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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
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: 33-69762
CHI ENERGY, 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 by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. 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 14, 1998
--------------------------------------- ------------------------------
Common stock, $.01 par value 9,085,290
Class B Outstanding as of May 14, 1998
--------------------------------------- ------------------------------
Common stock, $.01 par value 914,710
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<PAGE>
INDEX
Page No.
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..................................... 2
Consolidated Statement of Income for the three months
ended March 31, 1998 and 1997 (Unaudited)............. 3
Consolidated Balance Sheet at March 31, 1998
and December 31, 1997 (Unaudited).................... 4
Consolidated Statement of Stockholders' Equity
for the three months ended March 31, 1998 (Unaudited). 5
Consolidated Statement of Cash Flows for the three months
ended March 31, 1998 and 1997 (Unaudited)............. 6-7
Notes to Consolidated Financial Statements (Unaudited) .. 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 10-17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk..................................... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................ 18
Item 2 Changes in Securities and Use of Proceeds................ 18
Item 3. Defaults upon Senior Securities.......................... 18
Item 4. Submission of Matters to a Vote of Security Holders...... 18
Item 5. Other Information........................................ 18
Item 6. Exhibits and Reports on Form 8-K......................... 18
Signature
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHI ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
2
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
THREE MONTHS ENDED
MARCH 31,
1998 1997
------- -------
<S> <C> <C>
OPERATING REVENUES:
Power generation revenue $ 14,712 $ 15,078
Management fees and operations & maintenance revenues 1,512 1,457
Equity income in partnership interests and other partnership income 1,231 241
-------- --------
17,455 16,776
-------- --------
COSTS AND EXPENSES:
Operating 4,601 4,208
General and administrative 2,275 1,997
Charge for employee and director equity participation programs - 25
Depreciation and amortization 1,828 2,162
Lease expense to a related party - 801
Lease expense to unrelated parties 1,430 655
Adjustment to impairment of long-lived assets - (323)
------- --------
10,134 9,525
------- --------
Income from operations 7,321 7,251
INTEREST INCOME 272 455
OTHER INCOME 191 132
INTEREST EXPENSE ON INDEBTEDNESS TO RELATED PARTIES - (2,656)
INTEREST EXPENSE ON INDEBTEDNESS TO UNRELATED PARTIES (2,112) (4,693)
------- ------
Income before (provision)/benefit for income taxes 5,672 489
(PROVISION)/BENEFIT FOR INCOME TAXES (1,053) 142
------- ------
NET INCOME $ 4,619 $ 631
======= ======
NET INCOME/(LOSS) APPLICABLE TO COMMON STOCK:
Net income $ 4,619 $ 631
Dividends declared on preferred stock - (3,788)
Accretion of preferred stock - (214)
Undeclared dividends on cumulative preferred stock - (2,703)
------- --------
$ 4,619 $ (6,074)
======= ========
NET INCOME PER COMMON SHARE (A) $ 0.46 n/a
WEIGHTED AVERAGE NUMBER OF COMMON SHARES (A) 10,000,000 n/a
</TABLE>
(a) Share and per share data are not meaningful on or prior to November 7, 1997
due to the significant change in the capital structure in connection
with the Plan of Reorganization.
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED BALANCE SHEET
(Amounts in thousands except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
1998 1997
-------- --------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents unrestricted $ 8,226 $ 6,869
Cash and cash equivalents restricted 6,417 5,129
Accounts receivable, net 9,338 7,957
Prepaid expenses and other current assets 1,765 1,406
-------- --------
Total current assets 25,746 21,361
PROPERTY, PLANT AND EQUIPMENT, NET 92,776 93,692
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE
TO IDENTIFIABLE ASSETS, NET 15,356 17,300
INTANGIBLE ASSETS, NET 47,207 47,800
INVESTMENTS AND OTHER LONG-TERM ASSETS 41,627 41,808
--------- ---------
$ 222,712 $ 221,961
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 6,448 $ 7,990
Current portion of long-term debt 5,446 5,355
Total current liabilities 11,894 13,345
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES 80,158 82,616
DEFERRED CREDIT, STATE INCOME TAXES AND OTHER
LONG-TERM LIABILITIES 40,236 40,195
COMMITMENTS AND CONTINGENCIES -------- -------
Total liabilities 132,288 136,156
======== ========
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, no shares issued - -
Common stock, $.01 par value, 20,000,000
shares authorized
Class A common stock, 9,085,290 shares issued
and outstanding 91 91
Class B common stock, 914,710 shares issued
and outstanding 9 9
Additional paid-in capital, including $2,064 related
to warrants 85,000 85,000
Retained earnings 5,324 705
--------- ---------
Total stockholders' equity 90,424 85,805
--------- ---------
$ 222,712 $ 221,961
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Amounts in thousands except shares and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
NUMBER NUMBER ADDITIONAL TOTAL
OF SHARES REPORTED OF SHARES PAR PAID-IN RETAINED STOCKHOLDERS'
OUTSTANDING AMOUNT OUTSTANDING VALUE CAPITAL EARNINGS EQUITY
---------- -------- ----------- ----- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1997 - - 10,000,000 $ 100 $ 85,000 $ 705 $ 85,805
Net income 4,619 4,619
BALANCE MARCH 31, 1998 - - 10,000,000 $ 100 $ 85,000 $ 5,324 $ 90,424
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
----------- -----------
THREE MONTHS ENDED
MARCH 31,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 4,619 $ 631
Adjustments to reconcile net income to net cash provided by
operating activities before reorganization items:
Non cash interest and other charges 185 5,262
Non cash adjustment to impairment of long lived assets - (323)
Change in deferred tax liabilities 622 -
Depreciation and amortization 1,828 2,162
Undistributed earnings of affiliates (106) (211)
Increase in accounts receivable (1,381) (1,614)
Increase in prepaid expenses and other current assets (359) (515)
Decrease in accounts payable and accrued expenses (1,354) (621)
------- ------
Net cash provided by operating activities
before reorganization items 4,054 4,771
------- ------
Operating cash flows used for reorganization items:
Professional fees (188) --
------ -------
Net cash used for reorganization items (188) --
------ -------
Net cash provided by operating activities 3,866 4,771
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of assets - 323
Cost of development expenditures - (452)
Capital expenditures (136) (428)
Decrease/(increase) in investments and other long term assets 287 (832)
------- ------
Net cash provided by/(used in) investing activities 151 (1,389)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long term borrowings from unrelated parties - 103
Payments to a related party on long term borrowings - (158)
Payments to unrelated parties on long term borrowings (1,374) (1,127)
Increase/(decrease) in other long term liabilities 2 (14)
-------- --------
Net cash used in financing activities (1,372) (1,196)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,645 2,186
-------- --------
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD 11,998 31,671
-------- --------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 14,643 $ 33,857
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands except share and per share amounts)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
REORGANIZED PREDECESSOR
COMPANY COMPANY
------------ ------------
THREE MONTHS ENDED
MARCH 31,
1998 1997
--------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest paid to related party $ - $ 834
=========== ===========
Interest paid to unrelated parties $ 2,057 $ 1,377
=========== ===========
Income taxes, net $ 375 $ 73
=========== ===========
</TABLE>
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Reorganization value in excess of amounts allocable to identifiable assets and
deferred credit, state income taxes and other long-term liabilities decreased by
$622 for the three months ended March 31, 1998 as a result of the reversal of
tax valuation allowances related to net operating loss carryforwards.
Reorganization value in excess of amounts allocable to identifiable assets and
long-term debt and obligations under capital leases decreased by $1,037 for the
three months ended March 31, 1998 as a result of the termination of a land
option agreement.
The accompanying notes are an integral part of the consolidated
financial statements.
7
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts or otherwise noted)
(Unaudited)
NOTE 1 - ORGANIZATION
CHI Energy, Inc., formerly Consolidated Hydro, Inc. ("CHI", and together
with its consolidated subsidiaries, the "Company"), has been engaged in the
energy business since its founding in 1985. Its principal business is the
development, operation and management of industrial energy and other
infrastructure assets and of hydroeletric power plants. Currently, all of the
Company's revenue is derived from the ownership and operation of hydroelectric
facilities. Industrial infrastructure assets include power plants, steam
boilers, air compressors, water and wastewater treatment facilities, and other
utility-type facilities that support the manufacture of products in capital
intensive process industries such as pulp and paper, chemicals, textile, food
and beverage, etc. As of March 31, 1998 and 1997, the Company had ownership
interests in, leased and/or operated projects with a total operating capacity of
336 and 343 megawatts ("MW"), respectively.
On September 15, 1997, CHI commenced a case under chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") and filed a plan of reorganization (the "Plan
of Reorganization") and a disclosure statement. The Bankruptcy Court entered an
order confirming the Plan of Reorganization on October 23, 1997 and the Plan of
Reorganization became effective on November 7, 1997 (the "Effective Date").
As of the Effective Date, the Company adopted fresh start reporting in
accordance with American Institute of Certified Public Accountants Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"). The accompanying consolidated financial
statements reflect the use of fresh start reporting as required by SOP 90-7, in
which assets and certain liabilities were adjusted to their fair values and
resulted in the creation of a new reporting entity (the "Reorganized Company")
with no retained earnings or accumulated deficit as of November 7, 1997.
Accordingly, the consolidated financial statements for the periods prior to and
including November 7, 1997 (the "Predecessor Company") are not comparable to the
consolidated financial statements presented subsequent to November 7, 1997. A
black line has been drawn on the accompanying consolidated financial statements
to distinguish between the Reorganized Company and Predecessor Company balances.
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, 1998 and December 31, 1997 and the results of its operations and
changes in its financial position for the three months ended March 31, 1998 and
1997. These financial statements should be read in conjunction with the December
31, 1997 Audited Consolidated Financial Statements ("December 1997 Financials")
and Notes thereto.
8
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except per share amounts or otherwise noted)
(Unaudited)
NOTE 3 - CREDIT FACILITY
On March 31, 1998, the Company obtained a $15,000 secured revolving credit
facility with an initial expiration date of December 31, 1999 (the "Facility").
The Company will use proceeds from the Facility to support its development,
acquisition and operating activities. Upon expiration of the Facility, any
outstanding revolving loans will, at the Company's option, be converted into a
five year term loan. The interest rate on the revolving loans is prime + 1.5%.
As of May 14, 1998, no revolving loans were outstanding under the Facility and
$1,100 of letters of credit have been issued.
NOTE 4 - TAXES
The Company's current tax provision differs from the statutory effective
tax rate mainly due to the utilization of net operating loss carryforwards which
previously have been offset by a valuation allowance.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
There has been no significant change in the status of legal proceedings
filed against the Company since December 31, 1997 and management believes that
these legal proceedings will not have a material adverse effect on the Company's
financial position or results of operations.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ---- RESULTS OF OPERATIONS
GENERAL
CHI Energy, Inc., formerly Consolidated Hydro, Inc. ("CHI", and together
with its consolidated subsidiaries, the "Company"), has been engaged in the
energy business since its founding in 1985 and is currently principally engaged
in the development, operation and management of industrial energy and other
infrastructure assets and of hydroelectric power plants. Currently, all of the
Company's revenue is derived from the ownership and operation of hydroelectric
facilities (the Company's "hydroelectric business"). The Company's operating
hydroelectric projects are located in 15 states in the United States and one
province in Canada. The Company believes its future growth will come primarily
from its industrial infrastructure business.
On September 15, 1997, CHI commenced a case under chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") and filed a plan of reorganization (the "Plan
of Reorganization") and a disclosure statement. The Bankruptcy Court entered an
order confirming the Plan of Reorganization on October 23, 1997 and the Plan of
Reorganization became effective on November 7, 1997 (the "Effective Date").
As of the Effective Date, CHI adopted fresh start reporting in accordance
with American Institute of Certified Public Accountants Statement of Position
90-7 "Financial Reporting by Entities in Reorganization Under The Bankruptcy
Code," ("SOP 90-7") which resulted in the creation of a new reporting entity.
The accompanying financial information for the three months ended March 31, 1998
reflects the financial condition and results of operations of the new reporting
entity (the "Reorganized Company") while financial information for the three
months ended March 31, 1997 relates to the former reporting entity (the
"Predecessor Company").
The Company's existing U.S. hydroelectric 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. As of March 31, 1998, the Company had a 100%
ownership or long-term lease interests in 51 projects (138 megawatts), a partial
ownership interest in 11 projects (82 megawatts), and operations and maintenance
("O&M") contracts with 24 projects (116 megawatts).
CHI sells substantially all of the electric energy and capacity from its
U.S. projects to public utility companies pursuant to take or 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.
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 believes that it is well positioned to take advantage of new
business opportunities occasioned by electric industry restructuring in the U.S.
and by other trends within its target customer group, which includes industrial
companies. The Company will seek to capitalize on these new opportunities in
energy-related products and services by taking advantage of its existing
technical and financial expertise and using its geographic presence in most U.S.
regions and Eastern Canada to realize economies of scale in development,
acquisition, administration, operation and maintenance of facilities.
10
<PAGE>
A principal business focus of the Company is to develop, acquire, operate
and manage industrial energy facilities and related industrial infrastructure
assets in such sectors as pulp and paper, petroleum refining, chemicals,
textiles, and other energy-intensive industries (the Company's "industrial
infrastructure business"). Industrial infrastructure assets include assets such
as those used to produce electricity, steam, or chilled water, or facilities
used for chemical recovery, storage, and water and wastewater treatment. These
assets are typically assets that are necessary but ancillary to the customer's
primary manufacturing activities. By outsourcing its infrastructure assets to
the Company, the customer may derive a financial benefit and may also benefit
from the opportunity to focus its resources on its primary business, while CHI
may benefit from the long-term revenue stream resulting from such an
arrangement.
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. 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.
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.
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 28
years. After the expiration of such power purchase agreements, rates generally
change to the purchasing utility's avoided cost for delivered energy, which
avoided cost rates are likely to be lower than expiring power purchase agreement
rates. Fluctuations in revenues and related cash flows are generally
attributable to changes in projects in operation, coupled with variations in
water flows and the effect of escalating and declining contract rates in the
Company's power purchase agreements.
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.
11
<PAGE>
CERTAIN KEY OPERATING RESULTS AND TRENDS
The information provided in the tables below is included to provide an
overview of certain key operating results and trends which, when read in
conjunction with the narrative discussion that follows, is intended to provide
an enhanced understanding of the Company's results of operations. These tables
include information regarding the Company's ownership of projects by region as
well as information on regional precipitation. As presented, the Company's
project portfolio is concentrated in the Northeastern United States, a region
characterized by relatively consistent long-term water flow and power purchase
contract rates which are higher than in most other regions of the country.
This information should be read in conjunction with the December 31, 1997
Audited Consolidated Financial Statements ("December 1997 Financials") and
related Notes thereto.
<TABLE>
<CAPTION>
Power Producing Facilities
AS OF AS OF AS OF
MARCH 31, 1998 DECEMBER 31, 1997 MARCH 31, 1997
---------------- ------------------ --------------
MWS #PROJECTS MWS #PROJECTS MWS #PROJECTS
--- --------- --- --------- --- ---------
Northeast:
<S> <C> <C> <C> <C> <C> <C>
100% Ownership (1) 90.88 29 90.88 29 90.88 29
Partial Ownership (2) 52.37 8 52.37 8 52.37 8
O&M Contracts (3) 92.16 19 92.16 19 92.16 19
--------- ---- --------- ---- --------- ----
Total 235.41 56 235.41 56 235.41 56
====== === ====== === ====== ===
Southeast:
100% Ownership (1) 27.42 13 27.42 13 27.42 13
Partial Ownership (2) -- -- -- -- -- --
O&M Contracts (3) -- -- -- -- -- --
--------- ---- --------- ---- --------- ----
Total 27.42 13 27.42 13 27.42 13
====== === ====== === ====== ===
West:
100% Ownership (1) 5.38 3 5.38(4) 3(4) 5.48 4
Partial Ownership (2) 4.20 1 4.20 1 4.20 1
O&M Contracts (3) 19.08 4 19.08 4 19.48 5
--------- ---- --------- ---- ---------- ----
Total 28.66 8 28.66 8 29.16 10
====== === ====== === ====== ===
Northwest:
100% Ownership (1) 14.71 6 14.71(5) 6(5) 21.72 9
Partial Ownership (2) 24.96 2 24.96 2 24.96 2
O&M Contracts (3) 4.34 1 4.34 1 4.34 1
--------- ---- --------- ---- ---------- ----
Total 44.01 9 44.01 9 51.02 12
====== === ====== === ====== ===
Total:
100% Ownership (1) 138.39 51 138.39(4)(5) 51(4)(5) 145.50 55
Partial Ownership (2) 81.53 11 81.53 11 81.53 11
O&M Contracts (3) 115.58 24 115.58 24 115.98 25
----------- ---- ----------- ---- ---------- ----
Total 335.50 86 335.50 86 343.01 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 one project (0.10 megawatts) on July 17, 1997. (5)
Reflects the decommissioning of 3 projects (7.01 megawatts) on September 9,
1997.
12
<PAGE>
Selected Operating Information:
THREE MONTHS ENDED MARCH 31,
1998 1997
----------- -------------
Power generation revenues (thousands)(1) $ 14,712 $ 15,078(2)
Kilowatt hours produced (thousands)(1) 192,355 193,576
Average rate per kilowatt hour (1) 7.6(cent) 7.8(cent)
- ---------
(1) Limited to projects included in consolidated revenues.
(2) Includes business interruption revenue of $195.
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)
THREE MONTHS ENDED MARCH 31,
1998 1997
------------------- -------------------
Northeast Above Average Above Average
Southeast Average Average
West Above Average Above Average
Northwest Average Above Average
- ---------
(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 from January
through June, when water flow is at its highest at most of the Company's
projects, and lowest from July through September. The amount of water flow in
any given period will have a direct effect on the Company's production, revenues
and cash flow.
The following tables, which show revenues from power sales and kilowatt
hour production by 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.
13
<PAGE>
Power Generation Revenues (in thousands) (1)
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------- -----------------------
$ % $ %
-- -- -- --
First Quarter $ 14,712 100.0 $15,078(2) 34.4
Second Quarter 13,461 30.7
Third Quarter 6,422 14.7
Fourth Quarter 8,837 20.2
Total $ 14,712 100.0 $ 43,798 100.0
========= ===== ======= =====
- -----------------
(1) Limited to projects included in consolidated revenues.
(2) Includes business interruption revenue of $195 for the three months ended
March 31, 1997.
Kilowatt Hours (kWh) Produced (in thousands) (1)
TWELVE MONTHS ENDED TWELVE MONTHS
DECEMBER 31, 1998 ENDED DECEMBER 31,
1997
---------------------- ----------------------
KWH % KWH %
--- -- --- --
First Quarter 192,355 100.0 193,576(2) 33.3
Second Quarter 178,824 30.7
Third Quarter 95,852 16.5
Fourth Quarter 113,601 19.5
------------ -------- ----------- --------
Total 192,355 100.0 581,853 100.0
============ ======== =========== ========
- -------------
(1) Limited to projects included in consolidated revenues.
(2) Includes the production equivalent of 3,429 kWh of the business
interruption revenue for the three months ended March 31, 1997.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Operating Revenues
- ------------------
Power Generation Revenue. The Company's power generation revenue decreased
by $0.4 million (2.6%), from $15.1 million to $14.7 million for the three months
ended March 31, 1997 and 1998, respectively.
The Northeast region experienced relatively consistent revenues due to
increased water flows at one of the major sites during the three months ended
March 31, 1998; offset by prolonged lost generation at four of its New York
sites as a result of a severe ice storm which crippled the Northeast United
States and Southern Quebec during the three months ended March 31, 1998.
The Southeast region experienced decreased revenues of $0.3 million for the
three months ended March 31, 1998 as a result of the expiration and
renegotiation, at reduced rates, of some of the power purchase agreements.
The West and Northwest regions (combined) experienced a minimal decrease in
revenues of $0.1 million.
The Company as a whole experienced decreased revenue per kilowatt hour of
0.2(cent) (2.6%), from 7.8(cent) to 7.6(cent) in the three months ended March
31, 1997 versus the three months ended March 31, 1998, respectively, primarily
as a result of variations in the production mix and contract rates among the
various projects.
14
<PAGE>
Equity Income in Partnership Interests and Other Partnership Income. Equity
income in partnership interests and other partnership income increased $1.0
million (500.0%) from $0.2 million to $1.2 million for the three months ended
March 31, 1997 and 1998, respectively, primarily due to an increased
distribution received from a minority owned partnership which owns a
hydroelectric project located in the Northeast due to increased funds available
for distribution during the three months ended March 31, 1998.
Costs and Expenses
- ------------------
Operating Expenses. Operating expenses increased by $0.4 million (9.5%),
from $4.2 million to $4.6 million for the three months ended March 31, 1997 and
1998, respectively, primarily due to (i) increased repairs and maintenance in
the Northeast resulting from a severe ice storm during the three months ended
March 31, 1998 and (ii) increased operations and maintenance expenditures in the
West.
General and Administrative Expenses. General and administrative expenses
increased by $0.3 million (15.0%) from $2.0 million to $2.3 million for the
three months ended March 31, 1997 and 1998, respectively, due to an increase in
net worth taxes as a result of an increase in the Company's stockholders equity
in conjunction with the Plan of Reorganization and adoption of fresh start
reporting.
Adjustment to Impairment of Long-Lived Assets. During the three months
ended March 31, 1997, the carrying value of certain assets to be disposed of was
adjusted upward by $0.3 million to reflect adjustments to the sale price of
certain of those assets in accordance with SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Depreciation and Amortization. Depreciation and amortization decreased by
$0.4 million (18.2%) from $2.2 million to $1.8 million for the three months
ended March 31, 1997 and 1998, respectively, due to the revaluation of the
Company's assets and their respective useful lives in conjunction with the
adoption of fresh start reporting.
Interest Expense
- ----------------
Interest expense decreased by $5.2 million (71.2%), from $7.3 million to
$2.1 million for the three months ended March 31, 1997 and 1998, respectively.
The decrease was primarily due to the cessation of the accrual of interest on
CHI's 12% Senior Discount Notes due 2003, Series B which were canceled in
conjunction with the Plan of Reorganization.
Income Taxes
- ------------
For the three months ended March 31, 1998, the Company's current tax
provision differs from the statutory effective tax rate mainly due to the
utilization of net operating loss carryforwards which previously have been
offset by a valuation allowance.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As more fully described in the March 31, 1998 Unaudited Consolidated
Financial Statements and related Notes thereto included herein, the cash flow of
the Company was comprised of the following:
REORGANIZED COMPANY PREDECESSOR COMPANY
---------------------- ----------------------
THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
---------------------- --------------------
(AMOUNTS IN THOUSANDS)
Cash provided by/(used in):
Operating activities $ 3,866 $ 4,771
Investing activities 151 (1,389)
Financing activities (1,372) (1,196)
------------- ------------
Net increase in cash $ 2,645 $ 2,186
======== =======
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 by 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 has secured a $15.0 million working capital and letter of
credit facility which provides additional liquidity to support the Company's
existing operations as well as its future growth. See "--Summary of
Indebtedness. "
For the three months ended March 31, 1998, the cash flow provided by
operating activities was principally the result of the $4.6 million net income
for such period, adjusted for $1.8 million of depreciation and amortization, a
$0.6 million increase in deferred tax liabilities and $0.2 million of non-cash
interest and other charges offset by $0.1 million of undistributed earnings of
affiliates, $0.2 million cash used for reorganization items, a $1.4 million
decrease in accounts payable and accrued expenses, a $1.4 million increase in
accounts receivable and a $0.4 million increase in prepaid expenses and other
current assets. The cash flow provided by investing activities was primarily
attributable to a $0.3 million decrease in investments and other long term
assets offset by $0.1 million of capital expenditures. The cash flow used in
financing activities was primarily due to the repayment of $1.4 million of
project debt.
Cash provided by operating activities decreased by $0.9 million for the
three months ended March 31, 1998 as compared to the three months ended March
31, 1997. The decrease resulted from a $0.4 million decrease in income before
depreciation and amortization, non-cash interest and other charges, non-cash
adjustment to impairment of long-lived assets, change in deferred tax
liabilities and undistributed earnings of affiliates, a $0.3 million decrease
resulting from variations in other operating items (accounts receivable, prepaid
expenses, accounts payable and accrued expenses) and a $0.2 million decrease in
cash used for reorganization items.
For the three months ended March 31, 1997, the cash flow provided by
operating activities was principally the result of the $0.6 million net income
for such period, adjusted for $5.3 million of non-cash interest and other
charges and $2.2 million of depreciation and amortization offset by a $1.6
million increase in accounts receivable, a $0.6 million decrease in accounts
payable and accrued expenses, a $0.5 million decrease in prepaid expenses and
other current assets, $0.2 million of undistributed earnings of affiliates and a
$0.3 million non-cash adjustment for impairment of long-lived assets. The cash
flow used in investing activities was primarily attributable to a $0.8 million
increase in investments and other long-term assets, $0.4 million of capital
expenditures and $0.5 million investment in pumped storage and conventional
development offset by $0.3 million in proceeds from the disposition of assets.
The cash flow used in financing activities was due primarily to repayment of
$1.3 million of project debt.
