=============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 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
_______________________NONE_____________________
(Former name or former address, if changed since last report.)
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 the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class A Outstanding as of May 12, 1997
------------------------------------------- ---------------------------------
Common stock, $.001 par value 1,285,762
Class B Outstanding as of May 12, 1997
------------------------------------------- ---------------------------------
Common stock, $.001 par value NONE
===============================================================================
<PAGE>
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements................................. 2
Consolidated Statement of Operations for the three
months and nine months ended March 31, 1997 and
1996 (Unaudited).................................. 3
Consolidated Balance Sheet at March 31, 1997
and June 30, 1996 (Unaudited).................... 4
Consolidated Statement of Stockholders' Deficit
for the nine months ended March 31, 1997
(Unaudited)....................................... 5
Consolidated Statement of Cash Flows for the nine months
ended March 31, 1997 and 1996 (Unaudited)......... 6-7
Notes to Consolidated Financial Statements
(Unaudited)....................................... 8-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 12-22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 23
Item 2 Changes in Securities................................ 23
Item 3. Default upon Senior Securities....................... 23
Item 4. Submission of Matters to a Vote of Security Holders.. 23
Item 5. Other Information.................................... 23
Item 6. Exhibits and Reports on Form 8-K..................... 23
Signature 24
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED HYDRO, INC.
CONSOLIDATED FINANCIAL REPORTING PACKAGE
MARCH 31, 1997
2
<PAGE>
CONSOLIDATED HYDRO, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in thousands except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6
<S> <C> <C> <C> <C>
Operating revenues:
Power generation revenue $ 15,078 $ 15,744 $ 37,204 $ 33,462
Management fees and operations & maintenance revenues 1,457 1,298 4,149 3,775
Equity income in partnership interests and other partnership income 241 176 637 311
---------- --------- --------- ---------
16,776 17,218 41,990 37,548
---------- --------- --------- ---------
Costs and expenses:
Operating 4,208 4,268 13,062 13,064
General and administrative 1,997 1,854 5,117 3,843
Charge for employee and director equity participation programs 25 46 75 221
Depreciation and amortization 2,162 2,179 6,493 7,643
Lease expense to a related party 801 910 2,596 2,618
Lease expense to unrelated parties 655 725 1,725 1,875
(Adjustment)/charge for impairment of long-lived assets (323) -- (735) 83,359
---------- --------- --------- ---------
9,525 9,982 28,333 112,623
---------- --------- --------- ---------
Income/(loss) from operations 7,251 7,236 13,657 (75,075)
Interest income 455 140 1,094 827
Other income 132 258 176 354
Interest expense on indebtedness to related parties (2,656) (2,499) (7,827) (7,417)
Interest expense on indebtedness to unrelated parties (4,693) (4,715) (14,193) (12,247)
Minority interests in loss of consolidated subsidiaries -- -- -- 2,063
---------- --------- --------- ---------
Income/(loss) before benefit/(provision) for income taxes and
extraordinary item 489 420 (7,093) (91,495)
Benefit/(provision) for income taxes 142 (111) 1,602 7,474
---------- --------- --------- ---------
Income/(loss) before extraordinary item 631 309 (5,491) (84,021)
Extraordinary gain on early extinguishment of debt (net of income
tax of $3,414) -- -- 5,622 --
---------- --------- --------- ---------
Net income/(loss) $ 631 $ 309 $ 131 $ (84,021)
========== ========= ========= =========
Net loss applicable to common stock:
Net income/(loss) $ 631 $ 309 $ 131 $ (84,021)
Dividends declared on preferred stock (3,788) (3,317) (10,996) (9,629)
Accretion of preferred stock (214) (215) (642) (643)
Undeclared dividends on cumulative preferred stock (2,703) (2,454) (7,612) (7,363)
---------- --------- --------- ---------
$ (6,074) $ (5,677) $ (19,119) $(101,656)
========== ========= ========= =========
Net loss per common share:
Loss before extraordinary item $ (4.72) $ (4.42) $ (19.24) $ (79.41)
Extraordinary item -- -- 4.37 --
---------- --------- --------- ---------
$ (4.72) $ (4.42) $ (14.87) $ (79.41)
========== ========= ========= =========
Weighted average number of common shares 1,285,762 1,282,968 1,285,762 1,280,111
========== ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
3
<PAGE>
CONSOLIDATED HYDRO, INC.
