UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from July 1, 1997 to December 31, 1997
Commission File Number: 033-69762
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
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant is not available since there is no public market for the stock.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 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 outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class A Outstanding as of March 16, 1998
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Common stock, $.01 par value 9,085,290
Class B Outstanding as of March 16, 1998
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Common stock, $.01 par value 914,710
Page 1 of 91
Exhibit Index begins on page 80
<PAGE>
CHI ENERGY, INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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Page
Item 1. Business........................................................3
Item 2. Properties.....................................................17
Item 3. Legal Proceedings..............................................17
Item 4. Submission of Matters to a Vote of Security Holders............17
PART II
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Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters..........................................18
Item 6. Selected Financial Data........................................20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................23
Item 7a. Quantitative and Qualitative Disclosure About Market Risk......36
Item 8. Financial Statements...........................................37
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.........................................70
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.............70
Item 11. Executive Compensation.........................................74
Item 12. Security Ownership of Certain Beneficial Owners and Management.78
Item 13. Certain Relationships and Related Transactions.................79
PART IV
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Item 14. Exhibits, Financial Statements Schedules and Reports on
Form 8-K....................................................80
<PAGE>
PART I
------
ITEM 1. BUSINESS
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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 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 believes its
future growth will come primarily from its industrial infrastructure business.
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, textiles, food and beverage, etc.
Based on operating megawatts, the Company is the largest independent,
non-utility affiliated hydroelectric power producer in the United States. As of
December 31, 1997, the Company owned, operated or leased 86 projects in the
United States and Canada, with aggregate capacity of approximately 336
megawatts. In addition, the Company and a joint venture partner are constructing
a 15-megawatt hydroelectric project in Newfoundland, Canada that is expected to
commence commercial operation in the fall of 1998.
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.
On November 7, 1997, the Company completed a financial restructuring that
eliminated corporate level debt. In connection with its restructuring, the
Company's fiscal year-end was changed from June 30 to December 31. As a result
of the change in the Company's fiscal year-end, this report constitutes a
transition report for the six month period ended December 31, 1997.
CHI is a Delaware corporation. The Company's executive and administrative
offices are located at 680 Washington Boulevard, Stamford, Connecticut 06901 and
its telephone number is (203) 425-8850.
INDUSTRIAL INFRASTRUCTURE BUSINESS
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.
CHI's industrial infrastructure business is strongly related to energy
production but is not traditional cogeneration or independent power plant
development. In the traditional cogeneration model, a developer finances and
builds a power plant at an industrial facility, typically producing electricity
that is sold at wholesale to the local electric utility and steam that is sold
at retail to the industrial company. In contrast, CHI's industrial
infrastructure business can involve a wide range of capital-intensive
infrastructure assets, such as steam generators, air compressors, storage
facilities, water management systems, and chemical recovery boilers. The
transaction may or may not include electricity generation. The customer may seek
to receive cash for, or monetize, such assets if already existing, or to
construct such assets, either new or as an upgrade or expansion of existing
facilities. CHI will acquire or develop the assets, operate and manage them, and
sell back the resulting products (steam, chilled water, compressed air,
electricity, etc.) to the customers under a long-term contract, generally at
retail, although individual project circumstances may include the sale of
electricity to utilities or power marketers.
3
<PAGE>
The Company terms its approach to industrial customers as "asset
partnering," due to the need and desirability of working closely with customers
to arrive at a mutually beneficial technical and financial outcome. CHI's
approach includes providing the required products and services on the basis of a
requirements contract, by which the customer pays only for products actually
purchased and used. This approach differs from more typical arrangements in
which industrial customers sign so-called "take-or-pay" contracts that, in
effect, guarantee payments to the provider regardless of actual use. In
addition, when properly structured, the use of requirements-based contracts
permits off-balance sheet, off-credit accounting treatment of the transaction
for the industrial customer.
The Company believes the potential market for its industrial
infrastructure business in North America is very large, represented by
approximately $40 billion in annual energy-related expenditures and $50 billion
in annual capital expenditures on the part of companies in energy-intensive
manufacturing sectors. While the Company believes it possesses the expertise to
successfully complete transactions in this market, the Company has not completed
any such transactions as of March 29, 1998. However, the Company has identified
and is working with certain customers toward completing development agreements
for infrastructure facilities.
The Company has integrated its industrial infrastructure business with its
hydroelectric business and has hired individuals with experience in industrial
energy project development, finance, management, and operations. The Company
believes it possesses expertise in certain areas applicable to both business
segments, including project development, operation, management, administration,
and financial structuring. In addition, the Company has offices in several U.S.
states as well as Canada, affording a geographic base from which to effectively
pursue both businesses.
HYDROELECTRIC BUSINESS
The Company's operating hydroelectric projects are located in 15 states
and one Canadian province. The U.S. projects are clustered in four regions: the
Northeast, Southeast, Northwest and West, with a concentration in the Northeast,
a region characterized by relatively consistent long-term water flow and power
purchase contract rates which are higher on average than in most other regions
of the country. Additionally, the Company operates three projects with an
aggregate capacity of 80 megawatts in Ontario, Canada pursuant to an operations
and maintenance ("O&M") contract and is constructing a 15-megawatt hydroelectric
project in Newfoundland, Canada. The Company currently derives all of its
revenues from the ownership and operation of hydroelectric facilities.
CHI has developed what it believes to be an efficient "hub" system of
project management designed to maximize the efficiency of each facility's
operations. The economies of scale created by this system include reduced costs
related to centralized administration, operations, maintenance, engineering,
insurance, finance and environmental and regulatory compliance. The Company's
hub system and operating expertise have enabled it to successfully integrate
acquisitions into its current portfolio and increase the efficiency and
productivity of its projects. The Company has found that the most efficient way
to operate its projects is to have several projects in a geographic area with
operators who can go to any of the projects as needed. Each of the Company's
regions is broken up into several smaller areas for purposes of assigning
project operators. To address more technical matters the Company bases
maintenance personnel and other technicians at its hubs, with more sophisticated
equipment and a more widely varied inventory of spare parts and supplies than
are kept at an individual project, all available for dispatch to each project.
As of December 31, 1997, the Company had a 100% ownership or long-term
lease interest in 51 projects (138 megawatts) , a partial ownership interest in
11 projects (82 megawatts) and O&M contracts with 24 projects (116 megawatts).
The Company sells substantially all of the output from these projects, excluding
the Canadian 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. See "-- Power Purchase Agreements".
During the fiscal year ended June 30, 1996, the Company significantly reduced
the carrying value of certain of its assets. In addition, as of November 7, 1997
and after the implementation of fresh start reporting, the Company further
reduced the current carrying value of certain of its hydroelectric assets. See
Part II, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General".
4
<PAGE>
CHI's initial strategy when it was established in 1985 was to consolidate
the ownership and operation of small, independently-owned hydroelectric plants
in the U.S. During the late 1970's, development of small hydroelectric power
facilities was stimulated by rising oil prices, the enactment by Congress of the
Public Utility Regulatory Policies Act of 1978 ("PURPA") and the adoption of the
regulations thereunder, and certain tax incentives, including the business
energy tax credit and the investment tax credit. PURPA reduced regulatory
procedures for small non-utility power production facilities (known as
"Qualifying Facilities" or "QFs") and required electric utilities to purchase
power from such facilities at a price based on the purchasing utility's full
avoided cost, which is equal to the incremental cost that would have been
incurred if the utility had generated the energy itself or purchased it from
another source. See "-- Energy and Environmental Regulation - Energy
Regulation".
Hydroelectric power is a reliable, cost-effective and non-polluting source
of energy that generally offers the following advantages: (i) it is a proven
technology that has existed essentially unchanged for many years; (ii) it uses
water as a renewable, non-depleting and non-polluting source of energy; (iii) it
has relatively low operating and labor costs, with no fuel costs; (iv)
hydroelectric power facilities typically have economic lives of 50 years or
more; and (v) hydroelectric power facilities can produce other beneficial
impacts such as recreational enhancements, flood control and water supply
management. The disadvantages of hydroelectric power include seasonality,
dependence on satisfactory levels of precipitation and water flow, a factor
which creates difficulty in predicting generating levels for discrete periods,
and, in some cases, environmental impact on both aquatic life and certain
recreational uses near facilities.
Starting in 1985 with an operating portfolio of 6 small projects totaling
5 megawatts of capacity, CHI grew rapidly in terms of numbers of projects and
megawatts owned and operated, as well as in terms of gross revenues. At that
time, the Company anticipated that the electric utility industry would remain
heavily regulated and noncompetitive, that purchased power rates for output from
QF projects such as the Company's would not decline, and that hydroelectric
power, as a renewable resource, would generally be viewed favorably by
regulators. Beginning in the early 1990s, however, the electric power industry
in the United States began to undergo significant structural changes, evolving
from a highly regulated industry dominated by monopoly utilities to what is
becoming a deregulated, competitive industry providing energy customers with an
increasing degree of choice among sources of electric power supply. Reductions
in prices for electricity, increased efficiency of combustion turbines and other
competing technologies and the deregulation and restructuring of the electric
power industry created a climate of uncertainty with respect to future power
prices and made it more difficult to obtain long-term power purchase contracts,
thereby severely limiting the Company's near-term opportunities to acquire or
develop additional hydroelectric capacity at acceptable rates of return. At the
same time, competition for the acquisition of available hydroelectric assets has
intensified, with the Company's competitors including a broad range of other
independent power producers and many well-capitalized domestic and foreign
industry participants such as utilities, equipment manufacturers and affiliates
of industrial companies, many of whom are aggressively pursuing power
development programs and have relatively low return-on-capital objectives.
CHI believes that future growth opportunities in its hydroelectric
business are limited and will primarily consist of: (i) potential acquisition of
additional hydroelectric projects of significant size, possibly as the result of
utility asset divestitures; (ii) contract operation, maintenance and management
of hydroelectric projects for others; and (iii) potential project development
opportunities, primarily in Canada and certain overseas markets. The Company
intends to pursue such opportunities on a selective basis, based on the
likelihood of success and expected return on investment.
Page 5
<PAGE>
CONVENTIONAL HYDROELECTRIC PROJECTS
The following tables set forth the Company's projects as of December 31,
1997 with 100% ownership, with partial ownership and with O&M contracts:
PROJECTS WITH 100% OWNERSHIP AS OF DECEMBER 31, 1997
(INCLUDING SALE-LEASEBACKS)
<TABLE>
<CAPTION>
POWER
PURCHASE FERC DATE OF CHI
AGREEMENT LICENSE APPROXIMATE ACQUISITION OR
EXPIRATION EXPIRATION CAPACITY IN COMMENCEMENT OF
PROJECT LOCATION POWER PURCHASING ENTITY DATE DATE MEGAWATTS OPERATIONS(1)
- ------- -------- ----------------------- ----------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Apalache.......... Greer, SC Duke Power Co. Dec. 1998(2) Jul. 2024 0.40 May 1989
Aziscohos (3)..... Wilson Mill, ME Central Maine Power Co. Jul. 2008 Mar. 2025 5.31 Jun. 1988
Barber Dam........ Boise, ID Idaho Power Co. Jul. 2022 Nov. 2023 4.14 Dec. 1992
Bear Creek........ Shingletown, CA Pacific Gas & Electric Dec. 2015 Exempt 3.20 Feb. 1990
Beaver Valley..... Beaver Falls, PA Duquesne Power Open Ended(4) Exempt 1.30 Feb. 1995
Black Canyon...... Gooding, ID Idaho Power Co. May 2019 Exempt 0.10 May 1993
Boott(3).......... Lowell, MA Commonwealth Elec. Apr. 2023 Apr. 2023 24.82 Dec. 1986
Coneross.......... Seneca, SC City of Seneca Mar. 2000(5) Mar. 2015 0.90 May 1989
Crescent.......... Russell, MA Groton Electric Light Dept. Oct. 2009(6) May 2024 1.50 Feb. 1995
Dewey's Mill...... Hartland, VT Vermont Electric Power Jul. 2015 Dec. 2032 1.90 Aug. 1993
Producers, Inc.
Dexter............ Dexter, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 4.30 Feb. 1995
Diamond Island.... Watertown, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 1.20 Feb. 1995
Dietrich Drop..... Dietrich, ID Idaho Power Co. Jul. 2022 Apr. 2037 4.77 Dec. 1992
Eagle & Phenix(7). Columbus, GA Fieldcrest Cannon Jun. 2006 Feb. 2009 4.26 Jun. 1991
Fowler #7......... Fowler, NY Niag. Mohawk Power Corp. Dec. 1998(8) Oct. 2002 0.90 Feb. 1995
Fries............. Fries, VA Virginia Elec. Power Co. & Jan. 1999 May 2020 5.21 May. 1989
Apalachian Power Co.
Geo-Bon II........ Lincoln County, ID Idaho Power Co. Mar. 2020 Exempt 1.00 Jun. 1994
Glendale.......... Stockbridge, MA Groton Electric Light Dept. Oct. 2009(6) Oct. 2009 0.70 Feb. 1995
Goodyear Lake..... Milford, NY NY State Elec. & Gas Corp. Aug. 2010 Feb. 2019 1.30 Feb. 1995
Great Falls Lower. Somersworth, NH Public Serv. Co. of NH Dec. 2011 Apr. 2022 1.29 Jul. 1985
Hailesboro #3..... Fowler, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 0.90 Feb. 1995
Hailesboro #4..... Fowler, NY Niag. Mohawk Power Corp. Dec. 2023 Dec. 2002 1.80 Feb. 1995
Hailesboro #6..... Fowler, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 0.90 Feb. 1995
High Falls........ Franklin County, NY NY State Elec. & Gas Corp. Dec. 2002 Jan. 2026 1.75 Oct. 1993
High Shoals....... High Shoals, NC Duke Power Apr. 2012 Exempt 1.56 Jul. 1993
Kelley's Falls.... Manchester, NH Public Serv. Co. of NH Dec. 2005 Mar. 2024 0.45 Dec. 1985
Kings River....... Fresno, CA Pacific Gas & Electric Jan. 2021 Jul. 2037 1.35 Jun. 1994
Kinneytown........ Seymour, CT CT Light & Power Nov. 2016 Exempt 2.36 Nov. 1986
LaChute Lower(3).. Ticonderoga, NY Niag. Mohawk Power Corp. Dec. 2015 Exempt 3.60 Dec. 1987
LaChute Upper(3).. Ticonderoga, NY Niag. Mohawk Power Corp. Dec. 2015 Exempt 4.90 Dec. 1987
Lawrence.......... Lawrence, MA New England Power Co. Dec. 2011(9) Nov. 2028 16.80 Jul. 1986
Long Shoals....... Long Shoals, NC Duke Power Nov. 1999 Exempt 0.75 Jul. 1993
Low Line Rapids... Kimberly, ID Idaho Power Co. Jun. 2022 Exempt 2.80 Dec. 1992
Milstead.......... Milstead, GA Municipal Elec. Auth. of GA Apr. 2000 Exempt 1.00 Jul. 1993
Ottauquechee...... N. Hartland, VT Vermont Electric Power Sept. 2017 Exempt 1.89 Jun. 1994
Producers, Inc.
Pelzer Lower...... Williamston, SC Duke Power Co. Sept. 1998(10) Nov. 2017 3.30 Feb. 1990
Pelzer Upper...... Pelzer, SC Duke Power Co. Sept. 1998(10) Nov. 2017 2.00 Feb. 1990
Piedmont.......... Piedmont, SC Duke Power Co. Dec. 1998(2) Dec. 2018 1.00 May 1989
Rollinsford....... Rollinsford, NH Public Serv. Co. of NH Sept. 2013 Aug. 2021 1.49 Oct. 1986
Rock Creek II..... Twin Falls, ID Idaho Power Co. Jul. 2019 Aug. 2036 1.90 Dec. 1992
Salmon Falls...... South Berwick, ME Public Serv. Co. of NH Dec. 2006 Dec. 2037 1.20 Jul. 1986
Scotts Flat....... Nevada City, CA Pacific Gas & Electric Dec. 2004 Exempt 0.83 Feb. 1990
6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POWER
PURCHASE DATE OF CHI
AGREEMENT FERC LICENSE APPROXIMATE ACQUISITION OR
EXPIRATION EXPIRATION CAPACITY IN COMMENCEMENT OF
PROJECT LOCATION POWER PURCHASING ENTITY DATE DATE MEGAWATTS OPERATIONS(1)
- ------- -------- ----------------------- ---------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Theresa.......... Theresa, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 1.30 Feb. 1995
Victory Mills.... Saratoga, NY Niag. Mohawk Power Corp. Dec. 2025 Apr. 2024 1.66 Dec. 1986
Walden........... Walden, NY NY State Elec. & Gas Corp. Nov. 1998 May 2022 2.82 Apr. 1986
Ware Shoals...... Ware Shoals, SC Duke Power Co. Dec. 1998(2) Sept. 2001 6.20 May 1989
West Hopkinton... West Hopkinton, NH Public Serv. Co. of NH Nov. 2012 Exempt 1.00 Jul. 1985
Willimantic I.... Willimantic, CT CT Light & Power Dec. 2018 Nov. 2025 0.77 Dec. 1991
Willimantic II... Willimantic, CT CT Light & Power Dec. 2018 Sept. 2025 0.77 Dec. 1991
Woodside I....... Norris, SC Duke Power Co. Dec. 1998(2) Non-Jurisdictional 0.40 May 1989
Woodside II...... Cateechee, SC Duke Power Co. Dec. 1998(2) Non-Jurisdictional 0.44 May 1989
--------------------------------
Megawatt Subtotal: 138.39
=======
</TABLE>
Number of Projects: 51
- -------------------------
(1) Whichever is later.
(2) The original power purchase agreements for these projects expired in
December 1997 and were renewed for 1 year at negotiated rates.
(3) These projects are subject to sale-leaseback arrangements pursuant to
which the Company is the lessee.
(4) Agreement remains in effect as long as Duquesne Power's tariff with PA
Public Utility Commission remains valid and effective.
(5) Starting in March 1998, the municipality has the option to terminate the
power purchase agreement with 24 months notice.
(6) May be extended by mutual agreement.
(7) Revenue is derived pursuant to a lease arrangement.
(8) The term of the power purchase agreement for this project may be extended
for an additional 20 years at the option of the utility.
(9) The term of the power purchase agreement may be extended through 2028 at the
option of the utility.
(10)The terms of the power purchase agreements relating to these projects may be
extended for an additional five years at the option of the Company.
PROJECTS WITH PARTIAL OWNERSHIP AS OF DECEMBER 31, 1997(1)
<TABLE>
<CAPTION>
POWER PURCHASE APPROXIMATE DATE OF CHI
AGREEMENT FERC LICENSE PROJECT ACQUISITION OR
EXPIRATION EXPIRATION CAPACITY IN COMMENCEMENT
PROJECT LOCATION POWER PURCHASING ENTITY DATE DATE MEGAWATTS OF OPERATIONS(2)
- ------- -------- ----------------------- ---------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Copenhagen..... Copenhagen, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 3.30 Feb. 1995
Denley Dam..... Lyonsdale, NY Niag. Mohawk Power Corp. Dec. 2026 Exempt 1.50 Feb. 1995
Hillsborough... Hillsborough, NH Public Serv. Co. of NH Jul. 2004 Exempt 1.20 Nov. 1989
Lacomb......... Lacomb, OR PacifiCorp Dec. 2022 Exempt 0.96 Feb. 1990
Lower Saranac.. Saranac, NY NY State Elec. & Gas Oct. 2029 May 2027 9.30 Jun. 1992
Port Leyden.... Lyonsdale, NY Niag. Mohawk Power Corp. Dec. 2026 Exempt 2.00 Feb. 1995
Pyrites........ Canton, NY Niag. Mohawk Power Corp. Dec. 2023 Aug. 2023 8.20 Feb. 1995
Rock Island.... Lyonsdale, NY Niag. Mohawk Power Corp. Dec. 2026 Exempt 1.90 Feb. 1995
Sheldon Springs Sheldon, VT Vermont Electric Power Aug. 2016 Sept. 2024 24.97 Sept. 1993
Producers, Inc.
Slate Creek.... Lakehead, CA PacifiCorp Dec. 2018(3) Exempt 4.20 May 1990
Twin Falls..... North Bend, WA Puget Sound Power & Light Dec. 2025 Apr. 2035 24.00 Apr. 1989
Co.
---------------------------
Megawatt Subtotal: 81.53
==========
</TABLE>
Number of Projects: 11
- -------------------------
(1) Projects with Partial Ownership are defined as those projects in which the
Company has an equity (or equivalent) investment of less than 100%.
(2) Whichever is later.
(3) The power purchase agreement for this project may be extended through 2023
at the option of the utility.
7
<PAGE>
PROJECTS WITH OPERATION AND MAINTENANCE CONTRACTS AS OF DECEMBER 31, 1997(1)
APPROXIMATE PROJECT
CAPACITY IN MEGAWATTS DATE OF O&M CONTRACT
--------------------- --------------------
Barker Mill Lower Auburn, ME 1.50 Jul. 1996
Barker Mill Upper Auburn, ME 0.95 Jul. 1996
Brown's Mill Dover-Foxcroft, ME 0.59 Jul. 1996
Champlain Spinners Whitehall, NY 0.70 Aug. 1996
Combie North Grass Valley, CA 0.30 Feb. 1990
Combie South Grass Valley, CA 1.50 Feb. 1990
Damariscotta Damariscotta, ME 0.46 Jul. 1996
Eustis Eustis, ME 0.25 Jul. 1996
Gardiner Gardiner, ME 1.00 Jul. 1996
Great Works South Berwick, ME 0.53 Jul. 1996
Iroquois Falls Ontario, Canada 21.49 Apr. 1994
Island Falls Ontario, Canada 38.40 Apr. 1994
Lower Wilson Greenville, ME 0.57 Jul. 1996
Mechanic Falls Mechanic Falls, ME 1.30 Jul. 1996
Milo Milo, ME 0.60 Jul. 1996
New Dam Sanford/Alfred, ME 0.78 Jul. 1996
Norway Norway, ME 0.32 Jul. 1996
Old Falls West Kennebunk, ME 0.47 Jul. 1996
Pittsfield Pittsfield, ME 1.05 Jul. 1996
Pumpkin Hill Lowell, ME 0.95 Jul. 1996
Schaads San Andreas, CA 0.28 Feb. 1990
Terminus Tulare County, CA 17.00 Apr. 1995
Twin Falls Ontario, Canada 20.25 Apr. 1994
Weeks Falls North Bend, WA 4.34 Jun. 1990
Number of Projects: 24 Megawatt Subtotal: 115.58
========
(1) These are projects where the Company's only current significant interest
is through operation and maintenance contracts.
Total Number of Projects: 86
Total Megawatts Owned, Leased or Operated: 335.50
=========
Sale of Hydroelectric Facilities. On December 23, 1996, the Company sold
15 of its then 100% owned hydroelectric facilities in Maine, aggregating 11.32
megawatts. In connection with this sale, the Company executed a contract to
operate and maintain the facilities for an initial period of up to 15 years. See
Note 5 of the Notes to Consolidated Financial Statements.
Decommissioning of Conventional Hydroelectric Assets. On September 9,
1997, the Company terminated a Power Purchase Agreement (the "PPA") with
PacifiCorp, the purchasing utility, relating to three of its projects located in
Oregon, aggregating 7.01 megawatts. The Company received a cash payment to
terminate production, surrender the PPA and remove all facilities associated
with these projects in accordance with certain terms and conditions. See Note 6
of the Notes to Consolidated Financial Statements.
Power Purchase Agreements. As of December 31, 1997, substantially all
energy and capacity of the Company's existing majority-owned projects in the
United States was being sold to 18 public utilities pursuant to take or pay
long-term power purchase agreements with remaining terms ranging from
approximately 9 months to 28 years. The Company's power purchase agreements
generally require the utility to purchase all energy delivered by the relevant
facility. These power purchase agreements generally do not provide for
termination prior to expiration except in the case of either continuing
nonperformance by the Company or certain events of bankruptcy or insolvency of
the project subsidiary.
The Company's power purchase agreements have either fixed or fluctuating
rates or a combination thereof. Fluctuating rate and combination rate contracts
are generally based on avoided costs or a percentage thereof, and typically
incorporate minimum prices which enable the Company to benefit from increases in
energy prices but insulate it against significant decreases. The Company's fixed
rate contracts often contain: (i) blended rates typically based on projected
8
<PAGE>
annual avoided costs averaged over a 15 to 30 year period; or (ii) an escalation
factor that reflects estimated increases in projected annual avoided cost over
the term of the contract. The escalation factor is often indexed to the Gross
Domestic Product ("GDP") deflator. The Company also has contracts that provide
for fixed rates or escalating fixed rates for up to 20 years (from inception),
followed by adjustable rates based on a fixed percentage of actual annual
avoided costs for the remaining term. Certain power purchase contracts provide
for different rates based on peak or off-peak generation of energy. As the
Company's existing contracts mature or change from fixed rates to rates based on
avoided cost, the Company will receive lower prices for its power to the extent
that the currently low market price for electricity continues. Prices for
electricity remain low as a result of reductions in the cost of power produced
from natural gas due to lower natural gas prices and technological improvements
which have lowered the capital cost and increased the efficiency of combustion
turbines and other competing technologies. Federal regulators and a number of
states, including some in which the Company operates, have opened access to the
transmission grid and are exploring ways to further increase competition in
electricity markets by such means as customer choice of generation suppliers at
the retail level. Although the character and extent of this deregulation are as
yet unclear, the Company expects that these efforts will increase uncertainty
with respect to future power prices and make it more difficult to obtain
additional long-term power purchase contracts.
All of the Company's existing hydroelectric facilities in the United
States are QFs under PURPA, which requires utilities to purchase power from QFs,
and exempts QFs from most utility regulatory requirements. Pursuant to PURPA,
electric utilities are required to purchase power from QFs at prices based on
the utilities' current avoided cost. Implementation of the regulations is
delegated to state public utility commissions which may, at their discretion,
establish long-term rates for a specified period higher than short-term avoided
costs or may provide other kinds of incentives to QFs. In recent years, a number
of utilities have begun to challenge certain provisions of PURPA as no longer
appropriate in the current U.S. energy market. See "-- Energy and Environmental
Regulation".
The following table sets forth the Company's power sales by customer, the
majority of which are utilities, for the six months ended December 31, 1997:
<TABLE>
<CAPTION>
COMBINED
REVENUES OF
REVENUES OF PROJECTS 100%
PROJECTS IN REVENUES OF OWNED AND
CONSOLIDATED PROJECTS ONLY PARTIALLY
RESULTS OF PARTIALLY OWNED
OPERATIONS(1) % OWNED(1) % %
------------ ---- -------------- ---- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Niagara Mohawk Power Corp.................. $ 2,735,046 17.9 $ 1,603,216 20.2 $ 4,338,262 18.7
Vermont Electric Power Producers, Inc...... 271,735 1.8 2,995,890 37.8 3,267,625 14.1
Commonwealth Electric Co................... 3,013,769 19.8 -- -- 3,013,769 13.0
Puget Power................................ -- -- 2,205,360 27.9 2,205,360 9.5
Central Maine Power Co..................... 2,066,203 13.5 -- -- 2,066,203 8.9
New England Power Co....................... 1,803,794 11.8 -- -- 1,803,794 7.8
Idaho Power Co............................. 1,780,077 11.7 -- -- 1,780,077 7.7
N.Y. State Electric & Gas Corp............. 502,241 3.3 982,854 12.4 1,485,095 6.4
Duke Power Co.............................. 1,042,801 6.8 -- -- 1,042,801 4.5
Public Service Co. of NH................... 422,954 2.8 69,255 0.9 492,209 2.1
Virginia Power Co.......................... 386,165 2.5 -- -- 386,165 1.7
PacifiCorp................................. 299,531 2.0 64,592 0.8 364,123 1.6
Groton Electric Light Dept................. 298,671 2.0 -- -- 298,671 1.3
All other customers........................ 636,169 4.1 -- -- 636,169 2.7
Total $15,259,156 100.0% $7,921,167 100.0% $23,180,323 100.0%
=========== ====== ========== ====== =========== =======
</TABLE>
(1) Comprised of results of the predecessor Company (prior to CHI's financial
restructuring) from July 1, 1997 through November 7, 1997 and the
reorganized Company (subsequent to CHI's financial restructuring) from
November 8, 1997 through December 31, 1997.
9
<PAGE>
Substantially all of the Company's existing power purchase agreements
contain scheduled rates for delivered energy through 1998 or later, which
protects the Company from decreases in energy prices and avoided costs from
current levels until such time when the scheduled rate portion of the contract
expires. Thereafter, certain contracts expire and others provide for prices
based upon avoided cost. In general, the scheduled rates exceed the current
avoided cost for delivered energy. Lower avoided costs of energy could
significantly reduce the rates received by the Company under a particular
contract once the period of scheduled rates terminates and could make it more
difficult in the future for the Company to obtain contracts which can
economically support development of new projects.
The following table summarizes the actual or expected basis for
determining future rates which are anticipated to be in effect under current and
anticipated future power purchase agreements for the Company's existing
consolidated projects. To develop the information below, the Company first
computed the average annual revenue for each project included in consolidated
power sales revenues using actual revenues for each of the last three calendar
years ended December 31, 1997. This "revenue mix" was then applied to each of
the respective project's power purchase agreement terms on the assumption that
the Company's consolidated project portfolio and average revenue mix remains
unchanged for the ten-year period shown in the table. Power purchase agreements
which expire during the ten-year period shown are assumed to result in revenues
based upon avoided costs for the period subsequent to contract expiration. The
information shown below is not intended to represent actual future results, but
is believed to be indicative of the portion of existing revenue that will be
subject to avoided cost risk during the period shown. No assurance can be
provided as to what the actual avoided cost risk will be for the period shown.
% of CURRENT REVENUES % of CURRENT REVENUES
SUBJECT TO MINIMUM SUBJECT TO RATES
FIXED OR SCHEDULED DETERMINED PURSUANT TO
CALENDAR YEAR RATES(1) TO AVOIDED COST
------------- ------------------ ---------------------
1998 ........................... 90.9 9.1
1999 ........................... 86.3 13.7
2000 ........................... 85.5 14.5
2001 ........................... 66.1 33.9
2002 ........................... 66.1 33.9
2003 ........................... 63.5 36.5
2004 ........................... 63.5 36.5
2005 ........................... 62.5 37.5
2006 ........................... 61.0 39.0
2007 ........................... 60.3 39.7
(1) Includes contracts with GDP or other similar adjustment provisions
In recent years, several public utility companies have approached
independent power producers (each an "IPP"), including the Company, to
renegotiate specified rates in their power purchase agreements, alleging that
these agreements force the utilities to purchase power from IPPs at rates higher
than current avoided cost, resulting in higher rates to consumers. Niagara
Mohawk Power Corporation ("NIMO"), a customer of the Company which accounted for
approximately 13.4%, 18.4%, 20.3% and 17.9% of consolidated power sales revenues
in the fiscal years ended June 30, 1995, 1996 and 1997 and the six months ended
December 31, 1997, respectively, has in the recent past issued statements and
taken action, including legal action, indicating its desire to be relieved of
its obligations under contracts with IPPs that NIMO considers uneconomic. In
March 1997, NIMO announced that it reached preliminary agreements to restructure
power purchase agreements with 19 IPPs representing 44 IPP contracts. In July
1997, NIMO announced that it had signed a master restructuring agreement
(subject to certain conditions requiring third party approvals) to terminate or
restructure 29 IPP contracts with 15 of the 19 IPP's. However, neither the
Company nor any of its subsidiaries participated in these negotiations, and the
impact of the announced settlements on the Company, if any, is unknown. NIMO has
also unilaterally imposed a "generation cap" on three of the fifteen power
purchase agreements it has with the Company, and has paid claiming reduced rates
for power produced over a cap specified by the utility and has withheld
approximately $0.7 million of revenues to date. In response, the Company, in
conjunction with other IPPs, has sought redress in court and expects the case to
be decided during 1998.
10
<PAGE>
Although the Company believes that its power purchase agreements are
valid, binding and enforceable contracts, and economically advantageous when
analyzed over the life of such contracts, and that the arguments raised by the
utilities fail to acknowledge that IPP power is still often less expensive than
alternative sources and less expensive than rates that might prevail had the
utilities built their own additional capacity, there can be no assurance
additional customers of the Company will not attempt to modify their contracts
with the Company and, if such attempts succeed, that any such modifications will
not have a material adverse effect on the Company's future revenues.
Additionally, increased competition in the electricity industry might cause
certain utilities to become higher credit risks. Although the ratings of the
debt securities of many of the utilities which purchase power from the Company
are currently investment grade, there can be no assurance of the long-term
creditworthiness of any of the Company's customers. Should any customer fail, it
would be difficult for the Company to replace an existing long-term contract
with such a customer with a new contract with another customer on similar
economic terms in the current environment. See Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources".
Precipitation, Water Flow and Seasonality. For hydroelectric facilities,
the amount of energy generated at any particular facility depends upon the
quantity of water flow at the site of the facility. Dry periods tend to reduce
water flow at particular sites below historical averages, particularly if the
facility has low storage capacity. Excessive water flow may result from
prolonged periods of higher than normal precipitation or sudden melting of snow
packs, possibly causing flooding of facilities and/or a reduction of generation
at such sites until water flows return to normal. In cases of reduced or excess
water flow, energy generation at such sites may be diminished. Pursuant to the
Company's power purchase agreements, any diminished energy generation will have
an adverse effect on revenues from that facility. While the Company does not
have business interruption insurance to cover lost revenues as a result of
drought or dry periods, the Company maintains business interruption insurance to
cover, among other things, the loss of revenues above certain deductible levels,
and subject to applicable insurance policy sub-limits and overall limits,
arising from interruption of electricity generation due to damage caused by
flooding and other catastrophic events. There can be no assurance that such
coverage will remain available on acceptable terms.
Production of electricity by the Company is typically greatest in its
first and second quarters (January through June), when water flow is at its
highest at most of the Company's projects, and lowest in the third quarter (July
through September). The Company normally shuts down selected operations for
periods during the relatively dry third quarter in order to perform routine
maintenance. The amount of water flow in any given period will have a direct
effect on the Company's production, revenues and cash flow.
ENERGY AND ENVIRONMENTAL REGULATION
Energy Regulation. The Company is subject to federal and state (or in
Canada, provincial) energy laws and regulations in connection with the
development and operation of its hydroelectric and industrial projects.
Depending on the project, these laws and regulations may govern the ownership
structure of the projects, the rates, terms and conditions under which the
Company may sell electric output from the projects to utilities or other
customers, and the procedures under which these projects are constructed and
operated. In the U.S., federal laws that affect the Company's business include:
(i) the Federal Power Act of 1935 ("FPA"); (ii) the Electric Consumer Protection
Act of 1986 ("ECPA"); (iii) the Public Utilities Holding Company Act of 1935
("PUHCA"); (iv) PURPA; and (v) the National Energy Policy Act of 1992
("NEPAct"). A brief discussion of the impact of these laws on the Company
follows.
Under the FPA, substantially all of the Company's existing hydroelectric
projects are subject to varying degrees of regulation by the Federal Energy
Regulatory Commission ("FERC"), either as projects licensed by FERC or
determined by FERC to be exempt from licensing requirements. FERC license
compliance requirements and other regulatory requirements under the FPA can be
complicated and expensive and can subject the Company to future regulatory
requirements the nature and costs of which are currently unknown.
The exemptions afforded by PURPA to QFs from extensive federal and state
regulation are important to the Company and its competitors. Each of the
operating conventional hydroelectric projects in the U.S. that the Company
currently owns, operates or in which it has an investment meets the requirements
under PURPA for being a QF. As an owner of QFs, the Company is exempt from many
of the provisions of the FPA and PUHCA. However, some larger hydroelectric
facilities (if acquired or developed by the Company) would not qualify as QFs.
In addition, the Company believes that certain industrial energy facilities that
it may acquire or develop in the future may not be QFs. The Company does not
intend for its industrial
11
<PAGE>
energy facilities to be principally engaged in the sale of electric power to
electric utilities at wholesale rates. However, to the extent they may sell such
power, they may be subject to regulation by FERC or by the public service
commissions in the states in which they operate or sell power.
Electric Industry Restructuring. In recent years the federal government
and many state governments have begun consideration of proposed legislation or
regulations that would partially or wholly deregulate the electric power
industry and institute competition at the level of retail electricity customers.
The Company believes that such restructuring, including significant elements of
retail competition, is likely within the next few years with a variety of
potential impacts both positive and negative on the Company. In the area of
acquiring and developing industrial energy facilities, removing restrictions on
retail sales of energy to industrial customers is likely to enhance the
Company's prospects for completing transactions with such customers. In the area
of hydroelectric generation, it is uncertain to what extent the Company's
smaller hydroelectric facilities would be competitive in a fully deregulated
energy market without the current benefits of PURPA that require electric
utilities to purchase the output from these facilities. While the Company
believes that its existing long-term power purchase contracts with utilities are
legally binding for the duration of the contracts, there can be no assurance
that the provisions of these contracts will not be affected by future
legislation or regulation dealing with electric industry restructuring. See "--
Power Purchase Agreements".
Environmental Regulation. The Company is subject to extensive federal,
state (in Canada, provincial) and local environmental laws and regulations
applicable to the development and operation of its projects. Environmental laws
and regulations may affect the Company's operations by delaying construction of
a project or, although the Company has never experienced such an event, the
closing down of an operating project for a period of time. In addition,
environmental laws and regulations may affect the development time, site
selection and permitting of new projects. The development of a power generation
project typically requires numerous licenses, permits, approvals and
certificates from governmental agencies. Procedures followed by certain of these
permitting authorities may be affected by political factors.
The Company monitors applicable environmental laws and regulations and
evaluates its facilities for compliance with applicable standards. Based on
current trends, however, the Company expects that environmental and land use
regulation will become more stringent. Accordingly, the Company plans to
continue to place a strong emphasis on the development and use of its available
technology to minimize potentially harmful effects on the environment that may
result from the operation of its facilities. In addition, the Company has
developed expertise and experience in obtaining necessary licenses, permits and
regulatory approvals.
The Company's hydroelectric facilities are subject to environmental
regulatory requirements pursuant to their FERC licenses or exemptions or, in the
case of facilities not subject to FERC jurisdiction, applicable state
environmental requirements. The Company's prospective industrial infrastructure
facilities are likely to be subject to federal and state laws and regulations
governing atmospheric emissions and, in some cases, governing the discharge of
effluents into water bodies. Environmental regulatory requirements for such
facilities are often complex, and specific requirements are dependent upon the
nature of the individual project and site.
COMPETITION
In its industrial infrastructure business, the Company competes with a
large number of well-capitalized companies, including U.S. and foreign electric
utilities and their affiliates, which are also attempting to serve the energy
needs of industrial companies. However, the Company believes that there are
relatively few companies seeking to serve the industrial market in the same
manner as the Company, principally through requirements-based contracts and by
offering multiple products and services.
In its hydroelectric business, the Company competes with a number of
smaller and regional independent hydroelectric development companies and, on
occasion, with other independent energy producers, utilities and utility
subsidiaries for the rights to acquire, develop or operate additional
conventional hydroelectric projects, which may cause fewer projects to be
available at prices that will permit the level of return on investment which the
Company seeks. Recent years have seen an increase in competition for available
properties from large, well-capitalized companies, thereby driving down
competitive rates of return and making it more difficult for the Company to
successfully acquire additional projects.
12
<PAGE>
PROPERTIES OWNED AND LEASED
The Company leases its administrative offices at 680 Washington Boulevard,
Stamford, Connecticut under a lease calling for annual payments of approximately
$170,000 per year. Additional administrative offices and maintenance facilities
are leased in Houston, Texas; Greenville, South Carolina; Anderson, California;
Boise and Twin Falls, Idaho; Andover, Massachusetts; North Bend, Washington; and
Montreal, Canada, with aggregate annual rental payments of approximately
$200,000. The Company owns administrative offices in Lawrence, Massachusetts and
Dexter, New York and a maintenance facility in Sanford, Maine.
In addition to the foregoing, the Company owns and leases real estate in
California, Connecticut, Georgia, Idaho, Massachusetts, Maine, New Hampshire,
New York, North Carolina, Oregon, Pennsylvania, South Carolina, Vermont,
Virginia and Washington. Except for certain small non-hydroelectric real estate
parcels, this additional real estate constitutes property used in the
hydroelectric generating projects operated by the Company. In the case of each
of the conventional hydroelectric projects owned or leased by the Company, the
project generally consists of a dam, water rights and interests and rights in
real estate sufficient for the purposes of operating the facility, a powerhouse
for the generation of electricity and other necessary equipment. Except as
listed in the table entitled "Projects with Partial Ownership as of December 31,
1997" under "Conventional Hydroelectric Projects" above, such property and the
federal and state permits and licenses are owned or leased by one or more
subsidiaries of the Company or various limited partnerships in which such
subsidiaries are the sole general and limited partners. The water rights held by
the Company are subject to various restrictions and limitations with respect to
environmental and other matters. In the opinion of management, none of such
restrictions will have a material adverse effect on the business or operations
of the Company.
EMPLOYEES
The Company employs approximately 154 full-time and 84 part-time and
temporary employees as of December 31, 1997. The Company's current employees are
not represented by a collective bargaining group, and management considers its
relations with employees to be good.
FINANCIAL RESTRUCTURING OF CHI; CHANGE OF FISCAL YEAR
Prior to November 7, 1997, CHI had a highly leveraged capital structure
and substantial future cash requirements related to corporate debt and
mandatorily redeemable preferred stock, specifically, to then-existing 12%
Senior Discount Notes, due 2003 (the "Senior Discount Notes") and the 13 1/2%
Cumulative Redeemable Preferred Stock (the "Series H Preferred"). The high
leverage and future cash requirements of the Company made it difficult to
establish the creditworthiness and credibility necessary to consummate
industrial infrastructure and other new business transactions. The Company
believed it would be unable to satisfy certain future corporate dividend and
interest payment obligations on a timely basis as well as meet other Company
obligations. In order to capitalize on the expertise, capabilities and
opportunities it believes it has in the industrial infrastructure and
hydroelectric business segments, the Company concluded that it was necessary to
deleverage its capital structure. To that end, the Company in the fall of 1996
entered into discussions with substantial holders of its Senior Discount Notes
and, Series H Preferred, as well as with holders of its 8% Senior Convertible
Voting Preferred Stock (the "Series F Preferred") and 9.85% Junior Convertible
Voting Preferred Stock (the "Series G Preferred", and together with the Series H
Preferred and Series F Preferred, the "Old Preferred Stock") in an effort to
restructure the Company's significant financial obligations.
In June 1997, CHI reached an agreement in principle with an informal
committee of institutions that owned, or represented beneficial holders that
owned, approximately 89.2% of CHI's then outstanding Senior Discount Notes on
the terms of a restructuring to be accomplished pursuant to a plan of
reorganization for CHI (the "Plan of Reorganization") under chapter 11, Title 11
of the United States Code (the "Bankruptcy Code"). On August 8, 1997, pursuant
to a disclosure statement, dated August 8, 1997 (the "Disclosure Statement"),
CHI commenced a prepetition solicitation of votes by the holders of Senior
Discount Notes and Old Preferred Stock to accept or reject the Plan of
Reorganization. Under the Plan of Reorganization, the holders of Senior Discount
Notes and Old Preferred Stock were the only holders of impaired claims and
impaired equity interests entitled to receive a distribution and, therefore,
pursuant to section 1126 of the Bankruptcy Code, were the only holders entitled
to vote on the Plan of Reorganization. At the conclusion of the 32-day
solicitation period, the Plan of Reorganization had been accepted by holders of
100% of the Senior Discount Notes and by holders of greater than 97% of the Old
Preferred Stock.
13
<PAGE>
On September 15, 1997, CHI commenced a case under chapter 11 of the
Bankruptcy Code (the "Chapter 11 Case") in the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"), and filed the Plan of
Reorganization and the Disclosure Statement. None of CHI's subsidiaries
commenced a case under the Bankruptcy Code. On October 23, 1997, the Bankruptcy
Court entered an order confirming the Plan of Reorganization, which became
effective November 7, 1997 (the "Effective Date").
Through the implementation of the Plan of Reorganization on and after the
Effective Date, CHI's most significant financial obligations were restructured
as follows: $202 million in face amount of outstanding Senior Discount Notes
were converted into, among other things, $15 million in cash and 100% of the
shares of CHI's new common stock, consisting of shares of new class A common
stock (the "New Class A Common Stock") and shares of new class B common stock
(the "New Class B Common Stock", and together with the New Class A Common Stock,
the "New Common Stock"), subject to dilution from the New Warrants and the
Management Options (each as described below); the holders of the Old Preferred
Stock exchanged such stock for warrants to purchase up to 12.5% of the New
Common Stock, consisting of series B warrants (the "New Series B Warrants") and
series C warrants (the "New Series C Warrants, " and together with the New
Series B Warrants, the "New Warrants"), subject to dilution from the Management
Options; and CHI's old common stock (the "Old Common Stock") was canceled. CHI's
senior management received options to purchase up to an aggregate of 7.5% of the
New Class A Common Stock, (the "Management Options"), subject to dilution from
the New Warrants. See Part II, Item 5, "Market for the Registrant's Common
Equity and Related Stockholder Matters" for information with respect to the New
Common Stock, New Warrants and Management Options. As a result of the
restructuring, CHI does not have any significant parent company debt
obligations. However, CHI has received a commitment, subject to certain
conditions precedent, for a new, secured $15 million working capital and letter
of credit facility which the Company expects to close in the near future.
Pursuant to the Plan of Reorganization, CHI adopted, on the Effective
Date, the Amended CHI By-Laws and a Restated CHI Certificate of Incorporation.
Pursuant to CHI's Restated Certificate of Incorporation, as of the Effective
Date, CHI's name was changed from Consolidated Hydro, Inc. to CHI Energy, Inc.
In addition, its fiscal year-end was changed from June 30 to December 31..
CERTAIN RISK FACTORS
Certain statements contained in this Form 10-K that are not related to
historical facts may contain "forward looking" information, as that term is
defined in the Private Securities Litigation Reform Act of 1995. Such statements
are based on the Company's current beliefs as to the outcome and timing of
future events, and actual results may differ materially from those projected or
implied in the forward looking statements. Further, certain forward looking
statements are based upon assumptions of future events which may not prove to be
accurate. The forward looking statements involve risks and uncertainties
including, but not limited to, the uncertainties relating to 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. Certain of these risks are discussed more fully below and should be
carefully considered along with the other matters described herein.
Leveraged Project Financing. The Company's existing hydroelectric projects
are and its future hydroelectric and industrial projects, if any, would likely
be financed using a variety of structures primarily consisting of limited
recourse or non-recourse debt. As of December 31, 1997, the Company had $88.0
million (exclusive of the Boott project operating lease) of direct project
financing obligations that are limited recourse or non-recourse to CHI. As
limited recourse or, except to the extent set forth below, non-recourse
obligations, each such obligation is structured to be fully serviced out of each
applicable project's cash flow, generally without any claim against CHI's
general corporate funds. In the event of a project default and assuming CHI is
unable or chooses not to cure such default within applicable cure periods (if
any), the lenders or lessor would generally have rights to the facility, related
contracts and all licenses and permits necessary to operate the facility and, in
the event of foreclosure after such a default, the Company might not retain any
interest in such project.
Certain project acquisitions have been financed by General Electric
Capital Corporation ("GECC"), which has required the guarantee of CHI
Acquisitions, Inc. ("CHI Acquisitions"), a subsidiary of CHI which is the parent
of each of the entities formed to acquire such projects. Thus, each such project
is vulnerable in the event of a default by any of the other projects owned
indirectly by CHI Acquisitions. Although all of this guaranteed financing has
been repaid, a tax indemnity and performance guarantee relating to one project
remains in effect. See Note 12 of the Notes to Consolidated Financial Statements
14
<PAGE>
for additional information with respect to the tax indemnity. Certain other
projects acquired by CHI Acquisitions II, Inc. ("CHI Acquisitions II"), a
subsidiary of CHI, were financed by CHI Acquisitions II with two loans from
GECC. See Note 12 of the Notes to Consolidated Financial Statements for
additional information. One such loan has been secured by the projects acquired
and the other loan by the cash flows of certain other projects of which CHI
Acquisitions II is the parent.
Dependence on Precipitation and Effects of Variations in Water Flow and
Seasonality. The amount of hydroelectric energy generated at any particular
conventional hydroelectric facility depends upon the quantity of water flow at
the site of the facility. In cases of reduced or excessively high water flow,
energy generation at such site may be diminished, particularly if the facility
has low storage capacity. Pursuant to the Company's power purchase agreements,
any diminished energy generation will have an adverse effect on revenues from
that facility. In the fiscal year ended June 30, 1995, the Company experienced
low water flow relative to long-term indications at many of its facilities. The
effect on revenues of the lower than average water flows was most adverse in the
Northeast, a region in which a majority of the Company's projects are located
and where the Company's rates received for power sales are highest on average.
The Northeast region experienced below average water flows during the six months
ended December 31, 1997 and the fiscal year ended June 30, 1995, while
experiencing above average water flows in the fiscal years ended June 30, 1997
and 1996. While the Company does not have business interruption insurance to
cover lost revenues as a result of drought or dry periods, the Company carries
business interruption insurance to cover, among other things, the loss of
revenues above certain deductible levels and subject to applicable insurance
policy sub-limits and overall limits arising from interruption of electricity
generation due to damage caused by flooding. There can be no assurance that such
coverage will remain available on acceptable terms.
Production of electricity by the Company is typically greatest in its
first and second quarters (January through June), when water flow is at its
highest level at most of the Company's projects, and lowest in the third quarter
(July through September). The amount of water flow in any given period will have
a direct effect on the Company's production, revenues and cash flow.
Changes in Applicable Rates; Energy Price Declines. From calendar years
1998 through 2007, rates paid to the Company pursuant to power purchase
agreements representing approximately 39.7% of the Company's average power sales
revenues (calculated on a rolling three year basis) will be affected by changes
from scheduled rates to rates based on the applicable utilities' then current
avoided cost. Use of avoided cost is driven by either the specific terms of
certain power purchase agreements or the expiration of the remaining agreements
during the period presented and the assumed utility purchase of project
generation, in accordance with the requirements of PURPA and the regulations
adopted thereunder. A utility's avoided cost rate is equal to the incremental
cost that would have been incurred if the utility had generated the energy
itself or purchased it from another source. Consequently, the Company's revenue
at such time will be adversely affected if the then current utility avoided cost
is lower than the scheduled rate previously in effect.
The majority of the generating capacity of the Company's operating
projects is contracted through 2020. However, if energy prices remain at current
levels or decline, the rates negotiated by the Company for new contracts,
contract rates based upon utility avoided costs or extensions of existing
contracts could be adversely affected.
Dependence on Commonwealth Electric Company ("CEC"), Central Maine Power
Company ("CMP"), NIMO, New England Power Company ("NEPCO") and Idaho Power
Company ("Idaho"); Creditworthiness of the Company's Customers. A substantial
portion of the Company's power is sold to five customers pursuant to various
long-term power purchase agreements. Sales to CEC, CMP, NIMO, NEPCO and Idaho
represented approximately 20%, 14%, 18%, 12% and 12%, respectively, of the
consolidated revenues of the Company for the six months ended December 31, 1997.
In the recent past, NIMO has issued statements indicating its desire to be
relieved of its obligations under contracts with independent power producers
that NIMO considers uneconomic. While offering to renegotiate such contracts,
NIMO has in the past proposed that, should negotiations fail and NIMO be unable
to gain alternative economic relief, NIMO would seek to take possession of
associated projects through the power of eminent domain and has indicated that
it would consider the possibility of restructuring under chapter 11 of the
Bankruptcy Code should its proposal prove unachievable. In March 1997, NIMO
announced that it reached preliminary agreements to restructure power purchase
agreements with 19 IPP's representing 44 IPP contracts. In July 1997, NIMO
announced that it had signed a master restructuring agreement (subject to
certain conditions requiring third party approvals) to terminate or restructure
29 IPP contracts with 15 of the 19 IPP's. However, neither the Company nor any
of its subsidiaries participated in these negotiations, and the impact of the
announced statements on the Company, if any, is unknown.
15
<PAGE>
Energy and Environmental Regulation. All of the Company's existing
operating hydroelectric projects, while exempt from public utility regulation,
are subject to varying degrees of regulation by FERC and state agencies.
Substantially all of the Company's generating capacity has either been licensed
or granted an exemption from licensing as required under the FPA. There is no
guarantee that a FERC license can be obtained or renewed. Although the Company
has not encountered significant difficulties in transferring, amending or
obtaining licenses, there can be no assurance that it will not encounter
significant difficulties in this regard in the future, nor can there be any
assurance that existing regulations will not be revised or that new regulations
will not be adopted or become applicable to the Company that could have an
adverse effect on its operations.
The Company's activities require numerous permits, approvals and
certificates from appropriate federal, state and local government agencies as
well as compliance with certain environmental protection legislation and the
FPA. While the Company believes it has obtained the requisite approvals for its
existing operations and that its business is operated in accordance with
applicable law, it remains subject to a varied and complex body of regulations
that both public officials and private individuals may seek to enforce. Such
laws and regulations may affect operations by delaying construction or forcing a
temporary or permanent closure of a project and may affect site selection or
permitting of new projects. Based on current trends, the Company expects that
environmental and land use regulation will become more stringent. There can be
no assurance that existing regulations will not be revised or that new
regulations that could have an adverse effect on its operations will not be
adopted or become applicable to the Company nor can there be any assurance that
the Company will be able to obtain all necessary licenses, permits, approvals
and certificates for proposed projects or that completed facilities will comply
with all applicable statutes or regulations.
Uncertainty as to Future Opportunities in Hydroelectric Business. The
Company believes that opportunities to continue to expand its conventional
hydroelectric business through the acquisition of additional facilities and the
securing of O&M contracts are likely to be limited. There can also be no
assurance that the Company will be able to take advantage of such opportunities
on terms acceptable to it, nor can there be any assurance that the Company will
be able to obtain financing with respect to such opportunities. In addition, a
number of industry issues, including issues related to the availability, term
and pricing of future power purchase agreements and higher acquisition prices
resulting from increased competition in certain segments are limiting and are
expected to continue to limit the Company's near-term opportunities to acquire
additional hydroelectric capacity at acceptable rates of return. See Part II,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources".
In addition, the Company believes that near-term prospects for successful
development of new hydroelectric facilities in North America are severely
limited due to regulatory restrictions that increase the cost of hydroelectric
development combined with the current energy market, in which low energy prices
do not make hydroelectric development economically attractive. The development
of new hydroelectric projects includes certain risks not associated with the
purchase of operating facilities, including licensing, environmental,
engineering, equipment, power sales, construction and distribution risks, as
well as implementation risks such as cost overruns, delays and performance
risks. There is no assurance that the Company will be able to raise development
capital and obtain satisfactory project development agreements, construction
contracts, power purchase agreements, licenses and permits or financing
commitments with respect to the projects currently under development or any
projects that the Company might wish to develop in the future. Further, there
can be no assurance that equity or non-recourse or limited recourse development
capital, similar to that which the Company has used generally to finance
development projects, is currently available or will be available on a similar
basis in the future. If the Company terminates a project, it would generally not
be able to recover its investment in such a project and would expense all
capitalized development costs incurred in connection therewith.
Uncertainty as to Future Opportunities in Industrial Infrastructure
Business. The Company is pursuing opportunities to develop, acquire, operate and
manage industrial energy facilities and related industrial assets in such
sectors as pulp and paper, petroleum refining, chemicals, textiles, and other
energy-intensive industries. Currently, all of the Company's revenue is derived
from the ownership and operation of hydroelectric facilities. The Company
believes that opportunities exist for industrial infrastructure transactions and
that it possesses the required technical and development expertise to complete
such transactions successfully. As of March 29, 1998, the Company had not
completed any such transaction, and there can be no assurance that any such
transaction will occur.
16
<PAGE>
Significant Holders. Two holders hold approximately 74% of the outstanding
voting shares of the New Common Stock. For a list of such holders, see Part III,
Item 12, "Security Ownership of Certain Beneficial Owners and Management." If
holders of significant numbers of shares of the New Common Stock were to act
together, such holders would be in a position to control the outcome of most
actions requiring stockholder approval. This concentration of ownership could
also facilitate or hinder a negotiated change of control of CHI and,
consequently, have an impact upon the value of the New Common Stock. In that
regard, all holders of New Common Stock are subject to a new stockholders'
agreement (the "New Stockholders' Agreement"), which agreement includes, among
other things, certain "drag along" and "tag along" rights.
ITEM 2. PROPERTIES
- ------
The information concerning properties required by Item 2 is set forth in
Part I, Item 1, of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
- ------
As described above, CHI completed a financial restructuring, effective
November 7, 1997, including confirmation of its Plan of Reorganization filed in
a Chapter 11 reorganization case (no. 97-1924(SLR)) in the United States
Bankruptcy Court for the District of Delaware.
On September 2, 1997, a then-shareholder of CHI filed a civil action
against CHI, certain of its current and former officers and directors and Morgan
Stanley & Co., Incorporated in Connecticut Superior Court, Judicial District of
Stamford, entitled Charles J. Lindsay v. Consolidated Hydro, Inc., et al.,
alleging, among other things, that the officers and directors of CHI breached
their fiduciary duty to the holders of CHI's Old Common Stock by proposing a
Plan of Reorganization that eliminated CHI's Old Common Stock. On December 18,
1997, the Company and each of the other defendants filed a motion to strike the
complaint and dismiss the action on the grounds that, among other things, the
allegations raised in the complaint were barred as a matter of law. On March 16,
1998, prior to the scheduled hearing on the Company's and the other defendants'
motion to strike the complaint, and dismiss the action, the plaintiff agreed to
withdraw the complaint without prejudice to his right to amend and to replead
the complaint. As of March 29, 1998, no amended complaint has been served and
filed.
On August 20, 1997, a former employee of the Company filed a civil-action
against the Company in Connecticut Superior Court, District of New Haven
entitled Carol H. Cunningham v. Consolidated Hydro, Inc. alleging that the
Company breached its employment agreement with her. On or about October 13,
1997, the former employee filed a proof of claim in the Bankruptcy Court for
approximately $7.3 million plus unliquidated amounts based primarily on the
allegations in the civil-action (the "Claim"). On November 25, 1997, the Company
filed an objection to the Claim on the grounds that, among other things, the
former employee failed to satisfy her obligations under her employment contract
with the Company. The Company is vigorously defending the Claim and management
believes that the Company's liability with respect to the Claim, if any, will
not have a material adverse effect on the Company's financial position or
results of operations.
The Company is involved in various legal proceedings which are routine
litigation matters incidental to the conduct of its business. CHI's management
currently believes that none of this litigation, if determined adversely to the
Company, would have a material adverse effect on the financial condition or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------
There were no matters submitted to a vote of security holders during the
period from November 8, 1997 to December 31, 1997 through the solicitation of
proxies or otherwise.
17
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- ------ STOCKHOLDER MATTERS
As of March 16, 1998, the number of holders of record of the New Class A
Common Stock of CHI was 13, and the number of holders of record of the New Class
B Common Stock was one. There is no established public trading market for the
New Common Stock of the Company. No dividends were declared on either class of
CHI's New Common Stock during the period from November 8, 1997 to December 31,
1997. CHI presently intends to retain earnings to fund working capital and for
general corporate purposes and anticipates that pursuant to a new working
capital agreement, it will be prohibited from paying dividends and therefore
does not anticipate paying cash dividends on shares of the New Common Stock in
the foreseeable future.
Pursuant to the Plan of Reorganization, on the Effective Date, 20,000,000
shares of New Common Stock were authorized as follows: 9,085,290 shares of New
Class A Common Stock and 914,710 shares of New Class B Common Stock which were
issued on the Effective Date and 10,000,000 additional shares of New Common
Stock which may be issued as either New Class A Common Stock or New Class B
Common Stock, as applicable. Of the 10,000,000 shares of New Common Stock which
were authorized on the Effective Date but not issued, 1,337,127 shares are
reserved for issuance if, as and when the holders of the New Warrants exercise
such warrants and 810,811 shares of New Class A Common Stock are reserved for
issuance, if as and when, the holders of the Management Options exercise such
options. In addition, 10,000,000 shares of preferred stock were authorized, none
of which were issued.
The following is a description of the two classes of New Common Stock, the
two classes of New Warrants and the Management Options issued on the Effective
Date, as well as a summary of the principal provisions of the registration
rights agreement (the "Registration Rights Agreement") and the New Stockholders'
Agreement which became effective on the Effective Date (each such document is
being filed as an exhibit to this Form 10-K):
New Class A Common Stock. Pursuant to the Plan of Reorganization, on the
Effective Date, 9,085,290 shares of New Class A Common Stock were issued and
distributed to substantially all of the holders of Senior Discount Notes and
810,811 shares of New Class A Common Stock were reserved to satisfy the
obligation of CHI under the Management Options. For a discussion of the
Management Options, see Part I, Item 1, "--Financial Restructuring of CHI;
Change of Fiscal Year" and Part III, Item 11, "Executive Compensation". Each
share of New Class A Common Stock will entitle its holder to one vote. Holders
of New Class A Common Stock will have the right to participate proportionately
in dividends, if any, distributed by the Company.
New Class B Common Stock. Pursuant to the Plan of Reorganization, on the
Effective Date, 914,710 shares of New Class B Common Stock were issued and
distributed to a holder of Senior Discount Notes. Each share of New Class B
Common Stock will entitle its holder to one-hundredth (1/100) of one vote. The
holder of New Class B Common Stock will have the right to participate
proportionately in dividends, if any, distributed by the Company. The New Class
B Common Stock was issued to a holder of Senior Discount Notes, at such holder's
request, to provide to such holder reduced voting rights in CHI. Pursuant to the
Restated Certificate of Incorporation of CHI, upon any transfer of shares of New
Class B Common Stock, the shares of New Class B Common Stock will automatically
convert into an equal number of shares of New Class A Common Stock.
New Series B Warrants. The New Series B Warrants, which were issued to the
holders of the Old Preferred Stock on the Effective Date and expire on the sixth
anniversary thereof, entitle such holders to subscribe for the purchase of up to
an aggregate of 7.5% of the New Common Stock, subject to dilution due to the
issuance by the Company of shares of New Common Stock pursuant to the exercise
of the New Series C Warrants and the Management Options by the holders thereof.
The New Series B Warrants are exercisable for up to 1% of the New Common Stock
of CHI if, as and when the total capital (debt and equity) invested in
industrial infrastructure projects (as described in Part I, Item 1, "Business --
Industrial Infrastructure Business") that either (i) close within 3 years from
the Effective Date or (ii) are subject to a legally binding and enforceable
agreement between CHI or any of its subsidiaries and a party sponsoring a
development or acquisition of such industrial infrastructure projects within
such 3 year-period and thereafter close within the term of the New Series B
Warrants, equals or exceeds $60 million. The additional New Series B Warrants
exercisable for the remaining 6.5% of the New Common Stock vest incrementally
if, as and when the total capital invested in industrial infrastructure projects
increases from $60 million to $450 million within the parameters set forth
above. The exercise price per share of the New Common Stock subject to the New
Series B Warrants is $10. The New Series B Warrants will have customary
antidilution provisions and protections against certain extraordinary
distributions.
18
<PAGE>
New Series C Warrants. The New Series C Warrants, which were issued to the
holders of the Old Preferred Stock on the Effective Date and expire on the
eighth anniversary thereof, entitle such holders to subscribe for the purchase
of up to an aggregate of 5.0% of the New Common Stock, subject to dilution due
to the issuance by CHI of shares of New Common Stock pursuant to the exercise of
the New Series B Warrants or the Management Options by the holders thereof. The
exercise price per share of the New Common Stock subject to the New Series C
Warrants was determined by reference to the accreted value of the Senior
Discount Notes as of September 15, 1997 (the date CHI commenced its Chapter 11
Case), which was approximately $183 million. The exercise price per share of the
New Common Stock subject to the New Series C Warrants is $18.36. The New Series
C Warrants will contain customary antidilution provisions and protections
against certain extraordinary distributions.
Management Options. The Management Options, which were issued to certain
members of CHI's management on the Effective Date pursuant to a 1997 stock
option plan and management option agreements (the "1997 Stock Option Plan and
Management Option Agreements") and expire on the seventh anniversary thereof,
are exercisable for the purchase of up to an aggregate of 7.5% of the New Class
A Common Stock, subject to dilution due to the issuance by CHI of shares of New
Common Stock pursuant to the exercise of the New Series B Warrants or the New
Series C Warrants by the holders thereof. The Management Options contain
customary antidilution provisions and protections against certain extraordinary
distributions. For a more detailed discussion of the Management Options, see
Part III, Item 11, "Executive Compensation -- 1997 Stock Option Plan and
Management Option Agreements."
Registration Rights Agreement. Each person or entity who received a
distribution of New Common Stock, New Warrants or New Common Stock issued upon
the exercise of the New Warrants or the Management Options pursuant to the Plan
of Reorganization is entitled to become a party to the Registration Rights
Agreement. Under the Registration Rights Agreement, holders of the New Common
Stock and New Warrants (including shares of New Common Stock issued upon the
exercise thereof) are entitled to certain demand and incidental (or "piggyback")
registration rights, and holders of the Management Options are entitled to
certain incidental (or "piggyback") registration rights with respect to shares
of New Class A Common Stock issued upon the exercise thereof. The Registration
Rights Agreement contains customary suspension, "hold back", indemnification
/contribution and priority provisions.
New Stockholders' Agreement. Under the terms of the Plan of
Reorganization, each holder (including each original recipient and transferee of
an original recipient or other transferee) of the New Common Stock and of the
New Common Stock issued upon exercise of the New Warrants or the Management
Options (collectively, the "New Securities") is bound by the New Stockholders'
Agreement. The New Stockholders' Agreement contains certain provisions relating
to the size and composition of the Board of Directors of CHI. See Part III, Item
10, "Directors and Executive Officers of the Registrant." In addition, the New
Stockholders' Agreement provides that each holder of New Common Stock is
entitled to participate on a pro-rata basis in any sale of 50% or more of the
outstanding New Common Stock and that each holder of New Securities (including,
in certain circumstances, holders of New Warrants and Management Options) may be
required to sell its New Securities in any sale of 66-2/3% or more of the New
Common Stock.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ------
As discussed in Item 1, the Company emerged from its chapter 11
proceedings on the Effective Date. In accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting By
Entities In Reorganization Under The Bankruptcy Code", the Company has applied
fresh start reporting as of the Effective Date which has resulted in significant
changes to the valuation of certain Company assets and liabilities, and to its
stockholders' equity. In connection with the adoption of fresh start reporting,
a new entity has been deemed created for financial reporting purposes. The
periods prior to and including the Effective Date have been designated
"Predecessor Company" and the period subsequent to the Effective Date has been
designated "Reorganized Company".
The following Statement of Operations and Balance Sheet Data has been
derived from financial statements audited by Price Waterhouse LLP, independent
accountants. The data set forth below should be read in conjunction with the
Consolidated Financial Statements for the November 8, 1997 - December 31, 1997
period, the July 1, 1997 - November 7, 1997 period and the fiscal years ended
June 30, 1997, 1996, 1995, 1994 and 1993, and the related Notes thereto, and
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations":
<TABLE>
<CAPTION>
Reorganized Predecessor Company
Company -------------------------------------------------------------
Nov. 8 - July 1 - Fiscal Year Ended June 30,
Dec. 31, Nov. 7,
1997 1997
---- ----
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Operating Revenues:
Power generation revenue $ 6,598 $ 8,661 $50,665 $ 49,761 $39,387 $36,184 $32,776
Management fees
and operation & maintenance revenue 1,437 2,713 5,395 4,986 4,326 5,677 2,501
Equity income in partnership
interests and other partnership income 203 212 1,320 737 245 335 --
----- ----- ------- --------- ------- ------ -------
Total revenue 8,238 11,586 57,380 55,484 43,958 42,196 35,277
----- ----- ------- --------- ------- ------ -------
Costs and expenses
Operating 2,566 6,588 18,015 17,957 15,895 16,466 11,762
General and administrative 1,174 2,172 8,422 6,447 6,799 7,285 5,204
Charge for employee and director equity
participation programs (1) -- -- 100 259 339 670 1,075
Reorganization costs(2) -- 3,978 -- -- -- -- --
Fair value adjustments(2) -- 4,855 -- -- -- -- --
Depreciation and amortization 1,105 3,009 8,661 9,846 9,625 8,679 7,601
Lease expense 900 2,001 5,764 6,072 5,753 5,386 5,230
(Adjustment to)/charge for impairment of
long-lived assets -- (75) 83 87,202 1,272 -- --
----- ------ ------- --------- ------- ------ ------
Total costs and expenses 5,745 22,528 41,045 127,783 39,683 38,486 30,872
----- ------ ------- --------- ------- ------ ------
Income/(loss) from operations 2,493 (10,942) 16,335 (72,299 4,275 3,710 4,405
Interest income 242 739 1,661 1,032 1,416 1,052 987
Other income 6 57 434 368 185 107 186
Gain on adjustment to project development debt -- 8,568 -- -- -- -- --
Interest expense (1,260) (7,741) (29,591) (26,876) (21,778) (18,980) (13,868)
Minority interests in loss/(income) of consolidated
subsidiaries -- -- -- 2,063 3 (15) 100
------ ------- -------- --------- ------- -------- --------
Income/(loss) before income taxes, extraordinary
items and cumulative effect of accounting changes 1,481 (9,319) (11,161) (95,712) (15,899) (14,126) (8,190)
(Provision)/benefit for income taxes (776) 69 119 7,381 (377) (264) (319)
------ ------- -------- --------- ------- -------- --------
Income/(loss) before extraordinary items and
cumulative effect of accounting change 705 (9,250) (11,042) (88,331) (16,276) (14,390) (8,509)
Extraordinary items (3)
Gain/(loss) on extinguishment of debt
(net of income tax of $0 and $3,414 at November
7, 1997 and June 30, 1997, respectively) -- 87,218 5,658 -- -- -- (2,269)
Income/(loss) before cumulative effect of
accounting change 705 77,968 (5,384) (88,331) (16,276) (14,390) (10,778)
Cumulative effect of accounting change (4)
-- -- -- -- (19,204) -- --
Net income/(loss) $ 705 $ 77,968 $(5,384) $ (88,331) $(16,276) $(33,594) $(10,778)
========== ========= ======== ========== ========= ========= =========
Net income per common share,
basic(5) $ .07 -- -- -- -- -- --
Cash dividends per common share -- -- -- -- -- -- --
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Reorganized Predecessor Company
Company
------------ --------------------------------------------------------------
Nov. 8 - July 1 - Fiscal Year Ended June 30,
Dec. 31, Nov. 7, ------------------------------------------------------
1997 1997
---- ---- 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Megawatts operated 335.50 335.50 342.61 343.66 379.08 329.08 220.98
Capital expenditures
Cost of acquisitions and partnership interests $ -- $ -- $ -- $ -- $35,503 $15,230 $ 16
Cost of development expenditures -- -- 2,045 1,968 6,086(6) 8,319(6) 10,580 (6)
All other capital expenditures associated with operating
projects, including changes in other long-term assets,
net 375 2,430 9,226 3,460 2,288 (332) 4,244
Interest, net (7) 1,018 7,002 27,930 25,844 20,362 17,928 12,881
Cash interest, net (8) 1,190 2,876 6,962 7,725 4,702 4,009 11,514
Ratios and Other Data:
EBDIAT (9) 3,604 (3,096) 25,613 25,376 15,696 13,166 13,267
EBDIAT/Interest, net (10) 3.54 10,098 2,317 468 4,666 4,762 1.03
EBDIAT/Cash interest, net (10) 3.80 5,233 3.68 3.28 3.34 3.28 1.15
Ratio of earnings to fixed charges (10) (11) 2.18 9,387 11,350 97,417 18,850 16,429 8,743
Ratio of earnings to fixed charges
and Preferred Stock Dividends (10) (12) 2.18 15,447 37,241 121,149 40,958 37,117 26,972
</TABLE>
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------- -----------------------------------------------------------
Dec. 31, June 30,
1997 -----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
-----------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents 11,998 32,502 23,834 16,682 14,155 42,617
Current assets 21,361 41,003 33,041 25,454 24,649 49,467
Total assets 221,961 243,628 244,657 330,617 286,827 286,521
Current liabilities 13,345 13,924 16,061 13,602 9,990 22,465
Long-term debt 82,616 262,615 260,158 248,887 201,620 189,186
Mandatorily redeemable preferred stock -- 114,372 98,604 84,690 72,401 61,428
Stockholders' equity/(deficit) 85,805 (189,679) (168,627) (66,641) (38,414) 5,472
</TABLE>
- ---------------
(1) This non-cash charge accounts for the equity entitlements granted to
certain key employees and certain directors pursuant to both the
arrangements surrounding the conversion of the old class B common stock to
old class A common stock and the vested entitlements under employment
equity programs which have been canceled.
(2) These amounts were the result of the implementation of fresh start
reporting. See Note 2 of the Notes to Consolidated Financial Statements.
(3) For the period from July 1, 1997 to November 7, 1997, as a result of the
Plan of Reorganization, a gain on extinguishment of debt of approximately
$87,218,000 was recorded. The fiscal year ended June 30, 1997 amount
results from the purchase of a non-recourse project term loan, $14,500,000
at June 30, 1996, for $5,000,000, including certain required reserves and
closing costs of approximately $500,000. The gain recorded is net of
certain transaction costs of approximately $187,000 and income tax of
$3,414,000.
(4) Represents the adoption of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. See Note 3 of the Notes to the
Consolidated Financial Statements.
(5) Share and per share data for the Predecessor Company 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.
(6) These amounts were substantially funded with proceeds from outside lenders
on a non-recourse basis or sales of CHI equity securities.
(7) Interest, net is defined as interest expense less interest income.
(8) Cash interest, net is defined as cash interest expense less cash interest
income.
(9) EBDIAT is defined as income/(loss) from operations plus depreciation,
amortization, other non-cash charges to income and other income. EBDIAT
and EBDIAT ratios are not measures of performance or financial condition
under generally accepted accounting principles, but are presented to
provide additional information related to fixed charge service capability.
EBDIAT should not be considered in isolation or as a substitute for other
measures of financial performance or liquidity under generally accepted
accounting principles.
(10) Computations resulting in a ratio of less than one are disclosed as a
deficiency and represent the dollar amount of EBDIAT required to attain a
ratio of one-to-one.
21
<PAGE>
(11) For the purpose of calculating the ratio of earnings to fixed charges,
earnings are determined by adding fixed charges (excluding capitalized
interest) to income/(loss) before provision for income taxes,
extraordinary items and cumulative effect of accounting change. Fixed
charges consist of interest expense, amortization of debt issuance costs
and the imputed interest on the Company's Boott facility lease, which is
accounted for as an operating lease. The resulting deficiencies primarily
reflect non-cash charges. An analysis of such non-cash charges and the
resulting ratio or deficiency adjusted for such charges follows.
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
------- -------------------------------------------------------------------------------
Nov. 8 - July 1 - Year Ended June 30,
Dec. 31, Nov. 7, ------------------------------------------------------------
1997 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-cash interest $ 70 $ 4,865 $ 19,709 $ 18,629 $ 16,610 $ 14,629 $ 1,401
Depreciation and amortization 1,105 3,009 8,661 9,846 9,625 8,679 7,601
Other non-cash (gains)/charges, net -- (75) (5,475) 87,461 1,611 670 1,075
----------- ----------- ---------- ----------- ---------- ---------- ----------
Total non-cash charges $ 1, 175 $ 7,799 $ 22,895 $ 115,936 $ 27,846 $ 23,978 $10,077
=========== ============ ========== =========== ========== ========== ==========
Resulting ratio of earnings
to fixed charges 3.11 1.38 1.36 1.61 1.34 1.32 1.08
</TABLE>
(12) For the purpose of calculating the ratio of earnings to fixed charges and
preferred stock dividends, earnings are determined by adding fixed charges
(excluding capitalized interest) and preferred stock dividends to
income/(loss) before provision for income taxes, extraordinary items and
cumulative effect of accounting change. Preferred stock dividends consist
of the cumulative undeclared dividends on Series F and Series G Preferred
Stock and dividends and accretion on the Series H Preferred Stock. The
resulting deficiencies primarily reflect non-cash charges. The analysis of
such non-cash charges is the same as that set forth in the preceding
footnote and the resulting ratio or deficiency adjusted for such charges
follows:
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
----------- -----------------------------------------------------------------------------
Nov. 8 - July 1 - Year Ended June 30,
Dec. 31, Nov. 7, -------------------------------------------------------------------
1997 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Resulting ratio of earnings
to fixed charges and
preferred stock dividends 3.11 -- -- -- -- --
Resulting deficiency of earnings
to fixed charges and
preferred stock dividends -- $ 2,793 $14,346 $5,213 $13,112 $13,139 $16,895
</TABLE>
22
<PAGE>
ITEM 7. 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 and one Canadian province. The
Company believes its future growth will come primarily from its industrial
infrastructure business.
As of November 7, 1997, (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 period November
8, 1997 to December 31, 1997 reflects the financial condition and results of
operations of the new reporting entity (the "Reorganized Company") while prior
period financial information 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 into its current portfolio and increase the
efficiency and productivity of its projects.
The Company has expanded primarily by acquiring existing hydroelectric
facilities in the United States. As of December 31, 1997, the Company had a 100%
ownership or long-term lease interest 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).
On December 23, 1996, the Company sold 15 of its then 100% owned
hydroelectric facilities ("CHI Maine"), located in the Northeast region. In
connection with the disposition, the Company executed a contract to operate and
maintain the facilities for an initial period of up to 15 years. See Note 5 to
the Notes to Consolidated Financial Statements included herewith.
On September 9, 1997, the Company terminated a power purchase agreement
with PacifiCorp, the purchasing utility, relating to three of its projects
located in Oregon. See Note 6 to the Notes to Consolidated Financial Statements
included herewith.
CHI sells substantially all of the electric energy and capacity from its
U.S. projects to public utility companies pursuant to take 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.
During the fiscal year ended June 30, 1996, the Company began to seek
opportunities to provide energy-related products and services to industrial and
utility customers in an effort to respond to changing market conditions. Such
opportunities, if available, would permit the Company to move away from relying
exclusively on hydroelectric power ownership and operation in a business climate
driven largely by legislation and regulation and the structural industry trends
described in Item I, "Hydroelectric Business", in which the Company currently
believes that acquisition and development opportunities, particularly with
regard to hydroelectric facilities, will be limited in the near-term. Currently,
all of the Company's revenue is derived from the ownership and operation of
hydroelectric facilities. See "--Liquidity and Capital Resources".
For purposes of the discussion of results of operations and liquidity and
capital resources for the six months ended December 31, 1997, the results of the
Predecessor Company and Reorganized Company have been combined.
23
<PAGE>
Power Generation Revenue
The Company's revenues are derived principally from selling electrical
energy and capacity to utilities under long-term power purchase agreements which
require the contracting utilities to purchase energy generated by the Company.
The Company's present power purchase agreements have remaining terms of up to 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. See Part I, Item I, "Business - Conventional Hydroelectric Projects" for
a discussion of the percentage of current revenues subject to minimum fixed or
scheduled rates and the percentage of current revenues subject to rates
determined pursuant to avoided cost. 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.
24
<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
Consolidated Financial Statements and the related Notes thereto, included
herein.
