED FOR ACCEPTANCE BY A CLASS
---------------------------------------
The Bankruptcy Code defines acceptance of a plan by a
class of claims as acceptance by holders of at least two-thirds in dollar amount
and more than one-half in number of the claims of that class which cast ballots
for acceptance or rejection of the plan. Thus, acceptance by a class of claims
occurs only if at least two-thirds in dollar amount and a majority in number of
the holders of claims voting cast their Ballots in favor of the Plan.
The Bankruptcy Code defines acceptance of a plan by a
class of equity interests as acceptance by holders of at least two-thirds in
amount of interests of that class which cast ballots for acceptance or rejection
of the plan. Thus, acceptance by a class of equity interests occurs only if the
holders of at least two-thirds in amount of equity interests voting cast their
Ballots in favor of the Plan.
A vote may be disregarded if the Bankruptcy Court
determines, after notice and a hearing, that such acceptance or rejection was
not solicited or procured in good faith or in accordance with the provisions of
the Bankruptcy Code.
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D. VOTING PROCEDURES
-----------------
CHI is providing copies of this Disclosure Statement,
Ballots, and where appropriate, Master Ballots, to all registered holders (AS OF
THE AUGUST 8, 1997 VOTING RECORD DATE) of Senior Discount Note Claims in Class
3, Series F Equity Interests in Class 7, Series H Equity Interests in Class 8
and Series G Preferred Equity Interests in Class 9. Registered holders may
include brokers, banks and other nominees. If such registered holders do not
hold for their own accounts, they or their agents (collectively with such
registered holders, "Nominees") should provide copies of this Disclosure
Statement and appropriate Ballots to their customers and to beneficial owners.
Any beneficial owner who has not received a Ballot should contact his or her
Nominee, or the Voting Agent.
1. HOLDERS OF CLAIMS IN CLASS 3 AND EQUITY INTERESTS IN CLASSES
7, 8 AND 9
a. BENEFICIAL OWNERS
Any beneficial owner, as of the Voting Record Date, of
Senior Discount Notes, Series F Preferred Stock, Series G Preferred Stock, or
Series H Preferred Stock in his, her, or its own name can vote by completing and
signing the enclosed Ballot and returning it directly to the Voting Agent (using
the enclosed pre-addressed postage-paid envelope) so as to be received by the
Voting Agent before the Voting Deadline. If no envelope was enclosed, contact
the Voting Agent for instructions.
Any beneficial owner holding, as of the Voting Record
Date, Senior Discount Notes, Series F Preferred Stock, Series G Preferred Stock,
or Series H Preferred Stock in "street name" through a Nominee can vote by
completing and signing the Ballot (unless the Ballot has already been signed, or
"prevalidated," by the Nominee), and returning it to the Nominee in sufficient
time for the Nominee to then forward the vote so as to be received by the Voting
Agent before the Voting Deadline of 5:00 p.m. (Eastern Time) on September 9,
1997. Any Ballot submitted to a Nominee will not be counted until such Nominee
properly completes and timely delivers a corresponding Master Ballot to the
Voting Agent. IF YOUR BALLOT HAS ALREADY BEEN SIGNED (OR "PREVALIDATED") BY YOUR
NOMINEE, YOU MUST RETURN THE BALLOT DIRECTLY TO THE VOTING AGENT SO THAT IT IS
RECEIVED BY THE VOTING AGENT BEFORE THE VOTING DEADLINE.
b. NOMINEES.
A Nominee which, on the Voting Record Date, is the
registered holder of Senior Discount Notes, Series F Preferred Stock, Series G
Preferred Stock, or Series H Preferred Stock for a beneficial owner, can obtain
the votes of the beneficial owners of such securities, consistent with customary
practices for obtaining the votes of securities held in "street name," in one of
the following two ways:
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The Nominee may "prevalidate" a Ballot by (i) signing
the Ballot, (ii) indicating on the Ballot the name of the registered
holder, the amount of securities held by the Nominee for the
beneficial owner, and the numbers of the accounts in which such
securities are held by the Nominee, and (iii) forwarding such
Ballot, together with the Disclosure Statement, return envelope, and
other materials requested to be forwarded, to the beneficial owner
for voting. The beneficial owner must then complete the information
requested in Item 3 of the Ballot, if appropriate, and return the
Ballot directly to the Voting Agent in the pre-addressed,
postage-paid envelope so that it is received by the Voting Agent
before the Voting Deadline. A list of the beneficial owners to whom
"prevalidated" Ballots were delivered should be maintained by the
Nominee for inspection for at least one year from the Voting
Deadline.
OR
If the Nominee elects not to prevalidate Ballots, the
Nominee may obtain the votes of beneficial owners by forwarding to
the beneficial owners the unsigned Ballots, together with the
Disclosure Statement, a return envelope provided by, and addressed
to, the Nominee, and other materials requested to be forwarded. Each
such beneficial owner must then indicate his or her vote on the
Ballot, complete the information requested in Item 3 of the Ballot,
if appropriate, EXECUTE the Ballot, and return the Ballot to the
Nominee. After collecting the Ballots, the Nominee should, in turn,
complete a Master Ballot compiling the votes and other information
from the Ballots, execute the Master Ballot, and deliver the Master
Ballot to the Voting Agent so that it is received by the Voting
Agent before the Voting Deadline. All Ballots returned by beneficial
owners should be retained by Nominees for inspection for at least
one year from the Voting Deadline. PLEASE NOTE: The Nominee should
advise the beneficial owner to return his or her ballot to the
Nominee by a date calculated by the Nominee to allow it to prepare
and return the Master Ballot to the Voting Agent so that it is
received by the Voting Agent before the Voting Deadline.
c. SECURITIES CLEARING AGENCIES.
CHI expects that each of The Depository Trust Company
and the Philadelphia Depository Trust Company, as the nominee holder of Senior
Discount Notes, Series F Preferred Stock, Series G Preferred Stock, or Series H
Preferred Stock will arrange for its respective participants to vote by
executing an omnibus proxy in favor of such participants. As a result of the
omnibus proxy, such participant will be authorized to vote its Voting Record
Date positions held in the name of such securities clearing agencies.
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d. OTHER.
If a Ballot is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations, or
others acting in a fiduciary or representative capacity, such persons should
indicate such capacity when signing, and unless otherwise determined by CHI,
must submit proper evidence satisfactory to CHI of their authority to so act.
For purposes of voting to accept or reject the Plan, the
beneficial owners of such securities will be deemed to be the "holders" of such
claims or equity interests, as the case may be, represented by such securities.
Unless otherwise ordered by the Bankruptcy Court, Ballots or Master Ballots
which are signed, dated, and timely received, but on which a vote to accept or
reject the Plan has not been indicated, will be deemed to be votes accepting the
Plan. In the event that any Ballots or Master Ballots are received which are not
properly executed, CHI, in its discretion, may request that the Voting Agent
attempt to contact such holders or Nominees to cure any such defects in their
Ballots or Master Ballots.
Except as provided below, unless the Ballot or Master
Ballot being furnished is timely submitted to the Voting Agent before the Voting
Deadline together with any other documents required by such Ballot or Master
Ballot, CHI may, in its sole discretion, reject such Ballot or Master Ballot as
invalid, and therefore, decline to utilize it in connection with seeking
confirmation of the Plan by the Bankruptcy Court.
In the event of a dispute with respect to a Claim or
Equity Interest, any vote to accept or reject the Plan cast with respect to such
claim or equity interest will not be counted for purposes of determining whether
the Plan has been accepted or rejected, unless the Bankruptcy Court orders
otherwise.
CHI IS NOT AT THIS TIME REQUESTING THE DELIVERY OF, AND
NEITHER CHI NOR THE VOTING AGENT WILL ACCEPT, CERTIFICATES REPRESENTING ANY
NOTES OR EQUITY SECURITIES. PRIOR TO THE EFFECTIVE DATE, CHI WILL FURNISH ALL
SUCH HOLDERS WITH APPROPRIATE LETTERS OF TRANSMITTAL TO BE USED TO REMIT SUCH
SECURITIES IN EXCHANGE FOR THE DISTRIBUTION UNDER THE PLAN. INFORMATION
REGARDING SUCH REMITTANCE PROCEDURE (TOGETHER WITH ALL APPROPRIATE MATERIALS)
WILL BE DISTRIBUTED BY CHI AFTER THE COMMENCEMENT DATE.
2. WITHDRAWAL OF BALLOT OR MASTER BALLOT
Any holder of a Claim or Equity Interest entitled to
vote who has delivered a valid Ballot or Master Ballot may withdraw its vote by
delivering a written notice of withdrawal to the Voting Agent before the Voting
Deadline. To be valid, the notice of withdrawal must (a) describe the Claim or
Equity Interest to which it relates, (b) be signed by the party who signed the
Ballot or Master Ballot to be revoked, and (c) be received by the
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Voting Agent prior to the Voting Deadline. CHI may contest the validity of any
withdrawals.
Any holder who has delivered a valid Ballot or Master
Ballot may change its vote by delivering to the Voting Agent a properly
completed subsequent Ballot or Master Ballot so as to be received before the
Voting Deadline. In the case where more than one timely, properly completed
Ballot or Master Ballot is received, only the Ballot or Master Ballot that bears
the latest date will be counted.
VIII.
CONFIRMATION OF THE PLAN
------------------------
A. CONFIRMATION HEARING
Section 1128(a) of the Bankruptcy Code requires the
Bankruptcy Court, after notice, to hold a hearing on confirmation of a plan. As
promptly as practicable after the commencement by CHI of its Chapter 11 Case,
CHI will request the Bankruptcy Court to schedule the Confirmation Hearing.
Notice of the Confirmation Hearing will be provided to all creditors and equity
holders or their representatives. The Confirmation Hearing may be adjourned from
time to time by the Bankruptcy Court without further notice except for an
announcement of the adjourned date made at the Confirmation Hearing or any
subsequent adjourned Confirmation Hearing.
Section 1128(b) of the Bankruptcy Code provides that any
party in interest may object to confirmation of a plan. Any objection to
confirmation of the Plan must be in writing, must conform to the Bankruptcy
Rules, must set forth the name of the objectant, the nature and amount of Claims
or Equity Interests held or asserted by the objectant against CHI's estate or
property, the basis for the objection and the specific grounds therefor, and
must be filed with the Bankruptcy Court, with a copy to Chambers, together with
proof of service thereof, and served upon (i) Weil, Gotshal & Manges LLP,
Attorneys for CHI, 767 Fifth Avenue, New York, New York 10153, Attention: Lori
R. Fife, Esq. and Larren M. Nashelsky, Esq., (ii) Richards, Layton & Finger,
Attorneys for CHI, One Rodney Square, Wilmington, Delaware 19899, Attention:
Thomas L. Ambro, Esq., (iii) United States Department of Justice, Office of the
United States Trustee, Eastern District of Pennsylvania, District of Delaware,
601 Walnut Street, Curtis Center, Suite 950 West, Philadelphia, Pennsylvania
19106, Attention: Assistant United States Trustee, and (iv) Wachtell, Lipton,
Rosen & Katz, Attorneys for the Unofficial Bondholders' Committee, 51 West 52nd
Street, New York, New York 10019, Attention: Chaim J. Fortgang, Esq., so as to
be received no later than the date and time designated in the notice of the
Confirmation Hearing.
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Objections to confirmation of the Plan are governed by
Bankruptcy Rule 9014. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND
FILED, IT MAY NOT BE CONSIDERED BY THE BANKRUPTCY COURT.
B. REQUIREMENTS FOR CONFIRMATION OF THE PLAN
1. STATUTORY REQUIREMENTS
At the Confirmation Hearing, the Bankruptcy Court will
determine whether the following confirmation requirements specified in section
1129 of the Bankruptcy Code have been satisfied:
o The Plan complies with the
applicable provisions of the Bankruptcy Code.
o CHI has complied with the
applicable provisions of the Bankruptcy Code.
o The Plan has been proposed
in good faith and not by any means proscribed by law.
o Any payment made or promised
by CHI or by a person
issuing securities or acquiring property under the Plan
for services or for costs and expenses in, or in
connection with, the chapter 11 case, or in connection
with the Plan and incident to the chapter 11 case, has
been disclosed to the Bankruptcy Court, and any such
payment made before confirmation of the Plan is
reasonable, or if such payment is to be fixed after
confirmation of the Plan, such payment is subject to the
approval of the Bankruptcy Court as reasonable.
o CHI has disclosed the
identity and affiliations of any
individual proposed to serve, after confirmation of the
Plan, as a director, officer, or voting trustee of CHI,
or a successor to CHI under the Plan, and the
appointment to, or continuance in, such office of such
individual is consistent with the interests of creditors
and equity holders and with public policy, and CHI has
disclosed the identity of any insider that will be
employed or retained by CHI, and the nature of any
compensation for such insider.
o With respect to each Class
of Claims or Equity Interests,
each holder of an impaired Claim or impaired Equity
Interest either has accepted the Plan or will receive or
retain under the Plan on account of such holder's claim
or equity interest, property of a value, as of the
Effective Date of the Plan, that is not less than the
amount such holder would receive or
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<PAGE>
retain if CHI were liquidated on the Effective Date
under chapter 7 of the Bankruptcy Code. See discussion
of "Best Interests Test," below.
o Except to the extent the Plan
meets the "Nonconsensual Confirmation" standards
discussed below, each Class of Claims or Equity
Interests has either accepted the Plan or is not
impaired under the Plan.
o Except to the extent that the
holder of a particular claim has agreed to a different
treatment of such claim, the Plan provides that
Administrative Expenses and Other
Priority Claims will be paid in full on the Effective
Date and that Priority Tax Claims will be either paid in
full on the Effective Date or will receive on account of
such claims deferred cash payments, over a period not
exceeding six years after the date of assessment of such
claims, of a value, as of the Effective Date, equal to
the allowed amount of such claims.
o At least one Class of
impaired Claims has accepted the Plan, determined
without including any acceptance of the
Plan by any insider holding a Claim in such Class.
o Confirmation of the Plan is
not likely to be followed by the liquidation or the need
for further financial reorganization of CHI or any
successor to CHI under the Plan, unless such liquidation
or reorganization is proposed in the Plan. See
discussion of "Feasibility," below.
o All fees payable under
section 1930 of title 28 have been paid on or prior to
the Effective Date.
o The Plan provides for the
continuation after the Effective Date of payment of all
Retiree Benefits without modification by the Plan,
thereby complying with section 1114(e)(1) of the
Bankruptcy Code.
CHI believes that each of the foregoing elements will be
satisfied.
2. UNFAIR DISCRIMINATION AND FAIR AND EQUITABLE TESTS
Since the holders of the Old Common Stock are deemed to
reject the Plan, CHI is moving for confirmation of the Plan under section
1129(b) of the Bankruptcy Code as to Class 10. If Class 8 votes to reject the
Plan, CHI will also move for confirmation of the Plan under section 1129(b) of
the Bankruptcy Code as to Classes 8 and 9. To obtain such confirmation, it must
be demonstrated to the Bankruptcy Court that the Plan "does not discriminate
unfairly" and is "fair and equitable" with respect to each class that rejects
the Plan.
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<PAGE>
A plan of reorganization "does not discriminate
unfairly" if (i) the legal rights of a rejecting class are treated in a manner
that is consistent with the treatment of other classes whose legal rights are
related to the legal rights of the rejecting class, and (ii) no class receives
payments in excess of that which it is legally entitled to receive for its
Claims or Equity Interests. CHI believes that under the Plan all impaired
Classes of Claims and Equity Interests are treated in a manner that is
consistent with the treatment of other classes of Claims and Equity Interests to
which their legal rights are related, if any, and no Class of Claims or Equity
Interests will receive payments or property with an aggregate value greater than
the aggregate value of the Allowed Claims and Allowed Equity Interests in such
class. Accordingly, CHI believes that the Plan does not discriminate unfairly as
to any impaired Class of Claims or Equity Interests.
The Bankruptcy Code establishes different "fair and
equitable" tests for secured creditors, unsecured creditors and equity interest
holders as follows:
o Secured Creditors - Either (i) each impaired
secured creditor retains its liens securing its secured claim and it receives on
account of its secured claim deferred cash payments having a present value equal
to the amount of its allowed secured claim, (ii) each impaired secured creditor
realizes the indubitable equivalent of its allowed secured claim, or (iii) the
property securing the claim is sold free and clear of liens, with such liens to
attach to the proceeds and the treatment of such liens on proceeds as provided
in clause (i) or (ii) of this subparagraph.
o Unsecured Creditors - Either (i) each impaired
unsecured creditor receives or retains under the plan property of a value equal
to the amount of its allowed claim or (ii) the holders of claims and interests
that are junior to the claims of the dissenting class will not receive any
property under the plan of reorganization, subject to the applicability of the
judicial doctrine of contributing new value.
o Equity Interest Holders - Either (i) each equity
interest holder will receive or retain under the plan of reorganization property
of a value equal to the greater of (a) the fixed liquidation preference or
redemption price, if any, of such stock or (b) the value of the stock or (ii)
the holders of interests that are junior to the stock will not receive any
property under the plan of reorganization, subject to the applicability of the
judicial doctrine of contributing new value.
CHI believes that the Plan can be confirmed on a
non-consensual basis. CHI will show at the Confirmation Hearing that the Plan
provides recoveries to the holders of Allowed Claims and Allowed Equity
Interests that satisfy the conditions of section 1129(b) of the Bankruptcy Code.
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3. FEASIBILITY
The Bankruptcy Code conditions confirmation of a plan of
reorganization on, among other things, a finding that it is not likely to be
followed by the liquidation or the need for further financial reorganization of
a debtor. For purposes of determining whether the Plan satisfies this condition,
CHI has analyzed the capacity of Reorganized CHI to service its obligations
following the Effective Date. As part of this analysis, CHI has prepared
projections of their financial performance for each of the five fiscal years in
the period ending December 31, 2002 (the "Projection Period"). These
projections, and the significant assumptions on which they are based, are
included in Exhibit D to the Disclosure Statement, entitled "Projected Financial
Information." Based upon its analysis of such projections, CHI believes that
Reorganized CHI will be able to make all payments required to be made under the
Plan, and therefore, that confirmation of the Plan is not likely to be followed
by liquidation or the need for further reorganization. CHI further believes that
it will be able to repay or refinance any of the then-outstanding indebtedness
under the Plan at or prior to the maturity of such indebtedness.
The financial information and projections appended to
this Disclosure Statement include for the five fiscal years of the Projection
Period:
o Pro Forma Consolidated Balance Sheet of
Reorganized CHI as of December 31, 1997,
December 31, 1998, December 31, 1999,
December 31, 2000, December 31, 2001 and
December 31, 2002;
o Projected Consolidated Statement of
Operations of CHI for the 26 week period
ending December 31, 1997, including
confirmation adjustments, and Projected
Consolidated Statement of Operations of
Reorganized CHI for each of the five fiscal
years in the period ending December 31,
2002;
o Projected Consolidated Statement of Cash
Flows of CHI for the 26 week period ending
December 31, 1997, including confirmation
adjustments, and Projected Consolidated
Statement of Cash Flows of Reorganized CHI
for each of the five fiscal years in the
period ending December 31, 2002; and
THE PRO FORMA FINANCIAL INFORMATION AND THE PROJECTIONS
ARE BASED ON THE ASSUMPTION THAT THE PLAN WILL BE CONFIRMED BY THE BANKRUPTCY
COURT AND, FOR PROJECTION PURPOSES, THAT THE EFFECTIVE DATE UNDER THE PLAN AND
DISTRIBUTIONS THEREUNDER OCCUR ON OR ABOUT DECEMBER 31, 1997. CHI HAS PREPARED
THE PROJECTIONS BASED UPON CERTAIN ASSUMPTIONS THAT IT BELIEVES TO BE REASONABLE
UNDER THE CIRCUMSTANCES. THE PROJECTIONS HAVE NOT BEEN EXAMINED OR COMPILED BY
INDEPENDENT ACCOUNTANTS. CHI MAKES NO REPRESENTATION AS TO THE ACCURACY OF THE
PROJECTIONS OR THE ABILITY OF REORGANIZED CHI TO
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<PAGE>
ACHIEVE THE PROJECTED RESULTS. MANY OF THE ASSUMPTIONS ON WHICH THE PROJECTIONS
ARE BASED ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES. INEVITABLY, SOME ASSUMPTIONS
WILL NOT MATERIALIZE AND UNANTICIPATED EVENTS AND CIRCUMSTANCES MAY AFFECT THE
ACTUAL FINANCIAL RESULTS. THEREFORE, THE ACTUAL RESULTS ACHIEVED MAY VARY FROM
THE PROJECTED RESULTS AND THE VARIATIONS MAY BE MATERIAL. IT IS URGED THAT ALL
OF THE ASSUMPTIONS BE EXAMINED CAREFULLY IN EVALUATING THE PLAN.
4. BEST INTERESTS TEST
As described above, the Bankruptcy Code requires that
each holder of an impaired Claim or Equity Interest either (a) accepts the Plan
or (b) receives or retains under the Plan property of a value, as of the
Effective Date, that is not less than the value such holder would receive or
retain if CHI were liquidated under chapter 7 of the Bankruptcy Code on the
Effective Date.
The first step in meeting this test is to determine the
dollar amount that would be generated from the liquidation of CHI's assets and
properties, including limited partnership interests in the context of a chapter
7 liquidation case. In order to dispose of CHI's assets and properties in the
most time efficient and orderly process, the stock of the direct primary
subsidiaries of CHI would be sold with the project debt at those entities and
their subsidiaries or partnerships being assumed in the transaction(s). The
total cash available would be the sum of the proceeds of the disposition of the
stock of these direct primary subsidiaries and the net unrestricted cash held by
CHI at the time of the distribution of the proceeds in the chapter 7 case. The
next step is to reduce that total by the amount of any Claims secured by such
assets (excluding any obligations at the subsidiaries which were assumed in the
sale such as project financings, capital leases and leveraged leases), the costs
and expenses of the liquidation, and such additional administrative expenses and
priority claims that may result from the termination of CHI's business (i.e.
senior management severance expenses during the sale period) and the use of
chapter 7 for the purposes of liquidation. Next, any remaining Cash would be
allocated to creditors and preferred and common shareholders in strict priority
in accordance with section 726 of the Bankruptcy Code. Finally, the present
value of such allocation (taking into account the time necessary to accomplish
the liquidation) is compared to the value of the property that is proposed to be
distributed under the Plan on the Effective Date.
CHI's costs of liquidation under chapter 7 would include
the fees payable to a trustee in bankruptcy as well as those which might be
payable to attorneys and other professionals that such a trustee may engage,
including a financial advisor to market the portfolio of hydroelectric assets
for sale, plus any unpaid expenses incurred by CHI during a chapter 11 case and
allowed in the chapter 7 case, such as compensation of attorneys, financial
advisors, appraisers, accountants and other professionals, and costs and
expenses of members of any statutory committee on unsecured creditors appointed
by the United States Trustee pursuant to section 1102 of the Bankruptcy Code and
any other committee so
57
<PAGE>
appointed as well as accrued payables for goods and other services including
damages from the breach or rejection of obligations incurred and executory
contracts entered into by CHI both prior to, and during the pendency of, the
chapter 11 case.
The foregoing types of Claims, costs, expenses, and fees
and such other Claims which may arise in a liquidation case or result from a
pending chapter 11 case must be paid in full from the liquidation proceeds
before the balance of those proceeds would be made available to pay pre-chapter
11 priority and unsecured Claims.
In applying the "best interests test", it is possible
that Claims and Equity Interests in the chapter 7 case may not be classified
according to the seniority of such Claims and Equity Interests as provided in
the Plan. In the absence of a contrary determination by the Bankruptcy Court,
all pre-chapter 11 unsecured Claims which have the same rights upon liquidation
would be treated as one class for purposes of determining the potential
distribution of the liquidation proceeds resulting from CHI's chapter 7 case.
The distributions from the liquidation proceeds would be calculated ratably
according to the amount of the Claim held by each creditor. Section 510 of the
Bankruptcy Code specifies that contractual subordination provisions are
enforceable in a chapter 7 liquidation case. Thus, the distributions from the
liquidation proceeds will be made in accordance with contractual subordination
provisions.
The distribution of proceeds from a liquidation is
governed by the Bankruptcy Code which establishes an order of priority pursuant
to the Bankruptcy Code, no junior creditor receives any distribution until all
senior creditors are paid in full, with interest, and no equity holder receives
any distribution until all creditors are paid in full with interest.
Consequently, and because the creditors of CHI are structurally subordinated to
the prior payment of the obligations owed by CHI's subsidiaries, CHI believes
that in a chapter 7 case, holders of the Series F Preferred Stock, Series G
Preferred Stock, Series H Preferred Stock, and Old Common Stock would receive no
distributions from the bankruptcy estate.
After consideration of the effects that a chapter 7
liquidation would have on the ultimate proceeds available for distribution to
creditors in a chapter 11 case, including (i) the increased costs and expenses
of a liquidation under a chapter 7 arising from fees payable to a trustee in
bankruptcy and professional advisors to such trustee, (ii) the erosion in value
of core hydroelectric assets in a chapter 7 case in the context of the
accelerated liquidation required under chapter 7 and the "forced sale"
atmosphere that would prevail, (iii) the loss of any potential value realizable
from the Industrial Infrastructure Business currently being pursued by
management, (iv) the adverse effects on the salability of the Company as a
result of the departure of key employees, and (v) substantial increases in
claims which would be satisfied on a priority basis or on parity with creditors
in a chapter 11 case, CHI has concluded that confirmation and implementation of
the Plan will provide each creditor and equity holder with a recovery that is
not less than it would receive pursuant to a liquidation of CHI under chapter 7
of the Bankruptcy Code.
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Moreover, any distributions in a chapter 7 case may not
occur for a substantial period of time, particularly in light of the length of
time required to receive the regulatory approvals that may be necessary to sell
the assets of the bankruptcy estate, including the stock of the direct primary
subsidiaries of CHI. In this regard, it is possible that distribution of the
proceeds of the liquidation could be delayed for a year or more after the
completion of such liquidation in order to resolve the claims, receive
regulatory approvals, and prepare for distributions. In the event litigation
were necessary to resolve claims asserted in the chapter 7 case, including,
potentially, those from customers, the delay could be further extended.
THE LIQUIDATION ANALYSIS ANNEXED AS EXHIBIT E TO THIS
DISCLOSURE STATEMENT IS AN ESTIMATE OF THE PROCEEDS THAT MAY BE GENERATED AS A
RESULT OF A HYPOTHETICAL CHAPTER 7 LIQUIDATION OF THE ASSETS OF CHI WHICH
CONSIST OF THE STOCK OF ITS SUBSIDIARIES AND CERTAIN GENERAL PARTNERSHIP
INTERESTS. THE ANALYSIS IS BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS WHICH
ARE DESCRIBED, INCLUDING EFFECTUATING THE LIQUIDATION THROUGH A SALE OF THE
STOCK OF THE 13 DIRECT PRIMARY SUBSIDIARIES OF CHI. THE LIQUIDATION ANALYSIS
DOES NOT PURPORT TO BE A VALUATION OF THE COMPANY'S ASSETS AND IS NOT
NECESSARILY INDICATIVE OF THE VALUES THAT MAY BE REALIZED IN AN ACTUAL
LIQUIDATION.
C. EFFECTIVENESS OF THE PLAN
1. CONDITIONS PRECEDENT TO EFFECTIVENESS
The Plan will be consummated, and the Effective Date
will occur, on the first Business Day (or as soon thereafter as is practicable)
after the date on which the following conditions have been satisfied or waived:
a. CONFIRMATION ORDER. The Confirmation Order, in form
and substance reasonably acceptable to CHI, the Unofficial Bondholders'
Committee and the Creditors' Committee, if any, shall have been signed by the
Bankruptcy Judge, and there shall not be a stay or injunction in effect with
respect thereto;
b. WORKING CAPITAL FACILITY. Reorganized CHI shall
have credit availability under a working capital facility, in amount, form and
substance acceptable to CHI and the Unofficial Bondholders' Committee, to
provide Reorganized CHI with (i) access to letters of credit for projects, (ii)
working capital to meet ordinary and peak requirements and (iii) additional
borrowings to support future projects;
c. EXECUTION AND DELIVERY OF CERTAIN AGREEMENTS. The
following agreements, in form satisfactory to CHI, the Unofficial Bondholders'
Committee and the Creditors' Committee, if any, shall have been executed and
delivered, and all conditions precedent thereto shall have been satisfied:
(1) Amended CHI By-Laws;
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(2) Restated CHI Certificate of Incorporation;
(3) Employment Agreements;
(4) New Series B Warrant Agreement;
(5) New Series C Warrant Agreement;
(6) Management Option Plan and Management
Option Agreements;
(7) Registration Rights Agreement; and
(8) Stockholders' Agreement.
d. DOCUMENTATION. All actions, documents and agreements
necessary to implement the Plan shall have been effected or executed.
CHI and the Unofficial Bondholders' Committee may waive
one or more of the foregoing conditions to effectiveness, by a writing signed by
an authorized representative of each and filed with the Bankruptcy Court.
2. EFFECT OF FAILURE OF CONDITIONS
Pursuant to the Plan, if each of the conditions
precedent to effectiveness has not been satisfied or duly waived by CHI and the
Unofficial Bondholders' Committee before the first Business Day that is more
than sixty (60) days after the Confirmation Date, or such later date as is
proposed and approved, the Bankruptcy Court may, after notice and a hearing,
vacate the order confirming the Plan. In such event, the Plan will be null and
void in all respects, and nothing contained in the Plan will (a) constitute a
waiver or release of any Claims against, or Equity Interests in, CHI or (b)
prejudice in any manner the rights of CHI and the holders of Claims or Equity
Interests. If, however, the conditions precedent to effectiveness are satisfied
or duly waived prior to entry of such order of vacatur, then notwithstanding the
filing of a motion therefor, the Confirmation Order shall not be vacated.
3. EFFECT OF CONFIRMATION
Except as otherwise provided in the Plan or in the
Confirmation Order, the rights afforded in the Plan and the treatment of all
creditors and equity holders thereunder will be in complete satisfaction,
discharge, and release of all Claims and Equity Interests of any nature
whatsoever, including any interest accrued thereon from and after the
Commencement Date, against CHI, its estate, its assets, and its properties and
interests in property. Except as otherwise provided in the Plan, on the
Effective Date, all such Claims against, and Equity Interests in, CHI will be
deemed satisfied, discharged, and released in
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full. All entities will be precluded from asserting against CHI, its successors,
or its assets or properties, any other or further Claims or Equity Interests
based upon any act or omission, transaction, or other activity of any kind or
nature that occurred prior to the Confirmation Date.
As of the Effective Date, all persons and entities will
be permanently enjoined and precluded from asserting against CHI, Reorganized
CHI, and their respective assets and properties, any other Claims based upon any
act or omission, transaction, or other activity of any kind or nature that
occurred prior to the Effective Date. Upon confirmation of the Plan, its
provisions will bind CHI and its creditors and equity interest holders, whether
or not they have filed proofs of Claims or Equity Interests, have accepted the
Plan, or are entitled to receive distributions thereunder.
CHI's property will revest in Reorganized CHI on the
Effective Date, and will be free and clear of all liens, claims and interests of
holders of Claims and Equity Interests, except as provided in the Plan. From and
after the Effective Date, Reorganized CHI may operate its business, and may use,
acquire and dispose of property free of any restrictions imposed under the
Bankruptcy Code. All injunctions of stays provided for in the Chapter 11 Case
under sections 105 or 362 of the Bankruptcy Code, or otherwise, and in existence
on the Confirmation Date, shall remain in full force and effect until the
Effective Date. From and after the Effective Date, any "50-percent shareholder"
of Reorganized CHI within the meaning of section 382(g)(4)(D) of the Internal
Revenue Code of 1986, as amended, will be permanently enjoined from claiming a
worthless stock deduction with respect to its Equity Interest for any taxable
year of such shareholder ending prior to the Effective Date.
IX.
GOVERNANCE AND MANAGEMENT OF REORGANIZED CHI
--------------------------------------------
A. GOVERNANCE AND MANAGEMENT OF REORGANIZED CHI
--------------------------------------------
1. GENERAL
On the Effective Date, the management, control and
operation of Reorganized CHI will become the general responsibility of the Board
of Directors of Reorganized CHI.
2. BOARD OF DIRECTORS OF REORGANIZED CHI
The Board of Directors of Reorganized CHI will consist
of seven (7) directors as follows: Morgan Stanley will have the right to
designate two (2) directors; SBC will have the right to designate two (2)
directors; management of Reorganized CHI will have the right to designate two
(2) directors; and there will be one (1) independent director designated by
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the remaining members of the Board of Directors. Procedures governing the
nomination and election of members of the Board of Directors are subject to the
Stockholders' Agreement. The initial Board of Directors of Reorganized CHI will
only have five (5) directors, with Morgan Stanley and SBC each reserving one (1)
of their two (2) designations at this time. The initial members of the Board of
Directors of Reorganized CHI will be as follows: James T. Stewart (Chairman and
CEO), Edward M. Stern (President and COO), Michael Petrick (a Morgan Stanley
designee), James DuPlessie (a SBC designee) and an independent director. The
identity of the independent director and the compensation to be paid to the
non-management members of the Board of Directors of Reorganized CHI will be
disclosed at, or immediately prior to, the Confirmation Hearing.
3. EXECUTIVE OFFICERS OF REORGANIZED CHI
The executive officers of CHI on the Confirmation Date
will continue to serve as the executive officers of Reorganized CHI. The
identity and cash compensation of the executive officers of Reorganized CHI for
fiscal year 1997 and post-Effective Date are as follows:
<TABLE>
<CAPTION>
====================================================================================================================================
NAME AGE CURRENT FISCAL 1997 CASH POST-EFFECTIVE
POSITION COMPENSATION DATE BASE
COMPENSATION11
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James T. Stewart12 49 Chairman & Chief Executive $300,000 - Salary $325,000
Officer $250,000 - Other
- - - ------------------------------------------------------------------------------------------------------------------------------------
Edward M. Stern13 38 President, Chief Operating $231,762 - Salary $250,000
Officer & Secretary $171,270 - Other
- - - ------------------------------------------------------------------------------------------------------------------------------------
Michael I. Storch 45 Executive Vice President $244,408 - Salary $250,000
$ 73,525 - Other
- - - ------------------------------------------------------------------------------------------------------------------------------------
Pascal J. Brun 48 Senior Vice President $120,524 - Salary $129,000
$ 58,012 - Other
- - - ------------------------------------------------------------------------------------------------------------------------------------
Mary V. Gilbert14 35 Senior Vice President & $124,615 - Salary $180,000
Chief Financial Officer $ 52,500 - Other
- - - ------------------------------------------------------------------------------------------------------------------------------------
All Executive Officers as a N/A N/A N/A $2.3 million
group, including the above
referenced persons (16
persons)
====================================================================================================================================
<FN>
11. In addition to base compensation, the executive officers of Reorganized CHI
will be eligible for (i) an annual bonus of up to 150% of base salary (depending
on each executive's compensation arrangement) and (ii) Management Options. For a
discussion of the Management Options, see Section IX.C, below, entitled
"Governance and Management of Reorganized CHI -- Management Option Plan".
12. Mr Stewart was elected Chief Executive Officer and a Director of CHI as of
July 1, 1996.
13. Mr. Stern was elected President and Chief Operating Officer of CHI in
September, 1996.
14. Ms. Gilbert was elected Senior Vice President and Chief Financial Officer
of CHI in January, 1997.
</FN>
</TABLE>
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The business experience of CHI's current officers and
directors is set forth in Item 10 "Directors and Officers of the Registrant" in
the Annual Report on Form 10-K, annexed as Exhibit B to this Disclosure
Statement.
4. EMPLOYMENT AGREEMENTS OF EXECUTIVE OFFICERS OF REORGANIZED CHI
On the Effective Date, Reorganized CHI is entering into
employment agreements with the following four (4) executive officers: James T.
Stewart, Edward M. Stern, Michael I. Storch and Mary V. Gilbert. The respective
terms of the employment agreements are between two and three years.
Post-Effective Date base compensation for each of the executive officers
executing employment agreements is set forth in the chart above. Each such
executive officer is also entitled to (i) incentive compensation, (ii)
Management Options, (iii) participation in benefit plans, (iv) severance and (v)
disability and death benefits, and is subject to non-compete restrictions. A
form of the Employment Agreements is annexed to the Plan as Exhibit C.
5. RESTATED CERTIFICATE OF INCORPORATION AND AMENDED
BY-LAWS OF REORGANIZED CHI
The Amended CHI By-Laws and the Restated CHI Certificate
of Incorporation will become effective as of the Effective Date and will, among
other things, (a) prohibit the issuance of non-voting equity securities as
required by section 1123(a)(6) of the Bankruptcy Code, (b) effectuate the
provisions of the Plan and (c) provide that the corporate name of CHI will be
changed to CHI Energy, Inc.
B. OWNERSHIP OF REORGANIZED CHI
The following list sets forth those entities which, to CHI's
knowledge, based on the ownership of the Senior Discount Notes as of August 1,
1997, will own beneficially or have investment discretion with respect to more
than five percent (5%) of the New Common Stock (subject to dilution from the New
Warrants and the Management Options), as of the Effective Date:
Name of Estimated Amount of Estimated Percentage
Beneficial Holder Beneficial Ownership of Beneficial Ownership
- - - ----------------- -------------------- -----------------------
Morgan Stanley & Co. 3,610,000 shares of New 36.1%
Class A Common Stock
Swiss Bank Corporation 3,136,000 shares of New 31.4%
and affiliates Class A Common Stock
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Merrill Lynch Asset 1,520,000 shares of New 15.2%
Management Common Stock
Stonehill Investment 656,000 shares of New 6.6%
Corp. Class A Common Stock
Gem Capital 605,000 shares of New 6.1%
Class A Common Stock
C. MANAGEMENT OPTION PLAN
1. GENERAL
Approval of the Plan will be deemed an approval or
ratification, as the case may be, of a stock option plan, substantially in the
form annexed to the Plan as Exhibit D (the "Management Option Plan") pursuant to
which the Management Options will be granted. The Management Option Plan is
intended to provide incentives that will retain and motivate those highly
competent individuals that are key employees of Reorganized CHI. The Management
Option Plan is also intended to align the interests of such employees with those
of Reorganized CHI's stockholders. The Management Option Plan will be adopted
prior to the Effective Date by the Board of Directors of CHI, although no
options will be granted until the Effective Date. Up to 810,811 shares of New
Class A Common Stock may be granted under the Management Option Plan.
THE SOLICITATION OF THE HOLDERS OF NEW COMMON STOCK
WILL BE DEEMED A SOLICITATION FOR APPROVAL OF THE MANAGEMENT OPTION PLAN. CHI
BELIEVES THAT THE ORDER CONFIRMING THE PLAN SHOULD CONSTITUTE SUCH APPROVAL OF
THE MANAGEMENT OPTION PLAN FOR PURPOSES OF SECTIONS 422 AND 162(M) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "TAX CODE"). THERE CAN BE NO
ASSURANCE, HOWEVER, THAT THE INTERNAL REVENUE SERVICE WILL AGREE WITH SUCH
POSITION.
As of the Effective Date, Management Options to acquire
New Class A Common Stock at an exercise price of $10 per share of New Class A
Common Stock are being granted pursuant to the Management Option Plan to
twenty-four (24) CHI employees, including each of the named executive officers.
The Management Options entitle such holders to purchase up to an aggregate of
7.5% of the New Class A Common Stock, subject to dilution due to the issuance by
Reorganized CHI of shares of New Common Stock
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pursuant to the exercise of the New Series B Warrants and the New Series C
Warrants by the holders thereof. The Management Options will vest and become
exercisable as follows:
Effective Date 33 1/3% of the Management Options
First Anniversary thereof 22 2/9% of the Management Options
Second Anniversary thereof 22 2/9% of the Management Options
Third Anniversary thereof 22 2/9% of the Management Options
The Management Options will also become vested and
exercisable upon a change in control of Reorganized CHI. The Management Options
granted as of the Effective Date will terminate on the seventh (7th) anniversary
of the Effective Date unless terminated at an earlier date following termination
of an optionee's employment. No employee of Reorganized CHI will be eligible
under the Management Option Plan to be granted Management Options to purchase
more than 350,000 shares of New Class A Common Stock.
2. TAX CONSEQUENCES
A. MANAGEMENT OPTIONS
The Management Options granted as of the Effective Date
under the Management Option Plan will be either "incentive stock options" under
Section 422(b) of the Tax Code or non qualified stock options. In that regard, a
vote in favor the Plan is intended to be treated as a vote by the holders of the
New Common Stock in favor of the Management Option Plan for purposes of Section
422(b) of the Tax Code. In order to qualify as an incentive stock option, a
stock option must have an exercise price that is not less than the fair market
value of the underlying stock at the time of grant.
An employee who exercises a Management Option qualifying
as an incentive stock option by delivering shares previously acquired pursuant
to the exercise of a Management Option is treated as making a "disqualifying
disposition" of such shares if the employee delivers such shares before the
expiration of the applicable holding period (as specified in Section 422 of the
Tax Code) with respect to such shares. Upon the exercise of a Management Option
with previously acquired shares as to which no disqualifying disposition occurs,
it would appear that the employee would not recognize gain or loss with respect
to such previously acquired shares.
A deduction will not be allowed to Reorganized CHI or
any of its subsidiaries for federal income tax purposes with respect to the
grant or exercise of a Management Option qualifying as an incentive stock option
or the disposition, after the applicable holding period, of the shares of New
Class A Common Stock acquired upon exercise of such Management Option. In the
event of a disqualifying disposition, a federal income tax deduction will be
allowed to Reorganized CHI in an amount equal to the ordinary income included in
gross income by the optionee, provided that such amount constitutes an ordinary
and
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necessary business expense to Reorganized CHI and is reasonable and the
limitations of Sections 162(m) and 280G of the Tax Code (discussed below) do not
apply.
B. NON-QUALIFIED STOCK OPTIONS ("NQSO")
A NQSO is an option that does not qualify as an
"incentive stock option" under Section 422(b) of the Tax Code. An individual who
receives a NQSO will not recognize any taxable income upon the grant of such
NQSO. Generally, upon exercise of a NQSO, an individual will be treated as
having received ordinary income in an amount equal to the excess of the fair
market value of the shares of stock at the time of exercise over the exercise
price.
The ordinary income recognized with respect to the
transfer of shares of New Class A Common Stock upon exercise of a NQSO under the
Management Option Plan will be subject to both wage withholding and employment
taxes. In addition to the customary methods of satisfying the withholding tax
liabilities that arise upon the exercise of a NQSO, if permitted by the
compensation committee of the Board of Directors of Reorganized CHI, an
individual may satisfy the liability in whole or in part by tendering other
shares of New Class A Common Stock owned by the individual, which will be valued
at their fair market value as of the date that the tax obligation arises.
A deduction for federal income tax purposes will be
allowed to Reorganized CHI or a subsidiary thereof in an amount equal to the
ordinary income included in gross income by the individual in connection with
the exercise of such option, provided that such amount constitutes an ordinary
and necessary business expense and is reasonable and the limitations of Sections
162(m) and 280G of the Tax Code do not apply.
C. CHANGE IN CONTROL
Upon a "change in control" of Reorganized CHI, the then
outstanding options under the Management Option Plan shall become fully
exercisable. In general, if the total amount of payments to optionees that are
contingent upon a "change of control" of Reorganized CHI (as determined for
purposes of Section 280G of the Tax Code), including payments upon the exercise
of options under the Management Option Plan that vest upon a "change in
control," equals or exceeds three times the recipient's "base amount"
(generally, such recipient's average annual compensation for the five years
preceding the change in control), then, subject to certain exceptions, the
payments may be treated as "parachute payments" under the Tax Code, in which
case a portion of such payments would be non-deductible to Reorganized CHI and
the recipient would be subject to a 20% excise tax on such portion of the
payments. No assurance can be given that the Management Options granted under
the Management Option Plan will not be subject to Section 280G of the Tax Code.
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D. CERTAIN LIMITATIONS ON DEDUCTIBILITY OF EXECUTIVE
COMPENSATION
With certain exceptions, Section 162(m) of the Tax Code
denies a deduction to publicly held corporations for compensation paid to
certain executive officers in excess of $1 million per executive per taxable
year (including, in some cases, any deduction with respect to the exercise of a
NQSO or the disqualifying disposition of stock purchased pursuant to a
Management Option). An exception to Section 162(m) of the Tax Code applies to
certain compensation paid pursuant to plans in existence while a company is
privately held. The Management Option Plan is expected to be adopted by the
Board of Directors of CHI prior to the effective date of the Plan. It is
intended that compensation payable under the Management Option Plan will qualify
for an exception to the Section 162(m) limitations. However, no assurance can be
given that compensation under the Management Option Plan will qualify for any
such exception.
X.
RISK FACTORS
------------
HOLDERS OF CLAIMS AGAINST, AND EQUITY INTERESTS IN, CHI
SHOULD CAREFULLY READ AND CONSIDER THE FACTORS SET FORTH BELOW, AS WELL AS THE
OTHER INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS
DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY REFERENCE), PRIOR TO VOTING
TO ACCEPT OR REJECT THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE
REGARDED AS CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND
ITS IMPLEMENTATION.
A. CERTAIN BANKRUPTCY LAW CONSIDERATIONS
1. FAILURE TO SATISFY VOTE REQUIREMENT
If votes are received in number and amount sufficient to
enable a Bankruptcy Court to confirm the Plan, CHI intends to file a voluntary
petition for reorganization under chapter 11 of the Bankruptcy Code and to seek,
as promptly as practicable thereafter, confirmation of the Plan. In the event
that sufficient votes are not received, CHI may nevertheless file a petition for
relief under chapter 11 of the Bankruptcy Code. In such event, CHI may seek to
accomplish an alternative restructuring of its capitalization and its
obligations to creditors and equity holders. There can be no assurance that the
terms of any such alternative restructuring would be similar to or as favorable
to the holders of Senior Discount Notes, other creditors, and holders of Old
Preferred Stock, as those proposed in the Plan.
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2. RISK OF NON-CONFIRMATION OF THE PLAN
Although CHI believes that the Plan will satisfy all
requirements necessary for confirmation by the Bankruptcy Court, there can be no
assurance that the Bankruptcy Court will reach the same conclusion. Moreover,
there can be no assurance that modifications of the Plan will not be required
for confirmation or that such modifications would not necessitate the
resolicitation of votes.
3. RISK OF NON-OCCURRENCE OF THE EFFECTIVE DATE
Although CHI believes that the Effective Date may occur
soon after the Confirmation Date, there can be no assurances as to such timing.
Moreover, if the conditions precedent to the Effective Date have not occurred or
been waived within sixty (60) days after the Confirmation Date, the Bankruptcy
Court may vacate the order confirming the Plan, in which event, the Plan would
be deemed null and void, and CHI may propose to solicit votes on an alternative
plan of reorganization that may not be as favorable to parties in interest as
the Plan.
4. EFFECT OF CHI'S CHAPTER 11 CASE ON ITS SUBSIDIARIES
CHI does not anticipate the commencement of a chapter 11
case for any of its operating subsidiaries, and affiliated entities which own
the hydroelectric projects set forth in Schedule 1 to this Disclosure Statement.
CHI does not believe that the commencement of the Chapter 11 Case will adversely
affect the businesses of such entities. Nevertheless, if there is a protracted
chapter 11 case, the possibility of adverse effects on such entities may
increase. Although CHI does not believe that creditors or customers of
substantially all, if not all, of its subsidiaries, and affiliated entities
which own the hydroelectric projects have the right to assert that they have the
legal right to take actions with respect to such entities due to the
commencement of a case by CHI, certain of such creditors or customers may
attempt to take certain actions nonetheless. In the event such creditors or
customers seek to do so, the subsidiaries and related entities will not have the
benefit of the "automatic stay." Although there can be no assurance, CHI
believes that such actions would not have a material adverse effect on the
business or financial condition of CHI.
B. FACTORS AFFECTING THE VALUE OF THE
SECURITIES TO BE ISSUED UNDER THE PLAN
1. THE INDUSTRIAL INFRASTRUCTURE BUSINESS
CHI's entry into a new business -- the Industrial
Infrastructure Business -- has certain risks which are inherent in developing
any new business. In addition, CHI may be disadvantaged by its small size, short
history in this market, and lack of recognition and stature by potential
customers in the Industrial Infrastructure Business. Several potential
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competitors have recently emerged who have indicated their intention to focus on
providing services to the industrial energy market. CHI's competition includes
CRSS, independent power producers and cogenerators (such as Destec or Enron),
utility affiliates (such as Southern Electric or Duke Energy), utility and
independent power producer partnerships (such as a unit of American Electric
Power and Cogentrix) and regulated utilities.
The Industrial Infrastructure Business requires numerous
permits, approvals and certificates from appropriate federal, state and local
governmental agencies as well as compliance with certain environmental
protection legislation and the EPA. While the Company believes that it will be
able to obtain the requisite approvals for its future industrial projects, there
is no assurance that the Company will be successful in obtaining such approvals.
There is also no assurance that the Company will be able to raise development
capital, obtain satisfactory project development agreements, construction
contracts, energy, sales and services agreements, licenses and permits or
financing commitments with respect to the industrial projects currently in
development or any industrial projects that may be developed in the future.
Despite efforts over the last six to twelve months, CHI
has not been able to consummate any industrial infrastructure business. If CHI
continues to be unsuccessful in developing the Industrial Infrastructure
Business, the value of securities issued by Reorganized CHI will be adversely
and significantly affected. In addition, pursuant to the vesting requirements
set forth in the Series B Warrant Agreement, some or all of the Series B
Warrants distributed to the holders of Equity Interests in Classes 7, 8 and 9,
may not vest.
2. THE HYDROELECTRIC BUSINESS
A. COMPETITIVE CONDITIONS
The hydroelectric industry is highly competitive and
includes a number of participants with aggregate sales and financial resources
greater than those of CHI and its subsidiaries. The Company encounters
competition for the operation and acquisition of additional conventional
hydroelectric projects from subsidiaries of utilities, contractors and other
independent energy producers.
B. PRECIPITATION, WATER FLOW AND SEASONALITY
For hydroelectric facilities, the amount of energy
generated at any particular facility depends upon the quantity of water flow at
the site of the facility. Dry periods reduce water flow at particular sites
below historical averages, particularly if the facility has low storage
capacity. Excessive water flow may result from prolonged periods of higher than
normal precipitation or sudden melting of snow packs, possibly causing flooding
of facilities and/or a reduction of generation at such sites until water flows
return to normal. In cases of reduced or excess water flow, energy generation at
such sites may be diminished. The
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amount of water flow in any given period will have a direct effect on the
Company's production, revenues and cash flow.
C. CHANGES IN APPLICABLE RATES, ENERGY PRICE DECLINES
By the year 2004, rates paid to the Company pursuant to
current power purchase agreements representing approximately 37% of the
Company's average power sales revenue for fiscal year 1997, will be affected by
changes from scheduled rates to rates based on the applicable utilities' then
avoided cost. Consequently, the Company's revenue at such time will be adversely
affected if the then current utility avoided cost is lower than the scheduled
rate previously in effect. Recently, several public utilities, including
customers of the Company (most notably Niagara Mohawk), have approached
independent power producers to renegotiate specified rates in their power
purchase agreements because in some instances these agreements force the
utilities to purchase power from independent power producers at higher rates
than their current avoided cost, resulting in higher rates to consumers.
Although the Company believes that its power purchase agreements are valid,
binding and enforceable contracts, and economic when analyzed over the life of
such contracts, there can be no assurance that attempts by utilities to
renegotiate or terminate such contracts will not in some cases be successful and
that the consequences will not have a material adverse effect on the Company's
future revenues.
D. DEPENDENCE ON CERTAIN CUSTOMERS
Although no customer accounts for more than 21% of the
Company's sales for the fiscal year ended June 30, 1997, the loss of certain
customers could have a material adverse effect on sales. A substantial portion
of the Company's power is sold to three customers pursuant to various long-term
power purchase agreements. Sales to Commonwealth Electric Company, Niagara
Mohawk Corporation and New England Power Company, represented approximately 21%,
20% and 12%, respectively, of the consolidated revenues of the Company for
fiscal year 1997. Although the ratings of the debt securities of a substantial
majority of the utilities which presently purchase power from the Company are
currently investment grade, there can be no assurance of their, or any other
customer's long-term creditworthiness.
3. CAPITAL REQUIREMENTS
The business of Reorganized CHI and its subsidiaries,
including development of the Industrial Infrastructure Business, is expected to
have significant capital needs. While CHI's projections assume that the Company
will generate funds and have sufficient borrowings to meet its capital needs for
the foreseeable future, the Company's ability to gain access to additional
capital, if needed, cannot be assured, particularly in view of competitive
factors and industry conditions.
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4. VARIANCES FROM PROJECTIONS
The fundamental premise of the Plan is the deleveraging
of CHI and the implementation and realization of CHI's business plan, as
reflected in the projections attached to this Disclosure Statement. The
projections reflect numerous assumptions concerning the anticipated future
performance of Reorganized CHI and its subsidiaries, some of which may not
materialize. Such assumptions include, among other items, assumptions concerning
the general economy, the ability to make necessary capital expenditures, the
ability to establish market strength for the Industrial Infrastructure Business,
the ability to raise capital for the Industrial Infrastructure Business, and
utilities honoring the Power Purchase Agreements they have entered into with the
Company. CHI believes that the assumptions underlying the projections are
reasonable. However, unanticipated events and circumstances occurring subsequent
to the preparation of the projections may affect the actual financial results of
Reorganized CHI. Therefore, the actual results achieved throughout the periods
covered by the projections necessarily will vary from the projected results, and
such variations may be material and adverse.
5. LACK OF TRADING MARKET
Reorganized CHI will not seek the listing of the New
Common Stock on a national securities exchange or quotation in the national
market system of the National Association of Securities' Dealers Automated
Quotation System. Accordingly, there can be no assurance that any such
securities would ever be listed or included, or that an active trading market
for the New Common Stock or the New Warrants would develop and continue. In
addition, there can be no assurance as to the degree of price volatility in the
market for any of the new securities that does develop. Accordingly, no
assurance can be given that a holder of New Common Stock or New Warrants will be
able to sell such securities in the future or as to the price at which any such
sale may occur. If such markets were to exist, the securities could trade at
prices higher or lower than the value ascribed to them in this Disclosure
Statement, depending upon many factors, including prevailing interest rates,
markets for similar securities, industry conditions, and the performance of, and
investor expectations for, Reorganized CHI and its subsidiaries.
6. DIVIDEND POLICIES
CHI does not anticipate that any dividends will be paid
on the New Common Stock in the foreseeable future. In addition, the covenants in
the new Working Capital Facility may limit the ability of Reorganized CHI to pay
dividends. Certain institutional investors may only invest in dividend-paying
equity securities or may operate under other restrictions which may prohibit
their ability to invest in New Common Stock.
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7. SIGNIFICANT HOLDERS
As of the Effective Date, certain holders of the Senior
Discount Notes will receive distributions of the New Common Stock representing
in excess of five percent (5%) of the outstanding shares of the New Common
Stock. For a list of such holders, see Section IX.B, below, entitled "Management
and Governance of Reorganized CHI -- Ownership of Reorganized CHI." If holders
of significant numbers of shares of New Common Stock were to act as a group,
such holders could be in a position to control the outcome of actions requiring
stockholder approval. This concentration of ownership could also facilitate or
hinder a negotiated change of control of Reorganized CHI and, consequently, have
an impact upon the value of the New Common Stock. In that regard, all holders of
New Common Stock will be subject to the Stockholders' Agreement, which agreement
includes certain "drag along" and "tag along" rights. For a discussion of the
Stockholders' Agreement and its rights and obligations, see Article XI.D.,
below, entitled "Securities Law Matters -- Stockholders' Agreement."
C. CERTAIN TAX MATTERS
For risks associated with certain federal income tax
consequences of the Plan to holders of Claims and Equity Interests and to CHI,
see Article XII, below, entitled "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
PLAN."
XI.
SECURITIES LAW MATTERS
A. THE SOLICITATION
CHI is relying on Section 3(a)(9) of the Securities Act
of 1933 (the "1933 Act") to exempt from the registration requirements of such
act (and of any equivalent state securities or "blue sky" laws) the offer of New
Common Stock, New Series B Warrants and New Series C Warrants, which may be
deemed to be made by CHI pursuant to its solicitation of votes on the Plan.
CHI has no contract, arrangement, or understanding
relating to, and will not, directly or indirectly, pay any commission or other
remuneration to any broker, dealer, salesperson, agent, or any other person for
soliciting votes to accept or reject the Plan or for soliciting any exchanges of
the Senior Discount Notes, the Series F Preferred Stock, the Series G Preferred
Stock or the Series H Preferred Stock. CHI has received assurances that no
person will provide any information to holders of the Senior Discount Notes, the
Series F Preferred Stock, the Series G Preferred Stock or the Series H Preferred
Stock relating to the
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solicitation or the Plan other than to refer the holders of such securities to
the information contained in this Disclosure Statement and in the Ballots
delivered with it. In addition, none of the financial advisors to CHI or the
Unofficial Bondholders' Committee, the Voting Agent, and no broker, dealer,
salesperson, agent, or any other person, is engaged or authorized to express any
statement, opinion, recommendation, or judgment with respect to the relative
merits and risks of the solicitation, the value and terms of the New Common
Stock, New Series B Warrants, New Series C Warrants and Management Options, or
the Plan (and the transactions contemplated thereby).
B. ISSUANCE OF NEW SECURITIES UNDER THE PLAN
Section 1145 of the Bankruptcy Code exempts from such
registration the offer or sale of a debtor's securities under a chapter 11 plan
if such securities are offered or sold in exchange for a claim against, or
equity interest in, or a claim for an administrative expense in a case
concerning, such debtor. In reliance upon this exemption, the New Common Stock,
New Series B Warrants and the New Series C Warrants to be issued on the
Effective Date as provided in the Plan, generally will be exempt from the
registration requirements of the 1933 Act and state and local securities laws.
Accordingly, such securities may be resold without registration under the 1933
Act or other federal securities laws pursuant to the exemption provided by
Section 4(l) of the 1933 Act, unless the holder is an "underwriter" with respect
to such securities, within the meaning of Section 1145(b) of the Bankruptcy
Code. In addition, such securities generally may be resold without registration
under state securities laws pursuant to various exemptions provided by the
respective laws of the several states. However, recipients of securities issued
under the Plan are advised to consult with their own counsel as to the
availability of any such exemption from registration under state law in any
given instance and as to any applicable requirements or conditions to such
availability.
Section 1145(b) of the Bankruptcy Code defines
"underwriter" for purposes of the 1933 Act as one who (a) purchases a claim with
a view to distribution of any security to be received in exchange for the claim,
or (b) offers to sell securities issued under a plan for the holders of such
securities, or (c) offers to buy securities issued under a plan from persons
receiving such securities, if the offer to buy is made with a view to
distribution, or (d) is a control person of the issuer of the securities.
Notwithstanding the foregoing, statutory underwriters
may be able to sell securities without registration pursuant to the resale
limitations of Rule 144 under the 1933 Act which, in effect, permits the resale
of securities received by statutory underwriters pursuant to a chapter 11 plan,
subject to applicable volume limitations, notice and manner of sale
requirements, and certain other conditions. Parties which believe they may be
statutory underwriters as defined in section 1145 of the Bankruptcy Code are
advised to consult with their own counsel as to the availability of the
exemption provided by Rule 144.
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C. REGISTRATION RIGHTS
The Plan contemplates that Reorganized CHI will enter
into, on the Effective Date, a registration rights agreement in the form of
Exhibit H to the Plan (the "Registration Rights Agreement"). Under the
Registration Rights Agreement, holders of the New Common Stock and New Warrants
(including shares of New Common Stock issued upon the exercise thereof) will be
entitled to certain demand and incidental (or "piggyback") registration rights,
and holders of the Management Options will be entitled to certain incidental (or
"piggyback") registration rights with respect to shares of New Class A Common
Stock issued upon the exercise thereof. The Registration Rights Agreement will
contain customary suspension, "hold back", indemnification/contribution and
priority provisions. It is anticipated that Reorganized CHI will maintain its
status as a reporting company under the Exchange Act.
D. STOCKHOLDERS' AGREEMENT
Under the terms of the Plan, each holder (including each
original recipient and transferee of an original recipient or other transferee)
of the New Common Stock, and the New Common Stock issued upon exercise of the
New Warrants and Management Options (collectively, the "New Securities") is
bound by the Stockholders' Agreement attached as Exhibit I to the Plan. The
Stockholders' Agreement provides for a seven member board of directors and sets
forth certain procedures governing the nomination and election of directors. The
board will consist of two members of the Company's management, one independent
outside director, two directors designated by SBC and two directors designated
by Morgan Stanley. On the Effective Date, Morgan Stanley and SBC will each
designate one of their two directors. At anytime thereafter, either or both may
designate their second director and cause such person to be elected by the board
or shareholder vote. In addition, the Stockholders' Agreement provides that each
holder of New Common Stock is entitled to participate on a pro rata basis in any
sale of 50% or more of the outstanding New Common Stock and that each holder of
New Securities (including, in certain circumstances, holders of New Warrants and
Management Stock Options) may be required to sell their New Securities in any
sale of 66-2/3% or more of the New Common Stock. For a complete description of
the terms and conditions of the Stockholders' Agreement, please review Exhibit I
to the Plan.
XII.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion summarizes certain federal
income tax consequences of the implementation of the Plan to CHI and its
subsidiaries and certain holders of Claims and Equity Interests. The following
summary does not address the federal income tax consequences to holders whose
Claims are entitled to reinstatement or payment in full in cash
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under the Plan (e.g., holders of Other Priority Claims, Secured Claims, General
Unsecured Claims, or Intercompany Claims).
The following summary is based on the Tax Code, Treasury
regulations promulgated and proposed thereunder, judicial decisions and
published administrative rules and pronouncements of the Internal Revenue
Service ("IRS") as in effect on the date hereof. Changes in such rules or new
interpretations thereof may have retroactive effect and could significantly
affect the federal income tax consequences described below.
The federal income tax consequences of the Plan are
complex and are subject to significant uncertainties. CHI has not requested a
ruling from the IRS or an opinion of counsel with respect to any of the tax
aspects of the Plan. Thus, no assurance can be given as to the interpretation
that the IRS will adopt. In addition, this summary does not address foreign,
state or local tax consequences of the Plan, nor does it purport to address the
federal income tax consequences of the Plan to special classes of taxpayers
(such as foreign taxpayers, broker-dealers, banks, mutual funds, insurance
companies, financial institutions, small business investment companies,
regulated investment companies, tax-exempt organizations, and investors in
pass-through entities).
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A
SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL
CIRCUMSTANCES PERTAINING TO A HOLDER OF A CLAIM OR EQUITY INTEREST. ALL HOLDERS
OF CLAIMS OR EQUITY INTERESTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR
THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES APPLICABLE UNDER THE PLAN.
A. CONSEQUENCES TO CHI
The Company expects to report consolidated net operating
loss ("NOL") carryforwards for federal income tax purposes of approximately $65
million for its taxable year ended June 30, 1997, approximately $45 million of
which are attributable to CHI. A minor portion of the Company's NOL
carryforwards is subject to certain prior limitations. See Item 8, "Financial
Statements" in the Annual Report on Form 10-K, annexed as Exhibit B to this
Disclosure Statement, Note 15 (Income Taxes). The Company's NOL carryforwards
remain subject to examination by the IRS and thus subject to possible reduction.
Moreover, as discussed below, such NOL carryforwards (and possibly certain other
tax attributes of the Company) may be reduced or subject to limitation upon the
implementation of the Plan.
1. CANCELLATION OF DEBT
In general, the Tax Code provides that a debtor in a
bankruptcy case must reduce certain of its tax attributes (such as its NOL
carryforwards and possibly tax basis in
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assets) by the amount of any cancellation of debt ("COD"), that is, the amount
by which the debt discharged exceeds any consideration given in exchange
therefor. Under current law, any reduction in tax attributes generally occurs on
a separate company basis, even though the debtor files a consolidated federal
income tax return.
As a result of the discharge of the Allowed Senior
Discount Note Claims pursuant to the Plan, CHI may suffer COD and attribute
reduction, except to the extent that the payment of the cancelled debt would
have given rise to a tax deduction.
Due to the application of the high yield discount
obligation (HYDO) rules of the Tax Code, CHI has not deducted for federal income
tax purposes any of the original issue discount ("OID") in respect of the
Allowed Senior Discount Note Claims, pending the payment of such amount in cash.
Thus, CHI should not incur any COD or attribute reduction in respect of the
cancellation of the OID portion of such Claims. Accordingly, the amount of COD,
if any, that would be incurred by CHI depends upon, among other things, the
allocation, for federal income tax purposes, of the consideration to be
distributed in respect of the Allowed Senior Discount Note Claims to the
"principal" (non-OID) portion of such Claims. Pursuant to the Plan, all
distributions in respect of the Allowed Senior Discount Note Claims will be
allocated first to the original principal amount of such Claims as determined
for federal income tax purposes (i.e., approximately $112 million), with the
excess, if any, allocated to the remainder (OID) portion of such Claims. Given
such allocation, and assuming the New Common Stock has a reorganization value of
approximately $81 million (see Section XIII.B., below, entitled "Reorganization
Value"), CHI believes that it would recognize approximately $16 million of COD
and attribute reduction in respect of the discharge of the Senior Note Discount
Claims. Nevertheless, there is no assurance that the IRS would respect such
allocation for federal income tax purposes. In the event that such allocation
were successfully challenged, it is possible that any NOL carryforwards of CHI
(but not its subsidiaries) remaining as of the end of the taxable year in which
the discharge occurs could be eliminated, and that CHI's tax basis in its assets
could be significantly reduced, due to the resulting COD and attribute
reduction.
2. LIMITATIONS ON NOL CARRYFORWARDS AND OTHER TAX ATTRIBUTES
Following the implementation of the Plan, any
consolidated NOLs (and carryforwards thereof) and certain other tax attributes
of the Company allocable to periods prior to the Effective Date will be subject
to the limitations imposed by section 382 of the Tax Code.
Under section 382, if a corporation undergoes an
"ownership change," the amount of its pre-change losses that may be utilized to
offset future taxable income is, in general, subject to an annual limitation.
Such limitation also may apply to certain losses or deductions which are
"built-in" (i.e., economically accrued but unrecognized) as of the date of the
ownership change that are subsequently recognized. The issuance of New Common
Stock
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pursuant to the Plan will constitute an ownership change of the Company. The
following discussion is based on the section 382 rules as applied to ownership
changes pursuant to a confirmed chapter 11 plan.
The amount of the annual limitation to which the Company
would be subject generally should be equal to the product of (i) the lesser of
the value of the equity of Reorganized CHI immediately after the ownership
change or the value of CHI's gross assets immediately before such change (with
certain adjustments) and (ii) the "long-term tax exempt rate" in effect for the
month in which the ownership change occurs (5.64% for ownership changes
occurring in August 1997). However, if the Company does not continue its
historic business or use a significant portion of its assets in a new business
for two years after the ownership change, the annual limitation would be zero.
As indicated above, section 382 also can operate to
limit built-in losses recognized subsequent to the date of the ownership change.
If a loss corporation has a net unrealized built-in loss at the time of an
ownership change (taking into account most assets and all items of "built-in"
income and deductions), then any built-in losses recognized during the following
five years (up to the amount of the original net built-in loss) generally will
be treated as a pre-change loss and similarly will be subject to the annual
limitation. Conversely, if the loss corporation has a net unrealized built-in
gain at the time of an ownership change, any built-in gains recognized during
the following five years (up to the amount of the original net built-in gain)
generally will increase the annual limitation in the year recognized, such that
the loss corporation would be permitted to use its pre-change losses against
such built-in gain income in addition to its regular annual allowance. In
general, a loss corporation's net unrealized built-in gain or loss will be
deemed to be zero unless it is greater than the lesser of (i) $10 million or
(ii) 15% of the fair market value of its assets (with certain adjustments)
before the ownership change. It is not known whether the Company will be in a
net unrealized built-in gain or a net unrealized built-in loss position on the
Effective Date.
An exception to the foregoing annual limitation (and
built-in gain and loss) rules generally applies where qualified (so-called "old
and cold") creditors of the debtor receive at least 50% of the vote and value of
the stock of the reorganized debtor pursuant to a confirmed chapter 11 plan.
Under this exception, a debtor's pre-change losses are not limited on an annual
basis but are reduced by the amount of any interest deductions claimed during
the three taxable years preceding the date of the reorganization, and during the
part of the taxable year prior to and including the reorganization, in respect
of the debt converted into stock in the reorganization. Moreover, if this
exception applies, any further ownership change of the debtor within a two-year
period will preclude the debtor's utilization of any pre-change losses at the
time of the subsequent ownership change against future taxable income.
An old and cold creditor includes a creditor who has
held its debt for at least 18 months prior to the chapter 11 case. In addition,
any stock received by a creditor who does not become a direct or indirect
5-percent shareholder of the reorganized debtor generally
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will be treated as received by an old and cold creditor, other than in the case
of any creditor whose participation in the plan makes evident to the debtor that
the creditor has not owned the debt for the requisite period.
Subject to any subsequent trading in the Senior Discount
Note Claims, CHI anticipates that it would qualify for this exception. However,
if CHI so desires it may elect not to apply this exception and instead remain
subject to the annual limitation and built-in gain and loss rules described
above. Because no interest deductions have been claimed by the Company in
respect of the Senior Discount Notes, there would be no reduction in the amount
of the Company's NOL carryforwards required by this exception (except to the
extent of any interest deductions claimed upon satisfaction of the Senior
Discount Note Claims pursuant to the Plan). The statute does not address whether
this exception can be applied on a consolidated basis or only on a separate
company basis to the debtor. Although not free from doubt, CHI believes that, if
the exception were applied on a separate company basis, the pre- change losses
of the Company attributable to subsidiaries would be subject to the annual
limitation (and built-in gain and loss) rules as described above, rather than
the annual limitation rules generally applicable to corporations outside
bankruptcy.
3. ALTERNATIVE MINIMUM TAX
In general, an alternative minimum tax ("AMT") is
imposed on a corporation's alternative minimum taxable income at a 20% rate to
the extent such tax exceeds the corporation's regular federal income tax. For
purposes of computing taxable income for AMT purposes, certain tax deductions
and other beneficial allowances are modified or eliminated. In particular, even
though a corporation otherwise might be able to offset all of its taxable income
for regular tax purposes by available NOL carryforwards, only 90% of a
corporation's taxable income for AMT purposes may be offset by available NOL
carryforwards (as recomputed for AMT purposes).
In addition, if a corporation undergoes an "ownership
change" within the meaning of section 382 and is in a net unrealized built-in
loss position (as determined for AMT purposes) on the date of the ownership
change, the corporation's aggregate tax basis in its assets would be reduced for
certain AMT purposes to reflect the fair market value of such assets as of the
change date.
Any AMT that a corporation pays generally will be
allowed as a nonrefundable credit against its regular federal income tax
liability in future taxable years when the corporation is no longer subject to
the AMT.
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B. CONSEQUENCES TO HOLDERS OF SENIOR DISCOUNT NOTE CLAIMS
Pursuant to the Plan, holders of Senior Discount Note
Claims will receive, in discharge of their allowed claims, a combination of (i)
$15 million of cash (up to $5,000,000 after the Effective Date, but on or before
March 31, 1998), without taking into account the Unofficial Bondholders'
Committee Expenses, and (ii) New Common Stock.
The federal income tax consequences of the Plan to a
holder of a Senior Discount Note Claim depends, in part, on whether such Claims
constitute "securities" for federal income tax purposes. The term "security" is
not defined in the Tax Code or in the regulations issued thereunder and has not
been clearly defined by judicial decisions. The determination of whether a
particular debt constitutes a "security" depends upon an overall evaluation of
the nature of the debt. One of the most significant factors considered in
determining whether a particular debt is a security is its original term. In
general, debt obligations issued with a weighted average maturity at issuance of
five years or less (e.g., trade debt and revolving credit obligations) do not
constitute securities, whereas debt obligations with a weighted average maturity
at issuance of 10 years or more constitute securities. The following discussion
assumes that the Senior Discount Note Claims constitute "securities" for federal
income tax purposes. However, each holder is urged to consult its tax advisor
regarding the status of such Claims.
1. GAIN OR LOSS
In general, each holder of a Senior Discount Note Claim
will not recognize any loss upon implementation of the Plan, and will recognize
any gain realized (computed as described below) to the extent of any cash
received (other than any portion treated as imputed interest). The amount of a
holder's gain realized generally will equal the excess, if any, of (i) the sum
of the fair market value of the New Common Stock and the amount of cash received
in respect of its Claim (excluding any amount treated as imputed interest, and
possibly any amount received in respect of the portion of such Claim
representing accrued OID) and (ii) the tax basis in its Claim (other than
possibly the portion of such Claim representing accrued OID). See "Distributions
in Discharge of Accrued OID", below. Each holder should consult its tax advisor
regarding the potential application of the installment sale provisions of the
Tax Code in the event post-Effective Date cash distributions are made in
overlapping taxable years.
The Plan provides that interest will not accrue on any
post-Effective Date cash distribution for the period through December 31, 1997,
and will accrue at the prime rate for the period thereafter. Accordingly, any
post-Effective Date cash distribution will be subject to the imputed interest
rules under section 1281 et seq. of the Tax Code. Such provisions apply to,
among others, accrual basis taxpayers and banks. Pursuant to such provisions, a
portion of any post-Effective Date cash distribution will be treated as imputed
interest.
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The character of any gain or loss recognized by a holder
in respect of its Claim as long-term or short-term capital gain or loss or as
ordinary income or loss will be determined by a number of factors, including the
tax status of the holder, whether the Claim constitutes a capital asset in the
hands of the holder, whether the Claim has been held for more than one year at
the time of the Effective Date or was purchased at a discount, and whether and
to what extent the holder has previously claimed a bad debt deduction. In this
regard, section 582(c) of the Tax Code provides that the sale or exchange of a
bond, debenture, note, certificate, or other evidence of indebtedness by certain
financial institutions shall be considered the sale or exchange of a non-capital
asset. Accordingly, any gain or loss recognized by such financial institutions
as a result of the implementation of the Plan will be ordinary gain or loss,
regardless of the nature of their Claims.
A holder's aggregate tax basis in the New Common Stock
received in satisfaction of its Claim will equal the holder's adjusted tax basis
in its Claim (including any claim representing accrued OID), decreased by the
amount of cash received, and increased by any gain or interest income recognized
in respect of its Claim. In general, the holder's holding period for the New
Common Stock received will include the holder's holding period for the Claim
(except possibly to the extent the New Common Stock was issued in respect of the
portion of the Claim representing accrued OID).
2. DISTRIBUTIONS IN DISCHARGE OF ACCRUED OID
Pursuant to the Plan, all distributions in respect of
Allowed Senior Discount Note Claims will be allocated first to the original
principal amount of such Claims as determined for federal income tax purposes
(i.e., approximately $112 million), with any excess allocated to the remainder
(OID) portion of such Claims. However, there is no assurance that such
allocation would be respected by the IRS for federal income tax purposes.
In general, to the extent any amount received (whether
stock, cash or other property) by a holder of a debt is received in satisfaction
of accrued interest or OID during its holding period such amount will be taxable
to the holder as interest income (if not previously included in the holder's
gross income). Conversely, a holder generally recognizes a deductible loss to
the extent any accrued interest claimed was previously included in its gross
income and is not paid in full. However, the IRS has privately ruled that a
holder of a security, in an otherwise tax-free exchange for stock, could not
claim a current deduction with respect to any unpaid OID. Accordingly, it is
unclear whether a holder of an Allowed Senior Discount Note Claim would be
entitled to a current deduction to the extent of the unpaid OID portion of its
Claim.
Each holder of a Senior Discount Note Claim is urged to
consult its tax advisor regarding the allocation of consideration and the
deductibility of unpaid OID for tax purposes.
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3. SUBSEQUENT SALE OF NEW COMMON STOCK
Any gain recognized by a holder upon a subsequent
taxable disposition of New Common Stock received pursuant to the Plan in
satisfaction of a Claim (or any stock or other property received for it in a
later tax-free exchange) will be treated as ordinary income to the extent of (i)
any bad debt deductions (or additions to a bad debt reserve) claimed with
respect to its Claim and any ordinary loss deduction incurred upon satisfaction
of its Claim, less any income (other than interest income) recognized by the
holder upon satisfaction of its Claim, and (ii) with respect to a cash-basis
holder, also any amounts which would have been included in its gross income if
the holder's Claim had been satisfied in full but which was not included by
reason of the cash method of accounting.
In addition, the Treasury Department is expected to
promulgate regulations that will provide that any accrued "market discount" not
treated as ordinary income upon a tax-free exchange of market discount bonds
would carry over to the nonrecognition property received in the exchange. If
such regulations are promulgated and applicable to the Plan, any holder of a
Senior Discount Note Claim which has accrued market discount would carry over
such accrued market discount to the New Common Stock received pursuant to the
Plan, such that any gain recognized by the holder upon a subsequent disposition
of such New Common Stock also would be treated as ordinary income to the extent
of any accrued market discount not previously included in income. In general, a
Claim will have accrued "market discount" if such claim was acquired after its
original issuance at a discount to its adjusted issue price.
4. WITHHOLDING
All distributions to holders of allowed claims under the
Plan are subject to any applicable withholding (including employment tax
withholding). Under federal income tax law, interest, dividends, and other
reportable payments may, under certain circumstances, be subject to "backup
withholding" at a 31% rate. Backup withholding generally applies if the holder
(a) fails to furnish its social security number or other taxpayer identification
number ("TIN"), (b) furnishes an incorrect TIN, (c) fails properly to report
interest or dividends, or (d) under certain circumstances, fails to provide a
certified statement, signed under penalty of perjury, that the TIN provided is
its correct number and that it is not subject to backup withholding. Backup
withholding is not an additional tax but merely an advance payment, which may be
refunded to the extent it results in an overpayment of tax. Certain persons are
exempt from backup withholding, including, in certain circumstances,
corporations and financial institutions.
C. CONSEQUENCES TO HOLDERS OF OLD PREFERRED STOCK
Pursuant to the Plan, holders of Old Preferred Stock
will receive, in discharge of their Allowed Equity Interests, New Warrants
(unless Class 8 votes to reject the Plan, in which event Old Series G Preferred
Stock could be extinguished for no consideration). Under
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current law, the exchange of Old Preferred Stock for New Warrants will be
treated as a taxable event, with the consequences described below. If the Series
G Preferred Stock is extinguished for no consideration, the federal income tax
consequences to the holders of the Series G Preferred Stock will be the same as
that discussed below with respect to the Old Common Stock.
1. POTENTIAL DIVIDEND CHARACTERIZATION
An exchange of Old Preferred Stock for New Warrants will
be treated as a dividend to the extent of the Company's current or accumulated
earnings and profits, unless the redemption is "substantially disproportionate"
with respect to the shareholder under section 302(b)(2) of the Tax Code, or is
"not essentially equivalent to a dividend" with respect to the shareholder under
section 302(b)(1) of the Tax Code. In determining whether any of these tests
have been met, the shareholder must take into account not only stock it actually
owns (including any stock acquired pursuant to the Plan, such as in respect of
any Senior Discount Note Claims), but also stock constructively owned within the
meaning of section 318 of the Tax Code. Under section 318(a)(4), if a person has
an option to acquire stock, such stock shall be considered as owned by such
person. Warrants are treated as options for this purpose.
A distribution to a shareholder will be "not essentially
equivalent to a dividend" if it results in a "meaningful reduction" in the
shareholder's interest in the Company. If, as a result of a redemption of the
Old Preferred Stock in exchange for New Warrants, a shareholder of the Company
whose relative stock interest in the Company is minimal and who exercises no
control over corporate affairs suffers a reduction in his proportionate interest
in the Company (after taking into account any ownership of New Common Stock
received as a result of being a holder of Senior Discount Notes and any stock
constructively owned as a result of receiving the New Warrants), that
shareholder should be regarded as having suffered a meaningful reduction in his
interest in the Company.
Dividends received by corporate shareholders will be
eligible for the 70% dividends-received deduction, subject to certain holding
period and debt financing limitations under the Tax Code. Furthermore, section
1059 of the Tax Code requires a corporate shareholder to reduce its basis (but
not below zero) in any New Common Stock owned immediately after the exchange
(ignoring any stock constructively owned) by the "nontaxed portion" of any
"extraordinary dividend" if the holder has not held its stock for more than two
years as of the date the amount or payment of such dividend is announced,
declared or agreed to. Generally, the nontaxed portion of an extraordinary
dividend is the amount of the dividends-received deduction. Under the Taxpayer
Relief Act of 1997, the extent (if any) by which the nontaxed portion of an
extraordinary dividend exceeds the holder's tax basis in its stock would be
treated as current gain from the sale or exchange of such stock. Also, in the
case of any redemption of stock which would not have been treated (in whole or
in part) as a dividend if any options had not been taken into account under
section 318(a)(4), any amount
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treated as a dividend with respect to such redemption would be treated as an
extraordinary dividend without regard to the period the taxpayer held such
stock.
2. SALE OR EXCHANGE TREATMENT
In general, if the redemption is not treated as a
distribution taxable as a dividend, the redemption of the Old Preferred Stock
for New Warrants would result in taxable gain or loss (subject to the "wash sale
rule" discussed below) in an amount equal to the difference between (i) the fair
market value of the New Warrants received by such holder and (ii) the tax basis
in its Old Preferred Stock. The character of any gain or loss recognized as
long-term or short-term capital gain or loss or as ordinary income or loss will
be determined by a number of factors, including the tax status of the holder,
whether the Old Preferred Stock constitutes a capital asset in the hands of the
holder, and whether the Old Preferred Stock has been held for more than one year
at the time of the Effective Date.
To the extent a loss would otherwise be recognizable on
the exchange, such loss may be deferred under the "wash sale" rules of the Tax
Code. Section 1091(a) of the Tax Code provides for the disallowance of a loss on
the sale or other disposition of shares of stock or securities where it appears
that, within a period beginning 30 days before the date of such sale or
disposition and ending 30 days after such date, the holder acquired, or has
entered into a contract or option to acquire, substantially identical stock or
securities. If the Old Preferred Stock and the New Common Stock receivable upon
exercise of the New Warrants are considered "substantially identical" and the
exchange of Old Preferred Stock for the New Warrants results in a loss to the
holder, such loss may be disallowed and added to the tax basis of the New
Warrants received. The extent to which such loss would be disallowed is unclear.
Holders of Old Preferred Stock should consult their tax advisors.
3. PROPOSED REGULATIONS
Regulations have been proposed which could change the
federal income tax treatment of New Warrants received in reorganization
exchanges. It is unclear how such regulations would apply to an exchange in
which warrants are the sole consideration received. Moreover, it is not clear
whether the proposed regulations will be finalized in their current form or
whether they would be effective with respect to the exchanges occurring pursuant
to the Plan.
Due to the highly factual nature of the section 302
tests and the proposed regulations, each holder of Old Preferred Stock should
consult its tax advisor as to the tax consequences of an exchange of Old
Preferred Stock for New Warrants pursuant to the Plan.
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D. CONSEQUENCES TO HOLDERS OF OLD COMMON STOCK
A holder of Old Common Stock will recognize a loss as of
the Effective Date for federal income tax purposes in an amount equal to such
holder's adjusted tax basis in its stock at such time. Any such loss normally
will be a capital loss, and will be either a short-term or long-term capital
loss, depending upon whether such holder has a holding period in such stock of
more than one year at the time of the Effective Date.
With respect to taxpayers other than corporate
taxpayers, capital losses for a particular tax year are allowed as a deduction
for federal income tax purposes to the extent of such taxpayer's capital gains
for such tax year, plus $3,000. A noncorporate taxpayer is allowed to carry over
excess capital losses for use in succeeding tax years. With respect to corporate
taxpayers, capital losses may be deducted only to the extent of capital gains.
Corporate taxpayers generally may carry back net capital losses to each of the
three years preceding the year in which such capital losses arise; any excess
capital losses may be carried forward by a corporate taxpayer to the five years
following the tax year in which such capital losses arise.
THE FOREGOING SUMMARY HAS BEEN PROVIDED FOR
INFORMATIONAL PURPOSES ONLY. ALL HOLDERS OF CLAIMS AND EQUITY INTERESTS ARE
URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL, AND
OTHER TAX CONSEQUENCES APPLICABLE UNDER THE PLAN.
XIII.
VALUATION
A. ESTIMATED LIQUIDATION VALUE OF ASSETS
As a condition to confirmation of the Plan, section
1129(a)(7)(A)(ii) of the Bankruptcy Code requires that each holder of a Claim or
Equity Interest in an impaired class of Claims or Equity Interests that has not
voted to accept the Plan must be distributed on account of such Claim or Equity
Interest consideration of a value not less than that which it would receive if
CHI was liquidated under chapter 7 of the Bankruptcy Code on the Effective Date.
The information contained in Exhibit E attached to this Disclosure Statement
provides a summary of the liquidation values of CHI's properties and interests
in property, on a consolidated basis, assuming a chapter 7 liquidation in which
a trustee appointed by the Bankruptcy Court would liquidate the properties and
interests in property of CHI. Reference should be made to the Liquidation
Analysis annexed as Exhibit E to this Disclosure Statement for a complete
discussion and presentation of such liquidation analysis. The Liquidation
Analysis was prepared by the Company and Houlihan Lokey.
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Underlying the Liquidation Analysis are a number of
estimates and assumptions that, although developed and considered reasonable by
management of CHI, are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of CHI and
management. The Liquidation Analysis is also based upon assumptions with regard
to liquidation decisions that are subject to change. Accordingly, the values
reflected may not be realized if CHI was actually to be the subject of such a
liquidation. The chapter 7 liquidation period is assumed to be a period of
twenty-four months following the operations of CHI in its Chapter 11 Case for
three months. This period would allow for the collection of receivables, sale of
properties and interests in property, and the winding down of operations.
B. REORGANIZATION VALUE
CHI has been advised by Houlihan Lokey with respect to
the value of Reorganized CHI. Houlihan Lokey has undertaken its valuation
analysis for the purpose of determining the value available to distribute to
creditors and Equity Interest holders pursuant to the Plan and to analyze the
relative recoveries to creditors and Equity Interest holders thereunder. The
analysis is based on the financial projections as well as current market
conditions and statistics. The values are as of an assumed Effective Date of
December 31, 1997 and are based upon information available to and analyses
undertaken by Houlihan Lokey in May and June, 1997 and as updated in July 1997.
The value of Reorganized CHI reflects the enterprise value of Reorganized CHI,
the holding company, or effectively the residual equity value in all of the
subsidiary projects of CHI after all project-related debt and expenses of the
holding company. The range of reorganization values for Reorganized CHI includes
(i) the going concern value of CHI's business, (ii) the $15,000,000 in Cash that
will be distributed under the Plan and the projected remaining excess
unrestricted cash available to the Company on the Effective Date, and (iii) the
projected value of the net operating losses of Reorganized CHI as of the
Effective Date and excludes the cash required to pay administrative expenses.
Based upon the foregoing assumptions, the reorganization value of Reorganized
CHI is assumed for purposes of the Plan by CHI, based on advice from Houlihan
Lokey, to be approximately $85.8 million to $114.9 million, with a mid-point
value of $100.1 million. The going concern value of CHI's business after the
distribution under the Plan of the $15,000,000 cash payment to the holders of
Allowed Claims in Class 3 is assumed for purposes of the Plan to range from
approximately $70.8 million to $99.9 million, with a mid-point of $85.1 million.
Since the going concern value of CHI's business was
determined after all subsidiary and project debt obligations and it is assumed
no borrowings will be outstanding under the New Working Capital Facility on the
Effective Date, CHI had employed an assumed range of equity values for
Reorganized CHI of approximately $70.8 million to $99.9 million, with a midpoint
of $85.1 million. The assumed equity values for Reorganized CHI were then
reduced by approximately $2.5 million to $5.1 million, with a mid-point of $3.7
million to adjust for the issuance of the New Warrants to purchase approximately
12.5% of
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the New Common Stock and the Management Options to purchase approximately 7.5%
of the New Class A Common Stock. See Section XIII.C., below, entitled "Valuation
- - - -- Warrant and Management Option Values." Based on the adjusted range of equity
values (after deducting the value of the New Warrants and Management Options)
for Reorganized CHI of $68.3 million to $94.8 million, with a midpoint of $81.4
million, and the distribution of 10,000,000 shares of New Common Stock, the
value per share of the New Common Stock is estimated to range from $6.83 to
$9.48, with a mid-point of $8.14.
Houlihan Lokey used a discounted cash flow analysis to
arrive at the going concern value of CHI's business. These valuation techniques
reflect the longer-term focus on the intrinsic value of the cash flow
projections in CHI's business plan. The discount rates used by Houlihan Lokey to
arrive at the going concern value of CHI's business were based on methodologies
employed by Houlihan Lokey in estimating the required rates of return on
alternative investments as well as the judgment of Houlihan Lokey and its
experience in valuing businesses of similar financial and operating risks. The
foregoing valuations also are based on a number of additional assumptions,
including a successful reorganization of CHI's business and finances in a timely
manner, the probability of achievement of the forecasts reflected in the
financial projections, the projected amount of available unrestricted cash at
the Effective Date, the availability of certain tax attributes, the continuation
of current market conditions through the Effective Date and the Plan becoming
effective in accordance with its terms.
Estimates of value do not purport to be appraisals or
necessarily reflect the values that may be realized if assets are sold through a
formal sales process. The estimates of value represent hypothetical
reorganization values of Reorganized CHI as the continuing owner and operator of
its business and assets. Such estimates reflect computations of the estimated
reorganization value of Reorganized CHI through the application of various
valuation techniques and do not purport to reflect or constitute appraisals,
liquidation values or estimates of the actual market value that may be realized
through the sale of any securities to be issued pursuant to the Plan, which may
be significantly different than the amounts set forth herein. The value of an
operating business such as the Company's business is subject to uncertainties
and contingencies that are difficult to predict and will fluctuate with changes
in factors affecting the financial condition and prospects of such a business.
AS A RESULT, THE ESTIMATE OF THE RANGE OF REORGANIZATION VALUES AND THE GOING
CONCERN VALUE OF CHI'S BUSINESS SET FORTH HEREIN IS NOT NECESSARILY INDICATIVE
OF ACTUAL OUTCOMES, WHICH MAY BE SIGNIFICANTLY MORE OR LESS FAVORABLE THAN THOSE
SET FORTH HEREIN. BECAUSE SUCH ESTIMATE IS INHERENTLY SUBJECT TO UNCERTAINTIES,
NEITHER CHI, HOULIHAN LOKEY, NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR ITS
ACCURACY. IN ADDITION, THE VALUATION OF NEWLY-ISSUED SECURITIES SUCH AS THE NEW
COMMON STOCK AND THE NEW WARRANTS IS SUBJECT TO ADDITIONAL UNCERTAINTIES AND
CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT. Actual market prices of
such securities at issuance will depend upon, among other
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things, prevailing interest rates, conditions in the financial markets, the
anticipated initial securities holdings of prepetition creditors, some of which
may prefer to liquidate their investment rather than hold it on a long-term
basis, and other factors that generally influence the prices of securities. It
should be noted that there is presently no trading market for the New Common
Stock and the New Warrants and there can be no assurance that such a trading
market will develop.
In preparing a range of the estimated reorganization
value of Reorganized CHI and the going concern value of CHI's business, Houlihan
Lokey: (i) reviewed certain historical financial information of CHI for recent
years and interim periods, (ii) reviewed certain internal financial and
operating data of CHI, including financial projections provided by management
relating to its business and prospects, (iii) met with certain members of senior
management of CHI to discuss operations and future prospects, (iv) reviewed
publicly available financial data and considered the market values of public
companies deemed generally comparable to the operating business of CHI, (v)
reviewed the financial terms to the extent publicly available of certain
acquisitions of companies that Houlihan Lokey believes are comparable to the
operating business of CHI, (vi) considered certain economic and industry
information relevant to the operating business, and (vii) conducted such other
analyses as Houlihan Lokey deemed appropriate. Although Houlihan Lokey conducted
a review and analysis of CHI's business, operating assets and liabilities and
business plans, Houlihan Lokey assumed and relied on the accuracy and
completeness of all financial and other information furnished to it by CHI and
publicly available information. In addition, Houlihan Lokey did not
independently verify management's projections in connection with such valuation
and, other than with respect to certain real property, no independent
evaluations or appraisals of CHI's assets were sought or were obtained in
connection therewith.
C. NEW WARRANTS AND MANAGEMENT OPTIONS VALUES
As a result of Plan negotiations, the Plan contemplates
the distribution of the New Warrants to holders of Old Preferred Stock and the
Management Options to certain key executives of Reorganized CHI. The exercise
price of the New Series B Warrants and the Management Options is $10.00 per
share which is greater than the estimated mid-point equity value per share of
New Common Stock. The exercise price of the New Series C Warrants is estimated
to be $18.45 per share assuming a commencement date of September 30, 1997, which
is greater than the estimated mid-point equity value per share of New Common
Stock. The exercise of the New Warrants and the Management Options requires the
payment to Reorganized CHI of Cash in the amount of the exercise price. For
purposes of this analysis it is assumed that all New Warrants and Management
Options are issued as of the Effective Date. While warrants may be valued using
complex mathematical computations, these computations are based upon highly
subjective assumptions, including, among others, the estimated trading prices of
the equity securities into which the warrants may be converted and the projected
volatility of price movements of those shares. Based on (i) an assumed trading
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price equal to the assumed range of unadjusted equity values for Reorganized CHI
of approximately $70.8 million to $99.9 million with a midpoint of $85.1
million, (ii) a distribution of approximately 10,000,000 shares of New Common
Stock and 2,147,938 shares of New Common Stock on account of the New Warrants
and Management Options and (iii) an estimated trading volatility of 30% (based
on observed historical trading volatilities of publicly traded companies that
are comparable to CHI), Houlihan Lokey computed the theoretical value of the New
Warrants, using a variant of a standard computation methodology for the
valuation of warrants (including applying a discount to reflect the vesting
provisions of the New Series B Warrants), to be in a range from $0.7 million to
$1.5 million for the New Series B Warrants and $0.6 million to $1.4 million for
the New Series C Warrants, with an aggregate value in a range from $1.4 million
to $2.9 million. Utilizing the same methodology, but including a discount
associated with the vesting schedule for the Management Options, Houlihan Lokey
computed the theoretical value of the Management Options to be in a range from
$1.1 million to $2.2 million. The aggregate value range for the New Warrants and
the Management Options of $2.5 million to $5.1 million was calculated using the
range of the New Warrant and Management Option values calculated at an estimated
trading volatility of 30% for the assumed range of equity values for Reorganized
CHI outlined above.
THERE CAN BE NO ASSURANCE THAT THE NEW COMMON STOCK
WILL TRADE AT THE ESTIMATED REORGANIZATION EQUITY VALUE PER SHARE, THAT THE
TRADING VOLATILITY OF THE NEW COMMON STOCK WILL BE PERCEIVED TO BE 30%, OR THAT
THE MARKET VALUES OF THE NEW WARRANTS AND THE MANAGEMENT OPTIONS WILL BE IN THE
RANGES DESCRIBED ABOVE. IN ADDITION, THE MATHEMATICAL COMPUTATION METHODOLOGY
USED DOES NOT ACCOUNT FOR THE POTENTIAL DILUTIVE IMPACT OF THE NEW WARRANTS AND
MANAGEMENT OPTIONS. FINALLY, ACTUAL TRADING VALUES FOR THE NEW WARRANTS AND
MANAGEMENT OPTIONS FREQUENTLY DIFFER MATERIALLY FROM THOSE VALUES DERIVED FROM
MATHEMATICAL COMPUTATIONS. ACCORDINGLY, THE FOREGOING COMPUTATION OF VALUE
CANNOT BE RELIED UPON AS A MEASURE OF REALIZABLE VALUE OF THE NEW WARRANTS OR
MANAGEMENT OPTIONS.
THE VALUATIONS HEREIN REPRESENT ESTIMATED
REORGANIZATION VALUES AND NEW WARRANT AND MANAGEMENT OPTION VALUES AND DO NOT
NECESSARILY REFLECT VALUES THAT COULD BE ATTAINABLE IN PUBLIC OR PRIVATE
MARKETS. THE EQUITY VALUES AND WARRANT AND MANAGEMENT OPTION VALUES ASCRIBED IN
THE ANALYSIS DO NOT PURPORT TO BE ESTIMATES OF THE POST-REORGANIZATION MARKET
TRADING VALUES. SUCH TRADING VALUE, IF ANY, MAY BE MATERIALLY DIFFERENT FROM THE
REORGANIZATION EQUITY VALUE AND NEW WARRANT AND MANAGEMENT OPTION VALUE RANGES
ASSOCIATED WITH THE VALUATION ANALYSIS.
88
<PAGE>
XIV.
FINANCIAL INFORMATION
A. GENERAL
The audited consolidated balance sheets for the fiscal
years ended June 30, 1996, and June 30, 1995, and the related consolidated
statements of operations, and stockholders' equity/(deficit), and cash flows for
each of the three years ended June 30, 1996, June 30, 1995, and June 30, 1994,
of CHI and its Nondebtor Subsidiaries are contained in the Annual Report on Form
10-K, a copy of which is annexed as Exhibit B to this Disclosure Statement, and
the full text of which is incorporated herein by reference. This financial
information is provided to permit the holders of Claims and Equity Interests to
better understand CHI's historical business performance and the impact of the
Chapter 11 Case on CHI's businesses.
CHI will be required to file monthly operating reports
with the Bankruptcy Court. Such financial information will be on file with the
Bankruptcy Court and publicly available for review.
B. CHANGE IN FISCAL YEAR
On the Effective Date, Reorganized CHI will change its
fiscal year. The old fiscal year commenced on July 1st of each year and ended on
June 30th of the next calendar year. The new fiscal year will commence on
January 1st of each year and end on December 31st of that same calendar year.
Accordingly, the projected financial information set forth on Exhibit D uses
Reorganized CHI's new fiscal year of January 1st through December 31st.
C. SELECTED FINANCIAL DATA
See Item 6 "Selected Financial Data" set forth in the
Annual Report on Form 10-K annexed as Exhibit B to this Disclosure Statement.
D. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For a detailed discussion by management of CHI's
financial condition, most recent results of operations, liquidity, and capital
resources, see Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Annual Report on Form 10-K annexed
as Exhibit B to this Disclosure Statement.
89
<PAGE>
E. RECENT PERFORMANCE
See the Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997, annexed as Exhibit C to this Disclosure Statement.
XV.
ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
If the Plan is not confirmed and consummated, the
alternatives to the Plan include (i) liquidation of CHI under chapter 7 of the
Bankruptcy Code and (ii) an alternative plan of reorganization.
A. LIQUIDATION UNDER CHAPTER 7
If no plan can be confirmed, CHI's Chapter 11 Case may
be converted to a case under chapter 7 of the Bankruptcy Code, pursuant to which
a trustee would be elected to liquidate the assets of CHI for distribution in
accordance with the priorities established by the Bankruptcy Code. A discussion
of the effects that a chapter 7 liquidation would have on the recovery of
holders of Claims and Equity Interests and CHI's liquidation analysis are set
forth in Section VIII.B, above, entitled "CONFIRMATION OF THE PLAN --
Requirements for Confirmation of the Plan -- Consensual Confirmation -- Best
Interests Test." CHI believes that liquidation under chapter 7 would result in
(i) smaller distributions being made to creditors than those provided for in the
Plan because of, among other things, (a) the likelihood that the assets of CHI
would have to be sold or otherwise disposed of in a less orderly fashion over a
shorter period of time, (b) the loss of any incremental value that might be
created by the Industrial Infrastructure Business after a reorganization, (c)
additional administrative expenses involved in the appointment of, and the
administration of the chapter 7 case by, a trustee, and (d) additional expenses
and claims, some of which would be entitled to priority, which would be
generated during the liquidation and from the rejection of leases and other
executory contracts in connection with a cessation of CHI's operations, and (ii)
no distributions being made to any holders of Equity Interests.
90
<PAGE>
B. ALTERNATIVE PLAN OF REORGANIZATION
If the Plan is not confirmed, CHI (or if CHI's exclusive
period in which to file a plan of reorganization has expired, any other party in
interest) could attempt to formulate a different plan. Such a plan might involve
either a reorganization and continuation of CHI's business or an orderly
liquidation of its assets. With respect to an alternative plan, CHI has explored
various alternatives in connection with the formulation and development of the
Plan. CHI believes that its Plan enables creditors and holders of preferred
equity to realize the best value and recovery under the circumstances. In a
liquidation under chapter 11, CHI's assets could be sold in a more orderly
fashion over a more extended period of time than in a liquidation under chapter
7, possibly resulting in somewhat greater (but indeterminate) recoveries than
might be obtained in chapter 7. Further, if a trustee were not appointed,
because such appointment is not required in a chapter 11 case, the expenses for
professional fees most likely would be less than those allowed in a chapter 7
case. Although preferable to a chapter 7 liquidation, CHI believes that any
alternative liquidation under chapter 11 is a less attractive alternative to
creditors and equity holders than the Plan because of the greater return to such
parties in interest pursuant to the Plan.
XVI.
CONCLUSION
CHI believes the Plan is in the best interests of all
creditors and equity holders and urges the holders of impaired Claims and Equity
Interests entitled to vote, to vote to accept the Plan and to evidence such
acceptance by returning their Ballots so they will be received not later than
5:00 p.m. (Eastern Time) on September 9, 1997.
Dated: Stamford, Connecticut
August 8, 1997
CONSOLIDATED HYDRO, INC.
By: /s/Edward M. Stern
----------------------
Name: Edward M. Stern
Title: President
91
<PAGE>
EXHIBIT A
PLAN OF REORGANIZATION
<PAGE>
EXHIBIT B
CONSOLIDATED HYDRO, INC. ANNUAL REPORT ON FORM 10-K
<PAGE>
EXHIBIT C
CONSOLIDATED HYDRO, INC. QUARTERLY REPORT ON FORM 10-Q
<PAGE>
EXHIBIT D
PROJECTED FINANCIAL INFORMATION
<PAGE>
EXHIBIT D
PROJECTED FINANCIAL INFORMATION
This exhibit sets forth the following financial
information and projections for the five fiscal years of the Projection Period:
o Pro Forma Consolidated Balance Sheet of
Reorganized CHI as of December 31, 1997,
December 31, 1998, December 31, 1999,
December 31, 2000, December 31, 2001 and
December 31, 2002;
o Projected Consolidated Statement of
Operations of CHI for the 26 week period
ending December 31, 1997, including
confirmation adjustments, and Projected
Consolidated Statement of Operations of
Reorganized CHI for each of the five fiscal
years in the period ending December 31,
2002;
o Projected Consolidated Statement of Cash
Flows of CHI for the 26 week period ending
December 31, 1997, including confirmation
adjustments, and Projected Consolidated
Statement of Cash Flows of Reorganized CHI
for each of the five fiscal years in the
period ending December 31, 2002; and
GENERAL
The projections set forth below were developed by CHI
and its advisors and are based on a number of significant assumptions, including
the successful reorganization of CHI, an assumed Effective Date of December 31,
1997, and no significant downturn in the specific markets in which the Company
operates.