CONSOLIDATED BALANCE SHEET
(Amounts in thousands except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Mar. 31 June 30
1 9 9 7 1 9 9 6
------- -------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents unrestricted $ 22,740 $ 10,598
Cash and cash equivalents restricted 11,117 13,236
Accounts receivable, net 9,942 7,854
Prepaid expenses and other current assets 1,707 1,353
------------- ---------
Total current assets 45,506 33,041
Property, plant and equipment, net 124,258 126,133
Facilities under development 2,544 1,217
Intangible assets, net 48,541 50,746
Assets to be disposed of 3,838 15,066
Investments and other long-term assets 20,280 18,454
------------- ---------
$ 244,967 $ 244,657
============= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses $ 7,666 $ 10,496
Current portion of long-term debt payable to a related party 1,631 2,305
Current portion of long-term debt and obligations under capital leases payable
to unrelated parties 4,393 4,157
------------- ---------
Total current liabilities 13,690 16,958
Long-term debt payable to related parties 93,505 87,406
Long-term debt and obligations under capital leases payable to unrelated parties 172,354 172,752
Deferred credit, state income taxes and other long-term liabilities 35,235 37,564
Minority interests in consolidated subsidiaries --- ---
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 ($116,008 and $105,012
liquidation preference at March 31, 1997 and June 30, 1996, respectively) 110,242 98,604
------------- ---------
Total liabilities and mandatorily redeemable preferred stock 425,026 413,284
------------- ---------
Stockholders' deficit:
Preferred stock, $.01 par value, at redemption value of $1,000 per share:
Series F, 56,279 shares authorized, issued and outstanding ($56,279 liquidation preference) 49,356 49,356
Series G, 56,279 shares authorized, issued and outstanding ($56,279 liquidation preference) 49,356 49,356
Class A common stock, $.001 par value, 9,000,000 shares authorized, 4,576,925 unissued shares
reserved, 1,834,235 shares issued and 1,285,762 shares outstanding at March 31, 1997 and
June 30, 1996 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 (270,934) (259,427)
------------- ---------
(158,723) (147,216)
Less: Deferred compensation (275) (350)
Treasury stock (common: 548,473 shares), at cost (21,061) (21,061)
------------- ---------
Total stockholders' deficit (180,059) (168,627)
------------- ---------
$ 244,967 $ 244,657
============= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
4
<PAGE>
CONSOLIDATED HYDRO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(Amounts in thousands except shares and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock De- Total
Number Number Additional ferred Stock-
of Shares Reported of Shares Par Paid-in Accumulated Compen- Treasury holders'
Outstanding Amount Outstanding Value Capital Deficit sation Stock Deficit
----------- ------ ----------- ----- ------- ------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1996 110,000 $ 98,712 1,285,762 $ 2 $ 13,497 $(259,427) $ (350) (21,061) (168,627)
Quarterly dividend of $25.88
per share, mandatorily
redeemable Series H Preferred -
September 30, 1996 (3,544) (3,544)
Quarterly dividend of $26.75
per share, mandatorily
redeemable Series H Preferred -
December 31, 1996 (3,664) (3,664)
Quarterly dividend of $27.66 per
sharem mandatorily redeemable
Series H Preferred - March 31, (3,788) (3,788)
1997
Accretion of Series H Preferred (642) (642)
Recognition of employee compensation
expense related to the issuance of
common stock 75 75
Issuance of preferred stock 2,558
Net income 131 131
-------- -------- --------- ---- -------- --------- -------- ------- --------
Balance March 31, 1997 112,558 $ 98,712 1,285,762 $ 2 $ 13,497 $(270,934) $ (275) (21,061) (180,059)
======== ======== ========= ==== ======== ========= ======== ======= ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
5
<PAGE>
CONSOLIDATED HYDRO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 131 $ (84,021)
Adjustments to reconcile net income/(loss) to net cash provided by
operating activities:
Non-cash interest and other charges 15,741 13,649
Charge for employee and director equity participation programs 75 221
Non-cash (adjustment)/charge for impairment of long-lived assets (735) 83,359
Benefit relating to deferred tax liabilities (1,677) (7,905)
Extraordinary gain on early extinguishment of debt (5,622) ---
Depreciation and amortization 6,493 7,643
Minority interest in loss of consolidated subsidiaries --- (2,063)
Adjustment to the provision for uncollectible accounts receivable (80) ---
Increase in accounts receivable (2,819) (4,194)
Increase in prepaid expenses and other current assets (384) (93)
Decrease in accounts payable and accrued expenses (2,534) (2,587)
---------- --------
Net cash provided by operating activities 8,589 4,009
---------- --------
Cash flows from investing activities:
Proceeds from disposition of assets 12,063 ---
Cost associated with disposition of assets (61) ---
Cost of development expenditures (1,207) (1,758)
Decrease in long-term notes receivable --- 116
Increase in long-term notes receivable --- (58)
Capital expenditures (2,781) (1,731)
Increase in investments and other long-term assets (1,898) (312)
---------- --------
Net cash provided by/(used in) investing activities 6,116 (3,743)
---------- --------
Cash flows from financing activities:
Payment of refinancing costs (310) ---
Long-term borrowings from unrelated parties 140 101
Payments to a related party on long-term borrowings (1,319) (269)
Payments to unrelated parties on long-term borrowings (3,173) (2,857)
Decrease in other long-term liabilities (20) (35)
---------- -------
Net cash used in financing activities (4,682) (3,060)
---------- -------
Net increase/(decrease) in cash and cash equivalents 10,023 (2,794)
Cash and cash equivalents, at beginning of period 23,834 16,682
---------- -------
Cash and cash equivalents, at end of period $ 33,857 $13,888
========== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest paid to related party $ 3,423 $ 2,720
========== =======
Interest paid to unrelated parties $ 3,742 $ 4,635
========== =======
Income taxes, net $ 304 $ 506
========== =======
</TABLE>
(continued)
6
<PAGE>
CONSOLIDATED HYDRO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands except share and per share amounts)
(Unaudited)
(continued)
Schedule of noncash financing activities:
Series H mandatorily redeemable preferred stock increased $642 and $643 for
the nine months ended March 31, 1997 and 1996, respectively, 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 $10,996 and
$9,629 for the nine months ended March 31, 1997 and 1996, 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 $19,666
and $17,571 for the nine months ended March 31, 1997 and 1996,
respectively, as a result of non-cash interest.