Power Producing Facilities
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1996
---- ---- ----
MEGAWATTS #PROJECTS MEGAWATTS #PROJECTS MEGAWATTS #PROJECTS
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Northeast:
100% Ownership (1) 90.88 29 90.88(4) 29(4) 102.20 44
Partial Ownership (2) 52.37 52.37 8 52.37 8
8
O&M Contracts (3) 92.16 19 92.16(4) 19(4) 80.14 3
--------- ---- --------- ---- --------- ----
Total 235.41 56 235.41 56 234.71 55
====== === ====== === ====== ===
Southeast:
100% Ownership (1) 27.42 13 27.42 13 27.42 13
Partial Ownership (2) -- -- -- -- -- --
O&M Contracts (3) -- -- -- -- -- --
--------- ---- --------- ---- --------- ----
Total 27.42 13 27.42 13 27.42 13
====== === ====== === ====== ===
West:
100% Ownership (1) 5.38(6) 3(6) 5.48 4 1.35 1
Partial Ownership (2) 4.20 1 4.20 1 8.33 4
O&M Contracts (3) 19.08 4 19.08 4 19.08 4
--------- ---- --------- ---- --------- ----
Total 28.66 8 28.76 9 28.76 9
====== === ====== === ====== ===
Northwest:
100% Ownership (1) 14.71(5) 6(5) 21.72 9 21.72 9
Partial Ownership (2) 24.96 2 24.96 2 24.96 2
O&M Contracts (3) 4.34 1 4.34 1 6.09 2
--------- ---- --------- ---- --------- ----
Total 44.01 9 51.02 12 52.77 13
====== === ====== === ====== ===
Total:
100% Ownership (1) 138.39 (5)(6) 51(5)(6) 145.50(4) 55(4) 152.69 67
Partial Ownership (2) 81.53 11 81.53 11 85.66 14
O&M Contracts (3) 115.58 24 115.58(4) 24(4) 105.31 9
----------- ---- ----------- ---- ----------- ----
Total 335.50 86 342.61 90 343.66 90
====== === ====== === ====== ===
</TABLE>
- ------------
(1) Defined as projects in which the Company has 100% of the economic interest.
(2) Defined as projects in which the Company's economic interest is less than
100%.
(3) Defined as projects in which the Company is an operator pursuant to O&M
contracts with the project's owner or owners. The Company does not have any
ownership interest in such projects.
(4) Reflects the sale of 15 projects (11.32 megawatts) on December 23, 1996, and
the addition of those same projects as O&M contracts.
(5) Reflects the decommissioning of 3 projects (7.01 megawatts) on September 9,
1997.
(6) Reflects the sale of one project (0.10 megawatts) on July 17, 1997.
25
<PAGE>
Selected Operating Information
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS TWELVE MONTHS ENDED TWELVE MONTHS TWELVE MONTHS
ENDED ENDED JUNE 30, 1997 ENDED ENDED
DEC. 31, 1997(4) DEC. 31, 1996 JUNE 30, 1996 JUNE 30, 1995
---------------- ------------------------------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Power generation revenues (thousands) (1) $15,259 $ 22,126 $50,665 $49,761 $39,387
Kilowatt hours produced (thousands) (1) 209,453 291,520 663,920 647,664 532,063
Average rate per kilowatt hour (1) 7.3(cent) 7.6(cent)(2) 7.6(cent) 7.7(cent)(2)(3) 7.4(cent)(2)(3)
</TABLE>
- ---------
(1) Limited to projects included in consolidated revenues.
(2) Excluding results of the CHI Maine projects, the average rates per kilowatt
hour were 7.9(cent), 7.6(cent)and 7.2(cent)for the six months ended December
31, 1996 and the twelve months ended June 30, 1996 and 1995.
(3) Excluding the results of the Hydro Development Group, Inc. ("HDG") projects,
the average rates per kilowatt hour were 7.9(cent)and 7.5(cent)for the
twelve months ended June 30, 1996 and 1995.
(4) Comprised of results of the Predecessor Company from July 1, 1997 through
November 7, 1997 and the Reorganized Company from November 8, 1997 through
December 31, 1997.
Precipitation, Water Flow and Seasonality
The amount of hydroelectric energy generated at any particular facility
depends upon the quantity of water flow at the site of the facility. Dry periods
tend to reduce water flow at particular sites below historical averages,
especially if the facility has low storage capacity. Excessive water flow may
result from prolonged periods of higher than normal precipitation, or sudden
melting of snow packs, possibly causing flooding of facilities and/or a
reduction of generation until water flows return to normal.
Water flow is generally consistent with precipitation. However, snow and
other forms of frozen precipitation will not necessarily increase water flow in
the same period of such precipitation if temperatures remain at or below
freezing. "Average", as it relates to water flow, refers to the actual long-term
average of historical water flows at the Company's facilities for any given
year. Typically, these averages are based upon hydrologic studies done by
qualified engineers for periods of 20 to 50 years or more, depending on the flow
data available with respect to a particular site. Over an extended period (e.g.,
10 to 15 years) water flows would be expected to be average, whereas for shorter
periods (e.g., three months to three years) variation from average is likely.
Each of the regions in which the Company operates has distinctive precipitation
and water flow characteristics, including the degree of deviation from average.
Geographic diversity helps to minimize short-term variations.
Water Flow by Region (1)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED ENDED
DEC. 31, 1997(2) DEC. 31, 1996 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
-------------------- --------------- ------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Northeast Below Average Above Average Above Average Above Average Below Average
Southeast Below Average Average Average Average Above Average
West Below Average Below Average Below Average Above Average Above Average
Northwest Above Average Above Average Above Average Above Average Below Average
</TABLE>
- ---------
(1) These determinations were made based upon water flow in areas where the
Company's projects are located and may not be applicable to the entire
region.
(2) Determination based on water flows of Predecessor Company from July 1, 1997
through November 7, 1997 and Reorganized Company from November 8, 1997
through December 31, 1997.
Production of energy by the Company is typically greatest in January
through June when water flow is at its highest at most of the Company's
projects, and lowest in 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.
26
<PAGE>
Power Generation Revenues (1)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS TWELVE MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
ENDED ENDED JUNE 30, 1997(2) JUNE 30, 1996(2) JUNE 30, 1995(2)
DEC. 31, 1997(4) DEC. 31, 1996
----------------------- ------------------- --------------------- ---------------------- --------------------
$ % $ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter 6,422 42.1 8,855 40.0 8,855 17.5 5,363 10.8 7,471 19.0
Second Quarter 8,837 57.9 13,271 60.0 13,271 26.2 12,355 24.8 7,503 19.0
Third Quarter -- -- -- -- 15,078 29.8 15,744(3) 31.6 13,437(5) 34.1
Fourth Quarter -- -- -- -- 13,461 26.5 16,299(3) 32.8 10,976(5) 27.9
----------- ------- ----------- ------- ---------- -------- ---------- ------- ------ ----
Total 15,259 100.0 22,126 100.0 50,665 100.0 49,761(6) 100.0 39,387(3) 100.0
====== ==== ====== ===== ====== ===== ======== ===== ====== =====
</TABLE>
- -----------
(1) Limited to projects included in consolidated revenues.
(2) Includes business interruption revenue of $88, $840 and $604 representing
claims for lost generation recoverable from an insurance company for the
twelve months ended June 30, 1995, 1996 and 1997, respectively.
(3) Includes $4,252, $1,763 and $1,744 of power generation revenues from the CHI
Maine projects, which were sold on December 23, 1996 for the twelve months
ended June 30, 1995 and the three months ended March 31, 1996 and June 30,
1996, respectively.
(4) Comprised of results of the Predecessor Company from July 1, 1997 through
November 7, 1997 and the Reorganized Company from November 8, 1997 through
December 31, 1997.
(5) Includes $789 and $1,164 resulting from the acquisition of HDG in the three
months ended March 31, 1995 and June 30, 1995, respectively.
(6) Includes $5,131 resulting from the acquisition of HDG for the twelve months
ended June 30, 1996.
<TABLE>
<CAPTION>
Kilowatt Hours ("kWh") Produced (1)
SIX MONTHS SIX MONTHS TWELVE MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
ENDED ENDED JUNE 30, 1997(2) JUNE 30, 1996(2) JUNE 30, 1995(2)
DEC. 31, 1997(4) DEC. 31, 1996
------------------- ---------------------- -------------------- -------------------- - ----------------------
kWh % kWh % kWh % kWh % kWh %
--- - --- - --- - --- - --- -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter 95,852 45.8 125,197 42.9 125,197 18.9 80,596 12.4 105,456 19.8
Second Quarter 113,601 54.2 166,323 57.1 166,323 25.0 160,088 24.7 103,428 19.4
Third Quarter -- -- -- -- 193,576 29.2 195,540(3) 30.2 171,280(5) 32.2
Fourth Quarter -- -- -- -- 178,824 26.9 211,440(3) 32.7 151,899(5) 28.6
--------- ------- --------- ------ -------- ----- ---------- ----- ------------- -----
Total 209,453 100.0 291,520 100.0 663,920 100.0 647,664(6) 100.0 532,063(3) 100.0
========= ======= ========= ====== ======= ===== ========== ===== ============= =====
</TABLE>
- -------------
(1) Limited to projects included in consolidated revenues.
(2) Includes the production equivalent of 600, 15,335 and 9,412 kWh of the
business interruption revenue recoverable as a result of insurance claims
for the twelve months ended June 30, 1995, 1996 and 1997, respectively.
(3) Includes 44,645, 19,310, and 19,106 kWh from the CHI Maine projects, which
were sold on December 23, 1996, for the twelve months ended June 30, 1995
and the three months ended March 31, 1996 and June 30, 1996, respectively.
(4) Comprised of kilowatt hours produced from July 1, 1997 through November 7,
1997 for the Predecessor Company and from November 8, 1997 through December
31, 1997 for the Reorganized Company.
(5) Includes 12,302 and 18,254 kWh resulting from the acquisition of HDG, in the
three months ended March 31, 1995 and June 30 1995, respectively.
(6) Includes 80,883 kWh resulting from the acquisition of HDG for the twelve
months ended June 30, 1996.
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1996
Operating Revenues
Power Generation Revenue. The Company's power generation revenue decreased
$6.8 million (30.8%) from $22.1 million to $15.3 million for the six months
ended December 31, 1996 and 1997, respectively. Excluding the effects of the
sale of CHI Maine on December 23, 1996, power generation revenue decreased by
$4.9 million (24.3%) from $20.2 million to $15.3 million for the six months
ended December 31, 1996 and 1997, respectively.
The Northeast region experienced decreased revenues of $4.0 million due to
below average water flows and precipitation for the six months ended December
31, 1997 as compared to above average water flows for the six months ended
December 31, 1996.
27
<PAGE>
The Southeast region experienced decreased revenues of $0.4 million due to
below average water flows and precipitation for the six months ended December
31, 1997 as compared to average water flows and precipitation for the six months
ended December 31, 1996.
The West and the Northwest regions (combined) experienced decreased
revenues of $0.5 million due to the decommissioning of Joseph Hydro. See Note 6
of the Notes to Consolidated Financial Statements.
The average rate earned by the Company decreased by 0.3(cent) (3.9%) from
7.6(cent) to 7.3(cent) per kilowatt hour for the six months ended December 31,
1996 and 1997, respectively. Excluding the 1996 results of CHI Maine, revenue
per kilowatt hour decreased by 0.6(cent) (7.6%) from 7.9(cent) to 7.3(cent) for
the six months ended December 31, 1996 and 1997, respectively, primarily as a
result of variations in the production mix and contract rates among the various
projects. In addition, due to the decommissioning of Joseph Hydro, approximately
3.5 million kilowatt hours of production were sold at a rate of 0.8(cent) per
kilowatt hour during the six months ended December 31, 1997, while the average
rate for Joseph Hydro during the six months ended December 31, 1996 was
7.7(cent) per kilowatt hour.
Management Fees and Operations & Maintenance Revenues. Management fees and
O&M contract revenue increased by $1.4 million (51.9%), from $2.7 million to
$4.1 million for the six months ended December 31, 1996 and 1997, respectively.
Excluding the addition of the CHI Maine O&M contract, management fees and O&M
contract revenue increased $0.8 million (29.6%) from $2.7 million to $3.5
million for the six months ended December 31, 1996 and 1997, respectively. The
increase was primarily due to (i) an increase of O&M rebillable contract costs
and (ii) a generation incentive bonus.
Costs and Expenses
Operating Expenses. Operating expenses increased by $0.3 million (3.4%)
from $8.9 million to $9.2 million for the six months ended December 31, 1996 and
1997, respectively. Excluding the 1996 results of the CHI Maine projects and the
1997 addition of the CHI Maine O&M contract, operating expenses increased $0.6
million (7.4%) from $8.1 million to $8.7 million for the six months ended
December 31, 1996 and 1997, respectively. This increase was primarily due to (i)
an increase of O&M rebillable contract costs; (ii) an increase of non-recurring
maintenance and supplies, partially offset by (i) a decrease in travel expense
and (ii) a decrease in the provision for uncollectable accounts receivable.
General and Administrative Expense. General and administrative expenses
increased $0.2 million (6.5%) from $3.1 million to $3.3 million for the six
months ended December 31, 1996 and 1997, respectively.
Reorganization Costs. Reorganization costs amounted to $4.0 million for
the six months ended December 31, 1997. These costs represent (i) $1.5 million
of fees and expenses for the Company's financial, legal, and other professional
advisors associated with the Company's financial restructuring and the legal
counsel representing the holders of the Company's then-existing 12% Senior
Discount Notes, due 2003 (the "Senior Discount Notes") and (ii) a $2.5 million
non-cash write-off of loan acquisition costs related to the Senior Discount
Notes.
Fair Value Adjustments. As a result of the application of fresh start
reporting, in accordance with SOP 90-7, fair value adjustments of $4.9 million
were recorded on the Effective Date.
Depreciation and Amortization. Depreciation and amortization decreased
$0.2 million (4.7%) from $4.3 million to $4.1 million for the six months ended
December 31, 1996 and 1997, respectively. Depreciation and amortization for the
period from November 8, 1997 to December 31, 1997 was $1.1 million while the
depreciation and amortization for the period from July 1, 1997 to November 7,
1997 was $3.0 million. The decrease was primarily due to the revaluation of the
fixed assets as a result of the implementation of fresh start reporting.
Gain on Adjustment to Project Development Debt
During the period from July 1, 1997 to December 31, 1997, the Company
wrote off certain of its project development debt resulting in a gain of $8.6
million. This debt was contingent upon the successful development (including the
financing thereof) of pumped storage projects, which management believes will
not be successfully developed by the Company and the exercise of options on land
and a mine which was to be used as an underground reservoir for the projects.
28
<PAGE>
Interest Expense
Interest expense decreased by $5.7 million (38.8%) from $14.7 million to
$9.0 million for the six months ended December 31, 1996 and 1997, respectively.
Excluding the 1996 results of the CHI Maine projects, interest expense decreased
by $5.6 million (38.4%) from $14.6 million to $9.0 million for the six months
ended December 31, 1996 and 1997, respectively. The decrease is primarily due to
the cessation of accruing interest on the Senior Discount Notes as of September
15, 1997, the date the Company commenced its case under chapter 11 of the
Bankruptcy Code. See Note 1 of the Notes to Consolidated Financial Statements.
Provision for Income Taxes
The Company's net tax provision for the six months ended December 31, 1997
of $707 principally relates to the Company's reorganization and fresh start
reporting for its assets. The result is a decrease in the amount of net
operating loss ("NOL") carryforwards expected to be utilized during the NOL
carryforward period. The Company's net tax benefit for the six months ended
December 31, 1996 of $1,460 is principally due to an increase in the amount of
NOL carryforwards expected to be utilized during the NOL carryforward period.
Extraordinary Gain.
As a result of the reorganization, a gain on extinguishment of debt of
$87.2 million was recorded on the Effective Date.
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
Operating Revenues
Power Generation Revenue. The Company's power generation revenue increased
by $0.9 million (1.8%), from $49.8 million to $50.7 million for the fiscal years
ended June 30, 1996 and 1997, respectively. Excluding the effects of the sale of
CHI Maine on December 23, 1996, power generation revenue increased by $4.4
million (9.5%), from $46.3 million to $50.7 million for the fiscal years ended
June 30, 1996 and 1997, respectively.
The Northeast region experienced increased revenues of $3.9 million due to
well above average water flows and precipitation for the fiscal year ended June
30, 1997 as compared to slightly above average water flows and precipitation for
the fiscal year ended June 30, 1996.
The Southeast region experienced a minimal increase of $0.1 million.
The West and Northwest regions (combined) experienced increased revenues
of $0.4 million primarily as a result of well above average water flows and
precipitation in the Northwest region for the fiscal year ended June 30, 1997,
as compared to slightly above average water flows and precipitation in the
Northwest region for the fiscal year ended June 30, 1996, coupled with the
addition of three newly-consolidated projects in the West region on January 1,
1997.
The average rate earned by the Company decreased by 0.1(cent) (1.3%) from
7.7(cent) to 7.6(cent) per kilowatt hour in the fiscal year ended June 30, 1996
versus the fiscal year ended June 30, 1997, respectively, primarily as a result
of variations in the production mix and contract rates among the various
projects. Excluding the fiscal year ended June 30, 1996 results of CHI Maine,
revenue per kilowatt hour remained constant at 7.6(cent) in the fiscal years
ended June 30, 1996 and 1997, respectively.
Management Fees and Operations & Maintenance Revenues. Management fees and
O&M contract revenue increased by $0.4 million (8.0%) from $5.0 million to $5.4
million for the fiscal years ended June 30, 1996 and 1997, respectively.
Excluding the addition of the CHI Maine O&M contract, management fees and O&M
contract revenue remained relatively constant, decreasing by $0.1 million (2.0%)
from $5.0 million to $4.9 million for the fiscal years ended June 30, 1996 and
1997, respectively.
Equity Income in Partnership Interests and Other Partnership Income.
Equity income in partnership interests and other partnership income increased
$0.6 million (85.7%) from $0.7 million to $1.3 million for the fiscal years
ended June 30, 1996 and 1997, respectively. The increase is primarily due to
increased revenues earned by partnership interests in the Northeast region as a
result of above average water flows and precipitation for the fiscal year ended
June 30, 1997 as compared to the fiscal year ended June 30, 1996.
29
<PAGE>
Costs and Expenses
Operating Expenses. Operating expenses increased by $0.1 million (0.6%)
from $17.9 million to $18.0 million for the fiscal years ended June 30, 1996 and
1997, respectively. Excluding the effects of the sale of the CHI Maine projects
and the fiscal year ended June 30, 1997 addition of the CHI Maine O&M contract,
operating expenses increased by $0.4 million (2.3%), from $17.2 million to $17.6
million for the fiscal years ended June 30, 1996 and 1997, respectively. The
increase was primarily due to (i) an increase in revenue related expenses
resulting from increased power generation; (ii) an increase in insurance
premiums; (iii) an increase in the provision for uncollectable accounts
receivable and (iv) smaller increases in other operating costs, partially offset
by: (i) a decrease in salaries and benefits resulting from a decrease in
operating employees in the West region, coupled with an increase in the
allocation of company-wide operating labor charged to capitalized projects; (ii)
a decrease in expenses related to insurance deductibles during the current
fiscal year and (iii) a decrease in non-recurring environmental and regulatory
expenses.
General and Administrative Expenses. General and administrative expenses
increased $2.0 million (31.3%) from $6.4 million to $8.4 million for the fiscal
years ended June 30, 1996 and 1997, respectively. The increase was primarily due
to: (i) costs associated with the formulation of financial restructuring options
for the Company; (ii) the effect of expensing, rather than capitalizing, certain
pumped storage business development costs for the six months ended December 31,
1996 and (iii) an increase in other business development costs, partially offset
by (i) a decrease in administrative salaries and benefits resulting from a
reduction in severance accruals made for a former officer of the Company and
(ii) a decrease in industry related membership dues.
Depreciation and Amortization. Depreciation and amortization decreased
$1.1 million (11.2%) from $9.8 million to $8.7 million, for the fiscal years
ended June 30, 1996 and 1997, respectively. The decrease was primarily due to a
write-down of impaired assets in the fiscal year ended June 30, 1996 as a result
of the implementation of the Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121") and the cessation of depreciation expense taken on
assets to be disposed of for the fiscal year ended June 30, 1996 as compared to
the fiscal year ended June 30, 1997.
SFAS 121 - Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. Included in the impairment charge was an
amount related to certain assets to be disposed of. During the fiscal year ended
June 30, 1997, the carrying value of certain of those assets has been adjusted
upward by $0.7 million to reflect the actual sale price of the assets. In
addition, the Company wrote down the carrying values of certain development
costs and certain of its conventional hydroelectric assets held for disposal
resulting in a combined impairment charge of $0.8 million. Each of the above
described adjustments has been included in charge for impairment of long-lived
assets on the Statement of Operations for the fiscal year ended June 30, 1997.
Interest Expense
Interest expense increased by $2.7 million (10.0%), from $26.9 million to
$29.6 million for the fiscal years ended June 30, 1996 and 1997, respectively.
Excluding the fiscal year ended June 30, 1996 results of the CHI Maine projects,
interest expenses increased by $2.8 million (10.4%) from $26.8 million to $29.6
million for the fiscal years ended June 30, 1996 and 1997, respectively. The
increase is primarily due to the increasing principal balance of the Company's
Senior Discount Notes which resulted in a corresponding increase in interest
expense and the effect of expensing interest on loans related to pumped storage
development for the six months ended December 31, 1996, which had previously
been capitalized during the six months ended December 31, 1995.
Minority Interests in Loss of Consolidated Subsidiaries
The Company recognized a benefit of approximately $2.1 million for the
fiscal year ended June 30, 1996 resulting from the recognition of minority
shareholders' interest in the loss of certain consolidated subsidiaries related
to the write-down of pumped storage business development assets in accordance
with SFAS 121 which reduced the value of minority interests recorded by the
Company to zero.
30
<PAGE>
Benefit for Income Taxes
The Company recognized deferred benefits for income taxes (excluding
current provisions) of $8.0 million and $1.0 million for the fiscal years ended
June 30, 1996 and 1997, respectively. For the fiscal year ended June 30, 1996,
the deferred tax benefit related to the write-down of certain long-lived assets
in accordance with SFAS 121. For the fiscal year ended June 30, 1997, the
deferred benefit for income tax relates to certain factors, principally due to
an increase in the amount of NOL expected to be utilized during the NOL
carryforward period.
Extraordinary Gain on Extinguishment of Debt
On October 30, 1996, the Company arranged to have a financial institution
purchase a $13,759 non-recourse project term loan (the "Old Loan") relating to
four of its existing hydroelectric projects for $5,000, including certain
required reserves and closing costs of $500 (the "New Loan"). An additional
$2,000 credit facility is also available under the New Loan for up to one year
to finance certain project enhancements. A subsidiary of CHI was assigned an
interest in the balance of the Old Loan on a basis fully subordinated to the New
Loan. As a result, the Company has recorded a $5,658 Extraordinary gain on
extinguishment of debt, net of certain transaction costs of approximately $187
and income tax of $3,414, on its Statement of Operations for the fiscal year
ended June 30, 1997.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
Operating Revenues
Power Generation Revenue. Power generation revenue increased by $10.4
million (26.4%) from $39.4 million to $49.8 million for the fiscal years ended
June 30, 1995 and 1996, respectively. Excluding the results of HDG, acquired on
February 16, 1995, power generation revenue increased $7.2 million (19.3%) from
$37.4 million to $44.6 million.
The Northeast region experienced increased revenues of $6.6 million due to
above average water flows and precipitation in the fiscal year ended June 30,
1996 as compared to below average water flows and precipitation in fiscal year
ended June 30, 1995.
The Southeast region experienced decreased revenues of $0.1 million due
primarily to flood damage and continued repairs at certain of its facilities.
The West and Northwest regions (combined) experienced increased revenues
of $0.7 million in the fiscal year ended June 30, 1996 as compared to the fiscal
year ended June 30, 1995 primarily as a result of above average water flow and
precipitation in the Northwest region, an area which contributes significantly
to total revenues of the combined regions.
The Company as a whole experienced increased revenue per kilowatt hour of
0.3(cent) (4.1%) from 7.4(cent) to 7.7(cent) in the fiscal year ended June 30,
1996 versus the fiscal year ended June 30, 1995, respectively. Excluding the
results of HDG, revenue per kilowatt hour increased by 0.4(cent) (5.3%) from
7.5(cent) to 7.9(cent), primarily as a result of variations in the production
mix and contract rates among the various projects.
Management Fees and Operation & Maintenance Revenues. Management fees and
O&M contract revenue increased by $0.7 million (16.3%) from $4.3 million to $5.0
million for the fiscal years ended June 30, 1995 and 1996, respectively.
Excluding the results of HDG, management fees and O&M contract revenue increased
by $0.3 million (7.1%) from $4.2 million to $4.5 million. The increase was
primarily due to revenue generated from an increase in project management base
fees coupled with an increase in rebillable capital expenditures at a Northeast
O&M facility.
Equity Income in Partnership Interests and Other Partnership Interests.
Equity income in partnership interests and other partnership income increased by
$0.5 million (250.0%) from $0.2 million to $0.7 million for the fiscal years
ended June 30, 1995 and 1996, respectively. Excluding the results of HDG, equity
income in partnership interests and other partnership income remained relatively
constant at $0.1 million for the fiscal years ended June 30, 1995 and 1996.
31
<PAGE>
Costs and Expenses
Operating Expenses. Operating expenses increased by $2.0 million (12.6%)
from $15.9 million to $17.9 million for the fiscal years ended June 30, 1995 and
1996, respectively. Excluding the results of HDG, operating expenses increased
$0.9 million (6.0%) from $14.9 million to $15.8 million. The increase was
primarily due to time spent by certain management personnel (who previously
charged their time to general and administrative and other activities) on
operating activities partially offset by (i) an overall decrease in insurance
premiums due to a change in carriers effective on July 1, 1995 and (ii) a
reduction in expenditures related to regulatory requirements in the Northeast
region.
General and Administrative Expenses. General and Administrative expenses
decreased by $0.4 million (5.9%) from $6.8 million to $6.4 million for the
fiscal years ended June 30, 1995 and 1996, respectively. Excluding the results
of HDG, general and administrative expenses decreased $0.6 million (8.8%) from
$6.8 million to $6.2 million. The decrease was primarily due to (i) a decrease
in third party acquisition costs related to a cessation or decline in
acquisitions prospects which were actively pursued during the prior year,
partially offset by acquisition related activity of the Company's newly formed
subsidiary (CHI Power, Inc.), coupled with the expensing of pumped storage
development costs which were previously capitalized; (ii) a decrease in travel,
meetings, and seminars as part of an overall cost reduction effort made by the
Company; and (iii) a reduction in time spent by certain management personnel on
general and administrative activities offset by an increase in administrative
salaries and benefits due to costs associated with CHI Power, Inc., coupled with
a severance accrual for the Company's former President.
Depreciation and Amortization. Depreciation and amortization increased by
$0.2 million (2.1%) from $9.6 million to $9.8 million for the fiscal years ended
June 30, 1995 and 1996, respectively. Excluding the results of HDG, depreciation
and amortization decreased $0.6 million (6.7%) from $9.0 million to $8.4
million. The decrease was primarily due to a write-down of impaired assets in
the fiscal year ended June 30, 1996 as a result of the implementation of SFAS
121. See Note 7 of the Notes to Consolidated Financial Statements.
SFAS 121 - Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The Company implemented SFAS 121 in the
second quarter of the fiscal year ended June 30, 1996. This statement
establishes accounting standards for determining impairment of long-lived assets
and long-lived assets to be disposed of. The Company periodically assesses the
realizability of its long-lived assets and evaluates such assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets (or group of assets) may not be recoverable. For assets in use or
under development, impairment is determined to exist if the estimated future
cash flow associated with the asset, undiscounted and without interest charges,
is less than the carrying amount of the asset. When the estimated future cash
flow indicates that the carrying amount of the asset will not be recovered, the
asset is written down to its fair value.
In light of the Company's planned sale of certain of its conventional
hydroelectric projects, recent industry trends (including the continued decline
in electricity prices and other factors stemming from the deregulation of the
electric power industry), the timing of the expiration of the fixed rate period
of some of its long-term power sales contracts and other indications of a
decline in the fair value of certain of its conventional hydroelectric projects,
the Company determined that certain of these projects (including properties
which are not included among those to be sold) were impaired pursuant to the
criteria established under SFAS 121.
As a result of the factors noted above, in the fiscal year ended June 30,
1996 the Company recorded an impairment charge of $87.2 million as a component
of its loss from operations. In addition, a deferred tax benefit and a benefit
for minority interests in loss of consolidated subsidiaries of $7.9 million and
$2.1 million, respectively, were recorded as of that date. Of the total charges,
$38.5 million was attributable to pumped storage development assets, resulting
in an aggregate remaining carrying value of such assets of $0.1 million, $44.9
million was attributable to certain conventional hydroelectric assets, resulting
in an aggregate remaining carrying value for such written down assets of $26.0
million, and $3.8 million was attributable to an other than temporary decline in
the value of certain investments in partnerships which own hydroelectric
facilities, resulting in an aggregate remaining carrying value of such assets of
$0.8 million. In accordance with SFAS 121, the carrying value of these written
down assets now reflects management's best estimate as to their fair value,
although there can be no assurance that future events or changes in
circumstances will not require that such assets, or other of the Company's
assets, be written down in the future.
32
<PAGE>
In conjunction with the adoption of SFAS 121, during the third quarter of
the fiscal year ended June 30, 1996, the Company re-evaluated the useful lives
of certain property, plant and equipment and intangible assets. This resulted in
a reduction of the estimated useful lives of these fixed and intangible assets.
This change had the effect of increasing the loss from operations and the loss
net of tax benefit by approximately $0.5 million for the fiscal year ended June
30, 1996.
Interest Expense
Interest expense increased by $5.1 million (23.4%) from $21.8 million to
$26.9 million for the fiscal years ended June 30, 1995 and 1996, respectively.
Excluding the results of HDG, interest expense increased $2.9 million (14.2%)
from $20.4 million to $23.3 million. The increase was primarily due to the
increasing principal balance of the Senior Discount Notes which resulted in a
corresponding increase in interest expense and the effect of expensing interest
(for the second half of the fiscal year ended June 30, 1996) that had been
capitalized during the fiscal year ended June 30, 1995.
Minority Interests in Loss of Consolidated Subsidiaries
The Company recognized a benefit of approximately $2.1 million for the
fiscal year ended June 30, 1996 resulting from the minority shareholders'
interest in the loss of certain consolidated subsidiaries related to the
write-down of pumped storage development assets in accordance with SFAS 121
(discussed above).
Benefit for Income Taxes
The Company recognized a deferred tax benefit of approximately $8.0
million for the fiscal year ended June 30, 1996. The benefit relates to the
write-down of certain long-lived assets in accordance with SFAS 121 (discussed
above). The effective tax rate of the deferred benefit recognized from the
write-down differs from the federal statutory rate due to the reduction of
deferred tax liabilities offset by the increase in the valuation allowance
attributable to tax assets related to net operating loss carryforwards. The
valuation allowance increased due to the reduction of taxable temporary
differences for book depreciation and amortization previously projected to be
recognized during the net operating loss carryforward period.
LIQUIDITY AND CAPITAL RESOURCES
As more fully described in the Consolidated Financial Statements and
related Notes thereto, the cash flow of the Company was comprised of the
following:
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
-----------------------------------------------------------------------------
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
NOV. 8 - JULY 1 - JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
DEC. 31, NOV. 7,
1997 1997
------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Net cash provided by/(used in)
Operating activities..................... $ 2,327 $ 1,457) $14,172 $ 16,750 $ 14,328
Investing activities..................... (876) (425) (5,720) (43,629)
731
Financing activities..................... (10,718) (9,355) (6,235) (3,878) 31,828
----------- -------- --------- -------- -------------
Net (decrease)/increase in cash and cash
equivalents................................. $ (9,267) $(11,237) $ 8,668 $ 7,152 $ 2,527
========== ========= ======== ======== =============
</TABLE>
33
<PAGE>
Management believes that cash provided from operations will be sufficient
to satisfy substantially all of the Company's planned capital expenditures and
working capital needs during 1998. In addition, the Company has received a
commitment, subject to certain conditions precedent, for a new, secured $15
million working capital and letter of credit facility which the Company expects
to close in the near future. The new facility will provide additional liquidity
to support the Company's existing operations as well as its future growth.
For the period from November 8, 1997 to December 31, 1997, the cash flow
provided by operating activities was principally the result of the $0.7 million
net income for such period, a $1.6 million increase in accounts payable and
accrued expenses, $1.1 million of depreciation and amortization, a $0.6 million
benefit relating to deferred tax liabilities and a $0.4 million decrease in
prepaid expenses, offset by $0.5 million of cash used for reorganization items
and a $1.7 million increase in accounts receivable. The cash flow used in
investing activities was primarily attributable to $0.2 million of capital
expenditures and a $0.6 million increase in investments and other long-term
assets. The cash flow used in financing activities was primarily due to the
payment of $10.0 million to holders of the Senior Discount Notes, the repayment
of $0.3 million of project debt (see -- "Summary of Indebtedness"), and a $0.4
million decrease in other long-term liabilities.
For the period from July 1 to November 7, 1997, the cash flow used in
operating activities was principally the result of the $78.0 million net income
for such period, adjusted for $4.6 million of non-cash interest and other
charges, $8.8 million of reorganization costs and fair value adjustments, $3.0
million of depreciation and amortization, $0.8 million of distributed earnings
of affiliates and a $0.5 decrease in accounts receivable, offset by a $87.2
million gain on extinguishment of debt, $8.6 million gain on adjustment to debt,
$0.7 million cash used for reorganization items and a $0.3 million decrease in
accounts payable and accrued expenses. The cash flow used in investing
activities was primarily attributable to $1.1 million of capital expenditures
and a $1.3 million increase in investments and other long-term assets, offset by
$2.0 million of net cash proceeds received from the disposition of assets. The
cash flow used in financing activities was primarily due to the payment of $5.0
million to holders of the Senior Discount Notes and the repayment of $4.5
million of project debt (see - "Summary of Indebtedness"), offset by a $0.2
million increase in other long-term liabilities.
Cash provided by operating activities decreased by $2.7 million for the
six months ended December 31, 1997 as compared to the six months ended December
31, 1996. The decrease resulted from a $4.8 decrease in income before
depreciation and amortization, non-cash interest and other charges,
reorganization costs and fair value adjustments, benefit relating to deferred
tax liabilities, extraordinary gain on extinguishment of debt, gain on
adjustment to project development debt, non-cash adjustment to impairment of
long-lived assets, gain on disposal of assets and distributed earnings of
affiliates and a $1.3 million decrease in cash used for reorganization items,
offset by a $3.4 million increase resulting from variations in other operating
items (accounts receivable, prepaid expenses, accounts payable and accrued
expenses).
For the fiscal year ended June 30, 1997, the cash flow provided by
operating activities was principally the result of the $5.4 million net loss for
such period, adjusted for $21.6 million of non-cash interest and other charges
and $8.7 million of depreciation and amortization , offset by a $5.7 million
gain on extinguishment of debt, a $1.0 million deferred tax benefit, a $2.9
million decrease in accounts payable and accrued expenses, $0.7 million of
undistributed earnings of affiliates and a $0.4 million increase in prepaid
expenses and other current assets. The cash flow provided by investing
activities was primarily attributable to $12.0 million of net cash proceeds
received from the sale of the CHI Maine assets, offset by $4.4 million of
investments in upgrading existing conventional projects, a $4.9 million increase
in investments and other long term assets and $2.0 million investment in
conventional development during the fiscal year ended June 30, 1997. The cash
flow used in financing activities was primarily due to the repayment of $6.3
million of project debt (see - "Summary of Indebtedness"), offset by a $0.2
million increase in other long-term liabilities.
Cash provided by operating activities decreased by $2.6 million for the
fiscal year ended June 30, 1997 as compared to the fiscal year ended June 30,
1996. The decrease resulted from a $0.5 million increase in income before
depreciation and amortization, non-cash interest and other charges, non-cash
charge for impairment of long-lived assets, benefit relating to deferred tax
liabilities, extraordinary gain on extinguishment of debt, minority interests in
loss of consolidated subsidiaries and undistributed earnings of affiliates,
offset by a $3.1 million decrease resulting from variations in other operating
items (accounts receivable, prepaid expenses, accounts payable and accrued
expenses).
For the fiscal year ended June 30, 1996, the cash flow provided by
operating activities was principally the result of the $88.3 million net loss
for such period, adjusted for an $87.2 million non-cash charge for impairment of
long-lived assets, and benefits of $8.0 million and $2.1 million for deferred
tax and minority interests in loss of consolidated subsidiaries, respectively,
34
<PAGE>
resulting from such impairment charge, $0.3 million in undistributed earnings of
affiliates and a $1.6 million increase in accounts receivable, offset by $9.8
million of depreciation and amortization, $18.6 million for non-cash interest
and other charges and a $1.4 million increase in accounts payable and accrued
expenses. The cash flow used in investing activities was primarily attributable
to $2.2 million of capital expenditures, a $2.4 million investment in
conventional and pumped storage development and a $1.2 million increase in
investments and other long-term assets during the fiscal year ended June 30,
1996. Of the pumped storage and conventional development expenditures,
approximately $1.6 million was attributable to capitalized interest costs and
$1.0 million was attributable to the funding of committed development capital
for the Summit and other pumped storage projects. The cash flow used in
financing activities was due primarily to repayment of $4.3 million of project
debt (see "--Summary of Indebtedness"), offset by a $0.3 million increase in
other long-term liabilities.
Cash provided by operating activities increased by $2.4 million for the
fiscal year ended June 30, 1996 as compared to the fiscal year ended June 30,
1995. The increase resulted from a $6.4 million increase in income before
depreciation and amortization, non-cash interest and other charges, non-cash
charge for impairment of long-lived assets, benefit relating to deferred tax
liabilities, extraordinary gain on extinguishment of debt, minority interests in
loss of consolidated subsidiaries and undistributed earnings of affiliates,
offset by a $4.0 million decrease resulting from variations in other operating
items (account receivable, prepaid expenses, accounts payable and accrued
expenses).
For the fiscal year ended June 30, 1995, the cash flow provided by
operating activities was principally the result of the $16.3 million net loss
for the year offset by $16.0 million from a charge for non-cash interest, $9.6
million of depreciation and amortization, a $1.3 million non-cash charge for
impairment of long-lived assets, $2.4 million of a decrease in accounts
receivable and $1.4 million of an increase in amounts payable and accrued
expenses. The cash flow used in investing activities was primarily attributable
to $35.5 million utilized for the acquisitions of the HDG projects and the $6.1
million investment in pumped storage and conventional development and $2.9
million of capital expenditures during the fiscal year ended June 30, 1995. Of
the pumped storage and conventional development expenditures, approximately $1.7
million was attributable to capitalized interest costs, $0.6 million was
financed through non-recourse debt and approximately $2.9 million was
attributable to the funding of committed development capital for the Summit
project. The cash flow provided by financing activities was largely due to the
$35.9 million of additional debt incurred in connection with the HDG acquisition
offset by repayment of $4.9 million of project debt.
SUMMARY OF INDEBTEDNESS
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
--------------- ---------------------------------------------------------
PRINCIPAL AMOUNT OUTSTANDING AS OF
DEC. 31, JUNE 30, JUNE 30, JUNE 30,
1997 1997 1996 1995
--------------- --------------------------------------------------------
<S> <C> <C> <C> <C>
Company debt, excluding non-recourse
debt of subsidiaries $ -- $ 169,813 $ 151,131 $ 134,506
Non-recourse debt of subsidiaries 87,971 100,268 115,489 119,372
Current portion of long-term debt (5,355) (7,466) (6,462) (4,991)
----------- ------------ ------------ -------------
Total long-term debt obligations $ 82,616 $ 262,615 $ 260,158 $ 248,887
=========== ============ ============ =============
</TABLE>
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 credit agreement, DnB had the right,
upon notice to the Company, to limit any further borrowings under the DnB
Facility and require the Company to repay any and all outstanding indebtedness
thereunder within one year from the date DnB provides such notice to the
Company.
35
<PAGE>
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 $1.9 million at December 31, 1997. As of December 31, 1997, the
DnB Facility is still in effect per the terms of the Amendment. The Company has
received a commitment, subject to certain conditions precedent, for a new,
secured $15 million working capital and letter of credit facility which the
Company expects to close by April 30, 1998. The new working capital facility
will replace the DnB Facility.
On March 20, 1997, the Company, at a meeting with certain holders of the
Senior Discount Notes (the "Bondholders"), announced an outline for its current
business strategy and made a proposal to restructure its outstanding debt and
equity. Subsequently, the Bondholders formed a committee to discuss a possible
restructuring with the Company (the "Unofficial Bondholders' Committee"). On
June 4, 1997, CHI reached an agreement in principle with the Unofficial
Bondholders' Committee on the terms of the Plan of Reorganization. On August 8,
1997, pursuant to a disclosure statement dated August 8, 1997, CHI commenced the
solicitation of votes from holders of Senior Discount Notes and holders of the
13 1/2% Cumulative Redeemable Preferred Stock ("Series H Preferred"), the Series
F Preferred and the Series G Preferred, (collectively the "Old Preferred Stock")
for the acceptance or rejection of the Plan of Reorganization. This solicitation
was conducted prior to the filing by CHI of a case under chapter 11 of the
Bankruptcy Code so as to significantly shorten the pendency of the case and to
simplify its administration. The solicitation was successfully completed on
September 9, 1997, and CHI commenced the chapter 11 case on September 15, 1997
in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). None of CHI's subsidiaries commenced a case under the
Bankruptcy Code. The Bankruptcy Court confirmed the Plan of Reorganization on
October 23, 1997 and the Company emerged from bankruptcy effective November 7,
1997.
Under the Plan of Reorganization, CHI's Senior Discount Notes were
converted into, among other things, $15 million in cash and 100% of the shares
of CHI's new common stock issued on the Effective Date (the "New Common Stock"),
subject to dilution from the New Warrants and the Management Options (each as
described as follows); the holders of Old Preferred Stock exchanged such stock
for warrants to purchase up to 12.5% of the New Common Stock (the "New
Warrants"), subject to dilution from the Management Options; and CHI's Old
Common Stock was canceled. CHI's senior management received options to purchase
up to an aggregate of 7.5% of the New Class A Common Stock (the "Management
Options"), subject to dilution from the New Warrants. In addition, certain
members of CHI's senior management team entered into new employment agreements
in connection with the restructuring.
ITEM 7A. QUANTITIATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------
Not Applicable.
36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
(POST-EMERGENCE)
To the Board of Directors
and Stockholders of CHI Energy, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of CHI Energy,
Inc., (formerly Consolidated Hydro, Inc. (CHI) and its subsidiaries
(collectively, the "Company") at December 31, 1997 and the results of their
operations and their cash flows for the eight weeks then ended, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
As discussed in Notes 1 and 2 to the consolidated financial statements, on
October 23, 1997, the United States Bankruptcy Court for the District of
Delaware confirmed CHI Energy, Inc.'s plan of reorganization (the "plan").
Confirmation of the plan resulted in the discharge of certain claims against CHI
that arose before September 15, 1997 and substantially alters the rights and
interests of certain debt and equity securities holders as provided for in the
plan. The plan became effective on November 7, 1997 and the parent company
emerged from bankruptcy. In connection with its emergence from bankruptcy, CHI
adopted fresh-start reporting as of November 8, 1997.
New York, New York
March 27, 1998
37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
(PRE-EMERGENCE)
To the Board of Directors
and Stockholders of CHI Energy, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows present fairly, in all material respects, the financial position of CHI
Energy, Inc. (formerly Consolidated Hydro, Inc.) and its subsidiaries
(collectively, the "Company") at June 30, 1997 and 1996, and the results of
their operations, stockholders' equity (deficit) and their cash flows for the
eighteen weeks ended November 7, 1997 and for each of the three years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Notes 1 and 2 to the consolidated financial statements, on
September 15, 1997, CHI Energy, Inc., the parent company, filed a petition with
the United States Bankruptcy Court for the District of Delaware under the
provisions of Chapter 11 of the Bankruptcy Code. None of the Company's
subsidiaries were party to the case under the Bankruptcy Code. The Company's
plan of reorganization became effective on November 7, 1997 and the parent
company emerged from bankruptcy. In connection with its emergence from
bankruptcy, the company adopted fresh-start reporting as of November 8, 1997.
New York, New York
March 27, 1998
38
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in thousands except share and per share amounts)
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
NOV. 8 TO JULY 1 TO
DEC. 31 NOV. 7 YEAR ENDED JUNE 30,
------------------------------
1 9 9 7 1 9 9 7 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Power generation revenue $ 6,598 $ 8,661 $ 50,665 $ 49,761 $ 39,387
Management fees and operations & maintenance revenues 1,437 2,713 5,395 4,986 4,326
Equity income in partnership interests and other
partnership income 203 212 1,320 737 245
--------- --------- --------- -------- ---------
8,238 11,586 57,380 55,484 43,958
--------- --------- --------- -------- ---------
COSTS AND EXPENSES:
Operating 2,566 6,588 18,015 17,957 15,895
General and administrative 1,174 2,172 8,422 6,447 6,799
Charge for employee and director equity participation
programs - - 100 259 339
Reorganization costs - 3,978 - - -
Fair value adjustments - 4,855 - - -
Depreciation and amortization 1,105 3,009 8,661 9,846 9,625
Lease expense to a related party - 1,274 3,549 3,532 3,495
Lease expense to unrelated parties 900 727 2,215 2,540 2,258
(Adjustment to)/charge for impairment of long-lived
assets - (75) 83 87,202 1,272
--------- --------- --------- -------- ---------
5,745 22,528 41,045 127,783 39,683
--------- --------- --------- -------- ---------
Income/(loss) from operations 2,493 (10,942) 16,335 (72,299) 4,275
INTEREST INCOME 242 739 1,661 1,032 1,416
OTHER INCOME 6 57 434 368 185
GAIN ON ADJUSTMENT TO PROJECT DEVELOPMENT DEBT - 8,568 - - -
INTEREST EXPENSE ON INDEBTEDNESS TO RELATED PARTIES - (2,752) (10,519) (9,927) (7,001)
INTEREST EXPENSE ON INDEBTEDNESS TO UNRELATED PARTIES (1,260) (4,989) (19,072) (16,949) (14,777)
MINORITY INTERESTS IN LOSS OF CONSOLIDATED SUBSIDIARIES - - - 2,063 3
--------- --------- --------- -------- ---------
Income/(loss) before (provision)/benefit for income
taxes and extraordinary item 1,481 (9,319) (11,161) (95,712) (15,899)
(PROVISION)/BENEFIT FOR INCOME TAXES (776) 69 119 7,381 (377)
--------- --------- --------- -------- ---------
Income/(loss) before extraordinary items 705 (9,250) (11,042) (88,331) (16,276)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT (NET OF INCOME
TAX OF ZERO AND $3,414 AS OF NOVEMBER 7 AND JUNE 30,
1997, RESPECTIVELY) - 87,218 5,658 - -
--------- --------- --------- -------- ---------
NET INCOME/(LOSS) $ 705 $ 77,968 $ (5,384)$ (88,331) $ (16,276)
========= ========= ========= ======== =========
NET INCOME/(LOSS) APPLICABLE TO COMMON STOCK:
Net income/(loss) $ 705 $ 77,968 $ (5,384)$ (88,331) $ (16,276)
Dividends declared on preferred stock - (3,370) (14,911) (13,057) (11,433)
Accretion of preferred stock - (179) (857) (857) (857)
Undeclared dividends on cumulative preferred stock - (2,511) (10,123) (9,818) (9,818)
--------- --------- --------- -------- ---------
$ 705 $ 71,908 $ (31,275)$(112,063) $ (38,384)
========= ========= ========= ======== =========
BASIC NET INCOME PER COMMON SHARE (A) $ 0.07
===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES (A) 10,000,000
===========
</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.
39
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED BALANCE SHEET
(Amounts in thousands except share amounts)
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
DEC. 31, JUNE 30,
1 9 9 7 1 9 9 7 1 9 9 6
-------- -------- -------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents unrestricted $ 6,869 $ 24,247 $ 10,598
Cash and cash equivalents restricted 5,129 8,255 13,236
Accounts receivable, net 7,957 6,803 7,854
Prepaid expenses and other current assets 1,406 1,698 1,353
---------- --------- --------
Total current assets 21,361 41,003 33,041
PROPERTY, PLANT AND EQUIPMENT, NET 93,692 125,954 126,133
FACILITIES UNDER DEVELOPMENT - 100 1,217
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS, NET 17,300 - -
INTANGIBLE ASSETS, NET 47,800 47,785 50,746
ASSETS TO BE DISPOSED OF - 1,914 15,066
INVESTMENTS AND OTHER ASSETS 41,808 26,872 18,454
---------- --------- --------
$ 221,961 $ 243,628 $ 244,657
========== ========= ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 7,990 $ 6,458 $ 9,599
Current portion of long-term debt payable to a related party - 3,234 2,305
Current portion of long-term debt and obligations under capital leases payable to
unrelated parties 5,355 4,232 4,157
---------- --------- --------
Total current liabilities 13,345 13,924 16,061
LONG-TERM DEBT PAYABLE TO RELATED PARTIES - 90,918 87,406
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES PAYABLE TO UNRELATED PARTIES 82,616 171,697 172,752
DEFERRED CREDIT, STATE INCOME TAXES AND OTHER LONG-TERM LIABILITIES 40,195 42,396 38,461
COMMITMENTS AND CONTINGENCIES
MANDATORILY REDEEMABLE PREFERRED STOCK, $.01 PAR VALUE, AT REDEMPTION
VALUE OF $1,000 PER SHARE, JUNIOR IN LIQUIDATION PREFERENCE TO SERIES F PREFERRED STOCK:
Series H, 136,950 shares authorized, issued and outstanding ($119,923 and $105,012
liquidation preference at June 30, 1997 and 1996, respectively), canceled on
November 7, 1997 - 114,372 98,604
---------- --------- --------
Total liabilities and mandatorily redeemable preferred stock 136,156 433,307 413,284
---------- --------- --------
STOCKHOLDERS' EQUITY/(DEFICIT):
PREFERRED STOCK, $.01 PAR VALUE, AT REDEMPTION VALUE OF $1,000 PER SHARE:
Series F, 56,279 and 55,000 shares authorized issued and outstanding at June
30, 1997 and 1996, respectively ($56,279 and $55,000 liquidation
preference at June 30, 1997 and 1996, respectively), canceled -n Nov.
7,49,356 49,356
Series G, 56,279 and 55,000 shares authorized issued and outstanding at June
30, 1997 and 1996, respectively ($56,279 and $55,000 liquidation
preference at June 30, 1997 and 1996, respectively), canceled -n Nov.
7,49,356 49,356
PREFERRED STOCK, $.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED, NO SHARES ISSUED - - -
COMMON STOCK, $.001 PAR VALUE
Class A common stock, $.001 par value, 9,000,000 shares authorized,
3,831,683 and 4,576,925 unissued shares reserved, 1,834,235 and 1,834,235
shares issued and 1,285,762 and 1,285,762 shares outstanding at June 30,
1997 and 1996, respectively, canceled on Nov. 7, 1997 - 2 2
Class B common stock, $.001 par value, 1,000,000 shares authorized, 246,510 unissued shares
reserved, no shares issued and outstanding, canceled on Nov. 7, 1997 - - -
COMMON STOCK, $.01 PAR VALUE, 20,000,000 SHARES AUTHORIZED
Class A common stock, 9,085,290 shares issued and outstanding at December 31, 1997 91 - -
Class B common stock, 914,710 shares issued and outstanding at December 31, 1997 9 - -
ADDITIONAL PAID-IN CAPITAL, INCLUDING $2,064 RELATED TO WARRANTS AT DECEMBER 31, 1997
AND $5,966 RELATED TO WARRANTS AT JUNE 30, 1997 AND 1996 85,000 13,497 13,497
RETAINED EARNINGS/(ACCUMULATED DEFICIT) 705 (280,579) (259,427)
---------- --------- --------
85,805 (168,368) (147,216)
Less: Deferred compensation - (250) (350)
Treasury stock (common: 548,473 shares at June 30, 1997 and 1996), at
cost, canceled on November 7, 1997 - (21,061) (21,061)
---------- --------- --------
Total stockholders' equity/(deficit) 85,805 (189,679) (168,627)
---------- --------- --------
$ 221,961 $ 243,628 $ 244,657
========== ========= ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
40
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(Amounts in thousands except share amounts)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
NUMBER NUMBER ADDITIONAL
OF SHARES REPORTED OF SHARES PAR PAID-IN
OUTSTANDING AMOUNT OUTSTANDING VALUE CAPITAL
----------- ------ ----------- ----- -------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
BALANCE JUNE 30, 1994 110,000 $98,712 1,266,298 $ 2 $ 12,877
Annual dividend of $83.48 per share, mandatorily redeemable
Series H Preferred
Accretion of Series H Preferred
Issuance of common stock and related deferred compensation 12,400 620
Recognition of board of directors and employee compensation
expense related to the issuance of common stock
Compensation expense related to conversion of
Performance Unit Plan to Stock Option Plan in 1993
Net loss
---------- -------- ----------- ----- --------
BALANCE JUNE 30, 1995 110,000 98,712 1,278,698 2 13,497
Annual dividend of $95.34 per share, mandatorily redeemable
Series H Preferred
Accretion of Series H Preferred
Issuance of Class A common stock, $.001 par value 7,064
Recognition of board of directors and employee compensation
expense related to the issuance of common stock
Compensation expense related to conversion of
Performance Unit Plan to Stock Option Plan in 1993
Net loss
---------- -------- ----------- ----- --------
BALANCE JUNE 30, 1996 110,000 98,712 1,285,762 2 13,497
Annual dividend of $108.88 per share, mandatorily redeemable
Series H Preferred
Accretion of Series H Preferred
Recognition of employee compensation
expense related to the issuance of common stock
Issuance of preferred stock 2,558
Net loss
---------- -------- ----------- ----- --------
BALANCE JUNE 30, 1997 112,558 98,712 1,285,762 2 13,497
Dividend of $24.63 per share, mandatorily redeemable
Series H Preferred - July 1, 1997 to September 14, 1997
Accretion of Series H Preferred
Net income
Fair value adjustments (112,558) (98,712) 8,714,238 98 71,503
---------- -------- ----------- ----- --------
REORGANIZED COMPANY
BALANCE NOVEMBER 7, 1997 - - 10,000,000 100 85,000
Net income
---------- -------- ----------- ----- --------
BALANCE DECEMBER 31, 1997 - - 10,000,000 $ 100 $ 85,000
========== ======== =========== ===== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
[TABLE CONTINUED ON FOLLOWING PAGE 41-B]
41-A
<PAGE>
[TABLE CONTINUED FROM PREVIOUS PAGE 41-A]
<TABLE>
<CAPTION>
RETAINED TOTAL
EARNINGS STOCKHOLDERS'
(ACCUMULATED DEFERRED TREASURY EQUITY
DEFICIT) COMPENSATION STOCK (DEFICIT)
-------- ------------ ----- ---------
<S> <C> <C> <C> <C>
PREDECESSOR COMPANY
BALANCE JUNE 30, 1994 $ (128,616) $ (328) $ (21,061) $ (38,414)
Annual dividend of $83.48 per share, mandatorily redeemable -
Series H Preferred (11,433) (11,433)
Accretion of Series H Preferred (857) (857)
Issuance of common stock and related deferred compensation (620) -
Recognition of board of directors and employee compensation
expense related to the issuance of common stock 110 110
Compensation expense related to conversion of
Performance Unit Plan to Stock Option Plan in 1993 229 229
Net loss (16,276) (16,276)
----------- ------- --------- -----------
BALANCE JUNE 30, 1995 (157,182) (609) (21,061) (66,641)
Annual dividend of $95.34 per share, mandatorily redeemable
Series H Preferred (13,057) (13,057)
Accretion of Series H Preferred (857) (857)
Issuance of Class A common stock, $.001 par value
Recognition of board of directors and employee compensation
expense related to the issuance of common stock 160 160
Compensation expense related to conversion of
Performance Unit Plan to Stock Option Plan in 1993 99 99
Net loss (88,331) (88,331)
----------- ------- --------- -----------
BALANCE JUNE 30, 1996 (259,427) (350) (21,061) (168,627)
Annual dividend of $108.88 per share, mandatorily redeemable
Series H Preferred (14,911) (14,911)
Accretion of Series H Preferred (857) (857)
Recognition of employee compensation
expense related to the issuance of common stock 100 100
Issuance of preferred stock
Net loss (5,384) (5,384)
----------- ------- --------- -----------
BALANCE JUNE 30, 1997 (280,579) (250) (21,061) (189,679)
Dividend of $24.63 per share, mandatorily redeemable
Series H Preferred - July 1, 1997 to September 14, 1997 (3,370) (3,370)
Accretion of Series H Preferred (179) (179)
Net income 77,968 77,968
Fair value adjustments 206,160 250 21,061 200,360
----------- ------- --------- -----------
REORGANIZED COMPANY
BALANCE NOVEMBER 7, 1997 - - - 85,100
Net income 705 705
----------- ------- --------- -----------
BALANCE DECEMBER 31, 1997 $ 705 - - $ 85,805
=========== ======= ========= ===========
</TABLE>
41-B
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands except share amounts)
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
NOV. 8 TO JULY 1 TO
DEC. 31 NOV. 7 YEAR ENDED JUNE 30,
-------------------
1 9 9 7 1 9 9 7 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 705 $ 77,968 $ (5,384)$ (88,331) $ (16,276)
Adjustments to reconcile net income/(loss) to net cash provided
by/(used in) operating activities before reorganization items:
Non-cash interest and other charges 89 4,629 21,566 18,616 15,999
Reorganization costs - 3,978 - - -
Fair value adjustments - 4,855 - - -
Change in deferred tax liabilities 571 (213) (1,032) (7,951) -
Extraordinary gain on extinguishment of debt - (87,218) (5,658) - -
Gain on adjustment to project development debt - (8,568) - - -
Non-cash (adjustment to)/charge for impairment of long-lived
assets - (75) 83 87,202 1,272
Gain on disposal of assets - (17) - - -
Depreciation and amortization 1,105 3,009 8,661 9,846 9,625
Minority interests in loss of consolidated subsidiaries - - - (2,063) (3)
Distributed/(undistributed) earnings of affiliates 90 788 (696) (317) -
(Increase)/decrease in accounts receivable (1,700) 546 (47) (1,575) 2,366
Decrease/(increase) in prepaid expenses 415 (123) (375) (40) (5)
Increase/(decrease) in accounts payable and accrued expenses 1,598 (267) (2,946) 1,363 1,350
-------- --------- ------- ------- --------
Net cash provided by/(used in) operating activities before
reorganization items 2,873 (708) 14,172 16,750 14,328
-------- --------- ------- ------- --------
Operating cash flows used for reorganization items:
Professional fees (546) (749) - - -
-------- --------- ------- ------- --------
Net cash used for reorganization items (546) (749) - - -
-------- --------- ------- ------- --------
Net cash (used in)/provided by operating activities 2,327 (1,457) 14,172 16,750 14,328
-------- --------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of acquisitions - - - - (35,503)
Proceeds from disposition of assets - 2,006 12,002 - -
Cost of development expenditures - - (2,045) (2,381) (6,086)
Capital expenditures (230) (1,109) (4,358) (2,230) (2,905)
(Increase)/decrease in investments and other long-term assets (646) (1,322) (4,868) (1,109) 865
-------- --------- ------- ------- --------
Net cash (used in)/provided by investing activities (876) (425) 731 (5,720) (43,629)
-------- --------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of refinancing costs - - (310) - -
Long-term borrowings from related parties - - - - 35,900
Long-term borrowings from unrelated parties 4 9 149 120 1,168
Payments to a related party on long-term borrowings - (2,271) (2,304) (269) (488)
Payments to unrelated parties on long-term borrowings (296) (2,245) (3,999) (4,018) (4,402)
(Decrease)/increase in other long-term liabilities (426) 152 229 289 (350)
Payments to holders of Senior Discount Notes (10,000) (5,000)
-------- --------- ------- ------- --------
Net cash (used in)/provided by financing activities (10,718) (9,355) (6,235) (3,878) 31,828
-------- --------- ------- ------- --------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (9,267) (11,237) 8,668 7,152 2,527
CASH AND CASH EQUIVALENTS, AT BEGINNING OF THE PERIOD 21,265 32,502 23,834 16,682 14,155
-------- --------- ------- ------- --------
CASH AND CASH EQUIVALENTS, AT END OF THE PERIOD $ 11,998 $ 21,265 $ 32,502 $ 23,834 $ 16,682
======== ========= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
42
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands except share amounts)
(continued)
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
NOV. 8 TO JULY 1 TO
DEC. 31 NOV. 7 YEAR ENDED JUNE 30,
-------------------
1 9 9 7 1 9 9 7 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest paid to a related party $ - $ 819 $ 4,275 $ 2,720 $ 1,406
========= ========= ========= ======== =========
Interest paid to unrelated parties $ 290 $ 2,100 $ 5,047 $ 6,865 $ 6,309
========= ========= ========= ======== =========
Income taxes, net $ 112 $ 379 $ 288 $ 622 $ 349
========= ========= ========= ======== =========
SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
INVESTING:
The Company acquired the common stock or hydroelectric
assets of certain entities amounting to the following:
Fair value of assets acquired $ - $ - $ 28 $ - $ 49,165
Cash paid - - - 35,503
--------- --------- --------- -------- ---------
Liabilities assumed $ - $ - $ 28 $ - $ 13,662
========= ========= ========= ======== =========
</TABLE>
FINANCING:
Series H mandatorily redeemable preferred stock increased $179 for the
period from July 1 to November 7, 1997, and $857 for each of the fiscal
years ended June 30, 1997, 1996 and 1995 as a result of the accretion of
the difference between the fair market value at issuance and the
redemption value.
Series H mandatorily redeemable preferred stock increased $3,370,
$14,911, $13,057 and $11,433 for the period from July 1 to November 7,
1997, and the fiscal years ended June 30, 1997, 1996 and 1995,
respectively, as a result of declared dividends which increased the
liquidation preference.
Long-term debt and obligations under capital leases increased by
$10,189, $20,066, $17,913 and $15,515 for the period from July 1 to
November 7, 1997, and the fiscal years ended June 30, 1997, 1996 and
1995, respectively, as a result of non-cash interest.
In accordance with the Plan of Reorganization, the Company exchanged New
Common Stock for Senior Discount Notes and New Warrants for Old
Preferred Stock. See Note 1.
The accompanying notes are an integral part of the
consolidated financial statements.
43
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
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 hydroelectric 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 December 31, 1997 and June 30, 1997, 1996 and 1995, the
Company had ownership interests in, leased and/or operated projects with a total
operating capacity of 336, 343, 344 and 379 megawatts ("MW"), respectively.
On June 4, 1997, CHI, the holders of a majority of the Company's 13 1/2%
Cumulative Redeemable Preferred Stock (the "Series H Preferred"), 8% Senior
Convertible Voting Preferred Stock (the "Series F Preferred") and 9 1/2% Junior
Convertible Voting Preferred Stock (the "Series G Preferred", and together with
the Series H Preferred and the Series F Preferred, the "Old Preferred Stock") as
well as an informal committee of institutions that owned, or represented
beneficial holders that owned, approximately 89.2% of CHI's outstanding 12%
Senior Discount Notes due 2003 (the "Senior Discount Notes") (the "Unofficial
Bondholders' Committee") reached an agreement in principle on the terms of a
restructuring to be accomplished pursuant to a plan of reorganization (the "Plan
of Reorganization") under chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On
August 8, 1997, pursuant to a disclosure statement (the "Disclosure Statement"),
CHI commenced a prepetition solicitation of votes by the holders of Senior
Discount Notes and Old Preferred Stock to accept or reject the Plan of
Reorganization. Under the Plan of Reorganization, the holders of Senior Discount
Notes and Old Preferred Stock were the only holders of impaired claims and
impaired equity interests entitled to receive a distribution, and therefore,
pursuant to section 1126 of the Bankruptcy Code, were the only holders entitled
to vote on the Plan of Reorganization. At the conclusion of the 32-day
solicitation period, the Plan of Reorganization had been accepted by holders of
100% of the Senior Discount Notes and by holders of greater than 97% of the Old
Preferred Stock.
On September 15, 1997, CHI commenced its case under chapter 11 of the
Bankruptcy Code and filed the Plan of Reorganization and the 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").
Through the implementation of the Plan of Reorganization on and after the
Effective Date, CHI's most significant financial obligations were restructured
as follows: $202 million in face amount of outstanding Senior Discount Notes
were converted into, among other things, $15 million in cash and 100% of the
shares of CHI's new common stock, consisting of shares of new class A common
stock (the "New Class A Common Stock") and shares of new class B common stock
(the "New Class B Common Stock", and together with the New Class A Common Stock,
the "New Common Stock") subject to dilution from the New Warrants and the
Management Options (each as described below); the holders of the Old Preferred
Stock exchanged such stock for warrants to purchase up to 12.5% of the New
Common Stock, consisting of series B warrants (the "New Series B Warrants") and
series C warrants (the "New Series C Warrants", and together with the New Series
B Warrants, the "New Warrants") subject to dilution from the Management Options;
and CHI's old common stock (the "Old Common Stock") was canceled. CHI's senior
management received options to purchase up to an aggregate of 7.5% of the New
Class A Common Stock (the "Management Options"), subject to dilution from the
New Warrants. As a result of the restructuring, CHI did not have any significant
parent company debt obligations as of December 31, 1997.
44
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 2 - FRESH START REPORTING
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 "Company", or 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.
The Company adopted fresh start reporting since holders of existing voting
shares before filing and confirmation of the Plan of Reorganization received
less than 50% of the voting shares of the emerging entity and its reorganization
value was less than its post-petition liabilities and allowed claims. As a
result of the restructuring and the application of fresh start reporting as
required by SOP 90-7, a gain on extinguishment of debt of approximately $87.2
million, reorganization costs of approximately $4.0 million and fair value
adjustments of approximately $4.9 million were recorded in the Predecessor
Company Statement of Operations for the period ended November 7, 1997.
The total reorganization value assigned to the Company's net assets was
determined, by independent valuation, by calculating projected cash flows before
debt service requirements, for a fifteen year period, plus an estimated terminal
value. The discount rates used to value the Company ranged from 10% to 24%
depending on the risks associated with discrete cash flow components of the
Company. The above calculations resulted in an estimated reorganization value
attributable to equity of approximately $85.1 million of which the
reorganization value in excess of amounts allocable to identifiable assets was
approximately $17.5 million. The reorganization value in excess of amounts
allocable to identifiable assets will be amortized over fifteen years.
The effect of the Plan of Reorganization and the implementation of
fresh start reporting on the Company's consolidated balance sheet as of November
7, 1997 was as follows:
<TABLE>
<CAPTION>
Pre Fresh-Start Reorganization Fair Value Fresh Start
Balance Sheet Adjustments (1) Adjustments (2) Balance Sheet
------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Current assets $ 34,342 $ (5,000) $ 29,342
Property, plant and equipment, net 125,037 $ (30,971) 94,066
Reorganization value in excess of
amounts allocable to identifiable assets -- 17,453 17,453
Intangible assets, net 44,320 3,790 48,110
Other assets 27,763 13,590 41,353
---------------- --------------- --------------- ------------
Total $ 231,462 $ (5,000) $ 3,862 $ 230,324
================ =============== =============== ============
</TABLE>
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 2 - FRESH START REPORTING (CONTINUED)
<TABLE>
<CAPTION>
Pre Fresh-Start Reorganization Fair Value Fresh Start
Balance Sheet Adjustments (1) Adjustments (2) Balance Sheet
------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Current liabilities $ 12,392 $ 10,000 $ 301 $ 22,693
Long-term debt 82,505 (71) 82,434
Deferred income taxes 31,111 (1,053) 2,360 32,418
Liabilities subject to compromise 183,603 (183,603) --
Mandatorily redeemable preferred
stock subject to compromise 117,921 (117,921) --
Other long-term liabilities 1,552 6,127 7,679
Preferred stock 98,713 (98,713) --
Common stock 2 98 100
Additional paid-in capital 13,497 71,503 85,000
Accumulated deficit (288,523) 293,378 (4,855) --
Deferred compensation (250) 250 --
Treasury stock (21,061) 21,061 --
-------------- -------------- ------------ ---------------
Total $ 231,462 $ (5,000) $ 3,862 $ 230,324
============== ============== ============ ===============
</TABLE>
- -------------
(1) To record transactions associated with the Plan of Reorganization as
described in Note 1 and eliminate the accumulated deficit.
(2) To record adjustments to assets and liabilities to reflect their
estimated fair value, including the establishment of reorganization
value in excess of amounts allocable to identifiable assets.
CHANGE IN FISCAL YEAR-END
Effective November 7, 1997, the Company changed its fiscal year-end
from June 30 to December 31. The unaudited results of operations for the six
months ended December 31, 1996 are as follows:
Revenues $ 25,214
=========
Income from operations $ 6,406
=========
Loss before benefit for
income taxes and extraordinary item $ (7,582)
Benefit for income taxes 1,460
Loss before extraordinary item (6,122)
Extraordinary gain on
extinguishment of debt
(net of tax of $3,414) 5,622
----------------
Net loss $ (500)
================
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.
46
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CHI Energy,
Inc., its subsidiaries, the majority of which are wholly owned, and partnership
interests. All significant intercompany accounts and transactions have been
eliminated in consolidation.
USE OF MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE
Emerging Issues Task Force ("EITF") Issue 91-6, "Revenue Recognition of
Long-Term Power Sales Contracts" addressed and reached consensus on certain
revenue recognition questions raised by the terms and pricing arrangements of
long-term power sales contracts between non-utility power generators and
rate-regulated utilities. EITF Issue 96-17, "Revenue Recognition Under Long-Term
Power Sales Contracts That Contain Both Fixed and Variable Pricing Terms" ("EITF
96-17") addressed and reached consensus on additional revenue recognition
questions raised by such contracts. EITF 96-17 requires the recognition of
income at the lower of actual amounts billed or the average rate to be billed
over the life of the contract for contracts which have both fixed and variable
pricing terms. The Company is in compliance with the accounting treatments
discussed and the consensus reached.
Management fees and operations and maintenance revenues are earned in
conjunction with operation and maintenance services provided to third parties
under contractual agreements. Costs associated with rendering these services are
included in operating expenses.
EQUITY INCOME FROM PARTNERSHIPS AND OTHER PARTNERSHIP INCOME
As a result of fresh start reporting as described in Note 2, the Company's
investments in partnership interests were adjusted to their estimated fair value
as of November 7, 1997. In accordance with generally accepted accounting
principles, these investments are accounted for under either the equity method
or the cost method of accounting. Investments accounted for under the equity
method of $8,494, $8,177 and $7,512 at December 31, 1997 and June 30, 1997 and
1996, respectively, are included as part of long-term investments.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with maturities
when purchased of three months or less to be cash equivalents. A portion of cash
is restricted by specific project-related agreements, which generally mandate
that cash must first be utilized solely for funding operations and/or the
payment of debt associated with the project. As a result, restricted cash is
generally not available for general corporate purposes.
PROPERTY, PLANT AND EQUIPMENT
As a result of fresh start reporting as described in Note 2, property,
plant, and equipment was adjusted to estimated fair value as of November 7, 1997
and historical accumulated depreciation was eliminated. Plant and equipment are
depreciated on the straight-line method over the remaining estimated useful
lives of the respective assets (originally 50 years for dam and appurtenant
structures and 30 years for mechanical and electrical equipment). Depreciation
expense was $603, $2,026, $5,654, $6,042 and $5,872 for the period from November
8, 1997 to December 31, 1997, the period from July 1, 1997 to November 7, 1997
and the fiscal years ended June 30, 1997, 1996 and 1995, respectively.
47
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment additions are recorded at cost (Note 9).
Renewals and betterments that increase the useful lives of the assets are
capitalized. Repair and maintenance expenditures that increase the efficiency of
the assets are expensed as incurred.
ASSETS TO BE DISPOSED OF
Assets to be disposed of are stated at the lower of their carrying amount
or fair value less estimated costs to sell.
FACILITIES UNDER DEVELOPMENT
Costs associated with facilities under development, including acquisition
costs of property, plant and equipment, intangible assets and investments are
transferred to construction in progress or investments as appropriate, upon the
commencement of construction. Facilities under development are those that have
not yet commenced the construction phase primarily because all the requisite
permits and contracts have not yet been obtained and generally represent a
higher level of risk than those projects under construction. As a result of
fresh start reporting as described in Note 2, the Company wrote off its
remaining investment in pumped storage projects previously classified as
facilities under development on the balance sheet.
INTEREST CAPITALIZATION
The Company capitalizes interest costs associated with the development and
construction of its facilities. Interest capitalized in the period from July 1,
1997 to November 7, 1997 and the years ended June 30, 1997, 1996 and 1995 is
disclosed in Note 12.
INTANGIBLE ASSETS
Intangible assets principally include costs incurred in connection with
power purchase agreements, Federal Energy Regulatory Commission ("FERC")
licenses and goodwill, all of which are capitalized and amortized on a
straight-line basis over the periods to be benefited by such costs, ranging from
3 to 40 years (Note 10). Amortization expense was $412, $983, $3,007, $3,804 and
$3,753 in the period from November 8, 1997 to December 31, 1997, the period from
July 1, 1997 to November 7, 1997 and the years ended June 30, 1997, 1996 and
1995, respectively. Legal, compliance and other related expenditures incurred in
connection with the maintenance of power purchase agreements and FERC licenses
are capitalized and amortized over the remaining term of the applicable contract
or license. As a result of fresh start reporting as described in Note 2,
intangible assets were adjusted to estimated fair value as of November 7, 1997
and historical accumulated amortization was eliminated. The Company also wrote
off any remaining balance of goodwill. Management periodically reviews
intangible assets for potential impairments.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
Reorganization value in excess of amounts allocable to identifiable assets
results from the application of fresh start reporting as described in Note 2,
which requires the Predecessor Company's unidentified intangibles, net of
amortization, to be reduced to zero and a new amount to be recorded equaling the
excess of the fair value of the Company over the fair value allocated to its
identifiable assets. This excess is classified as reorganization value in excess
of amounts allocable to identifiable assets and is being amortized over a
fifteen-year period. Amortization was $152 in the period from November 8, 1997
to December 31, 1997.
48
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERSE CONTRACTS
As a result of fresh start reporting as described in Note 2, certain
projects with unfavorable power purchase contracts were determined to be
generating net cash outflows. This resulted in the recording of an adverse
contract liability. The Company amortizes adverse contracts over the life of the
project loan for which the applicable project assets have been pledged as
security. Amortization was $62 in the period from November 8, 1997 to December
31, 1997.
BUSINESS DEVELOPMENT COSTS
The Company expenses all business development related costs as incurred
until a viable purchase and sale agreement, or other material project
development document, is signed in respect of a prospective transaction. From
that date forward, all third party, project specific, business development
related costs are capitalized.
TREASURY STOCK
The Company accounts for treasury stock under the cost method. As a result
of fresh start reporting as described in Note 2, the Company canceled its Old
Common Stock and treasury stock as of the Effective Date.
INCOME TAXES
The Company provides for deferred income taxes based on differences in
reporting certain income and expense items for federal income tax and financial
reporting purposes. The Company accounts for energy and investment tax credits
using the flow-through method as a reduction of the provision for federal income
taxes in the year in which such credits are utilized. The Company accounts for
income taxes under the liability method required by Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109").
NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing the net income
for the period by the weighted average number of common shares outstanding in
accordance with Statement of Financial Accounting Standards No. 128 "Earnings
per Share" ("SFAS 128"). In the period from November 8, 1997 to December 31,
1997, the inclusion of additional shares assuming the exercise of stock options
and warrants under the treasury stock method was antidilutive.
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist principally of investments in short term
interest bearing instruments and because of the short-term maturity of these
items, the carrying amount approximates fair value.
49
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LONG-TERM INVESTMENTS
The carrying value of investments held in escrow accounts approximates
fair value based on their near-term maturity. Such investments are classified as
long-term on the Balance Sheet due to restrictions imposed under certain
contractual agreements. Investments in affiliates of the Company which are
accounted for on the cost basis have no quoted market prices. An adjustment was
made to estimate fair market value as of November 7, 1997 as a result of fresh
start reporting as described in Note 2. However, prior to the Effective Date, a
reasonable estimate of fair value could not be made without incurring excessive
costs.
LONG-TERM DEBT AND REDEEMABLE PREFERRED STOCK
Market rate obligations consist of long-term debt obligations that
approximate their fair value because of interest rates which fluctuate with
market rates.
The fair value of fixed rate obligations is based on discounted future
cash flows using rates currently available to the Company for non-recourse
project-finance loans with similar terms and average maturities. In connection
with fresh start reporting as described in Note 2, fixed rate obligations were
adjusted to fair value as of the Effective Date. Loans related to the Company's
pumped storage development assets have a fair value based on the prospects of
the project development and fair value of such assets.
The fair value of the Senior Discount Notes and the Series H Preferred
could not be reasonably estimated at June 30, 1996 because there was no public
market for these securities. At June 30, 1997, the fair values of the Senior
Discount Notes and Series H Preferred were based on the midpoint of a range of
values prepared by a third party in connection with the Plan of Reorganization.
As of the Effective Date, the Senior Discount Notes and Series H Preferred were
converted into, among other things, New Common Stock, Series B Warrants and
Series C Warrants. Accordingly, as of December 31, 1997, the Senior Discount
Notes and Series H Preferred were no longer outstanding.
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------- ------------------------------------------------------------
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1996
----------------- ----------------------- -----------------------------
Carrying Amount Fair Carrying Amount Fair Carrying Amount Fair
Value Value Value
--------------------- ---------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents 11,998 11,998 32,502 32,502 23,834 23,834
Long-term investments:
Escrow deposits 9,787 9,787 8,184 8,184 2,973 2,973
Investments in affiliates 23,016 23,016 10,501 -- (1) 7,949 -- (1)
Long-term debt:
Market rate obligations 33,029 33,029 33,208 33,208 34,890 34,890
Fixed rate obligations 24,216 24,216 26,518 27,631 23,989 24,725
Pumped storage obligations 8,588 -- 15,905 100 14,420 100
Refinanced obligations -- -- -- -- 14,500 4,500
Senior Discount Notes -- -- 169,813 81,400 151,131 --
Series H Preferred -- -- 114,372 882 98,604 --
</TABLE>
(1) An estimate of fair value could not be made because it is not practicable.
50
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 5 - SALE OF CONSOLIDATED HYDRO MAINE, INC.
On December 23, 1996, the Company through its wholly owned subsidiary, CHI
Universal, Inc., a Delaware corporation ("CHI Universal"), sold Consolidated
Hydro Maine, Inc., a Delaware corporation ("CHI Maine"), to Ridgewood Maine
Hydro Partners, L.P., a Delaware limited partnership (the "Partnership"). CHI
Maine owned and operated 15 hydroelectric projects located in the state of Maine
with an aggregate capacity of 11.32 megawatts (the "Projects"). The sale was
made pursuant to an Agreement of Merger dated as of July 1, 1996 (the "Merger
Agreement"), by and among CHI Maine, CHI Universal, Ridgewood Maine Hydro
Corporation and the Partnership. These assets were reported at their carrying
value of $11.3 million in Assets to be disposed of on the Balance Sheet as of
June 30, 1996.
On the Closing Date (as defined in the Merger Agreement), all of the
issued and outstanding capital stock of CHI Maine was sold to the Partnership
for cash. After final adjustments, the total sale price aggregated approximately
$12.9 million and the Partnership assumed a long-term lease obligation of
approximately $1.2 million related to one of the Projects. In the fiscal year
ended June 30, 1997, the carrying value was adjusted upward by $0.7 million as a
result of adjustments to the final sales price of the assets (Note 7).
The following unaudited pro forma financial information for the fiscal
years ended June 30, 1997 and 1996 has been prepared assuming the disposition
of CHI Maine occurred at the beginning of the periods presented.
Predecessor Company
-------------------------------------------------------
Fiscal Year Ended June 30,
-------------------------------------------------------
1997 1996
----- ----
(Pro forma) (As Reported) (Pro forma) (As Reported)
(unaudited) (unaudited)
Operating Revenues $ 56,350 $ 57,380 $ 51,967 $ 55,484
======= ======= ======= =======
Net loss $ (5,742) $ (5,384) $(71,486) $(88,331)
======= ======= ======= =======
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.