16
<PAGE>
Summary of Indebtedness
PRINCIPAL AMOUNT OUTSTANDING AS OF
MARCH 31, 1998 DECEMBER 31, 1997
-------------------- ---------------------
(AMOUNTS IN THOUSANDS)
Non-recourse debt of subsidiaries $85,604 $87,971
Current portion of long-term debt (5,446) (5,355)
------------ -----------
Total long-term debt obligations $80,158 $82,616
======= =======
In October 1993, 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. 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, among other things, waived previous defaults by the
Company, changed the final expiration date of the DnB Facility to June 30, 1998,
reduced (in steps) the total commitment under the DnB Facility from
approximately $5.9 million at June 30, 1996 to zero at June 30, 1998, limited
the use of the DnB Facility solely to letters of credit and modified certain
financial covenants. Since the execution of the Amendment, the Company has
reduced the outstanding letters of credit under the DnB Facility to
approximately $0.7 million at May 14, 1998 in accordance with the terms of the
Amendment.
On March 31, 1998, the Company obtained a $15.0 million secured revolving
credit facility with an initial expiration date of December 31, 1999 (the
"Facility"). The Company will use proceeds from the Facility to support its
development, acquisition and operating activities. The Facility replaced the DnB
Facility. Upon expiration of the Facility, any outstanding revolving loans will,
at the Company's option, be converted into a five year term loan. As of May 14,
1998, no revolving loans were outstanding under the Facility and $1.1 million of
letters of credit have been issued. The Company anticipates that it will replace
the remaining $0.7 million of letters of credit issued under the DnB Facility
with similar letters of credit issued under the Facility by June 30, 1998.
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 industry trends; risks related to
hydroelectric, industrial energy 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------
Not Applicable
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CHI is involved in various legal proceedings which are routine and
incidental to the conduct of its business and the Plan of Reorganization. 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 AND USE OF PROCEEDS
NONE
ITEM 3. DEFAULTS 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 Loan and Security Agreement dated as of March 31,
1998 between CHI Energy, Inc. and Lyon Credit
Corporation
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
NONE
18
<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, 1998 CHI ENERGY, INC.
By: /s / Neil A. Manna
--------------------------------------
Neil A. Manna
Vice President of Finance,
Controller and Treasurer
signing on behalf of the registrant
and as Principal Accounting Officer
================================================================================
LOAN AND SECURITY AGREEMENT
between
CHI ENERGY, INC.
and
LYON CREDIT CORPORATION
Dated as of March 31, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.1. General Definitions.................................... 1
SECTION 1.2. Accounting Terms and Determinations.................... 19
SECTION 1.3. Other Terms; Headings.................................. 19
ARTICLE II
THE CREDIT FACILITIES
SECTION 2.1. The Revolving Credit Loans............................. 20
SECTION 2.2. Conversion to Term Loan................................ 21
SECTION 2.3. Term................................................... 22
SECTION 2.4. Procedure for Borrowing................................ 22
SECTION 2.5. Letters of Credit...................................... 22
SECTION 2.6. Amortization of Term Loan; Cash
Collateralization of Letters of Credit................. 24
SECTION 2.7. Maximum Amount of the Facility; Mandatory
Prepayments; Optional Prepayments...................... 25
SECTION 2.8. Maintenance of Loan Account; Statements of
Account................................................ 26
SECTION 2.9. Payment Procedures..................................... 27
SECTION 2.10. Collection of Receivables; Application of
Collections; Deposit to Blocked Account................ 27
SECTION 2.11. Right of First Offering................................ 29
ARTICLE III
SECURITY
SECTION 3.1. General................................................ 30
SECTION 3.2. Further Security....................................... 31
SECTION 3.3. Termination............................................ 31
SECTION 3.4. Recourse to Security................................... 32
SECTION 3.5. Special Provisions Relating to Receivables
and Related Matters.................................... 32
SECTION 3.6. Special Provisions Relating to Equipment............... 32
ARTICLE IV
INTEREST, FEES AND EXPENSES
SECTION 4.1. Interest............................................... 33
SECTION 4.2. Interest After Event of Default........................ 34
SECTION 4.3. Closing Fee............................................ 34
-i-
<PAGE>
Page
SECTION 4.4. Facility Fee........................................... 34
SECTION 4.5. Unused Line Fee........................................ 34
SECTION 4.6. Letter of Credit Fees.................................. 34
SECTION 4.7. Administrative Fees.................................... 34
SECTION 4.8. Early Termination Fee.................................. 35
SECTION 4.9. Calculations........................................... 35
SECTION 4.10. Indemnification in Certain Events...................... 35
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1. Conditions to Initial Revolving Credit Loan
and Initial Letter of Credit........................... 36
SECTION 5.2. Conditions Precedent to Each Revolving
Credit Loan and Each Letter of Credit.................. 41
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.1. Representations and Warranties of the
Borrower............................................... 42
ARTICLE VII
COVENANTS OF THE BORROWER
SECTION 7.1. Affirmative Covenants.................................. 51
SECTION 7.2. Negative Covenants..................................... 61
ARTICLE VIII
FINANCIAL COVENANTS
SECTION 8.1. Tangible Net Worth..................................... 69
SECTION 8.2. Capital Expenditures................................... 69
SECTION 8.3. Post-Availability Expiration Date
Expenditures........................................... 70
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.1. Events of Default...................................... 71
SECTION 9.2. Acceleration and Cash Collateralization................ 73
SECTION 9.3. Other Remedies......................................... 74
SECTION 9.4. License for Use of Software and Other
Intellectual Property.................................. 75
SECTION 9.5. No Marshalling; Deficiencies; Remedies
Cumulative............................................. 75
-ii-
<PAGE>
Page
SECTION 9.6. Defense of Collateral; Continuation of
Liens; Further Assurances.............................. 76
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1. Governing Law.......................................... 77
SECTION 10.2. Submission To Jurisdiction............................. 77
SECTION 10.3. Service Of Process..................................... 77
SECTION 10.4. Jury Trial............................................. 77
SECTION 10.5. Limitation Of Liability................................ 78
SECTION 10.6. Delays; Partial Exercise of Remedies................... 78
SECTION 10.7. Notices................................................ 78
SECTION 10.8. Assignments and Participations......................... 79
SECTION 10.9. Indemnification; Reimbursement of Expenses
of Collection.......................................... 79
SECTION 10.10. Right of Setoff........................................ 80
SECTION 10.11. Amendments and Waivers................................. 80
SECTION 10.12. Counterparts; Telecopied Signatures.................... 81
SECTION 10.13. Severability........................................... 81
SECTION 10.14. Maximum Rate........................................... 81
SECTION 10.15. Entire Agreement; Successors And Assigns............... 82
-iii-
<PAGE>
Schedules
- ---------
Schedule 2.10 - Restricted Receivables
Schedule 3.6(a) - Equipment Locations
Schedule 5.1(a)(ii) - Pledged Subsidiaries
Schedule 6.1(a) - Jurisdictions Where Borrower and
Subsidiaries are Qualified to do Business
Schedule 6.1(b) - Jurisdictions Where Records of
Receivables are Kept; List of
Jurisdictions Where Collateral is Located
Schedule 6.1(f) - Consents and Authorizations
Schedule 6.1(g) - Stock and other Equity Interests in
Subsidiaries; Designated Subsidiaries;
Inactive Subsidiaries
Schedule 6.1(h) - Affiliate Transactions
Schedule 6.1(i) - Contingent Liabilities; Changes in Stock
Ownership
Schedule 6.1(k) - Joint Ventures, Partnerships
Schedule 6.1(r) - Taxes
Schedule 6.1(s) - Litigation
Schedule 6.1(t) - Real Property
Schedule 6.1(z) - ERISA Plans
Schedule 6.1(ac) - Environmental Actions
Schedule 6.1(ae) - Material Contracts
Schedule 7.2(a) - Existing Indebtedness
Schedule 7.2(b) - Existing Contingent Obligations
Schedule 7.2(c) - Existing Liens
Schedule 7.2(g) - Pending Asset Sales and other
Dispositions
Schedule 7.2(r) - Leases
Schedule 7.2(s) - Leasebacks
Schedule 7.2(z) - Bank Accounts
Exhibits
- --------
Exhibit A - Revolving Credit Note
Exhibit B - Term Note
Exhibit C - Pledge Agreement
Exhibit D - Guaranty
Exhibit E - Blocked Account Agreement
Exhibit F - Opinion of Counsel
Exhibit G - Support Letter
Exhibit H - Solvency Certificate
Exhibit I - Compliance Certificate
Exhibit J - Perfection Certificate
Exhibit K - Contribution Agreement
Exhibit L - Pledge Agreement Amendment
Exhibit M - Depository Account Agreement
Exhibit N - Subordination Agreement
-iv-
<PAGE>
THIS LOAN AND SECURITY AGREEMENT is entered into as of March 31,
1998, between CHI ENERGY, INC., a Delaware corporation having its chief
executive office and principal place of business at 680 Washington Boulevard,
Stamford, Connecticut 06901 (the "Borrower"), and LYON CREDIT CORPORATION, a
Delaware corporation having an office at Soundview Plaza, 1266 East Main Street,
Stamford, Connecticut 06902 (the "Lender").
W I T N E S S E T H :
WHEREAS, the Borrower wishes to obtain a revolving credit and letter
of credit facility which will be used for general corporate purposes; and
WHEREAS, upon the terms and subject to the conditions set forth
herein, the Lender is willing to make revolving credit loans to the Borrower,
and to cause to be issued letters of credit for the account of the Borrower and
certain of its Subsidiaries in an aggregate amount not to exceed $15,000,000
less applicable reserves;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the Borrower and the
Lender hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. General Definitions. As used herein, the following
terms shall have the meanings herein specified (to be equally applicable to both
the singular and plural forms of the terms defined):
"Affiliate" means, as to any Person, any other Person who directly
or indirectly controls, is under common control with, is controlled by or is a
director or officer of such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common control
with") means possession, directly or indirectly, of the power to direct or cause
the direction of management or policies (whether through ownership of voting
securities or partnership or other ownership interests, by contract or
otherwise).
"Agreement" means this Loan and Security Agreement, as amended,
supplemented or otherwise modified from time to time.
<PAGE>
"Auditors" means Price Waterhouse LLP, another "Big Six" firm of
independent public accountants, or another nationally-recognized firm of
independent public accountants selected by the Borrower and satisfactory to the
Lender in its reasonable discretion.
"Availability Expiration Date" means the earlier of (i) the Initial
Availability Expiration Date, as such date may be extended from time to time
under Section 2.3, and (ii) the date of termination of the Lender's obligation
to make Revolving Credit Loans or to use its best efforts to cause Letters of
Credit to be issued pursuant to the terms hereof.
"Base Rate" means the prime, base or equivalent rate of interest
announced from time to time by The Chase Manhattan Bank in New York City (which
may not be the lowest rate of interest charged by such bank).
"Blocked Account" means the account maintained with the Blocked
Account Bank, account number 56096749, which is the bank account established for
the benefit of the Lender under the Blocked Account Agreement.
"Blocked Account Agreement" means the blocked account agreement
among the Lender, CHI Finance and the Blocked Account Bank, substantially in the
form of Exhibit E hereto, as amended, supplemented or otherwise modified from
time to time.
"Blocked Account Bank" means BankBoston, N.A. or any
successor bank acceptable to the Lender.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which commercial banks in New York, New York are required or permitted by
law to close.
"Business Plan" means a business plan for the Borrower and its
Subsidiaries, as updated from time to time under Section 7.1(k)(v), consisting
of a projected balance sheet, a related cash flow statement and a profit and
loss statement, together with appropriate supporting details, a statement of the
underlying assumptions (which shall be fair in the context of the conditions
existing at the time of delivery of such Business Plan) and the calculation of
the Projected Adjusted Consolidated Cash Flow for all periods covered thereby
(which calculation shall be prepared in good faith and on the basis of such
assumptions), and which is prepared to show quarterly financial information for
the first year and annual financial information for each year thereafter.
"Capital Expenditures" means expenditures (or commitments to make
expenditures that are required to be recorded as capital expenditures in
accordance with GAAP) for the
-2-
<PAGE>
acquisition of any fixed assets or improvements, replacements, substitutions or
additions thereto which have a useful life of more than one year, and shall
include all such commitments and payments in respect of expenditures for any
fixed assets or improvements, replacements, substitutions or additions of or to
Facilities covered by Capitalized Lease Obligations, operating leases and
leasehold improvements.
"Capitalized Lease Obligations" means any rental obligation which,
under GAAP, is or will be required to be capitalized on the books of the lessee,
taken at the amount thereof accounted for as indebtedness (net of interest
expense) in accordance with GAAP.
"Cash Equivalents" means (i) securities issued, guaranteed or
insured by the United States or any of its agencies with maturities of not more
than six months from the date acquired; (ii) certificates of deposit with
maturities of not more than six months from the date acquired, issued by a U.S.
federal or state chartered commercial bank of recognized standing, which has
capital and unimpaired surplus in excess of $500,000,000 and which bank or its
holding company has a short-term commercial paper rating of at least A-2 or the
equivalent by Standard & Poor's Corporation or at least P-2 or the equivalent by
Moody's Investors Service, Inc.; (iii) repurchase agreements and reverse
repurchase agreements with terms of not more than seven days from the date
acquired, for securities of the type described in clause (i) above and entered
into only with commercial banks having the qualifications described in clause
(ii) above; and (iv) commercial paper, other than commercial paper issued by the
Borrower or any of its Affiliates, issued by any Person incorporated under the
laws of the United States or any state thereof and rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investors Service, Inc., in each case with
maturities of not more than six months from the date acquired.
"Change of Control" means one or more of the following
events:
(a) the shareholders of the Borrower shall
approve any plan or proposal for the liquidation or
dissolution of the Borrower;
(b) the shareholders of the Borrower shall approve any plan or
proposal for a merger or consolidation to which the Borrower is a
party and as a result of which either
-3-
<PAGE>
(i) the Tangible Net Worth of the survivor
or successor entity is less than that required under
Section 8.1, or
(ii) the shareholders of the Borrower, as a group, as
constituted immediately before the merger or consolidation, cease to
own a sufficient amount of the voting stock of the Borrower with
rights to elect a majority of the members of the Borrower's board of
directors, except as the result of a public offering of the
Borrower's capital stock; or
(c) any of the Persons serving as the chairman, the chief
executive officer, the president, the controller or the chief
financial officer of the Borrower on the Closing Date shall cease to
remain in such office and shall not be replaced temporarily or
permanently within sixty days by a Person reasonably acceptable to
the Lender, provided that (i) the Lender shall have fifteen days
from the date the Lender receives notification of such proposed
replacement officer to give or decline its consent (which consent
shall not be unreasonably withheld) and (ii) if the Lender timely
gives notice that it does not consent to a proposed replacement
officer within such sixty-day period, the Borrower shall have an
additional 120 days to propose another replacement officer.
"CHI Finance" means CHI Finance, Inc., a Delaware
corporation.
"Closing Date" means the date of execution and delivery
of this Agreement.
"Code" has the meaning specified in Section 1.3.
"Collateral" means the Receivables of the Borrower (other than
Restricted Receivables), the Inventory, the Equipment, the collateral pledged
under the Pledge Agreement, all proceeds thereof and all other property
identified as security for the Obligations under the Loan Documents.
"Collections" means (i) all cash, funds, checks, notes, instruments,
any other form of remittance tendered by account debtors in payment of
Receivables of the Borrower and its Subsidiaries, other than Restricted
Receivables and (ii) all other proceeds of Collateral.
"Contingent Obligation" means any direct, indirect, contingent or
non-contingent guaranty or obligation for the Indebtedness of another, except
endorsements in the ordinary course of business.
-4-
<PAGE>
"Contribution Agreement" means the contribution, subrogation and
indemnity agreement among the Pledgors (other than the Borrower) and the
Existing Pledgors, substantially in the form of Exhibit K hereto, as amended,
supplemented or otherwise modified from time to time.
"Default" means any of the events specified in Section 9.1, whether
or not any of the requirements for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Depository Accounts" means the accounts maintained with the
Depository Bank, account numbers 223-91453 and 224-00347, which are the bank
accounts of the Borrower and CHI Finance, respectively, established under the
Depository Agreement.
"Depository Account Agreement" means the depository account
agreement among the Lender, the Borrower, CHI Finance and the Depository Account
Bank, substantially in the form of Exhibit M hereto, as amended, supplemented or
otherwise modified from time to time.
"Depository Account Bank" means BankBoston or any
successor bank acceptable to the Lender.
"Designated Subsidiary" means (i) each of the Subsidiaries of the
Borrower indicated as such on Schedule 6.1(g) and (ii) each other direct or
indirect Subsidiary (other than Excluded Future Subsidiaries) of the Borrower,
whether now existing or hereafter organized, the loss of whose business,
operations, assets or income could reasonably be expected to have a Material
Adverse Effect.
"Dollars" and the sign "$" mean freely transferable lawful currency
of the United States.
"Electric Utility" means a public utility, an electric utility or an
electric utility holding company or a Subsidiary of any thereof or an Affiliate
of an electric utility holding company, as those terms are used in PUHCA, PURPA,
the rules or regulations implementing PUHCA or PURPA or under any other
Requirement of Law.
"Environmental Laws" means all federal, state and local statutes,
laws (including common or case law), rulings, regulations or governmental,
administrative or judicial policies, directives, orders or interpretations
applicable to the business or property of the Borrower relating to pollution or
protection of human health or the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata)
including, without limitation, the
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Comprehensive Environmental Response Compensation and Liability Act, the
Resource Conservation and Recovery Act and all other laws and regulations
relating to emissions, discharges, releases or threatened releases of Hazardous
Materials, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of any Hazardous
Materials.
"Equipment" means all items of machinery, equipment, furniture,
fixtures, conveyors, tools, materials, storage and handling equipment, hydraulic
presses, cutting equipment, computer equipment and hardware, including central
processing units, terminals, drives, memory units, printers, keyboards, screens,
peripherals and input or output devices, molds, dies, stamps and other equipment
of every kind and nature and wherever situated now or hereafter owned by the
Borrower or in which the Borrower may have any interest as lessee or otherwise
(but not including any equitable interest held by the Borrower directly or
indirectly in any Subsidiary), together with all additions and accessions
thereto, all replacements and all accessories and parts therefor, all manuals,
blueprints, know-how, warranties and records in connection therewith, all rights
against suppliers, warrantors, manufacturers, sellers or others in connection
therewith, and together with all substitutes for any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
29 U.S.C. ss.ss. 1000 et seq., amendments thereto, successor statutes and
regulations or guidelines promulgated thereunder.
"ERISA Affiliate" means any entity required to be aggregated with
the Borrower under Section 414(b), (c), (m) or (o) of the Internal Revenue Code.
"Event of Default" means the occurrence of any of the
events specified in Section 9.1.
"Excluded Existing Subsidiary" means a Subsidiary of the Borrower
which, as of the Closing Date, (i) has no ongoing business operations and (ii)
has a net worth of less than $5,000.
"Excluded Future Subsidiaries" means any Subsidiary formed or
acquired by the Borrower after the Closing Date that (i) has acquired or
developed a Facility, a majority of the purchase price or investment cost of
which is paid with the proceeds of Permitted Indebtedness or equity capital
contributed by a Person that is not an Affiliate of the Borrower after the
Closing Date and (ii) does not have a negative projected cash flow for any
fiscal year based on the criteria specified in the definition of Projected
Adjusted Consolidated Cash Flow, as applied to such Subsidiary.
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"Existing Indebtedness" means the Indebtedness of the Borrower
existing on the Closing Date as specified in Schedule 7.2(a).
"Existing Pledge Agreement Amendments" means the amendments to the
Existing Pledge Agreements, each substantially in the form of Exhibit L hereto.
"Existing Pledge Agreements" means the pledge agreements dated as of
October 15, 1996 between the Lender and certain Subsidiaries of the Borrower, as
amended, supplemented or otherwise modified before the Closing Date.
"Existing Pledgors" means the Subsidiaries of the Borrower which are
parties to the Existing Pledge Agreements.
"Facility" means a power plant, industrial infrastructure asset or
hydroelectric generating plant owned or leased (whether existing or under
construction) by the Borrower or any of its Subsidiaries, in each case with
related rights under power purchase contracts, sales and service agreements,
leases, easements, permits and similar contractual rights.
"Federal Reserve Board" has the meaning specified in
Section 6.1(q).
"FERC" means the Federal Energy Regulatory Commission and any Person
succeeding to the functions thereof.
"Financial Covenants" means those covenants set forth
in Article VIII.
"Financial Statements" means the consolidated balance sheets and
statements of cash flow (including detail as to capital expenditures made for
(i) Facilities existing on the Closing Date and (ii) other acquisition or
development expenditures), profits and losses and shareholders' equity of the
Borrower and its Subsidiaries for the period specified, prepared in accordance
with GAAP and consistently with prior practices.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination. Whenever any accounting
term is used herein which is not otherwise defined, it shall be interpreted in
accordance with GAAP.
"Governing Documents" means the certificate of
incorporation and by-laws, partnership or limited liability
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company operating agreement, or other organizational or governing
documents of the Borrower or any of its Subsidiaries.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions thereof or
pertaining thereto.
"Guaranty" means the guaranty made by each Pledgor (other than the
Borrower) and the Existing Pledgor in favor of the Lender, substantially in the
form of Exhibit D hereto, as amended, supplemented or otherwise modified from
time to time.
"Hazardous Materials" means any and all pollutants and contaminants
and any and all toxic, caustic, radioactive or hazardous materials, substances
or wastes that are regulated under any Environmental Laws.
"Indebtedness" means as of the date of determination thereof
(without duplication), (i) all obligations of the Borrower to borrow money or
for borrowed money of any kind or nature, including funded and unfunded debt,
and hedging or swap agreements or arrangements therefor and regardless of
whether the same is evidenced by any note, debenture, bond or other instrument,
(ii) all obligations of the Borrower to pay the deferred purchase price of
property or services (other than current trade accounts payable under normal
trade terms and which arise in the ordinary course of business), (iii) all
obligations of the Borrower to acquire or for the acquisition or use of any
fixed asset, including Capitalized Lease Obligations, or improvements which are
payable over a period longer than one year, regardless of the term thereof or
the Person or Persons to whom the same are payable, (iv) the then outstanding
amount of withdrawal or termination liability incurred under ERISA, (v) all
Indebtedness of others secured by a Lien on any asset of the Borrower whether or
not the Indebtedness is assumed by such Person, (vi) all Indebtedness of others
to the extent guaranteed by the Borrower and (vii) all obligations of the
Borrower in respect of letters of credit, bankers acceptances or similar
instruments issued or accepted by banks or other financial institutions for the
account of the Borrower.
"Initial Availability Expiration Date" means
December 31, 1999.
"Insolvency Event" means, with respect to any Person, the occurrence
of any of the following: (a) such Person shall be adjudicated insolvent or
bankrupt, or shall generally fail to pay or admit in writing its current
inability to pay its debts as they become due, (b) such Person shall seek
dissolution or reorganization or the appointment of a receiver, trustee,
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custodian or liquidator for it or a substantial portion of its property, assets
or business or to effect a plan or other arrangement with its creditors, (c)
such Person shall make a general assignment for the benefit of its creditors, or
consent to or acquiesce in the appointment of a receiver, trustee, custodian or
liquidator for a substantial portion of its property, assets or business, (d)
such Person shall file a voluntary petition under any bankruptcy, insolvency or
similar law, or (e) such Person, or a substantial portion of its property,
assets or business shall become the subject of (i) an involuntary proceeding or
petition for its liquidation, dissolution or reorganization, or (ii) the
appointment of a receiver, trustee, custodian or liquidator.
"Intercompany Note" means the subordinated promissory note dated
June 23, 1993 in the original principal amount of $176,572,853.53 by the
Borrower in favor of CHI Finance, as amended, supplemented or otherwise modified
from time to time.
"Interest Reserve" means, as of any date during the period August 1
through December 31 of each year, an amount equal to (i) the amount of interest,
calculated at the Base Rate then in effect plus 1.50%, that would accrue during
such period on an outstanding amount of Revolving Credit Loans assumed to be
equal to $10,000,000 at all times during such period less (ii) the amount on
deposit in the Blocked Account on such date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, any successor statute and any regulations or guidelines promulgated
thereunder.
"Internal Revenue Service" or "IRS" means the United States Internal
Revenue Service and any successor agency.
"Inventory" means all present and future goods intended for sale,
lease or other disposition by the Borrower, including, without limitation, all
raw materials, work in process, finished goods, goods in the possession of
outside processors or other third parties, goods consigned to the Borrower to
the extent of its interest therein as consignee, materials and supplies of any
kind, nature or description which are or might be used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of any such
goods, all documents of title or documents representing the same and all
records, files and writings with respect thereto.
"Investment" in any Person means, as of the date of determination
thereof, the amount paid or committed to be paid or the value of property
contributed or committed to be contributed by the Person making the Investment
on its account for or in connection with its acquisition of (i) any stock,
bonds, notes, debentures, partnership or other equity ownership interest or any
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other security of the Person in whom such Investment is made or (ii) any
evidence of indebtedness by reason of a loan, advance, extension of credit,
guaranty or other similar obligation of any debt, liability or indebtedness of
such Person in whom the Investment is made. In determining the aggregate amount
of Investments outstanding at any particular time, (i) a guaranty shall be
valued at not less than the principal amount outstanding; (ii) returns of
capital (but only by repurchase, redemption, retirement, repayment, liquidating
dividend or liquidating distribution) shall be deducted; (iii) earnings, whether
as dividends, interest or otherwise, shall not be deducted; and (iv) decreases
in the market value shall not be deducted unless such decreases are computed in
accordance with GAAP.