In connection with the disposition of certain assets by the Company, the
Company reduced its long-term debt by approximately $1.2 million.
The accompanying notes are an integral part of the
consolidated financial statements.
7
<PAGE>
CONSOLIDATED HYDRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts or
otherwise noted)
(Unaudited)
NOTE 1 - ORGANIZATION
Consolidated Hydro, Inc. (together with its consolidated subsidiaries, the
"Company"), organized in July 1985, is principally engaged in the development,
operation and management of hydroelectric power plants. As of March 31, 1997 and
1996, it had ownership interests in, leased and/or operated projects with a
total operating capacity of approximately 343 and 344 megawatts ("MW"),
respectively. In November 1995, the Company established a subsidiary for the
purpose of developing, acquiring, operating and managing industrial energy
facilities and related industrial assets. Currently, all of the Company's
revenue is derived from the ownership and operation of hydroelectric facilities.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") have been omitted pursuant to such rules
and regulations, although the Company believes that the disclosures herein are
adequate to make the information presented not misleading.
The results of operations for the interim periods shown in this report are
not necessarily indicative of the results to be expected for the fiscal year. In
the opinion of the Company's management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly its financial position as of
March 31, 1997 and June 30, 1996 and the results of its operations and changes
in its financial position for the nine months ended March 31, 1997 and 1996.
These financial statements should be read in conjunction with the June 30, 1996
Audited Consolidated Financial Statements ("June 1996 Financials") and Notes
thereto.
Certain amounts have been reclassified in fiscal 1996 to conform with
fiscal 1997 presentation.
8
<PAGE>
CONSOLIDATED HYDRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts or
otherwise noted)
(Unaudited)
NOTE 3 - 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, CHI Ridgewood Maine Hydro
Corporation and the Partnership.
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. During the three
months ended March 31, 1997, an adjustment to the impairment charge of $0.3
million was recorded.
The following unaudited pro forma financial information for the nine months
ended March 31, 1997 and 1996 has been prepared assuming the disposition of CHI
Maine occurred at the beginning of the periods presented.
(Unaudited)
Nine Months Ended March 31,
1997 1996
---- ----
(Pro forma) (Pro forma)
Operating Revenues $ 41,206 $ 35,591
======= =======
Net loss $ (505) $ (66,092)
======= ========
Net loss per common share $ (15.36) $ (65.41)
======= =======
Weighted average number of common shares 1,285,762 1,280,111
======== ========
9
<PAGE>
CONSOLIDATED HYDRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts or
otherwise noted)
(Unaudited)
NOTE 4 - ADOPTION OF SFAS 121
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 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. See Note 4 to the June 1996
Financials.
The carrying value of the CHI Maine assets has been adjusted upward by $0.3
million for the three months ended March 31, 1997 and $0.7 million for the nine
months ended March 31, 1997 to reflect adjustments to the final sale price of
the assets. This adjustment has been included in (Adjustment)/charge for
impairment of long-lived assets on the Statement of Operations.
As a result of the factors noted above, the Company recorded an impairment
charge of $3.8 million in June 1996, attributable to an other than temporary
decline in the value of certain investments in partnerships which own
hydroelectric facilities. As of January 1, 1997 these partnerships were
dissolved and all of their assets transferred to a 100% owned subsidiary of the
Company. The transfer was accounted for in accordance with the purchase
accounting method.
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 $0.5 million (39(cent) per share) for the nine months
ended March 31, 1997.
NOTE 5 - POSSIBLE RESTRUCTURING
On March 20, 1997, the Company, at a meeting with certain holders (the
"Bondholders") of the Company's 12% Senior Discount Notes, 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. Such discussions are ongoing.
The Bondholders' committee has retained legal counsel, and the Company has
agreed to pay the fees and expenses of such counsel.