NOTE 6 - DECOMMISSIONING OF CONVENTIONAL HYDROELECTRIC ASSETS
On September 9, 1997, the Company through its wholly owned subsidiary,
Joseph Hydro Company, Inc., a Delaware corporation ("Joseph"), terminated the
Power Purchase Agreement ("PPA") with PacifiCorp, the purchasing utility,
relating to three of its projects located in Oregon, aggregating 7.01 MW of
capacity (the "Joseph Projects"). Joseph received a cash payment of $2,815,
pursuant to a termination agreement between Joseph and PacifiCorp, to terminate
production and delivery of power from the Joseph Projects, surrender the PPA and
remove all facilities associated with the Joseph Projects in accordance with
certain terms and conditions. After payment of certain fees, transaction and
removal costs totaling approximately $840, the Company applied the remaining,
approximately $1,975, as a pre-payment on the General Electric Capital
Corporation ("GECC") B Term Loan (the "GECC B Loan") as the assets of the Joseph
Projects secured the GECC B Loan. During the period from July 1, 1997 to
November 7, 1997, a credit adjustment to the impairment charge of $75 was
recorded (Note 7). The Company has substantially completed the removal of all
facilities of the Joseph Projects as of December 31, 1997.
51
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 7 -- ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121
"ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF" ("SFAS 121")
The Company implemented SFAS 121 in the second quarter of the fiscal year
ended June 30, 1996. This statement establishes accounting standards for
determining impairment of long-lived assets and long-lived assets to be disposed
of. The Company periodically assesses the realizability of its long-lived assets
and evaluates such assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets (or group of
assets) may not be recoverable. For assets in use or under development,
impairment is determined to exist if the estimated future cash flow associated
with the asset, undiscounted and without interest charges, is less than the
carrying amount of the asset. When the estimated future cash flow indicates that
the carrying amount of the asset will not be recovered, the asset is written
down to its fair value.
In the fiscal year ended June 30, 1996, in light of the Company's planned
sale of certain of its conventional hydroelectric projects, recent industry
trends (including the continued decline in electricity prices and other factors
stemming from the deregulation of the electric power industry), the timing of
the expiration of the fixed rate period of some of its long-term power sales
contracts and other indications of a decline in the fair value of certain of its
conventional hydroelectric projects, the Company determined pursuant to SFAS 121
that certain of these projects (including properties which were not included
among those to be sold) were impaired pursuant to the criteria established under
SFAS 121. The Company also determined that due to the factors noted above, it
was highly unlikely that the Company would successfully develop its pumped
storage projects.
In the fiscal year ended June 30, 1996, the Company recorded an impairment
charge of $87.2 million as a component of its loss from operations. In addition,
a deferred tax benefit and a benefit for minority interests in loss of
consolidated subsidiaries of $8.0 million and $2.1 million, respectively, were
recorded as of that date. Of the total charges, $38.5 million was attributable
to pumped storage development assets, resulting in an aggregate remaining
carrying value of such assets of $0.1 million, $44.9 million was attributable to
certain conventional hydroelectric assets, resulting in an aggregate remaining
carrying value for such written down assets of $26.0 million, and $3.8 million
was attributable to an other than temporary decline in the value of certain
investments in partnerships which own hydroelectric facilities, resulting in an
aggregate remaining carrying value of such assets of $0.8 million.
In the fiscal year ended June 30, 1997, the Company recorded an impairment
charge of $0.1 million as a component of income from operations. The total
charges include an upward adjustment of $0.7 million to the carrying value of
the CHI Maine assets as a result of adjustments to the final sales price of the
assets, a $0.4 million charge attributable to certain conventional hydroelectric
assets held for decommissioning resulting in a carrying value of such assets of
$1.9 million, and a $0.4 million charge attributable to the write-off of certain
development costs, resulting in a carrying value of zero.
In the period from July 1, 1997 to November 7, 1997, the Company
recorded an upward adjustment of $0.1 million to the carrying value of the
Joseph Projects as a result of adjustments to the final sales price of the
assets.
In the period from November 8, 1997 to December 31, 1997, no additional
impairment charge was recorded against income from operations.
In conjunction with the adoption of SFAS 121, during the third quarter of
the fiscal year ended June 30, 1996, the Company re-evaluated the useful lives
of certain property, plant and equipment and intangible assets. This resulted in
a reduction of the estimated useful lives of these fixed and intangible assets.
This change had the effect of increasing the income from operations and the net
income, net of tax provision, by approximately $0.4 million, decreasing the loss
from operations and the net loss, net of tax benefit, by approximately $1.0
million and increasing the income from operations and decreasing the net loss,
net of tax benefit, by $0.5 million for the period from July 1, to November 7,
1997 and the fiscal years ended June 30, 1997 and 1996, respectively.
52
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 8 - POWER GENERATION CONTRACTS
The Company operates facilities which qualify as small power production
facilities under the Public Utility Regulatory Policies Act ("PURPA"). PURPA
requires that each electric utility company, operating at the location of a
small power production facility, as defined, purchase the electricity generated
by such facility at a specified or negotiated price.
The Company sells substantially all of its electrical output to public
utility companies pursuant to long-term power purchase agreements, of which the
remaining terms range between 9 months and 28 years. Consolidated power
generation revenues, by major customer, for the period from November 8, 1997 to
December 31, 1997, the period from July 1, 1997 to November 7, 1997 and the
fiscal years ended June 30, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
--------------- --------------- ---------------------- ------------
Nov. 8 - July 1 -
Dec. 31, Nov. 7, June 30, June 30, June 30,
1997 1997 1997 1996 1995
-------------- -------------- ---------- ------------ ------------
-------------- --------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Niagara Mohawk Power Corp. $ 1,554 $ 1,181 $ 10,285 $ 9,139 $ 4,865
Commonwealth Electric Co. 1,451 1,563 10,685 9,528 8,509
New England Power Co. 841 963 6,184 5,133 4,942
Central Maine Power Co. 732 1,334 4,615 8,341 6,312
Idaho Power Co. 123 1,657 3,258 2,983 2,193
All other customers 1,897 1,963 15,638 14,637 12,566
------------ --------- --------- --------- ------------
$ 6,598 $ 8,661 $ 50,665 $ 49,761 $39,387
============ ========= ========= ========= ============
</TABLE>
During the fiscal years ended June 30, 1997, 1996 and 1995, the amount
shown for Commonwealth Electric Co. includes approximately $212, $72 and $290,
respectively, of business interruption revenue representing lost generation
recoverable from an insurance company as a result of an insurance claim.
On October 6, 1995, Niagara Mohawk Power Corporation ("NIMO"), a
significant customer of the Company, submitted a proposal to the New York State
Public Service Commission. NIMO proposed that it be relieved of its obligations
under contracts with independent power producers ("IPPs") that NIMO considers
uneconomic. In March 1997, NIMO announced that it reached preliminary agreements
to restructure power purchase agreements with 19 IPPs representing 44 IPP
contracts. In July 1997, NIMO announced that it had signed a master
restructuring agreement (subject to certain conditions requiring third party
approvals) to terminate or restructure 29 IPP contracts with 15 of the 19 IPP's.
However, neither the Company nor any of its subsidiaries participated in these
negotiations, and the impact of the remaining agreements on the Company, if any,
is unknown.
Increased competition in the electricity industry might cause certain
utilities to become higher credit risks. Although the ratings of the debt
securities of many of the utilities which purchase power from the Company are
currently investment grade, there can be no assurance of the long-term
creditworthiness of any of the Company's customers. Should any customer fail, it
would be difficult for the Company to replace the existing long-term contract
with a new contract on similar economic terms in the current environment.
53
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 9 - PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment includes assets acquired or refinanced
under capitalized lease obligations of $22,138, $24,455 and $27,525 at December
31, 1997 and June 30, 1997 and 1996, respectively (Note 12).
Property, plant and equipment comprise the following at December 31, 1997
and June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
--------------------------- -----------------------------------------------
December 31, 1997 June 30, 1997 June 30, 1996 Range of
Asset Lives
------------------------------ -------------------- ----------------------- -------------
<S> <C> <C> <C> <C>
Land $ 3,738 $ 3,738 $ 3,610
Dam and appurtenant structures 48,651 71,101 68,953 50 years
Mechanical and electrical equipment 38,173 70,738 69,785 30 years
Buildings and other 1,819 4,777 4,381 3-12 years
Construction in progress 1,914 1,851 534
---------------- -------------- --------------
94,295 152,205 147,263
Less - accumulated depreciation (603) (26,251) (21,130)
---------------- -------------- --------------
$ 93,692 $ 125,954 $ 126,133
================ ============= =============
</TABLE>
NOTE 10 - INTANGIBLE ASSETS
Intangible assets comprise the following at December 31, 1997 and June 30,
1997 and 1996:
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
----------------------- ---------------------------------------
Range of
December 31, 1997 June 30, 1997 June 30, 1996 Asset Lives
------------------------ -------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Power purchase contracts $ 39,264 $ 23,958 $ 24,243 3 - 32 years
FERC licenses 6,926 16,234 16,066 4 - 40 years
Goodwill -- 17,740 17,740 40 years
Other intangibles 2,022 7,881 7,933 3 - 40 years
-------------- ------------- ------------
48,212 65,813 65,982
Less - accumulated
amortization (412) (18,028) (15,236)
-------------- ------------- ------------
$ 47,800 $ 47,785 $ 50,746
============== ============= ============
</TABLE>
The majority of the Company's projects have been issued FERC licenses
(extending through years ranging from 2001 to 2037) or have qualified for
exemption from FERC licensing.
54
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 11 - ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The Company reviews its accounts receivable for future collectability. As
of December 31, 1997 and June 30, 1997 and 1996, allowance for doubtful accounts
on certain receivables was approximately $439, $382 and $176, respectively. Net
accounts receivable comprise the following at December 31, 1997 and June 30,
1997 and 1996:
Reorganized Company Predecessor Company
December 31, June 30, June 30,
1997 1997 1996
------------------ ------------ ---------
Accounts receivable trade $ 3,745 $ 3,956 $ 6,512
Accounts receivable operations and
maintenance contracts, net 1,352 780 739
Accounts receivable insurance claim 1,564 1,335 198
Accounts receivable other, net 1,296 732 405
--------- ---------- ---------
$ 7,957 $ 6,803 $ 7,854
========= ========== =========
Accounts payable and accrued expenses, inclusive of related party
payments due to GECC, comprise the following at December 31, 1997 and June 30,
1997 and 1996:
Reorganized Company Predecessor Company
December 31, June 30, June 30,
1997 1997 1996
------------------ ----------- -------------
Accrued interest $ 1,121 $ 1,226 $ 2,320
Accounts payable 492 218 1,006
Accrued lease expense
payable to a related party -- 1,595 1,746
Accrued lease expense 1,486 -- --
Accrued compensation 1,539 945 1,027
Accrued severance 65 198 1,141
Other accrued expenses 3,287 2,276 2,359
------------ ------------ ------------
$ 7,990 $ 6,458 $ 9,599
============ ============ =============
55
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 12 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and capitalized lease obligations comprise the following at
December 31, 1997 and June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
-------------------- -------------------------------
December 31, June 30, June 30,
1997 1997 1996
------------- -------- ----------
<S> <C> <C> <C>
Parent Company Debt:
Debt guaranteed or issued by the Parent Company directly -
12% Senior Discount Notes due 2003. -- $169,813 $151,131
------------ ------------ ------------
-- 169,813 151,131
------------ ------------ ------------
Non-Recourse Debt of Subsidiaries secured by project assets
unless otherwise noted:
Capitalized lease obligations maturing at various dates
through 2008. $ 22,138 24,455 27,525
Term loan agreement with an investor due in quarterly
payments through 2003, interest payable at the
Commercial Paper ("CP") Rate, as defined, plus a margin
of 4.0%, (9.65%, 9.62% and 9.42% at December 31, 1997
and June 30, 1997 and 1996, respectively).
27,584 27,584 28,522
Term loan agreement with an investor due in quarterly
payments through 2013, interest payable at a fixed rate of
11.59%.
3,188 5,254 6,621
Term loan agreement with a bank.
-- -- 14,500
Term loan agreement with a bank, principal due in quarterly
payments through 2008, beginning on September 30,
1997. Interest due quarterly at a fixed annual rate of
10.17% through October 29, 2003 and thereafter through
maturity, at the U.S. Treasury Note Rate, as defined, plus
a margin of 3.9%.
4,094 5,000 --
Note payable to an insurance company, due in monthly
payments through 2007, interest at 12.7%. 7,391 6,858 7,619
Note payable to an insurance company, due in quarterly
payments through 2003, interest at 11.25%. 6,400 6,538 6,795
Term loan agreement with a bank, due in quarterly payments
through 2006, interest at the London Interbank Offered
Rate ("LIBOR"), as defined, plus a margin of 2.0%
(interest at 7.81%, 7.78% and 7.47%, at December 31,
1997 and June 30, 1997 and 1996, respectively).
2,096 2,211 2,700
</TABLE>
56
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 12 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------- -------------------
December 31, June 30, June 30,
1997 1997 1996
------------- --------- ---------
<S> <C> <C> <C>
Unsecured notes payable to investors, interest payable
annually at various rates. 1,036 5,902 4,972
Term loan agreement with a bank, due in quarterly
payments through 2006, interest at LIBOR, as defined,
plus a margin of 2.0% (interest at 7.81%, 7.78% and
7.47% at December 31, 1997 and June 30, 1997 and
1996, respectively). 1,753 1,766 1,801
Unsecured notes payable to investors, interest payable
annually at the prime rate, as defined (8.50%, 8.50%
and 8.25% at December 31, 1997 and June 30, 1997 and
1996, respectively) for certain notes and 15% for other
notes. 2,792 4,299 3,968
Security deed held by the previous owners of a
hydroelectric facility, due June 18, 1999. Interest
payable monthly at a fixed rate of 11.5%. 1,000 1,000 1,000
Notes payable to an insurance company, due in quarterly
payments through 2005, interest rate at 8.5%. 680 787 850
Term loan agreement with a bank, due in quarterly
payments through 2006, interest at LIBOR, as defined,
plus a margin of 2.0% (interest at 7.81%, 7.78% and 7.47% at
December 31, 1997 and June 30, 1997 and 1996,
respectively). 1,244 1,283 1,470
Term loan agreement with a bank, due in quarterly
payments through 2006, interest at LIBOR, as defined,
plus a margin of 2.0% (7.81%, 7.78% and 7.47% at
December 31, 1997 and June 30, 1997 and 1996,
respectively). 352 364 396
Unsecured notes payable to private investors, due
December 31, 1999 and 2003, including accrued
interest. Interest accrues annually at 12%. A minimum
of 3.6% of such interest is due in cash each December
31 and if not paid, accrues interest at a penalty rate
equal to the stated rate plus 3.0%.
919 820 730
Other long-term liabilities with various rates and maturities. 5,304 6,147 6,020
------------ ----------- --------
87,971 100,268 115,489
------------ ----------- --------
Total debt and obligations under capital leases 87,971 270,081 266,620
Less current portion (5,355) (7,466) (6,462)
------------ ----------- --------
Total long-term debt and obligations under capital leases $82,616 $262,615 $260,158
============ =========== ========
</TABLE>
57
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 12 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
Total interest charges associated with the above obligations were $1,260,
$7,809, $29,780, $28,581 and $24,729, of which zero, $68, $189, $1,705 and
$2,951 was capitalized in conjunction with the development and construction of
hydroelectric facilities in the period from November 8, 1997 to December 31,
1997, the period from July 1, 1997 to November 7, 1997 and the fiscal years
ended June 30, 1997, 1996 and 1995, respectively. The aggregate long-term debt
payments due each year ending December 31, including capitalized lease
obligations, net of amounts representing interest totaling $12,282, are as
follows:
1998 $ 5,355
1999 6,034
2000 5,518
2001 5,898
2002 6,295
Thereafter 58,871
-------------
$ 87,971
=============
The Senior Discount Notes were issued at a substantial discount from their
principal amount and provided for cash payment of interest commencing January
15, 1999. The issue price represented a yield to maturity of 12% computed on a
basis of semi-annual compounding until reaching face value in 1998, after which
interest became payable semi-annually at the stated 12% rate. The Senior
Discount Notes were due July 15, 2003 but could have been redeemed at any time
on or after July 15, 1998 at the Company's option, in whole or in part, at 100%
of their principal amount plus accrued interest. The Senior Discount Notes
contained restrictive covenants providing for limitations on indebtedness and
restrictions on payments of dividends or distributions of capital stock, among
other restrictions. Through the implementation of the Plan of Reorganization as
of the Effective Date, $202 million in face amount of outstanding Senior
Discount Notes were converted into, among other things, $15 million in cash and
100% of the shares of CHI's New Common Stock, subject to dilution from the New
Warrants and the Management Options (Note 1).
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. 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 and 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 $1.9 million at December 31, 1997. As of December
31, 1997 the DnB Facility is still in effect pursuant to the terms of the
Amendment. The Company has received a commitment, subject to certain conditions
precedent, for a new, secured $15 million working capital and letter of credit
facility which the Company expects to close in the near future. The new working
capital facility will replace the DnB Facility. The new facility will provide
additional liquidity to support the Company's existing operations as well as its
future growth.
The DnB Facility contained certain affirmative and restrictive covenants
which were generally consistent with the terms of the Senior Discount Notes and
the Old Preferred Stock. As of June 30, 1997, the Company was in compliance with
its covenants, as amended, under the DnB Facility. The Company's September 15,
1997 chapter 11 filing with the Bankruptcy Court resulted in an event of default
under the DnB Facility. Subsequently, DnB notified the Company that it will take
no action to enforce its remedies for such default.
58
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 12 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
The outstanding letters of credit under the DnB Facility totaled $1,900 as
of December 31, 1997 and $3,091 and $5,941 as of June 30, 1997 and 1996,
respectively. Fees on each outstanding letter of credit are computed as follows:
(i) 2.0% per annum on the available amount of such letter of credit, payable
quarterly in arrears; (ii) standard charges in connection with the issuing,
administering, amending, processing or paying any letter of credit; and (iii)
costs of confirmation, requested by any beneficiary, in the amount not to exceed
1/2 of 1.0% per annum based upon the available amount of the letter of credit.
As of December 31, 1997, capitalized lease obligations consist primarily
of two lease financing transactions. The leases have initial terms that extend
through 2003 and 2008, with renewal options in minimum one and five year
increments. These leases require that lease payment reserves, with provisions
for escalations in the event certain power sales rates are not attained, be
maintained for the respective terms of the leases. Certain of these reserves
must be in cash with the balance in either cash or letters of credit from an
acceptable issuer. These leases had been initially recorded as $22,274 of dam
and appurtenant structures and $12,239 of mechanical and electrical equipment.
As a result of fresh start reporting, the recorded value of these leases has
been adjusted to reflect fair value due to market rate changes as of the
Effective Date.
To the extent that it is anticipated that the minimum cash components will
not be used to fund operation expenses or lease payments in the next fiscal
year, these minimum cash components have been included in Investments and other
assets in the accompanying Balance Sheet. Further, in connection with one of the
leases, the Company has provided a tax indemnity of an amount not to exceed
$2,750 to the extent certain specified tax benefits, as defined, are not
available to one of the owner participants, as defined. Minimum rental
commitments under these leases for the five years following December 31, 1997
and thereafter are included in the table above.
In conjunction with the acquisition of Hydro Development Group, Inc., a
New York Corporation, ("HDG"), the Company entered into a Credit and
Reimbursement Agreement dated February 15, 1995, with GECC. The agreement
provides for two term loans, the GECC A Term Loan ("GECC A Loan") and the GECC B
Loan, a revolving credit facility, and two letters of credit in support of HDG
project obligations. The GECC A Loan, with an outstanding principal balance at
December 31, 1997 of $27,584, is secured by the stock and assets of the HDG
projects. The GECC B Loan, with an outstanding principal balance at December 31,
1997 of $3,188, is secured by certain other projects owned by the Company (Note
6). Each of these loans is non-recourse to CHI. The agreement also provides for
a $3,000 revolving credit facility through 2013, to be drawn as necessary to pay
principal and interest due on the term loans in the case of insufficient funds
resulting from unusually low water flow. The $3,000 revolving credit facility
shall bear interest at a rate equal to the CP Rate, as defined, plus a margin of
5%. GECC has also provided two letters of credit totaling $350 in support of
certain HDG projects.
As of June 30, 1996, non-recourse project loans, aggregating $14,500, were
in default. The $14,500 term loan agreement with a bank was assumed in
conjunction with the acquisition of certain hydroelectric assets. On October 30,
1996, the Company arranged to have a financial institution purchase this
non-recourse project term loan, $13,759 at the date of purchase, (the "Old
Loan") for $5,000, including certain required reserves and closing costs of $500
(the "New Loan"). An additional $2,000 credit facility was also available under
the New Loan for up to one year to finance certain project enhancements. A
subsidiary of the Company was assigned an interest in the balance of the Old
Loan on a basis fully subordinated to the New Loan. As a result, the Company
recorded a $5,658 extraordinary gain on extinguishment of debt, net of certain
transaction costs of approximately $187 and income tax of $3,414, on its
Statement of Operations for the fiscal year ended June 30, 1997.
59
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 12 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
The New Loan, which matures in the year 2008, accrues interest at a fixed
rate of 10.17% per annum through October 29, 2003. Thereafter, through October
30, 2008, interest accrues on a quarterly basis, at a rate equal to the three
year U.S. Treasury Note Rate plus a margin of 3.9%. Principal and interest
payments are to be made quarterly in arrears and mandatory prepayments, if
required, are to be made annually. Costs associated with obtaining the New Loan
have been capitalized and are included in Intangible assets, net on the
Company's Balance Sheet as of December 31, 1997. As a result of fresh start
reporting, the recorded value of this loan has been adjusted to reflect fair
value due to market rate changes as of the Effective Date.
The $7,391 note payable to an insurance company was assumed in connection
with an acquisition by the Company. Pursuant to the terms of the note,
substantially all of the acquired hydroelectric assets (approximately $18,700,
$18,900 and $19,300 at December 31, 1997 and June 30, 1997 and 1996,
respectively) have been pledged as security. As a result of fresh start
reporting, the recorded value of this note has been adjusted to reflect fair
value due to market rate changes as of the effective date.
The $6,400 note payable to an insurance company was assumed in connection
with another acquisition by the Company. Pursuant to the terms of the note,
substantially all of the acquired hydroelectric assets (approximately $11,700,
$11,800 and $9,500 at December 31, 1997 and June 30, 1997 and 1996,
respectively) have been pledged as security. As a result of fresh start
reporting, the recorded value of this note has been adjusted to reflect fair
value due to market rate changes as of the Effective Date.
The $2,096 term loan agreement (the "Loan Agreement") with a bank was
entered in connection with the acquisition of certain hydroelectric facilities.
The Loan Agreement is secured by the stock of the Company's subsidiary which
acquired the hydroelectric facilities and the subsidiary's interest in certain
limited partnerships as well as certain notes payable, by these limited
partnerships, to the Company.
The $1,036 unsecured notes payable to investors relate to the
financing for the Company's majority-owned subsidiary, Summit Energy Storage
Inc. ("Summit"). Interest is payable annually at December 31 at 12%. Unpaid
interest balances are added to the outstanding principal at each December 31.
The $1,753 term loan agreement was originally assumed by the Company as an
interim loan in conjunction with the acquisition of a hydroelectric facility.
The $2,792 notes payable to investors relate to the financing for one of
the Company's pumped storage development projects, River Mountain. Interest is
payable annually on December 31, at the prime rate of interest, as defined, for
certain notes and 15% for other notes. Unpaid interest balances are added to the
outstanding principal at each December 31, and accrue interest at the applicable
interest rate.
The $1,000 security deed is secured by substantially all of the related
hydroelectric facility's assets (approximately $1,800, $1,800 and $1,400 at
December 31, 1997 and June 30, 1997 and 1996).
The $680 note payable to an insurance company was assumed in connection
with an acquisition by the Company. Pursuant to the terms of the note,
substantially all of the acquired hydroelectric assets (approximately $1,500,
$1,500 and $1,400 at December 31, 1997 and June 30, 1997 and 1996) have been
pledged as security.
The $1,244 term loan agreement was originally assumed by the Company as an
interim loan in conjunction with the acquisition of a hydroelectric facility.
Pursuant to the terms of the agreement, substantially all of the acquired
hydroelectric assets (approximately $4,600, $4,800 and $5,500 at December 31,
1997 and June 30, 1997 and 1996) have been pledged as security.
60
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 12 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
The $352 term loan agreement was undertaken by the Company in connection
with the acquisition of a hydroelectric facility. Pursuant to the terms of the
note, substantially all of the acquired hydroelectric assets (approximately
$1,400, $1,400 and $1,100 at December 31, 1997 and June 30, 1997 and 1996) have
been pledged as security.
The $919 notes payable to private investors relate to the financing for
Consolidated Pumped Storage, Inc. ("CPS") for which warrants were also issued to
the holder for the purchase of 10% of CPS common stock. Interest accrues
annually at 12%. A minimum of 3.6% of such interest is due in cash each December
31 and if not paid, accrues interest at a penalty rate equal to the stated rate
plus 3.0%.
A $1,268 note payable to a utility is included in "Other long-term
liabilities with various rates and maturities". As a result of market rate
changes and fresh start reporting, the recorded value of this note has been
adjusted to reflect fair value as of the Effective Date.
During the period from July 1, 1997 to November 7, 1997, the Company wrote
off certain of its project development debt resulting in a gain of $8,568. This
debt was contingent upon the successful development (including the financing
thereof) of pumped storage projects which management believes will not be
successfully developed by the Company and the exercise of options on land and a
mine which was to be used as an underground reservoir for the projects.
NOTE 13 - MANDATORILY REDEEMABLE PREFERRED STOCK
Until the Effective Date, the Series H Preferred, issued for $70,299, was
recorded net of issuance costs of $3,083 and the value attributed to the
detached warrants of $5,916. The recorded value of the Series H Preferred at
November 7, 1997 and June 30, 1997 and 1996 was adjusted to reflect non-cash
dividends declared of $3,370, $14,911 and $13,057, respectively. In addition,
the recorded value was also adjusted by $179, $857 and $857, representing
accretion of the issuance costs and attached warrant value, in the period from
July 1 to November 7, 1997 and the fiscal years ended June 30, 1997 and 1996.
Through the implementation of the Plan of Reorganization as of the
Effective Date, the Series H Preferred and the other components of the Old
Preferred Stock were exchanged for the New Warrants (Note 1).
NOTE 14 - CAPITAL STOCK
CHANGE IN CAPITAL STRUCTURE
Through the implementation of the Plan of Reorganization as of the
Effective Date, CHI issued shares of New Class A Common Stock and New Class B
Common Stock and all shares of CHI's Old Common Stock were canceled.
NEW COMMON STOCK
Pursuant to the Plan of Reorganization, on the Effective Date, 20 million
shares of New Common Stock were authorized as follows: 9,085,290 shares of New
Class A Common Stock, 914,710 shares of New Class B Common Stock and 10,000,000
additional shares of New Common Stock which may be issued as either New Class A
Common Stock or New Class B Common Stock, as applicable. Of the 10,000,000
shares of New Common Stock which were authorized on the Effective Date but not
issued, 1,337,127 shares are reserved for issuance if, as and when the holders
of the New Warrants exercise such warrants and 810,811 shares of New Class A
Common Stock are reserved for issuance if, as and when the holders of the
Management Options exercise such options.
61
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 14 - CAPITAL STOCK (CONTINUED)
Pursuant to the Plan of Reorganization, on the Effective Date, 9,085,290
shares of New Class A Common Stock were issued and distributed to substantially
all of the holders of the Senior Discount Notes and 810,811 shares of New Class
A Common Stock were reserved to satisfy the obligation of CHI under the
Management Options (Note 15). Each share of New Class A Common Stock entitles
its holder to one vote. The holders of New Class A Common Stock have the right
to participate proportionately in dividends, if any, distributed by the Company.
Pursuant to the Plan of Reorganization, on the Effective Date, 914,710
shares of New Class B Common Stock were issued and distributed to a holder of
the Senior Discount Notes. Each share of New Class B Common Stock entitles its
holder to a one hundredth (1/100) of one vote. The holder of New Class B Common
Stock has the right to participate proportionately in dividends, if any,
distributed by the Company. The New Class B Common Stock was issued to a holder
of the Senior Discount Notes, at such holder's request, to provide to such
holder reduced voting rights in CHI. Pursuant to the Restated Certificate of
Incorporation of CHI, upon any transfer of shares of New Class B Common Stock,
the shares of New Class B Common Stock automatically convert into an equal
number of shares of New Class A Common Stock.
NEW SERIES B WARRANTS
The New Series B Warrants, which were issued to the holders of the Old
Preferred Stock on the Effective Date and expire on the sixth anniversary of the
Effective Date, entitle such holders to subscribe for the purchase of up to an
aggregate of 7.5% of the New Common Stock, subject to dilution due to the
issuance by the Company of shares of New Common Stock pursuant to the exercise
of the New Series C Warrants and the Management Options by the holders thereof.
The New Series B Warrants are exercisable for up to 1% of the New Common Stock
of CHI if, as and when the total capital (debt and equity) invested in
industrial infrastructure projects that either (i) close within 3 years from the
Effective Date or (ii) are subject to a legally binding and enforceable
agreement between CHI or any of its subsidiaries and a party sponsoring a
development or acquisition of such industrial infrastructure project within such
3 year period and thereafter close within the term of the warrants, equals or
exceeds $60 million. The additional New Series B Warrants exercisable for the
remaining 6.5% of the New Common Stock vest incrementally if, as and when the
total capital invested in industrial infrastructure projects increases from $60
million to $450 million within the parameters set forth above. The exercise
price per share of the New Common Stock subject to the New Series B Warrants
will be $10. The New Series B Warrants will have customary antidilution
provisions, and protections against extraordinary distributions.
NEW SERIES C WARRANTS
The New Series C Warrants, which were issued to the holders of the Old
Preferred Stock on the Effective Date and expire on the eighth anniversary
thereof, entitle such holders to subscribe for the purchase of up to an
aggregate of 5.0% of the New Common Stock, subject to dilution due to the
issuance by the Company of shares of New Common Stock pursuant to the exercise
of the New Series B Warrants and the Management Options by the holders thereof.
The exercise price per share of the New Common Stock subject to the New Series C
Warrants was determined by reference to the accreted value of the Senior
Discount Notes as of September 15, 1997 (the date CHI commenced its Chapter 11
case) which was approximately $183 million. The exercise price per share of the
New Common Stock subject to the New Series C Warrants is $18.36. The New Series
C Warrants will contain customary antidilution provisions, and protections
against certain extraordinary distributions.
62
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 14 - CAPITAL STOCK (CONTINUED)
REGISTRATION RIGHTS AGREEMENT
Each person or entity who received a distribution of New Common Stock, New
Warrants or New Common Stock issued upon the exercise of the New Warrants or the
Management Options pursuant to the Plan of Reorganization is entitled to become
a party to a registration rights agreement as of the Effective Date (the
"Registration Rights Agreement"). Under the Registration Rights Agreement,
holders of the New Common Stock and New Warrants (including shares of New Common
Stock issued upon the exercise thereof) are entitled to certain demand and
incidental (or "piggyback") registration rights, and holders of the Management
Options are entitled to certain incidental (or "piggyback") registration rights
with respect to shares of New Class A Common Stock issued upon the exercise
thereof. The Registration Rights Agreement contains customary suspension, "hold
back", indemnification/contribution and priority provisions.
NEW STOCKHOLDERS' AGREEMENT
Under the terms of the Plan of Reorganization, each holder (including each
original recipient and transferee of an original recipient or other transferee)
of the New Common Stock and of the New Common Stock issued upon exercise of the
New Warrants or the Management Options (collectively, the "New Securities") is
bound by a new stockholders' agreement as of the Effective Date (the "New
Stockholders' Agreement"). The New Stockholders' Agreement contains certain
provisions relating to the size and composition of the Board of Directors of
CHI. In addition, the New Stockholders' Agreement provides that each holder of
New Common Stock is entitled to participate on a pro-rata basis in any sale of
50% or more of the outstanding New Common Stock and that each holder of New
Securities (including, in certain circumstances, holders of New Warrants and
Management Options) may be required to sell its New Securities in any sale of 66
2/3% or more of the New Common Stock.
NEW PREFERRED STOCK
Under the terms of the Plan of Reorganization, 10,000,000 shares of
preferred stock with a par value of $0.01 per share (the "New Preferred Stock")
were authorized by CHI. There were no shares of New Preferred Stock issued and
outstanding on December 31, 1997.
SERIES F AND SERIES G PREFERRED STOCK
Through the implementation of the Plan of Reorganization as of the
Effective Date, the shares of Series F Preferred and Series G Preferred were
exchanged for the New Warrants, subject to dilution from Management Options
(Note 1).
In the fiscal year ended June 30, 1992, the Company issued 55,000 shares
of Series F Preferred, 55,000 shares of Series G Preferred and certain warrants,
which have since expired, for an aggregate purchase price of $110,000.
The allocated purchase price was $54,975 to the Series F Preferred,
$54,975 to the Series G Preferred and $50 to the warrants. The carrying value of
the stock was reduced by $11,242 representing costs associated with the
issuance, allocated evenly between the two series.
In February 1996, Ms. Carol H. Cunningham, the Company's then Executive
Vice-President and Chief Development Officer, exercised her option under an
existing agreement with the Company to have the Company issue 1,279 shares of
Series F Preferred and 1,279 shares of Series G Preferred in exchange for shares
of Summit stock (or vested options therefore) owned by Ms. Cunningham. The
Company recorded the issuance of such shares of Series F Preferred and Series G
Preferred with an effective date of February 28, 1996.
63
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 14 - CAPITAL STOCK (CONTINUED)
Dividends on the Series F Preferred and Series G Preferred were cumulative
(amounting to $53,540, $51,029 and $40,906 at November 7, 1997 and June 30, 1997
and 1996, respectively) and were payable annually in arrears upon declaration by
the Company's Board of Directors. The cumulative undeclared dividends in arrears
per share as of June 30, 1997 were $413.33 for the original 55,000 shares of
Series F Preferred and $107.11 for the 1,279 shares of Series F Preferred issued
subsequently, and $508.92 for the original 55,000 shares of Series G Preferred
and $131.88 for the 1,279 shares of Series G Preferred issued subsequently. The
cumulative undeclared dividends in arrears per share as of June 30, 1996 were
$333.33 and $410.42 for the Series F Preferred and Series G Preferred,
respectively.
SERIES H PREFERRED STOCK
Through the implementation of the Plan of Reorganization as of the
Effective Date, Series H Preferred was exchanged for the New Warrants, subject
to dilution from Management Options (Note 1).
In fiscal 1993, the Company issued 136,950 shares of Series H Preferred.
The Series H Preferred was senior to all classes of common stock and the Series
G Preferred and junior to the Series F Preferred.
The initial liquidation preference of the Series H Preferred was $513.32
per share at issuance on June 22, 1993 and $875.67 per share on June 30, 1997.
The liquidation preference was increased as a form of payment for declared
dividends required quarterly in arrears, computed based on the then current
liquidation preference, until increasing the liquidation preference to $1,000
per share on June 30, 1998, after such time the dividends were to become payable
in cash from legally available funds, when, and if declared by the Board of
Directors.
NOTE 15 - MANAGEMENT OPTIONS, DIRECTOR COMPENSATION AND 401(K) PLAN
MANAGEMENT OPTIONS
As of the Effective Date, the Company granted 810,811 Management Options
to acquire New Class A Common Stock at an exercise price of $10 per share
pursuant to the Management Option Plan to certain CHI employees. The Management
Options entitle such holders to purchase up to an aggregate of 7.5% of the New
Class A Common Stock, subject to dilution due to the issuance by CHI, of shares
of New Common Stock pursuant to the exercise of the New Series B Warrants and
the New Series C Warrants by the holders thereof. With the exception of 20,000
fully vested and exercisable options granted to Charles F. Goff, Jr. on the
Effective Date, the Management Options will vest and become exercisable as
follows:
Effective Date 33 1/3% of the Management Options
December 31, 1998 22 2/9% of the Management Options
December 31, 1999 22 2/9% of the Management Options
December 31, 2000 22 2/9% of the Management Options
The Management Options will also become vested and exercisable upon a
change in control of CHI. The Management Options granted as of the Effective
Date will terminate on the seventh (7th) anniversary of the Effective Date
unless terminated at an earlier date following termination of an optionee's
employment. No employee of CHI will be eligible under the Management Option Plan
to be granted Management Options to purchase more than 350,000 shares of New
Class A Common Stock.
64
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 15 - MANAGEMENT OPTIONS, DIRECTOR COMPENSATION AND 401(K) PLAN (CONTINUED)
A summary of the activity in the Company's stock options for the period
from the Effective Date to December 31, 1997 is presented below:
Number of Shares Exercise Price
----------------- --------------
Options granted on the Effective Date 810,811 $ 10.00
Options exercised -- --
Options canceled -- --
----------- ----------
Outstanding at December 31, 1997 810,811 $ 10.00
=========== ===========
Exercisable at December 31, 1997 283,604 $ 10.00
=========== ===========
Weighted average remaining
Contractual life (years) 7
===========
The Company applies the principles of Accounting Principles Board Opinion
25 in accounting for employee stock option plans. Compensation cost as
determined on the basis of SFAS No. 123 "Accounting for Stock-Based
Compensation," ("SFAS 123") would have been recorded based on the estimated fair
value of stock options granted on the Effective Date. The total fair value of
these options was $2,201 based upon the Black-Scholes option pricing model. The
following assumptions were used in the Black-Scholes option pricing model (i)
risk-free interest rate of approximately 6.2%, (ii) expected life of seven
years, (iii) 30% volatility, and (iv) no expected dividends. Had compensation
cost been determined based on the estimated fair value at the grant date
consistent with the method of SFAS 123, the Company's net income and net income
per share would have decreased by approximately $105 and $.01, respectively, for
the period from November 8, 1997 to December 31, 1997.
DIRECTOR COMPENSATION
Charles F. Goff, Jr., a non-employee Director of the Company, will be paid
an annual retainer of $40 for his services as a director, plus $2 for attendance
at each meeting of the Board of Directors as well as each committee meeting
which he attends. In addition, on the Effective Date, he received a grant of
stock options to purchase 20,000 shares of the New Class A Common Stock at an
exercise price of $10 per share. These options are part of the Management
Options, however, they were fully vested and exercisable as of the Effective
Date.
401(k) PLAN
The Company provides a defined contribution 401(k) plan which covers
substantially all of its domestic employees subject to certain prequalification
requirements. Costs of the plan were charged to operations as compensation
expense in the period from November 8, 1997 to December 31, 1997, the period
from July 1, 1997 to November 7, 1997 and the years ended June 30, 1997, 1996
and 1995.
65
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 16 - TAXES
The (provision)/benefit for income and franchise taxes consists of the
following:
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
------------------ -----------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Nov. 8 - July 1 - Ended Ended Ended
Dec. 31, 1997 Nov. 7, 1997 June 30, 1997 June 30, 1996 June 30, 1995
----------------- --------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Federal income taxes $ (100) $ -- $ (408) $ (283) $ (220)
State income and franchise taxes (105) (144) (505) (287) (157)
Deferred tax (provision)/benefits (571) 213 (2,382) 7,951 --
------------- ------------ ----------- ----------- ---------
$ (776) $ 69 $ (3,295) $ 7,381 $ (377)
============= ============ =========== =========== =========
</TABLE>
The (provision)/benefit for income and franchise taxes differs from an
amount computed by applying the statutory income tax rate to pre-tax income, as
follows:
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
---------------- ------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Nov. 8- July 1- Ended Ended Ended
Dec. 31, 1997 Nov. 7, 1997 June 30, 1997 June 30, 1996 June 30, 1995
---------------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax (provision)/benefit at US
statutory rate $ (518) $ (27,265) $ 731 $ 32,542 $ 5,405
State income tax expense (80) (99) (352) (156) (57)
State franchise and net worth
tax expense (45) (153) (131) (100)
(25)
Losses without current tax benefit -- (383) (3,113) (24,591) (5,405)
Alternative minimum tax (100) -- (408) (283) (220)
Reorganization value in excess of
amounts allocable to
identifiable assets (53) -- -- --
--
Restructuring charges -- (1,392) -- -- --
Debt extinguishment -- 30,552 -- -- --
Corporate recapitalization -- 1,700 -- -- --
Project debt adjustment -- (2,999) -- -- --
------------- ------------ ------------- ------------ ------------
$ (776) $ 69 $ (3,295) $ 7,381 $ (377)
============= ============ ============ ============ ===========
</TABLE>
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------- -----------------------------
December 31, 1997 June 30, 1997 June 30, 1996
------------------- -------------- -------------
Deferred tax assets:
<S> <C> <C> <C>
Net operating loss $19,604 $21,925 $22,865
Tax credits 5,652 4,237 5,851
Lease payment obligations 7,393 9,504 10,480
Original issue discount -- 22,235 15,598
Pumped storage development costs 6,750 8,624 15,785
Valuation reserve (35,227) (50,056) (49,266)
----------- ----------- -----------
Total deferred tax assets, net 4,172 16,469 21,313
----------- ----------- -----------
</TABLE>
66
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 16 - TAXES (CONTINUED)
Deferred tax liabilities:
Depreciation and Amortization $37,161 $47,662 $49,960
---------- --------- ---------
Total deferred tax liabilities 37,161 47,662 49,960
---------- --------- ---------
Net deferred tax liability $32,989 $31,193 $28,647
========== ========= =========
The deferred tax benefit of approximately $8.0 million for the fiscal year
ended June 30, 1996 relates to the write-down of certain long-lived assets in
accordance with SFAS 121 (Note 7). The effective tax rate of the deferred
benefit recognized from the write-down differs from the federal statutory rate
due to the reduction of deferred tax liabilities offset by an increase in the
valuation allowance attributable to net operating loss ("NOL") carryforwards.
The valuation allowance decreased by $14,829 primarily due to a decrease
in the gross deferred tax assets relating to original issue discount and NOL
carryforwards, the future benefits of which were not more likely than not to be
realized, offset by reductions in taxable temporary differences resulting from
the Company's revaluation of its assets.
At December 31, 1997 and June 30, 1997, 1996 and 1995, the Company had tax
NOLs of approximately $56,013, $64,485, $67,300 and $72,900 respectively,
expiring through 2012. Of the amounts at December 31, 1997, the Company has
available acquired federal income tax net operating loss ("Acquisition NOL")
carryforwards in the amount of approximately $6,300 representing unused losses
accumulated by certain entities prior to their acquisition by the Company. These
NOLs, which expire in varying amounts beginning with 2000, are restricted in
terms of utilization.
At December 31, 1997, the Company has approximately $2,031 of investment,
energy and Alternative Minimum Tax ("AMT") credits available to reduce future
income taxes for federal income tax reporting purposes expiring during 2000
through 2002. Additionally, the Company has available investment, energy and AMT
credits in the amount of approximately $2,899, representing unused credits
accumulated by certain entities prior to their acquisition by the Company. These
credits, which are restricted in terms of utilization, will begin to expire in
1998.
On September 15, 1997, CHI commenced a case under chapter 11 of the
Bankruptcy Code and simultaneously filed the Plan of Reorganization. The Plan of
Reorganization was confirmed by the Bankruptcy Court and the Company's NOL
carryforwards for federal income tax purposes were reduced by approximately
$16,000, due to the discharge of indebtedness under the Plan of Reorganization
as described in Note 1. Under the internal revenue code, certain substantial
changes in the Company's ownership could result in an annual limitation on the
amount of the NOL and tax credit carryforwards which can be utilized in future
years.
67
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 17 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS
The Company has several non-cancelable operating leases expiring through
2080. The majority of these leases require annual lease payments based upon a
percentage of gross or net revenues, as defined in the respective lease
agreements, and provide for minimum annual payments to the lessor.
Minimum rental commitments under non-cancelable operating leases for
the five years following December 31, 1997 are approximately $4,900 per year and
approximately $26,000 thereafter.
LEGAL PROCEEDINGS
On August 20, 1997, a former employee of the Company filed a civil-action
against the Company in Connecticut Superior Court, District of New Haven
entitled Carol H. Cunningham v. Consolidated Hydro, Inc. alleging that the
Company breached its employment agreement with her. On or about October 13,
1997, the former employee filed a proof of claim in the Bankruptcy Court for
approximately $7.3 million plus unliquidated amounts based primarily on the
allegations in the civil-action (the "Claim"). On November 25, 1997, the Company
filed an objection to the Claim on the grounds that, among other things, the
former employee failed to satisfy her obligations under her employment contract
with the Company. The Company is vigorously defending the Claim and Management
believes that the Company's liability with respect to the Claim, if any, will
not have a material adverse effect on the Company's financial position or
results of operations.
PUMPED STORAGE DEVELOPMENT
Management believes that its pumped storage projects will not be
successfully developed by the Company. However, the Company maintains certain
debt obligations related to project commitments entered into during pumped
storage development.
INDEMNIFICATIONS
In connection with the financing of certain projects, it has been assumed
that certain tax benefits will be available. In the event that all or part of
certain tax benefits are subsequently determined to be unavailable, the related
project subsidiary and, in limited circumstances, the Company and/or
intermediate subsidiary thereof have agreed to indemnify for such lost tax
benefits. As of December 31, 1997, no claims have been made. It is management's
opinion that future material claims are unlikely.
NOTE 18 - INSURANCE CLAIM
In August 1995, the Company filed a property damage claim as a result of a
tropical storm. The claim, covered under the Company's umbrella property and
business interruption insurance policy, involves five projects located in South
Carolina, including Apalache, Lower Pelzer, Piedmont, Upper Pelzer and Ware
Shoals. The total claim as of December 31, 1997 was $3,691, of which
approximately $zero, $419 and $767 were related to business interruption and
$229, $1,607 and $669 were related to recoverable property damages at December
31, 1997 and June 30, 1997 and 1996, respectively. The Company has received two
partial payments of the claim, totaling $2,127 and of the total payment
received, $79 and $767 related to business interruption revenue earned and
$1,115 and $166 (net of the $100 self-insurance deductible) related to
recoverable property damages incurred in the fiscal years ended June 30, 1997
and 1996, respectively. As of December 31, 1997, the Company has recorded a
receivable of $1,564, of which $340 relates to business interruption revenue
earned and $1,224 relates to recoverable property damages incurred for the Lower
Pelzer project.
68
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 19 - RELATED PARTY TRANSACTIONS
During fiscal year 1995, the Company engaged Morgan Stanley & Co.
Incorporated ("Morgan Stanley") to provide the Company with financial advice and
assistance. Prior to the Effective Date, Morgan Stanley held 45,000 shares of
the Series F Preferred and 45,000 shares of the Series G Preferred for its own
account. As of the Effective Date, Morgan Stanley is no longer a related party.
GECC is a former minority stockholder of and is currently a significant
lender and provider of partnership equity to the Company and/or its projects,
through project financing, including the HDG transaction. Transactions indicated
on the face of the financial statements as related party transactions include
those with GECC. As of the Effective Date, GECC is no longer a related party.
Michael B. Peisner and Stephen E. Champagne, assistant secretaries of the
Company and certain of its subsidiaries, are partners in the law firm of Curtis
Thaxter Stevens Broder & Micoleau ("Curtis Thaxter") which provides certain
legal services to the Company. Subsequent to the Effective Date, the Company has
no other related party transactions.
69
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ----- AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------
The names of the executive officers ("Executive Officers") and the directors
("Directors") of CHI, their ages as of December 31, 1997, and positions with CHI
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James T. Stewart 49 Chairman and Chief Executive Officer
Edward M. Stern 38 President, Chief Operating Officer, Secretary and Director
Michael I. Storch 45 Executive Vice President -- Strategy and Development
Mary V. Gilbert 36 Senior Vice President and Chief Financial Officer
Pascal J. Brun 48 Senior Vice President
Daniel S. Pease 43 Senior Vice President -- Operations
Rickey J. Cashatt 45 Senior Vice President
Frank T. Giacalone 46 Senior Vice President -- Development
J. Christopher Hocker 46 Vice President -- Corporate Affairs
Neil A. Manna 34 Vice President -- Finance, Controller and Treasurer
Michael J. Petrick 36 Director
James J. Duplessie 38 Director
Charles F. Goff, Jr. 56 Director
</TABLE>
- ---------------
70
<PAGE>
The Executive Officers of the Company are elected by the Board of
Directors and serve at their discretion with no fixed term of office, except for
Ms. Mary V. Gilbert, Mr. James T. Stewart, Mr. Michael I. Storch, and Mr. Edward
M. Stern who serve under certain employment contracts, the terms of which are
discussed in Item 11.
James T. Stewart, Chairman and Chief Executive Officer -- Mr. Stewart
joined CHI in November 1995 as President and Chief Executive Officer of CHI
Power, Inc., a newly-formed CHI subsidiary. He was elected Chairman and Chief
Executive Officer of the Company effective July 1, 1996. Prior to joining CHI,
Mr. Stewart had more than 25 years of experience in the energy industry. He
joined the engineering and construction firm of CRS Sirrine in 1985 as senior
Vice President, responsible for creating its power division. In 1988 he became
President and Chief Executive Officer of CRSS Capital, its independent power
subsidiary, and was responsible for developing more than $800 million in energy
assets at seven sites, with more than 1,300 equivalent megawatts. He became
President of CRSS, Inc., the parent company, in 1994. Mr. Stewart holds a
Bachelors degree in chemical engineering from Penn State University, a Masters
degree in chemical engineering from the University of Pittsburgh, and is a
registered Professional Engineer.
Edward M. Stern, President, Chief Operating Officer, Secretary and
Director-- Mr. Stern was elected President and COO of the Company in September
1996 and a Director in November 1997. He previously served as Executive Vice
President, Secretary and General Counsel of CHI with primary responsibility for
the company's legal, human resources, communications, financial, acquisitions,
risk management and environmental and regulatory compliance functions. Prior to
joining CHI in April 1991, Mr. Stern was a Vice President with BayBank, Inc., a
northeastern financial services organization, where for six years he specialized
in energy project finance, foreclosures, debt restructurings and asset
management. He received JD and MBA degrees from Boston University. Mr.
Stern is a member of the Massachusetts Bar and the Federal Energy Bar.
Michael I. Storch, Executive Vice President -- Strategy and Development --
Mr. Storch began his employment with CHI in June 1987. He is responsible for
strategic planning relative to the future development and growth of the Company.
Previously, he was responsible for operations of hydroelectric facilities owned
by CHI and its affiliates, and for financial matters related to the Company,
including its existing operations, acquisitions, and development. Before joining
CHI he served as Vice President -- Corporate Development for G.O. Holdings
Management, Inc., a management company controlled by Anglo-French financier Sir
James Goldsmith. For the preceding ten years, he was employed by the accounting
firm of Price Waterhouse in various capacities, last serving as Senior Audit
Manager. Mr. Storch holds a Bachelor of Business Administration degree from
Baruch College. He is a member of the American Institute of Certified Public
Accountants and the New York State Society of Certified Public Accountants.
Mary V. Gilbert, Senior Vice President and Chief Financial Officer -- Ms.
Gilbert joined CHI in July 1996 as Senior Vice President of Finance for CHI
Power, Inc. She was named to her current position in January 1997 and is
presently responsible for the Company's accounting, tax, financial reporting,
treasury, human resource and information systems functions. Prior to joining
CHI, she served in several capacities with CRSS, Inc., most recently as Vice
President, Controller of the parent company. Previously she had served as Chief
Financial Officer of CRSS Capital, its independent power subsidiary. Prior to
joining CRSS, Ms. Gilbert was employed by Ernst and Young for six years, last
holding the position of audit manager. Ms. Gilbert received a Bachelor of
Science degree in accounting from the University of Colorado at Boulder. She is
a Certified Public Accountant and is a member of the American Institute of
Certified Public Accountants and the Texas Society of Certified Public
Accountants.
Pascal J. Brun, Senior Vice President of CHI; President, CHI Canada Inc.
- -- Mr. Brun joined CHI in June 1988. He is currently responsible for
acquisition, development and operation of hydroelectric facilities in Canada.
Previously, he served as CHI's Vice President for Corporate Development,
responsible for acquisition of operating projects in the United States and
Canada. Prior to joining CHI, he was a Vice President for the SNC Group, Ltd., a
large Canadian engineering and construction company, and a Project Manager for
T. Pringer & Sons, Engineers. He holds Bachelors and Masters degrees in Applied
Sciences from Laval University and an MBA degree from the University of
Montreal.
71
<PAGE>
Daniel S. Pease, Senior Vice President -- Operations -- Mr. Pease joined
CHI as a Construction Manager in 1986, and was made Vice President of
Construction in 1988 before advancing to his current position in 1992. In his
previous capacity, he was responsible for planning and managing construction
related to Company-owned facilities, and for advising on engineering and
construction aspects of development and acquisition opportunities. Currently, he
is responsible for management of all of the Company's operating hydroelectric
facilities, as well as for engineering and construction activities of the
Company. Prior to joining CHI, he was a construction supervisor for Walsh
Construction Company of Connecticut, serving on several major hydroelectric and
nuclear construction projects. He holds a BS degree from the University of
Connecticut.
Rickey J. Cashatt, Senior Vice President -- Mr. Cashatt joined CHI in
January 1996. He is currently responsible for the construction and operation of
industrial energy facilities of the Company, as well as providing development
support. Before joining CHI Power, Mr. Cashatt was a senior project manager for
Destec Engineering, Inc., responsible for directing the development and
construction of simple cycle and combined cycle plants in the United States and
internationally. Mr. Cashatt also served as a project manager with similar
responsibilities for CRS Sirrine Engineers, Inc. prior to his employment at
Destec Engineering, Inc. He began his career with International Paper Company,
responsible for hydroelectric and combustion power plant installation and
upgrades. Mr. Cashatt holds a degree in electrical engineering from North
Carolina State and is a registered professional engineer.
Frank T. Giacalone, Senior Vice President -- Development -- Mr. Giacalone
began his employment with CHI in November 1995. He is responsible for the
marketing and business development functions of the Company that include
domestic and international opportunities of both hydroelectric and industrial
energy projects. Prior to joining CHI, Mr. Giacalone most recently served as a
senior business developer for CRSS, Inc. where he was responsible for the
development and negotiation of energy and industrial transactions. Prior to
that, he held numerous senior development positions with other energy companies,
beginning his career with General Electric Company. Mr. Giacalone holds a degree
in mechanical engineering from Widener University and is a registered
professional engineer.
J. Christopher Hocker, Vice President -- Corporate Affairs -- Mr. Hocker
joined CHI in November 1990 as Director of Communications. Currently, he
coordinates CHI's business development efforts and also is responsible for
internal and external communications relating to the Company and its major
projects in development and for public affairs related to the Company's
involvement in national industry associations. He is currently a Director of the
National Hydropower Association. Prior to joining CHI, he was an independent
consultant specializing in communications related to the energy and
environmental industries. His previous experience also includes serving as
Marketing Manager for Morrison-Knudsen Engineers, Inc., specifically related to
hydroelectric, environmental and transportation projects. Mr. Hocker received a
BA degree from Stanford University in 1973.
Neil A. Manna, Vice President --Finance, Controller and Treasurer -- Mr.
Manna joined CHI in 1990 as Assistant Controller. He is currently responsible
for day to day financial control of the Company, including accounting, treasury
and tax, as well as the Company's budgeting and risk management functions. Prior
to joining CHI, he served as Controller for the sales promotion division of
Marketing Corporation of America, and also served as an audit senior for the
accounting firm of Price Waterhouse. Mr. Manna received a Bachelors degree in
accounting from the University of Connecticut in 1985 and an MBA degree with a
concentration in finance from Fairfield University in 1996. He is a Certified
Public Accountant and a member of the American Institute of Certified Public
Accountants.
72
<PAGE>
Michael J. Petrick, Director -- Mr. Petrick is currently a Managing
Director in the fixed income division of Morgan Stanley & Co. Incorporated, and
has been with Morgan Stanley since 1989. Prior to joining Morgan Stanley, Mr.
Petrick was a Vice President and Portfolio Manager for First Interstate Bancorp
in Los Angeles. Mr. Petrick received a BA in Economics and Chemistry from
Grinnell College in 1984 and an MBA degree from the University of Chicago in
1987.
James J. Duplessie, Director -- Mr. Duplessie is currently an
Executive Director of Swiss Bank Corporation. He has been with Swiss Bank
Corporation since January 1995. Previously, Mr. Duplessie was an Executive
Director of O'Connor & Associates. He received a B.A. in Economics from
Washington and Lee University in 1981, an MBA from Tulane University in 1984 and
a JD from Wake Forest University in 1987.
Charles F. Goff, Jr., Director -- Mr. Goff is the retired Chairman and
Chief Executive Officer of Destec Energy, Inc., a major worldwide independent
power developer, producer and marketer that owns power generation and
gasification facilities which produce, sell and market electricity, steam and
synthetic fuel gas. Prior to its sale in 1997, Destec had interests in 24
operating projects with a total rated equivalent capacity of approximately 5,136
megawatts and over three million pounds per hour of steam. In addition, Mr. Goff
has served as a member of Boards of Directors of APD Partnership (a joint
venture between The Dow Chemical Company and Apache Corporation), Magma Power
Company, Dow Pipeline Company and Boride Products, Inc. Prior to forming Destec,
Mr. Goff served 25 years with Dow in various energy and business management
executive positions. Mr. Goff graduated from the University of Texas, where he
earned a bachelor's degree in business administration.
There are no family relationships among the Directors and officers.
The Board of Directors has established an Executive Compensation
Committee comprised of Messrs. Goff, Petrick and Duplessie and an Audit
Committee comprised of Messrs. Goff, Petrick and Duplessie.
73
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth information concerning
compensation of the named Executive Officers for services rendered during the
twelve months ended December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Other Annual All Other
Name and Compensation ($) Compensation Stock Option Compensation
Principal Position Year Salary Bonus ($) Grants (#) ($)(5)
- ------------------ ----- ------------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James T. Stewart(1)........................ 1997 311,538 325,000 4,800 250,000 1,772
Chairman and Chief Executive Officer 1996 238,380 58,750 -- -- --
1995 54,827(2) -- -- -- 50,000(2)
Edward M. Stern(3)......................... 1997 247,991 149,700 4,800 115,000 285
President, Chief Operating Officer, 1996 210,331 75,000 6,150 -- 120
Secretary and Director 1995 171,692 -- 8,900(4) -- 20,221(4)
Michael I. Storch.......................... 1997 259,512 39,990 4,800 55,000 --
Executive Vice President 1996 238,000 45,000 5,525 -- 8,000
1995 211,862 -- 12,150(4) -- 17,500(4)
Mary V. Gilbert(6)......................... 1997 153,077 62,500 982 55,000 276
Senior Vice President and 1996 46,274(7) 27,500 -- -- --
Chief Financial Officer 1995 -- -- -- -- --
Pascal J. Brun............................. 1997 130,809 52,000 5,283 45,000 437
Senior Vice President 1996 123,723 17,822 3,578 -- 221
1995 112,753 -- 2,464 -- 401
</TABLE>
- --------------------------
(1) Mr. Stewart was elected Chief Executive Officer and a Director of the
Company as of July 1, 1996.
(2) Annual Compensation represents salary from November 1, 1995, the
commencement of Mr. Stewart's employment with the Company. Further, All
Other Compensation represents a sign-on bonus paid to Mr. Stewart upon
joining the Company.
(3) Mr. Stern was elected President and Chief Operating Officer of the Company
in September 1996 and a Director of the Company in November 1997.
(4) Through December 31, 1995, the value of all perquisites, except for 401(k)
matching contributions and life insurance premium payments covered under
the senior management benefits policy, were either excluded by definition
from this table, or included in Other Annual Compensation or All Other
Compensation. As of January 1, 1996, the Company has added the value of
these perquisites into each executive's base salary.
(5) Comprised of life insurance premiums paid by the Company on behalf of each
Executive Officer, unless otherwise noted.
(6) Ms. Gilbert was elected Senior Vice President and Chief Financial Officer
of the Company in January 1997.
(7) Compensation represents salary from July 15, 1996, the commencement of Ms.
Gilbert's employment with the Company.
74
<PAGE>
The following table contains information about stock options granted in
1997 to the named Executive Officers pursuant to the Company's Management Option
Plan.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term(1)
- ------------------------------------------------------------------------------------------------- --------------------------------
Number of
Securities % of Total Exercise
Underlying Options Granted or Base
Options to Employees in Price Expiration
Name Granted (#)(2) Fiscal Year ($/Sh)(3) Date(4) 5% ($) 10% ($)
---- -------------- ----------- --------- ------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
James T. Stewart..................... 250,000 30.83% $10.00 11/7/05 $ 492,500 $ 1,645,000
Edward M. Stern(5).................. 115,000 14.18% $10.00 11/7/05 $ 226,550 $ 756,700
Michael I. Storch.................... 55,000 6.78% $10.00 11/7/05 $ 108,350 $ 361,900
Mary V. Gilbert...................... 55,000 6.78% $10.00 11/7/05 $ 108,350 $ 361,900
Pascal J. Brun....................... 45,000 5.55% $10.00 11/7/05 $ 88,650 $ 296,100
</TABLE>
- --------------------------
(1) The potential realizable value shown for the Executive Officers is net of
the option exercise price. The dollar gains under these columns result
from calculations, as prescribed by the Securities and Exchange
Commission, assuming 5% and 10% growth rates in stock price and are not
intended to forecast future price appreciation of CHI Energy, Inc. common
stock.
(2) All options shown were granted on November 7, 1997 pursuant to the
Management Option Plan. For a more detailed description of the plan,
see "--1997 Stock Option Plan and Management Option Agreements".
(3) The exercise price (the price that the optionee, or the person or persons
having the right to exercise the option, must pay to purchase each share
of common stock that is subject to option) is greater than the fair market
value of the stock on the date of grant of the option.
(4) One-third of options granted are exercisable on the date of grant. An
additional 22 2/9% of the options will vest and become exercisable on each
of 12/31/98, 12/31/99 and 12/31/00. All options will terminate on the
seventh anniversary of the date of grant, unless terminated at an earlier
date following termination of an optionee's employment.
(5) The options granted to Mr. Stern are owned by a trust for the benefit
of Mr. Stern's family (for which Mr. Stern does not act as trustee) and
as such, Mr. Stern disclaims beneficial ownership of these options.
75
<PAGE>
The following table sets forth information with respect to the named
Executive Officers concerning the exercise of options during the fiscal year
ended December 31, 1997 of the Company and unexercised options held as of
December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------
AND FY-END OPTION VALUES(1)
--------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)(2)
------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
James T. Stewart............ 83,333 166,667 -- --
Edward M. Stern............ 38,333 76,667 -- --
Michael I. Storch........... 18,333 36,667 -- --
Mary V. Gilbert............. 18,333 36,667 -- --
Pascal J. Brun.............. 15,000 30,000 -- --
</TABLE>
- --------------------------
(1) No options were exercised by any of the named Executive Officers in
the fiscal year ended December 31, 1997.
(2) Calculated using the difference between the fair market value of the
securities underlying the options and the exercise price of the options.
Based on information available to the Company, the fair market value of
the options did not exceed the exercise price of the options at December
31, 1997.
Employment Contracts. On the Effective Date, CHI entered into
substantially similar employment agreements with James T. Stewart, Edward M.
Stern, Michael I. Storch and Mary V. Gilbert. The agreements provide that each
of the aforementioned officers serve in the position set forth opposite such
officer's name listed on the table entitled "Summary Compensation Table" above.
The employment agreements of each of Messrs. Stewart and Stern provide for an
initial three year term, and those of each of Mr. Storch and Ms. Gilbert provide
for an initial two year term. The term of each employment agreement is subject
to automatic extension for successive 12 month periods (unless CHI notifies the
executive officer of its intent not to renew the employment agreement prior to
January 1 in any year, commencing with January 1, 2000 in the case of Messrs.
Stewart and Stern and January 1, 1999 in the case of Mr. Storch and Ms.
Gilbert).
Calendar year 1998 base compensation for each of the foregoing is as
follows: (1) James T. Stewart - $325,000; (2) Edward M. Stern - $250,000; (3)
Michael I. Storch - $250,000; and (4) Mary V. Gilbert - $180,000. In addition to
base compensation, the executive officers of CHI are eligible (i) to receive an
annual bonus equal up to 150% of their respective base salaries, in the case of
Messrs. Stewart and Stern, and up to 100% of their respective base salaries, in
the case of Mr. Storch and Ms. Gilbert, (ii) to participate in benefits plans,
(iii) to receive Management Options, and (iv) to receive disability and death
benefits. For a discussion of the Management Options, see "1997 Stock Option
Plan and Management Option Agreement" below.
76
<PAGE>
Pursuant to the employment contracts, if an executive officer's employment
is terminated by CHI or the executive officer resigns during the term of the
employment agreement (other than in certain specified circumstances), such
executive will receive, among other benefits, monthly severance payments equal
to such officer's base compensation (excluding bonuses) for a period equal to
the shorter of (i) 24 months from the date of termination in the case of Messrs.
Stewart and Stern, and 18 months from the date of termination in the case of Mr.
Storch and Ms. Gilbert or (ii) nine months following the date on which the term
of the employment agreement expires in the case of Messrs. Stewart and Stern and
six months following the date on which the term of the employment agreement
expires in the case of Mr. Storch and Ms. Gilbert.
Director Compensation. Charles F. Goff, Jr., a non-employee director of
the company, will be paid an annual retainer of $40,000 for his services as a
director, plus $2,000 for attendance at each meeting of the Board of Directors
as well as each committee meeting which he attends. In addition, on the
Effective Date, he received a grant of stock options to purchase 20,000 shares
of the New Class A Common Stock at an exercise price of $10 per share. These
options became fully vested and exercisable on the Effective Date.
Senior Management Benefits Policy. In 1992, CHI's Board of Directors
adopted a Senior Management Benefits Policy covering certain of the Company's
executive officers listed herein in Part III, Item 10, "Directors and Officers
of the Registrant" (the "Participants") which offers severance, supplemental
life insurance and supplemental disability insurance benefits subject to
entering into a non-competition agreement. In 1996, the Company expanded the
eligibility under the policy to include officers of certain of its subsidiaries.
Each Participant is entitled to, under certain circumstances, between 12 and 26
weeks of severance pay. In addition, each Participant shall be provided with
$150,000 of supplemental term life insurance, or such other amount or type of
insurance as determined by the Board of Directors, and supplemental disability
benefits of up to one year subject to a maximum aggregate benefit of $200,000.
To the extent that benefits under the Senior Management Benefits Policy
duplicate benefits which a Participant is entitled to receive under any other
arrangement with the Company, such benefits will not be additive.
1997 Stock Option Plan and Management Option Agreements. Pursuant to the
Plan of Reorganization, as of the Effective Date, Management Options to acquire
New Class A Common Stock at an exercise price of $10 per share of New Class A
Common Stock were granted pursuant to the Management Option Plan to certain CHI
employees (including each of the executive officers mentioned above). The
Management Options entitle such holders to purchase up to an aggregate of 7.5%
of the New Class A Common Stock, subject to dilution due to the issuance by CHI
of shares of New Common Stock pursuant to the exercise of the New Warrants. With
the exception of 20,000 fully vested and exercisable options granted to Charles
F. Goff, Jr. on the Effective date, the Management Options will vest and become
exercisable as follows:
Effective Date - 33 1/3% of the Management Options
December 31, 1998 - 22 2/9% of the Management Options
December 31, 1999 - 22 2/9% of the Management Options
December 31, 2000 - 22 2/9% of the Management Options
The Management Options will also become vested and exercisable upon a
change in control of CHI. The Management Options granted as of the Effective
Date will terminate on the seventh anniversary of the Effective Date unless
terminated at an earlier date following termination of an optionee's employment.
No employee of CHI will be eligible under the 1997 Stock Option Plan and
Management Option Agreements to be granted Management Options to purchase more
than 350,000 shares of New Class A Common Stock.
77
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------
The following table sets forth certain information regarding the
beneficial ownership of the Company's New Class A Common Stock and New Class B
Common Stock as of March 16, 1998 by (i) each stockholder, who, to the best of
the Company's knowledge, owns beneficially more than 5% of either the
outstanding shares of New Class A Common Stock or New Class B Common Stock, (ii)
each of the Company's Directors , (iii) each of the Executive Officers whose
names appear in the "Summary Compensation Table" and (iv) all Directors and
Executive Officers as a group. Except as otherwise indicated, each named person
has voting and investment power over the listed shares, and such voting and
investment power is exercised solely by the named person or shared with a
spouse.
<TABLE>
<CAPTION>
New Class A New Class B Voting
Common Stock Common Stock Power
------------------------ ------------------- ----------
Directors, Executive Officer
and 5% Stockholders Number %(1) Number %(1) %
------------------------------------- ------ ---- ------ ---- --
<S> <C> <C> <C> <C> <C>
Morgan Stanley & Co., Incorporated 3,610,630 39.74% -- -- 39.70%
Swiss Bank Corporation and Affiliates 3,137,206 34.53% -- -- 34.50%
Merrill Lynch Asset Management 454,883 5.01% 914,710 100% 5.10%
Gem Capital 494,437 5.44% -- -- 5.44%
Charles F. Goff, Jr.(2) 20,000 0.22% -- -- 0.22%
James T. Stewart(2) 83,333 0.91% -- -- 0.91%
Edward M. Stern(2)(3) 38,333 0.42% -- -- 0.42%
Michael I. Storch(2) 18,333 0.20% -- -- 0.20%
Mary V. Gilbert(2) 18,333 0.20% -- -- 0.20%
Pascal J. Brun(2) 15,000 0.16% -- -- 0.16%
All Directors and Executive Officers
as a group(2) 250,000 2.68% -- -- 2.68%
</TABLE>
- ---------------
(1) Ownership percentages are calculated in accordance with SEC Rule 13d -
3(d)(1) and, therefore, exclude the dilutive effects of outstanding
warrants and stock options. Consequently, these percentages do not
represent ownership on a fully diluted basis as disclosed in Part I,
Item 1, "Business".
(2) All shares are represented by vested, exercisable stock options.
(3) The options granted to Mr. Stern are owned by a trust for the benefit
of Mr. Stern's family (for which Mr. Stern does not act as trustee)
and as such, Mr. Stern disclaims beneficial ownership of these options.
78
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------
During fiscal year 1995, the Company engaged Morgan Stanley & Co.
Incorporated ("Morgan Stanley") to provide the Company with financial advice and
assistance. Prior to the Effective Date, Morgan Stanley held 45,000 shares of
the Series F Preferred and 45,000 shares of Series G Preferred stock for its own
account. As of the Effective Date, Morgan Stanley is no longer a related party.
GECC is a former minority stockholder of and is currently a significant
lender and provider of partnership equity to the Company and/or its projects,
through project financing, including the HDG transaction. As of the Effective
Date, GECC is no longer a related party.
Michael B. Peisner and Stephen E. Champagne, assistant secretaries of the
Company and certain of its subsidiaries, are partners in the law firm of Curtis
Thaxter Stevens Broder & Micoleau ("Curtis Thaxter") which provides certain
legal services to the Company. Subsequent to the Effective Date, the Company has
no other related party transactions.
79
<PAGE>
PART IV
<TABLE>
<CAPTION>
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K PAGE
- ------- ----
<S> <C>
(a) 1. Financial Statements
Report of Independent Accountants 37
Consolidated Statements of Operations for the period
from November 8, 1997 to December 31, 1997,
the period from Juy 1, 1997 to November 7, 1997, and the
three fiscal years ended June 30, 1997, 1996 and 1995 39
Consolidated Balance Sheet at December 31, 1997 and June 30, 1997 and 1996 40
Consolidated Statement of Stockholders' Equity for the for the period
from November 8, 1997 to December 31, 1997,
the period from Juy 1, 1997 to November 7, 1997, and the
three fiscal years ended June 30, 1997, 1996 and 1995 41
Consolidated Statement of Cash Flows for the period
from November 8, 1997 to December 31, 1997,
the period from Juy 1, 1997 to November 7, 1997, and the
three fiscal years ended June 30, 1997, 1996 and 1995 42
Notes to Consolidated Financial Statements 44
</TABLE>
(a) 2. Financial Statement Schedules
All financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
Individual financial statements of the Registrant have been omitted
because consolidated financial statements of the Registrant and all its
subsidiaries are furnished.
(a) 3. Exhibits
Exhibit No. Description
---------- -----------
++++++2.1 Disclosure Statement dated August 8, 1997
++++++2.2 Plan of Reorganization under Chapter 11 of the Bankruptcy Code
of Consolidated Hydro, Inc.
3.1 Restated Certificate of Incorporation of Consolidated Hydro,
Inc.
3.2 By-Laws of CHI Energy, Inc.
+3.5 Certificate of Incorporation and Bylaws of Summit Energy
Storage Inc.
10.1 Stockholders Agreement
10.2 Registration Rights Agreement
10.3 Employment Agreement dated as of October 31, 1997 by and
between Consolidated Hydro, Inc. and James T. Stewart
10.4 CHI Energy, Inc. 1997 Stock Option Plan
10.5 Series B Warrant
10.6 Series C Warrant
80
<PAGE>
+10.7 Power Purchase Agreement between Boott Hydropower, Inc. and
Commonwealth Electric Company, dated January 10, 1983 and
amendment dated March 6, 1985
+10.8 Participation Agreement dated as of December 1, 1985 among
Boott Hydropower, Inc., General Electric Credit Corporation,
Corporation Investments, Inc. and United States Trust Company
of New York, as Owner Trustee and amendment thereto dated as of
February 26, 1988
+10.9 Lease Agreement dated as of December 1, 1985 between United
States Trust Company of New York, as Owner Trustee, and Boott
Hydropower, Inc. and amendments thereto dated as of December
12, 1986 and February 26, 1988
+10.10 Power Purchase Agreement between Lawrence Hydroelectric
Associates, Essex Company and New England Power Company
(Lawrence Project), dated January 1, 1985
+10.11 Mortgage and Security Agreement from Lawrence Hydroelectric
Associates to New England Power Company, dated January 1, 1985
+10.12 Indenture of Mortgage, dated as of September 8, 1981, between
Lawrence Hydroelectric Associates and State Street Bank and
Trust Company, Trustee, and Supplemental Indentures dated as of
January 1, 1985, October 1, 1987 and July 1, 1988
+10.13 Agreement between International Paper Company and Niagara
Mohawk Power Corporation (LaChute Lower Project), dated March
7, 1986
+10.14 Agreement between International Paper Company and Niagara
Mohawk Power Corporation (LaChute Upper Project), dated March
7, 1986
+10.15 Participation Agreement dated as of December 31, 1987 among
LaChute Hydro Company, Inc., Philip Morris Credit Corporation,
the Financial Institutions listed on Schedule II thereto, The
Connecticut Bank and Trust Company, National Association, as
Indenture Trustee, and The Connecticut National Bank, as Owner
Trustee
+10.16 Lease Agreement dated as of December 31, 1987 between LaChute
Hydro Company, Inc. and The Connecticut National Bank, as Owner
Trustee
+10.17 Indenture and Amended and Restated Building Loan Mortgage and
Security Agreement dated as of December 31, 1987 between The
Connecticut National Bank, as Owner Trustee and The Connecticut
Bank and Trust Company, National Association, as Indenture
Trustee
+10.18 Tax Indemnification Agreement dated as of December 31, 1987
between LaChute Hydro Company, Inc. and Philip Morris Credit
Corporation
+10.19 Tax Indemnification Agreement dated as of December 31, 1987
between LaChute Hydro Company, Inc. and General Electric
Capital Corporation
+10.20 Power Purchase Agreement between Androscoggin Reservoir Company
and Central Maine Power Company (Aziscohos Project), dated
October 23, 1984
+10.21 Participation Agreement dated as of September 1, 1988 among
Aziscohos Hydro Company, Inc., NYNEX Credit Company, The CIT
Group/Equipment Financing, Inc., The Connecticut National Bank,
as Indenture Trustee, and Meridian Trust Company, as Owner
Trustee
81
<PAGE>
+10.22 Lease Agreement dated as of September 1, 1988 between Meridian
Trust Company, as Owner Trustee, and Aziscohos Hydro Company,
Inc.
+10.23 Indenture, Mortgage and Security Agreement dated as of
September 1, 1988 between Meridian Trust Company, as Owner
Trustee and The Connecticut National Bank, as Indenture Trustee
+10.24 Indenture of Lease dated as of January 15, 1986 between
Aziscohos Hydro Company, Inc. and Androscoggin Reservoir
Company, and amendments thereto dated March 13, 1986 and as of
September 1, 1988
+10.25 Collateral Assignment of Lease dated September 1, 1988 between
Aziscohos Hydro Company, Inc. and Central Maine Power Company
+10.26 Tax Indemnification Agreement dated as of September 6, 1988
between Aziscohos Hydro Company, Inc., Consolidated Hydro, Inc.
and NYNEX Credit Company
+10.27 Purchase Power Agreement dated December 29, 1987, between Duke
Power Company and Riegel Power Corporation as assigned to
Aquenergy Systems, Inc. by Assignment dated July 27, 1988
+10.28 Note Purchase Agreement between UNUM Life Insurance Company of
America and Aquenergy Systems, Inc. dated as of November 1,
1988
+10.29A Mortgage and Security Agreement dated as of November 1, 1988
from Aquenergy Systems, Inc. to The Connecticut Bank and Trust
Company, National Association, as Trustee (Ware Shoals Project)
+10.30 Loan Agreement dated June 18, 1991, between Fieldcrest Cannon,
Inc. as lender and Eagle & Phenix Hydro Company, Inc. as
borrower setting forth terms and conditions for the loan
evidenced by the Promissory Note described in item A above
+10.31 Security Deed dated June 18, 1991 from Eagle & Phenix Hydro
Company, Inc. to Fieldcrest Cannon, Inc. as security for the
Promissory Note described item A above
+10.32 Security Agreement dated June 18, 1991, between Eagle & Phenix
Hydro Company, Inc. as grantor and Fieldcrest Cannon Inc. as
secured party as security for the Promissory Note described in
item A above
+10.33 Lease agreement dated January 18, 1991, between Eagle & Phenix
Hydro Company, Inc. as lessor and Fieldcrest Cannon, Inc. as
lessee
+10.34 Agreement for the sale of electricity to Virginia Electric &
Power Company dated July 29, 1988, between Virginia Electric &
Power Company and Aquenergy Systems, Inc.