"L/C Cash Collateral Account" means the interest-bearing cash
collateral account established by the Borrower with the Blocked Account Bank at
its office at 100 Federal Street, Boston, Massachusetts 02110, Account No.
40-002-05439, in the name of the Borrower but under the sole dominion and
control of the Lender and subject to the terms of this Agreement.
"Letter of Credit Agreement" means the collective reference to any
and all agreements from time to time entered into by the Lender and a bank or
financial institution (each, an "issuing bank") pursuant to which the Lender
causes such issuing bank to issue Letters of Credit for the account or benefit
of the Borrower or any of its Subsidiaries or Affiliates.
"Letters of Credit" means all letters of credit issued under Section
2.5(a) for the account or benefit of the Borrower or any of its Subsidiaries or
Affiliates.
"Liabilities" of a Person as of the date of determination thereof
means the liabilities of such Person on such date as determined in accordance
with GAAP. Liabilities to Affiliates shall be treated as Liabilities except
where eliminated by consolidation in financial statements prepared in accordance
with GAAP or as otherwise provided herein.
"Lien" means any lien, claim, charge, pledge, security interest,
assignment, hypothecation, deed of trust, mortgage, lease, conditional sale,
retention of title or other preferential arrangement having substantially the
same economic effect as any of the foregoing, whether voluntary or imposed by
law.
"Loan Documents" means this Agreement and all documents and
instruments to be delivered by the Borrower under or in connection with this
Agreement, as each of the same may be amended, supplemented or otherwise
modified from time to time, including, without limitation, the Notes, the Pledge
Agreement, the Subordination Agreement, the Support Letter, the Blocked
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Account Agreement, the Depository Agreement and the Letter of Credit Agreement.
"Loans" means the Revolving Credit Loans and the Term Loan.
"Material Adverse Effect" means (i) a material and adverse effect on
the business, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Borrower individually, or the Borrower
and its Subsidiaries in the aggregate, (ii) the Projected Unrestricted Adjusted
Consolidated Cash Flow of the Borrower (including, for these purposes only,
amounts available in the Depository Accounts and the Blocked Account) would be
insufficient to repay, in accordance with their terms, (a) the reimbursement or
cash collateralization obligations of the Borrower with respect to the Letters
of Credit (which, for purposes hereof, (I) before the Availability Expiration
Date, shall be assumed to be in the outstanding amount of $10,000,000 and (II)
thereafter shall be the actual aggregate amount of outstanding Letters of Credit
less all amounts then on deposit in the L/C Cash Collateral Account or otherwise
held by the Lender as cash collateral for the Letters of Credit) and (b) the
outstanding Loans (which, for purposes hereof, (I) before the Availability
Expiration Date, shall be assumed to be the amount of Loans outstanding from
time to time but in no event less than $5,000,000 and (II) thereafter shall be
the actual outstanding amount of the Term Loan), (iii) a material impairment of
the Borrower's ability to perform its obligations under the Loan Documents to
which it is a party including, without limitation, as a result of any drawing or
payment under a Letter of Credit with respect to which cash collateral has not
been deposited in the L/C Cash Collateral Account for the full amount thereof,
or of the Lender to enforce the Obligations or realize upon the Collateral or
(iv) a material and adverse effect on the value of the Collateral or the amount
which the Lender would be likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the liquidation of the
Collateral, provided that, for purposes of clause (i) or (iv) hereof, a material
and adverse effect shall be determined by, among other things, the amount of
Loans and Letters of Credit outstanding hereunder at the time of determination.
"Material Contract" means any contract or other arrangement
including, without limitation, any contract relating to the operation of a
Facility or any related power supply contract or disbursement agreement to which
the Borrower or any of its Subsidiaries is a party (other than the Loan
Documents) for which breach, nonperformance, cancellation or failure to renew
could have a Material Adverse Effect.
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"Maximum Amount of the Facility" means Fifteen Million Dollars
($15,000,000) less the amount of any reduction of the Lender's commitment under
Section 2.1(e).
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate has
contributed within the past six years or with respect to which the Borrower or
any ERISA Affiliate may incur any liability.
"Non-Recourse Debt" means Indebtedness for borrowed money (including
refinancings thereof) of the Borrower or any of its Subsidiaries or other
Affiliates that is incurred solely to finance or acquire a Facility or group of
Facilities so long as such Indebtedness is without recourse to (i) the Borrower
or such Subsidiaries or other Affiliates other than any single-purpose entity
whose existence is solely related to such Facility or group of Facilities, or
(ii) any assets of the Borrower or such Subsidiaries or Affiliates other than
(a) any such Facility or group of Facilities, (b) the income from and proceeds
of any such Facility or group of Facilities or (c) the capital stock or other
equity interests of the Subsidiaries or Affiliates that own the Facility or
group of Facilities.
"Notes" means the Revolving Credit Note and the Term
Note.
"Obligations" means all loans, advances, debts, liabilities,
obligations, covenants and duties owing by the Borrower to the Lender of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, which may arise under, out of, or in connection
with, this Agreement, the Notes, the other Loan Documents or any other agreement
executed in connection herewith or therewith, whether or not for the payment of
money, whether arising by reason of an extension of credit, opening,
guaranteeing or confirming of a letter of credit (including, but not limited to,
the Letters of Credit), loan, guaranty, indemnification or in any other manner,
whether direct or indirect (including those acquired by assignment, purchase,
discount or otherwise), whether absolute or contingent, due or to become due,
now due or hereafter arising and however acquired. The term includes, without
limitation, all interest (including interest accruing on or after an Insolvency
Event, whether or not an allowed claim), charges, expenses, commitment,
facility, closing, collateral management, letter of credit or other fees,
attorneys' fees, and any other sum properly chargeable to the Borrower under
this Agreement, the Notes, the other Loan Documents or any other agreement
executed in connection herewith or therewith.
"PBGC" means the Pension Benefit Guaranty Corporation and any Person
succeeding to the functions thereof.
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"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA (other than a Multiemployer Plan) which the
Borrower or any ERISA Affiliate sponsors or maintains, or to which it makes, is
making or is obligated to make contributions, or in the case of a multiple
employer plan (as described in Section 4064(a) of ERISA) has made contributions
at any time within the immediately preceding five plan years.
"Permitted Indebtedness" means (without duplication) (i) the
Obligations, (ii) Existing Indebtedness, (iii) Indebtedness of the Borrower and
its Subsidiaries created in the ordinary course of business in an aggregate
amount not exceeding $250,000 at any time, (iv) Indebtedness of the Borrower to
any of its Subsidiaries and of any of its Subsidiaries to the Borrower or
another Subsidiary of the Borrower which, in the case of Indebtedness owed by
(A) the Borrower or (B) a Subsidiary of the Borrower to another Subsidiary of
the Borrower that is not a Pledged Subsidiary, has been subordinated to the
Obligations (or the guaranty thereof) on terms and under documents in form and
substance satisfactory to the Lender, (v) Indebtedness incurred to refinance
Indebtedness outstanding on the Closing Date, provided that the terms and
conditions are, in the reasonable opinion of the Lender, no less favorable to
the Borrower or any Subsidiary of the Borrower than those of the Indebtedness
being refinanced, (vi) Indebtedness constituting leases permitted by Sections
7.2(s) and (t), (vii) Non-Recourse Debt, (viii) Indebtedness secured by
Permitted Liens, (ix) letters of credit, currency agreements and interest rate
agreements issued in conjunction with other Permitted Indebtedness, (x)
Contingent Obligations (other than guaranties by the Borrower of Indebtedness
permitted under clause (xi) hereof) to the extent permitted under Section
7.2(b), (xi) Indebtedness and Contingent Obligations of an Excluded Future
Subsidiary and (xii) to the extent they constitute Indebtedness, obligations to
match employee contributions under a Plan established under Section 401(k) of
ERISA (or any similar Plan), so long as such obligation is not deferred past the
date when due under applicable law or regulation.
"Permitted Investments" means (i) Investments made in Subsidiaries
and Affiliates of the Borrower before the Closing Date, (ii) Investments in
Subsidiaries or Affiliates of the Borrower with the proceeds of any offering of
capital stock of the Borrower, (iii) Investments in Subsidiaries or Affiliates
of the Borrower in the form of loans or advances from the Borrower representing
capitalized labor costs for services performed by the Borrower to such
Subsidiaries or Affiliates in the ordinary course of business, (iv) Investments
purchased in whole or in part with the proceeds of, or subject to, Non-Recourse
Debt and any refinancings thereof that constitute Non-Recourse Debt, (v)
Investments consisting of cash in wholly-owned Subsidiaries
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of the Borrower after the Closing Date not to exceed $500,000 in the aggregate
outstanding at any time (not including in such amount Investments permitted
under the other clauses hereof), (vi) Investments in Pledged Subsidiaries or
Excluded Future Subsidiaries, (vii) Investments of the adjusted consolidated net
income as reported by the Borrower for the year ended December 31, 1997, to the
extent that it exceeds that which was projected under the Business Plan
delivered on the Closing Date, (viii) Investments specified in the Business Plan
delivered on the Closing Date or in any other Business Plan approved by the
Lender and (ix) Investments by Subsidiaries and Affiliates of the Borrower of
cash in accounts subject to restrictions under the terms of (A) instruments of
Permitted Indebtedness, (B) the Governing Documents of such Subsidiaries or
Affiliates or (C) contracts for the sale of electric power.
"Permitted Liens" means (i) Liens for taxes, assessments and other
governmental charges not due and payable or which can be paid without penalty or
in installments, or which are currently being contested in good faith by
appropriate proceedings, provided that the Borrower shall have set aside on its
books adequate reserves in accordance with GAAP with respect to any such tax,
assessment or other governmental charge so being contested, (ii) workmen's,
repairmen's, mechanics', materialmen's, warehousemen's and carriers' Liens and
other similar Liens arising in the ordinary course of business for charges not
delinquent for more than sixty days or which are currently being contested in
good faith by appropriate proceedings, provided that the Borrower shall have set
aside on its books adequate reserves in accordance with GAAP with respect to
such Liens so being contested, (iii) Liens in respect of judgments or awards
with respect to which the Borrower shall in good faith currently be prosecuting
an appeal or proceedings for review and with respect to which the Borrower shall
have secured a stay of execution pending such appeal or proceedings for review,
provided that the Borrower shall have set aside on its books adequate reserves
in accordance with GAAP with respect to any such judgments or awards, (iv) other
Liens incurred in the ordinary course of the Borrower's business or incidental
to the ownership of its property and assets which were not incurred in
connection with Indebtedness for borrowed money and which do not, either
individually or in the aggregate, materially detract from the value of such
property or assets or materially impair the use thereof in the operation of its
business, (v) existing Liens specified in Schedule 7.2(c), but only to secure
Indebtedness in the maximum principal amount secured thereby on the Closing
Date, (vi) any Lien securing any obligation incurred in connection with the
renewing, extending or refunding of any obligation secured by a Lien permitted
by clause (v) above or clause (x) below, provided that the principal amount of
the obligation so secured is not increased and such Lien is not extended to
other assets, (vii) Liens in favor of the Lender, (viii) Liens securing
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Permitted Indebtedness of the type described in clause (iii) or (xi) of the
definition of Permitted Indebtedness, provided that such Liens do not extend to
any property other than the property then being acquired with the proceeds of
such Indebtedness, (ix) Liens securing Non-Recourse Debt, (x) Liens on amounts
deposited or prepaid in connection with contractual obligations or for the
purchase of goods or services in the ordinary course of business, (xi) Liens on
assets of Excluded Future Subsidiaries which secure Permitted Indebtedness,
(xii) Liens in favor of Electric Utilities securing obligations under power
purchase contracts, such as the obligation to repay the excess of the contract's
scheduled rate over the avoided cost rate to the extent the Lien securing such
obligation is secured solely by the related Facility and the income and proceeds
therefrom, and (xiii) Liens securing other Indebtedness not exceeding $250,000
in the aggregate at any time.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
joint stock company, association, corporation, institution, entity, party or
government (including any division, agency or department thereof) or any other
legal entity, whether acting in an individual, fiduciary or other capacity, and,
as applicable, the successors, heirs and assigns of each.
"Plan" means any employee benefit plan, as defined in Section 3(3)
of ERISA, maintained or contributed to by the Borrower or any ERISA Affiliate
with respect to which any of them may incur liability.
"Pledge Agreement" means the pledge agreement made by the Borrower
and the other Pledgors in favor of the Lender, substantially in the form of
Exhibit C hereto, as amended, supplemented or otherwise modified from time to
time.
"Pledged Subsidiaries" means, at any time, a Subsidiary of the
Borrower whose capital stock or other equity interests are subject at such time
to the Lien created under the Pledge Agreement or any of the Existing Pledge
Agreements.
"Pledgors" means the Borrower and each of its
Subsidiaries specified as an "Owner" in Schedule 5.1(a)(ii).
"Prohibited Transaction" has the meaning specified in
Section 6.1(z)(v).
"Projected Adjusted Consolidated Cash Flow" means, for any Person,
for any period, the sum of (i) Projected Adjusted Consolidated Net Income of
such Person and its consolidated Subsidiaries for such period plus (ii) the
aggregate amount of all projected non-cash charges deducted in arriving at such
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Projected Adjusted Consolidated Net Income less (iii) the aggregate amount of
all projected non-cash credits included in arriving at such Projected Adjusted
Consolidated Net Income less (iv) all projected Capital Expenditures with
respect to each existing Facility whose sales are included in consolidated
revenues by such Person during such period and each after-acquired or
after-developed Facility for which there has been a negative cash flow in any
fiscal quarter of such Person based on the criteria specified herein other than
projected Capital Expenditures for (A) the acquisition of a Facility or (B) to
be made with the proceeds of Non-Recourse Debt less (v) principal payments
projected to be made on account of Permitted Indebtedness.
"Projected Adjusted Consolidated Net Income" means, for any period,
the projected aggregate net income (or loss) of any Person and its consolidated
Subsidiaries for such period determined in conformity with GAAP.
"Projected Adjusted Consolidated Unrestricted Cash Flow" means, for
any Person, for any period, the sum of (i) the Projected Adjusted Consolidated
Cash Flow of such Person and its consolidated Subsidiaries for such period less
(ii) the amount of such Projected Adjusted Consolidated Cash Flow projected to
be restricted for use by, or transfer to, the Borrower during such period under
the terms of instruments of Permitted Indebtedness, the Governing Documents or
Requirements of Law applicable to the Borrower or any of its Subsidiaries plus
(iii) actual cash flow corresponding to Projected Adjusted Consolidated Cash
Flow from prior periods originally projected to be restricted under clause (ii)
hereof that has ceased to be so restricted.
"Property" means any real property owned, leased or
controlled by the Borrower.
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended, any successor statute and any regulations or guidelines promulgated
thereunder.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, as
amended, any successor statute and regulations or guidelines promulgated
thereunder.
"Qualification" or "Qualified" means, with respect to any report of
independent public accountants covering financial statements, a material
qualification to such report (i) resulting from a limitation on the scope of
examination of such financial statements or the underlying data or (ii) as to
the capability of the Borrower to continue operations as a going concern.
"Receivables" means all present and future accounts,
contract rights, promissory notes, chattel paper, documents, tax
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refunds, rights to receive tax refunds, rights to receive fees, bonds,
certificates, insurance policies, insurance proceeds, patents, patent
applications, copyrights (registered and unregistered), royalties, licenses,
customer lists, rights of indemnification, contribution and subrogation, leases,
drafts, computer tapes, programs and software, trade secrets, computer service
contracts, trademarks, trade names, service marks and names, logos, goodwill,
deposits, cash, cash equivalents, causes of action, choses in action, judgments,
designs, blueprints, plans, know-how, all other general intangibles, claims
against third parties of every kind or nature, investment securities, notes,
drafts, acceptances, letters of credit, rights to receive payments under letters
of credit, deposit and other accounts (including, without limitation, the
Depository Accounts, the Blocked Account and the L/C Cash Collateral Account),
book accounts, credits and reserves and all forms of obligations whatsoever
owing, instruments, documents of title, leasehold rights in any goods and books,
ledgers, files and records with respect to any collateral or security, together
with all right, title, security and guaranties with respect to each Receivable.
"Reportable Event" means any of the events described in Section 4043
of ERISA and the regulations thereunder, other than a reportable event for which
the thirty-day notice requirement to the PBGC has been waived.
"Requirement of Law" means (a) the Governing Documents, (b) any law,
treaty, rule or regulation or determination of an arbitrator, court or other
Governmental Authority, or (c) any franchise, license, lease, permit,
certificate, authorization, qualification, easement, right of way, or other
right or approval binding on the Borrower or any of its property.
"Restricted Receivables" means Receivables of the Borrower or any
Subsidiaries or Affiliates of the Borrower specified in Schedule 2.10 and the
proceeds thereof which, under the terms of instruments of Permitted
Indebtedness, the Governing Documents or any Requirement of Law applicable to
such Subsidiary or Affiliate, (i) are required to be free and clear of all Liens
and (ii) in the case of proceeds, are required to be used for a purpose contrary
to the requirements of Section 2.10.
"Revolving Credit Loans" has the meaning specified in
Section 2.1(a).
"Revolving Credit Note" means the promissory note of the Borrower
payable to the order of the Lender referred to in Section 2.1(b).
"Solvency Certificate" means the solvency certificate of each of the
Borrower and the Designated Subsidiaries, substantially in the form of Exhibit H
hereto.
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"Solvent" means, when used with respect to any Person, that as of
the date as to which such Person's solvency is to be measured:
(a) the fair saleable value of its assets is in excess of the
total amount of its liabilities (including contingent liabilities as
valued in accordance with applicable law) as they become absolute
and matured;
(b) it has sufficient capital to conduct its
business; and
(c) it is able to meet its debts as they mature.
"Subordination Agreement" means the subordination agreement made by
CHI Finance in favor of the Lender, substantially in the form of Exhibit N
hereto, as amended, supplemented or otherwise modified from time to time.
"Subsidiary" means, as to any Person, a corporation or other entity
in which that Person directly or indirectly owns or controls the shares of stock
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or appoint other managers of such corporation or other
entity.
"Support Letter" means the letter agreement executed by Edward M.
Stern and James T. Stewart, substantially in the form of Exhibit G hereto, as
amended, supplemented or otherwise modified from time to time.
"Tangible Net Worth" means, as at any date for the determination
thereof, with respect to any Person, (i) total assets determined under GAAP less
(ii) intangible assets including, without limitation, goodwill, patents, patent
rights, trademarks, trade names, copyrights, design rights, franchises, bond
discounts, underwriting expenses, treasury stock, organization expenses, and
other similar items (other than the value of power purchase agreements and FERC
licensing costs), less (iii) total Liabilities determined under GAAP.
"Term Loan" has the meaning specified in Section
2.2(a).
"Term Loan Maturity Date" means the earlier of (i) the date
occurring five years from the Availability Expiration Date and (ii) the date of
any acceleration of the Term Loan under Section 9.2(a).
"Term Note" has the meaning specified in Section
2.2(b)(ii).
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"Termination Event" means (i) a Reportable Event with respect to any
Pension Plan or Multiemployer Plan; (ii) the withdrawal of the Borrower or any
ERISA Affiliate from a Pension Plan during a plan year in which it was a
"substantial employer" (as defined in Section 4001(a)(2) of ERISA); (iii) the
providing of notice of intent to terminate a Pension Plan in a distress
termination (as described in Section 4041(c) of ERISA); (iv) the institution by
the PBGC of proceedings to terminate a Pension Plan or Multiemployer Plan; (v)
any event or condition (a) which is reasonably likely to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan or Multiemployer Plan, or (b) that is
reasonably likely to result in termination of a Multiemployer Plan pursuant to
Section 4041A of ERISA; or (vi) the partial or complete withdrawal, within the
meaning of Sections 4203 and 4205 of ERISA, of the Borrower or any ERISA
Affiliate from a Multiemployer Plan.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
defined or specified herein, all accounting terms used in this Agreement shall
be construed in accordance with GAAP, applied on a basis consistent in all
material respects with the Financial Statements delivered to the Lender on or
before the Closing Date. All accounting determinations for purposes of
determining compliance with Article VIII shall be made in accordance with GAAP
as in effect on the Closing Date and applied on a basis consistent in all
material respects with the Financial Statements delivered to the Lender on or
before the Closing Date. The Financial Statements required to be delivered
hereunder from and after the Closing Date, and all financial records, shall be
maintained in accordance with GAAP. If GAAP shall change from the basis used in
preparing the Financial Statements delivered to the Lender on or before the
Closing Date, the certificates required to be delivered pursuant to Section
7.1(k) demonstrating compliance with the covenants contained herein shall
include calculations setting forth the adjustments necessary to demonstrate how
the Borrower is in compliance with the financial covenants based upon GAAP as in
effect on the Closing Date.
SECTION 1.3. Other Terms; Headings. Terms used herein that are
defined in the Uniform Commercial Code, from time to time, in effect in the
State of New York (the "Code") shall have the meanings given in the Code. Each
of the words "hereof," "herein," and "hereunder" refer to this Agreement as a
whole. An Event of Default shall "continue" or be "continuing" unless and until
such Event of Default has been waived in accordance with Section 10.11.
References to Articles, Sections, Annexes, Schedules and Exhibits are internal
references to this Agreement, and to its attachments, unless otherwise
specified. The headings and the Table of Contents are for convenience only and
shall not
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affect the meaning or construction of any provision of this Agreement.
ARTICLE II
THE CREDIT FACILITIES
---------------------
SECTION 2.1. The Revolving Credit Loans.
(a) Subject to the terms and conditions set forth in this Agreement,
on and after the Closing Date until (but excluding) the Availability Expiration
Date, the Lender agrees to make loans to the Borrower (the "Revolving Credit
Loans") in an aggregate principal amount not to exceed $10,000,000 less the
Interest Reserve, provided that the maximum outstanding amount of Revolving
Credit Loans may increase to up to $15,000,000 less the Interest Reserve as a
result of any Revolving Credit Loan deemed to be made as a result of any drawing
or payment under a Letter of Credit before the Availability Expiration Date as
provided in Section 2.5(b).
(b) The Revolving Credit Loans shall be evidenced by a promissory
note payable to the order of the Lender in a stated maximum principal amount
equal to $15,000,000, executed by the Borrower, substantially in the form of
Exhibit A hereto (as amended, supplemented or otherwise modified from time to
time, the "Revolving Credit Note").
(c) Subject to the right of the Borrower to convert all Revolving
Credit Loans to the Term Loan under Section 2.2, each Revolving Credit Loan
shall be payable in full, with all interest accrued thereon, on the Availability
Expiration Date. The Borrower may borrow, repay and reborrow Revolving Credit
Loans, in whole or in part, in accordance with the terms hereof.
(d) The proceeds of the Revolving Credit Loans shall be used by the
Borrower only for working capital purposes including, without limitation, for
(i) the type of expenditures reflected in the Business Plan, including operating
and maintenance expenses, general and administrative expenses, development
expenses (including the acquisition and development of, and investment in,
Facilities to the extent permitted under this Agreement), and Capital
Expenditures and (ii) expenses caused by waterflow shortfalls or other
unexpected events, and, in all cases, to the extent not otherwise prohibited by
this Agreement.
(e) Upon not less than three Business Days' prior notice from the
Borrower to the Lender, the Borrower may reduce permanently, in whole or in
part, the commitment of the Lender to make Revolving Credit Loans or to cause to
be issued Letters of
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Credit, provided that (i) any partial reduction shall be in an integral multiple
of $1,000,000, (ii) any such notice shall be irrevocable once given and (iii)
any reduction of such commitment in full shall be subject to the payment of the
fee specified in Section 4.8, if such reduction occurs prior to the first
anniversary of the Closing Date.
SECTION 2.2. Conversion to Term Loan.
(a) Subject to and upon the satisfaction of the terms and conditions
specified in subsection (b) below, the Borrower may, on the Availability
Expiration Date, convert the amount of all, but not less than all, outstanding
Revolving Credit Loans to a Term Loan (as such amount may be increased from time
to time under Section 2.5(c), the "Term Loan") on such date.
(b) The right of the Borrower to convert all outstanding Revolving
Credit Loans to the Term Loan is subject to the satisfaction of each of the
following conditions:
(i) The Lender shall have received written notice from the
Borrower before the Availability Expiration Date requesting such
conversion and specifying the principal amount of the Term Loan
(which shall be equal to the amount of all outstanding Revolving
Credit Loans on the Availability Expiration Date).
(ii) The Lender shall have received a promissory note,
substantially in the form of Exhibit B hereto (as amended,
supplemented or otherwise modified from time to time, the "Term
Note"), duly executed by the Borrower.
(iii) The aggregate principal amount of all outstanding
Revolving Credit Loans, before giving effect to the conversion,
shall be greater than
$2,000,000.