THE PROJECTIONS, AND THEREFORE, THE VALUATIONS, ARE
BASED UPON A NUMBER OF SIGNIFICANT ASSUMPTIONS. ACTUAL
OPERATING RESULTS AND VALUES MAY VARY.
The financial projections with respect to the estimated
effect of the transactions contemplated by the Plan on the Company's
capitalization, results of operations, and cash flow for the period ending
December 31, 2002. The Company does not, as a matter of course, publicly
disclose projections as to its future revenues, earnings, or cash flow. In
connection with CHI's consideration of the Plan, certain projections of the
future financial performance of the Company's operating businesses were
prepared. Accordingly, after the Effective Date, Reorganized CHI does not intend
to update or otherwise revise the projections to reflect circumstances existing
since their preparation in the first six-months of 1997 to reflect the
occurrence of unanticipated events, even in the event that any or all of the
1
<PAGE>
underlying assumptions are shown to be in error. Furthermore, Reorganized CHI
does not intend to update or revise the projections to reflect changes in
general economic or industry conditions. However, Reorganized CHI's regular
quarterly and annual financial statements, and the accompanying discussion and
analysis, contained in Reorganized CHI's Quarterly Reports on Form 10-Q and
Annual Reports on Form 10-K, will contain disclosure concerning Reorganized
CHI's actual financial condition and results of operations during the period
covered by the projections. Significant assumptions underlying the financial
projections are set forth below and should be read (together with the Company's
historical financial information set forth below, in the most recent Annual
Report on Form 10-K and Quarterly Report on Form 10-Q, attached as Exhibits B
and C, respectively, to this Disclosure Statement) in conjunction therewith.
THE PROJECTIONS WERE PREPARED BY CHI TO ASSIST EACH
HOLDER IN DETERMINING WHETHER TO ACCEPT OR REJECT THE PLAN. BECAUSE THE
PROJECTIONS HAVE NOT BEEN COMPILED, OR PREPARED FOR EXAMINATION OR REVIEW, BY
THE COMPANY'S INDEPENDENT AUDITORS (WHO ACCORDINGLY ASSUME NO RESPONSIBILITY FOR
THEM), THE PROJECTIONS WERE NOT PREPARED TO CONFORM TO THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
FINANCIAL FORECASTS. WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THESE
PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONS (WHICH THE COMPANY BELIEVES
ARE REASONABLE), AND ARE SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC, AND
COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE
CONTROL OF THE COMPANY. CONSEQUENTLY, THE INCLUSION OF THE PROJECTIONS HEREIN
SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY (OR ANY OTHER PERSON)
THAT THE PROJECTIONS WILL BE REALIZED, AND ACTUAL RESULTS MAY VARY MATERIALLY
FROM THOSE PRESENTED BELOW. DUE TO THE FACT THAT SUCH PROJECTIONS ARE SUBJECT TO
SIGNIFICANT UNCERTAINTY AND ARE BASED UPON ASSUMPTIONS WHICH MAY NOT PROVE TO BE
CORRECT, NEITHER THE COMPANY NOR ANY OTHER PERSON ASSUMES ANY RESPONSIBILITY FOR
THEIR ACCURACY OR COMPLETENESS.
THE ASSUMPTIONS CONTAINED IN THE PROJECTIONS AND
RESULTANT COMPUTATIONS WERE MADE SOLELY FOR PURPOSES OF PREPARING THE
PROJECTIONS. ALTHOUGH CHI EXPECTS TO UTILIZE A CONSISTENT METHODOLOGY, THE
CHANGES BETWEEN THE AMOUNTS OF ANY OR ALL OF THE FOREGOING ITEMS AS ASSUMED IN
THE PROJECTIONS AND THE ACTUAL AMOUNTS THEREOF AS OF THE EFFECTIVE DATE MAY BE
MATERIAL.
2
<PAGE>
EXHIBIT E
LIQUIDATION ANALYSIS
<PAGE>
EXHIBIT E
LIQUIDATION ANALYSIS
The following liquidation analysis is an estimate of the
proceeds that may be generated as a result of a hypothetical chapter 7
liquidation of the assets of CHI which consist of the stock of its subsidiaries
and certain general partnership interests. The analysis is based upon a number
of significant assumptions which are described, including effectuating the
liquidation through a sale of the stock of the 13 direct primary subsidiaries of
CHI, the holding company. The liquidation analysis does not purport to be a
valuation of the Company's assets and is not necessarily indicative of the
values that may be realized in an actual liquidation. All dollar amounts are in
millions.
Estimated Disposition Value of the Operating Subsidiaries and
General Partnership Interests of CHI (a) $43.8
Estimated Net Unrestricted Cash (b) $23.6
Gross Liquidation Proceeds $67.4
Less: Chapter 7 Trustee Fees (c) ($2.0)
Less: Other Chapter 7 Administrative Expenses (d) ($3.4)
Less: Chapter 11 Administrative Expenses (e) ($2.8)
------
Net Liquidation Proceeds $59.2
Present Value of Net Liquidation
Proceeds as of Assumed December
31, 1997 Effective Date (f) $46.4
Less: Priority Claims (g) $ 0.0
-----
Net Proceeds Distributable to Holder of
Impaired Claims And Equity Interests $46.4
=====
NOTES TO LIQUIDATION ANALYSIS:
- - - -----------------------------
(a) The Estimated Disposition of the Operating Subsidiaries and General
Partnership Interests of CHI assumes the operations of CHI are sold
as a going-concern and on a
1
<PAGE>
consolidated basis through a sale of the 13 direct primary
subsidiaries. The 13 direct primary subsidiaries of CHI are: CHI
Finance, Inc., CHI Acquisitions, Inc., CHI Universal, Inc.,
Littlefield Hydro Company, Inc., Essex Company, Asotin Hydro
Company, Inc., Consolidated Hydro New York, Inc., Consolidated Hydro
Vermont, Inc., Kinneytown Hydro Company, Inc., LaChute Hydro
Company, Inc., Minnewana Hydro Company, Inc., Boot Hydropower, Inc.,
and Aziscohos Hydro Company, Inc. A sale of effectively the entire
operations of CHI through a sale of the direct subsidiaries of the
holding company is the most efficient method of disposing of the
assets of CHI due to, among other things, (i) the extensive
regulatory approvals which would be required by various federal,
state and municipal agencies for each subsidiary if one-off sales
were pursued, and (ii) the extensive time required for individual
subsidiaries to be marketed for sale. The estimated sales proceeds
from a sale of the 13 direct primary subsidiaries of CHI are based
upon the net present value of the projected free cash flow of the
hydroelectric operations of the Company after corporate overhead and
all subsidiary capital expenditure and debt service requirements.
The discount rate utilized in this analysis to derive the net
present value is based upon (i) certain company-specific information
provide by senior management regarding the industry and the
business, (ii) information regarding recent sales by the Company of
certain assets in a non-forced sale environment, (iii) other
relevant company and industry information, and (iv) a liquidation
premium. A liquidation premium in the discount rate takes into
account the effect the liquidation process would have on the
operations of the business, including the impact on employees,
suppliers and customers of the Company and the resulting impact on
sales and cash flow as well as reflecting the forced sale nature of
the sales process.
(b) Reflects the total unrestricted cash accumulated as of the estimated
liquidation date of December 31, 1999. This amount includes free
cash flow earned during the interim period prior to the liquidation
sale but excludes (i) $5.0 million which is assumed to be required
for general working capital and (ii) $4.5 million related to the use
of letters of credit through the New Working Capital Facility which
would not be available in a liquidation scenario. Interest is
assumed to be earned on the cash balances at a rate of 5%.
(c) Section 326 of the Bankruptcy Code limits the Chapter 7 Trustee Fees
to 3% of all monies disbursed or turned over in the case by the
Chapter 7 Trustee to parties in interest, excluding the debtor, but
including holders of secured claims. In this analysis, Chapter 7
Trustee Fees were estimated at the cap imposed by Section 326.
(d) Includes administrative claims for fees for certain accounting,
legal, and other professionals including financial advisors, who
would likely be required to assist the Trustee in case
administration and in the sale process.
2
<PAGE>
(e) Includes costs associated with the administration of the Chapter 11
prior to its conversion to a Chapter 7, including estimated senior
management severance programs in order to retain management
throughout the sale process.
(f) The Net Liquidation Proceeds have been discounted back to the
Effective Date in order to make the recoveries to unsecured
creditors and equity holders comparable under the Plan and as a
result of a Chapter 7 case.
(g) No priority claims, other than administrative expenses, are assumed.
DISTRIBUTION OF NET PROCEEDS
The following table sets forth an estimated distribution
of the $46.4 million in net proceeds distributable to holders of nonpriority
unsecured claims and equity interests in a hypothetical chapter 7 liquidation of
CHI on the Effective Date and a comparison to estimated recoveries under the
proposed chapter 11 Plan. The distribution in such liquidation gives effect to
strict enforcement of all contractual subordination provisions. All dollar
amounts are in millions.
<TABLE>
<CAPTION>
==========================================================================================================
Class Security Commencement Chapter 7 Liquidation Chapter 11 Plan
Date Claim Value Recovery Value Recovery
- - - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3 Senior Discount $184.5 $46.4 25.1% $96.4 52.2%
Notes
- - - ----------------------------------------------------------------------------------------------------------
7 Series F 8% Senior $80.3 $0.0 0.0% $0.6 0.7%
Preferred
- - - ----------------------------------------------------------------------------------------------------------
8 Series H Cumulative $124.0 $0.0 0.0% $0.9 0.7%
Preferred
- - - ----------------------------------------------------------------------------------------------------------
9 Series G Junior $85.8 $0.0 0.0% $0.6 0.7%
Preferred
- - - ----------------------------------------------------------------------------------------------------------
10 Old Common Stock N/A $0.0 N/A $0.0 N/A
==========================================================================================================
</TABLE>
As illustrated by the foregoing, CHI believes that under the Plan each holder of
an impaired claim in Class 3 and each holder of an impaired equity interest in
Classes 7, 8 and 9 will receive on account of such claim or equity interest,
property of a value, as of the Effective Date, that is more than the value such
holder would receive if CHI were liquidated under chapter 7 of the Bankruptcy
Code on the Effective Date. Accordingly, CHI believes the Plan satisfies the
requirements of the best interests test set forth in section 1129(a)(7) of the
Bankruptcy Code.
3
<PAGE>
SCHEDULE 1
CHI'S HYDROELECTRIC PROJECTS
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- - - --------------------------------------x
:
In re :
: CHAPTER 11
CONSOLIDATED HYDRO, INC., : CASE NO. _____________
:
Debtor. :
:
- - - --------------------------------------x
PLAN OF REORGANIZATION UNDER CHAPTER 11 OF
THE BANKRUPTCY CODE OF CONSOLIDATED HYDRO, INC.
-----------------------------------------------
Consolidated Hydro, Inc. proposes the following plan of reorganization
under section 1121(a) of title 11 of the United States Code:
ARTICLE I - DEFINITION OF TERMS AND RULES OF INTERPRETATION
Unless otherwise required by the context, the words and phrases listed
below shall have the following meanings when used in the Plan. Wherever from the
context it appears appropriate, each term stated in either the singular or the
plural shall include both the singular and the plural and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, feminine and
neuter. Unless otherwise specified, all section, article, schedule or exhibit
references in the Plan are to the respective section in, article of, schedule
to, or exhibit to, the Plan. The words "herein," "hereof," "hereto," "hereunder"
and other words of similar import refer to the Plan as a whole and not to any
particular section, subsection or clause contained in the Plan. The rules of
construction contained in section 102 of the Bankruptcy Code shall apply to the
construction of the Plan. A term used herein that is not defined herein, but
that is used in the Bankruptcy Code, shall have the meaning ascribed to that
term in the Bankruptcy Code. The headings in the Plan are for convenience of
reference only and shall not limit or otherwise affect the provisions of the
Plan.
1.1 Administrative Expense Claim means any right to payment constituting a
cost or expense of administration of the Chapter 11 Case under sections 503(b)
and 507(a)(1) of the Bankruptcy Code, including, without limitation, any actual
and necessary costs and expenses of preserving the estate of the Debtor, any
actual and necessary costs and expenses of operating the business of the Debtor,
any indebtedness or obligations incurred or assumed by the Debtor in Possession
in connection with the conduct of its business, including, without limitation,
for the acquisition or lease of property or an interest in property or the
rendition of services, all compensation and reimbursement of expenses to
<PAGE>
the extent Allowed by the Bankruptcy Court under section 330 or 503 of the
Bankruptcy Code and any fees or charges assessed against the estate of the
Debtor under section 1930 of chapter 123 of title 28 of the United States Code.
1.2 Allowed means (a) with respect to an Administrative Expense Claim, an
Administrative Expense Claim that is allowed or deemed allowed pursuant to
section 503 of the Bankruptcy Code; and (b) with respect to a Claim or Equity
Interest, any Claim or Equity Interest (i) proof of which is timely and properly
filed, or, if no proof of Claim or Equity Interest is timely and properly filed,
a Claim or Equity Interest that is listed by the Debtor on its Schedules, as
such Schedules may be amended from time to time in accordance with Bankruptcy
Rule 1009, as liquidated in amount, not disputed and not contingent, and (ii)
that is allowed or deemed allowed pursuant to section 502 of the Bankruptcy Code
and not Disputed. Unless otherwise specified herein or by order of the
Bankruptcy Court, "Allowed" shall not, for purposes of computation of
distributions under the Plan, include accrual or payment of interest on any
Claim or Equity Interest from and after the Commencement Date.
1.3 Amended CHI By-Laws means the amended By-Laws of CHI Energy, Inc.,
which shall be in substantially the form of Exhibit A annexed hereto.
1.4 Bankruptcy Code means title 11 of the United States Code, as amended
from time to time, as applicable to the Chapter 11 Case.
1.5 Bankruptcy Court means the United States District Court for the
District of Delaware having jurisdiction over the Chapter 11 Case and, to the
extent of any reference under section 157 of title 28 of the United States Code,
the unit of such District Court under section 151 of title 28 of the United
States Code.
1.6 Bankruptcy Judge means the United States District Court Judge presiding
over the Chapter 11 Case, and, to the extent of a reference of the Chapter 11
Case, the United States Bankruptcy Judge presiding over the Chapter 11 Case.
1.7 Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure as
promulgated by the United States Supreme Court under section 2075 of title 28 of
the United States Code, and any Local Rules of the Bankruptcy Court.
1.8 Business Day means any day other than a Saturday, Sunday or any other
day on which commercial banks in New York, New York are required or authorized
to close by law or executive order.
1.9 Cash means legal tender of the United States of America and equivalents
thereof.
-2-
<PAGE>
1.10 Chapter 11 Case means the case under chapter 11 of the Bankruptcy Code
commenced by the Debtor, styled In re Consolidated Hydro, Inc.
1.11 CHI means Consolidated Hydro, Inc., a Delaware corporation.
1.12 Claim has the meaning set forth in section 101(5) of the Bankruptcy
Code.
1.13 Class means a category of holders of Claims or Equity Interests as set
forth in Article III of the Plan.
1.14 Class 3 Cash Payment means the sum of $15,000,000 plus the Unofficial
Bondholders' Committee Expenses to be paid in Cash as follows: (a) $10,000,000
plus the Unofficial Bondholders' Committee Expenses on the Effective Date; (b)
up to $5,000,000 payable out of Excess Cash and the proceeds of a working
capital facility (to the extent permitted by the lender under such working
capital facility) on or before December 31, 1997; and (c) if the payment set
forth in subsection (b) is not made in full by December 31, 1997, the balance of
the $5,000,000 payment on or before March 31, 1998, with interest thereon at the
Prime Rate from December 31, 1997, until the date the balance is paid in full.
1.15 Collateral means any property or interest in property of the estate of
the Debtor subject to a Lien to secure the payment or performance of a Claim,
which Lien is not subject to avoidance under the Bankruptcy Code or otherwise
invalid under the Bankruptcy Code or applicable state law.
1.16 Commencement Date means the date on which CHI commences the Chapter 11
Case.
1.17 Confirmation Date means the date on which the Confirmation Order is
signed by the Bankruptcy Judge.
1.18 Confirmation Hearing means the hearing held by the Bankruptcy Court to
consider confirmation of the Plan pursuant to section 1129 of the Bankruptcy
Code, as such hearing may be adjourned or continued from time to time.
1.19 Confirmation Order means the order of the Bankruptcy Court confirming
the Plan pursuant to section 1129 of the Bankruptcy Code.
1.20 Creditors' Committee means the statutory committee of unsecured
creditors appointed in the Chapter 11 Case pursuant to section 1102 of the
Bankruptcy Code, provided, however, that if no such committee is appointed, the
Unofficial Bondholders' Committee shall constitute the Creditors' Committee.
1.21 Debtor means CHI.
-3-
<PAGE>
1.22 Debtor in Possession means the Debtor in its capacity as debtor in
possession in the Chapter 11 Case pursuant to sections 1101, 1107(a) and 1108 of
the Bankruptcy Code.
1.23 Disputed means, with reference to any Claim or Equity Interest, any
Claim or Equity Interest proof of which was timely and properly filed and which
has been or hereafter is listed on the Schedules as unliquidated, disputed or
contingent, and in either case or in the case of an Administrative Expense
Claim, any Administrative Expense Claim, Claim or Equity Interest which is
disputed under the Plan or as to which the Debtor has interposed a timely
objection and/or request for estimation in accordance with section 502(c) of the
Bankruptcy Code and Bankruptcy Rule 3018, which objection and/or request for
estimation has not been withdrawn or determined by a Final Order, and any Claim
or Equity Interest proof of which was required to be filed by order of the
Bankruptcy Court but as to which a proof of claim or interest was not timely or
properly filed.
1.24 Distribution Record Date means the day that is three Business Days
from and after the Confirmation Date.
1.25 DnB Facility Agreement means that certain Revolving Credit Agreement
among CHI, as Borrower, the banks listed therein and Den norske Bank AS, as
agent, dated as of October 14, 1993, together with the related documents
thereto, in each case as such agreements may have been modified or amended.
1.26 DnB Facility Claim means any Claim arising from or relating to the DnB
Facility
Agreement.
1.27 Effective Date means the first Business Day on which the conditions
specified in Section 11.1 of the Plan have been satisfied or waived.
1.28 Employment Agreements means the employment agreements entered into
between Reorganized CHI and certain of its key executives, which shall be in
substantially the form annexed hereto as Exhibit C.
1.29 Equity Interest means an interest in the Debtor evidenced by Old
Preferred Stock, Old Common Stock, Old Warrants, Old Options or other
instruments evidencing an ownership interest in CHI, whether or not
transferable.
1.30 Excess Cash means an amount equal to the unrestricted cash balance of
the Debtor as of December 31, 1997, plus the difference between (i) the sum of
all unrestricted cash requirements of Reorganized CHI in the 3-month period
ending March 31, 1998 and (ii) the sum of all unrestricted cash anticipated to
be received by Reorganized CHI through the end of such 3-month period. All such
amounts shall be certified by Reorganized CHI's chief accounting officer in a
writing delivered to each holder of an Allowed Senior Discount Notes Claim and
shall be determined by reference to Reorganized CHI's fiscal 1998 budget and
actual receivables and payables as of December 31, 1997.
-4-
<PAGE>
1.31 Final Order means an order of the Bankruptcy Court as to which the
time to appeal, petition for certiorari, or move for reargument or rehearing has
expired and as to which no appeal, petition for certiorari, or other proceedings
for reargument or rehearing shall then be pending or as to which any right to
appeal, petition for certiorari, reargue, or rehear shall have been waived in
writing in form and substance satisfactory to the Debtor or Reorganized CHI or,
in the event that an appeal, writ of certiorari, or reargument or rehearing
thereof has been sought, such order of the Bankruptcy Court shall have been
determined by the highest court to which such order was appealed, or certiorari,
reargument or rehearing shall have been denied and the time to take any further
appeal, petition for certiorari or move for reargument or rehearing shall have
expired; provided, however, that the possibility that a motion under Rule 59 or
Rule 60 of the Federal Rules of Civil Procedure, or any analogous rule under the
Bankruptcy Rules, may be filed with respect to such order shall not cause such
order not to be a Final Order.
1.32 General Unsecured Claim means any Claim that is not a Priority Tax
Claim, Other Priority Claim, Secured Claim, Senior Discount Note Claim, DnB
Facility Claim or Intercompany Claim.
1.33 Intercompany Claim means any Claim of any Nondebtor Subsidiary against
the Debtor.
1.34 Lien has the meaning set forth in section 101(37) of the Bankruptcy
Code.
1.35 Management Option Agreements has the meaning set forth in Section 10.5
of the Plan.
1.36 Management Option Plan has the meaning set forth in Section 10.5 of
the Plan.
1.37 Management Options means options to purchase 810,811 shares of New
Class A Common Stock pursuant to the provisions of the Management Option
Agreements to be entered into under the Management Option Plan.
1.38 New Class A Common Stock means the Class A common stock of Reorganized
CHI authorized and to be issued pursuant to the Plan. The New Class A Common
Stock shall have a par value of $.01 per share and such rights with respect to
dividends, liquidation and other matters as are provided for by applicable
nonbankruptcy law or in the Restated CHI Certificate of Incorporation and the
Amended CHI By-Laws. Each share of New Class A Common Stock shall have one (1)
vote.
1.39 New Class B Common Stock means the Class B common stock of Reorganized
CHI authorized and to be issued pursuant to the Plan. The New Class B Common
Stock shall have a par value of $.01 per share and such rights with respect to
dividends, liquidation and other matters as are provided for by applicable
nonbankruptcy law or in the Restated CHI Certificate of Incorporation and the
Amended CHI By-Laws. Each share of New Class B Common Stock shall have
one-hundredth (1/100) of one vote.
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1.40 New Common Stock means, collectively, the New Class A Common Stock and
the New
Class B Common Stock.
1.41 New Series B Warrants means warrants issued by Reorganized CHI to
purchase 810,811 shares of New Common Stock pursuant to the provisions of the
Series B Warrant Agreement, the form of which is annexed hereto as Exhibit E.
1.42 New Series C Warrants means warrants issued by Reorganized CHI to
purchase 526,316 shares of New Common Stock pursuant to the provisions of the
Series C Warrant Agreement, the form of which is annexed hereto as Exhibit F.
1.43 New Warrants means the New Series B Warrants and the New Series C
Warrants.
1.44 Nondebtor Subsidiary means any of the direct or indirect subsidiaries
of the Debtor or entities controlled by the Debtor, set forth on Exhibit G
annexed hereto.
1.45 Old Common Stock means all authorized and issued class A common stock
of CHI, authorized class B common stock of CHI, Old Options and Old Warrants,
including any right, contractual or otherwise, to acquire any common stock of
CHI, existing prior to the Commencement Date.
1.46 Old Options means any and all rights or options granted or issued by
the Debtor prior to the Commencement Date to purchase common stock of CHI.
1.47 Old Preferred Stock means, collectively, the Series F Preferred Stock,
the Series H Preferred Stock, and the Series G Preferred Stock.
1.48 Old Warrants means any and all warrants issued by the Debtor prior to
the Commencement Date to purchase common stock of CHI, whether or not such
warrants are outstanding.
1.49 Other Priority Claim means any Claim, other than an Administrative
Expense Claim or a Priority Tax Claim, entitled to priority in right of payment
under section 507(a) of the Bankruptcy Code.
1.50 Plan means this chapter 11 plan of reorganization, including, without
limitation, the Plan Supplement and all exhibits, schedules, supplements, and
appendices hereto, either in its present form or as the same may be altered,
amended or modified from time to time.
1.51 Plan Supplement means the documents and forms of documents specified
in Section 14.12 of the Plan.
1.52 Prime Rate means the prime rate as determined by Citibank, N.A.
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1.53 Priority Tax Claim means any Claim of a governmental unit of the kind
specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code.
1.54 Pro Rata Share means a proportionate share, so that the ratio of the
consideration distributed on account of an Allowed Claim or Allowed Equity
Interest in a Class to the amount of such Allowed Claim or Allowed Equity
Interest is the same as the ratio of the amount of the consideration distributed
on account of all Allowed Claims or Allowed Equity Interests in such Class to
the amount of all Allowed Claims or Allowed Equity Interests in such Class.
1.55 Registration Rights Agreement means that certain agreement governing
the registration of New Common Stock, the New Warrants and the additional shares
of New Common Stock issuable upon exercise of the New Warrants or the Management
Options, the form of which is annexed hereto as Exhibit H.
1.56 Releasees means all present and former officers and directors of the
Debtor and any other persons who serve or served as members of management of the
Debtor, all members of the Unofficial Bondholders' Committee, all present and
former officers and directors and other persons who serve or served as members
of the management of any member of such Committee, and all advisors or
consultants of or to the Debtor and the Unofficial Bondholders' Committee.
1.57 Reorganized CHI means CHI Energy, Inc., or any successor thereto by
merger, consolidation or otherwise, on and after the Effective Date.
1.58 Restated CHI Certificate of Incorporation means the Restated
Certificate of Incorporation of Consolidated Hydro, Inc., which shall be in
substantially the form of Exhibit B annexed hereto.
1.59 Schedules means the schedules of assets and liabilities to be filed by
the Debtor pursuant to section 521 of the Bankruptcy Code and Bankruptcy Rule
1007, including any amendments and modifications thereto through the
Confirmation Date.
1.60 Secured Claim means any Claim, to the extent reflected in the
Schedules or a proof of claim as a Secured Claim, which is secured by a Lien on
Collateral to the extent of the value of such Collateral, as determined in
accordance with section 506(a) of the Bankruptcy Code, or, in the event that
such Claim is subject to setoff under section 553 of the Bankruptcy Code, to the
extent of such setoff.
1.61 Senior Discount Notes means the 12% Senior Discount Notes due 2003
issued pursuant to that certain Indenture dated as of June 15, 1993, as amended
and restated in the Amended and Restated Indenture dated as of February 7, 1994.
1.62 Senior Discount Notes Claim means a Claim arising from or relating to
the Senior Discount Notes, including interest accrued on the Senior Discount
Notes through, but not including, the Commencement Date.
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1.63 Series F Distribution means each of (a) that number of New Series B
Warrants equal to the product of (i) the Series F Percentage and (ii) the
aggregate number of New Series B Warrants and (b) that number of New Series C
Warrants equal to the product of (x) the Series F Percentage and (y) the
aggregate number of New Series C Warrants.
1.64 Series F Equity Interest means an Equity Interest represented by the
Series F Preferred Stock.
1.65 Series F Percentage means the quotient, expressed as a percentage,
obtained by dividing (i) the aggregate liquidation preference of the Series F
Preferred Stock (as increased by the aggregate liquidation preference of all
accrued and unpaid dividends, whether declared or not, through the Commencement
Date), by (ii) the sum of the aggregate liquidation preference of the Series F
Preferred Stock, the Series G Preferred Stock and the Series H Preferred Stock
(with respect to the Series F Preferred Stock and Series G Preferred Stock, as
increased by the aggregate liquidation preference of all accrued and unpaid
dividends, whether declared or not, through the Commencement Date, and with
respect to the Series H Preferred Stock, as increased by the aggregate
liquidation preference of (x) all pay-in-kind dividends declared and paid from
inception through the Commencement Date and (y) all accrued and unpaid
dividends, whether declared or not, through the Commencement Date).
1.66 Series F Preferred Stock means the Series F 8% Senior Convertible
Preferred Stock issued pursuant to that certain Purchase Agreement dated March
25, 1992, among CHI, the Morgan Stanley Leveraged Equity Fund II, L.P. and
Madison Group, L.P.
1.67 Series G Distribution means each of (a) that number of New Series B
Warrants equal to the product of (i) the Series G Percentage and (ii) the
aggregate number of New Series B Warrants and (b) that number of New Series C
Warrants equal to the product of (x) the Series G Percentage and (y) the
aggregate number of New Series C Warrants.
1.68 Series G Equity Interest means an Equity Interest represented by the
Series G Preferred Stock.
1.69 Series G Percentage means the quotient, expressed as a percentage,
obtained by dividing (i) the aggregate liquidation preference of the Series G
Preferred Stock (as increased by the aggregate liquidation preference of all
accrued and unpaid dividends, whether declared or not, through the Commencement
Date), by (ii) the sum of the aggregate liquidation preference of the Series F
Preferred Stock, the Series G Preferred Stock and the Series H Preferred Stock
(with respect to the Series F Preferred Stock and Series G Preferred Stock, as
increased by the aggregate liquidation preference of all accrued and unpaid
dividends, whether declared or not, through the Commencement Date, and with
respect to the Series H Preferred Stock, as increased by the aggregate
liquidation preference of (x) all pay-in-kind dividends declared and paid from
inception through the Commencement Date and (y) all accrued and unpaid
dividends, whether declared or not, through the Commencement Date).
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1.70 Series G Preferred Stock means the Series G 9.85% Junior Convertible
Preferred Stock issued pursuant to that certain Purchase Agreement dated March
25, 1992, among CHI, the Morgan Stanley Leveraged Equity Fund II, L.P. and
Madison Group, L.P.
1.71 Series H Distribution means each of (a) that number of New Series B
Warrants equal to the product of (i) the Series H Percentage and (ii) the
aggregate number of New Series B Warrants and (b) that number of New Series C
Warrants equal to the product of (x) the Series H Percentage and (y) the
aggregate number of New Series C Warrants.
1.72 Series H Equity Interest means an Equity Interest represented by the
Series H Preferred Stock.
1.73 Series H Percentage means the quotient, expressed as a percentage,
obtained by dividing (i) the aggregate liquidation preference of the Series H
Preferred Stock (as increased by (x) the aggregate liquidation preference of all
pay-in-kind dividends declared and paid from inception through the Commencement
Date and (y) all accrued and unpaid dividends, whether declared or not, through
the Commencement Date), by (ii) the sum of the aggregate liquidation preference
of the Series F Preferred Stock, the Series G Preferred Stock and the Series H
Preferred Stock (with respect to the Series F Preferred Stock and Series G
Preferred Stock, as increased by the aggregate liquidation preference of all
accrued and unpaid dividends, whether declared or not, through the Commencement
Date, and with respect to the Series H Preferred Stock, as increased by the
aggregate liquidation preference of (x) all pay-in-kind dividends declared and
paid from inception through the Commencement Date and (y) all accrued and unpaid
dividends, whether declared or not, through the Commencement Date).
1.74 Series H Preferred Stock means the Series H 13.5% Cumulative
Redeemable Exchangeable Preferred Stock governed by the Certificate of
Designations for the Series H Preferred Stock.
1.75 Stockholders' Agreement means the Stockholders' Agreement by and among
CHI Energy, Inc. and the stockholders of CHI Energy, Inc., which shall be in
substantially the form of Exhibit I annexed hereto.
1.76 Unofficial Bondholders' Committee means the unofficial committee of
certain holders of Senior Discount Note Claims formed prior to the Commencement
Date.
1.77 Unofficial Bondholders' Committee Expenses means the fees and expenses
outstanding on the Effective Date incurred by the Unofficial Bondholders'
Committee on behalf of the holders of Allowed Senior Discount Note Claims
(including, without limitation, the fees and expenses of counsel) in connection
with the negotiation and documentation of the Plan, the Plan-related documents
and the Chapter 11 Case.
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ARTICLE II - TREATMENT OF ADMINISTRATIVE EXPENSE CLAIMS AND PRIORITY TAX CLAIMS
2.1 PROFESSIONAL COMPENSATION AND REIMBURSEMENT CLAIMS. All entities that
are awarded compensation for services rendered or reimbursement of expenses by
the Bankruptcy Court under subsections 503(b)(2), 503(b)(3), 503(b)(4) or
503(b)(5) of the Bankruptcy Code shall be paid in full in such amounts as are
Allowed by the Bankruptcy Court (a) upon the later of (i) the Effective Date and
(ii) the date upon which an order granting such Administrative Expense Claim is
signed by the Bankruptcy Judge, or (b) upon such other terms as may be mutually
agreed upon between such holder of an Administrative Expense Claim and the
Debtor or, on and after the Effective Date, Reorganized CHI.
2.2 OTHER ADMINISTRATIVE EXPENSE CLAIMS. Except to the extent that any
entity entitled to payment of any Allowed Administrative Expense Claim agrees to
a different treatment, each holder of an Allowed Administrative Expense Claim
other than those Claims provided for under Section 2.1 shall receive Cash in an
amount equal to such Allowed Administrative Expense Claim on the later of the
Effective Date and the date such Administrative Expense Claim becomes an Allowed
Administrative Expense Claim, or as soon thereafter as is practicable; provided,
however, that Allowed Administrative Expense Claims representing liabilities
incurred in the ordinary course of business by the Debtor in Possession or
liabilities arising under loans or advances to or other obligations incurred by
the Debtor in Possession, to the extent authorized and approved by the
Bankruptcy Court if such authorization and approval was required under the
Bankruptcy Code, shall be paid in full and performed by Reorganized CHI in the
ordinary course of business in accordance with the terms and subject to the
conditions of any agreements governing, instruments evidencing or other
documents relating to, such transactions.
2.3 PRIORITY TAX CLAIMS. Except to the extent that a holder of an Allowed
Priority Tax Claim has been paid by the Debtor prior to the Effective Date or
agrees to a different treatment, at the Debtor's option, each holder of an
Allowed Priority Tax Claim (a) shall be paid in full by Reorganized CHI in the
ordinary course of business in accordance with the terms and conditions of any
law, regulation, agreement, instrument or other document relating to such Claim
or (b) shall receive on account of such Allowed Claim deferred Cash payments
having a value, as of the Effective Date, equal to such Allowed Priority Tax
Claim, over a period not exceeding six years after the date of assessment of
such Allowed Priority Tax Claim.
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ARTICLE III - CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
Claims, other than Administrative Expense Claims and Priority Tax Claims,
and Equity Interests are classified for all purposes, including voting,
confirmation and distribution pursuant to the Plan, as follows:
CLASS STATUS
Class 1 -- Other Priority Claims................................... Unimpaired
Class 2 -- Secured Claims ......................................... Unimpaired
Class 3 -- Senior Discount Note Claims............................... Impaired
Class 4 -- DnB Facility Claim...................................... Unimpaired
Class 5 -- General Unsecured Claims................................ Unimpaired
Class 6 -- Intercompany Claims .....................................Unimpaired
Class 7 -- Series F Equity Interests................................. Impaired
Class 8 -- Series H Equity Interests................................. Impaired
Class 9 -- Series G Equity Interests................................. Impaired
Class 10 -- Old Common Stock Equity Interests......................... Impaired
ARTICLE IV - TREATMENT OF CLAIMS AND EQUITY INTERESTS AND VOTING
The Allowed Claims against, and Allowed Equity Interests in, CHI shall be
treated, and holders thereof shall be entitled to vote, as follows:
4.1 CLASS 1 - OTHER PRIORITY CLAIMS
(a) Impairment and Voting. Class 1 is unimpaired by the Plan. Each holder
of an Allowed Other Priority Claim is conclusively presumed to have accepted the
Plan and is not entitled to vote to accept or reject the Plan.
(b) Treatment. To the extent unpaid prior to the Effective Date and except
to the extent that a holder of an Allowed Other Priority Claim agrees to a
different treatment, each Allowed
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Other Priority Claim shall be reinstated or rendered unimpaired in accordance
with section 1124 of the Bankruptcy Code.
4.2 CLASS 2 - SECURED CLAIMS
(a) Impairment and Voting. Class 2 is unimpaired by the Plan. Each holder
of an Allowed Secured Claim is conclusively presumed to have accepted the Plan
and is not entitled to vote to accept or reject the Plan.
(b) Treatment. Except to the extent that a holder of an Allowed Secured
Claim agrees to a different treatment, each Allowed Secured Claim shall be
reinstated or rendered unimpaired in accordance with section 1124 of the
Bankruptcy Code, notwithstanding any contractual provision or applicable
nonbankruptcy law that entitles the holder of an Allowed Secured Claim to demand
or receive payment of such Allowed Secured Claim prior to the stated maturity of
such Allowed Secured Claim from and after the occurrence of a default.
4.3 CLASS 3 - SENIOR DISCOUNT NOTE CLAIMS
(a) Impairment and Voting. Class 3 is impaired by the Plan. The beneficial
holders of Allowed Senior Discount Note Claims are entitled to vote to accept or
reject the Plan.
(b) Treatment. Each holder of an Allowed Senior Discount Note Claim shall
receive, in full satisfaction of such Allowed Senior Discount Note Claim, its
Pro Rata Share of (a) 10,000,000 shares of New Common Stock; and (b) the Class 3
Cash Payment.
(c) Allocation of Principal and Interest. All distributions to holders of
Allowed Senior Discount Note Claims shall be allocated first to the original
principal amount of each of such Claims (as determined for federal income tax
purposes) and then, to the extent the consideration exceeds such amount, to the
remainder of such Claim.
(d) Unofficial Bondholders' Committee Expenses. Notwithstanding anything to
the contrary contained herein, the portion of the Class 3 Cash Payment
consisting of the Unofficial Bondholders' Committee Expenses will be distributed
directly to the parties to whom such fees and expenses are owing.
4.4 CLASS 4 - DNB FACILITY CLAIM
(a) Impairment and Voting. Class 4 is unimpaired by the Plan. DnB is
conclusively presumed to have accepted the Plan and is not entitled to vote to
accept or reject the Plan.
(b) Treatment. Except to the extent that DnB agrees to a different
treatment, the DnB Facility Claim shall be reinstated or rendered unimpaired in
accordance with section 1124 of the Bankruptcy Code, notwithstanding any
contractual provision or applicable nonbankruptcy law that
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entitles DnB to demand or receive payment of the DnB Facility Claim prior to the
stated maturity of such Claim from and after the occurrence of a default.
4.5 CLASS 5 - GENERAL UNSECURED CLAIMS
(a) Impairment and Voting. Class 5 is unimpaired by the Plan. Each holder
of a General Unsecured Claim is conclusively presumed to have accepted the Plan
and is not entitled to vote to accept or reject the Plan.
(b) Treatment. To the extent unpaid prior to the Effective Date and except
to the extent that a holder of an Allowed General Unsecured Claim agrees to a
different treatment, each Allowed General Unsecured Claim shall be reinstated or
rendered unimpaired in accordance with section 1124 of the Bankruptcy Code.
4.6 CLASS 6 - INTERCOMPANY CLAIMS
(a) Impairment and Voting. Class 6 is unimpaired by the Plan. Each holder
of an Intercompany Claim is conclusively presumed to have accepted the Plan and
is not entitled to vote to accept or reject the Plan.
(b) Treatment. To the extent unpaid prior to the Effective Date and except
to the extent that a holder of an Allowed Intercompany Claim agrees to a
different treatment, each Allowed Intercompany Claim shall be reinstated or
rendered unimpaired in accordance with section 1124 of the Bankruptcy Code.
4.7 CLASS 7 - SERIES F EQUITY INTERESTS
(a) Impairment and Voting. Class 7 is impaired by the Plan. Each holder of
an Allowed Series F Equity Interest is entitled to vote to accept or reject the
Plan.
(b) Treatment.
(i) If Class 8 votes to accept the Plan, on the Effective Date, each
holder of an Allowed Series F Equity Interest shall receive, in full
satisfaction of such Allowed Equity Interest, its Pro Rata Share of the
Series F Distribution; or
(ii) If Class 8 votes to reject the Plan, on the Effective Date, each
holder of an Allowed Series F Equity Interest shall receive, in full
satisfaction of such Allowed Equity Interest, its Pro Rata Share of (x) the
Series F Distribution, and (y) the Series G Distribution.
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4.8 CLASS 8 - SERIES H EQUITY INTERESTS
(a) Impairment and Voting. Class 8 is impaired by the Plan. Each holder of
an Allowed Series H Equity Interest is entitled to vote to accept or reject the
Plan.
(b) Treatment. On the Effective Date, each holder of an Allowed Series H
Equity Interest shall receive, in full satisfaction of such Allowed Equity
Interest, its Pro Rata Share of the Series H Distribution.
4.9 CLASS 9 - SERIES G EQUITY INTERESTS
(a) Impairment and Voting. Class 9 is impaired by the Plan. Each holder of
an Allowed Series G Equity Interest is entitled to vote to accept or reject the
Plan.
(b) Treatment.
(i) If Class 8 votes to accept the Plan, on the Effective Date, each
holder of an Allowed Series G Equity Interest shall receive, in full
satisfaction of such Allowed Equity Interest, its Pro Rata Share of the
Series G Distribution; or
(ii) If Class 8 votes to reject the Plan, the holders of Allowed
Series G Equity Interests will not receive any distributions on account of
such Equity Interests and the share certificates or any other instruments
evidencing any Series G Equity Interest shall be deemed cancelled without
further action under any applicable agreement, law, regulation, order or
rule.
4.10 CLASS 10 - OLD COMMON STOCK EQUITY INTERESTS
(a) Impairment and Voting. Class 10 is impaired by the Plan. Each holder of
an Allowed Old Common Stock Equity Interest is conclusively presumed to have
rejected the Plan and is not entitled to vote to accept or reject the Plan.
(b) Treatment. The holders of Allowed Old Common Stock Equity Interests
will not receive any distributions on account of such Equity Interests. On the
Effective Date, and in accordance with Section 9.1 of the Plan, the Old Common
Stock certificates shall be cancelled without further action under any
applicable agreement, law, regulation, order or rule, and the Old Common Stock
evidenced thereby shall be extinguished.
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ARTICLE V - PROVISIONS REGARDING DISTRIBUTION
5.1 METHOD OF DISTRIBUTIONS UNDER THE PLAN.
(a) In General. Subject to Bankruptcy Rule 9010, all distributions under
the Plan shall be made by Reorganized CHI to the holder of each Allowed Claim as
of the Distribution Record Date at the address of such holder as listed on the
Schedules and to the holder of each Allowed Old Preferred Stock Equity Interest
as of the Distribution Record Date at the address of such holder as listed in
the transfer ledger for Old Preferred Stock, unless, in either instance, the
Debtor or Reorganized CHI has been notified in writing of a change of address,
including, without limitation, by the filing of a proof of Claim or Equity
Interest by such holder that provides an address for such holder different from
the address reflected on the Schedules (for holders of Allowed Claims) or on the
transfer ledger (for holders of Allowed Old Preferred Stock Equity Interests).
(b) Distributions of Cash. At the option of Reorganized CHI, any payment of
Cash made by Reorganized CHI pursuant to the Plan shall be made by check or wire
transfer.
(c) Timing of Distributions. Any payment or distribution required to be
made under the Plan on a day other than a Business Day shall be made on the next
succeeding Business Day.
(d) Minimum Distributions. No payment of Cash less than one hundred dollars
shall be made by Reorganized CHI to any holder of a Claim unless a request
therefor is made in writing to Reorganized CHI in accordance with Section 14.9
of the Plan.
(e) Fractional Shares or Warrants. No fractional shares of New Common Stock
or fractional New Warrants or Cash in lieu thereof shall be distributed under
the Plan. When any distribution on account of an Allowed Claim or Allowed Equity
Interest pursuant to the Plan would otherwise result in the issuance of a number
of shares of New Common Stock or New Warrants that is not a whole number, the
actual distribution of shares of New Common Stock or New Warrants shall be
rounded as follows: (a) fractions of 1/2 or greater shall be rounded to the next
higher whole number and (b) fractions of less than 1/2 shall be rounded to the
next lower whole number. The total number of shares of New Common Stock or New
Warrants to be distributed to a Class of Claims or Equity Interests, as the case
may be, shall be adjusted as necessary to account for the rounding provided in
this Section 5.1(e).
(f) Unclaimed Distributions. Any distributions under the Plan that are
unclaimed for a period of one year after distribution thereof shall be revested
in Reorganized CHI and any entitlement of any holder of any Allowed Claim or
Allowed Equity Interest to such distributions shall be discharged and forever
barred. If any distribution to any holder is returned as undeliverable,
Reorganized CHI shall use reasonable efforts to determine the current address of
such holder, but no distribution to such holder shall be made unless and until a
determination has been made concerning the then-current address of such holder,
at which time such distribution
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shall be made to such holder without interest. Amounts in respect of any
undeliverable distributions made by Reorganized CHI shall be returned to
Reorganized CHI until such distribution is claimed. If no proofs of Claim or
Equity Interest are filed and the Schedules filed with the Bankruptcy Court fail
to state addresses for holders of Allowed Claims or Allowed Equity Interests,
the distributions in respect of such Allowed Claims or Allowed Equity Interests
shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code.
All unclaimed property shall revert to Reorganized CHI and such Claim or Equity
Interest shall be discharged and forever barred.
(g) Distributions to Holders as of the Distribution Record Date. As of the
close of business on the Distribution Record Date, the claims register (for
Claims) and the transfer ledgers (for Equity Interests) shall be closed, and
there shall be no further changes in the record holders of any Claims or Equity
Interests. The Debtor and Reorganized CHI shall have no obligation to recognize
any transfer of any Claims or Equity Interests occurring after the Distribution
Record Date. The Debtor and Reorganized CHI shall instead be entitled to
recognize and deal for all purposes under the Plan with only those record
holders stated on the claims register (for Claims) and transfer ledgers (for
Equity Interests) as of the close of business on the Distribution Record Date.
(h) Hart-Scott-Rodino Compliance. Any shares of New Common Stock to be
distributed under the Plan to any entity required to file a Premerger
Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, shall not be distributed until the notification and
waiting periods applicable under such Act to such entity shall have expired or
been terminated.
5.2 WAIVER OF ENFORCEMENT OF PRIORITY. Generally, the Plan does not take
into account the relative priority of the Equity Interests in Classes 7, 8 and 9
as set forth in the Restated Certificate of Incorporation of Consolidated Hydro,
Inc. and any subordination provisions relating thereto. Pursuant to the Plan and
if Class 8 votes to accept the Plan, (a) on the Effective Date, (i) all holders
of Class 7 Equity Interests will be deemed to have waived any and all priority
and subordination rights that they may have with respect to distributions to
holders of Class 8 Equity Interests and Class 9 Equity Interests pursuant to the
Plan, and (ii) all holders of Class 8 Equity Interests will be deemed to have
waived any and all priority and subordination rights that they may have with
respect to distributions to holders of Class 9 Equity Interests; and (b) the
confirmation of the Plan will permanently enjoin, effective as of the Effective
Date, (x) all holders of Class 7 Equity Interests from enforcing or attempting
to enforce any such rights with respect to the distributions under the Plan to
the holders of Class 8 Equity Interests and Class 9 Equity Interests, and (y)
all holders of Class 8 Equity Interests from enforcing or attempting to enforce
any such rights with respect to the distributions under the Plan to the holders
of Class 9 Equity Interests. Notwithstanding the foregoing provision, if Class 8
votes to reject the Plan such provision shall not apply, and shall be of no
effect, to the holders of Class 8 Equity Interests.
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5.3 SURRENDER OF EXISTING SECURITIES AND AGREEMENTS. Each holder of a share
certificate, bond or other instrument evidencing a Claim or Old Preferred Stock
Equity Interest shall surrender such share certificate, bond or similar
instrument to Reorganized CHI, unless such requirement is waived by Reorganized
CHI. No distribution of property hereunder shall be made to, or on behalf of,
any such holders unless and until such share certificate, bond or similar
instrument is received by Reorganized CHI or the unavailability of such share
certificate, bond or similar instrument is established to the reasonable
satisfaction of Reorganized CHI or such requirement is waived by Reorganized
CHI. Reorganized CHI may require any holder that is unable to surrender or cause
to be surrendered any such share certificates, bonds or similar instruments to
deliver an affidavit of loss and indemnity and/or furnish a bond in form and
substance (including, without limitation, with respect to amount) reasonably
satisfactory to Reorganized CHI. Any holder that fails within the later of one
year after the Confirmation Date and the date of Allowance of its Claim or Old
Preferred Stock Equity Interest (a) if possible, to surrender or cause to be
surrendered such share certificate, bond or instrument, (b) if requested, to
execute and deliver an affidavit of loss and indemnity reasonably satisfactory
to Reorganized CHI and (c) if requested, to furnish a bond reasonably
satisfactory to Reorganized CHI, shall be deemed to have forfeited all rights,
claims and causes of action against the Debtor and Reorganized CHI and shall not
participate in any distribution hereunder.
ARTICLE VI - PROCEDURES FOR TREATING DISPUTED CLAIMS AND EQUITY INTERESTS
6.1 PROSECUTION OF OBJECTIONS. Unless otherwise ordered by the Bankruptcy
Court after notice and a hearing, the Debtor or Reorganized CHI shall have the
exclusive right (except as to applications for allowances of compensation and
reimbursement of expenses under sections 330 and 503 of the Bankruptcy Code) to
make and file objections to proofs of Administrative Expense Claims, Claims and
Equity Interests. The Debtor or Reorganized CHI shall serve a copy of each
objection upon the holder of the Administrative Expense Claim, Claim or Equity
Interest to which the objection is made as soon as practicable, but in no event
later than thirty days after the Effective Date.
6.2 NO DISTRIBUTIONS PENDING ALLOWANCE. Notwithstanding any other provision
hereof, if any portion of a Claim or Equity Interest is Disputed, no payment or
distribution shall be made on account of such Claim or Equity Interest, unless
and until such Disputed Claim or Disputed Equity Interest becomes Allowed.
6.3 DISTRIBUTIONS AFTER ALLOWANCE. Payments and distributions to each
holder of a Claim or Equity Interest that is Disputed, or that is not Allowed,
to the extent that such Claim or Equity Interest ultimately becomes Allowed,
shall be made in accordance with the provisions hereof governing the Class of
Claims or Equity Interests in which such Claim or Equity Interest is classified.
As soon as practicable after the date that the order or judgment of the
Bankruptcy Court allowing any Disputed Claim or Disputed Equity Interest becomes
a Final Order, Reorganized CHI shall distribute to the holder of such Claim or
Equity Interest any payment or property that would
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have been distributed to such holder if the Claim or Equity Interest had been
Allowed as of the Effective Date (or such other date on which such distribution
would have been made), without any interest on such payment or property.
ARTICLE VII - EXECUTORY CONTRACTS AND UNEXPIRED LEASES
7.1 ASSUMPTION OR REJECTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES.
Pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, all executory
contracts and unexpired leases that exist between the Debtor and any person
shall be deemed assumed by Reorganized CHI as of the Effective Date, except for
any executory contract or unexpired lease (a) that has been assumed or rejected
pursuant to an order of the Bankruptcy Court entered prior to the Confirmation
Date, (b) as to which a motion for approval of the rejection of such executory
contract or unexpired lease has been filed and served prior to the Confirmation
Date or (c) that is set forth in Schedule 7.1 hereto; provided, however, that
the Debtor or Reorganized CHI reserves the right, on or prior to the
Confirmation Date, to amend Schedule 7.1 to delete any executory contract or
unexpired lease therefrom or add any executory contract or unexpired lease
thereto, in which event such executory contract(s) or unexpired lease(s) shall
be deemed to be, respectively, assumed or rejected. The Debtor or Reorganized
CHI shall provide notice of any amendments to Schedule 7.1 to the executory
contracts and unexpired leases affected thereby prior to the Confirmation
Hearing. The listing of a document on Schedule 7.1 shall not constitute an
admission by the Debtor or Reorganized CHI that such document is an executory
contract or an unexpired lease or that the Debtor or Reorganized CHI has any
liability thereunder.
7.2 APPROVAL OF ASSUMPTION OR REJECTION OF EXECUTORY CONTRACTS AND
UNEXPIRED LEASES. Entry of the Confirmation Order shall constitute (a) the
approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of
the assumption of all executory contracts and unexpired leases that are assumed
pursuant to Section 7.1 of the Plan, (b) the extension of time, pursuant to
section 365(d)(4) of the Bankruptcy Code, within which the Debtor may assume or
reject any unexpired leases hereof through the date of entry of an order
approving the assumption or rejection of such unexpired leases, and (c) the
approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of
the rejection of the executory contracts and unexpired leases set forth in
Schedule 7.1 that are rejected pursuant to Section 7.1 of the Plan.
7.3 CURE OF DEFAULTS. Except as may otherwise be agreed to by the parties,
on the Effective Date, Reorganized CHI shall cure any and all undisputed
defaults under any executory contract or unexpired lease assumed pursuant to the
Plan in accordance with section 365(b)(1) of the Bankruptcy Code. All disputed
defaults that are required to be cured shall be cured either within 30 days of
the entry of a Final Order determining the amount, if any, of the Debtor's or
Reorganized CHI's liability with respect thereto, or as may otherwise be agreed
to by the parties.
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7.4 REJECTION OF CERTAIN PUT AND CALL AGREEMENTS. The Put and Call
Agreements between (i) the Debtor and SES Partners, L.P. I and (ii) the Debtor
and SES Partners, L.P. II are treated as executory contracts and, pursuant to
sections 365(a) and 1123(b)(2) of the Bankruptcy Code, are rejected as of the
Effective Date.
7.5 BAR DATE FOR FILING PROOFS OF CLAIM RELATING TO EXECUTORY CONTRACTS AND
UNEXPIRED LEASES REJECTED PURSUANT TO THE PLAN. Claims arising out of the
rejection of an executory contract or unexpired lease pursuant to this Article
VII must be filed with the Bankruptcy Court and served upon the attorneys for
the Debtor no later than thirty days after the later of (a) notice of entry of
an order approving the rejection of such executory contract or unexpired lease
or (b) notice of entry of the Confirmation Order. Any Claims not filed within
such time will be forever barred from assertion against the Debtor, its estate,
Reorganized CHI and its property. Unless otherwise ordered by the Bankruptcy
Court, all Claims arising from the rejection of executory contracts and
unexpired leases shall be treated as General Unsecured Claims under the Plan.
7.6 INSURANCE POLICIES. Each of the Debtor's insurance policies and any
agreements, documents or instruments relating thereto are treated as executory
contracts under the Plan. Notwithstanding the foregoing, distributions under the
Plan to any holder of a Claim covered by any of such insurance policies and
related agreements, documents or instruments that are assumed hereunder, shall
be in accordance with the treatment provided under Article IV of the Plan.
Nothing contained in this Section 7.6 shall constitute or be deemed a waiver of
any claim, right or cause of action that the Debtor may hold against the insurer
under any policy of insurance, or against the holder of a Claim covered by
insurance policies.
7.7 INDEMNIFICATION OBLIGATIONS. For purposes of the Plan, the obligations
of the Debtor to defend, indemnify, reimburse or limit the liability of present
and former directors, officers or employees who were directors, officers or
employees, respectively, on or after the Commencement Date against any claims or
obligations pursuant to the Debtor's certificate of incorporation or by-laws,
applicable state law or specific agreement, or any combination of the foregoing,
shall survive confirmation of the Plan, remain unaffected thereby, and not be
discharged irrespective of whether indemnification, defense, reimbursement or
limitation is owed in connection with an event occurring before, on or after the
Commencement Date.
7.8 COMPENSATION AND BENEFIT PROGRAMS. Except as provided in Section 7.1 of
the Plan and unless otherwise modified, terminated or rejected on or before the
Effective Date, all employment, consulting and severance practices and policies,
and all compensation and benefit plans, policies, and programs of the Debtor
applicable to its directors, officers, employees, consultants or independent
contractors, including, without limitation, all savings plans, retirement plans,
health care plans, severance benefit plans, incentive plans, workers'
compensation programs and life, disability and other insurance plans are treated
as executory contracts under the Plan and hereby are assumed pursuant to
sections 365(a) and 1123(b)(2) of the Bankruptcy Code.
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7.9 RETIREE BENEFITS. Payments, if any, due to any person for the purpose
of providing or reimbursing payments for retired employees and their spouses and
dependents for medical, surgical, or hospital care benefits, or benefits in the
event of sickness, accident, disability, or death under any plan, fund, or
program (through the purchase of insurance or otherwise) maintained or
established in whole or in part by the Debtor prior to the Commencement Date
shall be continued for the duration of the period the Debtor has obligated
itself to provide such benefits.
ARTICLE VIII - LIMITED RELEASES
8.1 LIMITED RELEASE OF RELEASEES AND OTHER PARTIES. Except as otherwise
provided in the Plan, as of the Effective Date, each of the Debtor, the Debtor
in Possession and each holder of a Claim against or Equity Interest in the
Debtor or Debtor in Possession releases all Releasees, the lenders under the DnB
Facility, the holders of the Senior Discount Notes, the holders of the Old
Preferred Stock and the holders of the Old Common Stock, from claims,
obligations, rights, causes of action and liabilities held by the Debtor, Debtor
in Possession or such holder against such individuals and entities, whether
known or unknown, existing or hereafter arising, based in whole or in part upon
any act or omission or other event occurring prior to the Commencement Date or
during the course of the Chapter 11 Case, including through the Effective Date,
in any way relating to the Debtor, the Debtor in Possession, the Chapter 11
Case, the Plan, the DnB Facility Agreement, the Senior Discount Notes, the Old
Preferred Stock and the Old Common Stock, and the ownership, management and
operation of the Debtor.
8.2 LIMITED RELEASE BY RELEASEES AND OTHER PARTIES. Except as otherwise
provided in the Plan, as of the Effective Date, each of the Releasees, in any
capacity, the lenders under the DnB Facility, the holders of the Senior Discount
Notes, the holders of the Old Preferred Stock and the holders of the Old Common
Stock, generally releases each of the Debtor, the Debtor in Possession, and each
holder of a Claim against or Equity Interest in the Debtor or Debtor in
Possession, in each case in any capacity, from claims, obligations, rights,
causes of action and liabilities held by such Releasee, the lenders under the
DnB Facility, the holders of the Senior Discount Notes, the holders of the Old
Preferred Stock and the holders of the Old Common Stock against the Debtor, the
Debtor in Possession or any such Releasee or holder, whether known or unknown,
existing or hereafter arising, based in whole or in part upon any act or
omission or other event occurring prior to the Commencement Date or during the
course of the Chapter 11 Case, including through the Effective Date, in any way
relating to the Debtor, the Debtor in Possession, the Chapter 11 Case, the Plan,
the DnB Facility Agreement, the Senior Discount Notes, the Old Preferred Stock
and the Old Common Stock, and the ownership, management and operation of the
Debtor.
8.3 BINDING EFFECT OF RELEASES. On the Effective Date, each Releasee and
each holder of a Claim and each holder of an Equity Interest shall be deemed to
have agreed to the provisions of Section 8.1 and 8.2 of the Plan, and shall be
bound thereby for all purposes whatsoever.
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ARTICLE IX - IMPLEMENTATION OF THE PLAN
9.1 CANCELLATION OF CERTAIN SECURITIES. On the Effective Date, (a) all Old
Common Stock then issued and outstanding or held in CHI's treasury and (b) if
Class 8 votes to reject the Plan, all Series G Preferred Stock, shall be
cancelled and extinguished, and no consideration will be paid or delivered with
respect thereto, in all events without any action on the part of CHI,
Reorganized CHI or any other entity. The share certificates or any other
instruments evidencing any Old Common Stock Equity Interest or Series G Stock
Equity Interest, if Class 8 votes to reject the Plan, shall be deemed cancelled
without further action under any applicable agreement, law, regulation, order or
rule and the obligations of CHI under any agreement or certificate of
designation governing such Equity Interests will be discharged.
9.2 NEW SECURITIES.
(a) Authorization. As of the Effective Date, the issuance of (i) 9,085,517
shares of New Class A Common Stock, (ii) 914,483 shares of New Class B Common
Stock, (iii) 10,000,000 additional shares of New Common Stock (which may be
issued as either New Class A Common Stock or New Class B Common Stock) and (iv)
10,000,000 shares of new preferred stock by Reorganized CHI is hereby authorized
without further act or action under applicable law, regulation, order or rule.
(b) Issuance. The following new securities shall be issued pursuant to the
Plan without further act or action under applicable law, regulation, order or
rule:
(i) 10,000,000 shares of New Common Stock to be issued to the holders
of the Senior Discount Notes;
(ii) 810,811 New Series B Warrants;
(iii) 526,316 New Series C Warrants; and
(iv) 810,811 Management Options.
(c) Reserve. The following new securities shall be reserved for issuance
pursuant to the New Series B Warrant Agreement, the New Series C Warrant
Agreement and the Management Option Plan, in each case without further act or
action under applicable law, regulation, order or rule:
(i) 810,811 shares of New Common Stock, to be reserved for the New
Series B Warrants;
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(ii) 526,316 shares of New Common Stock to be reserved for the New
Series C Warrants; and
(iii) 810,811 shares of New Class A Common Stock to be reserved for
the Management Options.
9.3 REGISTRATION RIGHTS. Each person or entity receiving a distribution of
New Common Stock, New Warrants or New Common Stock issued upon the exercise of
the New Warrants or the Management Options pursuant to the Plan shall be
entitled to become a party to the Registration Rights Agreement.
9.4 EFFECTUATING DOCUMENTS AND FURTHER TRANSACTIONS. The Debtor or
Reorganized CHI is authorized to execute, deliver, file or record such
contracts, instruments, releases, indentures and other agreements or documents
and take such actions as may be necessary or appropriate to effectuate and
further evidence the terms and conditions of the Plan and any notes or
securities issued pursuant to the Plan.
9.5 CORPORATE ACTION. On the Effective Date, all matters provided for under
the Plan that would otherwise require approval of the shareholders or directors
of the Debtor or Reorganized CHI under the Plan, including, without limitation,
the issuance of New Common Stock, New Warrants and Management Options, the
effectiveness of the Amended CHI By-Laws and the Restated CHI Certificate of
Incorporation, the election or appointment, as the case may be, of directors and
officers of Reorganized CHI pursuant to the Plan, and the authorization and
approval of the Management Option Plan and the Employment Agreements shall be
deemed to have occurred and shall be in effect from and after the Effective Date
pursuant to the applicable general corporation law of the states of Delaware,
without any requirement of further action by the shareholders or directors of
the Debtor or Reorganized CHI. On the Effective Date or as soon thereafter as is
practicable, Reorganized CHI shall, if required, file its Restated CHI
Certificate of Incorporation with the Secretary of State of Delaware, in
accordance with the applicable general corporation law of the state of Delaware.
9.6 STOCKHOLDERS' AGREEMENT. Upon its effectiveness, the Stockholders'
Agreement attached hereto as Exhibit I shall bind each holder (including each
original recipient and transferee of an original recipient or other transferee)
of the New Common Stock and the New Common Stock issued upon exercise of the New
Warrants and Management Options. The Stockholders' Agreement shall become
effective on or after the Effective Date when executed by the holders of Allowed
Senior Discount Notes Claims receiving 66-2/3% or more of the New Common Stock
distributed under the Plan. The Stockholders' Agreement will remain in effect
until terminated in accordance with its terms.
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ARTICLE X - GOVERNANCE AND MANAGEMENT OF REORGANIZED CHI
10.1 GENERAL. On the Effective Date, the management, control and operation
of Reorganized CHI shall become the general responsibility of the Board of
Directors of Reorganized CHI, who shall, thereafter, have the responsibility for
the management, control and operation of Reorganized CHI.
10.2 MEETINGS OF REORGANIZED CHI STOCKHOLDERS. In accordance with the
Restated CHI Certificate of Incorporation and the Amended CHI By-Laws, as the
same may be amended from time to time, the first annual meeting of the
stockholders of Reorganized CHI shall be held on a date in 1998 selected by the
Board of Directors of Reorganized CHI, and subsequent meetings of the
stockholders of Reorganized CHI shall be held at least once annually each year
thereafter.
10.3 DIRECTORS AND OFFICERS OF REORGANIZED CHI.
(a) Board of Directors. The Stockholders' Agreement provides for a seven
member board of directors and sets forth certain procedures governing the
nomination and election of directors. The board will consist of two members of
the Company's management, one independent outside director, two directors
designated by Swiss Bank Corporation and two directors designated by Morgan
Stanley & Co. Incorporated. On the Effective Date, Morgan Stanley & Co.
Incorporated and Swiss Bank Corporation will each designate one of their two
directors. At anytime thereafter, either or both may designate their second
director and cause such person to be elected to the Board of Directors, without
further action by the directors or shareholders of Reorganized CHI. The identity
of the initial members of the Board of Directors of Reorganized CHI will be
disclosed at or immediately prior to the Confirmation Hearing. Each of the
members of such initial Board of Directors shall serve until the first annual
meeting of stockholders of Reorganized CHI or his or her earlier resignation or
removal in accordance with the Restated CHI Certificate of Incorporation or
Amended CHI By-Laws, as the same may be amended from time to time.
(b) Officers. The officers of CHI immediately prior to the Effective Date
shall serve as the initial officers of Reorganized CHI on and after the
Effective Date. Such officers shall serve in accordance with the Employment
Agreements, or any other applicable employment agreement with Reorganized CHI,
and applicable nonbankruptcy law.
10.4 AMENDED BY-LAWS AND RESTATED CERTIFICATE OF INCORPORATION. The Amended
CHI By-Laws and the Restated CHI Certificate of Incorporation shall become
effective as of the Effective Date and shall, among other things: (a) prohibit
the issuance of nonvoting equity securities as required by section 1123(a)(6) of
the Bankruptcy Code, subject to further amendment of such certificate of
incorporation and by-laws as permitted by applicable law and (b) effectuate the
provisions of the Plan, in each case without any further action by the
shareholders or directors of CHI, the Debtor in Possession or Reorganized CHI,
and (c) provide that the name of CHI shall be changed to CHI Energy, Inc..
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10.5 MANAGEMENT OPTION PLAN. If not adopted by the Debtor prior to the
Effective Date, Reorganized CHI shall adopt a stock option plan, the form of
which is annexed hereto as Exhibit D (the "Management Option Plan"). Under the
Management Option Plan, Reorganized CHI shall enter into stock option agreements
with key employees, the forms of which also are annexed hereto as Exhibit D (the
"Management Option Agreements"). Pursuant to the Management Option Agreements,
Reorganized CHI shall issue the Management Options to key employees in
accordance with the vesting schedule set forth in the Management Option Plan.
10.6 EMPLOYMENT AGREEMENTS. As of the Effective Date, the Debtor or
Reorganized CHI shall have entered into the Employment Agreements.
ARTICLE XI - EFFECTIVENESS OF THE PLAN
11.1 CONDITIONS PRECEDENT TO EFFECTIVENESS. The Plan shall not become
effective unless and until the following conditions shall have been satisfied or
waived pursuant to Section 11.3 of the Plan:
(a) Confirmation Order. The Confirmation Order, in form and substance
reasonably acceptable to the Debtor, the Unofficial Bondholders' Committee
and the Creditors' Committee, shall have been signed by the Bankruptcy
Judge, and there shall not be a stay or injunction in effect with respect
thereto;
(b) Working Capital Facility. Reorganized CHI shall have credit
availability under a working capital facility, in amount, form and
substance acceptable to the Debtor, Unofficial Bondholders' Committee and
the Creditors' Committee, if any, to provide Reorganized CHI with (i)
access to letters of credit for projects; (ii) working capital to meet its
ordinary and peak requirements and (iii) additional borrowings to support
future projects.
(c) Execution and Delivery of Certain Agreements. The following
agreements, in form satisfactory to the Debtor, the Unofficial Bondholders'
Committee and the Creditors' Committee, if any, shall have been executed
and delivered, and all conditions precedent thereto shall have been
satisfied:
(i) Amended CHI By-Laws;
(ii) Restated CHI Certificate of Incorporation;
(iii) Employment Agreements;
(iv) New Series B Warrant Agreement;
(v) New Series C Warrant Agreement;
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(vi) Management Option Plan and Management Option Agreements;
(vii) Registration Rights Agreement; and
(viii) Stockholders' Agreement.
(d) Documentation. All actions, documents and agreements necessary to
implement the Plan shall have been effected or executed.
11.2 EFFECT OF FAILURE OF CONDITIONS. In the event that one or more of the
conditions specified in Section 11.1 of the Plan have not occurred or been duly
waived by the Debtor, Unofficial Bondholders' Committee and the Creditors'
Committee, if any, as provided in Section 11.3 on or before 60 days after the
Confirmation Date, upon notification submitted by the Debtor to the Bankruptcy
Court and to counsel for the Unofficial Bondholders' Committee and the
Creditors' Committee, if any, (a) the Confirmation Order shall be vacated, (b)
no distributions under the Plan shall be made, (c) the Debtor and all holders of
Claims and Equity Interests shall be restored to the status quo ante as of the
day immediately preceding the Confirmation Date as though the Confirmation Date
never occurred and (d) the Debtor's obligations with respect to the Claims and
Equity Interests shall remain unchanged and nothing contained herein shall
constitute or be deemed a waiver or release of any Claims or Equity Interests by
or against the Debtor or any other person or to prejudice in any manner the
rights of the Debtor or any person in any further proceedings involving the
Debtor.
11.3 WAIVER OF CONDITIONS. The Debtor may waive, by a writing signed by an
authorized representative of each of the Debtor, the Unofficial Bondholders'
Committee and the Creditors' Committee, if any, and subsequently filed with the
Bankruptcy Court, one or more of the conditions precedent to effectiveness of
the Plan set forth in this Article XI.
ARTICLE XII - EFFECT OF CONFIRMATION OF PLAN
12.1 TERM OF BANKRUPTCY INJUNCTION OR STAYS. All injunctions or stays
provided for in the Chapter 11 Case under sections 105 or 362 of the Bankruptcy
Code, or otherwise, and in existence on the Confirmation Date, shall remain in
full force and effect until the Effective Date. From and after the Effective
Date, any "50-percent shareholder" of the Debtor within the meaning of section
382(g)(4)(D) of the Internal Revenue Code of 1986, as amended, shall be
permanently enjoined from claiming a worthless stock deduction with respect to
its Equity Interest for any taxable year of such shareholder ending prior to the
Effective Date.
12.2 REVESTING OF ASSETS. The property of the estate of the Debtor shall
revest in Reorganized CHI on the Effective Date, and thereafter Reorganized CHI
may operate its business, and may use, acquire and dispose of property free of
any restrictions imposed under the Bankruptcy Code. As of the Effective Date,
all property of the Debtor and Reorganized CHI shall be free and
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clear of all Liens, claims and interests of holders of Claims and Equity
Interests, except as provided in the Plan.
12.3 DISCHARGE OF DEBTOR. The rights afforded herein and the treatment of
all Claims and Equity Interests herein shall be in exchange for and in complete
satisfaction, discharge and release of Claims and Equity Interests of any nature
whatsoever, including any interest accrued on such Claims from and after the
Commencement Date, against the Debtor and the Debtor in Possession, or any of
its assets or properties. Except as otherwise provided herein, (a) on the
Effective Date, all such Claims against and Equity Interests in the Debtor shall
be satisfied, discharged and released in full, and (b) all persons shall be
precluded from asserting against Reorganized CHI or its assets or properties any
other or further Claims or Equity Interests based upon any act or omission,
transaction or other activity of any kind or nature that occurred prior to the
Confirmation Date.
12.4 PERMANENT INJUNCTION. Except as otherwise expressly provided in the
Plan or the Confirmation Order, all entities who have held, hold or may hold
Claims against or Equity Interests in the Debtor, are permanently enjoined, on
and after the Effective Date, from (a) commencing or continuing in any manner
any action or other proceeding of any kind with respect to any such Claim or
Equity Interest, (b) the enforcement, attachment, collection or recovery by any
manner or means of any judgment, award, decree or order against the Debtor on
account of any such Claim or Equity Interest, (c) creating, perfecting or
enforcing any encumbrance of any kind against the Debtor or against the property
or interests in property of the Debtor on account of any such Claim or Equity
Interest and (d) asserting any right of setoff, subrogation or recoupment of any
kind against any obligation due from the Debtor or against the property or
interests in property of the Debtor on account of any such Claim or Equity
Interest. Such injunction shall extend to successors of the Debtor (including,
without limitation, Reorganized CHI) and its respective properties and interests
in property.
ARTICLE XIII - RETENTION OF JURISDICTION
The Bankruptcy Court shall have exclusive jurisdiction of all matters
arising out of, and related to, the Chapter 11 Case and the Plan pursuant to,
and for the purposes of, sections 105(a) and 1142 of the Bankruptcy Code and
for, among other things, the following purposes:
13.1 To hear and determine pending applications for the assumption or
rejection of executory contracts or unexpired leases, if any are pending, and
the allowance of Claims resulting therefrom;
13.2 To determine any and all adversary proceedings, applications and
contested matters;
13.3 To ensure that distributions to holders of Allowed Claims and Allowed
Equity Interests are accomplished as provided herein;
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13.4 To hear and determine any timely objections to Administrative Expense
Claims, or to proofs of Claims or Equity Interests filed, both before and after
the Confirmation Date, including without limitation, any objections to the
classification of any Claim or Equity Interest, and to allow or disallow any
Disputed Claim or Disputed Equity Interest;
13.5 To enter and implement such orders as may be appropriate in the event
the Confirmation Order is for any reason stayed, revoked, modified or vacated;
13.6 To issue such orders in aid of execution and consummation of the Plan,
to the extent authorized by section 1142 of the Bankruptcy Code;
13.7 To consider any amendments to or modifications of the Plan, to cure
any defect or omission, or reconcile any inconsistency in any order of the
Bankruptcy Court, including, without limitation, the Confirmation Order;
13.8 To hear and determine all applications for compensation and
reimbursement of expenses of professionals under sections 330, 331 and 503(b) of
the Bankruptcy Code;
13.9 To hear and determine disputes arising in connection with the
interpretation, implementation or enforcement of the Plan;
13.10 To recover all assets of the Debtor and property of the Debtor's
estate, wherever located;
13.11 To hear and determine matters concerning state, local and federal
taxes in accordance with sections 346, 505 and 1146 of the Bankruptcy Code;
13.12 To hear any other matter not inconsistent with the Bankruptcy Code;
and
13.13 To enter a final decree closing the Chapter 11 Case.
ARTICLE XIV - MISCELLANEOUS PROVISIONS
14.1 EXEMPTION FROM TRANSFER TAXES. Pursuant to section 1146(c) of the
Bankruptcy Code, the issuance, transfer or exchange of notes or equity
securities under the Plan, the creation of any mortgage, deed of trust or other
security interest, the making or assignment of any lease or sublease, or the
making or delivery of any deed or other instrument of transfer under, in
furtherance of, or in connection with the Plan, including, without limitation,
any merger agreements or agreements of consolidation, deeds, bills of sale or
assignments executed in connection with any of the transactions contemplated
under the Plan shall not be subject to any stamp, real estate transfer, mortgage
recording or other similar tax.
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14.2 EXCULPATION. Neither the Debtor, Reorganized CHI, the Unofficial
Bondholders' Committee nor the Creditors' Committee, if any, nor any of their
respective members, officers, directors, employees, advisors or agents shall
have or incur any liability to any holder of a Claim or Equity Interest for any
act or omission in connection with, related to, or arising out of, the Chapter
11 Case, the pursuit of confirmation of the Plan, the consummation of the Plan
or the administration of the Plan or the property to be distributed under the
Plan, except for willful misconduct or gross negligence, and, in all respects,
the Debtor, Reorganized CHI, the Bondholder' Committee and the Creditors'
Committee, if any, and each of their respective members, officers, directors,
employees, advisors and agents shall be entitled to rely upon the advice of
counsel with respect to their duties and responsibilities under the Plan.
14.3 TERMINATION OF CREDITORS' COMMITTEE. If a Creditors' Committee is
appointed, the appointment of the Creditors' Committee shall terminate on the
later of the Effective Date and the date of the hearing to consider applications
for final allowances of compensation and reimbursement of expenses.
14.4 PAYMENT OF STATUTORY FEES. All fees payable pursuant to section 1930
of the title 28 of the United States Code, as determined by the Bankruptcy Court
at the Confirmation Hearing, shall be paid on the Effective Date.
14.5 AMENDMENT OR MODIFICATION OF THE PLAN. Alterations, amendments or
modifications of the Plan may be proposed in writing by the Debtor at any time
prior to the Confirmation Date in accordance with Section 1127(a) of the
Bankruptcy Code, provided that the Plan, as altered, amended or modified,
satisfies the conditions of sections 1122 and 1123 of the Bankruptcy Code, and
the Debtor shall have complied with section 1125 of the Bankruptcy Code;
provided, however, that the holders of Claims and Equity Interests agree or
consent to such alteration, amendment or modification or if the proposed
alteration, amendment or modification does not materially and adversely change
the treatment of the Claim or Equity Interest of such holder.
14.6 SEVERABILITY. In the event that the Bankruptcy Court determines, prior
to the Confirmation Date, that any provision in the Plan is invalid, void or
unenforceable, such provision shall be invalid, void or unenforceable only with
respect to the holder or holders of such Claims or Equity Interests as to which
the provision is determined to be invalid, void or unenforceable. The
invalidity, voidness or unenforceability of any such provision shall in no way
limit or affect the enforceability and operative effect of any other provision
of the Plan.
14.7 REVOCATION OR WITHDRAWAL OF THE PLAN. The Debtor reserves the right to
revoke or withdraw the Plan prior to the Confirmation Date. If the Debtor
revokes or withdraws the Plan prior to the Confirmation Date, then the Plan
shall be deemed null and void. In such event, nothing contained herein shall
constitute or be deemed a waiver or release of any claims by or against the
Debtor or any other person or to prejudice in any manner the rights of the
Debtor or any person in any further proceedings involving the Debtor.
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14.8 BINDING EFFECT. The Plan shall be binding upon and inure to the
benefit of the Debtor, the holders of Claims and Equity Interests, and their
respective successors and assigns, including, without limitation, Reorganized
CHI.
14.9 NOTICES. All notices, requests and demands to or upon the Debtor or
Reorganized CHI to be effective shall be in writing and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made when
actually delivered or, in the case of notice by facsimile transmission, when
received and telephonically confirmed, addressed as follows:
If to the Debtor:
Consolidated Hydro, Inc.
680 Washington Boulevard
Stamford, Connecticut 06901
Attn: Mr. Edward M. Stern
Telephone: (203) 425-8850
Facsimile: (203) 425-8880
with copies to:
Weil, Gotshal & Manges LLP Richards, Layton & Finger, P.A.
767 Fifth Avenue One Rodney Square
New York, New York 10153 Wilmington, Delaware 19899
Attn: Lori R. Fife, Esq. Attn: Thomas L. Ambro, Esq.
Telephone: (212) 310-8000 Telephone: (302) 658-6541
Facsimile: (212) 310-8007 Facsimile: (302) 658-6548
If to the Unofficial Bondholders' Committee:
Wachtell Lipton Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attn: Chaim J. Fortgang, Esq.
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
14.10 GOVERNING LAW. Except to the extent the Bankruptcy Code, Bankruptcy
Rules or other federal law is applicable, or to the extent an exhibit to the
Plan provides otherwise, the rights and obligations arising under the Plan shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware, without giving effect to the principles of conflicts of law
of such jurisdiction.
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14.11 WITHHOLDING AND REPORTING REQUIREMENTS. In connection with the
consummation of the Plan, the Debtor or Reorganized CHI, as the case may be,
shall comply with all withholding and reporting requirements imposed by any
federal, state, local or foreign taxing authority and all distributions
hereunder shall be subject to any such withholding and reporting requirements.
14.12 PLAN SUPPLEMENT. Any and all exhibits or schedules not filed with the
Plan shall be contained in the Plan Supplement and filed with the Clerk of the
Bankruptcy Court at least 10 days prior to the Confirmation Hearing. Upon its
filing with the Bankruptcy Court, the Plan Supplement may be inspected in the
office of the Clerk of the Bankruptcy Court during normal court hours. Holders
of Claims or Equity Interests may obtain a copy of the Plan Supplement upon
written request to the Debtor in accordance with Section 14.9 of the Plan.
14.13 ADMINISTRATIVE EXPENSES INCURRED AFTER THE CONFIRMATION DATE.
Administrative expenses incurred by the Debtor or Reorganized CHI after the
Confirmation Date, including, without limitation, claims for professionals' fees
and expenses, shall not be subject to application and may be paid by the Debtor
or reorganized CHI, as the case may be, in the ordinary course of business and
without further approval of the Bankruptcy Court.
14.14 SECTION 1125(e) OF THE BANKRUPTCY CODE. (a) The Debtor has, and upon
confirmation of the Plan shall be deemed to have, solicited acceptances of the
Plan in good faith and in compliance with the applicable provisions of the
Bankruptcy Code, and (b) the Debtor, each of the members of the Unofficial
Bondholders' Committee (and each of their respective affiliates, agents,
directors, officers, employees, advisors and attorneys) have participated in
good faith and in compliance with the applicable provisions of the Bankruptcy
Code in the offer, issuance, sale, solicitation and purchase of the securities
offered and sold under the Plan, and therefore are not, and on account of such
offer, issuance, sale, solicitation and/or purchase shall not be, liable at any
time for the violation of any applicable law, rule or regulation governing the
solicitation of acceptances or rejections of the Plan or the offer, issuance,
sale or purchase of the securities offered and sold under the Plan.
14.15 HEADINGS. Headings are used in the Plan for convenience and reference
only, and shall not constitute a part of the Plan for any other purpose.
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<PAGE>
14.16 EXHIBITS AND SCHEDULES. All Exhibits and Schedules to the Plan,
including the Plan Supplement, are incorporated into and are a part of the Plan
as if set forth in full herein.
Dated: Stamford, Connecticut
August 8, 1997
CONSOLIDATED HYDRO, INC., a Delaware corporation
By:______________________________________________
Name: Edward M. Stern
Title: President and Chief Operating Officer
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<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I - DEFINITION OF TERMS AND RULES OF INTERPRETATION................ 1
ARTICLE II - TREATMENT OF ADMINISTRATIVE EXPENSE CLAIMS
AND PRIORITY TAX CLAIMS....................................... 10
2.1 PROFESSIONAL COMPENSATION AND REIMBURSEMENT CLAIMS............ 10
2.2 OTHER ADMINISTRATIVE EXPENSE CLAIMS........................... 10
2.3 PRIORITY TAX CLAIMS........................................... 10
ARTICLE III - CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS................ 11
ARTICLE IV - TREATMENT OF CLAIMS AND EQUITY INTERESTS AND VOTING........... 11
4.1 CLASS 1 - OTHER PRIORITY CLAIMS............................... 11
4.2 CLASS 2 - SECURED CLAIMS...................................... 12
4.3 CLASS 3 - SENIOR DISCOUNT NOTE CLAIMS......................... 12
4.4 CLASS 4 - DNB FACILITY CLAIM.................................. 12
4.5 CLASS 5 - GENERAL UNSECURED CLAIMS............................ 13
4.6 CLASS 6 - INTERCOMPANY CLAIMS................................. 13
4.7 CLASS 7 - SERIES F EQUITY INTERESTS........................... 13
4.8 CLASS 8 - SERIES H EQUITY INTERESTS........................... 14
4.9 CLASS 9 - SERIES G EQUITY INTERESTS........................... 14
4.10 CLASS 10 - OLD COMMON STOCK EQUITY INTERESTS.................. 14
ARTICLE V - PROVISIONS REGARDING DISTRIBUTION.............................. 15
5.1 METHOD OF DISTRIBUTIONS UNDER THE PLAN........................ 15
5.2 WAIVER OF ENFORCEMENT OF PRIORITY............................. 16
5.3 SURRENDER OF EXISTING SECURITIES AND AGREEMENTS............... 17
ARTICLE VI - PROCEDURES FOR TREATING DISPUTED CLAIMS AND EQUITY INTERESTS.. 17
6.1 PROSECUTION OF OBJECTIONS..................................... 17
6.2 NO DISTRIBUTIONS PENDING ALLOWANCE............................ 17
6.3 DISTRIBUTIONS AFTER ALLOWANCE................................. 17
ARTICLE VII - EXECUTORY CONTRACTS AND UNEXPIRED LEASES..................... 18
7.1 ASSUMPTION OR REJECTION OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES.......................................... 18
7.2 APPROVAL OF ASSUMPTION OR REJECTION OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES........................................ 18
7.3 CURE OF DEFAULTS.............................................. 18
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7.4 REJECTION OF CERTAIN PUT AND CALL AGREEMENTS.................. 19
7.5 BAR DATE FOR FILING PROOFS OF CLAIM RELATING TO
EXECUTORY CONTRACTS AND UNEXPIRED LEASES REJECTED
PURSUANT TO THE PLAN........................................ 19
7.6 INSURANCE POLICIES............................................ 19
7.7 INDEMNIFICATION OBLIGATIONS................................... 19
7.8 COMPENSATION AND BENEFIT PROGRAMS............................. 19
7.9 RETIREE BENEFITS.............................................. 20
ARTICLE VIII - LIMITED RELEASES............................................ 20
8.1 LIMITED RELEASE OF RELEASEES AND OTHER PARTIES................ 20
8.2 LIMITED RELEASE BY RELEASEES AND OTHER PARTIES................ 20
8.3 BINDING EFFECT OF RELEASES.................................... 20
ARTICLE IX - IMPLEMENTATION OF THE PLAN.................................... 21
9.1 CANCELLATION OF CERTAIN SECURITIES............................ 21
9.2 NEW SECURITIES................................................ 21
9.3 REGISTRATION RIGHTS........................................... 22
9.4 EFFECTUATING DOCUMENTS AND FURTHER TRANSACTIONS............... 22
9.5 CORPORATE ACTION.............................................. 22
9.6 STOCKHOLDERS' AGREEMENT....................................... 22
ARTICLE X - GOVERNANCE AND MANAGEMENT OF REORGANIZED CHI................... 23
10.2 MEETINGS OF REORGANIZED CHI STOCKHOLDERS...................... 23
10.3 DIRECTORS AND OFFICERS OF REORGANIZED CHI..................... 23
10.4 AMENDED BY-LAWS AND RESTATED CERTIFICATE OF INCORPORATION..... 23
10.5 MANAGEMENT OPTION PLAN........................................ 24
10.6 EMPLOYMENT AGREEMENTS......................................... 24
ARTICLE XI - EFFECTIVENESS OF THE PLAN..................................... 24
11.1 CONDITIONS PRECEDENT TO EFFECTIVENESS......................... 24
11.2 EFFECT OF FAILURE OF CONDITIONS............................... 25
11.3 WAIVER OF CONDITIONS.......................................... 25
ARTICLE XII - EFFECT OF CONFIRMATION OF PLAN............................... 25
12.1 TERM OF BANKRUPTCY INJUNCTION OR STAYS........................ 25
12.2 REVESTING OF ASSETS........................................... 25
12.3 DISCHARGE OF DEBTOR........................................... 26
12.4 PERMANENT INJUNCTION.......................................... 26
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<PAGE>
ARTICLE XIII - RETENTION OF JURISDICTION................................... 26
ARTICLE XIV - MISCELLANEOUS PROVISIONS..................................... 27
14.1 EXEMPTION FROM TRANSFER TAXES................................. 28
14.2 EXCULPATION................................................... 28
14.3 TERMINATION OF CREDITORS' COMMITTEE........................... 28
14.4 PAYMENT OF STATUTORY FEES..................................... 28
14.5 AMENDMENT OR MODIFICATION OF THE PLAN......................... 28
14.6 SEVERABILITY.................................................. 28
14.7 REVOCATION OR WITHDRAWAL OF THE PLAN.......................... 28
14.8 BINDING EFFECT................................................ 29
14.9 NOTICES....................................................... 29
14.10 GOVERNING LAW................................................. 29
14.11 WITHHOLDING AND REPORTING REQUIREMENTS........................ 30
14.12 PLAN SUPPLEMENT............................................... 30
14.13 ADMINISTRATIVE EXPENSES INCURRED AFTER THE
CONFIRMATION DATE........................................... 30
14.14 SECTION 1125(e) OF THE BANKRUPTCY CODE........................ 30
14.15 HEADINGS...................................................... 30
14.16 EXHIBITS AND SCHEDULES........................................ 31
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<PAGE>
INDEX OF EXHIBITS AND SCHEDULE
EXHIBITS
EXHIBIT A ................................. Form of By-Laws of CHI Energy, Inc.
EXHIBIT B ............................ Form of Restated Certificate of
Incorporation of Consolidated Hydro, Inc.
EXHIBIT C ......................................... Form of Employment Agreement
EXHIBIT D ................................ CHI Energy, Inc. 1997 Stock Option
Plan and Management Option Agreements
EXHIBIT E .................................. Form of Series B Warrant Agreement
EXHIBIT F .................................. Form of Series C Warrant Agreement
EXHIBIT G ...................................... List of Nondebtor Subsidiaries
EXHIBIT H ........................................Registration Rights Agreement
EXHIBIT I ..............................................Stockholders' Agreement
SCHEDULE
SCHEDULE 7.1 ............................... Executory Contracts and Unexpired
Leases to be Rejected
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<PAGE>
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
- - - ------------------------------------ x
:
In re :
: CHAPTER 11
CONSOLIDATED HYDRO, INC., : CASE NO. _____________
:
Debtor. :
:
- - - ------------------------------------ x
PLAN OF REORGANIZATION UNDER CHAPTER 11
OF THE BANKRUPTCY CODE OF CONSOLIDATED HYDRO, INC.
WEIL, GOTSHAL & MANGES LLP
Attorneys for the Debtor
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
and
RICHARDS, LAYTON & FINGER, P.A.
Attorneys for the Debtor
One Rodney Square
Wilmington, Delaware 19899
(302) 685-6541
Dated: Stamford, Connecticut
August 8, 1997
<PAGE>
EXHIBIT A TO THE PLAN
Form of By-Laws of CHI Energy, Inc.
<PAGE>
EXHIBIT B TO THE PLAN
Form of Restated Certificate of Incorporation of Consolidated Hydro, Inc.
<PAGE>
EXHIBIT C TO THE PLAN
Form of Employment Agreement
<PAGE>
EXHIBIT D TO THE PLAN
CHI Energy, Inc. 1997 Stock Option Plan and Management Option Agreements
<PAGE>
EXHIBIT E TO THE PLAN
Form of Series B Warrant Agreement
<PAGE>
EXHIBIT F TO THE PLAN
Form of Series C Warrant Agreement
<PAGE>
EXHIBIT G TO THE PLAN
List of Nondebtor Subsidiaries
<PAGE>
EXHIBIT H TO THE PLAN
Registration Rights Agreement
<PAGE>
EXHIBIT I TO THE PLAN
Stockholders' Agreement
<PAGE>
SCHEDULE 7.1 TO THE PLAN
Executory Contracts and Unexpired Leases to be Rejected
<PAGE>
EXECUTORY CONTRACTS AND UNEXPIRED LEASES TO BE REJECTED
-------------------------------------------------------
1. Amended and Restated Stockholders, Optionholders and Warrantholders
Agreement among Consolidated Hydro, Inc., and its stockholders,
optionholders and warrantholders dated March 25, 1992.
2. Consolidated Hydro, Inc. Amended and Restated 1992 Stock Option Plan.
3. Put and Call Agreement dated as of June 20, 1993, by and among Consolidated
Hydro, Inc., SES Partners, L.P. and Summit Energy Storage Inc.
4. Call Agreement dated as of November 1, 1993, by and among Consolidated
Hydro, Inc., SES Partners II, L.P. and Summit Energy Storage Inc.
5. Warrant Agreement dated as of November 1, 1993, between Consolidated Hydro,
Inc. and SES Partners II, L.P.
NYFS10...:\84\38684\0003\1791\PLN6027I.52N
RESTATED
CERTIFICATE OF INCORPORATION
OF
CONSOLIDATED HYDRO, INC.
1. The existing name of the Corporation is Consolidated Hydro, Inc.
Effective upon the filing of this Restated Certificate of Incorporation, the new
name of the Corporation will be [CHI Energy, Inc.].
2. The original Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on July 18, 1985 under the name Consolidated
Hydro, Inc. and was amended by Certificates of Amendment filed with the
Secretary of State on August 23, 1985, December 26, 1985 and January 30, 1987.
In addition, a Restated Certificate of Incorporation was filed with the
Secretary of State on April 29, 1992 and was amended by Certificates of
Amendment filed with the Secretary of State on June 17, 1993 and December 12,
1996.
3. This Restated Certificate of Incorporation, which restates and further
amends the Restated Certificate of Incorporation as currently in effect, is made
and filed pursuant to the order of the United States Bankruptcy Court (the
"Bankruptcy Court"), District of Delaware, (_______________________________) No.
[_____________], and the Plan of Reorganization confirmed therein (the "Plan of
Reorganization") in connection with the reorganization of the Corporation under
Title 11 of the United States Code and in accordance with Sections 103 and 303
of the General Corporation Law of the State of Delaware.
4. This Restated Certificate of Incorporation shall become effective at
9:00 a.m. on ___________, 1997.
5. The Corporation's Restated Certificate of Incorporation, as previously
amended and as currently in effect, is hereby restated and further amended so as
to read in its entirety as follows:
1
<PAGE>
FIRST: The name of the Corporation is:
[CHI Energy, Inc.]
SECOND: The address of the Corporation's registered office in the
State of Delaware is No. 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, as from time to time amended.
FOURTH: (a) The total number of shares of capital stock which the
Corporation shall have authority to issue is 30 million shares. Of these shares,
(i) 20 million shares shall be shares of Common Stock, having a par value of
$0.01 per share (the "Common Stock"), and which shares of Common Stock shall be
divided into two classes, ____ shares of which shall be shares of Class A Common
Stock ("Class A Common Stock") and ____ shares of which shall be shares of Class
B Common Stock ("Class B Common Stock"), and (ii) 10 million shares shall be
shares of Preferred Stock, having a par value of $0.01 per share (the "Preferred
Stock").
Except as otherwise provided by applicable law or by this Restated
Certificate of Incorporation, the shares of capital stock of the Corporation,
regardless of class, may be issued by the Corporation from time to time in such
amounts, for such lawful consideration and for such corporate purpose(s) as the
Board of Directors may from time to time determine.
FIFTH: The powers, preferences and rights, and the qualifications,
limitations and restrictions of the Common Stock are as follows:
(a) Voting. With respect to all matters on which holders of Common
Stock shall be entitled to vote, except as otherwise required by applicable law,
the holders of record of outstanding shares of Class A Common Stock and the
holders of record of outstanding shares of Class B Common Stock shall vote
(together with the holders of any outstanding shares of Preferred Stock entitled
to vote with the Class A Common Stock and the Class B Common Stock) without
regard to class, and each holder of a share of Class
2
<PAGE>
A Common Stock shall be entitled to cast one vote in person or by proxy in
respect of each share of Class A Common Stock held in such holder's name, and
each holder of a share of Class B Common Stock shall be entitled to cast 1/100th
of one vote in person or by proxy in respect of each share of Class B Common
Stock held in such holder's name.
(b) Dividends. Subject to the rights of the holders of any series of
outstanding Preferred Stock, and subject to applicable law, holders of shares of
Class A Common Stock and holders of shares of Class B Common Stock shall be
entitled to receive such dividends and other distributions as may be declared by
the Board of Directors from time to time out of assets or funds of the
Corporation legally available therefor; provided that if a dividend or other
distribution in respect of any Common Stock is declared or paid by the
Corporation (which declaration and payment shall be solely in the discretion of
the Board of Directors), including, but not limited to, dividends or other
distributions payable in cash, Common Stock or options, rights or warrants to
purchase Common Stock or securities exercisable or exchangeable for or
convertible into Common Stock, or other securities or property of the
Corporation, such dividend or other distribution shall be declared and paid to
the holders of Class A Common Stock and Class B Common Stock, and the holders of
shares of Class A Common Stock and the holders of shares of Class B Common Stock
shall be entitled to receive the same amount per share of any such dividends and
other distributions in cash, securities or property of the Corporation (and with
respect to dividends or distributions not in cash, in the same form); provided,
however, that nothing in this Article FIFTH shall prevent the declaration and
payment of a dividend or other distribution of shares of Class A Common Stock
(or securities exercisable or exchangeable for, or convertible into, shares of
Class A Common Stock) only to holders of Class A Common Stock concurrently with
the declaration and payment of a dividend or other distribution of shares of
Class B Common Stock (or securities exercisable or exchangeable for, or
convertible into, shares of Class B Common Stock) only to holders of Class B
Common Stock so long as, immediately following such dividend or other
distribution, the number of shares of Class A Common Stock and Class B Common
Stock then outstanding bears the same relationship to each other as did the
number of shares of Class A Common Stock and Class B Common Stock outstanding
immediately prior to such dividend or other distribution; and provided, further,
however, that nothing in this Article
3
<PAGE>
FIFTH shall prevent the declaration and payment of a dividend or other
distribution of shares of Class A Common Stock in respect of shares of Class B
Common Stock and the declaration and payment of a dividend or other distribution
of shares of Class B Common Stock in respect of shares of Class A Common Stock.
(c) Split, Subdivision, Combination or Reclassification. In the case
of any split (including by means of stock dividend), subdivision, combination or
reclassification of Class A Common Stock or Class B Common Stock, the shares of
Class A Common Stock or Class B Common Stock, as the case may be, shall also be
split (including by means of stock dividend), subdivided, combined or
reclassified so that the number of shares of Class A Common Stock and Class B
Common Stock outstanding immediately following such split, subdivision,
combination or reclassification shall bear the same relationship to each other
as did the number of shares of Class A Common Stock and Class B Common Stock
outstanding immediately prior to such split, subdivision, combination or
reclassification.
(d) Liquidation, Dissolution, Mergers, etc. In the event of any
liquidation, dissolution or winding-up (either voluntary or involuntary) of the
Corporation, the holders of Class A Common Stock and the holders of Class B
Common Stock shall be entitled to receive the assets, property and cash, as
applicable, of the Corporation available for distribution, after the
satisfaction of all obligations and debts then outstanding to creditors of the
Corporation and subject to any preference or rights of participation of any
Preferred Stock of the Corporation that may at the time be outstanding, in
proportion to the number of shares held by them, respectively, without regard to
class. In the event of any merger, consolidation, or other business combination
or extraordinary corporate transaction in which any consideration is to be
received by the holders of Class A Common Stock or the holders of Class B Common
Stock, the holders of Class A Common Stock and the holders of Class B Common
Stock shall receive the same form and amount of consideration on a per share
basis.
(e) Rights Otherwise Identical. Except as expressly set forth in this
Article FIFTH, the rights of the holders of Class A Common Stock and the rights
of the holders of Class B Common Stock shall in all respects, for all purposes
and in all circumstances be absolutely and completely identical.
4
<PAGE>
(f) Issuance of Common Stock. The Board of Directors may from time to
time authorize by resolution the issuance of any or all shares of Class A Common
Stock and Class B Common Stock herein authorized in accordance with the terms
and conditions set forth in this Restated Certificate of Incorporation for such
purposes, in such amounts, to such persons (including existing stockholders in
the form of a dividend or other pro rata distribution), corporations or
entities, and for such consideration all as the Board of Directors in its
discretion may determine and without any vote or other action by the holders of
Class A Common Stock or Class B Common Stock, except as otherwise required by
law.
SIXTH: Shares of Class B Common Stock shall automatically be converted
by the Corporation into shares of Class A Common Stock, as follows:
(a) Conversion of Existing Shares of Class B Common Stock into Shares
of Class A Common Stock. Each share of Class B Common Stock automatically shall
be converted, on a share-for-share basis, into one duly authorized, validly
issued, fully paid and nonassessable share of Class A Common Stock, upon
consummation of any transfer, assignment or similar disposition of such Class B
Common Stock. No share of Class A Common Stock shall be converted into a share
of Class B Common Stock.
(b) Exchange of Certificates Evidencing Class B Common Stock for
Certificates Evidencing Class A Common Stock. Promptly (and in no event later
than five days) following the consummation of any transfer, assignment or
similar disposition described in subparagraph (a) of this Article SIXTH such
that shares of Class B Common Stock automatically are converted into shares of
Class A Common Stock (an "Event of Conversion"), the record holder of such
shares of Class B Common Stock so converted shall surrender the certificate (or
certificates) therefor, duly endorsed in blank or accompanied by proper
instruments of transfer, at the principal office of the Corporation or of any
transfer agent for the Class A Common Stock, and, together with such surrender,
shall deliver written notice to the Corporation, at such office: (i) stating
that an Event of Conversion has occurred, (ii) specifying the Event of
Conversion, (iii) identifying the number of shares of Class B Common Stock that
automatically have been so converted, and (iv) setting forth the name or names
(with addresses) and denominations in which the certificate (or certificates)
for shares of
5
<PAGE>
Class A Common Stock shall be issued (including instructions for delivery
thereof). Delivery of such notice together with the certificate (or
certificates) formerly representing the Class B Common Stock shall obligate the
Corporation to promptly (and in any case not later than 20 business days after
receipt of such notice) issue a certificate (or certificates) formerly
representing such shares of Class A Common Stock. Thereupon, the Corporation or
its transfer agent shall issue and deliver at such stated address to such holder
or to the transferee of shares of Class B Common Stock so converted a
certificate (or certificates) for the number of Class A Common Stock to which
such holder or transferee is entitled, registered in the name of such holder,
the designee of such holder or transferee as specified in such notice.
An Event of Conversion shall be deemed to have occurred as of 5:00
p.m., Eastern time, on the date on which the transaction(s) resulting in the
occurrence of an Event of Conversion have been consummated (such time being the
"Conversion Time"). The person entitled to receive the shares of Class A Common
Stock issuable upon such conversion shall be treated for all purposes by the
Corporation as the record holder of such shares of Class A Common Stock at and
as of the Conversion Time, and the right of such person as a holder of Class B
Common Stock shall cease and terminate at and as of the Conversion Time, in each
case without regard to any failure by the holder to deliver the certificates or
the notice required by this subparagraph (b).
(c) Reclassifications; Recapitalizations, etc. In the event of a
reclassification, recapitalization or other similar transaction as a result of
which the shares of Class A Common Stock are converted into another security,
then a holder of Class B Common Stock shall be entitled to receive upon the
occurrence of an Event of Conversion the amount of such other security into
which the Class A Common Stock has been converted that such holder would have
received if such Event of Conversion had occurred immediately prior to the
record date or effective time, as applicable, of such reclassification or other
similar transaction.
(d) Unconverted Shares; Notice Required. In the event of the automatic
conversion of fewer than all the shares of Class B Common Stock evidenced by a
certificate surrendered to the Corporation in accordance with the procedures of
this Article SIXTH, the Corporation shall
6
<PAGE>
execute and deliver to, upon the written order of, the holder of such
unconverted shares, without charge to such holder, a new certificate evidencing
the number of shares of Class B Common Stock not converted.
(e) Retired Shares. Shares of Class B Common Stock that automatically
are converted into shares of Class A Common Stock as provided herein shall be
retired and canceled, and shall have the status of authorized but unissued
shares of Class B Common Stock.