+10.35 Deed of Trust and Security Agreement dated as of November 1,
1988 from Aquenergy Systems, Inc. to The Connecticut Bank and
Trust Company, National Association, as Trustee (Fries Project)
+10.36A Purchase Power Agreement between Duke Power Company and Pelzer
Hydro Company, Inc. dated February 15, 1991 (Upper Pelzer)
82
<PAGE>
+10.36B Purchase Power Agreement between Duke Power Company and Pelzer
Hydro Company, Inc. dated February 15, 1991 (Lower Pelzer)
+10.37 Second Amended and Restated Certificate and Agreement of
Limited Partnership of Catalyst Slate Creek Hydroelectric
Partnership, dated as of July 18, 1989 and Amendment No. 1.
dated as of May 9, 1990 thereto
+10.38 Restated and Amended Power Purchase Agreement between Catalyst
Slate Creek Hydroelectric Partnership and PacifiCorp, dba
Pacific Power & Light Company and Utah Power & Light Company,
dated May 8, 1990
+10.39 Lease Agreement dated September 9, 1986, between Wallowa Hydro
Associates, Ltd. as lessee and Roy & Wilfred Daggett as lessors
as amended on April 13, 1988, as assigned to Joseph Hydro
Company, Inc. by Assignment and Assumption of Leases dated July
31, 1991
+10.40 Lease Agreement dated September 9, 1986, between Wallowa Hydro
Associates, Ltd. as lessee and Rex W. and Zela G. Ziegler as
lessors as amended on April 13, 1988, as assigned to Joseph
Hydro Company, Inc. by Assignment and Assumption of Leases
dated July 31, 1991
+10.41 Lease Agreement dated August 8, 1986 between Wallow Hydro
Associates, Ltd. as lessee and Dale L. Potter as lessor, as
assigned to Joseph Hydro Company, Inc. by Assignment and
Assumption of Leases dated July 31, 1991
+10.42 Amended and Restated Power Purchase Agreement dated July 31,
1991, between Joseph Hydro Company, Inc. and PacifiCorp
Electric Operations
+10.43 Agreement between Wallowa Valley Improvement District No. 1 and
Cook Electric, Inc. dated January 6, 1981, as amended on
February 2, 1982, December 13, 1982, December 27, 1982,
September 13, 1983, and July 31, 1991, as assigned to Joseph
Hydro Company, Inc. by Assignment and Consent Agreement dated
July 31, 1991
+10.44 Agreement between Joseph Hydro Associates, Ltd. and the Little
Sheep Creek Property Owners Association as assigned to Joseph
Hydro Company Inc. by Assignment and Assumption of Contracts
dated July 31, 1991
+10.45 American Arbitration Association Order No. 75 110 0110 85 dated
September 16, 1983, as assigned to Joseph Hydro Company, Inc.
by Assignment and Assumption of Contracts dated July 31, 1991
+10.46 Contract between the Connecticut Light and Power Company and
Kinneytown Hydro Company, Inc. (Kinneytown Project) dated
December 2, 1986
+10.47 Open-End Electricity Purchase Agreement Mortgage and Security
Agreement between Kinneytown Hydro Company, Inc. and the
Connecticut Light and Power Company dated April 29, 1988
+10.48 Amended and Restated Agreement of Limited Partnership, dated as
of December 22, 1989, of Twin Falls Hydro Associates, L.P.
83
<PAGE>
+10.49 Tax Indemnification Agreement, dated as of December 22, 1989,
between The Connecticut National Bank, as LP Trustee, and CHI
Acquisitions, Inc. (Exhibit G to item 10.48)
+10.50 Agreement between New York State Electric & Gas Corporation and
Walden Power Corporation dated as of August 2, 1982
+10.51 Lease between Barbara Gurman Lewis and Walden Power Corporation
dated as of August 24, 1982
+10.52 Lease between the Village of Walden and Walden Power
Corporation dated as of August 5, 1982
+10.53 Stock Subscription Agreement dated as of March 30, 1988 among
Consolidated Hydro, Inc., Summit Energy Storage Inc., Acres
International Corporation, Commonwealth Securities and
Investments, Inc. and seven individuals
+10.54 Memorandum of Understanding between Kvaerner Brug A/S, Boving &
Co., Limited, EB Kraftgenerering a.s. (Powergeneration), and
Consolidated Hydro, Inc., dated April 12, 1988
+10.55 Agreement between Kvaerner Brug A/S, Boving & Co., Limited, EB
Kraftgenerering a.s. (Power generation), Summit Energy Storage
Inc., dated April 12, 1988
+10.56 Agreement between Kvaerner Brug A/S, Boving & Co., Limited, EB
Kraftgenerering a.s. (Power generation), Consolidated Hydro
Inc., Summit Energy Storage Inc., dated April 12, 1988
+10.57 Agreement for Energy Services for Summit Energy Storage Project
between Summit Energy Storage Inc. and Acres International
Corporation dated March 30, 1988
+10.58 Letter Agreement dated March 30, 1988 between Summit Energy
Storage Inc. and Acres International Corporation
+10.59 Mitigation Agreement between Summit Energy Storage Inc. and the
City of Norton, Ohio dated May 14, 1990
+10.60 Memorandum of Understanding concerning commitment to lease
between Summit Energy Storage Inc. and Ohio Edison Company,
dated October 8, 1991
+10.61 Agreement concerning specified facility transmission and
dispatching service between Summit Energy Storage Inc. and Ohio
Edison Company, dated October 8, 1991
+10.62A Technical Services Agreement dated June 5, 1992 between Summit
Energy Storage Inc. and Morrison Knudsen Corporation
84
<PAGE>
+10.62B Promissory notes dated March 19, 1990 (a) in the principal
amount of $658,500 from Summit Energy Storage Inc. to EB
Kraftgenerering a.s. and (b) in the principal amount of
$341,500 from Summit Energy Storage Inc. to Kvaerner Hydro
Power A/S
+10.63 Promissory note dated May 30, 1991 in the principal amount of
$110,000 from Summit Energy Storage Inc. EB Kraftgenerering
a.s. (Powergeneration)
+10.64 Promissory note dated November 26, 1991 in the principal amount
$500,000 from Summit Energy Storage Inc. to Witoco Venture
Corporation
+10.65 Promissory note dated October 31, 1991 in the principal amount
of $277,778 from Summit Energy Storage Inc. to Andrea Rich, in
her capacity as Trustee of the Howard Rich Trust for the
benefit of Daniel Rich
+10.66 Promissory note dated October 31, 1991 in the principal amount
of $222,222 from Summit Energy Storage Inc. to Andrea Rich, in
her capacity as Trustee of the Howard Rich Trust for the
benefit of Joseph Rich
+10.67A Letter agreements between Summit Energy Storage Inc. and Curtis
Thaxter Stevens Broder & Micoleau dated June 15, 1988, August
29, 1990 and June 21, 1991
+10.67B Kidder, Peabody & Co., Incorporated Fee Letter, dated September
5, 1989
+10.68 Letter Agreement dated September 26, 1989 between Consolidated
Pumped Storage, Inc. and JDJ Energy Company, Inc.
+10.69 Conveyance, Pledge, Security and Shareholders Agreement dated
as of September 15, 1990 among Consolidated Pumped Storage
Arkansas, Inc., Consolidated Pumped Storage, Inc. and JDJ
Energy Company, Inc.
+10.70 Loan Agreement and Supply Commitment dated as of September 28,
1990 among Consolidated Pumped Storage Arkansas, Inc.,
Consolidated Pumped Storage, Inc. and Voith Hydro, Inc.
+10.71 Loan Agreement and Supply Commitment dated as of December 18,
1991 among Consolidated Pumped Storage Arkansas, Inc.,
Consolidated Pumped Storage, Inc. and Siemens Power Ventures,
Inc.
+10.72A Warrant to purchase up to 10 shares of common stock of
Consolidated Pumped Storage, Inc. issued to Andrea Rich
+10.72B Securities Purchase Agreement between Consolidated Hydro, Inc.,
and BCC Brown Finance (Curacao) N.V., dated June 29, 1992
+10.73 Employment Agreement between Consolidated Hydro, Inc. and Olof
S. Nelson dated March 25, 1992
10.74 Employment Agreement between Consolidated Hydro, Inc. and
Michael I. Storch dated March 25, 1992
85
<PAGE>
+10.75 Employment Agreement between Consolidated Hydro, Inc. and Carol
H. Cunningham dated March 25, 1992
+10.76A Side letter with Carol H. Cunningham dated March 25, 1992
+10.76B Incentive Compensation and Transition Employment Agreement for
the Eagle and Phenix projects, dated December 18, 1992
+10.77 Stockholders, Optionholders and Warrantholders Agreement among
Consolidated Hydro, Inc. and its stockholders, optionholders
and warrantholders dated March 25, 1992
+10.78 Purchase Agreement dated March 25, 1992 among Consolidated
Hydro, Inc., Madison Group, L.P., and The Morgan Stanley
Leveraged Equity Fund II, L.P.
+10.79 Amended and Restated Acquisition Facility Agreement between
Consolidated Hydro, Inc. and General Electric Capital
Corporation dated March 25, 1992
+10.80 Note Pledge and Security Agreement between General Electric
Capital Corporation and CHI Acquisitions, Inc., dated June 22,
1993
+10.81 Amendment and Agreement among General Electric Capital
Corporation, and its subsidiaries, dated June 22, 1993
+10.82 Reimbursement Agreement between CHI Acquisitions, Inc.,
Consolidated Hydro Southeast, Inc., Joseph Hydro Company, Inc.,
and General Electric Capital Corporation, dated June 22, 1993
+10.83 Kidder, Peabody & Co. Letter Agreement, dated July 19, 1991
+10.84 Participation Agreement dated September 9, 1993 among CHI
Acquisitions, Inc., Sheldon Springs Power Company, Sheldon
Vermont Hydro Company, Inc., GECC and Aircraft Services
Corporation
+10.85 Agreement of Limited Partnership of Sheldon Springs Hydro
Associates, L.P. dated September 9, 1993
+10.86 Loan Agreement dated September 10, 1993 among Missisquoi
Associates, Sheldon Springs Hydro Associates, L.P. and GECC
+10.87 Long-Term, Firm Levelized and Non-Levelized Purchase Agreement,
executed on July 23, 1986, between Vermont Power Exchange, Inc.
and Missisquoi Associates
+10.88 Revolving Credit Agreement among Consolidated Hydro, Inc., as
the Borrower, the Banks Listed in Schedule I and Den norske
Bank AS, as Agent, dated as of October 14, 1993
+10.89 Warrant Agreement dated as of November 1, 1993, between
Consolidated Hydro, Inc. and SES Partners II, L.P.
+10.90 Stock Option Plan
86
<PAGE>
+10.91 Form of Stock Option Agreement
+10.92 Form of Indemnifications Agreement
+10.93 Form of Amended and Restated Indenture for the Notes between
Consolidated Hydro, Inc. and Shawmut Bank Connecticut, National
Association, as trustee
+10.94 Form of Exchange Debenture Indenture (including form of
debenture)
+10.95 Registration Rights Agreement, dated June 15, 1993, between
Consolidated Hydro, Inc. and Morgan Stanley
++10.96 Credit and Reimbursement Agreement dated as of February 15,
1995 among CHI Acquisitions II, Inc., Hydro Development Group
Inc., Beaver Valley Power Company, Littleville Power Company,
Inc., Consolidated Hydro Southeast, Inc., Pelzer Hydro Company,
Inc., Joseph Hydro Company, Inc., Slate Creek Hydro Company,
Inc., CHI Acquisitions, Inc., the Lenders from time to time
party thereto, and General Electric Capital Corporation, as
Agent for the Lenders.
+++10.97 Deed of Trust, Assignment of rents and Fixture Filing dated as
of May 10, 1990 between Slate Creek Hydro Associates, L.P.
(f/k/a Catalyst Slate Creek Hydroelectric Partnership), in
favor of First American Title Insurance Company, trustee, f/b/o
General Electric Capital Corp. ("GECC"), recorded in Book 2595,
Page 805, as assigned by GECC to CHI Acquisitions, Inc. by
Assignment of Beneficial Interest Under Deed of Trust, dated
February 15, 1995, recorded in Book 3260, Page 629, as amended
by Modification of Deed of Trust, dated February 15, 1995,
recorded in Book 3260, Page 635, as further assigned by CHI
Acquisitions, Inc. to Slate Creek Hydro Company, Inc., by
Assignment of Deed of Trust dated February 15, 1995, recorded
in book 3260, Page 647, and as further assigned by CHI
Acquisitions, Inc. to GECC by Assignment of Beneficial Interest
Under Deed of Trust dated February 15, 1995 and recorded in
Book 3260, Page 651.
+++10.98 Mortgage from Pelzer Hydro Company, Inc. to General Electric
Capital Corporation, dated as of February 15, 1995.
+++10.99 Power Purchase Agreement by and between Niagara Mohawk Power
Corporation and Pyrites Associates, dated as of April 22, 1985,
as amended by First Amendment dated as of March 22, 1993.
+++10.100 Lease Agreement between Pyrites Associates (lessee) and St.
Lawrence County Industrial Development Agency, dated June 1,
1985 and recorded in Book 992, Page 742, as amended by First
Amendment dated June 3, 1993 and recorded in book 1072, Page
921.
+++10.101 Pyrites Project Agreement dated November 18, 1982 between Hydro
Development Group Inc. and Hydra-Co Enterprises, Inc.
+++10.102 Cataldo Hydro Power Associates Partnership Agreement dated
October 12, 1983.
87
<PAGE>
+++10.103 Agreement of Limited Partnership of Black River Hydro
Associates, dated as of November 23, 1983, as amended by First
Amendment dated as of October 14, 1984 and undated, unexecuted
Second Amendment.
+++10.104 Amended and Restated Power Purchase Agreement - Port Leyden
Plant by and between Black River Hydro Associates and Niagara
Mohawk Power Corporation, dated as of October 15, 1984, as
amended by amendments dated October 15, 1984 and June 18, 1993,
respectively.
+++10.105 Lease by and between Lewis County Industrial Development Agency
(Lessor) and Black River Hydro Associates (Lessee), dated
02/01/85 and recorded in Liber 454 of Deeds, Page 191, as
amended by amendments dated 04/01/86, 05/26/88 and 07/07/93,
respectively, the latter being recorded in Liber 565 of Deeds,
Page 51.
+++10.106 Indenture of Trust, Mortgage and Assignment given by Lewis
County Industrial Development Agency to Chase Manhattan Bank,
N.A., dated 02/01/85, as supplemented by instruments dated
04/01/86, 10/31/91 and 07/07/93, the latter being recorded in
Liber 393 of Mortgages, Page 165.
+++10.107 Power Purchase Agreement by and between Hydro Development Group
Inc. and Niagara Mohawk Power Corporation, dated December 16,
1993 (Dexter, Copenhagen and other Projects).
+++10.108 Mortgage Restatement Agreement between Hydro Development Group
Inc. and General Electric Capital Corporation dated February
15, 1995 and recorded in the Jefferson County Clerk's Office in
Liber 1362, Page 033.
+++10.109 Project Agreement by and between Hydro Development Group, Inc.
and Hydra-Co Enterprises, Inc., dated November 18, 1982.
+++10.110 Agreement by and between Hydro Development Group, Inc., and
Hydra-Co Enterprises, Inc. dated as of May 23, 1994.
+++10.111 Employment Agreement between Consolidated Hydro, Inc. and
Edward M. Stern dated November 1, 1994.
+++10.112 Termination Agreement between Consolidated Hydro, Inc. and Olof
S. Nelson dated June 27, 1996.
+++10.113 Employment Agreement between Consolidated Hydro, Inc. and James
T. Stewart dated July 1, 1996.
10.114 Employment Agreement dated as of October 31, 1997, by and
between Consolidated Hydro, Inc. and Michael I. Storch.
10.115 Employment Agreement dated as of October 31, 1997 by and
between Consolidated Hydro, Inc. and Edward M. Stern.
10.116 Employment Agreement dated as of October 31, 1997, by and
between Consolidated Hydro, Inc. and Mary V. Gilbert.
88
<PAGE>
++++++10.117 Amendment dated as of July 1, 1996 to the Revolving Credit
Agreement between Consolidated Hydro, Inc. and Den norske Bank
ASA
++++++10.118 First Amended and Restated Credit Agreement dated as of October
15, 1996 between Lyon Credit Corporation and BP Hydro Finance
Partnership.
++++10.119 Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Consolidated Hydro Maine, Inc., CHI Universal,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
++++10.120 Letter of Agreement, dated November 15, 1996, amending
Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Hydro Maine, Inc., CHI Universal, Inc.,
Consolidated Hydro, Inc., Ridgewood Maine Hydro Corporation and
Ridgewood Maine Hydro Partners, L.P.
++++10.121 Letter Agreement, dated December 3, 1996, amending Agreement of
Merger, dated as of July 1, 1996, by and among Consolidated
Hydro Maine, Inc., CHI Universal, Inc., Consolidated Hydro,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
+++++10.122 Amended Engagement Letter, dated as of May 30, 1997, between
Consolidated Hydro, Inc. and Houlihan Lokey Howard and Zukin,
Inc.
++++++10.123 Bill of Sale dated June 13, 1997, between TKO Power, Inc. and
Ralphs Ranches, Inc.
++++++10.124 Termination Agreement dated September 9, 1997, between Joseph
Hydro Company, Inc. and PacifiCorp.
++++++10.125 Purchased Power Agreement between Duke Power and Mill Shoals
Hydro Company, Inc., dated August 12,1997.
12.1 Statements regarding computation of ratios
++++++21.1 List of Subsidiaries of Registrant
27.1 Financial Data Schedule
+ Incorporated by reference to the respective exhibit to the
Company's Registration Statement on Form S-1 (File No.
33-69762).
++ Incorporated by reference to the Company's Current Report on
Form 8- K dated May 2, 1995.
+++ Incorporated by reference to the Company's Report on Form 10-K
for the fiscal year ended June 30, 1996.
++++ Incorporated by reference to the Company's Report on Form 8-K
dated December 23, 1996, as amended by Form 8-K/A dated March
7, 1997.
+++++ Incorporated by reference to the Company's Current Report on
Form 8- K dated June 4, 1997.
++++++ Incorporated by reference to the Company's Report on Form 10-K
for the fiscal year ended June 30, 1997.
89
<PAGE>
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on
November 7, 1997, reporting the date the Plan of
Reorganization became effective.
90
<PAGE>
SIGNATURES
------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CHI ENERGY, INC.
Date: March 30, 1998 (Registrant)
By: /s/ James T. Stewart
----------------------
James T. Stewart
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- -----
<S> <C> <C>
by:
/s/James T. Stewart
- --------------------------------------------
James T. Stewart Chairman and Chief Executive Officer March 30, 1998
by:
/s/ Edward M. Stern
- --------------------------------------------
Edward M. Stern President, Chief Operating Officer, March 30, 1998
Secretary, and Director
by:
/s/ Mary V. Gilbert
- --------------------------------------------
Mary V. Gilbert Senior Vice President, Chief Financial Officer March 30, 1998
(principal financial officer)
by:
/s/ Neil A. Manna
- --------------------------------------------
Neil A. Manna Vice President --Finance, Controller March 30, 1998
and Treasurer (principal accounting officer)
by:
/s/ Michael J. Petrick
- -------------------------------------------- March 30, 1998
Michael J. Petrick Director
by:
/s/ James J. Duplessie March 30, 1998
- --------------------------------------------
James J. Duplessie Director
by:
/s/ Charles F. Goff, Jr. March 30, 1998
- --------------------------------------------
Charles F. Goff, Jr. Director
</TABLE>
91
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
---------- -----------
++++++2.1 Disclosure Statement dated August 8, 1997
++++++2.2 Plan of Reorganization under Chapter 11 of the Bankruptcy Code
of Consolidated Hydro, Inc.
3.1 Restated Certificate of Incorporation of Consolidated Hydro,
Inc.
3.2 By-Laws of CHI Energy, Inc.
+3.5 Certificate of Incorporation and Bylaws of Summit Energy
Storage Inc.
10.1 Stockholders Agreement
10.2 Registration Rights Agreement
10.3 Employment Agreement dated as of October 31, 1997 by and
between Consolidated Hydro, Inc. and James T. Stewart
10.4 CHI Energy, Inc. 1997 Stock Option Plan
10.5 Series B Warrant
10.6 Series C Warrant
<PAGE>
+10.7 Power Purchase Agreement between Boott Hydropower, Inc. and
Commonwealth Electric Company, dated January 10, 1983 and
amendment dated March 6, 1985
+10.8 Participation Agreement dated as of December 1, 1985 among
Boott Hydropower, Inc., General Electric Credit Corporation,
Corporation Investments, Inc. and United States Trust Company
of New York, as Owner Trustee and amendment thereto dated as of
February 26, 1988
+10.9 Lease Agreement dated as of December 1, 1985 between United
States Trust Company of New York, as Owner Trustee, and Boott
Hydropower, Inc. and amendments thereto dated as of December
12, 1986 and February 26, 1988
+10.10 Power Purchase Agreement between Lawrence Hydroelectric
Associates, Essex Company and New England Power Company
(Lawrence Project), dated January 1, 1985
+10.11 Mortgage and Security Agreement from Lawrence Hydroelectric
Associates to New England Power Company, dated January 1, 1985
+10.12 Indenture of Mortgage, dated as of September 8, 1981, between
Lawrence Hydroelectric Associates and State Street Bank and
Trust Company, Trustee, and Supplemental Indentures dated as of
January 1, 1985, October 1, 1987 and July 1, 1988
+10.13 Agreement between International Paper Company and Niagara
Mohawk Power Corporation (LaChute Lower Project), dated March
7, 1986
+10.14 Agreement between International Paper Company and Niagara
Mohawk Power Corporation (LaChute Upper Project), dated March
7, 1986
+10.15 Participation Agreement dated as of December 31, 1987 among
LaChute Hydro Company, Inc., Philip Morris Credit Corporation,
the Financial Institutions listed on Schedule II thereto, The
Connecticut Bank and Trust Company, National Association, as
Indenture Trustee, and The Connecticut National Bank, as Owner
Trustee
+10.16 Lease Agreement dated as of December 31, 1987 between LaChute
Hydro Company, Inc. and The Connecticut National Bank, as Owner
Trustee
+10.17 Indenture and Amended and Restated Building Loan Mortgage and
Security Agreement dated as of December 31, 1987 between The
Connecticut National Bank, as Owner Trustee and The Connecticut
Bank and Trust Company, National Association, as Indenture
Trustee
+10.18 Tax Indemnification Agreement dated as of December 31, 1987
between LaChute Hydro Company, Inc. and Philip Morris Credit
Corporation
+10.19 Tax Indemnification Agreement dated as of December 31, 1987
between LaChute Hydro Company, Inc. and General Electric
Capital Corporation
+10.20 Power Purchase Agreement between Androscoggin Reservoir Company
and Central Maine Power Company (Aziscohos Project), dated
October 23, 1984
+10.21 Participation Agreement dated as of September 1, 1988 among
Aziscohos Hydro Company, Inc., NYNEX Credit Company, The CIT
Group/Equipment Financing, Inc., The Connecticut National Bank,
as Indenture Trustee, and Meridian Trust Company, as Owner
Trustee
<PAGE>
+10.22 Lease Agreement dated as of September 1, 1988 between Meridian
Trust Company, as Owner Trustee, and Aziscohos Hydro Company,
Inc.
+10.23 Indenture, Mortgage and Security Agreement dated as of
September 1, 1988 between Meridian Trust Company, as Owner
Trustee and The Connecticut National Bank, as Indenture Trustee
+10.24 Indenture of Lease dated as of January 15, 1986 between
Aziscohos Hydro Company, Inc. and Androscoggin Reservoir
Company, and amendments thereto dated March 13, 1986 and as of
September 1, 1988
+10.25 Collateral Assignment of Lease dated September 1, 1988 between
Aziscohos Hydro Company, Inc. and Central Maine Power Company
+10.26 Tax Indemnification Agreement dated as of September 6, 1988
between Aziscohos Hydro Company, Inc., Consolidated Hydro, Inc.
and NYNEX Credit Company
+10.27 Purchase Power Agreement dated December 29, 1987, between Duke
Power Company and Riegel Power Corporation as assigned to
Aquenergy Systems, Inc. by Assignment dated July 27, 1988
+10.28 Note Purchase Agreement between UNUM Life Insurance Company of
America and Aquenergy Systems, Inc. dated as of November 1,
1988
+10.29A Mortgage and Security Agreement dated as of November 1, 1988
from Aquenergy Systems, Inc. to The Connecticut Bank and Trust
Company, National Association, as Trustee (Ware Shoals Project)
+10.30 Loan Agreement dated June 18, 1991, between Fieldcrest Cannon,
Inc. as lender and Eagle & Phenix Hydro Company, Inc. as
borrower setting forth terms and conditions for the loan
evidenced by the Promissory Note described in item A above
+10.31 Security Deed dated June 18, 1991 from Eagle & Phenix Hydro
Company, Inc. to Fieldcrest Cannon, Inc. as security for the
Promissory Note described item A above
+10.32 Security Agreement dated June 18, 1991, between Eagle & Phenix
Hydro Company, Inc. as grantor and Fieldcrest Cannon Inc. as
secured party as security for the Promissory Note described in
item A above
+10.33 Lease agreement dated January 18, 1991, between Eagle & Phenix
Hydro Company, Inc. as lessor and Fieldcrest Cannon, Inc. as
lessee
+10.34 Agreement for the sale of electricity to Virginia Electric &
Power Company dated July 29, 1988, between Virginia Electric &
Power Company and Aquenergy Systems, Inc.
+10.35 Deed of Trust and Security Agreement dated as of November 1,
1988 from Aquenergy Systems, Inc. to The Connecticut Bank and
Trust Company, National Association, as Trustee (Fries Project)
+10.36A Purchase Power Agreement between Duke Power Company and Pelzer
Hydro Company, Inc. dated February 15, 1991 (Upper Pelzer)
<PAGE>
+10.36B Purchase Power Agreement between Duke Power Company and Pelzer
Hydro Company, Inc. dated February 15, 1991 (Lower Pelzer)
+10.37 Second Amended and Restated Certificate and Agreement of
Limited Partnership of Catalyst Slate Creek Hydroelectric
Partnership, dated as of July 18, 1989 and Amendment No. 1.
dated as of May 9, 1990 thereto
+10.38 Restated and Amended Power Purchase Agreement between Catalyst
Slate Creek Hydroelectric Partnership and PacifiCorp, dba
Pacific Power & Light Company and Utah Power & Light Company,
dated May 8, 1990
+10.39 Lease Agreement dated September 9, 1986, between Wallowa Hydro
Associates, Ltd. as lessee and Roy & Wilfred Daggett as lessors
as amended on April 13, 1988, as assigned to Joseph Hydro
Company, Inc. by Assignment and Assumption of Leases dated July
31, 1991
+10.40 Lease Agreement dated September 9, 1986, between Wallowa Hydro
Associates, Ltd. as lessee and Rex W. and Zela G. Ziegler as
lessors as amended on April 13, 1988, as assigned to Joseph
Hydro Company, Inc. by Assignment and Assumption of Leases
dated July 31, 1991
+10.41 Lease Agreement dated August 8, 1986 between Wallow Hydro
Associates, Ltd. as lessee and Dale L. Potter as lessor, as
assigned to Joseph Hydro Company, Inc. by Assignment and
Assumption of Leases dated July 31, 1991
+10.42 Amended and Restated Power Purchase Agreement dated July 31,
1991, between Joseph Hydro Company, Inc. and PacifiCorp
Electric Operations
+10.43 Agreement between Wallowa Valley Improvement District No. 1 and
Cook Electric, Inc. dated January 6, 1981, as amended on
February 2, 1982, December 13, 1982, December 27, 1982,
September 13, 1983, and July 31, 1991, as assigned to Joseph
Hydro Company, Inc. by Assignment and Consent Agreement dated
July 31, 1991
+10.44 Agreement between Joseph Hydro Associates, Ltd. and the Little
Sheep Creek Property Owners Association as assigned to Joseph
Hydro Company Inc. by Assignment and Assumption of Contracts
dated July 31, 1991
+10.45 American Arbitration Association Order No. 75 110 0110 85 dated
September 16, 1983, as assigned to Joseph Hydro Company, Inc.
by Assignment and Assumption of Contracts dated July 31, 1991
+10.46 Contract between the Connecticut Light and Power Company and
Kinneytown Hydro Company, Inc. (Kinneytown Project) dated
December 2, 1986
+10.47 Open-End Electricity Purchase Agreement Mortgage and Security
Agreement between Kinneytown Hydro Company, Inc. and the
Connecticut Light and Power Company dated April 29, 1988
+10.48 Amended and Restated Agreement of Limited Partnership, dated as
of December 22, 1989, of Twin Falls Hydro Associates, L.P.
<PAGE>
+10.49 Tax Indemnification Agreement, dated as of December 22, 1989,
between The Connecticut National Bank, as LP Trustee, and CHI
Acquisitions, Inc. (Exhibit G to item 10.48)
+10.50 Agreement between New York State Electric & Gas Corporation and
Walden Power Corporation dated as of August 2, 1982
+10.51 Lease between Barbara Gurman Lewis and Walden Power Corporation
dated as of August 24, 1982
+10.52 Lease between the Village of Walden and Walden Power
Corporation dated as of August 5, 1982
+10.53 Stock Subscription Agreement dated as of March 30, 1988 among
Consolidated Hydro, Inc., Summit Energy Storage Inc., Acres
International Corporation, Commonwealth Securities and
Investments, Inc. and seven individuals
+10.54 Memorandum of Understanding between Kvaerner Brug A/S, Boving &
Co., Limited, EB Kraftgenerering a.s. (Powergeneration), and
Consolidated Hydro, Inc., dated April 12, 1988
+10.55 Agreement between Kvaerner Brug A/S, Boving & Co., Limited, EB
Kraftgenerering a.s. (Power generation), Summit Energy Storage
Inc., dated April 12, 1988
+10.56 Agreement between Kvaerner Brug A/S, Boving & Co., Limited, EB
Kraftgenerering a.s. (Power generation), Consolidated Hydro
Inc., Summit Energy Storage Inc., dated April 12, 1988
+10.57 Agreement for Energy Services for Summit Energy Storage Project
between Summit Energy Storage Inc. and Acres International
Corporation dated March 30, 1988
+10.58 Letter Agreement dated March 30, 1988 between Summit Energy
Storage Inc. and Acres International Corporation
+10.59 Mitigation Agreement between Summit Energy Storage Inc. and the
City of Norton, Ohio dated May 14, 1990
+10.60 Memorandum of Understanding concerning commitment to lease
between Summit Energy Storage Inc. and Ohio Edison Company,
dated October 8, 1991
+10.61 Agreement concerning specified facility transmission and
dispatching service between Summit Energy Storage Inc. and Ohio
Edison Company, dated October 8, 1991
+10.62A Technical Services Agreement dated June 5, 1992 between Summit
Energy Storage Inc. and Morrison Knudsen Corporation
<PAGE>
+10.62B Promissory notes dated March 19, 1990 (a) in the principal
amount of $658,500 from Summit Energy Storage Inc. to EB
Kraftgenerering a.s. and (b) in the principal amount of
$341,500 from Summit Energy Storage Inc. to Kvaerner Hydro
Power A/S
+10.63 Promissory note dated May 30, 1991 in the principal amount of
$110,000 from Summit Energy Storage Inc. EB Kraftgenerering
a.s. (Powergeneration)
+10.64 Promissory note dated November 26, 1991 in the principal amount
$500,000 from Summit Energy Storage Inc. to Witoco Venture
Corporation
+10.65 Promissory note dated October 31, 1991 in the principal amount
of $277,778 from Summit Energy Storage Inc. to Andrea Rich, in
her capacity as Trustee of the Howard Rich Trust for the
benefit of Daniel Rich
+10.66 Promissory note dated October 31, 1991 in the principal amount
of $222,222 from Summit Energy Storage Inc. to Andrea Rich, in
her capacity as Trustee of the Howard Rich Trust for the
benefit of Joseph Rich
+10.67A Letter agreements between Summit Energy Storage Inc. and Curtis
Thaxter Stevens Broder & Micoleau dated June 15, 1988, August
29, 1990 and June 21, 1991
+10.67B Kidder, Peabody & Co., Incorporated Fee Letter, dated September
5, 1989
+10.68 Letter Agreement dated September 26, 1989 between Consolidated
Pumped Storage, Inc. and JDJ Energy Company, Inc.
+10.69 Conveyance, Pledge, Security and Shareholders Agreement dated
as of September 15, 1990 among Consolidated Pumped Storage
Arkansas, Inc., Consolidated Pumped Storage, Inc. and JDJ
Energy Company, Inc.
+10.70 Loan Agreement and Supply Commitment dated as of September 28,
1990 among Consolidated Pumped Storage Arkansas, Inc.,
Consolidated Pumped Storage, Inc. and Voith Hydro, Inc.
+10.71 Loan Agreement and Supply Commitment dated as of December 18,
1991 among Consolidated Pumped Storage Arkansas, Inc.,
Consolidated Pumped Storage, Inc. and Siemens Power Ventures,
Inc.
+10.72A Warrant to purchase up to 10 shares of common stock of
Consolidated Pumped Storage, Inc. issued to Andrea Rich
+10.72B Securities Purchase Agreement between Consolidated Hydro, Inc.,
and BCC Brown Finance (Curacao) N.V., dated June 29, 1992
+10.73 Employment Agreement between Consolidated Hydro, Inc. and Olof
S. Nelson dated March 25, 1992
10.74 Employment Agreement between Consolidated Hydro, Inc. and
Michael I. Storch dated March 25, 1992
<PAGE>
+10.75 Employment Agreement between Consolidated Hydro, Inc. and Carol
H. Cunningham dated March 25, 1992
+10.76A Side letter with Carol H. Cunningham dated March 25, 1992
+10.76B Incentive Compensation and Transition Employment Agreement for
the Eagle and Phenix projects, dated December 18, 1992
+10.77 Stockholders, Optionholders and Warrantholders Agreement among
Consolidated Hydro, Inc. and its stockholders, optionholders
and warrantholders dated March 25, 1992
+10.78 Purchase Agreement dated March 25, 1992 among Consolidated
Hydro, Inc., Madison Group, L.P., and The Morgan Stanley
Leveraged Equity Fund II, L.P.
+10.79 Amended and Restated Acquisition Facility Agreement between
Consolidated Hydro, Inc. and General Electric Capital
Corporation dated March 25, 1992
+10.80 Note Pledge and Security Agreement between General Electric
Capital Corporation and CHI Acquisitions, Inc., dated June 22,
1993
+10.81 Amendment and Agreement among General Electric Capital
Corporation, and its subsidiaries, dated June 22, 1993
+10.82 Reimbursement Agreement between CHI Acquisitions, Inc.,
Consolidated Hydro Southeast, Inc., Joseph Hydro Company, Inc.,
and General Electric Capital Corporation, dated June 22, 1993
+10.83 Kidder, Peabody & Co. Letter Agreement, dated July 19, 1991
+10.84 Participation Agreement dated September 9, 1993 among CHI
Acquisitions, Inc., Sheldon Springs Power Company, Sheldon
Vermont Hydro Company, Inc., GECC and Aircraft Services
Corporation
+10.85 Agreement of Limited Partnership of Sheldon Springs Hydro
Associates, L.P. dated September 9, 1993
+10.86 Loan Agreement dated September 10, 1993 among Missisquoi
Associates, Sheldon Springs Hydro Associates, L.P. and GECC
+10.87 Long-Term, Firm Levelized and Non-Levelized Purchase Agreement,
executed on July 23, 1986, between Vermont Power Exchange, Inc.
and Missisquoi Associates
+10.88 Revolving Credit Agreement among Consolidated Hydro, Inc., as
the Borrower, the Banks Listed in Schedule I and Den norske
Bank AS, as Agent, dated as of October 14, 1993
+10.89 Warrant Agreement dated as of November 1, 1993, between
Consolidated Hydro, Inc. and SES Partners II, L.P.
+10.90 Stock Option Plan
<PAGE>
+10.91 Form of Stock Option Agreement
+10.92 Form of Indemnifications Agreement
+10.93 Form of Amended and Restated Indenture for the Notes between
Consolidated Hydro, Inc. and Shawmut Bank Connecticut, National
Association, as trustee
+10.94 Form of Exchange Debenture Indenture (including form of
debenture)
+10.95 Registration Rights Agreement, dated June 15, 1993, between
Consolidated Hydro, Inc. and Morgan Stanley
++10.96 Credit and Reimbursement Agreement dated as of February 15,
1995 among CHI Acquisitions II, Inc., Hydro Development Group
Inc., Beaver Valley Power Company, Littleville Power Company,
Inc., Consolidated Hydro Southeast, Inc., Pelzer Hydro Company,
Inc., Joseph Hydro Company, Inc., Slate Creek Hydro Company,
Inc., CHI Acquisitions, Inc., the Lenders from time to time
party thereto, and General Electric Capital Corporation, as
Agent for the Lenders.
+++10.97 Deed of Trust, Assignment of rents and Fixture Filing dated as
of May 10, 1990 between Slate Creek Hydro Associates, L.P.
(f/k/a Catalyst Slate Creek Hydroelectric Partnership), in
favor of First American Title Insurance Company, trustee, f/b/o
General Electric Capital Corp. ("GECC"), recorded in Book 2595,
Page 805, as assigned by GECC to CHI Acquisitions, Inc. by
Assignment of Beneficial Interest Under Deed of Trust, dated
February 15, 1995, recorded in Book 3260, Page 629, as amended
by Modification of Deed of Trust, dated February 15, 1995,
recorded in Book 3260, Page 635, as further assigned by CHI
Acquisitions, Inc. to Slate Creek Hydro Company, Inc., by
Assignment of Deed of Trust dated February 15, 1995, recorded
in book 3260, Page 647, and as further assigned by CHI
Acquisitions, Inc. to GECC by Assignment of Beneficial Interest
Under Deed of Trust dated February 15, 1995 and recorded in
Book 3260, Page 651.
+++10.98 Mortgage from Pelzer Hydro Company, Inc. to General Electric
Capital Corporation, dated as of February 15, 1995.
+++10.99 Power Purchase Agreement by and between Niagara Mohawk Power
Corporation and Pyrites Associates, dated as of April 22, 1985,
as amended by First Amendment dated as of March 22, 1993.
+++10.100 Lease Agreement between Pyrites Associates (lessee) and St.
Lawrence County Industrial Development Agency, dated June 1,
1985 and recorded in Book 992, Page 742, as amended by First
Amendment dated June 3, 1993 and recorded in book 1072, Page
921.
+++10.101 Pyrites Project Agreement dated November 18, 1982 between Hydro
Development Group Inc. and Hydra-Co Enterprises, Inc.
+++10.102 Cataldo Hydro Power Associates Partnership Agreement dated
October 12, 1983.
<PAGE>
+++10.103 Agreement of Limited Partnership of Black River Hydro
Associates, dated as of November 23, 1983, as amended by First
Amendment dated as of October 14, 1984 and undated, unexecuted
Second Amendment.
+++10.104 Amended and Restated Power Purchase Agreement - Port Leyden
Plant by and between Black River Hydro Associates and Niagara
Mohawk Power Corporation, dated as of October 15, 1984, as
amended by amendments dated October 15, 1984 and June 18, 1993,
respectively.
+++10.105 Lease by and between Lewis County Industrial Development Agency
(Lessor) and Black River Hydro Associates (Lessee), dated
02/01/85 and recorded in Liber 454 of Deeds, Page 191, as
amended by amendments dated 04/01/86, 05/26/88 and 07/07/93,
respectively, the latter being recorded in Liber 565 of Deeds,
Page 51.
+++10.106 Indenture of Trust, Mortgage and Assignment given by Lewis
County Industrial Development Agency to Chase Manhattan Bank,
N.A., dated 02/01/85, as supplemented by instruments dated
04/01/86, 10/31/91 and 07/07/93, the latter being recorded in
Liber 393 of Mortgages, Page 165.
+++10.107 Power Purchase Agreement by and between Hydro Development Group
Inc. and Niagara Mohawk Power Corporation, dated December 16,
1993 (Dexter, Copenhagen and other Projects).
+++10.108 Mortgage Restatement Agreement between Hydro Development Group
Inc. and General Electric Capital Corporation dated February
15, 1995 and recorded in the Jefferson County Clerk's Office in
Liber 1362, Page 033.
+++10.109 Project Agreement by and between Hydro Development Group, Inc.
and Hydra-Co Enterprises, Inc., dated November 18, 1982.
+++10.110 Agreement by and between Hydro Development Group, Inc., and
Hydra-Co Enterprises, Inc. dated as of May 23, 1994.
+++10.111 Employment Agreement between Consolidated Hydro, Inc. and
Edward M. Stern dated November 1, 1994.
+++10.112 Termination Agreement between Consolidated Hydro, Inc. and Olof
S. Nelson dated June 27, 1996.
+++10.113 Employment Agreement between Consolidated Hydro, Inc. and James
T. Stewart dated July 1, 1996.
10.114 Employment Agreement dated as of October 31, 1997, by and
between Consolidated Hydro, Inc. and Michael I. Storch.
10.115 Employment Agreement dated as of October 31, 1997 by and
between Consolidated Hydro, Inc. and Edward M. Stern.
10.116 Employment Agreement dated as of October 31, 1997, by and
between Consolidated Hydro, Inc. and Mary V. Gilbert.
<PAGE>
++++++10.117 Amendment dated as of July 1, 1996 to the Revolving Credit
Agreement between Consolidated Hydro, Inc. and Den norske Bank
ASA
++++++10.118 First Amended and Restated Credit Agreement dated as of October
15, 1996 between Lyon Credit Corporation and BP Hydro Finance
Partnership.
++++10.119 Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Consolidated Hydro Maine, Inc., CHI Universal,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
++++10.120 Letter of Agreement, dated November 15, 1996, amending
Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Hydro Maine, Inc., CHI Universal, Inc.,
Consolidated Hydro, Inc., Ridgewood Maine Hydro Corporation and
Ridgewood Maine Hydro Partners, L.P.
++++10.121 Letter Agreement, dated December 3, 1996, amending Agreement of
Merger, dated as of July 1, 1996, by and among Consolidated
Hydro Maine, Inc., CHI Universal, Inc., Consolidated Hydro,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
+++++10.122 Amended Engagement Letter, dated as of May 30, 1997, between
Consolidated Hydro, Inc. and Houlihan Lokey Howard and Zukin,
Inc.
++++++10.123 Bill of Sale dated June 13, 1997, between TKO Power, Inc. and
Ralphs Ranches, Inc.
++++++10.124 Termination Agreement dated September 9, 1997, between Joseph
Hydro Company, Inc. and PacifiCorp.
++++++10.125 Purchased Power Agreement between Duke Power and Mill Shoals
Hydro Company, Inc., dated August 12,1997.
12.1 Statements regarding computation of ratios
++++++21.1 List of Subsidiaries of Registrant
27.1 Financial Data Schedule
- ------------------------
+ Incorporated by reference to the respective exhibit to the
Company's Registration Statement on Form S-1 (File No.
33-69762).
++ Incorporated by reference to the Company's Current Report on
Form 8- K dated May 2, 1995.
+++ Incorporated by reference to the Company's Report on Form 10-K
for the fiscal year ended June 30, 1996.
++++ Incorporated by reference to the Company's Report on Form 8-K
dated December 23, 1996, as amended by Form 8-K/A dated March
7, 1997.
+++++ Incorporated by reference to the Company's Current Report on
Form 8- K dated June 4, 1997.
++++++ Incorporated by reference to the Company's Report on Form 10-K
for the fiscal year ended June 30, 1997.
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
CONSOLIDATED HYDRO, INC.
1. The existing name of the Corporation is Consolidated Hydro, Inc.
Effective upon the filing of this Restated Certificate of Incorporation, the new
name of the Corporation will be CHI Energy, Inc.
2. The original Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on July 18, 1985 under the name Consolidated
Hydro, Inc. and was amended by Certificates of Amendment filed with the
Secretary of State on August 23, 1985, December 26, 1985 and January 30, 1987.
In addition, a Restated Certificate of Incorporation was filed with the
Secretary of State on April 29, 1992 and was amended by Certificates of
Amendment filed with the Secretary of State on June 17, 1993 and December 12,
1996.
3. This Restated Certificate of Incorporation, which restates and further
amends the Restated Certificate of Incorporation as currently in effect, is made
and filed pursuant to the order, of the United States Bankruptcy Court (the
"Bankruptcy Court"), District of Delaware (In re Consolidated Hydro, Inc.), Case
No. 97-1924 (SLR), entered on October 23, 1997, and the Plan of Reorganization
filed on August 8, 1997 confirmed therein (the "Plan of Reorganization") in
connection with the reorganization of the Corporation under Title 11 of the
United States Code and in accordance with Sections 103 and 303 of the General
Corporation Law of the State of Delaware.
4. This Restated Certificate of Incorporation shall become effective at
9:00 a.m. on November 7, 1997.
5. The Corporation's Restated Certificate of Incorporation, as previously
amended and as currently in effect, is hereby restated and further amended so as
to read in its entirety as follows:
NYFS10...:\84\38684\0003\1924\CRT0227X.58A
<PAGE>
FIRST: The name of the Corporation is:
CHI Energy, Inc.
SECOND: The address of the Corporation's registered office in the
State of Delaware is No. 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, as from time to time amended.
FOURTH: (a) The total number of shares of capital stock which the
Corporation shall have authority to issue is 30 million shares. Of these shares,
(i) 20 million shares shall be shares of Common Stock, having a par value of
$0.01 per share (the "Common Stock"), and which shares of Common Stock shall be
divided into two classes, 9,085,290 shares of which shall be shares of Class A
Common Stock ("Class A Common Stock") and 914,710 shares of which shall be
shares of Class B Common Stock ("Class B Common Stock"), and 10 million shares
of which shall be issued as either shares of Class A Common Stock or Class B
Common Stock at a later date, and (ii) 10 million shares shall be shares of
Preferred Stock, having a par value of $0.01 per share (the "Preferred Stock").
Except as otherwise provided by applicable law or by this Restated
Certificate of Incorporation, the shares of capital stock of the Corporation,
regardless of class, may be issued by the Corporation from time to time in such
amounts, for such lawful consideration and for such corporate purpose(s) as the
Board of Directors may from time to time determine.
FIFTH: The powers, preferences and rights, and the qualifications,
limitations and restrictions of the Common Stock are as follows:
(a) Voting. With respect to all matters on which holders of Common
Stock shall be entitled to vote, except as otherwise required by applicable law,
the holders of record of outstanding shares of Class A Common Stock and the
holders of record of outstanding shares of Class B Common
2
<PAGE>
Stock shall vote (together with the holders of any outstanding shares of
Preferred Stock entitled to vote with the Class A Common Stock and the Class B
Common Stock) without regard to class, and each holder of a share of Class A
Common Stock shall be entitled to cast one vote in person or by proxy in respect
of each share of Class A Common Stock held in such holder's name, and each
holder of a share of Class B Common Stock shall be entitled to cast 1/100th of
one vote in person or by proxy in respect of each share of Class B Common Stock
held in such holder's name.
(b) Dividends. Subject to the rights of the holders of any series of
outstanding Preferred Stock, and subject to applicable law, holders of shares of
Class A Common Stock and holders of shares of Class B Common Stock shall be
entitled to receive such dividends and other distributions as may be declared by
the Board of Directors from time to time out of assets or funds of the
Corporation legally available therefor; provided that if a dividend or other
distribution in respect of any Common Stock is declared or paid by the
Corporation (which declaration and payment shall be solely in the discretion of
the Board of Directors), including, but not limited to, dividends or other
distributions payable in cash, Common Stock or options, rights or warrants to
purchase Common Stock or securities exercisable or exchangeable for or
convertible into Common Stock, or other securities or property of the
Corporation, such dividend or other distribution shall be declared and paid to
the holders of Class A Common Stock and Class B Common Stock, and the holders of
shares of Class A Common Stock and the holders of shares of Class B Common Stock
shall be entitled to receive the same amount per share of any such dividends and
other distributions in cash, securities or property of the Corporation (and with
respect to dividends or distributions not in cash, in the same form); provided,
however, that nothing in this Article FIFTH shall prevent the declaration and
payment of a dividend or other distribution of shares of Class A Common Stock
(or securities exercisable or exchangeable for, or convertible into, shares of
Class A Common Stock) only to holders of Class A Common Stock concurrently with
the declaration and payment of a dividend or other distribution of shares of
Class B Common Stock (or securities exercisable or exchangeable for, or
convertible into, shares of Class B Common Stock) only to holders of Class B
Common Stock so long as, immediately following such dividend or other
distribution, the number of shares of Class A Common Stock and Class B Common
Stock then outstanding bears the same
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relationship to each other as did the number of shares of Class A Common Stock
and Class B Common Stock outstanding immediately prior to such dividend or other
distribution; and provided, further, however, that nothing in this Article FIFTH
shall prevent the declaration and payment of a dividend or other distribution of
shares of Class A Common Stock in respect of shares of Class B Common Stock and
the declaration and payment of a dividend or other distribution of shares of
Class B Common Stock in respect of shares of Class A Common Stock.
(c) Split, Subdivision, Combination or Reclassification. In the case
of any split (including by means of stock dividend), subdivision, combination or
reclassification of Class A Common Stock or Class B Common Stock, the shares of
Class A Common Stock or Class B Common Stock, as the case may be, shall also be
split (including by means of stock dividend), subdivided, combined or
reclassified so that the number of shares of Class A Common Stock and Class B
Common Stock outstanding immediately following such split, subdivision,
combination or reclassification shall bear the same relationship to each other
as did the number of shares of Class A Common Stock and Class B Common Stock
outstanding immediately prior to such split, subdivision, combination or
reclassification.
(d) Liquidation, Dissolution, Mergers, etc. In the event of any
liquidation, dissolution or winding-up (either voluntary or involuntary) of the
Corporation, the holders of Class A Common Stock and the holders of Class B
Common Stock shall be entitled to receive the assets, property and cash, as
applicable, of the Corporation available for distribution, after the
satisfaction of all obligations and debts then outstanding to creditors of the
Corporation and subject to any preference or rights of participation of any
Preferred Stock of the Corporation that may at the time be outstanding, in
proportion to the number of shares held by them, respectively, without regard to
class. In the event of any merger, consolidation, or other business combination
or extraordinary corporate transaction in which any consideration is to be
received by the holders of Class A Common Stock or the holders of Class B Common
Stock, the holders of Class A Common Stock and the holders of Class B Common
Stock shall receive the same form and amount of consideration on a per share
basis.
(e) Rights Otherwise Identical. Except as expressly set forth in
this Article FIFTH, the rights of the
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holders of Class A Common Stock and the rights of the holders of Class B Common
Stock shall in all respects, for all purposes and in all circumstances be
absolutely and completely identical.
(f) Issuance of Common Stock. The Board of Directors may from time
to time authorize by resolution the issuance of any or all shares of Class A
Common Stock and Class B Common Stock herein authorized in accordance with the
terms and conditions set forth in this Restated Certificate of Incorporation for
such purposes, in such amounts, to such persons (including existing stockholders
in the form of a dividend or other pro rata distribution), corporations or
entities, and for such consideration all as the Board of Directors in its
discretion may determine and without any vote or other action by the holders of
Class A Common Stock or Class B Common Stock, except as otherwise required by
law.
SIXTH: Shares of Class B Common Stock shall automatically be
converted by the Corporation into shares of Class A Common Stock, as follows:
(a) Conversion of Existing Shares of Class B Common Stock into
Shares of Class A Common Stock. Each share of Class B Common Stock automatically
shall be converted, on a share-for-share basis, into one duly authorized,
validly issued, fully paid and nonassessable share of Class A Common Stock, upon
consummation of any transfer, assignment or similar disposition of such Class B
Common Stock. No share of Class A Common Stock shall be converted into a share
of Class B Common Stock.
(b) Exchange of Certificates Evidencing Class B Common Stock for
Certificates Evidencing Class A Common Stock. Promptly (and in no event later
than five days) following the consummation of any transfer, assignment or
similar disposition described in subparagraph (a) of this Article SIXTH such
that shares of Class B Common Stock automatically are converted into shares of
Class A Common Stock (an "Event of Conversion"), the record holder of such
shares of Class B Common Stock so converted shall surrender the certificate (or
certificates) therefor, duly endorsed in blank or accompanied by proper
instruments of transfer, at the principal office of the Corporation or of any
transfer agent for the Class A Common Stock, and, together with such surrender,
shall deliver written notice to the Corporation, at such office: (i) stating
that an Event of Conversion has
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occurred, (ii) specifying the Event of Conversion, (iii) identifying the number
of shares of Class B Common Stock that automatically have been so converted, and
(iv) setting forth the name or names (with addresses) and denominations in which
the certificate (or certificates) for shares of Class A Common Stock shall be
issued (including instructions for delivery thereof). Delivery of such notice
together with the certificate (or certificates) formerly representing the Class
B Common Stock shall obligate the Corporation to promptly (and in any case not
later than 20 business days after receipt of such notice) issue a certificate
(or certificates) formerly representing such shares of Class A Common Stock.
Thereupon, the Corporation or its transfer agent shall issue and deliver at such
stated address to such holder or to the transferee of shares of Class B Common
Stock so converted a certificate (or certificates) for the number of Class A
Common Stock to which such holder or transferee is entitled, registered in the
name of such holder, the designee of such holder or transferee as specified in
such notice.
An Event of Conversion shall be deemed to have occurred as of 5:00
p.m., Eastern time, on the date on which the transaction(s) resulting in the
occurrence of an Event of Conversion have been consummated (such time being the
"Conversion Time"). The person entitled to receive the shares of Class A Common
Stock issuable upon such conversion shall be treated for all purposes by the
Corporation as the record holder of such shares of Class A Common Stock at and
as of the Conversion Time, and the right of such person as a holder of Class B
Common Stock shall cease and terminate at and as of the Conversion Time, in each
case without regard to any failure by the holder to deliver the certificates or
the notice required by this subparagraph (b).
(c) Reclassifications; Recapitalizations, etc. In the event of a
reclassification, recapitalization or other similar transaction as a result of
which the shares of Class A Common Stock are converted into another security,
then a holder of Class B Common Stock shall be entitled to receive upon the
occurrence of an Event of Conversion the amount of such other security into
which the Class A Common Stock has been converted that such holder would have
received if such Event of Conversion had occurred immediately prior to the
record date or effective time, as applicable, of such reclassification or other
similar transaction.
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(d) Unconverted Shares; Notice Required. In the event of the
automatic conversion of fewer than all the shares of Class B Common Stock
evidenced by a certificate surrendered to the Corporation in accordance with the
procedures of this Article SIXTH, the Corporation shall execute and deliver to,
upon the written order of, the holder of such unconverted shares, without charge
to such holder, a new certificate evidencing the number of shares of Class B
Common Stock not converted.
(e) Retired Shares. Shares of Class B Common Stock that
automatically are converted into shares of Class A Common Stock as provided
herein shall be retired and canceled, and shall have the status of authorized
but unissued shares of Class B Common Stock.
(f) Reservation. The Corporation shall reserve and keep available,
out of its authorized and unissued shares of Class A Common Stock, for the
purposes of effecting conversions pursuant to this Article SIXTH, such number of
duly authorized shares of Class A Common Stock as shall from time to time be
sufficient to effect the conversion, in full, of all outstanding shares of Class
B Common Stock; provided, however, that nothing contained herein shall be
construed to preclude the Corporation from satisfying its obligations in respect
of the conversion of the outstanding shares of Class B Common Stock by delivery
of purchased shares of Class A Common Stock which are held in the treasury of
the Corporation. All the shares of Class A Common Stock so issuable shall, when
so issued, be duly authorized, validly issued, fully paid and nonassessable, and
free and clear from any and all liens, security interests, pledges,
hypothecations, encumbrances and charges whatsoever. The Corporation shall take
all actions as may be necessary to ensure that all such shares of Class A Common
Stock may be so issued without violation of any applicable law or regulation, or
of any requirements of any national securities exchange upon which the shares of
Class A Common Stock are or may be listed, or of any inter-dealer quotation
system of a registered national securities association upon which the shares of
Class A Common Stock are or may be listed or included for quotation.
SEVENTH: Preferred Stock may be issued in one or more series as may
be determined from time to time by the Board of Directors. Authority is hereby
expressly granted to the Board of Directors to authorize the issuance of one or
more series of Preferred Stock, and, subject to Article
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NINTH, to fix by resolution or resolutions providing for the issue of each such
series the voting powers, designations, preferences, and relative,
participating, optional, redemption, conversion, exchange or other special
rights, qualifications, limitations or restrictions of such series, and the
number of shares in each series, to the full extent now or hereafter permitted
by applicable law.
EIGHTH: The Common Stock shall be subject to the express terms of
the Preferred Stock and any series thereof. Except as otherwise provided by
applicable law or by the resolution or resolutions adopted by the Board of
Directors designating the relative rights, powers, options and preferences of a
series of Preferred Stock, the Common Stock shall have the exclusive right to
vote for the election of directors of the Corporation and for all other
purposes, and holders of Preferred Stock shall not be entitled to receive notice
of any meeting of the Corporation's stockholders at which they are not entitled
to vote. The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other right or claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
NINTH: The Corporation shall not create, designate, authorize or
cause to be issued any class or series of nonvoting stock. For purposes of this
Article NINTH, any class or series of stock, including any series of Preferred
Stock, that has only such voting rights as are mandated by the General
Corporation Law of the State of Delaware, shall be deemed to be nonvoting stock
subject to the restrictions of this Article NINTH.
TENTH: In furtherance and not in limitation of the powers conferred
by law, subject to any limitations contained elsewhere in this Restated
Certificate of Incorporation, the Board of Directors may adopt, repeal, alter or
amend the By-laws of the Corporation by vote of a majority of the entire Board
of Directors (measured as if there were no vacancies). Notwithstanding any other
provisions of this Restated Certificate of Incorporation or any Preferred Stock
Designation (as defined below) or any provision of law, which might otherwise
permit a lesser vote or no vote, but in addition to any requirements of law and
any other provisions of this Restated Certificate of
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Incorporation or any Preferred Stock Designation, the Corporation's stockholders
may not adopt, amend, alter or repeal any provision of the By-laws of the
Corporation, except by the affirmative vote of the holders of not less than
66-2/3% in voting power of the then outstanding Voting Shares (as defined
below), voting together as a single class.
ELEVENTH: (a) A director of the Corporation shall not be personally
liable either to the Corporation or to any stockholder for monetary damages for
breach of fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted under the General Corporation
Law of the State of Delaware as amended from time to time. Neither amendment nor
repeal of this subparagraph (a) nor the adoption of any provision of this
Restated Certificate of Incorporation inconsistent with this subparagraph (a)
shall eliminate or reduce the effect of this subparagraph (a) in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
subparagraph (a), would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
(b) Each person who was or is made a party or is threatened to be
made a party to or is involved in any manner in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director
or officer of the Corporation or a director or elected officer of a Subsidiary,
shall be indemnified and held harmless by the Corporation in accordance with and
to the fullest extent permitted from time to time by the General Corporation law
of the State of Delaware as the same exists or may hereafter be amended (but, if
permitted by applicable law, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment) or any other applicable laws as presently or hereafter in
effect, and such indemnification shall continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of his or her heirs,
executors and administrators; provided however, that the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only
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if such proceeding (or part thereof) was authorized by the Board of Directors or
is a proceeding to enforce such person's claim to indemnification pursuant to
the rights granted by this Article ELEVENTH. The Corporation shall pay the
expenses incurred by such person in defending any such proceeding in advance of
its final disposition upon receipt (unless the Corporation upon authorization of
the Board of Directors waives such requirement to the extent permitted by
applicable law) of an undertaking by or on behalf of such person to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the Corporation as authorized in this Article ELEVENTH or
otherwise.
(c) The rights to indemnification and advancement of expenses
provided by, or granted pursuant to, this Article ELEVENTH shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the this Restated Certificate of Incorporation,
provision of the By-laws, agreement, vote of stockholders or Disinterested
Directors or otherwise. No repeal, modification or amendment of, or adoption of
any provision inconsistent with, this Article ELEVENTH, nor, to the fullest
extent permitted by applicable law, any modification of law, shall adversely
affect any right or protection of any person granted pursuant hereto with
respect to any events that occurred prior to the time of such repeal, amendment,
adoption or modification.
(d) The Corporation may maintain insurance, at its expense, to
protect itself and any person who is or was a director, officer, partner,
member, employee, trustee or agent of the Corporation, or a Subsidiary (as
defined below) or of another corporation, partnership, limited liability
company, joint venture, trust or other enterprise against any expense, liability
or loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation law
of the State of Delaware.
(e) The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and rights to be
paid by the Corporation the expenses incurred in defending any proceeding in
advance of its final disposition, to any person who is or was an employee or
agent (other than a director or officer) of the Corporation or a Subsidiary and
to any person who is or was serving at the request of the Corporation or a
Subsidiary as
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a director, officer, partner, member, employee, trustee or agent of another
corporation, partnership, limited liability company, joint venture, trust or
other enterprise, including service with respect to employee benefit plans
maintained or sponsored by the Corporation or a Subsidiary, to the fullest
extent of the provisions of this Article ELEVENTH with respect to the
indemnification of and advancement of expenses to directors and officers of the
Corporation.
(f) If any provision or provisions of this Article ELEVENTH shall be
held invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, the legality and enforceability of the remaining provisions of this
Article ELEVENTH (including, without limitation, each portion of any
subparagraph or clause of this Article ELEVENTH containing any such provision
held to be invalid, illegal or unenforceable, that is not itself held to be
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby; and (2) to the fullest extent possible, the provisions of this Article
ELEVENTH (including, without limitation, each such portion of any subparagraph
of this Article ELEVENTH containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
(g) Any notice, request or other communication required or permitted
to be given to the Corporation under this Article ELEVENTH shall be in writing
and either delivered in person or sent by telecopy, telex, telegram, overnight
mail or courier service, or certified or registered mail, postage prepaid,
return receipt requested, to the Secretary of the Corporation and shall be
effective only upon receipt by the Secretary.
TWELFTH: For the management of the business and for the conduct of
the affairs of the Corporation, and for further definition, limitation and
regulation of the powers of the Corporation and its directors and stockholders:
(a) Except as otherwise fixed by or pursuant to provisions hereof
relating to the rights of the holders of any class or series of Capital Stock
having a preference over Common Stock as to dividends or upon liquidation to
elect additional directors under specified circumstances, the number of
directors of the Corporation initially shall be fixed at 7 directors, the exact
number to be fixed from
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time to time by the affirmative vote of the holders of a majority of the voting
power of the outstanding Voting Shares.
(b) Except as otherwise fixed by or pursuant to provisions hereof
relating to the rights of the holders of any class or series of Capital Stock
having a preference over Common Stock as to dividends or upon liquidation to
elect additional directors under specified circumstances, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification or other cause shall be filled either (i) by the affirmative
vote of a majority of the remaining directors then in office, even if
constituting less than a quorum of the Board of Directors, or (ii) by action of
the holders of a majority of the voting power of the outstanding Voting Shares,
and any vacancies on the Board of Directors resulting from the removal of any
director (or directors) shall be filled by action of the holders of a majority
of the voting power of the outstanding Voting Shares. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the term in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been duly elected and qualified. No
decrease in the number of directors constituting the entire Board of Directors
shall shorten the term of any incumbent director.
(c) Any or all of the directors may be removed, with or without
cause, by the holders of a majority of the voting power of the outstanding
Voting Shares.
THIRTEENTH: Any action required or permitted to be taken by the
Corporation's stockholders must be effected either (i) at a duly called annual
or special meeting of such holders or (ii) without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of record of the issued and outstanding
Capital Stock of the Corporation having at least that number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, and the writing or writings are
filed with the permanent records of the Corporation, such action to be effective
immediately upon delivery of such consent to the Corporation or as provided by
law. Prompt notice of the taking of corporate action without a meeting by less
than
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unanimous written consent shall be given as required by applicable law. At any
annual or special meeting of the Corporation's stockholders, only such business
shall be conducted as properly shall have been brought before such meeting in
the manner provided by the By-laws of the Corporation.
FOURTEENTH: Notwithstanding any other provision of this Restated
Certificate of Incorporation, any Preferred Stock Designation (as defined
below), or any provision of law, which might otherwise permit a lesser vote or
no vote, but in addition to any requirements of law, any other provisions of
this Restated Certificate of Incorporation or any Preferred Stock Designation,
the affirmative vote of the holders of not less than 66-2/3% of the voting power
of the outstanding Voting Shares, voting together as a single class, shall be
required to alter, amend or repeal this Restated Certificate of Incorporation.
FIFTEENTH: For purposes of this Restated Certificate of
Incorporation, the following capitalized terms shall have the following
respective meanings:
(a) "Preferred Stock Designation" means a certificate filed with the
Secretary of State of the State of Delaware to evidence the designation of any
series of Preferred Stock of the Corporation established by resolution of the
Board of Directors pursuant to authority granted in this Restated Certificate of
Incorporation.
(b) "Voting Shares" means all shares of capital stock of the
Corporation entitled to vote generally in the election of directors.
(c) "Capital Stock" means any and all shares of corporate stock.
(d) "Disinterested Director" means a director of the Corporation who
is not and was not a party to the proceeding or matter in respect of which
indemnification is sought by the claimant.
(e) "Subsidiary" means a corporation, a majority of the capital
stock of which is owned directly or indirectly by the Corporation, other than
directors' qualifying shares.
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IN WITNESS WHEREOF, Consolidated Hydro, Inc. has caused this
Restated Certificate of Incorporation to be signed by Edward M. Stern, its
President, and attested by Neil A. Manna, its Vice President, Financial
Planning, this 7th day of November, 1997.
CONSOLIDATED HYDRO, INC.
By: /s/ Edward M. Stern
---------------------------
President
Attest:
/s/ Neil A. Manna
- -------------------------
Vice President,
Finance
14
EXHIBIT 3.2
BY-LAWS
OF
CHI ENERGY, INC.
(a Delaware corporation)
(as amended through November 6, 1997)
ARTICLE I
Stockholders
------------
SECTION 1. Annual Meetings. (a) Commencing with the annual meeting
held after the end of fiscal 1998, to the extent required by applicable law, an
annual meeting of stockholders for the election of directors and for the
transaction of such other business as may properly come before the meeting shall
be held each year at such date and time, within or without the State of
Delaware, as the Board of Directors shall determine.
(b) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders may be made at
an annual meeting of stockholders (A) pursuant to the Corporation's notice of
meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the Corporation who was a stockholder of record at the time of
the giving of notice provided for in these By-laws, who is entitled to vote at
the meeting and who complies with the notice procedures set forth in these
By-laws.
(c) For nominations or other business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To be timely,
a stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
30th day nor earlier than the close of business on the 60th day prior to the
first anniversary of the preceding year's annual meeting (and, in the case of
the annual meeting held after the end of fiscal year 1998, not
NYFS10...:\84\38684\0003\1924\BYL0227Y.190
<PAGE>
later than May 1, 1998 nor earlier than April 1 , 1998); provided, however, that
if the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the close of business on the 60th day prior to
such annual meeting and not later than the close of business on the later of (a)
the 30th day prior to such annual meeting, or (b) the 10th day following the day
on which public announcement of the date of such meeting is first made by the
Corporation. In no event shall the adjournment or postponement, or any public
announcement thereof, of an annual meeting commence a new time period for the
giving of a stockholder's notice as described above. Such stockholder's notice
shall set forth (A) as to each person whom the stockholder proposes to nominate
for election or re-election as a director all information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other matter that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made: (1) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (2) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
(d) Notwithstanding anything contained in these By-laws to the
contrary, in the event that the number of directors to be elected to the Board
of Directors of the Corporation is increased and there is no public announcement
by the Corporation naming all of the nominees for director or specifying the
size of the increased Board of Directors at least 60 days prior to the first
anniversary of the preceding year's annual meeting (and, in the case of the
annual meeting held after the end of fiscal year 1998, by April 1, 1998), a
stockholder's notice required by these By-
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laws shall also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not later than
the close of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
SECTION 2. Special Meetings. (a) Special meetings of stockholders
for the transaction of such business as may properly come before the meeting may
be called by order of the Board of Directors or by the Chairman of the Board of
Directors or by a holder (or holders) of a majority of the voting power of the
then outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, and
shall be held at such date and time, within or without the State of Delaware, as
may be specified in the Corporation's notice of the meeting. Whenever the
directors shall fail to fix such place, the meeting shall be held at the
principal executive office of the Corporation
(b) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (i)
by or at the direction of the Board of Directors or (ii) by any stockholder of
the Corporation who is a stockholder of record at the time of giving of notice
provided for in these By-laws, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in these By-laws. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by these By-laws shall be delivered to the
Secretary at the principal executive offices of the Corporation not earlier than
the close of business on the 60th day prior to such special meeting and not
later than the close of business on the later of the 30th day prior to such
special meeting or the 10th day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall
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the adjournment or postponement or, any public announcement thereof, of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
SECTION 3. Additional Matters Concerning Meetings of Stockholders.
(a) Only such persons who are nominated in accordance with the procedures set
forth in these By-laws shall be eligible to serve as directors and only such
business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in these
By-laws. Except as otherwise provided by law, the Chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in these By-laws and, if any
proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall be disregarded.
(b) For purposes of Section 1 and 2 of Article I of these By-laws,
"public announcement" shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or comparable national news-service or
in a document publicly filed by the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(c) Notwithstanding the foregoing provisions of Sections 1 and 2 of
Article I of these By-laws, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in Sections 1 and 2 of Article I of these
By-laws. Nothing in Sections 1 and 2 of Article I of these By-laws shall be
deemed to affect any rights (A) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (B) of the holders of any series of Preferred Stock to elect
directors under specified circumstances.
SECTION 4. Notice of Stockholder Meetings. Not less than 10 nor more
than 60 days before each meeting of stockholders, the secretary shall deliver to
each stockholder entitled to vote at such meeting (and to each stockholder not
entitled to vote but who otherwise is entitled to notice of the meeting) written
or printed notice stating the time and place of, and the purpose for, the
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<PAGE>
meeting, either by mail or by presenting it to such stockholder personally or by
leaving it at his residence or usual place of business; provided that in the
event of a special meeting called by a holder (or holders) of a majority of the
voting power of the then outstanding shares of capital stock of the Corporation
pursuant to Section 2 of these By-laws, the written or printed notice by the
Corporation of such special meeting shall set forth as the purpose (or purposes)
of such meeting only such purpose (or purposes) as are requested by the holder
(or holders) calling such meeting pursuant to Section 2 of these By-laws. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail addressed to the stockholder at his post office address as it
appears on the records of the stockholder list, with postage thereon prepaid.
SECTION 5. Stockholder Lists. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least 10 days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 6. Quorum. Except as otherwise provided by law or the
Corporation's Restated Certificate of Incorporation, a quorum for the
transaction of business at any meeting of stockholders shall consist of the
holders of record of a majority in voting power of the issued and outstanding
shares of the capital stock of the Corporation entitled to vote at the meeting,
present in person or by proxy. At all meetings of the stockholders at which a
quorum is present, all matters, except as otherwise provided
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<PAGE>
by law or the Restated Certificate of Incorporation, shall be decided by the
vote of the holders of a majority in voting power of the shares entitled to vote
thereat present in person or by proxy. If there be no such quorum, the holders
of a majority in voting power of such shares so present or represented may
adjourn the meeting from time to time, without further notice, until a quorum
shall have been obtained. When a quorum is once present it is not broken by the
subsequent withdrawal of any stockholder.
SECTION 7. Organization. Meetings of stockholders shall be presided
over by the Chairman, if any, or if none or in the Chairman's absence the
Vice-Chairman, if any, or if none or in the Vice-Chairman's absence the
President, if any, or if none or in the President's absence a Vice-President,
or, if none of the foregoing is present, by a chairman to be chosen by the
stockholders entitled to vote who are present in person or by proxy at the
meeting. The Secretary of the Corporation, or in the Secretary's absence an
Assistant Secretary, shall act as secretary of every meeting, but if neither the
Secretary nor an Assistant Secretary is present, the presiding officer of the
meeting shall appoint any person present to act as secretary of the meeting.
SECTION 8. Voting; Proxies; Required Vote. (a) At each meeting of
stockholders, every stockholder shall be entitled to vote in person or by proxy
(but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period), and, unless the Restated
Certificate of Incorporation provides otherwise, shall have one vote for each
share of stock entitled to vote registered in the name of such stockholder on
the books of the Corporation on the applicable record date fixed pursuant to
these By-laws. At all elections of directors the voting may but need not be by
ballot and a plurality of the votes cast there shall elect. Except as otherwise
required by law or the Restated Certificate of Incorporation, any action other
than the election of directors shall be authorized by a majority in voting power
of the shares present in person or represented by proxy at the meeting.
(b) Any action required or permitted to be taken at any meeting of
stockholders may, except as otherwise required by law or the Restated
Certificate of Incorporation, be taken without a meeting, without prior notice
and without a vote, if a consent or consents in
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<PAGE>
writing, setting forth the action so taken, shall be signed by the holders of
record of the issued and outstanding capital stock of the Corporation having at
least that number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted, and the writing or writings are filed with the permanent records of
the Corporation, such action to be effective immediately upon delivery of such
consent to the Corporation or as otherwise provided by law. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given as required by applicable law.
SECTION 9. Inspectors. The Board of Directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election to act at
the meeting or any adjournment thereof. If an inspector or inspectors are not so
appointed, the person presiding at the meeting may, but need not, appoint one or
more inspectors. In case any person who may be appointed as an inspector fails
to appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum, and the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question or matter determined by such
inspector or inspectors and execute a certificate of any fact found by such
inspector or inspectors.
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ARTICLE II
Board of Directors
------------------
SECTION 1. General Powers. The business, property and affairs of the
Corporation shall be managed by, or under the direction of, the Board of
Directors.
SECTION 2. Qualification; Remuneration. (a) Each director shall be
at least 18 years of age. A director need not be a stockholder, a citizen of the
United States, or a resident of the State of Delaware. Any member of the Board
of Directors may be elected by the Board of Directors to be its Chairman. The
use of the phrase "entire Board" herein refers to the total number of directors
which the Corporation would have if there were no vacancies.
(b) Directors who are elected at an annual meeting of stockholders,
and directors who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal.
(c) Directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
SECTION 3. Quorum and Manner of Voting. Except as otherwise provided
by law, a majority of the entire Board shall constitute a quorum. A majority of
the directors present, whether or not a quorum is present, may adjourn a meeting
from time to time to another time and place without notice. The vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
SECTION 4. Places of Meetings. Meetings of the Board of Directors
may be held at any place within or without the State of Delaware, as may from
time to time be fixed by resolution of the Board of Directors, or as may be
specified in the notice of meeting.
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SECTION 5. Annual Meeting. Following the annual meeting of
stockholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of stockholders at the same place at which
such stockholders' meeting is held.
SECTION 6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board of Directors shall
from time to time by resolution determine. Notice need not be given of regular
meetings of the Board of Directors held at times and places fixed by resolution
of the Board of Directors.
SECTION 7. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board of
Directors or the President or by a majority of the directors then in office.
SECTION 8. Notice of Meetings. A notice of the place, date and time
and the purpose or purposes of each meeting of the Board of Directors shall be
given to each director by delivery of the same by overnight courier at least two
days before the special meeting, or by telephoning the same or by delivering the
same personally or by facsimile transmission not later than the day before the
day of the meeting.
SECTION 9. Organization. At all meetings of the Board of Directors,
the Chairman, if any, or if none or in the Chairman's absence or inability to
act the President, or in the President's absence or inability to act any
Vice-President who is a member of the Board of Directors, or in such
Vice-President's absence or inability to act a chairman chosen by the directors,
shall preside. The Secretary of the Corporation shall act as secretary at all
meetings of the Board of Directors when present, and, in the Secretary's
absence, the presiding officer may appoint any person to act as secretary.
SECTION 10. Resignation. Any director may resign at any time upon
written notice to the Corporation and such resignation shall take effect upon
receipt thereof by the President or Secretary, unless otherwise specified in the
resignation notice.
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<PAGE>
SECTION 11. Action by Written Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all the directors consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
ARTICLE III
Committees
----------
SECTION 1. Appointment. From time to time the Board of Directors by
resolution may appoint any committee or committees for any purpose or purposes,
to the extent lawful, which shall have powers as shall be determined and
specified by the Board of Directors in the resolution of appointment. In the
absence or disqualification of a member of a committee, the member or members
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
SECTION 2. Procedures, Quorum and Manner of Acting. Each committee
shall fix its own rules of procedure, and shall meet where and as provided by
such rules or by resolution of the Board of Directors. Except as otherwise
provided by law, the presence of a majority of the then appointed members of a
committee shall constitute a quorum for the transaction of business by that
committee, and in every case where a quorum is present the affirmative vote of a
majority of the members of the committee present shall be the act of the
committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.
SECTION 3. Action by Written Consent. Any action required or
permitted to be taken at any meeting of any committee of the Board of Directors
may be taken without a meeting if all the members of the committee consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the committee.
SECTION 4. Term. In the event any person shall cease to be a
director of the Corporation, such person shall
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simultaneously therewith cease to be a member of any committee appointed by the
Board of Directors.
ARTICLE IV
Officers
--------
SECTION 1. Election and Qualifications. The Board of Directors shall
elect the officers of the Corporation, which shall include a President and a
Secretary, and may include, by election or appointment, one or more
Vice-Presidents (any one or more of whom may be given an additional designation
of seniority or function), a Treasurer and such Assistant Secretaries, such
Assistant Treasurers and such other officers as the Board of Directors may from
time to time deem proper. Each officer shall have such powers and duties as may
be prescribed by these By-laws and as may be assigned by the Board of Directors
or the President. Any two or more offices may (but are not required to) be held
by the same person.
SECTION 2. Term of Office and Remuneration. The term of office of
all officers shall be one year and until their respective successors have been
elected and qualified, but any officer may be removed from office, either with
or without cause, at any time by the Board of Directors. Any vacancy in any
office arising from any cause may be filled for the unexpired portion of the
term by the Board of Directors. The remuneration of all officers of the
Corporation may be fixed by the Board of Directors or in such manner as the
Board of Directors shall provide.
SECTION 3. Resignation; Removal. Any officer may resign at any time
upon written notice to the Corporation and such resignation shall take effect
upon receipt thereof by the President or Secretary, unless otherwise specified
in the resignation. Any officer shall be subject to removal, with or without
cause, at any time by vote of a majority of the entire Board of Directors.
SECTION 4. Chairman of the Board of Directors. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the Board
of Directors and shall have such other powers and duties as may from time to
time be assigned by the Board of Directors.
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SECTION 5. Chief Executive Officer. The Chief Executive Officer, if
there be one, shall in general have all the duties incident to the position of
chief executive officer and such other duties as may be assigned by the Board of
Directors.
SECTION 6. President. The President may (but need not be) the Chief
Executive Officer of the Corporation. The President shall have general
management and supervision of the property, business and affairs of the
Corporation and over its other officers; may appoint and remove assistant
officers and other agents and employees, other than any Vice-President, the
Secretary, the Treasurer, any Assistant Secretaries or Assistant Treasurers or
any officers which the Board of Directors may from time to time appoint; and may
execute and deliver in the name of the Corporation powers of attorney,
contracts, bonds and other obligations and instruments.
SECTION 7. Vice-President. A Vice-President may execute and deliver
in the name of the Corporation contracts and other obligations and instruments
pertaining to the regular course of the duties of said office, and shall have
such other authority as from time to time may be assigned by the Board of
Directors or the President.
SECTION 8. Treasurer. The Treasurer shall in general have all duties
incident to the position of Treasurer and such other duties as may be assigned
by the Board of Directors or the President.
SECTION 9. Secretary. The Secretary shall in general have all the
duties incident to the office of Secretary and such other duties as may be
assigned by the Board of Directors or the President.
SECTION 10. Assistant Officers. Any assistant officer shall have
such powers and duties of the officer such assistant officer assists as such
officer or the Board of Directors shall from time to time prescribe.
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ARTICLE V
Books and Records
-----------------
SECTION 1. Location. The books and records of the Corporation may be
kept at such place or places within or outside the State of Delaware as the
Board of Directors or the respective officers in charge thereof may from time to
time determine. The record books containing the names and addresses of all
stockholders, the number and class of shares of stock held by each and the dates
when they respectively became the owners of record thereof shall be kept by the
Secretary as prescribed in the By-laws and by such officer or agent as shall be
designated by the Board of Directors.
SECTION 2. Addresses of Stockholders. Notices of meetings and all
other corporate notices may be delivered personally or mailed to each
stockholder at the stock-holder's address as it appears on the records of the
Corporation.
SECTION 3. Fixing Date for Determination of Stockholders of Record.
(a) In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors and which record date shall not be more than 60 nor less
than 10 days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted
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by the Board of Directors and which date shall not be more than 10 days after
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. If no record date has been fixed by the Board of Directors,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in this State, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required by
this chapter, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close of
business on the day on which the Board of Directors adopts the resolution taking
such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
ARTICLE VI
Certificates Representing Stock
-------------------------------
SECTION 1. Certificates; Signatures. The shares of the Corporation
shall be represented by certificates, provided that the Board of Directors of
the Corporation may provide by resolution or resolutions that some or all of any
or all classes or series of its stock shall be uncertifi-
14
<PAGE>
cated shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate, signed by or
in the name of the Corporation by the Chairman or Vice-Chairman of the Board of
Directors, or the President or Vice-President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, representing the number of shares registered in certificate form.