(iv) The Lender shall have received a certificate of the
Borrower, in form and substance satisfactory to the Lender, duly
executed by the chief financial officer or the chief accounting
officer of the Borrower, as of the date of such conversion,
truthfully stating that (A) the representations and warranties
contained in Article VI are true and correct, except to the extent
that such representations and warranties expressly relate to an
earlier date, in which case such representations and warranties
shall be true and correct as of such earlier date and (B) no Default
has occurred and is continuing or would result after giving effect
to the conversion.
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(v) No material provision of this Agreement or any other
Loan Document shall for any reason have ceased to be valid and
binding on the Borrower or any other Pledgor or party thereto or
shall have been declared to be null and void by any court,
Governmental Authority or administrative body.
(vi) The Lender shall have received a board resolution
authorizing such conversion, certified by an officer of the
Borrower, in form and substance satisfactory to the Lender.
SECTION 2.3. Term. The Lender's obligation under Sections 2.1(a) and
2.5(a) to make Revolving Credit Loans and use its best efforts to cause Letters
of Credit to be issued shall commence on the Closing Date and extend through the
Initial Availability Expiration Date, unless sooner terminated by its terms,
provided that the Availability Expiration Date may be extended for successive
one-year periods beyond the then-effective expiration date upon the written
agreement of the Borrower and the Lender before the then-effective expiration
date.
SECTION 2.4. Procedure for Borrowing. The Lender shall make
Revolving Credit Loans to the Borrower until the Availability Expiration Date
upon notice from the Borrower to the Lender received by the Lender not later
than 1:00 P.M., New York City time, on the day on which each Revolving Credit
Loan is requested to be made, but in no event more than once each calendar
month, specifying the amount and date (which shall be a Business Day) of the
proposed Revolving Credit Loan. On the Closing Date and on each subsequent date
on which a Revolving Credit Loan is requested, the Lender will, subject to the
satisfaction of all conditions to borrowing hereunder, make the amount of
borrowing available to the Borrower by wire transferring such amount to an
account of the Borrower of the Borrower's choosing as specified in writing from
time to time. The Borrower shall provide the Lender a list with specimen
signatures of the Persons authorized to request Revolving Credit Loans, on which
list the Lender may rely until such list is replaced by the delivery to the
Lender of a new list by the Borrower.
SECTION 2.5. Letters of Credit.
(a) Subject to the terms and conditions set forth in this Agreement,
on and after the Closing Date until (but excluding) the Availability Expiration
Date, the Lender, upon the request of the Borrower, shall use its best efforts
to cause a bank or financial institution acceptable to the Lender and the
Borrower to issue Letters of Credit for the account or benefit of the Borrower
or any of its Subsidiaries or Affiliates. Each
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Letter of Credit shall be requested in accordance with the Borrower's or such
Subsidiary's or Affiliate's ordinary business requirements in the operation and
development of Facilities to support equity commitments or obligations of such
Person under power purchase or other material project agreements, each with (i)
a tenor and containing terms acceptable to the Borrower, the Lender and the
issuer of such Letter of Credit and (ii) in the case of a Letter of Credit
issued for the account or benefit of a Subsidiary or Affiliate that is not
wholly owned by the Borrower, a purpose and benefit to the Borrower reasonably
acceptable to the Lender. The Lender shall not be required to use its best
efforts to cause, and the Borrower shall not request, the issuance of any Letter
of Credit if after giving effect thereto, the maximum aggregate amount of all
Letters of Credit outstanding at such time would exceed $15,000,000 less the
outstanding amount of all Revolving Credit Loans and the Interest Reserve at
such time.
(b) Unless otherwise previously agreed in writing by the Borrower
and the Lender, the initial term of any Letter of Credit shall not exceed one
calendar year from the date of issuance, subject to automatic renewal unless
notice to the contrary is given by the Lender or the issuing bank in writing by
the applicable date specified in such Letter of Credit. Each Letter of Credit
shall state that, except as otherwise provided therein, such Letter of Credit is
governed by the Uniform Customs and Practice for Documentary Credits (as most
recently published by the International Chamber of Commerce). Notwithstanding
the purpose of any Letter of Credit or any reference therein or herein to a
Subsidiary or Affiliate of the Borrower, each Letter of Credit shall be deemed
issued for the account of the Borrower and the obligations arising in connection
therewith shall be part of the Obligations. The amount of each drawing or
payment under a Letter of Credit before the Availability Expiration Date, for
all purposes under this Agreement shall become and be deemed to be, without any
further action on the part of any Person, a Revolving Credit Loan made by the
Lender on the date of such drawing or payment (but without any requirement for
compliance with the conditions precedent to the making of Revolving Credit Loans
contained in this Agreement). The amount of each drawing or payment under a
Letter of Credit after the Availability Expiration Date shall be payable upon
demand and, until paid by the Borrower, shall bear interest at the rate
applicable to the Term Loan under Section 4.1(ii).
(c) Subject to the agreement of the beneficiary thereof, any Letter
of Credit outstanding after the earlier of (i) the occurrence and continuance of
an Event of Default or (ii) the fifth anniversary of the Availability Expiration
Date, may be reduced, in whole or in part, in an amount to be advanced by the
Lender to such beneficiary for the account of the Borrower (or any Subsidiary of
the Borrower for whose account such Letter
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of Credit was issued). The amount of such advance shall be added to the then
outstanding balance of the Term Loan and shall be deemed a part thereof. The
proceeds of such advance shall be held by a depository for the account of such
beneficiary and, to the extent such proceeds are no longer required as
collateral by such beneficiary, shall thereupon be returned to the Lender for
application to the Term Loan, in inverse order of maturity or, if the Term Loan
has been paid in full, for deposit to the L/C Cash Collateral Account.
SECTION 2.6. Amortization of Term Loan; Cash
Collateralization of Letters of Credit.
(a) Commencing on the Availability Expiration Date, the Borrower
shall pay to the Lender twenty equal, consecutive quarterly installments,
commencing on the last Business Day of the calendar quarter immediately
following the Availability Expiration Date, and on the last Business Day of each
calendar quarter thereafter until all the Obligations hereunder have been paid
or secured by the L/C Cash Collateral Account in full, each in an amount equal
to 5% of the sum of (i) the original principal amount of the Term Loan and (ii)
the aggregate undrawn amount of the Letters of Credit outstanding on the
Availability Expiration Date. The amounts required hereunder may be reduced by
all prepayments and deposits received by the Lender under Section 2.7 and the
amount of all letters of credit issued in replacement of the Letters of Credit,
in each case after the Availability Expiration Date.
(b) All payments received by the Lender under subsection (a) hereof
shall be (i) applied first to the outstanding principal amount of the Term Loan
and any accrued and unpaid interest thereon and (ii) upon the repayment in full
of the Term Loan, deposited into the L/C Cash Collateral Account to be held and
applied as provided in Section 9.2(c).
(c) If requested by the Borrower, the Lender will, so long as no
Default has occurred and is continuing, from time to time, (i) invest amounts on
deposit in the L/C Cash Collateral Account in such Cash Equivalents in the name
of the Lender as the Borrower may select and (ii) invest interest paid on the
Cash Equivalents referred to in clause (i) hereof, and reinvest other proceeds
of any such Cash Equivalents that may mature or be sold, in each case in such
Cash Equivalents in the name of the Lender as the Borrower may select. Interest
and proceeds that are not invested or reinvested as provided above shall be
deposited and held in the L/C Cash Collateral Account.
(d) No amount (including interest and other income earned on any
Investments) shall be paid or released to or for the account of, or withdrawn by
or for the account of, the Borrower or any other Person from the L/C Cash
Collateral Account
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until the payment in full of all the Obligations, provided that interest and
other income earned on Investments may, upon the written request of the Borrower
(but in no event more frequently than once each calendar quarter), be applied
toward payment of the Obligations specified by the Borrower in such written
request, and provided further that, so long as all the Obligations have been
paid in full and the Borrower has deposited in the L/C Cash Collateral Account
an amount not less than the aggregate then undrawn amount of the outstanding
Letters of Credit, all investment income will be paid to the Borrower when
received.
(e) The L/C Cash Collateral Account shall be subject to such
applicable laws, and such applicable regulations of the Federal Reserve Board
and of any other appropriate Governmental Authority, as may now or hereafter be
in effect.
SECTION 2.7. Maximum Amount of the Facility; Mandatory
Prepayments; Optional Prepayments.
(a) In no event shall the sum of the aggregate outstanding principal
balances of the Revolving Credit Loans (plus the Interest Reserve) or the Term
Loan, as the case may be, and the aggregate undrawn amount of all outstanding
Letters of Credit exceed the Maximum Amount of the Facility.
(b) In addition to any prepayment required as a result of an Event
of Default hereunder, the Borrower shall make mandatory prepayments as follows:
(i) not later than thirty days after the receipt by the
Borrower or any of its Designated Subsidiaries of any proceeds of a
sale permitted under Section 7.2(g)(iii) or (vi) that occurs after
the Availability Expiration Date, the Borrower shall prepay or cause
such Designated Subsidiary to prepay to the Lender an amount equal
to all net proceeds of all of such sales (other than proceeds that
may not be so applied under the terms of instruments of Permitted
Indebtedness, the Governing Documents or any Requirement of Law
applicable to the Borrower or such Designated Subsidiary) in excess
of $100,000 in the aggregate in any fiscal year (except, if any such
sale is of Equipment, to the extent such proceeds are used within
thirty days of receipt thereof to purchase replacement equipment of
equal or greater value, satisfactory proof of which shall have been
given to the Lender within such thirty-day period), which payments
shall be applied to the Term Loan in inverse order of maturity;
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(ii) immediately upon discovery by or notice to the
Borrower that any of the lending limits specified in Section 2.1(a)
or 2.7(a) has been exceeded, the Borrower shall prepay to the Lender
an amount sufficient to reduce the outstanding balances to the
applicable maximum allowed amount, without the necessity of a demand
by the Lender; and
(iii) immediately upon the release of any proceeds held by a
beneficiary of such proceeds as provided in Section 2.5(c), the
Borrower shall prepay to the Lender an amount equal to all such
proceeds, which amount shall be applied to the Term Loan in inverse
order of maturity.
(c) The Borrower shall have the right at any time to make
prepayments of the Loans, or deposit cash in the L/C Cash Collateral Account
before any date on which such deposit is required, in each case without premium
or penalty, except as provided in Section 4.8, upon irrevocable notice given to
the Lender prior to 11:00 A.M., New York City time, at least two Business Days
prior to the date of such prepayment or deposit, specifying the date and amount
thereof. If any such notice is given, the amount specified in such notice shall
be due and payable on the date specified therein. Any prepayment of the Loans
under this Section shall be applied as reasonably specified by the Borrower in
such notice or, if an Event of Default has occurred and is continuing, as the
Lender shall elect in its sole discretion.
(d) The entire outstanding principal amount of the Revolving Credit
Loans, subject to Section 2.2, together with all accrued and unpaid interest
thereon and fees related thereto, shall become due and payable on the
Availability Expiration Date, provided that the Revolving Credit Loans may be
converted to the Term Loan subject to the satisfaction by the Borrower of the
requirements of Section 2.2.
(e) The entire outstanding principal amount of the Term Loan,
together with all accrued and unpaid interest thereon, shall become due and
payable on the Term Loan Maturity Date.
SECTION 2.8. Maintenance of Loan Account; Statements of Account. The
Lender shall maintain an account on its books in the name of the Borrower (the
"Loan Account") in which the Borrower will be charged with all loans and
advances made by the Lender to the Borrower or for the Borrower's account,
including the Revolving Credit Loans, the Term Loan, fees, expenses and any
other Obligations. The Loan Account will be credited with all amounts received
by the Lender from the Borrower or for the Borrower's account, including, as set
forth below, all amounts received from the Blocked Account Bank. The Lender
shall send
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the Borrower a monthly statement reflecting the activity in the Loan Account.
Each monthly statement shall be an account stated and shall be final, conclusive
and binding on the Borrower, absent manifest error.
SECTION 2.9. Payment Procedures.
(a) The Borrower hereby authorizes the Lender to charge the Loan
Account with the amount of all interest, fees, expenses and other payments to be
made hereunder and under the other Loan Documents. The Lender may, but shall not
be obligated to, discharge the Borrower's payment obligations hereunder by so
charging the Loan Account.
(b) Whenever any payment or other transfer of funds to be made
hereunder shall be stated to be due or made on a day that is not a Business Day,
such payment or transfer may be made on the next succeeding Business Day, and,
if applicable, such extension of time shall be included in the computation of
the amount of interest due hereunder.
SECTION 2.10. Collection of Receivables; Application
of Collections; Deposit to Blocked Account.
(a) The Borrower and CHI Finance shall enter into the Depository
Agreement which, among other things, shall provide for the maintenance of the
Depository Accounts to which the Borrower and CHI Finance shall, except as
provided in Section 9.3, remit all Collections. CHI Finance shall enter into the
Blocked Account Agreement which, among other things, shall provide for the
opening of the Blocked Account. All Collections, in addition to all other cash
received by the Borrower and CHI Finance from any other source including,
without limitation, all cash dividends, partnership or similar distributions and
other similar forms of payment made on account of equity interests, shall
promptly upon receipt be deposited into the Depository Accounts (with the
allocation of deposits between the two Depository Accounts to be made in the
reasonable discretion of the Borrower). On the last Business Day of each month,
the aggregate amount of all funds in the Depository Accounts in excess of
$3,000,000 shall be wire transferred to the Blocked Account for application
under Section 2.10(b). Upon the occurrence and continuance of an Event of
Default, the Lender shall, in addition to all its rights under Section 9.3, be
deemed to have full dominion and control over the Depository Accounts and, upon
notice by the Lender to the Depository Account Bank or the Blocked Account Bank,
or both, the Depository Account Bank or the Blocked Account Bank, as the case
may be, shall turn over to the Lender all amounts on deposit in the Depository
Accounts or the Blocked Account, as the case may be, which the Lender may
deposit in the Blocked Account (in the case of amounts received from the
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Depository Bank) or apply to such of the Obligations and in such order as it may
elect in its sole and absolute discretion.
(b) Until the Availability Expiration Date, the Lender shall, so
long as no Event of Default has occurred and is continuing, instruct the Blocked
Account Bank to disburse on the first Business Day of each month amounts held in
the Blocked Account (to the extent the disbursement of such amounts would not
cause the aggregate amount of the outstanding principal balance of the Revolving
Credit Loans plus the Interest Reserve to exceed $10,000,000) in the following
order of priority:
(i) first, for deposit into the Depository Accounts (with
the allocation of deposits between the two Depository Accounts to be
made in the reasonable discretion of the Borrower) an aggregate
amount, based on evidence satisfactory to the Lender submitted to it
by the Borrower (including, without limitation, the reports
specified in Section 7.1(k)(iii) and the statements specified in
Section 7.1(k)(iv)) necessary to restore the aggregate balances in
the Depository Accounts to $3,000,000, after giving effect to all
Collections received by the Borrower and CHI Finance and deposited
by them in the Depository Accounts in the preceding month;
(ii) second, to be applied to the payment of accrued and
unpaid interest and fees payable to the Lender in respect of the
Obligations; and
(iii) third, to be applied to the payment of such portion of
the principal amount of the Revolving Credit Loans then outstanding,
if any, as the Borrower requests in writing.
Amounts remaining unapplied in the Blocked Account on the first Business Day of
each month shall be invested in a manner similar to that provided in Section
2.6(c). Notwithstanding anything to the contrary set forth above, upon the
occurrence and during the continuance of an Event of Default, the Lender may
apply any and all such amounts for deposit in the L/C Cash Collateral Account or
for payment of such of the Obligations and in such order as it may elect in its
sole and absolute discretion.
(c) Commencing on the Availability Expiration Date, subject to
Section 8.3, the Lender shall, so long as no Event of Default has occurred and
is continuing, instruct the Blocked Account Bank to disburse on the first
Business Day of each month amounts held in the Blocked Account in the following
order of priority:
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(i) first, for deposit into the Depository Accounts (with
the allocation of deposits between the two Depository Accounts to be
made in the reasonable discretion of the Borrower), an aggregate
amount, based on evidence satisfactory to the Lender submitted to it
by the Borrower (including, without limitation, the reports
specified in Section 7.1(k)(iii) and the statements specified in
Section 7.1(k)(iv)) necessary to restore the aggregate balances in
the Depository Accounts to $3,000,000, after giving effect to all
Collections received by the Borrower and CHI Finance deposited in
the Depository Accounts in the preceding month;
(ii) second, to be applied to the payment of accrued and
unpaid interest and fees payable to the Lender in respect of the
Obligations;
(iii) third, to be applied to the payment or
prepayment, as the case may be, of the principal amount
then due under the Term Loan;
(iv) fourth, to be applied to prepay such portion of the
principal amount of the Term Loan then outstanding, if any, as the
Borrower requests in writing; and
(v) fifth, if the Term Loan has been paid in full, to be
deposited in the L/C Cash Collateral Account to the extent required
by Section 2.6(a).
Amounts remaining unapplied in the Blocked Account on the first Business Day of
each month shall be invested in a manner similar to that provided in Section
2.6(c). Notwithstanding anything to the contrary set forth above, upon the
occurrence and during the continuance of an Event of Default, the Lender may
apply any and all such amounts for deposit in the L/C Cash Collateral Account or
for payment of such of the Obligations and in such order as it may elect in its
sole and absolute discretion.
(d) At all times after the issuance of the Letters of Credit
specified in the proviso to Section 5.1(a)(xxv) until the condition specified in
such Section has been satisfied, there shall be maintained on deposit in the
Blocked Account an amount not less than 105% of the outstanding amount of such
Letters of Credit.
SECTION 2.11. Right of First Offering. If, before the Availability
Expiration Date, (a) the Borrower or any of its Affiliates or Subsidiaries seeks
senior or subordinated debt financing of any kind for the development or
acquisition of a Facility by the Borrower or such Affiliate or Subsidiary, (b)
the
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nature of the project and proposed financing is of the type which the Lender or
any of its Affiliates has the authority and ability to finance, (c) the Borrower
is not precluded by any other party to the proposed transaction, including a
seller or partner, from entering into a financing transaction with the Lender or
any of its Affiliates and (d) the Borrower is not proposing a public offering of
such debt financing, then the Borrower shall, or shall cause such Subsidiary to,
or shall use its best efforts to cause such Affiliate to, first offer to the
Lender or any of its Affiliates the non-exclusive opportunity to provide such
financing. The Lender or such Affiliate shall issue or decline to issue a
proposal, commitment or other indication to extend such financing within ten
Business Days of such offer and, during such period, the Borrower shall not, and
shall cause its Affiliates and Subsidiaries not to, accept any alternative
source of debt financing for such Facility development or acquisition, or any
commitment therefor. Nothing herein shall (i) preclude the Borrower or any of
its Affiliates or any Subsidiaries from seeking an alternative source of
financing during such period, so long as it does not bind itself to accept
alternative financing during such period or (ii) obligate the Borrower or any
such Affiliate or Subsidiary to accept any offer for financing from the Lender
or any of its Affiliates.
ARTICLE III
SECURITY
SECTION 3.1. General. As security for all of the Obligations, the
Borrower hereby grants to the Lender a Lien on all of its right, title and
interest in and to its Receivables, other than Restricted Receivables,
Inventory, Equipment and (except as specified below) all other property in all
of its forms wherever located and whether now owned or hereafter acquired, and
all additions and accessions thereto and substitutions and replacements therefor
and improvements thereon, and all proceeds (whether or not cash) and products
thereof including, without limitation, all proceeds of insurance covering the
same and all tort claims in connection therewith, provided that the Borrower (i)
shall be deemed to have granted the Lender a Lien on its right, title and
interest in and to each of its Receivables that no longer constitute Restricted
Receivables immediately upon the date that each such Receivable becomes so
unrestricted and (ii) has granted to the Lender a Lien only on the capital stock
or other equity interests of the Borrower in the Pledged Subsidiaries. As
further security for the Obligations, and to provide other assurances to the
Lender, the Lender shall receive, among other things:
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(a) the Pledge Agreement;
(b) the Existing Pledge Agreement Amendments;
(c) the Support Letter;
(d) the Blocked Account Agreement; and
(e) the Depository Account Agreement.
SECTION 3.2. Further Security. The Borrower also grants to the
Lender, as further security for all of the Obligations, a security interest in
all of its right, title and interest in and to all property of the Borrower in
the possession of or deposited with or in the custody of the Lender or any
Affiliate of the Lender or any representative, agent or correspondent of the
Lender and in all present and future deposit accounts (as that term is defined
in the Code) including, without limitation, the Depository Accounts, the Blocked
Account and the L/C Cash Collateral Account. For purposes of this Agreement, any
property in which the Lender or any such Affiliate has any security or title
retention interest shall be deemed to be in the custody of the Lender or of such
Affiliate.
SECTION 3.3. Termination. Upon (i) the termination of this Agreement
and the indefeasible payment in full of all Obligations and (ii) (A) the
acknowledgment in writing of all beneficiaries of Letters of Credit as to the
termination of each Letter of Credit or (B) the deposit in the L/C Cash
Collateral Account of an amount not less than 105% of the aggregate then undrawn
amount of the outstanding Letters of Credit, the Lender shall promptly deliver
to the Borrower upon the Borrower's request and at the Borrower's expense,
releases and satisfactions of all financing statements, notices of assignment
and other registrations of security and the Borrower shall deliver to the Lender
a general release of all of the Lender's liabilities and obligations under all
Loan Documents and an acknowledgment that the same have been terminated (except
for (a) those provisions which are expressly stated to survive the termination
of this Agreement and (b) any obligations with respect to outstanding Letters of
Credit secured by cash collateral). For purposes of this Section 3.3, the
Obligations shall be deemed to be indefeasibly paid in full (a) if the Borrower
(or, if final payment is made by another Person, such other Person) is Solvent
on the date of such payment, after giving effect thereto or (b) in all other
cases, ninety-one days after such final payment in full.
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SECTION 3.4. Recourse to Security. Recourse to security shall not be
required for any Obligation hereunder and the Borrower hereby waives any
requirement that the Lender exhaust any right or take any action against any of
the Collateral before proceeding to enforce the Obligations against the
Borrower.
SECTION 3.5. Special Provisions Relating to
Receivables and Related Matters.
(a) Receivables Documents. Upon the occurrence and continuance of an
Event of Default and upon the written request of the Lender, the Borrower shall
deliver to the Lender the following, all in form, content and scope satisfactory
to the Lender:
(i) (A) copies or the originals of each signed note,
letter of credit or other instrument for the payment of money which
evidences a Receivable of the Borrower, (B) any power therefor
executed in blank, duly endorsed to the order of the Lender, and (C)
a schedule listing its Receivables so evidenced; and
(ii) such endorsements or assignments of its Receivables
and other information relating to the Receivables of the Borrower as
the Lender may from time to time reasonably request, and the
originals of any such document or instrument, including those
referred to in clause (i) above, delivered to the Lender shall be
held in trust by the Lender.
(b) Disputes. Except in the ordinary course of business, the
Borrower shall not settle or adjust any dispute or claim, or grant any credit or
allowance, except, so long no Event of Default has occurred and is continuing,
those involving an amount in excess of $750,000, without the Lender's consent.
The Lender may, following the occurrence and continuance of an Event of Default
and after giving written notice of its intent to act in accordance herewith,
settle or adjust disputes or claims directly with account debtors for amounts
and upon terms which it considers advisable.
SECTION 3.6. Special Provisions Relating to Equipment.
(a) Location. Each item of Equipment of the Borrower with a book or
fair market value in excess of $50,000, now owned or hereafter acquired, will be
kept at a location shown on Schedule 3.6(a) and may not be moved for a period of
more than sixty days to a location not specified in such Schedule unless the
Borrower has given the Lender at least thirty days' prior written notice thereof
and the Lender has given its prior written consent thereto, which shall not be
unreasonably withheld or
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delayed. In no event shall any Equipment be moved outside the United States or
Canada. The Borrower shall at all times hereafter keep correct and accurate
records itemizing and describing the location, kind, type, age and condition of
Equipment, the Borrower's cost therefor and accumulated depreciation thereof and
retirements, sales, or other dispositions thereof, all of which records shall be
available on demand during the Borrower's usual business hours to any of the
officers, employees or agents of the Lender.
(b) Repair. The Borrower shall keep all of its Equipment in a
satisfactory state of repair and satisfactory operating condition in accordance
with industry standards in all material respects, and will make all repairs and
replacements when and where necessary and practical, consistent with the
then-current Business Plan, will not waste or destroy it or any part thereof,
and will not be negligent in the care or use thereof. The Borrower shall repair
and maintain all Equipment in accordance with industry practices in all material
respects in a manner sufficient to continue the operation of its business as
heretofore conducted. The Borrower shall keep accurate lists and records of all
the Equipment. The Equipment shall be used in accordance with law and the
manufacturer's instructions and shall be kept separate from and shall not be
annexed or affixed to or become part of any Property or any other realty.
(c) Disposal. Where the Borrower is permitted to dispose of any
Equipment under this Agreement or by any consent thereto hereafter given by the
Lender, the Borrower shall do so at arm's length, in good faith and by obtaining
the maximum amount of recovery practicable therefor and without impairing the
operating integrity or value of the remaining Equipment in any material respect.