(f) Reservation. The Corporation shall reserve and keep available, out
of its authorized and unissued shares of Class A Common Stock, for the purposes
of effecting conversions pursuant to this Article SIXTH, such number of duly
authorized shares of Class A Common Stock as shall from time to time be
sufficient to effect the conversion, in full, of all outstanding shares of Class
B Common Stock; provided, however, that nothing contained herein shall be
construed to preclude the Corporation from satisfying its obligations in respect
of the conversion of the outstanding shares of Class B Common Stock by delivery
of purchased shares of Class A Common Stock which are held in the treasury of
the Corporation. All the shares of Class A Common Stock so issuable shall, when
so issued, be duly authorized, validly issued, fully paid and nonassessable, and
free and clear from any and all liens, security interests, pledges,
hypothecations, encumbrances and charges whatsoever. The Corporation shall take
all actions as may be necessary to ensure that all such shares of Class A Common
Stock may be so issued without violation of any applicable law or regulation, or
of any requirements of any national securities exchange upon which the shares of
Class A Common Stock are or may be listed, or of any inter-dealer quotation
system of a registered national securities association upon which the shares of
Class A Common Stock are or may be listed or included for quotation.
SEVENTH: Preferred Stock may be issued in one or more series as may be
determined from time to time by the Board of Directors. Authority is hereby
expressly granted to the Board of Directors to authorize the issuance of one or
more series of Preferred Stock, and, subject to Article NINTH, to fix by
resolution or resolutions providing for the issue of each such series the voting
powers, designations, preferences, and relative, participating, optional,
redemption, conversion, exchange or other special rights, qualifications,
limitations or restrictions of such series,
7
<PAGE>
and the number of shares in each series, to the full extent now or hereafter
permitted by applicable law.
EIGHTH: The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof. Except as otherwise provided by
applicable law or by the resolution or resolutions adopted by the Board of
Directors designating the relative rights, powers, options and preferences of a
series of Preferred Stock, the Common Stock shall have the exclusive right to
vote for the election of directors of the Corporation and for all other
purposes, and holders of Preferred Stock shall not be entitled to receive notice
of any meeting of the Corporation's stockholders at which they are not entitled
to vote. The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other right or claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
NINTH: The Corporation shall not create, designate, authorize or cause
to be issued any class or series of nonvoting stock. For purposes of this
Article NINTH, any class or series of stock, including any series of Preferred
Stock, that has only such voting rights as are mandated by the General
Corporation Law of the State of Delaware, shall be deemed to be nonvoting stock
subject to the restrictions of this Article NINTH.
TENTH: In furtherance and not in limitation of the powers conferred by
law, subject to any limitations contained elsewhere in this Restated Certificate
of Incorporation, the Board of Directors may adopt, repeal, alter or amend the
By-laws of the Corporation by vote of a majority of the entire Board of
Directors (measured as if there were no vacancies). Notwithstanding any other
provisions of this Restated Certificate of Incorporation or any Preferred Stock
Designation (as defined below) or any provision of law, which might otherwise
permit a lesser vote or no vote, but in addition to any requirements of law and
any other provisions of this Restated Certificate of Incorporation or any
Preferred Stock Designation, the Corporation's stockholders may not adopt,
amend, alter or repeal any provision of the By-laws of the Corporation, except
by the affirmative vote of the holders of not less than 66-2/3% in voting power
of the then outstanding Voting
8
<PAGE>
Shares (as defined below), voting together as a single class.
ELEVENTH: (a) A director of the Corporation shall not be personally
liable either to the Corporation or to any stockholder for monetary damages for
breach of fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the General Corporation
Law of the State of Delaware as amended from time to time. Neither amendment nor
repeal of this subparagraph (a) nor the adoption of any provision of this
Restated Certificate of Incorporation inconsistent with this subparagraph (a)
shall eliminate or reduce the effect of this subparagraph (a) in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
subparagraph (a), would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
(b) Each person who was or is made a party or is threatened to be made
a party to or is involved in any manner in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director
or officer of the Corporation or a director or elected officer of a Subsidiary,
shall be indemnified and held harmless by the Corporation in accordance with and
to the fullest extent permitted from time to time by the General Corporation law
of the State of Delaware as the same exists or may hereafter be amended (but, if
permitted by applicable law, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment) or any other applicable laws as presently or hereafter in
effect, and such indemnification shall continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of his or her heirs,
executors and administrators; provided however, that the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors or is a proceeding to
enforce such person's claim to indemnification pursuant to the rights granted by
this Article ELEVENTH. The Corporation shall pay the expenses incurred by such
person in defending any such
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proceeding in advance of its final disposition upon receipt (unless the
Corporation upon authorization of the Board of Directors waives such requirement
to the extent permitted by applicable law) of an undertaking by or on behalf of
such person to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation as authorized in
this Article ELEVENTH or otherwise.
(c) The rights to indemnification and advancement of expenses provided
by, or granted pursuant to, this Article ELEVENTH shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the this Restated Certificate of Incorporation, provision of the
By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise. No repeal, modification or amendment of, or adoption of any provision
inconsistent with, this Article ELEVENTH, nor, to the fullest extent permitted
by applicable law, any modification of law, shall adversely affect any right or
protection of any person granted pursuant hereto with respect to any events that
occurred prior to the time of such repeal, amendment, adoption or modification.
(d) The Corporation may maintain insurance, at its expense, to protect
itself and any person who is or was a director, officer, partner, member,
employee, trustee or agent of the Corporation, or a Subsidiary (as defined
below) or of another corporation, partnership, limited liability company, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the General Corporation law of the
State of Delaware.
(e) The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to be paid
by the Corporation the expenses incurred in defending any proceeding in advance
of its final disposition, to any person who is or was an employee or agent
(other than a director or officer) of the Corporation or a Subsidiary and to any
person who is or was serving at the request of the Corporation or a Subsidiary
as a director, officer, partner, member, employee, trustee or agent of another
corporation, partnership, limited liability company, joint venture, trust or
other enterprise, including service with respect to employee benefit plans
maintained or sponsored by the Corporation or a Subsidiary, to the fullest
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extent of the provisions of this Article ELEVENTH with respect to the
indemnification of and advancement of expenses to directors and officers of the
Corporation.
(f) If any provision or provisions of this Article ELEVENTH shall be
held invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, the legality and enforceability of the remaining provisions of this
Article ELEVENTH (including, without limitation, each portion of any
subparagraph or clause of this Article ELEVENTH containing any such provision
held to be invalid, illegal or unenforceable, that is not itself held to be
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby; and (2) to the fullest extent possible, the provisions of this Article
ELEVENTH (including, without limitation, each such portion of any subparagraph
of this Article ELEVENTH containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
(g) Any notice, request or other communication required or permitted
to be given to the Corporation under this Article ELEVENTH shall be in writing
and either delivered in person or sent by telecopy, telex, telegram, overnight
mail or courier service, or certified or registered mail, postage prepaid,
return receipt requested, to the Secretary of the Corporation and shall be
effective only upon receipt by the Secretary.
TWELFTH: For the management of the business and for the conduct of the
affairs of the Corporation, and for further definition, limitation and
regulation of the powers of the Corporation and its directors and stockholders:
(a) Except as otherwise fixed by or pursuant to provisions hereof
relating to the rights of the holders of any class or series of Capital Stock
having a preference over Common Stock as to dividends or upon liquidation to
elect additional directors under specified circumstances, the number of
directors of the Corporation initially shall be fixed at 7 directors, the exact
number to be fixed from time to time by the affirmative vote of the holders of a
majority of the voting power of the outstanding Voting Shares.
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(b) Except as otherwise fixed by or pursuant to provisions hereof
relating to the rights of the holders of any class or series of Capital Stock
having a preference over Common Stock as to dividends or upon liquidation to
elect additional directors under specified circumstances, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification or other cause shall be filled either (i) by the affirmative
vote of a majority of the remaining directors then in office, even if
constituting less than a quorum of the Board of Directors, or (ii) by action of
the holders of a majority of the voting power of the outstanding Voting Shares,
and any vacancies on the Board of Directors resulting from the removal of any
director (or directors) shall be filled by action of the holders of a majority
of the voting power of the outstanding Voting Shares. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the term in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been duly elected and qualified. No
decrease in the number of directors constituting the entire Board of Directors
shall shorten the term of any incumbent director.
(c) Any or all of the directors may be removed, with or without cause,
by the holders of a majority of the voting power of the outstanding Voting
Shares.
THIRTEENTH: Any action required or permitted to be taken by the
Corporation's stockholders must be effected either (i) at a duly called annual
or special meeting of such holders or (ii) without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of record of the issued and outstanding
Capital Stock of the Corporation having at least that number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, and the writing or writings are
filed with the permanent records of the Corporation, such action to be effective
immediately upon delivery of such consent to the Corporation or as provided by
law. Prompt notice of the taking of corporate action without a meeting by less
than unanimous written consent shall be given as required by applicable law. At
any annual or special meeting of the Corporation's stockholders, only such
business shall be conducted as properly shall have been brought before such
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meeting in the manner provided by the By-laws of the
Corporation.
FOURTEENTH: Notwithstanding any other provision of this Restated
Certificate of Incorporation, any Preferred Stock Designation (as defined
below), or any provision of law, which might otherwise permit a lesser vote or
no vote, but in addition to any requirements of law, any other provisions of
this Restated Certificate of Incorporation or any Preferred Stock Designation,
the affirmative vote of the holders of not less than 66-2/3% of the voting power
of the outstanding Voting Shares, voting together as a single class, shall be
required to alter, amend or repeal this Restated Certificate of Incorporation.
FIFTEENTH: For purposes of this Restated Certificate of Incorporation,
the following capitalized terms shall have the following respective meanings:
(a) "Preferred Stock Designation" means a certificate filed with the
Secretary of State of the State of Delaware to evidence the designation of any
series of Preferred Stock of the Corporation established by resolution of the
Board of Directors pursuant to authority granted in this Restated Certificate of
Incorporation.
(b) "Voting Shares" means all shares of capital stock of the
Corporation entitled to vote generally in the election of directors.
(c) "Capital Stock" means any and all shares of corporate stock.
(d) "Disinterested Director" means a director of the Corporation who
is not and was not a party to the proceeding or matter in respect of which
indemnification is sought by the claimant.
(e) "Subsidiary" means a corporation, a majority of the capital stock
of which is owned directly or indirectly by the Corporation, other than
directors' qualifying shares.
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IN WITNESS WHEREOF, Consolidated Hydro, Inc. has caused this Restated
Certificate of Incorporation to be signed by [________], its [_______], and
attested by [_______], its [_______], this [__] day of [______], 1997.
CONSOLIDATED HYDRO, INC.
By:_________________________________
Name:
Title:
Attest:
____________________________
Name:
Title:
14
FORM OF
BY-LAWS
OF
CHI ENERGY, INC.
(a Delaware corporation)
(as amended through __________, 1997)
ARTICLE I
Stockholders
------------
SECTION 1. Annual Meetings. (a) Commencing with the annual meeting
held after the end of fiscal 1998, to the extent required by applicable law, an
annual meeting of stockholders for the election of directors and for the
transaction of such other business as may properly come before the meeting shall
be held each year at such date and time, within or without the State of
Delaware, as the Board of Directors shall determine.
(b) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the stockholders may
be made at an annual meeting of stockholders (A) pursuant to the Corporation's
notice of meeting, (B) by or at the direction of the Board of Directors or (C)
by any stockholder of the Corporation who was a stockholder of record at the
time of the giving of notice provided for in these By-laws, who is entitled to
vote at the meeting and who complies with the notice procedures set forth in
these By-laws.
(c) For nominations or other business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
30th day nor earlier than the close of business on the 60th day prior to the
first anniversary of the preceding year's annual meeting (and, in the case of
the
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annual meeting held after the end of fiscal year 1998, not later than May 1,
1998 nor earlier than April 1 , 1998); provided, however, that if the date of
the annual meeting is more than 30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the 60th day prior to such annual
meeting and not later than the close of business on the later of (a) the 30th
day prior to such annual meeting, or (b) the 10th day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. In no event shall the adjournment or postponement, or any public
announcement thereof, of an annual meeting commence a new time period for the
giving of a stockholder's notice as described above. Such stockholder's notice
shall set forth (A) as to each person whom the stockholder proposes to nominate
for election or re-election as a director all information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other matter that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made: (1) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (2) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(d) Notwithstanding anything contained in these By-laws to the
contrary, in the event that the number of directors to be elected to the Board
of Directors of the Corporation is increased and there is no public announcement
by the Corporation naming all of the nominees for director or specifying the
size of the increased Board of Directors at least 60 days prior to the first
anniversary of the preceding year's annual meeting (and, in the case of the
annual meeting held after the end of fiscal year 1998, by
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April 1, 1998), a stockholder's notice required by these Bylaws shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
SECTION 2. Special Meetings. (a) Special meetings of stockholders for
the transaction of such business as may properly come before the meeting may be
called by order of the Board of Directors or by the Chairman of the Board of
Directors or by a holder (or holders) of a majority of the voting power of the
then outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, and
shall be held at such date and time, within or without the State of Delaware, as
may be specified in the Corporation's notice of the meeting. Whenever the
directors shall fail to fix such place, the meeting shall be held at the
principal executive office of the Corporation
(b) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (i)
by or at the direction of the Board of Directors or (ii) by any stockholder of
the Corporation who is a stockholder of record at the time of giving of notice
provided for in these By-laws, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in these By-laws. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by these By-laws shall be delivered to the
Secretary at the principal executive offices of the Corporation not earlier than
the close of business on the 60th day prior to such special meeting and not
later than the close of business on the later of the 30th day prior to such
special meeting or the 10th day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of
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Directors to be elected at such meeting. In no event shall the adjournment or
postponement or, any public announcement thereof, of a special meeting commence
a new time period for the giving of a stockholder's notice as described above.
SECTION 3. Additional Matters Concerning Meetings of Stockholders. (a)
Only such persons who are nominated in accordance with the procedures set forth
in these By-laws shall be eligible to serve as directors and only such business
shall be conducted at a meeting of stockholders as shall have been brought
before the meeting in accordance with the procedures set forth in these By-laws.
Except as otherwise provided by law, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in these By-laws and, if any proposed
nomination or business is not in compliance with these Bylaws, to declare that
such defective proposal or nomination shall be disregarded.
(b) For purposes of Section 1 and 2 of Article I of these By-laws,
"public announcement" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or comparable national news- service or
in a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(c) Notwithstanding the foregoing provisions of Sections 1 and 2 of
Article I of these By-laws, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in Sections 1 and 2 of Article I of these
By-laws. Nothing in Sections 1 and 2 of Article I of these By-laws shall be
deemed to affect any rights (A) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (B) of the holders of any series of Preferred Stock to elect
directors under specified circumstances.
SECTION 4. Notice of Stockholder Meetings. Not less than 10 nor more
than 60 days before each meeting of stockholders, the secretary shall deliver to
each stockholder entitled to vote at such meeting (and to each stockholder not
entitled to vote but who otherwise is entitled to notice of the meeting) written
or printed notice
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stating the time and place of, and the purpose for, the meeting, either by mail
or by presenting it to such stockholder personally or by leaving it at his
residence or usual place of business; provided that in the event of a special
meeting called by a holder (or holders) of a majority of the voting power of the
then outstanding shares of capital stock of the Corporation pursuant to Section
2 of these By-laws, the written or printed notice by the Corporation of such
special meeting shall set forth as the purpose (or purposes) of such meeting
only such purpose (or purposes) as are requested by the holder (or holders)
calling such meeting pursuant to Section 2 of these By-laws. If mailed, such
notice shall be deemed to be given when deposited in the United States mail
addressed to the stockholder at his post office address as it appears on the
records of the stockholder list, with postage thereon prepaid.
SECTION 5. Stockholder Lists. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 6. Quorum. Except as otherwise provided by law or the
Corporation's Restated Certificate of Incorporation, a quorum for the
transaction of business at any meeting of stockholders shall consist of the
holders of record of a majority in voting power of the issued and outstanding
shares of the capital stock of the Corporation entitled to vote at the meeting,
present in person or by proxy. At all meetings of the stockholders at which a
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quorum is present, all matters, except as otherwise provided by law or the
Restated Certificate of Incorporation, shall be decided by the vote of the
holders of a majority in voting power of the shares entitled to vote thereat
present in person or by proxy. If there be no such quorum, the holders of a
majority in voting power of such shares so present or represented may adjourn
the meeting from time to time, without further notice, until a quorum shall have
been obtained. When a quorum is once present it is not broken by the subsequent
withdrawal of any stockholder.
SECTION 7. Organization. Meetings of stockholders shall be presided
over by the Chairman, if any, or if none or in the Chairman's absence the
Vice-Chairman, if any, or if none or in the Vice-Chairman's absence the
President, if any, or if none or in the President's absence a Vice- President,
or, if none of the foregoing is present, by a chairman to be chosen by the
stockholders entitled to vote who are present in person or by proxy at the
meeting. The Secretary of the Corporation, or in the Secretary's absence an
Assistant Secretary, shall act as secretary of every meeting, but if neither the
Secretary nor an Assistant Secretary is present, the presiding officer of the
meeting shall appoint any person present to act as secretary of the meeting.
SECTION 8. Voting; Proxies; Required Vote. (a) At each meeting of
stockholders, every stockholder shall be entitled to vote in person or by proxy
(but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period), and, unless the Restated
Certificate of Incorporation provides otherwise, shall have one vote for each
share of stock entitled to vote registered in the name of such stockholder on
the books of the Corporation on the applicable record date fixed pursuant to
these By-laws. At all elections of directors the voting may but need not be by
ballot and a plurality of the votes cast there shall elect. Except as otherwise
required by law or the Restated Certificate of Incorporation, any action other
than the election of directors shall be authorized by a majority in voting power
of the shares present in person or represented by proxy at the meeting.
(b) Any action required or permitted to be taken at any meeting of
stockholders may, except as otherwise required by law or the Restated
Certificate of Incorporation, be taken without a meeting, without prior
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notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders of record of the issued and
outstanding capital stock of the Corporation having at least that number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted, and the
writing or writings are filed with the permanent records of the Corporation,
such action to be effective immediately upon delivery of such consent to the
Corporation or as otherwise provided by law. Prompt notice of the taking of
corporate action without a meeting by less than unanimous written consent shall
be given as required by applicable law.
SECTION 9. Inspectors. The Board of Directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election to act at
the meeting or any adjournment thereof. If an inspector or inspectors are not so
appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum, and the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question or matter determined by such
inspector or inspectors and execute a certificate of any fact found by such
inspector or inspectors.
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ARTICLE II
Board of Directors
SECTION 1. General Powers. The business, property and affairs of the
Corporation shall be managed by, or under the direction of, the Board of
Directors.
SECTION 2. Qualification; Remuneration. (a) Each director shall be at
least 18 years of age. A director need not be a stockholder, a citizen of the
United States, or a resident of the State of Delaware. Any member of the Board
of Directors may be elected by the Board of Directors to be its Chairman. The
use of the phrase "entire Board" herein refers to the total number of directors
which the Corporation would have if there were no vacancies.
(b) Directors who are elected at an annual meeting of stockholders,
and directors who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal.
(c) Directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
SECTION 3. Quorum and Manner of Voting. Except as otherwise provided
by law, a majority of the entire Board shall constitute a quorum. A majority of
the directors present, whether or not a quorum is present, may adjourn a meeting
from time to time to another time and place without notice. The vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
SECTION 4. Places of Meetings. Meetings of the Board of Directors may
be held at any place within or without the State of Delaware, as may from time
to time be fixed by resolution of the Board of Directors, or as may be specified
in the notice of meeting.
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SECTION 5. Annual Meeting. Following the annual meeting of
stockholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of stockholders at the same place at which
such stockholders' meeting is held.
SECTION 6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board of Directors shall
from time to time by resolution determine. Notice need not be given of regular
meetings of the Board of Directors held at times and places fixed by resolution
of the Board of Directors.
SECTION 7. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board of
Directors or the President or by a majority of the directors then in office.
SECTION 8. Notice of Meetings. A notice of the place, date and time
and the purpose or purposes of each meeting of the Board of Directors shall be
given to each director by delivery of the same by overnight courier at least two
days before the special meeting, or by telephoning the same or by delivering the
same personally or by facsimile transmission not later than the day before the
day of the meeting.
SECTION 9. Organization. At all meetings of the Board of Directors,
the Chairman, if any, or if none or in the Chairman's absence or inability to
act the President, or in the President's absence or inability to act any Vice-
President who is a member of the Board of Directors, or in such Vice-President's
absence or inability to act a chairman chosen by the directors, shall preside.
The Secretary of the Corporation shall act as secretary at all meetings of the
Board of Directors when present, and, in the Secretary's absence, the presiding
officer may appoint any person to act as secretary.
SECTION 10. Resignation. Any director may resign at any time upon
written notice to the Corporation and such resignation shall take effect upon
receipt thereof by the President or Secretary, unless otherwise specified in the
resignation notice.
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SECTION 11. Action by Written Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all the directors consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
ARTICLE III
Committees
SECTION 1. Appointment. From time to time the Board of Directors by
resolution may appoint any committee or committees for any purpose or purposes,
to the extent lawful, which shall have powers as shall be determined and
specified by the Board of Directors in the resolution of appointment. In the
absence or disqualification of a member of a committee, the member or members
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
SECTION 2. Procedures, Quorum and Manner of Acting. Each committee
shall fix its own rules of procedure, and shall meet where and as provided by
such rules or by resolution of the Board of Directors. Except as otherwise
provided by law, the presence of a majority of the then appointed members of a
committee shall constitute a quorum for the transaction of business by that
committee, and in every case where a quorum is present the affirmative vote of a
majority of the members of the committee present shall be the act of the
committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.
SECTION 3. Action by Written Consent. Any action required or permitted
to be taken at any meeting of any committee of the Board of Directors may be
taken without a meeting if all the members of the committee consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the committee.
SECTION 4. Term. In the event any person shall cease to be a director
of the Corporation, such person shall
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simultaneously therewith cease to be a member of any committee appointed by the
Board of Directors.
ARTICLE IV
Officers
SECTION 1. Election and Qualifications. The Board of Directors shall
elect the officers of the Corporation, which shall include a President and a
Secretary, and may include, by election or appointment, one or more
Vice-Presidents (any one or more of whom may be given an additional designation
of seniority or function), a Treasurer and such Assistant Secretaries, such
Assistant Treasurers and such other officers as the Board of Directors may from
time to time deem proper. Each officer shall have such powers and duties as may
be prescribed by these By-laws and as may be assigned by the Board of Directors
or the President. Any two or more offices may (but are not required to) be held
by the same person.
SECTION 2. Term of Office and Remuneration. The term of office of all
officers shall be one year and until their respective successors have been
elected and qualified, but any officer may be removed from office, either with
or without cause, at any time by the Board of Directors. Any vacancy in any
office arising from any cause may be filled for the unexpired portion of the
term by the Board of Directors. The remuneration of all officers of the
Corporation may be fixed by the Board of Directors or in such manner as the
Board of Directors shall provide.
SECTION 3. Resignation; Removal. Any officer may resign at any time
upon written notice to the Corporation and such resignation shall take effect
upon receipt thereof by the President or Secretary, unless otherwise specified
in the resignation. Any officer shall be subject to removal, with or without
cause, at any time by vote of a majority of the entire Board of Directors.
SECTION 4. Chairman of the Board of Directors. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the Board
of Directors and shall have such other powers and duties as may from time to
time be assigned by the Board of Directors.
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SECTION 5. Chief Executive Officer. The Chief Executive Officer, if
there be one, shall in general have all the duties incident to the position of
chief executive officer and such other duties as may be assigned by the Board of
Directors.
SECTION 6. President. The President may (but need not be) the Chief
Executive Officer of the Corporation. The President shall have general
management and supervision of the property, business and affairs of the
Corporation and over its other officers; may appoint and remove assistant
officers and other agents and employees, other than any Vice-President, the
Secretary, the Treasurer, any Assistant Secretaries or Assistant Treasurers or
any officers which the Board of Directors may from time to time appoint; and may
execute and deliver in the name of the Corporation powers of attorney,
contracts, bonds and other obligations and instruments.
SECTION 7. Vice-President. A Vice-President may execute and deliver in
the name of the Corporation contracts and other obligations and instruments
pertaining to the regular course of the duties of said office, and shall have
such other authority as from time to time may be assigned by the Board of
Directors or the President.
SECTION 8. Treasurer. The Treasurer shall in general have all duties
incident to the position of Treasurer and such other duties as may be assigned
by the Board of Directors or the President.
SECTION 9. Secretary. The Secretary shall in general have all the
duties incident to the office of Secretary and such other duties as may be
assigned by the Board of Directors or the President.
SECTION 10. Assistant Officers. Any assistant officer shall have such
powers and duties of the officer such assistant officer assists as such officer
or the Board of Directors shall from time to time prescribe.
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ARTICLE V
Books and Records
SECTION 1. Location. The books and records of the Corporation may be
kept at such place or places within or outside the State of Delaware as the
Board of Directors or the respective officers in charge thereof may from time to
time determine. The record books containing the names and addresses of all
stockholders, the number and class of shares of stock held by each and the dates
when they respectively became the owners of record thereof shall be kept by the
Secretary as prescribed in the By-laws and by such officer or agent as shall be
designated by the Board of Directors.
SECTION 2. Addresses of Stockholders. Notices of meetings and all
other corporate notices may be delivered personally or mailed to each
stockholder at the stockholder's address as it appears on the records of the
Corporation.
SECTION 3. Fixing Date for Determination of Stockholders of Record.
(a) In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which record date shall not be more than 60 nor less
than 10 days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted
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by the Board of Directors and which date shall not be more than 10 days after
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. If no record date has been fixed by the Board of Directors,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in this State, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
this chapter, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
ARTICLE VI
Certificates Representing Stock
SECTION 1. Certificates; Signatures. The shares of the Corporation
shall be represented by certificates, provided that the Board of Directors of
the Corporation may provide by resolution or resolutions that some or all of any
or all classes or series of its stock shall be uncertifi-
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cated shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate, signed by or
in the name of the Corporation by the Chairman or Vice-Chairman of the Board of
Directors, or the President or Vice-President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, representing the number of shares registered in certificate form.
Any and all signatures on any such certificate may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue. The name of the holder of record of the
shares represented thereby, with the number of such shares and the date of
issue, shall be entered on the books of the Corporation.
SECTION 2. Transfers of Stock. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
shares of capital stock shall be transferable on the books of the Corporation
only by the holder of record thereof in person, or by duly authorized attorney,
upon surrender and cancellation of certificates for a like number of shares,
properly endorsed, and the payment of all taxes due thereon.
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer
and registration of certificates representing shares of the Corporation.
SECTION 3. Fractional Shares. The Corporation may, but shall not be
required to, issue certificates for fractions of a share where necessary to
effect authorized transactions, or the Corporation may pay in cash the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares,
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<PAGE>
but such scrip shall not entitle the holder to any rights of a stockholder
except as therein provided.
SECTION 4. Lost, Stolen or Destroyed Certificates. The Corporation may
issue a new certificate of stock in place of any certificate, theretofore issued
by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of any lost, stolen or destroyed certificate, or
his legal representative, to give the Corporation a bond sufficient to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate.
ARTICLE VII
SECTION 1. Dividends. Subject to the provisions of law and the
Corporation's Restated Certificate of Incorporation, dividends upon the shares
of capital stock of the Corporation may be declared by the Board of Directors at
any regular or special meeting.
SECTION 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserve in the manner in which it was created.
ARTICLE VIII
Corporate Seal
The corporate seal shall have inscribed thereon the name of the
Corporation and the year of its incorporation, and shall be in such form and
contain such other words and/or figures as the Board of Directors shall
determine. The corporate seal may be used by printing, engraving, lithographing,
stamping or otherwise making, placing or
16
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affixing, or causing to be printed, engraved, lithographed, stamped or otherwise
made, placed or affixed, upon any paper or document, by any process whatsoever,
an impression, facsimile or other reproduction of said corporate seal.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall be fixed, and shall be
subject to change, by the Board of Directors. Unless otherwise fixed by the
Board of Directors, the fiscal year of the Corporation shall be the calendar
year.
ARTICLE X
Waiver of Notice
Whenever notice is required to be given by these By-laws or by the
Restated Certificate of Incorporation or by law, a written waiver thereof,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent to notice.
ARTICLE XI
Bank Accounts, Drafts, Contracts, Etc.
SECTION 1. Bank Accounts and Drafts. In addition to such bank accounts
as may be authorized by the Board of Directors, the primary financial officer,
the President or any person designated by said primary financial officer or the
President, whether or not an employee of the Corporation, may authorize such
bank accounts to be opened or maintained in the name and on behalf of the
Corporation as he may deem necessary or appropriate, payments from such bank
accounts to be made upon and according to the check of the Corporation in
accordance with the written instructions of said primary financial officer, or
other person so designated by the Treasurer.
SECTION 2. Contracts. The Board of Directors may authorize any person
or persons, in the name and on behalf of the Corporation, to enter into or
execute and deliver any and all deeds, bonds, mortgages, contracts and other
obliga-
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tions or instruments, and such authority may be general or confined to specific
instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments. The
Chairman, the President or any other person designated by either of them shall
have the power and authority to execute and deliver proxies, powers of attorney
and other instruments on behalf of the Corporation in connection with the rights
and powers incident to the ownership of stock by the Corporation. The Chairman,
the President or any other person authorized by proxy or power of attorney
executed and delivered by either of them on behalf of the Corporation may attend
and vote at any meeting of stockholders of any company in which the Corporation
may hold stock, and may exercise on behalf of the Corporation any and all of the
rights and powers incident to the ownership of such stock at any such meeting,
or otherwise as specified in the proxy or power of attorney so authorizing any
such person. The Board of Directors, from time to time, may confer like powers
upon any other person.
SECTION 4. Financial Reports. The Board of Directors may appoint the
primary financial officer or other fiscal officer and/or the Secretary or any
other officer to cause to be prepared and furnished to stockholders entitled
thereto any special financial notice and/or financial statement, as the case may
be, which may be required by any provision of law.
18
STOCKHOLDERS' AGREEMENT
By and Among
CHI ENERGY, INC.
and
EACH OF THE STOCKHOLDERS OF CHI ENERGY, INC.
Dated as of _______ __, 1997
<PAGE>
STOCKHOLDERS' AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS.............................................................. 1
ARTICLE II
PARTIES; REPRESENTATIONS AND WARRANTIES.................................. 4
Section 0.1 Representations of Each Signing Stockholder...... 4
Section 0.2 Additional Parties............................... 5
ARTICLE III
TRANSFER RESTRICTIONS.................................................... 5
Section 0.3 General Restrictions on Transfer................. 5
Section 0.4 Permitted Transfers.............................. 5
Section 0.5 Tag-Along Rights................................. 6
Section 0.6 Rights to Compel Sale............................ 9
Section 0.7 Deliveries at Closing; Method
of Payment of Purchase Price..................... 10
Section 0.8 Company Cooperation.............................. 11
Section 0.9 Legend on Certificates........................... 11
ARTICLE IV
CORPORATE GOVERNANCE..................................................... 12
Section 0.10 Initial Board; Number of Directors............... 12
Section 0.11 Nomination and Election of Directors............. 12
Section 0.12 Removal of Directors............................. 14
Section 0.13 Vacancies........................................ 14
<PAGE>
ARTICLE V
MISCELLANEOUS............................................................ 15
Section 0.14 Effectiveness.................................... 15
Section 0.15 Waiver and Amendment............................. 15
Section 0.16 Termination...................................... 16
Section 0.17 Notices.......................................... 16
Section 0.18 Applicable Law and Time of Essence............... 16
Section 0.19 Descriptive Headings, Etc. ...................... 16
Section 0.20 Counterparts..................................... 17
Section 0.21 Successors, Assigns and Transferees.............. 17
Section 0.22 Severability..................................... 17
<PAGE>
STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT (this "Agreement") is made as of
__, 1997, by and among CHI Energy, Inc., a Dela ware corporation (the
"Company"), and each of the stockholders of the Company.
W I T N E S S E T H:
WHEREAS, the Plan of Reorganization, dated as of ______ __,
1997, of Consolidated Hydro, Inc., confirmed by order of the United States
Bankruptcy Court for the District of Delaware (the "Plan") provides that the
Company shall enter into an agreement with all of its stockholders to provide
for certain rights and obligations between and among them and subsequent holders
of certain of the Company's securities with respect to the Company; and
WHEREAS, the Company and the Stockholders (as defined below),
being the holders of substantially all of the outstanding common equity of the
Company, wish to enter into this Agreement to provide for certain rights and
obligations between and among them and subsequent holders of certain of the
Company's securities with respect to the Company;
NOW, THEREFORE, in consideration of the premises and mutual
agreements, covenants and provisions contained herein, and other good and
valuable consideration, the receipt and suf ficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings ascribed to them below:
"Agreement" shall have the meaning specified in the
preamble hereof.
"Board of Directors" shall mean the board of directors
of the Company.
"Company" shall mean CHI Energy, Inc., a Delaware
corporation.
"Company Class B Warrant" shall mean any Series B warrant,
issued by the Company pursuant to the Plan, to purchase Shares.
"Company Class C Warrant" shall mean any Series C warrant,
issued by the Company pursuant to the Plan, to purchase Shares.
<PAGE>
"Company Management Option" shall mean any option, issued by the Company to any
employee of the Company, to purchase Shares.
"Company Warrant" shall mean any Company Class B War
rant and/or Company Class C Warrant.
"Compelling Stake" shall mean, in connection with any proposed
Compelled Sale, 66-2/3% or more of the Shares outstanding at the time such sale
is proposed.
"Director" shall mean a duly elected member of the
Board of Directors.
"In-the-Money Company Warrant" shall mean, in connection with
any Tag-Along Sale, a Company Warrant having an exercise price less than the
value of the per share consideration to be received by the most favored Selling
Stockholder in the Tag-Along Sale.
"In-the-Money Company Management Option" shall mean, in
connection with any Tag-Along Sale, a Company Management Options having an
exercise price less than the value of the per share consideration to be received
by the most favored Selling Stockholder in the Tag-Along Sale.
"MS" shall mean Morgan Stanley & Co., a _______ corporation.
"MS Director" shall mean a Director designated for nomination
or appointment pursuant to Article IV of this Agree ment by MS or an MS
Nomination Successor.
"Plan" shall mean that certain Plan of Reorganization, dated
as of ______ __, 1997, of Consolidated Hydro, Inc., as confirmed by the
bankruptcy court of the United States.
"Remaining Stockholders" shall mean, in connection with any
Compelled Sale, every Stockholder that is not a Compelling Stockholder.
"SB" shall mean, collectively, Swiss Bank Corporation,
London Branch, and Swiss Bank Corporation Restructuring &
Recovery Fund.
"SB Director" shall mean a Director designated for nomination
or appointment pursuant to Article IV of this Agree ment by SB or an SB
Nomination Successor.
"Shares" shall mean, collectively, the shares of Class A
Common Stock, par value $.01 per share, of the Company, and Class B Common
Stock, par value $.01 per share, of the Company (including Shares issued by the
Company upon the proper exercise of the Company Warrants and the Company
Management Options), and (b) shares of capital stock of the Company issued by
the Company in respect of or in exchange for shares of such common stock in
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connection with any stock dividend or distribution, stock split-up,
recapitalization, subdivision, recombination or exchange by the Company
generally of shares of such common stock.
"Signing Stockholders" shall mean the persons or en
tities who are signatories to this Agreement.
"Stockholder" shall mean any person to whom or which Shares
are issued pursuant to the Plan, and any person who becomes the holder of Shares
subsequent to the date of this Agreement upon exercise of any Company Class B
Warrant, Company Class C Warrant or Company Management Option, and any Permitted
Transferee.
"Tag-Along Purchaser" shall mean the party or group of related
parties acquiring Shares in a Tag-Along Sale.
"Tag-Along Sale" shall mean a transaction or series of
substantially contemporaneous related transactions or con tractually related
transactions in which Selling Stockholders propose to Transfer to a Tag-Along
Purchaser a number of Shares which, taken together with any Shares sold in such
transaction or related transactions, constitute 50% or more of the Shares then
outstanding.
"Tag-Along Stockholder" shall mean, in connection with any
Tag-Along Sale, each Stockholder (including Stockholder who becomes such upon
exercise of Company Warrants or Company Management Options at any time prior to
the fifth business day prior to the Tranfer Date) that is not a Selling
Stockholder.
"Transfer Date" shall mean the Original Transfer Date, or if
any New Transfer Date occurs, the latest occurring New Transfer Date.
"Whole Board" shall mean the number of Directors the Board of
Directors would have assuming no vacancies.
In addition, the following capitalized terms used herein shall
have the meanings ascribed to them in the section of the text indicated below:
"Cause" Section 4.3(b)
"Company Nominees" Section 4.2(a)
"Compelled Sale" Section 3.4(a)
"Compelled Sale Agreement" Section 3.4(a)
"Compelled Sale Closing" Section 3.4(d)
"Compelled Sale Date" Section 3.4(b)
"Compelled Sale Notice" Section 3.4(b)
"Compelled Sale Price" Section 3.4(a)
"Compelled Sale Purchaser" Section 3.4(a)
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"Compelled Sale Termination Date" Section 3.4(b)
"Compelling Stockholders" Section 3.4(a)
"Designee" Section 4.4(b)
"Election Meeting" Section 4.2(a)
"Included Shares" Section 3.3(e)
"Maximum Number" Section 3.3(b)
"MS Nomination Successor" Section 3.2(b)
"MS Nominees" Section 4.2(a)
"MS Vacancy" Section 4.1(a)
"New Transfer Date" Section 3.3(d)
"New Transfer Notice" Section 3.3(d)
"New Vacancy Designee" Section 4.4(c)
"Nominating Stockholder" Section 4.3(b)
"Officer Nominees" Section 4.2(a)
"Optionholder" Section 2.2
"Original Transfer Date" Section 3.3(c)
"Original Transfer Notice" Section 3.3(c)
"Outside Nominees" Section 4.2(a)
"Remaining Stockholders" Section 3.4(a)
"SB Nominees" Section 4.2(a)
"SB Nomination Successor" Section 3.2(b)
"SB Vacancy" Section 4.1(a)
"Sale Percentage" Section 3.3(b)
"Selling Stockholders" Section 3.3(a)
"Tag Along Allotment" Section 3.3(b)
"Tag-Along Notice" Section 3.3(e)
"Tag-Along Purchaser" Section 3.3(a)
"Transfer" Section 3.1
"Transfer Allotment" Section 3.3(b)
"Transfer Date" Section 3.3(c)
"Transfer Notice" Section 3.3(c)
"Warrantholder" Section 2.2
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<PAGE>
ARTICLE II
PARTIES; REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations of Each Signing Stock holder. Each
Signing Stockholder represents and warrants to the Company and to each other
Signing Stockholder that (i) such Stockholder has full right, power and
authority (and, in the case of any natural person, such person has the legal
capacity) to execute and deliver this Agreement and to perform such Signing
Stockholder's obligations hereunder; and (ii) this Agreement has been duly
authorized, executed and delivered by such Signing Stockholder and is valid,
binding and enforceable against such Signing Stockholder in accordance with its
terms.
Section 2.2 Additional Parties. The Company shall include as a
provision of each warrant agreement relating to each Company Warrant and of each
option agreement relating to each Company Management Option that acceptance and
exercise of such Company Warrant or Company Management Option constitutes the
agreement of the holder thereof to become a party to and to be bound by this
Agreement upon the acquisition of Shares by such Warrantholder or Optionholder
upon exercise of such Company Warrant or Company Management Option.
ARTICLE III
TRANSFER RESTRICTIONS
Section 3.1 General Restrictions on Transfer. No Stockholder
shall, directly or indirectly, sell, offer for sale, transfer, assign, pledge,
hypothecate or otherwise dispose of any Shares or any right thereto or interest
therein (any such trans action, other than by operation of law, a "Transfer") at
any time except in compliance with applicable federal and state securities laws
and in compliance with this Agreement.
Section 3.2 Permitted Transfers. (a) Subject to Section 3.1, a
Stockholder may Transfer Shares at any time to any party, provided that upon
acceptance of such transferred Shares, and by virtue of the Transfer and this
Agreement, the party to whom such Transfer is to be made shall become bound by
all the terms of this Agreement to the same extent as a Stockholder is so bound.
Any party to whom such Transfer has been made consistent with the provisions of
this Article III (any such Transfer, a "Permitted Transfer") is herein referred
to as a "Permitted Transferee" and, after the consummation of such Permitted
Transfer, such Permitted Transferee shall be deemed a Stockholder for purposes
of this Agreement.
(b) MS or SB may assign to any Permitted Transferee part or
all of MS's or SB's rights, respectively, to designate Directors and fill
certain vacancies on the Board of Directors pursuant to Sections 4.2 and 4.4 of
this Agreement (such trans
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<PAGE>
feree, an "MS Nomination Successor" or an "SB Nomination Suc cessor", as the
case may be); provided, however, that the total number of Directors with respect
to which MS and all MS Nomina tion Successors together, and SB and all SB
Nomination Successors together, shall have designation and vacancy filling
rights, respectively, shall not exceed the lesser of (i) two and (ii) the number
of Directors with respect to which MS and the MS Nomination Successors, or SB
and the SB Nomination Successors, as the case may be, shall have rights pursuant
to Sections 4.2(b) and 4.2(c); and provided, further, that no assignment of any
of MS's or SB's rights pursuant to this paragraph shall be effective or
recognized by the Company unless set forth in a written agreement between MS or
SB, as the case may be, and the prospective MS Nomination Successor or SB
Nomination Successor, as the case may be; and provided, further, that neither MS
nor SB shall enter into a written agreement with any party that, when taken
together with any other written agreement or agreements entered into by MS or
SB, respectively, would grant rights with respect to the designation or
nomination of Directors or the filling of vacancies on the Board of Directors
inconsistent with or in excess of those provided for in this Section 3.2(b) and
in Section 4.2(b). The assignor of any assignment described in this Section
3.2(b) shall give written notice of such assignment, including the identity of
the assignee, to the Company no later than two business days after such
assignment is effected.
Section 3.3 Tag-Along Rights. (a) In the event any Stockholder
or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) of
Stockholders proposes to Transfer Shares in a Tag-Along Sale (the "Selling
Stockholders"), each Tag-Along Stockholder shall be afforded the opportunity to
participate therein in accordance with this Section 3.3.
(b) In connection with each Tag-Along Sale, each Tag- Along
Stockholder shall have the right to Transfer to the Tag- Along Purchaser a
number of Shares (a "Tag Along Allotment") held by such Tag-Along Stockholder
equal to the total number of Shares held by such Tag-Along Stockholder
multiplied by the Sale Percentage (as defined below), such Transfer to be upon
identical terms and conditions as those of the most favored Selling Stockholder
in the Tag-Along Sale and at a price equal to the greater of (1) the price to be
paid to the most favored Selling Stockholder in the Tag Along Sale or (2) a
fraction the numerator of which shall be the aggregate consideration paid by the
Tag- Along Purchaser for all of the Shares, if any, purchased by it in any
related transaction constituting a part of the Tag-Along Sale or in any other
transaction occurring during the 60 days immediately preceding the date the
Original Transfer Notice (as defined below) is sent, and the denominator of
which shall be the total number of Shares purchased by the Tag-Along purchaser
during such 60-day period. "Sale Percentage" shall be a fraction
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<PAGE>
the numerator of which shall be the total number of Shares to be acquired by the
Tag-Along Purchaser in the Tag-Along Sale (the "Maximum Number") and the
denominator of which shall be the total number of Shares held collectively by
the Selling Stockholders and the Tag-Along Stockholders on the date the
Tag-Along Sale is consummated.
(c) At the time any Tag-Along Sale is proposed, the Selling
Stockholders shall give written notice to each Tag-Along Stockholder of its
right to sell Shares hereunder (the "Original Transfer Notice"), which notice
shall identify the proposed Tag- Along Purchaser and state the Maximum Number of
Shares to be acquired by the Tag-Along Purchaser in the Tag-Along Sale, an
estimate of the Sale Percentage (based on the number of Shares that would be
outstanding as of the date such notice is sent assuming the exercise of all
In-the-Money Company Warrants and In-the-Money Company Management Options), the
proposed transfer price (including the form and terms of any non-cash
consideration to be received in connection therewith), the proposed consummation
date of any such Transfer (the "Original Transfer Date") and any other material
terms and conditions of the pro posed Transfer. The Original Transfer Notice
shall be accom panied by a complete and correct copy of any offer to, or
agreement with, the Selling Stockholders by the Tag-Along Pur chaser to purchase
such Shares. The Original Transfer Notice shall be provided to the Tag-Along
Stockholders not less than 30 days prior to the Original Transfer Date. The
Selling Stockholders shall supply a copy of the Original Transfer Notice to the
Company at the same time that it is furnished to the Tag- Along Stockholders.
The Company shall provide a copy of the Original Transfer Notice to each holder
of an In-the-Money Company Warrant and each holder of an In-the-Money Company
Management Option not later than the 25th day prior to the Original Transfer
Date, it being understood that holders of In- the-Money Company Warrants and
In-the-Money Company Management Options who excercise such warrants or options
prior to the fifth business day prior to the Transfer Date shall be Tag-Along
Stockholders with respect to all Shares held by them as of such day and shall be
permitted to participate in the Tag-Along Sale with respect to such Shares by
complying with all of the provisions of this Section 3.3 that are applicable to
Tag-Along Stockholders.
(d) In the event of any change in the consideration to be paid
by the Tag-Along Purchaser or any change in any other material term or condition
of the Tag-Along Sale, a new transfer notice (a "New Transfer Notice") shall be
provided to the Tag- Along Stockholders (with a copy to the Company) and a new
transfer date (a "New Transfer Date") shall be set, which New Transfer Date
shall be not less than 30 days next following the date such New Transfer Notice
is provided to the Tag-Along
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<PAGE>
Stockholders; provided, however, that in the event of an increase in the
consideration to be received by the Selling Stockholders and the Tag-Along
Stockholders, a New Transfer Notice shall be provided to the Tag-Along
Stockholders but no New Transfer Date need be set, and the Tag-Along Sale may be
consummated on the Original Transfer Date, so long as the New Transfer Notice is
provided to the Tag-Along Stockholders not later than the seventh day prior to
the Original Transfer Date, or, if such New Transfer Notice is provided to the
Tag-Along Stockholders on or after the seventh day prior to the Original
Transfer Date, the New Transfer Notice may specify a New Transfer Date, which
date shall not be fewer than seven days from the date the New Transfer Notice is
provided to the Tag-Along Stockholders, and the Tag-Along Sale may be
consummated on such New Transfer Date. The Company shall provide a copy of the
New Transfer Notice to holders of In-the- Money Company Warrants and
In-the-Money Company Options not later than the 25th day prior to the New
Transfer Date.
(e) Each Tag-Along Stockholder that wishes to par ticipate in
the Tag-Along Sale shall provide written notice (or oral notice confirmed in
writing) (the "Tag-Along Notice") to the Selling Stockholders not less than two
business days prior to the Transfer Date. The Tag-Along Notice shall set forth
the number of Shares ("Included Shares") that such Tag-Along Stockholder elects
to include in the Transfer, which number shall not exceed such Tag-Along
Stockholder's Tag-Along Allotment; provided, however, that the number of
Included Shares for any Tag-Along Notice that fails to set forth a number of
Included Shares, or sets forth a number of Included Shares in excess of such
Tag- Along Stockholder's Tag-Along Allotment, shall be deemed to be such
Tag-Along Stockholder's Tag-Along Allotment. The Tag-Along Notices given by the
Tag-Along Stockholders shall constitute their binding agreements to sell such
Shares on the terms and conditions applicable to the Tag-Along Sale.
(f) At the consummation of the Tag-Along Sale, the Tag-Along
Purchaser shall accept Transfer of (i) from each Tag- Along Stockholder, upon
the terms and at the price set forth in paragraph (b), the number of Included
Shares indicated on such Tag-Along Stockholder's timely received Tag-Along
Notice, and (ii) from the Selling Stockholders a number of shares equal to the
difference between the Maximum Number and the aggregate number of Included
Shares indicated on all timely received Tag- Along Notices.
(g) No Tag-Along Stockholder shall be required to make any
representations and warranties to any person in connection with a Tag-Along Sale
except that Tag-Along Stockholders may be required to make such representations
and warranties as are made by all of the Selling Stockholders, to the extent
applicable to a particular Tag-Along Stockholder.
-8-
<PAGE>
(a) The provisions of this Section 3.3 shall not apply to any Transfers pursuant
to an underwritten public offering, whether by the Company or a Stockholder or
group of Stockholders.
Section 3.4 Rights to Compel Sale. (a) In the event any
Stockholder or group of Stockholders holding a Compelling Stake (the "Compelling
Stockholders") shall enter into a written agreement with an unaffiliated party
(a "Compelled Sale Purchaser") to sell solely for cash or securities listed on a
U.S. national securities exchange or included for quotation in a U.S.
inter-dealer quotation system of a registered national securities association
all, but not less than all, of the then outstanding Shares in a bona fide
transaction (a "Compelled Sale Agreement"), the Compelling Stockholders shall
have the right, subject to the terms and conditions set forth below, to require
each of the Remaining Stockholders to sell all, but not less than all, of the
Shares held by each such Remaining Stockholder (a "Compelled Sale"). Subject to
the terms and conditions set forth below, the Remaining Stockholders shall, and
hereby agree to, sell such Shares on the same terms and conditions as the most
favored Compelling Stockholder sells its Shares pursuant to the Compelled Sale
Agreement and at a consideration per Share (the "Compelled Sale Price") equal to
the greater of (i) the consideration to be received by the most favored
Compelling Stockholder pursuant to the Compelled Sale Agreement and (ii) the
greatest consideration received by any Compelling Stockholder in any transaction
between such Compelling Stockholder and the Compelled Sale Purchaser during the
60-day period preceding the date the Compelled Sale Notice (as defined below) is
given.
(b) Within two business days following execution of any
Compelled Sale Agreement, the Compelling Stockholders shall provide each
Remaining Stockholder with written notice thereof (the "Compelled Sale Notice").
The Compelled Sale Notice shall attach a copy of the Compelled Sale Agreement
and shall set forth: (i) the name and address of the Compelled Sale Purchaser;
(ii) the Compelled Sale Price and the terms and conditions of payment offered by
the Compelled Sale Purchaser; and (iii) all other material terms of such
Compelled Sale, including the pro posed consummation date of the Compelled Sale
(the "Compelled Sale Date"), which shall be not less than 20 days following the
delivery of the Compelled Sale Notice, and the outside termina tion date of the
Compelled Sale Agreement (the "Compelled Sale Termination Date"), which shall be
not more than 180 days fol lowing the delivery of the Compelled Sale Notice. In
the event of any change in the consideration to be paid, or any material change
to any of the terms or conditions of the Compelled Sale, a new Compelled Sale
Notice shall be provided to the Remaining Stockholders, and the Compelled Sale
Closing (as defined below) shall not occur earlier than the 20th day subsequent
to the date on which such new Compelled Sale Notice is provided.
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<PAGE>
(c) Subject to the satisfaction or waiver of the terms and conditions of the
Compelled Sale Agreement (other than any condition relating to the delivery of
Shares by the Remaining Stockholders), the Compelled Sale shall occur at a
closing (the "Compelled Sale Closing") on the Compelled Sale Date during normal
business hours at a time and place reasonably designated by the Compelling
Stockholders and the Compelled Sale Purchaser; provided that if the Compelled
Sale Closing shall not have occurred on or prior to the Compelled Sale
Termination Date, the Remaining Stockholders will be released from their
obligations under this Section 3.4, unless and until the Compelling Stock
holders deliver a new Compelled Sale Notice in compliance with this Section 3.4.
(d) No Remaining Stockholder shall be required to make any
representations and warranties to any person in connection with such Compelled
Sale except as to (i) good title and the absence of liens with respect to such
Remaining Stockholder's Shares, (ii) the corporate or other existence of such
Remaining Stockholder and (iii) the authority for and the validity and binding
effect of, and the absence of any conflicts under the charter documents and
material agreements of such Remaining Stockholder as to, any agreements entered
into by such Remaining Stockholder in connection with such Transfer. The
Remaining Stockholders shall not be required to provide any indemnities in
connection with such Transfer except for a breach of such representations and
warranties.
(e) In lieu of a sale of Shares, the Compelled Sale may be
accomplished by, and the Compelled Sale Agreement may provide for, a merger,
consolidation or other business combina tion permitted by Delaware law.
(f) In the event the Compelled Sale is accomplished in any
manner permitted by this Section 3.4 that would otherwise give rise to
appraisal, dissenters' or other similar rights under any applicable law, no
Stockholder shall take any action to exercise, enforce or perfect such rights,
if any, and each Stockholder hereby expressly waives (on behalf of itself and
any transferee or other successor) all such rights.
Section 3.5 Deliveries at Closing; Method of Payment
of Purchase Price. (a) At the closing of any Tag-Along Sale or Compelled Sale,
each Tag-Along Stockholder or Remaining Stockholder, as the case may be, shall
deliver to the Tag-Along Purchaser or the Compelled Sale Purchaser, as the case
may be, against delivery of the purchase price for the Shares being sold by it,
(i) certificates appropriately endorsed and representing the Shares being sold,
if any, free and clear of any lien, claim or encumbrance, and (ii) such other
documents, including, without limitation, executed stock powers and evidence of
ownership and authority, as the purchasers may reasonably request. The
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<PAGE>
purchase price shall be paid by wire transfer of immediately available funds to
the bank account designated by each Tag-Along Stockholder or Remaining
Stockholder, as the case may be, or by certified check if the amount payable to
the recipient thereof is less than $1,000,000.
(b) If any Remaining Stockholder fails to deliver certificates
representing its Shares as required by this Section 3.5 and the Compelled Sale
in question is consummated, then such Remaining Stockholder shall not be
entitled to the consideration it is to receive under this Section 3.5 until it
cures such failure (provided that after curing such failure it shall be so
entitled to such consideration without interest). Such Remaining Stockholder
shall, until such failure is cured, hold such certificates in trust for the
Compelled Sale Purchaser, who shall be deemed to be the beneficial owner of the
Shares represented by such certificates.
Section 0.23 Company Cooperation. At any time the Company is
not filing periodic reports with the United States Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended, the
Company shall cooperate with the Stockholders and make available on a timely
basis such information as the Stockholders may reasonably request (to the extent
that such information can be provided without unreasonable expense or disruption
of the Company's affairs) to facilitate a Transfer of 5% or more of the issued
and outstanding Shares to any prospective bona fide Permitted Transferee. The
Company shall provide to each Stockholder consolidated financial statements for
the Company and its subsidiaries, prepared in accordance with generally accepted
accounting practices as in effect from time to time, for each fiscal year and
each of the first three fiscal quarters of each fiscal year.
Section 3.7 Legend on Certificates. Each certificate
representing Shares shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE
PROVISIONS OF A STOCKHOLDERS' AGREEMENT (THE "STOCKHOLDERS'
AGREEMENT") DATED AS OF
__, 1997 (A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF CHI ENERGY, INC. AND WILL BE MAILED TO
A STOCKHOLDER WITHOUT CHARGE WITHIN FIVE DAYS AFTER
RECEIPT BY CHI ENERGY, INC. OF A WRITTEN REQUEST
THEREFOR FROM SUCH STOCKHOLDER). NO TRANSFER, SALE,
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY
BE MADE EXCEPT AS OTHERWISE PROVIDED IN SUCH
STOCKHOLDERS' AGREEMENT. IN ADDITION, THE STOCKHOLD
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<PAGE>
ERS' AGREEMENT CONTAINS CERTAIN RESTRICTIONS AND
AGREEMENTS WITH RESPECT TO THE VOTING OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE.
ARTICLE IV
CORPORATE GOVERNANCE
Section 4.1 Initial Board; Number of Directors. (a) The number
----------------------------------
of Directors constituting the Whole Board initially shall be seven. The initial
Board of Directors shall consist of the five individuals listed below, and two
vacancies, one to be filled at any time by MS in accordance with Section 4.4(b)
(the "MS Vacancy") and one to be filled at any time by SB in accordance with
Section 4.4(b) (the "SB Vacancy"). The five initial Directors shall be James T.
Stewart, Edward M. Stern, ____________, Michael Petrick and James DuPlessie. For
purposes of Section 4.2, Messrs. Stewart and Stern will be considered Officer
Nominees, Mr. will be considered an Outside Nominee, Mr. Petrick will be
considered an MS Nominee and Mr. DuPlessie will be considered an SB Nominee.
Each Director shall serve as a Director until his death, disability, resignation
or removal or until his successor shall thereafter have been duly elected and
qualified in accordance with the provisions of this Agreement.
(a) For so long as this Agreement is in effect, no Stockholder
shall vote in favor of or consent to any change in the number of Directors
constituting the Whole Board.
4.2 Nomination and Election of Directors. (a) The Company and
------------------------------------
the Stockholders agree that the following procedures shall govern the nomination
and election of Directors of the Company:
(i) At each meeting of the Company's stock
holders at which Directors are to be elected (each, an
"Election Meeting"), subject to paragraph (b) below, the
Company shall nominate each of the following (col lectively,
the "Company Nominees"), and no others: up to two individuals
designated by MS and/or an MS Nomination Successor (the "MS
Nominees"), up to two individuals designated by SB and/or an
SB Nomination Successor (the "SB Nominees"), two individuals
designated by majority vote of the Whole Board, both of whom
shall be executive officers of the Company (the "Officer
Nominees"), and one individual(the "Outside Nominee")
designated by the number of directors constituting the Whole
Board less one, which individual shall not be, and shall not
have been during the three years immediately preceding the
date of the relevant Election Meeting, employed by, a director
of, or otherwise affiliated with the Company (except as the
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<PAGE>
incumbent Outside Nominee) or any of its affiliates or
MS or SB or any of their respective affiliates.
(ii) No Stockholder shall make any nomination at
an Election Meeting.
(iii) Each Stockholder agrees to vote (or exe
cute a consent with respect to) all Shares over which it may
exercise voting power in favor of the election as a Director
of each Company Nominee.
(b) In the event that at any time the voting power of the
Shares held collectively by MS and any MS Nomination Successor or held
collectively by SB and any SB Nomination Suc
cessor, respectively, is less than 15% but not less than 7% of the total voting
power of the Shares then outstanding, the number of Directors MS and any MS
Nomination Successor or SB and any SB Nomination Successor, as the case may be,
shall have the right to designate for nomination shall be reduced to one. At
such time, MS or SB, as the case may be, shall cause one of the MS Directors or
SB Directors, as the case may be, to resign, and the Board of Directors shall
act to fill the vacancy caused by such resignation with a person meeting the
qualifications of an Officer Nominee or an Outside Nominee in accordance with
Section 4.4(c) of this Agreement, or, if the MS Vacancy or SB Vacancy, as the
case may be, shall not be filled at such time, MS or SB shall not cause any MS
Director or SB Director, as the case may be, to resign, but the Board of
Directors shall fill such MS Vacancy or SB Vacancy, as the case may be, with a
person meeting the qualifications of an Officer Nominee or an Outside Nominee in
accordance with Section 4.4(c) of this Agreement.
(c) In the event that at any time the voting power of the
Shares held collectively by MS and any MS Nomination Successor or held
collectively by SB and any SB Nomination Suc cessor, respectively, is less than
7% of the total voting power of the Shares then outstanding, MS and any MS
Nomination Suc cessor or SB and any SB Nomination Successor, as the case may be,
shall no longer have the right to designate individuals for nomination. At such
time, MS or SB, as the case may be, shall cause any remaining MS Directors or SB
Directors, as the case may be, to resign, and the Board of Directors shall act
to fill the vacancy caused by such resignation in accordance with the Bylaws as
then in effect.
4.3 Removal of Directors. (a) Except as provided in
--------------------
subparagraph (b) below, Directors may be removed in accordance with the Bylaws
as then in effect.
(b) No Stockholder shall take any action to remove, or to vote
in favor of or to consent to the removal of any MS Director or SB Director,
except that (1) any Stockholder may take action to remove any such director for
Cause (as defined below)
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<PAGE>
and (2) upon request of the Nominating Stockholder of any MS Director or SB
Director, with or without cause, and at any time, each Stockholder immediately
shall consent in writing to the removal of such MS Director or SB Director, as
the case may be. The term "Nominating Stockholder" means any of MS, SB or any MS
Nomination Successor or SB Nomination Successor who shall have designated the
relevant MS Director or SB Director for nomination by the Company. Removal for
"Cause" shall mean removal of a Di rector because of such Director's (i) willful
and continued failure to perform substantially his duties with the Company in
such Director's established position, (ii) willful misconduct which is
significantly injurious to the Company monetarily or otherwise, (iii) abuse of
any illegal drug or other controlled substance or habitual intoxication, (iv)
conviction for, or guilty plea (or plea of nolo contendere) to, a crime
involving moral turpitude or (v) conviction for, or guilty plea (or plea of nolo
contendere) to, a felony.
4.4 Vacancies. (a) Except as provided in paragraph (b) and
---------
paragraph (c) below, vacancies on the Board of Directors shall be filled in
accordance with the Bylaws as then in effect.
(b) At any time, and without prior notice, MS or SB may
request that the MS Vacancy or the SB Vacancy, respectively, be filled and, in
connection therewith, MS or SB, respectively, shall designate an individual to
fill each such vacancy (each, a "Designee"), and the remaining Directors, prior
to conducting any other business, shall act to appoint each Designee as
Director. If the remaining Directors fail to appoint any Designee as Director,
or if the remaining Directors fill any such vacancy otherwise than with the
Designee in accordance with the foregoing sentence, the Stockholders shall
immediately cause a special meeting of stockholders to be called, or shall act
by written consent without a meeting, for the purpose of removing such person
and/or filling such vacancy with the Designee, and each Stockholder agrees to
vote all of the Shares which such Stockholder is entitled to vote at such
meeting, or to execute a written consent in respect of all such Shares, as the
case may be, in favor of removing, if necessary, any such vacancy filled with a
person who is not a Designee and in favor of the election of such Designee.
(c) If at any time after the date hereof a vacancy is created
on the Board of Directors as a result of the death, disability, removal or
resignation of any one or more MS Direc tors or SB Directors, the Nominating
Stockholder of each Director whose death, disability, removal or resignation
caused a vacancy shall be entitled to designate a another individual (each, a
"New Vacancy Designee") to fill each such vacancy, and the remaining Directors,
prior to conducting any other business, shall act to elect each New Vacancy
Designee as Director. If the remaining
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<PAGE>
Directors fail to elect any New Vacancy Designee as Director, or if the
remaining Directors fill any such vacancy otherwise than with the New Vacancy
Designee in accordance with the foregoing sentence, the Stockholders shall
immediately cause a special meeting of stockholders to be called, or shall act
by written consent without a meeting, for the purpose of removing such person
and/or filling such vacancy with the New Vacancy Designee, and each Stockholder
agrees to vote all of the Shares which such Stockholder is entitled to vote at
such meeting, or to execute a written consent in respect of all such Shares, as
the case may be, in favor of removing, if necessary, any such vacancy filled
with a person who is not a New Vacancy Designee and in favor of the election of
such New Vacancy Designee.
ARTICLE V
MISCELLANEOUS
Section 5.1 Effectiveness. As provided in Section __ of the
-------------
Plan, this Agreement shall become effective on the later of the Effective Date
(as defined in the Plan) and the first date on which holders of not less than
66-2/3% of the Shares issued pursuant to the Plan execute this Agreement.
Section 5.2 Waiver and Amendment. (a) Any party hereto may
--------------------
waive its rights under this Agreement at any time, provided that any agreement
on the part of any such party to any such waiver shall be valid only if set
forth in an instrument in writing signed by such party.
(b) Except as otherwise required by law, this Agreement may be
amended at any time, but only by a written instrument signed by Stockholders
holding not less than 66-2/3% of the total voting power of the Shares then
outstanding.
Section 5.3 Termination. Unless extended in a writing signed
-----------
by all of the Stockholders, this Agreement shall terminate on and be of no force
or effect from and after the first occurrence of any of the following events:
(i) the consummation of a Tag-Along Sale or a Compelled Sale (including
consummation of a Compelled Sale accomplished by merger, consolidation or sale
of substantially all of the Company's assets) pursuant to Section 3.3 or Section
3.4, respectively, of this Agreement, or (ii) the first date on which no party
has the right to nominate a director pursuant Section 4.2(b) of this Agreement.
In addition, this Agreement may be terminated (x) at any time by a written
instrument signed by Stockholders holding not less than 66-2/3% of the total
voting power of the Shares then outstanding, or (y) in connection with an
underwritten public sale (whether by the Company or any Stockholder or group of
Stockholders) of 20% or more of the number of Shares then outstanding, by a
written instrument signed by Stockholders holding not less than a ma
-15-
<PAGE>
jority of the Shares outstanding immediately prior to such public
sale.
Section 5.4 Notices. All notices and other communi cations
-------
provided for herein shall be dated and in writing and shall be deemed to have
been duly given when delivered, if delivered personally, or when deposited in
the mail if sent by registered or certified mail, return receipt requested,
postage prepaid and when received if delivered otherwise, to the party to whom
it is directed to the address of such Stockholder, War rantholder, or
Optionholder as shown in the stock record book or other records of the Company
or at such other address as the parties hereto shall have specified by notice in
writing to the other parties.
Section 5.5 Applicable Law and Time of Essence. The laws of
----------------------------------
the State of Delaware shall govern the interpretation, validity and performance
of the terms of this Agreement, re gardless of the law that might be applied
under principles of conflicts of law. Time shall be of the essence with respect
to this Agreement and of every part hereof.
Section 5.6 Descriptive Headings, Etc. The headings in this
-------------------------
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning of terms contained herein. Unless the context of this
Agreement otherwise requires, (i) words of any gender shall be deemed to include
each other gender; (ii) words using the singular or plural number shall also
include the plural or singular number, respectively; and (iii) references to
"hereof," "herein," "hereby" and similar terms shall refer to this entire
Agreement.
Section 5.7 Counterparts. This Agreement may be executed in
------------
multiple counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
Section 5.8 Successors, Assigns and Transferees. This
-----------------------------------
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors, assigns and transferees except to the
extent that the terms of this Agreement limit or otherwise restrict the
transferability of any rights or obligations hereunder.
Section 5.9 Severability. In the event that any one or more of
------------
the provisions, paragraphs, words, clauses, phrases or sentences contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the other remaining
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<PAGE>
provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be
in any way impaired, it being intended that all rights, powers and privileges of
the parties hereto shall be enforceable to the fullest extent permitted by law.
IN WITNESS WHEREOF, each of the undersigned has exe cuted this
Agreement or caused this Agreement to be executed on its behalf as of the date
first above written.
CHI ENERGY, INC.
By:
Name:
Title:
STOCKHOLDERS:
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
By:
Name:
Title:
-17-
REGISTRATION RIGHTS AGREEMENT
by and among
CHI ENERGY, INC.
THE STOCKHOLDERS LISTED ON SCHEDULE 1,
THE WARRANTHOLDERS LISTED ON SCHEDULE 2
and
THE OPTIONHOLDERS LISTED ON SCHEDULE 3
Dated as of _________, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS AND USAGE
Section 1.1. Definitions.......................................... 1
Section 1.2. Usage................................................ 6
ARTICLE II.
DEMAND REGISTRATION RIGHTS
Section 2.1. Demand Registration Rights........................... 7
Section 2.2. Limitation on Demand Registrations................... 8
Section 2.3. Right to Include Common Stock........................ 9
Section 2.4. Underwriters and Agents.............................. 9
Section 2.5. Priority in Demand Registrations..................... 9
Section 2.6. Withdrawal........................................... 10
ARTICLE III.
PIGGYBACK REGISTRATION RIGHTS
Section 3.1. Piggyback Registration Rights........................ 10
Section 3.2. Priority in Piggyback Registrations.................. 11
Section 3.3. Limitation on Registrations.......................... 11
Section 3.4. Survival............................................. 11
ARTICLE IV.
REGISTRATION PROCEDURES AND EXPENSES
Section 4.1. Registration Procedures.............................. 12
Section 4.2. Holders' Obligations................................. 15
Section 4.3. Registration Expenses................................ 16
ARTICLE V.
INDEMNIFICATION AND CONTRIBUTION
Section 5.1. Indemnification by the Company....................... 17
Section 5.2. Indemnification by the Selling Holders............... 18
(i)
<PAGE>
Section 5.3. Notice of Claims, Etc................................ 18
Section 5.4. Contribution......................................... 19
Section 5.5. Survival............................................. 20
ARTICLE VI.
RULE 144 AND RULE 144A
Section 6.1. Reports, Etc......................................... 20
Section 6.2. Rule 144 Information................................. 20
Section 6.3. Rule 144A Information................................ 21
ARTICLE VII.
MISCELLANEOUS
Section 7.1. Amendment Modification and Waivers:
Further Assurances................................. 21
Section 7.2. Assignment........................................... 21
Section 7.3. Invalid Provisions................................... 22
Section 7.4. Nominees for Beneficial Owners....................... 22
Section 7.5. Governing Law........................................ 22
Section 7.6. Notices.............................................. 22
Section 7.7. Entire Agreement; Integration........................ 23
Section 7.8. Injunctive Relief.................................... 24
Section 7.9. Section Headings..................................... 24
Section 7.10. Counterparts......................................... 24
Section 7.11. Filing............................................... 24
Section 7.12. Termination.......................................... 24
Section 7.13. Attorneys' Fees...................................... 24
Section 7.14. No Third Party Beneficiaries......................... 24
Section 7.15. Requisite Holders.................................... 24
Schedule 1 List of Stockholders
Schedule 2 List of Warrantholders
Schedule 3 List of Optionholders
(ii)
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement dated as of _______, 1997, by and among
CHI Energy, Inc., a Delaware corporation formerly known as Consolidated Hydro,
Inc., (the "Company"), the Stockholders listed on Schedule 1 hereto, as such
Schedule may be amended from time to time, the Warrantholders listed on Schedule
2 hereto, as such Schedule may be amended from time to time, and the
Optionholders listed on Schedule 3 hereto, as such Schedule may be amended from
time to time.
W I T N E S S E T H :
---------------------
WHEREAS, in connection with the reorganization of the Company pursuant to
chapter 11, title 11 of the United States Code (the "Bankruptcy Code"), certain
creditors and preferred stockholders of the Company will receive in exchange for
their prepetition claims against, and interests in, the Company, shares of
Common Stock and Warrants, and certain members of management of the Company will
be granted certain Options; and
WHEREAS, pursuant to the Plan, the Company has undertaken to provide
certain rights to the Holders to facilitate the resale by such Holders of their
Registrable Securities under certain circumstances; and
WHEREAS, it is intended by the Company and the Holders that this Agreement
shall become effective as of the Effective Date;
NOW, THEREFORE, in consideration of good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I.
DEFINITIONS AND USAGE
Section 1.1. Definitions. As used in this Agreement:
Affiliate. "Affiliate" shall mean when, used with reference to any Person,
any other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
such Person. As used in the preceding sentence, (i) the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the Person referred to
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whether through the ownership of voting securities, by contract, or otherwise,
and (ii) the term "controlling" and "controls" shall have meanings correlative
to the foregoing.
Agent. "Agent" shall mean the principal placement agent on an agented
placement of Registrable Securities.
Agreement. "Agreement" shall mean this Registration Rights Agreement, as
the same may be amended from time to time.
Bankruptcy Court. "Bankruptcy Court" shall mean the United States
Bankruptcy Court, District of Delaware, which Court has entered an Order
confirming the Plan.
Commission. "Commission" shall mean the United States Securities and
Exchange Commission, or any successor governmental agency or authority thereto.
Common Stock. "Common Stock" shall mean (a) collectively, the
Class A Common Stock, $.01 par value, and the Class B Common Stock, $.01 par
value, of the Company (including shares of Common Stock issued by the Company
upon the proper exercise of the Warrants and the Options), and (b) shares of
capital stock of the Company issued by the Company in respect of or in exchange
for shares of such common stock in connection with any stock dividend or
distribution, stock split-up, recapitalization, reclassification, subdivision,
recombination or exchange by the Company generally of shares of such common
stock.
Continuously Effective. "Continuously Effective," with respect to a Demand
Registration Statement, shall mean that it shall not cease to be effective and
available for Transfers of Registrable Securities thereunder for longer than
either (a) any 15 consecutive business days, or (b) an aggregate of 20 business
days during the period specified in the relevant provision of this Agreement.
Demand Registration Request. "Demand Registration Request" shall have the
meaning set forth in Section 2.1(a).
Demand Registration Statement. "Demand Registration Statement" shall have
the meaning set forth in Section 2.1(a).
Demanding Holders. "Demanding Holders" shall have the meaning set forth in
Section 2.1(a).
Effective Date. "Effective Date" shall have the meaning set forth in
Section 1.28 of the Plan.
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Exchange Act. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission promulgated
thereunder.
Holders. "Holders" shall mean the Stockholders, Optionholders and
Warrantholders, collectively.
Options. "Options" shall mean the options to purchase Common Stock issued
by the Company to Optionholders on the Effective Date pursuant to the Company's
1997 Management Stock Option Plan.
Option Shares. "Option Shares" shall mean the shares of Common Stock issued
by the Company to Optionholders upon exercise of an Option.
Optionholders. "Optionholders" shall mean the holders of the Options and/or
Option Shares listed on Schedule 2, as such Schedule may be amended from time to
time.
Person. "Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
Piggyback Registration Statement. "Piggyback Registration Statement" shall
have the meaning set forth in Section 3.1.
Plan. "Plan" shall mean the Plan of Reorganization of Consolidated Hydro,
Inc. under chapter 11 of the Bankruptcy Code, which was confirmed by order of
the Bankruptcy Court on _______, 1997.
Register, Registered and Registration. "Register", "registered", and
"registration" shall refer to a registration effected by preparing and filing
with the Commission a registration statement or similar document in compliance
with the Securities Act, and the declaration or ordering by the Commission of
effectiveness of such registration statement or document.
Registrable Securities. "Registrable Securities" shall mean, on any date of
determination, (a) the Shares owned by the Stockholders; (b) the Option Shares
owned by the Optionholders; (c) the Warrants owned by the Warrantholders; (d)
the Warrant Shares owned by the Warrantholders; (e) any shares of Common Stock
or other securities issued (or issuable upon the conversion, exchange or
exercise of any warrant, option, right or other security which is issued) as a
dividend or other distribution with respect to, in exchange by the Company
generally for, or in replacement by the Company generally of, such Shares,
Warrants, Warrant Shares or Option Shares; and (f) any securities issued in
exchange for such Shares, Warrants, Warrant Shares or Option Shares pursuant to
any merger,
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recapitalization, reorganization or business combination transaction of or
involving the Company; provided, however, that (i) if, on any date of
determination, the shares of Common Stock or any securities in respect thereof
are listed on any national securities exchange or included in any U.S.
interdealer quotation system of a registered national securities association,
then only such securities held by Persons who are deemed to be "underwriters" or
"affiliates" of the Company for purposes of the Securities Act, or
Warrantholders or Optionholders otherwise ineligible to sell the Warrants,
Warrant Shares or Option Shares, as the case may be, pursuant to Rule 144(k),
shall be deemed to be Registrable Securities; and (ii) with respect to any
permitted transferee of such securities, only such securities held by permitted
transferees that have complied with the assignment requirements of Section 7.2
shall be deemed to be Registrable Securities to the extent set forth in clause
(i) above; and provided, further, however, as to any particular Registrable
Securities, such securities shall cease to constitute Registrable Securities for
all purposes of this Agreement (a) when a registration statement with respect to
the sale of such securities has been declared effective by order of the
Commission under the Securities Act and such securities have been transferred or
disposed of in accordance with the intended method(s) of distribution set forth
in the prospectus included in such registration statement, (b) when such
securities have been sold in compliance with the resale provisions of Rule 144
or any similar rule promulgated by the Commission under the Securities Act, or
(c) when such securities shall have been transferred or disposed of to any
Person who, at the time of such transfer or disposition, is not an Affiliate of
the Company, and the Holders shall have received an opinion of Company counsel
(who may be the Company's general counsel) stating that, in the opinion of such
counsel, subsequent public distribution of such securities shall neither require
registration under the Securities Act or qualification (or any similar filing)
under any state securities or blue sky laws then in effect nor the use of an
applicable exemption therefrom.
Registration Expenses. "Registration Expenses" shall mean all
expenses incident to the Company's performance of or compliance with this
Agreement, including, without limitation, (a) all registration, filing,
securities exchange listing, rating agency and National Association of
Securities Dealers, Inc. fees, (b) all registration, filing, qualification and
other fees and expenses of complying with state securities or "blue sky" laws of
all jurisdictions in which the securities are to be registered and the
reasonable legal fees and expenses incurred in connection with the "blue sky"
qualifications of the Registrable Securities, (c) all word processing,
duplicating, printing, messenger and delivery expenses incurred by the Company,
(d) the fees and disbursements of counsel for the Company and of its independent
public accountants, including, without limitation, the expenses of any special
audits or "cold comfort" letters required by or incident to such performance and
compliance, (e) the reasonable fees and disbursements incurred for one counsel
or firm of counsel selected by the Requisite Holders of the Registrable
Securities, (f) reasonable fees and disbursements of underwriters customarily
paid by issuers or sellers of securities (but excluding underwriting discounts
and commissions, broker-dealer concessions, allowances,
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and marketing expenses, and transfer taxes relating to the Registrable
Securities being registered), (g) premiums and other costs to maintain in force
directors' and officers' policies of insurance to the extent the Company elects
to obtain such insurance, and (h) fees and expenses of other Persons retained or
employed by the Company.
Requisite Holders. "Requisite Holders" shall mean any Holder or Holders of
a majority in interest of the relevant class of Registrable Securities requested
to be included in a registration or other relevant action, as the case may be.
Rule 144. "Rule 144" shall mean Rule 144 promulgated by the Commission
under the Securities Act, and any successor provision thereto.
Rule 144A. "Rule 144A" shall mean Rule 144A promulgated by the Commission
under the Securities Act, and any successor provision thereto.
Securities Act. "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission promulgated thereunder.
Selling Holders. "Selling Holders" shall mean, with respect to a specified
registration pursuant to this Agreement, Holders whose Registrable Securities
are included in such registration.
Shares. "Shares" shall mean the shares of Common Stock distributed on the
Effective Date to creditors of the Company pursuant to the Plan.
Stockholders. "Stockholders" shall mean the holders of the Shares listed on
Schedule 1, as such Schedule may be amended from time to time.
Transfer. "Transfer" shall mean and include the act of selling, giving,
transferring, creating a trust (voting or otherwise), assigning or otherwise
disposing of (other than pledging, hypothecating or otherwise transferring as
collateral security for an underlying obligation) (and correlative words shall
have correlative meanings); provided however, that any transfer or other
disposition upon foreclosure or other exercise of remedies of a secured creditor
after an event of default under or with respect to a pledge, hypothecation or
other transfer as collateral security shall constitute a "Transfer."
Underwriters' Representative. "Underwriters' Representative" shall mean the
managing underwriter, or, in the case of a co-managed underwriting, the lead
manager, within the meaning of Rule 12b-2 under the Exchange Act.
Violation. "Violation" shall have the meaning set forth in Section 5.1.
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Warrants. "Warants" shall mean, collectively, the Series B Warrants and the
Series C Warrants issued by the Company on the Effective Date pursuant to the
Plan to holders, prior to the Effective Date, of the Company's Series F 8%
Convertible Preferred Stock, Series G 9.85% Junior Convertible Preferred Stock
and Series H 13.5% Cumulative Redeemable Exchangeable Preferred Stock.
Warrantholders. "Warrantholders" shall mean the holders of the Warrants
listed on Schedule 3, as such Schedule may be amended from time to time.
Warrant Shares. "Warrant Shares" shall mean the shares of Common Stock
issued by the Company to Warrantholders upon exercise of the Warrants.
Section 1.2. Usage. (a) References to a Person are also references to its
assigns and successors in interest (by any means whatever, including merger,
consolidation or sale of all or substantially all the assets of such Person or
otherwise, as the case may be).
(b) References to Registrable Securities "owned" by a Holder shall include
Registrable Securities beneficially owned by such Person but which are held of
record in the name of a nominee, trustee, custodian, or other agent, but shall
exclude shares of Common Stock held by a Holder in a fiduciary capacity for
customers of such Person.
(c) References to a document are to it as amended, waived and otherwise
modified from time to time and references to a statute or other governmental
rule are to it as amended and otherwise modified from time to time (and
references to any provision thereof shall include references to any successor
provision).
(d) References to Sections, Articles or Schedules are to sections or
articles hereof or schedules hereto, unless the context otherwise requires.
(e) The definitions set forth herein are equally applicable both to the
singular and plural forms and the feminine, masculine and neuter forms of the
terms defined.
(f) The term "including" and correlative terms shall be deemed to be
followed by "without limitation" whether or not followed by such words or words
of like import.
(g) The term "hereof" and similar terms refer to this Agreement as a whole.
(h) The "date of" any notice or request given pursuant to this Agreement
shall be determined in accordance with Section 7.6.
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ARTICLE II.
DEMAND REGISTRATION RIGHTS
Section 2.1. Demand Registration Rights. (a) At any time during the period
commencing on the (x) day next following the first anniversary of the Effective
Date and ending on the third anniversary of the Effective Date, one or more
Stockholders (the "Demanding Stockholders") and (y) day next following the third
anniversary of the Effective Date and ending on the sixth anniversary of the
Effective Date, one or more Warrantholders (the "Demanding Warrantholders" and,
together with the Demanding Stockholders, the "Demanding Holders"), shall be
entitled to deliver a written notice (a "Demand Registration Request") to the
Company requesting that the Company prepare and file with the Commission a
registration statement on an appropriate registration form (a "Demand
Registration Statement") providing, subject to Section 2.6, for the registration
under the Securities Act of the offer and sale of all or such number of such
Demanding Holder's Registrable Securities as the Demanding Holder requests in
writing; provided, however, that no request made pursuant to this Section 2.1(a)
if (i) within 12 months prior to the date of such request a Demand Registration
Statement pursuant to this Section 2.1(a) covering any Registrable Securities
shall have been declared effective by the Commission or (ii) the Registrable
Securities that the Demanding Holders seek to have included in the Demand
Registration Statement do not, in the aggregate, constitute at least 15% of the
applicable class of Registrable Securities then outstanding (it being hereby
understood for purposes of this Section 2.1 that the phrase "applicable class of
Registrable Securities" is intended to distinguish, on a class-by-class basis,
among the Common Stock, the Series B Warrants and the Series C Warrants).
Notwithstanding the foregoing sentence, in no event shall (i) a Demand
Registration Request be deemed effective pursuant to this Section 2.1 unless and
until the Registrable Securities that the Demanding Holders seek to have
included in the Demand Registration Statement, when aggregated with the
Registrable Securities that other Stockholders or Warrantholders, as applicable,
seek to have included in the Demand Registration Statement pursuant to Section
2.1(c) hereof, constitute at least 33% of the applicable class of Registrable
Securities then outstanding and (ii) any Optionholder have any right to deliver
a Demand Registration Request pursuant to this Section 2.1(a). Subject to
Section 2.1(b), after an effective Demand Registration Request is made pursuant
to this Section 2.1(a), the Company shall prepare and file the Demand
Registration Statement with the Commission as promptly as practicable. Each
Demand Registration Statement shall provide for an underwritten offering
(whether on a "firm," "best efforts" or "reasonable efforts" basis, or
otherwise) or an agented placement. Each Demand Registration Request made
pursuant to this Section 2.1(a) shall be addressed to the attention of the
Secretary of the Company, contain (with respect to each Demanding Holder making
such request) the information prescribed by Items 404 (if applicable) and 507 of
Regulation S-K under the Securities Act and General Instruction C to Schedule
13D under the Exchange Act, specify the number and class of Registrable
Securities to be registered and the intended methods of
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disposition thereof, and state that the request for a Demand Registration
Statement is being made pursuant to this Section 2.1.
(b) The Company shall be entitled to postpone for up to 120 days the filing
of any Demand Registration Statement otherwise required to be prepared and filed
with the Commission pursuant to this Section 2.1 if (i) the Board of Directors
of the Company determines, in its good faith reasonable judgment, that such
registration and the Transfer of Registrable Securities contemplated thereby
would materially interfere with, or require the premature disclosure of, any
financing, acquisition, material asset transaction, business combination
transaction, reorganization or recapitalization of or involving the Company or
any of its subsidiaries or would otherwise require the premature disclosure of
any other material nonpublic information as to which the Company has a bona fide
business purpose for maintaining confidential, and (ii) the Company promptly
provides the Demanding Holders with notice of such determination (which notice
need not disclose the fact, event or information); provided, however, that the
Company shall not, within the preceding 12 months, have postponed the filing of
any other Demand Registration Statement that subsequently was abandoned because
the Demand Registration Request relating thereto was withdrawn.
(c) Whenever the Company receives a Demand Registration Request to effect
the filing of a Demand Registration Statement of any Registrable Securities, the
Company promptly shall provide written notice of such proposed demand
registration to all other Stockholders or Warrantholders, as applicable, holding
Registrable Securities. Any such Stockholder or Warrantholder, as applicable,
may within 30 days after receipt of such notice request in writing that all of
such holder's Registrable Securities, or any portion thereof designated by such
holder, be included in the Demand Registration Statement.
Section 2.2. Limitation on Demand Registrations. The Company shall not be
obligated to prepare and file with the Commission more than three Demand
Registration Statements pursuant to Demand Registration Requests delivered by
Stockholders pursuant to Section 2.1(a)(x) and shall not be obligated to prepare
and file with the Commission more than two Demand Registration Statements
pursuant to Demand Registration Requests delivered by Warrantholders pursuant to
Section 2.1(a)(y). For purposes of the preceding sentence, a Demand Registration
Statement shall not be deemed to have been effected (a) unless and until a
registration statement with respect thereto has been declared effective by order
of the Commission, (b) if after such registration statement has become
effective, such registration or the related offer, sale or distribution of
Registrable Securities thereunder is suspended by any stop order, injunction or
other order or requirement of the Commission or other governmental agency or
court for any reason not attributable to any of the Selling Holders and such
suspension is not thereafter eliminated, or (c) if the conditions to closing
specified in any underwriting agreement containing usual and customary terms
entered into in connection with such registration are not satisfied or waived,
other than by reason of a
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failure on the part of any of the Selling Holders. The Company's obligation to
effect a given demand registration pursuant to Section 2.1 shall be deemed to
have been satisfied upon the earlier of (i) the date as of which all of the
Registrable Securities included therein shall have been disposed of pursuant to
the Demand Registration Statement, and (ii) the date as of which such Demand
Registration Statement shall have been Continuously Effective for a period of 90
days.
Section 2.3. Right to Include Common Stock. Whenever the Company receives a
request for a Demand Registration Statement covering Registrable Securities
pursuant to Section 2.1, the Company shall have the right to register in any
such Demand Registration Statement (and to include in any related offering)
shares of authorized but unissued shares of Common Stock to be sold by the
Company on a primary basis. The Company may exercise the foregoing option to
include additional primary shares by delivering written notice of such fact to
each of the Selling Holders not later than the 20th day next following the
Company's receipt of the request for a Demand Registration Statement pursuant to
Section 2.1(a).
Section 2.4. Underwriters and Agents. In any Demand Registration Statement,
the "managing underwriter(s)" within the meaning of Rule 12b-2 under the
Exchange Act or the lead agent (for an agented placement), shall be a nationally
recognized firm selected by the Company with the approval of the Majority
Holders, which approval shall not unreasonably be withheld.
Section 2.5. Priority in Demand Registrations. Whenever the Company effects
a demand registration pursuant to Section 2.1, if the Underwriters'
Representative or Agent advises the Company in writing (with a copy to each
Selling Holder) that, in its opinion, the amount of securities requested
(whether by the Company or the Selling Holders) to be registered pursuant to the
Demand Registration Statement and included in the offering contemplated thereby
exceeds the amount which can be offered and sold in such offering within a price
range acceptable to the Requisite Holders, the securities to be included in such
offering and the size of the related demand registration shall be reduced to the
amount which can be offered and sold within such price range. In the case of any
such reduction, the Company shall include in such demand registration only that
amount of Registrable Securities that the Company is so advised can be sold in
the offering, determined as follows: (i) first, Registrable Securities of those
Selling Holders that are "underwriters" or are "affiliates" of the Company (such
determination to be made by such Selling Holders upon the advice of counsel
communicated in writing to the Company) in an amount sufficient to include all
the Registrable Securities being offered for sale by such Selling Holders or in
an amount sufficient to reduce the amount of each such Selling Holder's
Registrable Securities held by it after the offering to a level that would cause
such Selling Holder to no longer be an "underwriter" or an "affiliate" of the
Company, whichever amount is less; (ii) second, all Registrable Securities (that
have not theretofore been included in the Demand Registration
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Statement pursuant to clause (i) of this Section 2.5) requested pursuant to
Section 2.1 to be included in such Demand Registration Statement by the Selling
Holders, pro rata on the basis of the amount of such securities held by such
holders; and (iii) third, all other securities of the Company requested to be
included in such Demand Registration Statement (including for purposes of this
clause (iii) Registrable Securities duly requested to be included in such Demand
Registration Statement pursuant to the exercise by any Holder of its rights
under Section 3.1.), pro rata on the basis of the amount of such Securities
requested to be included.
Section 2.6. Withdrawal. Any Holder participating in a registration
pursuant to this Agreement shall be permitted to withdraw all or part of its
Registrable Securities from such registration at any time (but not later than
five business days) prior to the effective date of the registration statement
covering such securities; provided that, in the event of a withdrawal from a
registration effected pursuant to Section 2.1 hereof, such registration shall be
deemed to have been effected for purposes of the first sentence of Section 2.2
hereof except as otherwise provided in such Section; and provided further, that
such withdrawing Holder promptly shall reimburse the Company for all
Registration Expenses theretofore paid by the Company in respect of the
registration of Registrable Securities on behalf of the withdrawing Holder.
ARTICLE III.
PIGGYBACK REGISTRATION RIGHTS
Section 3.1. Piggyback Registration Rights. (a) If at any time the Company
proposes to register equity securities or securities convertible or exchangeable
into or exercisable for equity securities (whether or not for its own account)
under the Securities Act in connection with a public offering solely for cash
(other than by a registration on Form S-4 or S-8 or any successor or similar
forms or filed in connection with an exchange offer, business combination
transaction or any offering of securities solely to the Company's existing
stockholders or otherwise pursuant to a dividend reinvestment plan or a dividend
reinvestment and stock purchase plan, and other than pursuant to Article II),
the Company shall promptly give each Holder of Registrable Securities written
notice of such proposed registration (a "Piggyback Registration Statement").
Upon the written request of each Holder receiving such Company notice delivered
within 15 days following the date of such Holder's receipt of the Company notice
(which Holder notice shall identify such Holder, the amount of Registrable
Securities sought to be included in the Piggyback Registration Statement, and
the intended methods of disposition thereof), the Company shall cause to be
included in such Piggyback Registration Statement and use commercially
reasonable efforts to be registered under the Securities Act all the Registrable
Securities that each such Holder shall have requested to be registered;
provided, however, that such right of inclusion shall not apply to any
registration statement covering an underwritten offering of convertible,
exercisable or
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exchangeable securities or equity securities other than the Common Stock if the
Underwriters' Representative or Agent shall advise the Company in writing (with
a copy to each Selling Holder) that in its opinion, the nature of the
Registrable Securities requested to be included in the Piggyback Registration
Statement would adversely affect the offering of the convertible, exercisable or
exchangeable securities or equity securities or would adversely affect the
timing thereof. The Company shall have the absolute right at any time to
withdraw or cease to prepare or file any registration statement for any offering
referred to in this Article III without any obligation or liability to any
Holder.
(b) For a period of six years from the date of this Agreement, each Holder
shall be entitled to have its Registrable Securities included in an unlimited
number of Piggyback Registration Statements pursuant to this Section 3.1.
Section 3.2. Priority in Piggyback Registrations. If the Underwriters'
Representative or Agent shall advise the Company in writing (with a copy to each
Selling Holder) that, in its opinion, the amount of securities requested to be
included in such offering (whether by the Company, the Selling Holders or other
holders of securities) exceeds the amount which can be offered and sold in such
offering within a price range acceptable to the Company, then the Company shall
include in such registration only that amount of securities which the Company is
so advised can be offered and sold in the offering as follows: (i) first, all
securities proposed by the Company to be sold for its own account; (ii) second,
Registrable Securities of each Selling Holder that has properly requested that
its Registrable Securities be included in such registration and that is an
"underwriter" or an "affiliate" of the Company (such determination to be made by
such Selling Holders upon the advice of counsel communicated in writing to the
Company) in an amount sufficient to include all the Registrable Securities being
offered for sale by such Selling Holder or an amount sufficient to reduce the
amount of such Selling Holder's Registrable Securities held by it after the
offering to a level that would cause such Selling Holder to no longer be an
"underwriter" or an "affiliate" of the Company, whichever amount is less; (iii)
third, such Registrable Securities (that have not theretofore been included in
such registration statement pursuant to clause (ii) of this Section 3.2)
requested to be included in such registration statement by each Selling Holder,
pro rata on the basis of the amount of such securities held by each such Selling
Holder; and (iv) fourth, all other securities of the Company duly requested to
be included in such registration statement.
Section 3.3. Limitation on Registrations. If the Company has previously
filed a registration statement with respect to Registrable Securities pursuant
to Section 2.1 or this Article III, and if such previous registration statement
has not been withdrawn or abandoned, the Company shall not file or cause to be
effected any other registration of any of its equity securities or securities
convertible, exercisable or exchangeable into or for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on
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its own behalf or at the request of any holder or holders of such securities,
until a period of 180 days has elapsed from the effective date of such a
previous registration statement.
Section 3.4. Survival. The obligations of the Company and the Selling
Holders of Registrable Securities under this Article III shall survive until the
third anniversary of the date of this Agreement.
ARTICLE IV.
REGISTRATION PROCEDURES AND EXPENSES
Section 4.1. Registration Procedures. Whenever required under Article II or
Article III to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as practicable:
(a) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities, subject to Section 2.2,
and use commercially reasonable efforts to cause such registration statement to
become effective, in each instance giving due regard to the need to prepare
current financial statements, conduct due diligence and complete other actions
that are reasonably necessary to effect a registered public offering; provided,
however, that before filing a registration statement or prospectus or any
amendments or supplements thereto, including documents incorporated by reference
after the initial filing of the registration statement and prior to
effectiveness thereof, the Company shall use commercially reasonable efforts to
furnish to one firm of legal counsel for the Selling Holders (selected by the
Requisite Holders) copies of all such documents in the form substantially as
proposed to be filed with the Commission at least five business days prior to
filing for review and comment by such counsel.
(b) (i) Use commercially reasonable efforts to keep each
Demand Registration Statement Continuously Effective for up to 90 days or until
such earlier date as of which all the Registrable Securities under the Demand
Registration Statement shall have been disposed of in the manner described in
the Demand Registration Statement. As soon as reasonably practicable after the
occurrence of any fact or event that makes untrue any statement of a material
fact made in a registration statement or that requires the making of any
additions to or changes in a registration statement in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, the Company shall prepare and file a supplement or amendment to such
registration statement or related prospectus, or a document incorporated therein
by reference, so that such registration statement and related prospectus shall
not contain any such untrue statement of a material fact or any such omission of
a material fact; provided, however, that if the Board of Directors of the
Company determines, in its good faith reasonable judgment, that the Transfer of
Registrable
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Securities pursuant to the registration statement would materially interfere
with, or require the premature disclosure of, any financing, business
combination transaction, acquisition or reorganization involving the Company or
any of its subsidiaries or otherwise would require premature disclosure of any
other material nonpublic information as to which the Company has a bona fide
business purpose for maintaining confidential, then for so long as such
circumstances or such business purpose continues to exist (provided that the
number of days of any such suspension may not exceed an aggregate of 120 days in
any 360-day period), the Company shall not be required to prepare or file any
such supplement amendment or document.
(ii) Notify each Holder whose Registrable Securities have been included in
a registration statement as soon as practicable after the Company discovers or
otherwise becomes or is made aware of the existence of any fact or event of the
kind described in Section 2.1(b) or 4.1(b)(i), and each Holder agrees by its
receipt of a Registrable Security pursuant to the Plan that, upon receipt of any
such notice from the Company of the existence of any fact or event of the kind
described in Section 2.1(b) or 4.1(b)(i) (which notice need not disclose the
fact, event or information), such Holder will forthwith discontinue the
disposition of any Registrable Securities pursuant to the registration statement
until such Holder's receipt of the copies of a supplemented or amended
prospectus as contemplated by Section 4.1(b)(i), or until it is advised in
writing by the Company that the use of the prospectus related to the
registration statement may be resumed, and has received copies of any additional
or supplemental filings that are incorporated by reference in such prospectus.
If so directed by the Company, each Holder will deliver to the Company all
copies, other than permanent file copies then in such Holder's possession, of
the prospectus covering such Registrable Securities that was current at the time
of receipt of such notice.
(iii) Notwithstanding the foregoing, if, in the case of a Demand
Registration Statement, the filing thereof with the Commission is postponed due
to circumstances of the type described in the proviso to Section 2.1(b)(i), the
period for filing a Demand Registration Statement shall be extended by the
aggregate number of days of such postponement.
(c) Subject to Section 4.1(b)(i), prepare and file with the Commission such
amendments, supplements or incorporated documents to such registration statement
and the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement. If the
registration statement provides for an underwritten offering, the Company shall
amend the registration statement or supplement the prospectus whenever required
by the terms of the underwriting agreement entered into pursuant to Section
4.1(f). In the event that any Registrable Securities included in a registration
statement subject to or required by this Agreement remain unsold at the end of
the period during which the Company is obligated to use commercially reasonable
efforts to maintain the effectiveness of such registration statement, the
Company may file a post-
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effective amendment to the registration statement for the purpose of removing
such securities from registered status.
(d) Furnish to each Selling Holder of Registrable Securities copies of the
registration statement, any pre-effective or post-effective amendment thereto,
the prospectus, including each preliminary prospectus and any amendments or
supplements thereto, in each case in conformity with the requirements of the
Securities Act.
(e) Use commercially reasonable efforts (i) to register and qualify the
securities covered by such registration statement under the securities or blue
sky laws of such states or jurisdictions as shall be reasonably requested by the
Underwriters' Representative or Agent (as applicable, or if inapplicable the
Requisite Holders), and (ii) to obtain the withdrawal of any order suspending
the effectiveness of a registration statement, or the lifting of any suspension
of the qualification (or exemption from qualification) of the offer and transfer
of any of the Registrable Securities in any jurisdiction, at the earliest
practicable moment; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business,
subject itself to taxation or to file a general consent to service of process in
any states or jurisdictions where it is not now so subject.
(f) In the event of Demand Registration Statement, enter into and perform
the Company's obligations under an underwriting or agency agreement (including
indemnification and contribution obligations of underwriters or agents), in
usual and customary form, with the managing underwriter or underwriters of or
agents for such offering. The Company shall also cooperate with the Requisite
Holders and the Underwriters' Representative or Agent for such offering in the
marketing of the Registrable Securities, including making reasonably available
the Company's officers, accounts, counsel, premises, and books and records for
such purpose.
(g) Promptly notify each Selling Holder of any stop order issued or
threatened to be issued by the Commission in connection therewith (and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered).
(h) Make generally available to the Company's security holders an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act no
later than 90 days following the end of the 12-month period beginning with the
first month of the Company's first fiscal quarter commencing after the effective
date of each registration statement filed pursuant to this Agreement.
(i) Make reasonably available for inspection by any underwriter
participating in such offering and not more than one firm of legal counsel to
all underwriters and one firm of legal counsel to all Selling Holders, all
financial and other information as
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shall be reasonably requested by them, and provide the foregoing Persons the
opportunity to discuss the business affairs of the Company with its principal
executives and independent public accountants who have certified the audited
financial statements included in such registration statement, in each case to
the extent necessary to enable them to exercise their due diligence
responsibility under the Securities Act; provided, however, that information
that the Company determines, in good faith, to be confidential and which the
Company advises such Person in writing, is confidential shall not be disclosed
unless such Person signs a confidentiality agreement reasonably satisfactory to
the Company.
(j) In the event of a Demand Registration Statement, use commercially
reasonable efforts to obtain a "comfort letter" from its independent public
accountants and legal opinions of counsel to the Company addressed to each
underwriter or agent and each Holder who is a Selling Holder, in customary form
and covering such matters of the type customarily covered by such letters and in
a form that shall be reasonably satisfactory to the Requisite Holders and the
Underwriters' Representative or Agent. The Company shall furnish to each
underwriter or agent a signed counterpart of any such comfort letter or legal
opinion. Delivery of any comfort letter shall be subject to the recipient
furnishing such written representations or acknowledgments as are customarily
provided under SAS No. 72. Nothing in the immediately preceding sentence shall
be deemed to require an underwriter or agent to make representations and
warranties if the underwriter or agent is willing to receive a letter in the
form to be provided to underwriters or agents not making representations and
warranties under SAS No. 76.
(k) Provide and cause to be maintained a transfer agent and registrar for
all Registrable Securities covered by such registration statement from and after
a date not later than the effective date of such registration statement.
(l) Use commercially reasonable efforts to cause the Registrable Securities
covered by such registration statement, if then listed on a national securities
exchange or included for quotation in a U.S. inter-dealer quotation system of a
registered national securitied association, to continue to be so listed or
included for a reasonable period of time after the offering.
(m) Provide a CUSIP number for all Registrable Securities covered by such
registration statement not later than the effective date of such registration
statement.
(n) In the event of a Demand Registration Statement, if any broker-dealer
registered under the Exchange Act shall be an "Affiliate" (as defined in Rule
2729(b)(1) of the rules and regulations of the National Association of
Securities Dealers, Inc., (the "NASD Rules"), or any successor provisions
thereto) of the Company or has a "conflict of interest" (as such term is defined
in Rule 2720(b)(7) of the NASD Rules, or any successor provisions thereto) and
such broker-dealer shall underwrite, participate as a member of an underwriting
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syndicate or selling group or assist in the distribution of any Registrable
Securities covered by a registration statement, whether as a holder of such
Registrable Securities or as an underwriter, a placement or sales agent or a
broker or dealer in respect thereof, or otherwise, the Company shall assist such
broker-dealer in complying with the requirements of the NASD Rules, including,
without limitation, by (A) engaging a "qualified independent underwriter" (as
such term is defined in Rule 2720(b)(15) of the NASD Rules or any successor
provision(s) thereto) to participate in the preparation of the registration
statement relating to such Registrable Securities, to exercise usual and
customary standards of due diligence in respect thereof and to recommend the
public offering price of such Registrable Securities and the related
underwriting discounts and commissions and broker or dealer selling concessions
and allowances, (B) indemnifying such qualified independent underwriter to the
extent set forth in Article V hereof, and (C) providing all such information as
reasonably may be necessary to ensure compliance by such broker-dealer with the
requirements of the NASD Rules.