Any and all signatures on any such certificate may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue. The name of the holder of record of the
shares represented thereby, with the number of such shares and the date of
issue, shall be entered on the books of the Corporation.
SECTION 2. Transfers of Stock. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
shares of capital stock shall be transferable on the books of the Corporation
only by the holder of record thereof in person, or by duly authorized attorney,
upon surrender and cancellation of certificates for a like number of shares,
properly endorsed, and the payment of all taxes due thereon.
The Board of Directors shall have power and authority to make all
such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of certificates representing shares of the
Corporation.
SECTION 3. Fractional Shares. The Corporation may, but shall not be
required to, issue certificates for fractions of a share where necessary to
effect authorized transactions, or the Corporation may pay in cash the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares,
15
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but such scrip shall not entitle the holder to any rights of a stockholder
except as therein provided.
SECTION 4. Lost, Stolen or Destroyed Certificates. The Corporation
may issue a new certificate of stock in place of any certificate, theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of any lost, stolen or destroyed certificate, or
his legal representative, to give the Corporation a bond sufficient to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate.
ARTICLE VII
SECTION 1. Dividends. Subject to the provisions of law and the
Corporation's Restated Certificate of Incorporation, dividends upon the shares
of capital stock of the Corporation may be declared by the Board of Directors at
any regular or special meeting.
SECTION 2. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may modify
or abolish any such reserve in the manner in which it was created.
ARTICLE VIII
Corporate Seal
--------------
The corporate seal shall have inscribed thereon the name of the
Corporation and the year of its incorporation, and shall be in such form and
contain such other words and/or figures as the Board of Directors shall
determine. The corporate seal may be used by printing, engraving, lithographing,
stamping or otherwise making, placing or affixing,
16
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or causing to be printed, engraved, lithographed, stamped or otherwise made,
placed or affixed, upon any paper or document, by any process whatsoever, an
impression, facsimile or other reproduction of said corporate seal.
ARTICLE IX
Fiscal Year
-----------
The fiscal year of the Corporation shall be fixed, and shall be
subject to change, by the Board of Directors. Unless otherwise fixed by the
Board of Directors, the fiscal year of the Corporation shall be the calendar
year.
ARTICLE X
Waiver of Notice
----------------
Whenever notice is required to be given by these By-laws or by the
Restated Certificate of Incorporation or by law, a written waiver thereof,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent to notice.
ARTICLE XI
Bank Accounts, Drafts, Contracts, Etc.
--------------------------------------
SECTION 1. Bank Accounts and Drafts. In addition to such bank
accounts as may be authorized by the Board of Directors, the primary financial
officer, the President or any person designated by said primary financial
officer or the President, whether or not an employee of the Corporation, may
authorize such bank accounts to be opened or maintained in the name and on
behalf of the Corporation as he may deem necessary or appropriate, payments from
such bank accounts to be made upon and according to the check of the Corporation
in accordance with the written instructions of said primary financial officer,
or other person so designated by the Treasurer.
SECTION 2. Contracts. The Board of Directors may authorize any
person or persons, in the name and on behalf of the Corporation, to enter into
or execute and deliver any and all deeds, bonds, mortgages, contracts and other
obliga-
17
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tions or instruments, and such authority may be general or confined to specific
instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments. The
Chairman, the President or any other person designated by either of them shall
have the power and authority to execute and deliver proxies, powers of attorney
and other instruments on behalf of the Corporation in connection with the rights
and powers incident to the ownership of stock by the Corporation. The Chairman,
the President or any other person authorized by proxy or power of attorney
executed and delivered by either of them on behalf of the Corporation may attend
and vote at any meeting of stockholders of any company in which the Corporation
may hold stock, and may exercise on behalf of the Corporation any and all of the
rights and powers incident to the ownership of such stock at any such meeting,
or otherwise as specified in the proxy or power of attorney so authorizing any
such person. The Board of Directors, from time to time, may confer like powers
upon any other person.
SECTION 4. Financial Reports. The Board of Directors may appoint the
primary financial officer or other fiscal officer and/or the Secretary or any
other officer to cause to be prepared and furnished to stockholders entitled
thereto any special financial notice and/or financial statement, as the case may
be, which may be required by any provision of law.
18
EXHIBIT 10.1
STOCKHOLDERS' AGREEMENT
By and Among
CHI ENERGY, INC.
and
EACH OF THE STOCKHOLDERS OF CHI ENERGY, INC.
Dated as of November 5, 1997
<PAGE>
STOCKHOLDERS' AGREEMENT
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS ..................................................................1
ARTICLE II
PARTIES; REPRESENTATIONS AND WARRANTIES.......................................4
Section 2.1 Representations of Each Signing Stockholder...........4
Section 2.2 Additional Parties....................................4
ARTICLE III
TRANSFER RESTRICTIONS .......................................................5
Section 3.1 General Restrictions on Transfer..................... 5
Section 3.2 Permitted Transfers.................................. 5
Section 3.3 Tag-Along Rights..................................... 5
Section 3.5 Deliveries at Closing; Method of Payment of
Purchase Price...................................... 9
Section 3.6 Company Cooperation.................................. 9
Section 3.7 Legend on Certificates...............................10
ARTICLE IV
CORPORATE GOVERNANCE .....................................................10
Section 4.1 Initial Board; Number of Directors...................10
Section 4.2 Nomination and Election of Directors.................11
Section 4.3 Removal of Directors.................................12
Section 4.4 Vacancies............................................12
i
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ARTICLE V
MISCELLANEOUS .....................................................13
Section 5.1 Effectiveness........................................13
Section 5.2 Waiver and Amendment.................................13
Section 5.3 Termination..........................................13
Section 5.4 Notices..............................................13
Section 5.5 Applicable Law and Time of Essence...................14
Section 5.6 Descriptive Headings, Etc............................14
Section 5.7 Counterparts.........................................14
Section 5.8 Successors, Assigns and Transferees..................14
Section 5.9 Severability.........................................14
ii
<PAGE>
STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT (this "Agreement") is made
as of November 5, 1997, by and among CHI Energy, Inc., a Delaware
corporation (the "Company"), and each of the stockholders of the Company.
W I T N E S S E T H:
------------------
WHEREAS, the Plan of Reorganization, dated as of August
8, 1997, of Consolidated Hydro, Inc., confirmed by order of the United
States Bankruptcy Court for the District of Delaware (the "Plan") provides that
the Company shall enter into an agreement with all of its stockholders to
provide for certain rights and obligations between and among them and subsequent
holders of certain of the Company's securities with respect to the Company; and
WHEREAS, the Company and the Stockholders (as defined
below), being the holders of substantially all of the outstanding common equity
of the Company, wish to enter into this Agreement to provide for certain rights
and obligations between and among them and subsequent holders of certain of the
Company's securities with respect to the Company;
NOW, THEREFORE, in consideration of the premises and
mutual agreements, covenants and provisions contained herein, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall
have the meanings ascribed to them below:
"Agreement" shall have the meaning specified in the
preamble hereof.
"Board of Directors" shall mean the board of directors
of the Company.
"Company" shall mean CHI Energy, Inc., a Delaware
corporation.
"Company Class B Warrant" shall mean any Series B
warrant, issued by the Company pursuant to the Plan, to purchase Shares.
"Company Class C Warrant" shall mean any Series C
warrant, issued by the Company pursuant to the Plan, to purchase Shares.
"Company Management Option" shall mean any option,
issued by the Company to any employee of the Company, to purchase Shares.
<PAGE>
"Company Warrant" shall mean any Company Class B Warrant
and/or Company Class C Warrant.
"Compelling Stake" shall mean, in connection with any
proposed Compelled Sale, 66-2/3% or more of the Shares outstanding at the time
such sale is proposed.
"Director" shall mean a duly elected member of the Board
of Directors.
"In-the-Money Company Warrant" shall mean, in connection
with any Tag-Along Sale, a Company Warrant having an exercise price less
than the value of the per share consideration to be received by the most favored
Selling Stockholder in the Tag-Along Sale.
"In-the-Money Company Management Option" shall mean, in
connection with any Tag-Along Sale, a Company Management Option having an
exercise price less than the value of the per share consideration to be received
by the most favored Selling Stockholder in the Tag-Along Sale.
"MS" shall mean Morgan Stanley & Co., Incorporated, a
Delaware corporation.
"MS Director" shall mean a Director designated for
nomination or appointment pursuant to Article IV of this Agreement by MS or an
MS Nomination Successor.
"Plan" shall mean that certain Plan of Reorganization,
dated as of August 8, 1997, of Consolidated Hydro, Inc., as confirmed by the
bankruptcy court of the United States.
"Remaining Stockholders" shall mean, in connection with
any Compelled Sale, every Stockholder that is not a Compelling Stockholder.
"SB" shall mean, collectively, Swiss Bank Corporation,
London Branch, and Swiss Bank Corporation Restructuring & Recovery Fund.
"SB Director" shall mean a Director designated for
nomination or appointment pursuant to Article IV of this Agreement by SB or an
SB Nomination Successor.
"Shares" shall mean, collectively, the shares of Class A
Common Stock, par value $.01 per share, of the Company, and Class B Common
Stock, par value $.01 per share, of the Company (including Shares issued by the
Company upon the proper exercise of the Company Warrants and the Company
Management Options), and (b) shares of capital stock of the Company issued by
the Company in respect of or in exchange for shares of such common stock in
connection with any stock dividend or distribution, stock split-up,
recapitalization, subdivision, recombination or exchange by the Company
generally of shares of such common stock.
"Signing Stockholders" shall mean the persons or
entities who are signatories to this Agreement.
2
<PAGE>
"Stockholder" shall mean any person to whom or which
Shares are issued pursuant to the Plan, and any person who becomes the holder of
Shares subsequent to the date of this Agreement upon exercise of any Company
Class B Warrant, Company Class C Warrant or Company Management Option, and any
Permitted Transferee.
"Tag-Along Purchaser" shall mean the party or group of
related parties acquiring Shares in a Tag-Along Sale.
"Tag-Along Sale" shall mean a transaction or series of
substantially contemporaneous related transactions or contractually related
transactions in which Selling Stockholders propose to Transfer to a Tag-Along
Purchaser a number of Shares which, taken together with any Shares sold in such
transaction or related transactions, constitute 50% or more of the Shares then
outstanding.
"Tag-Along Stockholder" shall mean, in connection with
any Tag-Along Sale, each Stockholder (including Stockholder who becomes such
upon exercise of Company Warrants or Company Management Options at any time
prior to the fifth business day prior to the Transfer Date) that is not a
Selling Stockholder.
"Transfer Date" shall mean the Original Transfer Date,
or if any New Transfer Date occurs, the latest occurring New Transfer Date.
"Whole Board" shall mean the number of Directors the
Board of Directors would have assuming no vacancies.
In addition, the following capitalized terms used herein
shall have the meanings ascribed to them in the section of the text
indicated below:
"Cause"...................................Section 4.3(b)
-----
"Company Nominees"........................Section 4.3(a)
----------------
"Compelled Sale"..........................Section 3.4(a)
--------------
"Compelled Sale Agreement"................Section 3.4(a)
------------------------
"Compelled Sale Closing"..................Section 3.4(d)
----------------------
"Compelled Sale Date".....................Section 3.4(b)
-------------------
"Compelled Sale Notice"...................Section 3.4(b)
---------------------
"Compelled Sale Price"....................Section 3.4(a)
--------------------
"Compelled Sale Purchaser"................Section 3.4(a)
------------------------
"Compelled Sale Termination Date".........Section 3.4(b)
-------------------------------
"Compelling Stockholders".................Section 3.4(a)
-----------------------
"Designee"................................Section 4.4(b)
--------
"Election Meeting"........................Section 4.2(a)
----------------
"Included Shares".........................Section 3.3(e)
---------------
"Maximum Number"..........................Section 3.3(b)
--------------
"MS Nomination Successor".................Section 3.2(b)
-----------------------
"MS Nominees".............................Section 4.2(a)
-----------
"MS Vacancy"..............................Section 4.1(a)
----------
3
<PAGE>
"New Transfer Date".......................Section 3.3(d)
-----------------
"New Transfer Notice".....................Section 3.3(d)
-------------------
"New Vacancy Designee"....................Section 4.4(c)
--------------------
"Nominating Stockholder"..................Section 4.3(b)
----------------------
"Officer Nominees"........................Section 4.2(a)
----------------
"Optionholder"............................Section 2.2
------------
"Original Transfer Date"..................Section 3.3(c)
----------------------
"Original Transfer Notice"................Section 3.3(c)
------------------------
"Outside Nominees"........................Section 4.2(a)
----------------
"Remaining Stockholders"..................Section 3.4(a)
----------------------
"SB Nominees".............................Section 4.2(a)
-----------
"SB Nomination Successor".................Section 3.2(b)
-----------------------
"SB Vacancy"..............................Section 4.1(a)
----------
"Sale Percentage".........................Section 3.3(b)
---------------
"Selling Stockholders"....................Section 3.3(a)
--------------------
"Tag Along Allotment".....................Section 3.3(b)
-------------------
"Tag Along Notice"........................Section 3.3(e)
----------------
"Tag Along Purchaser".....................Section 3.3(a)
-------------------
"Transfer"................................Section 3.1
--------
"Transfer Allotment"......................Section 3.3(b)
------------------
"Transfer Date"...........................Section 3.3(c)
-------------
"Transfer Notice".........................Section 3.3(c)
---------------
"Warrantholder"...........................Section 2.2
-------------
ARTICLE II
PARTIES; REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations of Each Signing Stockholder. Each Signing
-------------------------------------------
Stockholder represents and warrants to the Company and to each other Signing
Stockholder that (i) such Stockholder has full right, power and authority (and,
in the case of any natural person, such person has the legal capacity) to
execute and deliver this Agreement and to perform such Signing Stockholder's
obligations hereunder; and (ii) this Agreement has been duly authorized,
executed and delivered by such Signing Stockholder and is valid, binding and
enforceable against such Signing Stockholder in accordance with its terms.
Section 2.2 Additional Parties. The Company shall include as a
------------------
provision of each warrant agreement relating to each Company Warrant and of each
option agreement relating to each Company Management Option that acceptance and
exercise of such Company Warrant or Company Management Option constitutes the
agreement of the holder thereof to become a party to and to be bound by this
Agreement upon the acquisition of Shares by such Warrantholder or Optionholder
upon exercise of such Company Warrant or Company Management Option.
4
<PAGE>
ARTICLE III
TRANSFER RESTRICTIONS
Section 3.1 General Restrictions on Transfer. No Stockholder shall, directly or
--------------------------------
indirectly, sell, offer for sale, transfer, assign, pledge, hypothecate or
otherwise dispose of any Shares or any right thereto or interest therein (any
such transaction, other than by operation of law, a "Transfer") at any time
except in compliance with applicable federal and state securities laws and in
compliance with this Agreement.
Section 3.2 Permitted Transfers. (a) Subject to Section 3.1, a
-------------------
Stockholder may Transfer Shares at any time to any party, provided that upon
acceptance of such transferred Shares, and by virtue of the Transfer and this
Agreement, the party to whom such Transfer is to be made shall become bound by
all the terms of this Agreement to the same extent as a Stockholder is so bound.
Any party to whom such Transfer has been made consistent with the provisions of
this Article III (any such Transfer, a "Permitted Transfer") is herein referred
to as a "Permitted Transferee" and, after the consummation of such Permitted
Transfer, such Permitted Transferee shall be deemed a Stockholder for purposes
of this Agreement.
(b) MS or SB may assign to any Permitted Transferee part or
all of MS's or SB's rights, respectively, to designate Directors and fill
certain vacancies on the Board of Directors pursuant to Sections 4.2 and 4.4 of
this Agreement (such transferee, an "MS Nomination Successor" or an "SB
Nomination Successor", as the case may be); provided, however, that the total
number of Directors with respect to which MS and all MS Nomination Successors
together, and SB and all SB Nomination Successors together, shall have
designation and vacancy filling rights, respectively, shall not exceed the
lesser of (i) two and (ii) the number of Directors with respect to which MS and
the MS Nomination Successors, or SB and the SB Nomination Successors, as the
case may be, shall have rights pursuant to Sections 4.2(b) and 4.2(c); and
provided, further, that no assignment of any of MS's or SB's rights pursuant to
this paragraph shall be effective or recognized by the Company unless set forth
in a written agreement between MS or SB, as the case may be, and the prospective
MS Nomination Successor or SB Nomination Successor, as the case may be; and
provided, further, that neither MS nor SB shall enter into a written agreement
with any party that, when taken together with any other written agreement or
agreements entered into by MS or SB, respectively, would grant rights with
respect to the designation or nomination of Directors or the filling of
vacancies on the Board of Directors inconsistent with or in excess of those
provided for in this Section 3.2(b) and in Section 4.2(b). The assignor of any
assignment described in this Section 3.2(b) shall give written notice of such
assignment, including the identity of the assignee, to the Company no later than
two business days after such assignment is effected.
Section 3.3 Tag-Along Rights. (a) In the event any Stockholder or
----------------
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) of
Stockholders proposes to Transfer Shares in a Tag-Along Sale (the "Selling
Stockholders"), each Tag-Along Stockholder shall be afforded the opportunity to
participate therein in accordance with this Section 3.3.
5
<PAGE>
(b) In connection with each Tag-Along Sale, each Tag-Along
Stockholder shall have the right to Transfer to the Tag-Along Purchaser a
number of Shares (a "Tag Along Allotment") held by such Tag-Along Stockholder
equal to the total number of Shares held by such Tag-Along Stockholder
multiplied by the Sale Percentage (as defined below), such Transfer to be upon
identical terms and conditions as those of the most favored Selling Stockholder
in the Tag-Along Sale and at a price equal to the greater of (1) the price to be
paid to the most favored Selling Stockholder in the Tag Along Sale or (2) a
fraction the numerator of which shall be the aggregate consideration paid by the
Tag-Along Purchaser for all of the Shares, if any, purchased by it in any
related transaction constituting a part of the Tag-Along Sale or in any other
transaction occurring during the 60 days immediately preceding the date the
Original Transfer Notice (as defined below) is sent, and the denominator of
which shall be the total number of Shares purchased by the Tag-Along purchaser
during such 60-day period. "Sale Percentage" shall be a fraction the numerator
of which shall be the total number of Shares to be acquired by the Tag-Along
Purchaser in the Tag-Along Sale (the "Maximum Number") and the denominator of
which shall be the total number of Shares held collectively by the Selling
Stockholders and the Tag-Along Stockholders on the date the Tag-Along Sale is
consummated.
(c) At the time any Tag-Along Sale is proposed, the Selling
Stockholders shall give written notice to each Tag-Along Stockholder of its
right to sell Shares hereunder (the "Original Transfer Notice"), which notice
shall identify the proposed Tag-Along Purchaser and state the Maximum Number of
Shares to be acquired by the Tag-Along Purchaser in the Tag-Along Sale, an
estimate of the Sale Percentage (based on the number of Shares that would be
outstanding as of the date such notice is sent assuming the exercise of all
In-the-Money Company Warrants and In-the-Money Company Management Options), the
proposed transfer price (including the form and terms of any non-cash
consideration to be received in connection therewith), the proposed consummation
date of any such Transfer (the "Original Transfer Date") and any other material
terms and conditions of the proposed Transfer. The Original Transfer Notice
shall be accompanied by a complete and correct copy of any offer to, or
agreement with, the Selling Stockholders by the Tag-Along Purchaser to purchase
such Shares. The Original Transfer Notice shall be provided to the Tag-Along
Stockholders not less than 30 days prior to the Original Transfer Date. The
Selling Stockholders shall supply a copy of the Original Transfer Notice to the
Company at the same time that it is furnished to the Tag-Along Stockholders. The
Company shall provide a copy of the Original Transfer Notice to each holder of
an In-the-Money Company Warrant and each holder of an In-the-Money Company
Management Option not later than the 25th day prior to the Original Transfer
Date, it being understood that holders of In-the-Money Company Warrants and
In-the-Money Company Management Options who exercise such warrants or options
prior to the fifth business day prior to the Transfer Date shall be Tag-Along
Stockholders with respect to all Shares held by them as of such day and shall be
permitted to participate in the Tag-Along Sale with respect to such Shares by
complying with all of the provisions of this Section 3.3 that are applicable to
Tag-Along Stockholders.
(d) In the event of any change in the consideration to be
paid by the Tag-Along Purchaser or any change in any other material term or
condition of the Tag-Along Sale, a new transfer notice (a "New Transfer Notice")
shall be provided to the Tag-Along Stockholders
6
<PAGE>
(with a copy to the Company) and a new transfer date (a "New Transfer Date")
shall be set, which New Transfer Date shall be not less than 30 days next
following the date such New Transfer Notice is provided to the Tag-Along
Stockholders; provided, however, that in the event of an increase in the
consideration to be received by the Selling Stockholders and the Tag-Along
Stockholders, a New Transfer Notice shall be provided to the Tag-Along
Stockholders but no New Transfer Date need be set, and the Tag-Along Sale may be
consummated on the Original Transfer Date, so long as the New Transfer Notice is
provided to the Tag-Along Stockholders not later than the seventh day prior to
the Original Transfer Date, or, if such New Transfer Notice is provided to the
Tag-Along Stockholders on or after the seventh day prior to the Original
Transfer Date, the New Transfer Notice may specify a New Transfer Date, which
date shall not be fewer than seven days from the date the New Transfer Notice is
provided to the Tag-Along Stockholders, and the Tag-Along Sale may be
consummated on such New Transfer Date. The Company shall provide a copy of the
New Transfer Notice to holders of In-the-Money Company Warrants and In-the-Money
Company Options not later than the 25th day prior to the New Transfer Date.
(e) Each Tag-Along Stockholder that wishes to participate
in the Tag-Along Sale shall provide written notice (or oral notice confirmed in
writing) (the "Tag-Along Notice") to the Selling Stockholders not less than two
business days prior to the Transfer Date. The Tag-Along Notice shall set forth
the number of Shares ("Included Shares") that such Tag-Along Stockholder elects
to include in the Transfer, which number shall not exceed such Tag-Along
Stockholder's Tag-Along Allotment; provided, however, that the number of
Included Shares for any Tag-Along Notice that fails to set forth a number of
Included Shares, or sets forth a number of Included Shares in excess of such
Tag-Along Stockholder's Tag-Along Allotment, shall be deemed to be such
Tag-Along Stockholder's Tag-Along Allotment. The Tag-Along Notices given by the
Tag-Along Stockholders shall constitute their binding agreements to sell such
Shares on the terms and conditions applicable to the Tag-Along Sale.
(f) At the consummation of the Tag-Along Sale, the
Tag-Along Purchaser shall accept Transfer of (i) from each Tag-Along
Stockholder, upon the terms and at the price set forth in paragraph (b), the
number of Included Shares indicated on such Tag-Along Stockholder's timely
received Tag-Along Notice, and (ii) from the Selling Stockholders a number of
shares equal to the difference between the Maximum Number and the aggregate
number of Included Shares indicated on all timely received Tag-Along Notices.
(g) No Tag-Along Stockholder shall be required to make any
representations and warranties to any person in connection with a Tag-Along Sale
except that Tag-Along Stockholders may be required to make such representations
and warranties as are made by all of the Selling Stockholders, to the extent
applicable to a particular Tag-Along Stockholder.
(h) The provisions of this Section 3.3 shall not apply to
any Transfers pursuant to an underwritten public offering, whether by the
Company or a Stockholder or group of Stockholders.
7
<PAGE>
Section 3.4 Rights to Compel Sale. (a) In the event any Stockholder
---------------------
or group of Stockholders holding a Compelling Stake (the "Compelling
Stockholders") shall enter into a written agreement with an unaffiliated party
(a "Compelled Sale Purchaser") to sell solely for cash or securities listed on a
U.S. national securities exchange or included for quotation in a U.S.
inter-dealer quotation system of a registered national securities association
all, but not less than all, of the then outstanding Shares in a bona fide
transaction (a "Compelled Sale Agreement"), the Compelling Stockholders shall
have the right, subject to the terms and conditions set forth below, to require
each of the Remaining Stockholders to sell all, but not less than all, of the
Shares held by each such Remaining Stockholder (a "Compelled Sale"). Subject to
the terms and conditions set forth below, the Remaining Stockholders shall, and
hereby agree to, sell such Shares on the same terms and conditions as the most
favored Compelling Stockholder sells its Shares pursuant to the Compelled Sale
Agreement and at a consideration per Share (the "Compelled Sale Price") equal to
the greater of (i) the consideration to be received by the most favored
Compelling Stockholder pursuant to the Compelled Sale Agreement and (ii) the
greatest consideration received by any Compelling Stockholder in any transaction
between such Compelling Stockholder and the Compelled Sale Purchaser during the
60-day period preceding the date the Compelled Sale Notice (as defined below) is
given.
(b) Within two business days following execution of any
Compelled Sale Agreement, the Compelling Stockholders shall provide each
Remaining Stockholder with written notice thereof (the "Compelled Sale Notice").
The Compelled Sale Notice shall attach a copy of the Compelled Sale Agreement
and shall set forth: (i) the name and address of the Compelled Sale Purchaser;
(ii) the Compelled Sale Price and the terms and conditions of payment offered by
the Compelled Sale Purchaser; and (iii) all other material terms of such
Compelled Sale, including the proposed consummation date of the Compelled Sale
(the "Compelled Sale Date"), which shall be not less than 20 days following the
delivery of the Compelled Sale Notice, and the outside termination date of the
Compelled Sale Agreement (the "Compelled Sale Termination Date"), which shall be
not more than 180 days following the delivery of the Compelled Sale Notice. In
the event of any change in the consideration to be paid, or any material change
to any of the terms or conditions of the Compelled Sale, a new Compelled Sale
Notice shall be provided to the Remaining Stockholders, and the Compelled Sale
Closing (as defined below) shall not occur earlier than the 20th day subsequent
to the date on which such new Compelled Sale Notice is provided.
(c) Subject to the satisfaction or waiver of the terms and
conditions of the Compelled Sale Agreement (other than any condition relating to
the delivery of Shares by the Remaining Stockholders), the Compelled Sale shall
occur at a closing (the "Compelled Sale Closing") on the Compelled Sale Date
during normal business hours at a time and place reasonably designated by the
Compelling Stockholders and the Compelled Sale Purchaser; provided that if the
Compelled Sale Closing shall not have occurred on or prior to the Compelled Sale
Termination Date, the Remaining Stockholders will be released from their
obligations under this Section 3.4, unless and until the Compelling Stockholders
deliver a new Compelled Sale Notice in compliance with this Section 3.4.
8
<PAGE>
(d) No Remaining Stockholder shall be required to make any
representations and warranties to any person in connection with such Compelled
Sale except as to (i) good title and the absence of liens with respect to such
Remaining Stockholder's Shares, (ii) the corporate or other existence of such
Remaining Stockholder and (iii) the authority for and the validity and binding
effect of, and the absence of any conflicts under the charter documents and
material agreements of such Remaining Stockholder as to, any agreements entered
into by such Remaining Stockholder in connection with such Transfer. The
Remaining Stockholders shall not be required to provide any indemnities in
connection with such Transfer except for a breach of such representations and
warranties.
(e) In lieu of a sale of Shares, the Compelled Sale may be
accomplished by, and the Compelled Sale Agreement may provide for, a merger,
consolidation or other business combination permitted by Delaware law.
(f) In the event the Compelled Sale is accomplished in any
manner permitted by this Section 3.4 that would otherwise give rise to
appraisal, dissenters' or other similar rights under any applicable law, no
Stockholder shall take any action to exercise, enforce or perfect such rights,
if any, and each Stockholder hereby expressly waives (on behalf of itself and
any transferee or other successor) all such rights.
Section 3.5 Deliveries at Closing; Method of Payment of Purchase
----------------------------------------------------
Price. (a) At the closing of any Tag-Along Sale or Compelled Sale, each
- -----
Tag-Along Stockholder or Remaining Stockholder, as the case may be, shall
deliver to the Tag-Along Purchaser or the Compelled Sale Purchaser, as the case
may be, against delivery of the purchase price for the Shares being sold by it,
(i) certificates appropriately endorsed and representing the Shares being sold,
if any, free and clear of any lien, claim or encumbrance, and (ii) such other
documents, including, without limitation, executed stock powers and evidence of
ownership and authority, as the purchasers may reasonably request. The purchase
price shall be paid by wire transfer of immediately available funds to the bank
account designated by each Tag-Along Stockholder or Remaining Stockholder, as
the case may be, or by certified check if the amount payable to the recipient
thereof is less than $1,000,000.
(b) If any Remaining Stockholder fails to deliver
certificates representing its Shares as required by this Section 3.5 and the
Compelled Sale in question is consummated, then such Remaining Stockholder shall
not be entitled to the consideration it is to receive under this Section 3.5
until it cures such failure (provided that after curing such failure it shall be
so entitled to such consideration without interest). Such Remaining Stockholder
shall, until such failure is cured, hold such certificates in trust for the
Compelled Sale Purchaser, who shall be deemed to be the beneficial owner of the
Shares represented by such certificates.
Section 3.6 Company Cooperation. At any time the Company is not
-------------------
filing periodic reports with the United States Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended, the
Company shall cooperate with the Stockholders and make available on a timely
basis such information as the Stockholders may reasonably request (to the extent
that such information can be provided without unreasonable expense
9
<PAGE>
or disruption of the Company's affairs) to facilitate a Transfer of 5% or more
of the issued and outstanding Shares to any prospective bona fide Permitted
Transferee. The Company shall provide to each Stockholder consolidated financial
statements for the Company and its subsidiaries, prepared in accordance with
generally accepted accounting practices as in effect from time to time, for each
fiscal year and each of the first three fiscal quarters of each fiscal year.
Section 3.7 Legend on Certificates. Each certificate representing
----------------------
Shares shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF A
STOCKHOLDERS' AGREEMENT (THE "STOCKHOLDERS' AGREEMENT") DATED AS OF
NOVEMBER 5, 1997 (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
CHI ENERGY, INC. AND WILL BE MAILED TO A STOCKHOLDER WITHOUT CHARGE
WITHIN FIVE DAYS AFTER RECEIPT BY CHI ENERGY, INC. OF A WRITTEN
REQUEST THEREFOR FROM SUCH STOCKHOLDER). NO TRANSFER, SALE,
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT AS
OTHERWISE PROVIDED IN SUCH STOCKHOLDERS' AGREEMENT. IN ADDITION, THE
STOCKHOLDERS' AGREEMENT CONTAINS CERTAIN RESTRICTIONS AND AGREEMENTS
WITH RESPECT TO THE VOTING OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE.
ARTICLE IV
CORPORATE GOVERNANCE
Section 4.1 Initial Board; Number of Directors. (a) The number of Directors
----------------------------------
constituting the Whole Board initially shall be seven. The initial Board of
Directors shall consist of the five individuals listed below, and two vacancies,
one to be filled at any time by MS in accordance with Section 4.4(b) (the "MS
Vacancy") and one to be filled at any time by SB in accordance with Section
4.4(b) (the "SB Vacancy"). The five initial Directors shall be James T. Stewart,
Edward M. Stern, Charles F. Goff, Michael Petrick and James DuPlessie. For
purposes of Section 4.2, Messrs. Stewart and Stern will be considered Officer
Nominees, Mr. Goff will be considered an Outside Nominee, Mr. Petrick will be
considered an MS Nominee and Mr. DuPlessie will be considered an SB Nominee.
Each Director shall serve as a Director until his death, disability,
resignation or removal or until his successor shall thereafter have been duly
elected and qualified in accordance with the provisions of this Agreement.
10
<PAGE>
(b) For so long as this Agreement is in effect, no
Stockholder shall vote in favor of or consent to any change in the number of
Directors constituting the Whole Board.
4.2 Nomination and Election of Directors. (a) The Company and the
------------------------------------
Stockholders agree that the following procedures shall govern the nomination and
election of Directors of the Company:
(i) At each meeting of the Company's stockholders at which
Directors are to be elected (each, an "Election Meeting"), subject
to paragraph (b) below, the Company shall nominate each of the
following (collectively, the "Company Nominees"), and no others: up
to two individuals designated by MS and/or an MS Nomination
Successor (the "MS Nominees"), up to two individuals designated by
SB and/or an SB Nomination Successor (the "SB Nominees"), two
individuals designated by majority vote of the Whole Board, both of
whom shall be executive officers of the Company (the "Officer
Nominees"), and one individual (the "Outside Nominee") designated
by the number of directors constituting the Whole Board less one,
which individual shall not be, and shall not have been during the
three years immediately preceding the date of the relevant Election
Meeting, employed by, a director of, or otherwise affiliated with
the Company (except as the incumbent Outside Nominee) or any of its
affiliates or MS or SB or any of their respective affiliates.
(ii) No Stockholder shall make any nomination at an Election
Meeting.
(iii) Each Stockholder agrees to vote (or execute a consent with
respect to) all Shares over which it may exercise voting power in
favor of the election as a Director of each Company Nominee.
(b) In the event that at any time the voting power of the
Shares held collectively by MS and any MS Nomination Successor or held
collectively by SB and any SB Nomination Successor, respectively, is less than
15% but not less than 7% of the total voting power of the Shares then
outstanding, the number of Directors MS and any MS Nomination Successor or SB
and any SB Nomination Successor, as the case may be, shall have the right to
designate for nomination shall be reduced to one. At such time, MS or SB, as the
case may be, shall cause one of the MS Directors or SB Directors, as the case
may be, to resign, and the Board of Directors shall act to fill the vacancy
caused by such resignation with a person meeting the qualifications of an
Officer Nominee or an Outside Nominee in accordance with Section 4.4(c) of this
Agreement, or, if the MS Vacancy or SB Vacancy, as the case may be, shall not be
filled at such time, MS or SB shall not cause any MS Director or SB Director, as
the case may be, to resign, but the Board of Directors shall fill such MS
Vacancy or SB Vacancy, as the case may be, with a person meeting the
qualifications of an Officer Nominee or an Outside Nominee in accordance with
Section 4.4(c) of this Agreement.
(c) In the event that at any time the voting power of the
Shares held collectively by MS and any MS Nomination Successor or held
collectively by SB and any SB Nomination Successor, respectively, is less than
11
<PAGE>
7% of the total voting power of the Shares then outstanding, MS and any MS
Nomination Successor or SB and any SB Nomination Successor, as the case may be,
shall no longer have the right to designate individuals for nomination. At such
time, MS or SB, as the case may be, shall cause any remaining MS Directors or SB
Directors, as the case may be, to resign, and the Board of Directors shall act
to fill the vacancy caused by such resignation in accordance with the Bylaws as
then in effect.
Section 4.3 Removal of Directors. (a) Except as provided in
--------------------
subparagraph (b) below, Directors may be removed in accordance with the Bylaws
as then in effect.
(b) No Stockholder shall take any action to remove, or to
vote in favor of or to consent to the removal of any MS Director or SB
Director, except that (1) any Stockholder may take action to remove any such
director for Cause (as defined below) and (2) upon request of the Nominating
Stockholder of any MS Director or SB Director, with or without cause, and at any
time, each Stockholder immediately shall consent in writing to the removal of
such MS Director or SB Director, as the case may be. The term "Nominating
Stockholder" means any of MS, SB or any MS Nomination Successor or SB Nomination
Successor who shall have designated the relevant MS Director or SB Director for
nomination by the Company. Removal for "Cause" shall mean removal of a Director
because of such Director's (i) willful and continued failure to perform
substantially his duties with the Company in such Director's established
position, (ii) willful misconduct which is significantly injurious to the
Company monetarily or otherwise, (iii) abuse of any illegal drug or other
controlled substance or habitual intoxication, (iv) conviction for, or guilty
plea (or plea of nolo contendere) to, a crime involving moral turpitude or (v)
conviction for, or guilty plea (or plea of nolo contendere) to, a felony.
Section 4.4 Vacancies. (a) Except as provided in paragraph (b) and
---------
paragraph (c) below, vacancies on the Board of Directors shall be filled in
accordance with the Bylaws as then in effect.
(b) At any time, and without prior notice, MS or SB may
request that the MS Vacancy or the SB Vacancy, respectively, be filled and, in
connection therewith, MS or SB, respectively, shall designate an individual to
fill each such vacancy (each, a "Designee"), and the remaining Directors, prior
to conducting any other business, shall act to appoint each Designee as
Director. If the remaining Directors fail to appoint any Designee as Director,
or if the remaining Directors fill any such vacancy otherwise than with the
Designee in accordance with the foregoing sentence, the Stockholders shall
immediately cause a special meeting of stockholders to be called, or shall act
by written consent without a meeting, for the purpose of removing such person
and/or filling such vacancy with the Designee, and each Stockholder agrees to
vote all of the Shares which such Stockholder is entitled to vote at such
meeting, or to execute a written consent in respect of all such Shares, as the
case may be, in favor of removing, if necessary, any such vacancy filled with a
person who is not a Designee and in favor of the election of such Designee.
(c) If at any time after the date hereof a vacancy is
created on the Board of Directors as a result of the death, disability, removal
or resignation of any one or more MS Directors or SB Directors, the Nominating
Stockholder of each Director whose death, disability,
12
<PAGE>
removal or resignation caused a vacancy shall be entitled to designate a another
individual (each, a "New Vacancy Designee") to fill each such vacancy, and the
remaining Directors, prior to conducting any other business, shall act to elect
each New Vacancy Designee as Director. If the remaining Directors fail to elect
any New Vacancy Designee as Director, or if the remaining Directors fill any
such vacancy otherwise than with the New Vacancy Designee in accordance with the
foregoing sentence, the Stockholders shall immediately cause a special meeting
of stockholders to be called, or shall act by written consent without a meeting,
for the purpose of removing such person and/or filling such vacancy with the New
Vacancy Designee, and each Stockholder agrees to vote all of the Shares which
such Stockholder is entitled to vote at such meeting, or to execute a written
consent in respect of all such Shares, as the case may be, in favor of removing,
if necessary, any such vacancy filled with a person who is not a New Vacancy
Designee and in favor of the election of such New Vacancy Designee.
ARTICLE V
MISCELLANEOUS
Section 5.1 Effectiveness. As provided in Section 9.6 of the Plan, this
-------------
Agreement shall become effective on the later of the Effective Date (as defined
in the Plan) and the first date on which holders of not less than 66-2/3% of the
Shares issued pursuant to the Plan execute this Agreement.
Section 5.2 Waiver and Amendment. (a) Any party hereto may waive its
--------------------
rights under this Agreement at any time, provided that any agreement on the part
of any such party to any such waiver shall be valid only if set forth in an
instrument in writing signed by such party.
(b) Except as otherwise required by law, this Agreement may
be amended at any time, but only by a written instrument signed by
Stockholders holding not less than 66-2/3% of the total voting power of the
Shares then outstanding.
Section 5.3 Termination. Unless extended in a writing signed by all
-----------
of the Stockholders, this Agreement shall terminate on and be of no force or
effect from and after the first occurrence of any of the following events: (i)
the consummation of a Tag-Along Sale or a Compelled Sale (including consummation
of a Compelled Sale accomplished by merger, consolidation or sale of
substantially all of the Company's assets) pursuant to Section 3.3 or Section
3.4, respectively, of this Agreement, or (ii) the first date on which no party
has the right to nominate a director pursuant to Section 4.2(b) of this
Agreement. In addition, this Agreement may be terminated (x) at any time by a
written instrument signed by Stockholders holding not less than 66-2/3% of the
total voting power of the Shares then outstanding, or (y) in connection with an
underwritten public sale (whether by the Company or any Stockholder or group of
Stockholders) of 20% or more of the number of Shares then outstanding, by a
written instrument signed by Stockholders holding not less than a majority of
the Shares outstanding immediately prior to such public sale.
Section 5.4 Notices. All notices and other communications provided
-------
for herein shall be dated and in writing and shall be deemed to have been duly
given when delivered, if delivered personally, or when deposited in the mail if
13
<PAGE>
sent by registered or certified mail, return receipt requested, postage prepaid
and when received if delivered otherwise, to the party to whom it is directed to
the address of such Stockholder, Warrantholder, or Optionholder as shown in the
stock record book or other records of the Company or at such other address as
the parties hereto shall have specified by notice in writing to the other
parties.
Section 5.5 Applicable Law and Time of Essence. The laws of the
----------------------------------
State of Delaware shall govern the interpretation, validity and performance of
the terms of this Agreement, regardless of the law that might be applied under
principles of conflicts of law. Time shall be of the essence with respect to
this Agreement and of every part hereof.
Section 5.6 Descriptive Headings, Etc. The headings in this
-------------------------
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning of terms contained herein. Unless the context of this
Agreement otherwise requires, (i) words of any gender shall be deemed to include
each other gender; (ii) words using the singular or plural number shall also
include the plural or singular number, respectively; and (iii) references to
"hereof," "herein," "hereby" and similar terms shall refer to this entire
Agreement.
Section 5.7 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.
Section 5.8 Successors, Assigns and Transferees. This Agreement
-----------------------------------
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors, assigns and transferees except to the extent that
the terms of this Agreement limit or otherwise restrict the transferability of
any rights or obligations hereunder.
Section 5.9 Severability. In the event that any one or more of the
------------
provisions, paragraphs, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the other remaining provisions,
paragraphs, words, clauses, phrases or sentences hereof shall not be in any way
impaired, it being intended that all rights, powers and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
14
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the date
first above written.
CHI ENERGY, INC.
By:
Name:
Title:
STOCKHOLDERS:
MORGAN STANLEY & CO., INCORPORATED
By:
Name:
Title:
SWISS BANK CORPORATION, LONDON BRANCH
By:
Name:
Title:
SWISS BANK CORPORATION RESTRUCTURING & RECOVERY FUND
By:
Name:
Title:
15
<PAGE>
STONE HILL OFFSHORE PARTNERS LIMITED
By: Stone Hill Advisors LLC
By:_____________________________
John A. Motulsky
Managing Member
STONE HILL INVESTMENT CORP.
By: ______________________________________
John A. Motulsky
Vice President
for and on behalf of Stone Hill Partners, L.P.
Aurora Limited Partnership
GRS Partners III
MERRILL LYNCH CORPORATE BOND FUND, INC. -
HIGH INCOME PORTFOLIO
CORPORATE HIGH YIELD FUND, INC.
MERRILL LYNCH VARIABLE SERIES FUNDS - HIGH
CURRENT INCOME FUND
By: ________________________________________
Name:
Title:
MERRILL LYNCH GLOBAL CURRENCY BOND
SERIES - CORPORATE HIGH INCOME PORTFOLIO
By: Merrill Lynch Asset Management,
as investment advisor
By:_______________________________
Name:
Title:
16
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
CHI ENERGY, INC.
THE STOCKHOLDERS LISTED ON SCHEDULE 1,
THE WARRANTHOLDERS LISTED ON SCHEDULE 2
AND
THE OPTIONHOLDERS LISTED ON SCHEDULE 3
DATED AS OF NOVEMBER 6, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS AND USAGE
Section 1.1. Definitions............................................ 1
Section 1.2. Usage.................................................. 6
ARTICLE II.
DEMAND REGISTRATION RIGHTS
Section 2.1. Demand Registration Rights............................. 7
Section 2.2. Limitation on Demand Registrations..................... 8
Section 2.3. Right to Include Common Stock.......................... 9
Section 2.4. Underwriters and Agents................................ 9
Section 2.5. Priority in Demand Registrations....................... 9
Section 2.6. Withdrawal.............................................10
ARTICLE III.
PIGGYBACK REGISTRATION RIGHTS
Section 3.1. Piggyback Registration Rights..........................10
Section 3.2. Priority in Piggyback Registrations....................11
Section 3.3. Limitation on Registrations............................11
Section 3.4. Survival...............................................11
ARTICLE IV.
REGISTRATION PROCEDURES AND EXPENSES
Section 4.1. Registration Procedures................................12
Section 4.2. Holders' Obligations...................................15
Section 4.3. Registration Expenses..................................16
ARTICLE V.
INDEMNIFICATION AND CONTRIBUTION
Section 5.1. Indemnification by the Company.........................17
Section 5.2. Indemnification by the Selling Holders.................18
(i)
<PAGE>
Section 5.3. Notice of Claims, Etc..................................18
Section 5.4. Contribution...........................................19
Section 5.5. Survival...............................................20
ARTICLE VI.
RULE 144 AND RULE 144A
Section 6.1. Reports, Etc...........................................20
Section 6.2. Rule 144 Information...................................20
Section 6.3. Rule 144A Information..................................21
ARTICLE VII.
MISCELLANEOUS......................21
Section 7.1. Amendment Modification and Waivers: Further Assurances.21
Section 7.2. Assignment.............................................21
Section 7.3. Invalid Provisions.....................................22
Section 7.4. Nominees for Beneficial Owners.........................22
Section 7.5. Governing Law..........................................22
Section 7.6. Notices................................................22
Section 7.7. Entire Agreement; Integration..........................23
Section 7.8. Injunctive Relief......................................24
Section 7.9. Section Headings.......................................24
Section 7.10. Counterparts...........................................24
Section 7.11. Filing.................................................24
Section 7.12. Termination............................................24
Section 7.13. Attorneys' Fees........................................24
Section 7.14. No Third Party Beneficiaries...........................24
Section 7.15. Requisite Holders......................................24
Schedule 1 List of Stockholders
Schedule 2 List of Warrantholders
Schedule 3 List of Optionholders
(ii)
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement dated as of November 6, 1997, by and
among CHI Energy, Inc., a Delaware corporation formerly known as Consolidated
Hydro, Inc., (the "Company"), the Stockholders listed on Schedule 1 hereto, as
such Schedule may be amended from time to time, the Warrantholders listed on
Schedule 2 hereto, as such Schedule may be amended from time to time, and the
Optionholders listed on Schedule 3 hereto, as such Schedule may be amended from
time to time.
W I T N E S S E T H :
-------------------
WHEREAS, in connection with the reorganization of the Company
pursuant to chapter 11, title 11 of the United States Code (the "Bankruptcy
Code"), certain creditors and preferred stockholders of the Company will receive
in exchange for their prepetition claims against, and interests in, the Company,
shares of Common Stock and Warrants, and certain members of management of the
Company will be granted certain Options; and
WHEREAS, pursuant to the Plan, the Company has undertaken to
provide certain rights to the Holders to facilitate the resale by such Holders
of their Registrable Securities under certain circumstances; and
WHEREAS, it is intended by the Company and the Holders that
this Agreement shall become effective as of the Effective Date;
NOW, THEREFORE, in consideration of good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I.
DEFINITIONS AND USAGE
Section 1.1. Definitions. As used in this Agreement:
-----------
Affiliate. "Affiliate" shall mean when, used with reference to
any Person, any other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
such Person. As used in the preceding sentence, (i) the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the Person referred to
<PAGE>
whether through the ownership of voting securities, by contract, or otherwise,
and (ii) the term "controlling" and "controls" shall have meanings correlative
to the foregoing.
Agent. "Agent" shall mean the principal placement agent on an
agented placement of Registrable Securities.
Agreement. "Agreement" shall mean this Registration Rights
Agreement, as the same may be amended from time to time.
Bankruptcy Court. "Bankruptcy Court" shall mean the United
States Bankruptcy Court, District of Delaware, which Court has entered an Order
confirming the Plan.
Commission. "Commission" shall mean the United States
Securities and Exchange Commission, or any successor governmental agency or
authority thereto.
Common Stock. "Common Stock" shall mean (a) collectively, the
Class A Common Stock, $.01 par value, and the Class B Common Stock, $.01 par
value, of the Company (including shares of Common Stock issued by the Company
upon the proper exercise of the Warrants and the Options), and (b) shares of
capital stock of the Company issued by the Company in respect of or in exchange
for shares of such common stock in connection with any stock dividend or
distribution, stock split-up, recapitalization, reclassification, subdivision,
recombination or exchange by the Company generally of shares of such common
stock.
Continuously Effective. "Continuously Effective," with respect
to a Demand Registration Statement, shall mean that it shall not cease to be
effective and available for Transfers of Registrable Securities thereunder for
longer than either (a) any 15 consecutive business days, or (b) an aggregate of
20 business days during the period specified in the relevant provision of this
Agreement.
Demand Registration Request. "Demand Registration Request"
shall have the meaning set forth in Section 2.1(a).
Demand Registration Statement. "Demand Registration Statement"
shall have the meaning set forth in Section 2.1(a).
Demanding Holders. "Demanding Holders" shall have the meaning
set forth in Section 2.1(a).
Effective Date. "Effective Date" shall have the meaning set
forth in Section 1.28 of the Plan.
2
<PAGE>
Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission promulgated thereunder.
Holders. "Holders" shall mean the Stockholders, Optionholders
and Warrantholders, collectively.
Options. "Options" shall mean the options to purchase Common
Stock issued by the Company to Optionholders on the Effective Date pursuant to
the Company's 1997 Management Stock Option Plan.
Option Shares. "Option Shares" shall mean the shares of Common
Stock issued by the Company to Optionholders upon exercise of an Option.
Optionholders. "Optionholders" shall mean the holders of the
Options and/or Option Shares listed on Schedule 2, as such Schedule may be
amended from time to time.
Person. "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or other agency or
political subdivision thereof.
Piggyback Registration Statement. "Piggyback Registration
Statement" shall have the meaning set forth in Section 3.1.
Plan. "Plan" shall mean the Plan of Reorganization of
Consolidated Hydro, Inc. under chapter 11 of the Bankruptcy Code, which was
confirmed by order of the Bankruptcy Court on October 23, 1997.
Register, Registered and Registration. "Register",
"registered", and "registration" shall refer to a registration effected by
preparing and filing with the Commission a registration statement or similar
document in compliance with the Securities Act, and the declaration or ordering
by the Commission of effectiveness of such registration statement or document.
Registrable Securities. "Registrable Securities" shall mean,
on any date of determination, (a) the Shares owned by the Stockholders; (b) the
Option Shares owned by the Optionholders; (c) the Warrants owned by the
Warrantholders; (d) the Warrant Shares owned by the Warrantholders; (e) any
shares of Common Stock or other securities issued (or issuable upon the
conversion, exchange or exercise of any warrant, option, right or other security
which is issued) as a dividend or other distribution with respect to, in
exchange by the Company generally for, or in replacement by the Company
generally of, such Shares, Warrants, Warrant Shares or Option Shares; and (f)
any securities issued in exchange for such Shares, Warrants, Warrant Shares or
Option Shares pursuant to any merger,
3
<PAGE>
recapitalization, reorganization or business combination transaction of or
involving the Company; provided, however, that (i) if, on any date of
determination, the shares of Common Stock or any securities in respect thereof
are listed on any national securities exchange or included in any U.S.
interdealer quotation system of a registered national securities association,
then only such securities held by Persons who are deemed to be "underwriters" or
"affiliates" of the Company for purposes of the Securities Act, or
Warrantholders or Optionholders otherwise ineligible to sell the Warrants,
Warrant Shares or Option Shares, as the case may be, pursuant to Rule 144(k),
shall be deemed to be Registrable Securities; and (ii) with respect to any
permitted transferee of such securities, only such securities held by permitted
transferees that have complied with the assignment requirements of Section 7.2
shall be deemed to be Registrable Securities to the extent set forth in clause
(i) above; and provided, further, however, as to any particular Registrable
Securities, such securities shall cease to constitute Registrable Securities for
all purposes of this Agreement (a) when a registration statement with respect to
the sale of such securities has been declared effective by order of the
Commission under the Securities Act and such securities have been transferred or
disposed of in accordance with the intended method(s) of distribution set forth
in the prospectus included in such registration statement, (b) when such
securities have been sold in compliance with the resale provisions of Rule 144
or any similar rule promulgated by the Commission under the Securities Act, or
(c) when such securities shall have been transferred or disposed of to any
Person who, at the time of such transfer or disposition, is not an Affiliate of
the Company, and the Holders shall have received an opinion of Company counsel
(who may be the Company's general counsel) stating that, in the opinion of such
counsel, subsequent public distribution of such securities shall neither require
registration under the Securities Act or qualification (or any similar filing)
under any state securities or blue sky laws then in effect nor the use of an
applicable exemption therefrom.
Registration Expenses. "Registration Expenses" shall mean all
expenses incident to the Company's performance of or compliance with this
Agreement, including, without limitation, (a) all registration, filing,
securities exchange listing, rating agency and National Association of
Securities Dealers, Inc. fees, (b) all registration, filing, qualification and
other fees and expenses of complying with state securities or "blue sky" laws of
all jurisdictions in which the securities are to be registered and the
reasonable legal fees and expenses incurred in connection with the "blue sky"
qualifications of the Registrable Securities, (c) all word processing,
duplicating, printing, messenger and delivery expenses incurred by the Company,
(d) the fees and disbursements of counsel for the Company and of its independent
public accountants, including, without limitation, the expenses of any special
audits or "cold comfort" letters required by or incident to such performance and
compliance, (e) the reasonable fees and disbursements incurred for one counsel
or firm of counsel selected by the Requisite Holders of the Registrable
Securities, (f) reasonable fees and disbursements of underwriters customarily
paid by issuers or sellers of securities (but excluding underwriting discounts
and commissions, broker-dealer concessions, allowances,
4
<PAGE>
and marketing expenses, and transfer taxes relating to the Registrable
Securities being registered), (g) premiums and other costs to maintain in force
directors' and officers' policies of insurance to the extent the Company elects
to obtain such insurance, and (h) fees and expenses of other Persons retained or
employed by the Company.
Requisite Holders. "Requisite Holders" shall mean any Holder
or Holders of a majority in interest of the relevant class of Registrable
Securities requested to be included in a registration or other relevant action,
as the case may be.
Rule 144. "Rule 144" shall mean Rule 144 promulgated by the
Commission under the Securities Act, and any successor provision thereto.
Rule 144A. "Rule 144A" shall mean Rule 144A promulgated by the
Commission under the Securities Act, and any successor provision thereto.
Securities Act. "Securities Act" shall mean the Securities Act
of 1933, as amended, and the rules and regulations of the Commission promulgated
thereunder.
Selling Holders. "Selling Holders" shall mean, with respect to
a specified registration pursuant to this Agreement, Holders whose Registrable
Securities are included in such registration.
Shares. "Shares" shall mean the shares of Common Stock
distributed on the Effective Date to creditors of the Company pursuant to the
Plan.
Stockholders. "Stockholders" shall mean the holders of the
Shares listed on Schedule 1, as such Schedule may be amended from time to time.
Transfer. "Transfer" shall mean and include the act of
selling, giving, transferring, creating a trust (voting or otherwise), assigning
or otherwise disposing of (other than pledging, hypothecating or otherwise
transferring as collateral security for an underlying obligation) (and
correlative words shall have correlative meanings); provided however, that any
transfer or other disposition upon foreclosure or other exercise of remedies of
a secured creditor after an event of default under or with respect to a pledge,
hypothecation or other transfer as collateral security shall constitute a
"Transfer."
Underwriters' Representative. "Underwriters' Representative"
shall mean the managing underwriter, or, in the case of a co-managed
underwriting, the lead manager, within the meaning of Rule 12b-2 under the
Exchange Act.
Violation. "Violation" shall have the meaning set forth in
Section 5.1.
5
<PAGE>
Warrants. "Warrants" shall mean, collectively, the Series B
Warrants and the Series C Warrants issued by the Company on the Effective Date
pursuant to the Plan to holders, prior to the Effective Date, of the Company's
Series F 8% Convertible Preferred Stock, Series G 9.85% Junior Convertible
Preferred Stock and Series H 13.5% Cumulative Redeemable Exchangeable Preferred
Stock.
Warrantholders. "Warrantholders" shall mean the holders of the
Warrants listed on Schedule 3, as such Schedule may be amended from time to
time.
Warrant Shares. "Warrant Shares" shall mean the shares of
Common Stock issued by the Company to Warrantholders upon exercise of the
Warrants.
Section 1.2. Usage. (a) References to a Person are also
-----
references to its assigns and successors in interest (by any means whatever,
including merger, consolidation or sale of all or substantially all the assets
of such Person or otherwise, as the case may be).
(b) References to Registrable Securities "owned" by a Holder
shall include Registrable Securities beneficially owned by such Person but which
are held of record in the name of a nominee, trustee, custodian, or other agent,
but shall exclude shares of Common Stock held by a Holder in a fiduciary
capacity for customers of such Person.
(c) References to a document are to it as amended, waived and
otherwise modified from time to time and references to a statute or other
governmental rule are to it as amended and otherwise modified from time to time
(and references to any provision thereof shall include references to any
successor provision).
(d) References to Sections, Articles or Schedules are to
sections or articles hereof or schedules hereto, unless the context otherwise
requires.
(e) The definitions set forth herein are equally applicable
both to the singular and plural forms and the feminine, masculine and neuter
forms of the terms defined.
(f) The term "including" and correlative terms shall be deemed
to be followed by "without limitation" whether or not followed by such words or
words of like import.
(g) The term "hereof" and similar terms refer to this
Agreement as a whole.
(h) The "date of" any notice or request given pursuant to this
Agreement shall be determined in accordance with Section 7.6.
6
<PAGE>
ARTICLE II.
DEMAND REGISTRATION RIGHTS
Section 2.1. Demand Registration Rights. (a) At any time
--------------------------
during the period commencing on the (x) day next following the first anniversary
of the Effective Date and ending on the third anniversary of the Effective Date,
one or more Stockholders (the "Demanding Stockholders") and (y) day next
following the third anniversary of the Effective Date and ending on the sixth
anniversary of the Effective Date, one or more Warrantholders (the "Demanding
Warrantholders" and, together with the Demanding Stockholders, the "Demanding
Holders"), shall be entitled to deliver a written notice (a "Demand Registration
Request") to the Company requesting that the Company prepare and file with the
Commission a registration statement on an appropriate registration form (a
"Demand Registration Statement") providing, subject to Section 2.6, for the
registration under the Securities Act of the offer and sale of all or such
number of such Demanding Holder's Registrable Securities as the Demanding Holder
requests in writing; provided, however, that no request made pursuant to this
Section 2.1(a) if (i) within 12 months prior to the date of such request a
Demand Registration Statement pursuant to this Section 2.1(a) covering any
Registrable Securities shall have been declared effective by the Commission or
(ii) the Registrable Securities that the Demanding Holders seek to have included
in the Demand Registration Statement do not, in the aggregate, constitute at
least 15% of the applicable class of Registrable Securities then outstanding (it
being hereby understood for purposes of this Section 2.1 that the phrase
"applicable class of Registrable Securities" is intended to distinguish, on a
class-by-class basis, among the Common Stock, the Series B Warrants and the
Series C Warrants). Notwithstanding the foregoing sentence, in no event shall
(i) a Demand Registration Request be deemed effective pursuant to this Section
2.1 unless and until the Registrable Securities that the Demanding Holders seek
to have included in the Demand Registration Statement, when aggregated with the
Registrable Securities that other Stockholders or Warrantholders, as applicable,
seek to have included in the Demand Registration Statement pursuant to Section
2.1(c) hereof, constitute at least 33% of the applicable class of Registrable
Securities then outstanding and (ii) any Optionholder have any right to deliver
a Demand Registration Request pursuant to this Section 2.1(a). Subject to
Section 2.1(b), after an effective Demand Registration Request is made pursuant
to this Section 2.1(a), the Company shall prepare and file the Demand
Registration Statement with the Commission as promptly as practicable. Each
Demand Registration Statement shall provide for an underwritten offering
(whether on a "firm," "best efforts" or "reasonable efforts" basis, or
otherwise) or an agented placement. Each Demand Registration Request made
pursuant to this Section 2.1(a) shall be addressed to the attention of the
Secretary of the Company, contain (with respect to each Demanding Holder making
such request) the information prescribed by Items 404 (if applicable) and 507 of
Regulation S-K under the Securities Act and General Instruction C to Schedule
13D under the Exchange Act, specify the number and class of Registrable
Securities to be registered and the intended methods of
7
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disposition thereof, and state that the request for a Demand Registration
Statement is being made pursuant to this Section 2.1.
(b) The Company shall be entitled to postpone for up to 120
days the filing of any Demand Registration Statement otherwise required to be
prepared and filed with the Commission pursuant to this Section 2.1 if (i) the
Board of Directors of the Company determines, in its good faith reasonable
judgment, that such registration and the Transfer of Registrable Securities
contemplated thereby would materially interfere with, or require the premature
disclosure of, any financing, acquisition, material asset transaction, business
combination transaction, reorganization or recapitalization of or involving the
Company or any of its subsidiaries or would otherwise require the premature
disclosure of any other material nonpublic information as to which the Company
has a bona fide business purpose for maintaining confidential, and (ii) the
Company promptly provides the Demanding Holders with notice of such
determination (which notice need not disclose the fact, event or information);
provided, however, that the Company shall not, within the preceding 12 months,
have postponed the filing of any other Demand Registration Statement that
subsequently was abandoned because the Demand Registration Request relating
thereto was withdrawn.
(c) Whenever the Company receives a Demand Registration
Request to effect the filing of a Demand Registration Statement of any
Registrable Securities, the Company promptly shall provide written notice of
such proposed demand registration to all other Stockholders or Warrantholders,
as applicable, holding Registrable Securities. Any such Stockholder or
Warrantholder, as applicable, may within 30 days after receipt of such notice
request in writing that all of such holder's Registrable Securities, or any
portion thereof designated by such holder, be included in the Demand
Registration Statement.
Section 2.2. Limitation on Demand Registrations. The Company
----------------------------------
shall not be obligated to prepare and file with the Commission more than three
Demand Registration Statements pursuant to Demand Registration Requests
delivered by Stockholders pursuant to Section 2.1(a)(x) and shall not be
obligated to prepare and file with the Commission more than two Demand
Registration Statements pursuant to Demand Registration Requests delivered by
Warrantholders pursuant to Section 2.1(a)(y). For purposes of the preceding
sentence, a Demand Registration Statement shall not be deemed to have been
effected (a) unless and until a registration statement with respect thereto has
been declared effective by order of the Commission, (b) if after such
registration statement has become effective, such registration or the related
offer, sale or distribution of Registrable Securities thereunder is suspended by
any stop order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason not attributable to any of the
Selling Holders and such suspension is not thereafter eliminated, or (c) if the
conditions to closing specified in any underwriting agreement containing usual
and customary terms entered into in connection with such registration are not
satisfied or waived, other than by reason of a
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failure on the part of any of the Selling Holders. The Company's obligation to
effect a given demand registration pursuant to Section 2.1 shall be deemed to
have been satisfied upon the earlier of (i) the date as of which all of the
Registrable Securities included therein shall have been disposed of pursuant to
the Demand Registration Statement, and (ii) the date as of which such Demand
Registration Statement shall have been Continuously Effective for a period of 90
days.
Section 2.3. Right to Include Common Stock. Whenever the
-----------------------------
Company receives a request for a Demand Registration Statement covering
Registrable Securities pursuant to Section 2.1, the Company shall have the right
to register in any such Demand Registration Statement (and to include in any
related offering) shares of authorized but unissued shares of Common Stock to be
sold by the Company on a primary basis. The Company may exercise the foregoing
option to include additional primary shares by delivering written notice of such
fact to each of the Selling Holders not later than the 20th day next following
the Company's receipt of the request for a Demand Registration Statement
pursuant to Section 2.1(a).
Section 2.4. Underwriters and Agents. In any Demand
-----------------------
Registration Statement, the "managing underwriter(s)" within the meaning of Rule
12b-2 under the Exchange Act or the lead agent (for an agented placement), shall
be a nationally recognized firm selected by the Company with the approval of the
Majority Holders, which approval shall not unreasonably be withheld.
Section 2.5. Priority in Demand Registrations. Whenever the
--------------------------------
Company effects a demand registration pursuant to Section 2.1, if the
Underwriters' Representative or Agent advises the Company in writing (with a
copy to each Selling Holder) that, in its opinion, the amount of securities
requested (whether by the Company or the Selling Holders) to be registered
pursuant to the Demand Registration Statement and included in the offering
contemplated thereby exceeds the amount which can be offered and sold in such
offering within a price range acceptable to the Requisite Holders, the
securities to be included in such offering and the size of the related demand
registration shall be reduced to the amount which can be offered and sold within
such price range. In the case of any such reduction, the Company shall include
in such demand registration only that amount of Registrable Securities that the
Company is so advised can be sold in the offering, determined as follows: (i)
first, Registrable Securities of those Selling Holders that are "underwriters"
or are "affiliates" of the Company (such determination to be made by such
Selling Holders upon the advice of counsel communicated in writing to the
Company) in an amount sufficient to include all the Registrable Securities being
offered for sale by such Selling Holders or in an amount sufficient to reduce
the amount of each such Selling Holder's Registrable Securities held by it after
the offering to a level that would cause such Selling Holder to no longer be an
"underwriter" or an "affiliate" of the Company, whichever amount is less; (ii)
second, all Registrable Securities (that have not theretofore been included in
the Demand Registration
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<PAGE>
Statement pursuant to clause (i) of this Section 2.5) requested pursuant to
Section 2.1 to be included in such Demand Registration Statement by the Selling
Holders, pro rata on the basis of the amount of such securities held by such
holders; and (iii) third, all other securities of the Company requested to be
included in such Demand Registration Statement (including for purposes of this
clause (iii) Registrable Securities duly requested to be included in such Demand
Registration Statement pursuant to the exercise by any Holder of its rights
under Section 3.1.), pro rata on the basis of the amount of such Securities
requested to be included.
Section 2.6. Withdrawal. Any Holder participating in a
----------
registration pursuant to this Agreement shall be permitted to withdraw all or
part of its Registrable Securities from such registration at any time (but not
later than five business days) prior to the effective date of the registration
statement covering such securities; provided that, in the event of a withdrawal
from a registration effected pursuant to Section 2.1 hereof, such registration
shall be deemed to have been effected for purposes of the first sentence of
Section 2.2 hereof except as otherwise provided in such Section; and provided
further, that such withdrawing Holder promptly shall reimburse the Company for
all Registration Expenses theretofore paid by the Company in respect of the
registration of Registrable Securities on behalf of the withdrawing Holder.
ARTICLE III.
PIGGYBACK REGISTRATION RIGHTS
Section 3.1. Piggyback Registration Rights. (a) If at any time
-----------------------------
the Company proposes to register equity securities or securities convertible or
exchangeable into or exercisable for equity securities (whether or not for its
own account) under the Securities Act in connection with a public offering
solely for cash (other than by a registration on Form S-4 or S-8 or any
successor or similar forms or filed in connection with an exchange offer,
business combination transaction or any offering of securities solely to the
Company's existing stockholders or otherwise pursuant to a dividend reinvestment
plan or a dividend reinvestment and stock purchase plan, and other than pursuant
to Article II), the Company shall promptly give each Holder of Registrable
Securities written notice of such proposed registration (a "Piggyback
Registration Statement"). Upon the written request of each Holder receiving such
Company notice delivered within 15 days following the date of such Holder's
receipt of the Company notice (which Holder notice shall identify such Holder,
the amount of Registrable Securities sought to be included in the Piggyback
Registration Statement, and the intended methods of disposition thereof), the
Company shall cause to be included in such Piggyback Registration Statement and
use commercially reasonable efforts to be registered under the Securities Act
all the Registrable Securities that each such Holder shall have requested to be
registered; provided, however, that such right of inclusion shall not apply to
any registration statement covering an underwritten offering of convertible,
exercisable or
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<PAGE>
exchangeable securities or equity securities other than the Common Stock if the
Underwriters' Representative or Agent shall advise the Company in writing (with
a copy to each Selling Holder) that in its opinion, the nature of the
Registrable Securities requested to be included in the Piggyback Registration
Statement would adversely affect the offering of the convertible, exercisable or
exchangeable securities or equity securities or would adversely affect the
timing thereof. The Company shall have the absolute right at any time to
withdraw or cease to prepare or file any registration statement for any offering
referred to in this Article III without any obligation or liability to any
Holder.
(b) For a period of six years from the date of this Agreement,
each Holder shall be entitled to have its Registrable Securities included in an
unlimited number of Piggyback Registration Statements pursuant to this Section
3.1.
Section 3.2. Priority in Piggyback Registrations. If the
-----------------------------------
Underwriters' Representative or Agent shall advise the Company in writing (with
a copy to each Selling Holder) that, in its opinion, the amount of securities
requested to be included in such offering (whether by the Company, the Selling
Holders or other holders of securities) exceeds the amount which can be offered
and sold in such offering within a price range acceptable to the Company, then
the Company shall include in such registration only that amount of securities
which the Company is so advised can be offered and sold in the offering as
follows: (i) first, all securities proposed by the Company to be sold for its
own account; (ii) second, Registrable Securities of each Selling Holder that has
properly requested that its Registrable Securities be included in such
registration and that is an "underwriter" or an "affiliate" of the Company (such
determination to be made by such Selling Holders upon the advice of counsel
communicated in writing to the Company) in an amount sufficient to include all
the Registrable Securities being offered for sale by such Selling Holder or an
amount sufficient to reduce the amount of such Selling Holder's Registrable
Securities held by it after the offering to a level that would cause such
Selling Holder to no longer be an "underwriter" or an "affiliate" of the
Company, whichever amount is less; (iii) third, such Registrable Securities
(that have not theretofore been included in such registration statement pursuant
to clause (ii) of this Section 3.2) requested to be included in such
registration statement by each Selling Holder, pro rata on the basis of the
amount of such securities held by each such Selling Holder; and (iv) fourth, all
other securities of the Company duly requested to be included in such
registration statement.
Section 3.3. Limitation on Registrations. If the Company has
---------------------------
previously filed a registration statement with respect to Registrable Securities
pursuant to Section 2.1 or this Article III, and if such previous registration
statement has not been withdrawn or abandoned, the Company shall not file or
cause to be effected any other registration of any of its equity securities or
securities convertible, exercisable or exchangeable into or for its equity
securities under the Securities Act (except on Form S-8 or any successor form),
whether on
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<PAGE>
its own behalf or at the request of any holder or holders of such securities,
until a period of 180 days has elapsed from the effective date of such a
previous registration statement.
Section 3.4. Survival. The obligations of the Company and the
--------
Selling Holders of Registrable Securities under this Article III shall survive
until the third anniversary of the date of this Agreement.
ARTICLE IV.
REGISTRATION PROCEDURES AND EXPENSES
Section 4.1. Registration Procedures. Whenever required
-----------------------
under Article II or Article III to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as practicable:
(a) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities, subject to Section 2.2,
and use commercially reasonable efforts to cause such registration statement to
become effective, in each instance giving due regard to the need to prepare
current financial statements, conduct due diligence and complete other actions
that are reasonably necessary to effect a registered public offering; provided,
however, that before filing a registration statement or prospectus or any
amendments or supplements thereto, including documents incorporated by reference
after the initial filing of the registration statement and prior to
effectiveness thereof, the Company shall use commercially reasonable efforts to
furnish to one firm of legal counsel for the Selling Holders (selected by the
Requisite Holders) copies of all such documents in the form substantially as
proposed to be filed with the Commission at least five business days prior to
filing for review and comment by such counsel.
(b) (i) Use commercially reasonable efforts to keep each
Demand Registration Statement Continuously Effective for up to 90 days or until
such earlier date as of which all the Registrable Securities under the Demand
Registration Statement shall have been disposed of in the manner described in
the Demand Registration Statement. As soon as reasonably practicable after the
occurrence of any fact or event that makes untrue any statement of a material
fact made in a registration statement or that requires the making of any
additions to or changes in a registration statement in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, the Company shall prepare and file a supplement or amendment to such
registration statement or related prospectus, or a document incorporated therein
by reference, so that such registration statement and related prospectus shall
not contain any such untrue statement of a material fact or any such omission of
a material fact; provided, however, that if the Board of Directors of the
Company determines, in its good faith reasonable judgment, that the Transfer of
Registrable
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<PAGE>
Securities pursuant to the registration statement would materially interfere
with, or require the premature disclosure of, any financing, business
combination transaction, acquisition or reorganization involving the Company or
any of its subsidiaries or otherwise would require premature disclosure of any
other material nonpublic information as to which the Company has a bona fide
business purpose for maintaining confidential, then for so long as such
circumstances or such business purpose continues to exist (provided that the
number of days of any such suspension may not exceed an aggregate of 120 days in
any 360-day period), the Company shall not be required to prepare or file any
such supplement amendment or document.
(ii) Notify each Holder whose Registrable Securities have been
included in a registration statement as soon as practicable after the Company
discovers or otherwise becomes or is made aware of the existence of any fact or
event of the kind described in Section 2.1(b) or 4.1(b)(i), and each Holder
agrees by its receipt of a Registrable Security pursuant to the Plan that, upon
receipt of any such notice from the Company of the existence of any fact or
event of the kind described in Section 2.1(b) or 4.1(b)(i) (which notice need
not disclose the fact, event or information), such Holder will forthwith
discontinue the disposition of any Registrable Securities pursuant to the
registration statement until such Holder's receipt of the copies of a
supplemented or amended prospectus as contemplated by Section 4.1(b)(i), or
until it is advised in writing by the Company that the use of the prospectus
related to the registration statement may be resumed, and has received copies of
any additional or supplemental filings that are incorporated by reference in
such prospectus. If so directed by the Company, each Holder will deliver to the
Company all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Securities that was
current at the time of receipt of such notice.
(iii) Notwithstanding the foregoing, if, in the case of a
Demand Registration Statement, the filing thereof with the Commission is
postponed due to circumstances of the type described in the proviso to Section
2.1(b)(i), the period for filing a Demand Registration Statement shall be
extended by the aggregate number of days of such postponement.
(c) Subject to Section 4.1(b)(i), prepare and file with the
Commission such amendments, supplements or incorporated documents to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement. If the registration statement provides for an
underwritten offering, the Company shall amend the registration statement or
supplement the prospectus whenever required by the terms of the underwriting
agreement entered into pursuant to Section 4.1(f). In the event that any
Registrable Securities included in a registration statement subject to or
required by this Agreement remain unsold at the end of the period during which
the Company is obligated to use commercially reasonable efforts to maintain the
effectiveness of such registration statement, the Company may file a post-
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<PAGE>
effective amendment to the registration statement for the purpose of removing
such securities from registered status.
(d) Furnish to each Selling Holder of Registrable Securities
copies of the registration statement, any pre-effective or post-effective
amendment thereto, the prospectus, including each preliminary prospectus and any
amendments or supplements thereto, in each case in conformity with the
requirements of the Securities Act.
(e) Use commercially reasonable efforts (i) to register and
qualify the securities covered by such registration statement under the
securities or blue sky laws of such states or jurisdictions as shall be
reasonably requested by the Underwriters' Representative or Agent (as
applicable, or if inapplicable the Requisite Holders), and (ii) to obtain the
withdrawal of any order suspending the effectiveness of a registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of the offer and transfer of any of the Registrable
Securities in any jurisdiction, at the earliest practicable moment; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business, subject itself to taxation or to
file a general consent to service of process in any states or jurisdictions
where it is not now so subject.
(f) In the event of Demand Registration Statement, enter into
and perform the Company's obligations under an underwriting or agency agreement
(including indemnification and contribution obligations of underwriters or
agents), in usual and customary form, with the managing underwriter or
underwriters of or agents for such offering. The Company shall also cooperate
with the Requisite Holders and the Underwriters' Representative or Agent for
such offering in the marketing of the Registrable Securities, including making
reasonably available the Company's officers, accounts, counsel, premises, and
books and records for such purpose.
(g) Promptly notify each Selling Holder of any stop order
issued or threatened to be issued by the Commission in connection therewith (and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered).
(h) Make generally available to the Company's security holders
an earnings statement satisfying the provisions of Section 11(a) of the
Securities Act no later than 90 days following the end of the 12-month period
beginning with the first month of the Company's first fiscal quarter commencing
after the effective date of each registration statement filed pursuant to this
Agreement.
(i) Make reasonably available for inspection by any
underwriter participating in such offering and not more than one firm of legal
counsel to all underwriters and one firm of legal counsel to all Selling
Holders, all financial and other information as
14
<PAGE>
shall be reasonably requested by them, and provide the foregoing Persons the
opportunity to discuss the business affairs of the Company with its principal
executives and independent public accountants who have certified the audited
financial statements included in such registration statement, in each case to
the extent necessary to enable them to exercise their due diligence
responsibility under the Securities Act; provided, however, that information
that the Company determines, in good faith, to be confidential and which the
Company advises such Person in writing, is confidential shall not be disclosed
unless such Person signs a confidentiality agreement reasonably satisfactory to
the Company.
(j) In the event of a Demand Registration Statement, use
commercially reasonable efforts to obtain a "comfort letter" from its
independent public accountants and legal opinions of counsel to the Company
addressed to each underwriter or agent and each Holder who is a Selling Holder,
in customary form and covering such matters of the type customarily covered by
such letters and in a form that shall be reasonably satisfactory to the
Requisite Holders and the Underwriters' Representative or Agent. The Company
shall furnish to each underwriter or agent a signed counterpart of any such
comfort letter or legal opinion. Delivery of any comfort letter shall be subject
to the recipient furnishing such written representations or acknowledgments as
are customarily provided under SAS No. 72. Nothing in the immediately preceding
sentence shall be deemed to require an underwriter or agent to make
representations and warranties if the underwriter or agent is willing to receive
a letter in the form to be provided to underwriters or agents not making
representations and warranties under SAS No. 76.
(k) Provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration statement
from and after a date not later than the effective date of such registration
statement.
(l) Use commercially reasonable efforts to cause the
Registrable Securities covered by such registration statement, if then listed on
a national securities exchange or included for quotation in a U.S. inter-dealer
quotation system of a registered national securitied association, to continue to
be so listed or included for a reasonable period of time after the offering.
(m) Provide a CUSIP number for all Registrable Securities
covered by such registration statement not later than the effective date of such
registration statement.
(n) In the event of a Demand Registration Statement, if any
broker-dealer registered under the Exchange Act shall be an "Affiliate" (as
defined in Rule 2729(b)(1) of the rules and regulations of the National
Association of Securities Dealers, Inc., (the "NASD Rules"), or any successor
provisions thereto) of the Company or has a "conflict of interest" (as such term
is defined in Rule 2720(b)(7) of the NASD Rules, or any successor provisions
thereto) and such broker-dealer shall underwrite, participate as a member of an
underwriting
15
<PAGE>
syndicate or selling group or assist in the distribution of any Registrable
Securities covered by a registration statement, whether as a holder of such
Registrable Securities or as an underwriter, a placement or sales agent or a
broker or dealer in respect thereof, or otherwise, the Company shall assist such
broker-dealer in complying with the requirements of the NASD Rules, including,
without limitation, by (A) engaging a "qualified independent underwriter" (as
such term is defined in Rule 2720(b)(15) of the NASD Rules or any successor
provision(s) thereto) to participate in the preparation of the registration
statement relating to such Registrable Securities, to exercise usual and
customary standards of due diligence in respect thereof and to recommend the
public offering price of such Registrable Securities and the related
underwriting discounts and commissions and broker or dealer selling concessions
and allowances, (B) indemnifying such qualified independent underwriter to the
extent set forth in Article V hereof, and (C) providing all such information as
reasonably may be necessary to ensure compliance by such broker-dealer with the
requirements of the NASD Rules.
Section 4.2. Holders' Obligations. (a) It shall be a
--------------------
condition precedent to the obligations of the Company to take any action
pursuant to this Agreement with respect to the Registrable Securities of any
Selling Holder that such Selling Holder shall:
(i) furnish to the Company such information regarding such
Selling Holder and its affiliates, the number of Registrable Securities
owned and proposed to be sold by it, the intended method of disposition
of such securities and any other information as shall be required to
effect the registration of such Selling Holder's Registrable Securities
and cooperate with the Company in preparing such registration statement
and in complying with the requirements of the Securities Act;
(ii) agree to sell its Registrable Securities to the
underwriters at the same price and on substantially the same terms and
conditions as the Company or the other Persons on whose behalf the
registration statement was filed have agreed to sell their securities,
and execute the underwriting agreement agreed to by the Company and the
Requisite Holders together with all customary custody arrangements,
lock-up letters, indemnities questionnaires and other documents
reasonably required by the underwriters or agents and agreed to by the
Requisite Holders.