ARTICLE IV
INTEREST, FEES AND EXPENSES
SECTION 4.1. Interest. The Borrower shall pay to the Lender interest
on the Loans calculated monthly in arrears at an interest rate per annum equal
to (i) a fluctuating rate equal to the Base Rate then in effect, plus 1.50%,
with respect to the Revolving Credit Loans, which shall change each day as the
Base Rate changes, and (ii) a fluctuating rate equal to the Base Rate then in
effect, plus 3.50%, with respect to the Term Loan, in each case to be payable in
arrears on the first Business Day of each month, commencing with the month
immediately following the Closing Date, on the Availability Expiration Date, and
on the Term Loan Maturity Date.
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SECTION 4.2. Interest After Event of Default. Upon the occurrence
and during the continuance of an Event of Default, interest on the Revolving
Credit Loans shall be payable on the dates referred to in Section 4.1 and on
demand at a rate per annum equal to the rate in effect under Section 4.1(i) plus
2%.
SECTION 4.3. Closing Fee. The Borrower shall pay to
the Lender on the Closing Date a non-refundable closing fee in
the amount of $25,000.
SECTION 4.4. Facility Fee. The Borrower shall pay to
the Lender on the Closing Date a non-refundable facility fee in
the amount of $112,500.
SECTION 4.5. Unused Line Fee. The Borrower shall, through the
Availability Expiration Date, pay to the Lender on the first Business Day of
each month, commencing with the month immediately following the Closing Date,
and on the Availability Expiration Date, in arrears, an unused line fee equal to
.375% per annum of the difference between (i) the Maximum Amount of the
Facility, and (ii) the average daily outstanding amount of (A) the Revolving
Credit Loans and (B) the undrawn amount of the Letters of Credit outstanding
during such month or portion thereof.
SECTION 4.6. Letter of Credit Fees. The Borrower shall promptly pay
to the Lender all fees reasonably charged to the Lender by any issuer of a
Letter of Credit and other expenses reasonably incurred by the Lender which
relate directly to the opening, amending or drawing under Letters of Credit,
other than fees or other expenses related solely to the confirmation of Letters
of Credit by Affiliates of the Lender. In addition, the Borrower shall pay to
the Lender on each anniversary of the Closing Date, on the Availability
Expiration Date and, in the case of each Letter of Credit expiring after the
Availability Expiration Date, on the expiration date thereof, in arrears, a fee
equal to (i) for the period through the Availability Expiration Date, 2.00% per
annum, and, for the period after the Availability Expiration Date, 3.00% per
annum, of the difference between the daily average of (A) the undrawn amount of
the Letters of Credit outstanding during the preceding twelve-month period or
portion thereof and (B) the average daily amount held in the L/C Cash Collateral
Account during such period.
SECTION 4.7. Administrative Fees. The Borrower shall pay to the
Lender an administrative fee, payable quarterly in advance on the first Business
Day of each calendar quarter and on the Availability Expiration Date, commencing
on the first anniversary of the Closing Date, and ending on the Availability
Expiration Date, in an amount equal to $12,500 or a pro rata portion of $12,500
based on the number of days elapsed for any partial calendar quarter.
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SECTION 4.8. Early Termination Fee. The Borrower shall have the
right to terminate this Agreement at any time on thirty days' prior written
notice to the Lender, provided that on the date of such termination all
Obligations, including all interest and fees payable to the date of such
termination, including, without limitation, the accrued and unpaid amount of
administrative fees under Section 4.7, shall be paid in full, and an amount
equal to the amount of all outstanding Letters of Credit shall be on deposit in
the L/C Cash Collateral Account. If (i) the Borrower gives such notice to
terminate or pays the Obligations in full or substantially in full, and an
amount equal to the amount of all outstanding Letters of Credit shall be on
deposit in the L/C Cash Collateral Account or (ii) the Lender terminates its
obligation to make the Revolving Credit Loans or to cause Letters of Credit to
be issued pursuant to Section 9.2(b), in each case prior to the first
anniversary of the Closing Date, the Borrower shall, in addition to all accrued
and unpaid administrative fees under Section 4.7, pay a fee to the Lender in an
amount equal to $120,000; provided, however, that the Borrower shall not be
required to pay the fee under this Section if the Borrower terminates this
Agreement and pays the Obligations in full (which shall include, without
limitation, all Obligations payable under Section 4.10) within thirty days
following the imposition of any claim for indemnification by the Lender under
Section 4.10.
SECTION 4.9. Calculations. All calculations of interest and fees
hereunder shall be made by the Lender, on the basis of a year of 365 days for
the actual number of days elapsed in the period for which such interest or fees
are payable. Each determination by the Lender of an interest rate, fee or other
payment hereunder shall be final, conclusive and binding for all purposes,
absent manifest error.
SECTION 4.10. Indemnification in Certain Events. If, after the
Closing Date, either (i) any change in or in the interpretation of any law or
regulation is introduced, including, without limitation, with respect to reserve
requirements, applicable to the Lender or any other banking or financial
institution from which the Lender borrows funds or obtains credit, (ii) the
Lender complies with any future guideline or request from any central bank or
other Governmental Authority or (iii) the Lender determines that the adoption of
any applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof has or would have the effect described
below, or the Lender complies with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, and in the case of any event set forth in this clause
(iii), such adoption, change or
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compliance has or would have the direct or indirect effect of reducing the rate
of return on the Lender's capital as a consequence of its obligations hereunder
to a level below that which the Lender could have achieved but for such
adoption, change or compliance (taking into consideration the Lender's policies
as the case may be with respect to capital adequacy) by an amount deemed by the
Lender to be material, and any of the foregoing events described in clauses (i),
(ii) and (iii) increases the cost to the Lender of funding or maintaining the
Loans, or reduces the amount receivable in respect thereof by the Lender, then
the Borrower shall, upon demand by the Lender, pay to the Lender additional
amounts sufficient to indemnify the Lender against such increase in cost or
reduction in amount receivable. Upon the occurrence of any event giving rise to
the application of this Section involving an amount in excess of $25,000, the
Lender shall, if requested by the Borrower, use reasonable efforts to avoid or
minimize the increase of costs or reduction in the amount receivable resulting
from such event so long as such avoidance or minimization can be made in such a
manner that the Lender, in its sole determination, suffers no economic, legal or
regulatory disadvantage.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.1. Conditions to Initial Revolving Credit Loan and Initial
Letter of Credit. The obligation of the Lender to make the initial Revolving
Credit Loan or cause to be issued the initial Letter of Credit (other than the
Letters of Credit specified in the proviso to Section 5.1(a)(xxv)) hereunder is
subject to the satisfaction of the following conditions prior to or concurrent
with such initial Revolving Credit Loan or Letter of Credit:
(a) the Lender shall have received the following, each dated the
date of the initial Revolving Credit Loan or Letter of Credit or as of such
earlier date acceptable to the Lender, in form and substance satisfactory to the
Lender:
(i) the Revolving Credit Note, duly executed by
the Borrower;
(ii) the Pledge Agreement, duly executed by each of the
Pledgors and acknowledged by each of the Borrower's Subsidiaries
specified in Schedule 5.1(a)(ii), together with original
certificates evidencing the shares of stock or other equity
interests pledged thereunder and undated transfer powers therefor,
executed in blank, and the original
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promissory notes pledged thereunder (including, without limitation,
the Intercompany Note) and undated note powers therefor, executed in
blank;
(iii) the Guaranty, duly executed by each of the
Pledgors and the Existing Pledgors;
(iv) the Contribution Agreement, duly executed by each of
the Pledgors and the Existing Pledgors;
(v) the Existing Pledge Agreement Amendments,
duly executed by the Existing Pledgors;
(vi) the Support Letter, duly executed by Edward
M. Stern and James T. Stewart;
(vii) the Subordination Agreement, duly executed by
CHI Finance;
(viii) the Blocked Account Agreement, duly executed
by the Lender, CHI Finance and the Blocked Account
Bank;
(ix) the Depository Account Agreement, duly executed by the
Lender, the Borrower, CHI Finance and the Depository Account Bank;
(x) such agreements and instruments as any issuer of
Letters of Credit deems necessary to issue Letters of Credit;
(xi) a Solvency Certificate of each of the Borrower and the
other Pledgors specified in Schedule 7.1(q), duly executed by the
chief financial officer or the chief accounting officer of the
Borrower or such Pledgor, as the case may be;
(xii) acknowledgment copies of Uniform Commercial Code
financing statements (naming the Lender as secured party and each of
the Pledgors as debtors) and termination statements, in form and
substance satisfactory to the Lender, duly filed in all
jurisdictions that the Lender deems necessary or desirable to
perfect and protect the Liens created hereunder and under the other
Loan Documents;
(xiii) completed requests for information, dated on or before
the date of the initial Revolving Credit Loan or Letter of Credit,
listing all effective financing statements filed in the
jurisdictions referred to in clause (xii) above that name each of
the Pledgors as
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debtors, together with copies of such financing statements;
(xiv) a completed perfection certificate, substantially in
the form of Exhibit J, signed by a Responsible Officer of the
Borrower and each other Pledgor;
(xv) (A) the audited Financial Statements for the fiscal
year ended December 31, 1997 certified by Price Waterhouse LLP, (B)
a certificate executed by the chief financial officer or the chief
accounting officer of the Borrower certifying that since December
31, 1997, no change, event, occurrence or development or event
involving a prospective change in the business, prospects,
operations, results of operations, assets, liabilities or condition
(financial or otherwise) of the Borrower or otherwise has occurred
which has had or could reasonably be expected to have a Material
Adverse Effect, and that all information provided by or on behalf of
the Borrower to the Lender hereunder or in connection herewith is
true and correct in all respects and (C) an internally-prepared
balance sheet and profit and loss statement of CHI Finance for the
two-month period ended February 28, 1998, certified by the chief
financial officer or the chief accounting officer of CHI Finance;
(xvi) the opinion of counsel for the Borrower and the other
Pledgors, substantially in the form of Exhibit F hereto, which the
Borrower and the other Pledgors hereby request their counsel to
provide;
(xvii) evidence satisfactory to the Lender of all insurance
policies required by this Agreement and the other Loan Documents,
together with loss payee endorsements for all such policies naming
the Lender as lender loss payee or assignee and, in the case of such
policies covering the Facilities, as an additional insured;
(xviii) a copy of the Business Plan, covering the six and
one-half year period commencing with the fiscal year of the Borrower
ending December 31, 1998, accompanied by a certificate executed by
the Borrower's chief financial officer or chief accounting officer
certifying to the Lender that the Business Plan has been prepared in
good faith based upon the assumptions contained therein and all
information currently available and, as of the date of such
certificate, he is not aware of any information contained in the
Business Plan which is false or misleading;
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(xix) copies of the Governing Documents of the Borrower and
each other Pledgor and a copy of the resolutions of the board of
directors of the Borrower and each other Pledgor authorizing the
execution, delivery and performance of this Agreement, the other
Loan Documents, and the transactions contemplated hereby and
thereby, attached to which is a certificate of the Secretary or an
Assistant Secretary of the Borrower or such Pledgor certifying (A)
that such copies of the certificate of the Governing Documents and
resolutions are true, complete and accurate copies thereof, have not
been amended or modified since the date of such certificate and are
in full force and effect and (B) the incumbency, names and true
signatures of the officers of the Borrower or such Pledgor
authorized to sign the Loan Documents to which it is or is to be a
party;
(xx) a certified copy of the certificate of the Secretary
of State of the state of incorporation of the Borrower and each
other Pledgor, dated within five days of the Closing Date, listing
the certificate of incorporation of the Borrower or such other
Pledgor and each amendment thereto on file in such official's office
and certifying that such amendments are the only amendments to such
certificate of incorporation on file in that office;
(xxi) a good standing certificate from the Secretary of
State of each state in which the Borrower, each Pledgor and each
Pledged Subsidiary is incorporated or qualified as a foreign
corporation or limited partnership, each dated within five days of
the Closing Date;
(xxii) certified copies of the employment agreements between
the Borrower and each of Edward M. Stern and James T. Stewart, each
of which shall be for an initial term expiring on December 31, 2000,
subject to subsequent automatic renewal absent notice to the
contrary, together with evidence satisfactory to the Lender that
Edward M. Stern and James T. Stewart have been elected to the board
of directors of the Borrower for a one-year term commencing November
7, 1997;
(xxiii) copies of any material agreements, documents or
instruments evidencing obligations of the Borrower due to any Person
other than the Lender;
(xxiv) an environmental assessment of the Facilities and
other real property of the Borrower and its Subsidiaries, in form
and substance satisfactory to the
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Lender, prepared by Victor Engel, the Borrower's Director of
Engineering and Construction, or another certified environmental
engineer satisfactory to the Lender;
(xxv) evidence satisfactory to the Lender that unencumbered
cash and Cash Equivalents of not less than $6,000,000 in the
aggregate are on deposit in the Blocked Account, provided that this
condition shall not apply with respect to the issuance of Letters of
Credit in an amount not to exceed $1,800,000 in the aggregate so
long as at the time of the issuance thereof there is on deposit in
the Blocked Account cash in an amount not less than 105% of the
aggregate face amount of such Letters of Credit;
(xxvi) evidence satisfactory to the Lender that all cash and
Cash Equivalents of the Borrower and CHI Finance in excess of
$3,000,000 in the aggregate is on deposit in the Blocked Account;
and
(xxvii) such other agreements and instruments as the Lender
reasonably deems necessary.
(b) There shall be no pending or threatened litigation, proceeding,
inquiry or other action seeking an injunction or other restraining order,
damages or other relief with respect to the transactions contemplated by this
Agreement, the other Loan Documents, or the transactions contemplated hereby or
thereby or the Borrower's business, prospects, operations, assets, liabilities
or conditions (financial or otherwise), except where such litigation,
proceeding, inquiry or other action could not reasonably be expected to have a
Material Adverse Effect.
(c) The Borrower shall have paid all accrued fees and expenses of
the Lender in connection with the negotiation, preparation, execution and
delivery of the Loan Documents (including, without limitation, all of the
Lender's examination, audit, appraisal, environmental assessment, recording and
travel expenses and the fees and expenses of counsel to the Lender).
(d) Except for (i) the filing of financing and termination
statements under the Code specified in Section 5.1(a)(xii) and (ii) consents or
authorizations which have been obtained and are specified in Schedule 6.1(f), no
consent or authorization of, filing with or other act by or in respect of, any
Governmental Authority or any other Person shall be required in connection with
the execution, delivery, performance, validity or enforceability of this
Agreement, the Notes or the other Loan Documents or the consummation of the
transactions contemplated hereby or thereby or the continuing operations of the
Borrower or
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any of its Subsidiaries following the consummation of such transactions.
(e) (i) No change, occurrence, event or development or event
involving a prospective change that could reasonably be expected to have a
Material Adverse Effect shall have occurred and be continuing since December 31,
1997, and (ii) there shall not have occurred a substantial impairment of the
financial markets generally that could reasonably be expected to affect
materially and adversely the transactions contemplated hereby, in each case as
determined by the Lender in its sole discretion.
(f) The Lender and its counsel shall have performed (i) a review
satisfactory to the Lender of all of the Material Contracts and other assets of
the Borrower, the financial condition of the Borrower, including all of its tax,
litigation, environmental, ERISA and other liabilities (including contingent
liabilities and all liabilities of the Borrower under its chapter 11 plan), and
the corporate and capital structure of the Borrower; (ii) site visits and
reference checks; and (iii) a collateral review, in each case with results
satisfactory to the Lender.
(g) The Borrower shall be in compliance in all material respects
with all Requirements of Law and Material Contracts.
(h) There shall exist no Default, and the representations and
warranties contained in this Agreement and the other Loan Documents shall be
true and correct immediately prior to, and after giving effect to, the Revolving
Credit Loans to be made or Letters of Credit to be issued on the Closing Date
and the application of the proceeds thereof.
SECTION 5.2. Conditions Precedent to Each Revolving Credit Loan and
Each Letter of Credit. The obligation of the Lender to make any Revolving Credit
Loan or to cause to be issued any Letter of Credit is subject to the following
conditions precedent:
(a) all representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct on and as of the date of
such Revolving Credit Loan or Letter of Credit as if then made, other than
representations and warranties that expressly relate solely to an earlier date,
in which case they shall be true and correct as of such earlier date;
(b) no Default shall have occurred and be continuing, or would
result from the making of, the requested Revolving Credit Loan or Letter of
Credit as of the date of such request; and
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(c) no Material Adverse Effect shall have occurred or shall be
reasonably likely to occur, after giving effect to the making of such Loan or
the issuance of such Letter of Credit, as a result of any drawing or payment
under a Letter of Credit with respect to which the Lender has not received cash
collateral for the full amount thereof.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.1. Representations and Warranties of the
Borrower. The Borrower represents and warrants as follows:
(a) Organization, Good Standing and Qualification. Each of the
Borrower and its Subsidiaries (i) is a corporation or partnership duly
organized, validly existing and (if a corporation or limited partnership) in
good standing under the laws of the state of its organization specified in
Schedule 6.1(a), (ii) has the power and authority to own its properties and
assets and to conduct the business in which it presently is, or proposes to be,
engaged and (iii) is duly qualified, authorized to do business and (if a
corporation or limited partnership) in good standing in each jurisdiction where
it presently is, or proposes to be, engaged in business. Schedule 6.1(a)
specifies each jurisdiction in which the Borrower and its Subsidiaries is
qualified to do business as a foreign corporation or limited partnership as of
the Closing Date.
(b) Locations of Offices, Records and Collateral. The address of the
principal place of business and chief executive office of each of the Borrower
and the other Pledgors is the address specified in the introductory paragraph of
this Agreement (other than Essex Company, whose principal place of business and
chief executive office is located in Andover, Massachusetts), and the books and
records of the Borrower and all of its chattel paper are maintained at, the
address of the Borrower specified in the introductory paragraph of this
Agreement and the other locations specified in Schedule 6.1(b). Records of the
Borrower's Receivables are maintained at the offices specified in Schedule
6.1(b). There is no jurisdiction in which the Borrower has any Collateral valued
in excess of $50,000 in the aggregate other than those jurisdictions specified
in Schedule 6.1(b).
(c) Authority. Each of the Borrower and the other Pledgors has the
requisite corporate power and authority to execute, deliver and perform its
obligations under each of the Loan Documents. All corporate action necessary for
the execution, delivery and performance by the Borrower and each
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other Pledgor of the Loan Documents (including the consent of shareholders where
required) has been taken.
(d) Enforceability. This Agreement is and, when executed and
delivered, each other Loan Document to which the Borrower and each other Pledgor
is a party will be, the legal, valid and binding obligation of the Borrower or
such Pledgor enforceable in accordance with its terms, except as enforceability
may be limited by (i) bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) general principles of equity.
(e) No Conflict. The execution, delivery and performance of each
Loan Document by the Borrower and each other Pledgor do not and will not
contravene (i) any of the Governing Documents of the Borrower or such Pledgor,
(ii) any Requirement of Law or (iii) any Material Contract, and will not, except
as expressly specified herein, result in the imposition of any Liens upon any of
its properties.
(f) Consents and Filings. No consent, authorization or approval of,
or filing with or other act by, any Governmental Authority or other Person is
required in connection with the execution, delivery, performance, validity or
enforceability of this Agreement or any other Loan Document, the consummation of
the transactions contemplated hereby or thereby or the continuing operations of
the Borrower or any of its Subsidiaries following such consummation, except (i)
those that have been obtained or made and are specified in Schedule 6.1(f) and
(ii) the filing of financing and termination statements under the Code.
(g) Subsidiaries; Ownership. As of the Closing Date, the Borrower
has no Subsidiaries and owns no capital stock or other equity interests,
directly or indirectly, of any other Person except as specified in Schedule
6.1(g). The capital stock of the Borrower and its Subsidiaries is owned by the
Persons and in the amounts specified in Schedule 6.1(g). Each Designated
Subsidiary and Excluded Existing Subsidiary is designated as such on Schedule
6.1(g).
(h) Affiliate Transactions. Except as specified in Schedule 6.1(h),
neither the Borrower nor any of its Subsidiaries is a party to or bound by any
agreement or arrangement (whether oral or written) to which any Affiliate of the
Borrower or such Subsidiary is a party except (i) in the ordinary course of and
pursuant to the reasonable requirements of the Borrower's or such Subsidiary's
business and (ii) upon fair and reasonable terms no less favorable to the
Borrower or such Subsidiary than it could obtain in a comparable arm's-length
transaction with an unaffiliated Person.
(i) Financial Data. The Borrower has provided to the Lender complete
and accurate copies of audited Financial Statements for the fiscal year ended
December 31, 1997. Such statements have been prepared in accordance with
accounting
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principles consistently applied throughout the period involved and fairly
present the results of operations and profits and losses of the Borrower for the
period covered. Except as specified in such Financial Statements or Schedule
6.1(i), neither the Borrower nor any of its Designated Subsidiaries has, as of
the Closing Date, any Contingent Obligation, or liability for taxes, unrealized
losses, unusual forward or long-term commitments or long-term leases, in each
case involving an amount in excess of $50,000. During the period from December
31, 1997 to and including the date hereof, there has been no sale, transfer or
other disposition by the Borrower or any of its Subsidiaries of any part of its
business or property and no purchase or other acquisition of any business or
property (including any capital stock of any other Person) with a book or fair
market value in excess of $1,000,000 in the aggregate for all such sales,
transfers or other dispositions. Since December 31, 1997, (i) there has been no
change, occurrence, development or event which has had or could reasonably be
expected to have a Material Adverse Effect and (ii) none of the capital stock of
the Borrower has been redeemed, retired, purchased or otherwise acquired for
value by the Borrower.
(j) Accuracy and Completeness of Information. All data, reports and
information heretofore or contemporaneously furnished by or on behalf of the
Borrower in writing to the Lender or the Auditors for purposes of or in
connection with this Agreement or any other Loan Document, or any transaction
contemplated hereby or thereby, are true and accurate in all material respects
on the date as of which such data, reports and information are dated or
certified and not incomplete by omitting to state any material fact necessary to
make such data, reports and information not misleading at such time. There are
no facts now known to any officer of the Borrower which individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect and
which have not been specified herein, in the Financial Statements, or in any
certificate, opinion or other written statement made or furnished by the
Borrower to the Lender.
(k) No Joint Ventures or Partnerships. As of the Closing Date, the
Borrower is not engaged in any joint venture or partnership with any other
Person except as specified in Schedule 6.1(k).
(l) Corporate and Trade Name. During the past five years, the
Borrower has not been known by or used any corporate, trade or fictitious name
other than Consolidated Hydro, Inc., CHI and CHI Energy, Inc.
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(m) No Actual or Pending Material Modification of Business. Except
as specified in the Business Plan delivered to the Lender on the Closing Date,
there exists no actual or, to the best of the Borrower's knowledge, threatened
termination, cancellation, limitation, modification or change in or of the
business relationship of the Borrower or any of its Subsidiaries with any
customer or group of customers whose purchases individually or in the aggregate
could reasonably be expected to have a Material Adverse Effect.
(n) No Broker's or Finder's Fees. No broker or finder brought about
the obtaining, making or closing of the financial accommodations afforded
hereunder or in connection herewith by the Lender. No broker's or finder's fees
or commissions will be payable by the Borrower to any Person in connection with
the transactions contemplated by this Agreement.
(o) Investment Company. The Borrower is not an "investment company,"
or an "affiliated Person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended. Neither the making of any Revolving Credit Loan or the
application of the proceeds or repayment thereof by the Borrower, nor the
consummation of the other transactions contemplated by this Agreement or the
other Loan Documents will violate any provision of such Act or any rule,
regulation or order of the Securities and Exchange Commission thereunder.
(p) Public Utility.
(i) Neither the Borrower nor any of its Subsidiaries (by
reason of any action or inaction or by reason of the ownership or
operation by it or any Affiliate of any Facility or otherwise) is
subject to any type of financial, organizational or rate regulation
as an Electric Utility or to be regulated as a "public utility
company" or a company which is a "holding company" of a "public
utility company" subject to registration with the Securities and
Exchange Commission or to regulation under PUHCA.
(ii) Neither the Lender nor any of its Affiliates will,
solely (i.e., without regard to any other activity or operation) by
reason of this Agreement and the other Loan Documents and the
consummation of the transactions contemplated hereby and thereby, be
or deemed to be, or subject to regulation as a "public utility
company" or a company which is a "holding company" of a "public
utility company" subject to registration with the Securities and
Exchange Commission or to regulation under PUHCA or any other
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Requirement of Law regulating utilities or independent power
procedures.
(iii) Each Facility owned by the Borrower or any of its
Subsidiaries or Affiliates on the Closing Date is (A) a "qualifying
facility" within the meaning of the PURPA regulations, eligible for
the benefit of the exemptions provided by 18 C.P.R. ss. 292.601 or
an "exempt wholesale generator" under the National Energy Policy Act
of 1992 or (B) exempt from all regulation under PUHCA.
(q) Margin Stock. The Borrower does not own any "margin stock" as
that term is defined in Regulation U of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") and the proceeds of Revolving
Credit Loans will be used only for the purposes contemplated hereunder.
(r) Taxes and Tax Returns.