Section 4.2. Holders' Obligations. (a) It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
with respect to the Registrable Securities of any Selling Holder that such
Selling Holder shall:
(i) furnish to the Company such information regarding such Selling
Holder and its affiliates, the number of Registrable Securities owned and
proposed to be sold by it, the intended method of disposition of such
securities and any other information as shall be required to effect the
registration of such Selling Holder's Registrable Securities and cooperate
with the Company in preparing such registration statement and in complying
with the requirements of the Securities Act;
(ii) agree to sell its Registrable Securities to the underwriters at
the same price and on substantially the same terms and conditions as the
Company or the other Persons on whose behalf the registration statement was
filed have agreed to sell their securities, and execute the underwriting
agreement agreed to by the Company and the Requisite Holders together with
all customary custody arrangements, lock-up letters, indemnities
questionnaires and other documents reasonably required by the underwriters
or agents and agreed to by the Requisite Holders.
(b) In the event that a Demand Registration Statement or a Piggyback
Registration Statement becomes effective, if and to the extent requested by the
managing underwriter or lead agent for the offering relating thereto, no Holder
shall offer, sell or agree to sell or otherwise dispose of or transfer, in the
case of a Demand Registration Statement or Piggyback Registration Statement
covering Registrable Securities or securities convertible into or exchangeable
or exercisable for any Registrable Securities (other than, in the case of the
Selling Holders under the Demand Registration Statement or Piggyback
Registration Statement, pursuant to such Demand Registration Statement or
Piggyback Registration
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Statement, as the case may be), or exercise any right to register any such
securities, during the period commencing 10 days prior to the anticipated
effective date of such registration statement and ending 90 days from the
effective date of such registration statement. In order to enforce the foregoing
agreement, the Company shall be entitled to impose stop-transfer instructions
with respect to the Registrable Securities of each Holder until the end of such
period.
Section 4.3. Registration Expenses. Expenses in connection with
registrations pursuant to this Agreement shall be allocated and paid as follows:
(a) With respect to not more than two demand registrations effected on
behalf of Stockholders pursuant to Section 2.1(a)(x) and not more than one
demand registration effected on behalf of Warrantholders pursuant to Section
2.1(a)(y), the Company shall bear and pay all of the Registration Expenses
incurred in connection with the registration and offering of Registrable
Securities with respect thereto; provided, however, that, the Selling Holders
shall pay (i) underwriting discounts and commissions relating to the Registrable
Securities sold by them pursuant to any such registration statement and (ii) all
fees and disbursements of any additional counsel not required to be paid by the
Company and any other advisors to the Selling Holders.
(b) The Company shall bear and pay all Registration Expenses incurred in
connection with any Piggyback Registration Statements pursuant to Article III,
and with respect to the third demand registration, if any, effected on behalf of
Stockholders pursuant to Section 2.1(a)(x) and the second demand registration,
if any, effected on behalf of Warrantholders pursuant to Section 2.1(a)(y),
other than (i) underwriting discounts and commissions relating to Registrable
Securities, (ii) the portion of any filing fees allocable to the Registrable
Securities included in such registration by the Selling Holders and (iii) the
fees and disbursements of any additional counsel not required to be paid by the
Company and other advisors to the Selling Holders (each of which expenses in
clauses (i) and (ii) shall be paid on a pro rata basis by the Selling Holders of
Registrable Securities included in such Piggyback Registration Statement and
which expenses in clause (iii) shall be paid on a pro rata basis by the Selling
Holders for which the expenses are incurred).
ARTICLE V.
INDEMNIFICATION AND CONTRIBUTION
Section 5.1. Indemnification by the Company. If any Registrable Securities
are included in an effective registration statement under this Agreement, to the
extent permitted by applicable law, the Company shall indemnify and hold
harmless each Selling Holder, its directors, officers, shareholders, employees,
investment advisors, agents and
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Affiliates, and each other Person, if any, who controls such Selling Holder
within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and expenses, including attorneys' fees and disbursements and expenses of
investigation ("Losses"), incurred by such party pursuant to any actual or
threatened action, suit, proceeding or investigation, to which any of the
foregoing Persons may become subject under the Securities Act, the Exchange Act
or other federal or state laws, insofar as such Losses arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in such effective registration statement, preliminary prospectus if
used prior to the effective date of the registration statement in which such
preliminary prospectus is included (unless such statement is corrected in the
final prospectus and the Company previously furnished copies thereof to the
Selling Holders or such other Persons) or final prospectus (as supplemented, if
the Company shall have filed with the Commission any supplement thereto) if used
during the period in which the Company is required to keep the registration
statement to which such prospectus relates current and otherwise in compliance
with Section 10(a) of the Securities Act, or the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading (collectively, a "Violation");
provided, however, that the indemnification required by this Section 5.1 shall
not apply to amounts paid in settlement of any such Loss, if such settlement is
effected without the consent of the Company (such consent not to unreasonably be
withheld), nor shall the Company be liable in any such case for any such Loss if
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished to the Company by the
indemnified party expressly for use in connection with such registration; and
provided, further, that the Company shall have no obligation to provide any
indemnification hereunder if any such Losses arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission in
or from the final prospectus, if such untrue statement or alleged untrue
statement or omission or alleged untrue omission shall have been corrected in a
supplement to the final prospectus and the Selling Holder or any other Person
seeking indemnification hereunder shall have failed to deliver (or cause to be
delivered) such final prospectus as so supplemented prior to or
contemporaneously with the sale of the Registrable Securities covered by a
registration statement to the Person asserting such Losses after the Company
shall have furnished the Selling Holder or other Persons seeking indemnification
hereunder with a sufficient number of copies thereof in a manner and a time
sufficient to permit delivery of the same.
Section 5.2. Indemnification by the Selling Holders. If any Registrable
Securities are included in a registration statement under this Agreement, to the
extent permitted by applicable law, each Selling Holder shall indemnify and hold
harmless the Company, its directors, officers, shareholders, employees,
investment advisors, agents and Affiliates, and each other Person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act, any other Selling Holder and any controlling
Person of any such other Selling Holder from and against any and
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all losses, claims, damages, liabilities and expenses, including attorneys' fees
and disbursements and expenses of investigation, incurred by such party pursuant
to any actual or threatened action, suit, proceeding or investigation, to which
any of the foregoing Persons may otherwise become subject under the Securities
Act, the Exchange Act or other federal or state laws, insofar as such losses,
claims, damages, liabilities and expenses arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Selling Holder expressly for use in connection with such
registration statement; provided, however, that (a) the indemnification required
by this Section 5.2 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or expense if settlement is effected without the
consent of the relevant Selling Holder of Registrable Securities, which consent
shall not be unreasonably withheld, (b) in no event shall the amount of any
indemnity under this Section 5.2 and of the contribution obligation of a Selling
Holder under Section 5.4 exceed the net proceeds from the applicable offering
received by such Selling Holder, and (c) the obligation to provide
indemnification hereunder shall be several, and not joint and several, among the
indemnifying parties.
Section 5.3. Notice of Claims, Etc. Promptly after receipt by an
indemnified party under this Article V of notice of the commencement of any
action, suit, proceeding, investigation or threat thereof made in writing for
which such indemnified party may make a claim under this Article V, such
indemnified party shall deliver to the indemnifying party a written notice of
the commencement thereof. The failure to deliver written notice to the
indemnifying party within a reasonable time following the commencement of any
such action, if and to the extent materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Article V but shall not relieve the
indemnifying party of any liability that it may have to any indemnified party
otherwise than pursuant to this Article V. Any fees and expenses incurred by the
indemnified party (including any fees and expenses incurred in connection with
investigating or preparing to defend such action or proceeding) shall be paid to
the indemnified party, as incurred (as evidenced by reasonably itemized invoices
submitted to the indemnifying party), within 30 days of written notice thereof
to the indemnifying party. Any such indemnified party shall have the right to
employ separate counsel in any such action, claim or proceeding, and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be borne and paid for by such indemnified party unless (a) the
indemnifying party shall have failed promptly to assume the defense of such
action, claim or proceeding with counsel reasonably satisfactory to the
indemnified party, or (b) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such indemnified party
and the indemnifying party, and such indemnified party shall have been advised
by its counsel that there may be one or more legal defenses available to it
which are different from or in addition to those available to the indemnifying
party and that the assertion of such defenses would either be compromised or
create a conflict of interest such that counsel employed by the indemnifying
party could not represent the indemnified party (in which
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case, if such indemnified party notifies the indemnifying party in writing that
it elects to employ separate counsel at the expense of the indemnifying party,
the indemnifying party shall not have the right to assume the defense of such
action, claim or proceeding on behalf of such indemnified party; it being
understood, however, that the indemnifying party shall not, in connection with
any one such action, claim or proceeding or separate but substantially similar
or related actions, claims or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all such indemnified parties, unless
the indemnified party shall have been advised by its counsel that a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such action, claim or proceeding such that
the counsel could not represent the indemnified party and any other of such
indemnified parties, in which event the indemnifying party shall be obligated to
pay the fees and expenses of such additional counsel or counsels). No
indemnifying party shall be liable to an indemnified party for any settlement of
any action, proceeding or claim without the prior written consent of the
indemnifying party, which consent shall not be unreasonably withheld.
Section 5.4. Contribution. If the indemnification required by this Article
V from the indemnifying party is unavailable to an indemnified party hereunder
in respect of any losses, claims, damages liabilities or expenses referred to in
this Article V:
(a) The indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any Violation has been committed by, or relates to information supplied
by, such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such Violation. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 5.1 and Section 5.2,
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
(b) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in Section 5.4(a). 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.
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Section 5.5. Survival. The obligations of the Company and the Selling
Holders of Registrable Securities under this Article V shall survive the
completion of any offering of Registrable Securities pursuant to a registration
statement under this Agreement.
ARTICLE VI.
RULE 144 AND RULE 144A
Section 6.1. Reports, Etc. The Company will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations promulgated by the Commission thereunder and will take such further
action as any Holder reasonably may request, to the extent required from time to
time to enable the Holder to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided by (a)
Rule 144, (b) Rule 144A, or (c) any similar rule or regulation hereafter adopted
by the Commission. Upon the request of any Holder, the Company will deliver to
that Holder a written statement as to whether it has complied with such
requirements, a copy of the most recent annual or quarterly report of the
Company and such other reports or documents so filed as a Holder may reasonably
request in availing itself of any rule or regulation of the Commission allowing
a Holder to sell any such securities without registration.
Section 6.2. Rule 144 Information. If at any time the Company is not
required to file reports in compliance with either Section 13 or Section 15(d)
of the Exchange Act, the Company at its expense will, forthwith upon the request
of any Holder, make available adequate current public information with respect
to the Company within the meaning of paragraph (c)(2) of Rule 144.
Section 6.3. Rule 144A Information. If at any time the Company is not
required to file reports in compliance with either Section 13 or Section 15(d)
of the Exchange Act, the Company at its expense will forthwith upon the request
of any Holder or prospective purchaser, provide to the Holder and any
prospective purchaser reasonably current information with respect to the Company
within the meaning of paragraph (d)(4) of Rule 144A.
ARTICLE VII.
MISCELLANEOUS
Section 7.1. Amendment Modification and Waivers: Further Assurances. (a)
This Agreement may be amended with the consent of the Company, and the Company
may
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amend this Agreement or take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company shall have
obtained the written consent to such amendment, action or omission to act of
Holders owning Registrable Securities possessing a majority in number of the
Registrable Securities then outstanding (based on the number of shares of Common
Stock representing, or issuable upon exercise for, the Registrable Securities)
and, in the case of any amendment, action of omission to act that adversely
affects any group of Holders differently from any other group of Holders, the
written consent of the Holders of a majority in number of the Registrable
Securities owned by such group of Holders.
(b) No waiver of any terms or conditions of this Agreement shall operate as
a waiver of any other breach of such terms and conditions or any other term or
condition, nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or of any other provision hereof. No written waiver
hereunder, unless it by its own terms explicitly provides to the contrary, shall
be construed to effect a continuing waiver of the provisions being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision.
(c) Each of the parties hereto shall execute all such further instruments
and documents and take all such further action as any other party hereto may
reasonably require in order to effectuate the terms and purposes of this
Agreement.
Section 7.2. Assignment. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties and their respective successors
and permitted assigns of Registrable Securities. Each Holder may assign any of
its rights hereunder (in whole or in part) to one or more transferees of
Registrable Securities; provided, however, that any such transferees of
Registrable Securities agrees in writing, in form and substance satisfactory to
the Company, to be bound by all of the terms and provisions hereof and to join
this Agreement as a party hereto; and provided, further, that no such assignment
of rights shall be effective with respect to Registrable Securities that, as a
result of such transfer, have ceased to be Registrable Securities by reason of
the second sentence of the definition of Registrable Securities set forth in
Section 1.1. Without limiting the foregoing, no such assignment shall be binding
upon or obligate the Company to any such assignee unless and until the Company
has received notice of the assignment as herein provided, which notice (a)
references this Agreement and (b) sets forth the address of any assignee for the
purpose of any notices hereunder. The Company hereby agrees to amend from time
to time Schedules 1, 2 and 3 to reflect the transfers and assignments effected
in accordance with this Section 7.2.
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Section 7.3. Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future law, (a)
such provision will be fully severable, (b) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (c) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal, invalid
or unenforceable provision or by its severance herefrom, and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible.
Section 7.4. Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election, be treated as the holder of
such Registrable Securities for purposes of request or other action by any
Holder or Holders pursuant to this Agreement or any determination of any amount
of shares of Registrable Securities held by any Holder or Holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities. For purposes of this Agreement, "beneficial ownership" and
"beneficial owner" refer to beneficial ownership as defined in Rule 13d-3
(without regard to the 60-day provision in paragraph (d)(1)(i) thereof) under
the Exchange Act.
Section 7.5. Governing Law. THIS AGREEMENT SHALL BE GOV- ERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
Section 7.6. Notices. All notices and requests given pursuant to this
Agreement shall be in writing and shall be made by hand-delivery, first-class
mail (registered or certified, return receipt requested), confirmed facsimile or
overnight air courier guaranteeing next business day:
(a) If to the Company, to:
CHI, Inc.
680 Washington Boulevard,
Fifth Floor
Stamford, Connecticut 06901
Telephone: (203) 425-8850
Facsimile: (203) 425-8880
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With a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, N.Y. 10153
Attention: Simeon Gold, Esq.
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
(b) If to a Stockholder, to the address for such Stockholder set forth on
Schedule 1.
(c) If to a Warrantholder, to the address for such Optionholder set forth
on Schedule 2.
(d) If to an Optionholder, to the address for such Noteholder set forth on
Schedule 3.
Except as otherwise provided in this Agreement, the date of each such notice and
request shall be deemed to be, and the date on which each such notice and
request shall be deemed given shall be: (i) at the time delivered, if personally
delivered or mailed; (ii) when receipt is acknowledged, if sent by facsimile;
and (iii) the next business day after timely delivery to the courier, if sent by
overnight air courier guaranteeing next business day delivery.
Section 7.7. Entire Agreement; Integration. This Agreement supersedes all
prior agreements between or among any of the parties hereto with respect to the
subject matter contained herein, and this agreement embodies the entire
understanding among the parties relating to such subject matter.
Section 7.8. Injunctive Relief. Each of the parties hereto acknowledges
that in the event of a breach by any of them of any material provision of this
Agreement, the aggrieved party may be without an adequate remedy at law. Each of
the parties therefore agrees that in the event of such a breach hereof the
aggrieved party may elect to institute and prosecute proceedings in any court of
competent jurisdiction to enforce specific performance or to enjoin the
continuing breach hereof by seeking or obtaining any such relief, the aggrieved
party shall not be precluded from seeking or obtaining any other relief to which
it may be entitled.
Section 7.9. Section Headings. Section headings are for convenience of
reference only and shall not affect the meaning of any provision of this
Agreement.
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Section 7.10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which shall together
constitute one and the same instrument. All signatures need not be on the same
counterpart.
Section 7.11. Filing. A copy of this Agreement and of all amendments
thereto shall be filed at the principal executive office of the Company with the
Secretary of the Company.
Section 7.12. Termination. This Agreement may be terminated at any time by
a written instrument signed by the parties hereto. Unless sooner terminated in
accordance with the immediately preceding sentence or as otherwise expressly
provided in this Agreement, the parties' obligations under this Agreement (other
than Article V hereof) shall terminate in their entirety on the sixth
anniversary of the date hereof, except with respect to rights which have vested
and, in accordance with the terms and subject to the conditions of this
Agreement, have been properly exercised prior to such date.
Section 7.13. No Third-Party Beneficiaries. Nothing herein expressed or
implied is intended to confer upon any Person, other than the parties hereto or
their respective permitted assigns, successors, heirs and legal representatives,
or any indemnified party hereunder, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first written above.
CHI ENERGY, INC.
By:
Name:
Title:
25
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SCHEDULE 1
LIST OF STOCKHOLDERS
1-I
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SCHEDULE 2
LIST OF WARRANTHOLDERS
2-I
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SCHEDULE 3
LIST OF OPTIONHOLDERS
3-I
EMPLOYMENT AGREEMENT
This AGREEMENT, made this ___ day of _______, 1997, by and between
CONSOLIDATED HYDRO, INC. (the "Company"), which will be renamed CHI ENERGY,
INC., a Delaware corporation with its principal office at 680 Washington
Boulevard, Stamford, CT 06901, and _________________ ("Executive"), an
individual residing at ____________________________________________.
WHEREAS, the Company and Executive have entered into an employment
agreement, dated January 1, 1997 (the "Prior Agreement"); and
WHEREAS, in connection with the plan of reorganization of the
Company, the Company and Executive wish to enter into a revised employment
agreement whereby Executive will be employed by the Company in accordance with
the terms and conditions stated below.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive, and Executive
agrees to enter the employ of the Company, for the period stated in Section 3
hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. The Company agrees to employ
Executive in the position of __________ and Executive agrees to serve for the
term and on the conditions hereinafter set forth. The Company will also use its
best efforts to assure Executive's election to the Board of Directors of the
Company. Executive agrees to perform such services not inconsistent with his
position as shall from time to time be assigned to him by the Chief Executive
Officer of the Company, the Company's Board of Directors, or by their respective
designees. Executive further agrees to serve as a Director of the Company and
any subsidiaries of the Company without additional compensation.
3. Term and Duties.
(a) Term of Employment. This Agreement shall become effective and
the terms of employment pursuant to this Agreement shall commence on the
effective date of the plan of reorganization with respect to the Company under
Chapter 11 of the United States Bankruptcy Code (the "Effective Date"), and will
continue through December 31, 2000, unless earlier terminated in accordance with
the provisions hereof; provided, however, that, unless the Company shall have
delivered to Ex-
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ecutive written notice of its intent not to renew this Agreement prior to
January 1, in any year, commencing with January 1, 2000, the term of this
Agreement shall be automatically extended by twelve (12) months from the then
effective expiration date.
(b) Duties. During the period of his employment hereunder Executive
shall serve the Company as its __________, and except for illnesses, vacation
periods and reasonable leaves of absence, Executive shall devote all his
business time, attention, skill and efforts to the faithful performance of his
duties hereunder; provided, however, that with the approval of the Board of
Directors of the Company, from time to time, Executive may serve, or continue to
serve, on the boards of directors of, and hold any other offices or positions
in, companies or organizations, which, in the Board's judgment, will not present
any conflict of interest with the Company or any of its subsidiaries or
affiliates or divisions, or materially affect the performance of Executive's
duties pursuant to this Agreement.
So long as Executive is ______________________, he will discharge
all duties incidental to such office and such further duties as may be
reasonably assigned to him from time to time by the Chief Executive Officer of
the Company, the Company's Board of Directors, or by their respective designees.
(c) Place of Employment. Executive shall perform his duties
hereunder at the Company's Fairfield County, Con- necticut office, and shall
travel to the Company's other offices as may be necessary or appropriate for him
to perform his duties hereunder.
4. Compensation and Reimbursement of Expenses.
(a) Salary. For all services rendered by Executive as
______________________ during his employment under this Agreement, the Company
shall pay Executive as compensation a salary at the annual rates of $_________
in 1997, and $________ per calendar year thereafter. During the period of this
Agreement following 1998, Executive's salary shall be reviewed at least
annually, with the first such annual review in December, 1998. Such review shall
be conducted by the Board of Directors of the Company, or a committee designated
by the Board of Directors (the "Compensation Committee"), and the Board or
Compensation Committee may increase said salary.
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(The salary payable to Executive in any year is referred to herein as the "Base
Salary" for such year.)
(b) Incentive Compensation. For each year during the term of this
Agreement following 1997, the Company shall pay Executive an incentive bonus of
up to 150% of Executive's Base Salary, at the discretion of the Compensation
Committee, upon the achievement of certain targets (which for 1998 shall be set
by the Compensation Committee by December 31, 1997, and for each year following
1998, shall be set by February 15 of such year). Executive's maximum bonus
opportunity of 150% of Base Salary shall be calculated as follows: (i) 50% for
meeting budget targets in the Industrial Infrastructure Business ("IIB"), (ii)
50% for exceeding budget targets in the IIB and (iii) 50% for meeting general
operating targets set by the Compensation Committee. Bonuses shall be payable
upon completion of the annual audit of the Company for the applicable year. In
its discretion, the Compensation Committee may pay Executive by December 31,
1997 an "emergence bonus" of up to 25% of Executive's Base Salary for 1997.
(c) Equity Plan. The Company shall grant to Executive on the
Effective Date a non-qualified stock option to purchase _______ shares of the
Company's Series A Common Stock (the "Common Stock") and an incentive stock
option to purchase 20,000 shares of Common Stock, each at an exercise price
equal to $10.00 per share, pursuant to the terms and conditions of the stock
option agreements attached hereto as Exhibits A and B.
(d) Reimbursement of Expenses. The Company shall pay or reimburse
Executive for all reasonable travel and other expenses incurred by Executive in
performing his obligations under this Agreement. The Company further agrees to
furnish Executive with a private office, private secretary, and such other
assistance and accommodations as shall be suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties.
5. Participation in Benefit Plans. The payments provided in Sections
4 and 6 hereof are in addition to any benefits Executive is entitled to under
any group hospitalization, health, dental care, disability insurance, surety
bond, death benefit plan, travel and/or accident insurance, any other allowance
and/or executive compensation
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plan, including, without limitation, capital accumulation and termination pay
program, restricted or non-restricted stock purchase plan, stock option plan,
retirement income or pension plan, or other present or future group employee
benefit plan or program of the Company for which key executives are or shall
become eligible, and Executive shall be eligible to receive during the period of
his employment under this Agreement, all benefits and emoluments for which key
executives are eligible under every such plan or program in accordance with the
provisions thereof. Notwithstanding the foregoing, except as specifically
provided in Section 4 or 6 hereof (or as provided by the Company as of the
Effective Date) Executive shall not be entitled to receive any additional
benefits or awards under discretionary plans or programs of the Company unless
the Board of Directors of the Company (or the Compensation Committee) exercises
the necessary discretion to provide Executive with such benefits or awards.
6. Benefits Payable Upon Disability or Death.
(a) Disability Benefits. In the event of the disability of Executive
during the term of this Agreement, the Company shall, prior to Executive's
termination of employment and subject to Section 9 hereof, continue to pay
Executive his Base Salary and the other benefits provided in Sections 4, 5 and 6
hereof during the period of his disability; provided, however, that Executive's
disability shall be taken into account by the Compensation Committee in
determining Executive's incentive compensation under Section 4 hereof. In the
event of Executive's termination of employment for "permanent disability", the
Company shall pay Executive his Base Salary and continue to provide the health
and welfare insurance benefits provided to Executive under Section 5 hereof as
of immediately prior to his date of termination (provided Executive continues to
make all required employee contributions) through the remainder of the term of
this Agreement (pursuant to the Company's benefit plans or otherwise), but (i)
Executive shall not be entitled to payment of any further bonuses under Section
4(b), (ii) no further options or other awards shall be granted Executive under
Section 4(c) or shall vest, unless the plan or agreement under which such
options or awards are granted provides otherwise, and (iii) Executive shall be
treated as a terminated employee with respect to the Company's other benefit
plans. To the extent that disability insurance is available on Executive, the
Company shall be permitted to purchase and pay for such insurance. Receipt by
Executive of such disability benefits shall reduce by such amount the
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obligation of the Company to continue Executive's Base Salary under this Section
6(a).
The Company may terminate Executive's employment for "permanent
disability" in the event Executive is unable to perform his duties under this
Agreement as a result of physical or mental illness or injury for an aggregate
of six (6) or more months during any twelve-month period.
(b) Death Benefits. In the event of the death of Executive during
the term of this Agreement, the Company shall pay, or cause to be paid, to
Executive's designated beneficiary or beneficiaries or legal representatives a
death benefit of $1 million. Such death benefit shall be payable in cash in one
lump sum. The Company will purchase one or more term or other similar insurance
policies in amounts to provide for its obligation. To the extent that the life
of Executive is otherwise insured under any employee benefit plan of Company
(other than any travel/accident or double indemnity coverage) the obligation of
the Company under this paragraph shall be reduced by such insurance benefits. If
the Company has not previously insured the life of Executive to the extent of
the death benefit described above, this Section 6(b) will only become effective
fifteen (15) days after a determination has been made that Executive's life is
insurable.
7. Payments to Executive Upon Termination of Employment. Upon
termination of Executive's employment during the term of this Agreement,
Executive (or in the event of his death, his beneficiary, beneficiaries or legal
representatives) shall be entitled to no further compensation hereunder other
than (i) Executive's Base Salary through the date of termination, (ii) any
benefits accrued and vested under the terms of the Company's employee benefit
plans and programs and (iii) any other payments or benefits specifically
provided by this Agreement.
(a) Termination. Upon the occurrence of an event of termination (as
hereinafter defined) during the term of this Agreement, the provisions of this
Section 7(a) and Section 7(b) shall apply. As used in this Agreement, an "event
of termination" shall mean and include any one or more of the following:
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(i) The termination by the Company of Executive's full-time
employment hereunder for any reason other than pursuant to Section 7(c),
or as a result of permanent disability or mandatory retirement; or
(ii) Executive's resignation from the Company's employ, as a result
of any of the following:
A. a material and adverse change by the Company in Executive's
function, duties or responsibilities, without Executive's written
consent, which change would cause Executive's position with the
Company to become one of less dignity, responsibility, importance or
scope from the position and attributes as described in Section 2
above;
B. any liquidation or dissolution of the Company, unless the
voting common equity interests of an ongoing entity (other than a
liquidating trust) are beneficially owned, directly or indirectly,
by the Company's stockholders in substantially the same proportions
as such stockholders owned the Company's outstanding voting common
equity interests immediately prior to such liquidation or
dissolution, and such ongoing entity assumes all existing
obligations of the Company to Executive under this Agreement;
C. a failure to elect, re-elect or appoint Ex-
ecutive to the office of ______________________
(other than as a result of Executive's disability or
his termination of employment pursuant to Section
7(c));
D. any other material breach of this Agreement by the Company
(other than a breach of Section 3(c)); or
E. prior to December 31, 2000, Executive being required to
relocate from Fairfield County, - Connecticut, without Executive's
written consent.
(Upon the occurrence of any event described in clauses A., B., C., D. or E.
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation, upon not less than thirty (30) days' prior
written notice given within a reasonable period of time not to exceed three
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(3) calendar months after the event giving rise to said right to elect); or
(iii) Executive's resignation from the Company's employ during the
30-day period commencing upon the first anniversary of a Change in Control
of the Company, if such Change in Control occurs subsequent to a Public
Offering (or during the 30-day period commencing upon the sixth month
anniversary of a Change in Control of the Company, if such Change in
Control occurs prior to a Public Offering). For purposes of this
Agreement, a Change in Control of the Company means the occurrence of one
of the following events:
A. any "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) becomes, after the Effective Date, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing more than 50% of the Company's then outstanding
securities eligible to vote for the election of the Company's Board
of Directors (the "Company Voting Securities"); provided, that an
event described in this paragraph A. shall not be a Change in
Control if any of the following becomes such a beneficial owner: (1)
the Company or any majority-owned subsidiary of the Company (a
"Subsidiary"), (2) any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary, (3) any
underwriter temporarily holding securities pursuant to an offering
of such securities, (4) any person pursuant to a Non-Qualifying
Transaction (as defined in paragraph B.), (5) Executive or any group
of persons including Executive (or any entity controlled by
Executive or any group of persons including Executive), or (6)
Morgan Stanley & Co. or Swiss Bank Corporation or any entity
controlled by, controlling or under common control with either of
such entities; or
B. the consummation of a merger, consolidation or
reorganization of the Company (a "Business Combination"), unless,
following such Business Combina-
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tion, the owners of the Company Voting Securities immediately prior
to such Business Combination (or their affiliates) beneficially own,
directly or indirectly, 50% or more of the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of the directors of the corporation resulting from such
Business Combination (a "Non-Qualifying Transaction").
The initial public offering of common stock of the Company pursuant to a
registration statement filed under the Securities Act of 1933, as amended (a
"Public Offering"), shall not be treated as a Change in Control for purposes of
this Agreement.
The expiration of the term of this Agreement as a result of the failure to renew
this Agreement shall not be treated as an event of termination under this
Section 7(a).
(b) Severance Upon an Event of Termination. Upon the occurrence of
an event of termination under Section 7(a), the Company shall, subject to the
provisions of Section 9 below, monthly for the duration of the Severance Period
(as defined below) pay Executive or, in the event of Executive's subsequent
death, his beneficiary or beneficiaries or his estate, as the case may be, as
severance pay and liquidated damages the monthly Base Salary paid to Executive
at the time of termination of his employment (the "Severance Payments"). In
addition, following an event of termination under Section 7(a), the Company
shall continue to provide the health and welfare insurance benefits provided to
Executive under Section 5 hereof as of immediately prior to his date of
termination for a period of twelve (12) months following the date of termination
(provided that Executive continues to make all required employee contributions)
and shall compensate Executive for Executive's loss of pension benefits by
providing Executive with a lump sum payment equal to the difference, computed on
the basis of actuarial present values as of Executive's date of termination
(using actuarial assumptions in effect for the Company's defined benefit plan as
of the date of termination) between (1) the aggregate benefits Executive would
have been entitled to receive under the Company's qualified and nonqualified
defined benefit pension plans (the "Retirement Plans"), had Executive's
employment continued under this Agreement for the Severance Period and (2) the
aggregate benefit Executive is actually entitled to receive under the Retirement
Plans as of the date of termination. For purposes of this Agreement, the
"Severance Period"
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shall commence on the date of termination of Executive's employment with the
Company and expire upon the earlier of (i) twenty-four (24) months from the date
of termination and (ii) nine (9) months following the date on which the term of
this Agreement (as in effect as of Executive's date of termination) would have
otherwise expired; provided, that in no event shall the Severance Period be
longer than eighteen (18) months in the event of a termination of employment
pursuant to Section 7(a)(ii) E. hereof. The Severance Payments shall commence on
the last day of the month in which the event of termination occurs; provided,
that the first such payment shall be reduced by the amount of any Base Salary
received by Executive for the portion of such month prior to the event of
termination. Notwithstanding the foregoing, the Company's obligation to provide
severance benefits hereunder shall be reduced by the value of any cash
compensation paid to (or deferred by) Executive with respect to employment or
consulting services performed by Executive during the Severance Period. In the
event Executive receives twelve (12) months of continued welfare benefit
insurance as described above, and the Company's level of self-insurance for
medical benefits (with respect to individual claims in any given year) as of
Executive's date of termination is not more than 10% greater than it is as of
the Effective Date, Executive's coverage period for "COBRA" continuation health
coverage (to the extent Executive is otherwise eligible for coverage) shall
begin upon the expiration of such 12-month period.
(c) Other Termination of Employment. Notwithstanding Sections 7(a)
and (b) or any other provision of this Agreement to the contrary, if on or after
the date of this Agreement and prior to the end of the term hereof:
(i) Executive has been convicted of, or plead guilty or nolo
contendere to, any crime or offense constituting a felony under applicable
law, including, without limitation, any act of dishonesty such as
embezzlement, theft or larceny;
(ii) Executive's commission of a material act of fraud or dishonesty
against the Company or any of its subsidiaries or Executive's willful
engaging in conduct which is significantly injurious to the Company or any
of its subsidiaries, monetarily or otherwise;
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(iii) Executive's abuse of illegal drugs and other controlled
substances or Executive's habitual intoxication, which conduct continues
after written demand for cessation of such conduct is delivered to
Executive by the Board; or
(iv) any willful or continuous neglect of or refusal to perform
Executive's duties or responsibilities or the willful taking of actions
which directly and materially impair Executive's ability to perform his
duties and responsibilities hereunder which continues after detailed
written notice thereof has been given to Executive;
then, and in each such case, the Company shall have the right to give notice of
termination of Executive's services hereunder as of a date (not earlier than 10
days from such notice) to be specified in such notice and this Agreement (other
than the provisions of Sections 8 and 9 hereof) shall terminate on such date.
8. Duties Upon Termination. Executive agrees that he will, upon
termination of his employment with the Company for any reason whatsoever,
deliver to the Company any and all records, forms, contracts, memoranda, work
papers, lists of names or other customer data and any other articles or papers
which have come into his possession by reason of his employment with the Company
or which he holds for the Company, irrespective of whether or not any of said
items were prepared by him, and he shall not retain memoranda or copies of any
of said items. Executive shall assign to the Company all rights to trade secrets
and the products relating to the Company's business developed by him alone or in
conjunction with others at any time alike employed by the Company.
9. Post-Termination Obligations. All payments and benefits to
Executive under this Agreement shall be subject to Executive's compliance with
the following provisions during the Compliance Period, as defined below.
(a) Confidential Information. Executive shall not disclose or reveal
to any unauthorized person any trade secret or other confidential
information relating to the Company, its subsidiaries or its affiliates,
or to any businesses operated by them, including, without limitation, any
customer lists; and Executive confirms that such information constitutes
the exclusive property of the Company. For purposes of this Section 9(a),
the
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"Compliance Period" shall commence on the Effective Date
and continue thereafter.
(b) Competitive Conduct. Executive shall not otherwise act or
conduct himself to the material detriment of the Company, its subsidiaries
or affiliates, or in a manner which is inimical or contrary to the
interests thereof, and shall not engage, directly or indirectly, alone, in
association with or as a shareholder, principal, agent, partner, member,
officer, director, employee or consultant of any person, firm or entity,
in any business within the United States or Canada in competition with any
part of the business being conducted by the Company or its subsidiaries;
provided, however, that Executive's ownership of less than 2 percent of
the outstanding stock of a publicly traded corporation (other than a
corporation engaged primarily in the business of developing or operating
hydroelectric projects) shall not by itself be deemed to constitute such
competition. Executive shall not (i) divert to any entity which is engaged
in any business conducted by the Company or any of its subsidiaries, any
customer of such entities or any project which such entities are pursuing,
developing or attempting to develop as of Executive's date of termination
or (ii) solicit any officer, employee (other than secretarial staff) or
consultant of the Company or any of its subsidiaries to leave the employ
of such entities. Executive recognizes that the possible restrictions on
his activities which may occur as a result of his performance of his
obligations under this Section 9(b) are required for the reasonable
protection of the Company and its investments.
(c) Compliance Period. For purposes of Section 9(b) of this
Agreement, the "Compliance Period" shall commence on the Effective Date.
If an event of termination under Section 7(a) hereof occurs prior to the
expiration of the term of this Agreement, the Compliance Period shall end
on the later of (A) the expiration of six months from the date of
termination of Executive's employment, and (B) the end of the period for
which Executive is entitled to receive Severance Payments. If Executive's
employment by the Company terminates in accordance with Section 7(c)
hereof or if Executive voluntarily terminates employment (other than
pursuant to Sec-
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tion 7(a)(ii)) prior to the expiration of the term of this Agreement, the
Compliance Period shall end on the later of the expiration of the term of
this Agreement and the second anniversary of the termination of
Executive's employment. In all cases other than those described in the two
preceding sentences, the Compliance Period shall end on the expiration of
the term of this Agreement.
(d) Failure of Executive to Comply. If for any reason other than
death or disability, Executive shall, without written consent of the
Company, fail to comply with the provisions of Section 9(a) or 9(b) above,
his rights to any future payments or other benefits hereunder shall
terminate, and the Company's obligations to make such payments and provide
such benefits shall cease; provided, however, that no failure to comply
with any provision of Section 9(a) or 9(b) above shall be deemed to have
occurred unless and until Executive receives written notice from the
Company specifying the conduct alleged to constitute such failure.
(e) Remedies. Executive agrees that monetary damages would not be
adequate compensation for any loss incurred by the Company by reason of a
breach of the provisions of Sections 8 and 9 of this Agreement and hereby
agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate. Accordingly, in addition to any other
remedies that the Company may have at law or in equity, Company shall have
the right to have all obligations, agreements and other provisions of
Sections 8 and 9 specifically performed by Executive, and the Company
shall have the right to obtain preliminary injunctive relief to secure
specific performance and to prevent a breach of Section 8 or 9.
10. Effect of Prior Agreements. This Agreement contains the entire
understanding between the parties hereto and, upon effectiveness of this
Agreement pursuant to Section 3(a) hereof, supersedes all prior employment
agreements between the Company and Executive (including without limitation the
Prior Agreement), except that this Agreement shall not affect or operate to
reduce any benefit or compensation inuring to Executive of a kind elsewhere
provided and not expressly provided in this Agreement (other than benefits set
forth in the Prior Agreement or in Executive's guaranteed minimum bonus
arrangement which Executive acknowledges has been terminated).
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11. General Provisions.
(a) Binding Agreement. This Agreement shall be binding upon, and
inure to the benefit of Executive and the Company and their respective permitted
successors and assigns.
(b) Legal Expenses. In the event that Executive incurs legal
expenses in contesting any provision of this Agreement and such contest results
in a determination that the Company has breached any of its obligations
hereunder, Executive shall be reimbursed by the Company for any such legal
expenses reasonably incurred.
(c) Mitigation. Executive shall not be obligated to seek other
employment or take any other action to mitigate any severance benefits
hereunder.
12. Successors and Assigns.
(a) Assignment by the Company. This Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Company and,
unless clearly inapplicable, reference herein to the Company shall be deemed to
include its successors and assigns.
(b) Assignment by Executive. Executive may not assign this Agreement
in whole or in part.
13. Modification and Waiver.
(a) Amendment of Agreement. Except for increases in compensation
made as provided in Section 4(a), this Agreement may not be changed or modified
except by an instrument in writing signed by both of the parties hereto.
(b) Waiver. No term or condition of this Agreement shall be deemed
to have been waived, nor shall there be any estoppel against the enforcement of
any provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
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14. Beneficiaries. This Agreement shall be for the express benefit
of the Company, Executive and, for so long as Morgan Stanley & Co. or Swiss Bank
Corporation or their successors shall be a holder of at least 3% of the equity
of the Company, Morgan Stanley & Co. or Swiss Bank Corporation
(or their successors), as the case may be.
15. Severability. In the event any provision of this Agreement or
any part hereof is held invalid, such invalidity shall not affect any remaining
part of such provision or any other provision, and to this end, the provisions
of this Agreement are intended to be and shall be deemed severable. If any court
construes any provision of this Agreement to be illegal, void or unenforceable
because of the duration or the area or matter covered thereby, such court shall
reduce the duration, area or matter of such provision, and, in its reduced form,
such provision shall then be enforceable and shall be enforced.
16. Withholding. Employer may withhold from any amounts payable
under this Agreement such taxes and governmen- tally required withholdings as
may be required to be withheld pursuant to any applicable law or regulation.
17. Notices. Any notice to be given hereunder shall be in writing
and shall be deemed given when delivered personally, sent by courier or telecopy
or registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice of hereunder in writing:
To Executive at:
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To the Company at:
680 Washington Boulevard
Stamford, CT 06901
Attention: Controller
18. Governing Law. The parties hereto intend that this Agreement
shall be governed by the laws of the State of Connecticut.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and Executive has signed this
Agreement, all as of the day and year first above written.
CONSOLIDATED HYDRO, INC.
By:
Title:
[Executive]
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CHI ENERGY, INC.
1997 STOCK OPTION PLAN
1. ESTABLISHMENT OF PLAN; DEFINITIONS
1.1. Purpose. The CHI Energy, Inc. 1997 Stock Option Plan is intended to provide
an incentive to key employees of CHI Energy, Inc. (the "Corporation") who are in
a position to contribute materially to the long-term success of the Corporation,
to increase their interest in the Corporation's welfare, and to aid in
attracting and retaining employees of outstanding ability. This Plan replaces
the Consolidated Hydro, Inc. Amended and Restated 1992 Stock Option Plan, which
has been terminated and all options thereunder cancelled.
1.2. Definitions. Unless the context indicates otherwise,
the following terms shall have the meanings set forth below:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Cause" with respect to a Grantee shall mean any of the following
events:
(1) the Grantee has been convicted of, or plead guilty or nolo
contendere to, any crime or offense constituting a felony
under applicable law, including, without limitation, any act
of dishonesty such as embezzlement, theft or larceny;
(2) the Grantee's commission of a material act of fraud or
dishonesty against the Corporation or any of its Subsidiaries
or the Grantee's willful engaging in conduct which is
significantly injurious to the Corporation or any of its
Subsidiaries, monetarily or otherwise;
(3) the Grantee's abuse of illegal drugs and other controlled
substances or the Grantee's habitual intoxication, which
conduct continues after written demand for cessation of such
conduct is delivered to the Grantee by the Committee or the
Board; or
(4) the Grantee's willful or continuous neglect of or refusal to
perform the Grantee's duties or responsibilities with respect
to the Corporation or the Grantee's willful taking of actions
which directly and materially impair
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the Grantee's ability to perform his duties and
responsibilities which continues after detailed written notice
thereof has been given to the Grantee.
(c) "Change in Control" shall mean the occurrence of any of the
following events:
(1) any "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) becomes, after the Effective
Date, the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of
the Corporation representing more than 50% of the
Corporation's then outstanding securities eligible to vote for
the election of the Corporation's Board (the "Corporation
Voting Securities"); provided, that an event described in this
paragraph (1) shall not be a Change in Control if any of the
following becomes such a beneficial owner: (A) the Corporation
or any Subsidiary, (B) any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any
Subsidiary, (C) any underwriter temporarily holding securities
pursuant to an offering of such securities, (D) any person
pursuant to a Nonqualifying Transaction (as defined in
paragraph (2)), or (E) Morgan - Stanley & Co. or Swiss Bank
Corporation or any entity controlled by, controlling or under
common control with either of such entities; or
(2) the consummation of a merger, consolidation or reorganization
of the Corporation (a "Business Combination"), unless,
following such Business Combination, the owners of the
Corporation Voting Securities immediately prior to such
Business Combination (or their affiliates) beneficially own,
directly or indirectly, 50% or more of the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of the directors of the
corporation resulting from such Business Combination (a
"Nonqualifying Transaction").
An Initial Public Offering shall not be treated as a Change in
Control hereunder.
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(d) "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
(e) "Committee" shall mean the Compensation Committee of the Board or
other committee of the Board designated to administer the Plan.
(f) "Common Stock" shall mean authorized but unissued shares of the
Class A common stock, par value $.01 per share, of the Corporation,
as constituted on the Effective Date.
(g) "Disability" shall mean (i) with respect to a Nonqualified Stock
Option, a Grantee's physical or mental illness or injury as a result
of which the Grantee is unable to perform such Grantee's duties for
an aggregate of six or more months during any twelve-month period
and (ii) with respect to an Incentive Stock Option, a Grantee's
disability within the meaning of Code Section 22(e)(3).
(h) "Effective Date" shall have the same meaning as set forth in the
Plan of Reorganization.
(i) "Employee" shall mean any common law employee, including officers,
of the Corporation or any of its Subsidiaries.
(j) "Extraordinary Distribution" shall have the same meaning as set
forth in the Warrant Agreement.
(k) "Fair Market Value" shall mean (1) if the Common Stock is traded on
an established securities exchange or market, the average of the
mean between the high and low prices of the Common Stock for the
last trading date on which there was a sale of Common Stock
immediately preceding the date of determination of Fair Market
Value, as reported on the composite tape, and (2) if the Common
Stock is not so traded, the fair market value of the Common Stock as
determined by the Committee, in its sole and absolute discretion
acting in good faith, on the basis of a review of the facts and
circumstances at the time, which determination shall be final and
binding for all purpose of this Plan.
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(l) "Grantee" shall mean an Employee granted an outstanding Stock
Option.
(m) "Incentive Stock Option" shall mean a Stock Option designed as an
incentive stock option, as such term is used in Section 422 of the
Code, at the time of grant under this Plan. To the extent any
Incentive Stock Option no longer qualifies as an Incentive Stock
Option it shall be treated as a Nonqualified Stock Option.
(n) "Nonqualified Stock Option" shall mean a Stock Option other than an
Incentive Stock Option.
(o) "Plan" shall mean this CHI Energy, Inc. 1997 Stock Option Plan as
set forth herein and as amended from time to time.
(p) "Plan of Reorganization" shall mean the plan of reorganization dated
[ ], 1997, under Chapter 11 of the United States Bankruptcy Code
with respect to the Corporation, as amended from time to time.
(q) "Public Offering" shall mean the consummation of the initial public
offering of Common Stock pursuant to a registration statement filed
under the Securities Act of 1933, as amended.
(r) "Stock Option" shall mean an option granted pursuant to the Plan to
purchase shares of Common Stock.
(s) "Stock Option Agreement" shall mean an option agreement executed
between the Corporation and a Grantee relating to the grant of a
Stock Option.
(t) "Stockholders' Agreement" shall mean the agreement, dated
___________, by and among the Corporation and each of the
stockholders of the Corporation, as amended from time to time.
(u) "Subsidiary" shall, with respect to the Corporation, have the
meaning ascribed to such term in Section 424 of the Code.
(v) "Ten Percent Shareholder" shall mean an Employee who at the time a
Stock Option is granted owns stock possessing more than ten percent
(10%) of the total combined voting power of all stock of the
Corporation or of its parent or Subsidiaries.
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(w) "Warrant Agreement" shall mean the Series B Warrant Agreement, dated
, 1997, between the Corporation and , as Warrant Agent, as in effect
on the date hereof.
2. PLAN ADMINISTRATION AND DURATION
2.1. Administration of the Plan. The Plan shall be administered by the Committee
or by any officer to whom the Committee specifically delegates authority.
Subject to the express provisions of the Plan, the Committee shall have
authority in its sole discretion to interpret the Plan, to prescribe, amend and
rescind rules relating to the Plan, to select Employees eligible to receive
Stock Options, to designate the type of, and number of shares of Common Stock
subject to, Stock Options, to
determine the terms and provisions of Stock Option Agreements, and to make all
other determinations necessary or advisable for the administration of the Plan.
All decisions made by the Committee or any appropriately designated officer
shall be final and binding on the Company and Grantees.
2.2. Determination of Fair Market Value. In the event the Common Stock is not
traded on an established securities market or exchange, the Committee will as
soon as practicable following the Effective Date determine the Fair Market Value
that shall apply for all purposes of this Plan and for the 6-month period
following such determination; provided, however, that the Committee shall reset
such Fair Market Value during such 6-month period in the event of the occurrence
of any material event with respect to the Corporation. The determination of Fair
Market Value by the Committee shall be final and binding. Stock Options
outstanding as of such date shall not be affected or impaired by termination of
the Plan.
2.3. Duration of the Plan. The Plan shall become effective upon its approval by
the Board; provided, however, that no Stock Options shall be granted prior to
the Effective Date. Unless earlier terminated pursuant to Section 2.4 hereof,
this Plan shall terminate at the close of business on July 31, 2007. Stock
Options outstanding as of such date of termination shall not be adversely
affected or impaired by the termination of the Plan.
2.4. Amendment or Termination. At any time the Board may alter, amend, suspend,
discontinue or terminate this Plan; provided, however, that such action shall
not, without the consent of a Grantee, materially and adversely affect or
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impair the rights of such Grantee with respect to Stock Options previously
granted or reduce the number of Stock Options previously granted to such Grantee
(other than pursuant to Section 4.2); and provided, further, that no amendment
shall be made without the approval of the stockholders of the Corporation if
such approval is required by applicable law, regulation or stock exchange rule.
3. STOCK OPTIONS
3.1. Common Stock Subject to the Plan. Subject to Section 4 hereof, the Common
Stock which is subject to outstanding but unexercised Stock Options or may be
issued or transferred pursuant to Stock Options shall not exceed 810,811 shares
in the aggregate. If a Stock Option expires and terminates for any reason, in
whole or in part, without being exercised, the number of shares of Common Stock
as to which such expired or terminated Stock Option shall not have been
exercised may again become available for the grant of Stock Options.
3.2. Granting of Stock Options. Each Stock Option shall be subject to such
terms and conditions consistent with the Plan as the Committee may impose from
time to time, subject to the limitations below.
(a) Eligibility. Only key Employees of the Corporation shall be eligible
to receive Stock Options under the Plan. The Committee shall have
the authority to grant to any such Employee one or more Incentive
Stock Options, Nonqualified Stock Options, or both types of Stock
Options; provided, however, that Incentive Stock Options may only be
granted to employees described in Treasury Regulation Section
1.421-7(h) of the Corporation or any Subsidiary within the meaning
of Section 424(f) on the grant date.
(b) Exercise Price. The exercise price of each share of Common Stock
subject to a Stock Option shall not be less than 100% of the Fair
Market Value of a share of Common Stock on the date the Stock Option
is granted, except as determined by the Committee in the case of any
Nonqualified Stock Option. In the case of an Incentive Stock Option,
the exercise price of each share of Common Stock subject to such
Stock Option granted to a Ten Percent Shareholder shall not be less
than 110% of the Fair Market Value of a share of Common Stock on the
date the Incentive Stock Option is granted.
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(c) Period of Exercisability. The Committee, in its sole discretion,
shall determine whether any particular Stock Option shall become
exercisable in one or more installments, specify the installment
dates, and, within the limitations herein provided, determine the
duration of the period during which the Stock Option is exercisable.
No Stock Option shall be exercisable more than ten years from the
date the Stock Option was granted; provided, however, that an
Incentive Stock Option granted to a Ten Percent Shareholder shall
not be exercisable more than five years from the date the Incentive
Stock Option was granted.
(d) Grant of Options. The Committee shall determine and designate from
time to time those Employees who are to be granted Stock Options,
specify the number of shares of Common Stock subject to each Stock
Option and the exercise price of such Stock Option, and designate
the type of Stock Option (i.e., Incentive Stock Option or
Nonqualified Stock Option) being granted.
(e) Limitations on Incentive Stock Options. Notwithstanding other
provisions hereof, in the case of Incentive Stock Options, to the
extent that the aggregate Fair Market Value (determined as of the
time an Incentive Stock Option is granted) of the Common Stock with
respect to which Incentive Stock Options are exercisable for the
first time by any Grantee during any calendar year (under all
incentive stock option plans of the Grantee's employer corporation
and its parent and subsidiary corporations) exceeds $100,000, the
later-granted of such Stock Options shall be treated as Nonqualified
Stock Options. Further, the Committee may make such other provisions
as may appear generally acceptable or desirable to the Committee or
necessary to qualify its grants of Incentive Stock Options under the
provisions of Section 422 of the Code.
(f) Additional Grants. The Committee may grant at any time new Stock
Options to an Employee who has previously received Stock Options or
other options, whether such prior Stock Options or other options are
still outstanding, have previously been exercised in whole or in
part, or are cancelled in
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connection with the issuance of new Stock Options. The exercise
price of the new Stock Options may be established by the Committee
without regard to the existing Stock Options or other options.
(g) Committee Discretion. The Committee may prescribe, in the applicable
Stock Option Agreement, such other terms and conditions with respect
to the Stock Option granted thereby or Common Stock acquired
thereunder as it deems appropriate.
3.3. Exercise of Stock Options. The exercise price of a Stock Option shall be
payable on exercise, at the Grantee's option, (i) in cash or by certified or
cashier's check, bank draft or postal or express money order, (ii) by the
surrender of Common Stock then owned by the Grantee (to the extent permitted by
the Committee), and (iii) partially in accordance with clause (i) and partially
in accordance with clause (ii) of this Section 3.3. Shares of Common Stock so
surrendered in accordance with clause (ii) or (iii) shall be valued at the Fair
Market Value thereof on the date of exercise, surrender of such Common Stock to
be evidenced by delivery of the certificate(s) representing such shares in such
manner, and endorsed in such form, or accompanied by stock powers endorsed in
such form, as the Committee may determine. No fractional shares of Common Stock
shall be permitted to be surrendered.
3.4. Termination of Employment.
(a) Disability or Retirement. If a Grantee's employment with the
Corporation or with a Subsidiary is terminated by reason of
Disability or pursuant to a then existing Corporation or Subsidiary
retirement policy ("Retirement"), any Stock Option held by the
Grantee on the date of such termination of employment shall (i) to
the extent exercisable on such date, remain exercisable until the
earlier of the date on which such Stock Option would otherwise
expire or the first anniversary of the Grantee's last date of
employment, and (ii) to the extent not exercisable on such date, be
immediately forfeited on the Grantee's last date of employment.
(b) Death. If a Grantee's employment with the Corporation or with a
Subsidiary is terminated by reason of death, the representative of
the estate or beneficiaries thereof to whom the Stock Option has
been transferred shall have the right to exercise any then
outstanding and exercisable Stock Options
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in whole or in part until the first anniversary of the Grantee's
death. If a Grantee dies after termination of employment and prior
to the expiration of the Stock Options held by such Grantee, without
having fully exercised any then exercisable Stock Options, the
representative of the estate or beneficiaries thereof to whom the
Stock Option has been transferred shall have the right to exercise
such options in whole or in part until the first anniversary of the
Grantee's death. The number of shares of Common Stock in respect of
which a Stock Option may be exercised after a Grantee's death shall
be the number of shares in respect of which such Stock Option could
be exercised as of the date of the Grantee's death or termination,
whichever occurs first. Notwithstanding the foregoing, in no event
may the period for exercising a Stock Option extend beyond the date
on which such Stock Option would otherwise have expired.
(c) Cause. If a Grantee's employment with the Corporation or a
Subsidiary is terminated and such termination is for Cause or,
within 90 days following such termination, the Board determines
(after written notice to the Grantee describing the reasons for the
Board's determination) that the Grantee could have been terminated
for Cause under paragraph (1) or (2) of Section 1.2(b), all Stock
Options held by the Grantee on the date of termination of employment
shall be immediately forfeited as of such date.
(d) Other Reasons. If a Grantee's employment with the Corporation and
its Subsidiaries is terminated for any reason other than as
described in Paragraphs (a) through (c) above, except as specified
by the Committee in an applicable Stock Option Agreement, any Stock
Option held by the Grantee shall (i) to the extent exercisable on
such date, remain exercisable until the earlier of the date on which
such Stock Option would otherwise expire or the 120th day following
the Grantee's last date of employment, and (ii) to the extent not
exercisable on such date, be immediately forfeited on the Grantee's
last date of employment.
(e) Committee Discretion to Accelerate. The Committee
may, in its sole discretion, provide that any or all
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unexercisable Stock Options held by a Grantee on the date of
termination of employment shall become immediately exercisable and
remain exercisable until a date that occurs on or prior to the date
the Stock Option would otherwise expire.
3.5. Change in Control. If there is a Change in Control of the Corporation, all
outstanding Stock Options shall become immediately vested and exercisable.
3.6. Exercise Prior to Public Offering. In the event a Stock Option is exercised
prior to a Public Offering and (a) such exercise occurs subsequent to the
Grantee's termination of employment from the Corporation and its Subsidiaries
for Cause or pursuant to a voluntary termination or (b) such exercise occurs
prior to the Grantee's termination of employment for Cause or pursuant to a
voluntary termination, but the Grantee does not dispose of the shares of Common
Stock received upon such exercise prior to his termination of employment, the
Corporation shall have the right during the thirty-day period following the
later to occur of such Grantee's exercise of the Option or termination of
employment to purchase for cash the Common Stock received upon such exercise at
a price equal to Fair Market Value. Notwithstanding anything else contained in
this Section 3.6, upon the occurrence of a Public Offering any right pursuant to
this Section 3.6 to purchase Common Stock received upon the exercise of a Stock
Option shall terminate, and no such right may be exercised during the 90-day
period prior to the scheduled date of a Public Offering.
3.7. Cancellation of Stock Options; Return of Value. The Board may, in its
reasonable discretion, in the event a Grantee Option Agreement or in any other
agreement with the Corporation, cancel any Stock Option in whole or in part,
whether or not vested, and may require the Grantee to return to the Corporation
the gain with respect to any Stock Option exercise within the six-month period
prior to the Board's action. The determination of whether a Grantee has violated
a non-competition provision shall be determined by the Board in good faith and
in its reasonable discretion. This Section 3.7 shall not apply during the
two-year period immediately following a Change in Control.
4. GENERAL PROVISIONS
4.1. Maximum Number of Underlying Shares. The maximum aggregate number of shares
of Common Stock underlying Stock Options that may be granted to any Participant
during the term of the Plan shall be 350,000, subject to adjustment as provided
in
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this Section 4. For purposes of the preceding sentence, stock options that are
cancelled or repriced shall continue to be counted in determining the number of
shares of Common Stock underlying Stock Options granted to a Grantee.
4.2. Adjustment Provisions.
(a) If the shares of Common Stock outstanding are changed in number or
class by reason of a split-up, merger, consolidation,
reorganization, reclassification, recapitalization, or any capital
adjustment, including a stock dividend, or if any distribution is
made to the holders of common stock other than a regular cash
dividend, then
(i) the aggregate number and class of shares or other securities that may
be issued or transferred pursuant to Sections 2.1 and 4.1 hereof,
(ii) the number and class of shares or other securities which are subject
to outstanding Stock Options, and
(iii) the exercise price to be paid per share under outstanding Stock
Options,
shall be adjusted as provided hereinafter.
(b) Adjustments under this Section 4.2 shall be made in
an equitable manner by the Committee to preserve the
value of Stock Options, whose determination as to
what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive,
provided that adjustments affecting Incentive Stock
Options shall be made in a manner consistent with
the requirements of Sections 422 and 424 of the
Code. Notwithstanding the foregoing, the operation
of this Section 4.2 should be consistent with the
operation of Section 6 of the Warrant Agreement.
(c) Notwithstanding anything to the contrary in this Section 4.2, if the
Corporation shall pay or distribute an Extraordinary Distribution in
cash or other property, the exercise price of outstanding Stock
Options shall be adjusted downward in an amount equal to the per
share (computed on the basis of the number of shares then
outstanding) dollar
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amount of the Extraordinary Distribution (or shall be adjusted by
the Committee in conjunction with an adjustment to the number of
shares subject to such Stock Options in order to preserve the value
of such Stock Options).
4.3. General.
(a) Each Stock Option shall be evidenced by a written instrument
containing such terms and conditions, not inconsistent with this
Plan, as the Committee shall approve.
(b) The granting of a Stock Option in any year shall not give the
Grantee any right to similar grants in future years or any right to
be retained in the employ of the Corporation, and all Employees
shall remain subject to discharge to the same extent as if the Plan
were not in effect.
(c) No Employee, and no beneficiary or other person - claiming under or
through the Employee, shall have any right, title or interest by
reason of any Stock Option to any particular assets of the
Corporation, or any shares of Common Stock allocated or reserved for
the purposes of the Plan or subject to any Stock Option except as
set forth herein. The Corporation shall not be required to establish
any fund or make any other segregation of assets to satisfy its
obligations under this Plan.
(d) No right under the plan shall be subject to transfer, anticipation,
sale, assignment, pledge, encumbrance, or charge, except by will or
by the laws of descent and distribution, and a Stock Option shall be
exercisable during the Grantee's lifetime only by the Grantee or, in
the case of the Grantee's Disability or incapacity, his guardian or
legal representative.
(e) Notwithstanding any other provision of this Plan or agreements made
pursuant thereto, the Corporation's obligation to issue or deliver
any certificate or certificates for shares of Common Stock under a
Stock Option, and the transferability of Common Stock acquired by
exercise of a Stock Option, shall be subject to all of the following
conditions:
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(i) Any registration or other qualification of such shares under
any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which
the Board shall, in its absolute discretion upon the advice of
counsel, deem necessary or advisable;
(ii) The obtaining of any other consent, approval, or permit from
any state or federal governmental agency which the Board
shall, in good faith upon the advice of counsel, determine to
be necessary or advisable;
(iii) Compliance with the terms and provisions of the Stockholders
Agreement, if and to the extent such agreement is still in
full force and effect; and
(iv) Each stock certificate issued pursuant to the exercise of a
Stock Option shall bear a legend substantially in the
following form, in addition to any legends required by the
Stockholders Agreement:
"The transferability of this certificate and the shares of Common
Stock represented hereby are subject to restrictions, terms and
conditions contained in the CHI Energy, Inc. 1997 Stock Option Plan
and that certain Stockholders' Agreement, dated , 1997, which may be
amended from time to time. Copies of the Plan and the Stockholders'
Agreement are on file in the office of the Secretary of CHI Energy,
Inc."
(f) All payments to Grantees or to their legal represen- tatives shall
be subject to any applicable tax, community property, or other
statutes or regulations of the United States or of any state having
jurisdiction thereof. The Grantee may be required to pay to the
Corporation the amount of any withholding taxes which the
Corporation is required to withhold with respect to a Stock Option
or its exercise. In the event that such payment is not made when
due, the Corporation shall have the right
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to deduct, to the extent permitted by law, from any payment of any
kind otherwise due to such person all or part of the amount required
to be withheld.
(g) In the case of a grant of a Stock Option to any Em- ployee of a
Subsidiary of the Corporation, the Corporation may, if the Committee
so directs, issue or transfer the shares, if any, covered by the
Stock Option to the Subsidiary, for such lawful consideration as the
Committee may specify, upon the condition or understanding that the
Subsidiary will transfer the shares to the Employee in accordance
with the terms of the Stock Option specified by the Committee
pursuant to the provisions of the Plan.
(h) A Grantee entitled to Common Stock as a result of the exercise of a
Stock Option shall not be deemed for any purpose to be, or have
rights as, a share- holder of the Corporation by virtue of such
exercise, except to the extent a stock certificate is issued
therefor and then only from the date such certificate is issued.
Except as specifically provided for herein, no adjustments shall be
made for dividends or distributions or other rights for which the
record date is prior to the date such stock certificate is issued.
(i) This Plan will be governed by and construed in accordance with the
laws of the State of Delaware, without regard to its conflicts of
laws principles.
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EXHIBIT A
---------
NONQUALIFIED STOCK OPTION AGREEMENT
-----------------------------------
AGREEMENT made on __________ ____, 1997, by and between CHI Energy,
Inc., a ________ corporation (the "Corporation") and _______________ (the
"Optionee").
WHEREAS, the Corporation has adopted the CHI Energy,
Inc. 1997 Stock Option Plan (the "Plan"); and
WHEREAS, the Corporation desires to grant to the Optionee an option
under the Plan to acquire an aggregate of __________ shares of the Corporation's
Class A common stock (the "Common Stock"), on the terms set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall
have the meaning set forth in the Plan.
2. Grant of Option. The Optionee is hereby granted, effective upon
the consummation of the Plan of Reorganization (the "Grant Date"), a
nonqualified stock option (the "Option") to purchase an aggregate of ________
shares of Common Stock, pursuant to the terms of this Agreement and the
provisions of the Plan.
3. Option Price. The exercise price of the Option shall be $10.00
per share of Common Stock issuable thereunder.
4. Conditions to Exercisability. (a) The Option shall be exercisable
on the Grant Date as to 33.33% of the shares initially covered thereby and as to
as to an additional 22.22% of such shares on December 31 of each of 1998, 1999
and 2000.
(b) The Option shall become exercisable in full upon a Change
in Control of the Corporation.
(c) Upon the Optionee's termination of employment, the Option
shall be exercisable solely to the extent of its exercisability as of the date
of termination.
5. Option Period. The Option shall have a 7-year term, and shall
expire upon the first to occur of: (a) the seventh anniversary of the Grant
Date; (b) the Optionee's termination of employment with the Corporation or any
Subsidiary
<PAGE>
for Cause (or subsequent determination of Cause as set forth in Section 3.4(c)
of the Plan); (c) 120 days following termination of employment with the
Corporation and its Subsidiaries for any reason other than death, Disability,
Retirement or Cause; and (d) 1 year after termination of employment due to
death, Disability, or Retirement. Notwithstanding the foregoing, if the
Optionee's death occurs following the Optionee's termination of employment, the
Option shall remain exercisable to the extent exercisable as of the date of
death until the first anniversary of such death, unless the term of the Option
otherwise expires.
6. Exercise of Option. (a) The Option shall be exercised in the
following manner: the Optionee, or the person or persons having the right to
exercise the Option upon the death or Disability of the Optionee, shall deliver
to the Corporation written notice, in the form attached as Exhibit A hereto,
specifying the number of shares of Common Stock elected to be purchased. The
Optionee (or such other person) must include with such notice full payment of
the exercise price for the Common Stock being purchased pursuant to such notice.
Payment of the exercise price must be made in cash, by certified or cashier's
check, bank draft, or postal or express money order or, if permitted by the
Committee, in shares of Common Stock then owned by the Optionee having a Fair
Market Value on the date of exercise equal to such exercise price, or in a
combination thereof.
(b) As a condition of exercise of the Option, the Optionee will, no
later than the date of exercise, pay to the Corporation or make arrangements
satisfactory to the Committee regarding payment of any federal, state or local
taxes of any kind required by law to be withheld upon the exercise of the
Option. Such payment may be made by the Optionee, if permitted by the Committee,
with shares of Common Stock (whether previously owned by the Optionee or
issuable upon the exercise of the Option) having a Fair Market Value equal to
the amount of such taxes. In the event the Optionee does not pay to the
Corporation any such taxes, or make arrangements satisfactory to the Committee
regarding the payment of such taxes, the Committee shall be permitted to deduct,
to the extent permitted by law, any such taxes required to be withheld upon the
exercise of the Option award from any payment of any kind due to the Optionee.
(c) If the Plan or any law, regulation or interpretation requires
the Corporation to take any action regarding the Common Stock, before the
Corporation issues certificates for the Common Stock being purchased, the
Corporation may
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delay delivering the certificates for the Common Stock for the period necessary
to take such action, as described in the Plan. The certificate or certificates
representing the Common Stock acquired pursuant to the Option may bear a legend
restricting the transfer of such Common Stock, as described in the Plan, and the
Corporation may impose stop transfer instructions to implement such
restrictions, if applicable.
(d) The Optionee will not be deemed to be a holder of any shares
pursuant to exercise of the Option until the date of the issuance of a stock
certificate to the Optionee for such shares of Common Stock and until the shares
of Common Stock are paid for in full.
(e) The Optionee acknowledges receipt of a copy of the Stockholders'
Agreement and hereby agrees that as a condition to receiving Common Stock
pursuant to the exercise of the Option, the Optionee shall upon exercise of the
Option execute, and become a party to, the Stockholders' Agreement, as amended
from time to time, and be bound by the obligations of and entitled to the rights
afforded stockholders thereunder.
(f) The Corporation hereby agrees that in the event of a proposed
"Tag-Along Sale" (as defined in the Stockholders' Agreement), it will comply
with the terms of Section 3.3(c) of the Stockholders' Agreement with respect to
the Optionee to the extent such Section 3.3(c) is applicable to the Optionee.
7. Transferability. Except as provided below, the option rights
herein are personal to the Optionee and shall not be subject to transfer,
anticipation, sale, assignment, pledge, encumbrance or charge, except by will or
by the laws of descent and distribution, and may be exercised during the
Optionee's lifetime only by the Optionee or in the case of the Optionee's
Disability or incapacity, his guardian or legal representative. Upon notifying
the Committee, the Optionee may transfer all or part of the Option to the
Optionee's spouse, children or grandchildren ("Immediate Family), any trust
solely for the benefit of the Optionee's Immediate Family, or any partnership
whose only partners are members of the Optionee's Immediate Family. Any such
transferee shall remain subject to all of the terms and conditions applicable to
such Option prior to such transfer, and may not transfer such Option or any
interests in any such trust or partnership other than by will or by the laws of
descent and distribution or to the Optionee's Immediate Family.
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8. Exercise Prior to Public Offering. In the event the Option is
exercised prior to a Public Offering and (a) such exercise occurs subsequent to
the Optionee's termination of employment for Cause or pursuant to a voluntary
termination or (b) such exercise occurs prior to the Optionee's termination of
employment for Cause or pursuant to a voluntary termination, but the Optionee
does not dispose of the shares of Common Stock received upon such exercise prior
to his termination of employment, the Corporation shall have the right during
the 30-day period following the later to occur of such Optionee's exercise of
the Option or termination of employment to purchase for cash the Common Stock
received upon such exercise at a price equal to Fair Market Value.
Notwithstanding anything else contained in this Section 8, upon the occurrence
of a Public Offering any right pursuant to this Section 8 to purchase Common
Stock received upon the exercise of a Stock Option shall terminate, and no such
right may be exercised during the 90-day period prior to the scheduled date of a
Public Offering.
9. Cancellation of Stock Options; Return of Value. The Board may, in
its reasonable discretion, in the event the Optionee breaches Section 10, cancel
the Option in whole or in part, whether or not vested, and may require the
Optionee to return to the Corporation the gain with respect to any exercise of
the Option within the 6-month period prior to the Board's action. The
determination of whether the Optionee has breached Section 10 shall be
determined by the Board in good faith and in its reasonable discretion. This
Section 9 shall not apply during the 2-year period immediately following a
Change in Control.
10. Non-Competiton. During the Optionee's employment with the
Corporation and for 1 year following the Option- ee's termination of employment
with the Corporation, the Optionee shall not engage, directly or indirectly,
alone, in association with or as a shareholder, principal, agent, partner,
member, officer, director, employee or consultant of any person, firm or entity,
in any business within the United States or Canada in competition with any part
of the business being conducted by the Corporation or its subsidiaries;
provided, however, that Executive's ownership of less than 2 percent of the
outstanding stock of a publicly traded corporation (other than a corporation
engaged primarily in the business of developing or operating hydro-electric
projects) shall not by itself be deemed to constitute such competition. In the
event the Optionee has entered into any other non-competition agreements with
the Corporation (including any provisions in an employment agreement), the
non-competition and non-
-4-
<PAGE>
solicitation covenants of such agreement shall be substituted for the
requirements of this Section 10 and a breach of such covenants shall be treated
as a breach of this Section 10 for purposes of enforcing Section 9 of this
Agreement.
11. Subject to Plan Provisions. The option rights herein granted are
in all respects subject to the provisions set forth in the Plan (including, but
not limited to, the adjustment provisions of Section 4.2 of the Plan) to the
same extent and with the same effect as if set forth fully herein, and to such
actions relating to the Plan as may be taken from time to time by the Committee.
12. No Employment Rights. The granting of the option rights
hereunder shall not be construed as giving to the Optionee any right to be
retained in the employ of the Corporation or any Subsidiary or affiliate of the
Corporation.
13. Representations. (a) The Corporation represents and warrants
that this Agreement has been authorized by all necessary corporate action of the
Corporation and is a valid and binding agreement of the Corporation enforceable
against them in accordance with its terms.
(b) The Optionee represents and warrants that the Optionee is
not a party to any agreement or instrument which would prevent him from entering
into or performing his duties in any way under this Agreement.
14. Entire Agreement. This Agreement contains all the understandings
between the parties hereto pertaining to the matters referred to herein, and
supersedes all undertakings and agreements, whether oral or in writing,
previously entered into by them with respect thereto. The Optionee represents
that, in executing this Agreement, he does not rely and has not relied upon any
representation or statement not set forth herein made by the Corporation with
regard to the subject matter, bases or effect of this Agreement or otherwise.
15. Amendment or Modification, Waiver. No provision of this
Agreement may be amended or waived unless such amendment or waiver is agreed to
in writing and, signed by the Optionee and by a duly authorized officer of the
Corporation. No waiver by any party hereto of any breach by another party hereto
of any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar condition or provision
at the same time, any prior time or any subsequent time.
-5-
<PAGE>
16. Notices. Any notice to be given hereunder shall be in writing
and shall be deemed given when delivered personally, sent by courier or telecopy
or registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice of hereunder in writing:
To Optionee at:
To the Corporation at:
680 Washington Boulevard
Stamford, CT 06901
Attention: President
Any notice delivered personally or by courier under this Section 16
shall be deemed given on the date delivered and any notice sent by telecopy or
registered or certified mail postage prepaid, return receipt requested, shall be
deemed given on the date telecopied or mailed.
17. Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstance shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstance other than those to which it is
so determined to be invalid and unenforceable, shall not be affected thereby,
and each provision hereof shall be validated and shall be enforced to the
fullest extent permitted by law.
18. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
19. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Delaware, without regard to its
conflicts of laws principles.
20. Headings. All descriptive headings of sections and paragraphs in
this Agreement are intended solely for convenience, and no provision of this
Agreement is to be con-
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<PAGE>
strued by reference to the heading of any section or paragraph.
21. Construction. This Agreement is made under and subject to the
provisions of the Plan, and all of the provisions of the Plan are hereby
incorporated herein as provisions of this Agreement. If there is a conflict
between the provisions of this Agreement and the provisions of the Plan, the
provisions of the Plan will govern. By signing this Agreement, the Optionee
confirms that he has received a copy of the Plan and has had an opportunity to
review the contents thereof.
22. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
By: ______________________
Name:
Title:
- - - ---------------------------------
[Optionee]
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<PAGE>
EXHIBIT B
---------
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
AGREEMENT made on __________ ____, 1997, by and between CHI Energy,
Inc., a ________ corporation (the "Corporation") and _______________ (the
"Optionee").
WHEREAS, the Corporation has adopted the CHI Energy,
Inc. 1997 Stock Option Plan (the "Plan"); and
WHEREAS, the Corporation desires to grant to the Optionee an option
under the Plan to acquire an aggregate of __________ shares of the Corporation's
Class A common stock (the "Common Stock"), on the terms set forth herein.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall
have the meaning set forth in the Plan.
2. Grant of Option. The Optionee is hereby granted, effective upon
the consummation of the Plan of Reorganization (the "Grant Date"), an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Option"), to purchase an aggregate of 20,000 shares of Common Stock,
pursuant to the terms of this Agreement and the provisions of the Plan.
3. Option Price. The exercise price of the Option shall be $10.00
per share of Common Stock issuable thereunder.
4. Conditions to Exercisability. (a) The Option shall be exercisable
on the Grant Date as to 33.33% of the shares initially covered thereby and as to
as to an additional 22.22% of such shares on December 31 of each of 1998, 1999
and 2000.
(b) The Option shall become exercisable in full upon a Change
in Control of the Corporation.
(c) Upon the Optionee's termination of employment, the Option
shall be exercisable solely to the extent of its exercisability as of the date
of termination.
5. Option Period. The Option shall have a 7-year term, and shall
expire upon the first to occur of: (a) the seventh anniversary of the Grant
Date; (b) the Optionee's ter-
<PAGE>
mination of employment with the Corporation or any Subsidiary for Cause (or
subsequent determination of Cause as set forth in Section 3.4(c) of the Plan);
(c) 120 days following termination of employment with the Corporation and its
Subsidiaries for any reason other than death, Disability, Retirement or Cause;
and (d) 1 year after termination of employment due to death, Disability, or
Retirement. Notwithstanding the foregoing, if the Optionee's death occurs
following the Optionee's termination of employment, the Option shall remain
exercisable to the extent exercisable as of the date of death until the first
anniversary of such death, unless the term of the Option otherwise expires. If
the Optionee exercises the Option following termination of employment at a time
when the Option is no longer eligible for treatment as an incentive stock
option, the Option shall be treated as a nonqualified stock option.
6. Exercise of Option. (a) The Option shall be exercised in the
following manner: the Optionee, or the person or persons having the right to
exercise the Option upon the death or Disability of the Optionee, shall deliver
to the Corporation written notice, in the form attached as Exhibit A hereto,
specifying the number of shares of Common Stock elected to be purchased. The
Optionee (or such other person) must include with such notice full payment of
the exercise price for the Common Stock being purchased pursuant to such notice.
Payment of the exercise price must be made in cash, by certified or cashier's
check, bank draft, or postal or express money order or, if permitted by the
Committee, in shares of Common Stock then owned by the Optionee having a Fair
Market Value on the date of exercise equal to such exercise price, or in a
combination thereof.
(b) If the Plan or any law, regulation or interpretation requires
the Corporation to take any action regarding the Common Stock, before the
Corporation issues certificates for the Common Stock being purchased, the
Corporation may delay delivering the certificates for the Common Stock for the
period necessary to take such action, as described in the Plan. The certificate
or certificates representing the Common Stock acquired pursuant to the Option
may bear a legend restricting the transfer of such Common Stock, as described in
the Plan, and the Corporation may impose stop transfer instructions to implement
such restrictions, if applicable.
(c) The Optionee will not be deemed to be a holder of any shares
pursuant to exercise of the Option until the date of the issuance of a stock
certificate to the Optionee
-2-
<PAGE>
for such shares of Common Stock and until the shares of Common Stock are paid
for in full.
(d) The Optionee acknowledges receipt of a copy of the Stockholders'
Agreement and hereby agrees that as a condition to receiving Common Stock
pursuant to the exercise of the Option, the Optionee shall upon exercise of the
Option execute, and become a party to, the Stockholders' Agreement, as amended
from time to time, and be bound by the obligations of and entitled to the rights
afforded stockholders thereunder.
(e) The Corporation hereby agrees that in the event of a proposed
"Tag-Along Sale" (as defined in the Stockholders' Agreement), it will comply
with the terms of Section 3.3(c) of the Stockholders' Agreement with respect to
the Optionee to the extent such Section 3.3(c) is applicable to the Optionee.
7. Transferability. The option rights herein are personal to the
Optionee and shall not be subject to transfer, anticipation, sale, assignment,
pledge, encumbrance or charge, except by will or by the laws of descent and
distribution, and may be exercised during the Optionee's lifetime only by the
Optionee or in the case of the Optionee's Disability or inca- pacity, his
guardian or legal representative.
8. Exercise Prior to Public Offering. In the event the Option is
exercised prior to a Public Offering and (a) such exercise occurs subsequent to
the Optionee's termination of employment for Cause or pursuant to a voluntary
termination or (b) such exercise occurs prior to the Optionee's termination of
employment for Cause or pursuant to a voluntary termination, but the Optionee
does not dispose of the shares of Common Stock received upon such exercise prior
to his termination of employment, the Corporation shall have the right during
the 30-day period following the later to occur of such Optionee's exercise of
the Option or termination of employment to purchase for cash the Common Stock
received upon such exercise at a price equal to Fair Market Value.
Notwithstanding anything else contained in this Section 8, upon the occurrence
of a Public Offering any right pursuant to this Section 8 to purchase Common
Stock received upon the exercise of a Stock Option shall terminate, and no such
right may be exercised during the 90-day period prior to the scheduled date of a
Public Offering.
9. Cancellation of Stock Options; Return of Value. The Board may, in
its reasonable discretion, in the event the
-3-
<PAGE>
Optionee breaches Section 10, cancel the Option in whole or in part, whether or
not vested, and may require the Optionee to return to the Corporation the gain
with respect to any exercise of the Option within the 6-month period prior to
the Board's action. The determination of whether the Optionee has breached
Section 10 shall be determined by the Board in good faith and in its reasonable
discretion. This Section 9 shall not apply during the 2-year period immediately
following a Change in Control.
10. Non-Competiton. During the Optionee's employment with the
Corporation and for 1 year following the Option- ee's termination of employment
with the Corporation, the Optionee shall not engage, directly or indirectly,
alone, in association with or as a shareholder, principal, agent, partner,
member, officer, director, employee or consultant of any person, firm or entity,
in any business within the United States or Canada in competition with any part
of the business being conducted by the Corporation or its subsidiaries;
provided, however, that Executive's ownership of less than 2 percent of the
outstanding stock of a publicly traded corporation (other than a corporation
engaged primarily in the business of developing or operating hydro-electric
projects) shall not by itself be deemed to constitute such competition. In the
event the Optionee has entered into any other non-competition agreements with
the Corporation (including any provisions in an employment agreement), the
non-competition and non- solicitation covenants of such agreement shall be
substituted for the requirements of this Section 10 and a breach of such
covenants shall be treated as a breach of this Section 10 for purposes of
enforcing Section 9 of this Agreement.
11. Subject to Plan Provisions. The option rights herein granted are
in all respects subject to the provisions set forth in the Plan (including, but
not limited to, the adjustment provisions of Section 4.2 of the Plan) to the
same extent and with the same effect as if set forth fully herein, and to such
actions relating to the Plan as may be taken from time to time by the Committee.
12. No Employment Rights. The granting of the option rights
hereunder shall not be construed as giving to the Optionee any right to be
retained in the employ of the Corporation or any Subsidiary or affiliate of the
Corporation.
13. Representations. (a) The Corporation represents and warrants
that this Agreement has been authorized by all necessary corporate action of the
Corporation and is a
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<PAGE>
valid and binding agreement of the Corporation enforceable against them in
accordance with its terms.
(b) The Optionee represents and warrants that the Optionee is
not a party to any agreement or instrument which would prevent him from entering
into or performing his duties in any way under this Agreement.
14. Entire Agreement. This Agreement contains all the understandings
between the parties hereto pertaining to the matters referred to herein, and
supersedes all undertakings and agreements, whether oral or in writing,
previously entered into by them with respect thereto. The Optionee represents
that, in executing this Agreement, he does not rely and has not relied upon any
representation or statement not set forth herein made by the Corporation with
regard to the subject matter, bases or effect of this Agreement or otherwise.
15. Amendment or Modification, Waiver. No provision of this
Agreement may be amended or waived unless such amendment or waiver is agreed to
in writing and, signed by the Optionee and by a duly authorized officer of the
Corporation. No waiver by any party hereto of any breach by another party hereto
of any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar condition or provision
at the same time, any prior time or any subsequent time.
16. Notices. Any notice to be given hereunder shall be in writing
and shall be deemed given when delivered personally, sent by courier or telecopy
or registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice of hereunder in writing:
To Optionee at:
To the Corporation at:
680 Washington Boulevard
Stamford, CT 06901
Attention: President
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<PAGE>
Any notice delivered personally or by courier under this Section 16
shall be deemed given on the date delivered and any notice sent by telecopy or
registered or certified mail postage prepaid, return receipt requested, shall be
deemed given on the date telecopied or mailed.
17. Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstance shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstance other than those to which it is
so determined to be invalid and unenforceable, shall not be affected thereby,
and each provision hereof shall be validated and shall be enforced to the
fullest extent permitted by law.
18. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
19. Early Dispositions. The Optionee agrees, as partial
consideration for the designation of this Option as an incentive stock option
under Section 422 of the Code, to notify the Company in writing within thirty
(30) days of any disposition of any shares acquired by exercise of this Option
if such disposition occurs within two (2) years from the Grant Date or within
one (1) year from the date the Optionee purchased such shares by exercise of
this Option.
20. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Delaware, without regard to its
conflicts of laws principles.
21. Headings. All descriptive headings of sections and paragraphs in
this Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.
22. Construction. This Agreement is made under and subject to the
provisions of the Plan, and all of the provisions of the Plan are hereby
incorporated herein as provisions of this Agreement. If there is a conflict
between the provisions of this Agreement and the provisions of the Plan, the
provisions of the Plan will govern. By signing this Agreement, the Optionee
confirms that he has received a copy
-6-
<PAGE>
of the Plan and has had an opportunity to review the contents thereof.
23. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
By: ______________________
Name:
Title:
- - - ---------------------------------
[Optionee]
-8-
FORM OF
SERIES B WARRANT
CHI ENERGY, INC.
and
as Warrant Agent
--------------------
Warrants to Purchase up to 810,811 Shares of Common Stock
------------------
WARRANT AGREEMENT
Dated as of _________________ ____, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. DEFINITIONS......................................................... 1
2. APPOINTMENT OF WARRANT AGENT........................................ 7
2.1. Appointment.................................................... 7
3. REGISTRATION, FORM AND EXECUTION OF WARRANTS........................ 7
3.1. Registration................................................... 7
3.2. Form of Warrant................................................ 7
3.3. Countersignature of Warrants................................... 8
4. VESTING; EXERCISE OF WARRANTS....................................... 8
4.1. Vesting........................................................ 8
4.2. Manner of Exercise............................................. 10
4.3. Payment of Taxes............................................... 11
4.4. Fractional Shares.............................................. 11
5. TRANSFER, DIVISION AND COMBINATION.................................. 11
5.1. Transfer....................................................... 11
5.2. Division and Combination....................................... 12
5.3. Maintenance of Books........................................... 12
6. ADJUSTMENTS......................................................... 12
6.1. Stock Dividends, Subdivisions and Combinations;
Extraordinary Distributions.................................... 12
6.2. Certain Issuances of Additional Shares of
Common Stock................................................... 13
6.3. Certain Issuances of Warrants or Other Rights.................. 13
6.4. Certain Issuances of Convertible Securities.................... 14
6.5. Superseding Adjustment......................................... 15
6.6. Other Provisions Applicable to Adjustments under
this Section................................................... 16
6.7. Reorganization, Reclassification, Merger,
Consolidation or Sale of Substantially all
Assets of the Company.......................................... 18
6.8. Certain Limitations............................................ 21
7. NOTICES TO WARRANT HOLDERS.......................................... 21
7.1. Notice of Adjustments.......................................... 21
7.2. Notice of Vesting.............................................. 21
7.3. Notice of Corporate Action..................................... 22
8. NO IMPAIRMENT....................................................... 23
i
<PAGE>
9. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY........................................................... 23
10. STOCK AND WARRANT TRANSFER BOOKS.................................... 24
11. LOSS OR MUTILATION.................................................. 24
12. OFFICE OF COMPANY................................................... 24
13. WARRANT AGENT....................................................... 24
13.1. Merger or Consolidation or Change of Name of
Warrant Agent................................................. 24
13.2. Certain Terms and Conditions Concerning the
Warrant Agent................................................. 25
13.3. Change of Warrant Agent....................................... 27
13.4. Disposition of Proceeds on Exercise of Warrants,
Inspection of Warrant Agreement............................... 28
14. MISCELLANEOUS....................................................... 29
14.1. Stockholders' Agreement....................................... 29
14.2. Notice Generally.............................................. 30
14.3. Successors and Assigns........................................ 30
14.4. Amendment..................................................... 30
14.5. Third-Party Beneficiaries..................................... 30
14.6. Severability.................................................. 30
14.7. Headings...................................................... 30
14.8. Governing Law................................................. 30
14.9. Counterparts.................................................. 30
EXHIBITS
Exhibit A - Form of Warrant Certificate
Exhibit B - Warrant Agent Fees
Exhibit C - Form of Notice of Vesting
Exhibit D - Form of Stockholders' Agreement
ii
<PAGE>
THIS WARRANT AGREEMENT (this "Warrant Agreement"), dated as of , 1997,
is made by and between CHI Energy, Inc. a Delaware corporation formerly known as
Consolidated Hydro, Inc. (the "Company"), and , a corporation, as warrant agent
(the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to holders of the Company's
pre-existing Preferred Stock, warrants, as hereinafter described (the
"Warrants"), to purchase up to 810,811 shares of Common Stock pursuant to
Article IV of the Plan, as confirmed pursuant to the order of the United States
Bankruptcy Court, District of Delaware, [(_______________________________ No.
[_____________] (___))], in connection with the reorganization of the Company
under chapter 11, title 11 of the United States Code; and
WHEREAS, the Company has requested the Warrant Agent to act on behalf
of the Company, and the Warrant Agent is willing so to act, in connection with
the issuance, division, transfer, exchange and exercise of Warrants;
NOW, THEREFORE, in consideration of the foregoing and for the purpose
of defining the terms and provisions of the Warrants and the respective rights
and obligations thereunder and hereunder of the Company, the Warrant Agent, and
the Holders, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and affirmed, the Company and the
Warrant Agent hereby agree as follows:
1. DEFINITIONS.
As used in this Warrant Agreement, the following capitalized terms
have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Effective Date, other than Warrant Stock.
"Business Day" shall mean any day that is not a Saturday or Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.
"Class A Common Stock" shall mean (except where the context otherwise
indicates) the new Class A Common Stock, $.01 par value per share, of the
Company as constituted on the Effective Date, and any capital stock into which
such Class A Common Stock may thereafter be changed, and shall also include
1
<PAGE>
(1) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Class A Common Stock upon any
reclassification thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption and (2) shares of common stock of any successor or acquiring
corporation received by or distributed to the holders of Class A Common Stock of
the Company in the circumstances contemplated by Section 6.7.
"Class B Common Stock" shall mean (except where the context otherwise
indicates) the new Class B Common Stock, $.01 par value per share, of the
Company as constituted on the Effective Date, and any capital stock into which
such Class B Common Stock may thereafter be changed, and shall also include (1)
capital stock of the Company of any other class (regardless of how denominated)
issued to the holders of shares of Class B Common Stock upon any
reclassification thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption and (2) shares of common stock of any successor or acquiring
corporation received by or distributed to the holders of Class B Common Stock of
the Company in the circumstances contemplated by Section 6.7.
"Closed" shall mean, with respect to a Project, the consummation of
the material transactions (including, without limitation, the payment of all
material amounts required to be paid on or about the closing date of such
transactions) contemplated by the agreements relating thereto.
"Common Stock" shall mean, collectively (except where the context
otherwise indicates), the Class A Common Stock and the Class B Common Stock.
"Company" shall have the meaning assigned to such term in the first
paragraph of this Warrant Agreement.
"Convertible Securities" shall mean evidences of indebtedness, shares
of capital stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event.
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, the price at which a share of Common Stock
may be purchased pursuant to this Warrant Agreement on such date. The initial
Current Warrant Price is $10.00, as specified in the second paragraph of the
Form of Warrant Certificate as set forth in Exhibit A hereto.
2
<PAGE>
"Daily Market Price" shall mean, in respect of any share of Common
Stock on any Trading Day, (1) the last reported sale price on such day on the
principal national securities exchange (including for this purpose The Nasdaq
Stock Market) on which such Common Stock is then listed or admitted to unlisted
trading privileges or (2) if no sale takes place on such day on any national
securities exchange, the average of the last reported closing bid and ask prices
on such day as officially quoted on any such exchange. If the Common Stock is
not then listed or admitted to unlisted trading privileges on any national
securities exchange, the Daily Market Price shall be the average of the last
reported closing bid and ask prices on such day in the over-the-counter market,
as furnished by the National Association of Securities Dealers, Inc. ("NASD")
Automated Quotation System or the National Quotation Bureau, Inc.; provided,
that if neither such corporation at the time is engaged in the business of
reporting such prices, the Daily Market Price shall be as furnished by any
similar firm then engaged in such business, or if there is no such firm, as
furnished by any member of the NASD selected mutually by the Majority Holders
and the Company or, if they cannot agree upon such selection, as selected by two
such members of the NASD, one of which shall be selected by the Majority Holders
and one of which shall be selected by the Company. If the Common Stock is not
reported in the over-the-counter market and no member of the NASD selected
pursuant to the preceding sentence will furnish the Daily Market Price, then the
Daily Market Price shall be the fair market value per share of Common Stock as
of such date, determined in good faith by the Board of Directors.
"Effective Date" shall have the meaning set forth in the Plan.
"Expiration Date" shall mean __________ __, 2003.
"Extraordinary Distribution" shall mean any dividend or distribution
in respect of the Common Stock that:
(a) is made after the Effective Date but prior to the Initial
Measurement Date;
(b) is made during the First Measurement Period, to the extent that
the aggregate amount of cash or other property included in such dividend or
distribution, when aggregated with all other dividends and distributions made
after the Initial Measurement Date but prior to the date on which such dividend
or distribution is paid or distributed, exceeds 25% of the Company's cumulative
consolidated net income (before extraordinary items determined in accordance
with GAAP) for the period beginning on
3
<PAGE>
the first day of the First Measurement Period through and
including the date such dividend is paid or distributed; or
(c) is made after the last day of the First Measurement Period, to the
extent that the aggregate amount of cash or other property included in such
dividend or distribution, when aggregated with all other dividends and
distributions paid or distributed after the Initial Measurement Date but prior
to the date on which such dividend or distribution is paid or distributed,
exceeds the sum of (i) the First Measurement Amount and (ii) 50% of the
Company's cumulative consolidated net income (before extraordinary items
determined in accordance with GAAP) for the period beginning on the first day
next following the last day of the First Measurement Period through and
including the date such dividend or distribution is paid or distributed;
provided, however, that in determining the aggregate amount of dividends and
distributions paid or distributed after the Initial Measurement Date for
purposes of clause (c) above, the amount of such dividends or distributions made
during the First Measurement Period is equal to the lesser of (x) the amounts
actually paid or distributed and (y) the First Measurement Amount; and provided,
further, however, that up to $15 million in cash paid by the Company pursuant to
the Plan on and after the Effective Date to holders of the 12% Senior Discount
Notes due 2003 that were outstanding prior to the Effective Date shall not
constitute an "Extraordinary Distribution" for purposes of this Agreement.
"First Measurement Amount" shall mean, with respect to the First
Measurement Period, an amount equal to 25% of the Company's cumulative
consolidated net income for such period (before extraordinary items determined
in accordance with GAAP).
"First Measurement Period" shall mean the period commencing on the
Initial Measurement Date and ending on the last day of the 11th fiscal quarter
of the Company next following such date.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of any Warrants and any other options or
warrants to purchase, or securities convertible into or exchangeable for, shares
of Common Stock outstanding on such date including, without limitation, all
Permitted Issuances.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
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"Holder" shall mean the Person in whose name a Warrant is registered
in the warrant register of the Company maintained by or on behalf of the Company
for such purpose.
"Initial Measurement Date" shall mean the first day of the first full
fiscal quarter of the Company next following the Effective Date.
"Majority Holders" shall mean the Holders of Warrants exercisable for
in excess of 50% of the aggregate number of shares of Common Stock then
purchasable upon exercise of all Warrants.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"Other Property" shall have the meaning set forth in Section 6.7.
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Permitted Issuances" shall mean the issuance and grant of stock
options pursuant to the Company's 1997 Stock Option Plan and the issuance of
shares of Common Stock upon the exercise of (i) such options, (ii) the Warrants
and (iii) the Series C Warrants issued by the Company on the Effective Date.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
limited liability company, limited liability partnership, institution, public
benefit corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
"Plan" shall mean the Company's Plan of Reorganization Under Chapter
11 of the United States Bankruptcy Code, as it may be amended or modified.
"Preferred Stock" shall mean the Company's Series F Preferred Stock,
Series H Preferred Stock and Series G Preferred Stock.
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"Pricing Period" shall have the meaning set forth in Section 13.1.
"Project" means the development or acquisition and, in each case, the
financing or the arrangement of financing by the Company or one of its
subsidiaries of energy or infrastructure assets of third party industrial
companies.
"Project Capital" shall mean, with respect to any Project, the
aggregate debt and equity capital required to finance, operate, manage and
develop such Project.
"Repurchase Price" shall have the meaning set forth in Section 13.1.
"Stockholders' Agreement" shall mean that certain Stockholders'
Agreement dated as of _______, 1997, by and among the Company and each of the
stockholders of the Company, a copy of which is attached hereto as Exhibit D.
"Trading Day" shall mean any day on which the principal stock exchange
on which the Common Stock is listed or admitted to trading is open or, if the
Common Stock is not then listed or admitted to trading on any stock exchange,
any day on which the National Association of Securities Dealers Automatic
Quotation System or the National Quotation Bureau Inc. reports prices in respect
of securities or, if neither such corporation is then engaged in such business,
any day on which the member of the NASD selected as specified in the proviso set
forth in the definition of "Daily Market Price" furnishes prices for securities.
"Vesting Amount" shall have the meaning set forth in Section 4.1(a).
"Vesting Date" shall mean, with respect to a Warrant, each date a
Project has Closed, after giving effect to Section 4.1 hereof.
"Warrant Agent" shall have the meaning assigned to such term in the
first paragraph of this Warrant Agreement and shall include any successor
Warrant Agent hereunder.
"Warrant Agent's Principal Office" shall mean the principal office of
the Warrant Agent in New York City, New York (or such other office of the
Warrant Agent or any successor thereto hereunder acceptable to the Company as
set forth in a written notice provided to the Company and the Holders).
"Warrant Agreement" shall have the meaning assigned to such term in
the first paragraph of this Warrant Agreement.
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"Warrant Price" shall mean an amount equal to (1) the number of shares
of Common Stock being purchased upon exercise of a Warrant pursuant to Section
4.2, multiplied by (2) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
Holders of the Warrants upon the exercise thereof.
"Warrants" shall have the meaning assigned to such term in the
recitals to this Warrant Agreement, and shall include all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock and the class of Common Stock,
for which they may be exercised.
2. APPOINTMENT OF WARRANT AGENT.
2.1. Appointment. The Company hereby appoints the Warrant Agent to act as
agent for the Company in accordance with the instructions set forth in this
Warrant Agreement, and the Warrant Agent hereby accepts such appointment.
3. REGISTRATION, FORM AND EXECUTION OF WARRANTS.
3.1. Registration. All Warrants shall be numbered and shall be registered
in a warrant register maintained at the Warrant Agent's Principal Office by the
Warrant Agent as they are issued. The Company and the Warrant Agent shall be
entitled to treat a Holder as the owner in fact for all purposes whatsoever of
each Warrant registered in such Holder's name.
3.2. Form of Warrant. The text of each Warrant and of the Election to
Purchase Form and Assignment Form shall be substantially as set forth in Exhibit
A attached hereto. Each Warrant shall be executed on behalf of the Company by
its President or one of its Vice Presidents, under its corporate seal reproduced
thereon or facsimile thereof attested by its Secretary or an Assistant
Secretary. The signature of any of such officers on the Warrants may be manual
or facsimile.
Warrants bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrants or did not hold such
offices on the date of this Warrant Agreement.
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Warrants shall be dated as of the date of countersignature
thereof by the Warrant Agent either upon initial issuance or upon division,
exchange, substitution or transfer.
3.3. Countersignature of Warrants. Each Warrant shall be manually
countersigned by the Warrant Agent (or any successor to the Warrant Agent then
acting as warrant agent under this Warrant Agreement) and shall not be valid for
any purpose unless so countersigned. Warrants may be countersigned, however, by
the Warrant Agent (or by its successor as warrant agent hereunder) and may be
delivered by the Warrant Agent, notwithstanding that the persons whose manual
signatures appear thereon as proper officers of the Company shall have ceased to
be such officers at the time of such countersignature, issuance or delivery. The
Warrant Agent shall, upon written instructions of the President, a Vice
President, the Secretary, or an Assistant Secretary of the Company, countersign,
issue and deliver Warrants entitling the Holders thereof to purchase not more
than 810,811 shares of Common Stock (subject to adjustment as set forth herein)
and shall countersign and deliver Warrants as otherwise provided in this Warrant
Agreement.
4. VESTING; EXERCISE OF WARRANTS
4.1. Vesting. The Warrants shall vest and be exercisable, on a cumulative
basis, as follows:
(a) Subject to paragraph (c) below, the number of shares of Common
Stock for which the Warrants issued hereunder shall vest and become exercisable
shall be the Vesting Amount.
(b) Subject to the adjustment provisions of Article 6 hereof and the
immediately following sentence, on each date a Project is Closed, the term
"Vesting Amount" means, with respect to any Holder, the product of (x) the
number of Warrants issued to such Holder, and (y) a fraction (not greater than
one), the numerator of which equals the aggregate Project Capital in respect of
Projects which have Closed since the Effective Date or, if later, the prior most
recent Vesting Date, and as to which the Company has delivered to Holders and
the Warrant Agent the certificate referred to in Section 7.2, and the
denominator of which equals $450,000,000.
(c) Notwithstanding any of the provisions of this Section 4.1 of this
Warrant Agreement, the Warrants shall lapse in their entirety (and, therefore,
shall neither vest nor become exercisable pursuant to this Warrant Agreement)
unless Projects having Project Capital aggregating at least $60,000,000 either
(i) are Closed on or prior to the third anniversary of the Effective Date or
(ii) are (x) the subject of a Definitive
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Agreement on or prior to the third anniversary of the Effective Date and (y)
Closed on or prior to the Expiration Date; and if the requirements of clauses
(i) and (ii) of this paragraph (c) have been satisfied, the Warrants shall vest
as and when Projects are Closed, but only with respect to Projects that either
(1) are Closed on or prior to the third anniversary of the Effective Date or are
(2) the subject of a Definitive Agreement on or prior to the third anniversary
of the Effective Date and (B) Closed on or prior to the Expiration Date.
For purposes of this Section 4.1(c), the term "Definitive Agreement"
shall mean a legally binding and enforceable agreement between the Company or
any of its subsidiaries and a party sponsoring a Project, containing the
material economic and other terms of the transaction with respect to such
Project, which agreement may be subject to closing conditions, including
financing (to be arranged by the Company) and other conditions customary for
these types of transactions.
(d) To facilitate the provisions of this Section 4.1 and Section 7.2,
commencing on August 1, 1998 and continuing semiannually on each February 1 and
August 1 thereafter until the Expiration Date, the Company shall cause one (or
more) of its financial officers to prepare and deliver to the Warrant Agent and
to all holders of the Warrants a written report detailing, among other matters,
the status and material terms (including price, amount of Project Capital,
timing, cost and structure) of all pending Project transactions, and Project
transactions subject to Definitive Agreements (each a "Report" and collectively
the "Reports"). In conjunction with (but not as part of) the annual audit of the
Company's financial condition, cash flows and results of operations, the Company
shall cause its independent auditors (or an independent appraisal or financial
consulting firm of recognized standing) to conduct a review (but not
constituting an audit within the meaning of GAAP) of the Company's files, books
and records relating to the Definitive Agreements and pending Project
transactions contemplated thereby as reasonably may be necessary to confirm the
accuracy and completeness of the information set forth in the Reports prepared
and delivered by the Company during the preceding 12-month period, and shall
cause such auditors (or appraisal or financial consulting firm) to deliver to
the Company, the Warrant Agent and each Holder of Warrants not later than March
31 of each year until the Expiration Date, a written statement of its findings
based on such investigation and review.
All costs and expenses incurred in connection with the preparation and
distribution of the Reports and with the investigation and written findings of
the independent auditors
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(or appraisal or financial consulting firm) shall be borne by the
Company.
The foregoing notwithstanding, the Company shall have no further
duties or obligations pursuant to the provisions of this paragraph (d) if
Projects having Project Capital aggregating at least $60,000,000 are not the
subject of a Definitive Agreement on or before the third anniversary of the
Effective Date or all of the Warrants have vested.
4.2. Manner of Exercise. From and after the Vesting Date of any
Warrants and until 5:00 p.m., New York City time, on the later to occur of (a)
the Expiration Date, and (b) the 30th day after the Vesting Date of such
Warrants (or, if such date is not a business day, the next succeeding business
day), a Holder may exercise any of such Warrants, on any Business Day, for all
or part of the number of shares of Common Stock purchasable thereunder.