NOTE 6 - ISSUANCE OF SERIES F PREFERRED AND SERIES G PREFERRED
On January 31, 1997, 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. The financial statement impact
of this exchange is not material.
10
<PAGE>
CONSOLIDATED HYDRO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts or
otherwise noted)
(Unaudited)
NOTE 7 - INDUSTRY MATTERS
During the three months ended March 31, 1997, Niagara Mohawk Power
Corporation ("NIMO"), a customer of the Company, announced that it had reached
preliminary agreements to restructure power purchase agreements with 19
independent power producers. Neither the Company nor any of its subsidiaries
participated in those negotiations. The impact of the announced settlements on
the Company, if any, is unknown at this time.
NOTE 8 - SALE OF EQUITY INTERESTS
As previously reported, in August 1996, the Company reached a preliminary
agreement with Carol Cunningham, a former executive with the Company, to sell
certain of its pumped storage entities to Mrs. Cunningham. During the three
months ended March 31, 1997, the Company determined that it was unable to
conclude the proposed transaction with Mrs. Cunningham.
NOTE 9 - SUBSEQUENT EVENTS
STAR LAKE HYDRO PROJECT
On April 25, 1997, an affiliate of the Company and its joint venture
partner closed the construction and term financing on the 15 MW Star Lake hydro
project in Newfoundland, Canada and have commenced construction of the project,
which is expected to commence commercial operation in the fall of 1998.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Consolidated Hydro, Inc. ("CHI", and 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 within 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 March 31, 1997, the Company had a 100%
ownership or long-term lease interests in 55 projects (145 megawatts) including
5 projects (5 megawatts) held for sale, a partial ownership interest in 11
projects (82 megawatts), and operations and maintenance ("O&M") contracts with
25 projects (116 megawatts).
On December 23, 1996, the Company disposed of 15 of its 100% owned
hydroelectric facilities ("CHI Maine"), located in the Northeast region. In
connection with the disposition, the Company executed an O&M contract to operate
and maintain the facilities for an initial period of up to 15 years. See Note 3
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. See Note 4 to the
June 1996 Financials (as defined below). The Company has determined that it is
highly unlikely that the Company will successfully develop its pumped storage
projects.
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 below 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."
12
<PAGE>
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 changing 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.
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.
13
<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 by region of projects 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 June 30, 1996
Audited Consolidated Financial Statements ("June 1996 Financials") and related
Notes thereto.
Power Producing Facilities
<TABLE>
<CAPTION>
As of As of As of
March 31, 1997 June 30, 1996 March 31, 1996
MWs #Projects MWs #Projects MWs #Projects
<S> <C> <C> <C> <C> <C> <C>
Northeast:
100% Ownership (1) 90.88(4)(5) 29(4)(5) 102.20 44 102.20 44
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 55 234.71 55
====== === ====== === ====== ===
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) 19.48 5 19.48 5 19.48 5
------ --- ------ --- ----- ---
Total 29.16 10 29.16 10 29.16 10
====== === ====== === ===== ===
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)(5) 55(4)(5) 152.69 67 152.69 67
Partial Ownership (2) 81.53 11 85.66 14 85.66 14
O&M Contracts (3) 115.98(4) 25(4) 105.71 10 105.71 10
------ --- ------ --- ------ ---
Total 343.01 91 344.06 91 344.06 91
====== === ====== === ====== ===
</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.
(5) Includes 5 projects (5.43 megawatts) held for sale.
14
<PAGE>
Selected Operating Information:
<TABLE>
<CAPTION>
Quarter Ended March 31, Nine Months Ended March 31,
1997 1996 1997 1996
----------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Power generation revenues (thousands)(1) $ 15,078 $ 15,744 $ 37,204 $ 33,462
Kilowatt hours produced (thousands)(1) 193,576 195,540 485,096 436,224
Average rate per kilowatt hour(1) 7.8(cent) 8.1(cent)(2) 7.7(cent)
7.7(cent)(3)
</TABLE>
- ---------
(1) Limited to projects included in consolidated revenues.
(2) Excluding the fiscal 1996 results of the CHI Maine projects, the average
rate per kilowatt hour was 7.9(cent)for the three months ended March 31,
1996.
(3) Excluding the fiscal 1996 results of the CHI Maine projects, the average
rate per kilowatt hour was 7.6(cent)for the nine months ended March 31,
1996.
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.
Water Flow by Region (1)
<TABLE>
<CAPTION>
Quarter Ended March 31, Nine Months Ended March
31,
1997 1996 1997 1996
------------------- ------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Northeast Above Average Above Average Above Average Above Average
Southeast Average Above Average Average Above Average
West Above Average Below Average Below Average Below Average
Northwest Above Average Above Average Above Average Above Average
</TABLE>
- ---------
(1) These determinations were made by management based upon water flow in areas
where the Company's projects are located and may not be applicable to the
entire region.