(i) The Borrower has properly completed and timely filed
all income tax returns it is required to file up to and including
for the year ended June 30, 1996. The information filed is complete
and accurate in all material respects. To the best of the Borrower's
knowledge, after due inquiry, all deductions taken in such income
tax returns are appropriate and in accordance with applicable laws
and regulations.
(ii) Except as specified in Schedule 6.1(r), all taxes,
assessments, fees and other governmental charges for periods
beginning prior to the date hereof have been timely paid (or, if not
yet due, adequate reserves therefor have been established) and the
Borrower has no liability for taxes in excess of the amounts so paid
or reserves so established, except for those outstanding taxes
secured by Permitted Liens.
(iii) Except as specified in Schedule 6.1(r), (A) no
deficiencies for taxes have been claimed, proposed or assessed by
any taxing or other Governmental Authority against the Borrower and
no tax Liens have been filed other than Permitted Liens and (B)
there are no pending or threatened audits, investigations or claims
for or relating to any liability of the Borrower for taxes and there
are no matters under discussion with any Governmental Authority
which could result in an additional liability of the Borrower for
taxes beyond amounts reserved therefor in accordance with GAAP.
Except as is required solely for the use by the Borrower of net
operating loss carryforwards, no extension of a statute
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of limitations relating to taxes, assessments, fees or other
governmental charges is in effect as of the Closing Date with
respect to the Borrower.
(iv) As of the Closing Date, the Borrower is not a party to
and has no obligations under any written tax sharing agreement or
agreement regarding payments in lieu of taxes.
(s) No Judgments or Litigation. Except as specified in Schedule
6.1(s), no judgments, orders, writs or decrees are outstanding against the
Borrower or any of its Subsidiaries or otherwise involving any Facility, nor is
there pending or threatened any litigation, contested claim, investigation,
arbitration, or governmental proceeding by or against the Borrower or any of its
Subsidiaries or otherwise involving any Facility that (i) individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of this Agreement,
the Notes or any other Loan Document or the consummation of the transactions
contemplated hereby or thereby.
(t) Real Property. Except as specified in
Schedule 6.1(t), as of the Closing Date, the Borrower does not
own or lease any real property.
(u) Title to Property. The Borrower has (i) good and marketable fee
simple title to or valid leasehold interests in all of its real property and
(ii) good and marketable title to all of its other property, in each case free
and clear of Liens other than those Liens permitted by Section 7.2(c).
(v) No Other Indebtedness. After giving effect to the closing of
this Agreement and the transactions contemplated hereby, (A) the Borrower and
its Subsidiaries have no Indebtedness other than Indebtedness that is permitted
under Section 7.2(a) and (B) CHI Finance has no indebtedness, liabilities or
Contingent Obligations of any kind.
(w) Investments; Contracts. Except as specified in the Business Plan
or Schedule 6.1(i), as of the Closing Date, neither the Borrower nor any of its
Subsidiaries (i) has committed to make any Investment to be paid from Projected
Adjusted Consolidated Unrestricted Cash Flow and involving an amount in excess
of $300,000, (ii) is a party to any indenture, agreement, contract, instrument
or lease or subject to any charter, by-law or other corporate restriction or any
injunction, order, restriction or decree, which would materially and adversely
affect its business, operations, assets or financial condition, (iii) is a party
to any "take or pay" contract or (iv) has any material contingent or long-term
liability, including management contracts (excluding employment contracts of
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full-time individual officers or employees and severance plans for former
officers or employees previously disclosed to the Lender in writing) which could
reasonably be expected to have a Material Adverse Effect.
(x) No Defaults. After giving effect to the closing of the
transactions contemplated herein, neither the Borrower nor any of its
Subsidiaries is in default under any term of any Material Contract or
Requirement of Law, which default could reasonably be expected to have a
Material Adverse Effect or otherwise cause an Event of Default to occur, nor has
the Borrower or any of its Subsidiaries received notice of any such default.
(y) Rights in Collateral; Priority of Liens. All of the Collateral
is owned or leased by the Borrower, free and clear of any and all Liens in favor
of third parties, other than Permitted Liens. Upon the proper filing of the
financing statements and the termination statements specified in Section
5.1(a)(xii), the Liens granted pursuant to the Loan Documents constitute valid
and enforceable first (except for Permitted Liens), prior and perfected Liens on
the Collateral.
(z) ERISA.
(i) Except as specified in Schedule 6.1(z), as of the
Closing Date, neither the Borrower nor any ERISA Affiliate maintains
or contributes to any Plan.
(ii) The Borrower and each ERISA Affiliate have fulfilled
all contribution obligations for each Plan (including obligations
related to the minimum funding standards of ERISA and the Internal
Revenue Code), and no application for a funding waiver or an
extension of any amortization period pursuant to Sections 303 and
304 of ERISA or Section 412 of the Internal Revenue Code has been
made with respect to any Plan.
(iii) No Termination Event has occurred nor has any other
event occurred that is likely to result in a Termination Event.
Neither the Borrower or any ERISA Affiliate, nor any fiduciary of
any Plan, is subject to any direct or indirect liability with
respect to any Plan under any Requirement of Law or agreement.
(iv) Neither the Borrower nor any ERISA Affiliate is
required to or reasonably expects to be required to provide security
to any Plan under Section 307 of ERISA or Section 401(a)(29) of the
Internal Revenue Code.
(v) The Borrower and each ERISA Affiliate are in
compliance in all respects with any applicable
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provisions of ERISA with respect to all Plans. There has been no
prohibited transaction as defined in Section 406 of ERISA or Section
4975 of the Internal Revenue Code (a "Prohibited Transaction") with
respect to any Plan or any Multiemployer Plan. The Borrower and each
ERISA Affiliate have made when due any and all payments required to
be made under any agreement relating to a Multiemployer Plan or any
Requirement of Law pertaining thereto. With respect to each Plan and
Multiemployer Plan, the Borrower and each ERISA Affiliate have not
incurred any liability to the PBGC and have not had asserted against
them any penalty for failure to fulfill the minimum funding
requirements of ERISA.
(vi) Each Plan which is intended to qualify under Section
401(a) of the Internal Revenue Code has received a favorable
determination letter from the IRS and no event has occurred which
would cause the loss of
such qualification.
(vii) Neither the Borrower nor any ERISA Affiliate has
instituted or intends to institute proceedings to terminate any
Plan.
(aa) Intellectual Property. Neither the Borrower nor any of its
Subsidiaries has any patents, trademarks, trade names, service marks or
copyrights, or any applications therefor or licenses thereof. To the best of the
Borrower's knowledge, neither the Borrower nor any of its Subsidiaries has
infringed any patent, trademark, service-mark, tradename, copyright, license or
other right owned by any other Person by the sale or use of any product,
process, method, substance, part or other material presently contemplated to be
sold or used, where such sale or use could reasonably be expected to have a
Material Adverse Effect and no claim or litigation is pending, or to the best of
the Borrower's knowledge, threatened against or affecting the Borrower or any of
its Subsidiaries that contests its right to sell or use any such product,
process, method, substance, part or other material.
(ab) Labor Matters. There are no collective bargaining agreements to
which the Borrower or any of its Subsidiaries is a party as of the Closing Date.
There are no existing or threatened strikes, lockouts or other disputes relating
to any collective bargaining or similar agreement to which the Borrower or any
of its Subsidiaries is a party which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
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(ac) Compliance with Environmental Laws. Except as specified in
Schedule 6.1(ac), (i) neither the Borrower nor any of its Subsidiaries is the
subject of a judicial or administrative proceeding or investigation relating to
the violation of any Environmental Law or asserting potential liability arising
from the release or disposal by any Person of any Hazardous Materials, (ii)
neither the Borrower nor, to the best of its knowledge after due inquiry, any of
its Subsidiaries has filed or received any notice under any Environmental Law
concerning the treatment, storage, disposal, spill or release or threatened
release of any Hazardous Materials at, on, beneath or adjacent to property owned
or leased by it, or the release or threatened release at any other location of
any Hazardous Material generated, used, stored, treated, transported or released
by or on behalf of the Borrower or any of its Subsidiaries and (iii) the
Borrower has no knowledge of any contingent liability of the Borrower or any of
its Subsidiaries for any release of any Hazardous Materials, in each case which
could reasonably be expected to have a Material Adverse Effect.
(ad) Licenses and Permits. Each of the Borrower and its Subsidiaries
has obtained, and holds in full force and effect, all franchises, licenses,
leases, permits, certificates, authorizations, qualifications, easements, rights
of way and other rights and approvals which are material to and necessary or
advisable for the operation of its business as presently conducted and as
proposed to be conducted.
(ae) Material Contracts. Set forth on Schedule 6.1(ae) is a complete
and accurate list of all Material Contracts, as of the date hereof, showing the
parties, subject matter and term thereof. Each such contract has been duly
authorized, executed and delivered by the Borrower or its Subsidiary, as the
case may be, and each other party thereto. Each Material Contract is in full
force and effect and is binding upon and enforceable against all parties thereto
in accordance with its terms, and there exists no continuing default under such
contract by any party thereto, which default could reasonably be expected to
have a Material Adverse Effect or otherwise cause an Event of Default to occur.
(af) Business and Properties. The business of the Borrower or any of
its Subsidiaries is not affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or of the public enemy or other casualty (whether or not covered by
insurance) that could reasonably be expected to have a Material Adverse Effect.
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(ag) Business Plan. The Business Plan and the Financial Statements
described in Section 6.1(i) delivered to the Lender on the Closing Date were
prepared in good faith on the basis of assumptions which were fair in the
context of the conditions existing at the time of delivery thereof, and, with
respect to the Business Plan, represented, at the time of delivery, the
Borrower's best estimate of its future financial performance.
(ah) Pledged Subsidiaries. The Pledged Subsidiaries constitute all
Subsidiaries of the Borrower, other than Excluded Existing Subsidiaries, whose
capital stock or other equity interests are not subject to restrictions
including, without limitation, terms of instruments of Permitted Indebtedness,
prohibiting the creation of a Lien thereon in favor of the Lender.
(ai) Survival of Representations. All representations made by the
Borrower in this Agreement and in any other Loan Document executed and delivered
by it in connection herewith shall survive the execution and delivery hereof and
thereof and the closing of the transactions contemplated hereby and thereby.
ARTICLE VII
COVENANTS OF THE BORROWER
SECTION 7.1. Affirmative Covenants. Until the satisfaction of all
Obligations in full, the termination of the Lender's obligation to make any
Revolving Credit Loan or cause to be issued any Letter of Credit, and the
expiration or full cash collateralization of all Letters of Credit:
(a) Corporate Existence. The Borrower shall, and shall cause each of
its Subsidiaries to, (i) maintain its corporate existence (if it is a
corporation) or its status as a partnership (if it is a partnership) and (ii)
maintain in full force and effect all licenses, bonds, franchises, leases,
trademarks and qualifications to do business, and all patents, contracts and
other rights and privileges necessary or advisable to the profitable conduct of
its businesses or the performance of its obligations under this Agreement and
the other Loan Documents, except to the extent that the failure to do so could
not reasonably be expected to have a Material Adverse Effect.
(b) Maintenance of Property. The Borrower shall, and shall cause
each of its Designated Subsidiaries to, keep all property useful, necessary and
material to its business in good working order and condition (ordinary wear and
tear excepted) as may be required or appropriate.
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(c) Affiliate Transactions. The Borrower shall conduct transactions
with its Affiliates on an arm's-length basis or other basis no less favorable to
the Borrower than could be obtained in a comparable arm's-length transaction
with a Person that is not an Affiliate of the Borrower.
(d) Taxes and other Claims. The Borrower shall, and shall cause each
of its Subsidiaries to, pay and discharge when due (i) all federal, state and
local tax assessments and other governmental charges and levies imposed against
the Borrower or such Subsidiary or any of its property; and (ii) all lawful
claims that, if unpaid, might by law become a Lien upon its property; provided,
however, that any such tax assessment, charge, levy or claim need not be paid if
it is being contested, in good faith, by appropriate proceedings diligently
conducted and if an adequate reserve or other appropriate provision shall have
been made therefor as required in accordance with GAAP.
(e) Government Regulations. The Borrower shall, and shall cause each
of its Subsidiaries to, comply with all applicable federal, state, local or
foreign laws and regulations, including, without limitation, those relating to
environmental matters, employee matters (including the collection, payment and
deposit of employees' income, unemployment and social security taxes) and with
respect to pension liabilities, except where the failure to comply would not
have a Material Adverse Effect.
(f) Insurance. The Borrower shall, and shall cause each of its
Subsidiaries to, maintain adequate insurance on all property and assets of the
Borrower or such Subsidiary (including, without limitation, the Collateral) and
its Subsidiaries (including, without limitation, the Facilities), including
fire, theft, burglary, pilferage, casualty, general liability, worker's
compensation, public liability, business interruption, third party property
damage and replacement value insurance under such policies of insurance, with
such insurance companies, in such amounts and covering such risks as are at all
times reasonably satisfactory to the Lender, all of which policies covering (i)
the Collateral shall name the Lender as loss payee and (ii) the Facilities (to
the extent available) shall name the Lender as an additional insured.
(g) Books and Records; Inspections. The Borrower shall, and shall
cause each of its Subsidiaries to, (i) maintain adequate books and records
(including computer printouts and programs) in accordance with GAAP and
otherwise reflecting all financial transactions of the Borrower or such
Subsidiary, (ii) maintain books and records (including computer printouts and
programs) pertaining to the Collateral in such detail, form and scope as is
consistent with good business practice and (iii) provide the Lender and its
agents access to the premises of the Borrower or such Subsidiary at any
reasonable time and from
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time to time, during normal business hours and upon reasonable notice under the
circumstances, and at any reasonable time on and after the occurrence of a
Default, for the purposes of (A) inspecting and verifying the Collateral, (B)
inspecting and copying (at the Borrower's expense) any and all records
pertaining thereto, and (C) discussing the affairs, finances and business of the
Borrower or any of its Subsidiaries with any officers or directors of the
Borrower or any of its Subsidiaries or with the Auditors.
(h) Notification Requirements. The Borrower shall timely give the
Lender the following notices and other documents:
(i) Notice of Defaults. Promptly, and in any event within
five Business Days after becoming aware of the occurrence of a
Default, a certificate of the chief financial officer or the chief
accounting officer of the Borrower specifying the nature thereof and
the Borrower's proposed response thereto, each in reasonable detail.
(ii) Proceedings, Adverse Changes and other Events.
Promptly, and in any event within ten Business Days after the
Borrower becomes aware of any of the following, (A) notice of (I)
any proceeding being instituted or threatened to be instituted by or
against the Borrower or any of its Subsidiaries in any federal,
state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign) which has or
could reasonably be expected to have a Material Adverse Effect, (II)
any order, judgment or decree which has or could reasonably be
expected to have a Material Adverse Effect being entered against the
Borrower or any of its Subsidiaries or any of its properties or
assets, (III) any actual change, development or event including,
without limitation, any investigation or proceeding before any
Governmental Authority which has had or could reasonably be expected
to have a Material Adverse Effect, (IV) a change in the location of
any of the Collateral from the places indicated in or permitted by
this Agreement or any other Loan Document, or (V) a proposed or
actual change of the Borrower's or any of its Designated
Subsidiaries' or any Pledgor's name, identity or corporate
structure, and (B) a written statement describing such proceeding,
order, judgment, decree, change, development or event and any action
being taken with respect thereto by the Borrower or such Subsidiary.
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(iii) ERISA Notices.
(A) Promptly, and in any event within ten Business Days
after a Termination Event has occurred, a written statement of
the chief financial officer or the chief accounting officer of
the Borrower describing such Termination Event and any action
that is being taken with respect thereto by the Borrower or
any ERISA Affiliate, and any action taken or threatened by the
Internal Revenue Service, the Department of Labor or the PBGC;
(B) promptly, and in any event within ten Business Days
after the filing thereof with the Internal Revenue Service, a
copy of each funding waiver request filed with respect to any
Plan subject to the funding requirements of Section 412 of the
Internal Revenue Code and all communications received by the
Borrower or any ERISA Affiliate with respect to such request;
(C) promptly, and in any event within ten Business Days
after receipt by the Borrower or any ERISA Affiliate of the
PBGC's intention to terminate a Pension Plan or to have a
trustee appointed to administer a Pension Plan, a copy of each
such notice;
(D) promptly, and in any event within ten Business Days
after the occurrence thereof, notice (including the nature of
the event and, when known, any action taken or threatened by
the Internal Revenue Service or the PBGC with respect thereto)
of:
(I) any Prohibited Transaction which could
subject the Borrower or any ERISA Affiliate to a civil
penalty assessed pursuant to Section 502(i) of ERISA or
a tax imposed by Section 4975 of the Internal Revenue
Code in connection with any Plan, or any trust created
thereunder,
(II) any cessation of operations (by the
Borrower or any ERISA Affiliate) at a facility in the
circumstances described in Section 4062(e) of ERISA,
(III) a failure by the Borrower or any ERISA
Affiliate to make a payment to a Plan required to avoid
imposition of a Lien under Section 302(f) of ERISA or
Section 412(n) of the Internal Revenue Code,
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(IV) the adoption of an amendment to a Plan
requiring the provision of security to such Plan
pursuant to Section 307 of ERISA or Section 401(a)(29)
of the Internal Revenue Code, or
(V) any change in the actuarial assumptions or
funding methods used for any Plan, where the effect of
such change is materially to increase or reduce the
unfunded benefit liability or obligation to make
periodic contributions;
(E) promptly upon the request of the Lender, each annual
report (IRS Form 5500 series) and all accompanying schedules,
the most recent actuarial reports, the most recent financial
information concerning the financial status of each Plan
administered or maintained by the Borrower or any ERISA
Affiliate, and schedules showing the amounts contributed to
each such Plan by or on behalf of the Borrower or any ERISA
Affiliate in which any of its personnel participate or from
which such personnel may derive a benefit, and each Schedule B
(Actuarial Information) to the annual report filed by the
Borrower or any ERISA Affiliate with the Internal Revenue
Service with respect to each such Plan;
(F) promptly upon the filing thereof, copies of any Form
5310, or any successor or equivalent form to Form 5310, filed
with the PBGC in connection with the termination of any Plan,
and copies of any standard termination notice or distress
termination notice filed with the PBGC in connection with the
termination of any Pension Plan;
(G) promptly, and in any event within ten Business Days
after receipt thereof by the Borrower or any ERISA Affiliate,
notice and demand for payment of withdrawal liability under
Section 4201 of ERISA with respect to a Multiemployer Plan;
(H) promptly, and in any event within ten Business Days
after receipt thereof by the Borrower or any ERISA Affiliate,
notice by the Department of Labor of any penalty, audit,
investigation or any purported violation of ERISA with respect
to a Plan;
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(I) promptly, and in any event within ten Business Days
after receipt thereof by the Borrower or any ERISA Affiliate,
notice by the Internal Revenue Service or the Treasury
Department of any income tax deficiency or delinquency, excise
tax penalty, audit or investigation with respect to a Plan;
and
(J) promptly, and in any event within ten Business Days
after receipt thereof by the Borrower or any ERISA Affiliate,
notice of any administrative or judicial complaint, or the
entry of a judgment, award or settlement agreement, in either
case with respect to a Plan that could have a Material Adverse
Effect.
(iv) Material Contracts. Promptly, and in any event within
ten Business Days after any Material Contract is terminated or
amended or any new Material Contract is entered into if such
termination or amendment could reasonably be expected to have a
Material Adverse Effect, a written statement describing such event,
with copies of amendments or new contracts, and an explanation of
any actions being taken with respect thereto.
(v) Environmental Matters. Promptly, and in any event
within ten Business Days after receipt by the Borrower or any of its
Subsidiaries thereof, copies of each (A) written notice that any
violation of any Environmental Law may have been committed or is
about to be committed by the Borrower or such Subsidiary, (B)
written notice that any administrative or judicial complaint or
order has been filed or is about to be filed against the Borrower or
such Subsidiary alleging violations of any Environmental Law or
requiring the Borrower or such Subsidiary to take any action in
connection with the release of toxic or Hazardous Materials into the
environment, or (C) written notice from a Governmental Authority or
other Person alleging that the Borrower or such Subsidiary may be
liable or responsible for costs associated with a response to or
cleanup of a release of a Hazardous Material into the environment or
any damages caused thereby, in each case which could reasonably be
expected to have a Material Adverse Effect.
(i) Casualty Loss. The Borrower shall (i) provide written notice to
the Lender, within ten Business Days, of any damage to, the destruction of or
any other loss to any asset or property owned or used by the Borrower or any
condemnation, confiscation or other taking, in whole or in part, or any use
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that otherwise diminishes so as to render impracticable or unreasonable the use
of such asset or property owned or used by the Borrower together with the amount
of the damage, destruction, loss or diminution in value, in each case if the
amount involved exceeds $200,000 (a "Casualty Loss") and (ii) diligently file
and prosecute its claim or claims for any award or payment in connection with a
Casualty Loss.
(j) Qualify to Transact Business. The Borrower shall, and shall
cause each of its Subsidiaries to, qualify to transact business as a foreign
corporation in each jurisdiction where the nature or extent of its business or
the ownership of its property requires it to be so qualified and where failure
to qualify could reasonably be expected to have a Material Adverse Effect or
could affect the ability of the Lender to enforce any of the Loan Documents or
collect any of the Obligations.
(k) Financial Reporting. The Borrower shall deliver to the Lender
the following:
(i) Annual Financial Statements. As soon as available, but
not later than one hundred twenty days after the end of each fiscal
year of the Borrower, beginning with the fiscal year ending December
31, 1997, (A) the Borrower's annual audited Financial Statements;
(B) to the extent not included in the Financial Statements delivered
pursuant to clause (A) above, a comparison in reasonable detail to
the prior year's financial statements in form satisfactory to the
Lender; (C) the Auditors' unqualified opinion, a "Management Letter"
and a statement indicating (I) that, in conducting the audit for
such opinion, nothing came to the attention of the Auditors (without
making any special examination for the purpose of such statement)
causing them to believe that the Borrower was not in compliance with
Section 8.1 or 8.2 insofar as it relates to accounting matters,
provided that the Auditors shall not be liable in respect of such
statement by reason of any failure to obtain knowledge of any such
Default that would not be disclosed in the course of an audit
examination conducted in accordance with GAAP and (II) if, in the
opinion of the Auditors, any such Default referred to in the
foregoing clause (I) shall exist, the nature and status thereof
shall be included; (D) to the extent not included in the Financial
Statements delivered pursuant to clause (A) above, a narrative
discussion of the Borrower's financial condition and results of
operations and the liquidity and capital resources for such fiscal
year, prepared by the chief financial officer or the chief
accounting officer of the Borrower; and (E) a compliance certificate
signed by
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the chief financial officer or the chief accounting officer of the
Borrower, substantially in the form of Exhibit I hereto, with an
attached schedule of calculations demonstrating compliance with the
Financial Covenants.
(ii) Quarterly Financial Statements. As soon as available,
but not later than sixty days after the end of the first three
quarters of each fiscal year of the Borrower, commencing with the
first fiscal quarter ending March 31, 1998, quarterly Financial
Statements as at the end of such quarter, certified by the chief
financial officer or the chief accounting officer of the Borrower,
together with a compliance certificate signed by the chief financial
officer or the chief accounting officer of the Borrower,
substantially in the form of Exhibit I hereto, with an attached
schedule of calculations demonstrating compliance with the Financial
Covenants.
(iii) Monthly Revenue Reports. As soon as available, but not
later than thirty days after the end of each month, commencing with
the month of March 1998, a report setting forth on a
Facility-by-Facility basis the power production and the revenues of
the Facilities during such month, and otherwise in form satisfactory
to the Lender, together with a comparison to the revenues projected
in the then-current Business Plan for such month, certified by the
chief financial officer or the chief accounting officer of the
Borrower.
(iv) Weekly Depository Account Statements. On the first
Business Day of each week, commencing with the week beginning April
6, 1998, a copy of a statement reflecting all activity in the
Depository Accounts during the preceding week, including, without
limitation, opening and closing balances.
(v) Excluded Future Subsidiaries. As soon as available,
but not later than sixty days after the end of each of the first
three fiscal quarters of each fiscal year (or 120 days after the end
of each fiscal year) of the Borrower, a certificate of the chief
financial officer or the chief accounting officer of the Borrower
(A) identifying each Excluded Future Subsidiary that has had
negative cash flow in the preceding fiscal quarter based on the
criteria specified in the definition of Projected Adjusted
Consolidated Cash Flow and (B) specifying the amount of such
negative cash flow.
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(vi) Projections. Not later than thirty days after the end
of each fiscal year of the Borrower, an update to the cash flow
projections contained in, and any other modifications required to
maintain the accuracy of, the Business Plan of the Borrower, in form
and substance satisfactory to the Lender, for the period commencing
with the next fiscal year of the Borrower and covering the period
ending on the earlier of the fifth anniversary of (A) the date
thereof and (B) the Availability Expiration Date, certified by the
chief financial officer or the chief accounting officer of the
Borrower.
(vii) Shareholder and SEC Reports. As soon as available, but
not later than five days after the same are sent or filed, as the
case may be, copies of all financial statements and reports that the
Borrower sends to all of its shareholders or files with the
Securities and Exchange Commission or any other Governmental
Authority.