In order to exercise a Warrant, in whole or in part, a Holder shall
deliver to the Company at the Warrant Agent's Principal Office, (1) a written
notice of such Holder's election to exercise such Warrant, which notice shall
include the number of shares and class of Common Stock to be purchased, (2)
payment in immediately available funds or certified cashiers or official bank
check or checks in each case in United States dollars of the Warrant Price for
the account of the Company and (3) such Warrant. Such notice shall be
substantially in the form of the Election to Purchase Form set forth on the
reverse side of the form of Warrant Certificate attached as Exhibit A hereto,
duly executed by such Holder or its agent or attorney. Upon receipt thereof, the
Warrant Agent shall, as promptly as practicable, and in any event within five
Business Days thereafter, deliver or cause to be delivered to such Holder an
executed certificate or certificates representing the aggregate number of full
shares of Common Stock issuable upon such exercise. The stock certificate or
certificates so delivered shall be, to the extent possible, in such denomination
or denominations as such Holder shall request in the notice and shall be
registered in the name of such Holder or such other name as shall be designated
in such notice. A Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and such Holder
or any other Person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date such
notice, together with the immediately available funds or certified cashiers or
official bank check or checks in United States dollars and such Warrant, is
received by the Warrant Agent as described above and all taxes required to be
paid by such Holder, if any, pursuant to Section 4.3 prior to the issuance of
such shares have been paid.
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If any Warrant shall have been exercised in part, the Warrant Agent shall, at
the time of delivery of the certificate or certificates representing Warrant
Stock, deliver to the Holder a new Warrant evidencing the rights of such Holder
to purchase the unpurchased shares of Common Stock called for by such Warrant,
which new Warrant shall in all other respects be identical with the Warrant
exercised in part, or, at the request of such Holder, appropriate notation may
be made on such exercised Warrant and the same returned to such Holder.
Notwithstanding any provision herein to the contrary, the Warrant Agent shall
not be required to register shares in the name of any Person who acquired a
Warrant (or part thereof) or any Warrant Stock otherwise than in accordance with
such Warrant and this Warrant Agreement.
Payment of the Warrant Price shall be made at the option of the Holder
in immediately available funds or by certified or official bank check or any
combination thereof, duly executed by such Holder or by such Holder's attorney
duly authorized in writing.
4.3. Payment of Taxes. All shares of Common Stock issuable upon the
exercise of any Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Holder shall
pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issuance or delivery thereof.
4.4. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. Whenever any
distribution of Warrants exercisable into fractional shares of Common Stock
would otherwise be called for, the actual distribution thereof will reflect a
rounding up or down to the nearest share of Common Stock, provided, that
whenever any distribution of a Warrant that is exercisable into exactly one-half
of a share of Common Stock would otherwise be called for, the actual
distribution will reflect a rounding down to the nearest share of Common Stock.
5. TRANSFER, DIVISION AND COMBINATION.
5.1. Transfer. Transfer of any Warrant and all rights hereunder, in
whole or in part, shall be registered in the warrant register of the Company to
be maintained for such purpose at the Warrant Agent's Principal Office, upon
surrender of such Warrant at the Warrant Agent's Principal Office, together with
a written assignment of such Warrant substantially in the form set forth on the
reverse side of the form of Warrant Certificate attached as Exhibit A hereto
duly executed by the Holder or its agent or attorney and payment of all funds
sufficient to pay any
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taxes payable upon the making of such transfer. Upon such surrender and, if
required, such payment, and subject to Section 9, the Company shall execute and
the Warrant Agent shall countersign and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denomination specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of such Warrant not so assigned, and the surrendered
Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new Holder for the purchase of shares of Common Stock without
having a new Warrant issued.
5.2. Division and Combination. Any Warrant may be divided or combined
with other Warrants upon presentation thereof at the Warrant Agent's Principal
Office, together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 5.1, as to any transfer which may
be involved in such division or combination, the Company shall execute and the
Warrant Agent shall countersign and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
5.3. Maintenance of Books. The Warrant Agent agrees to maintain, at
the Warrant Agent's Principal Office, the warrant register for the registration
of warrants and the registration of transfer of the Warrants.
6. ADJUSTMENTS.
The number of shares of Common Stock for which a Warrant is
exercisable and the price at which such shares may be purchased upon exercise of
a Warrant, shall be subject to adjustment from time to time as set forth in this
Section 6 (such adjustment to be made irrespective of whether such Warrant
theretofore has vested pursuant to the provisions of Section 4.1 but without
modifying the criteria for vesting set forth in Article 4 hereof).
6.1. Stock Dividends, Subdivisions and Combinations; Extraordinary
Distributions. (a) If at any time the Company shall:
(i) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
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(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which a Warrant is exercisable
immediately after the occurrence of any such event shall be adjusted to equal
the number of shares of Common Stock that a record holder of the same number of
shares of Common Stock for which a Warrant is exercisable immediately prior to
the occurrence of such event would own or be entitled to receive after the
happening of such event, and (ii) the Current Warrant Price shall be adjusted to
equal (A) the Current Warrant Price multiplied by the number of shares of Common
Stock for which a Warrant is exercisable immediately prior to the adjustment
divided by (B) the number of shares for which a Warrant is exercisable
immediately after such adjustment.
(b) If the Company shall pay or distribute an Extraordinary
Distribution in cash or other property, the Current Warrant Price shall be
adjusted downward in an amount equal to the per share (computed on the basis of
the number of shares then Outstanding) dollar amount of the Extraordinary
Distribution.
6.2. Certain Issuances of Additional Shares of Common Stock. (a) If at any
time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, for
consideration in an amount per Additional Share of Common Stock less than the
Daily Market Price, then (i) the number of shares of Common Stock for which each
Warrant is exercisable shall be adjusted to equal the product obtained by
multiplying the number of shares of Common Stock for which each Warrant is
exercisable immediately prior to such issuance or sale by a fraction (A) the
numerator of which shall be the number of shares of Common Stock Outstanding
immediately after such issuance or sale, and (B) the denominator of which shall
be the number of shares of Common Stock Outstanding immediately prior to such
issuance or sale plus the number of shares which the aggregate offering price of
the total number of such Additional Shares of Common Stock would purchase at the
then Daily Market Price; and (ii) the Current Warrant Price as to the number of
shares for which each Warrant is exercisable prior to such adjustment shall be
adjusted by multiplying such Current Warrant Price by a fraction (X) the
numerator of which shall be the number of shares for which each Warrant is
exercisable immediately prior to such issuance or sale; and (Y) the denominator
of which shall be the number of shares of Common Stock purchasable immediately
after such issuance or sale.
6.3. Certain Issuances of Warrants or Other Rights. If at any time the
Company shall take a record of the holders of its
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Common Stock for the purpose of entitling them to receive a distribution of, or
shall in any manner (whether directly or by assumption in a merger in which the
Company is the surviving or resulting corporation) issue or sell, any warrants
or other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such warrants or other
rights or upon conversion or exchange of such Convertible Securities shall be
less than the Daily Market Price in effect immediately prior to the time of such
issuance or sale, then the number of shares for which each Warrant is
exercisable and the Current Warrant Price shall be adjusted as provided in
Section 6.2 on the basis that the maximum number of Additional Shares of Common
Stock issuable pursuant to all such warrants or other rights or necessary to
effect the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued and outstanding and the Company shall be deemed to
have received all of the consideration payable therefor, if any, as of the date
of the issuance of such warrants, other rights or Convertible Securities. No
further adjustments of the Current Warrant Price or the number of shares for
which each Warrant is exercisable shall be made upon the actual issuance of such
Common Stock or of such Convertible Securities upon exercise of such warrants or
other rights or upon the actual issuance of such Common Stock upon such
conversion or exchange of such Convertible Securities.
6.4. Certain Issuances of Convertible Securities. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving or
resulting corporation) issue or sell, any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Daily Market Price in effect immediately prior
to the time of such issuance or sale, then the number of shares of Common Stock
for which each Warrant is exercisable and the Current Warrant Price shall be
adjusted as provided in Section 6.2 on the basis that the maximum number of
Additional Shares of Common Stock necessary to effect the conversion or exchange
of all such Convertible Securities shall be deemed to have been issued and
outstanding and the Company shall have received all of the consideration payable
therefor, if any, as of the date of issuance of such Convertible Securities. No
adjustment of the number of shares of Common Stock for which each Warrant is
exercisable and the Current Warrant Price shall be made under this Section 6.4
upon the issuance of any Convertible Securities
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which are issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefor, if any such adjustment previously shall have been
made upon the issuance of such warrants or other rights pursuant to Section 6.3.
No further adjustments of the number of shares of Common Stock for which each
Warrant is exercisable and the Current Warrant Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities and, if any issuance or sale of such Convertible
Securities is made upon exercise of any warrant or other right to subscribe for
or to purchase any such Convertible Securities for which adjustments of the
number of shares of Common Stock for which each Warrant is exercisable and the
Current Warrant Price have been or are to be made pursuant to other provisions
of this Article 6, no further adjustments of the number of shares of Common
Stock for which each Warrant is exercisable and the Current Warrant Price shall
be made by reason of such issuance or sale.
6.5. Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which a Warrant is exercisable and the
Current Warrant Price shall have been made pursuant to Section 6.3 or Section
6.4 as the result of any issuance of warrants, rights or Convertible Securities:
(a) such warrants or rights, or the right of conversion or exchange in
such other Convertible Securities, shall expire, and all or a portion of such
warrants or rights, or the right of conversion or exchange with respect to all
or a portion of such other Convertible Securities, as the case may be, shall not
have been exercised, or
(b) the consideration per share for which shares of Common Stock are
issuable pursuant to such warrants or rights, or the terms of such other
Convertible Securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per share upon
the occurrence of a specified date or event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled no longer shall be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock or other
property, if any, theretofore actually issued or issuable pursuant to the
previous exercise of any such warrants
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or rights or any such right of conversion or exchange, as having been issued on
the date or dates of any such exercise and for the consideration actually
received and receivable therefor, and
(d) treating any such warrants or rights or any such other Convertible
Securities which then remain outstanding as having been granted or issued
immediately after the time of such increase of the consideration per share for
which shares of Common Stock or other property are issuable under such warrants
or rights or other Convertible Securities; whereupon a new adjustment of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
6.6. Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which a Warrant is exercisable and the
Current Warrant Price provided for in this Article 6:
(a) Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants or other
rights to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Securities shall be issued for cash consideration, the consideration
received by the Company therefor shall be the amount of the cash received by the
Company therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Convertible Securities are sold
to underwriters or dealers for public offering without a subscription offering,
the initial public offering price (in any such case subtracting any amounts paid
or receivable for accrued interest or accrued dividends and without taking into
account any compensation, discounts or expenses paid or incurred by the Company
for and in the underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration other
than cash, then, except as herein otherwise expressly provided, the amount of
such consideration shall be deemed to be the fair value of such consideration at
the time of such issuance as determined in good faith by the Board of Directors
of the Company. In case any Additional Shares of Common Stock or any Convertible
Securities or any warrants or other rights to subscribe for or purchase such
Additional Shares of Common Stock or Convertible Securities shall be issued in
connection with any merger in which the Company issues any securities, the
amount of consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of the Company, of such
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portion of the assets and business of the nonsurviving corporation as such Board
in good faith shall determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities, warrants or other rights, as the case may
be. The consideration for any Additional Shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase the same
shall be the consideration received by the Company for issuing such warrants or
other rights plus the additional consideration payable to the Company upon
exercise of such warrants or other rights. The consideration for any Additional
Shares of Common Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by the Company for issuing
warrants or other rights to subscribe for or purchase such Convertible
Securities, plus the additional consideration, if any, payable to the Company
upon the exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional Shares of
Common Stock or Convertible Securities in payment or satisfaction of any
dividends upon any class of stock other than Common Stock, the Company shall be
deemed to have received for such Additional Shares of Common Stock or
Convertible Securities a consideration equal to the amount of such dividend so
paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by this
Article 6 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock for which a Warrant is exercisable that otherwise would be required
may be postponed (except in the case of a subdivision or combination of shares
of Common Stock, as provided for in Section 6.1) up to, but not later than the
date of exercise if such adjustment either by itself or with other adjustments
not previously made would result in an increase or decrease, as the case may be,
of less than 1% of the shares of Common Stock for which a Warrant is exercisable
immediately prior to the making of such adjustment. Any adjustment representing
a change of less than such minimum amount (except as aforesaid) which is
postponed shall be carried forward and made as soon as such adjustment, together
with other adjustments required by this Section 6 and not previously made, would
result in a minimum adjustment or on the date of exercise. For the purpose of
any adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments pursuant to this
Article 6, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
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(d) When Adjustment Not Required. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
6.7. Reorganization, Reclassification, Merger, Consolidation or Sale of
Substantially all Assets of the Company. (a) If the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or resulting
entity or where there is a change in or distribution with respect to the Common
Stock of the Company) (each such event hereinafter referred to as a
"Transaction"), and pursuant to the terms of any such Transaction, the
consideration to be paid or distributed to or otherwise received by the holders
of Common Stock consists of shares of common stock of the surviving corporation
or resulting entity and/or any cash, shares of stock (not constituting common
stock) or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) (such non-common stock
property hereinafter referred to as "Other Property"), then each Holder shall
have the right thereafter to receive, upon exercise of a Warrant, the number of
shares of common stock of the surviving corporation or resulting entity and such
amount of Other Property receivable pursuant to such Transaction by a holder of
the number of shares of Warrant Stock for which a Warrant is exercisable
immediately prior to the effective time of such Transaction.
In the case of any Transaction of the type described in the immediately
preceding paragraph of this Section 6.7(a), it shall be a condition precedent to
consummation of the Transaction that the surviving corporation or resulting
entity expressly assume the due and punctual observance and performance of each
and every covenant and condition of this Warrant Agreement and the Warrants to
be performed and observed by the Company and all the obligations and liabilities
hereunder, subject to (i) the requirements for vesting set forth in Section 4.1
hereof, and (ii) such modifications as may be deemed appropriate (as determined
by resolution of the Board of Directors of the Company) in order to provide for
adjustments of shares of the Warrant Stock for which a Warrant is exercisable
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 6.7. For purposes of this Section 6.7, "common stock of the
surviving corporation or resulting entity"
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shall include stock of such corporation of any class which does not have a
preference as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exercisable or exchangeable for any such stock, either
immediately, after the lapse of any prescribed time period or the occurrence of
a specified event, and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 6.7 shall similarly
apply to successive Transactions.
(b) Notwithstanding anything to the contrary in paragraph (a) above,
if (i) pursuant to the terms of any Transaction, at least 70% of the aggregate
value of the consideration to be paid or distributed to or otherwise received by
the holders of Common Stock consists of Other Property and the aggregate fair
value per share of the common stock and Other Property to be paid or distributed
to or otherwise received by the holders of Common Stock is less than the per
share adjustment price (as defined below) or (ii) all or substantially all of
the assets of the Company are to be sold in a single transaction (or series of
related transactions)(such transaction or transactions hereinafter referred to
as a "Sale of Assets"), at least 70% in value of the consideration to be
received by the Company pursuant thereto consists of Other Property and the
aggregate fair value of the common stock and Other Property to be received by
the Company (computed on a per share after corporate-level tax basis as if the
same were then distributed to the stockholders of the Company) is less than the
per share adjustment price (as defined below), then, in either such case:
(1) the Board of Directors of the Company shall, in good faith and in
accordance with established market practices, determine the fair value per
Warrant of the Warrants (the "Board Warrant Value") and deliver written notice
of the Board Warrant Value to each Holder of Warrants. If within 20 days after
receipt of such notice the Majority Holders do not object to the Board Warrant
Value by delivering written notice thereof to the Company, then the Board
Warrant Value as determined by the Board of Directors shall be final and binding
and shall constitute the "Warrant Value" for all purposes of this Agreement. If
the Majority Holders shall object to the Board Warrant Value, they shall within
20 days after receipt of notice of the Board Warrant Value, deliver written
notice of such objection to the Company, which notice shall require that the
Company promptly employ two independent appraisal or financial consulting firms
of recognized standing (the "Appraisers"), each of which shall appraise the fair
value of the Warrants. The Appraisers shall, within 20 days after the Company's
receipt of the Majority Holders' notice of
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objection to the Warrant Value, send to each Holder of Warrants its appraisal of
the fair value of the Warrants, and the average of each Appraiser's
determination of the fair value of the Warrants shall be the "Warrant Value" for
all purposes of this Agreement;
(2) upon consummation of a transaction of a type referred to in clause
(i) or (ii) above, each then vested and exercisable Warrant having an exercise
price greater than the aggregate fair value per share of the common stock and
Other Property to be paid or distributed to or otherwise received by the holders
of the Common Stock (in the case of a clause (i) transaction) or by the Company
(in the case of a clause (ii) transaction) shall be cancelled, terminated and of
no further force or effect and each Holder shall receive in respect of each such
Warrant an amount in cash equal to the Warrant Value;
(3) upon consummation of a transaction of a type referred to in clause
(i) or (ii) above, each then vested and exercisable Warrant having an exercise
price less than the aggregate fair value per share of the common stock and Other
Property to be paid or distributed to or otherwise received by the holders of
the Common Stock (in the case of a clause (i) transaction) or by the Company (in
the case of a clause (ii) transaction) shall be deemed to have been exercised in
full and, upon payment of the Current Warrant Price in respect thereof, the
Holder of a Warrant shall be entitled to receive (x) the amount of common stock
and Other Property such Holder would have become entitled to receive pursuant to
the transactions as a holder of the number of shares of Common Stock for which
the Warrant was exercisable as of such date and (y) an amount in cash equal to
the difference, if any, between (A) the Warrant Value and (B) the amount by
which the fair value of the common stock and Other Property received pursuant to
clause (x) above exceeds the Current Warrant Price; and
(4) the Company and the Holders of Warrants shall each bear 50% of the
total costs and expenses, if any, attributable to the Appraisers, and the share
of such costs and expenses attributable on a per share basis to each Holder
shall be deducted from the cash payable to such Holder pursuant to either of
paragraph (2) or (3) above; provided, however, that with respect to the payments
referred to in Section 6.7(b)(2) and (3), the Board of Directors of the Company
may, in its sole discretion, treat as vested and exercisable, Warrants that
would become vested and exercisable upon the Closing of any Project with respect
to which a Definitive Agreement has been entered into on or prior to the third
anniversary of the Effective Date.
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For purposes of this Section 6.7(b), the "per share adjustment price" shall
equal (w) $11.30 per share if such Transaction or Sale of Assets occurs on or
prior to the first anniversary of the Effective Date, (x) $11.25 per share if
such Transaction or Sale of Assets occurs after such first anniversary but on or
prior to the second anniversary of the Effective Date, (y) $11.20 per share if
such Transaction or Sale of Assets occurs after such second anniversary but on
or prior the third anniversary of the Effective Date and (z) the Current Warrant
Price if such Transaction or Sale of Assets occurs at any time after such third
anniversary. The per share adjustment price shall be proportionately adjusted
upon any adjustment of the Current Warrant Price pursuant to this Article VI.
6.8. Certain Limitations. Notwithstanding anything herein to the contrary,
the Company agrees not to enter into any transaction which, by reason of any
adjustment hereunder, would cause the Current Warrant Price to be less than the
par value per share of Common Stock.
7. NOTICES TO WARRANT HOLDERS.
7.1. Notice of Adjustments. Whenever the number of shares of Common Stock
for which a Warrant is exercisable, or whenever the price at which a share of
such Common Stock may be purchased upon exercise of the Warrants, shall be
adjusted pursuant to Section 6, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the Company setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated, specifying the number of shares of
Common Stock for which a Warrant is exercisable and describing the number and
kind of any other shares of stock or Other Property for which a Warrant is
exercisable, and any change in the purchase price or prices thereof, after
giving effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to each Holder in accordance
with Section 14.2. The Company shall keep at its office or agency designated by
the Company pursuant to Section 12 copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by any Holder or any prospective purchaser of a Warrant designated by a Holder
thereof.
7.2. Notice of Vesting. Whenever any Warrants become vested pursuant to
Section 4.1 above, the Company forthwith shall prepare a certificate, in the
form attached hereto, to be executed by the chief financial officer of the
Company setting forth, in reasonable detail, the number of Warrants that have
vested and the method by which such number of vested Warrants was calculated.
The Company promptly shall cause a signed copy of
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such certificate to be delivered to each Holder in accordance with Section 14.2.
The Company shall keep at its office or agency designated by the Company
pursuant to Section 12 copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by any
Holder or any prospective purchaser of a Warrant designated by a Holder thereof.
7.3. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend (other than a cash
dividend payable out of earnings or earned surplus legally available for the
payment of dividends under the laws of the jurisdiction of incorporation of the
Company) or other distribution of Additional Shares of Common Stock, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give to each Holder
(i) prompt written notice of the record date for such dividend, distribution or
right or for determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, prior written notice of the
date when the same shall take place. Such notice in accordance with the
foregoing clause also shall specify (i) the date on which any such record is
taken for the purpose of such dividend, distribution or right, the date on which
the holders of Common Stock shall be entitled to any such dividend, distribution
or right, and the amount and character thereof, and (ii) the date and time on
which any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up takes place. Each
such written notice shall be sufficiently given if addressed to such Holder at
the last address of such Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
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To enable each Holder of an "In-the-Money Company Warrant" to
participate in a "Tag-along-Sale", the Company hereby further agrees to deliver
to each Holder of an "In-the-Money Company Warrant" a true and complete copy of
(i) the "Original Transfer Notice" not later than the 25th day next preceding
the "Original Transfer Date" and (ii) the "New Transfer Notice" not later than
the 25th day next preceding the "New Transfer Date (all of the foregoing
capitalized terms used and not expressly defined in this Warrant Agreement
having the respective meanings assigned to them in the Stockholder's Agreement).
8. NO IMPAIRMENT.
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant Agreement or any Warrant.
Without limiting the generality of the foregoing, the Company will (1) not
increase the par value of any shares of Common Stock receivable upon the
exercise of a Warrant above the amount payable therefor upon such exercise
immediately prior to such increase in par value and (2) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of any Warrant.
9. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL
OF ANY GOVERNMENTAL AUTHORITY.
From and after the Effective Date, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
payment therefor in accordance with the terms of this Warrant Agreement and such
Warrant, shall be duly and validly issued and fully paid and nonassessable, and
not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Current Warrant Price.
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10. STOCK AND WARRANT TRANSFER BOOKS.
The Company will not at any time, except upon dissolution, liquidation
or winding up of the Company, close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise or transfer of any
Warrant.
11. LOSS OR MUTILATION.
Upon receipt by the Company and the Warrant Agent from any Holder of
evidence reasonably satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of such Holder's Warrant and indemnity
reasonably satisfactory to them, and in case of mutilation upon surrender and
cancellation thereof, the Company will execute and the Warrant Agent will
countersign and deliver in lieu hereof a new Warrant of like tenor to such
Holder; provided, in the case of mutilation, no indemnity shall be required if
such Warrant in identifiable form is surrendered to the Company or the Warrant
Agent for cancellation.
12. OFFICE OF COMPANY.
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant Agreement. The
Company shall initially maintain such an agency at the Warrant Agent's Principal
Offices.
13. WARRANT AGENT.
13.1. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto; provided that such
corporation must be eligible for appointment as a successor Warrant Agent under
the provisions of Section 13.3 hereof. If at the time such successor to the
Warrant Agent shall succeed to the agency created by this Warrant Agreement any
of the Warrants shall have been countersigned but not delivered, any such
successor to the Warrant Agent may adopt the countersignature of the predecessor
Warrant Agent and deliver such Warrants so countersigned; and if at that time
any of the Warrants shall not have been countersigned, any successor to the
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Warrant Agent may countersign such Warrants either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant Agent; and in
all such cases Warrants shall have the full force provided in the Warrants and
in this Warrant Agreement. If at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrants shall have been countersigned as
provided in Section 3.3 but not delivered, the Warrant Agent may adopt the
countersignatures under its prior name and deliver such Warrants so
countersigned; and if at that time any of the Warrants shall not have been
countersigned, the Warrant Agent may countersign such Warrants either in its
prior name or in its changed name; and in all such cases such Warrants shall
have the full force provided in the Warrants and in this Warrant Agreement.
13.2. Certain Terms and Conditions Concerning the Warrant Agent. The
Warrant Agent undertakes the duties and obligations imposed by this Warrant
Agreement upon the following terms and conditions, by all of which the Company
and the Holders, by their acceptance of Warrants, shall be bound:
(a) Correctness of Statements. The statements contained herein and in
the Warrants shall be taken as statements of the Company and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken by it. The Warrant Agent assumes no
responsibility with respect to the distribution of the Warrants except as herein
otherwise provided.
(b) Breach of Covenants. The Warrant Agent shall not be
responsible for any failure of the Company to comply with any of the covenants
contained in this Warrant Agreement or in the Warrants to be complied with
specifically by the Company.
(c) Performance of Duties. The Warrant Agent may execute and exercise
any of the rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents (which shall not include
its employees) and shall not be responsible for the misconduct or negligence of
any agent appointed with due care.
(d) Reliance on Counsel. The Warrant Agent may consult at any time
with legal counsel satisfactory to it (who may be counsel for the Company) and
the Warrant Agent shall incur no liability or responsibility to the Company or
to any Holder in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of such
counsel provided that such counsel shall have been selected with due care.
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(e) Proof of Actions Taken. Whenever in the performance of its duties
under this Warrant Agreement the Warrant Agent shall deem it necessary or
desirable that any fact or matter be proved or established by the Company prior
to taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed
conclusively to be proved and established by a certificate signed by the
President, a Vice President, the Secretary or an Assistant Secretary of the
Company and delivered to the Warrant Agent; and such certificate shall be full
authorization to the Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Warrant Agreement in reliance upon such
certificate.
(f) Compensation. The Company agrees to pay the Warrant Agent
reasonable compensation as set forth in the fee schedule attached hereto as
Exhibit B for all services rendered by the Warrant Agent in the performance of
its duties under this Warrant Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in the performance of its duties under this
Warrant Agreement, and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and counsel fees,
for anything done or omitted by the Warrant Agent in the performance of its
duties under this Warrant Agreement except as a result of the Warrant Agent's
negligence or bad faith.
(g) Legal Proceedings. The Warrant Agent shall be under no obligation
to institute any action, suit or legal proceeding or to take any other action
likely to involve expense unless the Company or one or more Holders shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses that may be incurred, but this provision shall not affect the power
of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Warrant Agreement or under any of the Warrants may be enforced
by the Warrant Agent without the possession of any of the Warrants or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent, and any recovery of judgment shall be for the
ratable benefit of the Holders, as their respective rights or interests may
appear.
(h) Other Transactions in Securities of the Company. The Warrant Agent
and any stockholder, director, officer or employee of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of the Company or become
pecuniarily
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interested in any transaction in which the Company may be interested, or
contract with or lend money to the Company or otherwise act as fully and freely
as though it were not Warrant Agent under this Warrant Agreement. Nothing herein
shall preclude the Warrant Agent from acting in any other capacity for the
Company or for any other legal entity.
(i) Liability of Warrant Agent. The Warrant Agent shall act hereunder
solely as agent, and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not be liable for anything that it may do or
refrain from doing in connection with this Warrant Agreement except for its own
negligence or bad faith.
(j) Reliance on Documents. The Warrant Agent will not incur any
liability or responsibility to the Company or to any Holder for any action taken
in reliance on any notice, resolution, waiver, consent, order, certificate, or
other paper, document or instrument reasonably believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties.
(k) Validity of Agreements. The Warrant Agent shall not be under any
responsibility in respect of the validity of this Warrant Agreement or the
execution and delivery hereof (except the due execution and delivery hereof by
the Warrant Agent) or in respect of the validity or execution of any Warrant
(except its countersignature and delivery thereof); nor shall the Warrant Agent
by any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Warrant Stock (or other stock) to be issued
pursuant to this Warrant Agreement or any Warrant, or as to whether any Warrant
Stock (or other stock) will, when issued, be validly issued, fully paid and
nonassessable, or as to the Warrant Price or the number or amount of Warrant
Stock or other securities or other property issued upon exercise of any Warrant.
(l) Instructions from Company. The Warrant Agent is hereby authorized
and directed to accept instructions with respect to the performance of its
duties hereunder from the President, a Vice President, the Secretary or any
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer or officers.
13.3. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Warrant Agreement by giving to the Company
30 days' advance notice in writing. The
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Warrant Agent may be removed by like notice to the Warrant Agent from the
Company. If the Warrant Agent shall resign or be removed or shall otherwise
become incapable of acting, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment within a period of 30
days after such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Warrant Agent, then
any Holder may apply to a court of competent jurisdiction for the appointment of
a successor to the Warrant Agent. Pending the appointment of the successor
warrant agent, the Company shall perform the duties of the Warrant Agent. Any
successor warrant agent, whether appointed by the Company or a court of
competent jurisdiction, shall be a bank or trust company, in good standing,
incorporated under the laws of the United States of America or any state thereof
and having at the time of its appointment as warrant agent a combined capital
and surplus of at least $500,000,000. After appointment, the successor warrant
agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Warrant Agent without further act or deed;
but the former Warrant Agent shall deliver and transfer to the successor warrant
agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Failure to
file any notice provided for in this Section 13.3, however, or any defect
therein, shall not affect the legality or validity of the resignation or removal
of the Warrant Agent or the appointment of the successor warrant agent, as the
case may be. In the event of such resignation or removal, the successor warrant
agent shall mail, first class, to each Holder, written notice of such removal or
resignation and the name and address of such successor warrant agent.
13.4. Disposition of Proceeds on Exercise of Warrants, Inspection of
Warrant Agreement. The Warrant Agent shall account promptly to the Company with
respect to Warrants exercised and concurrently pay to the Company all
immediately available funds received by the Warrant Agent for the purchase of
the Warrant Stock through the exercise of such Warrants. The Warrant Agent
shall, upon request of the Company from time to time, deliver to the Company
such complete reports of registered ownership of the Warrants and such complete
records of transactions with respect to the Warrants and the shares of Common
Stock as the Company may request. The Warrant Agent shall also make available to
the Company for inspection by the Company's agents or employees, from time to
time as the Company may request, such original books of accounts and records
maintained by the Warrant Agent in connection with the issuance and exercise of
Warrants hereunder, such inspections to occur at the Warrant Agent's Principal
Office. The Warrant Agent shall keep copies of this Warrant
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Agreement and any notices given or received hereunder available for inspection
by the Company or the Holders at the Warrant Agent's Principal Office. The
Company shall supply the Warrant Agent from time to time with such numbers of
copies of this Warrant Agreement as the Warrant Agent may request.
14. MISCELLANEOUS.
14.1. Stockholders' Agreement. The acceptance and exercise of any Warrant
issued pursuant to this Warrant Agreement shall constitute the agreement of the
Holder thereof to become a party to and to be bound by the Stockholders'
Agreement (a copy of which is attached hereto as Exhibit D) upon the acquisition
of Common Stock by such Holder upon the exercise of such Warrant.
14.2. Notice Generally. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant Agreement shall be sufficiently given or made if
in writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid or by
telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last known
address appearing on the warrant register of the Company maintained for
such purpose.
(b) If to Company at
CHI Energy, Inc.
680 Washington Boulevard
Stamford, Connecticut 06901
Attention: Edward M. Stern, President
and General Counsel
Telecopy Number:
(c) If to Warrant Agent at
[To come]
Attention:
Telecopy Number:
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and
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confirmed by telecopy answerback or three Business Days after the same shall
have been deposited in the United States mail whichever is earlier. Failure or
delay in delivering copies of any notice, demand, request, approval,
declaration, delivery or other communication to the Person designated above to
receive a copy shall in no way adversely affect the effectiveness of such
notice, demand, request, approval, declaration, delivery or other communication.
14.3. Successors and Assigns. All covenants and provisions of this Warrant
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
14.4. Amendment. This Warrant Agreement and the Warrants may only be
modified or amended or the provisions hereof and thereof waived with the written
consent of the Company, the Warrant Agent and the Majority Holders, provided
that no Warrant may be modified or amended to reduce the number of shares of
Common Stock for which such Warrant is exercisable or to increase the price at
which such shares may be purchased upon exercise of such Warrant (before giving
effect to any adjustment as provided herein and therein) without the prior
written consent of the Holder thereof.
14.5. Third-Party Beneficiaries. All covenants and provisions of this
Warrant Agreement shall inure to the benefit of each Holder from time to time of
Warrants.
14.6. Severability. Wherever possible, each provision of this Warrant
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Warrant Agreement.
14.7. Headings. The headings used in this Warrant Agreement are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant Agreement.
14.8. Governing Law. This Warrant Agreement and the Warrants shall be
governed by the laws of the State of Delaware, without regard to the provisions
thereof relating to conflict of laws.
14.9. Counterparts. This Warrant Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such
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counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, each of the Company and the Warrant Agent has
caused this Warrant Agreement to be duly executed by its duly authorized
officers as of the date first above written.
CHI ENERGY, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
________________________, as
Warrant Agent
By:___________________________________
Name:_________________________________
Title:________________________________
31
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
CHI ENERGY, INC.
Warrant to purchase [Class A Common Stock/Class B
Common Stock], par value $0.01 per share, of
CHI Energy, Inc.
- - - --------------------------------------------------------------------------------
Warrant Certificate No.: Number of Warrants:
CUSIP No.
- - - --------------------------------------------------------------------------------
See Reverse for Certain Definitions
Exercisable from and after the Vesting Date (as defined below) until 5:00
p.m., New York City time on the later of (a) , 2003 and (b) the 30th day after
the Vesting Date, or, if such date is not a business day, the next succeeding
business day.
This Warrant Certificate certifies that ____________________, or registered
assigns, is the registered holder of the number of Warrants set forth above
expiring at 5:00 p.m., New York City time, on , 2003 or, if such date is not a
business day, the next succeeding business day (the "Warrants") to purchase
[Class A Common Stock/Class B Common Stock], par value $0.01 per share
(collectively, the "Common Stock"), of CHI Energy, Inc., a Delaware corporation
(the "Company"), subject to vesting of such Warrants as provided in the Warrant
Agreement referred to below. The Common Stock issuable upon exercise of Warrants
is hereinafter referred to as the "Warrant Stock." Subject to the immediately
succeeding paragraph, each Warrant entitles the holder upon exercise to purchase
from the Company at any time from and after any date such Warrant vests (the
"Vesting Date") as provided in the Warrant Agreement referred to below, but not
after 5:00 p.m., New York City time, on the later of (a) _______ ___, 2003, and
(b) the 30th day after the Vesting Date of such Warrants, or, if such date is
not a business day, the next succeeding business day, one share of Common Stock,
subject to adjustment as set forth herein and in the Warrant Agreement dated as
of , 1997 (the "Warrant Agreement") by and between the Company and , a
corporation, as warrant agent (the "Warrant Agent"), in whole or in part, at the
initial purchase price of $[_____] per share, on and subject to the terms and
conditions set forth herein and in the Warrant Agreement. Such purchase shall be
payable in lawful money of the United States of America by certified or official
bank check or any combination thereof to the
32
<PAGE>
order of the Warrant Agent for the account of the Company at the principal
office of the Warrant Agent, but only subject to the conditions set forth herein
and in the Warrant Agreement. The number of shares of Common Stock for which
each Warrant is exercisable, and the price at which such shares may be purchased
upon exercise of each Warrant, are subject to adjustment upon the occurrence of
certain events as set forth in the Warrant Agreement. Whenever the number of
shares of Common Stock for which a Warrant is exercisable, or the price at which
a share of such Common Stock may be purchased upon exercise of the Warrants, is
adjusted pursuant to the Warrant Agreement, the Company shall cause to be given
to each of the registered holders of the Warrants at such holders' addresses
appearing on the Warrant register written notice of such adjustment by first
class mail postage pre-paid.
No Warrant may be exercised before 5:00 p.m., New York City time, on the
Vesting Date, or after the later to occur of 5:00 p.m., New York City time, on
(a) _______ ___, 2003, and (b) the 30th day after the Vesting Date of such
Warrants, or, if such date is not a business day, the next succeeding business
day, and to the extent not exercised by such time such Warrants shall become
void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse side hereof and such further provisions
shall for all purposes have the same effect as though fully set forth at this
place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REGARD TO THE PROVISIONS THEREOF RELATING TO CONFLICT OF LAWS.
33
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by its President and has caused its corporate seal to be affixed hereunto
or imprinted hereon.
Dated:
(Seal)
Attest: CHI ENERGY, INC.
_______________________________ By:____________________________________
Name:__________________________ Name:__________________________________
Title: Secretary Title: President
COUNTERSIGNED:
___________________, as Warrant Agent
By:____________________________________
Name:__________________________________
Title:_________________________________
[Authorized Signature]
34
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of up to Warrants expiring at 5:00 p.m., New York City time, on
, or, if such date is not a business day, the next succeeding business day,
entitling the holder, subject to the vesting provisions contained in the Warrant
Agreement, on exercise to purchase shares of [Class A Common Stock/Class B
Common Stock], par value $0.01 per share, of the Company, and are issued or to
be issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Warrant Agent, the Company and the
Holders (the words "Holders" or "Holder" meaning the registered holders or
registered holder of the Warrants). A copy of the Warrant Agreement may be
obtained by the Holder hereof upon written request to the Company. The
acceptance and exercise of any Warrant evidenced by this Warrant Certificate
shall constitute the agreement of the Holder hereof to become a party to and to
be bound by the Stockholders' Agreement, upon the acquisition of Common Stock by
such Holder upon the exercise of such Warrant. A copy of the Stockholders'
Agreement may be obtained by the Holder hereof upon written request to the
Company.
Warrants may be exercised at any time from and after the Vesting Date until
5:00 p.m., New York City time, on the later of (a) ____________ __, 2003 and (b)
the 30th day after the Vesting Date, or, if such date is not a business day, the
next succeeding business day. The Holder of Warrants evidenced by this Warrant
Certificate may exercise them by surrendering this Warrant Certificate, with the
form of election to purchase set forth hereon properly completed and executed,
together with payment of the purchase price by certified or official bank check
or any combination thereof to the order of the Warrant Agent for the account of
the Company and the other required documentation. In the event that upon any
exercise of Warrants evidenced hereby the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall be issued
to the Holder hereof or his assignee a new Warrant Certificate evidencing the
number of Warrants not exercised.
The Warrant Agreement provides that the number of shares of Common Stock
for which each Warrant is exercisable, and the price at which such shares may be
purchased upon exercise of each Warrant, are subject to adjustment upon the
occurrence of certain events as set forth in the Warrant Agreement. The Company
shall not be required to issue any fractional share, of Common Stock
35
<PAGE>
upon the exercise of any Warrant, but the Company shall round up or down to the
nearest share of Common Stock as provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Warrant Agent
by the registered Holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement
without charge except for any tax imposed in connection therewith.
36
<PAGE>
[ELECTION TO PURCHASE FORM]
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of ______ Shares of [Class A Common Stock/Class B
Common Stock] of CHI Energy, Inc. and herewith makes payment therefor, all at
the price and on the terms and conditions specified in this Warrant and the
Warrant Agreement and requests that certificates for the shares of Common Stock
hereby purchased (and any securities or other property issuable upon such
exercise) be issued in the name of and delivered to _____________ whose address
is _________________ and, if such shares of Common Stock shall not include all
of the shares of Common Stock issuable as provided in this Warrant, that a new
Warrant of like tenor and date for the balance of the shares of Common Stock
issuable hereunder be delivered to the undersigned. By executing this Election
to Purchase, the undersigned agrees to become a party to and to be bound by that
certain Stockholders' Agreement, dated as of _________, 1997, by and among the
Company and each of the stockholders of the Company (the "Stockholders'
Agreement"), as a Stockholder (as defined in the Stockholders' Agreement) and to
the same extent as all other Stockholders' now a party to and bound thereby.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this election to purchase must correspond
with the name as written upon the face of the within Warrant
in every particular, without alteration or enlargement or any
change whatsoever.
37
<PAGE>
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
Name and Address of Assignee No. of Shares of
- - - ---------------------------- ----------------
Common Stock
------------
and does hereby irrevocably constitute and appoint _______________________
attorney-in-fact to register such transfer on the books of CHI Energy, Inc.
maintained for the purpose, with full power of substitution in the premises.
Dated:____________________ Print Name:_____________________________
Signature:______________________________
Witness:________________________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
38
<PAGE>
EXHIBIT B
________________________________________,
as Warrant Agent
Schedule of Fees
----------------
39
<PAGE>
EXHIBIT C
FORM OF NOTICE OF VESTING
CERTIFICATE
I, ___________, Chief Executive Officer of CHI Energy, Inc. (the
"Company") do hereby certify, pursuant to Section 7.2 of the Series B Warrant
Agreement, dated as of _______ ___, 1997, between the Company and _____, as
Warrant Agent (the "Warrant Agreement"), that the number of Warrants (as defined
in the Warrant Agreement) set forth below have vested pursuant to Section 4.1 of
the Warrant Agreement. In addition, the number of Warrants which have vested was
calculated as set forth below.
NUMBER OF
VESTED WARRANTS VESTING DATE
--------------- ------------
[INSERT DESCRIPTION OF CALCULATION]
IN WITNESS WHEREOF, the undersigned has signed this Officers'
Certificate this ______ day of _____, ____.
__________________________________
[NAME]
CHIEF EXECUTIVE OFFICER
40
FORM OF
SERIES C WARRANT
CHI ENERGY, INC.
and
as Warrant Agent
--------------------
Warrants to Purchase up to 526,316 Shares of Common Stock
------------------
WARRANT AGREEMENT
Dated as of _______ __, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. DEFINITIONS..................................................... 1
2. APPOINTMENT OF WARRANT AGENT.................................... 7
2.1. Appointment........................................ 7
3. REGISTRATION, FORM AND EXECUTION OF WARRANTS.................... 7
3.1. Registration....................................... 7
3.2. Form of Warrant.................................... 7
3.3. Countersignature of Warrants............................... 7
4. EXERCISE OF WARRANTS............................................ 8
4.1. Manner of Exercise................................. 8
4.2. Payment of Taxes................................... 9
4.3. Fractional Shares.................................. 9
5. TRANSFER, DIVISION AND COMBINATION.............................. 9
5.1. Transfer........................................... 9
5.2. Division and Combination........................... 10
5.3. Maintenance of Books............................... 10
6. ADJUSTMENTS..................................................... 10
6.1. Stock Dividends, Subdivisions and Combinations;
Extraordinary Distributions........................ 10
6.2. Certain Issuances of Additional Shares of Common
Stock.............................................. 11
6.3. Certain Issuances of Warrants or Other Rights...... 11
6.4. Certain Issuances of Convertible Securities........ 12
6.5. Superseding Adjustment............................. 13
6.6. Other Provisions Applicable to Adjustments under
this Section....................................... 14
6.7. Reorganization, Reclassification, Merger,
Consolidation or Sale of Substantially all
Assets of the Company.............................. 16
6.8. Certain Limitations................................ 18
7. NOTICES TO WARRANT HOLDERS...................................... 18
7.1. Notice of Adjustments.............................. 18
7.2. Notice of Corporate Action......................... 19
8. NO IMPAIRMENT................................................... 20
9. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY....................................................... 20
i
<PAGE>
10. STOCK AND WARRANT TRANSFER BOOKS................................ 21
11. LOSS OR MUTILATION.............................................. 21
12. OFFICE OF COMPANY............................................... 21
13. WARRANT AGENT................................................... 21
13.1. Merger or Consolidation or Change of Name of
Warrant Agent...................................... 21
13.2. Certain Terms and Conditions Concerning the
Warrant Agent...................................... 22
13.3. Change of Warrant Agent............................ 25
13.4. Disposition of Proceeds on Exercise of Warrants,
Inspection of Warrant Agreement.................... 25
14. MISCELLANEOUS................................................... 26
14.1. Stockholders' Agreement............................ 26
14.2. Notice Generally................................... 26
14.3. Successors and Assigns............................. 27
14.4. Amendment.......................................... 27
14.5. Third-Party Beneficiaries.......................... 27
14.6. Severability....................................... 27
14.7. Headings........................................... 27
14.8. Governing Law...................................... 27
14.9. Counterparts....................................... 28
EXHIBITS
Exhibit A - Form of Warrant Certificate
Exhibit B - Warrant Agent Fees
Exhibit C - Form of Stockholders' Agreement
ii
<PAGE>
THIS WARRANT AGREEMENT (this "Warrant Agreement"), dated as of , 1997, is
made by and between CHI Energy, Inc. a Delaware corporation formerly known as
Consolidated Hydro, Inc. (the "Company"), and , a corporation, as warrant agent
(the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to holders of the Company's
pre-existing Preferred Stock, warrants, as hereinafter described (the
"Warrants"), to purchase up to 526,316 shares of Common Stock pursuant to
Article IV of the Plan, as confirmed pursuant to the order of the United States
Bankruptcy Court, District of Delaware, [(_______________________________ No.
[_____________] (___))], in connection with the reorganization of the Company
under chapter 11, title 11 of the United States Code; and
WHEREAS, the Company has requested the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing so to act, in connection with the
issuance, division, transfer, exchange and exercise of Warrants;
NOW, THEREFORE, in consideration of the foregoing and for the purpose of
defining the terms and provisions of the Warrants and the respective rights and
obligations thereunder and hereunder of the Company, the Warrant Agent, and the
Holders, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and affirmed, the Company and the
Warrant Agent hereby agree as follows:
1. DEFINITIONS.
As used in this Warrant Agreement, the following capitalized terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Effective Date, other than Warrant Stock.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Class A Common Stock" shall mean (except where the context otherwise
indicates) the new Class A Common Stock, $.01 par value per share, of the
Company as constituted on the Effective Date, and any capital stock into which
such Class A Common Stock may thereafter be changed, and shall also include
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<PAGE>
(1) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Class A Common Stock upon any
reclassification thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption and (2) shares of common stock of any successor or acquiring
corporation received by or distributed to the holders of Class A Common Stock of
the Company in the circumstances contemplated by Section 6.7.
"Class B Common Stock" shall mean (except where the context otherwise
indicates) the new Class B Common Stock, $.01 par value per share, of the
Company as constituted on the Effective Date, and any capital stock into which
such Class B Common Stock may thereafter be changed, and shall also include (1)
capital stock of the Company of any other class (regardless of how denominated)
issued to the holders of shares of Class B Common Stock upon any
reclassification thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption and (2) shares of common stock of any successor or acquiring
corporation received by or distributed to the holders of Class B Common Stock of
the Company in the circumstances contemplated by Section 6.7.
"Common Stock" shall mean, collectively (except where the context otherwise
indicates), the Class A Common Stock and the Class B Common Stock.
"Company" shall have the meaning assigned to such term in the first
paragraph of this Warrant Agreement.
"Convertible Securities" shall mean evidences of indebtedness, shares of
capital stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event.
"Current Warrant Price" shall mean, in respect of a share of Common Stock
at any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant Agreement on such date. The initial Current
Warrant Price is as specified in the second paragraph of the Form of Warrant
Certificate as set forth in Exhibit A hereto.
"Daily Market Price" shall mean, in respect of any share of Common Stock on
any Trading Day, (1) the last reported sale price on such day on the principal
national securities exchange (including for this purpose The Nasdaq Stock
Market) on which such Common Stock is then listed or admitted to unlisted
trading privileges or (2) if no sale takes place on such day on
2
<PAGE>
any national securities exchange, the average of the last reported closing bid
and ask prices on such day as officially quoted on any such exchange. If the
Common Stock is not then listed or admitted to unlisted trading privileges on
any national securities exchange, the Daily Market Price shall be the average of
the last reported closing bid and ask prices on such day in the over-the-counter
market, as furnished by the National Association of Securities Dealers, Inc.
("NASD") Automated Quotation System or the National Quotation Bureau, Inc.;
provided, that if neither such corporation at the time is engaged in the
business of reporting such prices, the Daily Market Price shall be as furnished
by any similar firm then engaged in such business, or if there is no such firm,
as furnished by any member of the NASD selected mutually by the Majority Holders
and the Company or, if they cannot agree upon such selection, as selected by two
such members of the NASD, one of which shall be selected by the Majority Holders
and one of which shall be selected by the Company. If the Common Stock is not
reported in the over-the-counter market and no member of the NASD selected
pursuant to the preceding sentence will furnish the Daily Market Price, then the
Daily Market Price shall be the fair market value per share of Common Stock as
of such date, determined in good faith by the Board of Directors.
"Effective Date" shall have the meaning set forth in the Plan.
"Expiration Date" shall mean __________ ___, 2005.
"Extraordinary Distribution" shall mean any dividend or distribution in
respect of the Common Stock that:
(a) is made after the Effective Date but prior to the Initial Measurement
Date;
(b) is made during the First Measurement Period, to the extent that the
aggregate amount of cash or other property included in such dividend or
distribution, when aggregated with all other dividends and distributions made
after the Initial Measurement Date but prior to the date on which such dividend
or distribution is paid or distributed, exceeds 25% of the Company's cumulative
consolidated net income (before extraordinary items determined in accordance
with GAAP) for the period beginning on the first day of the First Measurement
Period through and including the date such dividend is paid or distributed; or
(c) is made after the last day of the First Measurement Period, to the
extent that the aggregate amount of cash or other property included in such
dividend or distribution, when aggregated with all other dividends and
distributions paid or
3
<PAGE>
distributed after the Initial Measurement Date but prior to the date on which
such dividend or distribution is paid or distributed, exceeds the sum of (i) the
First Measurement Amount and (ii) 50% of the Company's cumulative consolidated
net income (before extraordinary items determined in accordance with GAAP) for
the period beginning on the first day next following the last day of the First
Measurement Period through and including the date such dividend or distribution
is paid or distributed; provided, however, that in determining the aggregate
amount of dividends and distributions paid or distributed after the Initial
Measurement Date for purposes of clause (c) above, the amount of such dividends
or distributions made during the First Measurement Period is equal to the lesser
of (x) the amounts actually paid or distributed and (y) the First Measurement
Amount; and provided, further, however, that up to $15 million in cash paid by
the Company pursuant to the Plan on and after the Effective Date to holders of
the 12% Senior Discount Notes due 2003 that were outstanding prior to the
Effective Date shall not constitute an "Extraordinary Distribution" for purposes
of this Agreement.
"First Measurement Amount" shall mean, with respect to the First
Measurement Period, an amount equal to 25% of the Company's cumulative
consolidated net income for such period (before extraordinary items determined
in accordance with GAAP).
"First Measurement Period" shall mean the period commencing on the Initial
Measurement Date and ending on the last day of the 11th fiscal quarter of the
Company next following such date.
"Fully Diluted Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all shares of Common Stock Outstanding at such date and all shares of Common
Stock issuable in respect of any Warrants and any other options or warrants to
purchase, or securities convertible into or exchangeable for, shares of Common
Stock outstanding on such date including, without limitation, all Permitted
Issuances.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as from time to time in effect.
"Holder" shall mean the Person in whose name a Warrant is registered in the
warrant register of the Company maintained by or on behalf of the Company for
such purpose.
"Initial Measurement Date" shall mean the first day of the first full
fiscal quarter of the Company next following the Effective Date.
4
<PAGE>
"Majority Holders" shall mean the Holders of Warrants exercisable for in
excess of 50% of the aggregate number of shares of Common Stock then purchasable
upon exercise of all Warrants.
"NASD" shall mean the National Association of Securities Dealers, Inc., or
any successor corporation thereto.
"Other Property" shall have the meaning set forth in Section 6.7.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company or any subsidiary thereof, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
"Permitted Issuances" shall mean the issuance and grant of stock options
pursuant to the Company's 1997 Stock Option Plan and the issuance of shares of
Common Stock upon the exercise of (i) such options, (ii) the Warrants and (iii)
the Series B Warrants issued by the Company on the Effective Date.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation, limited
liability company, limited liability partnership, institution, public benefit
corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
"Plan" shall mean the Company's Plan of Reorganization Under Chapter 11 of
the United States Bankruptcy Code, as it may be amended or modified.
"Preferred Stock" shall mean the Company's Series F Preferred Stock, Series
H Preferred Stock and Series G Preferred Stock.
"Pricing Period" shall have the meaning set forth in Section 13.1.
"Repurchase Price" shall have the meaning set forth in Section 13.1.
"Stockholders' Agreement" shall mean that certain Stockholders' Agreement
dated as of ____________ __, 1997, by and
5
<PAGE>
among the Company and each of the stockholders of the Company, a copy of which
is annexed hereto as Exhibit C.
"Trading Day" shall mean any day on which the principal stock exchange on
which the Common Stock is listed or admitted to trading is open or, if the
Common Stock is not then listed or admitted to trading on any stock exchange,
any day on which the National Association of Securities Dealers Automated
Quotation System or the National Quotation Bureau Inc. reports prices in respect
of securities or, if neither such corporation is then engaged in such business,
any day on which the member of the NASD selected as specified in the proviso set
forth in the definition of "Daily Market Price" furnishes prices for securities.
"Warrant Agent" shall have the meaning assigned to such term in the first
paragraph of this Warrant Agreement and shall include any successor Warrant
Agent hereunder.
"Warrant Agent's Principal Office" shall mean the principal office of the
Warrant Agent in New York City, New York (or such other office of the Warrant
Agent or any successor thereto hereunder acceptable to the Company as set forth
in a written notice provided to the Company and the Holders).
"Warrant Agreement" shall have the meaning assigned to such term in the
first paragraph of this Warrant Agreement.
"Warrant Price" shall mean an amount equal to (1) the number of shares of
Common Stock being purchased upon exercise of a Warrant pursuant to Section 4.1,
multiplied by (2) the Current Warrant Price as of the date of such exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
Holders of the Warrants upon the exercise thereof.
"Warrants" shall have the meaning assigned to such term in the recitals to
this Warrant Agreement, and shall include all warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All Warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Common Stock and the class of Common Stock for which
they may be exercised.
2. APPOINTMENT OF WARRANT AGENT.
2.1. Appointment. The Company hereby appoints the Warrant Agent to act as
agent for the Company in accordance with the instructions set forth in this
Warrant Agreement, and the Warrant Agent hereby accepts such appointment.
6
<PAGE>
3. REGISTRATION, FORM AND EXECUTION OF WARRANTS.
3.1. Registration. All Warrants shall be numbered and shall be registered
in a warrant register maintained at the Warrant Agent's Principal Office by the
Warrant Agent as they are issued. The Company and the Warrant Agent shall be
entitled to treat a Holder as the owner in fact for all purposes whatsoever of
each Warrant registered in such Holder's name.
3.2. Form of Warrant. The text of each Warrant and of the Election to
Purchase Form and Assignment Form shall be substantially as set forth in Exhibit
A attached hereto. Each Warrant shall be executed on behalf of the Company by
its President or one of its Vice Presidents, under its corporate seal reproduced
thereon or facsimile thereof attested by its Secretary or an Assistant
Secretary. The signature of any of such officers on the Warrants may be manual
or facsimile.
Warrants bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrants or did not hold such
offices on the date of this Warrant Agreement.
Warrants shall be dated as of the date of countersignature thereof by the
Warrant Agent either upon initial issuance or upon division, exchange,
substitution or transfer.
3.3. Countersignature of Warrants. Each Warrant shall be manually
countersigned by the Warrant Agent (or any successor to the Warrant Agent then
acting as warrant agent under this Warrant Agreement) and shall not be valid for
any purpose unless so countersigned. Warrants may be countersigned, however, by
the Warrant Agent (or by its successor as warrant agent hereunder) and may be
delivered by the Warrant Agent, notwithstanding that the persons whose manual
signatures appear thereon as proper officers of the Company shall have ceased to
be such officers at the time of such countersignature, issuance or delivery. The
Warrant Agent shall, upon written instructions of the President, a Vice
President, the Secretary, or an Assistant Secretary of the Company, countersign,
issue and deliver Warrants entitling the Holders thereof to purchase not more
than 810,811 shares of Common Stock (subject to adjustment as set forth herein)
and shall countersign and deliver Warrants as otherwise provided in this Warrant
Agreement.
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4. EXERCISE OF WARRANTS
4.1. Manner of Exercise. From and after the date hereof until 5:00 p.m.,
New York City time, on the Expiration Date, a Holder may exercise any of the
Warrants, on any Business Day, for all or any part of the number of shares of
Common Stock purchasable thereunder.
In order to exercise a Warrant, in whole or in part, a Holder shall deliver
to the Company at the Warrant Agent's Principal Office, (1) a written notice of
such Holder's election to exercise such Warrant, which notice shall include the
number of shares and class of Common Stock to be purchased, (2) payment in
immediately available funds or certified cashiers or official bank check or
checks in each case in United States dollars of the Warrant Price for the
account of the Company and (3) such Warrant. Such notice shall be substantially
in the form of the Election to Purchase Form set forth on the reverse side of
the form of Warrant Certificate attached as Exhibit A hereto, duly executed by
such Holder or its agent or attorney. Upon receipt thereof, the Warrant Agent
shall, as promptly as practicable, and in any event within five Business Days
thereafter, deliver or cause to be delivered to such Holder an executed
certificate or certificates representing the aggregate number of full shares of
Common Stock issuable upon such exercise. The stock certificate or certificates
so delivered shall be, to the extent possible, in such denomination or
denominations as such Holder shall request in the notice and shall be registered
in the name of such Holder or such other name as shall be designated in such
notice. A Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and such Holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares for all purposes, as of the date such notice, together
with the immediately available funds or certified cashiers or official bank
check or checks in United States dollars and such Warrant, is received by the
Warrant Agent as described above and all taxes required to be paid by such
Holder, if any, pursuant to Section 4.2 prior to the issuance of such shares
have been paid. If any Warrant shall have been exercised in part, the Warrant
Agent shall, at the time of delivery of the certificate or certificates
representing Warrant Stock, deliver to the Holder a new Warrant evidencing the
rights of such Holder to purchase the unpurchased shares of Common Stock called
for by such Warrant, which new Warrant shall in all other respects be identical
with the Warrant exercised in part, or, at the request of such Holder,
appropriate notation may be made on such exercised Warrant and the same returned
to such Holder. Notwithstanding any provision herein to the contrary, the
Warrant Agent shall not be required to register shares in the name of any Person
who acquired a
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Warrant (or part thereof) or any Warrant Stock otherwise than in accordance with
such Warrant and this Warrant Agreement.
Payment of the Warrant Price shall be made at the option of the Holder in
immediately available funds or by certified or official bank check or any
combination thereof, duly executed by such Holder or by such Holder's attorney
duly authorized in writing.
4.2. Payment of Taxes. All shares of Common Stock issuable upon the
exercise of any Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Holder shall
pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issuance or delivery thereof.
4.3. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. Whenever any
distribution of Warrants exercisable into fractional shares of Common Stock
would otherwise be called for, the actual distribution thereof will reflect a
rounding up or down to the nearest share of Common Stock, provided, that
whenever any distribution of a Warrant that is exercisable into exactly one-half
of a share of Common Stock would otherwise be called for, the actual
distribution will reflect a rounding down to the nearest share of Common Stock.
5. TRANSFER, DIVISION AND COMBINATION.
5.1. Transfer. Transfer of any Warrant and all rights hereunder, in whole
or in part, shall be registered in the warrant register of the Company to be
maintained for such purpose at the Warrant Agent's Principal Office, upon
surrender of such Warrant at the Warrant Agent's Principal Office, together with
a written assignment of such Warrant substantially in the form set forth on the
reverse side of the form of Warrant Certificate attached as Exhibit A hereto
duly executed by the Holder or its agent or attorney and payment of all funds
sufficient to pay any taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, and subject to Section 9, the Company
shall execute and the Warrant Agent shall countersign and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the denomination
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of such Warrant not so assigned, and the
surrendered Warrant shall promptly be cancelled. A Warrant, if properly
assigned, may be exercised by a new Holder for the purchase of shares of Common
Stock without having a new Warrant issued.
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5.2. Division and Combination. Any Warrant may be divided or combined with
other Warrants upon presentation thereof at the Warrant Agent's Principal
Office, together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 5.1, as to any transfer which may
be involved in such division or combination, the Company shall execute and the
Warrant Agent shall countersign and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
5.3. Maintenance of Books. The Warrant Agent agrees to maintain, at the
Warrant Agent's Principal Office, the warrant register for the registration of
warrants and the registration of transfer of the Warrants.
6. ADJUSTMENTS.
The number of shares of Common Stock for which a Warrant is exercisable,
and the price at which such shares may be purchased upon exercise of a Warrant,
shall be subject to adjustment from time to time as set forth in this Section 6.
6.1. Stock Dividends, Subdivisions and Combinations; Extraordinary
Distributions. (a) If at any time the Company shall:
(i) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which a Warrant is exercisable
immediately after the occurrence of any such event shall be adjusted to equal
the number of shares of Common Stock that a record holder of the same number of
shares of Common Stock for which a Warrant is exercisable immediately prior to
the occurrence of such event would own or be entitled to receive after the
happening of such event, and (ii) the Current Warrant Price shall be adjusted to
equal (A) the Current Warrant Price multiplied by the number of shares of Common
Stock for which a Warrant is exercisable immediately prior to the adjustment
divided by (B) the number of shares for which a Warrant is exercisable
immediately after such adjustment.
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(b) If the Company shall pay or distribute an Extraordinary
Distribution in cash or other property, the Current Warrant Price shall be
adjusted downward in an amount equal to the per share (computed on the basis of
the number of shares then Outstanding) dollar amount of the Extraordinary
Distribution.
6.2. Certain Issuances of Additional Shares of Common Stock. (a) If at any
time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, for
consideration in an amount per Additional Share of Common Stock less than the
Daily Market Price, then (i) the number of shares of Common Stock for which each
Warrant is exercisable shall be adjusted to equal the product obtained by
multiplying the number of shares of Common Stock for which each Warrant is
exercisable immediately prior to such issuance or sale by a fraction (A) the
numerator of which shall be the number of shares of Common Stock Outstanding
immediately after such issuance or sale, and (B) the denominator of which shall
be the number of shares of Common Stock Outstanding immediately prior to such
issuance or sale plus the number of shares which the aggregate offering price of
the total number of such Additional Shares of Common Stock would purchase at the
then Daily Market Price; and (ii) the Current Warrant Price as to the number of
shares for which each Warrant is exercisable prior to such adjustment shall be
adjusted by multiplying such Current Warrant Price by a fraction (X) the
numerator of which shall be the number of shares for which each Warrant is
exercisable immediately prior to such issuance or sale; and (Y) the denominator
of which shall be the number of shares of Common Stock purchasable immediately
after such issuance or sale.
6.3. Certain Issuances of Warrants or Other Rights. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving or
resulting corporation) issue or sell, any warrants or other rights to subscribe
for or purchase any Additional Shares of Common Stock or any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such warrants or other rights or upon conversion
or exchange of such Convertible Securities shall be less than the Daily Market
Price in effect immediately prior to the time of such issuance or sale, then the
number of shares for which each Warrant is exercisable and the Current Warrant
Price shall be adjusted as provided in Section 6.2 on the basis that the maximum
number of Additional Shares of Common Stock issuable pursuant to all such
warrants or other rights or
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necessary to effect the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued and outstanding and the Company
shall be deemed to have received all of the consideration payable therefor, if
any, as of the date of the issuance of such warrants, other rights or
Convertible Securities. No further adjustments of the Current Warrant Price or
the number of shares for which each Warrant is exercisable shall be made upon
the actual issuance of such Common Stock or of such Convertible Securities upon
exercise of such warrants or other rights or upon the actual issuance of such
Common Stock upon such conversion or exchange of such Convertible Securities.
6.4. Certain Issuances of Convertible Securities. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving or
resulting corporation) issue or sell, any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Daily Market Price in effect immediately prior
to the time of such issuance or sale, then the number of shares of Common Stock
for which each Warrant is exercisable and the Current Warrant Price shall be
adjusted as provided in Section 6.2 on the basis that the maximum number of
Additional Shares of Common Stock necessary to effect the conversion or exchange
of all such Convertible Securities shall be deemed to have been issued and
outstanding and the Company shall have received all of the consideration payable
therefor, if any, as of the date of issuance of such Convertible Securities. No
adjustment of the number of shares of Common Stock for which each Warrant is
exercisable and the Current Warrant Price shall be made under this Section 6.4
upon the issuance of any Convertible Securities which are issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any such adjustment previously shall have been made upon the issuance of such
warrants or other rights pursuant to Section 6.3. No further adjustments of the
number of shares of Common Stock for which each Warrant is exercisable and the
Current Warrant Price shall be made upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities and, if any
issuance or sale of such Convertible Securities is made upon exercise of any
warrant or other right to subscribe for or to purchase any such Convertible
Securities for which adjustments of the number of shares of Common Stock for
which each Warrant is exercisable and the Current Warrant Price have been or are
to be made pursuant to other provisions of this Article 6, no further
adjustments of the number of shares of Common Stock for which
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each Warrant is exercisable and the Current Warrant Price shall be made by
reason of such issuance or sale.
6.5. Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which a Warrant is exercisable and the
Current Warrant Price shall have been made pursuant to Section 6.3 or Section
6.4 as the result of any issuance of warrants, rights or Convertible Securities:
(a) such warrants or rights, or the right of conversion or exchange in
such other Convertible Securities, shall expire, and all or a portion of such
warrants or rights, or the right of conversion or exchange with respect to all
or a portion of such other Convertible Securities, as the case may be, shall not
have been exercised, or
(b) the consideration per share for which shares of Common Stock are
issuable pursuant to such warrants or rights, or the terms of such other
Convertible Securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per share upon
the occurrence of a specified date or event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled no longer shall be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis
of:
(c) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable pursuant to
the previous exercise of any such warrants or rights or any such right of
conversion or exchange, as having been issued on the date or dates of any such
exercise and for the consideration actually received and receivable therefor,
and
(d) treating any such warrants or rights or any such other Convertible
Securities which then remain outstanding as having been granted or issued
immediately after the time of such increase of the consideration per share for
which shares of Common Stock or other property are issuable under such warrants
or rights or other Convertible Securities; whereupon a new adjustment of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
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6.6. Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which a Warrant is exercisable and the
Current Warrant Price provided for in this Article 6:
(a) Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants or other
rights to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Securities shall be issued for cash consideration, the consideration
received by the Company therefor shall be the amount of the cash received by the
Company therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Convertible Securities are sold
to underwriters or dealers for public offering without a subscription offering,
the initial public offering price (in any such case subtracting any amounts paid
or receivable for accrued interest or accrued dividends and without taking into
account any compensation, discounts or expenses paid or incurred by the Company
for and in the underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration other
than cash, then, except as herein otherwise expressly provided, the amount of
such consideration shall be deemed to be the fair value of such consideration at
the time of such issuance as determined in good faith by the Board of Directors
of the Company. In case any Additional Shares of Common Stock or any Convertible
Securities or any warrants or other rights to subscribe for or purchase such
Additional Shares of Common Stock or Convertible Securities shall be issued in
connection with any merger in which the Company issues any securities, the
amount of consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of the Company, of such
portion of the assets and business of the nonsurviving corporation as such Board
in good faith shall determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities, warrants or other rights, as the case may
be. The consideration for any Additional Shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase the same
shall be the consideration received by the Company for issuing such warrants or
other rights plus the additional consideration payable to the Company upon
exercise of such warrants or other rights. The consideration for any Additional
Shares of Common Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by the Company for issuing
warrants or other rights to subscribe for or purchase such Convertible
Securities, plus the additional consideration, if any, payable to the Company
upon the exercise
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of the right of conversion or exchange in such Convertible Securities. In case
of the issuance at any time of any Additional Shares of Common Stock or
Convertible Securities in payment or satisfaction of any dividends upon any
class of stock other than Common Stock, the Company shall be deemed to have
received for such Additional Shares of Common Stock or Convertible Securities a
consideration equal to the amount of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by this
Article 6 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock for which a Warrant is exercisable that otherwise would be required
may be postponed (except in the case of a subdivision or combination of shares
of Common Stock, as provided for in Section 6.1) up to, but not later than the
date of exercise if such adjustment either by itself or with other adjustments
not previously made would result in an increase or decrease, as the case may be,
of less than 1% of the shares of Common Stock for which a Warrant is exercisable
immediately prior to the making of such adjustment. Any adjustment representing
a change of less than such minimum amount (except as aforesaid) which is
postponed shall be carried forward and made as soon as such adjustment, together
with other adjustments required by this Section 6 and not previously made, would
result in a minimum adjustment or on the date of exercise. For the purpose of
any adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments pursuant to this
Article 6, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
(d) When Adjustment Not Required. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
6.7. Reorganization, Reclassification, Merger, Consolidation or Sale of
Substantially all Assets of the Company. (a) If the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or resulting
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entity or where there is a change in or distribution with respect to the Common
Stock of the Company) (each such event hereinafter referred to as a
"Transaction"), and pursuant to the terms of any such Transaction, the
consideration to be paid or distributed to or otherwise received by the holders
of Common Stock consists of shares of common stock of the surviving corporation
or resulting entity and/or any cash, shares of stock (not constituting common
stock) or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) (such non-common stock
property hereinafter referred to as "Other Property"), then each Holder shall
have the right thereafter to receive, upon exercise of a Warrant, the number of
shares of common stock of the surviving corporation or resulting entity and such
amount of Other Property receivable pursuant to such Transaction by a holder of
the number of shares of Warrant Stock for which a Warrant is exercisable
immediately prior to the effective time of such Transaction.
In the case of any Transaction of the type described in the immediately
preceding paragraph of this Section 6.7(a), it shall be a condition precedent to
consummation of the Transaction that the surviving corporation or resulting
entity expressly assume the due and punctual observance and performance of each
and every covenant and condition of this Warrant Agreement and the Warrants to
be performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined by resolution of the Board of Directors of the Company) in order to
provide for adjustments of shares of the Warrant Stock for which a Warrant is
exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 6.7. For purposes of this Section 6.7,
"common stock of the surviving corporation or resulting entity" shall include
stock of such corporation of any class which does not have a preference as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exercisable or exchangeable for any such stock, either immediately, after the
lapse of any prescribed time period or the occurrence of a specified event, and
any warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 6.7 shall similarly apply to successive
Transactions.
(b) Notwithstanding anything to the contrary in paragraph (a) above,
if (i) pursuant to the terms of any Transaction, at least 70% of the aggregate
value of the consideration to be paid or distributed to or otherwise received by
the holders of Common Stock consists of Other Property and the aggregate fair
value per share of the common stock and Other
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Property to be paid or distributed to or otherwise received by the holders of
Common Stock is less than the Current Warrant Price or (ii) all or substantially
all of the assets of the Company are to be sold in a single transaction (or
series of related transactions)(such transaction or transactions hereinafter
referred to as a "Sale of Assets"), at least 70% in value of the consideration
to be received by the Company pursuant thereto consists of Other Property and
the aggregate fair value of the common stock and Other Property to be received
by the Company (computed on a per share after corporate-level tax basis as if
the same were then distributed to the stockholders of the Company) is less than
the Current Warrant Price, then, in either such case:
(1) the Board of Directors of the Company shall, in good faith and in
accordance with established market practices, determine the fair value per
Warrant of the Warrants (the "Board Warrant Value") and deliver written notice
of the Board Warrant Value to each Holder of Warrants. If within 20 days after
receipt of such notice the Majority Holders do not object to the Board Warrant
Value by delivering written notice thereof to the Company, then the Board
Warrant Value as determined by the Board of Directors shall be final and binding
and shall constitute the "Warrant Value" for all purposes of this Agreement. If
the Majority Holders shall object to the Board Warrant Value, they shall within
20 days after receipt of notice of the Board Warrant Value deliver written
notice of such objection to the Company, which notice shall require that the
Company promptly employ two independent appraisal or financial consulting firms
of recognized standing (the "Appraisers"), each of which shall appraise the fair
value of the Warrants. The Appraisers shall, within 20 days after the Company's
receipt of the Majority Holders' notice of objection to the Warrant Value, send
to each Holder of Warrants its appraisal of the fair value of the Warrants, and
the average of each Appraiser's determination of the fair value of the Warrants
shall be the "Warrant Value" for all purposes of this Agreement;
(2) upon consummation of a transaction of a type referred to in clause
(i) or (ii) above, each then vested and exercisable Warrant having an exercise
price greater than the aggregate fair value per share of the common stock and
Other Property to be paid or distributed to or otherwise received by the holders
of the Common Stock (in the case of a clause (i) transaction) or by the Company
(in the case of a clause (ii) transaction) shall be cancelled, terminated and of
no further force or effect and each Holder shall receive in respect of each such
Warrant an amount in cash equal to the Warrant Value;
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(3) upon consummation of a transaction of a type referred to in clause
(i) or (ii) above, each then vested and exercisable Warrant having an exercise
price less than the aggregate fair value per share of the common stock and Other
Property to be paid or distributed to or otherwise received by the holders of
the Common Stock (in the case of a clause (i) transaction) or by the Company (in
the case of a clause (ii) transaction) shall be deemed to have been exercised in
full and, upon payment of the Current Warrant Price in respect thereof, the
Holder of a Warrant shall be entitled to receive (x) the amount of common stock
and Other Property such Holder would have become entitled to receive pursuant to
the transactions as a holder of the number of shares of Common Stock for which
the Warrant was exercisable as of such date and (y) an amount in cash equal to
the difference, if any, between the Warrant Value and the amount by which the
fair value of the common stock and Other Property received pursuant to clause
(x) above exceeds the Current Warrant Price; and
(4) the Company and the Holders of Warrants shall each bear 50% of the
total costs and expenses, if any, attributable to the Appraisers, and the share
of such costs and expenses attributable on a per share basis to each Holder
shall be deducted from the cash payable to such Holder pursuant to either of
paragraph (2) or (3) above.
6.8. Certain Limitations. Notwithstanding anything herein to the contrary,
the Company agrees not to enter into any transaction which, by reason of any
adjustment hereunder, would cause the Current Warrant Price to be less than the
par value per share of Common Stock.
7. NOTICES TO WARRANT HOLDERS.
7.1. Notice of Adjustments. Whenever the number of shares of Common Stock
for which a Warrant is exercisable, or whenever the price at which a share of
such Common Stock may be purchased upon exercise of the Warrants, shall be
adjusted pursuant to Section 6, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the Company setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated, specifying the number of shares of
Common Stock for which a Warrant is exercisable and describing the number and
kind of any other shares of stock or Other Property for which a Warrant is
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exercisable, and any change in the purchase price or prices thereof, after
giving effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to each Holder in accordance
with Section 14.2. The Company shall keep at its office or agency designated by
the Company pursuant to Section 12 copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by any Holder or any prospective purchaser of a Warrant designated by a Holder
thereof.
7.2. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend (other than a cash
dividend payable out of earnings or earned surplus legally available for the
payment of dividends under the laws of the jurisdiction of incorporation of the
Company) or other distribution of Additional Shares of Common Stock, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give to each Holder
(i) prompt written notice of the record date for such dividend, distribution or
right or for determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, prior written notice of the
date when the same shall take place. Such notice in accordance with the
foregoing clause also shall specify (i) the date on which any such record is
taken for the purpose of such dividend, distribution or right, the date on which
the holders of Common Stock shall be entitled to any such dividend, distribution
or right, and the amount and character thereof, and (ii) the date and time on
which any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up takes place. Each
such written notice shall be sufficiently given if addressed to such Holder at
the last address of such
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Holder appearing on the books of the Company and delivered in accordance with
Section 14.2.
To enable each Holder of an "In-the-Money Company Warrant" to
participate in a "Tag-along-Sale", the Company hereby further agrees to deliver
to each Holder of an "In-the-Money Company Warrant" a true and complete copy of
(i) the "Original Transfer Notice" not later than the 25th day next preceding
the "Original Transfer Date" and (ii) the "New Transfer Notice" not later than
the 25th day next preceding the "New Transfer Date (all of the foregoing
capitalized terms used and not expressly defined in this Agreement having, the
respective meanings assigned to them in the Stockholder's Agreement).
8. NO IMPAIRMENT.
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant Agreement or any Warrant.
Without limiting the generality of the foregoing, the Company will (1) not
increase the par value of any shares of Common Stock receivable upon the
exercise of a Warrant above the amount payable therefor upon such exercise
immediately prior to such increase in par value and (2) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of any Warrant.
9. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL
OF ANY GOVERNMENTAL AUTHORITY.
From and after the Effective Date, the Company shall at all times reserve
and keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding Warrants. All shares of Common Stock
which shall be so issuable, when issued upon exercise of any Warrant and payment
therefor in accordance with the terms of this Warrant Agreement and such
Warrant, shall be duly and validly issued and fully paid and nonassessable, and
not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may
20
<PAGE>
validly and legally issue fully paid and nonassessable shares of such Common
Stock at such adjusted Current Warrant Price.
10. STOCK AND WARRANT TRANSFER BOOKS.
The Company will not at any time, except upon dissolution, liquidation or
winding up of the Company, close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise or transfer of any
Warrant.
11. LOSS OR MUTILATION.
Upon receipt by the Company and the Warrant Agent from any Holder of
evidence reasonably satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of such Holder's Warrant and indemnity
reasonably satisfactory to them, and in case of mutilation upon surrender and
cancellation thereof, the Company will execute and the Warrant Agent will
countersign and deliver in lieu hereof a new Warrant of like tenor to such
Holder; provided, in the case of mutilation, no indemnity shall be required if
such Warrant in identifiable form is surrendered to the Company or the Warrant
Agent for cancellation.
12. OFFICE OF COMPANY.
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant Agreement. The
Company shall initially maintain such an agency at the Warrant Agent's Principal
Offices.
13. WARRANT AGENT.
13.1. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto; provided that such
corporation must be eligible for appointment as a successor Warrant Agent under
the provisions of Section 13.3 hereof. If at the time such successor to the
Warrant Agent shall succeed to the agency created by this Warrant Agreement any
of the Warrants shall have been countersigned but not delivered, any such
successor to the Warrant Agent may adopt
21
<PAGE>
the countersignature of the predecessor Warrant Agent and deliver such Warrants
so countersigned; and if at that time any of the Warrants shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrants
either in the name of the predecessor Warrant Agent or in the name of the
successor Warrant Agent; and in all such cases Warrants shall have the full
force provided in the Warrants and in this Warrant Agreement. If at any time the
name of the Warrant Agent shall be changed and at such time any of the Warrants
shall have been countersigned but not delivered, the Warrant Agent may adopt the
countersignatures under its prior name and deliver such Warrants so
countersigned; and if at that time any of the Warrants shall not have been
countersigned as provided in Section 3.3, the Warrant Agent may countersign such
Warrants either in its prior name or in its changed name; and in all such cases
such Warrants shall have the full force provided in the Warrants and in this
Warrant Agreement.
13.2. Certain Terms and Conditions Concerning the Warrant Agent. The
Warrant Agent undertakes the duties and obligations imposed by this Warrant
Agreement upon the following terms and conditions, by all of which the Company
and the Holders, by their acceptance of Warrants, shall be bound:
(a) Correctness of Statements. The statements contained herein and in
the Warrants shall be taken as statements of the Company and the Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken by it. The Warrant Agent assumes no
responsibility with respect to the distribution of the Warrants except as herein
otherwise provided.
(b) Breach of Covenants. The Warrant Agent shall not be responsible
for any failure of the Company to comply with any of the covenants contained in
this Warrant Agreement or in the Warrants to be complied with specifically by
the Company.
(c) Performance of Duties. The Warrant Agent may execute and exercise
any of the rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents (which shall not include
its employees) and shall not be responsible for the misconduct or negligence of
any agent appointed with due care.
(d) Reliance on Counsel. The Warrant Agent may consult at any time
with legal counsel satisfactory to it (who may be counsel for the Company) and
the Warrant Agent shall incur no liability or responsibility to the Company or
to any Holder in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of
22
<PAGE>
such counsel provided that such counsel shall have been selected with due care.
(e) Proof of Actions Taken. Whenever in the performance of its duties
under this Warrant Agreement the Warrant Agent shall deem it necessary or
desirable that any fact or matter be proved or established by the Company prior
to taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed
conclusively to be proved and established by a certificate signed by the
President, a Vice President, the Secretary or an Assistant Secretary of the
Company and delivered to the Warrant Agent; and such certificate shall be full
authorization to the Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Warrant Agreement in reliance upon such
certificate.
(f) Compensation. The Company agrees to pay the Warrant Agent
reasonable compensation as set forth in the fee schedule attached hereto as
Exhibit B for all services rendered by the Warrant Agent in the performance of
its duties under this Warrant Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in the performance of its duties under this
Warrant Agreement, and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and counsel fees,
for anything done or omitted by the Warrant Agent in the performance of its
duties under this Warrant Agreement except as a result of the Warrant Agent's
negligence or bad faith.
(g) Legal Proceedings. The Warrant Agent shall be under no obligation
to institute any action, suit or legal proceeding or to take any other action
likely to involve expense unless the Company or one or more Holders shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
and expenses that may be incurred, but this provision shall not affect the power
of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Warrant Agreement or under any of the Warrants may be enforced
by the Warrant Agent without the possession of any of the Warrants or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent, and any recovery of judgment shall be for the
ratable benefit of the Holders, as their respective rights or interests may
appear.
23
<PAGE>
(h) Other Transactions in Securities of the Company. The Warrant Agent
and any stockholder, director, officer or employee of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not Warrant Agent under this Warrant
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) Liability of Warrant Agent. The Warrant Agent shall act hereunder
solely as agent, and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not be liable for anything that it may do or
refrain from doing in connection with this Warrant Agreement except for its own
negligence or bad faith.
(j) Reliance on Documents. The Warrant Agent will not incur any
liability or responsibility to the Company or to any Holder for any action taken
in reliance on any notice, resolution, waiver, consent, order, certificate, or
other paper, document or instrument reasonably believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties.
(k) Validity of Agreements. The Warrant Agent shall not be under any
responsibility in respect of the validity of this Warrant Agreement or the
execution and delivery hereof (except the due execution and delivery hereof by
the Warrant Agent) or in respect of the validity or execution of any Warrant
(except its countersignature and delivery thereof); nor shall the Warrant Agent
by any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Warrant Stock (or other stock) to be issued
pursuant to this Warrant Agreement or any Warrant, or as to whether any Warrant
Stock (or other stock) will, when issued, be validly issued, fully paid and
nonassessable, or as to the Warrant Price or the number or amount of Warrant
Stock or other securities or other property issued upon exercise of any Warrant.
(l) Instructions from Company. The Warrant Agent is hereby authorized
and directed to accept instructions with respect to the performance of its
duties hereunder from the President, a Vice President, the Secretary or any
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer or officers.
24
<PAGE>
13.3. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Warrant Agreement by giving to the Company
30 days' advance notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent, then any Holder may apply to a court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Pending
the appointment of the successor warrant agent, the Company shall perform the
duties of the Warrant Agent. Any successor warrant agent, whether appointed by
the Company or a court of competent jurisdiction, shall be a bank or trust
company, in good standing, incorporated under the laws of the United States of
America or any state thereof and having at the time of its appointment as
warrant agent a combined capital and surplus of at least $500,000,000. After
appointment, the successor warrant agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed; but the former Warrant Agent shall
deliver and transfer to the successor warrant agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance,
act or deed necessary for the purpose. Failure to file any notice provided for
in this Section 13.3, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Warrant Agent or the
appointment of the successor warrant agent, as the case may be. In the event of
such resignation or removal, the successor warrant agent shall mail, first
class, to each Holder, written notice of such removal or resignation and the
name and address of such successor warrant agent.
13.4. Disposition of Proceeds on Exercise of Warrants, Inspection of
Warrant Agreement. The Warrant Agent shall account promptly to the Company with
respect to Warrants exercised and concurrently pay to the Company all
immediately available funds received by the Warrant Agent for the purchase of
the Warrant Stock through the exercise of such Warrants. The Warrant Agent
shall, upon request of the Company from time to time, deliver to the Company
such complete reports of registered ownership of the Warrants and such complete
records of transactions with respect to the Warrants and the shares of Common
Stock as the Company may request. The Warrant Agent shall also make available to
the Company for inspection by the Company's agents or employees, from time to
time as the Company may request, such original books of accounts and records
maintained by the Warrant Agent in
25
<PAGE>
connection with the issuance and exercise of Warrants hereunder, such
inspections to occur at the Warrant Agent's Principal Office. The Warrant Agent
shall keep copies of this Warrant Agreement and any notices given or received
hereunder available for inspection by the Company or the Holders at the Warrant
Agent's Principal Office. The Company shall supply the Warrant Agent from time
to time with such numbers of copies of this Warrant Agreement as the Warrant
Agent may request.
14. MISCELLANEOUS.
14.1. Stockholders' Agreement. The acceptance and exercise of any Warrant
issued pursuant to this Warrant Agreement shall constitute the agreement of the
Holder thereof to become a party to and to be bound by the Stockholders'
Agreement (a copy of which is attached hereto as Exhibit C) upon the acquisition
of Common Stock by such Holder upon the exercise of such Warrant.
14.2. Notice Generally. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant Agreement shall be sufficiently given or made if
in writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid or by
telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last known
address appearing on the warrant register of the Company maintained for
such purpose.
(b) If to Company at
CHI Energy, Inc.
680 Washington Boulevard
Stamford, Connecticut 06901
Attention: Edward M. Stern, President and General
Counsel
Telecopy Number:
(c) If to Warrant Agent at
[To come]
Attention:
Telecopy Number:
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval,
26
<PAGE>
declaration, delivery or other communication hereunder shall be deemed to have
been duly given or served on the date on which personally delivered, with
receipt acknowledged, telecopied and confirmed by telecopy answerback or three
Business Days after the same shall have been deposited in the United States mail
whichever is earlier. Failure or delay in delivering copies of any notice,
demand, request, approval, declaration, delivery or other communication to the
Person designated above to receive a copy shall in no way adversely affect the
effectiveness of such notice, demand, request, approval, declaration, delivery
or other communication.
14.3. Successors and Assigns. All covenants and provisions of this Warrant
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
14.4. Amendment. This Warrant Agreement and the Warrants may only be
modified or amended or the provisions hereof and thereof waived with the written
consent of the Company, the Warrant Agent and the Majority Holders, provided
that no Warrant may be modified or amended to reduce the number of shares of
Common Stock for which such Warrant is exercisable or to increase the price at
which such shares may be purchased upon exercise of such Warrant (before giving
effect to any adjustment as provided herein and therein) without the prior
written consent of the Holder thereof.
14.5. Third-Party Beneficiaries. All covenants and provisions of this
Warrant Agreement shall inure to the benefit of each Holder from time to time of
Warrants.
14.6. Severability. Wherever possible, each provision of this Warrant
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Warrant Agreement.
14.7. Headings. The headings used in this Warrant Agreement are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant Agreement.
14.8. Governing Law. This Warrant Agreement and the Warrants shall be
governed by the laws of the State of Delaware, without regard to the provisions
thereof relating to conflict of laws.
27
<PAGE>
14.9. Counterparts. This Warrant Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
IN WITNESS WHEREOF, each of the Company and the Warrant Agent has caused
this Warrant Agreement to be duly executed by its duly authorized officers as of
the date first above written.
CHI ENERGY, INC.
By:______________________________________
Name:____________________________________
Title:___________________________________
__________________________, as
Warrant Agent
By:______________________________________
Name:____________________________________
Title:___________________________________
28
<PAGE>
EXHIBIT A
---------
[FORM OF FACE OF WARRANT CERTIFICATE]
CHI ENERGY, INC.
Warrant to purchase [Class A Common Stock/Class B
Common Stock], par value $0.01 per share, of
CHI Energy, Inc.
- - - -------------------------------------------------------------------------------
Warrant Certificate No.: Number of Warrants:
CUSIP No. ___________
- - - -------------------------------------------------------------------------------
See Reverse for Certain Definitions
Exercisable from and after the date hereof until 5:00 p.m., New York City
time on , 2005.
This Warrant Certificate certifies that ____________________, or registered
assigns, is the registered holder of the number of Warrants set forth above
expiring at 5:00 p.m., New York City time, on , 2005 (the "Warrants") to
purchase [Class A Common Stock/Class B Common Stock], par value $0.01 per share
(collectively, the "Common Stock"), of CHI Energy, Inc., a Delaware corporation
(the "Company"). The Common Stock issuable upon exercise of Warrants is
hereinafter referred to as the "Warrant Stock." Subject to the immediately
succeeding paragraph, each Warrant entitles the holder upon exercise to purchase
from the Company at any time after the date hereof until 5:00 p.m., New York
City time, on _______ ___, 2005, one share of Common Stock, subject to
adjustment as set forth herein and in the Warrant Agreement dated as of , 1997
(the "Warrant Agreement") by and between the Company and , a corporation, as
warrant agent (the "Warrant Agent"), in whole or in part, at the initial
purchase price of $[_____] per share, on and subject to the terms and conditions
set forth herein and in the Warrant Agreement. Such purchase shall be payable in
lawful money of the United States of America by certified or official bank check
or any combination thereof to the order of the Warrant Agent for the account of
the Company at the principal office of the Warrant Agent, but only subject to
the conditions set forth herein and in the Warrant Agreement. The number of
shares of Common Stock for which each Warrant is exercisable, and the price at
which such shares may be purchased upon exercise of each Warrant, are subject to
adjustment upon the occurrence of certain events as set forth in the Warrant
Agreement. Whenever the number of shares of Common Stock for which a Warrant is
exercisable, or
29
<PAGE>
the price at which a share of such Common Stock may be purchased upon exercise
of the Warrants, is adjusted pursuant to the Warrant Agreement, the Company
shall cause to be given to each of the registered holders of the Warrants at
such holders' addresses appearing on the Warrant register written notice of such
adjustment by first class mail postage pre-paid.
No Warrant may be exercised after 5:00 p.m., New York City time, on _______
___, 2005, and to the extent not exercised by such time such Warrants shall
become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse side hereof and such further provisions
shall for all purposes have the same effect as though fully set forth at this
place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REGARD TO THE PROVISIONS THEREOF RELATING TO CONFLICT OF LAWS.
30
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its President and has caused its corporate seal to be affixed
hereunto or imprinted hereon.
Dated:
(Seal)
Attest: CHI ENERGY, INC.
_________________________ By:___________________________________
Name:____________________ Name:_________________________________
Title: Secretary Title: President
COUNTERSIGNED:
_________________________, as Warrant Agent
By:___________________________________
Name:_________________________________
Title: President
[Authorized Signature]
31
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of up to Warrants expiring at 5:00 p.m., New York City time, on
, 2005 or, if such date is not a business day, the next succeeding business day,
entitling the holder, on exercise, to purchase shares of [Class A Common
Stock/Class B Common Stock], par value $0.01 per share, of the Company, and are
issued or to be issued pursuant to the Warrant Agreement, which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Warrant Agent,
the Company and the Holders (the words "Holders" or "Holder" meaning the
registered holders or registered holder of the Warrants). A copy of the Warrant
Agreement may be obtained by the Holder hereof upon written request to the
Company. The acceptance and exercise of any Warrant evidenced by this Warrant
Certificate shall constitute the agreement of the Holder hereof to become a
party to and to be bound by the Stockholders' Agreement upon the acquisition of
Common Stock by such Holder upon the exercise of such Warrant. A copy of the
Stockholders' Agreement may be obtained by the Holder hereof upon written
request to the Company.
Warrants may be exercised at any time from and after the date hereof until
5:00 p.m., New York City time, on , 2005 or, if such date is not a business day,
the next succeeding business day. The Holder of Warrants evidenced by this
Warrant Certificate may exercise them by surrendering this Warrant Certificate,
with the form of election to purchase set forth hereon properly completed and
executed, together with payment of the purchase price by certified or official
bank check or any combination thereof to the order of the Warrant Agent for the
account of the Company and the other required documentation. In the event that
upon any exercise of Warrants evidenced hereby the number of Warrants exercised
shall be less than the total number of Warrants evidenced hereby, there shall be
issued to the Holder hereof or his assignee a new Warrant Certificate evidencing
the number of Warrants not exercised.
The Warrant Agreement provides that the number of shares of Common Stock
for which each Warrant is exercisable, and the price at which such shares may be
purchased upon exercise of each Warrant, are subject to adjustment upon the
occurrence of certain events as set forth in the Warrant Agreement. The Company
shall not be required to issue any fractional share, of Common Stock upon the
exercise of any Warrant, but the Company shall round up
32
<PAGE>
or down to the nearest share of Common Stock as provided in the
Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Warrant Agent
by the registered Holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement
without charge except for any tax imposed in connection therewith.
33
<PAGE>
[ELECTION TO PURCHASE FORM]
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of ______ Shares of [Class A Common Stock/Class B
Common Stock of] CHI Energy, INC. and herewith makes payment therefor, all at
the price and on the terms and conditions specified in this Warrant and the
Warrant Agreement and requests that certificates for the shares of Common Stock
hereby purchased (and any securities or other property issuable upon such
exercise) be issued in the name of and delivered to _____________ whose address
is _________________ and, if such shares of Common Stock shall not include all
of the shares of Common Stock issuable as provided in this Warrant, that a new
Warrant of like tenor and date for the balance of the shares of Common Stock
issuable hereunder be delivered to the undersigned. By executing this Election
to Purchase, the undersigned agrees to become a party to and to be bound by that
certain Stockholders' Agreement, dated as of ____________ __, 1997, by and among
the Company and each of the stockholders of the Company (the "Stockholders'
Agreement"), as a Stockholder (as defined in the Stockholders' Agreement) and to
the same extent as all other Stockholders' now a party to and bound thereby.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) Zip Code)
NOTICE: The signature on this election to purchase must correspond with
the name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
34
<PAGE>
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
Name and Address of Assignee No. of Shares of
- - - ---------------------------- ----------------
Common Stock
------------
and does hereby irrevocably constitute and appoint _______________________
attorney-in-fact to register such transfer on the books of CHI Energy, Inc.
maintained for the purpose, with full power of substitution in the premises.
Dated:____________________ Print Name:_________________________________
Signature:__________________________________
Witness:____________________________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
35
<PAGE>
EXHIBIT B
_________________________________,
as Warrant Agent
Schedule of Fees
----------------
36
EMPLOYMENT AGREEMENT
This AGREEMENT, made this 1st day of January, 1997, by and
between CONSOLIDATED HYDRO, INC. (the "Company"), a Delaware corporation with
its principal office at Stamford Towers, 680 Washington Boulevard, Stamford, CT
06901, and Michael I. Storch ("Executive"), an individual residing at 169 Mill
Brook Road, Stamford, CT 06902.
WHEREAS, the Company and Executive wish to enter into an
employment agreement whereby Executive will be employed by the Company in
accordance with the terms and conditions stated below;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive, and
----------
Executive agrees to enter the employ of the Company, for the period stated in
Section 3 hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. The Company agrees to employ
-----------------------------
Executive in the position of Executive Vice President, Strategy and Corporate
Development and Executive agrees to serve for the term and on the conditions
hereinafter set forth. Executive agrees to perform such services not
inconsistent with his position as shall from time to time be assigned to him by
the Chief Executive Officer of the Company, the Company's Board of Directors, or
by their respective designees.
3. Term and Duties.
---------------
(a) Term of Employment. This Agreement shall become effective
and the terms of employment pursuant to this Agreement shall commence on January
1, 1997, and will continue through June 30, 1999 unless earlier terminated in
accordance with the provisions hereof; provided, however, that, unless the
Company shall have delivered to Executive written notice of its intent not to
renew this Agreement prior to July 1, in any year, commencing with July 1, 1998,
the term of this Agreement shall be extended by twelve months from the then
effective expiration date.
<PAGE>
(b) Duties. During the period of his employment hereunder
Executive shall serve the Company as its Executive Vice President, Strategy and
Corporate Development and shall also serve as the President and Chief Executive
Officer of the Company's wholly-owned subsidiary. CHI Power Marketing, Inc.
("CHIPMI"), and except for illnesses, vacation periods, and reasonable leaves of
absence, Executive shall devote all his business time, attention, skill, and
efforts to the faithful performance of his duties hereunder;
provided, however, that with the approval of the Chief Executive Officer of the
Company, from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies or
organizations, which, in the Chief Executive Officer of the Company's judgment,
will not present any conflict of interest with the Company or any of its
subsidiaries or affiliates or divisions, or materially affect the performance of
Executive's duties pursuant to this Agreement.
So long as Executive is Executive Vice President, Strategy and
Corporate Development of the Company, he will discharge all duties incidental to
such office and such further duties as may be reasonably assigned to him from
time to time by the Chief Executive Officer of the Company, the Company's Board
of Directors, or by their respective designees. Subject to the authority of the
Company's Board of Directors, Executive shall participate in various corporate
activities including, but not limited to, selected corporate financing, capital
sourcing, transaction structuring, business development and strategic planning
activities, including the origination, negotiation, implementation and
transaction of such activities, as directed by the Company's Chief Executive
Officer or his designee and, with respect to CHIPMI, shall be responsible for,
inter alia, the day-to-day general management of all present and future
businesses of CHIPMI, its operating units and subsidiaries, if any; coordinating
CHIPMI's interface with the Company; sourcing CHIPMI's capital and overseeing
the development and implementation of CHIPMI's power marketing and power trading
activities, including those activities necessary to support the value
enhancement of the Company, it being understood that particularly because power
marketing and power trading are new business areas for the Company, and in light
of the considerations and risks inherent in any business development effort, it
is expected that Executive's responsibilities with respect to both the
2
<PAGE>
Company and CHIPMI will change over time, but will continue to be significant
responsibilities, reflective of Executive's senior position with the Company.
4. Compensation and Reimbursement of Expenses.
------------------------------------------
(a) Salary. For all services rendered by Executive as
Executive Vice President, Strategy and Corporate Development during his
employment under this Agreement, the Company shall pay Executive as compensation
a salary at the rate of $249,900 per year. Executive's salary shall be reviewed
on June 30, 1997, and at least annually thereafter during the term of this
agreement. Such review shall be conducted by the Board of Directors of the
Company, or a committee designated by the Board of Directors, and such Board or
committee may increase said salary. (The salary payable to Executive in any
fiscal year is referred to herein as the "Base Salary" for such fiscal year.)
(b) Incentive Compensation. For each fiscal year, commencing
with the fiscal year ending June 30, 1997, the Company shall pay Executive an
incentive bonus determined, at the discretion of the Board of Directors, upon
the achievement of certain goals and objectives to be agreed upon from time to
time by Executive and the Chief Executive Officer of the Company or his
designee. Such bonuses shall be payable upon completion of the annual audit of
the Company for the applicable year.
(c) Equity Plan. It is the current intention of the Board of
Directors of the Company to adopt an equity plan for the Company's management as
part of the Company's plan of restructuring. It is the Board's current
intention, should such a plan be adopted, that options relating to the Company's
common stock would be granted to the management of the Company upon completion
of such restructuring, and that options would be awarded to the Executive,
should he still be employed hereunder at such time.
(d) Reimbursement of Expenses. The Company shall pay or
reimburse Executive for all reasonable travel and other expenses incurred by
Executive in performing his obligations under this Agreement. The Company
further agrees to furnish Executive with a private office, private secretary,
and such other assistance and accommodations as shall be suitable to the
character of Executive's position with the Company and adequate for the
performance of his duties.
3
<PAGE>
5. Participation in Benefit Plans. The payments provided in
------------------------------
Sections 4 and 6 hereof are in addition to any benefits Executive is entitled to
under group hospitalization, health, dental care, disability insurance, surety
bond, death benefit plan, travel and/or accident insurance, other allowance
and/or executive compensation plan, including, without limitation, capital
accumulation and termination pay programs, restricted or non-restricted stock
purchase plan, stock option plan, retirement income or pension plan, or other
present or future group employee benefit plan or program of the Company for
which key executives are or shall become eligible, and Executive shall be
eligible to receive during the period of his employment under this Agreement,
and during any subsequent period for which he shall be entitled to receive
payment from the Company under Section 6(a) or Section 7(b) below, all benefits
and employments for which key executives are eligible under every such plan or
program to the extent permissible under the general terms and provisions of such
plans or programs and in accordance with the provisions thereof.
6. Benefits Payable Upon Disability or Death.
-----------------------------------------
(a) Disability Benefits. In the event of the disability of
Executive, the Company shall, subject to Section 9 hereof, continue to pay
Executive the monetary compensation and provide the other benefits provided in
Section 4 hereof during the period of his disability for the remainder of the
term of this Agreement, except that after the date of Executive's disability (i)
Executive shall not be entitled to payment of any further bonuses under Section
4(b), and (ii) no further options or other awards shall be granted Executive
under Section 4(c) or shall vest, unless the plan or agreement under which such
options or awards are granted provides otherwise. To the extent that disability
insurance is available on Executive, the Company shall be permitted to purchase
and pay for such insurance. Receipt by Executive of such disability benefits
shall reduce by such amount the obligation of the Company set forth in the
preceding sentence.
As used in this Agreement, the term "disability" shall mean
the complete inability of Executive to perform his duties under this Agreement
as determined by an independent physician selected by the Company with the
approval of Executive.
4
<PAGE>
(b) Death Benefits. In the event of the death of Executive
during a period of disability or otherwise during the term of this Agreement,
the Company shall pay, or cause to be paid, to Executive's designated
beneficiary or beneficiaries or legal representatives the payments set forth in
Section 7(b) below.
7. Payments to Executive Upon Termination of Employment.
----------------------------------------------------
(a) Termination. Upon the death of Executive or the occurrence
of an event of termination (as hereinafter defined) during the period of
Executive's employment under this Agreement, the provisions of this Section 7(a)
and Section 7(b) shall apply. As used in this Agreement, an "event of
termination" shall mean and include any one or more of the following:
(i) The termination by the Company of Executive's full-time
employment hereunder for any reason other than pursuant to Section 7(c)
or as a result of a material breach by Executive of this Agreement; or
(ii) Executive's resignation from the Company's employ,
pursuant to:
A. a material change by the Company in Executive's
function, duties or responsibilities, which change would cause
Executive's position with the Company to become one of less
dignity, responsibility, importance or scope from the position
and attributes as described in Section 2 above, and any such
material change shall be deemed a continuing breach of this
Agreement;
B. any liquidation, dissolution, consolidation or
merger of the Company which results in a change of control
of the Company or transfer of all or substantially all of its
assets;
C. failure to elect, re-elect or to appoint Executive
to the office of Executive Vice President, Strategy and
Corporate Development;
D. other material breach of this Agreement
by the Company.
5
<PAGE>
Upon the occurrence of any event described in clauses (A),
(B), (C) or (D) above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation, upon not
less than thirty (30) days' prior written notice given within a
reasonable period of time not to exceed, except in case of a continuing
breach, three (3) calendar months after the event giving rise to said
right to elect.