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 (in thousands) 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.
15
<PAGE>
Power Generation Revenues (1)
Fiscal 1997 Fiscal 1996
--------------------- ---------------------
$ % $ %
First Fiscal Quarter $ 8,855(2) 23.8 $ 5,363 10.8
Second Fiscal Quarter 13,271(2) 35.7 12,355 24.8
Third Fiscal Quarter 15,078(2) 40.5 15,744(3) 31.6
Fourth Fiscal Quarter 16,299 32.8
------- ---- --------- ----
Total $37,204 100.0 $ 49,761(2) 100.0
======= ===== ========= =====
- -----------------
(1) Limited to projects included in consolidated revenues.
(2) Includes business interruption revenue of $840, $175, $234 and $195
representing claims for lost generation recoverable from an insurance
company for the fiscal year ended June 30, 1996, and the three months ended
September 30, 1996, December 31, 1996 and March 31, 1997, respectively,
$1,129 of which has been recovered as of March 31, 1997.
(3) Includes $1,763 of power generation revenue from the CHI Maine projects,
which were sold on December 23, 1996.
Kilowatt Hours Produced (1)
Fiscal 1997 Fiscal 1996
------------------- ----------------------
kWh % kWh %
First Fiscal Quarter 125,197(2) 25.8 80,596 12.4
Second Fiscal Quarter 166,323(2) 34.3 160,088 24.7
Third Fiscal Quarter 193,576(2) 39.9 195,540(3) 30.3
Fourth Fiscal Quarter 211,440 32.6
------- ----- ------- -----
Total 485,096 100.0 647,664(2) 100.0
======= ===== ======= =====
- -------------
(1) Limited to projects included in consolidated revenues.
(2) Includes the production equivalent of 15,335 kWh, 2,682 kWh, 3,300 kWh and
3,429 kWh of the business interruption revenue recoverable as a result of
insurance claims for the fiscal year ended June 30, 1996 and the three
months ended September 30, 1996, December 31, 1996 and March 31, 1997,
respectively.
(3) Includes 19,310 kWh's from the CHI Maine projects, which were sold on
December 23, 1996.
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Operating Revenues
Power Generation Revenue. The Company's power generation revenue decreased
by $0.6 million (3.8%), from $15.7 million to $15.1 million for the three months
ended March 31, 1996 and 1997, respectively. Excluding the fiscal 1996 results
of CHI Maine, sold on December 23, 1996, power generation revenue increased by
$1.1 million (7.9%), from $14.0 million to $15.1 million for the three months
ended March 31, 1996 and 1997, respectively.
The Northeast region experienced increased revenues of $0.8 million, due to
well above average water flows and precipitation for the three months ended
March 31, 1997 as compared to slightly above average water flows and
precipitation for the three months ended March 31, 1996.
The Southeast region experienced a minimal increase in revenues of $0.1
million.
The West and Northwest regions (combined) experienced increased revenues of
$0.2 million, primarily as a result of above average water flow and
precipitation in the West region for the three months ended March 31, 1997,
coupled with the addition of three newly-consolidated projects in the West
region on January 1, 1997.
The Company as a whole experienced decreased revenue per kilowatt hour of
0.3(cent) (3.7%), from 8.1(cent) to 7.8(cent) in the 1996 fiscal period versus
the 1997 fiscal period, respectively. Excluding the fiscal 1996 results of CHI
Maine, revenue per kilowatt hour decreased 0.1(cent) (1.3%), from 7.9(cent) to
7.8(cent) 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.
16
<PAGE>
Management Fees and Operations & Maintenance Revenues. Management fees and
O&M contract revenue increased by $0.2 million (15.4%), from $1.3 million to
$1.5 million for the three months ended March 31, 1996 and 1997, respectively.
Excluding the addition of the CHI Maine O&M contract, management fees and O&M
contract revenue decreased by $0.1 million (7.7%), from $1.3 million to $1.2
million for the three months ended March 31, 1996 and 1997, respectively,
primarily due to a decrease in rebillable repair work performed in the West
region.
Equity Income in Partnership Interests and Other Partnership Income. Equity
income in partnership interests and other partnership income remained constant
at $0.2 million for the three months ended March 31, 1996 and 1997,
respectively.
Costs and Expenses
Operating Expenses. Operating expenses decreased by $0.1 million (2.3%),
from $4.3 million to $4.2 million for the three months ended March 31, 1996 and
1997, respectively. Excluding the fiscal 1996 results of the CHI Maine projects
and the fiscal 1997 addition of the CHI Maine O&M contract, operating expenses
increased by $0.1 million (2.4%) from $4.1 million to $4.2 million for the three
months ended March 31, 1996 and 1997, respectively, primarily due to (i) an
increase in property taxes resulting from the reversal of an over accrual in
fiscal 1996 coupled with increased revenues in the Northeast region and (ii) an
increase in insurance premiums and other operating costs, partially offset by
(i) a decrease in salaries and benefits resulting from an increase in the
allocation of operating labor charged to capital projects and (ii) a decrease in
non-recurring maintenance and supplies expense.