(viii) Other Financial Information. Promptly after the
request by the Lender therefor, such additional financial statements
and other related data and information as to the business,
prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of the Borrower or any of its
Subsidiaries as the Lender may from time to time reasonably request.
(l) Punctual Payment. The Borrower shall timely pay the principal
and interest and any other amount due under this Agreement and the other Loan
Documents.
(m) ERISA. The Borrower shall, and shall cause each of its ERISA
Affiliates to, (i) maintain each Plan intended to qualify under Section 401(a)
of the Internal Revenue Code so as to satisfy the qualification requirements
thereof; (ii) contribute, or require that contributions be made, in a timely
manner (A) to each Plan in amounts sufficient (I) to satisfy the minimum funding
requirements of Section 302 of ERISA or Section 412 of the Internal Revenue
Code, if applicable, (II) to satisfy any other Requirements of Law and (III) to
satisfy the terms and conditions of each such Plan, and (B) to each Foreign Plan
in amounts sufficient to satisfy the minimum funding requirements of any
applicable law or regulation, without any application for a waiver from any such
funding requirements; (iii) cause each Plan or Foreign Plan to comply in all
material respects with applicable law (including all applicable statutes,
orders, rules and regulations); and (iv) pay in a timely manner, in all material
respects, all required premiums to the PBGC. As used in this Section, "Foreign
Plan" means a plan that provides
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retirement or health benefits and that is maintained by, or otherwise
contributed to, the Borrower for the benefit of employees outside the United
States.
(n) Environmental Matters. The Borrower shall, and shall cause each
of its Subsidiaries to, conduct its business so as to comply in all respects
with all applicable Environmental Laws in all jurisdictions in which it is doing
business including, without limitation, compliance with the terms and conditions
of all permits and governmental authorizations, except to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
(o) Payment of Dividends and Distributions. Subject to contractual
restrictions applicable to Subsidiaries of the Borrower that are in effect on
the Closing Date or are contained in instruments of Permitted Indebtedness or
the Governing Documents applicable to such Subsidiaries, the Borrower shall
cause each of its Subsidiaries (other than Excluded Future Subsidiaries) (i) to
declare and pay cash dividends, partnership or similar distributions or similar
forms of payment made on account of equity interests, as the case may be, so as
to maximize the amount of cash distributable to the Borrower from time to time.
(p) Certain Subsidiary Guaranties and Pledges. If any Person (i)
becomes a wholly owned Subsidiary of the Borrower after the Closing Date, (ii)
is a wholly owned Subsidiary of the Borrower whose capital stock or other equity
interests are, on the Closing Date, prohibited from being subjected to any Lien
in favor of the Lender which prohibition thereafter ceases to exist or (iii) is
a wholly owned Excluded Existing Subsidiary on the Closing Date and thereafter
becomes a Subsidiary that is not an Excluded Existing Subsidiary, then the
Borrower shall (A) promptly notify the Lender thereof, (B) within 120 days
thereof (or in the case of CHI Canada, Inc., within thirty days thereof), cause
the owner of the capital stock or other equity interests of such Subsidiary
(other than an Excluded Future Subsidiary), if it is theretofore not a Pledgor,
to execute and deliver to the Lender a counterpart of the Guaranty, the
Contribution Agreement and the Pledge Agreement and (C) take, and cause such
Subsidiary to take, all such further actions and execute all such further
documents and instruments as may be required to grant and perfect in favor of
the Lender, for the benefit of the Lender, a first priority Lien (or, if such
Subsidiary is acquired, a Lien subject to any existing Liens) on all the shares
of capital stock or the equity interests of such Subsidiary including, without
limitation, the delivery to the Lender, of all such other documents and
instruments as the Lender may reasonably request including, without limitation,
a Notice in the form of Annex II thereto, duly executed by the applicable
Pledgor and Pledged Subsidiary, a Supplement to the Pledge
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Agreement in the form of Annex III thereto, duly executed by the applicable
Pledgor, and an Acknowledgment and Consent in the form attached thereto, duly
executed by the applicable Pledged Subsidiary; provided, however, that (I) none
of the foregoing requirements shall apply with respect to any Subsidiary that is
restricted from entering into the Guaranty or whose shares or other equity
interests may not be pledged under the Pledge Agreement based upon restrictions
contained in an instrument of Permitted Indebtedness applicable to such
Subsidiary and (II) if any such Subsidiary becomes an Excluded Future Subsidiary
after the actions specified in clause (B) hereof have been taken, the Lender
shall release (x) such Subsidiary from the Guaranty and (y) the capital stock or
other equity interests of such Subsidiary from the Lien of the Pledge Agreement,
and such Subsidiary shall thereafter cease to be deemed a party to the
Contribution Agreement.
(q) CHI Canada. The Borrower shall use reasonable efforts to cause
the capital stock of CHI Canada, Inc. to cease to be subject to any restriction
on the creation of a Lien thereon in favor of the Lender.
(r) Solvency. The Borrower shall, and shall cause each of its
Designated Subsidiaries to, maintain a Solvent Condition at all times.
(s) Further Assurances. The Borrower shall take all such further
actions and execute all such further documents and instruments as the Lender may
at any time determine in its reasonable discretion to be necessary or desirable
to carry out and consummate the transactions contemplated by the Loan Documents
and to perfect or protect the Liens (and the priority status thereof) of the
Lender on the Collateral.
SECTION 7.2. Negative Covenants. Until the satisfaction of all
Obligations in full, the termination of the Lender's obligation to make any
Revolving Credit Loan or cause to be issued any Letter of Credit, and the
expiration or full cash collateralization of all Letters of Credit:
(a) Indebtedness. The Borrower will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Indebtedness other than Permitted Indebtedness.
(b) Contingent Obligations. The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, incur, assume, or
suffer to exist any Contingent Obligation, other than (i) Contingent Obligations
that constitute Permitted Indebtedness, (ii) Contingent Obligations incurred in
the ordinary course of business and of a type consistent with the Borrower's or
such Subsidiary's prior practices and not exceeding
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$300,000 in the aggregate at any time including, (iii) Contingent Obligations
arising under guaranties or indemnities incurred in connection with the
acquisition, sale or financing of assets and property, if such acquisition, sale
or financing is otherwise permitted hereunder (other than any Contingent
Obligation with respect to Non-Recourse Debt unless the Contingent Obligation is
included under the definition of Non-Recourse Debt), or (iv) Contingent
Obligations specified in Schedule 7.2(b) hereto.
(c) Liens, etc. The Borrower will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on or with respect to any of its assets or any interest therein
of any character whether now owned or hereafter acquired other than Permitted
Liens. If, notwithstanding the foregoing provision of this Section, the Borrower
or any of its Subsidiaries creates, assumes or suffers to exist any Lien (other
than a Permitted Lien) on its property or assets (including property which is
acquired after the date hereof) not expressly permitted by this Section, the
Borrower will, or will cause such Subsidiary to, simultaneously therewith make
effective provision to secure the Obligations equally and ratably with all other
indebtedness so secured (but shall not take any steps to secure such other
indebtedness equally and ratably with the Obligations), and will promptly
provide written notice thereof to the Lender. Nothing in this subsection is
intended to relieve the Borrower from its obligations set forth in the first
sentence of this Section.
(d) Consolidation and Merger. The Borrower will not, and will not
permit any of its Designated Subsidiaries to, wind up, liquidate or dissolve its
affairs or enter into any transaction of merger or consolidation, or agree to do
any of the foregoing at any future time, except (i) any wholly-owned Subsidiary
of the Borrower may be merged or consolidated with or into the Borrower
(provided that the Borrower shall be the continuing or surviving corporation) or
with or into any one or more wholly-owned Subsidiaries of the Borrower and (ii)
any group of wholly-owned Subsidiaries of the Borrower may be merged or
consolidated with or into each other, provided that, (A) if the Borrower is a
party to such merger or consolidation, it shall be the continuing or surviving
corporation and its Tangible Net Worth shall, immediately after giving effect to
such merger or consolidation, not be reduced as a result thereof and (B) if a
Pledgor or a Pledged Subsidiary and another Subsidiary of the Borrower that is
not a Pledgor or a Pledged Subsidiary are the parties to such merger or
consolidation, such Pledgor or Pledged Subsidiary shall be the continuing or
surviving corporation (unless, in the case that a non-Pledgor is a party to such
merger or consolidation, it simultaneously therewith becomes a Pledgor and a
party to the Guaranty) and its Tangible Net Worth shall, immediately after
giving effect to such merger or consolidation, not be reduced as a result
thereof.
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(e) Corporate Changes, etc. Except to the extent otherwise expressly
permitted under this Agreement, the Borrower will not, and will not permit any
of its Subsidiaries to, (A) amend, alter or modify its Governing Documents or
its corporate or capital structure or status in a manner that could reasonably
be expected to have a Material Adverse Effect or (B) except in the case of the
Borrower or any Excluded Future Subsidiary, issue any capital stock or warrants,
options or rights to purchase capital stock.
(f) Change of Business. Except to the extent otherwise expressly
permitted under this Agreement, the Borrower will not, and will not permit any
of its Subsidiaries to, make any material change in the nature of its business
as carried on at the date hereof or enter into any new type of business except
as specified in the Borrower's (i) Disclosure Statement dated August 8, 1997
filed with the United States Bankruptcy Court for the District of Delaware or
(ii) business plan dated September 4, 1997, a copy of which has been delivered
to the Lender.
(g) Sales, etc. of Assets. The Borrower will not, and will not
permit any of its Designated Subsidiaries to, directly or indirectly, sell,
lease, transfer or otherwise dispose of any assets, or grant any option or other
right to purchase, lease or otherwise acquire any assets, except for the sale or
other disposition of (i) water from its impoundments at rates that compensate
for any lost power production revenues, to the extent required under local or
state law or ordinances and permitted under the permits and licenses governing a
Facility, (ii) inventory and spare parts and other assets not necessary to the
conduct of its business which are sold or otherwise disposed of in the ordinary
course of business, (iii) assets (A) the costs of operation or maintenance of
which are, in the reasonable determination of the Lender, greater than the
revenues related thereto or (B) which are specified in Schedule 7.2(g), the
proceeds of which shall be applied in accordance with the provisions of Section
2.7(b)(i), (iv) equipment, if the proceeds thereof are used within thirty days
of receipt thereof to purchase replacement equipment of equal or greater value
to the extent permitted under Section 2.7(b)(i), (v) assets by Persons that
become Subsidiaries of the Borrower after the Closing Date if the Borrower shall
have given the Lender evidence satisfactory to the Lender that the net present
value of the amount to be paid for the assets sold exceeds the net book value or
the net present value thereof, the proceeds of which shall be applied in
accordance with Section 2.10, (vi) the assets or capital stock or other equity
interests of an Excluded Future Subsidiary if (A) written notice of such sale or
other disposition shall have been given by the Borrower to the Lender not less
than fifteen days before such sale or other disposition and (B) the Borrower
shall have given the Lender evidence satisfactory to the Lender that the net
present value of the amount to be paid for such
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assets or equity interests exceeds the net book value or the net present value
thereof, (vii) assets identified in writing to the Lender at least ten days
before sale, that are to be sold for their fair market value in cash, not to
exceed $200,000 in the aggregate in any fiscal year, the proceeds of which shall
be applied in accordance with the provisions of Section 2.10, (viii) assets (A)
to a Pledgor or (B) by a Subsidiary of the Borrower that is not a Pledgor or a
Pledged Subsidiary to another Subsidiary of the Borrower, (ix) assets by CHI
Finance to any Person that becomes, by operation of law or otherwise, a party to
the Guaranty simultaneously with its acquisition of such assets and (x)
emissions offsets or other emissions reductions credits to the extent they are
not required for the operation of the Facilities under applicable Requirements
of Law.
(h) Cancellation of Debt. The Borrower will not, and will not permit
any of its Subsidiaries, other than Excluded Future Subsidiaries, to, cancel any
claim or debt owed to it, except (i) for consideration in the ordinary course of
business, (ii) cancellation of debt from a Pledgor to a Subsidiary of the
Borrower that is not a Pledgor, (iii) cancellation of debt that occurs by
operation of law in a transaction permitted under Section 7.2(d) and (iv)
cancellation of debt owed by a Subsidiary of the Borrower whose continued
existence is not required under Section 7.1(a).
(i) Loans to Other Persons. The Borrower will not, and will not
permit any of its Subsidiaries, other than Excluded Future Subsidiaries, to,
make any loan or otherwise advance any credit to any Person, except for loans
and advances (i) constituting Permitted Investments and (ii) made in the
ordinary course of business in an amount not exceeding $50,000 as to any Person,
and $250,000 as to all Persons, outstanding at any one time.
(j) Dividends, Stock Redemptions, Exchange, etc. The Borrower will
not, directly or indirectly, declare or pay any dividends on, or purchase,
redeem or retire any shares of any class of its capital stock (other than the
retirement of shares of the Borrower's Class B Common Stock upon the conversion
of such shares into shares of the Borrower's Class A Common Stock), or make any
payment on account of, or set apart assets for a sinking or other analogous fund
for, the purchase, redemption, defeasance, retirement or other acquisition of,
any shares of any class of its capital stock or any warrants, options or rights
to purchase any such capital stock, whether now or hereafter outstanding, or
make any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Borrower other than (i)
dividends payable in shares of its common stock and (ii) so long as no Default
exists or would result therefrom (A) exchanges of capital stock of the Borrower
for capital stock of an Affiliate of the Borrower and
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(B) the repurchase of capital stock of the Borrower, or warrants, options or
rights therefor (including employee stock options) not to exceed $100,000 in the
aggregate for each fiscal year of the Borrower commencing with the fiscal year
of the Borrower ending December 31, 1998 ("Permitted Distributions"), provided
that any amount of Permitted Distributions that is not made by the Borrower in
any fiscal year may be carried forward to future fiscal years.
(k) Investments. The Borrower will not, and will not permit any of
its Subsidiaries, other than Excluded Future Subsidiaries, to, directly or
indirectly, make or hold any Investment in any Person (whether in cash,
securities or other property of any kind) other than Permitted Investments.
(l) Intentionally Omitted.
(m) Fiscal Year. The Borrower will not change its fiscal year from a
year ending on December 31.
(n) Accounting Changes. The Borrower will not at any time make or
permit any change in accounting policies or reporting practices, except as
required or permitted by GAAP.
(o) No Prohibited Transactions Under ERISA. The Borrower will not,
and will not permit any of its ERISA Affiliates to, directly or indirectly:
(i) engage in any prohibited transaction which could
reasonably be expected to result in a civil penalty or excise tax
described in Section 406 of ERISA or 4975 of the Internal Revenue
Code for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the
Department of Labor;
(ii) permit to exist with respect to any Pension Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA
and 412 of the Internal Revenue Code), whether or not waived;
(iii) terminate any Pension Plan where such event would
result in any liability of the Borrower or any ERISA Affiliate under
Title IV of ERISA;
(iv) fail to make any required contribution or
payment to any Multiemployer Plan;
(v) fail to pay any required installment or any other
payment required under Section 412 of the Internal Revenue Code on
or before the due date for such installment or other payment;
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(vi) amend a Pension Plan resulting in an increase in
current liability for the plan year such that the Borrower or any
ERISA Affiliate is required to provide security to such Plan under
Section 307 of ERISA or Section 401(a)(29) of the Internal Revenue
Code; or
(vii) withdraw from any Multiemployer Plan where such
withdrawal is reasonably likely to result in any liability of any
such entity under Title IV of ERISA.
(p) Unusual Terms of Sale. The Borrower will not, and will not
permit any of its Designated Subsidiaries to, sell any material goods or
services to customers on consignment terms or on any other unusual terms of sale
that are not in the ordinary course of business or in accordance with prior
practice.
(q) Prepayments and Amendments of Material Contracts. The Borrower
will not, and will not permit any of its Subsidiaries, other than Excluded
Future Subsidiaries, to, (i) prepay (except (A) as required under the terms of
the governing instrument or (B) in the case of prepayments by Subsidiaries, to
allow or accelerate distributions to the Borrower), redeem, purchase, defease or
otherwise satisfy prior to the scheduled maturity thereof in any manner, or make
any payment in violation of any subordination terms of, any Indebtedness, other
than the prepayment of the Loans in accordance with the terms of this Agreement,
or (ii) amend, modify, cancel or terminate, or permit the amendment,
modification, cancellation or termination of, any of the Material Contracts,
except in the event that any such amendment, modification, cancellation or
termination could not reasonably be expected to have a Material Adverse Effect.
(r) Leases. The Borrower will not, and will not permit any of its
Subsidiaries, other than Excluded Future Subsidiaries, to, enter into or permit
to remain in effect (i) any agreements to rent or lease any real or personal
property except for (A) leases existing on the date hereof and specified in
Schedule 7.2(r), and replacement leases for the same or comparable assets at
prevailing market rates, (B) leases in connection with Facilities whose
acquisition or expansion is otherwise permitted hereunder, (C) leases permitted
under Section 7.2(s) and (D) other leases entered into in the ordinary course of
business of the Borrower and its Subsidiaries, provided that the aggregate
amount of all payments by the Borrower and its Subsidiaries for all such leases
(other than leases permitted under clause (ii) hereof) under this clause (D)
during any twelve-month period commencing on or after the Closing Date shall not
exceed $500,000 or (ii) any agreements to rent or lease as lessee any personal
property for a period in excess of three years other than in connection with any
Facility site lease renewal or any Facility site leases executed in connection
with
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Facilities developed after the Closing Date to the extent permitted under the
Business Plan.
(s) Leasebacks. The Borrower will not, and will not permit any of
its Subsidiaries, other than Excluded Future Subsidiaries, to, enter into any
arrangement with any lender or investor providing for the leasing to the
Borrower or such Subsidiary of any property (i) which at the time has been or is
to be sold or transferred by the Borrower or such Subsidiary to such lender or
investor or to any Person to whom funds have been or are to be advanced by such
lender or investor on the security of such property or rental obligations of the
Borrower or such Subsidiary; or (ii) which has been or is being acquired from
another Person by such lender or investor or, if real property, on which one or
more buildings have been or are to be constructed by such lender or investor,
for the purpose of leasing the same to the Borrower or such Subsidiary except
for (A) leasebacks existing on the date hereof and specified in Schedule 7.2(s),
and leases of the same property from other owners and (B) leasebacks which would
constitute Non-Recourse Debt if the related lease obligations constituted
Indebtedness.
(t) Purchase or Sale Agreements. The Borrower will not, and will not
permit any of its Subsidiaries, other than Excluded Future Subsidiaries, to,
enter into or be a party to any contract for the purchase or use of materials,
supplies or other property or for the performance of services if such contract
requires that payment for such materials, supplies or other property or the use
thereof, or for such services, shall be made by the Borrower or such Subsidiary
regardless of whether or not delivery is ever made of such materials, supplies
or other property, or such services are performed.
(u) Blocked Account and Depository Agreements. The Borrower will
not, and will not permit CHI Finance to, amend, modify or change, or consent or
otherwise agree to any amendment, modification or change to, the Blocked Account
Agreement or the Depository Agreement, except as provided therein.
(v) Negative Pledge. The Borrower will not, and will not permit any
of its Subsidiaries to, enter into or suffer to exist any agreement prohibiting
or conditioning the creation or assumption of any Lien upon any of its assets,
except for (i) restrictions in existence on the Closing Date in connection with
Existing Indebtedness, and (ii) similar types of restrictions which may be
incurred with respect to Permitted Indebtedness.
(w) Use of Proceeds. The Borrower will not use any portion of the
proceeds of any Revolving Credit Loan in violation of Section 2.1(d) or for the
purpose of purchasing or carrying any "margin stock" (as defined in Regulation G
of the Federal
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Reserve Board) in any manner which violates the provisions of Regulation G, T, U
or X of such Board or for any other purpose in violation of any applicable
statute or regulation, or of the terms and conditions of this Agreement.
(x) Limitation on Actions Affecting Public Utility
Regulation.
(i) The Borrower will not, and will not permit any of its
Subsidiaries to, take or fail to take any action if, as a direct
consequence thereof, the Borrower or any of its Subsidiaries (other
than CHI Power Marketing, Inc.) would be, or be deemed to be,
subject to any financial, organizational or rate regulation as an
Electric Utility or to be regulated as a "public utility company" or
a company which is a "holding company" or a "public utility company"
subject to registration with the Securities and Exchange Commission
or to regulation under PUHCA.
(ii) The Borrower will not, and will not permit any of its
Subsidiaries to, take or fail to take any action if, (A) as a sole
result of such action or inaction or (B) as a result of such action
or inaction in combination with other events, including events that
do not involve the Borrower or any of its Subsidiaries (provided
that the Lender has given prior written notice to the Borrower of
such other events), the Lender would be "a public utility company"
or a company which is a "holding company" of a "public utility
company" or otherwise be subject to registration with the Securities
and Exchange Commission or to regulation under PUHCA or any other
Requirement of Law regulating utilities or independent power
producers, provided that it shall not be a violation of this Section
if as a result of the exercise of its remedies hereunder or under
applicable law the Lender obtains control of any Facility and thus
becomes subject to regulation as the owner of a "qualifying
facility" as defined under the PURPA regulations, or as an "exempt
wholesale generator" as defined under the National Energy Policy Act
of 1992.
(y) Limitation on Dividend and Other Payment Restrictions. Except to
the extent required under the terms of the instruments of Permitted
Indebtedness, the Borrower will not create or otherwise cause or suffer to exist
or become effective any restriction of any kind on the ability of any of its
Subsidiaries to (i) pay dividends or make any other distributions permitted by
applicable law on any capital stock of such Subsidiary or any other Subsidiary
of the Borrower, (ii) pay any Indebtedness owed to the Borrower or any other
Subsidiary of the
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Borrower, (iii) make loans or advances to the Borrower or any other Subsidiary
of the Borrower or (iv) transfer any of its property or assets to the Borrower
or any other Subsidiary of the Borrower.
(z) Bank Accounts, etc. Neither the Borrower nor any of its
Subsidiaries will maintain any checking, savings or other account at any bank or
other financial institution, or any other account where money or securities may
be deposited or maintained with any other Person other than the Blocked Account,
the Depository Accounts, the L/C Cash Collateral Account, any account maintained
by an Excluded Future Subsidiary, payroll accounts, the accounts specified in
Schedule 7.2(z) and any other accounts in which only proceeds of Restricted
Receivables are required to be deposited from time to time, with respect to
which the Borrower shall give the Lender prior written notice or, in the case of
a new account resulting from a change of account number by the depository bank,
written notice within ten days of the Borrower becoming aware of such change.
(aa) CHI Finance. The Borrower will not permit CHI Finance to,
directly or indirectly, create, incur, assume or suffer to exist any
indebtedness, liabilities or Contingent Obligations.
ARTICLE VIII
FINANCIAL COVENANTS
Until the satisfaction of all Obligations in full, the termination
of the Lender's obligation to make any Revolving Credit Loan or cause to be
issued any Letter of Credit, and the expiration of all Letters of Credit:
SECTION 8.1. Tangible Net Worth. The Tangible Net
Worth of the Borrower shall not be less than $30,000,000 at any
time.
SECTION 8.2. Capital Expenditures. The amount of the Borrower's and
its Subsidiaries' aggregate Capital Expenditures made or committed to be made
(to the extent such commitments are required to be recorded as capital
expenditures in accordance with GAAP) in any fiscal year with respect to
Facilities owned by the Borrower or any of its Subsidiaries or Affiliates on the
Closing Date, other than Capital Expenditures (i) required to be made by the
FERC or ordered to be made by any other Regulatory Authority, (ii) made in the
ordinary course of business (including for repairing or rebuilding Facilities
which are damaged or destroyed by an act of nature or as the result of any
unforeseeable event, whether or not covered by insurance),
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(iii) made or committed to be made (to the extent such commitments are required
to be recorded as capital expenditures in accordance with GAAP) from the
proceeds of Permitted Indebtedness or the sale of capital stock or other equity
interests of the Borrower or any of its Subsidiaries or Affiliates (to the
extent permitted under the Loan Documents) and (iv) made or committed to be made
(to the extent such commitments are required to be recorded as capital
expenditures in accordance with GAAP) from proceeds maintained in reserve or
restricted accounts in accordance with prior practices, which, (A) in the case
of Capital Expenditures of the type specified in clauses (iii) and (iv) above,
to the extent such Capital Expenditures exceed the amounts of Capital
Expenditures projected in the Business Plan to be made with proceeds from such
sources, shall be made only upon prior written notice to the Lender and (B)
after the Availability Expiration Date, in the case of Capital Expenditures of
the type specified in clause (ii) above, to the extent the amount of Capital
Expenditures (other than those of the type specified in clauses (i), (ii) and
(iv) above) made or committed to be made in the applicable fiscal year exceeds
or is projected to exceed the amount specified below opposite such fiscal year,
shall require the prior written consent of the Lender, shall not exceed the
amount set forth below opposite such fiscal year:
Fiscal Year Amount
- ----------- ------
1998 $3,500,000
1999 $2,500,000
2000 $2,800,000
2001 $2,100,000
2002 $2,200,000
2003 $2,200,000
2004 $2,200,000
provided that, so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, any such amount, if not expended during a
fiscal year for which it is permitted above, may be carried over for expenditure
in subsequent fiscal years.
SECTION 8.3. Post-Availability Expiration Date Expenditures.