(b) Continuation of Salary. Upon the death of Executive or the
occurrence of an event of termination under Section 7(a), the Company shall,
subject to the provisions of Section 9 below, monthly for the duration of the
Severance Period, as defined below, pay Executive, or in the event of subsequent
death, his beneficiary or beneficiaries or his estate, as the case may be, as
severance pay or liquidated damages, or both, the monthly Base Salary paid to
Executive at the time of termination of his employment (the "Severance
Payments"); shall continue to provide the other benefits provided for in
Sections 5 and 6 hereof for a period of twelve months from the date of the event
of termination; and shall continue to provide the benefits provided for in
Section 4(d) for a period of six months from the date of such event of
termination. For purposes of this Agreement, the "Severance Period" shall
commence on the date of termination of Executive's employment with the Company
and expire on the earlier of (i) the date Executive obtains subsequent
employment, and (ii) the later of (A) the second anniversary of the date of
termination of Executive's employment with the Company and (B) the expiration of
the term of this Agreement. Absent an election as described in the next
sentence, the Severance Payments shall commence on the last day of the month in
which the event of termination occurs; provided, that the first such payment
shall be reduced by the amount of any Base Salary received by Executive for the
portion of such month prior to the event of termination. If within 30 days of
the event of termination Executive (or, in the case of his death or incapacity,
his beneficiary or legal representative) so elects by written notice to the
Company, the Severance Payments shall be paid by the Company, in lieu of the
monthly payments described above, in a single lump sum as soon as practicable
after the date of such election. Such lump sum payment shall be in an amount
equal to the sum of the monthly Severance Payments that would have been paid
under this Section but for such election (assuming Executive never obtains
subsequent employment), discounted to present value using an interest rate of
5%, and reduced by the
6
<PAGE>
amount of any Severance Payments received by Executive prior to the date of such
lump sum payment.
(c) Other Termination of Employment. Notwithstanding Sections
7(a) and (b) or any other provision of this Agreement to the contrary, if on or
after the date of this Agreement and prior to the end of the term hereof:
(i) Executive has been convicted of any crime or offense
constituting a felony under applicable law, including, without
limitation, any act of dishonesty such as embezzlement, theft or
larceny;
(ii) Executive shall act or refrain from acting in respect of
any of the duties and responsibilities which have been assigned to him
in accordance with this Agreement and the Board of Directors of the
Company determines that such action or inaction constituted gross
negligence or a willful act of malfeasance or misfeasance of Executive
in respect of such duties;
(iii) Executive shall breach any material term of this
Agreement and shall fail to correct such breach within ten days (or
such longer period of time, not exceeding 90 days, as Executive shall
in good faith and the exercise of reasonable efforts require to cure
such breach) after Executive's receipt of notice from the Company of
such breach; or
(iv) any willful or continuous neglect of or refusal to
perform Executive's duties or responsibilities or the willful taking of
actions which directly and materially impair Executive's ability to
perform his duties and responsibilities hereunder which continues after
detailed written notice thereof has been given to Executive;
then, and in each such case, the Company shall have the right to give notice of
termination of Executive's services hereunder as of a date (not earlier than 10
days from such notice) to be specified in such notice and this Agreement (other
than the provisions of Sections 8 and 9 hereof) shall terminate on such date. In
the case of any such termination, Executive shall be entitled to Base Salary
accrued through the date of termination, and to no further compensation or
benefits hereunder.
7
<PAGE>
8. Duties Upon Termination. Executive agrees that he will,
-----------------------
upon termination of his employment with the Company for any reason whatsoever,
deliver to the Company any and all records, forms, contracts, memoranda, work
papers, lists of names or other customer data and any other articles or papers
which have come into his possession by reason of his employment with the Company
or which he holds for the Company, irrespective of whether or not any of said
items were prepared by him, and he shall not retain memoranda or copies of any
of said items.
9. Post-Termination Obligations. All payments and benefits to
----------------------------
Executive under this Agreement shall be subject to Executive's compliance with
the following provisions during the Compliance Period, as defined in Section
9(b) below.
(a) Confidential Information and Competitive Conduct.
Executive shall not, to the detriment of the Company, disclose or
reveal to any unauthorized person any trade secret or other
confidential information relating to the Company, its subsidiaries or
affiliates, or to any businesses operated by them, including, without
limitation, any customer lists; and Executive confirms that such
information constitutes the exclusive property of the Company.
Executive shall not otherwise act or conduct himself to the material
detriment of the Company, its subsidiaries or affiliates, or in a
manner which is inimical or contrary to the interests thereof, and
shall not, directly or indirectly, engage in, enter the employ of or
render any service to any person, firm or business within the United
States or Canada in competition with any part of the business being
conducted by the Company; provided, however, that Executive's ownership
of less than 5 percent of the outstanding stock of a corporation (other
than a corporation engaged primarily in a business that directly
competes with the Company) shall not by itself be deemed to constitute
such competition. Executive recognizes that the possible restrictions
on his activities which may occur as a result of his performance of his
obligations under this Section 9(a) are required for the reasonable
protection of the Company and its investments.
(b) Compliance Period. For purposes of this Agreement, the
"Compliance Period" shall commence on the effective date of this
Agreement under Section
8
<PAGE>
3(a). If an event of termination under Section 7(a) hereof occurs prior
to the expiration of the term of this Agreement, the Compliance Period
shall end: (i) if Executive elects to receive Severance Payments in
lump sum form under Section 7(b), on the second anniversary of the
termination of Executive's employment; and (ii) otherwise, on the later
of (A) the expiration of six months from the date of termination of
Executive's employment, and (B) the end of the period for which
Executive is entitled to receive Severance Payments. If Executive's
employment by the Company is terminated in accordance with Section 7(c)
hereof prior to the expiration of the term of this Agreement, the
Compliance Period shall end on the later of the expiration of the term
of this Agreement and the first anniversary of the termination of
Executive's employment. In all cases other than those described in the
two preceding sentences, the Compliance Period shall end on the
expiration of the term of this Agreement.
(c) Failure of Executive to Comply. If for any reason other
than death or disability, Executive shall, without written consent of
the Company, fail to comply with the provisions of Section 9(a) above,
his rights to any future payments or other benefits hereunder shall
terminate, and the Company's obligations to make such payments and
provide such benefits shall cease; provided, however, that no failure
to comply with any provision of Section 9(a) above shall be deemed to
have occurred unless and until Executive receives written notice from
the Company, specifying the conduct alleged to constitute such failure,
and Executive has thereafter continued to engage in such conduct after
a reasonable opportunity and a reasonable period to refrain from such
conduct. In no event shall Executive be under any obligation to repay
the Company any amounts theretofore paid him hereunder.
(d) Remedies. Executive agrees that monetary damages would not
be adequate compensation for any loss incurred by the Company by reason
of a breach of the provisions of Sections 8 and 9 of this Agreement and
hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
9
<PAGE>
10. Effect of Prior Agreements. This Agreement contains the
--------------------------
entire understanding between the parties hereto and, upon effectiveness of this
Agreement pursuant to Section 3(a) hereof, supersedes all prior employment
agreements between the Company and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided and not expressly provided in this Agreement.
11. General Provisions.
------------------
(a) Binding Agreement. This Agreement shall be binding upon,
and inure to the benefit of Executive and the Company and their respective
permitted successors and assigns.
(b) Legal Expenses. In the event that Executive incurs legal
expenses in contesting any provision of this Agreement and such contest results
in a determination that the Company has breached any of its obligations
hereunder, Executive shall be reimbursed by the Company for such legal expenses.
12. Successors and Assigns.
----------------------
(a) Assignment by the Company. This Agreement shall be binding
upon and inure to the benefit of the successor and assigns of the Company and,
unless clearly inapplicable, reference herein to the Company shall be deemed to
include its successors and assigns.
(b) Assignment by Executive. Executive may not assign this
Agreement in whole or in part.
13. Modification and Waiver.
-----------------------
(a) Amendment of Agreement. Except for increases in
compensation made as provided in Section 4(a), this Agreement may not be changed
or modified except by an instrument in writing signed by both of the parties
hereto.
(b) Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless
10
<PAGE>
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any act other than that specifically
waived.
14. Beneficiaries. This Agreement shall be for the express
-------------
benefit of the Company, Executive and, for so long as The Morgan Stanley
Leveraged Equity Fund II, L.P. or its successor ("MSLEFII") or Madison Group,
L.P. ("MGLP") shall be a holder of equity of the Company, MSLEFII or MGLP, as
the case may be.
15. Severability. In the event any provision of this Agreement
------------
or any part hereof is held invalid, such invalidity shall not affect any
remaining part of such provision or any other provision, and to this end, the
provisions of this Agreement are intended to be and shall be deemed severable.
If any court construes any provision of this Agreement to be illegal, void or
unenforceable because of the duration or the area or matter covered thereby,
such court shall reduce the duration, area or matter of such provision, and, in
its reduced form, such provision shall then be enforceable and shall be
enforced.
16. Withholding. Employer may withhold from any amounts
-----------
payable under this Agreement such taxes and governmentally required withholdings
as may be required to be withheld pursuant to any applicable law or regulation.
17. Governing Law. The parties hereto intend
-------------
that this Agreement shall be governed by the laws of the
State of Connecticut.
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer, and Executive has signed this
Agreement, all as of the day and year first above written.
CONSOLIDATED HYDRO, INC.
By: /s/ James T. Stewart
---------------------------
James T. Stewart
Its: Chief Executive Officer
/s/ Michael I Storch
-------------------------------
Michael I. Storch
12
NYFS10...:\84\38684\0003\1924\AGR9257P.290
EMPLOYMENT AGREEMENT
This AGREEMENT, made this 1st day of January, 1997, by and
between CONSOLIDATED HYDRO, INC. (the "Company"), a Delaware corporation with
its principal office at Stamford Towers, 680 Washington Boulevard, Stamford, CT
06901, and Edward M. Stern ("Executive"), an individual residing at 36 Anvil
Road, Southport, CT 06490.
WHEREAS, the Company and Executive wish to enter into an
employment agreement whereby Executive will be employed by the Company in
accordance with the terms and conditions stated below;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive, and
----------
Executive agrees to enter the employ of the Company, for the period stated in
Section 3 hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. The Company agrees to employ
-----------------------------
Executive in the position of President and Chief Operating Officer and Executive
agrees to serve for the term and on the conditions hereinafter set forth.
Executive agrees to perform such services not inconsistent with his position as
shall from time to time be assigned to him by the Chief Executive Officer of the
Company, the Company's Board of Directors, or by their respective designees.
3. Term and Duties.
---------------
(a) Term of Employment. This Agreement shall become effective
and the terms of employment pursuant to this Agreement shall commence on January
1, 1997, and will continue through June 30, 1999 unless earlier terminated in
accordance with the provisions hereof; provided, however, that, unless the
Company shall have delivered to Executive written notice of its intent not to
renew this Agreement prior to July 1, in any year commencing, with July 1, 1998,
the term of this Agreement shall be extended by twelve months from the then
effective expiration date.
<PAGE>
(b) Duties. During the period of his employment hereunder
Executive shall serve the Company as its President and Chief Operating Officer,
and except for illnesses, vacation periods, and reasonable leaves of absence,
Executive shall devote all his business time, attention skill, and efforts to
the faithful performance of his duties hereunder; provided, however, that with
the approval of the Chief Executive Officer of the Company, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
the Chief Executive Officer of the Company's judgment, will not present any
conflict of interest with the Company or any of its subsidiaries or affiliates
or divisions, or materially affect the performance of Executive's duties
pursuant to this Agreement.
So long as Executive is President and Chief Operating Officer
of the Company, he will discharge all duties incidental to such office and such
further duties as may be reasonably assigned to him from time to time by the
Chief Executive Officer of the Company, the Company's Board of Directors, or by
their respective designees. Subject to the authority of the Company's Board of
Directors, Executive shall be responsible for, inter alia, the day-to-day
general management, administration and operation of all present and future
business of the Company, its operating units and its subsidiaries, including,
but not limited to, finance, budgeting, strategic and business planning,
customer development, corporate development, service development, human
resources, legal affairs, safety and regulatory compliance.
4. Compensation and Reimbursement of Expenses.
------------------------------------------
(a) Salary. For all services rendered by Executive as
President and Chief Operating Officer during his employment under this
Agreement, the Company shall pay Executive as compensation a salary at the rate
of $238,800 per year. Executive's salary shall be reviewed on June 30, 1997 and
at least annually thereafter during the term of this agreement. Such review
shall be conducted by the Board of Directors of the Company, or a committee
designated by the Board of Directors, and such Board or committee may increase
said salary. (The salary payable to Executive in any fiscal year is referred to
herein as the "Base Salary" for such fiscal year.)
2
<PAGE>
(b) Incentive Compensation. For each fiscal year, commencing
with the fiscal year ending June 30, 1997, the Company shall pay Executive an
incentive bonus of up to 75% of Executive's Base Salary, at the discretion of
the Board of Directors, upon the achievement of certain goals and objectives to
be agreed upon from time to time by Executive and the Chief Executive Officer of
the Company or his designee. Such bonuses shall be payable upon completion of
the annual audit of the Company for the applicable year.
(c) Equity Plan. It is the current intention of the Board of
Directors of the Company to adopt an equity plan for the Company's management as
part of the Company's plan of restructuring. It is the Board's current
intention, should such a plan be adopted, that options relating to the Company's
common stock would be granted to the management of the Company upon completion
of such restructuring, and that options would be awarded to the Executive,
should he still be employed hereunder at such time.
(d) Reimbursement of Expenses. The Company shall pay or
reimburse Executive for all reasonable travel and other expenses incurred by
Executive in performing his obligations under this Agreement. The Company
further agrees to furnish Executive with a private office, private secretary,
and such other assistance and accommodations as shall be suitable to the
character of Executive's position with the Company and adequate for the
performance of his duties.
5. Participation in Benefit Plans. The payments provided in
------------------------------
Sections 4 and 6 hereof are in addition to any benefits Executive is entitled to
under group hospitalization, health, dental care, disability insurance, surety
bond, death benefit plan, travel and/or accident insurance, other allowance
and/or executive compensation plan, including, without limitation, capital
accumulation and termination pay programs, restricted or non-restricted stock
purchase plan, stock option plan, retirement income or pension plan, or other
present or future group employee benefit plan or program of the Company for
which key executives are or shall become eligible, and Executive shall be
eligible to receive during the period of his employment under this Agreement,
and during any subsequent period for which he shall be entitled to receive
payment from the Company under Section 6(a) or Section 7(b) below, all benefits
and emoluments for which key executives are eligible under every such plan or
program to the extent
3
<PAGE>
permissible under the general terms and provisions of such plans or programs and
in accordance with the provisions thereof.
6. Benefits Payable Upon Disability or Death.
-----------------------------------------
(a) Disability Benefits. In the event of the disability of
Executive, the Company shall, subject to Section 9 hereof, continue to pay
Executive the monetary compensation and provide the other benefits provided in
Section 4 hereof during the period of his disability for the remainder of the
term of this Agreement, except that after the date of Executive's disability (i)
Executive shall not be entitled to payment of any further bonuses under Section
4(b), and (ii) no further options or other awards shall be granted Executive
under Section 4(c) or shall vest, unless the plan or agreement under which such
options or awards are granted provides otherwise. To the extent that disability
insurance is available on Executive, the Company shall be permitted to purchase
and pay for such insurance. Receipt by Executive of such disability benefits
shall reduce by such amount the obligation of the Company set forth in the
preceding sentence.
As used in this Agreement, the term "disability" shall mean
the complete inability of Executive to perform his duties under this Agreement
as determined by an independent physician selected by the Company with the
approval of Executive.
(b) Death Benefits. In the event of the death of Executive
during a period of disability or otherwise during the term of this Agreement,
the Company shall pay, or cause to be paid, to Executive's designated
beneficiary or beneficiaries or legal representatives the payments set forth in
Section 7(b) below.
7. Payments to Executive Upon Termination of Employment.
----------------------------------------------------
(a) Termination. Upon the death of Executive or the occurrence
of an event of termination (as hereinafter defined) during the period of
Executive's employment under this Agreement, the provisions of this Section 7(a)
and Section 7(b) shall apply. As used in this Agreement, an "event of
termination" shall mean and include any one or more of the following:
4
<PAGE>
(i) The termination by the Company of Executive's full-time
employment hereunder for any reason other than pursuant to Section 7(c)
or as a result of a material breach by Executive of this Agreement; or
(ii) Executive's resignation from the Company's employ,
pursuant to:
A. a material change by the Company in Executive's
function, duties or responsibilities, which change would cause
Executive's position with the Company to become one of less
dignity, responsibility, importance or scope from the position
and attributes as described in Section 2 above, and any such
material change shall be deemed a continuing breach of this
Agreement;
B. any liquidation, dissolution, consolidation or
merger of the Company which results in a change of control of
the Company or transfer of all or substantially all of its
assets;
C. failure to elect, re-elect or to appoint
Executive to the office of President and Chief
Operating Officer;
D. other material breach of this Agreement
by the Company.
Upon the occurrence of any event described in clauses (A),
(B), (C) or (D) above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation, upon not
less than thirty (30) days' prior written notice given within a
reasonable period of time not to exceed, except in case of a continuing
breach, three (3) calendar months after the event giving rise to said
right to elect.
(b) Continuation of Salary. Upon the death of Executive or the
occurrence of an event of termination under Section 7(a), the Company shall,
subject to the provisions of Section 9 below, monthly for the duration of the
Severance Period, as defined below, pay Executive, or in the event of subsequent
death, his beneficiary or beneficiaries or his estate, as the case may be, as
severance pay or liquidated damages, or both, the monthly Base Salary paid to
Executive at the time of termination of his employment (the
5
<PAGE>
"Severance Payments"); shall continue to provide the other benefits provided for
in Sections 5 and 6 hereof for a period of twelve months from the date of the
event of termination; and shall continue to provide the benefits provided for in
Section 4(d) for a period of six months from the date of such event of
termination. For purposes of this Agreement, the "Severance Period" shall
commence on the date of termination of Executive's employment with the Company
and expire on the earlier of (i) the date Executive obtains subsequent
employment, and (ii) the later of (A) the second anniversary of the date of
termination of Executive's employment with the Company and (B) the expiration of
the term of this Agreement. Absent an election as described in the next
sentence, the Severance Payments shall commence on the last day of the month in
which the event of termination occurs; provided, that the first such payment
shall be reduced by the amount of any Base Salary received by Executive for the
portion of such month prior to the event of termination. If within 30 days of
the event of termination Executive (or, in the case of his death or incapacity,
his beneficiary or legal representative) so elects by written notice to the
Company, the Severance Payments shall be paid by the Company, in lieu of the
monthly payments described above, in a single lump sum as soon as practicable
after the date of such election. Such lump sum payment shall be in an amount
equal to the sum of the monthly Severance Payments that would have been paid
under this Section but for such election (assuming Executive never obtains
subsequent employment), discounted to present value using an interest rate of
5%, and reduced by the amount of any Severance Payments received by Executive
prior to the date of such lump sum payment.
(c) Other Termination of Employment. Notwithstanding Sections
7(a) and (b) or any other provision of this Agreement to the contrary, if on or
after the date of this Agreement and prior to the end of the term hereof:
(i) Executive has been convicted of any crime or offense
constituting a felony under applicable law, including, without
limitation, any act of dishonesty such as embezzlement, theft or
larceny;
(ii) Executive shall act or refrain from acting in respect of
any of the duties and responsibilities which have been assigned to him
in accordance with this Agreement and the Board of Directors of the
Company determines that such action or inaction constituted
6
<PAGE>
gross negligence or a willful act of malfeasance or
misfeasance of Executive in respect of such duties;
(iii) Executive shall breach any material term of this
Agreement and shall fail to correct such breach within ten days (or
such longer period of time, not exceeding 90 days, as Executive shall
in good faith and the exercise of reasonable efforts require to cure
such breach) after Executive's receipt of notice from the Company of
such breach; or
(iv) any willful or continuous neglect of or refusal to
perform Executive's duties or responsibilities or the willful taking of
actions which directly and materially impair Executive's ability to
perform his duties and responsibilities hereunder which continues after
detailed written notice thereof has been given to Executive;
then, and in each such case, the Company shall have the right to give notice of
termination of Executive's services hereunder as of a date (not earlier than 10
days from such notice) to be specified in such notice and this Agreement (other
than the provisions of Sections 8 and 9 hereof) shall terminate on such date. In
the case of any such termination, Executive shall be entitled to Base Salary
accrued through the date of termination, and to no further compensation or
benefits hereunder.
8. Duties Upon Termination. Executive agrees that he will,
-----------------------
upon termination of his employment with the Company for any reason whatsoever,
deliver to the Company any and all records, forms, contracts, memoranda, work
papers, lists of names or other customer data and any other articles or papers
which have come into his possession by reason of his employment with the Company
or which he holds for the Company, irrespective of whether or not any of said
items were prepared by him, and he shall not retain memoranda or copies of any
of said items.
9. Post-Termination Obligations. All payments and benefits to
----------------------------
Executive under this Agreement shall be subject to Executive's compliance with
the following provisions during the Compliance Period, as defined in Section
9(b) below.
(a) Confidential Information and Competitive
Conduct. Executive shall not, to the detriment of the
7
<PAGE>
Company, disclose or reveal to any unauthorized person any trade secret
or other confidential information relating to the Company, its
subsidiaries or affiliates, or to any businesses operated by them,
including, without limitation, any customer lists; and Executive
confirms that such information constitutes the exclusive property of
the Company. Executive shall not otherwise act or conduct himself to
the material detriment of the Company, its subsidiaries or affiliates,
or in a manner which is inimical or contrary to the interests thereof,
and shall not, directly or indirectly, engage in, enter the employ of
or render any service to any person, firm or business within the United
States or Canada in competition with any part of the business being
conducted by the Company; provided, however, that Executive's ownership
of less than 5 percent of the outstanding stock of a corporation (other
than a corporation engaged primarily in a business that directly
competes with the Company) shall not by itself be deemed to constitute
such competition. Executive recognizes that the possible restrictions
on his activities which may occur as a result of his performance of his
obligations under this Section 9(a) are required for the reasonable
protection of the Company and its investments.
(b) Compliance Period. For purposes of this Agreement, the
"Compliance Period" shall commence on the effective date of this
Agreement under Section 3(a). If an event of termination under Section
7(a) hereof occurs prior to the expiration of the term of this
Agreement, the Compliance Period shall end: (i) if Executive elects to
receive Severance Payments in lump sum form under Section 7(b), on the
second anniversary of the termination of Executive's employment; and
(ii) otherwise, on the later of (A) the expiration of six months from
the date of termination of Executive's employment, and (B) the end of
the period for which Executive is entitled to receive Severance
Payments. If Executive's employment by the Company is terminated in
accordance with Section 7(c) hereof prior to the expiration of the term
of this Agreement, the Compliance Period shall end on the later of the
expiration of the term of this Agreement and the first anniversary of
the termination of Executive's employment. In all cases other than
those described in the two preceding sentences, the Compliance Period
shall end on the expiration of the term of this Agreement.
8
<PAGE>
(c) Failure of Executive to Comply. If for any reason other
than death or disability, Executive shall, without written consent of
the Company, fail to comply with the provisions of Section 9(a) above,
his rights to any future payments or other benefits hereunder shall
terminate, and the Company's obligations to make such payments and
provide such benefits shall cease; provided, however, that no failure
to comply with any provision of Section 9(a) above shall be deemed to
have occurred unless and until Executive receives written notice from
the Company, specifying the conduct alleged to constitute such failure,
and Executive has thereafter continued to engage in such conduct after
a reasonable opportunity and a reasonable period to refrain from such
conduct. In no event shall Executive be under any obligation to repay
the Company any amounts theretofore paid him hereunder.
(d) Remedies. Executive agrees that monetary damages would not
be adequate compensation for any loss incurred by the Company by reason
of a breach of the provisions of Sections 8 and 9 of this Agreement and
hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
10. Effect of Prior Agreements. This Agreement contains the
--------------------------
entire understanding between the parties hereto and, upon effectiveness of this
Agreement pursuant to Section 3(a) hereof, supersedes all prior employment
agreements between the Company and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided and not expressly provided in this Agreement.
11. General Provisions.
------------------
(a) Binding Agreement. This Agreement shall be binding upon,
and inure to the benefit of Executive and the Company and their respective
permitted successors and assigns.
(b) Legal Expenses. In the event that Executive incurs legal
expenses in contesting any provision of this Agreement and such contest results
in a determination that the Company has breached any of its obligations
hereunder,
9
<PAGE>
Executive shall be reimbursed by the Company for such legal expenses.
12. Successors and Assigns.
----------------------
(a) Assignment by the Company. This Agreement shall be binding
upon and inure to the benefit of the successor and assigns of the Company and,
unless clearly inapplicable, reference herein to the Company shall be deemed to
include its successors and assigns.
(b) Assignment by Executive. Executive may not assign this
Agreement in whole or in part.
13. Modification and Waiver.
-----------------------
(a) Amendment of Agreement. Except for increases in
compensation made as provided in Section 4(a), this Agreement may not be changed
or modified except by an instrument in writing signed by both of the parties
hereto.
(b) Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by Written instrument of
the party charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.
14. Beneficiaries. This Agreement shall be for the express
-------------
benefit of the Company, Executive and, for so long as The Morgan Stanley
Leveraged Equity Fund II, L.P. or its successor ("MSLEFII") or Madison Group,
L.P. ("MGLP") shall be a holder of equity of the Company, MSLEFII or MGLP, as
the case may be.
15. Severability. In the event any provision of this Agreement
------------
or any part hereof is held invalid, such invalidity shall not affect any
remaining part of such provision or any other provision, and to this end, the
provisions of this Agreement are intended to be and shall be deemed severable.
If any court construes any provision of this Agreement to be illegal, void or
unenforceable because of the duration or the area or matter covered thereby,
such
10
<PAGE>
court shall reduce the duration, area or matter of such provision, and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
16. Withholding. Employer may withhold from any amounts
-----------
payable under this Agreement such taxes and governmentally required withholdings
as may be required to be withheld pursuant to any applicable law or regulation.
17. Governing Law. The parties hereto intend
-------------
that this Agreement shall be governed by the laws of the
State of Connecticut.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer, and Executive has signed this
Agreement, all as of the day and year first above written.
CONSOLIDATED HYDRO, INC.
By: /s/ James T. Stewart
--------------------------
James T. Stewart
Its: Chief Executive Officer
/s/ Edward M. Stern
------------------------------
Edward M. Stern
11
NYFS10...:\84\38684\0003\1924\AGR9257P.280
<PAGE>
EMPLOYMENT AGREEMENT
This AGREEMENT, made this 14th day of January, 1997, by and
between CONSOLIDATED HYDRO, INC. (the "Company"), a Delaware corporation with
its principal office at Stamford Towers, 680 Washington Boulevard, Stamford, CT
06901, and Mary V. Gilbert ("Executive"), an individual residing at 4007 Buckeye
Creek Road, Kingwood, TX 77339.
WHEREAS, the Company and Executive wish to enter into an
employment agreement whereby Executive will be employed by the Company in
accordance with the terms and conditions stated below;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive, and
----------
Executive agrees to enter the employ of the Company, for the period stated in
Section 3 hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. The Company agrees to employ
-----------------------------
Executive in the position of Senior Vice President and Chief Financial Officer
and Executive agrees to serve for the term and on the conditions hereinafter set
forth. Executive agrees to perform such services not inconsistent with her
position as shall from time to time be assigned to her by the President or Chief
Executive Officer of the Company.
3. Term and Duties.
---------------
(a) Term of Employment. This Agreement shall become effective
and the terms of employment pursuant to this Agreement shall commence on January
14, 1997, and will continue through June 30, 1999 unless earlier terminated in
accordance with the provisions hereof; provided, however, that, unless the
Company shall have delivered to Executive written notice of its intent not to
renew this Agreement prior to July 1, in any year, commencing with July 1, 1998,
the term of this Agreement shall be extended by twelve months from the then
effective expiration date.
(b) Duties. During the period of her employment hereunder
Executive shall serve the Company as its Senior
<PAGE>
Vice President and Chief Financial Officer, and except for illnesses, vacation
periods, and reasonable leaves of absence, Executive shall devote all her
business time, attention, skill, and efforts to the faithful performance of her
duties hereunder; provided, however, that with the approval of the President of
the Company, from time to time, Executive may serve, or continue to serve, on
the boards of directors of, and hold any other offices or positions in,
companies or organizations, which, in the President of the Company's judgment,
will not present any conflict of interest with the Company or any of its
subsidiaries or affiliates or divisions, or materially affect the performance of
Executive's duties pursuant to this Agreement.
So long as Executive is Senior Vice President and Chief
Financial Officer of the Company, she will discharge all duties incidental to
such office and such further duties as may be reasonably assigned to her from
time to time by the President or Chief Executive Officer of the Company. Subject
to the authority of the Company's Board of Directors, Executive shall be
responsible for, inter alia, the management and direction of the Company's
accounting policies, procedures and control systems, tax compliance and
strategy, auditing requirements, treasury function, internal and external
financial reporting, management information systems design and implementation,
financial management and policy and the financial review of proposed new
business development opportunities for the Company.
4. Compensation and Reimbursement of Expenses.
------------------------------------------
(a) Salary. For all services rendered by Executive as Senior
Vice President and Chief Financial Officer during her employment under this
Agreement, the Company shall pay Executive as compensation a salary at the rate
of $150,000 per year. Executive's salary shall be reviewed on June 30, 1997, and
at least annually thereafter during the term of this agreement. Such review
shall be conducted by the Board of Directors of the Company, or a committee
designated by the Board of Directors, and such Board or committee may increase
said salary. (The salary payable to Executive in any fiscal year is referred to
herein as the "Base Salary" for such fiscal year.)
(b) Incentive Compensation. For each fiscal year, commencing
with the fiscal year ending June 30, 1997, the Company shall pay Executive an
incentive bonus of up to
2
<PAGE>
50% of Executives Base Salary, at the discretion of the Board of Directors, upon
the achievement of certain goals and objectives to be agreed upon from time to
time by Executive and the President of the Company or his designee. Such bonuses
shalt be payable upon completion of the annual audit of the Company for the
applicable year.
(c) Equity Plan. It is the current intention of the Board of
Directors of the Company to adopt an equity plan for the Company's management as
part of the Company's plan of restructuring. It is the Board's current
intention, should such a plan be adopted, that options relating to the Company's
common stock would be granted to the management of the Company upon completion
of such restructuring, and that options would be awarded to the Executive,
should she still be employed hereunder at such time.
(d) Reimbursement of Expenses. The Company shall pay or
reimburse Executive for all reasonable travel and other expenses incurred by
Executive in performing her obligations under this Agreement. The Company
further agrees to furnish Executive with a private office, private secretary,
and such other assistance and accommodations as shall be suitable to the
character of Executive's position with the Company and adequate for the
performance of her duties.
5. Participation in Benefit Plans. The payments provided in
------------------------------
Sections 4 and 6 hereof are in addition to any benefits Executive is entitled to
under group hospitalization, health, dental care, disability insurance, surety
bond, death benefit plan, travel and/or accident insurance, other allowance
and/or executive compensation plan, including, without limitation, capital
accumulation and termination pay programs, restricted or non-restricted stock
purchase plan, stock option plan, retirement income or pension plan, or other
present or future group employee benefit plan or program of the Company for
which key executives are or shall become eligible, and Executive shall be
eligible to receive during the period of her employment under this Agreement,
and during any subsequent period for which she shall be entitled to receive
payment from the Company under Section 6(a) or Section 7(b) below, all benefits
and emoluments for which key executives are eligible under every such plan or
program to the extent permissible under the general terms and provisions of such
plans or programs and in accordance with the provisions thereof.
3
<PAGE>
6. Benefits Payable Upon Disability or Death.
-----------------------------------------
(a) Disability Benefits. In the event of the disability of
Executive, the Company shall, subject to Section 9 hereof, continue to pay
Executive the monetary compensation and provide the other benefits provided in
Section 4 hereof during the period of her disability for the remainder of the
term of this Agreement, except that after the date of Executive's disability (i)
Executive shall not be entitled to payment of any further bonuses under Section
4(b), and (ii) no further options or other awards shall be granted Executive
under Section 4(c) or shall vest, unless the plan or agreement under which such
options or awards are granted provides otherwise. To the extent that disability
insurance is available on Executive, the Company shall be permitted to purchase
and pay for such insurance. Receipt by Executive of such disability benefits
shall reduce by such amount the obligation of the Company set forth in the
preceding sentence.
As used in this Agreement, the term "disability" shall mean
the complete inability of Executive to perform her duties under this Agreement
as determined by an independent physician selected by the Company with the
approval of Executive.
(b) Death Benefits. In the event of the death of Executive
during a period of disability or otherwise during the term of this Agreement,
the Company shall pay, or cause to be paid, to Executive's designated
beneficiary or beneficiaries or legal representatives the payments set forth in
Section 7(b) below.
7. Payments to Executive Upon Termination of Employment.
----------------------------------------------------
(a) Termination. Upon the death of Executive or the occurrence
of an event of termination (as hereinafter defined) during the period of
Executive's employment under this Agreement, the provisions of this Section 7(a)
and Section 7(b) shall apply. As used in this Agreement, an "event of
termination" shall mean and include any one or more of the following:
(i) The termination by the Company of Executive's full-time
employment hereunder for any reason other than pursuant to Section 7(c)
or as a
4
<PAGE>
result of a material breach by Executive of this
Agreement; or
(ii) Executive's resignation from the Company's employ,
pursuant to:
A. a material change by the Company in Executive's
function, duties or responsibilities, which change would cause
Executive's position with the Company to become one of less
dignity, responsibility, importance or scope from the position
and attributes as described in Section 2 above, and any such
material change shall be deemed a continuing breach of this
Agreement;
B. any liquidation, dissolution, consolidation or
merger of the Company which results in a change of control of
the Company or transfer of all or substantially all of its
assets;
C. failure to elect, re-elect or to appoint
Executive to the office of Senior Vice President
and Chief Financial Officer';
D. other material breach of this Agreement
by the Company.
Upon the occurrence of any event described in clauses (A),
(B), (C) or (D) above, Executive shall have the right to elect to
terminate her employment under this Agreement by resignation, upon not
less than thirty (30) days' prior written notice given within a
reasonable period of time not to exceed, except in case of a continuing
breach, three (3) calendar months after the event giving rise to said
right to elect.
(b) Continuation of Salary. Upon the death of Executive or the
occurrence of an event of termination under Section 7(a), the Company shall,
subject to the provisions of Section 9 below, monthly for the duration of the
Severance Period, as defined below, pay Executive, or in the event of subsequent
death, her beneficiary or beneficiaries or her estate, as the case may be, as
severance pay or liquidated damages, or both, the monthly Base Salary paid to
Executive at the time of termination of her employment (the "Severance
Payments"); shall continue to provide the other benefits provided in Sections 5
and 6 hereof for a period of
5
<PAGE>
twelve months from the date of the event of termination; and shall continue to
provide the benefits provided for in Section 4(d) for a period of six months
from the date of such event of termination. For purposes of this Agreement, the
"Severance Period" shall commence on the date of termination of Executive's
employment with the Company and expire on the earlier of (i) the date Executive
obtains subsequent employment, and (ii) the later of (A) the second anniversary
of the date of termination of Executive's employment with the Company and (B)
the expiration of the term of this Agreement. Absent an election as described in
the next sentence, the Severance Payments shall commence on the last day of the
month in which the event of termination occurs; provided, that the first such
payment shall be reduced by the amount of any Base Salary received by Executive
for the portion of such month prior to the event of termination. If within 30
days of the event of termination Executive (or, in the case of her death or
incapacity, her beneficiary or legal representative) so elects by written notice
to the Company, the Severance Payments shall be paid by the Company, in lieu of
the monthly payments described above, in a single lump sum as soon as
practicable after the date of such election. Such lump sum payment shall be in
an amount equal to the sum of the monthly Severance Payments that would have
been paid under this Section but for such election (assuming Executive never
obtains subsequent employment), discounted to present value using an interest
rate of 5%, and reduced by the amount of any Severance Payments received by
Executive prior to the date of such lump sum payment.
(c) Other Termination of Employment. Notwithstanding Sections
7(a) and (b) or any other provision of this Agreement to the contrary, if on or
after the date of this Agreement and prior to the end of the term hereof:
(i) Executive has been convicted of any crime or
offense constituting a felony under applicable law, including,
without limitation, any act of dishonesty such as
embezzlement, theft or larceny;
(ii) Executive shall act or refrain from acting in
respect of any of the duties and responsibilities which have
been assigned to her in accordance with this Agreement and the
Board of Directors of the Company determines that such action
or inaction constituted gross negligence or
6
<PAGE>
a willful act of malfeasance or misfeasance of
Executive in respect of such duties;
(iii) Executive shall breach any material term of
this Agreement and shall fail to correct such breach within
ten days (or such longer period of time, not exceeding 90
days, as Executive shall in good faith and the exercise of
reasonable efforts require to cure such breach) after
Executive's receipt of notice from the Company of such breach;
or
(iv) any willful or continuous neglect of or refusal
to perform Executive's duties or responsibilities or the
willful taking of actions which directly and materially impair
Executive's ability to perform her duties and responsibilities
hereunder which continues after detailed written notice
thereof has been given to Executive;
then, and in each such case, the Company shall have the right to give notice of
termination of Executive's services hereunder as of a date (not earlier than 10
days from such notice) to be specified in such notice and this Agreement (other
than the provisions of Sections 8 and 9 hereof) shall terminate on such date. In
the case of any such termination, Executive shall be entitled to Base Salary
accrued through the date of termination, and to no further compensation or
benefits hereunder.
8. Duties Upon Termination. Executive agrees that she will,
-----------------------
upon termination of her employment with the Company for any reason whatsoever,
deliver to the Company any and all records, forms, contracts, memoranda, work
papers, lists of names or other customer data and any other articles or papers
which have come into her possession by reason of her employment with the Company
or which she holds for the Company, irrespective of whether or not any of said
items were prepared by him, and she shall not retain memoranda or copies of any
of said items.
9. Post-Termination Obligations. All payments and benefits to
----------------------------
Executive under this Agreement shall be subject to Executive's compliance with
the following provisions during the Compliance Period, as defined in Section
9(b) below.
7
<PAGE>
(a) Confidential Information and Competitive Conduct.
Executive shall not, to the detriment of the Company, disclose or
reveal to any unauthorized person any trade secret or other
confidential information relating to the Company, its subsidiaries or
affiliates, or to any businesses operated by them, including, without
limitation, any customer lists; and Executive confirms that such
information constitutes the exclusive property of the Company.
Executive shall not otherwise act or conduct herself to the material
detriment of the Company, its subsidiaries or affiliates, or in a
manner which is inimical or contrary to the interests thereof, and
shall not, directly or indirectly, engage in, enter the employ of or
render any service to any person, firm or business within the United
States or Canada in competition with any part of the business being
conducted by the Company; provided, however, that Executive's ownership
of less than 5 percent of the outstanding stock of a corporation (other
than a corporation engaged primarily in a business that directly
competes with the Company) shall not by itself be deemed to constitute
such competition. Executive recognizes that the possible restrictions
on her activities which may occur as a result of her performance of her
obligations under this Section 9(a) are required for the reasonable
protection of the Company and its investments.
(b) Compliance Period. For purposes of this Agreement, the
"Compliance Period" shall commence on the effective date of this
Agreement under Section 3(a). If an event of termination under Section
7(a) hereof occurs prior to the expiration of the term of this
Agreement, the Compliance Period shall end: (i) if Executive elects to
receive Severance Payments in lump sum form under Section 7(b), on the
second anniversary of the termination of Executive's employment; and
(ii) otherwise, on the later of (A) the expiration of six months from
the date of termination of Executive's employment and (B) the end of
the period for which Executive is entitled to receive Severance
Payments. If Executive's employment by the Company is terminated in
accordance with Section 7(c) hereof prior to the expiration of the term
of this Agreement, the Compliance Period shall end on the later of the
expiration of the term of this Agreement and the first anniversary of
the termination of Executive's employment. In all cases other than
those described in
8
<PAGE>
the two preceding sentences, the Compliance Period
shall end on the expiration of the term of this
Agreement.
(c) Failure of Executive to Comply. If for any reason other
than death or disability, Executive shall, without written consent of
the Company, fail to comply with the provisions of Section 9(a) above,
her rights to any future payments or other benefits hereunder shall
terminate, and the Company's obligations to make such payments and
provide such benefits shall cease; provided, however, that no failure
to comply with any provision of Section 9(a) above shall be deemed to
have occurred unless and until Executive receives written notice from
the Company, specifying the conduct alleged to constitute such failure,
and Executive has thereafter continued to engage in such conduct after
a reasonable opportunity and a reasonable period to refrain from such
conduct. In no event shall Executive be under any obligation to repay
the Company any amounts theretofore paid her hereunder.
(d) Remedies. Executive agrees that monetary damages would not
be adequate compensation for any loss incurred by the Company by reason
of a breach of the provisions of Sections 8 and 9 of this Agreement and
hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
10. Effect of Prior Agreements. This Agreement contains the
--------------------------
entire understanding between the parties hereto and, upon effectiveness of this
Agreement pursuant to Section 3(a) hereof, supersedes all prior employment
agreements between the Company and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided and not expressly provided in this Agreement.
11. General Provisions.
------------------
(a) Binding Agreement. This Agreement shall be binding upon,
and inure to the benefit of Executive and the Company and their respective
permitted successors and assigns.
9
<PAGE>
(b) Legal Expenses. In the event that Executive incurs legal
expenses in contesting any provision of this Agreement and such contest results
in a determination that the Company has breached any of its obligations
hereunder, Executive shall be reimbursed by the Company for such legal expenses.
12. Successors and Assigns.
----------------------
(a) Assignment by the Company. This Agreement shall be binding
upon and inure to the benefit of the successor and assigns of the Company and,
unless clearly inapplicable, reference herein to the Company shall be deemed to
include its successors and assigns.
(b) Assignment by Executive. Executive may not assign this
Agreement in whole or in part.
13. Modification and Waiver.
-----------------------
(a) Amendment of Agreement. Except for increases in
compensation made as provided in Section 4(a), this Agreement may not be changed
or modified except by an instrument in writing signed by both of the parties
hereto.
(b) Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.
14. Beneficiaries. This Agreement shall be for the express
-------------
benefit of the Company, Executive and for so long as The Morgan Stanley
Leveraged Equity Fund II, L.P. or its successor ("MSLEFII") or Madison Group,
L.P. ("MGLP") shall be a holder of equity of the Company, MSLEFII or MGLP, as
the case may be.
15. Severability. In the event any provision of this Agreement
------------
or any part hereof is held invalid, such invalidity shall not affect any
remaining part of such provision or any other provision, and to this end, the
10
<PAGE>
provisions of this Agreement are intended to be and shall be deemed severable.
If any court construes any provision of this Agreement to be illegal, void or
unenforceable because of the duration or the area or matter covered thereby,
such court shall reduce the duration, area or matter of such provision, and, in
its reduced form, such provision shall then be enforceable and shall be
enforced.
16. Withholding. Employer may withhold from any amounts
-----------
payable under this Agreement such taxes and governmentally required withholdings
as may be required to be withheld pursuant to any applicable law or regulation.
17. Governing Law. The parties hereto intend
-------------
that this Agreement shall be governed by the laws of the
State of Connecticut.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer, and Executive has signed this
Agreement, all as of the day and year first above written.
CONSOLIDATED HYDRO, INC.
By: /s/ James T. Stewart
----------------------------
James T. Stewart
Its: Chief Executive Officer
/s/ Mary V. Gilbert
--------------------------------
Mary V. Gilbert
11
NYFS10...:\84\38684\0003\1924\AGR9257N.480
AMENDMENT
---------
Amendment ("Amendment") dated as of July 1, 1996 to the
---------
Revolving Credit Agreement referred to below between Consolidated Hydro, Inc., a
Delaware corporation (the "Borrower"), Den norske Bank ASA (the "Agent") and the
-------- -----
banks named therein (the "Bank");
PRELIMINARY STATEMENT
---------------------
1. The Borrower, the Agent and the Banks are party to a
Revolving Credit Agreement (as amended or restated from time to time, the
"Credit Agreement") dated as of October 14, 1993.
----------------
2. The Borrower has requested that the Credit Agreement be
amended for the purpose of, among other things, changing the Expiry Date,
reducing the Total Commitment and modifying certain financial covenants.
3. Subject to and on the terms and conditions set forth
herein, the Agent and the Banks are willing to agree to such request.
NOW THEREFORE, the parties hereto agree as follows:
A. Unless otherwise defined herein, terms used herein and
defined in the Credit Agreement shall be used herein as so defined.
B. The Borrower, the Agent and the Banks agree that the Credit
Agreement is hereby amended as follows:
I. Section 2.1(a) shall be amended by adding the following
at the end thereof:
"Notwithstanding the foregoing, no Loan shall be made on or
after June 1, 1996, except for Loans made or deemed made as a
result of the payment of any drawing under any Letter of
Credit."
1. The first sentence of Section 2.1(c) shall be amended to
read in its entirety as follows:
"The Total Commitment shall be reduced on the
following dates to the related amounts:
<PAGE>
Total
Date Commitment
---- ------------
Prior to November 20, 1996 $5,000,000
January 31, 1997 $4,500,000
July 31, 1997 $3,000,000
January 31, 1998 $2,000,000
July 31, 1998 $0
In addition to the foregoing, the Total Commitment (as set forth opposite each
date above) shall be reduced by (i) $500,000, when the aggregate value of the
net proceeds from Northeast Asset Sales is greater than or equal to $5,000,000
and (ii) without duplication, $1,000,000, when (x) such aggregate value is
greater than or equal to $10,000,000 or (y) all or substantially all of the
Northeast Assets have been disposed of. At the time of any reduction of the
Total Commitment, whether pursuant to this Section 2.1(c) or otherwise, the
Commitment of each Bank shall be reduced to the amount equal to such Bank's Pro
Rata Share of the total Commitment as so reduced."
2. Section 2.7 shall be deleted.
3. Section 3.1(c) shall be deleted in its entirety.
4. Section 5.2 shall be amended by adding the following at the
end thereof:
"Notwithstanding the foregoing, on and after the Effective
Date of the 7/1/96 Amendment, the fee described in the first
sentence of this Section 5.2 shall be 2%, instead of 1.5%."
5. Section 6.1 shall be amended to read in its entirety as
follows:
"6.1 Repayment of Loans. (a) Any Loan(s) made or
------------------
deemed made as the result of the payment of any drawing under
any Letter of Credit shall be payable ON DEMAND.
(b) The Borrower agrees that, if and to the extent that, on
any day, the aggregate L/C Available Amount of all Letters of
Credit (other than Subsidiary Letters of Credit) exceeds the
Total Commitment, as reduced pursuant to this Agreement,
2
<PAGE>
the Borrower will reduce such L/C Available Amount in the
amount of such excess through the cancellation or reduction of
Letters of Credit.
(c) If any reduction or cancellation is required pursuant to
Section 6.1(b), the Issuing Bank will, if so requested in
writing by the Borrower at least 30 days prior to the date of
such reduction, issue a Letter of Credit (each a "Subsidiary
----------
Letter of Credit") to the beneficiary of the Letter of Credit
----------------
being reduced or cancelled and for the account of the
Subsidiary (each a "Borrowing Subsidiary") for whose project
--------------------
or business the Letter of Credit being reduced or cancelled
was originally issued. Each Subsidiary Letter of Credit shall
(i) be in an amount not greater than the amount of the related
reduction of the L/C Available Amount of the Letter of Credit
being cancelled or reduced, as the case may be, (ii) expire no
later than the L/C Expiry Date, (iii) be in form and substance
satisfactory to the Issuing Bank and (iv) be issued pursuant
to a Reimbursement Agreement (each a "Reimbursement
-------------
Agreement") substantially in the form of Exhibit B annexed
---------
hereto and on the terms and conditions set forth herein and
therein. Such documents and instruments, in any event, shall
provide that the obligations of the Borrowing Subsidiary shall
be secured by cash collateral deposited at the New York or
Cayman Islands office of the Issuing Bank in an amount equal
to the face amount of the related Subsidiary Letter of Credit.
It is understood and agreed that, in connection with the issuance of any
Subsidiary Letter of Credit, the related Letter of Credit previously issued may
have to be amended or re-issued to reflect the reduction of the L/C Available
Amount thereof. Each Borrowing Subsidiary shall be deemed to be a Restricted
Subsidiary and a Significant Subsidiary for purposes of this Agreement until the
related Subsidiary Letter of Credit has expired and all obligations of such
Borrowing Subsidiary thereunder and under the related Reimbursement Agreement
have been paid in full."
6. Section 6.2(a) shall be deleted in its entirety, but the
designation of 6.2(b) shall not be changed.
3
<PAGE>
7. Section 6.2(b) shall be amended by adding the following at
the end thereof:
"If pursuant to this Section 6.2(b) the Borrower is required
to make any prepayment in respect of the Loans, then, instead
of any such prepayment, the Total Commitment (as set forth
opposite each date in Section 2.1(c) of this Agreement) shall
be reduced by the amount otherwise required to be prepaid in
accordance with, and with the effect provided by, Section
2.1(c) of this Agreement."
8. Sections 6.2(d), 6.4, 9.4 and 11.6(a) shall be deleted in
their entirety.
9. Section 10.2(b) shall be amended to read in its entirety as
follows:
"(b) in the case of the annual Financial Statements delivered
pursuant to Section 10.1, (i) a statement by the independent
certified public accountants reporting on such Financial
Statements that, (x) in making the audit in connection with
such Financial Statements, nothing has come to their attention
that caused them to believe that the Borrower was not in
compliance with Sections 4.04, 4.06 and 5.01 of the Indenture
and Sections 11.5 or 11.6 of the Credit Agreement (noting,
however, that their audit was not directed primarily toward
obtaining knowledge of such noncompliance), (y) in conducting
their audit, they acquired no actual knowledge that any Event
of Default or Default has occurred and is continuing under the
Indenture or the Credit Agreement (noting, however, with
respect to such actual knowledge, they relied solely on the
representations made to them by management of the Borrower in
its management representation letter, but they are not aware
of any reason why such reliance is not justified), or, (z) if
any such noncompliance, Event of Default or Default has come
to their attention, such statement shall specify the nature
and period of existence thereof, provided that such
--------
independent certified public accountants shall not be liable
in respect of such statement by reason of any failure to
obtain knowledge of any such non-compliance, Event of Default
or Default that would not be disclosed in the course of an
audit exam-
4
<PAGE>
ination conducted in accordance with generally accepted
auditing standards in effect at the date of such examination,
and (ii) a certificate of an Authorized Representative of the
Borrower certifying which Subsidiaries are Significant
Subsidiaries;"
10. Section 11.6(b) shall be amended by changing the ratio
"2.75 to 1.0" set forth therein to "2.0 to 1.0."
11. Section 12.2 is amended to read in its entirety as
follows:
"12.2 Representations and Warranties. Any representation,
------------------------------
warranty or statement made or deemed made by the Borrower or
any Borrowing Subsidiary herein, in any other Loan Document or
otherwise in connection herewith or therewith, shall be
breached or be untrue in any material respect on or as of the
date made or deemed made; or"
12. Annex I shall be amended by (a) adding the following at
the end of the definition of "Adjusted Consolidated Net Worth":
"plus $77,200,000."
----
(b) amending the definition of "L/C Expiry Date"
to read in its entirety as follows:
"`L/C Expiry Date' shall mean July 31, 1998."
---------------
(c) amending the definition of "Asset Sales" to exclude any
Northeast Asset Sales, amending the definition of "Loan Documents" by adding at
the end thereof:
"and shall also include any Borrowing Subsidiary
Loan Documents."
and amending the definition of Net Cash Proceeds to exclude any proceeds from
Northeast Asset Sales.
(d) deleting the definition of "Clean-Up Period" and adding
the following new definitions in alphabetical order:
"Borrowing Subsidiary" - Section 6.1(c).
--------------------
5
<PAGE>
"Borrowing Subsidiary Loan Documents" shall mean any documents
-----------------------------------
or instruments executed and delivered by a Borrowing
Subsidiary in connection with a Subsidiary Letter of Credit.
"Northeast Assets" shall mean all or any part of the assets
----------------
of, or the capital stock or other equity interests of, the
entities listed on Schedule 1 hereto.
"Northeast Asset Sale" shall mean any Asset Sale
--------------------
of the Northeast Assets.
"7/1/96 Amendment" shall mean the Amendment to this Agreement
----------------
dated as of July 1, 1996.
"Subsidiary Letter of Credit" - Section 6.1(c).
---------------------------
C. The amendments set forth above are limited precisely as
written and shall not be deemed to (a) be a consent to any waiver of any other
term or condition of the Credit Agreement or any other Loan Document, (b)
prejudice any right or rights which the Agent, the Issuing Bank or the Banks may
now or in the future have in connection with the Credit Agreement or any other
Loan Document. It is understood, however, that (i) all Events of Default and
Defaults cured by the amendments set forth herein shall be deemed waived by the
Agent and the Banks and (ii) the Agent and the Banks waive all Defaults and
Events of Default which occurred prior to the Effective Date of this Amendment.
Except as modified hereby, the Credit Agreement and the other Loan Documents
shall continue in full force and effect.
D. The Borrower represents and warrants that as of the
Effective Date (as hereinafter defined), after giving effect to this Amendment,
(i) all representations and warranties contained in the Credit Agreement or
other Loan Documents are true and correct; and (ii) no Default exists.
E. For purposes of the representations and warranties made
pursuant to paragraph E above and for purposes of any documents and papers
delivered in connection with the execution and delivery of the Credit Agreement,
the effectiveness of this Amendment or thereafter, the term "Credit Agreement"
shall mean the Credit Agreement as modified hereby and the term "Loan Documents"
shall include the Loan Documents as modified hereby.
6
<PAGE>
F. This Amendment may be executed in counterparts, of which
each shall be an original and all shall constitute a single instrument, and
shall become effective on the date (the "Effective Date") when (x) the Borrower,
--------------
the Agent, and each Bank shall have signed a copy hereof (whether the same or
different copies) and the Agent shall have received a copy executed by all such
parties and (y) unless waived by the Agent in writing, the Agent shall have
received each of the following documents:
(i) an amendment fee equal to $29,703, such
fee shall not, in any event, be refundable,
(ii) a copy of the Certificate set forth at the foot
of this Amendment executed and delivered by the Secretary or an
Assistant Secretary of the Borrower, and
(iii) a favorable opinion from counsel for the
Borrower covering the matters set forth in Exhibit A hereto.
All such documents and information shall be in form and substance satisfactory
to the Bank.
G. This Amendment shall be governed by and construed in
accordance with the law of the State of New York, without giving effect to the
conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their duly authorized officers as
of the date first above written.
CONSOLIDATED HYDRO, INC.
By /s/ Edward M Stern
--------------------------------
Edward M Stern
Title President
7
<PAGE>
DEN NORSKE BANK ASA,
Individually and as Agent
By /s/ Philip F. Kurpiewski
--------------------------------
Philip F. Kurpiewski
Title President
By /s/ Bjorn Erik Lippstead
--------------------------------
Bjorn Erik Lippestad
Title Senior Vice President
8
<PAGE>
SECRETARY'S CERTIFICATE
-----------------------
The undersigned, the Secretary or Assistant Secretary of
Consolidated Hydro, Inc., a Delaware corporation (the "Borrower"), hereby
--------
certifies that the foregoing letter of amendment ("Amendment") dated July 1,
---------
1996 and the transactions contemplated thereby have been duly authorized and
approved by all necessary corporate and shareholder action and that the officer
of the Borrower who has executed and delivered such Amendment has been duly
authorized to take such action and all such other action as may be necessary or
desirable to effect the intent and purposes of such Amendment and the
transactions contemplated thereby.
IN WITNESS WHEREOF, the udnersigned has hereunto set forth
his/her hand and affixed the corporate seal of the Borrower on the 3rd day of
December , 1996.
/s/ Patrick J. Danna
--------------------------
Name: Patrick J. Danna
Title: Asst. Sec'y
Consolidated Hydro, Inc.
[Seal]
9
<PAGE>
Schedule 1
Northeast Assets
----------------
MW
UTILITY PROJECT CAPACITY
------- ------- --------
CMP: Upper Barker 0.95
Lower Barker 1.50
Browns Mill 0.59
Greenville 0.57
Pittsfield 1.05
Damariscotta 0.46
Eustis 0.25
Gardiner 1.00
Mechanics Falls 1.30
Norway 0.32
South Berwick 0.53
York 1.25
------
9.77
PSNH: EHC 1.00
Kelly's Falls 0.45
Rollinsford 1.49
Salmon Falls 1.20
Somerwsoth 1.29
------
5.43
Bangor Hydro: Milo 0.60
Pumpkin Hill 0.95
------
1.55
------
TOTAL 16.75
======
10
<PAGE>
Schedule 1
OPINION OF COUNSEL
The terms used herein shall have the meaning provided in the
Credit Agreement referred to in the Reimbursement Agreement to which this
Schedule is attached, unless otherwise defined herein.
1. The Account Party is duly organized, validly existing and
is in good standing under the law of the State of ______________.
2. The Account Party has the power to execute, deliver and
carry out the terms and provisions of the Agreement and has taken all necessary
action to authorize the execution, delivery and performance by it of the
Agreement. The Account Party has duly executed and delivered the Agreement, and
the Agreement constitutes its legal, valid and binding obligation enforceable in
accordance with its terms, except to the extent that enforcement may be limited
by the provisions of applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally or the
application of generally equitable principles (regardless of whether enforcement
is sought in equity or at law).
3. Neither the execution, delivery or performance by the
Account Party of the Agreement nor the consummation by it of the transactions
contemplated thereby will (i) require the approval of its stockholders, (ii)
contravene any provision of any law, statute, rule or regulation applicable to
CHI, the Account Party or any Subsidiary or any judgment, decree, franchise,
order or permit or any decision of any arbitrator applicable to CHI, the Account
Party or any Subsidiary, (iii) conflict or be inconsistent with, or result in
any breach of, any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the properties or assets of
CHI, the Account Party or any Subsidiary pursuant to the terms of any indenture,
mortgage, deed of trust, agreement or other instrument known to us, after due
inquiry, to which CHI, the Account Party is a party or by which the Account
Party or any of its property or assets is bound or to which the Account Party or
its
1
<PAGE>
assets may be subject, or (iv) violate any provision of any Organizational
Document of CHI, the Account Party.
4. No order, consent, approval, license, authorization or
validation of, filing, recording or registration with, or exemption by, any
governmental or public body or authority, or any connection with (i) the
execution, delivery and performance of the Agreement or any other Loan Document
or (ii) the legality, validity, binding effect or enforceability of the
Agreement, or any other Loan Document.
5. After giving effect to the Agreement, the Revolving Credit
Agreement (the "Credit Agreement") dated as of October 14, 1993 among
----------------
Consolidated Hydro, Inc., Den norske Bank ASA, and the Banks named therein
constitutes the Working Capital Facility (as defined in the Indenture) and the
performance and observance of the terms and provisions of the Agreement will not
affect the status of the Credit Agreement as the Working Capital Facility.
For purposes of this opinion, we have assumed, with your
permission, that the law of the State of New York is the same as the law of the
State of ________________.
Very truly yours,
2
<PAGE>
EXHIBIT A
OPINION OF COUNSEL
Terms used herein shall have the meaning provided in the
Credit Agreement referred to in the Amendment to which this Exhibit is attached,
unless otherwise defined herein.
1. The Borrower is duly organized, validly existing and is in
good standing under the law of the State of Delaware.
2. The Borrower has the power to execute, deliver and carry
out the terms and provisions of the Amendment and has taken all necessary action
to authorize the execution, delivery and performance by it of the Amendment. The
Borrower has duly executed and delivered the Amendment and the Credit Agreement,
as amended by the Amendment, constitutes its legal, valid and binding obligation
enforceable in accordance with its terms, except to the extent that enforcement
may be limited by the provisions of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally or the application of general equitable principles (regardless of
whether enforcement is sought in equity or at law).
3. Neither the execution, delivery or performance by the
Borrower of the Amendment nor the consummation by it of the transactions
contemplated thereby will (i) require the approval of its stockholders, (ii)
contravene any provision of any law, statute, rule or regulation applicable to
the Borrower or any Subsidiary or any judgment, decree, franchise, order or
permit or any decision of any arbitrator applicable to the Borrower or any
Subsidiary, (iii) based on the assumption stated in the last sentence of this
paragraph 3, conflict or be inconsistent with, or result in any breach of, any
of the terms, covenants, conditions or provisions of, or constitute a default
under, or result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the properties or assets of the Borrower or any
Subsidiary pursuant to the terms of any indenture, mortgage, deed of trust,
agreement or other instrument known to us, after due inquiry to which the
Borrower or any Subsidiary is a party or by which the Borrower or any Subsidiary
or any of its property or assets is bound or to which the Borrower or any
1
<PAGE>
Subsidiary or its assets may be subject, or (iv) violate any provision of any
Organizational Document of the Borrower or any Subsidiary. After giving effect
to the Amendment, the Credit Agreement constitutes the Working Capital Facility
(as defined in the Indenture) and the performance and observance of the terms
and provisions of the Amendment will not affect the status of the Credit
Agreement as the Working Capital Facility. Our opinion in clause 3 of this
paragraph is qualified to the extent that certain third party consents may be
required prior to the entering into and performance by a Borrowing Subsidiary of
a Reimbursement Agreement and the transactions contemplated thereby.
4. No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption by, any
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with (i) the execution,
delivery and performance of the Amendment or any other Loan Document or (ii) the
legality, validity, binding effect or enforceability of the Credit Agreement, as
amended by the Amendment, or any other Loan Document.
For purposes of this opinion, we have assumed, with your
permission, that the law of the State of New York is the same as the law of the
State of ________________.
Very truly yours,
2
<PAGE>
EXHIBIT B to the
THIRD AMENDMENT
REIMBURSEMENT AGREEMENT
(Letter of Credit)
Agreement between the Account Party named below and Den norske
Bank ASA (the "Bank" or the "Issuing Bank") dated as of _______________, 199___.
---- ------------
1. The following terms and provisions shall apply to this
Agreement; the meaning of any term in this or any other Section of this
Agreement expressed in the singular shall apply, mutatis mutandis, to the same
------- --------
term expressed in the plural and vice versa; all definitions of agreements,
---- -----
notes or other instruments shall mean such agreements as modified or amended in
accordance with the terms thereof and all definitions of promissory notes shall
include all promissory notes issued in replacement or substitution thereof:
"Account Party": ________________________________, a
-------------
___________________ corporation and a subsidiary of Consolidated Hydro, Inc.,
a Delaware corporation("CHI").
"CHI Credit Agreement": Revolving Credit Agreement dated as of
--------------------
October 14, 1993 among CHI, Den norske Bank ASA, as Agent and the Banks named
therein, as amended from time to time.
Except as otherwise defined in this Agreement, terms used in
this Agreement and defined in the CHI Credit Agreement shall be used herein as
so defined. All references to the "Loan(s)" or the "Borrower" in the provisions
of the CHI Credit Agreement which are incorporated into this Agreement by
reference, shall be deemed to be references to the Loans made under this
Agreement or the Account Party, as the case may be.
2. The Account Party has requested that the Bank issue, for
the account of the Account Party, a letter of credit, together with the Letter
of Credit issued in substitution or replacement thereof (the "Letter of
---------
Credit").
- - - ------
3. The Account Party agrees to pay to the Issuing Bank, a fee
with respect to the Letter of Credit, computed at a rate of 0.25% per annum on
the L/C Available Amount of the Letter of Credit and payable in arrears on the
last Business Day of March, June, September and December of each year commencing
on the first such date occurring after
1
<PAGE>
the date on which such Letter of Credit is issued. In addition, the Account
Party agrees (x) to pay to the Issuing Bank for its own account the Issuing
Bank's standard charges and expenses, as in effect from time to time, in
connection with the issuing, transmitting, maintaining, administering, amending,
processing or paying the Letter of Credit and (y) to pay any and all costs or
charges of any other Person relating to the advising, confirming, negotiating,
paying or similar acts with respect to the Letter of Credit, provided that, if
--------
any beneficiary shall require that the Letter of Credit be confirmed, and such
requirement is reasonably acceptable to the Issuing Bank and the cost of such
confirmation shall exceed 1% per annum (based upon the L/C Available Amount)
plus any amounts payable during any relevant period pursuant to Section 4 the
- - - ----
CHI Credit Agreement (as incorporated herein by reference), then, Den norske
----
Bank AS shall pay such excess costs of confirmation, provided that, if the
--------
confirming bank is not selected by Den norske Bank AS, the cost of such
confirmation borne by Den norske Bank AS shall not exceed an amount computed at
a rate equal to 1/2 of 1% per annum (based upon the relevant L/C Available
Amount. Fees charged on a per annum basis shall be computed on the number of
days actually elapsed on the basis of a 360-day year.
4. Any amount drawn under the Letter of Credit (whether issued
by the Bank or any other Issuing Bank) shall be paid by the Issuing Bank using
the amounts credited to the Cash Collateral Account (as hereinafter defined).
If, for any reason, such amounts cannot be so applied or the application thereof
is reversed, the amount of such drawing shall constitute a loan (each a "Loan")
----
by the Bank to the Account Party made on the date of any such drawing. Each Loan
shall bear interest, from the date of such drawing until such amount is repaid
to the Bank, at the time(s) and at the rate(s) provided for Loans in the CHI
Credit Agreement. Sections 3 and 4 of the CHI Credit Agreement are incorporated
herein by reference, together with the defined terms used in said Sections 3 and
4; provided that, for this purpose;
-------- ----
(i) the Default Rate shall apply only upon the
earlier of the date on which (x) the Bank is (by operation of law, legal process
or otherwise) prevented from applying the Deposited Funds to the Secured
Obligations or (y) the Bank rescinds any such application in connection with any
bankruptcy or other proceeding for the relief of financially distressed debtors,
and
2
<PAGE>
(ii) each Loan and interest thereon shall be
payable ON DEMAND.
5. All payments provided for hereunder shall be effectively
made to the Bank, in lawful money of the United States of America (without
setoff or counterclaim in immediately available funds), prior to 12:00 Noon on
the date when due at the office of the Bank located at 200 Park Avenue, New
York, New York 10166 or such other place and for the account of such office of
the Bank as the Bank may designate. The Bank is authorized to debit any account
of the Account Party with the Bank for all amounts payable under this Agreement
or the other Loan Documents.
6. Each Letter of Credit shall be in form and substance
satisfactory to the Account Party and the Issuing Bank, and, unless otherwise
agreed by the Account Party and the Issuing Bank, shall (i) have an initial
expiry date, which shall be no later than one year after the date of its
issuance or, if earlier, the L/C Expiry Date, subject to automatic renewal
unless notice to the contrary is given by the Issuing Bank in writing a
specified period before the then current expiry date, and (ii) state that,
except as otherwise provided therein, such Letter of Credit shall be governed by
the Uniform Customs and, to the extent not inconsistent therewith, the law of
the State of New York.
The Bank shall not be required to issue the Letter of Credit unless,
within a reasonable time before such issuance, the Bank shall have received from
the Account Party an L/C Request. The documents executed and delivered in
connection with the issuance or performance of the Letter of Credit (including,
without limitation, any standing agreement or application for standby or
commercial letters of credit, any application for steamship guaranty, air
release or similar document, any trust receipt or any other document relating to
the Letter of Credit or the transactions contemplated thereby or in connection
therewith) are herein sometimes referred to as the "L/C Documents". In the case
-------------
of an L/C Request, on the date specified in such L/C Request (or as soon
thereafter as is practicable), the Issuing Bank shall issue the requested Letter
of Credit by sending it to the beneficiary thereof, or as the Account Party may
otherwise direct.
7. The Account Party assumes all risks of the acts, omissions
or misuse of the Letter of Credit by the beneficiary or any other user thereof
and those of any bank
3
<PAGE>
engaged to issue, advise, pay, negotiate, confirm or otherwise deal with the
Letter of Credit. The Issuing Bank (and, also, the Agent and the Banks) shall
not be responsible: (i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any draft or document submitted by any party in
connection with the application for, issuance of, or payment under, the Letter
of Credit, even if any thereof should in fact proved to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged, (ii) for
errors, omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex, telecopy or otherwise, whether or
not they be in cipher, (iii) for any loss or delay in the transmission or
otherwise of any document or draft required in order to make a drawing under the
Letter of Credit or of any proceeds thereof or (iv) for any consequences arising
from causes beyond the control of the Issuing Bank. None of the above shall
affect, impair, or prevent the vesting of any of the Issuing Bank's rights or
powers hereunder or under any of the other documents or instruments executed in
connection herewith. The Account Party shall protect the Issuing Bank, the Agent
and the Banks in connection with the Payment of any draft presented on or before
the expiration of any time limit expressed in the related Letter of Credit
regardless of when drawn and when or whether negotiated. In furtherance and
extension and not in limitation of the specific provisions hereinbefore set
forth, the Account Party agrees that any action taken by the Issuing Bank under
or in connection with the Letter of Credit or the relevant drafts shall be
binding on the Account Party and shall not put the Issuing Bank, the Agent or
any Bank under any resulting liability to the Account Party, and the Account
Party makes like agreement as to any inaction or omission, unless, in the case
of the Issuing Bank, it acted with gross negligence or willful misconduct.
Without limiting the foregoing, the obligation of the Account Party or the Banks
to reimburse the Issuing Bank and the Banks, as the case may be, with respect to
any drawing made under the Letter of Credit shall be irrevocable, absolute and
unconditional and shall not be subject to any qualification or exception
whatsoever, and shall be made in accordance with the terms and conditions of
this Agreement under all circumstances, including, without limitation, any of
the following circumstances:
(i) any lack of validity or enforceability of this
Agreement, the Letter of Credit or any related
document or instrument;
4
<PAGE>
(ii) the existence of any claim, setoff,
defense or other right which the Account
Party may have at any time against a
beneficiary or transferee of the Letter of
Credit (or any Person for whom any such
beneficiary or transferee may be acting),
the Agent, the Issuing Bank, any Bank or
any other Person, whether in connection
with this agreement, the Letter of Credit,
any other Loan Document, the transactions
contemplated hereby or thereby or any
unrelated transactions (including any
underlying transactions between the
Account Party and the beneficiary named in
the Letter of Credit);
(iii) payment by the Issuing Bank under the Letter of
Credit of any draft which does not comply with
the terms of such Letter of Credit:
(iv) any other circumstance or happening whatsoever
which would give rise to a defense against
payment regardless of whether similar to any of
the foregoing; or
(v) the occurrence of any Default or the
termination or expiration of any
Commitment;
provided that, nothing herein shall prejudice any right of the Account Party to
- - - -------------
bring an independent action against the Issuing Bank with respect to any claim
that the Issuing Bank acted with gross negligence or wilful misconduct. The term
"draft" as used in this Agreement shall mean and include any draft or drawing
-----
certificate or statement and any and all documents and instruments required to
be presented for payment under the Letter of Credit.
8. The Account Party hereby agrees at all times to protect,
indemnify and save harmless the Bank from and against any and all claims,
actions, suits and other legal proceedings, and from and against any and all
loss, claims, demands, liabilities, damages, costs, charges, counsel fees and
other expenses which the Bank may, at any time, sustain or incur by reason of or
in consequence of or arising out of the issuance or performance of the Letters
of Credit (including, without limitation, any action to restrain or
5
<PAGE>
enjoin any payment thereunder), it being the intention of the parties that this
Agreement shall be construed and applied to protect and indemnify the Bank
against any and all risks involved in the issuance or performance of the Letters
of Credit, all of which risks are hereby assumed by the Account Party,
including, without limitation, any and all risks of the act or omissions,
whether rightful or wrongful, of any present or future de jure or de facto
------- --------
government or governmental authority (all such acts and omissions, "Government
----------
Acts"). Without in any way limiting the foregoing, the Account Party hereby
- - - ----
further agrees (i) at all times to protect, indemnify and save harmless the Bank
from and against any and all claims, actions, suits and other legal proceedings,
and from and against any and all losses, claims, demands, liabilities, damages,
costs, charges, counsel fees and other expenses which the Bank may, at any time,
sustain or incur by reason of or in consequence of or arising out of the Letter
of Credit being issued by an Issuing Bank other than the Bank or as a result of
the Bank executing any application (including any joint application) or other
Letter of Credit Document for the issuance of, or in connection with, such
Letter of Credit (including, without limitation, all claims, demands,
liabilities, damages, costs, charges, counsel fees and other expenses incurred
by the Bank to such Issuing Bank, or payments made by the Bank to such Issuing
Bank, in connection with any such Letter of Credit or the Letter of Credit
Document), (ii) that the Bank shall have no liability to the Account Party, as
an applicant or a joint applicant for any such Letter of Credit, and the Account
Party shall have no right against the Bank (by way of indemnification,
contribution or otherwise) in connection therewith and (iii) the Bank shall be
entitled to the benefits of any indemnification provision provided to any
Issuing Bank under the Letter of Credit Document with the effect that, without
limiting any other provision of this Agreement, the Bank shall be indemnified
for any and all matters with respect to which such Issuing Bank is indemnified.
The Bank shall not, in any way, be liable for any failure by the Bank or anyone
else to pay any draft under the Letter of Credit as a result of any Government
Acts or any other cause beyond the control of the Bank. The provisions of this
Section 8 shall survive the termination of this Agreement.
9. The Account Party hereby authorizes and directs the Bank to
establish a special account named the [Name of Account Party] Cash Collateral
Account (the "Cash Collateral Account") at its office identified below or at
-----------------------
6
<PAGE>
any of its other branch offices, such account to be maintained until the Letter
of Credit is terminated or expired and all Secured Obligations are paid in full.
On or before the Letter of Credit is issued, the Account Party shall deposit in
the Cash Collateral Account an amount (the "Cash Collateral Amount") equal to
----------------------
the face amount of the Letter of Credit.
The Bank shall have a lien on, and security interest in, all
amounts (together with all interest, if any, accrued thereon) in the Cash
Collateral Account. All amounts deposited in the Cash Collateral Account (but
not interest accrued thereon) shall bear interest for each day from the date of
such deposit to (but not including) the Charge Date (as hereinafter defined) at
a rate per annum equal to the lesser of
(i) (x) The rate determined by the Issuing Bank
at its principal office in New York City as
the rate which the Issuing Bank is willing to
pay for U.S. dollar deposits in an amount
equal to the cash collateral amount for which
interest is being determined during such day
or, if such day is not a Business Day, during
the next preceding Business Day minus (y)
-----
0.25%, or
(ii) the highest rate permitted by law.
All such interest shall be credited to the Cash Collateral
Account quarterly. As used herein, the term "Charge Date" shall mean, with
-----------
respect to any amount bearing interest in the Cash Collateral Account, the
earlier of:
(a) the date on which a corresponding amount is paid by
the Bank pursuant to the Letter of Credit or charged
by the Bank in respect of any of the Account Party's
obligations hereunder or
(b) the date on an event of the type referred to in
Section 12.7 of the CHI Credit Agreement shall occur
with respect to the Account Party.
Upon the giving of 3 Business Days prior written request to
the Bank, the Account Party shall be entitled to withdraw from the Cash
Collateral Account all amounts in
7
<PAGE>
excess of the sum of (w) all amounts due under this Agreement and the other
Letter of Credit Documents (whether for principal, interest or otherwise), (x)
all amounts which the Bank may be required to pay under the Letter of Credit,
and (y) all unreimbursed amounts paid by the Bank under the Letter of Credit and
(z) all fees which may be payable to the Bank in respect of the Letter of Credit
(whether or not then due).
11. The Account Party represents and warrants
that:
(i) the Account Party is duly organized, validly existing
and in good standing under the jurisdiction of its
incorporation and has the power to enter into and
perform its obligations hereunder and the
transactions contemplated hereby;
(ii) this Agreement constitutes the duly autho-
rized, legal, valid and binding obligation of
the Account Party, enforceable in accordance
with its terms; and all acts, filings, condi-
tions and things required to be done and per-
formed and to have happened (including, with-
out limitation, the obtaining of all neces-
sary corporate or shareholder approvals and
all third party and governmental approvals)
precedent to the entering into of this Agree-
ment have been done, performed and have
happened in due and strict compliance with
all applicable laws;
(iii) the entering into and performance of this
Agreement by the Account Party will not
violate any law, rule, regulation, order,
decree, permit, agreement or instrument to
which CHI the Account Party is a party or is
subject, or result in the imposition of any
lien upon any of CHI's or the Account Party's
assets (except as contemplated hereby);
(iv) no event of the type referred to in Section 12.7 of
the CHI Credit Agreement has occurred with respect to
the Account Party; and
8
<PAGE>
12. The Account Party represents and agrees that:
(i) legal proceedings against it with respect
this Agreement and the transactions contem-
plated hereby may be brought in the courts of
its jurisdiction of organization or principal
location or any jurisdiction in which the
Account Party has substantial assets or the
courts of the State of New York or of the
United States of America for the Southern
District of New York, as the Bank may elect,
and that the jurisdiction of such courts is
generally and unconditionally accepted;
(ii) service of process out of any such court may be made
by mailing copies thereof by registered or certified
air mail, postage prepaid, to the Account Party at
its address for notices as specified herein and will
become effective 30 days after such mailing;
(iii) it is not entitled to, and to the extent it
hereafter becomes so entitled, hereby waives
any immunity, sovereign or otherwise, with
respect to itself and its property from
jurisdiction, service, attachment (both
before and after judgment) and execution in
legal proceedings wherever commenced to
enforce or collect upon this Agreement;
(iv) the courts of the State of New York and the
courts of the United States of New York for
the Southern District of New York shall have
exclusive jurisdiction with respect to any
action brought by the Account Party in con-
nection with this Agreement or any other Loan
Document or the transactions contemplated
hereby or thereby; and
(v) the provisions of this Section 12 shall not limit the
right of the Bank to serve process in any other
manner permitted by law or to commence legal
proceedings in any other court of competent
jurisdiction.
9
<PAGE>
13. The Bank and the Account Party agree that:
(i) communications may be given to the parties
hereto at their respective addresses set
forth below, or at such other address as may
be specified in writing and shall be effec-
tive when received; the phrases "written
notice" and "in writing" when used herein
shall mean notice given in any form of
writing however transmitted;
(ii) this Agreement may be modified only by an instrument
in writing signed by the party against whom
enforcement of the modification is sought;
(iii) this Agreement shall be binding upon the Account
Party, its successors and assigns and shall inure to
the benefit of and be enforceable by the Bank and its
successors and assigns;
(iv) the Bank's rights, powers, privileges and
remedies under or in connection with this
Agreement are cumulative and not exclusive
and shall not be waived, precluded or limited
by any failure or delay in the exercise
thereof or by the partial exercise thereof or
by any course of dealing between the Account
Party and the Bank;
(v) the Account Party agrees to pay and hold the
Bank harmless from and against any and all
costs and expenses (including legal fees and
disbursements and stamp and other taxes)
incurred in connection with this Agreement or
the Letter of Credit, the enforcement hereof
or thereof and any action or proceeding
relating to a court order, injunction or
other process restraining or seeking to
restrain the Bank from paying any amount
under the Letter of Credit;
(vi) for purposes of all exculpatory and indemnification
provisions of this Agreement and the other Loan
Documents, the terms "Bank" and "Issuing Bank" shall
also include their respective directors, officers,
employees,
10
<PAGE>
agents, and any bank acting on behalf of the Bank and
the Issuing Bank in connection with this Agreement or
the Letter of Credit and any participant of or in the
Bank's interests relating to this Agreement or the
other Loan Documents; and
(vii) this Agreement and the rights and obligations
of the parties hereunder shall be construed
in accordance with, and be governed by, the
law of the State of New York; and each Letter
of Credit shall be subject to the Uniform
Customs and Practice for Commercial Docu-
mentary Credits fixed by the International
Chamber of Commerce, as in effect on the date
of issuance of the Letter of Credit, and, to
the extent not inconsistent with said Uniform
Customs and Practice, shall be governed by
the law of the State of New York, including
Article 5 of the New York Uniform Commercial
Code.
14. This Agreement may be executed in counterparts, of which
each shall be an original and all shall constitute a single instrument, and
shall become effective on the date (the "Effective Date") when (x) each of the
parties hereto shall have signed a copy hereof (whether the same or different
copies) and the Bank shall have received a copy executed by the Borrower and (y)
unless waived by the Bank in writing, each of the following conditions shall be
satisfied:
A. The Bank shall have received the Cash
Collateral Amount for deposit into the Cash
Collateral Account;
B. The Bank shall have received a favorable opinion of
counsel to the Account Party and CHI, substantially
in the form of Schedule 1 hereto, dated on or about
the Effective Date; such opinion shall be addressed
to the Bank and shall cover such other matters as the
Bank may reasonably request;
C. The Bank shall have received, in U.S. dollars, all
fees, costs and expenses payable as of such time
pursuant to Sections 3 and 13(v) hereof or otherwise
payable in connec-
11
<PAGE>
tion with this Agreement or the other L/C Documents
or in connection with the transactions contemplated
hereby or thereby or relating hereto or thereto;
D. All corporate and legal proceedings and all
instruments and agreements in connection with
the transactions contemplated by this Agree-
ment and the other L/C Documents shall be
satisfactory in form and substance to the
Bank and its counsel, and the Bank shall have
received all information and copies of all
documents and papers, including records of
corporate and governmental proceedings and
the financial information required under this
Agreement which the Bank may reasonably have
requested in connection therewith, such docu-
ments and papers (when appropriate) to be
certified by proper corporate or governmental
authorities and shall, in any event, include:
(A) a long form good standing certificate for
the Account Party, (B) certified copies of
the corporate charter and Organizational
Documents of the Account Party and (C) a
certificate of the Secretary or an Assistant
Secretary of the Account Party certifying (1)
the corporate resolutions of the Account
Party relating to the entering into and per-
formance of the L/C Documents and the trans-
actions contemplated thereby and (2) the
incumbency and specimen signatures of
officers or representatives of the Account
Party authorized to execute the L/C Documents
and other documents and papers, and to take
any other action, in connection herewith and
therewith;
E. The Bank shall have received the annual
Financial Statements of the Account Party as
at and for its fiscal year and fiscal quarter
most recently ended (or for the prior year
and/or quarter, if the Financial Statements
for the most recently ended period are not
available and less than 120 days, in the case
of annual Financial Statements, or 30 days,
in the case of quarterly Financial State-
ments, have expired), together with a certif-
12
<PAGE>
icate of the type required by Section
10.2(a)(i) of the CHI Credit Agreement;
F. As at the Effective Date, and after giving effect to
this Agreement and the transactions contemplated
hereby, (i) no default by the Account Party under
this Agreement shall exist and (ii) all
representations and warranties of the Account Party
shall be true and correct.
G. All acts, conditions and things required to
be done and performed and to have happened
precedent to the execution and delivery of
this Agreement and the other L/C Documents in
order that the same constitute the legal,
valid and binding obligations of the Account
Party and the other parties thereto, as the
case may be, enforceable in accordance with
their terms, shall have been done and per-
formed and have happened in strict compliance
with all applicable laws; and
H. No law, regulation, rule, guideline or other action
by any Governmental Authority shall be in effect or
shall have occurred, the effect of which is to
prevent the Bank or the Account Party from fulfilling
their respective obligations hereunder or under the
other L/C Documents.
All of the L/C Documents, opinions of counsel and other
documents and papers referred to in this Section 14 shall be in form and
substance satisfactory to the Bank and shall be delivered to the Bank at its
Payment Office, or at such other place as the Bank may from time to time specify
to the Account Party.
15. WAIVER OF JURY TRIAL. EXCEPT TO THE EXTENT PROHIBITED BY
--------------------
LAW WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN
CONNECTION WITH ANY ACTION OR PROCEEDING OF ANY NATURE WHATSOEVER ARISING UNDER,
OUT OF OR IN CONNECTION WITH THIS AGREEMENT, THE CHI CREDIT AGREEMENT, THE
LETTER OF CREDIT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY AND IN CONNECTION WITH ANY CLAIM, COUNTERCLAIM, OFFSET OR
DEFENSE ARISING IN CONNECTION WITH SUCH ACTION OR PROCEEDING, WHETHER ARISING
(X) IN CONNECTION WITH ANY ACTION INSTITUTED BY OR ON
13
<PAGE>
BEHALF OF THE ACCOUNT PARTY, THE BANK OR ANY OTHER PERSON OR (Y) UNDER STATUTE
(INCLUDING ANY FEDERAL OR STATE CONSTITUTION) OR UNDER THE LAW OF CONTRACT, TORT
OR OTHERWISE AND VALIDITY, BINDING EFFECT OR ENFORCEABILITY OF THIS SECTION 15,
OR THIS AGREEMENT, THE LETTER OF CREDIT OR ANY OTHER LOAN DOCUMENT.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective duly authorized
officers as of the date first above written.
Addresses __________________ , the Account Party
- - - ---------
Telefax No: By _______________________________________
200 Park Avenue DEN NORSKE BANK ASA
New York, N.Y. 10166
Telefax No:
(212) 681-3900 By ______________________________________
Title ___________________________________
By ______________________________________
Title ___________________________________
14
NYFS10...:\84\38684\0003\1924\EXB9267R.080
- - - --------------------------------------------------------------------------------
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
dated as of October 15, 1996
between
LYON CREDIT CORPORATION,
as Lender,
and
BP HYDRO FINANCE PARTNERSHIP,
as Borrower
- - - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS.....................................................2
1.1 Certain Defined Terms...........................................2
1.2 Accounting Terms; Utilization of GAAP for Purposes
of Calculations under Agreement................................24
1.3 Other Definitional Provisions..................................24
SECTION 2 AMOUNTS AND TERMS OF THE LOANS.................................24
2.1 The Loans......................................................24
2.2 Conditions and Terms Specific to the Senior Loan...............25
2.3 Conditions and Terms Specific to the Additional
Credit Facility................................................26
2.4 Interest.......................................................28
2.5 Fees...........................................................30
2.6 Payments and Prepayments.......................................30
2.7 Term of this Agreement.........................................34
2.8 Borrower's Loan Account and Statements.........................34
2.9 Capital Adequacy, Taxes and Other Adjustments..................35
SECTION 3 CONDITIONS TO LOANS............................................36
3.1 Conditions Precedent...........................................36
3.2 Conditions Precedent for the Benefit of Lender.................45
3.3 Location of Closing............................................45
SECTION 4 REPRESENTATIONS AND WARRANTIES OF BORROWER.....................45
4.1 Organization, Business and Qualification.......................45
4.2 Power and Authorization........................................46
4.3 Financial Condition............................................47
4.4 Suits, Actions, Proceedings and Adverse Facts..................47
4.5 Title to Borrower Collateral; Liens............................47
4.6 Governmental Requirements......................................48
-i-
<PAGE>
4.7 Employee Benefit Plans.........................................48
4.8 Taxes..........................................................49
4.9 Chief Executive Office.........................................49
4.10 Environmental Matters..........................................49
4.11 Burdensome Restrictions; Other Contracts.......................49
4.12 Labor Matters..................................................49
4.13 Permits........................................................50
4.14 Disclosure.....................................................50
4.15 Material Agreements............................................50
4.16 No Default.....................................................51
4.17 Certain Fees...................................................51
4.18 Use of Proceeds and Margin Security............................51
4.19 Compliance with Governmental Requirements......................52
4.20 Insurance......................................................52
4.21 Projects.......................................................52
4.22 Capital Calls..................................................53
4.23 No Maintenance Liabilities.....................................53
4.24 Indebtedness...................................................53
4.25 Accounts Receivable............................................53
SECTION 5 AFFIRMATIVE COVENANTS AND AGREEMENTS OF BORROWER...............53
5.1 Compliance with Governmental Requirements......................53
5.2 Access.........................................................53
5.3 Notices by Governmental Authority; Fire and
Casualty Losses, etc...........................................54
5.4 Borrower Revenues..............................................54
5.5 No Lender Liability............................................54
5.6 Payment of Taxes, Fees and Claims..............................55
5.7 Financial Statements and Other Reports.........................55
5.8 Insurance......................................................58
5.9 Continuance of Business........................................58
5.10 Perfection and Preservation of Liens...........................58
5.11 Agent..........................................................59
5.12 Employee Benefit Plans.........................................59
5.13 Authorized Officers............................................59
5.14 Self-Certification.............................................59
5.15 Further Assurances.............................................60
5.16 All Necessary Action...........................................60
-ii-
<PAGE>
5.17 Use of Proceeds................................................60
5.18 Security Documents.............................................60
5.19 Debt Service Reserve Account...................................60
5.20 Other Financial Covenants......................................61
5.21 Additional Work Actions........................................61
5.22 Enforcement of Rights..........................................61
5.23 Change of Chief Executive Office...............................61
SECTION 6 NEGATIVE COVENANTS OF BORROWER.................................61
6.1 No Liens.......................................................62
6.2 Restriction on Fundamental Changes.............................62
6.3 Transactions with Affiliates...................................62
6.4 Changes to Material Agreements.................................62
6.5 Contingent Obligations.........................................62
6.6 Indebtedness...................................................63
6.7 Security Documents.............................................63
6.8 Borrower Revenues..............................................63
SECTION 7 RIGHTS AND REMEDIES OF LENDER..................................63
7.1 Acceleration...................................................63
7.2 Additional Remedies of Lender..................................64
7.3 Application of Proceeds........................................65
7.4 Notices........................................................65
7.5 Funds of Lender................................................66
7.6 No Waiver or Exhaustion........................................66
SECTION 8 GENERAL TERMS AND CONDITIONS...................................67
8.1 Expenses and Attorneys' Fees...................................67
8.2 Indemnity by Borrower..........................................68
8.3 Notice and Defense of Claim....................................70
8.4 Amendments and Waivers.........................................70
8.5 Retention of Borrower Documents................................71
8.6 Notices........................................................71
8.7 Survival of Representations, Warranties, Covenants
and Certain Agreements.........................................72
8.8 Failure or Indulgence Not Waiver; Remedies Cumulative..........73
8.9 Marshaling; Payments Set Aside.................................73
8.10 Independence of Covenants......................................73
-iii-
<PAGE>
8.11 Severability...................................................73
8.12 Headings.......................................................74
8.13 Applicable Law.................................................74
8.14 Successors and Assigns.........................................74
8.15 No Fiduciary Relationship or Partnership.......................74
8.16 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.................74
8.17 WAIVER OF JURY TRIAL...........................................75
8.18 Counterparts; Effectiveness....................................76
8.19 Assignment and Participation...................................76
8.20 Reproduction of Documents......................................76
8.21 Controlling Agreement..........................................77
8.22 Termination of Commitment......................................77
8.23 Entire Agreement...............................................77
8.24 Confidentiality................................................78
-iv-
<PAGE>
EXHIBIT 1.1 Descriptions of Projects
EXHIBIT 1.2 Form of Disbursement Instructions
EXHIBIT 1.3 Pro Forma Cash Flow Projections
EXHIBIT 1.5 Form of Security Agreement
EXHIBIT 1.6 Form of Note
EXHIBIT 2.1(a) Request for Advance
EXHIBIT 2.1(b) Receipt for Advance
EXHIBIT 3.1 Form of Assignment
EXHIBIT 3.2 Form of Consent to Assignment
EXHIBIT 4.1 Foreign Jurisdictions
EXHIBIT 4.2 Consents and Waivers
EXHIBIT 4.3 Financing Statement Offices and Locations
EXHIBIT 4.15 Material Agreements
EXHIBIT 4.25 Accounts Receivable
EXHIBIT 5.7 Form of Certificate of Authorized Officer
EXHIBIT 5.21 Report of Independent Engineer
EXHIBIT 6.5 Contingent Obligations
EXHIBIT 6.6 Indebtedness
SCHEDULE I Applicable Permits
SCHEDULE II Articles of Incorporation and Partnership Agreements
SCHEDULE III Initial Disbursement and Closing Costs
SCHEDULE IV Project Documents
SCHEDULE V Schedule of Exceptions
SCHEDULE VI Capital Leases
-v-
<PAGE>
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement"),
dated as of October 15, 1996, is between LYON CREDIT CORPORATION, a Delaware
corporation ("Lender"), with offices at 1266 East Main Street, Stamford,
Connecticut 06902, and BP HYDRO FINANCE PARTNERSHIP, a Utah general partnership
("Borrower"), with offices at 111 West North Bend Way, P.O. Box 1029, North
Bend, Washington 98045 and amends and restates the Credit Agreement, dated as of
August 22, 1990, by and between Borrower and The Fuji Bank, Limited, acting
through its Los Angeles agency ("Fuji Bank"), as amended by Amendment No. 1,
dated as of December 23, 1992, between Borrower and Fuji Bank, and as assigned
by Fuji Bank to Lender pursuant to the Assignment, Assumption and Note Purchase
Agreement, dated as of the date hereof (the "Assignment Agreement"), between
Fuji Bank and Lender (such Credit Agreement, as so amended and assigned, the
"Original Credit Agreement").
RECITALS
WHEREAS, pursuant to the Original Credit Agreement, Borrower issued a
promissory note, dated August 22, 1990 and amended and restated December 23,
1992 (the "Fuji Note"), in the initial principal amount of fifteen million seven
hundred fifty thousand Dollars ($15,750,000);
WHEREAS, the indebtedness of Borrower evidenced by the Fuji Note is
secured by, among other things, certain partnership interests and certain
capital stock of the Affiliates (as defined below), all of the ownership
interests of the Project Owners (as defined below) Borrower in the Projects (as
defined below) and certain contract rights relating to the Projects (the
security for Borrower's indebtedness, collectively, the "Fuji Security");
WHEREAS, pursuant to a letter agreement, dated September 16, 1996,
between Fuji Bank and CHI West, Inc. ("CHI West"), an affiliate of Borrower,
Fuji Bank offered to sell or assign the Fuji Note, the Original Credit Agreement
and the Fuji Security to CHI West or to its designee;
<PAGE>
WHEREAS, CHI West designated Lender as its designee to purchase the
Fuji Note and to be the assignee of the Original Credit Agreement and the Fuji
Security;
WHEREAS, pursuant to the Assignment Agreement, Lender has purchased
the Fuji Note and Fuji Bank has assigned to Lender all of its right, title and
interest in, to and under the Original Credit Agreement and the Fuji Security;
WHEREAS, Lender and Borrower wish to amend and restate in its entirety
the Original Credit Agreement to reflect, among other things, the purchase of
the Fuji Note, the assignment of the Fuji Security, the creation of additional
security in favor of Lender, and the restructuring of a portion of the
indebtedness evidenced by the Fuji Note as the Senior Loan (as defined below)
and the Additional Credit Facility (as defined below); and
WHEREAS, simultaneously with the execution of this Agreement, Borrower
will issue (i) an amended and restated promissory note in favor of Lender in the
principal amount of the Senior Loan Commitment (as defined below) and (ii) the
Additional Credit Facility Note (as defined below) and Lender will sell to CHI
Finance, Inc. a Delaware corporation, the balance of the indebtedness of
Borrower under the Fuji Note;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
SECTION 1
DEFINITIONS
1.1 Certain Defined Terms.
When used herein, the following terms have the following respective
meanings:
"Accounts" means, collectively, the Debt Service Account, the Debt
Service Reserve Account and the Project Revenues Account.
"Accumulated Funding Deficiency" means a funding deficiency described
in section 302 of ERISA.
2
<PAGE>
"Additional Credit Facility" means a line of credit reserved by Lender
for the benefit of Borrower from the original indebtedness of Borrower to Fuji
Bank pursuant to the Fuji Note and secured by the Fuji Security (as assigned by
Fuji Bank to Lender) in the maximum available amount of two million Dollars
($2,000,000).
"Additional Credit Facility Note" means, collectively, each Note of
Borrower relating to the Additional Credit Facility and issued pursuant to
Section 2.3, and each other promissory note of Borrower issued in substitution
or exchange for any Additional Credit Facility Note. The Additional Credit
Facility Note shall be payable to the order of Lender, shall be in the amount of
the maximum available amount under the Additional Credit Facility and shall
provide for the repayment of principal and the payment of interest as provided
therein and herein and shall be secured by the Borrower Collateral.
"Advance" means any disbursement of principal under the Additional
Credit Facility.
"Affiliate" means (i) CHI-Idaho, Inc., a Delaware corporation, (ii)
CHI-Magic Valley, Inc., a Delaware corporation, (iii) Consolidated Hydro
Mountain States, Inc., a Delaware corporation, (iv) BP Hydro Associates, an
Idaho general partnership, and (v) Fulcrum, Inc., an Idaho corporation.
"Agency Fee" means the fee payable by Borrower to Lender on each
anniversary of the Closing Date, which fee shall be in the amount of twenty
thousand Dollars ($20,000) on the first through the third anniversary of the
Closing Date and ten thousand Dollars ($10,000) on the fourth anniversary of the
Closing Date and each anniversary of the Closing Date thereafter until all
Obligations of Borrower have been indefeasibly paid in full.
"Applicable Permit" means, with respect to any Project, any Permit,
including any zoning, environmental protection, pollution, sanitation, FERC,
public utilities commission, health, safety, siting or building Permit, (a) that
is necessary at any given time in the operation of such Project to test,
operate, maintain, repair, own or use such Project as contemplated by any
Material Agreement relating to such Project, to sell electricity therefrom, to
enter into any Material Agreement for such Project or to perform the obligations
contemplated thereby, or (b) that is necessary so that none of Borrower, any
Affiliate, Lender or any affiliate of Lender may be deemed by any Governmental
Authority to be subject to regulation under the FPA, PUHCA or any state law or
regulation respecting the rates or the financial or
3
<PAGE>
organizational regulation of electric utilities solely as a result of the
ownership or operation of any Project by the applicable Project Owner or the
sale of electricity therefrom. A list of all Applicable Permits is set forth in
Schedule I.
"Articles of Incorporation" means the documents relating to certain
Affiliates listed in Schedule II.
"Assignment Agreement" has the meaning set forth in the first
paragraph hereof.
"Assignment Fee" means the fee payable by CHI Finance to Lender on the
Closing Date in the amount of twenty-five thousand Dollars ($25,000) as
consideration for the assignment by Lender to CHI Finance of the portion of the
Fuji Note remaining after Borrower shall have executed and delivered to Lender
the Senior Loan Note and the Additional Credit Facility Note.
"Assignments" means the Collateral Assignments of Agreements, dated as
of the date hereof, by Borrower and each Affiliate, assigning to Lender such
Person's rights under the Material Agreements substantially in the form of
Exhibit 3.1.
"Authorized Officer" means, with respect to Borrower and the
Affiliates, Edward M. Stern, Neil A. Manna or any other officer of Borrower or
an Affiliate designated from time to time by written notice to Lender. Each
Authorized Officer shall be authorized to (i) execute and deliver the Loan
Documents on behalf of Borrower and the Affiliates, (ii) execute and deliver any
other agreement, document or certificate contemplated hereunder or thereunder on
behalf of Borrower and the Affiliates, and (iii) communicate with Lender and its
agents on behalf of Borrower and the Affiliates as contemplated hereunder.
"Availability Period" means the period of time from the Closing Date
until the first anniversary thereof.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as amended from time to time, or any successor statute, and all
rules promulgated thereunder.
"Barber Dam Project" means the approximately 4.1 megawatt
hydroelectric facility located in Boise, Idaho, of Fulcrum, Inc., an Idaho
corporation, as more particularly described in Exhibit 1.1.
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"Borrower Collateral" means, collectively, the Fuji Security (as
assigned to Lender pursuant to the Security Assignment Documents), the Accounts,
all assets of Borrower and the Affiliates, the Pledged Interests, certain other
items of personal or intangible property and Lender's rights with respect to any
Borrower Revenues, all as more particularly described in the Security Documents.
"Borrower Revenues" means all cash, property or other value (other
than Insurance Proceeds, Condemnation Proceeds and proceeds from any sale of
assets not required to be utilized as a prepayment pursuant to Section 2.6(c))
paid, payable, distributed or distributable to Borrower or any Affiliate from
any other Affiliate or Idaho Power and any interest therein or proceeds thereof.
"Borrowing Date" means the first Business Day of any month during the
Availability Period.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York, New York, or Hartford, Connecticut,
are required or authorized to be closed.
"Capital Lease" means any lease of any property (whether real,
personal or mixed) that, in conformity with GAAP, a lessee would account for as
a capital lease.
"CHI Finance" means CHI Finance, Inc., a Delaware corporation.
"Closing Costs" means all amounts to be paid by Borrower on the
Closing Date as reflected on Schedule III (or thereafter, including, without
limitation, on the date of any Advance) in connection with the transactions
contemplated hereunder, including, without limitation, the following: (a) to
Lender, on account of the Assignment Fee, the Letter of Credit Fee (if any), the
Success Fee and the Work Fee; (b) to Chadbourne & Parke LLP, on account of
Lender's attorneys' fees and expenses; and (c) to the Independent Engineer, on
account of the work performed by the Independent Engineer.
"Closing Date" means the date on which the conditions precedent to the
obligations of Lender under this Agreement shall be satisfied or waived by
Lender, which date shall be agreed between Lender and Borrower and shall occur
on or before October 28, 1996; provided, that if Lender and Borrower have not
agreed on a date by October 29, 1996, then such date shall be notified to
Borrower by Lender.
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"Condemnation Proceeds" means any proceeds or payments paid or payable
by any Governmental Authority in connection with any condemnation, eminent
domain, requisition for use, compulsory acquisition or like proceeding.
"Consolidated Hydro" means Consolidated Hydro, Inc., a Delaware
corporation.
"Contingent Obligation," as applied to any Person, means any direct or
indirect contingent liability of such Person (a) with respect to any
Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto; (b) with
respect to any letter of credit issued for the account of such Person or as to
which such Person is otherwise liable for reimbursement of drawings; (c) under
interest rate agreements; or (d) under any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
such Person against fluctuations in currency values; but excluding checks and
other negotiable instruments endorsed in the ordinary course of business.
Contingent Obligations shall include, without limitation (x) the direct or
indirect guaranty, endorsement (other than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another, (y) the obligation to make
take-or-pay or similar payments if required regardless of nonperformance by any
other party or parties to an agreement, and (z) any liability of such Person for
the obligations of another through any agreement to purchase, repurchase or
otherwise acquire such obligation, to provide funds for the payment or discharge
of such obligation or to maintain the solvency, financial condition or any
balance sheet item or level of income of another. The amount of any Contingent
Obligation shall be equal to the amount of the obligation so guaranteed or
otherwise supported or, if a fixed and determined amount, the maximum amount so
guaranteed.
"Debt Service Account" has the meaning ascribed to it in the Security
Agreement.
"Debt Service Reserve Account" has the meaning ascribed to it in the
Security Agreement.
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"Debtor Relief Laws" means any applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, insolvency,
reorganization or similar laws affecting the rights or remedies of creditors
generally, including, without limitation, the Bankruptcy Code, as in affect from
time to time.
"Default" means a condition or event that, after the giving of notice
or lapse of time or both, would constitute an Event of Default if such condition
or event were not cured or removed within any applicable grace or cure period.
"Default Rate" means the Interest Rate, as the same is applicable to
any Loan or other Obligation pursuant to Section 2.4(a), plus two percent (2%)
per annum, but in no event shall such rate exceed the Maximum Rate.