General and Administrative Expenses. General and administrative expenses
increased by $0.1 million (5.3%), from $1.9 million to $2.0 million for the
three months ended March 31, 1996 and 1997, respectively. The increase was
primarily due to costs associated with the formulation of financial
restructuring options for the Company, partially offset by (i) a decrease in
general and administrative salaries and benefits resulting from an increase in
the allocation of general and administrative labor elsewhere and (ii) a decrease
in legal and other professional fees.
Depreciation and Amortization
Depreciation and amortization remained constant at $2.2 million for the
three months ended March 31, 1996 and 1997, respectively.
Interest Expense
Interest expense increased by $0.1 million (1.4%), from $7.2 million to
$7.3 million for the three months ended March 31, 1996 and 1997, respectively.
The increase was 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.
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 nine months ended March 31,
1996 and, as a result, the Company recorded an impairment charge of $83.4
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 the three months ended March 31, 1997, the carrying value of those assets
has been adjusted upward by $0.3 million to reflect adjustments to the sale
price of certain of those assets. This adjustment has been included in
(Adjustment)/charge for impairment of long-lived assets on the Statement of
Operations.
17
<PAGE>
Nine Months Ended March 31, 1997 compared to Nine Months Ended March 31, 1996
Operating Revenues
Power Generation Revenue. The Company's power generation revenue increased
by $3.7 million (11.0%), from $33.5 million to $37.2 million for the nine months
ended March 31, 1996 and 1997, respectively. Excluding the fiscal 1996 results
of CHI Maine, sold on December 23, 1996, power generation revenue increased by
$5.5 million (17.4%), from $31.7 million to $37.2 million for the nine months
ended March 31, 1996 and 1997, respectively.
The Northeast region experienced increased revenues of $4.8 million due to
well above average water flows and precipitation for the nine months ended March
31, 1997 as compared to slightly above average water flows and precipitation for
the nine months ended March 31, 1996.
The Southeast region experienced a minimal increase of $0.1 million.
The West and Northwest regions (combined) experienced increased revenues of
$0.6 million primarily as a result of well above average water flows and
precipitation in the Northwest region, for the nine months ended March 31, 1997
as compared to slightly above average water flows and precipitation in the
Northwest region for the nine months ended March 31, 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 remained constant at 7.7(cent) per
kilowatt hour in the 1996 fiscal period versus the 1997 fiscal period,
respectively. Excluding the fiscal 1996 results of CHI Maine, revenue per
kilowatt hour increased 0.1(cent) (1.3%), from 7.6(cent) to 7.7(cent) 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.
Management Fee and Operations & Maintenance Revenues. Management fees and
O&M contract revenue increased by $0.3 million (7.9%), from $3.8 million to $4.1
million for the nine months ended March 31, 1996 and 1997, respectively.
Excluding the addition of the CHI Maine O&M contract, management fees and O&M
contract revenue remained relatively constant, increasing by $0.1 million
(2.6%), from $3.8 million to $3.9 million for the nine months ended March 31,
1996 and 1997, respectively.
Equity Income in Partnership Interests and Other Partnership Income. Equity
income in partnership interests and other partnership income increased $0.3
million (100%), from $0.3 million to $0.6 million for the nine months ended
March 31, 1996 and 1997, respectively. The increase is primarily due to above
average water flows and precipitation for the nine months ended March 31, 1997
as compared to the nine months ended March 31, 1996 related to partnership
interests in the Northeast region.
Costs and Expenses
Operating Expenses. Operating expenses remained constant at $13.1 million
for the nine months ended March 31, 1996 and 1997, respectively. Excluding the
fiscal 1996 results of the CHI Maine projects and the fiscal 1997 addition of
the CHI Maine O&M contract, operating expenses increased by $0.1 million (0.8%),
from $12.9 million to $13.0 million for the nine months ended March 31, 1996 and
1997, respectively. The increase was primarily due to an increase in insurance
premiums and smaller increases in other operating costs, partially offset by (i)
a decrease in salaries and benefits resulting from an increase in the allocation
of operating labor charged to capitalized projects and (ii) a decrease in
non-recurring maintenance and supplies expense.
General and Administrative Expenses. General and administrative expenses
increased $1.3 million (34.2%) from $3.8 million to $5.1 million for the nine
months ended March 31, 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 pumped storage business
development costs for the six months ended December 31, 1996, that had
previously been capitalized during the six months ended December 31, 1995 and
(iii) an increase in business development costs.