(b) In the event that a Demand Registration Statement or a
Piggyback Registration Statement becomes effective, if and to the extent
requested by the managing underwriter or lead agent for the offering relating
thereto, no Holder shall offer, sell or agree to sell or otherwise dispose of or
transfer, in the case of a Demand Registration Statement or Piggyback
Registration Statement covering Registrable Securities or securities convertible
into or exchangeable or exercisable for any Registrable Securities (other than,
in the case of the Selling Holders under the Demand Registration Statement or
Piggyback Registration Statement, pursuant to such Demand Registration Statement
or Piggyback Registration
16
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Statement, as the case may be), or exercise any right to register any such
securities, during the period commencing 10 days prior to the anticipated
effective date of such registration statement and ending 90 days from the
effective date of such registration statement. In order to enforce the foregoing
agreement, the Company shall be entitled to impose stop-transfer instructions
with respect to the Registrable Securities of each Holder until the end of such
period.
Section 4.3. Registration Expenses. Expenses in connection
---------------------
with registrations pursuant to this Agreement shall be allocated and paid as
follows:
(a) With respect to not more than two demand registrations
effected on behalf of Stockholders pursuant to Section 2.1(a)(x) and not more
than one demand registration effected on behalf of Warrantholders pursuant to
Section 2.1(a)(y), the Company shall bear and pay all of the Registration
Expenses incurred in connection with the registration and offering of
Registrable Securities with respect thereto; provided, however, that, the
Selling Holders shall pay (i) underwriting discounts and commissions relating to
the Registrable Securities sold by them pursuant to any such registration
statement and (ii) all fees and disbursements of any additional counsel not
required to be paid by the Company and any other advisors to the Selling
Holders.
(b) The Company shall bear and pay all Registration Expenses
incurred in connection with any Piggyback Registration Statements pursuant to
Article III, and with respect to the third demand registration, if any, effected
on behalf of Stockholders pursuant to Section 2.1(a)(x) and the second demand
registration, if any, effected on behalf of Warrantholders pursuant to Section
2.1(a)(y), other than (i) underwriting discounts and commissions relating to
Registrable Securities, (ii) the portion of any filing fees allocable to the
Registrable Securities included in such registration by the Selling Holders and
(iii) the fees and disbursements of any additional counsel not required to be
paid by the Company and other advisors to the Selling Holders (each of which
expenses in clauses (i) and (ii) shall be paid on a pro rata basis by the
Selling Holders of Registrable Securities included in such Piggyback
Registration Statement and which expenses in clause (iii) shall be paid on a pro
rata basis by the Selling Holders for which the expenses are incurred).
ARTICLE V.
INDEMNIFICATION AND CONTRIBUTION
Section 5.1. Indemnification by the Company. If any
------------------------------
Registrable Securities are included in an effective registration statement under
this Agreement, to the extent permitted by applicable law, the Company shall
indemnify and hold harmless each Selling Holder, its directors, officers,
shareholders, employees, investment advisors, agents and
17
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Affiliates, and each other Person, if any, who controls such Selling Holder
within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and expenses, including attorneys' fees and disbursements and expenses of
investigation ("Losses"), incurred by such party pursuant to any actual or
threatened action, suit, proceeding or investigation, to which any of the
foregoing Persons may become subject under the Securities Act, the Exchange Act
or other federal or state laws, insofar as such Losses arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in such effective registration statement, preliminary prospectus if
used prior to the effective date of the registration statement in which such
preliminary prospectus is included (unless such statement is corrected in the
final prospectus and the Company previously furnished copies thereof to the
Selling Holders or such other Persons) or final prospectus (as supplemented, if
the Company shall have filed with the Commission any supplement thereto) if used
during the period in which the Company is required to keep the registration
statement to which such prospectus relates current and otherwise in compliance
with Section 10(a) of the Securities Act, or the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading (collectively, a "Violation");
provided, however, that the indemnification required by this Section 5.1 shall
not apply to amounts paid in settlement of any such Loss, if such settlement is
effected without the consent of the Company (such consent not to unreasonably be
withheld), nor shall the Company be liable in any such case for any such Loss if
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished to the Company by the
indemnified party expressly for use in connection with such registration; and
provided, further, that the Company shall have no obligation to provide any
indemnification hereunder if any such Losses arise out of or are based upon an
untrue statement or alleged untrue statement or omission or alleged omission in
or from the final prospectus, if such untrue statement or alleged untrue
statement or omission or alleged untrue omission shall have been corrected in a
supplement to the final prospectus and the Selling Holder or any other Person
seeking indemnification hereunder shall have failed to deliver (or cause to be
delivered) such final prospectus as so supplemented prior to or
contemporaneously with the sale of the Registrable Securities covered by a
registration statement to the Person asserting such Losses after the Company
shall have furnished the Selling Holder or other Persons seeking indemnification
hereunder with a sufficient number of copies thereof in a manner and a time
sufficient to permit delivery of the same.
Section 5.2. Indemnification by the Selling Holders. If any
--------------------------------------
Registrable Securities are included in a registration statement under this
Agreement, to the extent permitted by applicable law, each Selling Holder shall
indemnify and hold harmless the Company, its directors, officers, shareholders,
employees, investment advisors, agents and Affiliates, and each other Person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act and Section 20 of the Exchange Act, any other Selling Holder and any
controlling Person of any such other Selling Holder from and against any and
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all losses, claims, damages, liabilities and expenses, including attorneys' fees
and disbursements and expenses of investigation, incurred by such party pursuant
to any actual or threatened action, suit, proceeding or investigation, to which
any of the foregoing Persons may otherwise become subject under the Securities
Act, the Exchange Act or other federal or state laws, insofar as such losses,
claims, damages, liabilities and expenses arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Selling Holder expressly for use in connection with such
registration statement; provided, however, that (a) the indemnification required
by this Section 5.2 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or expense if settlement is effected without the
consent of the relevant Selling Holder of Registrable Securities, which consent
shall not be unreasonably withheld, (b) in no event shall the amount of any
indemnity under this Section 5.2 and of the contribution obligation of a Selling
Holder under Section 5.4 exceed the net proceeds from the applicable offering
received by such Selling Holder, and (c) the obligation to provide
indemnification hereunder shall be several, and not joint and several, among the
indemnifying parties.
Section 5.3. Notice of Claims, Etc. Promptly after receipt by
---------------------
an indemnified party under this Article V of notice of the commencement of any
action, suit, proceeding, investigation or threat thereof made in writing for
which such indemnified party may make a claim under this Article V, such
indemnified party shall deliver to the indemnifying party a written notice of
the commencement thereof. The failure to deliver written notice to the
indemnifying party within a reasonable time following the commencement of any
such action, if and to the extent materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Article V but shall not relieve the
indemnifying party of any liability that it may have to any indemnified party
otherwise than pursuant to this Article V. Any fees and expenses incurred by the
indemnified party (including any fees and expenses incurred in connection with
investigating or preparing to defend such action or proceeding) shall be paid to
the indemnified party, as incurred (as evidenced by reasonably itemized invoices
submitted to the indemnifying party), within 30 days of written notice thereof
to the indemnifying party. Any such indemnified party shall have the right to
employ separate counsel in any such action, claim or proceeding, and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be borne and paid for by such indemnified party unless (a) the
indemnifying party shall have failed promptly to assume the defense of such
action, claim or proceeding with counsel reasonably satisfactory to the
indemnified party, or (b) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such indemnified party
and the indemnifying party, and such indemnified party shall have been advised
by its counsel that there may be one or more legal defenses available to it
which are different from or in addition to those available to the indemnifying
party and that the assertion of such defenses would either be compromised or
create a conflict of interest such that counsel employed by the indemnifying
party could not represent the indemnified party (in which
19
<PAGE>
case, if such indemnified party notifies the indemnifying party in writing that
it elects to employ separate counsel at the expense of the indemnifying party,
the indemnifying party shall not have the right to assume the defense of such
action, claim or proceeding on behalf of such indemnified party; it being
understood, however, that the indemnifying party shall not, in connection with
any one such action, claim or proceeding or separate but substantially similar
or related actions, claims or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all such indemnified parties, unless
the indemnified party shall have been advised by its counsel that a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such action, claim or proceeding such that
the counsel could not represent the indemnified party and any other of such
indemnified parties, in which event the indemnifying party shall be obligated to
pay the fees and expenses of such additional counsel or counsels). No
indemnifying party shall be liable to an indemnified party for any settlement of
any action, proceeding or claim without the prior written consent of the
indemnifying party, which consent shall not be unreasonably withheld.
Section 5.4. Contribution. If the indemnification required by
------------
this Article V from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages liabilities or
expenses referred to in this Article V:
(a) The indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any Violation has been committed by, or relates to
information supplied by, such indemnifying party or indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such Violation. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 5.1 and Section 5.2, any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
(b) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5.4 were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in Section 5.4(a). No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
20
<PAGE>
Section 5.5. Survival. The obligations of the Company and the
--------
Selling Holders of Registrable Securities under this Article V shall survive the
completion of any offering of Registrable Securities pursuant to a registration
statement under this Agreement.
ARTICLE VI.
RULE 144 AND RULE 144A
Section 6.1. Reports, Etc. The Company will file the reports
------------
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations promulgated by the Commission thereunder and will take
such further action as any Holder reasonably may request, to the extent required
from time to time to enable the Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144, (b) Rule 144A, or (c) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any Holder, the Company
will deliver to that Holder a written statement as to whether it has complied
with such requirements, a copy of the most recent annual or quarterly report of
the Company and such other reports or documents so filed as a Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration.
Section 6.2. Rule 144 Information. If at any time the Company
--------------------
is not required to file reports in compliance with either Section 13 or Section
15(d) of the Exchange Act, the Company at its expense will, forthwith upon the
request of any Holder, make available adequate current public information with
respect to the Company within the meaning of paragraph (c)(2) of Rule 144.
Section 6.3. Rule 144A Information. If at any time the Company
---------------------
is not required to file reports in compliance with either Section 13 or Section
15(d) of the Exchange Act, the Company at its expense will forthwith upon the
request of any Holder or prospective purchaser, provide to the Holder and any
prospective purchaser reasonably current information with respect to the Company
within the meaning of paragraph (d)(4) of Rule 144A.
ARTICLE VII.
MISCELLANEOUS
Section 7.1. Amendment Modification and Waivers: Further
-------------------------------------------
Assurances. (a) This Agreement may be amended with the consent of the Company,
- ----------
and the Company may
21
<PAGE>
amend this Agreement or take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company shall have
obtained the written consent to such amendment, action or omission to act of
Holders owning Registrable Securities possessing a majority in number of the
Registrable Securities then outstanding (based on the number of shares of Common
Stock representing, or issuable upon exercise for, the Registrable Securities)
and, in the case of any amendment, action of omission to act that adversely
affects any group of Holders differently from any other group of Holders, the
written consent of the Holders of a majority in number of the Registrable
Securities owned by such group of Holders.
(b) No waiver of any terms or conditions of this Agreement
shall operate as a waiver of any other breach of such terms and conditions or
any other term or condition, nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other provision hereof.
No written waiver hereunder, unless it by its own terms explicitly provides to
the contrary, shall be construed to effect a continuing waiver of the provisions
being waived and no such waiver in any instance shall constitute a waiver in any
other instance or for any other purpose or impair the right of the party against
whom such waiver is claimed in all other instances or for all other purposes to
require full compliance with such provision.
(c) Each of the parties hereto shall execute all such further
instruments and documents and take all such further action as any other party
hereto may reasonably require in order to effectuate the terms and purposes of
this Agreement.
Section 7.2. Assignment. This Agreement shall be binding upon
----------
and inure to the benefit of and be enforceable by the parties and their
respective successors and permitted assigns of Registrable Securities. Each
Holder may assign any of its rights hereunder (in whole or in part) to one or
more transferees of Registrable Securities; provided, however, that any such
transferees of Registrable Securities agrees in writing, in form and substance
satisfactory to the Company, to be bound by all of the terms and provisions
hereof and to join this Agreement as a party hereto; and provided, further, that
no such assignment of rights shall be effective with respect to Registrable
Securities that, as a result of such transfer, have ceased to be Registrable
Securities by reason of the second sentence of the definition of Registrable
Securities set forth in Section 1.1. Without limiting the foregoing, no such
assignment shall be binding upon or obligate the Company to any such assignee
unless and until the Company has received notice of the assignment as herein
provided, which notice (a) references this Agreement and (b) sets forth the
address of any assignee for the purpose of any notices hereunder. The Company
hereby agrees to amend from time to time Schedules 1, 2 and 3 to reflect the
transfers and assignments effected in accordance with this Section 7.2.
22
<PAGE>
Section 7.3. Invalid Provisions. If any provision of this
------------------
Agreement is held to be illegal, invalid or unenforceable under any present or
future law, (a) such provision will be fully severable, (b) this Agreement will
be construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof, (c) the remaining provisions of this
Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom, and
(d) in lieu of such illegal, invalid or unenforceable provision, there will be
added automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.
Section 7.4. Nominees for Beneficial Owners. In the event that
------------------------------
any Regis- trable Securities are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its election, be treated as the
holder of such Registrable Securities for purposes of request or other action by
any Holder or Holders pursuant to this Agreement or any determination of any
amount of shares of Registrable Securities held by any Holder or Holders of
Registrable Securities contemplated by this Agreement. If the beneficial owner
of any Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities. For purposes of this Agreement, "beneficial ownership"
and "beneficial owner" refer to beneficial ownership as defined in Rule 13d-3
(without regard to the 60-day provision in paragraph (d)(1)(i) thereof) under
the Exchange Act.
Section 7.5. Governing Law. THIS AGREEMENT SHALL BE GOV-
-------------
ERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
Section 7.6. Notices. All notices and requests given pursuant
-------
to this Agreement shall be in writing and shall be made by hand-delivery,
first-class mail (registered or certified, return receipt requested), confirmed
facsimile or overnight air courier guaranteeing next business day:
(a) If to the Company, to:
CHI Energy, Inc.
680 Washington Boulevard,
Fifth Floor
Stamford, Connecticut 06901
Telephone: (203) 425-8850
Facsimile: (203) 425-8880
23
<PAGE>
With a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, N.Y. 10153
Attention: Simeon Gold, Esq.
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
(b) If to a Stockholder, to the address for such
Stockholder set forth on Schedule 1.
(c) If to a Warrantholder, to the address for such
Optionholder set forth on Schedule 2.
(d) If to an Optionholder, to the address for such
Noteholder set forth on Schedule 3.
Except as otherwise provided in this Agreement, the date of each such notice and
request shall be deemed to be, and the date on which each such notice and
request shall be deemed given shall be: (i) at the time delivered, if personally
delivered or mailed; (ii) when receipt is acknowledged, if sent by facsimile;
and (iii) the next business day after timely delivery to the courier, if sent by
overnight air courier guaranteeing next business day delivery.
Section 7.7. Entire Agreement; Integration. This Agreement
-----------------------------
supersedes all prior agreements between or among any of the parties hereto with
respect to the subject matter contained herein, and this agreement embodies the
entire understanding among the parties relating to such subject matter.
Section 7.8. Injunctive Relief. Each of the parties hereto
-----------------
acknowledges that in the event of a breach by any of them of any material
provision of this Agreement, the aggrieved party may be without an adequate
remedy at law. Each of the parties therefore agrees that in the event of such a
breach hereof the aggrieved party may elect to institute and prosecute
proceedings in any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach hereof by seeking or obtaining
any such relief, the aggrieved party shall not be precluded from seeking or
obtaining any other relief to which it may be entitled.
Section 7.9. Section Headings. Section headings are for
----------------
convenience of reference only and shall not affect the meaning of any provision
of this Agreement.
24
<PAGE>
Section 7.10. Counterparts. This Agreement may be executed
------------
in any number of counterparts, each of which shall be an original and all of
which shall together constitute one and the same instrument. All signatures need
not be on the same counterpart.
Section 7.11. Filing. A copy of this Agreement and of all
------
amendments thereto shall be filed at the principal executive office of the
Company with the Secretary of the Company.
Section 7.12. Termination. This Agreement may be terminated at
-----------
any time by a written instrument signed by the parties hereto. Unless sooner
terminated in accordance with the immediately preceding sentence or as otherwise
expressly provided in this Agreement, the parties' obligations under this
Agreement (other than Article V hereof) shall terminate in their entirety on the
sixth anniversary of the date hereof, except with respect to rights which have
vested and, in accordance with the terms and subject to the conditions of this
Agreement, have been properly exercised prior to such date.
Section 7.13. No Third-Party Beneficiaries. Nothing herein
----------------------------
expressed or implied is intended to confer upon any Person, other than the
parties hereto or their respective permitted assigns, successors, heirs and
legal representatives, or any indemnified party hereunder, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first written above.
CHI ENERGY, INC.
By: /s/ Edward M. Stern
-----------------------------
Name: Edward M. Stern
Title: President and Chief
Operating Officer
CHI ENERGY, INC., as attorney-in-fact
for the holders of Class A
Common Stock
By: /s/ Edward M. Stern
-----------------------------
Name: Edward M. Stern
Title: President and Chief
Operating Officer
25
<PAGE>
CHI ENERGY, INC., as attorney-in-
fact for the holders of Class B
Common Stock
By: /s/ Edward M. Stern
---------------------------
Name: Edward M. Stern
Title: President and Chief
Operating Officer
CHI ENERGY, INC., as attorney-in-
fact for the holders of Series B
Warrants
By: /s/ Edward M. Stern
---------------------------
Name: Edward M. Stern
Title: President and Chief
Operating Officer
CHI ENERGY, INC., as attorney-in-
fact for the holders of Series C
Warrants
By: /s/ Edward M. Stern
---------------------------
Name: Edward M. Stern
Title: President and Chief
Operating Officer
CHI ENERGY, INC., as attorney-in-
fact for the holders of Options
By: /s/ Edward M. Stern
---------------------------
Name: Edward M. Stern
Title: President and Chief
Operating Officer
26
NYFS10...:\84\38684\0003\1924\AGR0227Y.430
<PAGE>
SCHEDULE 1
LIST OF STOCKHOLDERS
1-I
<PAGE>
SCHEDULE 2
LIST OF WARRANTHOLDERS
2-I
<PAGE>
SCHEDULE 3
LIST OF OPTIONHOLDERS
3-I
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This AGREEMENT, made this 31st day of October, 1997, by and
between CONSOLIDATED HYDRO, INC. (the "Company"), which will be renamed CHI
ENERGY, INC., a Delaware corporation with its principal office at 680 Washington
Boulevard, Stamford, CT 06901, and JAMES T. STEWART ("Executive"), an individual
residing at 8906 Chatsworth, Houston, TX 77024.
WHEREAS, the Company and Executive have entered into an
employment agreement, dated July 1, 1996 (the "Prior Agreement"); and
WHEREAS, in connection with the plan of reorganization of the
Company, the Company and Executive wish to enter into a revised employment
agreement whereby Executive will be employed by the Company in accordance with
the terms and conditions stated below.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive, and
----------
Executive agrees to enter the employ of the Company, for the period stated in
Section 3 hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. The Company agrees to employ
-----------------------------
Executive in the position of Chief Executive Officer and Executive agrees to
serve for the term and on the conditions hereinafter set forth. The Company will
also use its best efforts to assure Executive's election to the Board of
Directors of the Company as Chairman of the Company. Executive agrees to perform
such services not inconsistent with his position as shall from time to time be
assigned to him by the Company's Board of Directors. Executive further agrees to
serve as a Director of the Company and any subsidiaries of the Company without
additional compensation.
3. Term and Duties.
---------------
(a) Term of Employment. This Agreement shall become effective
and the terms of employment pursuant to this Agreement shall commence on the
effective date of the plan of reorganization with respect to the Company under
Chapter 11 of the United States Bankruptcy Code (the "Effective Date"), and will
continue through December 31, 2000, unless earlier terminated in accordance with
the provisions hereof; provided, however, that, unless the Company shall have
delivered to Executive written notice of its intent not to renew this
<PAGE>
Agreement prior to January 1, in any year, commencing with January 1, 2000 the
term of this Agreement shall be automatically extended by twelve (12) months
from the then effective expiration date.
(b) Duties. During the period of his employment hereunder
Executive shall serve the Company as its Chief Executive Officer, and except for
illnesses, vacation periods and reasonable leaves of absence, Executive shall
devote all his business time, attention, skill and efforts to the faithful
performance of his duties hereunder; provided, however, that with the approval
of the Board of Directors of the Company, from time to time, Executive may
serve, or continue to serve, on the boards of directors of, and hold any other
offices or positions in, companies or organizations, which, in the Board's
judgment, will not present any conflict of interest with the Company or any of
its subsidiaries or affiliates or divisions, or materially affect the
performance of Executive's duties pursuant to this Agreement.
So long as Executive is Chief Executive Officer of the
Company, he will discharge all duties incidental to such office and such further
duties as may be reasonably assigned to him from time to time by the Board of
Directors of the Company, and he shall report to the Board of Directors. Subject
to the authority and direction of the Company's Board of Directors and within
the scope of the business plan approved by the Board of Directors, Executive
shall be ultimately responsible for overall management, administration and
operation of all present and future business of the Company, its operating units
and its subsidiaries, if any, including, but not limited to, finance, budgeting,
strategic and business planning, customer development, corporate development,
service development, personnel management, consulting and marketing.
(c) Place of Employment. Executive shall perform his duties
hereunder at the Company's Houston, Texas office, and shall travel to the
Company's other offices as may be necessary or appropriate for him to perform
his duties hereunder.
4. Compensation and Reimbursement of Expenses.
------------------------------------------
(a) Salary. For all services rendered by Executive as Chief
Executive Officer during his employment under this Agreement, the Company shall
pay Executive as compensation a salary at the annual rates of $300,000 in 1997,
and $325,000 per calendar year thereafter. During the period of this Agreement
following 1998, Executive's salary shall be reviewed at least annually, with the
first such annual review in December, 1998. Such review shall be conducted by
the Board of Directors of the Company, or a committee designated by the Board of
Directors (the "Compensation Committee"), and the Board or Compensation
2
<PAGE>
Committee may increase said salary. (The salary payable to Executive in any year
is referred to herein as the "Base Salary" for such year.)
(b) Incentive Compensation. For each year during the term of
this Agreement following 1997, the Company shall pay Executive an incentive
bonus of up to 150% of Executive's Base Salary, at the discretion of the
Compensation Committee, upon the achievement of certain targets (which for 1998
shall be set by the Compensation Committee by December 31, 1997, and for each
year following 1998, shall be set by February 15 of such year). Executive's
maximum bonus opportunity of 150% of Base Salary shall be calculated as follows:
(i) 50% for meeting budget targets in the Industrial Infrastructure Business
("IIB"), (ii) 50% for exceeding budget targets in the IIB and (iii) 50% for
meeting general operating targets set by the Compensation Committee. Bonuses
shall be payable upon completion of the annual audit of the Company for the
applicable year. In its discretion, the Compensation Committee may pay Executive
by December 31, 1997 an "emergence bonus" of up to 25% of Executive's Base
Salary for 1997.
(c) Equity Plan. The Company shall grant to Executive on the
Effective Date a non-qualified stock option to purchase 230,000 shares of the
Company's Series A Common Stock (the "Common Stock") and an incentive stock
option to purchase 20,000 shares of Common Stock, each at an exercise price
equal to $10.00 per share, pursuant to the terms and conditions of the stock
option agreements attached hereto as Exhibits A and B.
(d) Reimbursement of Expenses. The Company shall pay or
reimburse Executive for all reasonable travel and other expenses incurred by
Executive in performing his obligations under this Agreement. The Company
further agrees to furnish Executive with a private office, private secretary,
and such other assistance and accommodations as shall be suitable to the
character of Executive's position with the Company and adequate for the
performance of his duties.
5. Participation in Benefit Plans. The payments provided in
------------------------------
Sections 4 and 6 hereof are in addition to any benefits Executive is entitled to
under any group hospitalization, health, dental care, disability insurance,
surety bond, death benefit plan, travel and/or accident insurance, any other
allowance and/or executive compensation plan, including, without limitation,
capital accumulation and termination pay program, restricted or non-restricted
stock purchase plan, stock option plan, retirement income or pension plan, or
other present or future group employee benefit plan or program of the Company
for which key executives are or shall become eligible, and Executive shall be
eligible to receive
3
<PAGE>
during the period of his employment under this Agreement, all benefits and
emoluments for which key executives are eligible under every such plan or
program in accordance with the provisions thereof. Notwithstanding the
foregoing, except as specifically provided in Section 4 or 6 hereof (or as
provided by the Company as of the Effective Date) Executive shall not be
entitled to receive any additional benefits or awards under discretionary plans
or programs of the Company unless the Board of Directors of the Company (or the
Compensation Committee) exercises the necessary discretion to provide Executive
with such benefits or awards.
6. Benefits Payable Upon Disability or Death.
-----------------------------------------
(a) Disability Benefits. In the event of the disability of
Executive during the term of this Agreement, the Company shall, prior to
Executive's termination of employment and subject to Section 9 hereof, continue
to pay Executive his Base Salary and the other benefits provided in Sections 4,
5 and 6 hereof during the period of his disability; provided, however, that
Executive's disability shall be taken into account by the Compensation Committee
in determining Executive's incentive compensation under Section 4 hereof. In the
event of Executive's termination of employment for "permanent disability", the
Company shall pay Executive his Base Salary and continue to provide the health
and welfare insurance benefits provided to Executive under Section 5 hereof as
of immediately prior to his date of termination (provided Executive continues to
make all required employee contributions) through the remainder of the term of
this Agreement (pursuant to the Company's benefit plans or otherwise), but (i)
Executive shall not be entitled to payment of any further bonuses under Section
4(b), (ii) no further options or other awards shall be granted Executive under
Section 4(c) or shall vest, unless the plan or agreement under which such
options or awards are granted provides otherwise, and (iii) Executive shall be
treated as a terminated employee with respect to the Company's other benefit
plans. To the extent that disability insurance is available on Executive, the
Company shall be permitted to purchase and pay for such insurance. Receipt by
Executive of such disability benefits shall reduce by such amount the obligation
of the Company to continue Executive's Base Salary under this Section 6(a).
The Company may terminate Executive's employment for
"permanent disability" in the event Executive is unable to perform his duties
under this Agreement as a result of physical or mental illness or injury for an
aggregate of six (6) or more months during any twelve-month period.
(b) Death Benefits. In the event of the death of
Executive during the term of this Agreement, the Company shall
4
<PAGE>
pay, or cause to be paid, to Executive's designated beneficiary or beneficiaries
or legal representatives a death benefit of $1 million. Such death benefit shall
be payable in cash in one lump sum. The Company will purchase one or more term
or other similar insurance policies in amounts to provide for its obligation. To
the extent that the life of Executive is otherwise insured under any employee
benefit plan of the Company (other than any travel/accident or double indemnity
coverage) the obligation of the Company under this paragraph shall be reduced by
such insurance benefits. If the Company has not previously insured the life of
Executive to the extent of the death benefit described above, this Section 6(b)
will only become effective fifteen (15) days after a determination has been made
that Executive's life is insurable.
7. Payments to Executive Upon Termination of Employment. Upon
----------------------------------------------------
termination of Executive's employment during the term of this Agreement,
Executive (or in the event of his death, his beneficiary, beneficiaries or legal
representatives) shall be entitled to no further compensation hereunder other
than (i) his Base Salary through the date of termination, (ii) any benefits
accrued and vested under the terms of the Company's employee benefit plans and
programs and (iii) any other payments or benefits specifically provided by this
Agreement.
(a) Termination. Upon the occurrence of an event of
termination (as hereinafter defined) during the term of this Agreement, the
provisions of this Section 7(a) and Section 7(b) shall apply. As used in this
Agreement, an "event of termination" shall mean and include any one or more of
the following:
(i) The termination by the Company of Executive's
full-time employment hereunder for any reason other than pursuant to
Section 7(c), or as a result of permanent disability or mandatory
retirement; or
(ii) Executive's resignation from the Company's employ,
as a result of any of the following:
A. a material and adverse change by the Company in
Executive's function, duties or responsibilities, without
Executive's written consent, which change would cause
Executive's position with the Company to become one of less
dignity, responsibility, importance or scope from the position
and attributes as described in Section 2 above;
B. any liquidation or dissolution of the Company,
unless the voting common equity interests of an ongoing entity
(other than a liquidating trust) are
5
<PAGE>
beneficially owned, directly or indirectly, by the Company's
stockholders in substantially the same proportions as such
stockholders owned the Company's outstanding voting common
equity interests immediately prior to such liquidation or
dissolution, and such ongoing entity assumes all existing
obligations of the Company to Executive under this Agreement;
C. a failure to elect, re-elect or appoint
Executive to the office of Chief Executive Officer
(other than as a result of Executive's disability or
his termination of employment pursuant to Section
7(c));
D. any other material breach of this Agreement
by the Company (other than a breach of Section 3(c));
or
E. prior to December 31, 2000, Executive being
required to relocate from Houston, Texas, without
Executive's written consent.
(Upon the occurrence of any event described in clauses A., B., C., D. or E.
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation, upon not less than thirty (30) days' prior
written notice given within a reasonable period of time not to exceed three (3)
calendar months after the event giving rise to said right to elect); or
(iii) Executive's resignation from the Company's employ
during the 30-day period commencing upon the first anniversary of a
Change in Control of the Company, if such Change in Control occurs
subsequent to a Public Offering (or during the 30-day period commencing
upon the sixth month anniversary of a Change in Control of the Company,
if such Change in Control occurs prior to a Public Offering). For
purposes of this Agreement, a Change in Control of the Company means
the occurrence of one of the following events:
A. any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) becomes, after the
Effective Date, the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing more than 50% of the
Company's then outstanding securities eligible to vote for the
election of the Company's Board of Directors (the "Company
Voting Securities"); provided, that an event described in this
paragraph A. shall not be a Change in
6
<PAGE>
Control if any of the following becomes such a beneficial
owner: (1) the Company or any majority-owned subsidiary of the
Company (a "Subsidiary"), (2) any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
Subsidiary, (3) any underwriter temporarily holding securities
pursuant to an offering of such securities, (4) any person
pursuant to a Non-Qualifying Transaction (as defined in
paragraph B.), (5) Executive or any group of persons including
Executive (or any entity controlled by Executive or any group
of persons including Executive), or (6) Morgan Stanley & Co.
or Swiss Bank Corporation or any entity controlled by,
controlling or under common control with either of such
entities; or
B. the consummation of a merger, consolidation or
reorganization of the Company (a "Business Combination"),
unless, following such Business Combination, the owners of the
Company Voting Securities immediately prior to such Business
Combination (or their affiliates) beneficially own, directly
or indirectly, 50% or more of the combined voting power of the
then outstanding voting securities entitled to vote generally
in the election of the directors of the corporation resulting
from such Business Combination (a "Non-Qualifying
Transaction").
The initial public offering of common stock of the Company pursuant to a
registration statement filed under the Securities Act of 1933, as amended (a
"Public Offering"), shall not be treated as a Change in Control for purposes of
this Agreement.
The expiration of the term of this Agreement as a result of the failure to renew
this Agreement shall not be treated as an event of termination under this
Section 7(a).
(b) Severance Upon an Event of Termination. Upon the
occurrence of an event of termination under Section 7(a), the Company shall,
subject to the provisions of Section 9 below, monthly for the duration of the
Severance Period (as defined below) pay Executive or, in the event of
Executive's subsequent death, his beneficiary or beneficiaries or his estate, as
the case may be, as severance pay and liquidated damages the monthly Base Salary
paid to Executive at the time of termination of his employment (the "Severance
Payments"). In addition, following an event of termination under Section 7(a),
the Company shall continue to provide the health and welfare insurance benefits
provided to Executive under Section 5 hereof as of immediately prior to his date
of termination for a period of twelve (12) months following the date of
termination (provided that Executive
7
<PAGE>
continues to make all required employee contributions), and shall compensate
Executive for Executive's loss of pension benefits by providing Executive with a
lump sum payment equal to the difference, computed on the basis of actuarial
present values as of Executive's date of termination (using actuarial
assumptions in effect for the Company's defined benefit plan as of the date of
termination) between (1) the aggregate benefits Executive would have been
entitled to receive under the Company's qualified and nonqualified defined
benefit pension plans (the "Retirement Plans"), had Executive's employment
continued under this Agreement for the Severance Period and (2) the aggregate
benefit Executive is actually entitled to receive under the Retirement Plans as
of the date of termination. For purposes of this Agreement, the "Severance
Period" shall commence on the date of termination of Executive's employment with
the Company and expire upon the earlier of (i) twenty-four (24) months from the
date of termination and (ii) nine (9) months following the date on which the
term of this Agreement (as in effect as of Executive's date of termination)
would have otherwise expired; provided, that in no event shall the Severance
Period be longer than eighteen (18) months in the event of a termination of
employment pursuant to Section 7(a)(ii)E. hereof. The Severance Payments shall
commence on the last day of the month in which the event of termination occurs;
provided, that the first such payment shall be reduced by the amount of any Base
Salary received by Executive for the portion of such month prior to the event of
termination. Notwithstanding the foregoing, the Company's obligation to provide
severance benefits hereunder shall be reduced by the present value of any cash
compensation paid to (or deferred by) Executive with respect to employment or
consulting services performed by Executive during the Severance Period. In the
event Executive receives twelve (12) months of continued welfare benefit
insurance as described above, and the Company's level of self-insurance for
medical benefits (with respect to individual claims in any given year) as of
Executive's date of termination is not more than 10% greater than it is as of
the Effective Date, Executive's coverage period for "COBRA" continuation health
coverage (to the extent Executive is otherwise eligible for coverage) shall
begin upon the expiration of such 12-month period.
(c) Other Termination of Employment. Notwithstanding Sections
7(a) and (b) or any other provision of this Agreement to the contrary, if on or
after the date of this Agreement and prior to the end of the term hereof:
(i) Executive has been convicted of, or plead guilty or
nolo contendere to, any crime or offense constituting a felony under
applicable law, including, without limitation, any act of dishonesty
such as embezzlement, theft or larceny;
8
<PAGE>
(ii) Executive's commission of a material act of fraud
or dishonesty against the Company or any of its subsidiaries or
Executive's willful engaging in conduct which is significantly
injurious to the Company or any of its subsidiaries, monetarily or
otherwise;
(iii) Executive's abuse of illegal drugs and other
controlled substances or Executive's habitual intoxication, which
conduct continues after written demand for cessation of such conduct is
delivered to Executive by the Board; or
(iv) any willful or continuous neglect of or refusal to
perform Executive's duties or responsibilities or the willful taking of
actions which directly and materially impair Executive's ability to
perform his duties and responsibilities hereunder which continues after
detailed written notice thereof has been given to Executive;
then, and in each such case, the Company shall have the right to give notice of
termination of Executive's services hereunder as of a date (not earlier than 10
days from such notice) to be specified in such notice and this Agreement (other
than the provisions of Sections 8 and 9 hereof) shall terminate on such date.
8. Duties Upon Termination. Executive agrees that he will,
-----------------------
upon termination of his employment with the Company for any reason whatsoever,
deliver to the Company any and all records, forms, contracts, memoranda, work
papers, lists of names or other customer data and any other articles or papers
which have come into his possession by reason of his employment with the Company
or which she holds for the Company, irrespective of whether or not any of said
items were prepared by him, and he shall not retain memoranda or copies of any
of said items. Executive shall assign to the Company all rights to trade secrets
and the products relating to the Company's business developed by him alone or in
conjunction with others at any time alike employed by the Company.
9. Post-Termination Obligations. All payments and benefits to
----------------------------
Executive under this Agreement shall be subject to Executive's compliance with
the following provisions during the Compliance Period, as defined below.
(a) Confidential Information. Executive shall not disclose or
reveal to any unauthorized person any trade secret or other
confidential information relating to the Company, its subsidiaries or
its affiliates, or to any businesses operated by them, including,
without limitation, any customer lists; and Executive confirms that
such information constitutes the exclusive property of the
9
<PAGE>
Company. For purposes of this Section 9(a), the "Compliance
Period" shall commence on the Effective Date and continue
thereafter.
(b) Competitive Conduct. Executive shall not otherwise act or
conduct herself to the material detriment of the Company, its
subsidiaries or affiliates, or in a manner which is inimical or
contrary to the interests thereof, and shall not engage, directly or
indirectly, alone, in association with or as a shareholder, principal,
agent, partner, member, officer, director, employee or consultant of
any person, firm or entity, in any business within the United States or
Canada in competition with any part of the business being conducted by
the Company or its subsidiaries; provided, however, that Executive's
ownership of less than 2 percent of the outstanding stock of a publicly
traded corporation (other than a corporation engaged primarily in the
business of developing or operating hydroelectric projects) shall not
by itself be deemed to constitute such competition. Executive shall not
(i) divert to any entity which is engaged in any business conducted by
the Company or any of its subsidiaries, any customer of such entities
or any project which such entities are pursuing, developing or
attempting to develop as of Executive's date of termination or (ii)
solicit any officer, employee (other than secretarial staff) or
consultant of the Company or any of its subsidiaries to leave the
employ of such entities. Executive recognizes that the possible
restrictions on his activities which may occur as a result of his
performance of his obligations under this Section 9(b) are required for
the reasonable protection of the Company and its investments.
(c) Compliance Period. For purposes of Section 9(b) of this
Agreement, the "Compliance Period" shall commence on the Effective
Date. If an event of termination under Section 7(a) hereof occurs prior
to the expiration of the term of this Agreement, the Compliance Period
shall end on the later of (A) the expiration of six months from the
date of termination of Executive's employment, and (B) the end of the
period for which Executive is entitled to receive Severance Payments.
If Executive's employment by the Company terminates in accordance with
Section 7(c) hereof or if Executive voluntarily terminates employment
(other than pursuant to Section 7(a)(ii)) prior to the expiration of
the term of this Agreement, the Compliance Period shall end on the
later of the expiration of the term of this Agreement and the second
anniversary of the termination of Executive's employment. In all cases
other than those described in the two preceding sentences, the
Compliance Period shall end on the expiration of the term of this
Agreement.
10
<PAGE>
(d) Failure of Executive to Comply. If for any reason other
than death or disability, Executive shall, without written consent of
the Company, fail to comply with the provisions of Section 9(a) or 9(b)
above, his rights to any future payments or other benefits hereunder
shall terminate, and the Company's obligations to make such payments
and provide such benefits shall cease; provided, however, that no
failure to comply with any provision of Section 9(a) or 9(b) above
shall be deemed to have occurred unless and until Executive receives
written notice from the Company specifying the conduct alleged to
constitute such failure.
(e) Remedies. Executive agrees that monetary damages would not
be adequate compensation for any loss incurred by the Company by reason
of a breach of the provisions of Sections 8 and 9 of this Agreement and
hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate. Accordingly, in
addition to any other remedies that the Company may have at law or in
equity, Company shall have the right to have all obligations,
agreements and other provisions of Sections 8 and 9 specifically
performed by Executive, and the Company shall have the right to obtain
preliminary injunctive relief to secure specific performance and to
prevent a breach of Section 8 or 9.
10. Effect of Prior Agreements. This Agreement contains the
--------------------------
entire understanding between the parties hereto and, upon effectiveness of this
Agreement pursuant to Section 3(a) hereof, supersedes all prior employment
agreements between the Company and Executive (including without limitation the
Prior Agreement), except that this Agreement shall not affect or operate to
reduce any benefit or compensation inuring to Executive of a kind elsewhere
provided and not expressly provided ia this Agreement (other than benefits set
forth in the Prior Agreement).
11. General Provisions.
------------------
(a) Binding Agreement. This Agreement shall be binding upon,
and inure to the benefit of Executive and the Company and their respective
permitted successors and assigns.
(b) Legal Expenses. In the event that Executive incurs legal
expenses in contesting any provision of this Agreement and such contest results
in a determination that the Company has breached any of its obligations
hereunder, Executive shall be reimbursed by the Company for any such legal
expenses reasonably incurred.
11
<PAGE>
(c) Mitigation. Executive shall not be obligated to seek other
employment or take any other action to mitigate any severance benefits
hereunder.
12. Successors and Assigns.
----------------------
(a) Assignment by the Company. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the Company and,
unless clearly inapplicable, reference herein to the Company shall be deemed to
include its successors and assigns.
(b) Assignment by Executive. Executive may not assign this
Agreement in whole or in part.
13. Modification and Waiver.
-----------------------
(a) Amendment of Agreement. Except for increases in
compensation made as provided in Section 4(a), this Agreement may not be changed
or modified except by an instrument in writing signed by both of the parties
hereto.
(b) Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.
14. Beneficiaries. This Agreement shall be for the express
-------------
benefit of the Company, Executive and, for so long as Morgan Stanley & Co. or
Swiss Bank Corporation or their successors shall be a holder of at least 3% of
the equity of the Company, Morgan Stanley & Co. or Swiss Bank Corporation (or
their successors), as the case may be.
15. Severability. In the event any provision of this Agreement
------------
or any part hereof is held invalid, such invalidity shall not affect any
remaining part of such provision or any other provision, and to this end, the
provisions of this Agreement are intended to be and shall be deemed severable.
If any court construes any provision of this Agreement to be illegal, void or
unenforceable because of the duration or the area or matter covered thereby,
such court shall reduce the duration, area or matter of such provision, and, in
its reduced form, such provision shall then be enforceable and shall be
enforced.
12
<PAGE>
16. Withholding. Employer may withhold from any amounts
-----------
payable under this Agreement such taxes and governmentally required withholdings
as may be required to be withheld pursuant to any applicable law or regulation.
17. Notices. Any notice to be given hereunder shall be in
-------
writing and shall be deemed given when delivered personally, sent by courier or
telecopy or registered or certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or to
such other address as such party may subsequently give notice of hereunder in
writing:
To Executive at:
8906 Chatsworth
Houston, TX 77024
To the Company at:
680 Washington Boulevard
Stamford, CT 06901
Attention: Controller
18. Governing Law. The parties hereto intend that
-------------
this Agreement shall be governed by the laws of the State of Connecticut.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer, and Executive has signed this
Agreement, all as of the day and year first above written.
CONSOLIDATED HYDRO, INC.
By: /s/ Edward M. Stern
--------------------------------
Title: President
/s/ James T. Stewart
------------------------------------
James T. Stewart
13
NYFS10...:\84\38684\0003\1219\AGR3288L.190
EXHIBIT 10.4
CHI ENERGY, INC.
1997 STOCK OPTION PLAN
1. ESTABLISHMENT OF PLAN; DEFINITIONS
1.1. Purpose. The CHI Energy, Inc. 1997 Stock Option Plan is intended to
provide an incentive to key employees and non-employee directors of CHI Energy,
Inc. (the "Corporation") who are in a position to contribute materially to the
long-term success of the Corporation, to increase their interest in the
Corporation's welfare, and to aid in attracting and retaining employees and
directors of outstanding ability. This Plan replaces the Consolidated Hydro,
Inc. Amended and Restated 1992 Stock Option Plan, which has been terminated and
all options thereunder cancelled.
1.2. Definitions. Unless the context indicates otherwise, the following
terms shall have the meanings set forth below:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Cause" with respect to a Grantee shall mean any of the
following events:
(1) the Grantee has been convicted of, or plead guilty or
nolo contendere to, any crime or offense constituting
a felony under applicable law, including, without
limitation, any act of dishonesty such as
embezzlement, theft or larceny;
(2) the Grantee's commission of a material act of fraud
or dishonesty against the Corporation or any of its
Subsidiaries or the Grantee's willful engaging in
conduct which is significantly injurious to the
Corporation or any of its Subsidiaries, monetarily or
otherwise;
(3) the Grantee's abuse of illegal drug and other
controlled substances or the Grantee's habitual
intoxication, which conduct continues after written
demand for cessation of such conduct is delivered to
the Grantee by the Committee or the Board; or
(4) the Grantee's willful or continuous neglect of or
refusal to perform the Grantee's duties or
responsibilities with respect to the
<PAGE>
Corporation or the Grantee's willful taking of
actions which directly and materially impair the
Grantee's ability to perform his duties and
responsibilities which continues after detailed
written notice thereof has been given to the Grantee.
(c) "Change in Control" shall mean the occurrence of any of the
following events:
(1) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange
Act")) becomes, after the Effective Date, the
"beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of
securities of the Corporation representing more than
50% of the Corporation's then outstanding securities
eligible to vote for the election of the
Corporation's Board (the "Corporation Voting
Securities"); provided, that an event described in
this paragraph (1) shall not be a Change in Control
if any of the following becomes such a beneficial
owner: (A) the Corporation or any Subsidiary, (B) any
employee benefit plan (or related trust) sponsored or
maintained by the Corporation or any Subsidiary, (C)
any underwriter temporarily holding securities
pursuant to an offering of such securities, (D) any
person pursuant to a Nonqualifying Transaction (as
defined in paragraph (2)), or (E) Morgan Stanley &
Co. or Swiss Bank Corporation or any entity
controlled by, controlling or under common control
with either of such entities; or
(2) the consummation of a merger, consolidation or
reorganization of the Corporation (a "Business
Combination"), unless, following such Business
Combination, the owners of the Corporation Voting
Securities immediately prior to such Business
Combination (or their affiliates) beneficially own,
directly or indirectly, 50% or more of the combined
voting power of the then outstanding voting
securities entitled to vote generally in the election
of the directors of the corporation resulting from
such Business Combination (a "Nonqualifying
Transaction").
An Initial Public Offering shall not be treated as a Change in
Control hereunder.
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<PAGE>
(d) "Code" shall mean the Internal Revenue Code of 1986, as it may
be amended from time to time.
(e) "Committee" shall mean the Compensation Committee of the Board
or other committee of the Board designated to administer the
Plan.
(f) "Common Stock" shall mean authorized but unissued shares of
the Class A common stock, par value $.01 per share, of the
Corporation, as constituted on the Effective Date.
(g) "Director" shall mean a non-employee director of the
Corporation or any of its Subsidiaries.
(h) "Disability" shall mean (i) with respect to a Nonqualified
Stock Option, a Grantee's physical or mental illness or injury
as a result of which the Grantee is unable to perform such
Grantee's duties for an aggregate of six or more months during
any twelve-month period and (ii) with respect to an Incentive
Stock Option, a Grantee's disability within the meaning of
Code Section 22(e)(3).
(i) "Effective Date" shall have the same meaning as set forth in
the Plan of Reorganization.
(j) "Employee" shall mean any common law employee, including
officers, of the Corporation or any of its Subsidiaries.
(k) "Extraordinary Distribution" shall have the same meaning as
set forth in the Warrant Agreement.
(l) "Fair Market Value" shall mean (1) if the Common Stock is
traded on an established securities exchange or market, the
average of the mean between the high and low prices of the
Common Stock for the last trading date on which there was a
sale of Common Stock immediately preceding the date of
determination of Fair Market Value, as reported on the
composite tape, and (2) if the Common Stock is not so traded,
the fair market value of the Common Stock as determined by the
Committee, in its sole and absolute discretion acting in good
faith, on the basis of a review of the facts and circumstances
at the time, which determination shall be final and binding
for all purpose of this Plan.
3
<PAGE>
(m) "Grantee" shall mean an Employee or Director granted an
outstanding Stock Option.
(n) "Incentive Stock Option" shall mean a Stock Option designed as
an incentive stock option, as such term is used in Section 422
of the Code, at the time of grant under this Plan. To the
extent any Incentive Stock Option no longer qualifies as an
Incentive Stock Option it shall be treated as a Nonqualified
Stock Option.
(o) "Nonqualified Stock Option" shall mean a Stock Option other
than an Incentive Stock Option.
(p) "Plan" shall mean this CHI Energy, Inc. 1997 Stock Option Plan
as set forth herein and as amended from time to time.
(q) "Plan of Reorganization" shall mean the plan of reorganization
dated August 8, 1997, under Chapter 11 of the United States
Bankruptcy Code with respect to the Corporation, as amended
from time to time.
(r) "Public Offering" shall mean the consummation of the initial
public offering of Common Stock pursuant to a registration
statement filed under the Securities Act of 1933, as amended.
(s) "Stock Option" shall mean an option granted pursuant to the
Plan to purchase shares of Common Stock.
(t) "Stock Option Agreement" shall mean an option agreement
executed between the Corporation and a Grantee relating to the
grant of a Stock Option.
(u) "Stockholders' Agreement" shall mean the agreement, dated
November 7, 1997, by and among the Corporation and each of the
stockholders of the Corporation, as amended from time to time.
(v) "Subsidiary" shall, with respect to the Corporation, have the
meaning ascribed to such term in Section 424 of the Code.
(w) "Ten Percent Shareholder" shall mean an Employee who at the
time a Stock Option is granted owns stock possessing more than
ten percent
4
<PAGE>
(10%) of the total combined voting power of all stock of the
Corporation or of its parent or Subsidiaries.
(x) "Warrant Agreement" shall mean the Series B Warrant Agreement,
dated November 7, 1997, between the Corporation and Registrar
and Transfer Company, as Warrant Agent, as in effect on the
date hereof.
2. PLAN ADMINISTRATION AND DURATION
2.1. Administration of the Plan. The Plan shall be administered by the
Committee or by any officer to whom the Committee specifically delegates
authority. Subject to the express provisions of the Plan, the Committee shall
have authority in its sole discretion to interpret the Plan, to prescribe, amend
and rescind rules relating to the Plan, to select Employees and Directors
eligible to receive Stock Options, to designate the type of, and number of
shares of Common Stock subject to, Stock Options, to determine the terms and
provisions of Stock Option Agreements, and to make all other determinations
necessary or advisable for the administration of the Plan. All decisions made by
the Committee or any appropriately designated officer shall be final and binding
on the Company and Grantees.
2.2. Determination of Fair Market Value. In the event the Common Stock is
not traded on an established securities market or exchange, the Committee will
as soon as practicable following the Effective Date determine the Fair Market
Value that shall apply for all purposes of this Plan and for the 6-month period
following such determination; provided, however, that the Committee shall reset
such Fair Market Value during such 6-month period in the event of the occurrence
of any material event with respect to the Corporation. The determination of Fair
Market Value by the Committee shall be final and binding. Stock Options
outstanding as of such date shall not be affected or impaired by termination of
the Plan.
2.3. Duration of the Plan. The Plan shall become effective upon its approval
by the Board; provided, however, that no Stock Options shall be granted prior to
the Effective Date. Unless earlier terminated pursuant to Section 2.4 hereof,
this Plan shall terminate at the close of business on July 31, 2007. Stock
Options outstanding as of such date of termination shall not be adversely
affected or impaired by the termination of the Plan.
2.4. Amendment or Termination. At any time the Board may alter, amend,
suspend, discontinue or terminate this Plan; provided, however, that such action
shall not, without the consent of a Grantee, materially and adversely affect or
impair the rights of such Grantee with respect to Stock Options previously
granted or reduce the number of
5
<PAGE>
Stock Options previously granted to such Grantee (other than pursuant to Section
4.2); and provided, further, that no amendment shall be made without the
approval of the stockholders of the Corporation if such approval is required by
applicable law, regulation or stock exchange rule.
3. STOCK OPTIONS
3.1. Common Stock Subject to the Plan. Subject to Section 4 hereof, the
Common Stock which is subject to outstanding but unexercised Stock Options or
may be issued or transferred pursuant to Stock Options shall not exceed 810,811
shares in the aggregate. If a Stock Option expires and terminates for any
reason, in whole or in part, without being exercised, the number of shares of
Common Stock as to which such expired or terminated Stock Option shall not have
been exercised may again become available for the grant of Stock Options.
3.2. Granting of Stock Options. Each Stock Option shall be subject to such
terms and conditions consistent with the Plan as the Committee may impose from
time to time, subject to the limitations below.
(a) Eligibility. Only key Employees and Directors of the
Corporation shall be eligible to receive Stock Options under
the Plan. The Committee shall have the authority to grant to
any such Employee or Director one or more Incentive Stock
Options, Nonqualified Stock Options, or both types of Stock
Options; provided, however, that Incentive Stock Options may
only be granted to employees described in Treasury Regulation
Section 1.421- 7(h) of the Corporation or any Subsidiary
within the meaning of Section 424(f) on the grant date.
(b) Exercise Price. The exercise price of each share of Common
Stock subject to a Stock Option shall not be less than 100% of
the Fair Market Value of a share of Common Stock on the date
the Stock Option is granted, except as determined by the
Committee in the case of any Nonqualified Stock Option. In the
case of an Incentive Stock Option, the exercise price of each
share of Common Stock subject to such Stock Option granted to
a Ten Percent Shareholder shall not be less than 110% of the
Fair Market Value of a share of Common Stock on the date the
Incentive Stock Option is granted.
(c) Period of Exercisability. The Committee, in its sole
discretion, shall determine whether any particular Stock
Option shall become exercisable in
6
<PAGE>
one or more installments, specify the installment dates, and,
within the limitations herein provided, determine the duration
of the period during which the Stock Option is exercisable. No
Stock Option shall be exercisable more than ten years from the
date the Stock Option was granted; provided, however, that an
Incentive Stock Option granted to a Ten Percent Shareholder
shall not be exercisable more than five years from the date
the Incentive Stock Option was granted.
(d) Grant of Options. The Committee shall determine and designate
from time to time those Employees or Directors who are to be
granted Stock Options, specify the number of shares of Common
Stock subject to each Stock Option and the exercise price of
such Stock Option, and designate the type of Stock Option
(i.e., Incentive Stock Option or Nonqualified Stock Option)
being granted.
(e) Limitations on Incentive Stock Options. Notwithstanding other
provisions hereof, in the case of Incentive Stock Options, to
the extent that the aggregate Fair Market Value (determined as
of the time an Incentive Stock Option is granted) of the
Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any Grantee during any
calendar year (under all incentive stock option plans of the
Grantee's employer corporation and its parent and subsidiary
corporations) exceeds $100,000, the later-granted of such
Stock Options shall be treated as Nonqualified Stock Options.
Further, the Committee may make such other provisions as may
appear generally acceptable or desirable to the Committee or
necessary to qualify its grants of Incentive Stock Options
under the provisions of Section 422 of the Code.
(f) Additional Grants. The Committee may grant at any time new
Stock Options to an Employee or Director who has previously
received Stock Options or other options, whether such prior
Stock Options or other options are still outstanding, have
previously been exercised in whole or in part, or are
cancelled in connection with the issuance of new Stock
Options. The exercise price of the new Stock Options may be
established by the Committee without regard to the existing
Stock Options or other options.
(g) Committee Discretion. The Committee may prescribe, in the
applicable Stock Option Agreement, such other terms and
conditions with respect to
7
<PAGE>
the Stock Option granted thereby or Common Stock acquired
thereunder as it deems appropriate.
3.3. Exercise of Stock Options. The exercise price of a Stock Option shall
be payable on exercise, at the Grantee's option, (i) in cash or by certified or
cashier's check, bank draft or postal or express money order, (ii) by the
surrender of Common Stock then owned by the Grantee (to the extent permitted by
the Committee), and (iii) partially in accordance with clause (i) and partially
in accordance with clause (ii) of this Section 3.3. Shares of Common Stock so
surrendered in accordance with clause (ii) or (iii) shall be valued at the Fair
Market Value thereof on the date of exercise, surrender of such Common Stock to
be evidenced by delivery of the certificate(s) representing such shares in such
manner, and endorsed in such form, or accompanied by stock powers endorsed in
such form, as the Committee may determine. No fractional shares of Common Stock
shall be permitted to be surrendered.
3.4. Termination of Employment.
(a) Disability or Retirement. If a Grantee's employment with the
Corporation or with a Subsidiary is terminated by reason of
Disability or pursuant to a then existing Corporation or
Subsidiary retirement policy ("Retirement"), any Stock Option
held by the Grantee on the date of such termination of
employment shall (i) to the extent exercisable on such date,
remain exercisable until the earlier of the date on which such
Stock Option would otherwise expire or the first anniversary
of the Grantee's last date of employment, and (ii) to the
extent not exercisable on such date, be immediately forfeited
on the Grantee's last date of employment.
(b) Death. If a Grantee's employment with the Corporation or with
a Subsidiary is terminated by reason of death, the
representative of the estate or beneficiaries thereof to whom
the Stock Option has been transferred shall have the right to
exercise any then outstanding and exercisable Stock Options in
whole or in part until the first anniversary of the Grantee's
death. If a Grantee dies after termination of employment and
prior to the expiration of the Stock Options held by such
Grantee, without having fully exercised any then exercisable
Stock Options, the representative of the estate or
beneficiaries thereof to whom the Stock Option has been
transferred shall have the right to exercise such options in
whole or in part until the first anniversary of the Grantee's
death. The number of shares of Common Stock in respect of
which a Stock Option may be exercised after a Grantee's death
shall be the number of shares in
8
<PAGE>
respect of which such Stock Option could be exercised as of
the date of the Grantee's death or termination, whichever
occurs first. Notwithstanding the foregoing, in no event may
the period for exercising a Stock Option extend beyond the
date on which such Stock Option would otherwise have expired.
(c) Cause. If a Grantee's employment with the Corporation or a
Subsidiary is terminated and such termination is for Cause or,
within 90 days following such termination, the Board
determines (after written notice to the Grantee describing the
reasons for the Board's determination) that the Grantee could
have been terminated for Cause under paragraph (1) or (2) of
Section 1.2(b), all Stock Options held by the Grantee on the
date of termination of employment shall be immediately
forfeited as of such date.
(d) Other Reasons. If a Grantee's employment with the Corporation
and its Subsidiaries is terminated for any reason other than
as described in Paragraphs (a) through (c) above, except as
specified by the Committee in an applicable Stock Option
Agreement, any Stock Option held by the Grantee shall (i) to
the extent exercisable on such date, remain exercisable until
the earlier of the date on which such Stock Option would
otherwise expire or the 120th day following the Grantee's last
date of employment, and (ii) to the extent not exercisable on
such date, be immediately forfeited on the Grantee's last date
of employment.
(e) Committee Discretion to Accelerate. The Committee may, in its
sole discretion, provide that any or all unexercisable Stock
Options held by a Grantee on the date of termination of
employment shall become immediately exercisable and remain
exercisable until a date that occurs on or prior to the date
the Stock Option would otherwise expire.
(f) Directors. For purposes of this Section 3, a Director's
service on the Board shall be treated as "employment" to
determine Stock Option exercisability.
3.5. Change in Control. If there is a Change in Control of the Corporation,
all outstanding Stock Options shall become immediately vested and exercisable.
3.6. Exercise Prior to Public Offering. In the event a Stock Option is
exercised prior to a Public Offering and (a) such exercise occurs subsequent to
the Grantee's termination of employment from the Corporation and its
Subsidiaries for Cause or
9
<PAGE>
pursuant to a voluntary termination or (b) such exercise occurs prior to the
Grantee's termination of employment for Cause or pursuant to a voluntary
termination, but the Grantee does not dispose of the shares of Common Stock
received upon such exercise prior to his termination of employment, the
Corporation shall have the right during the thirty-day period following the
later to occur of such Grantee's exercise of the Option or termination of
employment to purchase for cash the Common Stock received upon such exercise at
a price equal to Fair Market Value. Notwithstanding anything else contained in
this Section 3.6, upon the occurrence of a Public Offering any right pursuant to
this Section 3.6 to purchase Common Stock received upon the exercise of a Stock
Option shall terminate, and no such right may be exercised during the 90-day
period prior to the scheduled date of a Public Offering.
3.7. Cancellation of Stock Options; Return of Value. The Board may, in its
reasonable discretion, in the event a Grantee Option Agreement or in any other
agreement with the Corporation, cancel any Stock Option in whole or in part,
whether or not vested, and may require the Grantee to return to the Corporation
the gain with respect to any Stock Option exercise within the six-month period
prior to the Board's action. The determination of whether a Grantee has violated
a non-competition provision shall be determined by the Board in good faith and
in its reasonable discretion. This Section 3.7 shall not apply during the
two-year period immediately following a Change in Control.
4. GENERAL PROVISIONS
4.1. Maximum Number of Underlying Shares. The maximum aggregate number of
shares of Common Stock underlying Stock Options that may be granted to any
Employee or Director during the term of the Plan shall be 350,000, subject to
adjustment as provided in this Section 4. For purposes of the preceding
sentence, stock options that are cancelled or repriced shall continue to be
counted in determining the number of shares of Common Stock underlying Stock
Options granted to a Grantee.
4.2. Adjustment Provisions.
(a) If the shares of Common Stock outstanding are changed in
number or class by reason of a split-up, merger,
consolidation, reorganization, reclassification,
recapitalization, or any capital adjustment, including a stock
dividend, or if any distribution is made to the holders of
common stock other than a regular cash dividend, then
10
<PAGE>
(i) the aggregate number and class of shares or other
securities that may be issued or transferred pursuant
to Sections 2.1 and 4.1 hereof,
(ii) the number and class of shares or other securities
which are subject to outstanding Stock Options, and
(iii) the exercise price to be paid per share
under outstanding Stock Options,
shall be adjusted as provided hereinafter.
(b) Adjustments under this Section 4.2 shall be made in an
equitable manner by the Committee to preserve the value of
Stock Options, whose determination as to what adjustments
shall be made, and the extent thereof, shall be final, binding
and conclusive, provided that adjustments affecting Incentive
Stock Options shall be made in a manner consistent with the
requirements of Sections 422 and 424 of the Code.
Notwithstanding the foregoing, the operation of this Section
4.2 should be consistent with the operation of Section 6 of
the Warrant Agreement.
(c) Notwithstanding anything to the contrary in this Section 4.2,
if the Corporation shall pay or distribute an Extraordinary
Distribution in cash or other property, the exercise price of
outstanding Stock Options shall be adjusted downward in an
amount equal to the per share (computed on the basis of the
number of shares then outstanding) dollar amount of the
Extraordinary Distribution (or shall be adjusted by the
Committee in conjunction with an adjustment to the number of
shares subject to such Stock Options in order to preserve the
value of such Stock Options).
4.3. General.
(a) Each Stock Option shall be evidenced by a written instrument
containing such terms and conditions, not inconsistent with
this Plan, as the Committee shall approve.
(b) The granting of a Stock Option in any year shall not give the
Grantee any right to similar grants in future years or any
right to be retained in the employ of the Corporation, and all
Employees shall remain subject to discharge to the same extent
as if the Plan were not in effect.
11
<PAGE>
(c) No Employee or Director, and no beneficiary or other person
claiming under or through the Employee or Director, shall have
any right, title or interest by reason of any Stock Option to
any particular assets of the Corporation, or any shares of
Common Stock allocated or reserved for the purposes of the
Plan or subject to any Stock Option except as set forth
herein. The Corporation shall not be required to establish any
fund or make any other segregation of assets to satisfy its
obligations under this Plan.
(d) Except as provided in a Grantee's Stock Option Agreement, no
right under the Plan shall be subject to transfer,
anticipation, sale, assignment, pledge, encumbrance, or
charge, except by will or by the laws of descent and
distribution, and a Stock Option shall be exercisable during
the Grantee's lifetime only by the Grantee or, in the case of
the Grantee's Disability or incapacity, his guardian or legal
representative.
(e) Notwithstanding any other provision of this Plan or agreements
made pursuant thereto, the Corporation's obligation to issue
or deliver any certificate or certificates for shares of
Common Stock under a Stock Option, and the transferability of
Common Stock acquired by exercise of a Stock Option, shall be
subject to all of the following conditions:
(i) Any registration or other qualification of such
shares under any state or federal law or regulation,
or the maintaining in effect of any such registration
or other qualification which the Board shall, in its
absolute discretion upon the advice of counsel, deem
necessary or advisable;
(ii) The obtaining of any other consent, approval, or
permit from any state or federal governmental agency
which the Board shall, in good faith upon the advice
of counsel, determine to be necessary or advisable;
(iii) Compliance with the terms and provisions of the
Stockholders Agreement, if and to the extent such
agreement is still in full force and effect; and
(iv) Each stock certificate issued pursuant to the
exercise of a Stock Option shall bear a legend
substantially in the following form, in addition to
any legends required by the Stockholders Agreement:
12
<PAGE>
"The transferability of this certificate and the
shares of Common Stock represented hereby are subject
to restrictions, terms and conditions contained in
the CHI Energy, Inc. 1997 Stock Option Plan and that
certain Stockholders' Agreement, dated November 7,
1997, which may be amended from time to time. Copies
of the Plan and the Stockholders' Agreement are on
file in the office of the Secretary of CHI Energy,
Inc."
(f) All payments to Grantees or to their legal representatives
shall be subject to any applicable tax, community property, or
other statutes or regulations of the United States or of any
state having jurisdiction thereof. The Grantee may be required
to pay to the Corporation the amount of any withholding taxes
which the Corporation is required to withhold with respect to
a Stock Option or its exercise. In the event that such payment
is not made when due, the Corporation shall have the right to
deduct, to the extent permitted by law, from any payment of
any kind otherwise due to such person all or part of the
amount required to be withheld.
(g) In the case of a grant of a Stock Option to any Employee or
Director of a Subsidiary of the Corporation, the Corporation
may, if the Committee so directs, issue or transfer the
shares, if any, covered by the Stock Option to the Subsidiary,
for such lawful consideration as the Committee may specify,
upon the condition or understanding that the Subsidiary will
transfer the shares to the Employee or Director in accordance
with the terms of the Stock Option specified by the Committee
pursuant to the provisions of the Plan.
(h) A Grantee entitled to Common Stock as a result of the exercise
of a Stock Option shall not be deemed for any purpose to be,
or have rights as, a shareholder of the Corporation by virtue
of such exercise, except to the extent a stock certificate is
issued therefor and then only from the date such certificate
is issued. Except as specifically provided for herein, no
adjustments shall be made for dividends or distributions or
other rights for which the record date is prior to the date
such stock certificate is issued.
(i) This Plan will be governed by and construed in accordance with
the laws of the State of Delaware, without regard to its
conflicts of laws principles.
13
NYFS10...:\84\38684\0003\1219\PLN3288I.420
EXHIBIT 10.5
SERIES B WARRANT
CHI ENERGY, INC.
and
REGISTRAR AND TRANSFER COMPANY
as Warrant Agent
--------------------
Warrants to Purchase up to 810,811 Shares of Common Stock
------------------
WARRANT AGREEMENT
Dated as of November 6, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. DEFINITIONS......................................................... 1
2. APPOINTMENT OF WARRANT AGENT........................................ 7
2.1. Appointment............................................ 7
3. REGISTRATION, FORM AND EXECUTION OF WARRANTS........................ 7
3.1. Registration........................................... 7
3.2. Form of Warrant........................................ 7
3.3. Countersignature of Warrants........................... 8
4. VESTING; EXERCISE OF WARRANTS....................................... 8
4.1. Vesting................................................ 8
4.2. Manner of Exercise..................................... 10
4.3. Payment of Taxes....................................... 11
4.4. Fractional Shares...................................... 11
5. TRANSFER, DIVISION AND COMBINATION.................................. 11
5.1. Transfer............................................... 11
5.2. Division and Combination............................... 12
5.3. Maintenance of Books................................... 12
6. ADJUSTMENTS......................................................... 12
6.1. Stock Dividends, Subdivisions and Combinations;
Extraordinary Distributions............................ 12
6.2. Certain Issuances of Additional Shares of Common
Stock.................................................. 13
6.3. Certain Issuances of Warrants or Other Rights.......... 13
6.4. Certain Issuances of Convertible Securities............ 14
6.5. Superseding Adjustment................................. 15
6.6. Other Provisions Applicable to Adjustments under
this Section........................................... 16
6.7. Reorganization, Reclassification, Merger,
Consolidation or Sale of Substantially all
Assets of the Company.................................. 18
6.8. Certain Limitations.................................... 21
7. NOTICES TO WARRANT HOLDERS.......................................... 21
7.1. Notice of Adjustments.................................. 21
7.2. Notice of Vesting...................................... 21
7.3. Notice of Corporate Action............................. 22
8. NO IMPAIRMENT....................................................... 23
9. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY........................................................... 23
<PAGE>
10. STOCK AND WARRANT TRANSFER BOOKS.....................................24
11. LOSS OR MUTILATION...................................................24
12. OFFICE OF COMPANY....................................................24
13. WARRANT AGENT........................................................24
13.1. Merger or Consolidation or Change of Name of
Warrant Agent...........................................24
13.2. Certain Terms and Conditions Concerning the
Warrant Agent...........................................25
13.3. Change of Warrant Agent.................................27
13.4. Disposition of Proceeds on Exercise of Warrants,
Inspection of Warrant Agreement.........................28
14. MISCELLANEOUS........................................................29
14.1. Stockholders' Agreement.................................29
14.2. Notice Generally........................................29
14.3. Successors and Assigns..................................30
14.4. Amendment...............................................30
14.5. Third-Party Beneficiaries...............................30
14.6. Severability............................................30
14.7. Headings................................................30
14.8. Governing Law...........................................30
14.9. Counterparts............................................31
EXHIBITS
Exhibit A - Form of Warrant Certificate
Exhibit B - Warrant Agent Fees
Exhibit C - Form of Notice of Vesting
Exhibit D - Form of Stockholders' Agreement
ii
<PAGE>
THIS WARRANT AGREEMENT (this "Warrant Agreement"), dated as of
November 6, 1997, is made by and between CHI Energy, Inc. a Delaware corporation
formerly known as Consolidated Hydro, Inc. (the "Company"), and Registrar and
Transfer Company, a New Jersey corporation, as warrant agent (the "Warrant
Agent").
W I T N E S S E T H:
-------------------
WHEREAS, the Company proposes to issue to holders of the
Company's pre-existing Preferred Stock, warrants, as hereinafter described (the
"Warrants"), to purchase up to 810,811 shares of Common Stock pursuant to
Article IV of the Plan, as confirmed pursuant to the order of the United States
Bankruptcy Court, District of Delaware, (In re Consolidated Hydro, Inc. No.
97-1924 (SLR)), in connection with the reorganization of the Company under
chapter 11, title 11 of the United States Code; and
WHEREAS, the Company has requested the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in connection
with the issuance, division, transfer, exchange and exercise of Warrants;
NOW, THEREFORE, in consideration of the foregoing and for the
purpose of defining the terms and provisions of the Warrants and the respective
rights and obligations thereunder and hereunder of the Company, the Warrant
Agent, and the Holders, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and affirmed, the
Company and the Warrant Agent hereby agree as follows:
1. DEFINITIONS.
-----------
As used in this Warrant Agreement, the following capitalized
terms have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Effective Date, other than Warrant
Stock.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Class A Common Stock" shall mean (except where the context
otherwise indicates) the new Class A Common Stock, $.01 par value per share, of
the Company as constituted on the Effective Date, and any capital stock into
which such Class A Common Stock may thereafter be changed, and shall also
include (1) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Class A
<PAGE>
Common Stock upon any reclassification thereof which is also not preferred as to
dividends or assets over any other class of stock of the Company and which is
not subject to redemption and (2) shares of common stock of any successor or
acquiring corporation received by or distributed to the holders of Class A
Common Stock of the Company in the circumstances contemplated by Section 6.7.
"Class B Common Stock" shall mean (except where the context
otherwise indicates) the new Class B Common Stock, $.01 par value per share, of
the Company as constituted on the Effective Date, and any capital stock into
which such Class B Common Stock may thereafter be changed, and shall also
include (1) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Class B Common Stock upon any
reclassification thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption and (2) shares of common stock of any successor or acquiring
corporation received by or distributed to the holders of Class B Common Stock of
the Company in the circumstances contemplated by Section 6.7.
"Closed" shall mean, with respect to a Project, the
consummation of the material transactions (including, without limitation, the
payment of all material amounts required to be paid on or about the closing date
of such transactions) contemplated by the agreements relating thereto.
"Common Stock" shall mean, collectively (except where the
context otherwise indicates), the Class A Common Stock and the Class B Common
Stock.
"Company" shall have the meaning assigned to such term in the
first paragraph of this Warrant Agreement.
"Convertible Securities" shall mean evidences of indebtedness,
shares of capital stock or other securities which are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon the
occurrence of a specified date or a specified event.
"Current Warrant Price" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant Agreement on such date. The
initial Current Warrant Price is $10.00, as specified in the second paragraph of
the Form of Warrant Certificate as set forth in Exhibit A hereto.
"Daily Market Price" shall mean, in respect of any share of
Common Stock on any Trading Day, (1) the last reported
2
<PAGE>
sale price on such day on the principal national securities exchange (including
for this purpose The Nasdaq Stock Market) on which such Common Stock is then
listed or admitted to unlisted trading privileges or (2) if no sale takes place
on such day on any national securities exchange, the average of the last
reported closing bid and ask prices on such day as officially quoted on any such
exchange. If the Common Stock is not then listed or admitted to unlisted trading
privileges on any national securities exchange, the Daily Market Price shall be
the average of the last reported closing bid and ask prices on such day in the
over-the-counter market, as furnished by the National Association of Securities
Dealers, Inc. ("NASD") Automated Quotation System or the National Quotation
Bureau, Inc.; provided, that if neither such corporation at the time is engaged
in the business of reporting such prices, the Daily Market Price shall be as
furnished by any similar firm then engaged in such business, or if there is no
such firm, as furnished by any member of the NASD selected mutually by the
Majority Holders and the Company or, if they cannot agree upon such selection,
as selected by two such members of the NASD, one of which shall be selected by
the Majority Holders and one of which shall be selected by the Company. If the
Common Stock is not reported in the over-the-counter market and no member of the
NASD selected pursuant to the preceding sentence will furnish the Daily Market
Price, then the Daily Market Price shall be the fair market value per share of
Common Stock as of such date, determined in good faith by the Board of
Directors.
"Effective Date" shall have the meaning set forth in
the Plan.
"Expiration Date" shall mean November 6, 2003.
"Extraordinary Distribution" shall mean any dividend or
distribution in respect of the Common Stock that:
(a) is made after the Effective Date but prior to the
Initial Measurement Date;
(b) is made during the First Measurement Period, to the extent
that the aggregate amount of cash or other property included in such dividend or
distribution, when aggregated with all other dividends and distributions made
after the Initial Measurement Date but prior to the date on which such dividend
or distribution is paid or distributed, exceeds 25% of the Company's cumulative
consolidated net income (before extraordinary items determined in accordance
with GAAP) for the period beginning on the first day of the First Measurement
Period through and including the date such dividend is paid or distributed; or
3
<PAGE>
(c) is made after the last day of the First Measurement
Period, to the extent that the aggregate amount of cash or other property
included in such dividend or distribution, when aggregated with all other
dividends and distributions paid or distributed after the Initial Measurement
Date but prior to the date on which such dividend or distribution is paid or
distributed, exceeds the sum of (i) the First Measurement Amount and (ii) 50% of
the Company's cumulative consolidated net income (before extraordinary items
determined in accordance with GAAP) for the period beginning on the first day
next following the last day of the First Measurement Period through and
including the date such dividend or distribution is paid or distributed;
provided, however, that in determining the aggregate amount of dividends and
distributions paid or distributed after the Initial Measurement Date for
purposes of clause (c) above, the amount of such dividends or distributions made
during the First Measurement Period is equal to the lesser of (x) the amounts
actually paid or distributed and (y) the First Measurement Amount; and provided,
further, however, that up to $15 million in cash paid by the Company pursuant to
the Plan on and after the Effective Date to holders of the 12% Senior Discount
Notes due 2003 that were outstanding prior to the Effective Date shall not
constitute an "Extraordinary Distribution" for purposes of this Agreement.
"First Measurement Amount" shall mean, with respect to the
First Measurement Period, an amount equal to 25% of the Company's cumulative
consolidated net income for such period (before extraordinary items determined
in accordance with GAAP).
"First Measurement Period" shall mean the period commencing on
the Initial Measurement Date and ending on the last day of the 11th fiscal
quarter of the Company next following such date.
"Fully Diluted Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares thereof
is to be determined, all shares of Common Stock Outstanding at such date and all
shares of Common Stock issuable in respect of any Warrants and any other options
or warrants to purchase, or securities convertible into or exchangeable for,
shares of Common Stock outstanding on such date including, without limitation,
all Permitted Issuances.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
4
<PAGE>
"Holder" shall mean the Person in whose name a Warrant is
registered in the warrant register of the Company maintained by or on behalf of
the Company for such purpose.
"Initial Measurement Date" shall mean the first day of the
first full fiscal quarter of the Company next following the Effective Date.
"Majority Holders" shall mean the Holders of Warrants
exercisable for in excess of 50% of the aggregate number of shares of Common
Stock then purchasable upon exercise of all Warrants.
"NASD" shall mean the National Association of Securities
Dealers, Inc., or any successor corporation thereto.
"Other Property" shall have the meaning set forth in
Section 6.7.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Permitted Issuances" shall mean the issuance and grant of
stock options pursuant to the Company's 1997 Stock Option Plan and the issuance
of shares of Common Stock upon the exercise of (i) such options, (ii) the
Warrants and (iii) the Series C Warrants issued by the Company on the Effective
Date.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, limited liability company, limited liability partnership,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Plan" shall mean the Company's Plan of Reorganization Under
Chapter 11 of the United States Bankruptcy Code, as it may be amended or
modified.
"Preferred Stock" shall mean the Company's Series F
Preferred Stock, Series H Preferred Stock and Series G Preferred
Stock.
5
<PAGE>
"Pricing Period" shall have the meaning set forth in
Section 13.1.
"Project" means the development or acquisition and, in each
case, the financing or the arrangement of financing by the Company or one of its
subsidiaries of energy or infrastructure assets of third party industrial
companies.
"Project Capital" shall mean, with respect to any Project, the
aggregate debt and equity capital required to finance, operate, manage and
develop such Project.
"Repurchase Price" shall have the meaning set forth in
Section 13.1.
"Stockholders' Agreement" shall mean that certain
Stockholders' Agreement dated as of November 6, 1997, by and among the Company
and each of the stockholders of the Company, a copy of which is attached hereto
as Exhibit D.
"Trading Day" shall mean any day on which the principal stock
exchange on which the Common Stock is listed or admitted to trading is open or,
if the Common Stock is not then listed or admitted to trading on any stock
exchange, any day on which the National Association of Securities Dealers
Automatic Quotation System or the National Quotation Bureau Inc. reports prices
in respect of securities or, if neither such corporation is then engaged in such
business, any day on which the member of the NASD selected as specified in the
proviso set forth in the definition of "Daily Market Price" furnishes prices for
securities.
"Vesting Amount" shall have the meaning set forth in
Section 4.1(a).
"Vesting Date" shall mean, with respect to a Warrant, each
date a Project has Closed, after giving effect to Section 4.1 hereof.
"Warrant Agent" shall have the meaning assigned to such term
in the first paragraph of this Warrant Agreement and shall include any successor
Warrant Agent hereunder.
"Warrant Agent's Principal Office" shall mean the principal
office of the Warrant Agent in New York City, New York (or such other office of
the Warrant Agent or any successor thereto hereunder acceptable to the Company
as set forth in a written notice provided to the Company and the Holders).
"Warrant Agreement" shall have the meaning assigned to such
term in the first paragraph of this Warrant Agreement.
6
<PAGE>
"Warrant Price" shall mean an amount equal to (1) the number
of shares of Common Stock being purchased upon exercise of a Warrant pursuant to
Section 4.2, multiplied by (2) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the Holders of the Warrants upon the exercise thereof.
"Warrants" shall have the meaning assigned to such term in the
recitals to this Warrant Agreement, and shall include all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock and the class of Common Stock,
for which they may be exercised.
2. APPOINTMENT OF WARRANT AGENT.
----------------------------
2.1. Appointment. The Company hereby appoints the Warrant Agent to act
as agent for the Company in accordance with the instructions set forth in this
Warrant Agreement, and the Warrant Agent hereby accepts such appointment.
3. REGISTRATION, FORM AND EXECUTION OF WARRANTS.
--------------------------------------------
3.1. Registration. All Warrants shall be numbered and shall be
registered in a warrant register maintained at the Warrant Agent's Principal
Office by the Warrant Agent as they are issued. The Company and the Warrant
Agent shall be entitled to treat a Holder as the owner in fact for all purposes
whatsoever of each Warrant registered in such Holder's name.