"Dietrich Drop Project" means the approximately 4.7 megawatt
hydroelectric facility located in Dietrich, Idaho, of BP Hydro Associates, an
Idaho general partnership, as more particularly described in Exhibit 1.1.
"Disbursement Instructions" means each of those certain letters,
substantially in the form of Exhibit 1.2, dated as of the Closing Date from
Borrower to each Affiliate and from each Affiliate to certain Persons (including
the other Affiliates and Idaho Power) irrevocably instructing each such Person
to deposit into the Project Revenues Account for the benefit of Lender all
Borrower Revenues.
"Disbursement Agent" means Fleet National Bank or such other Person as
may from time to time be the "Disbursement Agent" under the Security Agreement.
"Dollar" and the sign "$" mean the lawful currency of the United
States of America.
"Due Inquiry" means every inquiry with any Person, in each case as is
at the time deemed reasonably necessary or desirable to ascertain or confirm the
veracity and accuracy of any matter (including, without limitation, the
inclusion or omission of any fact or circumstance which would, in Lender's
reasonable opinion, be material with respect to such matter or with respect to
Lender's interests hereunder).
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA including any Multiemployer
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Plan which (a) is maintained for employees of Borrower or any ERISA Affiliate or
(b) has at any time within the preceding six (6) years been maintained for the
employees of Borrower or any current or former ERISA Affiliate, excluding any
such plan maintained only after the last date a Person was an ERISA Affiliate.
"Environmental Claim" means any claim, liability, investigation,
notice, litigation or administrative proceeding, whether pending or threatened
pursuant to written notification, or any judgment or order relating to any
Hazardous Material asserted or threatened pursuant to written notification
against Borrower or any Affiliate or any event giving rise to liability of
Borrower or any Affiliate under any Environmental Law.
"Environmental Laws" means any and all laws, statutes, ordinances,
rules, regulations, orders, guidance or determinations of any Governmental
Authority pertaining to public health, pollution or the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including, without limitation, laws relating to emissions,
discharges, releases or threatened releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials including, without
limitation, common law, the Clean Air Act, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 as amended by the Superfund
Amendments and Reauthorization Act of 1986, the Federal Water Pollution Control
Act, the Occupational Safety and Health Act of 1970, the Resource Conservation
and Recovery Act of 1976, the Safe Drinking Water Act, the Toxic Substances
Control Act, the Emergency Planning and Community Right to Know Act, the
Endangered Species Act, the National Environmental Policy Act, the Oil Pollution
Act, the Pollution Prevention Act, the Solid Waste Disposal Act and any other
environmental conservation or protection law of any applicable jurisdiction, all
as may be hereafter amended, modified or supplemented from time to time;
provided, that in the event any of the foregoing laws is amended, modified or
supplemented so as to broaden the scope or basis of liability of Borrower or any
Affiliate under any or all Environmental Laws, such amended, modified or
supplemented meaning shall apply subsequent to the effective date of such
amendment or modification with respect to all provisions of this Agreement; and
provided, further, that, to the extent the laws of the state in which any
property of Borrower or any Affiliate is located establish a meaning for
"hazardous substance", "release", "solid waste", "disposal" or any other term
which is broader than that specified in any of the foregoing federal laws, such
8
<PAGE>
broader meaning shall apply to Borrower and each Affiliate for purposes of this
Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA Affiliate," as applied to Borrower, means any Person who is a
member of a group which is under common control with Borrower, which together
with Borrower is treated as a single employer within the meaning of Section
414(b) or (c) of the IRC, determined without regard to any equity or other
economic interest or benefit or any right to exercise voting power of such
interest or benefit held in the parent.
"Event of Default" means the occurrence or existence of any one or
more of the following:
(a) Borrower or an Affiliate fails (i) to pay any interest, fee or
expense set forth in this Agreement or any other Loan Document (other than
the Intercompany Notes) within three (3) Business Days of when due or
declared due, (ii) to make any payment of principal on any Loan when due or
at maturity, whether by acceleration or otherwise, or (iii) to make any
payment when due under any Letter of Credit;
(b) Borrower, an Affiliate or CHI Finance fails to perform, keep or
observe any term, provision, condition or covenant contained in this
Agreement or any other Loan Document (other than the Intercompany Notes)
(except as provided in paragraph (c) of this definition) which is required
to be performed, kept or observed by Borrower, such Affiliate or CHI
Finance and such failure shall not have been cured within thirty (30) days
(or any shorter period as may be expressly set forth in this Agreement or
such other Loan Document) after the date of such failure; provided, that if
it is reasonably possible to cure in all respects such failure, and if
Borrower, such Affiliate or CHI Finance is diligently attempting to cure
such failure, then Borrower, such Affiliate or CHI Finance shall have an
additional thirty (30) days to effect such cure;
(c) Borrower fails, or fails to cause any Affiliate to perform, keep
or observe any term, provision, condition or covenant contained in Section
5.2, 5.3, 5.4, 5.5, 5.6, 5.8, 5.9, 5.10, 5.11, 5.15, 5.16, 5.17, 5.18,
9
<PAGE>
5.19, 5.20, 5.22 or 5.23 Section 6 of this Agreement which is required;
provided, that if Borrower shall have given notice of any such failure in
accordance with Section 5.7(f), such failure shall not become an Event of
Default until five (5) days after Lender shall have notified Borrower in
writing that such failure shall become an Event of Default after the
passage of such five (5) day period;
(d) A default or event of default shall have occurred and be
continuing with respect to any Indebtedness or Contingent Obligation of
Borrower or any Affiliate in excess of fifty thousand Dollars ($50,000);
(e) Any statement, representation, warranty, report, financial
statement or certificate set forth in this Agreement or in any other Loan
Document or made or delivered by any Authorized Officer to Lender (i) is
false or misleading in any material respect on the date made or (ii) is
intentionally misrepresented in any respect, whether material or otherwise;
(f) Any event, occurrence or condition that has a Material Adverse
Effect;
(g) The (i) institution by Borrower, an Affiliate or CHI Finance of
any judicial proceeding intended to effect a suspension of any right or
power of Lender under any Loan Document, or causing Borrower, any Project
or any other Borrower Collateral to become subject to the control or
custody of any court, or (ii) rendering of a judgment (other than a
judgment covered under paragraph (i) below) not stayed or appealed (with
respect to any judicial proceeding not instituted by Borrower, an Affiliate
or CHI Finance) which shall not be discharged or stayed within ten (10)
days after entry thereof, and such judgment shall have the effect of
suspending any material right or power of Lender under any Loan Document,
or causing Borrower, any Project or any other Borrower Collateral to become
subject to the control or custody of any court;
(h) (i) Borrower or any Affiliate does not have good title to its
interests in the Borrower Collateral; (ii) any Project, Pledged Interest or
other Borrower Collateral is attached, seized, levied upon or subjected to
a writ or distress warrant and any such action shall remain unbonded,
undischarged or unstayed for a period in excess of the earlier of ten (10)
days or five (5) days prior to the date of any proposed sale
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thereof; (iii) any Project, other Borrower Collateral or any other material
asset of Borrower or any Affiliate comes within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors for a
period in excess of ten (10) days; or (iv) Lender does not have or ceases
to have a valid and perfected first priority Lien in any of the Borrower
Collateral (subject to Permitted Liens); provided, that if the provisions
of both this paragraph (h) and paragraph (i) below apply, then the
forty-five (45) day period in paragraph (i) shall apply instead of the
period provided for herein;
(i) An application is made by any Person other than Borrower or any
Affiliate for the appointment of a receiver, trustee or custodian for any
asset of Borrower or any Affiliate and the same is not dismissed within
forty-five (45) days after the application therefor; any order, judgment,
decree or petition under any section or chapter of the Debtor Relief Laws
is filed against Borrower or any Affiliate or any case or proceeding is
filed against Borrower or any Affiliate for its dissolution or liquidation
(as the case may be), and such order, judgment, decree or petition is not
dismissed within forty-five (45) days after the entry or filing thereof;
(j) An application is made by Borrower or any Affiliate for the
appointment of a receiver, trustee or custodian for any assets of Borrower
or any Affiliate; a petition under any section or chapter of the Debtor
Relief Laws is filed by Borrower or any Affiliate; Borrower or any
Affiliate makes an assignment for the benefit of creditors; any case,
certificate or proceeding is filed by Borrower or any Affiliate for the
dissolution or liquidation (as the case may be) of Borrower or any
Affiliate or Borrower or any Affiliate becomes insolvent or admits in
writing its inability to pay its debts as they mature;
(k) Any Project Owner is enjoined, restrained or in any way prevented
by court order or order of any other Governmental Authority from owning any
Project and such order shall not be stayed or otherwise lifted within
thirty (30) days after entry thereof;
(l) (i) Any Material Agreement becomes unenforceable or is terminated
by operation of law or by any party thereto (other than as a result of its
full performance or discharge) or the enforceability of any such agreement
is challenged by any Person (other than by Lender or any affiliate of
Lender) and such challenge, in Lender's reasonable determination, is likely
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<PAGE>
to prevail, the result of any of which is likely to have a Material Adverse
Effect (in such event, Lender shall provide Borrower a written explanation
of the basis for any action Lender is taking or intends to take with
respect to such Event of Default; provided, that neither the form nor the
substance of such explanation, nor Borrower's failure to receive the same,
shall in any way affect the right of Lender to exercise any of its remedies
under this Agreement or the other Loan Documents with respect to such Event
of Default or grant Borrower or any Affiliate any right to contest the
same); or (ii) a default or an event of default occurs and remains
unremedied beyond any applicable cure period under any Material Agreement
and the effect of such default or event of default gives another party to
such agreement the right to terminate the same either immediately or after
any applicable notice or lapse of time, the result of which, in Lender's
reasonable opinion, is likely to have a Material Adverse Effect;
(m) Any money judgment, writ or warrant of attachment in excess of
fifty thousand Dollars ($50,000) in the aggregate, which is or are not
adequately covered by insurance of Borrower, is entered against Borrower or
any Affiliate and is not paid, discharged or stayed within the earlier of
ten (10) days after entry thereof or five (5) days prior to the date of any
proposed sale thereunder; (n) The loss, suspension or revocation of, or
failure to renew, any Applicable Permit now held or hereafter acquired by
or in connection with any Project, if such loss, suspension, revocation or
failure to renew (together with all other such losses, suspensions,
revocations and failures) is likely, in Lender's reasonable opinion, to
have a Material Adverse Effect;
(o) Any Material Agreement is amended without the prior written
consent of Lender and the result of such amendment, in Lender's reasonable
opinion, is likely to have a Material Adverse Effect; and
(p) (1) if Borrower or any ERISA Affiliate has in effect any Employee
Benefit Plan, other than a Multiemployer Plan, notice of intent to
terminate such Employee Benefit Plan shall be filed under Section 4041(c)
of ERISA or the PBGC shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer such Employee
Benefit Plan under circumstances that would result in Borrower or an
Affiliate becoming liable to pay under Title IV of ERISA to the PBGC or
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with respect to such Employee Benefit Plan an amount or amounts aggregating
in excess of $50,000, (2) Borrower or any ERISA Affiliate incurs a
liability to a Multiemployer Plan as a result of a withdrawal or partial
withdrawal therefrom in an amount in excess of $50,000, (3) a condition
shall exist by reason of which the PBGC would be entitled to institute
proceedings to terminate any such Employee Benefit Plan pursuant to the
provisions of Section 4042(a)(1), 4042(a)(2) or 4042(a)(3) of ERISA, as
reasonably determined in good faith by Lender, (4) any such Employee
Benefit Plan shall incur an Accumulated Funding Deficiency, whether or not
waived within the meaning of Section 412 of the IRC, in excess of $50,000,
or (5) any Reportable Event or Prohibited Transaction shall occur with
respect to any such Employee Benefit Plan that could reasonably be expected
to result in Borrower or an Affiliate becoming liable to the PBGC or any
other Person in an amount or amounts aggregating in excess of $50,000, and
any such event specified in any of clauses (1), (2), (3), (4) and (5) above
shall continue for ten (10) days.
"Excess Interest" has the meaning ascribed thereto in Section 2.4(c).
"FERC" means the Federal Energy Regulatory Commission and any
successor thereto.
"Final Maturity Date" means the date that is the twelfth (12th)
anniversary of the Closing Date.
"Financial Statements" means the financial statements required to be
delivered to Lender pursuant to Section 5.7.
"Financing Statements" means the Form UCC-1 and Form UCC-3 financing
statements to be filed with the appropriate offices for the purpose of
perfecting Lender's Liens in the Borrower Collateral.
"Fiscal Quarter" means any of the three (3) month periods ending on
the last day of March, June, September and December, respectively, of each
calendar year.
"Fiscal Year" means the twelve (12) month period beginning on the
first day of July and ending on June 30 of the next calendar year.
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"Floating U.S. Treasury Note Rate" means the yield, as reported in the
Wall Street Journal on the date of determination, for U.S. Treasury Notes
maturing as near as possible to the third (3d) anniversary of such date of
determination.
"FPA" means the Federal Power Act, as amended, and all rules and
regulations promulgated thereunder.
"Fuji Bank" has the meaning set forth in the first paragraph hereof.
"Fuji Note" has the meaning set forth in the first recital hereto.
"Fuji Security" has the meaning set forth in the second recital
hereto.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or any successor authority) that are
applicable to the circumstances as of the date of determination.
"Governmental Authority" means the United States, any state, any
county, any city or any other political subdivision in which Borrower or any
Affiliate operates, any Project or other Borrower Collateral is located, and any
other political subdivision, agency, authority, board, bureau, commission,
court, department, district or other instrumentality of any of the foregoing,
including, without limitation, FERC and the Environmental Protection Agency.
"Governmental Requirements" means, as of the date of determination
thereof, all applicable laws, ordinances, rules, regulations, judgments,
interpretations, policy orders, decrees or similar forms of decision of any
Governmental Authority.
"Hazardous Material" means, without limitation, any of the following
in any solid, liquid or gas form, from whatever source: (a) substances that are
defined or listed in, or otherwise classified pursuant to, any applicable laws
or regulations as "hazardous substances", "hazardous materials", "hazardous
wastes", "toxic substances" or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity or "EP
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<PAGE>
toxicity"; (b) oil, petroleum or petroleum-derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty (50) parts per million.
"Indebtedness," as applied to any Person, means (a) any indebtedness
for borrowed money; (b) that portion of any obligation with respect to a Capital
Lease that is properly classified as a liability on a balance sheet in
conformity with GAAP; (c) any note payable and draft accepted representing an
extension of credit whether or not representing an obligation for borrowed
money; (d) any obligation owed for all or any part of the deferred purchase
price of property or services if the purchase price is due more than six (6)
months from the date the obligation is incurred or is evidenced by a note or
similar written instrument; and (e) any indebtedness secured by any Lien on any
property or asset owned or held by such Person regardless of whether the
indebtedness secured thereby shall have been assumed by such Person or is
nonrecourse to the credit of such Person. Obligations under interest rate
agreements constitute Contingent Obligations and not Indebtedness.
"Idaho Power" means Idaho Power Company, a Maine corporation.
"Independent Engineer" means Acres International or such other
qualified and experienced engineer and/or any replacement or successor engineer
as reasonably selected by Lender.
"Initial Disbursement" means an amount equal to or greater than the
sum of the following amounts (all as detailed more fully in Schedule III): (a)
the amount required to purchase the Fuji Note from Fuji Bank; (b) the aggregate
amount of all Closing Costs; (c) the amount required to fund the Debt Service
Reserve Account to the level required by the Security Agreement and (d) the
amount necessary to secure fully the payment of any Letter of Credit then
outstanding.
"Initial U.S. Treasury Note Rate" means the yield, as reported in the
Wall Street Journal, on the Closing Date for U.S. Treasury Notes maturing as
near as possible to the average life of the Senior Loan as determined by the Pro
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Formas taking into account the scheduled amortization of the Senior Loan and
anticipated mandatory prepayments.
"Insurance Policy" means any policy evidencing insurance coverage
required to be maintained pursuant to any Material Agreement.
"Insurance Proceeds" means, collectively, proceeds or payments paid or
payable by or through the issuer of any Insurance Policy as a result of the
occurrence of any event covered under such Insurance Policy. Insurance Proceeds
shall not include (a) any payment made by the insured as a result of the
occurrence of such an event, whether such payment is as a deductible, co-payment
or otherwise, or (b) any refund of any premium.
"Intercreditor Agreement" means the Intercreditor and Collateral
Sharing Agreement, dated as of the date hereof, between Lender and CHI Finance.
"Intercompany Notes" means, collectively, the BP Hydro Note (as
defined in the Security Agreement) and the Fulcrum Note (as defined in the
Security Agreement).
"Interest Rate" means (i) with respect to the Senior Loan (a) from the
Closing Date through the day before the seventh (7th) anniversary of the Closing
Date, the Initial U.S. Treasury Note Rate plus three hundred ninety (390) basis
points per annum and (b) from the seventh (7th) anniversary of the Closing Date
through the Final Maturity Date, the Floating U.S. Treasury Note Rate plus three
hundred ninety (390) basis points per annum, as recalculated on the date that is
ten (10) days prior to the date of each Scheduled Installment, and (ii) with
respect to each Advance under the Additional Credit Facility, (a) from the
Borrowing Date for such Advance through the day before the seventh (7th)
anniversary of such Borrowing Date, the U.S. Treasury Note Rate for the
Additional Credit Facility plus three hundred ninety (390) basis points per
annum, and (b) from the seventh (7th) anniversary of such Borrowing Date through
the Final Maturity Date, the Floating U.S. Treasury Note Rate plus three hundred
ninety (390) basis points per annum, as recalculated on the date that is ten
(10) days prior to the date of each Scheduled Installment.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute and all rules and regulations promulgated
thereunder.
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"Letter of Credit" means any letter of credit issued by Lender or its
designee for the benefit of Borrower or an Affiliate.
"Letter of Credit Fee" means a fee on the aggregate amount of Senior
Loan funds utilized as contingent collateral for a Letter of Credit pursuant to
Section 2.2(c)(Y), which fee shall equal two percent (2%) of the amount of such
undrawn funds and shall be payable on the date of issuance of such Letter of
Credit and on each anniversary thereof on which such Letter of Credit is
outstanding.
"Lien" means any mortgage, deed of trust, pledge, lien (statutory or
other), charge, encumbrance, hypothecation, assignment, preference, priority,
levy, assessment, judgment, lease, easement, security interest or claim of
whatever nature or description (including any agreement to give any of the
foregoing), including any security interest arising under conditional sale or
other title retention agreements, or any other defect, irregularity, interest in
property or cloud on title.
"Loan" or "Loans" means any loan to Borrower by Lender evidenced by a
Note.
"Loan Account" has the meaning ascribed thereto in Section 2.8(a).
"Loan Documents" means this Agreement, the Security Documents, the
Intercreditor Agreement, any Note and such other agreements, instruments and
documents (and all annexes, schedules and exhibits thereto) evidencing,
securing, pertaining to or executed in connection with any Loan as shall, from
time to time, be executed and delivered by Borrower or any other Person to
Lender pursuant to this Agreement or any other Loan Document.
"Lowline Rapids Project" means the approximately 2.8 megawatt
hydroelectric facility located in Kimberly, Idaho, of BP Hydro Associates, an
Idaho general partnership, as more particularly described in Exhibit 1.1.
"Material Adverse Effect" means (a) with respect to Borrower or any
Affiliate, the occurrence of any event or condition that individually or in the
aggregate with any other event or condition is materially adverse to Borrower's
or such Affiliate's ability to perform its obligations under any Loan Document
to which it is a party or (b) the occurrence of any event or condition that
impairs in any material respect Lender's right or ability to enforce or collect
the Obligations or any other obligation owing to Lender pursuant to any Loan
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Document. Lender may find a Material Adverse Effect only after (a) full
consideration of any reasonably anticipated insurance or other proceeds and the
application thereof in accordance with the requirements of this Agreement, (b)
notice to Borrower of such finding, and (c) if such Material Adverse Effect is
one that is reasonably susceptible to remedy, it is not remedied within thirty
(30) days of receipt of such notice; provided, that if cure in all respects is
reasonably possible and Borrower or such Affiliate is diligently attempting to
cure such event or condition, then Borrower or such Affiliate shall have an
additional thirty (30) days to effect such cure.
"Material Agreements" means, individually or collectively, the
Partnership Agreements, the Articles of Incorporation and the Project Documents.
"Maximum Rate" has the meaning ascribed thereto in Section 2.4(c).
"Minimum Coverage Ratio" means 1.15 to 1 for the preceding twenty-four
(24) month period ending on the last day of the calendar month preceding the
date of determination and for the projected subsequent two (2) twelve (12) month
periods as forecasted in the budget submitted by Borrower and approved by
Lender, calculated by dividing (x) the preceding twenty-four (24) months' Net
Operating Cash from all Projects (assuming each of such Projects has been a
Project for at least twenty-four (24) months) by (y) debt service on the Senior
Loan for the same twenty-four (24) month period. "Multiemployer Plan" means a
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which Borrower
or any ERISA Affiliate is making, or is accruing an obligation to make,
contributions or has made, or been obligated to make, contributions within the
preceding six (6) years.
"Net Operating Cash" means, with respect to any Project, the Borrower
Revenues earned by such Project less the aggregate amount of all sums other than
Variable Fees (as defined in each of the O&M Agreements) and the O&M Incentive
Fee then due and owing by the Project Owners less Qualified Project Expenses (as
defined in and permitted by the Security Agreement).
"Note" means the Senior Loan Note or any Additional Credit Facility
Note, substantially in the form of Exhibit 1.6, or, upon the occurrence of the
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event specified in Section 2.2(c)(Y)(B), a Letter of Credit, and "Notes" means
all such Notes.
"O&M Agreements" shall have the meaning ascribed thereto in the
Security Agreement.
"O&M Incentive Fee" means a fee payable to the O&M Operator by the
Projects equal to an aggregate amount of one hundred thousand Dollars
($100,000), as adjusted annually at the end of each Fiscal Year by the Consumer
Price Index, less the aggregate of the Variable Fees (as defined in the O&M
Agreements).
"O&M Operator" means CHI Mountain States Operations, Inc., a Delaware
corporation.
"Obligations" means all of Borrower's and the Affiliates'
Indebtedness, liabilities and other obligations of any and every kind and nature
(including, without limitation, the principal amount of all debts, claims and
indebtedness, accrued and unpaid interest, charges, expenses, fees, costs,
attorneys' fees and other sums chargeable to Borrower or any Affiliate by Lender
and future advances made to or for the benefit of Borrower) arising under this
Agreement and the other Loan Documents.
"Partnership Agreements" means the agreements relating to Borrower and
certain of the Affiliates listed on Schedule II.
"PBGC" means the Pension Benefit Guarantee Corporation established
pursuant to Subtitle A of Title IV of ERISA or any entity succeeding to all or
part of its functions under ERISA.
"Permit" means any action, approval, consent, waiver, exemption,
variance, franchise, order, permit, authorization, right or license of or from a
Governmental Authority, including any modification or renewal of the foregoing.
"Permitted Liens" means, with respect to Borrower, any Affiliate or
any Borrower Collateral, (i) Liens for taxes not yet subject to penalties for
non-payment and Liens for taxes the payment of which is being contested as
permitted by Section 5.6; (ii) Liens resulting from any money judgment, writ or
warrant of attachment in an amount less than fifty thousand Dollars ($50,000) in
the aggregate; (iii) Lender's and Disbursement Agent's Liens; (iv) pledges or
deposits by Borrower or such Affiliate under workers' compensation laws,
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unemployment insurance laws, social security laws or similar legislation, or
good faith deposits in connection with bids, tenders, contracts (other than for
the payment of Indebtedness), or leases or deposits to secure public or
statutory obligations of such Person or deposits of cash to secure surety,
appeal, performance or other similar bonds, or deposits as security for
contested taxes or import duties or for the payment of rent; (v) Liens imposed
by law, such as carriers', warehousemen's, materialmen's and mechanics' Liens
which are incurred in the ordinary course of business for sums not more than
thirty (30) days delinquent or which are being contested in good faith
(provided, that a reserve or other appropriate provision shall have been made
therefor); (vi) purchase money Liens of a vendor of equipment whether or not to
be included in any Project (which Liens will be extinguished upon payment in
full in accordance with the delivery terms of such equipment) and Liens arising
from capital leases of vehicles and office and testing equipment existing on the
Closing Date as set forth on Schedule VI and with respect to any of such items
which are newly acquired, which Liens shall not exceed twenty-five thousand
Dollars ($25,000) individually and two hundred fifty thousand Dollars ($250,000)
in the aggregate; and (vii) all exceptions and encroachments set forth in any
policy of title insurance with respect to any Project delivered to Lender.
"Person" means and includes an individual, a partnership, a joint
stock company, an association, a bank, a trust company, a land trust, a business
trust, a joint venture, a corporation, a trust, an unincorporated organization,
a Governmental Authority and any other entity whether or not such entity is a
legal entity.
"Pledge Agreements" means collectively each of the First Amended and
Restated Stock Pledge Agreements, the General Partner Pledge Agreements, the
Security Agreement and the First Amended and Restated General Partner Pledge
Agreements, each dated of even date herewith, between certain Affiliates, as
pledgor, and Lender, as pledgee.
"Pledged Interests" means the Intercompany Notes and the shares of
corporate stock of and partnership interests in Borrower and certain Affiliates
pledged pursuant to the Pledge Agreements and in which Lender has a security
interest pursuant to the Security Documents.
"Prior Liens" means the Liens of all lenders other than Lender to the
Projects, Borrower and any Affiliate.
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"Pro Forma" means the pro forma cash flow projections set forth in
Exhibit 1.3.
"Prohibited Transaction" means any transaction described in Section
406 of ERISA which is not exempt by reason of Section 408 of ERISA and any
transaction described in Section 4975(c) of the IRC that is not exempt by reason
of Section 4975(c)(2) or Section 4975(d) of the IRC.
"Project" means each of the Barber Dam Project, the Dietrich Drop
Project, the Lowline Rapids Project and the Rock Creek Project and "Projects"
means all such Projects.
"Project Documents" means the agreements, documents and instruments
listed in Schedule IV.
"Project Owner" means each of BP Hydro Associates, an Idaho general
partnership, and Fulcrum, Inc., an Idaho corporation.
"Project Revenues Account" has the meaning ascribed to it in the
Security Agreement.
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended, and all rules and regulations promulgated thereunder.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, as
amended, and all rules and regulations promulgated thereunder.
"Qualifying Facility" shall have the same meaning as the term
"qualifying facility" in Part 292 of FERC's regulations under PURPA.
"Reinvestment Loss Amount" means the difference between (i) the
interest which Lender would have earned on the principal amount of a prepaid
Note from the date of Borrower's prepayment of such Note through the seventh
(7th) anniversary of the Closing Date and (ii) the interest which Lender would
have earned on the principal amount of a prepaid Note from the date of
Borrower's prepayment of such Note through the seventh (7th) anniversary of the
Closing Date if the interest rate on such prepaid Note had been the Interest
Rate as recalculated on the date of prepayment.
"Reportable Event" means any of the events set forth in
Section 4043(c) of ERISA or the regulations thereunder, a withdrawal from an
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Employee Benefit Plan described in Section 4063 of ERISA, or a cessation of
operations described in Section 4062(e) of ERISA.
"Rock Creek Project" means the approximately 1.9 megawatt
hydroelectric facility located in Twin Falls, Idaho, of BP Hydro Associates, an
Idaho general partnership, as more particularly described in Exhibit 1.1.
"Scheduled Installment" has the meaning attributed thereto in Sections
2.2(d) and 2.3(d).
"Security Agreement" means that certain First Amended and Restated
Disbursement and Pledge Agreement, dated the date hereof, among Lender, Borrower
and Disbursement Agent, securing the payment and performance of the Obligations
and evidencing a valid and enforceable security interest in and to the
collateral described therein, substantially in the form of Exhibit 1.5.
"Security Assignment Documents" means (i) the Assignment, Assumption
and Note Purchase Agreement, dated the Closing Date, between Fuji Bank and
Lender, (ii) the Assignment and Assumption Agreement, dated the Closing Date,
among Fuji Bank, Lender and Borrower and (iii) the Assignments of Deeds of
Trust, dated the Closing Date, between Fuji Bank and Lender.
"Security Documents" means, individually and collectively, any
instrument, document or agreement executed by or on behalf of Borrower or any
Affiliate to guarantee or provide collateral with respect to the Obligations and
the other transactions contemplated by the Loan Documents, including, without
limitation, the Security Assignment Documents, the Security Agreement, the
Disbursement Instructions, the Pledge Agreements, the Financing Statements and
each instrument, document and agreement executed pursuant to any Security
Document.
"Security Interest" has the meaning ascribed thereto in the Security
Agreement.
"Senior Loan" means the loan made on the Closing Date by Lender to
Borrower in the initial principal amount of the Initial Disbursement, as such
principal amount may be increased in connection with the collateralization of
any Letter of Credit.
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"Senior Loan Commitment" means five million two hundred thousand
Dollars ($5,200,000).
"Senior Loan Note" means the Note of Borrower relating to the Senior
Loan issued pursuant to Section 2.2(a) and each other promissory note of
Borrower issued in substitution or exchange for the Senior Loan Note. The Senior
Loan Note shall be payable to the order of Lender, shall be in the amount of the
Senior Loan Commitment and shall provide for the repayment of principal and the
payment of interest as provided therein and herein and shall be secured by the
Borrower Collateral.
"Success Fee" means the fee payable by Borrower to Lender on the
Closing Date, which fee shall be in the amount of fifty percent (50%) of the
difference between one hundred twenty thousand Dollars ($120,000) and the
closing fee payable to Fuji Bank in respect of the acquisition of the Fuji Note.
"Tax Liabilities" has the meaning ascribed thereto in Section 2.9(a).
"Termination Date" has the meaning ascribed thereto in Section 2.7.
"UCC" means the Uniform Commercial Code (or any successor statute) as
in force in New York, as it may be amended from time to time, or, pursuant to
the provisions of Section 9.103 of the Uniform Commercial Code, the laws of a
different jurisdiction that govern perfection and the effect of perfection or
non-perfection of Liens in certain Borrower Collateral.
"U.S. Treasury Note Rate for the Additional Credit Facility" means the
yield, as reported in the Wall Street Journal, on the date of determination for
U.S. Treasury Notes maturing as near as possible to the average life of the
Additional Credit Facility as determined by the Pro Formas, taking into account
the scheduled amortization of the Additional Credit Facility.
"Work Fee" means the fee payable by Borrower to Lender on the date of
each Advance, which fee shall be in the amount of five thousand Dollars
($5,000). Work Fees shall compensate Lender for its internal costs incurred in
connection with the making of each such Advance. Lender's internal costs shall
include, without limitation: internal costs to undertake the credit analysis and
due diligence for each Project submitted for inclusion in the Borrower
Collateral, the cost of providing temporary paralegal and secretarial services
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to support any closing, the use of Lender's facilities to conduct any closing,
wire transfer fees, duplicating costs, telephone costs, direct costs associated
with the use of Lender's personnel to review, document and close any Loan, and
any other direct or indirect cost which may be incurred by Lender which is not
payable by Borrower pursuant to Section 8.1.
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations
under Agreement. For purposes of this Agreement, all accounting terms not
otherwise defined herein have the meanings assigned to such terms in conformity
with GAAP. All financial statements and other information furnished to Lender
pursuant to Section 5.7 shall be prepared in accordance with GAAP as in effect
at the time of such preparation.
1.3 Other Definitional Provisions. References to "Sections",
"Exhibits" and "Schedules" are to Sections, Exhibits and Schedules,
respectively, of this Agreement unless otherwise specifically provided. Any term
defined herein may, unless the context otherwise requires, be used in the
singular or the plural depending on the reference. In this Agreement, "hereof,"
"herein," "hereto," "hereunder" and the like mean and refer to this Agreement as
a whole and not merely to the specific section, paragraph or clause in which the
respective word appears; words importing any gender include the other gender;
references to "writing" include printing, typing, lithography and other means of
reproducing words in a tangible visible form; the words "including," "includes",
and "include" shall be deemed to be followed by the words "without limitation";
references to agreements and other contractual instruments shall be deemed to
include subsequent amendments, assignments, and other modifications thereto, but
only to the extent such amendments, assignments and other modifications are not
prohibited by the terms of this Agreement or any other Loan Document; references
to Persons include their respective permitted successors and assigns or, in the
case of governmental Persons, Persons succeeding to the relevant functions of
such Persons; and all references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations.
SECTION 2
AMOUNTS AND TERMS OF THE LOANS
2.1 The Loans. Subject to and upon the terms and conditions herein set
forth, Lender agrees to make the Senior Loan to Borrower in an aggregate
principal amount not to exceed the Senior Loan Commitment and to make available
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to Borrower the Additional Credit Facility. Each Loan shall mature and be due
and payable on the Final Maturity Date without further action on the part of
Lender. Once repaid, a Loan may not be reborrowed.
2.2 Conditions and Terms Specific to the Senior Loan.
(a) The Senior Loan Note. On the Closing Date, Borrower shall execute
and deliver to Lender the Senior Loan Note, which shall evidence Borrower's
obligation to pay the principal and interest noted therein. Borrower authorizes
Lender to record on Schedule II of the Senior Loan Note the payments made on the
Senior Loan. Such notations shall be prima facie evidence of the information set
forth therein; provided, that the failure by Lender to make any such notation or
an error in making any such notation shall not affect the obligations of
Borrower hereunder or under any other Loan Document. In the event of an
assignment by Lender pursuant to Section 8.19, Borrower shall, upon surrender of
the Senior Loan Note, issue a new Senior Loan Note to reflect such assignment.
(b) Disbursements. Subject to the satisfaction of the terms and
conditions set forth herein, on the Closing Date, Lender shall make available to
Borrower, and Borrower shall borrow, the Initial Disbursement and Borrower shall
deliver to Lender a receipt substantially in the form of Exhibit 2.1(b). In
addition, Lender shall make available to Borrower during the Availability Period
the amount, if any, remaining under the Senior Loan Commitment to be used as
contingent collateral for a Letter of Credit in accordance with Section
2.2(c)(Y).
(c) Permitted Use of Senior Loan.
(X) Note Funds. Except as provided in Section 2.02(c)(Y), funds
from the Senior Loan may be used only (i) to purchase the Fuji Note
from Fuji Bank, (ii) to pay Closing Costs, (iii) to fund the Debt
Service Reserve Account and (iv) to provide working capital to the
Projects. Borrower shall not use any portion of the Senior Loan for
providing working capital to Borrower or any Affiliate or for
distributions to the officers or shareholders of Borrower or any other
Person.
(Y) Letter of Credit.
(A) In addition to the purposes listed in Section
2.02(c)(X), during the Availability Period, Borrower may use up
to three hundred thousand Dollars ($300,000) of the Senior
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Loan Commitment to provide contingent collateral for any Letter
of Credit issued to secure obligations of Borrower incurred in
the normal course of business. Borrower will not be required to
draw on such contingent collateral until the earliest of any of
the following to occur during the Availability Period: (1) any
Letter of Credit is drawn upon, (2) the occurrence of any Event
of Default and (3) the point in time when Borrower has elected to
prepay, mandatory or otherwise, the then-outstanding principal
balance of the Senior Loan.
(B) In the event a Letter of Credit is drawn upon after the
expiration of the Availability Period or without a portion of the
Senior Loan having been utilized as contingent collateral for
such Letter of Credit pursuant to Section 2.2 (c)(Y)(A), the
Letter of Credit shall become a demand note to be paid prior to
any distribution to Borrower or any Affiliate from Borrower
Revenues. The demand note will carry interest at the Interest
Rate as in effect for the Senior Loan; provided, that the
disbursed amount of the Senior Loan and the amount of the demand
note total an amount which is less than the Senior Loan
Commitment. To the extent such sum exceeds the Senior Loan
Commitment, such excess portion of the demand note shall earn
interest at the Interest Rate then-applicable to the Senior Loan
plus two percent (2%) per annum.
(d) Repayment. Borrower shall make principal payments (each, a
"Scheduled Installment") on the dates listed in Schedule I attached to the
Senior Loan Note and in the amounts determined by multiplying the principal
amount of the Senior Loan Note by the percentage opposite such date. Borrower
hereby agrees that Schedule I to the Senior Loan Note may, at Lender's sole
option, be revised at the time any contingent collateral provided for any Letter
of Credit in accordance with Section 2.2(c)(Y)(A) is drawn (but only if Lender
has opted not to demand payment in full of such draw), analyzed using the
methodology employed in connection with the creation of the original
amortization schedule for the Senior Loan Note and taking into account
anticipated mandatory prepayments of the Senior Loan, the original debt service
coverage ratios and projected Borrower Revenues contained in the Pro Formas.
2.3 Conditions and Terms Specific to the Additional Credit Facility.
(a) The Additional Credit Facility Note. On the Closing Date, Borrower
shall execute and deliver to Lender the Additional Credit Facility Note, which
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shall evidence Borrower's obligation to pay the principal and interest noted
therein. Borrower authorizes Lender to record on Schedule II attached to the
Additional Credit Facility Note each Advance, the date thereof and the
repayments thereof. Such notations shall be prima facie evidence of the
information set forth therein; provided, that the failure by Lender to make any
such notation or an error in making any such notation shall not affect the
obligations of Borrower hereunder or under any other Loan Document. In the event
of an assignment pursuant to Section 8.19, Borrower shall, upon surrender of the
Additional Credit Facility Note, issue a new Additional Credit Facility Note to
reflect such assignment.
(b) Disbursements. Subject to the satisfaction of the terms and
conditions set forth herein, on the Closing Date or on any Borrowing Date after
the Closing Date, Lender shall make available to Borrower the amount, if any,
remaining under the Additional Credit Facility. Each Advance shall be in an
amount not less than five hundred thousand Dollars ($500,000) and shall be for
credit to the account of Borrower at such bank in such place as Lender and
Borrower shall agree in immediately available funds. Advances shall be made upon
Borrower's request in writing, substantially in the form of Exhibit 2.1(a),
delivered to Lender at least ten (10) Business Days prior to the proposed date
of disbursement, and against each Advance Borrower shall deliver to Lender a
receipt substantially in the form of Exhibit 2.1(b).
(c) Permitted Use of Additional Credit Facility. Borrower may use the
funds available through the Additional Credit Facility for any purpose. Borrower
may apply to Lender for an Advance after Borrower or any Affiliate has taken any
action which increases the operating cash available to Borrower over and above
the levels projected in the Pro Forma. Such actions include renegotiating any
contract or agreement in a manner which increases revenue or reduces Project
operating expenses or negotiating any contract or agreement in a manner which
increases the operating cash available to Borrower. Lender shall have the right,
in its sole discretion, to approve or reject any request for an Advance. If
approved, Lender will calculate the amount of the Advance using the same credit
criteria, pricing spreads, terms and conditions as were used in connection with
the making of the Senior Loan. Borrower may borrow up to seventy-one and
forty-three one-hundredths percent (71.43%) of the discounted additional
operating cash flow (discounted at the then-applicable Interest Rate for the
Senior Loan); provided, that such cash flow, for purposes of this Section
2.3(c), shall be calculated for the shorter of the period remaining until (i)
the Final Maturity Date or (ii) the expiration of the contract negotiated or
re-negotiated in connection with such Advance; and
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provided, further, that such borrowing may not exceed the maximum amount of the
Additional Credit Facility.
(d) Repayment. Borrower shall make principal payments (each, a
"Scheduled Installment") on the dates listed in Schedule I attached to the
Additional Credit Facility Note and in the amounts determined by multiplying the
sum of all Advances on the Additional Credit Facility Note by the percentage
opposite such date. Borrower hereby agrees that Schedule I to the Additional
Credit Facility Note may, at Lender's sole option, be revised at the time of
each Advance and at the expiration of the Availability Period, using the
methodology employed in connection with the creation of the original
amortization schedule for the Additional Credit Facility Note, taking into
account anticipated mandatory prepayments of the Additional Credit Facility, the
original debt coverage ratios and projected Borrower Revenues contained in the
Pro Formas.
2.4 Interest.
(a) Rate of Interest. So long as no Event of Default has occurred and
is continuing, the Loans and all other Obligations shall bear interest from the
date any such Loan was made or such other Obligation becomes due to the date
paid at a rate per annum equal to the Interest Rate applicable to such Loan or,
in the case of an Obligation for which the Interest Rate is not otherwise
specified, to the Interest Rate then-applicable to the Senior Loan. Upon the
occurrence of an Event of Default and for so long as such Event of Default
continues, the Loans and all other Obligations shall bear interest at their
respective Default Rate.
(b) Computation and Payment of Interest. Interest on the Loans shall
be computed on the daily principal balance outstanding on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed in the period
during which it accrues. In computing interest on the Loans, the date on which
the Initial Disbursement, any draw on contingent collateral for a Letter of
Credit or any Advance is made shall be included and the date of payment shall be
excluded. Interest shall be payable quarterly in arrears on each March 31, June
30, September 30 and December 31, commencing December 31, 1996.
(c) Interest Laws. Notwithstanding any provision to the contrary
contained in this Agreement or the other Loan Documents, Borrower shall not be
required to pay, and Lender shall not be permitted to collect, any amount in
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excess of the maximum amount of interest permitted by law ("Excess Interest").
In determining whether or not the interest paid or payable with respect to any
Obligation of Borrower to Lender, under any specific contingency, exceeds the
highest lawful rate allowed from time under applicable law (the "Maximum Rate"),
Borrower and Lender shall, to the maximum extent permitted by applicable law,
(i) characterize any non-principal payment as an expense, fee or premium rather
than as interest, (ii) exclude voluntary prepayments and the effects thereof,
(iii) amortize, prorate, allocate and spread the total amount of interest
throughout the full term of such Obligation so that the actual rate of interest
on account of such Obligation does not exceed the Maximum Rate, and/or (iv)
allocate interest between portions of such Obligation such that no such portion
shall bear interest at a rate greater than the Maximum Rate. Notwithstanding the
foregoing, if any Excess Interest is provided for or determined by a court of
competent jurisdiction to have been provided for in this Agreement or in any
other Loan Document, then in such event (1) the provisions of this Section
2.4(c) shall govern and control; (2) Borrower shall not be obligated to pay any
Excess Interest; (3) any Excess Interest that Lender may have received hereunder
shall be, at Lender's option, (A) applied as a credit against the outstanding
principal balance of the Obligations or accrued and unpaid interest (not to
exceed the Maximum Rate), (B) refunded to the payer thereof or (C) any
combination of the foregoing; (4) the Interest Rate provided for herein shall be
automatically reduced to the Maximum Rate, and this Agreement and the other Loan
Documents shall be deemed to have been and shall be reformed and modified to
reflect such reduction; and (5) when Lender shall have complied with clauses (1)
through (4) above, Borrower shall not have any action against Lender for any
damages arising out of the payment or collection of any Excess Interest.
Notwithstanding the foregoing, if for any period of time interest on any Loan is
calculated at the Maximum Rate rather than the applicable rate under this
Agreement, and thereafter such applicable rate becomes less than the Maximum
Rate, the rate of interest payable on such Loan shall remain at the Maximum Rate
until Lender shall have received the amount of interest which Lender would have
received during such period on such Loan had the rate of interest not been
limited to the Maximum Rate during such period.
(d) Waiver. Interest shall be due and payable to Lender at the
Interest Rate or the Default Rate (as the case may be) as provided herein, after
as well as before demand, default and judgment, notwithstanding any judgment
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rate of interest provided for in any statute and, to the extent permitted by
law, Borrower expressly waives the applicability of any such statutory interest
rate.
2.5 Fees.
(a) Agency Fee. Borrower shall pay to Lender the Agency Fee on or
before each date on which such fee is due.
(b) Success Fee. Borrower shall pay to Lender the Success Fee, if any,
on the Closing Date.
(c) Work Fee. Borrower shall pay to Lender the Work Fee on the date of
each Advance. Borrower agrees that Lender shall have earned the Work Fee with
respect to any Advance upon the issuance by Lender of its approval for such
Advance and that such Work Fee shall be payable regardless of whether such
Advance is disbursed by Lender; provided, that such Work Fee shall not be
payable if Lender shall have breached its obligation to disburse an Advance
following the satisfaction of all conditions precedent to the disbursement of
such Advance.
(d) Letter of Credit Fee. Borrower shall pay to Lender the Letter of
Credit Fee on or before each date on which such fee is due.
(e) Assignment Fee. CHI Finance shall pay to Lender the Assignment Fee
on the Closing Date.
2.6 Payments and Prepayments.
(a) Manner and Time of Payment.
(i) All payments by Borrower of the Obligations shall be made without
defense, setoff or counterclaim and in immediately available funds and
delivered to Lender by wire transfer to Lender's account, ABA No.
011900571, Account No. 7030-0226 at Fleet National Bank, Hartford,
Connecticut, for the benefit of Borrower, or at such other place as Lender
may direct from time to time by notice to Borrower. Borrower shall receive
credit for payments on the date received by Lender if Borrower has given
Lender telephonic notice by 12:00 noon (New York, New York time) of the
transfer of such funds and such funds are received by Lender by 2:00 p.m.
(New York, New York time) on such day. In the absence of timely notice and
receipt, such payments shall be deemed to have been made by Borrower on the
next succeeding Business Day.
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(ii) Notwithstanding the provisions of Section 2.6(a)(i) above to the
contrary, so long as the Security Agreement remains in full force and
effect and provided sufficient funds are available for application in
accordance with the terms and conditions hereof and thereof, Borrower
authorizes and consents to make, and Lender agrees automatically to
receive, any and all payments required to be made hereunder through
operation of the relevant provisions of the Security Agreement.
(iii) All payments made by Borrower hereunder shall be applied in the
following order of priority: (1) payment of all current fees due to Lender,
(2) payment of all current interest due to Lender, (3) payment of all
principal of the Senior Loan then due to Lender (including any mandatory
prepayment thereof), (4) payment of all principal of the Additional Credit
Facility then due to Lender (including any mandatory prepayment thereof),
and (5) payment of any amount drawn under any Letter of Credit.
(b) Payments on Business Days. Except with respect to payments made
through operation of the relevant provisions of the Security Agreement, whenever
any payment to be made hereunder shall be stated to be due on a day that is not
a Business Day, the payment shall be made on the next succeeding Business Day
and such extension of time shall be included in the computation of the payment
of interest hereunder.
(c) Mandatory Prepayments.
(X) Immediately upon receipt by Borrower or any Affiliate of any
distribution of Condemnation Proceeds (with respect to all or
substantially all assets of a Project) or Insurance Proceeds with
respect to any Project or, subject to Section 6.2, the proceeds of any
sale, transfer or disposition of any Project or any Project asset for
which the greater of the net proceeds of the sale of the asset or the
present market value of the asset is at least twenty-five thousand
Dollars ($25,000), Borrower shall prepay the Loans in an amount equal
to the greater of (i) one hundred percent (100%) of such proceeds and
(ii) the percentage of the outstanding principal amounts of the Loans
attributable to such Project as indicated on Schedule III to each Note
(which Schedule III Borrower agrees may, at Lender's sole option, be
revised at the time of the issuance of each Letter of Credit and the
making of each Advance); provided, that Borrower shall not be required
to prepay the Loans in the event such Insurance Proceeds with respect
to any event (which event, for purposes of this Agreement, shall
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include any series of events arising from a related causal factor or
occurring within a period of five (5) Business Days) do not in the
aggregate exceed two hundred thousand Dollars ($200,000) and Borrower
or such Affiliate is utilizing such Insurance Proceeds to repair the
damage caused to such Project by such event; provided, further, that
Borrower shall be required to prepay the Loans only in an amount equal
to one hundred percent (100%) of such Insurance Proceeds if (i) the
first proviso of this sentence shall not be true and (ii) there has
not been a total loss or constructive total loss of such Project and
such Project can be returned to production of revenue within a
reasonable period of time thereafter. All prepayments in excess of the
amounts payable pursuant to clause (ii) of the first sentence of this
Section 2.6(c) shall be applied in the manner provided in Section
2.6(a)(iii). In the case of Condemnation Proceeds from less than
substantially all of the assets of a Project, so long as such Project
continues to produce revenue without material impairment (or can be
returned to production of revenue without material impairment within a
reasonable period thereafter), the Project Owner may use such proceeds
to purchase assets of substantially the same or greater utility.
(Y) In addition, if any Project Document is amended or terminated
in such a manner that such amendment or termination results in a cash
payment to Borrower or any Affiliate, or if any material Project asset
is sold without replacement within a reasonable period of time by
property of substantially the same or greater utility and equal or
greater value, in either case resulting in a cash payment to Borrower
or any Affiliate, then Borrower shall prepay the Loans in the amount
of such proceeds and such prepayment shall be applied in the manner
provided in Section 2.6(a)(iii).
(Z) In addition, if the Net Operating Cash available to Borrower
exceeds one hundred twenty percent (120%) of the annual debt service
on the Senior Loan and if the Debt Service Reserve Account is funded
at the level required by the Security Agreement, then Borrower shall
prepay the Senior Loan in the reverse order of maturities in an amount
equal to eighty percent (80%) of such excess amount.
(d) Voluntary Prepayments. Borrower may, at any time, upon at least
thirty (30) days' written notice to Lender, prepay to Lender (in the manner
provided in Section 2.6(a)(iii)) all or any portion of any outstanding Loan. Any
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such prepayment shall cause Borrower to owe Lender the prepayment fee described
in Section 2.6(e).
(e) Prepayment Fee. In connection with (1) any voluntary prepayment,
(2) any mandatory prepayment in connection with the sale, transfer or
disposition of any Project or any Project asset, (3) any mandatory prepayment
resulting from any casualty to any Project which has not caused the total loss
or constructive total loss of the Project or (4) any mandatory prepayment
resulting from the amendment or termination of any Project Document, Borrower
shall pay to Lender a prepayment fee equal to the greater of the Reinvestment
Loss Amount and the amount determined pursuant to the following table as
liquidated damages and compensation for the costs of Lender:
Penalty as a % of Loan
Date of Prepayment Balance
From the Closing Date until the first 6%
anniversary thereof
From the first to the second 5%
anniversary of the Closing Date
From the second to the third 4%
anniversary of the Closing Date
From the third to the fourth 3%
anniversary of the Closing Date
From the fourth to the fifth 2%
anniversary of the Closing Date
From the fifth to the sixth 1%
anniversary of the Closing Date
After the sixth anniversary of the No penalty
Closing Date
Notwithstanding the foregoing, in the event the Reinvestment Loss Amount is
negative, then such negative amount shall be subtracted from the amount
calculated pursuant to the above table.
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2.7 Term of this Agreement. Unless Lender agrees to extend the term of
this Agreement, the "Termination Date" hereunder shall be the earlier of the
Final Maturity Date or the date upon which all of the Obligations (other than
Contingent Obligations which by their terms survive the termination of the Loan
Documents) shall have been indefeasibly paid in full. However, this Agreement
may be terminated prior to the Termination Date as set forth in Section 7. Upon
termination in accordance with Section 7 or on the Termination Date, all
Obligations (other than Contingent Obligations which by their terms survive the
termination of the Loan Documents) shall become immediately due and payable
without notice or demand. Notwithstanding any termination of this Agreement,
until all Obligations (other than Contingent Obligations which by their terms
survive the termination of the Loan Documents) have been indefeasibly paid in
full and satisfied, Lender shall be entitled to retain its Liens upon all of the
Borrower Collateral and shall retain all of its rights and remedies hereunder
and in the other Loan Documents, and even after payment of all Obligations
Borrower's duty to indemnify Lender in accordance with the terms hereof shall
continue.
2.8 Borrower's Loan Account and Statements.
(a) Lender shall maintain a loan account (the "Loan Account") for
Borrower on its books to record (i) all Loans to Borrower hereunder; (ii) all
payments made by Borrower; and (iii) all other appropriate debits and credits as
provided in this Agreement with respect to the Obligations. All entries in the
Loan Account shall be made in accordance with Lender's customary accounting
practices as in effect from time to time. Borrower shall pay the amount
reflected as owing by it in the Loan Account and all other Obligations as such
amounts become due or are declared due pursuant to the terms of this Agreement.
(b) The balance in the Loan Account, as set forth on Lender's most
recent printout or other written statement, shall be presumptive evidence of the
amounts due and owing to Lender by Borrower. Not more than ten (10) days after
the last day of each Fiscal Quarter, Lender shall render to Borrower a statement
setting forth the principal balance of the Loan Account and the calculation of
interest due thereon. Each statement shall be subject to subsequent adjustment
by Lender but shall, absent manifest errors or omissions, be presumed correct
and binding upon Borrower with respect to the amount of the Obligations, and
shall constitute an account stated unless, within twenty (20) Business Days
after receipt of such statement, Borrower shall
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deliver to Lender Borrower's written objection thereto specifying any error
contained in such statement.
2.9 Capital Adequacy, Taxes and Other Adjustments.
(a) If Lender determines that the adoption after the date hereof of
any law, treaty, governmental (or quasi-governmental) rule, regulation,
guideline or order regarding capital adequacy, reserve requirements or similar
requirements, or compliance by Lender with any request or directive regarding
capital adequacy, reserve requirements or similar requirements from any central
bank or governmental agency or body having jurisdiction does or shall have the
effect of increasing the amount of capital, reserves or other funds required to
be maintained by Lender and thereby reducing the rate of return on Lender's
capital as a consequence of the Loans hereunder, then Borrower shall from time
to time within fifteen (15) days after notice and demand from Lender (together
with the certificate referred to in the next sentence) pay to Lender, for the
account of Lender, additional amounts sufficient to compensate Lender for such
reduction in the rate of return. A certificate as to the amount of such actual
cost and showing the basis of the computation of such cost in reasonable detail
submitted by Lender to Borrower shall, absent manifest error, be final,
conclusive and binding on Borrower. Any and all payments or reimbursements
hereunder shall be made free and clear of and without deduction for any and all
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto (collectively, "Tax Liabilities"), excluding taxes imposed
on the net income of Lender by the jurisdiction under the laws of which Lender
is organized or any political subdivision thereof and taxes imposed on its net
income by the jurisdiction of Lender's applicable lending office or any
political subdivision thereof. If Borrower shall be required by law to deduct
any such amount from or in respect of any sum payable hereunder to Lender, then
the sum payable hereunder shall be increased as may be necessary so that, after
making all required deductions, Lender receives an amount equal to the sum it
would have received had no such deductions been made. Borrower hereby
indemnifies and agrees to hold Lender harmless from and against all Tax
Liabilities.
(b) Except as otherwise provided in Section 2.9(a) above, in the event
that, subsequent to the Closing Date, (i) any change in any existing law,
regulation, treaty or directive or in the interpretation or application thereof,
or (ii) any new law, regulation, treaty or directive enacted or any
interpretation or application thereof, or (iii) compliance by Lender with any
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request or directive (whether or not having the force of law) from any
Governmental Authority:
(A) does or shall subject Lender to any tax of any kind
whatsoever with respect to this Agreement, the other Loan Documents or
any Loan made hereunder, or change the basis of taxation of payments
to Lender of principal, fees, interest or any other amount payable
hereunder (except for taxes which are based upon or measured by
Lender's net income or which are expressly in substitution for, or
relieve Lender from, any actual taxes based upon or measured by
Lender's net income); or
(B) does or shall impose on Lender any other condition or
increased cost (other than those determined in accordance with Section
2.9(a) above) in connection with the transactions contemplated hereby;
and the result of any of the foregoing is to increase the actual cost to Lender
of making or continuing any Loan hereunder or to reduce any amount receivable
thereunder then, in any such case, to the extent such increased cost is not
reflected in the Floating U.S. Treasury Note Rate, Borrower shall promptly pay
to Lender, upon its demand, any additional amount necessary to compensate Lender
for such additional cost or reduced amount receivable which Lender deems to be
material as reasonably determined by Lender with respect to this Agreement, the
other Loan Documents or any Loan made hereunder. If Lender becomes entitled to
claim any additional amount pursuant to this subsection, it shall promptly
notify Borrower of the event by reason of which Lender has become so entitled. A
certificate as to any additional amount payable pursuant to the foregoing
sentence submitted by Lender to Borrower shall be conclusive in the absence of
manifest error. For the avoidance of doubt, Lender confirms that the provisions
of this Section 2.9 refer to Lender only and not to any other Person.
SECTION 3
CONDITIONS TO LOANS
3.1 Conditions Precedent.
(a) Conditions to Closing. No obligation of Lender contained in this
Agreement and the other Loan Documents to lend or disburse money or to indemnify
Borrower or any other Person or otherwise to take any action or assume any
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existing obligation of another Person shall be deemed binding on Lender until
each of the conditions set forth in this Section 3.1(a) is performed to the
satisfaction of Lender and Lender has received the following documents, all in
form and substance satisfactory to Lender:
(i) Lender and its counsel shall have received copies of each
Material Agreement (including without limitation the O&M contract
between the O&M Operator and each Project Owner), and shall have
reviewed and approved (in their sole discretion) the form, terms,
conditions, substance and structure thereof;
(ii) Lender shall have received a review and analysis
satisfactory to Lender (in its sole discretion) by the Independent
Engineer with respect to relevant technical aspects of the Projects
including, without limitation, existing environmental damage and
liabilities, if any, operation and maintenance costs, historical and
projected availability and useful life of each Project, capabilities
of the O&M Operator, Borrower's ability to perform under the Project
Documents, projected operation and maintenance costs, maintenance
plans and schedules, terms of Project Documents, Permits, net capacity
degradation (if any), the Project's ability to comply with Permit
conditions and any other technical issues Lender may request;
(iii) Lender shall have received delivery of reference Pro Formas
on each Project and in aggregate for all Projects for a period
extending out twenty (20) years from the Closing Date or one hundred
thirty-three percent (133%) of the term of the Senior Loan as
determined by the Pro Forma, which shall incorporate the results of
due diligence and the reports of Lender's counsel and the Independent
Engineer and the terms and conditions imposed by the Project
Documents, showing annual Net Operating Cash available for debt
service sufficient (in Lender's sole discretion) to support the
maximum amount of the Senior Loan (assuming a 1.4 to 1 annual loan
coverage ratio);
(iv) Lender and its advisors shall have completed their review of
all Permits relating to the Projects, Borrower shall have accomplished
all items on the regulatory compliance action plan prepared by the
Independent Engineer that were required to have been accomplished on
or before the Closing Date, and all such Permits and accomplished
items shall be satisfactory to Lender (in its sole discretion) and,
where applicable, in full force and effect;
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(v) Lender shall be satisfied in its sole discretion that (A)
Borrower's and the Projects' operations comply, in all respects deemed
material by Lender, with all applicable Environmental Laws, (B)
Borrower's and the Projects' operations are not subject to any federal
or state investigation evaluating whether remedial action involving
any expenditure deemed material by Lender is needed to respond to any
release of any Hazardous Material and (C) none of Borrower or any
Project have any contingent liabilities deemed material by Lender in
connection with the release of any Hazardous Material. Lender shall be
satisfied (in its sole discretion) with the results of the
environmental audit of each Project;
(vi) Lender shall have received evidence satisfactory to Lender,
in its sole discretion, that Lender has a valid and perfected first
priority Lien in the Borrower Collateral, including, without
limitation, Form UCC-3 assignment or termination statements relating
to the Prior Liens executed and in due form for filing. Borrower shall
have made arrangements satisfactory to Lender that all Prior Liens
will be discharged with the proceeds of the Initial Disbursement or
assigned to Lender and all notes and letters of credit related thereto
will be paid in full and canceled or purchased by Lender. Lender shall
have received UCC, federal and state tax lien, judgment lien,
bankruptcy, court and title search reports listing all effective
financing statements and other documents that name Borrower or the
Affiliates as debtors and that are filed in the jurisdictions in which
the Borrower Collateral is located, the jurisdictions of incorporation
of Borrower and the Affiliates and in each jurisdiction where Borrower
or any Affiliate maintains an office;
(vii) Borrower shall have paid the Closing Costs in immediately
available funds;
(viii) Borrower shall deliver or cause to be delivered to Lender
the documents listed below, duly executed (except the Disbursement
Instructions), in form and substance satisfactory to Lender and in
quantities designated by Lender:
(A) This Agreement;
(B) The Notes and the Intercreditor Agreement;
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(C) The Security Agreement, the Security Assignment
Documents and the other Security Documents not listed
below;
(D) Drafts of the Disbursement Instructions (Borrower
having thirty (30) days after the Closing Date to
deliver to Lender fully executed originals of the
Disbursement Instructions);
(E) The Pledged Interests, including without limitation
stock certificates representing all issued and
outstanding shares of capital stock of Fulcrum, Inc.,
together with undated stock powers relating to such
certificates executed in blank;
(F) The Pledge Agreements;
(G) The Assignments, if any;
(H) (1) A certificate duly executed as of the Closing Date
by an Authorized Officer of Borrower certifying that
(x) all representations and warranties made by Borrower
under the Loan Documents are true as though made on and
as of such date, (y) all conditions to the obligations
of Lender to make the Loan pursuant to this Section
3.1(a) have been fully satisfied or expressly waived in
writing, and (z) no Default or Event of Default exists
or will result from such closing or making of the Loans
and (2) certificates duly executed as of the Closing
Date by an Authorized Officer of each Affiliate
certifying that all representations and warranties made
by such Affiliate under the Loan Documents to which it
is a party are true as though made on and as of such
date;
(I) Copies of (1) the Partnership Agreement of Borrower,
certified as of the Closing Date by the Secretary or
other appropriate officer of a general partner of
Borrower, (2) resolutions and any other documents
evidencing all action taken by each general partner of
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Borrower to authorize the execution and delivery of
this Agreement and each other Loan Document to which
Borrower is a party, such documents to be certified as
of the Closing Date by the Secretary or other
appropriate officer of a general partner of Borrower,
and (3) certificates, certified as of the Closing Date
by the Secretary or other appropriate officer of a
general partner of Borrower, setting forth the name and
signature of each Authorized Officer of Borrower
(Lender may rely conclusively on such certification
until it receives notice in writing to the contrary
from the applicable Person);
(J) Copies of (1) the Certificate or Articles of
Incorporation and By-Laws or Partnership Agreement of
each Affiliate certified as of the Closing Date by the
Secretary or other appropriate officer of such
Affiliate, and certificates dated within five (5) days
prior to the Closing Date that each corporate Affiliate
is validly existing and in good standing on such date,
certified by the Secretary of State of the state in
which such Affiliate is organized, (2) resolutions and
any other documents evidencing all action taken by such
Affiliate to authorize the execution and delivery of
each Loan Document to which such Affiliate is a party,
such documents to be certified as of the Closing Date
by the Secretary or other appropriate officer of such
Affiliate, and (3) certificates, certified as of the
Closing Date by the Secretary or other appropriate
officer of such Affiliate setting forth the name and
signature of each Authorized Officer of such Affiliate
(Lender may rely conclusively on such certification
until it receives notice in writing to the contrary
from such Affiliate);
(K) Evidence that Messrs. Cahill, Gordon & Reindel or
another Person acceptable to Lender has agreed to serve
as the agent of Borrower and each Affiliate
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for receipt of service of process in the State of
New York;
(L) Copies of all financial statements, tax returns,
reports and notices described in Section 5.7 as are
then available or which would be required to be
provided to Lender as of the Closing Date if the
Closing Date had already occurred;
(M) Copies of all Applicable Permits;
(N) Copies of all orders issued as of the Closing Date by
FERC certifying the Projects as Qualifying Facilities
and copies of all Notices of Self-Certification filed
as of the Closing Date with FERC with respect to the
Projects;
(O) Executed originals of one or more written opinions of
Curtis Thaxter Stevens Broder & Micoleau LLC and Davis
Wright Tremaine LLP, special counsel to Borrower and
each Affiliate and of Chadbourne & Parke LLP, special
counsel to Lender, each dated the Closing Date and
addressed to Lender;
(P) The executed originals of the consents of Idaho Power
substantially in the form set forth in Exhibit 3.2;
(Q) Evidence satisfactory to Lender that all existing debt
of Borrower and each Affiliate to a lender other than
Lender (other than the Indebtedness listed in Exhibit
6.6.) will be paid in full with the proceeds of the
Initial Disbursement, including without limitation
canceled notes relating to any such Indebtedness;
(R) Copies of letters from the general partner of each of
Borrower and BP Hydro Associates to Borrower and BP
Hydro Associates instructing each such partnership to
record on its records the pledge of the respective
Pledged Interests pursuant to the Pledge Agreements;
and
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(S) An endorsement from the applicable title company
confirming the assignment of the deeds of trust
relating to the Projects in favor of Lender and
confirming that such deeds of trust remain a valid and
subsisting Lien on the Projects described therein
subject only to those exceptions set forth in the title
policies originally issued in favor of Fuji Bank.
(ix) The representations and warranties of Borrower and each
Affiliate contained herein and in the other Loan Documents shall be
true, correct and complete in all material respects on and as of the
Closing Date;
(x) No event shall have occurred and be continuing, or would
result from the closing or the making of any Loan, that would
constitute a Default or Event of Default;
(xi) Borrower and each Affiliate shall have performed in all
material respects all agreements and satisfied all conditions which
any Loan Document provides shall be performed or satisfied by it on or
before the Closing Date;
(xii) No order, judgment or decree of any court or Governmental
Authority shall enjoin or restrain Lender from making the Loans;
(xiii) Except as disclosed in Schedule V, there shall not be
pending or, to the knowledge of Borrower or any Affiliate threatened
pursuant to written notification, any action, suit, proceeding,
governmental investigation or arbitration against or affecting
Borrower or any Affiliate, any Project or any of the other Borrower
Collateral and there shall have occurred no development in any action,
suit, proceeding, governmental investigation or arbitration disclosed
to Lender that, in Lender's reasonable determination, is likely to
have a Material Adverse Effect. No injunction or other restraining
order shall have been issued and no hearing to cause an injunction or
other restraining order to be issued shall be pending or noticed with
respect to any action, suit or proceeding seeking to enjoin or
otherwise prevent the consummation of, or to recover any damages or
obtain relief as a result of, this Agreement or the making of the
Loans hereunder;
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(xiv) There shall not be any amendment, or any proposed
amendment, to permitting, licensing or other regulatory requirements
that, in Lender's reasonable determination, is likely to have a
Material Adverse Effect;
(xv) There shall not be any amendment, or any proposed amendment,
to any Material Agreement which is likely, in Lender's reasonable
determination, to have a Material Adverse Effect, without Lender's
prior written consent;
(xvi) Borrower shall have taken all actions necessary or
desirable to implement the transactions contemplated in the Security
Documents, including, without limitation, establishing all required
Accounts, procuring all third-party consents, agreements and approvals
necessary or desirable to fund the Accounts in the manner required by
the Security Agreement and the Disbursement Instructions, and all such
other actions necessary or desirable to ensure that Borrower and each
Affiliate complies with the terms and conditions of the Security
Documents;
(xvii) Lender shall have received binders for or other evidence
satisfactory to Lender (including, if requested by Lender,
certificates of insurers, independent brokers and Borrower or any
Affiliate) indicating (i) that Lender will immediately following the
Closing Date be named as loss payee with respect to the property
insurance and business interruption insurance policies relating to the
Projects and (ii) that Lender will immediately following the Closing
Date be named as an additional insured on the general and umbrella
liability insurance policies maintained by Borrower and the
Affiliates;
(xviii) Since September 19, 1996, no change shall have occurred
in the condition or operation, financial or otherwise, of Borrower,
any Affiliate or any Project that, in Lender's sole discretion, is
likely to have a Material Adverse Effect;
(xix) The Closing Date shall occur on or before December 31,
1996; and
(xx) the Certificates or Articles of Incorporation and By-Laws of
CHI-Idaho, Inc., CHI-Magic Valley, Inc. and Fulcrum, Inc. and the
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Partnership Agreements of BP Hydro Associates and Borrower shall
contain bankruptcy-remote provisions satisfactory to Lender.
(b) Conditions to Advances. Lender shall have no obligation to make
any Advance pursuant to this Agreement until each condition set forth in this
Section 3.1(b) is performed or otherwise satisfied to the satisfaction of
Lender:
(i) Lender shall have issued to Borrower a formal commitment to
make the Advance;
(ii) Since September 19, 1996, no change shall have occurred in
the condition or operation, financial or otherwise, of Borrower, any
Affiliate or any Project that, in Lender's sole discretion, is likely
to have a Material Adverse Effect;
(iii) Borrower shall deliver to Lender the documents listed
below, duly executed, in form and substance satisfactory to Lender:
(A) a certificate of an Authorized Officer of Borrower, duly
executed as of the date of such Advance, representing and
warranting that (1) all representations and warranties made by
Borrower and each Affiliate under all Loan Documents are true as
though made on and as of such date, unless stated to relate to a
specific earlier date, in which case such representations and
warranties shall be true and correct in all material respects as
of such earlier date, (2) all obligations of Borrower and each
Affiliate under the Loan Documents required to be performed on or
before such date have been properly performed or expressly waived
in writing, and (3) no Default or Event of Default exists or will
result from the making of the Advance;
(B) the new or renegotiated contract which gives rise to the
Advance;
(C) a new closing Pro Forma on the operating cash flow of
the Projects for a period extending out twenty (20) years from
the date of the Advance or one hundred thirty-three percent
(133%) of the term of such Advance as determined by the new
closing Pro Forma (which shall incorporate the results of a
report from the Independent Engineer and the terms and conditions
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imposed by the Project Documents) demonstrating that the annual
operating cash flow which is available to service the Loans
supports the amount of the Advance such that the ratio of Net
Operating Cash to debt service on the Loans is at least 1.4 to 1;
and
(D) such other assurances, instruments or undertakings as
Lender may reasonably request; and
(iv) Borrower shall pay the Closing Costs (to the extent not
previously paid).
3.2 Conditions Precedent for the Benefit of Lender. All conditions
precedent to the obligation of Lender to make any Loan are imposed hereby solely
for the benefit of Lender and no other Person may require satisfaction of any
such condition precedent or be entitled to assume that Lender will refuse to
make the Loan in the absence of strict compliance with such conditions
precedent. All requirements of this Agreement may be waived by Lender in whole
or in part at any time at Lender's sole option and discretion.
3.3 Location of Closing. The closing of the loan transaction
contemplated hereunder shall take place on the Closing Date at the offices of
Lender in Stamford, Connecticut, or the offices of counsel to Lender in New
York, New York, at the election of Lender.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF BORROWER
In order to induce Lender to enter into this Agreement and to make the
Loans, Borrower (as evidenced by the signature of its Authorized Officer to this
Agreement) hereby represents and warrants on the date hereof and on the Closing
Date, except with respect to any representation and warranty which specifically
states that it is made on only one of such dates (each of which representations
and warranties shall survive the Closing Date and the making of the Loans as
provided in Section 8.7) to Lender as follows:
4.1 Organization, Business and Qualification. Borrower is a duly
formed and validly existing general partnership under the laws of the State of
Utah and is qualified to do business in each other jurisdiction in which the
ownership of its properties or the conduct of its business requires such
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qualification. Each jurisdiction in which Borrower is required to be qualified
and in good standing is set forth in Exhibit 4.1.
4.2 Power and Authorization.
(a) Borrower has the power and authority to own its properties and
assets and to conduct its business as now conducted and to incur the
Indebtedness evidenced by the Notes. The execution, delivery and performance by
Borrower of this Agreement and the other Loan Documents to which it is a party
(i) have been duly authorized and constitute valid obligations of Borrower
legally binding upon it and enforceable in accordance with their respective
terms, except as enforcement may be limited by Debtor Relief Laws or by
equitable principles relating to or limiting creditors' rights generally, and
(ii) do not require any approval of Borrower or any Affiliate which has not been
obtained or the approval of any trustee or holder of any obligation or
Indebtedness of Borrower or any Affiliate and do not, and will not, contravene
any Governmental Requirement, Borrower's Partnership Agreement or any
partnership document or constitute a default under any indenture or agreement to
which Borrower or any Affiliate is a party or by which Borrower or any Affiliate
or any of their properties may be bound or affected, or result in the creation
of any Lien (other than Permitted Liens) upon any property of Borrower or any
Affiliate. Except as contemplated under the Security Documents, no consent of
any other Person and no consent, license, approval or authorization of, or
registration or declaration with, any Governmental Authority is required in
connection with Borrower's execution, delivery or performance of, or the
validity or enforceability of, this Agreement or the other Loan Documents to
which it is a party except those consents which have been obtained or are not
yet required.
(b) The list of consents and waivers set forth in Exhibit 4.2 is a
true, complete and accurate list of all consents and waivers required for the
consummation of the transactions contemplated under the Loan Documents
(including, without limitation, consents and waivers necessary or desirable in
connection with the assignment or grant and perfection of the Security Interests
to Lender and Lender's ability to exercise and enforce its rights and remedies
under the Loan Documents and waivers of rights of first refusal necessary or
desirable in connection with the possible foreclosure on and sale of the
Borrower Collateral by Lender), and such list contains no material misstatement
or inaccuracy or misleading information and does not omit any information the
omission of which would be materially misleading.
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(c) All consents and waivers set forth in Exhibit 4.2 have been
obtained as of the Closing Date.
4.3 Financial Condition. All financial statements, reports, records
and other information concerning Borrower or any Affiliate which have been
furnished by Borrower to Lender pursuant to this Agreement have been prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as disclosed therein) and present fairly the financial condition of the
Persons covered thereby as at the dates thereof and the results of their
operations for the periods then ended.
4.4 Suits, Actions, Proceedings and Adverse Facts. Except as disclosed
in Schedule V, there is no judgment, action, investigation, claim, complaint,
notice of violation, injunction, order, decree, directive, suit, arbitration or
proceeding pending or threatened pursuant to written notification in any court
or before or by any Governmental Authority (a) against or affecting Borrower,
any Affiliate or any of the Borrower Collateral involving any claim in any
amount or (b) involving the validity, enforceability or priority of any Loan
Document at law or in equity.
4.5 Title to Borrower Collateral; Liens.
(a) Borrower or an Affiliate is the sole owner of each item of the
Borrower Collateral, having good and marketable title thereto free and clear of
any and all Liens other than Permitted Liens.
(b) On the Closing Date, the Security Documents (including the filing
of the Financing Statements in the offices and locations listed in Exhibit 4.5
and the taking by Lender of possession of the Borrower Collateral and the filing
of Liens on certificates of title and the giving of written notice to Borrower
and the Affiliates pursuant to the Security Documents) create or preserve and
constitute a valid and continuing perfected and first priority Lien on and first
priority security interest in the Borrower Collateral in favor of Lender, prior
to all other Liens (other than Permitted Liens) in favor of others and rights of
others, and are enforceable (except as enforcement may be limited by Debtor
Relief Laws or by equitable principles relating to or limiting creditors' rights
generally) as such as against Borrower and the Affiliates and all third parties
(except as otherwise provided by statute) and secure the payment of the
Obligations. On the Closing Date, all action necessary to protect and perfect
such Liens and security interests in each item of the Borrower Collateral has
been duly taken. Such Liens and security interests are entitled to all of the
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rights, priorities and benefits afforded by the UCC or other relevant law as
enacted in any relevant jurisdiction to perfected security interests. On the
Closing Date, no mortgage or financing statement or other instrument or
recordation covering all or any part of the Borrower Collateral is on file in
any recording office, except such as may have been filed in favor of Lender or
with respect to Permitted Liens. No further action will be required to maintain
and preserve, or effectively to put other Persons on notice of, such Liens and
security interests other than the filing of continuation statements required by
the UCC.
4.6 Governmental Requirements. All representations and warranties made
by Borrower and the Affiliates in the Material Agreements with respect to
Governmental Requirements are, to Borrower's best knowledge upon Due Inquiry,
true and correct as of each date this representation and warranty is made.
4.7 Employee Benefit Plans.
(a) (i) No Prohibited Transaction or Accumulated Funding Deficiency
with respect to an Employee Benefit Plan or withdrawals from Multiemployer Plans
have occurred or exist that, in the aggregate, could reasonably be expected to
subject Borrower or any Affiliate to any material tax, penalty, or other
liability where such tax, penalty or other liability in the aggregate is not
covered in full, for the benefit of Borrower or such Affiliate, by insurance,
(ii) no notice of intent to terminate an Employee Benefit Plan under a distress
termination has been filed, and no Employee Benefit Plan has been terminated,
under Section 4041(c) of ERISA, the PBGC has not instituted proceedings to
terminate, or appoint a trustee to administer, an Employee Benefit Plan, and no
event has occurred or condition exists that could reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Employee Benefit Plan, and (iii) the
present value of all benefit vested under all Employee Benefit Plans (based on
the actuarial assumptions used to fund the Employee Benefit Plans) does not
exceed the assets of the Employee Benefit Plans allocable to such vested
benefits.
(b) All representations and warranties made by Borrower or any
Affiliate in the Material Agreements with respect to Employee Benefit Plans are,
to Borrower's best knowledge upon Due Inquiry, true and correct as of each date
this representation and warranty is made.
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4.8 Taxes. Borrower and the Affiliates have filed all United States
federal and state tax returns and reports and all other tax returns and reports
with each appropriate Governmental Authority in all jurisdictions in which such
returns and reports are required to be filed, and such returns and reports
properly reflect the taxes, assessments and charges of Borrower and the
Affiliates for the periods covered thereby. Borrower and the Affiliates have
paid all taxes, assessments and other charges which have become due to any
Governmental Authority having jurisdiction over Borrower, the Affiliates or any
of their properties and no tax Liens (other than tax Liens constituting
Permitted Liens) have been filed and no claims are being asserted against
Borrower, the Affiliates or any of their properties. None of the federal or
state income tax returns of Borrower or the Affiliates are under audit. Borrower
has no knowledge of any unpaid taxes, assessments or charges which may be due
and payable against it or the Affiliates or any of their properties which are
likely to have a Material Adverse Effect.
4.9 Chief Executive Office. The address of the chief executive office
(as such term is used in Article 9 of the UCC) of Borrower is set forth on page
1 of this Agreement.
4.10 Environmental Matters. All representations and warranties made by
Borrower or any of the Affiliates in the Material Agreements with respect to
Environmental Claims, compliance with Environmental Laws and any other matter
generally relating to any actual or potential liability of, or the production,
handling and disposal by, any Person with respect to Hazardous Materials, are,
to Borrower's best knowledge upon Due Inquiry, true and correct as of each date
this representation and warranty is made.
4.11 Burdensome Restrictions; Other Contracts. Except with respect to
the Material Agreements and the Applicable Permits, no contract, lease,
agreement or other instrument to which Borrower or any of the Affiliates is a
party or is bound or to which any of such Person's properties is subject, and no
provision of any applicable Governmental Requirement, restricts such Person's
ability to own, operate and maintain any Project in a manner which is likely to
have a Material Adverse Effect with respect to such Project, Borrower or such
Affiliate.
4.12 Labor Matters. All representations and warranties made by
Borrower or any of the Affiliates in the Material Agreements with respect to
labor matters are, to Borrower's best knowledge upon Due Inquiry, true and
correct as of each date this representation and warranty is made.
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4.13 Permits. Schedule I includes a list of all Applicable Permits.
Each of such Applicable Permits is in full force and effect, is final, and,
based on current regulations, is not subject to appeal or judicial, governmental
or other review.
4.14 Disclosure. No representation or warranty of Borrower or any of
the Affiliates contained in this Agreement, the Financial Statements, the Pro
Formas, the other Loan Documents or any other material document, certificate or
written statement furnished to Lender for use in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances in which the same were made. There is no material fact known to
Borrower that has had or is likely to have a Material Adverse Effect that has
not been disclosed herein or in such other documents, certificates and
statements furnished to Lender for use in connection with the transactions
contemplated hereby.
4.15 Material Agreements.
(a) Each Material Agreement constitutes the entire agreement of the
respective parties thereto with respect to the subject matter thereof and no
party thereto shall be bound except in accordance therewith.
(b) To the best knowledge of Borrower after Due Inquiry, each Material
Agreement constitutes the valid contract of the parties thereto, enforceable
against the parties thereto in accordance with its terms, except as enforcement
may be limited by Debtor Relief Laws or by equitable principles relating to or
limiting creditors' rights generally; each of the parties thereto has executed
such Material Agreement with full power, authority and capacity to contract; and
such Material Agreement is in full force and effect.
(c) Borrower and, to the best knowledge of Borrower after Due Inquiry,
each other party to a Material Agreement, has performed in a timely manner, in
all material respects, its duties and obligations under each Material Agreement
applicable to it.
(d) To the best knowledge of Borrower after Due Inquiry, the
obligations of each party to a Material Agreement, as stated therein are
absolute and unconditional and are not, nor are claimed to be, subject to any
claim, defense, counterclaim or setoff against Borrower.
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(e) The list of Material Agreements set forth in Exhibit 4.15 is true,
complete and accurate in every respect. Copies of the Material Agreements as of
the date hereof have been furnished to Lender by Borrower and are true and
complete copies.
(f) With respect to the Material Agreements, there are no existing
conditions that would give rise to any defense to payment or to any claim, right
of setoff, counterclaim, recoupment or rescission except to the extent any such
right is already reflected in the relevant figures in the Pro Forma.
4.16 No Default. None of Borrower or any of the Affiliates is in
default under any agreement (including, without limitation, any Material
Agreement), ordinance, resolution, decree, bond, note, indenture, order or
judgment to which it is a party or by which it is bound, or any other agreement
or other instrument by which it or any of the properties or assets owned by it
or used in the conduct of its business is affected.
4.17 Certain Fees. Other than as disclosed in writing to Lender prior
to the date of this Agreement, no broker's or finder's fee or commission will be
payable with respect to any of the transactions contemplated hereby and Borrower
shall be solely responsible for and shall pay all such broker's or finder's fees
or commissions. Borrower shall indemnify, pay and hold Lender harmless from and
against any claim, demand or liability for broker's or finder's fees alleged to
have been incurred in connection with any of the transactions contemplated
hereby and any expenses, including, without limitation, attorneys' fees, arising
in connection with any such claim, demand or liability. No other similar fees or
commissions will be payable by Borrower for any other services rendered to
Borrower or ancillary to the transactions contemplated hereby.
4.18 Use of Proceeds and Margin Security. Borrower shall use the
proceeds of the Loans for the purposes expressly set forth herein. No portion of
the proceeds of the Loans shall be used by Borrower in any manner that might
cause the borrowing or the application of such proceeds to violate Regulation G,
Regulation U, Regulation T or Regulation X or any other regulation of the Board
of Governors of the Federal Reserve System or to violate the Securities Exchange
Act of 1934 or any applicable usury law.
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4.19 Compliance with Governmental Requirements.
(a) None of Borrower or any Affiliate has (i) violated any
Governmental Requirement with respect to the operation of any Project as a
hydroelectric generating facility and no such violation has been alleged
pursuant to written notification; (ii) failed to file in a timely manner all
reports, documents and other materials required to be filed by it with any
Governmental Authority with respect to the operation of any Project as a
hydroelectric generating facility (and the information contained in each of such
filings is true, correct and complete in all material respects); or (iii) failed
to retain all records and documents required to be retained by it pursuant to
any Governmental Requirement with respect to the operation of any Project as a
hydroelectric generating facility.
(b) No Project (i) is in violation of any Governmental Requirement
with respect to the operation of any Project as a hydroelectric generating
facility and, to the best knowledge of Borrower upon Due Inquiry, no such
violation has been alleged pursuant to written notification; (ii) has failed, to
the best knowledge of Borrower upon Due Inquiry, to file in a timely manner all
reports, documents and other materials required to be filed by it with any
Governmental Authority, the failure to file which is likely to have a Material
Adverse Effect (and the information contained in each of such filings is true,
correct and complete in all material respects); or (iii) has failed, to the best
knowledge of Borrower upon Due Inquiry, to retain all records and documents
required to be retained by it pursuant to any Governmental Requirement, the
failure to retain which is likely to have a Material Adverse Effect.
4.20 Insurance
(a) Each of Borrower and the Affiliates is in compliance, to the
extent applicable to it, with all requirements set forth in the Material
Agreements to maintain insurance.
(b) All representations and warranties made by Borrower and each
Affiliate in the Material Agreements with respect to insurance are, to
Borrower's best knowledge upon Due Inquiry, true and correct as of each date
this representation and warranty is made.
4.21 Projects. The descriptions of the Projects set forth in
Exhibit 1.1 and all information regarding the Projects furnished by Borrower (or
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on its behalf) to Lender do not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances in which the same
were made.
4.22 Capital Calls. There are no outstanding calls for contributions
of capital in respect of Borrower or any Affiliate and, to the best knowledge of
Borrower upon Due Inquiry, no such calls for contributions of capital are
currently contemplated or under discussion.
4.23 No Maintenance Liabilities. There are no accrued maintenance
liabilities with respect to the Projects.
4.24 Indebtedness. Exhibit 6.5 lists all Contingent Obligations of
Borrower and the Affiliates as of the Closing Date. Exhibit 6.6 lists all
Indebtedness of Borrower and the Affiliates as of the Closing Date.
4.25 Accounts Receivable. Exhibit 4.25 lists all accounts receivable
of Borrower and the Affiliates as of the Closing Date.
SECTION 5
AFFIRMATIVE COVENANTS AND AGREEMENTS OF BORROWER
Borrower hereby covenants and agrees that, from the date of this
Agreement until the indefeasible payment in full of all Obligations (other than
Contingent Obligations which by their terms survive the termination of the Loan
Documents) and full and complete performance of all of its and the Affiliates'
other obligations hereunder and under the other Loan Documents, Borrower shall
perform, or cause to be performed, all covenants and agreements in this Section
5. Any request for Lender's consent to Borrower's or any other Person's failure
to comply with such covenants must be made by Borrower in writing and any
consent given by Lender shall also be in writing.
5.1 Compliance with Governmental Requirements. Borrower and the
Affiliates shall comply in all material respects with all Governmental
Requirements relating to Borrower, the Borrower Collateral and each Project.
5.2 Access. Upon (a) ten (10) Business Days' notice to Borrower
(except as set forth in clause (b) below) or (b) two (2) Business Days' notice
to Borrower following the occurrence and during the continuance of an Event of
Default, any of Lender's officers, employees or agents shall have the right, in
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Lender's name or in the name of Borrower and the Affiliates, during normal
business hours, to (i) verify the validity, amount or any other matter relating
to the Borrower Collateral by mail, telephone or otherwise; (ii) inspect the
Borrower Collateral, all books and records related thereto (and to make extracts
from and copies of such books and records) and the premises upon which any of
the Borrower Collateral is located; and (iii) discuss Borrower's and the
Affiliates' affairs and finances and the Borrower Collateral with Borrower's and
the Affiliates' Authorized Officers and independent public accountants. Borrower
and the Affiliates shall fully cooperate with Lender in connection with the
foregoing. So long as no Event of Default has occurred and is continuing, Lender
may exercise its rights provided above once in each calendar quarter. Borrower
and each Affiliate shall also participate in a meeting with Lender, at the
request of Lender, once during each Fiscal Year to be held at Borrower's or such
Affiliate's offices at such time as may be agreed by Borrower or such Affiliate
and Lender.
5.3 Notices by Governmental Authority; Fire and Casualty Losses, etc.
Borrower shall timely comply with and promptly furnish to Lender true and
complete copies of any material notice or material claim by any Governmental
Authority pertaining to Borrower, any Project or the other Borrower Collateral
and any notice or order from FERC pertaining to any Project or any written
notice from any Person that legal action may be or has been initiated
challenging the eligibility of any of the Projects as a Qualifying Facility.
Borrower shall promptly notify Lender of any eminent domain action or similar
proceeding affecting any Project or any fire or other casualty affecting any
Project resulting in more than fifty thousand Dollars ($50,000) in damage.
5.4 Borrower Revenues. Borrower shall use all necessary or desirable
efforts to cause all Borrower Revenues to be deposited in, and disbursed from,
the Project Revenues Account in accordance with this Agreement and the Security
Documents.
5.5 No Lender Liability. Lender shall have no liability, obligation or
responsibility whatsoever with respect to the operation of any Project by any
Project Owner. Lender shall not be obligated to inspect any Project, nor shall
Lender be liable for the performance or default of Borrower or any of the
Affiliates, any Project, any contractor or any other Person, or for any failure
to protect or insure any Project, or for the payment of costs of labor,
materials or services supplied for the operation of any Project, or for the
performance of any obligation of Borrower or any the Affiliates whatsoever.
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5.6 Payment of Taxes, Fees and Claims. Except as set forth below in
this Section 5.6, Borrower shall pay or cause to be paid in a timely manner when
due all taxes, assessments, fees, claims and other charges incurred and payable
by it or any of the Affiliates in connection with the Projects. Notwithstanding
the preceding sentence, Borrower may contest (a) any tax or assessment levied by
any Governmental Authority and (b) all fees and commissions claimed by brokers,
salesmen and agents in connection with the Loans, and, so long as such contest
is being diligently pursued by appropriate proceedings and does not threaten a
Material Adverse Effect, such contest on the part of Borrower shall not be an
Event of Default; provided, that during the pendency of any such contest
involving a disputed amount in excess of fifty thousand Dollars ($50,000) with
respect to Borrower, any Project or the other Borrower Collateral, Borrower
shall furnish to Lender an indemnity bond satisfactory to Lender or other
security acceptable to Lender in an amount equal to any unpaid amount being
contested plus a reasonable additional sum to cover possible costs, interest and
penalties, or should such contest not involve a liquidated amount, in an amount
acceptable to Lender; provided, further, that Borrower shall pay any amount
adjudged by a court of competent jurisdiction to be due, with all costs,
interest and penalties thereon, before such judgment becomes a Lien (other than
a Permitted Lien) on any Project or the other Borrower Collateral. Borrower
shall pay when due all costs and expenses required to be paid by this Agreement,
including, without limitation, all taxes and fees in connection with the
execution, delivery, filing, or recordation of any Lien, the Financing
Statements, any other Loan Document and the Loans.
5.7 Financial Statements and Other Reports.
(a) Borrower shall cause to be furnished to Lender as soon as
available, and in any event no later than one hundred twenty (120) days after
the end of each Fiscal Year (i) certified annual consolidated financial
statements of Consolidated Hydro and (as available) audited annual financial
statements for the Borrower and the Projects, such financial statements to be
prepared in accordance with GAAP consistently applied (if annual audited
financial statements for the Borrower and any Project are not available, then
Borrower must provide Lender with the unaudited balance sheet and income
statement for the Borrower and each Project that are used as a basis for
Consolidated Hydro's audited consolidated financial statements); (ii) a report
and opinion relating to Consolidated Hydro's annual financial statements of
independent certified public accountants of recognized standing selected by
Borrower and reasonably acceptable to Lender (which shall include any of the
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"Big Six" accounting firms), which report the opinion shall each be based upon
an audit made in accordance with GAAP throughout the period involved and (iii) a
statement by such independent certified public accountants that (A) in making
the audit for such report and opinion such accountants (without making any
special examination for the purpose of such statement) have obtained no
knowledge of any Event of Default under Sections 5.6, 5.7, 6.1, 6.3, 6.4, 6.5,
6.6, and 6.7; provided, that such independent certified public accountants shall
not be liable in respect of such statement by reason of any failure to obtain
knowledge of any such default that would not be disclosed in the course of an
audit examination conducted in accordance with generally accepted auditing
standards in effect at the date of such examination, (B) if, in the opinion of
such accountants, any such Event of Default referred to in the foregoing clause
(A) shall exist, a statement as to the nature and status thereof shall be
included. In addition, concurrently with the delivery of such statements,
Borrower and each Affiliate shall furnish to Lender statements of cash
distributions receivable or received by Borrower and each such Affiliate, which
statements shall be in a form consistent with the Pro Forma.
(b) Borrower shall (i) submit a preliminary draft of the annual
operating budget for each Project to Lender prior to June 1 and shall submit a
final budget prior to June 30 for each subsequent calendar year that contains a
forecast of the operating profit for the next three (3) years and (ii) provide
or cause to be provided quarterly unaudited balance sheet and income statements
on each Project, Borrower and each Affiliate within forty-five (45) days of the
close of each quarterly period. If any budget submitted by Borrower pursuant to
the preceding sentence reflects an expense for operations and maintenance of any
Project that is greater by seven percent (7%) or more than the same expense as
detailed in the Pro Forma, then such budget must be approved by Lender in its
sole discretion.
(c) Promptly upon their becoming available, Borrower shall deliver or
cause to be delivered copies of (i) all financial statements, operating reports,
reports of any other nature and notices which Lender may from time to time
request and (ii) all regular and periodic reports pertaining to any Project
filed by Borrower or any Affiliate with any Governmental Authority or which
Lender may from time to time request. Borrower shall use its best efforts to
deliver to Lender, in a reasonable time frame, all material press releases and
other written statements made available by Borrower or any Affiliate to the
public concerning developments in the business of Borrower or such Affiliate.
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(d) Borrower shall cause to be furnished to Lender as soon as
available all such other reports, schedules or information, or excerpts
therefrom, relating to the Projects as Lender may request from time to time.
(e) Concurrently with the delivery of the reports and statements
referred to in Sections 5.7(a) and (b) above, Borrower shall deliver a
certificate of an Authorized Officer substantially in the form of Exhibit 5.7
(or such other form which is reasonably acceptable to Lender in its sole
discretion), which shall include calculations by Borrower of the Minimum
Coverage Ratio, together with supporting information to allow Lender to verify
such calculations.
(f) Promptly upon Borrower obtaining knowledge of any of the following
events or conditions, Borrower shall deliver a certificate executed by an
Authorized Officer specifying the nature and period of existence of such
condition or event and what action Borrower has taken, is taking and proposes to
take with respect thereto: (i) any condition or event that constitutes a Default
or an Event of Default; (ii) any action, suit, proceeding, investigation or
arbitration affecting Borrower, any Project or the other Borrower Collateral; or
(iii) any event or condition that has a Material Adverse Effect on Borrower, any
Project or the other Borrower Collateral.
(g) Borrower shall furnish to Lender (i) promptly and in any event
within ten (10) days after Borrower knows or has reason to know of the
occurrence of a Reportable Event with respect to the Employee Benefit Plan with
regard to which a 30-day notice must be provided to PBGC, a copy of such
materials required to be filed with the PBGC with respect to such Reportable
Event, and in each such case, a certificate of an Authorized Officer setting
forth details as to such Reportable Event; (ii) at least ten (10) days prior to
the filing by any plan administrator of an Employee Benefit Plan in a distress
termination a copy of such notice; (iii) promptly after requested, and in no
event more than ten (10) days after requested by the Lender, copies of each
annual report that is filed on Form 5500 (together with all schedules filed
therewith) with respect to any Employee Benefit Plan; (iv) promptly and in any
event within ten (10) days after it knows or has reason to know of any event or
condition that could reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or appointment of a trustee to administer,
any Employee Benefit Plan, a certificate of Authorized Officer of Borrower
describing such event or condition; (v) promptly and in no event more than ten
(10) days after receipt thereof by Borrower or any of its ERISA Affiliates, each
notice received by Borrower or an ERISA Affiliate of Borrower concerning the
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imposition of any material withdrawal liability for a complete withdrawal, or
any withdrawal liability for a partial withdrawal, under Section 4202 of ERISA;
and (vi) promptly after receipt thereof, a copy of any material notice Borrower
or any of its ERISA Affiliates may receive from the PBGC or the Internal Revenue
Service with respect to any Employee Benefit Plan or Multiemployer Plan;
provided, that this clause (vi) shall not apply to notices of general
application promulgated by the PBGC or the Internal Revenue Service.
5.8 Insurance. Borrower shall take all necessary action within its
power to ensure that all Insurance Policies are maintained as required under the
Material Agreements.
5.9 Continuance of Business. Each of Borrower and its Affiliates shall
preserve and maintain its existence as a corporation or general partnership
(under state law and for federal income tax purposes) and maintain its rights,
permits, franchises and privileges under the laws of its jurisdiction of
organization or formation. Except for de minimis amounts of cash required to
maintain their existence and as required in connection with the performance of
their obligations under the Loan Documents, each Project Owner shall have no
assets other than, and shall engage in no business other than the holding of,
the corresponding Projects and the proceeds thereof. No Project Owner shall
employ any staff, pay salaries or enter into any agreements for services of any
nature other than administrative costs relating specifically to the existence of
such Project Owner and accounting and legal services relating specifically to
such Project Owner, or incur any Indebtedness (except as provided in Section
6.6) without the prior written approval of Lender.
5.10 Perfection and Preservation of Liens. Borrower shall take any and
all actions necessary (including causing the Financing Statements and other
documents at all times to be recorded, registered and filed, paying or causing
to be paid all recording, filing or other fees, complying with all Governmental
Requirements) in order fully to create, preserve, perfect, maintain and protect
Lender's Lien in the Borrower Collateral as a first and superior Lien and first
priority security interest, subject only to Permitted Liens. Borrower shall, and
shall cause each Affiliate to, protect and defend its interest in the Borrower
Collateral against Liens asserted by any third Person, other than Permitted
Liens, and promptly discharge any such Lien so asserted. Borrower shall promptly
notify Lender of any such assertion and, in the event of any such assertion
which is contested by Borrower or an Affiliate, Borrower shall promptly notify
Lender of the action which Borrower or such Affiliate intends to take to
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discharge or otherwise deal therewith. Borrower will deliver to Lender
statements and schedules further identifying and describing the Borrower
Collateral and such other reports, evidence and information in connection with
the Borrower Collateral, all in reasonable detail, as from time to time may be
reasonably requested by Lender. Borrower shall keep full and accurate books and
records relating to the Borrower Collateral and shall stamp or otherwise mark
such books and records in such manner as Lender may reasonably request
indicating that the Borrower Collateral is subject to the Security Documents.
5.11 Agent. Borrower and each Affiliate shall appoint and continuously
retain Messrs. Cahill, Gordon & Reindel or another Person acceptable to Lender
as its agent in the State of New York for receipt of service of process and
shall pay all costs, fees and expenses in connection therewith.
5.12 Employee Benefit Plans. Neither Borrower nor any ERISA Affiliate
shall (i) terminate or withdraw from any Employee Benefit Plan or Multiemployer
Plan so as to result in any material liability to the PBGC or any Person; (ii)
engage in or permit, to the extent within the reasonable control of Borrower or
its ERISA Affiliates, any event or condition to occur that could reasonably be
expected to constitute grounds for the PBGC to institute proceedings to
terminate or appoint a trustee to administer any Employee Benefit Plan; (iii)
engage in or permit any Prohibited Transaction involving any Employee Benefit
Plan that would subject Borrower to any material tax, penalty or other
liability; (iv) incur or suffer to exist by any ERISA Affiliate of Borrower any
material Accumulated Funding Deficiency, whether or not waived, involving any
Employee Benefit Plan; or (v) allow or suffer to exist any event or condition
within Borrower's material liability to the PBGC or any Person, if any of the
foregoing could reasonably be expected to have the effect of subjecting Borrower
to any material tax, penalty or other liability that is not covered in full for
the benefit of Borrower by insurance.
5.13 Authorized Officers. Borrower shall deliver, or cause to be
delivered, within ten (10) Business Days of any change in Borrower's or any of
the Affiliate's Authorized Officers, an updated certificate of an Authorized
Officer reflecting such change.
5.14 Self-Certification. For each Project that has not been
self-certified as a Qualifying Facility, Borrower shall deliver, not later than
thirty (30) days after the date of this Agreement, a copy of a notice of
self-certification filed with FERC.
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5.15 Further Assurances. Borrower shall, and shall cause the
Affiliates to from time to time, execute such financing statements, documents,
security agreements, reports and, subject to the next sentence, guaranties, and
take all further action as Lender at any time may reasonably request to
evidence, perfect or otherwise implement the guaranties and security for
repayment of the Obligations provided for in the Loan Documents. The foregoing
shall not, without the written consent of Borrower or the relevant Affiliate,
permit Lender to require any guaranty which (a) materially increases the scope
of any guaranty which is a Loan Document or part thereof, or (b) makes any
additional party a guarantor.
5.16 All Necessary Action. Borrower shall take all action necessary or
reasonably requested by Lender to ensure that each of the Affiliates will comply
with all covenants and requirements applicable to such Affiliate under any
Material Agreement; provided that no violation of this Section 5.16 shall become
an Event of Default during the relevant periods for notice and cure under the
terms of the applicable Material Agreement.
5.17 Use of Proceeds. Borrower shall use the proceeds of the Loans
only for the purposes expressly set forth in Sections 2.2 and 2.3 unless
otherwise approved in writing by Lender no fewer than fifteen (15) days prior to
such other use of proceeds. No portion of the proceeds of any Loan shall be used
by Borrower in any manner that might violate the terms and conditions of this
Agreement, any other Loan Document or any Material Agreement.
5.18 Security Documents. Borrower shall take all action necessary or
reasonably requested by Lender for the ongoing implementation of the
transactions contemplated in the Security Documents, including, without
limitation, procuring all third-party consents, agreements and approvals as may
become necessary or reasonably requested by Lender to fund the Project Revenues
Account, the Debt Service Account and the Debt Service Reserve Account in the
manner required by the Security Documents. Borrower shall take all action
necessary or reasonably requested by Lender to ensure that Borrower and all
relevant third parties comply with the terms and conditions of the Security
Documents.
5.19 Debt Service Reserve Account. Borrower shall fund and maintain
the Debt Service Reserve Account in accordance with the terms and conditions of
the Security Agreement.
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5.20 Other Financial Covenants. Borrower shall, starting on September
30, 1998, and thereafter on each anniversary of such date, maintain the Minimum
Coverage Ratio. Borrower agrees on its behalf and on behalf of the Affiliates
that, in the event the Minimum Coverage Ratio is not so maintained, then no
distributions will be made and all cash available, after payments due Lender are
made, shall be placed in the Debt Service Reserve Account in accordance with the
provisions of the Security Documents until the Debt Service Reserve Account has
reached the balance then required by the Security Agreement.
5.21 Additional Work Actions. Borrower shall carry out or shall cause
to be carried out such additional work actions as are requested by Lender on or
before the Closing Date in order for the generation of electrical energy at each
of the Projects to be at the levels estimated in the report of the Independent
Engineer attached hereto as Exhibit 5.21 and used in compiling the Pro Forma.
Each such work action shall, if requested by Lender, be completed to the
reasonable satisfaction of the Independent Engineer.
5.22 Enforcement of Rights. Borrower shall use its best efforts to
enforce, or to cause the Affiliates to enforce, any right it has against any
third party if the failure to enforce such right could have a Material Adverse
Effect. To the extent that any other Person has a right to enforce any right
against any third party as to which the failure to enforce such right could have
a Material Adverse Effect, Borrower shall use all commercially reasonable
efforts to cause such Person to enforce such rights.
5.23 Change of Chief Executive Office. Borrower and any Affiliate of
Borrower shall give Lender at least thirty (30) days' prior written notice of
any change in the location of its chief executive office from that existing on
the Closing Date.
SECTION 6
NEGATIVE COVENANTS OF BORROWER
Borrower hereby covenants and agrees that, from the date of this
Agreement until the indefeasible payment in full of all Obligations (other than
Contingent Obligations which by their terms survive the termination of the Loan
Documents) and full and complete performance of all of its and the Affiliates'
other obligations hereunder and under the other Loan Documents, Borrower shall
comply with all covenants in this Section 6. Any request for Lender's consent to
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Borrower's or any other Person's failure to comply with such covenants must be
made by Borrower in writing and any consent given by Lender shall also be in
writing.