18
<PAGE>
Depreciation and Amortization
Depreciation and amortization decreased $1.1 million (14.5%) from $7.6
million to $6.5 million, for the nine months ended March 31, 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 six months
ended December 31, 1996 as compared to the six months ended December 31, 1995.
Interest Expense
Interest expense increased by $2.3 million (11.7%), from $19.7 million to
$22.0 million for the nine months ended March 31, 1996 and 1997, respectively.
The increase is 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 six months ended December 31, 1996,
that had previously been capitalized during the six months ended December 31,
1995.
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 nine months ended March 31,
1996 and, as a result, the Company recorded an impairment charge of $83.4
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. The
carrying value of certain of those assets has been adjusted upward by $0.7
million to reflect adjustments to the sale price of the assets. This adjustment
has been included in (Adjustment)/charge for impairment of long-lived assets on
the Statement of Operations for the nine months ended March 31, 1997.
Minority Interests in Loss of Consolidated Subsidiaries
The Company recognized a benefit of approximately $2.1 million for the nine
months ended March 31, 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 $7.9 million and $1.7 million for the nine months ended
March 31, 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 losses ("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 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 has recorded a $5,622
Extraordinary gain on early extinguishment of debt, net of certain transaction
costs of approximately $224 and income tax of $3,414, on its Statement of
Operations for the nine months ended March 31, 1997.
19
<PAGE>
Liquidity and Capital Resources
As more fully described in the March 31, 1997 Unaudited Consolidated
Financial Statements and related Notes thereto included herein, the cash flow of
the Company was comprised of the following:
Nine Months ended
March 31, 1997 March 31, 1996
--------------------- --------------------
(amounts in thousands)
Cash provided by/(used in):
Operating activities $ 8,589 $ 4,009
Investing activities 6,116 (3,743)
Financing activities (4,682) (3,060)
---------- --------
Net increase/(decrease) in cash $ 10,023 $ (2,794)
========== ========
The Company has historically financed its capital needs and acquisitions
through long-term debt, preferred stock and limited partner capital
contributions and, to a lesser extent, through cash provided from operating
activities. The Company's principal capital requirements are those associated
with acquiring and developing new projects, as well as upgrading existing
projects. The Company is currently limiting its pumped storage activities to the
minimum necessary to maintain the viability of its projects and the monitoring
of relevant market conditions. Consequently, the Company does not expect its
capital requirements in connection with the development of pumped storage
projects to be material in the near term.
For the nine months ended March 31, 1997, the cash flow provided by
operating activities was principally the result of the $0.1 million net income
for such period, adjusted for $15.7 million of non-cash interest and other
charges, $6.5 million of depreciation and amortization, offset by a $5.6 million
gain on early extinguishment of debt, a $1.7 million deferred tax benefit, a
$2.5 million decrease in accounts payable and accrued expenses, a $2.8 million
increase in accounts receivable, $0.7 million from an adjustment to a non-cash
charge for impairment of long-lived assets 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 $2.8 million of
investments in upgrading existing conventional projects, $1.2 million for the
continued development of a new conventional hydroelectric project and a $1.9
million increase in other long term assets during fiscal 1997. The cash flow
used in financing activities was primarily due to the repayment of $4.5 million
of project debt.
Cash provided by operating activities increased by $4.6 million for the
nine months ended March 31, 1997 as compared to the nine months ended March 31,
1996. The increase resulted from a $3.5 million increase in income before
depreciation and amortization, non-cash interest and other charges, employee and
director equity programs, non-cash adjustment for impairment of long-lived
assets, benefits relating to deferred tax liabilities, gain on early
extinguishment of debt, minority shareholders' interest in loss of consolidated
subsidiaries and provision for uncollectible accounts receivable, coupled with a
$1.1 million increase resulting from variations in other operating items
(receivables, prepaid expenses, accounts payable and accrued expenses).
For the nine months ended March 31, 1996, the cash flow provided by
operating activities was principally the result of the $84.0 million net loss
for such period, adjusted for an $83.4 million non-cash charge for impairment of
long-lived assets, and benefits of $7.9 million and $2.1 million for deferred
tax and minority shareholders' interest in loss of consolidated subsidiaries,
respectively, resulting from such impairment charge, a $4.2 million increase in
accounts receivable, a $2.6 million decrease in accounts payable and accrued
expenses, offset by $7.6 million of depreciation and amortization and $13.6
million for non-cash interest. The cash flow used in investing activities was
primarily attributable to $1.7 million investment in upgrading existing
conventional projects and $1.8 million investments in pumped storage and
conventional development during fiscal 1996. Of the pumped storage and
conventional development expenditures, approximately $1.2 million was
attributable to capitalized interest costs, and $0.9 million was attributable to
the funding of committed development capital for the Summit and River Mountain
pumped storage projects. The cash flow used in financing activities was due
primarily to repayment of $3.1 million of project debt.