Commencing on the Availability Expiration Date, (a) the Borrower will not, and
will not permit any of its Subsidiaries, other than Excluded Future
Subsidiaries, to, make any expenditures, from proceeds of Collections or
otherwise, for business development or general and administrative expenses
except as specified in the Business Plan for the period covered thereby and (b)
the release of funds to the Depository Accounts (with the allocation of such
funds between the two Depository Accounts to be made in the reasonable
discretion of the Borrower) from the Blocked Account under Section 2.10(c)(i)
shall be limited to the amounts authorized in the preceding clause (a).
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ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.1. Events of Default. The occurrence of any
of the following events shall constitute an "Event of Default":
(a) the Borrower shall fail to pay any principal, interest, fees,
expenses or other Obligations within five days of the date when due, except with
respect to the last payments of principal, interest or fees due hereunder
(including upon acceleration), which shall be payable on the date when due (or
on the date of acceleration); or
(b) the Borrower or any of its Subsidiaries shall fail to perform or
observe
(i) any term, condition, covenant or agreement contained
in Section 7.1(a), (b), (d), (e), (j), (k), (m) or (n) of this
Agreement more than thirty days after the earlier of (A) the date on
which any officer of the Borrower or such Subsidiary knew or
reasonably should have known of such failure in the ordinary course
of his or her responsibilities and (B) the date on which the Lender
notified the Borrower and such Subsidiary in writing of such
failure, provided that, if (I) such failure is capable of being
cured within such thirty-day period and (II) the Borrower or such
Subsidiary initiates a cure thereof within such period, it shall not
become an Event of Default unless it continues to exist on the
earlier of (x) the Borrower or such Subsidiary has ceased to attempt
diligently (in the reasonable judgment of the Lender) to cure such
failure, and (y) ninety days after the initial occurrence of such
failure; or
(ii) any other term, condition, covenant or agreement
contained in this Agreement or any other Loan Document to which it
is a party (except as provided in Section 9.1(a)), provided that, if
such failure (A) was unintentional, (B) could not reasonably be
expected to have a Material Adverse Effect and (C) is capable of
being cured within thirty days, it shall not become an Event of
Default unless it continues to exist at the end of such thirty-day
period; or
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(c) the Borrower or any Designated Subsidiary (other than any
Subsidiary whose continued existence is not required under Section 7.1(a)) shall
dissolve, wind up or otherwise cease to conduct its business except as permitted
under Section 7.2(d); or
(d) the Borrower or any Designated Subsidiary shall become the
subject of (i) an Insolvency Event as set forth in clause (e) of the definition
of Insolvency Event that is not resolved or dismissed within sixty days or (ii)
any Insolvency Event except as set forth in clause (e) of the definition of
Insolvency Event; or
(e) the Borrower or any of its Subsidiaries, other than Excluded
Future Subsidiaries, (i) shall fail to pay any Indebtedness (other than
Non-Recourse Debt)in an aggregate amount in excess of $250,000 (other than the
Indebtedness hereunder) including any interest or premium thereon, when due
(whether at scheduled maturity (taking into account all cure periods) or by
required prepayment, acceleration, demand or otherwise), or (ii) shall otherwise
be in breach or default in any of its obligations under any agreement with
respect to any such Indebtedness, if the effect of such breach, default or
failure to pay is to cause such Indebtedness to become due or redeemed or permit
the holder or holders of such Indebtedness (or a trustee or agent on behalf of
such holder or holders) to declare such Indebtedness due or require such
Indebtedness to be redeemed prior to its stated maturity; or
(f) any representation or warranty made by the Borrower or any of
its Subsidiaries under or in connection with any Loan Document, Financial
Statement or certificate delivered in connection therewith shall prove to have
been incorrect in any material respect when made or deemed made; or
(g) one or more federal tax liens (other than Permitted Liens) for
more than $100,000 shall be filed of record against the Borrower or any of its
Subsidiaries and shall not be stayed, bonded or discharged within thirty days;
or
(h) a Change of Control shall have occurred; or
(i) one or more judgments or orders for the payment of money in
excess of $500,000 in the aggregate (other than judgments and orders that are
fully covered by insurance and with respect to which the insurance company has
accepted liability) shall be rendered against the Borrower or any of its
Subsidiaries, other than Excluded Future Subsidiaries, and shall not be stayed,
vacated, bonded or discharged within thirty days; or
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(j) any covenant, agreement or obligation of the Borrower or any of
its Subsidiaries contained in or evidenced by any of the Loan Documents shall
cease to be enforceable, or shall be determined to be unenforceable, in
accordance with its terms and the Borrower or such Subsidiary shall not have
provided a substitute therefor which is reasonably acceptable to the Lender
within ten days of written notice thereof to the Borrower; the Borrower or any
of its Subsidiaries shall deny or disaffirm its obligations under any of the
Loan Documents or any Lien granted in connection therewith; or any Lien granted
on any of the Collateral shall be determined to be void, voidable or invalid, is
subordinated or is not given the priority contemplated by this Agreement or the
Pledge Agreement and the Borrower or such Subsidiary shall have not provided
substitute collateral therefor of a type, with a value, and under documentation
in form and substance reasonably acceptable to the Lender within ten days of
written notice thereof to the Borrower; or
(k) the Auditors shall deliver a Qualified opinion on the Borrower's
Financial Statements; or
(l) the occurrence of any event that could reasonably be expected to
have a Material Adverse Effect if such event continues to exist more than ten
days after the date on which the Lender notified the Borrower in writing of such
event.
SECTION 9.2. Acceleration and Cash Collateralization. Upon the
occurrence and during the continuance of an Event of Default, the Lender may
take any or all of the following actions, without prejudice to the rights of the
Lender to enforce its claims against the Borrower:
(a) Acceleration. To declare all Obligations immediately due and
payable by written notice to the Borrower (except with respect to any Event of
Default with respect to the Borrower specified in Section 9.1(d), in which case
the Obligations shall automatically become immediately due and payable without
presentment, demand, protest or any other action or obligation of the Lender
except as stated in this subsection.
(b) Termination of Commitment. To declare the Lender's obligations
to make Revolving Credit Loans or to use its best efforts to cause Letters of
Credit to be issued hereunder immediately terminated (except with respect to any
Event of Default with respect to the Borrower specified in Section 9.1(d), in
which case such obligations shall automatically terminate) and, at all times
thereafter, any Revolving Credit Loans made by the Lender or Letters of Credit
issued pursuant to this Agreement shall be in the Lender's sole and absolute
discretion.
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(c) Cash Collateralization. With respect to all Letters of Credit
outstanding at the time of an acceleration pursuant to Section 9.2(a), or within
thirty days thereof in the case of an acceleration based solely upon an Event of
Default specified in Section 9.1(b) as it relates to a failure to perform any
term, covenant or agreement in Section 7.1(a), (b), (d), (e), (j), (m), (n) or
(o), the Borrower shall at such time deposit in the L/C Cash Collateral Account
an amount equal to the aggregate then undrawn amount of the outstanding Letters
of Credit. Amounts held in the L/C Cash Collateral Account shall be under the
sole dominion and control of the Lender and shall be applied by the Lender to
the payment of drafts drawn under such Letters of Credit, and the balance, if
any, in the L/C Cash Collateral Account, after all such Letters of Credit shall
have expired or been fully drawn upon, shall be applied to repay the other
Obligations. After all such Letters of Credit shall have expired or been fully
drawn upon, all Letter of Credit obligations shall have been satisfied and all
other Obligations shall have been paid in full, the balance, if any, in the L/C
Cash Collateral Account shall be returned to the Borrower.
SECTION 9.3. Other Remedies. Upon the occurrence and during the
continuance of an Event of Default, the Lender shall have all rights and
remedies with respect to the Obligations and the Collateral under the Code,
other applicable laws and the Loan Documents, and the Lender may do any or all
of the following:
(a) have full access to all documents, instruments, files and
records (including the copying of any computer records) relating to the
Receivables of the Borrower or use (at the expense of the Borrower) such
supplies or space of the Borrower at the Borrower's places of business necessary
to administer and collect its Receivables, other than Restricted Receivables;
(b) accelerate or extend the time of payment, compromise, issue
credits, or bring suit on the Receivables, other than Restricted Receivables, of
the Borrower (in the name of the Borrower or the Lender) and otherwise
administer and collect such Receivables;
(c) sell, assign and deliver the Receivables of the Borrower, other
than Restricted Receivables, and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for cash,
on credit or otherwise, subject to applicable law;
(d) foreclose the security interests created pursuant to the Loan
Documents by any available procedure, or take possession of any or all of the
Collateral, without judicial process and enter any premises where any Collateral
may be located for the purpose of taking possession of or removing the same; and
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(e) make any payment or take any other action necessary or desirable
to protect or preserve any Collateral, any of the Facilities or any other aspect
of the business of the Borrower or any of its Subsidiaries including, without
limitation, the maintenance of permits, rights of way, easements and licenses
relating to the Facilities or otherwise to the business activities of the
Borrower and paying on behalf of the Borrower or such Subsidiary insurance
premiums, tax obligations or any other liabilities which, if unpaid, could
reasonably be expected to have a Material Adverse Effect, all of which payments
shall be Obligations and secured by the Collateral, provided that nothing herein
shall be deemed to create any obligation on the part of the Lender to make any
of the foregoing payments or to take any other action.
To the extent permitted by applicable law, the Lender may bid or become a
purchaser at any sale, free from any right of redemption, which right is
expressly waived by the Borrower. If notice of intended disposition of any
Collateral is required by law, it is agreed that five Business Days' notice
shall constitute reasonable notification. The Borrower will assemble the
Collateral and make it available to the Lender at such locations as the Lender
may specify, whether at the premises of the Borrower or elsewhere, and will make
available to the Lender the premises and facilities of the Borrower for the
purpose of the Lender's taking possession of or removing the Collateral or
putting the Collateral in saleable form.
SECTION 9.4. License for Use of Software and Other Intellectual
Property. Unless expressly prohibited by any licensor thereof, the Lender is
hereby granted a license to use all computer software programs, data bases,
processes and materials used by the Borrower in connection with its businesses
or the Collateral. The Lender agrees not to use any such license prior to the
occurrence of an Event of Default without giving the Borrower prior notice
thereof.
SECTION 9.5. No Marshalling; Deficiencies; Remedies Cumulative. The
Borrower waives any right to require the Lender to marshal any Collateral or
otherwise to compel the Lender to seek recourse against or satisfaction of the
Obligations from one source before seeking recourse or satisfaction from another
source. The net cash proceeds resulting from the Lender's exercise of any of the
foregoing rights to liquidate all or substantially all of the Collateral (after
deducting all of the Lender's expenses related thereto) shall be applied by the
Lender to the payment of the Obligations, whether due or to become due, in such
order as the Lender may elect. The Borrower shall remain liable to the Lender
for any deficiencies and the Lender in turn agrees to remit to the Borrower or
its successors or assigns any surplus resulting therefrom. The foregoing
remedies are not intended to be exhaustive and the full or partial exercise of
any
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of them shall not preclude the full or partial exercise of any other available
remedy under this Agreement, under any other Loan Document, at equity or at law.
SECTION 9.6. Defense of Collateral; Continuation of Liens; Further
Assurances. The Borrower shall defend the Collateral against all claims and
demands of all Persons at any time claiming any interest therein, other than
claims relating to Permitted Liens. The Borrower agrees to comply with the
requirements of all state and federal laws to grant to and continue in favor of
the Lender valid and perfected first security interests in the Collateral. The
Borrower agrees, from time to time, at the Lender's request, to file notices of
Liens, financing statements, and amendments, renewals and continuations thereof,
and cooperate with the Lender's representatives, in connection with the
continued perfection and protection of the Collateral. The Borrower shall do all
things and shall deliver all instruments reasonably requested by the Lender to
protect or perfect any security interest, pledge, mortgage or lien given
hereunder including, without limitation, financing statements under the Code.
The Borrower authorizes the Lender (i) to execute alone any financing statement
or other documents or instruments that the Lender may reasonably require to
perfect, protect or establish any Lien or security interest hereunder, (ii) to
sign the Borrower's name on the same and (iii) to file this Agreement or any
copy thereof as a financing statement, where permitted by law. The Borrower
appoints such Person or Persons as the Lender may designate as its
attorney-in-fact and upon the occurrence and continuance of an Event of Default,
such attorney-in-fact may endorse the name of the Borrower on any checks, notes,
drafts or other forms of payment or security that may come into the possession
of either the Lender or any Affiliate of the Lender to sign the Borrower's name
on invoices or bills of lading, drafts against customers, notices of assignment,
verifications and schedules and, generally, to do all things necessary to carry
out this Agreement. Upon the occurrence and continuance of an Event of Default,
such attorney-in-fact may notify the post office authorities to change the
address of delivery of mail to the then existing address of the Borrower to an
address designated by the Lender, and open and dispose of mail addressed to the
Borrower. The powers granted herein, being coupled with an interest, are
irrevocable, and the Borrower approves and ratifies all acts of the
attorney-in-fact. Neither the Lender nor the attorney-in-fact shall be liable
for any act or omission, error in judgment or mistake of law so long as such
act, omission, error or mistake does not constitute intentional misconduct or
gross negligence.
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ARTICLE X
GENERAL PROVISIONS
SECTION 10.1. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND
ENFORCEMENT OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS
OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) AND DECISIONS
OF THE STATE OF NEW YORK.
SECTION 10.2. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE
BORROWER AND THE LENDER, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR
OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN NEW
YORK, NEW YORK, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN;
PROVIDED, HOWEVER, THAT THE LENDER SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN ANY
LOCATION REASONABLY SELECTED BY THE LENDER IN GOOD FAITH TO ENABLE THE LENDER TO
REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR
OF THE LENDER. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY THE LENDER.
THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT
IN WHICH THE LENDER HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
SECTION 10.3. SERVICE OF PROCESS. THE BORROWER HEREBY IRREVOCABLY
DESIGNATES CURTIS THAXTER STEVENS BRODER & MICOLEAU LLC, ONE CANAL PLAZA, 10TH
FLOOR, PORTLAND, MAINE 04101, ATTENTION: MICHAEL PEISNER, ESQ., AS THE DESIGNEE
AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE BORROWER, SERVICE
OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON
SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY FORWARDED BY MAIL TO THE BORROWER,
BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY
THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER
TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION 10.4. JURY TRIAL. THE BORROWER AND THE LENDER
EACH HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY
RIGHT TO A TRIAL BY JURY.
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SECTION 10.5. LIMITATION OF LIABILITY. THE LENDER SHALL HAVE NO
LIABILITY TO THE BORROWER (WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR
LOSSES SUFFERED BY THE BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY
WAY RELATED TO THE TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT,
OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS
DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON THE
LENDER THAT THE LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE LENDER. THE BORROWER HEREBY WAIVES ALL
FUTURE CLAIMS AGAINST THE LENDER FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR
PUNITIVE DAMAGES UNLESS RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE LENDER.
SECTION 10.6. Delays; Partial Exercise of Remedies. No delay or
omission of the Lender to exercise any right or remedy hereunder shall impair
any such right or operate as a waiver thereof. No single or partial exercise by
the Lender of any right or remedy shall preclude any other or further exercise
thereof, or preclude any other right or remedy.
SECTION 10.7. Notices. Except as otherwise provided herein, all
notices and correspondence hereunder shall be in writing and sent by certified
or registered mail, return receipt requested, by overnight delivery service,
with all charges prepaid, or by telecopier followed by a hard copy sent by
regular mail, if to the Lender, then to Lyon Credit Corporation, Soundview
Plaza, 1266 East Main Street, Stamford, Connecticut 06902, Telecopy: (203)
328-9339, Attention: Mr. Jerome P. Peters, Jr., Senior Vice President, with a
copy to Luskin, Stern & Eisler LLP, 330 Madison Avenue, New York, New York
10017, Telecopy: (212) 293-2705, Attention: Nathan M. Eisler, Esq., and if to
the Borrower, then to CHI Energy, Inc., Stamford Towers, 680 Washington
Boulevard, Suite 500, Stamford, Connecticut 06901, Telecopy: (203) 425-8880,
Attention: Mr. Edward M. Stern, President, with a copy to Curtis Thaxter Stevens
Broder & Micoleau LLC, One Canal Plaza, 10th Floor, Portland, Maine 04101,
Telecopy: (207) 775-0612, Attention: Michael Peisner, Esq., or, in each case, to
such other address specified by any party in writing to the other parties in the
manner required under this Section. All such notices and correspondence shall be
deemed given (i) if sent by certified or registered mail, three Business Days
after being postmarked, (ii) if sent by overnight delivery service, when
received at the above stated addresses or when delivery is refused and (iii) if
sent by telecopier transmission, when such transmission is confirmed.
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SECTION 10.8. Assignments and Participations.
(a) Borrower Assignment. The Borrower shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Lender.
(b) Lender Assignments. The Lender may assign (without the consent
of the Borrower) to one or more banks or other financial institutions all or a
portion of its rights and obligations under this Agreement, the Notes and the
other Loan Documents. The Lender agrees to use reasonable efforts to give
written notice of any such assignment to the Borrower promptly after its
effectiveness, provided that the failure to give any such notice shall not
invalidate or limit such assignment.
(c) Lender Participations. The Lender may sell participations
(without the consent of the Borrower) to one or more parties in or to all or a
portion of its rights and obligations under this Agreement. The Lender agrees to
use reasonable efforts to give written notice of any such participation to the
Borrower promptly after its effectiveness, provided that the failure to give any
such notice shall not invalidate or limit such participation. Notwithstanding
the Lender's sale of a participation interest, the Lender's obligations
hereunder shall remain unchanged.
(d) Information. In connection with its efforts to assign its rights
or obligations or sell participation pursuant to Sections 10.8(b) and (c)
hereof, the Lender may disclose any information it has, now or in the future,
with respect to the Borrower or any of its Subsidiaries.
SECTION 10.9. Indemnification; Reimbursement of
Expenses of Collection.
(a) The Borrower hereby indemnifies and agrees to defend and hold
harmless the Lender and its directors, officers, agents, employees and counsel
(each, an "Indemnified Party") from and against any and all losses, claims,
damages, liabilities, deficiencies, judgments or expenses incurred by any of
them (except to the extent that it is finally judicially determined to have
resulted from their own gross negligence or willful misconduct) arising out of
or by reason of (i) any litigations, investigations, claims or proceedings which
arise out of or are in any way related to (A) this Agreement, any other Loan
Document or the transactions contemplated hereby or thereby, (B) any actual or
proposed use by the Borrower or any of its Subsidiaries of the Letters of Credit
or the proceeds of the Revolving Credit Loans or (C) the Lender's entering into
this Agreement, the other Loan Documents or any other agreement or document
relating hereto, including, without limitation, amounts paid in settlement,
court costs and the reasonable fees and disbursements
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of counsel incurred in connection with any such litigation, investigation, claim
or proceeding or any advice rendered in connection with any of the foregoing and
(ii) any remedial or other action taken by the Borrower or the Lender in
connection with compliance by the Borrower, or any of its properties, with any
federal, state or local Environmental Laws. In addition, the Borrower shall,
upon demand, pay to the Lender all costs and expenses incurred by the Lender
(including, without limitation, recording costs and the reasonable fees and
disbursements of counsel and other professionals) in connection with the
preparation, execution, delivery, administration, modification and amendment of
the Loan Documents, and pay to the Lender all costs and expenses (including the
reasonable fees and disbursements of counsel and other professionals) paid or
incurred by the Lender in (A) enforcing or defending its rights under or in
respect of this Agreement, the other Loan Documents or any other document or
instrument now or hereafter executed and delivered in connection herewith, (B)
collecting the Obligations or otherwise administering this Agreement, (C)
foreclosing or otherwise collecting upon the Collateral or any part thereof and
(D) obtaining any legal, accounting or other advice reasonably required in
connection with any of the foregoing. If and to the extent that the Obligations
of the Borrower hereunder are unenforceable for any reason, the Borrower hereby
agrees to make the maximum contribution to the payment and satisfaction of such
Obligations which is permissible under applicable law.
(b) The Borrower's obligations under Sections 4.10 and this Section
10.9 shall survive any termination of this Agreement and the other Loan
Documents and the payment in full of the Obligations, and are in addition to,
and not in substitution of, any of its other obligations set forth in this
Agreement.
SECTION 10.10. Right of Setoff. In addition to and not in limitation
of all rights of offset that the Lender or its Affiliates may have under
applicable law, and whether or not the Lender has made any demand or the
Obligations of the Borrower have matured, the Lender and its Affiliates shall
have the right to appropriate and apply to the payment of the Obligations of the
Borrower all (i) deposits of the Borrower or any of its Affiliates held by the
Lender or any of its Affiliates and (ii) other obligations then or thereafter
owing by the Lender or any of its Affiliates to the Borrower or any of its
Affiliates.
SECTION 10.11. Amendments and Waivers. No amendment or waiver of any
provision of this Agreement or any other Loan Document shall be effective unless
in writing and signed by the party to be charged thereby and any such amendment
or waiver shall be effective only to the extent set forth therein.
-80-
<PAGE>
SECTION 10.12. Counterparts; Telecopied Signatures. This Agreement
and any waiver or amendment hereto may be executed in counterparts and by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but both of which shall together constitute one
and the same instrument. This Agreement may be executed and delivered by
telecopier or other facsimile transmission all with the same force and effect as
if the same was a fully executed and delivered original counterpart.
SECTION 10.13. Severability. In case any provision in or obligation
under this Agreement, the Notes or any other Loan Document shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
SECTION 10.14. Maximum Rate. Notwithstanding anything to the
contrary contained elsewhere in this Agreement or in any other Loan Document,
the Borrower and the Lender hereby agree that all agreements among them under
this Agreement and the other Loan Documents, whether now existing or hereafter
arising and whether written or oral, are expressly limited so that in no
contingency or event whatsoever shall the amount paid, or agreed to be paid, to
the Lender for the use, forbearance, or detention of the money loaned to the
Borrower and evidenced hereby or thereby or for the performance or payment of
any covenant or obligation contained herein or therein, exceed the maximum
non-usurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Obligations, under
the laws of the State of New York (or the law of any other jurisdiction whose
laws may be mandatorily applicable notwithstanding other provisions of this
Agreement and the other Loan Documents), or under applicable federal laws which
may presently or hereafter be in effect and which allow a higher maximum
non-usurious interest rate than under New York (or such other jurisdiction's)
law, in any case after taking into account, to the extent permitted by
applicable law, any and all relevant payments or charges under this Agreement
and the other Loan Documents, and any available exemptions, exceptions and
exclusions (the "Highest Lawful Rate"). If due to any circumstance whatsoever,
fulfillment of any provisions of this Agreement or any of the other Loan
Documents at the time performance of such provision shall be due shall exceed
the Highest Lawful Rate, then, automatically, the obligation to be fulfilled
shall be modified or reduced to the extent necessary to limit such interest to
the Highest Lawful Rate, and if from any such circumstance the Lender should
ever receive anything of value deemed interest by applicable law which would
exceed the Highest Lawful Rate, such excessive interest shall be applied to the
reduction of the principal amount then outstanding hereunder
-81-
<PAGE>
or on account of any other then outstanding Obligations and not to the payment
of interest, or if such excessive interest exceeds the principal unpaid balance
then outstanding hereunder and such other then outstanding Obligations, such
excess shall be refunded to the Borrower. All sums paid or agreed to be paid to
the Lender for the use, forbearance, or detention of the Obligations and other
Indebtedness of the Borrower to the Lender shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of such Indebtedness, until payment in full thereof, so that the actual
rate of interest on account of all such Indebtedness does not exceed the Highest
Lawful Rate throughout the entire term of such Indebtedness. The terms and
provisions of this Section shall control every other provision of this Agreement
and all agreements between the Borrower and the Lender.
SECTION 10.15. ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT BETWEEN
THE BORROWER AND THE LENDER, SUPERSEDE ANY PRIOR WRITTEN AND VERBAL AGREEMENTS
BETWEEN THEM, AND SHALL BIND AND BENEFIT THE BORROWER AND THE LENDER AND THEIR
RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS.
-82-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their proper and duly authorized officers as of the date first
set forth above.
CHI ENERGY, INC.
By: /s/ Edward M. Stern
---------------------------------------
Edward M. Stern
President and Chief Operating Officer
LYON CREDIT CORPORATION
By: /s/ Jerome P. Peters, Jr.
---------------------------------------
Jerome P. Peters, Jr.
Senior Vice President
-83-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,643
<SECURITIES> 0
<RECEIVABLES> 9,777
<ALLOWANCES> (439)
<INVENTORY> 0
<CURRENT-ASSETS> 25,746
<PP&E> 94,430
<DEPRECIATION> (1,654)
<TOTAL-ASSETS> 222,712
<CURRENT-LIABILITIES> 11,894
<BONDS> 85,604
0
0
<COMMON> 100
<OTHER-SE> 90,234
<TOTAL-LIABILITY-AND-EQUITY> 222,712
<SALES> 0
<TOTAL-REVENUES> 17,455
<CGS> 0
<TOTAL-COSTS> 7,859
<OTHER-EXPENSES> 2,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,672
<INCOME-TAX> (1,053)
<INCOME-CONTINUING> 4,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,619
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