6.1 No Liens. Borrower shall not directly or indirectly create, incur,
assume or permit to exist any Lien on or with respect to the Borrower Collateral
whether now owned or hereafter acquired by Borrower or any of the Affiliates, or
any income or profits therefrom, except for Permitted Liens.
6.2 Restriction on Fundamental Changes. None of Borrower or any
Affiliate shall (a) enter into any transaction of merger or consolidation; (b)
liquidate, wind-up or dissolve itself; or (c) convey, sell, lease, sublease,
transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business or assets (including,
without limitation, the Borrower Collateral) whether now owned or hereafter
acquired (unless the proceeds payable to Borrower from any such disposition of
assets shall be sufficient to pay in full all then-outstanding Obligations, in
which case such proceeds shall be paid to Lender and Lender shall apply the same
in accordance with Section 2.6(c)).
6.3 Transactions with Affiliates. None of Borrower or any Affiliate
shall enter into any transaction, including, without limitation, the purchase,
sale, transfer, lease or exchange of property or the rendering or purchase of
any service to or from any Affiliate, except in the ordinary course of, and
pursuant to the reasonable requirements of, Borrower's or such Affiliate's
business and on reasonable terms no different than are available in a comparable
arm's-length transaction with an unaffiliated Person. This Section 6.3 shall not
be construed to prohibit any contract in effect on the Closing Date, including
without limitation the O&M contracts referenced in Section 3.2(a)(i).
6.4 Changes to Material Agreements. Without the prior written consent
of Lender (which shall not be unreasonably withheld), no Material Agreement
shall be amended, and no obligation under the Material Agreements shall be
modified (whether by waiver or otherwise), if such amendment or modification
would, in the reasonable opinion of Lender, have a Material Adverse Effect on
Borrower or any Affiliate or the ability of any of them to perform its
obligations under the Loan Documents.
6.5 Contingent Obligations. None of Borrower or any Affiliate shall
directly or indirectly create, incur, assume, guarantee or otherwise become or
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remain directly or indirectly liable with respect to any Contingent Obligation,
except (a) any existing Indebtedness described in Exhibit 6.6, (b) other
existing Contingent Obligations described in Exhibit 6.5, or (c) pursuant to
Letters of Credit issued hereunder.
6.6 Indebtedness. None of Borrower or any Affiliate shall directly or
indirectly create, incur, assume, guarantee or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness, except existing
Indebtedness described in Exhibit 6.6 and as otherwise permitted by any Loan
Document.
6.7 Security Documents. None of Borrower or any Affiliate shall take
or, to the extent of such Person's power, permit any other Person to take, any
action (or omit to take any action) which would be in violation of the
arrangements provided in the Security Documents (taking into account any periods
for notice and cure provided in the Security Documents).
6.8 Borrower Revenues. None of Borrower or any Affiliate shall receive
any Borrower Revenues (other than amounts due Lender or payments made pursuant
to any Loan Document) upon the occurrence and during the continuation of an
Event of Default.
SECTION 7
RIGHTS AND REMEDIES OF LENDER
7.1 Acceleration. In addition to all other rights and remedies Lender
has under this Agreement and the other Loan Documents, upon the occurrence of an
Event of Default, Lender shall have the right, upon five (5) Business Days'
prior written notice to Borrower (provided, that no such notice shall be
required as a result of any Event of Default described in clause g, h, i, j or k
of the definition of Event of Default, upon the occurrence of which the
Obligations shall become immediately due and payable), at its option and sole
discretion, to declare all or any portion of the Obligations immediately due and
payable without presentment, demand, set off, protest or notice of any kind,
except as provided in this Section 7.1, including, without limitation, notice of
intent to accelerate, all of which are hereby expressly waived by Borrower;
provided, that if Borrower shall, before the expiration of such five (5)
Business Day period, cure such Event of Default, the Lender's rights under this
Section 7.1 with respect to such cured Event of Default shall cease.
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7.2 Additional Remedies of Lender. In addition to all other rights and
remedies Lender has under this Agreement and the other Loan Documents, if an
Event of Default shall have occurred and be continuing, Lender shall have the
following rights and remedies:
(a) The right to collect and apply to the Obligations, pursuant
to the Security Agreement, the Disbursement Instructions and Section
7.3 hereof, all Borrower Revenues and cash held in the Accounts;
(b) All of the rights and remedies of a secured party under the
UCC (whether or not the UCC applies to the affected Borrower
Collateral) and other applicable laws, all of which rights and
remedies shall be cumulative and non-exclusive to the extent permitted
by law;
(c) The right to notify postal authorities to change the address
for delivery of Borrower's mail to an address designated by Lender and
to receive, open and dispose of, in a reasonable manner, all mail
addressed to Borrower (provided, that Lender shall return to Borrower
in a timely manner all such mail that does not involve the Projects or
the Borrower Collateral);
(d) The right to take possession of Borrower's original books and
records, obtain access to Borrower's data processing equipment,
computer hardware and software relating to the Borrower Collateral and
to use all of the foregoing and the information contained therein in
any manner Lender deems appropriate for purposes of realizing on the
Borrower Collateral;
(e) (i) Prepare, file and sign Borrower's name on any proof of
claim in bankruptcy or similar document against any account debtor of
Borrower, (ii) prepare, file and sign Borrower's name on any notice of
Lien, assignment or satisfaction of Lien or similar document in
connection with the Accounts or any note, chattel paper or instrument,
(iii) do all acts and things necessary, in Lender's discretion, to
fulfill Borrower's Obligations, including, without limitation,
withdrawing all cash from the Accounts and applying such monies in
payment of the Obligations, (iv) use Borrower's stationery and sign
the name of Borrower to verifications of the Accounts and notices
thereof to account debtors, and (v) use the information recorded on or
contained in any
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data processing equipment and computer hardware and software relating
to the Accounts;
(f) The right to (i) sell or otherwise dispose of all or any
portion of the Borrower Collateral successively and/or in any sequence
and/or in any order at any judicial and/or public and/or private sale
or sales, or any part thereof, for cash, credit or any combination
thereof, and Lender may purchase all or any part of the Borrower
Collateral at public or, if permitted by law, private sale and, in
lieu of actual payment of such purchase price, may set off the amount
of such price against the Obligations and (ii) adjourn such sales from
time to time with or without notice. To the extent permitted by law,
Borrower hereby expressly waives all rights of redemption, stay or
appraisal which it has or may have under any law now existing or
hereafter enacted; and
(g) Borrower hereby appoints Lender as its attorney-in-fact, with
full power of substitution, and in the name of Borrower, if Lender
elects to do so following the occurrence and during the continuance of
an Event of Default, to (i) endorse the name of Borrower on any check
or draft representing proceeds of the Insurance Policies, or other
checks or instruments payable to Borrower with respect to any Project,
and (ii) prosecute or defend any action or proceeding incident to any
of the Borrower Collateral. The power-of-attorney granted hereby is a
power coupled with an interest and is irrevocable but shall terminate
at such time as the Obligations have been indefeasibly paid in full.
Lender shall have no obligation to undertake any of the foregoing
actions and if Lender should do so, it shall have no liability to
Borrower for the sufficiency or adequacy of any such actions taken by
Lender.
7.3 Application of Proceeds. The proceeds of any sale of, or other
realization upon, all or any part of the Borrower Collateral and of Borrower's
cash held by Lender shall be applied in accordance with the provisions of the
Security Agreement.
7.4 Notices. To the extent there is any notice required to be given by
Lender of a sale, lease, other disposition of the Borrower Collateral or any
other intended action by Lender hereunder, Borrower expressly agrees that notice
given ten (10) days prior to such proposed action shall constitute commercially
reasonable and fair notice thereof.
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7.5 Funds of Lender. Any funds of Lender used for any purpose referred
to in this Section 7 shall constitute part of the Obligations secured by the
Borrower Collateral and the Loan Documents and shall bear interest at the
Default Rate from the date of occurrence, and through the continuance, of any
Event of Default.
7.6 No Waiver or Exhaustion. No waiver by Lender of any of its rights
or remedies hereunder, in the other Loan Documents or otherwise, shall be
considered a waiver of any other or subsequent right or remedy of Lender, and no
waiver shall be valid unless in writing signed by Lender. Any amendment,
modification, termination or waiver shall be effective only in the specific
instance and for the specific purpose for which it was given. No delay or
omission in the exercise or enforcement by Lender of any right or remedy shall
ever be construed as a waiver of any right or remedy of Lender and any single or
partial exercise of any such right or remedy shall not preclude any other or
further exercise thereof or the exercise of any other right; and no exercise or
enforcement of any such right or remedy shall ever be held to exhaust any right
or remedy of Lender. Borrower hereby expressly waives presentment, demand,
notice of non-payment, protest, notice of protest and dishonor, notice of Event
of Default, notice of intent to accelerate, notice of acceleration or any other
notice whatsoever on any and all forms of the Obligations, except for those
notices provided for in any Loan Document, including, without limitation, those
notices which are a prerequisite for certain Defaults ripening into Events of
Default. No notice to or demand on Borrower in any case shall entitle Borrower
to any other or further notice or demand in similar or other circumstances. Any
of the undertakings, agreements, warranties, covenants and representations of
Borrower or any Affiliate contained in the Loan Documents and any Event of
Default may be waived or modified in writing at Lender's discretion but none of
the undertakings, agreements, warranties, covenants and representations of
Borrower or any Affiliate contained in the Loan Documents and no Event of
Default shall be deemed to have been suspended or waived by Lender unless such
suspension or waiver is by an instrument in writing specifying such suspension
or waiver and is signed by a duly authorized representative of Lender and
directed to Borrower.
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SECTION 8
GENERAL TERMS AND CONDITIONS
8.1 Expenses and Attorneys' Fees. Whether or not the transactions
contemplated hereby shall be consummated, Borrower agrees to pay promptly all
reasonable fees, costs and expenses incurred by Lender in connection with any
matter contemplated by or arising out of this Agreement or the other Loan
Documents, including, without limitation, the following (but excluding any fee
deemed to have been paid by Borrower's payment of a Work Fee), and all such
fees, costs and expenses shall be part of the Obligations, payable on demand and
secured by the Borrower Collateral: (a) reasonable fees, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses, and
reasonable fees and expenses of any Independent Engineer, consultant, industry
consultant, accountant and other professional retained by Lender) incurred in
connection with the examination, review, due diligence investigation,
documentation, syndication and closing of the financing arrangements evidenced
by the Loan Documents; (b) reasonable fees, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses, and reasonable fees
and expenses of any Independent Engineer, industry consultant, accountant and
other professional retained by Lender) incurred in connection with the
negotiation, preparation, execution and administration of the Loan Documents,
the Loans and any amendment, modification and waiver relating thereto,
(including, without limitation, out-of-pocket expenses for travel, lodging and
meals for inspections); (c) reasonable fees, costs and expenses of the
Independent Engineer in connection with the examination and review of all work
actions performed pursuant to Section 5.21; (d) reasonable fees, costs and
expenses incurred in creating, perfecting and maintaining perfection of Liens in
favor of Lender, pursuant to any Loan Document, including lien search fees,
filing and recording fees, taxes and expenses, title insurance policy fees,
reasonable fees and expenses of attorneys for providing such opinions as Lender
may reasonably request and reasonable fees and expenses of attorneys to Lender;
(e) reasonable fees, costs, expenses and bank charges, including bank charges
for returned checks, incurred by Lender in establishing, maintaining and
handling lock box accounts, blocked accounts or other accounts for collection of
the Borrower Collateral; (f) reasonable fees, costs, expenses (including,
without limitation, reasonable attorneys' fees and expenses) and costs of
settlement incurred in collecting upon or enforcing rights against the Borrower
Collateral; and (g) fees, costs and expenses (including, without limitation,
attorneys' fees and expenses and fees and expenses of other professionals
retained by Lender) incurred in any action to enforce this Agreement or the
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other Loan Documents or to collect any payment due from Borrower under this
Agreement, the Notes or any other Loan Document or incurred in connection with
any refinancing or restructuring of the credit arrangements provided under this
Agreement, whether in the nature of a "workout" or in connection with any
insolvency or bankruptcy proceeding or otherwise. For purposes of this Section
8.1, expenses of third-party consultants incurred after the Closing Date shall
be due and payable in full no later than thirty (30) days after the same are
invoiced or billed to Borrower.
8.2 Indemnity by Borrower.
(a) In addition to the payment of expenses pursuant to Section 8.1,
whether or not the transactions contemplated hereby shall be consummated,
Borrower shall, subject to the provisions of this Section 8.2, indemnify, pay
and hold Lender, and any holder of any Note, and the officers, directors,
employees, agents, affiliates and attorneys of Lender and such holder
(collectively, the "Indemnitees") harmless from and against any and all
out-of-pocket liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, reasonable attorneys' fees and
costs of the Indemnitees in connection with any investigative, arbitral,
administrative or judicial proceeding commenced or threatened, whether or not
the Indemnitees shall be designated a party thereto) that are imposed on,
incurred by or asserted against any Indemnitee, in any manner relating to or
arising out of this Agreement or the other Loan Documents, Lender's agreement to
make the Loans hereunder, the use or intended use of the proceeds of any Loan or
the exercise of any right or remedy hereunder or under any other Loan Document
(collectively, the "Indemnified Liabilities"); provided, that (i) no Indemnitee
shall be held harmless or indemnified hereunder for its own gross negligence,
willful misconduct or bad faith or breach of this Agreement or any other Loan
Document, and (ii) nothing herein shall affect the obligations and liabilities
of Lender to Borrower contained herein or in any other Loan Document. Borrower
shall be obligated to pay or reimburse each Indemnitee for all reasonable
out-of-pocket costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred by such Indemnitee in the defense of any
claim arising out of any Indemnified Liability at the time such costs and
expenses are incurred and Lender has given Borrower written notice thereof. The
foregoing indemnity shall remain operative and in full force and effect
regardless of the termination of this Agreement, the consummation of the
transactions contemplated by this Agreement or any of the Loan Documents, the
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repayment of the Loans and the Obligations, the invalidity or unenforceability
of any term or provision of this Agreement or any other Loan Document, or any
investigation made on behalf of Lender or the content or accuracy of any
representation or warranty made by Borrower or any Affiliate under this
Agreement or any other Loan Document. Lender may (but shall not be obligated to)
appear in, or defend, or in good faith commence any action or proceeding
purporting to affect the Loans, any property or the respective rights and
obligations of Lender and Borrower or any Affiliate pursuant to any Loan
Document. Lender may (but shall not be obligated to) pay all necessary expenses,
including reasonable attorneys' fees and expenses incurred in connection with
such proceedings or actions, which Borrower agrees to repay to Lender upon
demand together with interest thereon at the Interest Rate then applicable to
the Senior Loan (or the Default Rate, if applicable) from the date of payment by
Lender to the date of repayment by Borrower. To the extent that the undertaking
to indemnify, pay and hold harmless set forth in this Section 8.2 may be
unenforceable because it is violative of any law or public policy, Borrower
shall contribute the maximum portion that it is permitted to pay and satisfy
under applicable laws to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them.
(b) In addition to any other indemnity hereunder, Borrower shall
indemnify and hold the Indemnitees harmless against, and promptly pay on demand
or reimburse each of them with respect to, any and all claims, demands, causes
of action, losses, damages, liabilities, costs and expenses of any and every
kind or nature whatsoever, including, without limitation, those based upon
negligence, sole negligence, contractual comparative negligence, concurrent
negligence or strict liability, asserted against or incurred by any of them by
reason of or arising out of or in any way related to (i) the breach by Borrower
or any Affiliate of any representation or warranty set forth herein regarding
Environmental Laws, (ii) the failure of Borrower or any Affiliate to perform any
obligation required herein or in any Loan Document or any Material Agreement to
be performed pursuant to Environmental Laws, and (iii) any violation or alleged
violation by Borrower or any Affiliate of any obligation or liability arising
under any Environmental Law (collectively, the "Environmental Indemnity
Matters"). Borrower shall be obligated to pay or reimburse each Indemnitee for
all reasonable out-of-pocket costs and expenses (including, without limitation,
consultants', engineers' and attorneys' fees and expenses) incurred by such
Indemnitee in response to and/or in the defense of any claim arising out of any
Environmental Indemnity Matter at the time such costs and expenses are incurred
and such Indemnitee has given Borrower written notice thereof. The provisions of
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this Section 8.2(b) shall be payable upon written demand therefor, shall survive
the final payment of all of the Obligations and the termination of this
Agreement and shall continue thereafter in full force and effect.
8.3 Notice and Defense of Claim.
(a) Each Indemnitee shall give prompt notice to Borrower, in
accordance with the terms of this Section 8.3, of the assertion of any claim, or
the commencement of any suit, action or proceeding by any party in respect of
which such Indemnitee may seek indemnification hereunder, specifying with
reasonable particularity the basis therefor and shall give Borrower such
information with respect thereto as Borrower may reasonably request. Borrower
may, at its own expense, (i) participate in and (ii) upon notice to such
Indemnitee and Borrower's written agreement that such Indemnitee is entitled to
indemnification pursuant to Section 8.1 or 8.2 for any liability or loss arising
out of such claim, suit, action or proceeding, at any time during the course of
any such claim, suit, action or proceeding, assume the defense thereof with
counsel reasonably acceptable to Lender. If Borrower assumes such defense, such
Indemnitee shall have the right (but not the duty) to participate in the defense
thereof and to employ counsel, at its own expense, separate from the counsel
employed by Borrower. Whether or not Borrower chooses to defend or prosecute any
such claim, suit, action or proceeding, all of the parties hereto shall
cooperate in the defense or prosecution thereof.
(b) In the event that Borrower does not elect to assume the defense of
any claim, suit, action or proceeding, then any failure of any Indemnitee to
defend or to participate in the defense of any such claim, suit, action or
proceeding or to cause the same to be done shall not relieve Borrower of its
obligations hereunder; provided, that such Indemnitee gives Borrower at least
thirty (30) days' notice of its proposed failure to defend or participate and
affords Borrower the opportunity to assume the defense thereof.
8.4 Amendments and Waivers. No amendment, modification, termination or
waiver of any provision of this Agreement or any other Loan Document or consent
to any departure by Borrower therefrom, shall in any event be effective without
the written concurrence of Lender and Borrower. No amendment, modification,
termination or waiver of the principal amount, maturity, amortization rate or
seniority level of any Loan or commitment or the rate of interest applicable to
and fees payable with respect to any Loan (other than fees payable solely to
Lender) shall be effective without the written concurrence of the holder of such
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Loan or commitment. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given. No notice
to or demand on Borrower in any case shall entitle Borrower to any other or
further notice or demand in similar or other circumstances.
8.5 Retention of Borrower Documents. Lender may, in accordance with
Lender's customary practices, destroy or otherwise dispose of all documents,
schedules, invoices or other papers delivered by Borrower or an affiliate of
Borrower to Lender unless Borrower or any Affiliate requests in writing that
same be returned. Upon Borrower's request and at Borrower's expense, Lender
shall return such papers when Lender's actual or anticipated need for the same
has terminated.
8.6 Notices. Unless otherwise specifically provided herein, any notice
or other communication required or permitted to be given shall be in writing
addressed to the respective party as set forth below and may be personally
served, telecopied or sent by overnight courier service or United States mail
(return receipt requested) and shall be deemed to have been given (a) if
delivered in person, when delivered; (b) if delivered by telecopy, on the date
of transmission if transmitted on a Business Day before 4:00 p.m. (New York, New
York time) or, if not, on the next succeeding Business Day; (c) if delivered by
reputable overnight courier, two (2) days after delivery to such courier
properly addressed; or (d) if by U.S. Mail, four (4) Business Days after deposit
in the United States mail, with postage prepaid and properly addressed.
Notices shall be addressed as follows:
If to Borrower:
BP HYDRO FINANCE PARTNERSHIP
111 West North Bend Way
P.O. Box 1029
North Bend, Washington 98045
Attention: Mr. Donald P. Jarrett
Telecopy: (206) 888-2780
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With a copy to:
CONSOLIDATED HYDRO, INC.
680 Washington Boulevard
Suite 500
Stamford, Connecticut 06901
Attention: Mr. Patrick J. Danna
Telecopy: (203) 425-8880
If to Lender:
LYON CREDIT CORPORATION
1266 East Main Street
Stamford, Connecticut 06902
Attention: Mr. Jerome P. Peters, Jr.
Telecopy: (203) 328-9339
With a copy to:
CHADBOURNE & PARKE LLP
1101 Vermont Avenue, N.W.
Washington, D.C. 20005
Attention: Cornelius J. Golden, Jr., Esq.
Telecopy: (202) 289-3002
or in any case, to such other address as the party addressed shall have
previously designated by written notice to the serving party, given in
accordance with this Section 8.6. A notice not given as provided above shall, if
it is in writing, be deemed given if and when actually received by the party to
whom given.
8.7 Survival of Representations, Warranties, Covenants and Certain
Agreements.
(a) All representations, warranties, covenants and agreements made
herein shall survive the execution and delivery of this Agreement and the making
of the Loans hereunder.
(b) Notwithstanding the foregoing or anything in this Agreement or
implied by law to the contrary, the obligations of Borrower set forth in
Sections 5.1, 5.5, 5.6, 8.1, 8.2, 8.3, 8.8, 8.16, 8.17 and 8.21 hereof (and, in
each case, the defined terms used therein) shall survive the payment of the
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Loans and the termination of this Agreement and any other Loan Document;
provided, that the obligations of Borrower to Lender contained in Sections 5.1
and 5.6 shall terminate thirteen (13) months after the indefeasible payment in
full of all Obligations.
8.8 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure
or delay on the part of Lender or any holder of any Loan in the exercise of any
power, right or privilege hereunder or under the other Loan Documents shall
impair such power, right or privilege or be construed to be a waiver of any
default or acquiescence therein, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing under this
Agreement and any other Loan Document are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
8.9 Marshaling; Payments Set Aside. Lender shall not be under any
obligation to marshal any assets in favor of Borrower or any other party or
against or in payment of any or all of the Obligations. To the extent that
Borrower makes a payment or payments to Lender, Lender enforces its Liens and
security interests or exercises its rights of setoff, and such payment or
payments or the proceeds of such enforcement or setoff or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
Debtor Relief Law, state or federal law, common law or equitable cause, then to
the extent of such recovery, the Obligations or part thereof originally intended
to be satisfied, and all Liens, rights and remedies therefor, shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.
8.10 Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of an Event of Default if such action is taken or such condition
exists.
8.11 Severability. The invalidity, illegality or unenforceability of
any provision in or obligation under this Agreement or the other Loan Documents
shall not affect or impair the validity, legality or enforceability of the
remaining provisions or obligations under this Agreement or the other Loan
Documents or of such provision or obligation in any other jurisdiction.
73
<PAGE>
8.12 Headings. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
8.13 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
8.14 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns; provided, the rights and duties of Borrower under the Loan
Documents may not be assigned or delegated, whether by operation of law or
otherwise, and any such purported assignment or delegation shall be void.
8.15 No Fiduciary Relationship or Partnership. No provision in this
Agreement or in any of the other Loan Documents and no course of dealing among
Borrower and Lender shall be deemed to create any fiduciary duty or any
partnership, joint venture or other business relationship other than that of
borrower and lender.
8.16 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. BORROWER HEREBY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OF NEW YORK COURT OR
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND IRREVOCABLY AGREES
THAT, SUBJECT TO LENDER'S ELECTION, ALL ACTIONS OR PROCEEDINGS RELATING TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS.
BORROWER ACCEPTS FOR AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES
ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS OR THE OBLIGATIONS. BORROWER HEREBY DESIGNATES AND APPOINTS MESSRS.
CAHILL, GORDON & REINDEL AND OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY
BORROWER WHICH IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS
74
<PAGE>
AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE
EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO
SERVED SHALL BE MAILED BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS PROVIDED IN
SECTION 8.6 EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE
TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY
AGENT APPOINTED BY BORROWER REFUSES TO ACCEPT SERVICE, BORROWER AGREES THAT
SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL
AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER JURISDICTION PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE
COURTS OF ANY OTHER JURISDICTION IF NECESSARY TO ENFORCE THE JUDGMENT RENDERED
BY ANY COURT IN THE STATE OF NEW YORK.
8.17 WAIVER OF JURY TRIAL. BORROWER AND LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. BORROWER AND LENDER ALSO
WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS
WAIVER, BE REQUIRED OF LENDER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS. BORROWER AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO
75
<PAGE>
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER AND LENDER FURTHER
WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL,
AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED, EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
LOANS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
8.18 Counterparts; Effectiveness. This Agreement and any amendment,
waiver, consent or supplement may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.
8.19 Assignment and Participation. Lender may, without notice to or
the consent of Borrower, assign its rights and delegate its obligations
hereunder and under the other Loan Documents and Lender may assign, or sell
participations in, all or any part of the Loans, Lender's commitments, Lender's
fees or any of Lender's other interests herein or in the other Loan Documents to
no more than two (2) other parties; provided, that such participants are banks
or institutional investors with knowledge and experience in project finance and
who do not have an existing relationship with any Project, including any equity
investor, senior or subordinated debt investor and other contract party (such
Person, a "Permitted Investor"). Borrower shall have the right to consent, which
consent shall not be unreasonably withheld, to the participation in the Loans by
any Person who is not a Permitted Investor. Following any such assignment, the
term "Lender" as used herein shall include such assignee or assignees.
8.20 Reproduction of Documents. This Agreement and all documents
related hereto, including, without limitation (a) consents, waivers and
76
<PAGE>
modifications which may hereafter be executed, (b) documents received by Lender
or Borrower at the closing of this Agreement, and (c) financial statements,
certificates and other information and documentation heretofore or hereafter
furnished to Lender or Borrower, may be reproduced by Lender by any
photographic, photostatic, microfilm, microcard, microfiche, miniature
photographic or other similar process, and Lender or Borrower may destroy any
original document so reproduced. Lender and Borrower agree and stipulate that
any such reproduction shall be admissible in evidence as the original itself in
any judicial, arbitration or administrative proceeding (whether or not the
original is in existence and whether or not any such reproduction was made by
Lender or Borrower in the regular course of business) and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.
8.21 Controlling Agreement. Except as otherwise provided in this
Agreement and except as otherwise provided in the other Loan Documents by
specific reference to the applicable provisions of this Agreement, if any
provision contained in this Agreement is in conflict with, or inconsistent with,
any provision in the other Loan Documents, the provision contained in this
Agreement shall govern and control; provided, to the extent that the terms and
provisions of the Security Documents impose greater duties, obligations,
liabilities or standards of care upon Borrower, including, without limitation,
covenants concerning the maintenance or use of the Borrower Collateral, the
terms and provisions of the Security Documents shall control.
8.22 Termination of Commitment. Borrower and Lender hereby agree that,
by their execution and delivery of this Agreement, all obligations, duties and
liabilities of Lender under that certain commitment letter delivered by Lender
to Borrower and dated September 19, 1996, relating to the Loans, shall terminate
and such letter, as amended, shall be of no further force and effect. Each party
hereto acknowledges and agrees that Lender has made no agreement or commitment
to provide any financing to Borrower except as expressly set forth herein.
8.23 Entire Agreement. This Agreement, the other Loan Documents and
any other document executed contemporaneously herewith, memorialize and
constitute the final expression and the complete and exclusive statement among
the parties with respect to the subject matter hereof and thereof. There are no
writings, conversations, representations, warranties or agreements that the
parties intend to be a part hereof except as expressly set forth in this
Agreement, the other Loan Documents and any other document executed
contemporaneously herewith, or to be set forth in the instruments and other
77
<PAGE>
documents delivered or to be delivered hereunder and thereunder. This Agreement,
the other Loan Documents and any other document executed contemporaneously
herewith represent the entire agreement among the parties and supersede all
previous written or oral agreements or discussions among the parties and any
other Person concerning the transactions contemplated herein and therein.
8.24 Confidentiality. Lender and Borrower hereby agree to exercise
their best efforts to keep any information delivered or made available pursuant
to this Agreement confidential from anyone other than persons employed or
retained by Lender or assisting Borrower who are or are expected to become
engaged in evaluating, approving, structuring or administering the Loans;
provided, that nothing herein shall prevent Lender from advertising and/or
publicizing the transactions contemplated hereunder in a "tombstone" or
otherwise, or from disclosing such information to any bona fide potential
assignee, transferee or participant that has agreed to comply with this Section
8.24 in connection with the contemplated assignment or transfer of any Loans or
participation therein or as required or requested by any Governmental Authority
or pursuant to legal process or as required in connection with the exercise of
any remedy under the Loan Documents.
8.25 Release of Lender with Respect to Original Credit Agreement.
Borrower, acting on behalf of itself, the Affiliates and its successors and
assigns, and their officers, directors, employees, managers, attorneys,
accountants, agents, servants, shareholders and partners, hereby releases and
forever discharges Lender and its successors and assigns, subsidiaries and
affiliates, officers, directors, employees, managers, attorneys, accountants,
agents and servants, and each of them, in all capacities, including
individually, from any and all actions, liabilities, liens, debts, damages,
claims, suits, judgments, executions and demands of every kind, nature and
description, including but not limited to tort claims, that any of them may have
against Lender as assignee of Fuji Bank in connection with the Original Credit
Agreement, the Fuji Note and the related contracts and accounts assigned by Fuji
Bank to Lender on the Closing Date (such contracts and accounts, the "Fuji
Agreements") to the same extent as Borrower has released Fuji Bank from all
similar liabilities pursuant to the Release Agreement, dated the Closing Date,
by and among Borrower, the Project Owners, CHI-West, Inc., a Delaware
corporation, CHI-Magic Valley, Inc., a Delaware corporation, CHI-Idaho, Inc., a
Delaware corporation, Consolidated Hydro, Inc., a Delaware corporation, and Fuji
Bank.
78
<PAGE>
IN WITNESS WHEREOF, this First Amended and Restated Credit Agreement
has been duly executed as of the day and year first above written.
LYON CREDIT CORPORATION
By_____________________________________________
Name:
Title:
BP HYDRO FINANCE PARTNERSHIP, a
Utah general partnership
By: BP HYDRO ASSOCIATES, an Idaho general
partnership, its general partner
By: CHI-IDAHO, INC., a Delaware
corporation, its general partner
By___________________
Name:
Title:
79
<PAGE>
By: CHI-MAGIC VALLEY, INC., a Delaware
corporation, its general partner
By___________________
Name:
Title:
By: FULCRUM, INC., an Idaho corporation, its
general partner
By________________________
Name:
Title:
80
<PAGE>
Exhibit 1.1
to First Amended and Restated
Credit Agreement
Description of Projects
[to be provided by Borrower]
<PAGE>
Exhibit 1.2
to First Amended and Restated
Credit Agreement
Form of
Disbursement Instructions
-------------------------
[Letterhead of Borrower or Affiliate]
October __, 1996
[Payor] ("Payor")
[Address]
[Address]
Re: Payments to [Borrower/Affiliate]
Ladies and Gentlemen:
Reference is hereby made to that certain First Amended and Restated
Credit Agreement, dated October __, 1996, between Lyon Credit Corporation, a
Delaware corporation ("Lender"), and BP Hydro Finance Partnership, a Utah
general partnership (as amended, modified and supplemented, the "Credit
Agreement").
We hereby irrevocably instruct you, for the benefit of Lender, to
distribute all amounts which are payable to us pursuant to [contract] to the
following account at Fleet National Bank:
Account No. _____________
ABA No. 011900571
Attention: Mr. Donald P. Jarrett
Reference: BP Hydro
Except as otherwise specifically provided for herein, these
instructions may not be amended or revoked without the prior written consent of
Lender, which consent may be withheld in Lender's sole and absolute discretion
until such time as all amounts payable under the Credit Agreement have been
paid, at which time Lender shall deliver to you a written revocation of these
instructions. Please execute your acknowledgment of receipt of these
instructions in the space provided below.
<PAGE>
Very truly yours,
[Borrower/Affiliate]
By____________________________
Name:
Title:
RECEIVED AND ACKNOWLEDGED:
Payor hereby agrees, for the benefit of Lender, to distribute all
amounts which are payable to [Borrower/Affiliate] pursuant to [contract]
pursuant to the terms and provisions of this letter agreement until such time as
a written notice from Lender has been received revoking these instructions.
[Payor]
By____________________________
Name:
Title:
2
<PAGE>
Exhibit 1.3
to First Amended and Restated
Credit Agreement
Pro Forma Cash Flow Projections
[to be provided by Lender]
<PAGE>
Exhibit 1.5
to First Amended and Restated
Credit Agreement
Form of Security Agreement
[draft distributed]
<PAGE>
Exhibit 1.6
to First Amended and Restated
Credit Agreement
FORM OF
[SENIOR LOAN/ADDITIONAL CREDIT FACILITY]
NOTE
[New York, New York]
$[maximum principal amount] October __, 1996
FOR VALUE RECEIVED, the undersigned Borrower, with its principal place
of business at 111 West North Bend Way, P.O. Box 1029, North Bend, Washington
98045, (hereinafter referred to as "Maker"), hereby promises to pay to the order
of LYON CREDIT CORPORATION, a Delaware corporation, with a place of business at
1266 East Main Street, Stamford, Connecticut 06902 (hereinafter referred to as
"Holder"), by wire transfer to Holder's account at Fleet National Bank, ABA No.
011900571, Account No. 7030-0226, Reference: Lyon Credit Corporation for the
benefit of BP Hydro Loans, or at such other place or places and to such account
or accounts as Holder may direct from time to time by notice to Maker in
accordance with the Credit Agreement (as hereinafter defined), the principal sum
of [maximum principal amount] ($________________) or the aggregate unpaid
principal amount of the [Senior Loan/Additional Credit Facility] made to Maker
by Holder pursuant to the Credit Agreement in lawful money of the United States
of America in immediately available funds, payable, subject to the fourth
paragraph hereof, in forty-nine (49) Scheduled Installments on March 31, June
30, September 30 and December 31 of each year, such Scheduled Installments
commencing on December 31, 1996, the amount of each such Scheduled Installment
being computed by multiplying the sum of [the Initial Disbursement and any other
portion of the Senior Loan Commitment drawn as collateral for a Letter of
Credit/all Advances on this Note] by the percentage opposite the date of such
Scheduled Installment on Schedule I attached hereto (provided, the final such
Scheduled Installment shall be in an amount sufficient to repay in full unpaid
principal amount of this Note and the amount of any outstanding Letters of
Credit, whether or not drawn upon), or on such earlier date as the same may
become due and payable hereunder or under the Credit Agreement. Capitalized
terms used herein and not defined herein shall have the same meanings as set
forth in the Credit Agreement.
Maker further promises to pay interest on the outstanding principal
amount hereof in accordance with the Credit Agreement on such dates and in such
amounts as determined in accordance with the Credit Agreement. In no contingency
or event whatsoever shall the interest rate charged pursuant to the terms of
this Note exceed the maximum amount of interest permitted by applicable law. In
the event that a court of competent jurisdiction determines that the Credit
Agreement provides for interest in excess of the maximum amount of interest
<PAGE>
permitted by applicable law, the provisions of Section 2.4(c) of the Credit
Agreement shall apply.
Maker hereby irrevocably authorizes Holder to record on Schedule II
attached hereto the repayments of the principal amount hereof. The principal
amount of this Note outstanding from time to time shall be the principal amount
of the [Senior Loan/Additional Credit Facility] made to Maker by Lender less the
aggregate amount of all principal payments made thereon.
This Note is issued to evidence a Loan made pursuant to the provisions
of that certain First Amended and Restated Credit Agreement, dated as of October
__, 1996, by and between Holder and Maker (as from time to time in effect, the
"Credit Agreement"), as to which reference is hereby made for a statement of the
terms, conditions and covenants under which the indebtedness evidenced hereby
was made and is to be repaid, including those related to the acceleration of the
indebtedness represented hereby upon the occurrence of an Event of Default or
upon the termination of the financing of which this Note is a part pursuant to
the Credit Agreement. Payment of this Note is secured by the Borrower
Collateral. No voluntary prepayment of the indebtedness evidenced by this Note
is permitted except as provided in the Credit Agreement. This Note is subject to
mandatory prepayment as provided in the Credit Agreement; Schedule III attached
hereto indicates the percentage of the outstanding principal amount hereof
attributable to each Project.
Holder shall not be required to look to the Borrower Collateral for
the payment of this Note but may proceed against Maker in such manner as it
deems desirable. None of the rights or remedies of Holder hereunder are to be
deemed waived or affected by failure or delay on the part of Holder to exercise
the same. All remedies conferred upon Holder by this Note or any other
instrument or agreement shall be cumulative and none is exclusive, and such
remedies may be exercised concurrently or consecutively at Holder's option.
Maker hereby waives diligence, presentment, demand for payment,
protest and notice of protest, notice of dishonor and all other notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note.
This Note has been executed and delivered in [New York, New York] and
shall be governed by the laws of the State of New York without giving effect to
principles of conflicts of law. Maker hereby expressly and irrevocably agrees
and consents that any suit, action or proceeding arising out of or relating to
this Note may be instituted in either state or federal court (at Holder's
option) and, by the execution and delivery of this Note, Maker expressly waives
any objection which it may have now or hereafter to the venue or jurisdiction of
any such suit, action or proceeding, and irrevocably submits generally and
unconditionally to the jurisdiction of any such court in any such suit, action
or proceeding. By the execution and delivery of this Note, Holder and Maker
expressly waive their
2
<PAGE>
respective rights to a jury trial of any claim or cause of action based upon or
arising out of this Note.
WITNESS the hand and seal of Maker.
BP HYDRO FINANCE PARTNERSHIP
By_______________________________
Name:
Title:
3
<PAGE>
SCHEDULE I
AMORTIZATION SCHEDULE
---------------------
Percentage of Aggregate Amount of
Payment Date [Advances] to be Paid
------------ ---------------------
<PAGE>
SCHEDULE II
Advances and Payments of Principal
----------------------------------
<PAGE>
Amount of
Principal Paid Unpaid
Amount or Principal Notation Made
Date of Loan Prepaid Balance By
---- ------- ------- ------- --
<PAGE>
SCHEDULE III
Allocation of Principal to Projects
-----------------------------------
Project
(as defined in the Credit
Agreement) Percentage of Principal Amount
---------- ------------------------------
Barber Dam
Dietrich Drop
Lowline Rapids
Rock Creek
------------------------------------
TOTAL: 100%
<PAGE>
Exhibit 2.1(a)
to First Amended and Restated
Credit Agreement
Form of
Request For Advance
-------------------
__________________ __, 199_
Lyon Credit Corporation
Soundview Plaza
1266 East Main Street
Stamford, Connecticut 06902
Attn: Mr. Jerome P. Peters, Jr.
Ladies and Gentlemen:
BP Hydro Finance Partnership ("Borrower") hereby requests in
accordance with Section 2.3(b) of that certain First Amended and Restated Credit
Agreement, dated as of October 15, 1996 (the "Credit Agreement"), between Lyon
Credit Corporation ("Lender") and Borrower, that Lender disburse to Account No.
_____________ at [name and address of bank], ABA No. _____________,
______________ Dollars ($________) on __________ __, 199_. Capitalized terms
used herein and not otherwise defined shall have the meanings set forth in the
Credit Agreement.
The undersigned Authorized Officer of Borrower hereby certifies to
Lender that, on and as of the date of this notice (i) all representations made
by Borrower and each Affiliate under all Loan Documents are true as though made
on and as of this date, (ii) all obligations of Borrower and each Affiliate
under the Loan Documents required to be performed on or before the date hereof
have been properly performed or expressly waived in writing, (iii) all
conditions to the obligation of Lender to make the Advance pursuant to Section
3.1(b) of the Credit Agreement have been fully satisfied or expressly
<PAGE>
waived in writing, and (iv) no Default or Event of Default exists or will result
from the making of the Advance.
Very truly yours,
BP HYDRO FINANCE PARTNERSHIP, a Utah
general partnership
By: BP HYDRO ASSOCIATES, an Idaho
general partnership,
its general partner
By: CHI-IDAHO, INC., a Delaware
corporation, its
general partner
By___________________
Name:
Title:
By: CHI-MAGIC VALLEY, INC., a
Delaware corporation,
its general partner
By___________________
Name:
Title:
By: FULCRUM, INC., an Idaho corporation,
its general partner
By________________________
Name:
Title:
2
<PAGE>
Exhibit 2.1(b)
to First Amended and Restated
Credit Agreement
Form of
Receipt
-------
BP Hydro Finance Partnership, a Utah general partnership, hereby
acknowledges receipt from Lyon Credit Corporation, a Delaware corporation, of
the amount of ________________ Dollars ($______) by wire transfer in Federal
funds to Account No. __________ of [name and address of bank].
IN WITNESS WHEREOF, BP Hydro Finance Partnership has executed and
delivered this receipt by its duly authorized officer in [city], [state], this
____ day of _____________, 199_.
BP HYDRO FINANCE PARTNERSHIP, a Utah
general partnership
By: BP HYDRO ASSOCIATES, an Idaho
general partnership,
its general partner
By: CHI-IDAHO, INC., a Delaware
corporation, its
general partner
By___________________
Name:
Title:
<PAGE>
By: CHI-MAGIC VALLEY, INC., a
Delaware corporation,
its general partner
By___________________
Name:
Title:
By: FULCRUM, INC., an Idaho corporation,
its general partner
By________________________
Name:
Title:
<PAGE>
Exhibit 3.1
to First Amended and Restated
Credit Agreement
Form of
Assignment
----------
KNOW ALL MEN BY THESE PRESENTS, that [ASSIGNOR] ("Assignor") for
valuable consideration, receipt of which is hereby acknowledged, has, this ___
day of October, 1996, sold, assigned, transferred, conveyed and set over and
does hereby sell, assign, transfer, convey and set over unto LYON CREDIT
CORPORATION ("Lender"), in connection with the transactions contemplated by that
certain First Amended and Restated Credit Agreement, dated the date hereof
between Lender and [Borrower] (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), all right, title and interest of
Assignor in, to and under (including all moneys due and to become due to
Assignor under), and does hereby grant to Lender a first priority security
interest in, each of the Agreements listed on Schedule I hereto (as any of the
same may from time to time be amended, supplemented or otherwise modified, the
"Assigned Agreements"). Capitalized terms used herein and not otherwise defined
shall have the respective meanings set forth in the Credit Agreement.
This Assignment is made as collateral security for all obligations of
Borrower to Lender under the Credit Agreement and the other Loan Documents and
is subject to all of the terms and conditions of the Loan Documents. All right,
title and interest of Assignor in, to and under the Assigned Agreements shall
from the date hereof constitute part of the Borrower Collateral for all purposes
of the Loan Documents.
Assignor hereby irrevocably authorizes and directs each Contract Party
listed in Schedule I hereto to pay all moneys, if any, due and to become due
under or by reason of any Assigned Agreement directly to the following account
of Fleet National Bank, as Disbursement Agent ("Disbursement Agent") under the
Security Agreement:
Account No. ____________
ABA No. 011900571
Attention: Susan Keller, Center 4125
Reference: BP Hydro
or to such other person or in such other manner as Disbursement Agent or Lender
may hereafter from time to time specify to such Contract Party in writing, until
such time as Lender shall notify such Contract Party that this Assignment has
been terminated and released.
<PAGE>
This Assignment shall not cause Disbursement Agent or Lender to be
under any obligation to Assignor or any Contract Party for the performance or
observance of any of the representations, warranties, terms or conditions of any
Assigned Agreement.
Notwithstanding this Assignment, Assignor shall be and remain
obligated to each Contract Party to perform all of Assignor's obligations and
agreements under the Assigned Agreements, and each Contract Party shall be and
remain obligated to Assignor to perform such Contract Party's obligations and
agreements under the Assigned Agreements.
Assignor hereby irrevocably constitutes and appoints Lender as its
true and lawful attorney-in-fact with full and irrevocable power and authority
in the place and stead of Assignor and in the name of Assignor or in the name of
Lender, for the purpose of carrying out the terms of this Assignment and the
Loan Documents, to take any and all action and to execute any and all
instruments which may be necessary to accomplish the purposes of this
Assignment. This power-of-attorney is a power coupled with an interest and shall
be irrevocable.
Assignor hereby represents and warrants that it has not heretofore
assigned or otherwise disposed of or encumbered any right, title or interest of
Assignor in, to or under any Assigned Agreement or any moneys due or to become
due to Assignor under or by reason thereof, and that Assignor has the right and
power to transfer to Lender, absolute title to Assignor's right, title and
interest in, to and under each Assigned Agreement to which Assignor is a party
and in and to all the moneys due and to become due to Assignor under each
Assigned Agreement to which Assignor is a party.
This Assignment shall be governed by and construed in accordance with
the laws of the State of New York.
IN WITNESS WHEREOF, Assignor has caused this Collateral Assignment of
Agreements to be duly executed and delivered on the date first above written.
[ASSIGNOR]
By________________________________
Name:
Title:
2
<PAGE>
Schedule I
Assigned Agreement Contract Party
------------------ --------------
<PAGE>
Exhibit 3.2
to First Amended and Restated
Credit Agreement
Form of Consent to Assignment
[to come; based on contract party's preferences]
<PAGE>
Exhibit 4.1
to First Amended and Restated
Credit Agreement
Foreign Jurisdictions
---------------------
[Borrower to provide]
<PAGE>
Exhibit 4.2
to First Amended and Restated
Credit Agreement
Consents and Waivers
--------------------
[Borrower to provide]
<PAGE>
Exhibit 4.3
to First Amended and Restated
Credit Agreement
Financing Statement Offices and Locations
-----------------------------------------
[Borrower to provide]
<PAGE>
Exhibit 4.15
to First Amended and Restated
Credit Agreement
Material Agreements
-------------------
[Borrower to provide]
<PAGE>
Exhibit 4.25
to First Amended and Restated
Credit Agreement
Accounts Receivable
-------------------
[Borrower to provide]
<PAGE>
Exhibit 5.7
to First Amended and Restated
Credit Agreement
Form of
Certificate of Authorized Officer
---------------------------------
I, ____________________________, an Authorized Officer of BP Hydro
Finance Associates, a Utah general partnership ("Borrower"), hereby certify to
Lyon Credit Corporation ("Lender") pursuant to the requirements of Section 5.7
of the First Amended and Restated Credit Agreement, dated as of October 15, 1996
(the "Credit Agreement"), between Lender and Borrower and in connection with the
delivery to Lender of the information attached hereto as Schedule II required to
be delivered to Lender by Borrower pursuant to Sections 5.7(a) and (b) of the
Credit Agreement (the "Information"), that during the period covered by the
Information, the Minimum Coverage Ratio was ____ to ____, as calculated in
accordance with the provisions of the Credit Agreement.
Attached hereto as Schedule I is supporting information to allow
Lender to verify the foregoing calculations. All such calculations and
supporting information are, as of the date of this Certificate, true, complete
and accurate in every respect, and such calculations and supporting information
do not contain misleading information or omit to include information the
omission of which would be misleading. All such calculations and supporting
information, and the Information, comply in all material respects with the
requirements of the Credit Agreement and the other Loan Documents.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Credit Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of
_______________, 199_.
By_________________________
Name:
Title:
<PAGE>
Exhibit 5.21
to First Amended and Restated
Credit Agreement
Report of Independent Engineer
------------------------------
[to be provided by Lender]
<PAGE>
Exhibit 6.5
to First Amended and Restated
Credit Agreement
Contingent Obligations
----------------------
[Borrower to provide]
<PAGE>
Exhibit 6.6
to First Amended and Restated
Credit Agreement
Indebtedness
------------
[Borrower to provide]
<PAGE>
Schedule I
to First Amended and Restated
Credit Agreement
Applicable Permits
------------------
[Borrower to provide]
<PAGE>
Schedule II
to First Amended and Restated
Credit Agreement
Articles of Incorporation and Partnership Agreements
----------------------------------------------------
[Borrower to provide]
<PAGE>
Schedule III
to First Amended and Restated
Credit Agreement
Initial Disbursement and Closing Costs
--------------------------------------
[Lender to draft based on information provided by Borrower]
<PAGE>
Schedule IV
to First Amended and Restated
Credit Agreement
Project Documents
-----------------
[Borrower to provide]
<PAGE>
Schedule V
to First Amended and Restated
Credit Agreement
Schedule of Exceptions
----------------------
[Borrower to provide]
<PAGE>
Schedule VI
to First Amended and Restated
Credit Agreement
Capital Leases
--------------
[Borrower to provide]
BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENTS, that TKO POWER, INC., a
California corporation with a principal place of business at North Bend, WA (the
"Grantor"), in consideration of Thirty Five Thousand Dollars ($35,000) paid by
RALPHS RANCHES, INC., a California corporation, with a principal place of
business at P.O. Box 817, Fall River Mills, CA 96028 (the "Grantee"), the
receipt whereof is hereby acknowledged, does hereby grant, sell, transfer and
deliver unto the said Grantee, its successors and assigns, all of the personal
property used in connection with the operation of a hydroelectric power
generating facility located near Macdoel, Siskiyou County, Ca., including,
without limitation, all of the goods and chattels listed on Schedule A attached
hereto and made a part hereof.
TO HAVE AND TO HOLD, all and singular the said goods and chattels to the
said Grantee, its successors and assigns, to its and their own use and behoof
forever.
All goods and chattels delivered hereunder are sold "As Is" "Where Is",
with warranty as to title only. Grantor does not in any way warrant the
merchantability of such goods and chattels, or the fitness of such goods and
chattels for any particular purpose.
AND Grantor does hereby covenant with the said Grantee, it successors and
assigns that Grantor is the lawful owner of said goods and chattels; that they
are free from all incumbrances; that Grantor has good right to sell the same
unto the said Grantee, to hold as aforesaid; and that Grantor and its successors
and assigns shall and will warrant and defend the same to the said Grantee, its
successors and assigns, against the lawful claims and demands of all persons.
IN WITNESS WHEREOF, the said Grantor has caused this instrument to be
executed by Donald P. Jarrett, its Vice President, thereunto duly authorized,
this 13th day of June, 1997.
WITNESS: TKO POWER, INC.
/s/ Shirley Kershaw By: /s/ Donald P. Jarrett
- - - ------------------------ ----------------------------------
Donald P. Jarrett, Vice President
NYFS10...:\84\38684\0003\1924\BIL9267Z.290
TERMINATION AGREEMENT
THIS AGREEMENT is made September 9, 1997 between JOSEPH HYDRO COMPANY,
INC., a Delaware corporation ("Joseph Hydro"), and PACIFICORP, an electric
utility incorporated in Oregon with corporate headquarters in Portland, Oregon
("PacifiCorp").
RECITALS
A. On July 31, 1991, Joseph Hydro and PacifiCorp entered into an Amended
and Restated Power Purchase Agreement ("Power Purchase Agreement") wherein
Joseph Hydro agreed to sell and PacifiCorp agreed to purchase power generated at
the Joseph Hydro Project located near Joseph, Oregon ("Project").
B. Joseph Hydro and PacifiCorp desire to terminate the Power Purchase
Agreement under the general terms and conditions agreed to by the parties in the
November 15, 1996 letter agreement ("Letter Agreement").
THEREFORE, in consideration of the terms, covenants and conditions set
forth below, the parties agree as follows:
AGREEMENT
1. TERMINATION. Joseph Hydro and PacifiCorp agree that the Power Purchase
Agreement shall terminate as of the Closing Date. The termination of the Power
Purchase Agreement on the Closing Date shall not affect any of the rights or
obligations of either party to the Power Purchase Agreement accruing prior to
the Closing Date. Any payments required or due from any party under the Power
Purchase Agreement shall be made promptly on proper invoice, except as provided
in Section 3.1 below.
2. FERGUSON RIDGE OPTION. Under the terms of the Letter Agreement,
PacifiCorp will not acquire the Ferguson Ridge powerhouse and associated
facilities.
3. CONSIDERATION
3.1 CASH PAYMENT. As consideration for this Agreement, PacifiCorp
agrees to pay Joseph Hydro on the Closing Date the sum of $2,787,000, plus
payment for net metered Output delivered to PacifiCorp after June 23, 1997, but
prior to the Closing
NYFS10...:\84\38684\0003\1924\AGR9277A.030
<PAGE>
Date, based upon eight (8) mills or $.008/kWh up to a limit of 3,500,000 kWh
(the "Closing Payment"). In the event the Closing does not occur on or prior to
the Closing Date, all payments will continue in the ordinary course under the
terms of the Power Purchase Agreement until the Closing occurs. All payments
made by PacifiCorp, if any after the Closing Date, for net metered output
delivered after June 23. 1997 shall be credited against the Closing Payment at
the Closing.
3.2 JOSEPH HYDRO'S OBLIGATIONS. As consideration for this Agreement,
Joseph Hydro agrees to terminate production and delivery of Power, surrender the
Power Purchase Agreement and remove all facilities associated with the Project
in accordance with the final agreement Joseph Hydro reaches with the appropriate
governmental agencies. Such removal will include, at a minimum, the two upper
powerhouses, all enclosed equipment in all three powerhouses, all electrical
equipment located outside the powerhouses, including the Project's transmission
line (the "Line") and each powerhouse's headworks. The Line would be removed to
the location of the Ferguson Ridge powerhouse. All of the Project's generation
related interconnection equipment shall be removed. All equipment necessary to
provide electrical service to the Ferguson Ridge powerhouse building will be
retained.
4. EQUIPMENT REMOVAL AND SALVAGE RIGHTS
4.1 PACIFICORP'S SELECTION OF EQUIPMENT. As part of the cash
consideration reflected in Section 3. 1, PacifiCorp is entitled to selected
equipment, facilities, and materials. Attached to this Agreement as Exhibit A is
a complete inventory of equipment, facilities, and materials which PacifiCorp
has identified for possible acquisition. Exhibit A also includes equipment,
facilities and materials associated with the Ferguson Ridge powerhouse. It is
the understanding of the parties that the selected equipment, facilities, and
materials have a fair market value of $10,000.
4.2 PARTIES OBLIGATIONS. PacifiCorp has identified and will mark all
equipment, facilities and materials identified on Exhibit A for its acquisition.
PacifiCorp will arrange for and provide at its cost all transportation of
equipment, facilities and materials identified on Exhibit A, except those
facilities designated for removal by PacifiCorp in Exhibit A. Joseph Hydro will
dismantle and load all equipment, facilities and materials listed on Exhibit A.
PacifiCorp will provide ample transportation to allow timely loading so Joseph
Hydro will not incur equipment standby costs. Joseph Hydro will provide
PacifiCorp with fourteen (14) days prior telephonic notice of its estimate of
the required transportation equipment to keep the dismantling of the Project
continuing in an orderly and timely manner.
2
<PAGE>
5. CLOSING. Closing of this Agreement ("Closing") is scheduled to be on
September 11, 1997 ("Closing Date") at the offices of Wallowa Title Company (the
"Escrow Agent"), in Enterprise, Oregon or at such other time and place as may be
established by mutual consent of the parties. At closing Joseph Hydro shall
deliver to PacifiCorp evidence satisfactory to PacifiCorp that Joseph Hydro has
satisfied the conditions precedent to this Agreement as provided hereunder; and
PacifiCorp shall pay Joseph Hydro the Closing Payment in accordance with
Schedule 3.1 attached hereto. PacifiCorp and Joseph Hydro agree to complete
Schedule 3.1 no later than forty-eight (48) hours prior to the Closing Date.
Joseph Hydro may schedule a later Closing Date with at least two (2) business
days notice to PacifiCorp.
6. REPRESENTATIONS AND WARRANTIES OF JOSEPH HYDRO. To induce PacifiCorp to
enter into this Agreement, Joseph Hydro represents and warrants as follows:
6.1 ORGANIZATION AND EXISTENCE. Joseph Hydro is a corporation duly
organized and validly existing under the laws of the state of Delaware. Joseph
Hydro has all requisite power and authority to own and operate the Project and
to carry on its business as now being conducted.
6.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement have been duly authorized and approved in accordance with all
documents and agreements pertaining to the organization of Joseph Hydro, and
this Agreement constitutes a valid and binding agreement of Joseph Hydro in
accordance with its terms.
6.3 TRANSFER NOT SUBJECT TO THIRD PARTY APPROVAL. The execution and
delivery of this Agreement by Joseph Hydro, and the consummation of the
transactions contemplated hereunder, will not require the consent or approval of
any third party, including any governmental subdivision or regulatory agency
which has not been obtained as of the Closing Date, and will not constitute a
default under any agreement, mortgage, lease or security agreement.
6.4 LIABILITIES. The execution and delivery of this Agreement by
Joseph Hydro, and the consummation of the transactions contemplated hereunder,
will not cause PacifiCorp to become liable to any party for any obligations
incurred or agreements made by Joseph Hydro prior to Closing, or any claim that
had accrued against Joseph Hydro prior to Closing, in connection with the
Project.
3
<PAGE>
6.5 ACCURACY OF REPRESENTATIONS AND WARRANTIES. None of the
foregoing representations of Joseph Hydro contains any untrue statement of a
material fact or omits or misstates any material facts necessary to make the
statements contained therein not misleading.
7. REPRESENTATIONS AND WARRANTIES OF PACIFICORP. To induce Joseph Hydro to
enter into this agreement, PacifiCorp represents and warrants as follows:
7.1 ORGANIZATION AND EXISTENCE. PacifiCorp is a corporation duly
organized and validly existing under the laws of the state of Oregon. PacifiCorp
has all requisite power and authority to carry on its business as now being
conducted.
7.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement have been duly authorized and approved in accordance with all
documents and agreements pertaining to the organization of PacifiCorp, and this
Agreement constitutes a valid and binding agreement of PacifiCorp in accordance
with its terms.
7.3 TRANSFER NOT SUBJECT TO THIRD PARTY APPROVAL. The execution and
delivery of this Agreement by PacifiCorp, and the consummation of the
transactions contemplated hereunder, will not require the consent or approval of
any third party, including any governmental subdivision or regulatory agency
which has not been obtained as of the Closing Date, and will not constitute a
default under any agreement, mortgage, lease or security agreement.
7.4 LIABILITIES. The execution and delivery of this Agreement by
PacifiCorp, and the consummation of the transactions contemplated hereunder,
will not cause Joseph Hydro to become liable to any party for any obligations
incurred or agreements made by PacifiCorp prior to Closing, or any claim that
had accrued against PacifiCorp prior to Closing, in connection with the Project.
7.5 ACCURACY OF REPRESENTATIONS AND WARRANTIES. None of the
foregoing representations of PacifiCorp contains any untrue statement of a
material fact or omits or misstates any material facts necessary to make the
statements contained therein not misleading.
8. CONDITIONS PRECEDENT TO PACIFICORP'S OBLIGATIONS. PacifiCorp's
obligation to close this Agreement shall be subject to the fulfillment of the
following conditions:
4
<PAGE>
8.1 GOVERNMENTAL APPROVALS. All required governmental agencies must
agree in final form to the removal plan mitigation program and all other aspects
of the proposed transactions.
8.2 RELEASES. All affected landowners, including without limitation
the Wallowa Valley Improvement District, must release all rights or claims they
may have against the Project or Joseph Hydro on terms acceptable to Joseph
Hydro, in Joseph Hydro's sole discretion.
8.3 BOARD APPROVAL. Joseph Hydro's board of directors must agree
to the terms of this Agreement.
8.4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF JOSEPH HYDRO. All
representations and warranties made by Joseph Hydro in this Agreement shall be
true as of the Closing Date and, as of the Closing Date, Joseph Hydro shall not
have violated or failed to perform in accordance with any covenant contained in
this Agreement.
9. CONDITIONS PRECEDENT TO JOSEPH HYDRO'S OBLIGATIONS. Joseph Hydro's
obligation to close this Agreement shall be subject to the fulfillment of the
following conditions:
9.1 PacifiCorp shall at Closing release any security it may hold for
the performance of Joseph Hydro's obligations under the Power Purchase
Agreement.
9.2 PacifiCorp shall, by proceeding to close, release any and all
claims against Joseph Hydro it holds as of the Closing Date, including, but not
limited to, O/M reimbursements and line loss adjustments prior to the Closing
Date.
9.3 PacifiCorp shall have received prior to the Closing Date all
authorizations necessary to close this Agreement.
9.4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF PACIFICORP. All
representations and warranties made by PacifiCorp in this Agreement shall be
true as of the Closing Date and, as of the Closing Date, PacifiCorp shall not
have violated or failed to perform in accordance with any covenant contained in
this Agreement.
5
<PAGE>
10. SURVIVAL AND INDEMNIFICATION.
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of Joseph Hydro and PacifiCorp in this Agreement and all claims
for breach thereof shall survive the Closing.
10.2 JOSEPH HYDRO'S INDEMNIFICATION. Joseph Hydro agrees to
indemnify, defend, hold harmless and releases PacifiCorp, its successors and
assigns from and against any and all claims, liabilities and obligations of any
kind and description known and unknown arising out of Joseph Hydro's
development, operation and ownership of the Project prior to the Closing Date,
including any claim for monetary damages from the Lower Sheep Creek property
owners and any prepayment penalty on Joseph Hydro's loan with GE Capital.
11. TERMINATION. If this Agreement does not close within thirty (30) days
of the Closing Date, either party may elect to terminate this Agreement with ten
(10) days written notice to the other party. In the event this Agreement is
terminated in accordance with this Section 11, then this Agreement shall be null
and void ab initio as if the parties had never entered into this Agreement and
any and all covenants, obligations and agreements under this Agreement will be
of no force or effect.
12. WAIVER. No waiver of a breach of any covenant, term or condition of
this Agreement by either party hereto on any occasion shall be a waiver of any
other breach of the same or any other covenant, term or condition by the same
party on the same occasion or by either party on any other occasion.
13. RELEASES. Any releases required by this Agreement do not release
either party to this Agreement to any of its obligations under this Agreement.
14. ASSIGNMENT. Neither Joseph Hydro nor PacifiCorp shall assign or
transfer this Agreement or any part thereof without the prior written consent of
the other party, which shall not be unreasonably withheld. Such assignment or
transfer without the prior written consent of the other party shall constitute a
default under this Agreement.
15. SUCCESSION. This Agreement shall be binding upon and inure to the
benefit of the parties, their heirs, personal representatives, successors and
permitted assigns.
16. FURTHER DOCUMENTATION. The parties, upon request, agree to execute and
deliver such further documents as may be required to carry out all of the
provisions of this Agreement.
6
<PAGE>
17. APPLICABLE LAW. This Agreement shall by construed and interpreted
according to the laws of the state of Oregon.
18. ENTIRE AGREEMENT. This document constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements, whether or written, with respect hereto.
19. NOTICE. Any notice or other communication required or permitted to by
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to which it
is to be given, addressed as follows:
If to Joseph Hydro, to it at
680 Washington Blvd.
Stamford, CT 06901
Attention: President
with a copy to
Stephen Champagne
Curtis, Thaxter
One Canal Plaza
P.O. Box 7320
Portland, ME 04112-7320
If to PacifiCorp, to it at:
Manager, New Generation Acquisitions
825 N.E. Multnomah, Suite 625
Portland, OR 97232
with a copy to
Stoel Rives LLP
999 Main Street, Suite 1015
Boise, ID 83702-9011
(or to such other address as the party shall have furnished in writing in
accordance with the provisions of this paragraph). Any notice of other
communication given by certified mail
7
<PAGE>
shall be deemed given at the time or certification thereof except for a notice
changing a party's address which shall be deemed given at the time of receipt
thereof.
20. COUNTERPART DOCUMENTS. This Agreement is being simultaneously executed
in two counterparts, each of which shall have the force and effect of an
original document. Execution of this document may be completed by facsimile with
original documents and signatures to follow.
IN WITNESS THEREOF, the parties have executed this Agreement as of the
date first set for above.
SELLER PURCHASER
JOSEPH HYDRO COMPANY.INC. PACIFICORP
By: By:
----------------------------- ----------------------------
Title: President Title: Senior Vice President
8
<PAGE>
SCHEDULE 3.1
On the Closing Date the Escrow Agent shall distribute the funds as follows:
Via wire Wire
Transmission to: Amount Instructions
Wallowa Valley
Improvement District $ 25,000 Wiring Instructions to be
determined prior to closing.
Little Sheep Creek
Property Owners $ 145,000
Mr. Johnny Johnson $ 125,000
Mr. Norm Kamp $ 20,000
General Electric
Capital Corporation $2,100,000
Joseph Hydro* $ 400,000
----------
Total $2,815,000
* For removal costs, miscellaneous expenses and reimbursement of legal expenses
incurred and paid to date.
<PAGE>
Exhibit A
FERGUSON RIDGE
POWERHOUSE
ITEM QTY. ITEM DESCRIPTION
---- ---- ----------------
All Motor/Generators are W, Type LAC Life Line D 3 phase
and 4160v except as otherwise noted.
1 2 Motor/Generators,W., Type LAC Life Line D, Model TUDP
Frame - 4451, 93 kW, Style 83C20083, 460 V, 1251 rpm
2 1 Motor/Generators,W., Type LAC Life Line D, Model HSDP,
Frame, 5008-3 ?, 205 kW, Style 82F52803, 1776/1818 rpm
3 4 Motor/Generators,W., Type LAC Life Line D, Model HSDP,
Frame 5809L, Style - 82F52801 300kW, 1187/1211 rpm
4 3 Turbine, Worthington, 351kW, 1210 rpm, Model 14LNT20.B
5 2 Turbine, Worthington, 84.3kW, 1210 rpm, Model 6LNT18
6 1 Turbine, Worthington, 199kW, 1815 rpm, Model 10LNT14
NOTE: Turbines and motor/generators to include all piping,
reducers, above concrete floor; all valves, including
pneumatic, manual operating systems;
tachometers;control, protection and monitoring systems;
control panels; switches; fuses; breakers; instrument
transformers, CT'sPT's, metering equipment, including
meters and transducers; PC 700 Programmable Controller,
including monitor, multiplexers and when possible,
interconnecting wiring.
7 1 W Type DHP, 1200A Breaker, Cat. No. 50DHP250
8 1 3 Ph transformer, 2500/3125 kVA full load, 4160v delta-
20780V Gnd. Y
9 1 Transformer 480V:4160v, 225kva, Pad Mount (W-POW-R-
PAD)
10 1 Switch - 20.8 kv, Tie Point Disconnect (visual dc)
11 1 Breaker 20.8kv, 4W10, PPI FRC22
Valves, Keystone, sizes range 18 1/4, 13.5", 19.5"
12 2 Pneumatic and Hydraulic Butterfly Valves, Actuators and
Controllers, Spares included
13 1 Keystone PUD 240 Valve Gear Box(es)
<PAGE>
Exhibit A
FERGUSON RIDGE
POWERHOUSE
ITEM QTY. ITEM DESCRIPTION
---- ---- ----------------
14* 1 Dayton Single Phase Air Compressor, 5hp - 230v,
23amp/200 psi, approx. 50 gallon tank,
(Approx. 50 gallon size tank)
VEHICLES
15* 1 1988 Dodge Power Ram 1/2-Ton flatbed pickup
16* 1 1988 Jeep 4X4, Lic. # UUA 830
17* 1 Snow Oat and Tracks
18* BUILDING FIXTURES, such as
ALL Wall fans (plug in's)
ALL Wall Heaters
ALL Ventilating Ceiling Fans
19* ALL MISCELLANEOUS MATERIAL AND LINE EQUIP
- - - --------
*Items that PacifiCorp will remove
<PAGE>
Exhibit A
CANAL CREEK
POWERHOUSE
ITEM QTY. ITEM DESCRIPTION
---- ---- ----------------
Induction Motors with Starters 3 phase and 4160v except
as otherwise noted.
1 2 Motor/Generators,W., Type LAC Life Line D, Model TUDP,
75kw, 460 V, Style 83C20039, Frame 4451
2 1 Motor/Generators,W., Type LAC Life Line D, Model HSDP,
175 kw, Style 82F52804, Frame 5009-L,
3 4 Motor/Generators,W., Type LAC Life Line D, Model HSDP,
Frame 5808L, Style - 82F52802
Worthington Turbines
4 4 Turbines, Worthington, Model 14LNHT17, 257.5kW, 1210
rpm, Horizontal
5 1 Turbines, Worthington, Model 10LNT18, 150.4kW, 1210 rpm,
Horizontal
6 2 Turbines, Worthington, Model 8LNT12, 65.5kW, 1815 rpm,
Horizontal
Turbines and motor/generatiors to include all piping,
reducers, above concrete floor; all valves, including
pneumatic & manual operating systems; tachometers;
control, protection and monitoring systems; control
panels; switches;fuses;breakers; instrument
transformers, CT's & PT's, metering equipment, including
meters and transducers; PC 700 Programmable Controller,
including monitor, multiplexers and when possible,
interconnecting wiring.
7 15 Valves, sizes range 18 1/4", 13.5", 19.5" Pneumatic and
Hydraulic Butterfly Valves, Actuators and Controllers,
Spares included (8)air check valves, plus 12-13
hydraulic/pneumatic valves (4-20" mech., 4-20"
pneumatic, 3-14" mech., 3-14" pneumatic, 4-20" spares,
2-14" spares)
8 1 W 3 ph transformer, 4160V delta -20780V Gnd. Y,
1500/1725 kVA, complete
9 1 Padmount transformer, 225 kVA, 480V/4160V
10 1 4160-volt Circuit Breaker, W Type R (Station Main)
<PAGE>
Exhibit A
CANAL CREEK
POWERHOUSE
ITEM QTY. ITEM DESCRIPTION
---- ---- ----------------
11 1 37.5 kVA pole-mount sta svc transformer, compl with
LA's, switch, & fuses.
PRESSURE REDUCTION VALVES
12 7 Plus air relief valves, pressure reduction valve CLA-Val
8-50- 01B, pressure relief valves,
Chrispin model PL10, 1/4" check valves (7 units)
13* 1 Dayton Single Phase Air Compressor, 5hp - 230v,
23amp/200 psi, approx. 50 gallon tank,
(Approx. 50 gallon size tank)
14 1 Motor, 1hp 3 phase, trash rack cleaning system
15* 1 Jack, 2 ton, JE6695, Stk. #187882/8 ton long ram jack
16 1 AMPCO CC-9 Station main breaker panel
17 1 Westinghouse numalogic PC 700B, 13 cards, 7 panels,
18 1 W Type DHP Circuit Breaker
19 1 Fuse puller
20 1 STEEL METAL BUILDING STRUCTURE, TO INCLUDE
ALL Wall fans (plug in's)
ALL Wall Heaters
ALL Ventilating Ceiling Fans
ALL Louvered Shutters at ends of Building
21* 1 Eyewash station
22* MISCELLANEOUS MATERIAL AND LINE EQUIPMENT IN
BLDG.
* Items that PacifiCorp will remove
<PAGE>
Exhibit A
LITTLE SHEEP CREEK
POWERHOUSE
ITEM QTY. ITEM DESCRIPTION
---- ---- ----------------
1 4 Motor/Generators, W, Type LAC Life Line D, Model VSWl,
Frame 6808-P30, 860kW
2 1 Motor/Generators, W, Type LAC Life Line D, Model VSWl,
Frame 5009-P20, 220kW
3 1 Motor/Generators, W, Type LAC Life Line D, Model VSWl,
Frame 6808-P30, 480kW
4 4 Turbines, Layne, Model MG42Y, 857kW, 1200 rpm, vertical,
with base plate
5 1 Turbines, Layne, Model MG81, 561kW, 1800 rpm, vertical,
with base plate
6 1 Turbines, Layne, Model LT41, 235kW, 1800 rpm, vertical,
with base plate Turbines and motor/generators to include
all piping, including reducers, above concrete floor;
all valves, including pneumatic, hydraulic and manual
operating systems; intake heads; tachometers; control,
protection & monitoring systems; control panels;
switches; fuses; breakers;instrument transformers, CT's
& PT's; metering equipment, including meters and
transducers; PO-700 Programmable Controller, including
monitor, multiplexers and, when possible,
interconnecting wiring.
7 1 Lighting Panel
8 1 Uninterruptivle Power Supply
9 1 4160-volt Circuit Breaker, W50DHP250, 1200A
10 1 37.5 kVA pole-mount station service transformer,
complete and LA's, switch, & fuses.
11 1 Relay Panel, complete, including transformer diff. relay
and ground voltage relay.
12 1 Line disconnect switch, 20.8kV, LS-21, complete with
controls.
13 1 Control Panel for hydraulic pump.
14 1 W 3 phase transformer, 4160V delta-20780V Gnd. Y,
6250/7812 kVA, complete
15* 1 COMPLETE STEEL BUILDING STRUCTURE TO
INCLUDE:
16* ALL Wall Fans (plugin's)
17* All Wall Heaters
<PAGE>
Exhibit A
LITTLE SHEEP CREEK
POWERHOUSE
ITEM QTY. ITEM DESCRIPTION
---- ---- ----------------
18* All Ventilating Ceiling Fans
19* All Louvered Shutters at ends of Building
MISCELLANEOUS MATERIAL AND LINE EQUIPMENT STORED IN BUILDING
20* 1 Teel chemical solution pump, complete with 1/20 HP
fan-cooled 115-volt, magnetic drive
21* 1 Dayton capacitor start motor, 1/3 HP, 1725 rpm,
115/230-volt, Mod. 5K341U
22 4 Astrolite heavy duty, deep cycle 12-volt batteries
23* 1 Baldor Industrial motor, 3-phase, Frame 184C, Ser. #
F991, 5 HP, w tanks, line & valves.
24* ALL Buss Fuses (located on shelving) - loose or in boxes
25* 1 GE Permanent - Magnetic Tach. Generator, Mod. No 5BC42AB
1780C RPM 1000
26* 1 Red Vise on Workbench
27* 1 Non-Installed eye wash station
28* 1 Six foot step ladder
*Items that PacifiCorp will remove
Standard Form Contract - Schedule PP (NC) NCUC Docket No. E-100, Sub 74
FROM NCSTDPP.FRM (Rev. 6/23/95)
PURCHASED POWER AGREEMENT
-------------------------
between
DUKE POWER, A DIVISION OF DUKE ENERGY CORPORATION
and
MILL SHOALS HYDRO COMPANY, INC.
"High Shoals Hydroelectric Facility"
Contract No. 97-06
Contract Date: -----------------
Initial Delivery Date: ------------------------
<PAGE>
PURCHASED POWER AGREEMENT
-------------------------
THIS PURCHASED POWER AGREEMENT ("Agreement") is made this
____ day of _______________, 1997, by and between
DUKE POWER, A DIVISION OF DUKE ENERGY CORPORATION,
a North Carolina Corporation ("Company"), and
MILL SHOALS HYDRO COMPANY, INC.
A DELAWARE Corporation ("Supplier" or "Customer"), for the
"HIGH SHOALS HYDROELECTRIC FACILITY,"
a qualified facility as determined by the Federal Energy Regulatory Commission
pursuant to Section 210 of the Public Utilities Regulatory Policies Act of 1978,
consisting of A SINGLE, VERTICAL SHAFT, KAPLAN-TYPE TURBINE DIRECTLY COUPLED TO
A SINGLE, 1800 KILOWATT SYNCHRONOUS GENERATOR (the "Facility"), which is located
in GASTON COUNTY at or near HIGH SHOALS, North
Carolina.
(Hereinafter, the parties are also referred to individually as "Party" and
collectively as "Parties").
In consideration of the mutual covenants herein contained, the
Parties hereto, for themselves, their successors and assigns, do hereby agree to
the following:
1. Service Requirements.
--------------------
1.1 The Supplier shall sell and deliver exclusively to the Company all
of the electric power generated by the Facility, net of the Facility's own
auxiliary electrical requirements, and the Company shall purchase, receive, use
and pay for the same, subject to the conditions contained in this Agreement.
Back-up and maintenance power for the Facility's auxiliary electrical
requirements shall be provided to Supplier by the Company pursuant to a separate
electric service agreement under the Company's rate schedule appropriate for
such service.
1.2 The electric power to be delivered hereunder shall be three phase,
alternating, at a frequency of approximately sixty (60) hertz, and at
approximately 4160 volts.
1.3 Delivery of said power shall be made in GASTON County at or near
HIGH SHOALS, North Carolina at a delivery point described as follows:
AT THE COMPANY'S DISCONNECTING SWITCHES MOUNTED ON THE SUPPLIER'S POLE ON THE
LOW TENSION SIDE OF THE COMPANY'S STEP-UP SUBSTATION AT OR NEAR THE SUPPLIER'S
HIGH SHOALS HYDRO PLANT.
1.4 (a) The nameplate capacity of the Supplier's generating facilities
is 1800 KILOWATTS, consisting of A SINGLE, VERTICAL SHAFT, KAPLAN-TYPE TURBINE
DIRECTLY COUPLED TO A SINGLE, 1800 KILOWATT SYNCHRONOUS GENERATOR.
(b) The Supplier shall deliver to the Company throughout the
term of the Agreement approximately 900 KILOWATTS during On-Peak Periods as its
"Capacity Commitment" as defined in Paragraph 1.4(c) below.
Page 1 of 8
<PAGE>
(c) The "Capacity Commitment" shall be the average capacity in
kilowatts the Supplier commits to deliver to the Company during On-Peak Periods
through the term of the Agreement taking into account scheduled and forced
outages, fuel availability, steam requirements and any other conditions which
might impact the average capacity during On- Peak Hours.
1.5 The Company will install and own such meter(s) as shall be
necessary to measure and record the electrical energy and demand(s) delivered
and received in accordance with the terms and conditions of this Agreement, such
meter(s) to be located:
ON THE HIGH TENSION (12 KV) SIDE OF THE COMPANY'S SUBSTATION.
2. Rate Schedule and Service Regulations. The sale, delivery, and use of
-------------------------------------
electric power hereunder, and all services of whatever type to be rendered or
performed in connection therewith, shall in all respects be subject to and in
accordance with all the terms and conditions of the Company's RATE SCHEDULE
PP(NC) ELECTRICITY NO.4, THIRD REVISED LEAF NO.90, 15- YEAR FIXED RATE -
DISTRIBUTION and its Service Regulations, both of which are now on file with the
North Carolina Utilities Commission, and are hereby incorporated by reference
and made a part hereof as though fully set forth herein. Said Service
Regulations are subject to change, revision, alteration or substitution, either
in whole or in part, upon order of said Commission or any other regulatory
authority having jurisdiction, and any such change, revision, alteration or
substitution shall immediately be made a part hereof as though fully written
herein, and shall nullify any prior provision in conflict therewith.
3. Initial Delivery Date.
---------------------
3.1 The Initial Delivery Date shall be the first date upon which energy
is generated by the Facility and delivered to the Company, and such energy is
metered by the Company. The Initial Delivery Date under this Agreement is the
SECOND DAY OF APRIL, 1997.
3.2 The Initial Delivery Date must occur no later than 30 months from
the date of execution of this Agreement.
3.3 The initial delivery of electric power is dependent upon the
Company securing from the manufacturers all necessary apparatus, equipment and
material for the delivery of said power, and the Company shall not be required
to receive said power until it shall have secured and installed such equipment,
apparatus and material.
3.4 If either Party shall be delayed or prevented from delivering or
receiving electric power on the Initial Delivery Date by reason of an event or
condition of force majeure as defined in Paragraph 7 hereof, then the Initial
Delivery Date and the beginning of Supplier's obligation to pay Interconnection
Facilities Charges pursuant to Paragraph 5.3 hereof shall be extended for a
period proportionate to such delay or prevention.
4. Term. The term of this Agreement shall be FIFTEEN (15) YEARS beginning with
----
the Initial Delivery Date. The Company shall have the right of termination
provided in the attached Rate Schedule.
This Agreement shall be renewable for subsequent term(s) at the option
of the Company on substantially the same terms and provisions, and at a rate
either (1) mutually agreed upon by the Parties negotiating in good faith and
taking into consideration the Company's then avoided cost rate and other
relevant factors, or (2) if no agreement can be reached in a reasonable time,
set by arbitration.
In the event that this contract is terminated by either Party prior to
the expiration of the initial term the Supplier will reimburse the Company for
the total energy and capacity credits
Page 2 of 8
<PAGE>
received in excess of that which would have been received under variable rates,
plus interest at the rate of 8.63% per annum until repaid.
5. Interconnection Facilities Charge.
---------------------------------
5.1 In accordance with the provisions of the attached rate schedule,
the Company will furnish, install, own and maintain Interconnection Facilities,
including protective devices, metering equipment, etc. to permit parallel
operation of the Supplier's facilities with the Company's system. The
Interconnection Facilities Charge, calculated in accordance with the Extra
Facilities Provisions of the Company's Service Regulations, to be paid by the
Supplier each month shall be
$ 871.42, which is 1.7% of the installed cost of said Interconnection
Facilities, which amount is $ 51,260.00.
5.2 The monthly charge for the Interconnection Facilities to be
provided under this Agreement is subject to the rates, service regulations and
conditions of the Company as the same are now on file with the state regulatory
commission having jurisdiction and may be changed or modified from time to time
upon approval by said regulatory commission. Any such changes or modifications,
including those which may result in increased charges for the Interconnection
Facilities to be provided by the Company, shall be made a part of this Agreement
to the same effect as if fully set forth herein.
5.3 Duke shall furnish and install the Interconnection Facilities no
later than the date requested by Supplier for such installation. Supplier's
obligation to pay the Interconnection Facilities charges shall begin on the date
that such Interconnection Facilities become operational, except as provided in
Paragraph 3.4 hereof, and such charges shall apply at all times thereafter
during the term of this Agreement, whether or not Supplier is actually supplying
electric power to Company.
6. Service Interruptions. The Parties do not guarantee continuous service. They
---------------------
shall use reasonable diligence at all times to provide satisfactory service, and
to remove the cause or causes in the event of failure, interruption, reduction
or suspension of service, but neither Party shall be liable for any loss or
damage resulting from such failure, interruption, reduction or suspension of
service, nor shall same be a default hereunder, when due to any of the
following:
(a) An emergency action due to an adverse condition or
disturbance on the system of the Company, or on any other system directly or
indirectly interconnected with it, which requires automatic or manual
interruption of the supply or electricity to some customers or areas in order to
limit the extent or damage of the adverse condition or disturbance, or to
prevent damage to generating or transmission facilities, or to expedite
restoration of service, or to effect a reduction in service to compensate for an
emergency condition on an interconnected system.
(b) An event or condition of force majeure as defined in
Paragraph 7 hereof.
(c) Making necessary adjustments to, changes in, or repairs on
Company lines, substations, and facilities, and in cases where, in its opinion,
the continuance of service from Supplier's premises would endanger persons or
property.
7. Force Majeure. Circumstances beyond the reasonable control of a Party which
solely cause that Party to experience delay or failure in delivering or
receiving electricity or in providing continuous service hereunder, including:
acts of God; unusually severe weather
Page 3 of 8
<PAGE>
conditions; earthquake; strikes or other labor difficulties; war; riots; fire;
requirements, actions or failure to act on the part of governmental authorities
(including the adoption or change in any rule or regulation or environmental
constraints lawfully imposed by federal, state or local governments bodies), but
only if such requirements, actions or failures to act prevent or delay
performance; or transportation delays or accidents shall be deemed to be "events
or conditions of force majeure". Events or conditions of force majeure do not
include such circumstances which merely affect the cost of operating the
Facility.
8. Offset For Charges Due to Company. Company reserves the right to set off
---------------------------------
against any amounts due from Company to Supplier, any amounts which are due from
Supplier to Company, including, but not limited to, unpaid charges for
Interconnection Facilities or past due balances on any accounts Supplier has
with Company for other services.
9. Records. In addition to the regular meter readings to be taken once each
-------
month for billing purposes, the Company may require additional meter readings,
records, transfer of information, etc. as may be agreed upon by the Parties.
10. Waiver. The failure of either Party to enforce or insist upon compliance
------
with any of the terms or conditions of this Agreement shall not constitute a
waiver or relinquishment of any such terms or conditions, but the same shall be
and remain at all times in full force and effect.
11. Assignment. The rights and obligations accruing to the Supplier under this
----------
Agreement may be assigned to another person, partnership, or corporation,
subject to the Company's prior approval of the assignment of said person, firm,
or corporation, which approval shall not be unreasonably or arbitrarily
withheld. However, before such rights and obligations are assigned, the assignee
must first obtain necessary approval from all regulatory bodies including, but
not limited to, the North Carolina Utilities Commission.
12. Notification of Assignment, Transfer of Sale. In the event of an assignment
--------------------------------------------
of the rights and obligations accruing to the Supplier under this Agreement
pursuant to Paragraph 11 hereof, or in the event of any contemplated sale,
transfer or assignment of the Facility or the Certificate of Public Convenience
and Necessity, the Supplier shall, in addition to obtaining the approvals
required by Paragraph 13 hereof, advise the Company and the North Carolina
Utilities Commission of any plans for such an assignment, sale or transfer, or
of any accompanying significant changes in the information required by
Commission Rule R1- 37(b)(1), all as more fully set forth in Commission Rule
R1-37, as amended, which is incorporated by reference herein.
13. Regulatory Approval. This entire Agreement is contingent upon the Supplier's
-------------------
obtaining required approval from all regulatory bodies including, but not
limited to, a Certificate of Public Convenience and Necessity or its equivalent
from the North Carolina Utilities Commission. The Parties hereto agree that
performance under this Agreement shall not commence unless and until such
approvals are obtained. If at any time during the term of this Agreement any of
such required approvals expire, are withdrawn, are revoked or for any reason
become invalid, the Company shall allow the Supplier a reasonable period to cure
the problem before giving notice of termination of this Agreement.
14. Prior Agreement Superseded. This Agreement supersedes the purchased power
--------------------------
agreement between Duke Power Company and McBess Industries dated April 6, 1982
and ssigned to Mill Shoals Hydro Company, Inc. effective July 14, 1993 by
agreement dated June 22, 1992, which shall be canceled and rendered of no force
and effect on and after the Initial Delivery Date hereunder. Performance under
the prior agreement has been fully discharged by the Parties.
Page 4 of 8
<PAGE>
Duke Power Company Electricity No. 4
North Carolina Third Revised Leaf No. 90
Superseding North Carolina Amended Second Revised Leaf No. 90
SCHEDULE PP (NC)
PURCHASED POWER
AVAILABILITY (North Carolina only)
Available only to establishments located in the Company's North Carolina service
territory which have generating facilities not in excess of eighty (80)
megawatts which are interconnected directly with the Company's system and which
are qualified facilities as determined by the Federal Energy Regulatory
Commission pursuant to Section 210 of the Public Utility Regulatory Policies Act
of 1978.
Service necessary for the delivery of the Customer's net power into the
Company's system under this Schedule shall be furnished solely to the individual
contracting Customer in a single enterprise, located entirely on a single,
contiguous premise. Service hereunder shall be restricted in the net capacity of
the Customer's generating facilities which may be operated in parallel with the
Company's system. Service necessary to supply the Customer's total load
requirements other than auxiliary load, and service necessary to supply the
Customer's auxiliary load when the Customer's generating facilities are not
operating, shall be billed on the applicable schedule(s) of the Company. Net
power delivered to the Company under this Schedule shall not offset or be
substituted for power contracted for or which may be contracted for under any
other schedule of the Company, except at the option of the Company under special
terms and conditions expressed in writing in the contract with the Customer.
The obligations of the Company in regard to service under this Schedule are
dependent upon its securing and retaining all necessary rights-of-way,
privileges, franchises and permits for such service and the Company shall not be
liable to any customer or applicant for power in the event it is delayed in, or
is prevented from purchasing power by its failure to secure and retain such
rights-of-way, rights, privileges, franchises and permits.
TYPE OF SERVICE
Company will furnish 60 Hertz service through one metering point, at one
delivery point, at one of the following approximate voltages, where available,
upon mutual agreement:
Single-phase, 120/240 volts; or
3-phase, 208Y/120 volts, 460Y/265 volts, 480Y/277 volts; or 3-phase,
3-wire, 240, 460, 480,575, or 2300 volts; or 3-phase, 4160Y/2400,
12470Y/7200, or 24940Y/14400 volts; or
3-phase voltages other than the foregoing, but only at the Company's
option, and provided that the size of the Customer's contract warrants
a substation solely to serve that Customer, and further provided that
the Customer furnish suitable outdoor space on the premises to
accommodate a ground-type tr installation, or substation, or a
transformer vault built in accordance with the Company's
specifications.
The type of service under this Schedule shall be determined by the Company.
Prospective customers shall ascertain the available voltage by written inquiry
of the Company before purchasing equipment.
RATE:
<TABLE>
<CAPTION>
Interconnected to Distribution System:
Fixed Long-Term Rates(a)
------------------------
Variable
I. Capacity Credit Rate 5 years 10 Years(b) 15 Years(b)
---------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
a. All On-Peak Energy per On-Peak Month per KWH: 1.53(cent) 1.61(cent) 1.73(cent) 1.85(cent)
b. All On-Peak energy per Off-Peak Month per KWH: 0.91(cent) 0.96(cent) 1.03(cent) 1.10(cent)
II. Energy Credit
a. All On-Peak energy per Month per KWH: 2.36(cent) 2.54(cent) 2.89(cent) 3.20(cent)
b. All Off-Peak Energy per Month per KWH: 1.75(cent) 1.79(cent) 1.97(cent) 2.14(cent)
</TABLE>
Page 5 of 8
<PAGE>
(Schedule PP (NC) Continued)
<TABLE>
<CAPTION>
Interconnected to Transmission System:
Fixed Long-Term Rates(a)
------------------------
Variable
I. Capacity Credit Rate 5 years 10 Years(b) 15 Years(b)
---------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
a. All On-Peak Energy per On-Peak Month per KWH: 1.46(cent) 1.54(cent) 1.65(cent) 1.77(cent)
b. All On-Peak energy per Off-Peak Month per KWH: 0.87(cent) 0.92(cent) 0.99(cent) 1.05(cent)
II. Energy Credit
a. All On-Peak energy per Month per KWH: 2.25(cent) 2.43(cent) 2.76(cent) 3.06(cent)
b. All Off-Peak Energy per Month per KWH: 1.68(cent) 1.72(cent) 1.89(cent) 2.05(cent)
<FN>
Notes: (a) Fixed Long-Term Rates are applicable to those qualifying
facilities which are either (1) hydroelectric generating facilities
owned or operated by a small power producer as defined in G.S.
62-3(27a) or (2) any other qualifying facility contracting to sell
generating capacity of five (5) megawatts or less.
(b) Contracts on these long-term rates are subject to a provision
making the contract renewable for subsequent term(s) at the option
of the Company on substantially the same terms and provisions and
at a rate either (1) mutually agreed upon by the parties
negotiating in good faith and taking into consideration the
Company's then avoided cost rate and other relevant factors, or (2)
if no agreement can be reached in a reasonable amount of time, set
by arbitration.
</FN>
</TABLE>
DEFINITIONS
Net Capacity: The term "net capacity" shall mean the total capacity of the
customer's generating facilities, less the portion of that capacity needed to
serve the generating facilities' auxiliary load.
Auxiliary Load: The term "auxiliary load" shall mean power used to operate
auxiliary equipment in the facility necessary for power generation (such as
pumps, blowers, fuel preparation machinery, and oxciters).
Net Power: The term "net power" shall mean the total amount of electric power
produced by the customer's generating facilities less the portion of that power
used to supply the generating facilities' auxiliary load.
Month: The term "month" as used in this Schedule means the period intervening
between meter readings for the purposes of monthly billing, such readings being
taken once a month. The On-Peak Months shall be the billing months of June
through September and December through March. The Off-Peak Months shall be the
billing months of April, May, October and November.
DETERMINATION OF ON-PEAK AND OFF-PEAK PERIODS
The on-peak period shall be those hours, Monday through Friday, beginning at 7
A.M. and ending at 11 P.M. All other weekday hours and all Saturday and Sunday
hours shall be off-peak.
INTERCONNECTION FACILITIES CHARGE
The Customer shall be responsible for providing suitable control and protective
devices on his equipment to assure no disturbance to other customers of the
Company or to the Company itself, and to protect the Customer's facilities from
all loss or damage which could result from operation with the Company's system.
The Company will furnish, install, own, and maintain interconnection facilities
necessary for service under this Schedule including: suitable control and
protective devices installed on Company equipment to allow operation of the
Customer's generating facilities; metering facilities equipped to prevent
reverse registration for the measurement of service under this Schedule, and any
other modifications to its system required to serve the Customer under this
Schedule as determined by the Company. All such facilities shall be subject to a
monthly charge under the Extra Facilities provisions of the Company's Service
Regulations. The Company reserves the right to install at any time facilities
necessary for the appropriate measurement of service under this Schedule and to
adjust the Interconnection Facilities Charge accordingly, solely at the option
of the Company.
Page 6 of 8
<PAGE>
(Schedule PP (NC) Continued)
DETERMINATION OF CAPACITY CREDIT
Capacity credit will be based on the energy, in kilowatt-hours, which is
supplied to the Company during the On-Peak Period of the month and will be
applied to the Customer's bill in the appropriate month.
POWER FACTOR CORRECTION
When the average monthly power factor of the power supplied by the Customer to
the Company is less than 90 percent or greater than 97 percent, the Company may
correct the energy, in kilowatt-hours, as appropriate. The Company reserves the
right to install facilities necessary for the measurement of power factor and to
adjust the Interconnection Facilities Charge accordingly, solely at the option
of the Company.
PAYMENTS
Credit billings to the Customer will be credited to the Customer's account or,
at the option of the Customer and upon ten (10) days' prior written notice,
shall be payable to the Customer within fifteen Six foot step ladder (15) days
of the date of the bill.
Bills under this Schedule are due and payable on the date of the bill at the
office of the Company. Bills are past due and delinquent on the fifteenth day
after the date of the bill. If any bill is not so paid, the Company has the
right to suspend service. In addition, all bills not paid by the twenty-fifth
day after the date of the bill shall be subject to a one percent (1%) late
payment charge on the unpaid amount. This late payment charge shall be rendered
on the following month's bill and it shall become part of and be due and payable
with the bill on which it is rendered.
CONTRACT PERIOD
Each customer shall enter into a contract which shall specify the amount of
capacity committed for delivery throughout the term of the contract and shall
specify one of the following as the minimum original term and associated rate:
variable rate for five (5) years, or, fixed long-term rate for five (5), ten
(10), or fifteen (15) years. The Company may require a contract for a longer
original term of years where the requirement is justified by the circumstances,
and, following the minimum original term, the variable rate stated above shall
apply to all power delivered to the Company until superseded by a new contract.
The Company reserves the right to terminate the Customer's contract under this
Schedule at any time upon written notice to the Customer in the event that the
Customer violates any of the terms or conditions of this Schedule or operates
his generating facilities in a manner which is detrimental to the Company or any
of its Customers, or fails to deliver energy to the Company for six (6)
consecutive months. In the event of early termination of a contract under this
Schedule, the Customer will be required to pay the Company for the costs due to
such early cancellation.
North Cardina Third Revised Leaf No. 90
Effective June 23, 1995
NCUC Docket No. E-100, Sub. 74
Page 7 of 8
<PAGE>
IN WITNESS WHEREOF, on the day and year first above written, the
Parties hereto have caused their official names to be hereunto subscribed, and
their seals to be hereunto affixed by their respective Presidents, Vice
Presidents or Authorized Representatives, and attested by their respective
Secretaries or Assistant Secretaries. Executed in Duplicate.
ATTEST: DUKE POWER, A DIVISION OF DUKE ENERGY CORPORATION
/s/ Robert T. Lucas
- - - ----------------------- By /s/ William F. Reinke
Robert T. Lucas --------------------
Assistant Secretary William F. Reinke
Vice President
ATTEST: MILL SHOALS HYDRO COMPANY, INC
/s/ Neil A. Manna
- - - ----------------------- By /s/ Edward M. Sten
Neil A. Manna --------------------
Secretary Edward M. Sten
President
Page 8 of 8
NYFS10...:\84\38684\0003\1924\AGR9267U.180
EXHIBIT 12.1
CONSOLIDATED HYDRO, INC.
STATEMENT REGARDING COMPUTATIONS OF DEFICIENCY
OF EARNINGS TO FIXED CHARGES AND
OF DEFICIENCY OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loss before provision for income taxes, extraordinary item
and cumulative effect of accounting changes $ (11,161) $ (95,712) $ (15,899) $ (14,126) $ (8,190)
Add: Interest expense 29,591 26,876 21,778 18,980 13,868
Amortization of debt 448 448 448 451 237
Imputed interest - operating lease (a) 1,436 1,533 1,621 1,705 1,785
------------------------------------------------------
Total earnings/(loss) $ 20,314 $ (66,855) $ 7,948 $ 7,010 $ 7,700
=========== ========== ========== ========== =========
Fixed charges:
Interest expense $ 29,591 $ 26,876 $ 21,778 $ 18,980 $ 13,868
Capitalized interest 189 1,705 2,951 2,303 553
Amortization of debt 448 448 448 451 237
Imputed interest - operating lease (a) 1,436 1,533 1,621 1,705 1,785
------------------------------------------------------
$ 31,664 $ 30,562 $ 26,798 $ 23,439 $ 16,443
=========== ========== ========== ========== =========
Deficiency of earnings to fixed charges $ 11,350 $ 97,417 $ 18,850 $ 16,429 $ 8,743
=========== ========== ========== ========== =========
Preferred dividend requirement $ 25,891 $ 23,732 $ 22,108 $ 20,688 $ 18,229
=========== ========== ========== ========== =========
Deficiency of earnings to fixed charges and preferred
stock dividends $ 37,241 $ 121,149 $ 40,958 $ 37,117 $ 26,972
=========== ========== ========== ========== =========
</TABLE>
(a) The percent of rent included above represents a reasonable approximation
of the interest factor.
LIST OF SUBSIDIARIES OF CONSOLIDATED HYDRO, INC.
------------------------------------------------
DIRECT WHOLLY-OWNED SUBSIDIARIES
Asotin Hydro Company, Inc. CHI Universal, Inc.
Aziscohos Hydro Company, Inc. I Consolidated Hydro New York, Inc.
Boott Hydropower, Inc. Consolidated Hydro Vermont, Inc.
CHI Acquisitions, Inc. Essex Company
CHI Argentina USA, Inc. Kinneytown Hydro Company, Inc.
CHI Finance, Inc. La Chute Hydro Company, Inc.
CHI Operations, Inc. Littlefield Hydro Company, Inc.
CHI Power, Inc. Minnewawa Hydro Company, Inc.
CHI Power Marketing, Inc.
INDIRECT WHOLLY-OWNED SUBSIDIARIES
Aircraft Management, Inc. CHI - Pigeon Cove, Inc.
Aquenergy Systems, Inc. CHI West, Inc.
Beaver Falls Water Power Company CHI Western Operations
Beaver Valley Holdings Ltd. Coneross Power Corporation
Beaver Valley Company Consolidated Hydro Mountain States,
Bedard Electrics, Inc. Inc.
BP Hydro Associates Consolidated Hydro New Hampshire,
BP Hydro Finance Partnership Inc.
CHI Acquisitions II, Inc. Consolidated Hydro, Southeast, Inc.
CHI Argentina de Inversiones Crosby Drive Investments, Inc.
CHI - Black Canyon Eagle & Phenix Hydro Company, Inc.
CHI Canada, Inc. Echo Summit Hydro Company, Inc.
CHI Felt Dam, Inc. Fulcrum, Inc.
CHI Highfalls, Inc. Highfalls Hydro Company, Inc.
CHI Hydroelectric Company, Inc. Hosiery Mill Hydro Company, Inc.
CHI - Idaho, Inc. Hydro Development Group Inc.
CHI - Magic Valley, Inc. Hydro Energies Corporation
CHI Mountain States Operations, Inc. Hydrodev, Inc.
CHI Patagonia, Inc. Iroquop Acquisition, Inc.
CHI Phillipines, Inc. Iroquop Ltd.
NYFS10...:\84\38684\0003\1791\LST8047K.150
<PAGE>
INDIRECT WHOLLY-OWNED SUBSIDIARIES (con'd)
Iroquop Steel Phoenix Hydro Company, Inc.
Joseph Hydro Company, Inc. Pioneer Hydro Company, Inc.
Kings River Hydro Company, Inc. Schoolfield Hydro Company, Inc.
Lawrence Hydroelectric Associates Sheldon Vermont Hydro Company,
Les Developpements Hydroelectriques Inc.
CHI, Inc. Slate Creek Hydro Company, Inc.
Littlefield Hydro Company Somersworth Hydro Company, Inc.
Littlefield Power Company, Inc. The Great Dam Corporation
Lower Saranac Corporation TKO Power, Inc.
Mill Shoals Hydro Company, Inc. Triton Power Company
North Canal Waterworks Twin Falls Hydro Company, Inc.
Notch Butte Hydro Company, Inc. Ware Hydro Company, Inc.
Ottaquechee Hydro Company, Inc. Willimantic Hydro Company, Inc.
Pelzer Hydro Company, Inc. Willimantic Power Corporation
DIRECT PARTLY-OWNED CORPORATIONS
Consolidated Pumped Storage, Inc.
Summit Energy Storage, Inc.
INDIRECT PARTLY-OWNED CORPORATIONS
Cascade Pumped Storage, Inc. SOCAL Pumped Storage, Inc.
Consolidated Pumped Storage Summit Finance, Inc.
Arkansas, Inc,
INDIRECT PARTLY-OWNED PARTNERSHIPS
Black River Hydro Associates Hillsborough Hydroelectric Limited
Cascade Energy Limited Partnership Partnership
(Cataldo) Hydro Power Associates Hydrodev Limited Partnership
CHI Patagonia Investments, L.P. Lacomb Hydro Limited Partnership
Copenhagen Associates Lower Saranac Hydro Partners Limited
Partnership
2
<PAGE>
INDIRECT PARTLY-OWNED PARTNERSHIPS (con'd)
Missisquoi Associates Slate Creek Hydro Associates Limited
Pyrites Associates Partnership
River Mountain Limited Partnership SOCAL Energy Limited Partnership
Sheldon Springs Hydro Associates, Summit Energy Limited Partnership
L.P. Twin Falls Hydro Associates, L.P.
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS CONTAINED IN
THE BODY OF THE ACCOMPANYING FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 32,502
<SECURITIES> 0
<RECEIVABLES> 6,803
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,003
<PP&E> 152,205
<DEPRECIATION> (26,251)
<TOTAL-ASSETS> 243,628
<CURRENT-LIABILITIES> 13,924
<BONDS> 270,081
114,372
98,712
<COMMON> 2
<OTHER-SE> (288,393)
<TOTAL-LIABILITY-AND-EQUITY> 243,628
<SALES> 0
<TOTAL-REVENUES> 57,380
<CGS> 0
<TOTAL-COSTS> 32,523
<OTHER-EXPENSES> 8,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,591
<INCOME-PRETAX> (11,161)
<INCOME-TAX> 119
<INCOME-CONTINUING> (11,042)
<DISCONTINUED> 0
<EXTRAORDINARY> 5,658
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