20
<PAGE>
Cash provided by operating activities decreased by $4.4 million for the
nine months ended March 31, 1996 as compared to the nine months ended March 31,
1995. The decrease resulted from a $3.4 increase in income before depreciation
and amortization, non-cash interest, non-cash charge for impairment of
long-lived assets, tax benefit resulting from a charge for impairment of
long-lived assets, minority shareholders' interest in loss of consolidated
subsidiaries and employee and director equity programs, offset by a $7.8 million
decrease resulting from variations in other operating items (receivables,
prepaid expenses, accounts payable and accrued expenses).
Summary of Indebtedness
Principal Amount Outstanding as of
March 31, 1997 June 30, 1996
--------------------- ----------------
(amounts in thousands)
Company debt, excluding non-recourse
debt of subsidiaries $ 169,813 $ 151,131
Non-recourse debt of subsidiaries 102,070 115,489
Current portion of long-term debt (6,024) (6,462)
---------- ----------
Total long-term debt obligations $ 265,859 $ 260,158
========= =========
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 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 $6.0 million at September 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.
21
<PAGE>
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.
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 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. In
order to meet such obligations, the Company currently anticipates that it will
have to rely on proceeds from asset sales, additional debt or equity offerings
or other sources. However, the Company also currently anticipates that it may
not be able to obtain the necessary additional debt or equity financing or
sufficient proceeds from asset sales or other sources in order 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 8% Senior Convertible Voting Preferred Stock and its capital
expenditure and working capital requirements at such time. As a result, it may
be necessary to restructure the Company's debt and equity structure either
before or at such time. In addition, the Company anticipates that it would need
to obtain financing for 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. There can be no assurance that any such additional financing
will be available to the Company.
In December 1996, the Company retained Houlihan Lokey Howard & Zukin, Inc.,
a specialty investment banking firm, to provide financial advisory services to
the Company in connection with the formulation and potential implementation of
financial restructuring options for the Company. On March 20, 1997, the Company,
at a meeting with certain holders (the "Bondholders") of the Company's 12%
Senior Discount Notes, 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. Such discussions are ongoing. The Bondholders'
committee has retained legal counsel, and the Company has agreed to pay the fees
and expenses of such counsel.
Also, the Company may consider from time to time, either prior to 1998 or
thereafter, the use of available cash, if any, to engage in repurchases of the
Senior Discount Notes, subject to applicable contractual restrictions and other
appropriate uses, in negotiated transactions or at market prices. There can be
no assurance that, if the Company decides to engage in repurchases of the Senior
Discount Notes, any Senior Discount Notes will be available for repurchase by
the Company on terms that would be favorable or acceptable to the Company.
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.
22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
CHI's management currently believes that none of the pending claims against
the Company will have a material adverse effect on the Company.
Item 2. Changes in Securities
NONE
Item 3. Default upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Employment Agreement dated as of January 1, 1997, by and
between Consolidated Hydro, Inc. and Michael I. Storch.
Exhibit 10.2 Employment Agreement dated as of January 1, 1997, by and
between Consolidated Hydro, Inc. and Edward M. Stern.
Exhibit 10.3 Employment Agreement dated as of January 14, 1997, by and
between Consolidated Hydro, Inc. and Mary V. Gilbert.
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on January 7, 1997,
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 25, 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.
23
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 14, 1997 CONSOLIDATED HYDRO, INC.
By: /s / Patrick J. Danna
--------------------------
Patrick J. Danna
Vice President, Controller
signing on behalf of the registrant
and as Chief Accounting Officer
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.
(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;
<PAGE>
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 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.)
<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 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.
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
permissible under the general terms and provisions of such plans or programs and
in accordance with the provisions thereof.
<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 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:
(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:
<PAGE>
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.
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
<PAGE>
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 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;
<PAGE>
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 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.
<PAGE>
(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.
(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.
<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.
<PAGE>
(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 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.
<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: ________________________
James T. Stewart
Its: Chief Executive Officer
---------------------------
Michael I. Storch
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.
(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
<PAGE>
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.)
(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.
<PAGE>
(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
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
<PAGE>
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:
(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;
<PAGE>
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 "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.
<PAGE>
(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.
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.
<PAGE>
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 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
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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: ________________________
James T. Stewart
Its: Chief Executive Officer
---------------------------
Edward M. Stern
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 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
<PAGE>
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 50% 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 President 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 she
still be employed hereunder at such time.
<PAGE>
(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.
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.
<PAGE>
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 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.
<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
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 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 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:
<PAGE>
(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 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.
<PAGE>
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 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 the two preceding sentences, the Compliance Period
shall end on the expiration of the term of this Agreement.
<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, 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.
(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.
<PAGE>
(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 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
<PAGE>
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: ________________________
James T. Stewart
Its: Chief Executive Officer
---------------------------
Mary V. Gilbert
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<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-END> MAR-31-1997 MAR-31-1997
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110,242 110,242
98,712 98,712
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