3.2. Form of Warrant. The text of each Warrant and of the Election to
Purchase Form and Assignment Form shall be substantially as set forth in Exhibit
A attached hereto. Each Warrant shall be executed on behalf of the Company by
its President or one of its Vice Presidents, under its corporate seal reproduced
thereon or facsimile thereof attested by its Secretary or an Assistant
Secretary. The signature of any of such officers on the Warrants may be manual
or facsimile.
Warrants bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any one of them shall have
ceased to hold such offices prior to the delivery of such Warrants or did not
hold such offices on the date of this Warrant Agreement.
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Warrants shall be dated as of the date of countersignature
thereof by the Warrant Agent either upon initial issuance or upon division,
exchange, substitution or transfer.
3.3. Countersignature of Warrants. Each Warrant shall be manually
countersigned by the Warrant Agent (or any successor to the Warrant Agent then
acting as warrant agent under this Warrant Agreement) and shall not be valid for
any purpose unless so countersigned. Warrants may be countersigned, however, by
the Warrant Agent (or by its successor as warrant agent hereunder) and may be
delivered by the Warrant Agent, notwithstanding that the persons whose manual
signatures appear thereon as proper officers of the Company shall have ceased to
be such officers at the time of such countersignature, issuance or delivery. The
Warrant Agent shall, upon written instructions of the President, a Vice
President, the Secretary, or an Assistant Secretary of the Company, countersign,
issue and deliver Warrants entitling the Holders thereof to purchase not more
than 810,811 shares of Common Stock (subject to adjustment as set forth herein)
and shall countersign and deliver Warrants as otherwise provided in this Warrant
Agreement.
4. VESTING; EXERCISE OF WARRANTS.
-----------------------------
4.1. Vesting. The Warrants shall vest and be exercisable, on a
cumulative basis, as follows:
(a) Subject to paragraph (c) below, the number of shares of
Common Stock for which the Warrants issued hereunder shall vest and become
exercisable shall be the Vesting Amount.
(b) Subject to the adjustment provisions of Article 6 hereof
and the immediately following sentence, on each date a Project is Closed, the
term "Vesting Amount" means, with respect to any Holder, the product of (x) the
number of Warrants issued to such Holder, and (y) a fraction (not greater than
one), the numerator of which equals the aggregate Project Capital in respect of
Projects which have Closed since the Effective Date or, if later, the prior most
recent Vesting Date, and as to which the Company has delivered to Holders and
the Warrant Agent the certificate referred to in Section 7.2, and the
denominator of which equals $450,000,000.
(c) Notwithstanding any of the provisions of this Section 4.1
of this Warrant Agreement, the Warrants shall lapse in their entirety (and,
therefore, shall neither vest nor become exercisable pursuant to this Warrant
Agreement) unless Projects having Project Capital aggregating at least
$60,000,000 either (i) are Closed on or prior to the third anniversary of the
Effective Date or (ii) are (x) the subject of a Definitive
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Agreement on or prior to the third anniversary of the Effective Date and (y)
Closed on or prior to the Expiration Date; and if the requirements of clauses
(i) and (ii) of this paragraph (c) have been satisfied, the Warrants shall vest
as and when Projects are Closed, but only with respect to Projects that either
(1) are Closed on or prior to the third anniversary of the Effective Date or are
(2) the subject of a Definitive Agreement on or prior to the third anniversary
of the Effective Date and (B) Closed on or prior to the Expiration Date.
For purposes of this Section 4.1(c), the term "Definitive
Agreement" shall mean a legally binding and enforceable agreement between the
Company or any of its subsidiaries and a party sponsoring a Project, containing
the material economic and other terms of the transaction with respect to such
Project, which agreement may be subject to closing conditions, including
financing (to be arranged by the Company) and other conditions customary for
these types of transactions.
(d) To facilitate the provisions of this Section 4.1 and
Section 7.2, commencing on August 1, 1998 and continuing semiannually on each
February 1 and August 1 thereafter until the Expiration Date, the Company shall
cause one (or more) of its financial officers to prepare and deliver to the
Warrant Agent and to all holders of the Warrants a written report detailing,
among other matters, the status and material terms (including price, amount of
Project Capital, timing, cost and structure) of all pending Project
transactions, and Project transactions subject to Definitive Agreements (each a
"Report" and collectively the "Reports"). In conjunction with (but not as part
of) the annual audit of the Company's financial condition, cash flows and
results of operations, the Company shall cause its independent auditors (or an
independent appraisal or financial consulting firm of recognized standing) to
conduct a review (but not constituting an audit within the meaning of GAAP) of
the Company's files, books and records relating to the Definitive Agreements and
pending Project transactions contemplated thereby as reasonably may be necessary
to confirm the accuracy and completeness of the information set forth in the
Reports prepared and delivered by the Company during the preceding 12-month
period, and shall cause such auditors (or appraisal or financial consulting
firm) to deliver to the Company, the Warrant Agent and each Holder of Warrants
not later than March 31 of each year until the Expiration Date, a written
statement of its findings based on such investigation and review.
All costs and expenses incurred in connection with the
preparation and distribution of the Reports and with the investigation and
written findings of the independent auditors
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(or appraisal or financial consulting firm) shall be borne by the
Company.
The foregoing notwithstanding, the Company shall have no
further duties or obligations pursuant to the provisions of this paragraph (d)
if Projects having Project Capital aggregating at least $60,000,000 are not the
subject of a Definitive Agreement on or before the third anniversary of the
Effective Date or all of the Warrants have vested.
4.2. Manner of Exercise. From and after the Vesting Date of any
Warrants and until 5:00 p.m., New York City time, on the later to occur of (a)
the Expiration Date, and (b) the 30th day after the Vesting Date of such
Warrants (or, if such date is not a business day, the next succeeding business
day), a Holder may exercise any of such Warrants, on any Business Day, for all
or part of the number of shares of Common Stock purchasable thereunder.
In order to exercise a Warrant, in whole or in part, a Holder
shall deliver to the Company at the Warrant Agent's Principal Office, (1) a
written notice of such Holder's election to exercise such Warrant, which notice
shall include the number of shares and class of Common Stock to be purchased,
(2) payment in immediately available funds or certified cashiers or official
bank check or checks in each case in United States dollars of the Warrant Price
for the account of the Company and (3) such Warrant. Such notice shall be
substantially in the form of the Election to Purchase Form set forth on the
reverse side of the form of Warrant Certificate attached as Exhibit A hereto,
duly executed by such Holder or its agent or attorney. Upon receipt thereof, the
Warrant Agent shall, as promptly as practicable, and in any event within five
Business Days thereafter, deliver or cause to be delivered to such Holder an
executed certificate or certificates representing the aggregate number of full
shares of Common Stock issuable upon such exercise. The stock certificate or
certificates so delivered shall be, to the extent possible, in such denomination
or denominations as such Holder shall request in the notice and shall be
registered in the name of such Holder or such other name as shall be designated
in such notice. A Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and such Holder
or any other Person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date such
notice, together with the immediately available funds or certified cashiers or
official bank check or checks in United States dollars and such Warrant, is
received by the Warrant Agent as described above and all taxes required to be
paid by such Holder, if any, pursuant to Section 4.3 prior to the issuance of
such shares have been paid.
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If any Warrant shall have been exercised in part, the Warrant Agent shall, at
the time of delivery of the certificate or certificates representing Warrant
Stock, deliver to the Holder a new Warrant evidencing the rights of such Holder
to purchase the unpurchased shares of Common Stock called for by such Warrant,
which new Warrant shall in all other respects be identical with the Warrant
exercised in part, or, at the request of such Holder, appropriate notation may
be made on such exercised Warrant and the same returned to such Holder.
Notwithstanding any provision herein to the contrary, the Warrant Agent shall
not be required to register shares in the name of any Person who acquired a
Warrant (or part thereof) or any Warrant Stock otherwise than in accordance with
such Warrant and this Warrant Agreement.
Payment of the Warrant Price shall be made at the option of
the Holder in immediately available funds or by certified or official bank check
or any combination thereof, duly executed by such Holder or by such Holder's
attorney duly authorized in writing.
4.3. Payment of Taxes. All shares of Common Stock issuable upon the
exercise of any Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Holder shall
pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issuance or delivery thereof.
4.4. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. Whenever any
distribution of Warrants exercisable into fractional shares of Common Stock
would otherwise be called for, the actual distribution thereof will reflect a
rounding up or down to the nearest share of Common Stock, provided, that
whenever any distribution of a Warrant that is exercisable into exactly one-half
of a share of Common Stock would otherwise be called for, the actual
distribution will reflect a rounding down to the nearest share of Common Stock.
5. TRANSFER, DIVISION AND COMBINATION.
----------------------------------
5.1. Transfer. Transfer of any Warrant and all rights hereunder, in
whole or in part, shall be registered in the warrant register of the Company to
be maintained for such purpose at the Warrant Agent's Principal Office, upon
surrender of such Warrant at the Warrant Agent's Principal Office, together with
a written assignment of such Warrant substantially in the form set forth on the
reverse side of the form of Warrant Certificate attached as Exhibit A hereto
duly executed by the Holder or its agent or attorney and payment of all funds
sufficient to pay any
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taxes payable upon the making of such transfer. Upon such surrender and, if
required, such payment, and subject to Section 9, the Company shall execute and
the Warrant Agent shall countersign and deliver a new Warrant or Warrants in the
name of the assignee or assignees and in the denomination specified in such
instrument of assignment, and shall issue to the assignor a new Warrant
evidencing the portion of such Warrant not so assigned, and the surrendered
Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be
exercised by a new Holder for the purchase of shares of Common Stock without
having a new Warrant issued.
5.2. Division and Combination. Any Warrant may be divided or combined
with other Warrants upon presentation thereof at the Warrant Agent's Principal
Office, together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 5.1, as to any transfer which may
be involved in such division or combination, the Company shall execute and the
Warrant Agent shall countersign and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
5.3. Maintenance of Books. The Warrant Agent agrees to maintain, at the
Warrant Agent's Principal Office, the warrant register for the registration of
warrants and the registration of transfer of the Warrants.
6. ADJUSTMENTS.
-----------
The number of shares of Common Stock for which a Warrant is
exercisable and the price at which such shares may be purchased upon exercise of
a Warrant, shall be subject to adjustment from time to time as set forth in this
Section 6 (such adjustment to be made irrespective of whether such Warrant
theretofore has vested pursuant to the provisions of Section 4.1 but without
modifying the criteria for vesting set forth in Article 4 hereof).
6.1. Stock Dividends, Subdivisions and Combinations;
Extraordinary Distributions. (a) If at any time the Company
shall:
(i) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
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(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which a Warrant is exercisable
immediately after the occurrence of any such event shall be adjusted to equal
the number of shares of Common Stock that a record holder of the same number of
shares of Common Stock for which a Warrant is exercisable immediately prior to
the occurrence of such event would own or be entitled to receive after the
happening of such event, and (ii) the Current Warrant Price shall be adjusted to
equal (A) the Current Warrant Price multiplied by the number of shares of Common
Stock for which a Warrant is exercisable immediately prior to the adjustment
divided by (B) the number of shares for which a Warrant is exercisable
immediately after such adjustment.
(b) If the Company shall pay or distribute an Extraordinary
Distribution in cash or other property, the Current Warrant Price shall be
adjusted downward in an amount equal to the per share (computed on the basis of
the number of shares then Outstanding) dollar amount of the Extraordinary
Distribution.
6.2. Certain Issuances of Additional Shares of Common Stock. (a) If at
any time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, for
consideration in an amount per Additional Share of Common Stock less than the
Daily Market Price, then (i) the number of shares of Common Stock for which each
Warrant is exercisable shall be adjusted to equal the product obtained by
multiplying the number of shares of Common Stock for which each Warrant is
exercisable immediately prior to such issuance or sale by a fraction (A) the
numerator of which shall be the number of shares of Common Stock Outstanding
immediately after such issuance or sale, and (B) the denominator of which shall
be the number of shares of Common Stock Outstanding immediately prior to such
issuance or sale plus the number of shares which the aggregate offering price of
the total number of such Additional Shares of Common Stock would purchase at the
then Daily Market Price; and (ii) the Current Warrant Price as to the number of
shares for which each Warrant is exercisable prior to such adjustment shall be
adjusted by multiplying such Current Warrant Price by a fraction (X) the
numerator of which shall be the number of shares for which each Warrant is
exercisable immediately prior to such issuance or sale; and (Y) the denominator
of which shall be the number of shares of Common Stock purchasable immediately
after such issuance or sale.
6.3. Certain Issuances of Warrants or Other Rights. If at
any time the Company shall take a record of the holders of its
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Common Stock for the purpose of entitling them to receive a distribution of, or
shall in any manner (whether directly or by assumption in a merger in which the
Company is the surviving or resulting corporation) issue or sell, any warrants
or other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such warrants or other
rights or upon conversion or exchange of such Convertible Securities shall be
less than the Daily Market Price in effect immediately prior to the time of such
issuance or sale, then the number of shares for which each Warrant is
exercisable and the Current Warrant Price shall be adjusted as provided in
Section 6.2 on the basis that the maximum number of Additional Shares of Common
Stock issuable pursuant to all such warrants or other rights or necessary to
effect the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued and outstanding and the Company shall be deemed to
have received all of the consideration payable therefor, if any, as of the date
of the issuance of such warrants, other rights or Convertible Securities. No
further adjustments of the Current Warrant Price or the number of shares for
which each Warrant is exercisable shall be made upon the actual issuance of such
Common Stock or of such Convertible Securities upon exercise of such warrants or
other rights or upon the actual issuance of such Common Stock upon such
conversion or exchange of such Convertible Securities.
6.4. Certain Issuances of Convertible Securities. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving or
resulting corporation) issue or sell, any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Daily Market Price in effect immediately prior
to the time of such issuance or sale, then the number of shares of Common Stock
for which each Warrant is exercisable and the Current Warrant Price shall be
adjusted as provided in Section 6.2 on the basis that the maximum number of
Additional Shares of Common Stock necessary to effect the conversion or exchange
of all such Convertible Securities shall be deemed to have been issued and
outstanding and the Company shall have received all of the consideration payable
therefor, if any, as of the date of issuance of such Convertible Securities. No
adjustment of the number of shares of Common Stock for which each Warrant is
exercisable and the Current Warrant Price shall be made under this Section 6.4
upon the issuance of any Convertible Securities
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which are issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefor, if any such adjustment previously shall have been
made upon the issuance of such warrants or other rights pursuant to Section 6.3.
No further adjustments of the number of shares of Common Stock for which each
Warrant is exercisable and the Current Warrant Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities and, if any issuance or sale of such Convertible
Securities is made upon exercise of any warrant or other right to subscribe for
or to purchase any such Convertible Securities for which adjustments of the
number of shares of Common Stock for which each Warrant is exercisable and the
Current Warrant Price have been or are to be made pursuant to other provisions
of this Article 6, no further adjustments of the number of shares of Common
Stock for which each Warrant is exercisable and the Current Warrant Price shall
be made by reason of such issuance or sale.
6.5. Superseding Adjustment. If, at any time after any adjustment of
the number of shares of Common Stock for which a Warrant is exercisable and the
Current Warrant Price shall have been made pursuant to Section 6.3 or Section
6.4 as the result of any issuance of warrants, rights or Convertible Securities:
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or a
portion of such warrants or rights, or the right of conversion or exchange with
respect to all or a portion of such other Convertible Securities, as the case
may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of such
other Convertible Securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per share upon
the occurrence of a specified date or event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled no longer shall be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable pursuant to
the previous exercise of any such warrants
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or rights or any such right of conversion or exchange, as having been issued on
the date or dates of any such exercise and for the consideration actually
received and receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been granted or
issued immediately after the time of such increase of the consideration per
share for which shares of Common Stock or other property are issuable under such
warrants or rights or other Convertible Securities; whereupon a new adjustment
of the number of shares of Common Stock for which this Warrant is exercisable
and the Current Warrant Price shall be made, which new adjustment shall
supersede the previous adjustment so rescinded and annulled.
6.6. Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which a Warrant is exercisable and the
Current Warrant Price provided for in this Article 6:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any warrants
or other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for cash consideration, the
consideration received by the Company therefor shall be the amount of the cash
received by the Company therefor, or, if such Additional Shares of Common Stock
or Convertible Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock or Convertible
Securities are sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price (in any such case
subtracting any amounts paid or receivable for accrued interest or accrued
dividends and without taking into account any compensation, discounts or
expenses paid or incurred by the Company for and in the underwriting of, or
otherwise in connection with, the issuance thereof). To the extent that such
issuance shall be for a consideration other than cash, then, except as herein
otherwise expressly provided, the amount of such consideration shall be deemed
to be the fair value of such consideration at the time of such issuance as
determined in good faith by the Board of Directors of the Company. In case any
Additional Shares of Common Stock or any Convertible Securities or any warrants
or other rights to subscribe for or purchase such Additional Shares of Common
Stock or Convertible Securities shall be issued in connection with any merger in
which the Company issues any securities, the amount of consideration therefor
shall be deemed to be the fair value, as determined in good faith by the Board
of Directors of the Company, of such
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portion of the assets and business of the nonsurviving corporation as such Board
in good faith shall determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities, warrants or other rights, as the case may
be. The consideration for any Additional Shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase the same
shall be the consideration received by the Company for issuing such warrants or
other rights plus the additional consideration payable to the Company upon
exercise of such warrants or other rights. The consideration for any Additional
Shares of Common Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by the Company for issuing
warrants or other rights to subscribe for or purchase such Convertible
Securities, plus the additional consideration, if any, payable to the Company
upon the exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional Shares of
Common Stock or Convertible Securities in payment or satisfaction of any
dividends upon any class of stock other than Common Stock, the Company shall be
deemed to have received for such Additional Shares of Common Stock or
Convertible Securities a consideration equal to the amount of such dividend so
paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by
this Article 6 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the number of
shares of Common Stock for which a Warrant is exercisable that otherwise would
be required may be postponed (except in the case of a subdivision or combination
of shares of Common Stock, as provided for in Section 6.1) up to, but not later
than the date of exercise if such adjustment either by itself or with other
adjustments not previously made would result in an increase or decrease, as the
case may be, of less than 1% of the shares of Common Stock for which a Warrant
is exercisable immediately prior to the making of such adjustment. Any
adjustment representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this Section 6 and not
previously made, would result in a minimum adjustment or on the date of
exercise. For the purpose of any adjustment, any specified event shall be deemed
to have occurred at the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments pursuant to
this Article 6, fractional interests in Common Stock shall be taken into account
to the nearest 1/10th of a share.
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(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
6.7. Reorganization, Reclassification, Merger, Consolidation or Sale of
Substantially all Assets of the Company. (a) If the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or resulting
entity or where there is a change in or distribution with respect to the Common
Stock of the Company) (each such event hereinafter referred to as a
"Transaction"), and pursuant to the terms of any such Transaction, the
consideration to be paid or distributed to or otherwise received by the holders
of Common Stock consists of shares of common stock of the surviving corporation
or resulting entity and/or any cash, shares of stock (not constituting common
stock) or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) (such non-common stock
property hereinafter referred to as "Other Property"), then each Holder shall
have the right thereafter to receive, upon exercise of a Warrant, the number of
shares of common stock of the surviving corporation or resulting entity and such
amount of Other Property receivable pursuant to such Transaction by a holder of
the number of shares of Warrant Stock for which a Warrant is exercisable
immediately prior to the effective time of such Transaction.
In the case of any Transaction of the type described in the immediately
preceding paragraph of this Section 6.7(a), it shall be a condition precedent to
consummation of the Transaction that the surviving corporation or resulting
entity expressly assume the due and punctual observance and performance of each
and every covenant and condition of this Warrant Agreement and the Warrants to
be performed and observed by the Company and all the obligations and liabilities
hereunder, subject to (i) the requirements for vesting set forth in Section 4.1
hereof, and (ii) such modifications as may be deemed appropriate (as determined
by resolution of the Board of Directors of the Company) in order to provide for
adjustments of shares of the Warrant Stock for which a Warrant is exercisable
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 6.7. For purposes of this Section 6.7, "common stock of the
surviving corporation or resulting entity"
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shall include stock of such corporation of any class which does not have a
preference as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exercisable or exchangeable for any such stock, either
immediately, after the lapse of any prescribed time period or the occurrence of
a specified event, and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 6.7 shall similarly
apply to successive Transactions.
(b) Notwithstanding anything to the contrary in paragraph (a)
above, if (i) pursuant to the terms of any Transaction, at least 70% of the
aggregate value of the consideration to be paid or distributed to or otherwise
received by the holders of Common Stock consists of Other Property and the
aggregate fair value per share of the common stock and Other Property to be paid
or distributed to or otherwise received by the holders of Common Stock is less
than the per share adjustment price (as defined below) or (ii) all or
substantially all of the assets of the Company are to be sold in a single
transaction (or series of related transactions)(such transaction or transactions
hereinafter referred to as a "Sale of Assets"), at least 70% in value of the
consideration to be received by the Company pursuant thereto consists of Other
Property and the aggregate fair value of the common stock and Other Property to
be received by the Company (computed on a per share after corporate-level tax
basis as if the same were then distributed to the stockholders of the Company)
is less than the per share adjustment price (as defined below), then, in either
such case:
(1) the Board of Directors of the Company shall, in good faith
and in accordance with established market practices, determine the fair value
per Warrant of the Warrants (the "Board Warrant Value") and deliver written
notice of the Board Warrant Value to each Holder of Warrants. If within 20 days
after receipt of such notice the Majority Holders do not object to the Board
Warrant Value by delivering written notice thereof to the Company, then the
Board Warrant Value as determined by the Board of Directors shall be final and
binding and shall constitute the "Warrant Value" for all purposes of this
Agreement. If the Majority Holders shall object to the Board Warrant Value, they
shall within 20 days after receipt of notice of the Board Warrant Value, deliver
written notice of such objection to the Company, which notice shall require that
the Company promptly employ two independent appraisal or financial consulting
firms of recognized standing (the "Appraisers"), each of which shall appraise
the fair value of the Warrants. The Appraisers shall, within 20 days after the
Company's receipt of the Majority Holders' notice of
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objection to the Warrant Value, send to each Holder of Warrants its appraisal of
the fair value of the Warrants, and the average of each Appraiser's
determination of the fair value of the Warrants shall be the "Warrant Value" for
all purposes of this Agreement;
(2) upon consummation of a transaction of a type referred to
in clause (i) or (ii) above, each then vested and exercisable Warrant having an
exercise price greater than the aggregate fair value per share of the common
stock and Other Property to be paid or distributed to or otherwise received by
the holders of the Common Stock (in the case of a clause (i) transaction) or by
the Company (in the case of a clause (ii) transaction) shall be cancelled,
terminated and of no further force or effect and each Holder shall receive in
respect of each such Warrant an amount in cash equal to the Warrant Value;
(3) upon consummation of a transaction of a type referred to
in clause (i) or (ii) above, each then vested and exercisable Warrant having an
exercise price less than the aggregate fair value per share of the common stock
and Other Property to be paid or distributed to or otherwise received by the
holders of the Common Stock (in the case of a clause (i) transaction) or by the
Company (in the case of a clause (ii) transaction) shall be deemed to have been
exercised in full and, upon payment of the Current Warrant Price in respect
thereof, the Holder of a Warrant shall be entitled to receive (x) the amount of
common stock and Other Property such Holder would have become entitled to
receive pursuant to the transactions as a holder of the number of shares of
Common Stock for which the Warrant was exercisable as of such date and (y) an
amount in cash equal to the difference, if any, between (A) the Warrant Value
and (B) the amount by which the fair value of the common stock and Other
Property received pursuant to clause (x) above exceeds the Current Warrant
Price; and
(4) the Company and the Holders of Warrants shall each bear
50% of the total costs and expenses, if any, attributable to the Appraisers, and
the share of such costs and expenses attributable on a per share basis to each
Holder shall be deducted from the cash payable to such Holder pursuant to either
of paragraph (2) or (3) above; provided, however, that with respect to the
payments referred to in Section 6.7(b)(2) and (3), the Board of Directors of the
Company may, in its sole discretion, treat as vested and exercisable, Warrants
that would become vested and exercisable upon the Closing of any Project with
respect to which a Definitive Agreement has been entered into on or prior to the
third anniversary of the Effective Date.
20
<PAGE>
For purposes of this Section 6.7(b), the "per share adjustment price"
shall equal (w) $11.30 per share if such Transaction or Sale of Assets occurs on
or prior to the first anniversary of the Effective Date, (x) $11.25 per share if
such Transaction or Sale of Assets occurs after such first anniversary but on or
prior to the second anniversary of the Effective Date, (y) $11.20 per share if
such Transaction or Sale of Assets occurs after such second anniversary but on
or prior the third anniversary of the Effective Date and (z) the Current Warrant
Price if such Transaction or Sale of Assets occurs at any time after such third
anniversary. The per share adjustment price shall be proportionately adjusted
upon any adjustment of the Current Warrant Price pursuant to this Article VI.
6.8. Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustment hereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
7. NOTICES TO WARRANT HOLDERS.
--------------------------
7.1. Notice of Adjustments. Whenever the number of shares of Common
Stock for which a Warrant is exercisable, or whenever the price at which a share
of such Common Stock may be purchased upon exercise of the Warrants, shall be
adjusted pursuant to Section 6, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the Company setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated, specifying the number of shares of
Common Stock for which a Warrant is exercisable and describing the number and
kind of any other shares of stock or Other Property for which a Warrant is
exercisable, and any change in the purchase price or prices thereof, after
giving effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to each Holder in accordance
with Section 14.2. The Company shall keep at its office or agency designated by
the Company pursuant to Section 12 copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by any Holder or any prospective purchaser of a Warrant designated by a Holder
thereof.
7.2. Notice of Vesting. Whenever any Warrants become vested pursuant to
Section 4.1 above, the Company forthwith shall prepare a certificate, in the
form attached hereto, to be executed by the chief financial officer of the
Company setting forth, in reasonable detail, the number of Warrants that have
vested and the method by which such number of vested Warrants was calculated.
The Company promptly shall cause a signed copy of
21
<PAGE>
such certificate to be delivered to each Holder in accordance with Section 14.2.
The Company shall keep at its office or agency designated by the Company
pursuant to Section 12 copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by any
Holder or any prospective purchaser of a Warrant designated by a Holder thereof.
7.3. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend (other than
a cash dividend payable out of earnings or earned surplus legally available for
the payment of dividends under the laws of the jurisdiction of incorporation of
the Company) or other distribution of Additional Shares of Common Stock, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation, or
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to each Holder
(i) prompt written notice of the record date for such dividend, distribution or
right or for determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, prior written notice of the
date when the same shall take place. Such notice in accordance with the
foregoing clause also shall specify (i) the date on which any such record is
taken for the purpose of such dividend, distribution or right, the date on which
the holders of Common Stock shall be entitled to any such dividend, distribution
or right, and the amount and character thereof, and (ii) the date and time on
which any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up takes place. Each
such written notice shall be sufficiently given if addressed to such Holder at
the last address of such Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
22
<PAGE>
To enable each Holder of an "In-the-Money Company Warrant" to
participate in a "Tag-along-Sale", the Company hereby further agrees to deliver
to each Holder of an "In-the-Money Company Warrant" a true and complete copy of
(i) the "Original Transfer Notice" not later than the 25th day next preceding
the "Original Transfer Date" and (ii) the "New Transfer Notice" not later than
the 25th day next preceding the "New Transfer Date (all of the foregoing
capitalized terms used and not expressly defined in this Warrant Agreement
having the respective meanings assigned to them in the Stockholder's Agreement).
8. NO IMPAIRMENT.
-------------
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant Agreement or any
Warrant. Without limiting the generality of the foregoing, the Company will (1)
not increase the par value of any shares of Common Stock receivable upon the
exercise of a Warrant above the amount payable therefor upon such exercise
immediately prior to such increase in par value and (2) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of any Warrant.
9. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY.
-------------------------------------------------------------------
From and after the Effective Date, the Company shall at all
times reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of this Warrant
Agreement and such Warrant, shall be duly and validly issued and fully paid and
nonassessable, and not subject to preemptive rights.
Before taking any action which would cause an adjustment
reducing the Current Warrant Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company shall
take any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of such Common
Stock at such adjusted Current Warrant Price.
23
<PAGE>
10. STOCK AND WARRANT TRANSFER BOOKS.
--------------------------------
The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
11. LOSS OR MUTILATION.
------------------
Upon receipt by the Company and the Warrant Agent from any
Holder of evidence reasonably satisfactory to them of the ownership of and the
loss, theft, destruction or mutilation of such Holder's Warrant and indemnity
reasonably satisfactory to them, and in case of mutilation upon surrender and
cancellation thereof, the Company will execute and the Warrant Agent will
countersign and deliver in lieu hereof a new Warrant of like tenor to such
Holder; provided, in the case of mutilation, no indemnity shall be required if
such Warrant in identifiable form is surrendered to the Company or the Warrant
Agent for cancellation.
12. OFFICE OF COMPANY.
-----------------
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants may be presented for exercise, registration
of transfer, division or combination as provided in this Warrant Agreement. The
Company shall initially maintain such an agency at the Warrant Agent's Principal
Offices.
13. WARRANT AGENT.
-------------
13.1. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto; provided that such
corporation must be eligible for appointment as a successor Warrant Agent under
the provisions of Section 13.3 hereof. If at the time such successor to the
Warrant Agent shall succeed to the agency created by this Warrant Agreement any
of the Warrants shall have been countersigned but not delivered, any such
successor to the Warrant Agent may adopt the countersignature of the predecessor
Warrant Agent and deliver such Warrants so countersigned; and if at that time
any of the Warrants shall not have been countersigned, any successor to the
24
<PAGE>
Warrant Agent may countersign such Warrants either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant Agent; and in
all such cases Warrants shall have the full force provided in the Warrants and
in this Warrant Agreement. If at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrants shall have been countersigned as
provided in Section 3.3 but not delivered, the Warrant Agent may adopt the
countersignatures under its prior name and deliver such Warrants so
countersigned; and if at that time any of the Warrants shall not have been
countersigned, the Warrant Agent may countersign such Warrants either in its
prior name or in its changed name; and in all such cases such Warrants shall
have the full force provided in the Warrants and in this Warrant Agreement.
13.2. Certain Terms and Conditions Concerning the Warrant Agent. The
Warrant Agent undertakes the duties and obligations imposed by this Warrant
Agreement upon the following terms and conditions, by all of which the Company
and the Holders, by their acceptance of Warrants, shall be bound:
(a) Correctness of Statements. The statements contained herein
and in the Warrants shall be taken as statements of the Company and the Warrant
Agent assumes no responsibility for the correctness of any of the same except
such as describe the Warrant Agent or action taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrants
except as herein otherwise provided.
(b) Breach of Covenants. The Warrant Agent shall not be
responsible for any failure of the Company to comply with any of the covenants
contained in this Warrant Agreement or in the Warrants to be complied with
specifically by the Company.
(c) Performance of Duties. The Warrant Agent may execute and
exercise any of the rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys or agents (which shall
not include its employees) and shall not be responsible for the misconduct or
negligence of any agent appointed with due care.
(d) Reliance on Counsel. The Warrant Agent may consult at any
time with legal counsel satisfactory to it (who may be counsel for the Company)
and the Warrant Agent shall incur no liability or responsibility to the Company
or to any Holder in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of such
counsel provided that such counsel shall have been selected with due care.
25
<PAGE>
(e) Proof of Actions Taken. Whenever in the performance of its
duties under this Warrant Agreement the Warrant Agent shall deem it necessary or
desirable that any fact or matter be proved or established by the Company prior
to taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed
conclusively to be proved and established by a certificate signed by the
President, a Vice President, the Secretary or an Assistant Secretary of the
Company and delivered to the Warrant Agent; and such certificate shall be full
authorization to the Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Warrant Agreement in reliance upon such
certificate.
(f) Compensation. The Company agrees to pay the Warrant Agent
reasonable compensation as set forth in the fee schedule attached hereto as
Exhibit B for all services rendered by the Warrant Agent in the performance of
its duties under this Warrant Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in the performance of its duties under this
Warrant Agreement, and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and counsel fees,
for anything done or omitted by the Warrant Agent in the performance of its
duties under this Warrant Agreement except as a result of the Warrant Agent's
negligence or bad faith.
(g) Legal Proceedings. The Warrant Agent shall be under no
obligation to institute any action, suit or legal proceeding or to take any
other action likely to involve expense unless the Company or one or more Holders
shall furnish the Warrant Agent with reasonable security and indemnity for any
costs and expenses that may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Warrant Agreement or under any of the Warrants may be enforced
by the Warrant Agent without the possession of any of the Warrants or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent, and any recovery of judgment shall be for the
ratable benefit of the Holders, as their respective rights or interests may
appear.
(h) Other Transactions in Securities of the Company. The
Warrant Agent and any stockholder, director, officer or employee of the Warrant
Agent may buy, sell or deal in any of the Warrants or other securities of the
Company or become pecuniarily
26
<PAGE>
interested in any transaction in which the Company may be interested, or
contract with or lend money to the Company or otherwise act as fully and freely
as though it were not Warrant Agent under this Warrant Agreement. Nothing herein
shall preclude the Warrant Agent from acting in any other capacity for the
Company or for any other legal entity.
(i) Liability of Warrant Agent. The Warrant Agent shall act
hereunder solely as agent, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything that it
may do or refrain from doing in connection with this Warrant Agreement except
for its own negligence or bad faith.
(j) Reliance on Documents. The Warrant Agent will not incur
any liability or responsibility to the Company or to any Holder for any action
taken in reliance on any notice, resolution, waiver, consent, order,
certificate, or other paper, document or instrument reasonably believed by it to
be genuine and to have been signed, sent or presented by the proper party or
parties.
(k) Validity of Agreements. The Warrant Agent shall not be
under any responsibility in respect of the validity of this Warrant Agreement or
the execution and delivery hereof (except the due execution and delivery hereof
by the Warrant Agent) or in respect of the validity or execution of any Warrant
(except its countersignature and delivery thereof); nor shall the Warrant Agent
by any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Warrant Stock (or other stock) to be issued
pursuant to this Warrant Agreement or any Warrant, or as to whether any Warrant
Stock (or other stock) will, when issued, be validly issued, fully paid and
nonassessable, or as to the Warrant Price or the number or amount of Warrant
Stock or other securities or other property issued upon exercise of any Warrant.
(l) Instructions from Company. The Warrant Agent is hereby
authorized and directed to accept instructions with respect to the performance
of its duties hereunder from the President, a Vice President, the Secretary or
any Assistant Secretary of the Company, and to apply to such officers for advice
or instructions in connection with its duties, and shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer or officers.
13.3. Change of Warrant Agent. The Warrant Agent may resign
and be discharged from its duties under this Warrant Agreement by
giving to the Company 30 days' advance notice in writing. The
27
<PAGE>
Warrant Agent may be removed by like notice to the Warrant Agent from the
Company. If the Warrant Agent shall resign or be removed or shall otherwise
become incapable of acting, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment within a period of 30
days after such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Warrant Agent, then
any Holder may apply to a court of competent jurisdiction for the appointment of
a successor to the Warrant Agent. Pending the appointment of the successor
warrant agent, the Company shall perform the duties of the Warrant Agent. Any
successor warrant agent, whether appointed by the Company or a court of
competent jurisdiction, shall be a bank or trust company, in good standing,
incorporated under the laws of the United States of America or any state thereof
and having at the time of its appointment as warrant agent a combined capital
and surplus of at least $500,000,000. After appointment, the successor warrant
agent shall be vested with the same powers, rights, duties and responsibilities
as if it had been originally named as Warrant Agent without further act or deed;
but the former Warrant Agent shall deliver and transfer to the successor warrant
agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Failure to
file any notice provided for in this Section 13.3, however, or any defect
therein, shall not affect the legality or validity of the resignation or removal
of the Warrant Agent or the appointment of the successor warrant agent, as the
case may be. In the event of such resignation or removal, the successor warrant
agent shall mail, first class, to each Holder, written notice of such removal or
resignation and the name and address of such successor warrant agent.
13.4. Disposition of Proceeds on Exercise of Warrants, Inspection of
Warrant Agreement. The Warrant Agent shall account promptly to the Company with
respect to Warrants exercised and concurrently pay to the Company all
immediately available funds received by the Warrant Agent for the purchase of
the Warrant Stock through the exercise of such Warrants. The Warrant Agent
shall, upon request of the Company from time to time, deliver to the Company
such complete reports of registered ownership of the Warrants and such complete
records of transactions with respect to the Warrants and the shares of Common
Stock as the Company may request. The Warrant Agent shall also make available to
the Company for inspection by the Company's agents or employees, from time to
time as the Company may request, such original books of accounts and records
maintained by the Warrant Agent in connection with the issuance and exercise of
Warrants hereunder, such inspections to occur at the Warrant Agent's Principal
Office. The Warrant Agent shall keep copies of this Warrant
28
<PAGE>
Agreement and any notices given or received hereunder available for inspection
by the Company or the Holders at the Warrant Agent's Principal Office. The
Company shall supply the Warrant Agent from time to time with such numbers of
copies of this Warrant Agreement as the Warrant Agent may request.
14. MISCELLANEOUS.
-------------
14.1. Stockholders' Agreement. The acceptance and exercise of any Warrant
issued pursuant to this Warrant Agreement shall constitute the agreement of the
Holder thereof to become a party to and to be bound by the Stockholders'
Agreement (a copy of which is attached hereto as Exhibit D) upon the acquisition
of Common Stock by such Holder upon the exercise of such Warrant.
14.2. Notice Generally. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant Agreement shall be sufficiently given or made if
in writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid or by
telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the warrant register of the Company
maintained for such purpose.
(b) If to Company at
CHI Energy, Inc.
680 Washington Boulevard
Stamford, Connecticut 06901
Attention: Edward M. Stern, President
and General Counsel
Telecopy Number: (203) 425-8880
(c) If to Warrant Agent at
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
Attention: Vice President-Transfer Department
Telecopy Number: (908) 497-2311
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be
29
<PAGE>
deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback or three Business Days after the same shall have been deposited in
the United States mail whichever is earlier. Failure or delay in delivering
copies of any notice, demand, request, approval, declaration, delivery or other
communication to the Person designated above to receive a copy shall in no way
adversely affect the effectiveness of such notice, demand, request, approval,
declaration, delivery or other communication.
14.3. Successors and Assigns. All covenants and provisions of this
Warrant Agreement by or for the benefit of the Company or the Warrant Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
14.4. Amendment. This Warrant Agreement and the Warrants may only be
modified or amended or the provisions hereof and thereof waived with the written
consent of the Company, the Warrant Agent and the Majority Holders, provided
that no Warrant may be modified or amended to reduce the number of shares of
Common Stock for which such Warrant is exercisable or to increase the price at
which such shares may be purchased upon exercise of such Warrant (before giving
effect to any adjustment as provided herein and therein) without the prior
written consent of the Holder thereof.
14.5. Third-Party Beneficiaries. All covenants and provisions of this
Warrant Agreement shall inure to the benefit of each Holder from time to time of
Warrants.
14.6. Severability. Wherever possible, each provision of this Warrant
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Warrant Agreement.
14.7. Headings. The headings used in this Warrant Agreement are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant Agreement.
14.8. Governing Law. This Warrant Agreement and the Warrants shall be
governed by the laws of the State of Delaware, without regard to the provisions
thereof relating to conflict of laws.
30
<PAGE>
14.9. Counterparts. This Warrant Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
IN WITNESS WHEREOF, each of the Company and the Warrant Agent
has caused this Warrant Agreement to be duly executed by its duly authorized
officers as of the date first above written.
CHI ENERGY, INC.
By: /s/ Edward M. Stern
--------------------------
Name: Edward M. Stern
Title: President
Registrar and Transfer
Company, as Warrant Agent
By: /s/ William P. Tatler
--------------------------
Name: William P. Tatler
Title: Vice President
31
NYFS10...:\84\38684\0003\1924\WAR0227Y.26A
<PAGE>
EXHIBIT A
---------
[FORM OF FACE OF WARRANT CERTIFICATE]
CHI ENERGY, INC.
Warrant to purchase [Class A Common Stock/Class B Common Stock],
par value $0.01 per share, of CHI Energy, Inc.
- --------------------------------------------------------------------------------
Warrant Certificate No.: Number of Warrants:
- --------------------------------------------------------------------------------
See Reverse for Certain Definitions
Exercisable from and after the Vesting Date (as defined below) until
5:00 p.m., New York City time on the later of (a) November 6, 2003 and (b) the
30th day after the Vesting Date, or, if such date is not a business day, the
next succeeding business day.
This Warrant Certificate certifies that ____________________, or
registered assigns, is the registered holder of the number of Warrants set forth
above expiring at 5:00 p.m., New York City time, on November 6, 2003 or, if such
date is not a business day, the next succeeding business day (the "Warrants") to
purchase [Class A Common Stock/Class B Common Stock], par value $0.01 per share
(collectively, the "Common Stock"), of CHI Energy, Inc., a Delaware corporation
(the "Company"), subject to vesting of such Warrants as provided in the Warrant
Agreement referred to below. The Common Stock issuable upon exercise of Warrants
is hereinafter referred to as the "Warrant Stock." Subject to the immediately
succeeding paragraph, each Warrant entitles the holder upon exercise to purchase
from the Company at any time from and after any date such Warrant vests (the
"Vesting Date") as provided in the Warrant Agreement referred to below, but not
after 5:00 p.m., New York City time, on the later of (a) November 6, 2003, and
(b) the 30th day after the Vesting Date of such Warrants, or, if such date is
not a business day, the next succeeding business day, one share of Common Stock,
subject to adjustment as set forth herein and in the Warrant Agreement dated as
of November 6, 1997 (the "Warrant Agreement") by and between the Company and
Registrar and Transfer Company, a New Jersey corporation, as warrant agent (the
"Warrant Agent"), in whole or in part, at the initial purchase price of $10.00
per share, on and subject to the terms and conditions set forth herein and in
the Warrant Agreement. Such purchase shall be payable in lawful money of the
United States of
32
<PAGE>
America by certified or official bank check or any combination thereof to the
order of the Warrant Agent for the account of the Company at the principal
office of the Warrant Agent, but only subject to the conditions set forth herein
and in the Warrant Agreement. The number of shares of Common Stock for which
each Warrant is exercisable, and the price at which such shares may be purchased
upon exercise of each Warrant, are subject to adjustment upon the occurrence of
certain events as set forth in the Warrant Agreement. Whenever the number of
shares of Common Stock for which a Warrant is exercisable, or the price at which
a share of such Common Stock may be purchased upon exercise of the Warrants, is
adjusted pursuant to the Warrant Agreement, the Company shall cause to be given
to each of the registered holders of the Warrants at such holders' addresses
appearing on the Warrant register written notice of such adjustment by first
class mail postage pre-paid.
No Warrant may be exercised before 5:00 p.m., New York City time, on
the Vesting Date, or after the later to occur of 5:00 p.m., New York City time,
on (a) November 6, 2003, and (b) the 30th day after the Vesting Date of such
Warrants, or, if such date is not a business day, the next succeeding business
day, and to the extent not exercised by such time such Warrants shall become
void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse side hereof and such further provisions
shall for all purposes have the same effect as though fully set forth at this
place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REGARD TO THE PROVISIONS THEREOF
RELATING TO CONFLICT OF LAWS.
33
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its President and has caused its corporate seal to be affixed
hereunto or imprinted hereon.
Dated:
(Seal)
Attest: CHI ENERGY, INC.
_______________________ By: ____________________________________
Name: _________________ Name: ____________________________________
Title: Secretary Title: President
COUNTERSIGNED:
Registrar and Transfer Company, as
Warrant Agent
By: _____________________________________
Name: _____________________________________
Title: ____________________________________
[Authorized Signature]
34
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of up to 810,811 Warrants expiring at 5:00 p.m., New York City
time, on November 6, 2003 or, if such date is not a business day, the next
succeeding business day, entitling the holder, subject to the vesting provisions
contained in the Warrant Agreement, on exercise to purchase shares of [Class A
Common Stock/Class B Common Stock], par value $0.01 per share, of the Company,
and are issued or to be issued pursuant to the Warrant Agreement, which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Warrant Agent,
the Company and the Holders (the words "Holders" or "Holder" meaning the
registered holders or registered holder of the Warrants). A copy of the Warrant
Agreement may be obtained by the Holder hereof upon written request to the
Company. The acceptance and exercise of any Warrant evidenced by this Warrant
Certificate shall constitute the agreement of the Holder hereof to become a
party to and to be bound by the Stockholders' Agreement, upon the acquisition of
Common Stock by such Holder upon the exercise of such Warrant. A copy of the
Stockholders' Agreement may be obtained by the Holder hereof upon written
request to the Company.
Warrants may be exercised at any time from and after the Vesting Date
until 5:00 p.m., New York City time, on the later of (a) November 6, 2003 and
(b) the 30th day after the Vesting Date, or, if such date is not a business day,
the next succeeding business day. The Holder of Warrants evidenced by this
Warrant Certificate may exercise them by surrendering this Warrant Certificate,
with the form of election to purchase set forth hereon properly completed and
executed, together with payment of the purchase price by certified or official
bank check or any combination thereof to the order of the Warrant Agent for the
account of the Company and the other required documentation. In the event that
upon any exercise of Warrants evidenced hereby the number of Warrants exercised
shall be less than the total number of Warrants evidenced hereby, there shall be
issued to the Holder hereof or his assignee a new Warrant Certificate evidencing
the number of Warrants not exercised.
The Warrant Agreement provides that the number of shares of Common
Stock for which each Warrant is exercisable, and the price at which such shares
may be purchased upon exercise of each Warrant, are subject to adjustment upon
the occurrence of certain events as set forth in the Warrant Agreement. The
Company shall not be required to issue any fractional share, of Common Stock
35
<PAGE>
upon the exercise of any Warrant, but the Company shall round up or down to the
nearest share of Common Stock as provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Warrant
Agent by the registered Holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement
without charge except for any tax imposed in connection therewith.
36
<PAGE>
[ELECTION TO PURCHASE FORM]
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ______ Shares of [Class A Common
Stock/Class B Common Stock] of CHI Energy, Inc. and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant and the Warrant Agreement and requests that certificates for the shares
of Common Stock hereby purchased (and any securities or other property issuable
upon such exercise) be issued in the name of and delivered to _____________
whose address is _________________ and, if such shares of Common Stock shall not
include all of the shares of Common Stock issuable as provided in this Warrant,
that a new Warrant of like tenor and date for the balance of the shares of
Common Stock issuable hereunder be delivered to the undersigned. By executing
this Election to Purchase, the undersigned agrees to become a party to and to be
bound by that certain Stockholders' Agreement, dated as of November __, 1997, by
and among the Company and each of the stockholders of the Company (the
"Stockholders' Agreement"), as a Stockholder (as defined in the Stockholders'
Agreement) and to the same extent as all other Stockholders now a party to and
bound thereby.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this election to purchase must correspond
with the name as written upon the face of the within Warrant
in every particular, without alteration or enlargement or any
change whatsoever.
37
<PAGE>
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
- ---------------------------- ----------------
Common Stock
------------
and does hereby irrevocably constitute and appoint _______ ________________
attorney-in-fact to register such transfer on the books of CHI Energy, Inc.
maintained for the purpose, with full power of substitution in the premises.
Dated:____________________ Print Name: ______________________________
Signature: _____________________________
Witness: _____________________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
38
<PAGE>
EXHIBIT B
---------
----------------------------- ,
as Warrant Agent
Schedule of Fees
----------------
39
<PAGE>
EXHIBIT C
FORM OF NOTICE OF VESTING
CERTIFICATE
I, ___________, Chief Executive Officer of CHI Energy, Inc.
(the "Company") do hereby certify, pursuant to Section 7.2 of the Series B
Warrant Agreement, dated as of November __, 1997, between the Company and _____,
as Warrant Agent (the "Warrant Agreement"), that the number of Warrants (as
defined in the Warrant Agreement) set forth below have vested pursuant to
Section 4.1 of the Warrant Agreement. In addition, the number of Warrants which
have vested was calculated as set forth below.
NUMBER OF
VESTED WARRANTS VESTING DATE
--------------- ------------
[INSERT DESCRIPTION OF CALCULATION]
IN WITNESS WHEREOF, the undersigned has signed this Officers'
Certificate this ______ day of _____, ____.
_______________________________
[NAME]
CHIEF EXECUTIVE OFFICER
40
EXHIBIT 10.6
SERIES C WARRANT
CHI ENERGY, INC.
and
REGISTRAR AND TRANSFER COMPANY
as Warrant Agent
--------------------
Warrants to Purchase up to 526,316 Shares of Common Stock
------------------
WARRANT AGREEMENT
Dated as of November 6, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. DEFINITIONS.......................................................... 1
2. APPOINTMENT OF WARRANT AGENT......................................... 6
2.1. Appointment................................................. 6
3. REGISTRATION, FORM AND EXECUTION OF WARRANTS......................... 7
3.1. Registration................................................ 7
3.2. Form of Warrant............................................. 7
3.3. Countersignature of Warrants................................ 7
4. EXERCISE OF WARRANTS................................................. 8
4.1. Manner of Exercise.......................................... 8
4.2. Payment of Taxes............................................ 9
4.3. Fractional Shares........................................... 9
5. TRANSFER, DIVISION AND COMBINATION................................... 9
5.1. Transfer.................................................... 9
5.2. Division and Combination.................................... 10
5.3. Maintenance of Books........................................ 10
6. ADJUSTMENTS.......................................................... 10
6.1. Stock Dividends, Subdivisions and Combinations;
Extraordinary Distributions................................. 10
6.2. Certain Issuances of Additional Shares of Common
Stock....................................................... 11
6.3. Certain Issuances of Warrants or Other Rights............... 11
6.4. Certain Issuances of Convertible Securities................. 12
6.5. Superseding Adjustment...................................... 13
6.6. Other Provisions Applicable to Adjustments under
this Section................................................ 13
6.7. Reorganization, Reclassification, Merger,
Consolidation or Sale of Substantially all
Assets of the Company....................................... 15
6.8. Certain Limitations......................................... 18
7. NOTICES TO WARRANT HOLDERS........................................... 18
7.1. Notice of Adjustments....................................... 18
7.2. Notice of Corporate Action.................................. 19
8. NO IMPAIRMENT........................................................ 20
9. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY............................................................ 20
10. STOCK AND WARRANT TRANSFER BOOKS..................................... 20
i
NYFS10...:\84\38684\0003\1924\WAR0227Y.34A
<PAGE>
11. LOSS OR MUTILATION................................................... 21
12. OFFICE OF COMPANY.................................................... 21
13. WARRANT AGENT........................................................ 21
13.1. Merger or Consolidation or Change of Name of
Warrant Agent............................................... 21
13.2. Certain Terms and Conditions Concerning the
Warrant Agent............................................... 22
13.3. Change of Warrant Agent..................................... 24
13.4. Disposition of Proceeds on Exercise of Warrants,
Inspection of Warrant Agreement............................. 25
14. MISCELLANEOUS........................................................ 26
14.1. Stockholders' Agreement..................................... 26
14.2. Notice Generally............................................ 26
14.3. Successors and Assigns...................................... 27
14.4. Amendment................................................... 27
14.5. Third-Party Beneficiaries................................... 27
14.6. Severability................................................ 27
14.7. Headings.................................................... 27
14.8. Governing Law............................................... 27
14.9. Counterparts................................................ 27
EXHIBITS
Exhibit A - Form of Warrant Certificate
Exhibit B - Warrant Agent Fees
Exhibit C - Form of Stockholders' Agreement
ii
<PAGE>
THIS WARRANT AGREEMENT (this "Warrant Agreement"), dated as of
November 6, 1997, is made by and between CHI Energy, Inc. a Delaware corporation
formerly known as Consolidated Hydro, Inc. (the "Company"), and Registrar and
Transfer Company, a New Jersey corporation, as warrant agent (the "Warrant
Agent").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to holders of the Company's
pre-existing Preferred Stock, warrants, as hereinafter described (the
"Warrants"), to purchase up to 526,316 shares of Common Stock pursuant to
Article IV of the Plan, as confirmed pursuant to the order of the United States
Bankruptcy Court, District of Delaware, (In re Consolidated Hydro, Inc. No.
97-1924 (SLR)), in connection with the reorganization of the Company under
chapter 11, title 11 of the United States Code; and
WHEREAS, the Company has requested the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in connection
with the issuance, division, transfer, exchange and exercise of Warrants;
NOW, THEREFORE, in consideration of the foregoing and for the
purpose of defining the terms and provisions of the Warrants and the respective
rights and obligations thereunder and hereunder of the Company, the Warrant
Agent, and the Holders, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and affirmed, the
Company and the Warrant Agent hereby agree as follows:
1. DEFINITIONS.
As used in this Warrant Agreement, the following capitalized terms
have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Effective Date, other than Warrant Stock.
"Business Day" shall mean any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the State of
New York.
"Class A Common Stock" shall mean (except where the context
otherwise indicates) the new Class A Common Stock, $.01 par value per share, of
the Company as constituted on the Effective Date, and any capital stock into
which such Class A Common Stock may thereafter be changed, and shall also
include (1) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Class A
1
<PAGE>
Common Stock upon any reclassification thereof which is also not preferred as to
dividends or assets over any other class of stock of the Company and which is
not subject to redemption and (2) shares of common stock of any successor or
acquiring corporation received by or distributed to the holders of Class A
Common Stock of the Company in the circumstances contemplated by Section 6.7.
"Class B Common Stock" shall mean (except where the context
otherwise indicates) the new Class B Common Stock, $.01 par value per share, of
the Company as constituted on the Effective Date, and any capital stock into
which such Class B Common Stock may thereafter be changed, and shall also
include (1) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Class B Common Stock upon any
reclassification thereof which is also not preferred as to dividends or assets
over any other class of stock of the Company and which is not subject to
redemption and (2) shares of common stock of any successor or acquiring
corporation received by or distributed to the holders of Class B Common Stock of
the Company in the circumstances contemplated by Section 6.7.
"Common Stock" shall mean, collectively (except where the context
otherwise indicates), the Class A Common Stock and the Class B Common Stock.
"Company" shall have the meaning assigned to such term in the first
paragraph of this Warrant Agreement.
"Convertible Securities" shall mean evidences of indebtedness,
shares of capital stock or other securities which are convertible into or
exchangeable, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon the
occurrence of a specified date or a specified event.
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, the price at which a share of Common Stock
may be purchased pursuant to this Warrant Agreement on such date. The initial
Current Warrant Price is as specified in the second paragraph of the Form of
Warrant Certificate as set forth in Exhibit A hereto.
"Daily Market Price" shall mean, in respect of any share of Common
Stock on any Trading Day, (1) the last reported sale price on such day on the
principal national securities exchange (including for this purpose The Nasdaq
Stock Market) on which such Common Stock is then listed or admitted to unlisted
trading privileges or (2) if no sale takes place on such day on any national
securities exchange, the average of the last reported closing bid and ask prices
on such day as officially
2
<PAGE>
quoted on any such exchange. If the Common Stock is not then listed or admitted
to unlisted trading privileges on any national securities exchange, the Daily
Market Price shall be the average of the last reported closing bid and ask
prices on such day in the over-the-counter market, as furnished by the National
Association of Securities Dealers, Inc. ("NASD") Automated Quotation System or
the National Quotation Bureau, Inc.; provided, that if neither such corporation
at the time is engaged in the business of reporting such prices, the Daily
Market Price shall be as furnished by any similar firm then engaged in such
business, or if there is no such firm, as furnished by any member of the NASD
selected mutually by the Majority Holders and the Company or, if they cannot
agree upon such selection, as selected by two such members of the NASD, one of
which shall be selected by the Majority Holders and one of which shall be
selected by the Company. If the Common Stock is not reported in the
over-the-counter market and no member of the NASD selected pursuant to the
preceding sentence will furnish the Daily Market Price, then the Daily Market
Price shall be the fair market value per share of Common Stock as of such date,
determined in good faith by the Board of Directors.
"Effective Date" shall have the meaning set forth in the Plan.
"Expiration Date" shall mean November 6, 2005.
"Extraordinary Distribution" shall mean any dividend or distribution
in respect of the Common Stock that:
(a) is made after the Effective Date but prior to the Initial
Measurement Date;
(b) is made during the First Measurement Period, to the extent that
the aggregate amount of cash or other property included in such dividend or
distribution, when aggregated with all other dividends and distributions made
after the Initial Measurement Date but prior to the date on which such dividend
or distribution is paid or distributed, exceeds 25% of the Company's cumulative
consolidated net income (before extraordinary items determined in accordance
with GAAP) for the period beginning on the first day of the First Measurement
Period through and including the date such dividend is paid or distributed; or
(c) is made after the last day of the First Measurement Period, to
the extent that the aggregate amount of cash or other property included in such
dividend or distribution, when aggregated with all other dividends and
distributions paid or distributed after the Initial Measurement Date but prior
to the date on which such dividend or distribution is paid or
3
<PAGE>
distributed, exceeds the sum of (i) the First Measurement Amount and (ii) 50% of
the Company's cumulative consolidated net income (before extraordinary items
determined in accordance with GAAP) for the period beginning on the first day
next following the last day of the First Measurement Period through and
including the date such dividend or distribution is paid or distributed;
provided, however, that in determining the aggregate amount of dividends and
distributions paid or distributed after the Initial Measurement Date for
purposes of clause (c) above, the amount of such dividends or distributions made
during the First Measurement Period is equal to the lesser of (x) the amounts
actually paid or distributed and (y) the First Measurement Amount; and provided,
further, however, that up to $15 million in cash paid by the Company pursuant to
the Plan on and after the Effective Date to holders of the 12% Senior Discount
Notes due 2003 that were outstanding prior to the Effective Date shall not
constitute an "Extraordinary Distribution" for purposes of this Agreement.
"First Measurement Amount" shall mean, with respect to the First
Measurement Period, an amount equal to 25% of the Company's cumulative
consolidated net income for such period (before extraordinary items determined
in accordance with GAAP).
"First Measurement Period" shall mean the period commencing on the
Initial Measurement Date and ending on the last day of the 11th fiscal quarter
of the Company next following such date.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of any Warrants and any other options or
warrants to purchase, or securities convertible into or exchangeable for, shares
of Common Stock outstanding on such date including, without limitation, all
Permitted Issuances.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name a Warrant is registered
in the warrant register of the Company maintained by or on behalf of the Company
for such purpose.
"Initial Measurement Date" shall mean the first day of the first
full fiscal quarter of the Company next following the Effective Date.
4
<PAGE>
"Majority Holders" shall mean the Holders of Warrants exercisable
for in excess of 50% of the aggregate number of shares of Common Stock then
purchasable upon exercise of all Warrants.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"Other Property" shall have the meaning set forth in Section 6.7.
"Outstanding" shall mean, when used with reference to Common Stock,
at any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Permitted Issuances" shall mean the issuance and grant of stock
options pursuant to the Company's 1997 Stock Option Plan and the issuance of
shares of Common Stock upon the exercise of (i) such options, (ii) the Warrants
and (iii) the Series B Warrants issued by the Company on the Effective Date.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, limited liability company, limited liability partnership,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Plan" shall mean the Company's Plan of Reorganization Under Chapter
11 of the United States Bankruptcy Code, as it may be amended or modified.
"Preferred Stock" shall mean the Company's Series F Preferred Stock,
Series H Preferred Stock and Series G Preferred Stock.
"Pricing Period" shall have the meaning set forth in Section 13.1.
"Repurchase Price" shall have the meaning set forth in Section 13.1.
"Stockholders' Agreement" shall mean that certain Stockholders'
Agreement dated as of November 6, 1997, by and
5
<PAGE>
among the Company and each of the stockholders of the Company, a copy of which
is annexed hereto as Exhibit C.
"Trading Day" shall mean any day on which the principal stock
exchange on which the Common Stock is listed or admitted to trading is open or,
if the Common Stock is not then listed or admitted to trading on any stock
exchange, any day on which the National Association of Securities Dealers
Automated Quotation System or the National Quotation Bureau Inc. reports prices
in respect of securities or, if neither such corporation is then engaged in such
business, any day on which the member of the NASD selected as specified in the
proviso set forth in the definition of "Daily Market Price" furnishes prices for
securities.
"Warrant Agent" shall have the meaning assigned to such term in the
first paragraph of this Warrant Agreement and shall include any successor
Warrant Agent hereunder.
"Warrant Agent's Principal Office" shall mean the principal office
of the Warrant Agent in New York City, New York (or such other office of the
Warrant Agent or any successor thereto hereunder acceptable to the Company as
set forth in a written notice provided to the Company and the Holders).
"Warrant Agreement" shall have the meaning assigned to such term in
the first paragraph of this Warrant Agreement.
"Warrant Price" shall mean an amount equal to (1) the number of
shares of Common Stock being purchased upon exercise of a Warrant pursuant to
Section 4.1, multiplied by (2) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by
the Holders of the Warrants upon the exercise thereof.
"Warrants" shall have the meaning assigned to such term in the
recitals to this Warrant Agreement, and shall include all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock and the class of Common Stock
for which they may be exercised.
2. APPOINTMENT OF WARRANT AGENT.
2.1. Appointment. The Company hereby appoints the Warrant Agent to act as
agent for the Company in accordance with the instructions set forth in this
Warrant Agreement, and the Warrant Agent hereby accepts such appointment.
6
<PAGE>
3. REGISTRATION, FORM AND EXECUTION OF WARRANTS.
3.1. Registration. All Warrants shall be numbered and shall be registered
in a warrant register maintained at the Warrant Agent's Principal Office by the
Warrant Agent as they are issued. The Company and the Warrant Agent shall be
entitled to treat a Holder as the owner in fact for all purposes whatsoever of
each Warrant registered in such Holder's name.
3.2. Form of Warrant. The text of each Warrant and of the Election to
Purchase Form and Assignment Form shall be substantially as set forth in Exhibit
A attached hereto. Each Warrant shall be executed on behalf of the Company by
its President or one of its Vice Presidents, under its corporate seal reproduced
thereon or facsimile thereof attested by its Secretary or an Assistant
Secretary. The signature of any of such officers on the Warrants may be manual
or facsimile.
Warrants bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrants or did not hold such
offices on the date of this Warrant Agreement.
Warrants shall be dated as of the date of countersigna- ture thereof
by the Warrant Agent either upon initial issuance or upon division, exchange,
substitution or transfer.
3.3. Countersignature of Warrants. Each Warrant shall be manually
countersigned by the Warrant Agent (or any successor to the Warrant Agent then
acting as warrant agent under this Warrant Agreement) and shall not be valid for
any purpose unless so countersigned. Warrants may be countersigned, however, by
the Warrant Agent (or by its successor as warrant agent hereunder) and may be
delivered by the Warrant Agent, notwithstanding that the persons whose manual
signatures appear thereon as proper officers of the Company shall have ceased to
be such officers at the time of such countersignature, issuance or delivery. The
Warrant Agent shall, upon written instructions of the President, a Vice
President, the Secretary, or an Assistant Secretary of the Company, countersign,
issue and deliver Warrants entitling the Holders thereof to purchase not more
than 810,811 shares of Common Stock (subject to adjustment as set forth herein)
and shall countersign and deliver Warrants as otherwise provided in this Warrant
Agreement.
7
<PAGE>
4. EXERCISE OF WARRANTS.
4.1. Manner of Exercise. From and after the date hereof until 5:00 p.m.,
New York City time, on the Expiration Date, a Holder may exercise any of the
Warrants, on any Business Day, for all or any part of the number of shares of
Common Stock purchasable thereunder.
In order to exercise a Warrant, in whole or in part, a Holder shall
deliver to the Company at the Warrant Agent's Principal Office, (1) a written
notice of such Holder's election to exercise such Warrant, which notice shall
include the number of shares and class of Common Stock to be purchased, (2)
payment in immediately available funds or certified cashiers or official bank
check or checks in each case in United States dollars of the Warrant Price for
the account of the Company and (3) such Warrant. Such notice shall be
substantially in the form of the Election to Purchase Form set forth on the
reverse side of the form of Warrant Certificate attached as Exhibit A hereto,
duly executed by such Holder or its agent or attorney. Upon receipt thereof, the
Warrant Agent shall, as promptly as practicable, and in any event within five
Business Days thereafter, deliver or cause to be delivered to such Holder an
executed certificate or certificates representing the aggregate number of full
shares of Common Stock issuable upon such exercise. The stock certificate or
certificates so delivered shall be, to the extent possible, in such denomination
or denominations as such Holder shall request in the notice and shall be
registered in the name of such Holder or such other name as shall be designated
in such notice. A Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and such Holder
or any other Person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date such
notice, together with the immediately available funds or certified cashiers or
official bank check or checks in United States dollars and such Warrant, is
received by the Warrant Agent as described above and all taxes required to be
paid by such Holder, if any, pursuant to Section 4.2 prior to the issuance of
such shares have been paid. If any Warrant shall have been exercised in part,
the Warrant Agent shall, at the time of delivery of the certificate or
certificates representing Warrant Stock, deliver to the Holder a new Warrant
evidencing the rights of such Holder to purchase the unpurchased shares of
Common Stock called for by such Warrant, which new Warrant shall in all other
respects be identical with the Warrant exercised in part, or, at the request of
such Holder, appropriate notation may be made on such exercised Warrant and the
same returned to such Holder. Notwithstanding any provision herein to the
contrary, the Warrant Agent shall not be required to register shares in the name
of any Person who acquired a Warrant (or part
8
<PAGE>
thereof) or any Warrant Stock otherwise than in accordance with such Warrant and
this Warrant Agreement.
Payment of the Warrant Price shall be made at the option of the
Holder in immediately available funds or by certified or official bank check or
any combination thereof, duly executed by such Holder or by such Holder's
attorney duly authorized in writing.
4.2. Payment of Taxes. All shares of Common Stock issuable upon the
exercise of any Warrant pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Holder shall
pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issuance or delivery thereof.
4.3. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. Whenever any
distribution of Warrants exercisable into fractional shares of Common Stock
would otherwise be called for, the actual distribution thereof will reflect a
rounding up or down to the nearest share of Common Stock, provided, that
whenever any distribution of a Warrant that is exercisable into exactly one-half
of a share of Common Stock would otherwise be called for, the actual
distribution will reflect a rounding down to the nearest share of Common Stock.
5. TRANSFER, DIVISION AND COMBINATION.
5.1. Transfer. Transfer of any Warrant and all rights hereunder, in whole
or in part, shall be registered in the warrant register of the Company to be
maintained for such purpose at the Warrant Agent's Principal Office, upon
surrender of such Warrant at the Warrant Agent's Principal Office, together with
a written assignment of such Warrant substantially in the form set forth on the
reverse side of the form of Warrant Certificate attached as Exhibit A hereto
duly executed by the Holder or its agent or attorney and payment of all funds
sufficient to pay any taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, and subject to Section 9, the Company
shall execute and the Warrant Agent shall countersign and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the denomination
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of such Warrant not so assigned, and the
surrendered Warrant shall promptly be cancelled. A Warrant, if properly
assigned, may be exercised by a new Holder for the purchase of shares of Common
Stock without having a new Warrant issued.
9
<PAGE>
5.2. Division and Combination. Any Warrant may be divided or combined with
other Warrants upon presentation thereof at the Warrant Agent's Principal
Office, together with a written notice specifying the names and denominations in
which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with Section 5.1, as to any transfer which may
be involved in such division or combination, the Company shall execute and the
Warrant Agent shall countersign and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
5.3. Maintenance of Books. The Warrant Agent agrees to maintain, at the
Warrant Agent's Principal Office, the warrant register for the registration of
warrants and the registration of transfer of the Warrants.
6. ADJUSTMENTS.
The number of shares of Common Stock for which a Warrant is
exercisable, and the price at which such shares may be purchased upon exercise
of a Warrant, shall be subject to adjustment from time to time as set forth in
this Section 6.
6.1. Stock Dividends, Subdivisions and Combinations; Extraordinary
Distributions. (a) If at any time the Company shall:
(i) take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend payable in, or other distribution
of, Additional Shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then (i) the number of shares of Common Stock for which a Warrant is exercisable
immediately after the occurrence of any such event shall be adjusted to equal
the number of shares of Common Stock that a record holder of the same number of
shares of Common Stock for which a Warrant is exercisable immediately prior to
the occurrence of such event would own or be entitled to receive after the
happening of such event, and (ii) the Current Warrant Price shall be adjusted to
equal (A) the Current Warrant Price multiplied by the number of shares of Common
Stock for which a Warrant is exercisable immediately prior to the adjustment
divided by (B) the number of shares for which a Warrant is exercisable
immediately after such adjustment.
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(b) If the Company shall pay or distribute an Extraordinary
Distribution in cash or other property, the Current Warrant Price shall be
adjusted downward in an amount equal to the per share (computed on the basis of
the number of shares then Outstanding) dollar amount of the Extraordinary
Distribution.
6.2. Certain Issuances of Additional Shares of Common Stock. (a) If at any
time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, for
consideration in an amount per Additional Share of Common Stock less than the
Daily Market Price, then (i) the number of shares of Common Stock for which each
Warrant is exercisable shall be adjusted to equal the product obtained by
multiplying the number of shares of Common Stock for which each Warrant is
exercisable immediately prior to such issuance or sale by a fraction (A) the
numerator of which shall be the number of shares of Common Stock Outstanding
immediately after such issuance or sale, and (B) the denominator of which shall
be the number of shares of Common Stock Outstanding immediately prior to such
issuance or sale plus the number of shares which the aggregate offering price of
the total number of such Additional Shares of Common Stock would purchase at the
then Daily Market Price; and (ii) the Current Warrant Price as to the number of
shares for which each Warrant is exercisable prior to such adjustment shall be
adjusted by multiplying such Current Warrant Price by a fraction (X) the
numerator of which shall be the number of shares for which each Warrant is
exercisable immediately prior to such issuance or sale; and (Y) the denominator
of which shall be the number of shares of Common Stock purchasable immediately
after such issuance or sale.
6.3. Certain Issuances of Warrants or Other Rights. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving or
resulting corporation) issue or sell, any warrants or other rights to subscribe
for or purchase any Additional Shares of Common Stock or any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such warrants or other rights or upon conversion
or exchange of such Convertible Securities shall be less than the Daily Market
Price in effect immediately prior to the time of such issuance or sale, then the
number of shares for which each Warrant is exercisable and the Current Warrant
Price shall be adjusted as provided in Section 6.2 on the basis that the maximum
number of Additional Shares of Common Stock issuable pursuant to all such
warrants or other rights or necessary to effect the conversion or exchange of
all such
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Convertible Securities shall be deemed to have been issued and outstanding and
the Company shall be deemed to have received all of the consideration payable
therefor, if any, as of the date of the issuance of such warrants, other rights
or Convertible Securities. No further adjustments of the Current Warrant Price
or the number of shares for which each Warrant is exercisable shall be made upon
the actual issuance of such Common Stock or of such Convertible Securities upon
exercise of such warrants or other rights or upon the actual issuance of such
Common Stock upon such conversion or exchange of such Convertible Securities.
6.4. Certain Issuances of Convertible Securities. If at any time the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving or
resulting corporation) issue or sell, any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Daily Market Price in effect immediately prior
to the time of such issuance or sale, then the number of shares of Common Stock
for which each Warrant is exercisable and the Current Warrant Price shall be
adjusted as provided in Section 6.2 on the basis that the maximum number of
Additional Shares of Common Stock necessary to effect the conversion or exchange
of all such Convertible Securities shall be deemed to have been issued and
outstanding and the Company shall have received all of the consideration payable
therefor, if any, as of the date of issuance of such Convertible Securities. No
adjustment of the number of shares of Common Stock for which each Warrant is
exercisable and the Current Warrant Price shall be made under this Section 6.4
upon the issuance of any Convertible Securities which are issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any such adjustment previously shall have been made upon the issuance of such
warrants or other rights pursuant to Section 6.3. No further adjustments of the
number of shares of Common Stock for which each Warrant is exercisable and the
Current Warrant Price shall be made upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities and, if any
issuance or sale of such Convertible Securities is made upon exercise of any
warrant or other right to subscribe for or to purchase any such Convertible
Securities for which adjustments of the number of shares of Common Stock for
which each Warrant is exercisable and the Current Warrant Price have been or are
to be made pursuant to other provisions of this Article 6, no further
adjustments of the number of shares of Common Stock for which each Warrant is
exercisable and the Current Warrant Price shall be made by reason of such
issuance or sale.
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6.5. Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which a Warrant is exercisable and the
Current Warrant Price shall have been made pursuant to Section 6.3 or Section
6.4 as the result of any issuance of warrants, rights or Convertible Securities:
(a) such warrants or rights, or the right of conversion or exchange
in such other Convertible Securities, shall expire, and all or a portion of such
warrants or rights, or the right of conversion or exchange with respect to all
or a portion of such other Convertible Securities, as the case may be, shall not
have been exercised, or
(b) the consideration per share for which shares of Common Stock are
issuable pursuant to such warrants or rights, or the terms of such other
Convertible Securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per share upon
the occurrence of a specified date or event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled no longer shall be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis
of:
(c) treating the number of Additional Shares of Common Stock or
other property, if any, theretofore actually issued or issuable pursuant to the
previous exercise of any such warrants or rights or any such right of conversion
or exchange, as having been issued on the date or dates of any such exercise and
for the consideration actually received and receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been granted or
issued immediately after the time of such increase of the consideration per
share for which shares of Common Stock or other property are issuable under such
warrants or rights or other Convertible Securities; whereupon a new adjustment
of the number of shares of Common Stock for which this Warrant is exercisable
and the Current Warrant Price shall be made, which new adjustment shall
supersede the previous adjustment so rescinded and annulled.
6.6. Other Provisions Applicable to Adjustments under this Section.
The following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for
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which a Warrant is exercisable and the Current Warrant Price provided for in
this Article 6:
(a) Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants or other
rights to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Securities shall be issued for cash consideration, the consideration
received by the Company therefor shall be the amount of the cash received by the
Company therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Convertible Securities are sold
to underwriters or dealers for public offering without a subscription offering,
the initial public offering price (in any such case subtracting any amounts paid
or receivable for accrued interest or accrued dividends and without taking into
account any compensation, discounts or expenses paid or incurred by the Company
for and in the underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration other
than cash, then, except as herein otherwise expressly provided, the amount of
such consideration shall be deemed to be the fair value of such consideration at
the time of such issuance as determined in good faith by the Board of Directors
of the Company. In case any Additional Shares of Common Stock or any Convertible
Securities or any warrants or other rights to subscribe for or purchase such
Additional Shares of Common Stock or Convertible Securities shall be issued in
connection with any merger in which the Company issues any securities, the
amount of consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of the Company, of such
portion of the assets and business of the nonsurviving corporation as such Board
in good faith shall determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities, warrants or other rights, as the case may
be. The consideration for any Additional Shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase the same
shall be the consideration received by the Company for issuing such warrants or
other rights plus the additional consideration payable to the Company upon
exercise of such warrants or other rights. The consideration for any Additional
Shares of Common Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received by the Company for issuing
warrants or other rights to subscribe for or purchase such Convertible
Securities, plus the additional consideration, if any, payable to the Company
upon the exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional Shares of
Common Stock or Convertible Securities in payment or satisfaction of any
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dividends upon any class of stock other than Common Stock, the Company shall be
deemed to have received for such Additional Shares of Common Stock or
Convertible Securities a consideration equal to the amount of such dividend so
paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by this
Article 6 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock for which a Warrant is exercisable that otherwise would be required
may be postponed (except in the case of a subdivision or combination of shares
of Common Stock, as provided for in Section 6.1) up to, but not later than the
date of exercise if such adjustment either by itself or with other adjustments
not previously made would result in an increase or decrease, as the case may be,
of less than 1% of the shares of Common Stock for which a Warrant is exercisable
immediately prior to the making of such adjustment. Any adjustment representing
a change of less than such minimum amount (except as aforesaid) which is
postponed shall be carried forward and made as soon as such adjustment, together
with other adjustments required by this Section 6 and not previously made, would
result in a minimum adjustment or on the date of exercise. For the purpose of
any adjustment, any specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments pursuant to this
Article 6, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
(d) When Adjustment Not Required. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
6.7. Reorganization, Reclassification, Merger, Consolidation or Sale of
Substantially all Assets of the Company. (a) If the Company shall reorganize its
capital, reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or resulting
entity or where there is a change in or distribution with respect to the Common
Stock of the Company) (each such event hereinafter referred to as a
"Transaction"), and pursuant to the terms of any such Transaction, the
consideration to be paid or distributed to
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or otherwise received by the holders of Common Stock consists of shares of
common stock of the surviving corporation or resulting entity and/or any cash,
shares of stock (not constituting common stock) or other securities or property
of any nature whatsoever (including warrants or other subscription or purchase
rights) (such non-common stock property hereinafter referred to as "Other
Property"), then each Holder shall have the right thereafter to receive, upon
exercise of a Warrant, the number of shares of common stock of the surviving
corporation or resulting entity and such amount of Other Property receivable
pursuant to such Transaction by a holder of the number of shares of Warrant
Stock for which a Warrant is exercisable immediately prior to the effective time
of such Transaction.
In the case of any Transaction of the type described in the immediately
preceding paragraph of this Section 6.7(a), it shall be a condition precedent to
consummation of the Transaction that the surviving corporation or resulting
entity expressly assume the due and punctual observance and performance of each
and every covenant and condition of this Warrant Agreement and the Warrants to
be performed and observed by the Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined by resolution of the Board of Directors of the Company) in order to
provide for adjustments of shares of the Warrant Stock for which a Warrant is
exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 6.7. For purposes of this Section 6.7,
"common stock of the surviving corporation or resulting entity" shall include
stock of such corporation of any class which does not have a preference as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exercisable or exchangeable for any such stock, either immediately, after the
lapse of any prescribed time period or the occurrence of a specified event, and
any warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 6.7 shall similarly apply to successive
Transactions.
(b) Notwithstanding anything to the contrary in paragraph (a) above,
if (i) pursuant to the terms of any Transaction, at least 70% of the aggregate
value of the consideration to be paid or distributed to or otherwise received by
the holders of Common Stock consists of Other Property and the aggregate fair
value per share of the common stock and Other Property to be paid or distributed
to or otherwise received by the holders of Common Stock is less than the Current
Warrant Price or (ii) all or substantially all of the assets of the Company are
to be sold in a single transaction (or series of
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related transactions)(such transaction or transactions hereinafter referred to
as a "Sale of Assets"), at least 70% in value of the consideration to be
received by the Company pursuant thereto consists of Other Property and the
aggregate fair value of the common stock and Other Property to be received by
the Company (computed on a per share after corporate-level tax basis as if the
same were then distributed to the stockholders of the Company) is less than the
Current Warrant Price, then, in either such case:
(1) the Board of Directors of the Company shall, in good faith and
in accordance with established market practices, determine the fair value per
Warrant of the Warrants (the "Board Warrant Value") and deliver written notice
of the Board Warrant Value to each Holder of Warrants. If within 20 days after
receipt of such notice the Majority Holders do not object to the Board Warrant
Value by delivering written notice thereof to the Company, then the Board
Warrant Value as determined by the Board of Directors shall be final and binding
and shall constitute the "Warrant Value" for all purposes of this Agreement. If
the Majority Holders shall object to the Board Warrant Value, they shall within
20 days after receipt of notice of the Board Warrant Value deliver written
notice of such objection to the Company, which notice shall require that the
Company promptly employ two independent appraisal or financial consulting firms
of recognized standing (the "Appraisers"), each of which shall appraise the fair
value of the Warrants. The Appraisers shall, within 20 days after the Company's
receipt of the Majority Holders' notice of objection to the Warrant Value, send
to each Holder of Warrants its appraisal of the fair value of the Warrants, and
the average of each Appraiser's determination of the fair value of the Warrants
shall be the "Warrant Value" for all purposes of this Agreement;
(2) upon consummation of a transaction of a type referred to in
clause (i) or (ii) above, each then vested and exercisable Warrant having an
exercise price greater than the aggregate fair value per share of the common
stock and Other Property to be paid or distributed to or otherwise received by
the holders of the Common Stock (in the case of a clause (i) transaction) or by
the Company (in the case of a clause (ii) transaction) shall be cancelled,
terminated and of no further force or effect and each Holder shall receive in
respect of each such Warrant an amount in cash equal to the Warrant Value;
(3) upon consummation of a transaction of a type referred to in
clause (i) or (ii) above, each then vested and exercisable Warrant having an
exercise price less than the aggregate fair value per share of the common stock
and Other Property to be paid or distributed to or otherwise received by
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the holders of the Common Stock (in the case of a clause (i) transaction) or by
the Company (in the case of a clause (ii) transaction) shall be deemed to have
been exercised in full and, upon payment of the Current Warrant Price in respect
thereof, the Holder of a Warrant shall be entitled to receive (x) the amount of
common stock and Other Property such Holder would have become entitled to
receive pursuant to the transactions as a holder of the number of shares of
Common Stock for which the Warrant was exercisable as of such date and (y) an
amount in cash equal to the difference, if any, between the Warrant Value and
the amount by which the fair value of the common stock and Other Property
received pursuant to clause (x) above exceeds the Current Warrant Price; and
(4) the Company and the Holders of Warrants shall each bear 50% of
the total costs and expenses, if any, attributable to the Appraisers, and the
share of such costs and expenses attributable on a per share basis to each
Holder shall be deducted from the cash payable to such Holder pursuant to either
of paragraph (2) or (3) above.
6.8. Certain Limitations. Notwithstanding anything herein to the contrary,
the Company agrees not to enter into any transaction which, by reason of any
adjustment hereunder, would cause the Current Warrant Price to be less than the
par value per share of Common Stock.
7. NOTICES TO WARRANT HOLDERS.
7.1. Notice of Adjustments. Whenever the number of shares of Common Stock
for which a Warrant is exercisable, or whenever the price at which a share of
such Common Stock may be purchased upon exercise of the Warrants, shall be
adjusted pursuant to Section 6, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the Company setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated, specifying the number of shares of
Common Stock for which a Warrant is exercisable and describing the number and
kind of any other shares of stock or Other Property for which a Warrant is
exercisable, and any change in the purchase price or prices thereof, after
giving effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to each Holder in accordance
with Section 14.2. The Company shall keep at its office or agency designated by
the Company pursuant to Section 12 copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by any Holder or any prospective purchaser of a Warrant designated by a Holder
thereof.
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7.2. Notice of Corporate Action. If at any time:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend (other than a cash
dividend payable out of earnings or earned surplus legally available for the
payment of dividends under the laws of the jurisdiction of incorporation of the
Company) or other distribution of Additional Shares of Common Stock, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to each Holder
(i) prompt written notice of the record date for such dividend, distribution or
right or for determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, prior written notice of the
date when the same shall take place. Such notice in accordance with the
foregoing clause also shall specify (i) the date on which any such record is
taken for the purpose of such dividend, distribution or right, the date on which
the holders of Common Stock shall be entitled to any such dividend, distribution
or right, and the amount and character thereof, and (ii) the date and time on
which any such reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up takes place. Each
such written notice shall be sufficiently given if addressed to such Holder at
the last address of such Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
To enable each Holder of an "In-the-Money Company Warrant" to
participate in a "Tag-along-Sale", the Company hereby further agrees to deliver
to each Holder of an "In-the-Money Company Warrant" a true and complete copy of
(i) the "Original Transfer Notice" not later than the 25th day next preceding
the "Original Transfer Date" and (ii) the "New Transfer Notice" not later than
the 25th day next preceding the "New Transfer Date (all of the foregoing
capitalized terms used and not expressly
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defined in this Agreement having, the respective meanings assigned to them in
the Stockholder's Agreement).
8. NO IMPAIRMENT.
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant Agreement or any Warrant.
Without limiting the generality of the foregoing, the Company will (1) not
increase the par value of any shares of Common Stock receivable upon the
exercise of a Warrant above the amount payable therefor upon such exercise
immediately prior to such increase in par value and (2) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of any Warrant.
9. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY.
From and after the Effective Date, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
payment therefor in accordance with the terms of this Warrant Agreement and such
Warrant, shall be duly and validly issued and fully paid and nonassessable, and
not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing
the Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Current Warrant Price.
10. STOCK AND WARRANT TRANSFER BOOKS.
The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
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11. LOSS OR MUTILATION.
Upon receipt by the Company and the Warrant Agent from any Holder of
evidence reasonably satisfactory to them of the ownership of and the loss,
theft, destruction or mutilation of such Holder's Warrant and indemnity
reasonably satisfactory to them, and in case of mutilation upon surrender and
cancellation thereof, the Company will execute and the Warrant Agent will
countersign and deliver in lieu hereof a new Warrant of like tenor to such
Holder; provided, in the case of mutilation, no indemnity shall be required if
such Warrant in identifiable form is surrendered to the Company or the Warrant
Agent for cancellation.
12. OFFICE OF COMPANY.
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant Agreement. The
Company shall initially maintain such an agency at the Warrant Agent's Principal
Offices.
13. WARRANT AGENT.
13.1. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto; provided that such
corporation must be eligible for appointment as a successor Warrant Agent under
the provisions of Section 13.3 hereof. If at the time such successor to the
Warrant Agent shall succeed to the agency created by this Warrant Agreement any
of the Warrants shall have been countersigned but not delivered, any such
successor to the Warrant Agent may adopt the countersignature of the predecessor
Warrant Agent and deliver such Warrants so countersigned; and if at that time
any of the Warrants shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrants either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant Agent; and in
all such cases Warrants shall have the full force provided in the Warrants and
in this Warrant Agreement. If at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrants shall have been countersigned but
not delivered, the Warrant Agent may adopt the countersignatures
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under its prior name and deliver such Warrants so countersigned; and if at that
time any of the Warrants shall not have been countersigned as provided in
Section 3.3, the Warrant Agent may countersign such Warrants either in its prior
name or in its changed name; and in all such cases such Warrants shall have the
full force provided in the Warrants and in this Warrant Agreement.
13.2. Certain Terms and Conditions Concerning the Warrant Agent. The
Warrant Agent undertakes the duties and obligations imposed by this Warrant
Agreement upon the following terms and conditions, by all of which the Company
and the Holders, by their acceptance of Warrants, shall be bound:
(a) Correctness of Statements. The statements contained herein and
in the Warrants shall be taken as statements of the Company and the Warrant
Agent assumes no responsibility for the correctness of any of the same except
such as describe the Warrant Agent or action taken by it. The Warrant Agent
assumes no responsibility with respect to the distribution of the Warrants
except as herein otherwise provided.
(b) Breach of Covenants. The Warrant Agent shall not be responsible
for any failure of the Company to comply with any of the covenants contained in
this Warrant Agreement or in the Warrants to be complied with specifically by
the Company.
(c) Performance of Duties. The Warrant Agent may execute and
exercise any of the rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys or agents (which shall
not include its employees) and shall not be responsible for the misconduct or
negligence of any agent appointed with due care.
(d) Reliance on Counsel. The Warrant Agent may consult at any time
with legal counsel satisfactory to it (who may be counsel for the Company) and
the Warrant Agent shall incur no liability or responsibility to the Company or
to any Holder in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of such
counsel provided that such counsel shall have been selected with due care.
(e) Proof of Actions Taken. Whenever in the performance of its
duties under this Warrant Agreement the Warrant Agent shall deem it necessary or
desirable that any fact or matter be proved or established by the Company prior
to taking or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed
conclusively to be proved and
22
<PAGE>
established by a certificate signed by the President, a Vice President, the
Secretary or an Assistant Secretary of the Company and delivered to the Warrant
Agent; and such certificate shall be full authorization to the Warrant Agent for
any action taken or suffered in good faith by it under the provisions of this
Warrant Agreement in reliance upon such certificate.
(f) Compensation. The Company agrees to pay the Warrant Agent
reasonable compensation as set forth in the fee schedule attached hereto as
Exhibit B for all services rendered by the Warrant Agent in the performance of
its duties under this Warrant Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in the performance of its duties under this
Warrant Agreement, and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and counsel fees,
for anything done or omitted by the Warrant Agent in the performance of its
duties under this Warrant Agreement except as a result of the Warrant Agent's
negligence or bad faith.
(g) Legal Proceedings. The Warrant Agent shall be under no
obligation to institute any action, suit or legal proceeding or to take any
other action likely to involve expense unless the Company or one or more Holders
shall furnish the Warrant Agent with reasonable security and indemnity for any
costs and expenses that may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as the Warrant Agent may consider
proper, whether with or without any such security or indemnity. All rights of
action under this Warrant Agreement or under any of the Warrants may be enforced
by the Warrant Agent without the possession of any of the Warrants or the
production thereof at any trial or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant Agent shall be brought
in its name as Warrant Agent, and any recovery of judgment shall be for the
ratable benefit of the Holders, as their respective rights or interests may
appear.
(h) Other Transactions in Securities of the Company. The Warrant
Agent and any stockholder, director, officer or employee of the Warrant Agent
may buy, sell or deal in any of the Warrants or other securities of the Company
or become pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not Warrant Agent under this Warrant
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
23
<PAGE>
(i) Liability of Warrant Agent. The Warrant Agent shall act
hereunder solely as agent, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything that it
may do or refrain from doing in connection with this Warrant Agreement except
for its own negligence or bad faith.
(j) Reliance on Documents. The Warrant Agent will not incur any
liability or responsibility to the Company or to any Holder for any action taken
in reliance on any notice, resolution, waiver, consent, order, certificate, or
other paper, document or instrument reasonably believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties.
(k) Validity of Agreements. The Warrant Agent shall not be under any
responsibility in respect of the validity of this Warrant Agreement or the
execution and delivery hereof (except the due execution and delivery hereof by
the Warrant Agent) or in respect of the validity or execution of any Warrant
(except its countersignature and delivery thereof); nor shall the Warrant Agent
by any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Warrant Stock (or other stock) to be issued
pursuant to this Warrant Agreement or any Warrant, or as to whether any Warrant
Stock (or other stock) will, when issued, be validly issued, fully paid and
nonassessable, or as to the Warrant Price or the number or amount of Warrant
Stock or other securities or other property issued upon exercise of any Warrant.
(l) Instructions from Company. The Warrant Agent is hereby
authorized and directed to accept instructions with respect to the performance
of its duties hereunder from the President, a Vice President, the Secretary or
any Assistant Secretary of the Company, and to apply to such officers for advice
or instructions in connection with its duties, and shall not be liable for any
action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer or officers.
13.3. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Warrant Agreement by giving to the Company
30 days' advance notice in writing. The Warrant Agent may be removed by like
notice to the Warrant Agent from the Company. If the Warrant Agent shall resign
or be removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
24
<PAGE>
incapacitated Warrant Agent, then any Holder may apply to a court of competent
jurisdiction for the appointment of a successor to the Warrant Agent. Pending
the appointment of the successor warrant agent, the Company shall perform the
duties of the Warrant Agent. Any successor warrant agent, whether appointed by
the Company or a court of competent jurisdiction, shall be a bank or trust
company, in good standing, incorporated under the laws of the United States of
America or any state thereof and having at the time of its appointment as
warrant agent a combined capital and surplus of at least $500,000,000. After
appointment, the successor warrant agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed; but the former Warrant Agent shall
deliver and transfer to the successor warrant agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance,
act or deed necessary for the purpose. Failure to file any notice provided for
in this Section 13.3, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Warrant Agent or the
appointment of the successor warrant agent, as the case may be. In the event of
such resignation or removal, the successor warrant agent shall mail, first
class, to each Holder, written notice of such removal or resignation and the
name and address of such successor warrant agent.
13.4. Disposition of Proceeds on Exercise of Warrants, Inspection of
Warrant Agreement. The Warrant Agent shall account promptly to the Company with
respect to Warrants exercised and concurrently pay to the Company all
immediately available funds received by the Warrant Agent for the purchase of
the Warrant Stock through the exercise of such Warrants. The Warrant Agent
shall, upon request of the Company from time to time, deliver to the Company
such complete reports of registered ownership of the Warrants and such complete
records of transactions with respect to the Warrants and the shares of Common
Stock as the Company may request. The Warrant Agent shall also make available to
the Company for inspection by the Company's agents or employees, from time to
time as the Company may request, such original books of accounts and records
maintained by the Warrant Agent in connection with the issuance and exercise of
Warrants hereunder, such inspections to occur at the Warrant Agent's Principal
Office. The Warrant Agent shall keep copies of this Warrant Agreement and any
notices given or received hereunder available for inspection by the Company or
the Holders at the Warrant Agent's Principal Office. The Company shall supply
the Warrant Agent from time to time with such numbers of copies of this Warrant
Agreement as the Warrant Agent may request.
25
<PAGE>
14. MISCELLANEOUS.
14.1. Stockholders' Agreement. The acceptance and exercise of any Warrant
issued pursuant to this Warrant Agreement shall constitute the agreement of the
Holder thereof to become a party to and to be bound by the Stockholders'
Agreement (a copy of which is attached hereto as Exhibit C) upon the acquisition
of Common Stock by such Holder upon the exercise of such Warrant.
14.2. Notice Generally. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant Agreement shall be sufficiently given or made if
in writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid or by
telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last known
address appearing on the warrant register of the Company maintained for
such purpose.
(b) If to Company at
CHI Energy, Inc.
680 Washington Boulevard
Stamford, Connecticut 06901
Attention: Edward M. Stern, President and General Counsel
Telecopy Number: (203) 425-8880
(c) If to Warrant Agent at
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
Attention: Vice President-Transfer Department
Telecopy Number: (908) 497-2311
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback or three Business Days after the same shall have been deposited in
the United States mail whichever is earlier. Failure or delay in delivering
copies of any notice, demand, request, approval, declaration, delivery or other
26
<PAGE>
communication to the Person designated above to receive a copy shall in no way
adversely affect the effectiveness of such notice, demand, request, approval,
declaration, delivery or other communication.
14.3. Successors and Assigns. All covenants and provisions of this Warrant
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
14.4. Amendment. This Warrant Agreement and the Warrants may only be
modified or amended or the provisions hereof and thereof waived with the written
consent of the Company, the Warrant Agent and the Majority Holders, provided
that no Warrant may be modified or amended to reduce the number of shares of
Common Stock for which such Warrant is exercisable or to increase the price at
which such shares may be purchased upon exercise of such Warrant (before giving
effect to any adjustment as provided herein and therein) without the prior
written consent of the Holder thereof.
14.5. Third-Party Beneficiaries. All covenants and provisions of this
Warrant Agreement shall inure to the benefit of each Holder from time to time of
Warrants.
14.6. Severability. Wherever possible, each provision of this Warrant
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Warrant Agreement.
14.7. Headings. The headings used in this Warrant Agreement are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant Agreement.
14.8. Governing Law. This Warrant Agreement and the Warrants shall be
governed by the laws of the State of Delaware, without regard to the provisions
thereof relating to conflict of laws.
27
<PAGE>
14.9. Counterparts. This Warrant Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
IN WITNESS WHEREOF, each of the Company and the Warrant Agent has
caused this Warrant Agreement to be duly executed by its duly authorized
officers as of the date first above written.
CHI ENERGY, INC.
By: /s/ Edward M. Stern
-----------------------------
Name: Edward M. Stern
Title: President
Registrar and Transfer
Company, as Warrant Agent
By: /s/ William P. Tatler
-----------------------------
Name: William P. Tatler
Title: Vice President
28
<PAGE>
EXHIBIT A
---------
[FORM OF FACE OF WARRANT CERTIFICATE]
CHI ENERGY, INC.
Warrant to purchase [Class A Common Stock/Class B Common Stock], par
value $0.01 per share, of CHI Energy, Inc.
- --------------------------------------------------------------------------------
Warrant Certificate No.: Number of Warrants:
- --------------------------------------------------------------------------------
See Reverse for Certain Definitions
Exercisable from and after the date hereof until 5:00 p.m., New York City
time on November 6, 2005.
This Warrant Certificate certifies that ____________________, or
registered assigns, is the registered holder of the number of Warrants set forth
above expiring at 5:00 p.m., New York City time, on November 6, 2005 (the
"Warrants") to purchase [Class A Common Stock/Class B Common Stock], par value
$0.01 per share (collectively, the "Common Stock"), of CHI Energy, Inc., a
Delaware corporation (the "Company"). The Common Stock issuable upon exercise of
Warrants is hereinafter referred to as the "Warrant Stock." Subject to the
immediately succeeding paragraph, each Warrant entitles the holder upon exercise
to purchase from the Company at any time after the date hereof until 5:00 p.m.,
New York City time, on November 6, 2005, one share of Common Stock, subject to
adjustment as set forth herein and in the Warrant Agreement dated as of November
6, 1997 (the "Warrant Agreement") by and between the Company and Registrar and
Transfer Company, a New Jersey corporation, as warrant agent (the "Warrant
Agent"), in whole or in part, at the initial purchase price of $18.36 per share,
on and subject to the terms and conditions set forth herein and in the Warrant
Agreement. Such purchase shall be payable in lawful money of the United States
of America by certified or official bank check or any combination thereof to the
order of the Warrant Agent for the account of the Company at the principal
office of the Warrant Agent, but only subject to the conditions set forth herein
and in the Warrant Agreement. The number of shares of Common Stock for which
each Warrant is exercisable, and the price at which such shares may be purchased
upon exercise of each Warrant, are subject to adjustment upon the occurrence of
certain events as set forth in the Warrant Agreement. Whenever the number of
shares of Common Stock for which a Warrant is
29
<PAGE>
exercisable, or the price at which a share of such Common Stock may be purchased
upon exercise of the Warrants, is adjusted pursuant to the Warrant Agreement,
the Company shall cause to be given to each of the registered holders of the
Warrants at such holders' addresses appearing on the Warrant register written
notice of such adjustment by first class mail postage pre-paid.
No Warrant may be exercised after 5:00 p.m., New York City time, on
November 6, 2005, and to the extent not exercised by such time such Warrants
shall become void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse side hereof and such further provisions
shall for all purposes have the same effect as though fully set forth at this
place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY THE LAWS OF THE STATE
OF DELAWARE, WITHOUT REGARD TO THE PROVISIONS THEREOF RELATING TO CONFLICT OF
LAWS.
30
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by its President and has caused its corporate seal to be affixed hereunto
or imprinted hereon.
Dated:
(Seal)
Attest: CHI ENERGY, INC.
By:
- ----------------------- ------------------------------
Name: Name:
Title: Secretary Title: President
COUNTERSIGNED:
Registrar and Transfer Company, as
Warrant Agent
By:
------------------------------
Name:
Title:
[Authorized Signature]
31
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of up to 526,316 Warrants expiring at 5:00 p.m., New York City
time, on November 6, 2005 or, if such date is not a business day, the next
succeeding business day, entitling the holder, on exercise, to purchase shares
of [Class A Common Stock/Class B Common Stock], par value $0.01 per share, of
the Company, and are issued or to be issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Warrant Agent, the Company and the Holders (the words "Holders" or "Holder"
meaning the registered holders or registered holder of the Warrants). A copy of
the Warrant Agreement may be obtained by the Holder hereof upon written request
to the Company. The acceptance and exercise of any Warrant evidenced by this
Warrant Certificate shall constitute the agreement of the Holder hereof to
become a party to and to be bound by the Stockholders' Agreement upon the
acquisition of Common Stock by such Holder upon the exercise of such Warrant. A
copy of the Stockholders' Agreement may be obtained by the Holder hereof upon
written request to the Company.
Warrants may be exercised at any time from and after the date hereof until
5:00 p.m., New York City time, on November 6, 2005 or, if such date is not a
business day, the next succeeding business day. The Holder of Warrants evidenced
by this Warrant Certificate may exercise them by surrendering this Warrant
Certificate, with the form of election to purchase set forth hereon properly
completed and executed, together with payment of the purchase price by certified
or official bank check or any combination thereof to the order of the Warrant
Agent for the account of the Company and the other required documentation. In
the event that upon any exercise of Warrants evidenced hereby the number of
Warrants exercised shall be less than the total number of Warrants evidenced
hereby, there shall be issued to the Holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised.
The Warrant Agreement provides that the number of shares of Common Stock
for which each Warrant is exercisable, and the price at which such shares may be
purchased upon exercise of each Warrant, are subject to adjustment upon the
occurrence of certain events as set forth in the Warrant Agreement. The Company
shall not be required to issue any fractional share, of Common Stock upon the
exercise of any Warrant, but the Company shall round up
32
<PAGE>
or down to the nearest share of Common Stock as provided in the Warrant
Agreement.
Warrant Certificates, when surrendered at the office of the Warrant Agent
by the registered Holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement
without charge except for any tax imposed in connection therewith.
33
<PAGE>
[ELECTION TO PURCHASE FORM]
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ______ Shares of [Class A Common
Stock/Class B Common Stock of] CHI Energy, INC. and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant and the Warrant Agreement and requests that certificates for the shares
of Common Stock hereby purchased (and any securities or other property issuable
upon such exercise) be issued in the name of and delivered to _____________
whose address is _________________ and, if such shares of Common Stock shall not
include all of the shares of Common Stock issuable as provided in this Warrant,
that a new Warrant of like tenor and date for the balance of the shares of
Common Stock issuable hereunder be delivered to the undersigned. By executing
this Election to Purchase, the undersigned agrees to become a party to and to be
bound by that certain Stockholders' Agreement, dated as of November __, 1997, by
and among the Company and each of the stockholders of the Company (the
"Stockholders' Agreement"), as a Stockholder (as defined in the Stockholders'
Agreement) and to the same extent as all other Stockholders now a party to and
bound thereby.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this election to purchase must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
34
<PAGE>
[FORM OF ASSIGNMENT]
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint _______________________
attorney-in-fact to register such transfer on the books of CHI Energy, Inc.
maintained for the purpose, with full power of substitution in the premises.
Dated: Print Name:
----------------- --------------------------
Signature:
---------------------------
Witness:
-----------------------------
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
35
<PAGE>
EXHIBIT B
---------
__________________________________________,
as Warrant Agent
Schedule of Fees
----------------
36
EXHIBIT 10.114
EMPLOYMENT AGREEMENT
This AGREEMENT, made this 31st day of October, 1997, by and
between CONSOLIDATED HYDRO, INC. (the "Company"), which will be renamed CHI
ENERGY, INC., a Delaware corporation with its principal office at 680 Washington
Boulevard, Stamford, CT 06901, and MICHAEL I. STORCH ("Executive"), an
individual residing at 169 Mill Brook Road, Stamford, CT 06902.
WHEREAS, the Company and Executive have entered into an
employment agreement, dated January 1, 1997 (the "Prior Agreement"); and
WHEREAS, in connection with the plan of reorganization of the
Company, the Company and Executive wish to enter into a revised employment
agreement whereby Executive will be employed by the Company in accordance with
the terms and conditions stated below.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive, and
----------
Executive agrees to enter the employ of the Company, for the period stated in
Section 3 hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. The Company agrees to employ
-----------------------------
Executive in the position of Executive Vice President and Executive agrees to
serve for the term and on the conditions hereinafter set forth. Executive agrees
to perform such services not inconsistent with his position as shall from time
to time be assigned to him by the President or Chief Executive Officer of the
Company, the Company's Board of Directors, or by their respective designees.
3. Term and Duties.
---------------
(a) Term of Employment. This Agreement shall become effective
and the terms of employment pursuant to this Agreement shall commence on the
effective date of the plan of reorganization with respect to the Company under
Chapter 11 of the United States Bankruptcy Code (the "Effective Date"), and will
continue through December 31, 1999, unless earlier terminated in accordance with
the provisions hereof; provided, however, that, unless the Company shall have
delivered to Executive written notice of its intent not to renew this Agreement
prior to January 1, in any year, commencing with January 1, 1999, the term of
this Agreement shall be
<PAGE>
automatically extended by twelve (12) months from the then effective expiration
date.
(b) Duties. During the period of his employment hereunder
Executive shall serve the Company as an Executive Vice President, and except for
illnesses, vacation periods and reasonable leaves of absence, Executive shall
devote all his business time, attention, skill and efforts to the faithful
performance of his duties hereunder; provided, however, that with the approval
of the Board of Directors of the Company, from time to time, Executive may
serve, or continue to serve, on the boards of directors of, and hold any other
offices or positions in, companies or organizations, which, in the Board's
judgment, will not present any conflict of interest with the Company or any of
its subsidiaries or affiliates or divisions, or materially affect the
performance of Executive's duties pursuant to this Agreement.
So long as Executive is an Executive Vice President of the
Company, he will discharge all duties incidental to such office and such further
duties as may be reasonably assigned to him from time to time by the President
or Chief Executive Officer of the Company, the Company's Board of Directors, or
by their respective designees.
(c) Primary Place of Employment. Executive shall perform his
duties hereunder at the Company's Fairfield County, Connecticut office, and
shall travel to the Company's other offices as may be necessary or appropriate
to perform his duties hereunder.
4. Compensation and Reimbursement of Expenses.
------------------------------------------
(a) Salary. For all services rendered by Executive as
Executive Vice President during his employment under this Agreement, the Company
shall pay Executive as compensation a salary at the annual rates of $249,900 in
1997, and $250,000 per calendar year thereafter. During the period of this
Agreement following 1998, Executive's salary shall be reviewed at least
annually, with the first such annual review in December, 1998. Such review shall
be conducted by the Board of Directors of the Company, or a committee designated
by the Board of Directors (the "Compensation Committee"), and the Board or
Compensation Committee may increase said salary. (The salary payable to
Executive in any year is referred to herein as the "Base Salary" for such year.)
(b) Incentive Compensation. For each year during the term of
this Agreement following 1997, the Company shall pay Executive an incentive
bonus of up to 100% of Executive's Base Salary, at the discretion of the
Compensation Committee, upon the achievement of certain targets (which for 1998
shall be set by
2
<PAGE>
the Compensation Committee by December 31, 1997, and for each year following
1998, shall be set by February 15 of such year). Executive's maximum bonus
opportunity of 100% of Base Salary shall be calculated as follows: (i) 33.33%
for meeting budget targets in the Industrial Infrastructure Business ("IIB"),
(ii) 33.33% for exceeding budget targets in the IIB and (iii) 33.33% for meeting
general operating targets set by the Compensation Committee. Bonuses shall be
payable upon completion of the annual audit of the Company for the applicable
year. In its discretion, the Compensation Committee may pay Executive by
December 31, 1997 an "emergence bonus" of up to 25% of Executive's Base Salary
for 1997.
(c) Equity Plan. The Company shall grant to Executive on the
Effective Date a non-qualified stock option to purchase 35,000 shares of the
Company s Series A Common Stock (the "Common Stock") and an incentive stock
option to purchase 20,000 shares of Common Stock, each at an exercise price
equal to $10.00 per share, pursuant to the terms and conditions of the stock
option agreements attached hereto as Exhibits A and B.
(d) Reimbursement of Expenses. The Company shall pay or
reimburse Executive for all reasonable travel and other expenses incurred by
Executive in performing his obligations under this Agreement. The Company
further agrees to furnish Executive with a private office, and such other
assistance and accommodations as shall be suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties.
5. Participation in Benefit Plans. The payments provided in
------------------------------
Sections 4 and 6 hereof are in addition to any benefits Executive is entitled to
under any group hospitalization, health, dental care, disability insurance,
surety bond, death benefit plan, travel and/or accident insurance, any other
allowance and/or executive compensation plan, including, without limitation,
capital accumulation and termination pay program, restricted or non-restricted
stock purchase plan, stock option plan, retirement income or pension plan, or
other present or future group employee benefit plan or program of the Company
for which key executives are or shall become eligible, and Executive shall be
eligible to receive during the period of his employment under this Agreement,
all benefits and emoluments for which key executives are eligible under every
such plan or program in accordance with the provisions thereof. Notwithstanding
the foregoing, except as specifically provided in Section 4 or 6 hereof (or as
provided by the Company as of the Effective Date) Executive shall not be
entitled to receive any additional benefits or awards under discretionary plans
or programs of the Company unless the Board of Directors of the Company (or the
Compensation Committee)
3
<PAGE>
exercises the necessary discretion to provide Executive with such
benefits or awards.
6. Benefits Payable Upon Disability or Death.
-----------------------------------------
(a) Disability Benefits. In the event of the disability of
Executive during the term of this Agreement, the Company shall, prior to
Executive's termination of employment and subject to Section 9 hereof, continue
to pay Executive his Base Salary and the other benefits provided in Sections 4
and 6 hereof during the period of his disability; provided, however, that
Executive's disability shall be taken into account by the Compensation Committee
in determining Executive's incentive compensation under Section 4 hereof. In the
event of Executive's termination of employment for "permanent disability", the
Company shall pay Executive his Base Salary and continue to provide the health
and welfare insurance benefits provided to Executive under Section 5 hereof as
of immediately prior to his date of termination (provided Executive continues to
make all required employee contributions) through the remainder of the term of
this Agreement (pursuant to the Company's benefit plans or otherwise), but (i)
Executive shall not be entitled to payment of any further bonuses under Section
4(b), (ii) no further options or other awards shall be granted Executive under
Section 4(c) or shall vest, unless the plan or agreement under which such
options or awards are granted provides otherwise, and (iii) Executive shall be
treated as a terminated employee with respect to the Company's other benefit
plans. To the extent that disability insurance is available on Executive, the
Company shall be permitted to purchase and pay for such insurance. Receipt by
Executive of such disability benefits shall reduce by such amount the obligation
of the Company to continue Executive's Base Salary under this Section 6(a).
The Company may terminate Executive's employment for
"permanent disability" in the event Executive is unable to perform his duties
under this Agreement as a result of physical or mental illness or injury for an
aggregate of six (6) or more months during any twelve-month period.
(b) Death Benefits. In the event of the death of Executive
during the term of this Agreement, the Company shall pay, or cause to be paid,
to Executive's designated beneficiary or beneficiaries or legal representatives
a death benefit of $500,000. Such death benefit shall be payable in cash in one
lump sum. The Company will purchase one or more term or other similar insurance
policies in amounts to provide for its obligation. To the extent that the life
of Executive is otherwise insured under any employee benefit plan of the Company
(other than any travel/accident or double indemnity coverage) the obligation of
the Company under this paragraph shall be reduced
4
<PAGE>
by such insurance benefits. If the Company has not previously insured the life
of Executive to the extent of the death benefit described above, this Section
6(b) will only become effective fifteen (15) days after a determination has been
made that Executive's life is insurable.
7. Payments to Executive Upon Termination of Employment. Upon
----------------------------------------------------
termination of Executive's employment during the term of this Agreement,
Executive (or in the event of his death, his beneficiary, beneficiaries or legal
representatives) shall be entitled to no further compensation hereunder other
than (i) Executive's Base Salary through the date of termination, (ii) any
benefits accrued and vested under the terms of the Company's employee benefit
plans and programs and (iii) any other payments or benefits specifically
provided by this Agreement.
(a) Termination. Upon the occurrence of an event of
termination (as hereinafter defined) during the term of this Agreement, the
provisions of this Section 7(a) and Section 7(b) shall apply. As used in this
Agreement, an "event of termination" shall mean and include any one or more of
the following:
(i) The termination by the Company of Executive's
full-time employment hereunder for any reason other than pursuant to
Section 7(c), or as a result of permanent disability or mandatory
retirement; or
(ii) Executive's resignation from the Company's employ,
as a result of any of the following:
A. a material and adverse change by the Company
in Executive's function, duties or responsibilities, without
Executive's written consent, which change would cause
Executive's position with the Company to become one of less
dignity, responsibility, importance or scope from the position
and attributes as described in Section 2 above;
B. any liquidation or dissolution of the
Company, unless the voting common equity interests of an
ongoing entity (other than a liquidating trust) are
beneficially owned, directly or indirectly, by the Company's
stockholders in substantially the same proportions as such
stockholders owned the Company's outstanding voting common
equity interests immediately prior to such liquidation or
dissolution, and such ongoing entity assumes all existing
obligations of the Company to Executive under this Agreement;
5
<PAGE>
C. a failure to elect, re-elect or appoint
Executive to the office of Executive Vice President
(other than as a result of Executive's disability or
his termination of employment pursuant to Section
7(c));
D. any other material breach of this Agreement
by the Company (other than a breach of Section 3(c));
or
E. prior to December 31, 1999, Executive being
required to relocate from Fairfield County, Connecticut,
without Executive's written consent.
(Upon the occurrence of any event described in clauses A., B., C., D. or E.
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation, upon not less than thirty (30) days' prior
written notice given within a reasonable period of time not to exceed three (3)
calendar months after the event giving rise to said right to elect); or
(iii) Executive's resignation from the Company's employ
during the 30-day period commencing upon the first anniversary of a
Change in Control of the Company, if such Change in Control occurs
subsequent to a Public Offering (or during the 30-day period commencing
upon the sixth month anniversary of a Change in Control of the Company,
if such Change in Control occurs prior to a Public Offering). For
purposes of this Agreement, a Change in Control of the Company means
the occurrence of one of the following events:
A. any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) becomes, after the
Effective Date, the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing more than 50% of the
Company's then outstanding securities eligible to vote for the
election of the Company's Board of Directors (the "Company
Voting Securities"); provided, that an event described in this
paragraph A. shall not be a Change in Control if any of the
following becomes such a beneficial owner: (1) the Company or
any majority-owned subsidiary of the Company (a "Subsidiary"),
(2) any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (3) any
underwriter temporarily holding securities pursuant to an
offering of such securities, (4) any person pursuant to a
Non-Qualifying Transaction (as defined in
6
<PAGE>
paragraph B.), (5) Executive or any group of persons including
Executive (or any entity controlled by Executive or any group
of persons including Executive), or (6) Morgan Stanley & Co.
or Swiss Bank Corporation or any entity controlled by,
controlling or under common control with either of such
entities; or
B. the consummation of a merger, consolidation or
reorganization of the Company (a "Business Combination"),
unless, following such Business Combination, the owners of the
Company Voting Securities immediately prior to such Business
Combination (or their affiliates) beneficially own, directly
or indirectly, 50% or more of the combined voting power of the
then outstanding voting securities entitled to vote generally
in the election of the directors of the corporation resulting
from such Business Combination (a "Non-Qualifying
Transaction").
The initial public offering of common stock of the Company pursuant to a
registration statement filed under the Securities Act of 1933, as amended (a
"Public Offering"), shall not be treated as a Change in Control for purposes of
this Agreement.
The expiration of the term of this Agreement as a result of the failure to renew
this Agreement shall not be treated as an event of termination under this
Section 7(a).
(b) Severance Upon an Event of Termination. Upon the
occurrence of an event of termination under Section 7(a), the Company shall,
subject to the provisions of Section 9 below, monthly for the duration of the
Severance Period (as defined below) pay Executive or, in the event of
Executive's subsequent death, his beneficiary or beneficiaries or his estate, as
the case may be, as severance pay and liquidated damages the monthly Base Salary
paid to Executive at the time of termination of his employment (the "Severance
Payments"). In addition, following an event of termination under Section 7(a),
the Company shall continue to provide the health and welfare insurance benefits
provided to Executive under Section 5 hereof as of immediately prior to his date
of termination for a period of twelve (12) months following the date of
termination (provided Executive continues to make all required employee
contributions). For purposes of this Agreement, the "Severance Period" shall
commence on the date of termination of Executive's employment with the Company
and expire upon the earlier of (i) eighteen (18) months from the date of
termination and (ii) six (6) months following the date on which the term of this
Agreement (as in effect as of Executive's date of termination) would have
otherwise expired; provided, that in no event shall the Severance Period be
longer than twelve (12) months in the event of a termination of
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<PAGE>
employment pursuant to Section 7(a)(ii)E. hereof. The Severance Payments shall
commence on the last day of the month in which the event of termination occurs;
provided, that the first such payment shall be reduced by the amount of any Base
Salary received by Executive for the portion of such month prior to the event of
termination. Notwithstanding the foregoing, the Company's obligation to provide
severance benefits hereunder shall be reduced by the present value of any cash
compensation paid to (or deferred by) Executive with respect to employment or
consulting services performed by Executive during the Severance Period. In the
event Executive receives twelve (12) months of continued welfare benefit
insurance as described above, and the Company's level of self-insurance for
medical benefits (with respect to individual claims in any given year) as of
Executive's date of termination is not more than 10% greater than it is as of
the Effective Date, Executive's coverage period for "COBRA" continuation health
coverage (to the extent Executive is otherwise eligible for coverage) shall
begin upon the expiration of such 12-month period.
(c) Other Termination of Employment. Notwithstanding Sections
7(a) and (b) or any other provision of this Agreement to the contrary, if on or
after the date of this Agreement and prior to the end of the term hereof:
(i) Executive has been convicted of, or plead guilty or
nolo contendere to, any crime or offense constituting a felony under
applicable law, including, without limitation, any act of dishonesty
such as embezzlement, theft or larceny;
(ii) Executive's commission of a material act of fraud
or dishonesty against the Company or any of its subsidiaries or
Executive's willful engaging in conduct which is significantly
injurious to the Company or any of its subsidiaries, monetarily or
otherwise;
(iii) Executive's abuse of illegal drugs and other
controlled substances or Executive's habitual intoxication, which
conduct continues after written demand for cessation of such conduct is
delivered to Executive by the Board; or
(iv) any willful or continuous neglect of or refusal to
perform Executive's duties or responsibilities or the willful taking of
actions which directly and materially impair Executive's ability to
perform his duties and responsibilities hereunder which continues after
detailed written notice thereof has been given to Executive;
then, and in each such case, the Company shall have the right to give notice of
termination of Executive's services hereunder as
8
<PAGE>
of a date (not earlier than 10 days from such notice) to be specified in such
notice and this Agreement (other than the provisions of Sections 8 and 9 hereof)
shall terminate on such date.
8. Duties Upon Termination. Executive agrees that he will,
-----------------------
upon termination of his employment with the Company for any reason whatsoever,
deliver to the Company any and all records, forms, contracts, memoranda, work
papers, lists of names or other customer data and any other articles or papers
which have come into his possession by reason of his employment with the Company
or which he holds for the Company, irrespective of whether or not any of said
items were prepared by him, and he shall not retain memoranda or copies of any
of said items. Executive shall assign to the Company all rights to trade secrets
and the products relating to the Company's business developed by him alone or in
conjunction with others at any time alike employed by the Company.
9. Post-Termination Obligations. All payments and benefits to
----------------------------
Executive under this Agreement shall be subject to Executive's compliance with
the following provisions during the Compliance Period, as defined below.
(a) Confidential Information. Executive shall not disclose or
reveal to any unauthorized person any trade secret or other
confidential information relating to the Company, its subsidiaries or
its affiliates, or to any businesses operated by them, including,
without limitation, any customer lists; and Executive confirms that
such information constitutes the exclusive property of the Company. For
purposes of this Section 9(a), the "Compliance Period" shall commence
on the Effective Date and continue thereafter.
(b) Competitive Conduct. Executive shall not otherwise act or
conduct himself to the material detriment of the Company, its
subsidiaries or affiliates, or in a manner which is inimical or
contrary to the interests thereof, and shall not engage, directly or
indirectly, alone, in association with or as a shareholder, principal,
agent, partner, member, officer, director, employee or consultant of
any person, firm or entity, in any business within the United States or
Canada in competition with any part of the business being conducted by
the Company or its subsidiaries; provided, however, that Executive's
ownership of less than 2 percent of the outstanding stock of a publicly
traded corporation (other than a corporation engaged primarily in the
business of developing or operating hydroelectric projects) shall not
by itself be deemed to constitute such competition. Executive shall not
(i) divert
9
<PAGE>
to any entity which is engaged in any business conducted by the Company
or any of its subsidiaries, any customer of such entities or any
project which such entities are pursuing, developing or attempting to
develop as of Executive's date of termination or (ii) solicit any
officer, employee (other than secretarial staff) or consultant of the
Company or any of its subsidiaries to leave the employ of such
entities. Executive recognizes that the possible restrictions on his
activities which may occur as a result of his performance of his
obligations under this Section 9(b) are required for the reasonable
protection of the Company and its investments.
(c) Compliance Period. For purposes of Section 9(b) of this
Agreement, the "Compliance Period" shall commence on the Effective
Date. If an event of termination under Section 7(a) hereof occurs prior
to the expiration of the term of this Agreement, the Compliance Period
shall end on the later of (A) the expiration of six months from the
date of termination of Executive's employment, and (B) the end of the
period for which Executive is entitled to receive Severance Payments.
If Executive's employment by the Company terminates in accordance with
Section 7(c) hereof or if Executive voluntarily terminates employment
(other than pursuant to Section 7(a)(ii)) prior to the expiration of
the term of this Agreement, the Compliance Period shall end on the
later of the expiration of the term of this Agreement and the second
anniversary of the termination of Executive's employment. In all cases
other than those described in the two preceding sentences, the
Compliance Period shall end on the expiration of the term of this
Agreement.
(d) Failure of Executive to Comply. If for any reason other
than death or disability, Executive shall, without written consent of
the Company, fail to comply with the provisions of Section 9(a) or 9(b)
above, his rights to any future payments or other benefits hereunder
shall terminate, and the Company's obligations to make such payments
and provide such benefits shall cease; provided, however, that no
failure to comply with any provision of Section 9(a) or 9(b) above
shall be deemed to have occurred unless and until Executive receives
written notice from the Company specifying the conduct alleged to
constitute such failure.
(e) Remedies. Executive agrees that monetary damages would not
be adequate compensation for any loss incurred by the Company by reason
of a breach of the provisions of Sections 8 and 9 of this Agreement and
hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate. Accordingly, in
addition to any other remedies that the Company may have at law or in
equity, Company shall have the right to have all
10
<PAGE>
obligations, agreements and other provisions of Sections 8 and 9
specifically performed by Executive, and the Company shall have the
right to obtain preliminary injunctive relief to secure specific
performance and to prevent a breach of Section 8 or 9.
10. Effect of Prior Agreements. This Agreement contains the
--------------------------
entire understanding between the parties hereto and, upon effectiveness of this
Agreement pursuant to Section 3(a) hereof, supersedes all prior employment
agreements between the Company and Executive (including without limitation the
Prior Agreement), except that this Agreement shall not affect or operate to
reduce any benefit or compensation inuring to Executive of a kind elsewhere
provided and not expressly provided in this Agreement (other than benefits set
forth in the Prior Agreement or in Executive's guaranteed minimum bonus
arrangement which Executive acknowledges has been terminated).
11. General Provisions.
------------------
(a) Binding Agreement. This Agreement shall be binding upon,
and inure to the benefit of Executive and the Company and their respective
permitted successors and assigns.
(b) Legal Expenses. In the event that Executive incurs legal
expenses in contesting any provision of this Agreement and such contest results
in a determination that the Company has breached any of its obligations
hereunder, Executive shall be reimbursed by the Company for any such legal
expenses reasonably incurred.
(c) Mitigation. Executive shall not be obligated to seek other
employment or take any other action to mitigate any severance benefits
hereunder.
12. Successors and Assigns.
----------------------
(a) Assignment by the Company. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the Company and,
unless clearly inapplicable, reference herein to the Company shall be deemed to
include its successors and assigns.
(b) Assignment by Executive. Executive may not assign this
Agreement in whole or in part.
13. Modification and Waiver.
-----------------------
(a) Amendment of Agreement. Except for increases in
compensation made as provided in Section 4(a), this Agreement may
11
<PAGE>
not be changed or modified except by an instrument in writing
signed by both of the parties hereto.
(b) Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.
14. Beneficiaries. This Agreement shall be for the express
-------------
benefit of the Company, Executive and, for so long as Morgan Stanley & Co. or
Swiss Bank Corporation or their successors shall be a holder of at least 3% of
the equity of the Company, Morgan Stanley & Co. or Swiss Bank Corporation (or
their successors), as the case may be.
15. Severability. In the event any provision of this Agreement
------------
or any part hereof is held invalid, such invalidity shall not affect any
remaining part of such provision or any other provision, and to this end, the
provisions of this Agreement are intended to be and shall be deemed severable.
If any court construes any provision of this Agreement to be illegal, void or
unenforceable because of the duration or the area or matter covered thereby,
such court shall reduce the duration, area or matter of such provision, and, in
its reduced form, such provision shall then be enforceable and shall be
enforced.
16. Withholding. Employer may withhold from any amounts
-----------
payable under this Agreement such taxes and governmentally required withholdings
as may be required to be withheld pursuant to any applicable law or regulation.
17. Notices. Any notice to be given hereunder shall be in
-------
writing and shall be deemed given when delivered personally, sent by courier or
telecopy or registered or certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or to
such other address as such party may subsequently give notice of hereunder in
writing:
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To Executive at:
169 Mill Brook Road
Stamford, CT 06902
To the Company at:
680 Washington Boulevard
Stamford, CT 06901
Attention: Controller
18. Governing Law. The parties hereto intend that
-------------
this Agreement shall be governed by the laws of the State of Connecticut.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer, and Executive has signed this
Agreement, all as of the day and year first above written.
CONSOLIDATED HYDRO, INC.
By: /s/ James T. Stewart
-----------------------
Title: CHAIRMAN-CEO
/s/ Michael I. Storch
---------------------------
Michael I. Storch
13
EXHIBIT 10.115
EMPLOYMENT AGREEMENT
This AGREEMENT, made this 31st day of October, 1997, by and
between CONSOLIDATED HYDRO, INC. (the "Company"), which will be renamed CHI
ENERGY, INC., a Delaware corporation with its principal office at 680 Washington
Boulevard, Stamford, CT 06901, and EDWARD M. STERN ("Executive"), an individual
residing at 36 Anvil Road, Southport, CT 06490.
WHEREAS, the Company and Executive have entered into an
employment agreement, dated January 1, 1997 (the "Prior Agreement"); and
WHEREAS, in connection with the plan of reorganization of the
Company, the Company and Executive wish to enter into a revised employment
agreement whereby Executive will be employed by the Company in accordance with
the terms and conditions stated below.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive, and
----------
Executive agrees to enter the employ of the Company, for the period stated in
Section 3 hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. The Company agrees to employ
-----------------------------
Executive in the position of President and Chief Operating Officer and Executive
agrees to serve for the term and on the conditions hereinafter set forth. The
Company will also use its best efforts to assure Executive's election to the
Board of Directors of the Company. Executive agrees to perform such services not
inconsistent with his position as shall from time to time be assigned to him by
the Chief Executive Officer of the Company, the Company's Board of Directors, or
by their respective designees. Executive further agrees to serve as a Director
of the Company and any subsidiaries of the Company without additional
compensation.
3. Term and Duties.
---------------
(a) Term of Employment. This Agreement shall become effective
and the terms of employment pursuant to this Agreement shall commence on the
effective date of the plan of reorganization with respect to the Company under
Chapter 11 of the United States Bankruptcy Code (the "Effective Date"), and will
continue through December 31, 2000, unless earlier terminated in accordance with
the provisions hereof; provided, however, that, unless the Company shall have
delivered to
<PAGE>
Executive written notice of its intent not to renew this Agreement prior to
January 1, in any year, commencing with January 1, 2000, the term of this
Agreement shall be automatically extended by twelve (12) months from the then
effective expiration date.
(b) Duties. During the period of his employment hereunder
Executive shall serve the Company as its President and Chief Operating Officer,
and except for illnesses, vacation periods and reasonable leaves of absence,
Executive shall devote all his business time, attention, skill and efforts to
the faithful performance of his duties hereunder; provided, however, that with
the approval of the Board of Directors of the Company, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
the Board's judgment, will not present any conflict of interest with the Company
or any of its subsidiaries or affiliates or divisions, or materially affect the
performance of Executive's duties pursuant to this Agreement.
So long as Executive is President and Chief Operating Officer
of the Company, he will discharge all duties incidental to such office and such
further duties as may be reasonably assigned to him from time to time by the
Chief Executive Officer of the Company, the Company's Board of Directors, or by
their respective designees.
(c) Place of Employment. Executive shall perform his duties
hereunder at the Company's Fairfield County, Connecticut office, and shall
travel to the Company's other offices as may be necessary or appropriate for him
to perform his duties hereunder.
4. Compensation and Reimbursement of Expenses.
------------------------------------------
(a) Salary. For all services rendered by Executive as
President and Chief Operating Officer during his employment under this
Agreement, the Company shall pay Executive as compensation a salary at the
annual rates of $238,800 in 1997, and $250,000 per calendar year thereafter.
During the period of this Agreement following 1998, Executive's salary shall be
reviewed at least annually, with the first such annual review in December, 1998.
Such review shall be conducted by the Board of Directors of the Company, or a
committee designated by the Board of Directors (the "Compensation Committee"),
and the Board or Compensation Committee may increase said salary. (The salary
payable to Executive in any year is referred to herein as the "Base Salary" for
such year.)
(b) Incentive Compensation. For each year during the
term of this Agreement following 1997, the Company shall pay
2
<PAGE>
Executive an incentive bonus of up to 150% of Executive's Base Salary, at the
discretion of the Compensation Committee, upon the achievement of certain
targets (which for 1998 shall be set by the Compensation Committee by December
31, 1997, and for each year following 1998, shall be set by February 15 of such
year). Executive's maximum bonus opportunity of 150% of Base Salary shall be
calculated as follows: (i) 50% for meeting budget targets in the Industrial
Infrastructure Business ("IIB"), (ii) 50% for exceeding budget targets in the
IIB and (iii) 50% for meeting general operating targets set by the Compensation
Committee. Bonuses shall be payable upon completion of the annual audit of the
Company for the applicable year. In its discretion, the Compensation Committee
may pay Executive by December 31, 1997 an "emergence bonus" of up to 25% of
Executive's Base Salary for 1997.
(c) Equity Plan. The Company shall grant to Executive on the
Effective Date a non-qualified stock option to purchase 95,000 shares of the
Company's Series A Common Stock (the "Common Stock") and an incentive stock
option to purchase 20,000 shares of Common Stock, each at an exercise price
equal to $10.00 per share, pursuant to the terms and conditions of the stock
option agreements attached hereto as Exhibits A and B.
(d) Reimbursement of Expenses. The Company shall pay or
reimburse Executive for all reasonable travel and other expenses incurred by
Executive in performing his obligations under this Agreement. The Company
further agrees to furnish Executive with a private office, private secretary,
and such other assistance and accommodations as shall be suitable to the
character of Executive's position with the Company and adequate for the
performance of his duties.
5. Participation in Benefit Plans. The payments provided in
------------------------------
Sections 4 and 6 hereof are in addition to any benefits Executive is entitled to
under any group hospitalization, health, dental care, disability insurance,
surety bond, death benefit plan, travel and/or accident insurance, any other
allowance and/or executive compensation plan, including, without limitation,
capital accumulation and termination pay program, restricted or non-restricted
stock purchase plan, stock option plan, retirement income or pension plan, or
other present or future group employee benefit plan or program of the Company
for which key executives are or shall become eligible, and Executive shall be
eligible to receive during the period of his employment under this Agreement,
all benefits and emoluments for which key executives are eligible under every
such plan or program in accordance with the provisions thereof. Notwithstanding
the foregoing, except as specifically provided in Section 4 or 6 hereof (or as
provided by the Company as of the Effective Date) Executive shall not be
3
<PAGE>
entitled to receive any additional benefits or awards under discretionary plans
or programs of the Company unless the Board of Directors of the Company (or the
Compensation Committee) exercises the necessary discretion to provide Executive
with such benefits or awards.
6. Benefits Payable Upon Disability or Death.
-----------------------------------------
(a) Disability Benefits. In the event of the disability of
Executive during the term of this Agreement, the Company shall, prior to
Executive's termination of employment and subject to Section 9 hereof, continue
to pay Executive his Base Salary and the other benefits provided in Sections 4,
5 and 6 hereof during the period of his disability; provided, however, that
Executive's disability shall be taken into account by the Compensation Committee
in determining Executive's incentive compensation under Section 4 hereof. In the
event of Executive's termination of employment for "permanent disability", the
Company shall pay Executive his Base Salary and continue to provide the health
and welfare insurance benefits provided to Executive under Section 5 hereof as
of immediately prior to his date of termination (provided Executive continues to
make all required employee contributions) through the remainder of the term of
this Agreement (pursuant to the Company's benefit plans or otherwise), but (i)
Executive shall not be entitled to payment of any further bonuses under Section
4(b), (ii) no further options or other awards shall be granted Executive under
Section 4(c) or shall vest, unless the plan or agreement under which such
options or awards are granted provides otherwise, and (iii) Executive shall be
treated as a terminated employee with respect to the Company's other benefit
plans. To the extent that disability insurance is available on Executive, the
Company shall be permitted to purchase and pay for such insurance. Receipt by
Executive of such disability benefits shall reduce by such amount the obligation
of the Company to continue Executive's Base Salary under this Section 6(a).
The Company may terminate Executive's employment for
"permanent disability" in the event Executive is unable to perform his duties
under this Agreement as a result of physical or mental illness or injury for an
aggregate of six (6) or more months during any twelve-month period.
(b) Death Benefits. In the event of the death of Executive
during the term of this Agreement, the Company shall pay, or cause to be paid,
to Executive's designated beneficiary or beneficiaries or legal representatives
a death benefit of $1 million. Such death benefit shall be payable in cash in
one lump sum. The Company will purchase one or more term or other similar
insurance policies in amounts to provide for its obligation. To the extent that
the life of Executive is otherwise insured under
4
<PAGE>
any employee benefit plan of the Company (other than any travel/accident or
double indemnity coverage) the obligation of the Company under this paragraph
shall be reduced by such insurance benefits. If the Company has not previously
insured the life of Executive to the extent of the death benefit described
above, this Section 6(b) will only become effective fifteen (15) days after a
determination has been made that Executive's life is insurable.
7. Payments to Executive Upon Termination of Employment. Upon
----------------------------------------------------
termination of Executive's employment during the term of this Agreement,
Executive (or in the event of his death, his beneficiary, beneficiaries or legal
representatives) shall be entitled to no further compensation hereunder other
than (i) Executive's Base Salary through the date of termination, (ii) any
benefits accrued and vested under the terms of the Company's employee benefit
plans and programs and (iii) any other payments or benefits specifically
provided by this Agreement.
(a) Termination. Upon the occurrence of an event of
termination (as hereinafter defined) during the term of this Agreement, the
provisions of this Section 7(a) and Section 7(b) shall apply. As used in this
Agreement, an "event of termination" shall mean and include any one or more of
the following:
(i) The termination by the Company of Executive's
full-time employment hereunder for any reason other than pursuant to
Section 7(c), or as a result of permanent disability or mandatory
retirement; or
(ii) Executive's resignation from the Company's employ,
as a result of any of the following:
A. a material and adverse change by the Company in
Executive's function, duties or responsibilities, without
Executive's written consent, which change would cause
Executive's position with the Company to become one of less
dignity, responsibility, importance or scope from the position
and attributes as described in Section 2 above;
B. any liquidation or dissolution of the Company,
unless the voting common equity interests of an ongoing entity
(other than a liquidating trust) are beneficially owned,
directly or indirectly, by the Company's stockholders in
substantially the same proportions as such stockholders owned
the Company's outstanding voting common equity interests
immediately prior to such liquidation or dissolution, and such
5
<PAGE>
ongoing entity assumes all existing obligations of the
Company to Executive under this Agreement;
C. a failure to elect, re-elect or appoint
Executive to the office of President and Chief Operating
Officer (other than as a result of Executive's disability or
his termination of employment pursuant to Section 7(c));
D. any other material breach of this Agreement
by the Company (other than a breach of Section 3(c));
or
E. prior to December 31, 2000, Executive being
required to relocate from Fairfield County, Connecticut,
without Executive's written consent.
(Upon the occurrence of any event described in clauses A., B., C., D. or E.
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation, upon not less than thirty (30) days' prior
written notice given within a reasonable period of time not to exceed three (3)
calendar months after the event giving rise to said right to elect); or
(iii) Executive's resignation from the Company's employ
during the 30-day period commencing upon the first anniversary of a
Change in Control of the Company, if such Change in Control occurs
subsequent to a Public Offering (or during the 30-day period commencing
upon the sixth month anniversary of a Change in Control of the Company,
if such Change in Control occurs prior to a Public Offering). For
purposes of this Agreement, a Change in Control of the Company means
the occurrence of one of the following events:
A. any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) becomes, after the
Effective Date, the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing more than 50% of the
Company's then outstanding securities eligible to vote for the
election of the Company's Board of Directors (the "Company
Voting Securities"); provided, that an event described in this
paragraph A. shall not be a Change in Control if any of the
following becomes such a beneficial owner: (1) the Company or
any majority-owned subsidiary of the Company (a "Subsidiary"),
(2) any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (3) any
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<PAGE>
underwriter temporarily holding securities pursuant to an
offering of such securities, (4) any person pursuant to a
Non-Qualifying Transaction (as defined in paragraph B.), (5)
Executive or any group of persons including Executive (or any
entity controlled by Executive or any group of persons
including Executive), or (6) Morgan Stanley & Co. or Swiss
Bank Corporation or any entity controlled by, controlling or
under common control with either of such entities; or
B. the consummation of a merger, consolidation or
reorganization of the Company (a "Business Combination"),
unless, following such Business Combination, the owners of the
Company Voting Securities immediately prior to such Business
Combination (or their affiliates) beneficially own, directly
or indirectly, 50% or more of the combined voting power of the
then outstanding voting securities entitled to vote generally
in the election of the directors of the corporation resulting
from such Business Combination (a "Non- Qualifying
Transaction").
The initial public offering of common stock of the Company pursuant to a
registration statement filed under the Securities Act of 1933, as amended (a
"Public Offering"), shall not be treated as a Change in Control for purposes of
this Agreement.
The expiration of the term of this Agreement as a result of the failure to renew
this Agreement shall not be treated as an event of termination under this
Section 7(a).
(b) Severance Upon an Event of Termination. Upon the
occurrence of an event of termination under Section 7(a), the Company shall,
subject to the provisions of Section 9 below, monthly for the duration of the
Severance Period (as defined below) pay Executive or, in the event of
Executive's subsequent death, his beneficiary or beneficiaries or his estate, as
the case may be, as severance pay and liquidated damages the monthly Base Salary
paid to Executive at the time of termination of his employment (the "Severance
Payments"). In addition, following an event of termination under Section 7(a),
the Company shall continue to provide the health and welfare insurance benefits
provided to Executive under Section 5 hereof as of immediately prior to his date
of termination for a period of twelve (12) months following the date of
termination (provided that Executive continues to make all required employee
contributions) and shall compensate Executive for Executive's loss of pension
benefits by providing Executive with a lump sum payment equal to the difference,
computed on the basis of actuarial present values as of Executive's date of
termination (using actuarial assumptions in effect for the Company's defined
benefit plan as of the date
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<PAGE>
of termination) between (1) the aggregate benefits Executive would have been
entitled to receive under the Company's qualified and nonqualified defined
benefit pension plans (the "Retirement Plans"), had Executive's employment
continued under this Agreement for the Severance Period and (2) the aggregate
benefit Executive is actually entitled to receive under the Retirement Plans as
of the date of termination. For purposes of this Agreement, the "Severance
Period" shall commence on the date of termination of Executive's employment with
the Company and expire upon the earlier of (i) twenty-four (24) months from the
date of termination and (ii) nine (9) months following the date on which the
term of this Agreement (as in effect as of Executive's date of termination)
would have otherwise expired; provided, that in no event shall the Severance
Period be longer than eighteen (18) months in the event of a termination of
employment pursuant to Section 7(a)(ii) E. hereof. The Severance Payments shall
commence on the last day of the month in which the event of termination occurs;
provided, that the first such payment shall be reduced by the amount of any Base
Salary received by Executive for the portion of such month prior to the event of
termination. Notwithstanding the foregoing, the Company's obligation to provide
severance benefits hereunder shall be reduced by the value of any cash
compensation paid to (or deferred by) Executive with respect to employment or
consulting services performed by Executive during the Severance Period. In the
event Executive receives twelve (12) months of continued welfare benefit
insurance as described above, and the Company's level of self-insurance for
medical benefits (with respect to individual claims in any given year) as of
Executive's date of termination is not more than 10% greater than it is as of
the Effective Date, Executive's coverage period for "COBRA" continuation health
coverage (to the extent Executive is otherwise eligible for coverage) shall
begin upon the expiration of such 12-month period.
(c) Other Termination of Employment. Notwithstanding Sections
7(a) and (b) or any other provision of this Agreement to the contrary, if on or
after the date of this Agreement and prior to the end of the term hereof:
(i) Executive has been convicted of, or plead guilty or
nolo contendere to, any crime or offense constituting a felony under
applicable law, including, without limitation, any act of dishonesty
such as embezzlement, theft or larceny;
(ii) Executive's commission of a material act of fraud
or dishonesty against the Company or any of its subsidiaries or
Executive's willful engaging in conduct which is significantly
injurious to the Company or any of its subsidiaries, monetarily or
otherwise;
8
<PAGE>
(iii) Executive's abuse of illegal drugs and other
controlled substances or Executive's habitual intoxication, which
conduct continues after written demand for cessation of such conduct is
delivered to Executive by the Board; or
(iv) any willful or continuous neglect of or refusal to
perform Executive's duties or responsibilities or the willful taking of
actions which directly and materially impair Executive's ability to
perform his duties and responsibilities hereunder which continues after
detailed written notice thereof has been given to Executive;
then, and in each such case, the Company shall have the right to give notice of
termination of Executive's services hereunder as of a date (not earlier than 10
days from such notice) to be specified in such notice and this Agreement (other
than the provisions of Sections 8 and 9 hereof) shall terminate on such date.
8. Duties Upon Termination. Executive agrees that the will,
-----------------------
upon termination of his employment with the Company for any reason whatsoever,
deliver to the Company any and all records, forms, contracts, memoranda, work
papers, lists of names or other customer data and any other articles or papers
which have come into his possession by reason of his employment with the Company
or which he holds for the Company, irrespective of whether or not any of said
items were prepared by him, and he shall not retain memoranda or copies of any
of said items. Executive shall assign to the Company all rights to trade secrets
and the products relating to the Company's business developed by him alone or in
conjunction with others at any time alike employed by the Company.
9. Post-Termination Obligations. All payments and benefits to
----------------------------
Executive under this Agreement shall be subject to Executive's compliance with
the following provisions during the Compliance Period, as defined below.
(a) Confidential Information. Executive shall not disclose or
reveal to any unauthorized person any trade secret or other confidential
information relating to the Company, its subsidiaries or its affiliates, or to
any businesses operated by them, including, without limitation, any customer
lists; and Executive confirms that such information constitutes the exclusive
property of the Company. For purposes of this Section 9(a), the "Compliance
Period" shall commence on the Effective Date and continue thereafter.
(b) Competitive Conduct. Executive shall not
otherwise act or conduct himself to the material detriment of the Company, its
subsidiaries or affiliates, or in a manner which is
9
<PAGE>
inimical or contrary to the interests thereof, and shall not engage, directly or
indirectly, alone, in association with or as a shareholder, principal, agent,
partner, member, officer, director, employee or consultant of any person, firm
or entity, in any business within the United States or Canada in competition
with any part of the business being conducted by the Company or its
subsidiaries; provided, however, that Executive's ownership of less than 2
percent of the outstanding stock of a publicly traded corporation (other than a
corporation engaged primarily in the business of developing or operating
hydroelectric projects) shall not by itself be deemed to constitute such
competition. Executive shall not (i) divert to any entity which is engaged in
any business conducted by the Company or any of its subsidiaries, any customer
of such entities or any project which such entities are pursuing, developing or
attempting to develop as of Executive's date of termination or (ii) solicit any
officer, employee (other than secretarial staff) or consultant of the Company or
any of its subsidiaries to leave the employ of such entities. Executive
recognizes that the possible restrictions on his activities which may occur as a
result of his performance of his obligations under this Section 9(b) are
required for the reasonable protection of the Company and its investments.
(c) Compliance Period. For purposes of Section 9(b) of this
Agreement, the "Compliance Period" shall commence on the Effective Date. If an
event of termination under Section 7(a) hereof occurs prior to the expiration of
the term of this Agreement, the Compliance Period shall end on the later of (A)
the expiration of six months from the date of termination of Executive's
employment, and (B) the end of the period for which Executive is entitled to
receive Severance Payments. If Executive's employment by the Company terminates
in accordance with Section 7(c) hereof or if Executive voluntarily terminates
employment (other than pursuant to Section 7(a)(ii)) prior to the expiration of
the term of this Agreement, the Compliance Period shall end on the later of the
expiration of the term of this Agreement and the second anniversary of the
termination of Executive's employment. In all cases other than those described
in the two preceding sentences, the Compliance Period shall end on the
expiration of the term of this Agreement.
(d) Failure of Executive to Comply. If for any reason other
than death or disability, Executive shall, without written consent of the
Company, fail to comply with the provisions of Section 9(a) or 9(b) above, his
rights to any future payments or other benefits hereunder shall terminate, and
the Company's obligations to make such payments and provide such benefits shall
cease; provided, however, that no failure to comply with any provision of
Section 9(a) or 9(b) above shall be deemed to have occurred unless and until
Executive receives written notice from
10
<PAGE>
the Company specifying the conduct alleged to constitute such
failure.
(e) Remedies. Executive agrees that monetary damages would not
be adequate compensation for any loss incurred by the Company by reason of a
breach of the provisions of Sections 8 and 9 of this Agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate. Accordingly, in addition to any other remedies that the
Company may have at law or in equity, the Company shall have the right to have
all obligations, agreements and other provisions of Sections 8 and 9
specifically performed by Executive, and the Company shall have the right to
obtain preliminary injunctive relief to secure specific performance and to
prevent a breach of Section 8 or 9.
10. Effect of Prior Agreements. This Agreement contains the
--------------------------
entire understanding between the parties hereto and, upon effectiveness of this
Agreement pursuant to Section 3(a) hereof, supersedes all prior employment
agreements between the Company and Executive (including without limitation the
Prior Agreement), except that this Agreement shall not affect or operate to
reduce any benefit or compensation inuring to Executive of a kind elsewhere
provided and not expressly provided in this Agreement (other than benefits set
forth in the Prior Agreement or in Executive's guaranteed minimum bonus
arrangement which Executive acknowledges has been terminated).
11. General Provisions.
------------------
(a) Binding Agreement. This Agreement shall be binding upon,
and inure to the benefit of Executive and the Company and their respective
permitted successors and assigns.
(b) Legal Expenses. In the event that Executive incurs legal
expenses in contesting any provision of this Agreement and such contest results
in a determination that the Company has breached any of its obligations
hereunder, Executive shall be reimbursed by the Company for any such legal
expenses reasonably incurred.
(c) Mitigation. Executive shall not be obligated to seek other
employment or take any other action to mitigate any severance benefits
hereunder.
12. Successors and Assigns.
----------------------
(a) Assignment by the Company. This Agreement shall be
binding upon and inure to the benefit of the successors and assigns of the
Company and, unless clearly inapplicable,
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<PAGE>
reference herein to the Company shall be deemed to include its
successors and assigns.
(b) Assignment by Executive. Executive may not assign this
Agreement in whole or in part.
13. Modification and Waiver.
-----------------------
(a) Amendment of Agreement. Except for increases in
compensation made as provided in Section 4(a), this Agreement may not be changed
or modified except by an instrument in writing signed by both of the parties
hereto.
(b) Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.
14. Beneficiaries. This Agreement shall be for the express
-------------
benefit of the Company, Executive and, for so long as Morgan Stanley & Co. or
Swiss Bank Corporation or their successors shall be a holder of at least 3% of
the equity of the Company, Morgan Stanley & Co. or Swiss Bank Corporation (or
their successors), as the case may be.
15. Severability. In the event any provision of this Agreement
------------
or any part hereof is held invalid, such invalidity shall not affect any
remaining part of such provision or any other provision, and to this end, the
provisions of this Agreement are intended to be and shall be deemed severable.
If any court construes any provision of this Agreement to be illegal, void or
unenforceable because of the duration or the area or matter covered thereby,
such court shall reduce the duration, area or matter of such provision, and, in
its reduced form, such provision shall then be enforceable and shall be
enforced.
16. Withholding. Employer may withhold from any amounts
-----------
payable under this Agreement such taxes and governmentally required withholdings
as may be required to be withheld pursuant to any applicable law or regulation.
17. Notices. Any notice to be given hereunder shall be in
-------
writing and shall be deemed given when delivered personally, sent by courier or
telecopy or registered or
12
<PAGE>
certified mail, postage prepaid, return receipt requested, addressed to the
party concerned at the address indicated below or to such other address as such
party may subsequently give notice of hereunder in writing:
To Executive at:
36 Anvil Road
Southport, CT 06490
To the Company at:
680 Washington Boulevard
Stamford, CT 06901
Attention: Controller
18. Governing Law. The parties hereto intend that
-------------
this Agreement shall be governed by the laws of the State of Connecticut.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer, and Executive has signed this
Agreement, all as of the day and year first above written.
CONSOLIDATED HYDRO, INC.
By: /s/ James T. Stewart
------------------------------------
Title: CHAIRMAN-CEO
/s/ Edward M. Stern
------------------------------------
Edward M. Stern
13
NYFS10...:\84\38684\0003\1219\AGR3288R.370
<PAGE>
EXHIBIT 10.116
EMPLOYMENT AGREEMENT
This AGREEMENT, made this 31st day of October, 1997, by and
between CONSOLIDATED HYDRO, INC. (the "Company"), which will be renamed CHI
ENERGY, INC., a Delaware corporation with its principal office at 680 Washington
Boulevard, Stamford, CT 06901, and MARY V. GILBERT ("Executive"), an individual
residing at 3 Links Court, Kingwood, TX 77339.
WHEREAS, the Company and Executive have entered into an
employment agreement, dated January 14, 1997 (the "Prior Agreement"); and
WHEREAS, in connection with the plan of reorganization of the
Company, the Company and Executive wish to enter into a revised employment
agreement whereby Executive will be employed by the Company in accordance with
the terms and conditions stated below.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Executive, and
----------
Executive agrees to enter the employ of the Company, for the period stated in
Section 3 hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. The Company agrees to employ
-----------------------------
Executive in the position of Senior Vice President and Chief Financial Officer
and Executive agrees to serve for the term and on the conditions hereinafter set
forth. Executive agrees to perform such services not inconsistent with her
position as shall from time to time be assigned to her by the President or Chief
Executive Officer of the Company, the Company's Board of Directors, or by their
respective designees.
3. Term and Duties.
---------------
(a) Term of Employment. This Agreement shall become effective
and the terms of employment pursuant to this Agreement shall commence on the
effective date of the plan of reorganization with respect to the Company under
Chapter 11 of the United States Bankruptcy Code (the "Effective Date"), and will
continue through December 31, 1999, unless earlier terminated in accordance with
the provisions hereof; provided, however, that, unless the Company shall have
delivered to Executive written notice of its intent not to renew this Agreement
prior to January 1, in any year, commencing with January 1, 1999 the term of
this Agreement shall be
<PAGE>
automatically extended by twelve (12) months from the then effective expiration
date.
(b) Duties. During the period of her employment hereunder
Executive shall serve the Company as its Senior Vice President and Chief
Financial Officer, and except for illnesses, vacation periods and reasonable
leaves of absence, Executive shall devote all her business time, attention,
skill and efforts to the faithful performance of her duties hereunder; provided,
however, that with the approval of the Board of Directors of the Company, from
time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in the Board's judgment, will not present any conflict of
interest with the Company or any of its subsidiaries or affiliates or divisions,
or materially affect the performance of Executive's duties pursuant to this
Agreement.
So long as Executive is Senior Vice President and Chief
Financial Officer of the Company, she will discharge all duties incidental to
such office and such further duties as may be reasonably assigned to her from
time to time by the President or Chief Executive Officer of the Company, or by
their respective designees.
(c) Place of Employment. Executive shall perform her duties
hereunder at the Company's Houston, Texas office, and shall travel to the
Company's other offices as may be necessary or appropriate for her to perform
her duties hereunder.
4. Compensation and Reimbursement of Expenses.
------------------------------------------
(a) Salary. For all services rendered by Executive as Senior
Vice President and Chief Financial Officer during her employment under this
Agreement, the Company shall pay Executive as compensation a salary at the
annual rates of $150,000 in 1997, and $180,000 per calendar year thereafter.
During the period of this Agreement following 1998, Executive's salary shall be
reviewed at least annually, with the first such annual review in December, 1998.
Such review shall be conducted by the Board of Directors of the Company, or a
committee designated by the Board of Directors (the "Compensation Committee"),
and the Board or Compensation Committee may increase said salary. (The salary
payable to Executive in any year is referred to herein as the "Base Salary" for
such year.)
(b) Incentive Compensation. For each year during the term of
this Agreement following 1997, the Company shall pay Executive an incentive
bonus of up to 100% of Executive's Base Salary, at the discretion of the
Compensation Committee, upon the achievement of certain targets (which for 1998
shall be set by
2
<PAGE>
the Compensation Committee by December 31, 1997, and for each year following
1998, shall be set by February 15 of such year). Executive's maximum bonus
opportunity of 100% of Base Salary shall be calculated as follows: (i) 33.33%
for meeting budget targets in the Industrial Infrastructure Business ("IIB"),
(ii) 33.33% for exceeding budget targets in the IIB and (iii) 33.33% for meeting
general operating targets set by the Compensation Committee. Bonuses shall be
payable upon completion of the annual audit of the Company for the applicable
year. In its discretion, the Compensation Committee may pay Executive by
December 31, 1997 an "emergence bonus" of up to 25% of Executive's Base Salary
for 1997.
(c) Equity Plan. The Company shall grant to Executive on the
Effective Date a non-qualified stock option to purchase 35,000 shares of the
Company's Series A Common Stock (the "Common Stock") and an incentive stock
option to purchase 20,000 shares of Common Stock, each at an exercise price
equal to $10.00 per share, pursuant to the terms and conditions of the stock
option agreements attached hereto as Exhibits A and B.
(d) Reimbursement of Expenses. The Company shall pay or
reimburse Executive for all reasonable travel and other expenses incurred by
Executive in performing her obligations under this Agreement. The Company
further agrees to furnish Executive with a private office, and such other
assistance and accommodations as shall be suitable to the character of
Executive's position with the Company and adequate for the performance of her
duties.
5. Participation in Benefit Plans. The payments provided in
------------------------------
Sections 4 and 6 hereof are in addition to any benefits Executive is entitled to
under any group hospitalization, health, dental care, disability insurance,
surety bond, death benefit plan, travel and/or accident insurance, any other
allowance and/or executive compensation plan, including, without limitation,
capital accumulation and termination pay program, restricted or non-restricted
stock purchase plan, stock option plan, retirement income or pension plan, or
other present or future group employee benefit plan or program of the Company
for which key executives are or shall become eligible, and Executive shall be
eligible to receive during the period of her employment under this Agreement,
all benefits and emoluments for which key executives are eligible under every
such plan or program in accordance with the provisions thereof. Notwithstanding
the foregoing, except as specifically provided in Section 4 or 6 hereof (or as
provided by the Company as of the Effective Date) Executive shall not be
entitled to receive any additional benefits or awards under discretionary plans
or programs of the Company unless the Board of Directors of the Company (or the
Compensation Committee)
3
<PAGE>
exercises the necessary discretion to provide Executive with such
benefits or awards.
6. Benefits Payable Upon Disability or Death.
-----------------------------------------
(a) Disability Benefits. In the event of the disability of
Executive during the term of this Agreement, the Company shall, prior to
Executive's termination of employment and subject to Section 9 hereof, continue
to pay Executive her Base Salary and the other benefits provided in Sections 4,
5 and 6 hereof during the period of her disability; provided, however, that
Executive's disability shall be taken into account by the Compensation Committee
in determining Executive's incentive compensation under Section 4 hereof. In the
event of Executive's termination of employment for "permanent disability", the
Company shall pay Executive her Base Salary and continue to provide the health
and welfare insurance benefits provided to Executive under Section 5 hereof as
of immediately prior to her date of termination (provided Executive continues to
make all required employee contributions) through the remainder of the term of
this Agreement (pursuant to the Company's benefit plans or otherwise), but (i)
Executive shall not be entitled to payment of any further bonuses under Section
4(b), (ii) no further options or other awards shall be granted Executive under
Section 4(c) or shall vest, unless the plan or agreement under which such
options or awards are granted provides otherwise, and (iii) Executive shall be
treated as a terminated employee with respect to the Company's other benefit
plans. To the extent that disability insurance is available on Executive, the
Company shall be permitted to purchase and pay for such insurance. Receipt by
Executive of such disability benefits shall reduce by such amount the obligation
of the Company to continue Executive's Base Salary under this Section 6(a).
The Company may terminate Executive's employment for
"permanent disability" in the event Executive is unable to perform her duties
under this Agreement as a result of physical or mental illness or injury for an
aggregate of six (6) or more months during any twelve-month period.
(b) Death Benefits. In the event of the death of Executive
during the term of this Agreement, the Company shall pay, or cause to be paid,
to Executive's designated beneficiary or beneficiaries or legal representatives
a death benefit of $500,000. Such death benefit shall be payable in cash in one
lump sum. The Company will purchase one or more term or other similar insurance
policies in amounts to provide for its obligation. To the extent that the life
of Executive is otherwise insured under any employee benefit plan of the Company
(other than any travel/accident or double indemnity coverage) the obligation of
the Company under this paragraph shall be reduced
4
<PAGE>
by such insurance benefits. If the Company has not previously insured the life
of Executive to the extent of the death benefit described above, this Section
6(b) will only become effective fifteen (15) days after a determination has been
made that Executive's life is insurable.
7. Payments to Executive Upon Termination of Employment. Upon
----------------------------------------------------
termination of Executive's employment during the term of this Agreement,
Executive (or in the event of her death, her beneficiary, beneficiaries or legal
representatives) shall be entitled to no further compensation hereunder other
than (i) her Base Salary through the date of termination, (ii) any benefits
accrued and vested under the terms of the Company's employee benefit plans and
programs and (iii) any other payments or benefits specifically provided by this
Agreement.
(a) Termination. Upon the occurrence of an event of
termination (as hereinafter defined) during the term of this Agreement, the
provisions of this Section 7(a) and Section 7(b) shall apply. As used in this
Agreement, an "event of termination" shall mean and include any one or more of
the following:
(i) The termination by the Company of Executive's
full-time employment hereunder for any reason other than pursuant to
Section 7(c), or as a result of permanent disability or mandatory
retirement; or
(ii) Executive's resignation from the Company's employ,
as a result of any of the following:
A. a material and adverse change by the Company
in Executive's function, duties or responsibilities, without
Executive's written consent, which change would cause
Executive's position with the Company to become one of less
dignity, responsibility, importance or scope from the position
and attributes as described in Section 2 above;
B. any liquidation or dissolution of the
Company, unless the voting common equity interests of an
ongoing entity (other than a liquidating trust) are
beneficially owned, directly or indirectly, by the Company's
stockholders in substantially the same proportions as such
stockholders owned the Company's outstanding voting common
equity interests immediately prior to such liquidation or
dissolution, and such ongoing entity assumes all existing
obligations of the Company to Executive under this Agreement;
5
<PAGE>
C. a failure to elect, re-elect or appoint
Executive to the office of Senior Vice President and Chief
Financial Officer (other than as a result of Executive's
disability or her termination of employment pursuant to
Section 7(c));
D. any other material breach of this Agreement
by the Company (other than a breach of Section 3(c));
or
E. prior to December 31, 1999, Executive being
required to relocate from Houston, Texas, without
Executive's written consent.
(Upon the occurrence of any event described in clauses A., B., C., D. or E.
above, Executive shall have the right to elect to terminate her employment under
this Agreement by resignation, upon not less than thirty (30) days' prior
written notice given within a reasonable period of time not to exceed three (3)
calendar months after the event giving rise to said right to elect); or
(iii) Executive's resignation from the Company's employ
during the 30-day period commencing upon the first anniversary of a
Change in Control of the Company, if such Change in Control occurs
subsequent to a Public Offering (or during the 30-day period commencing
upon the sixth month anniversary of a Change in Control of the Company,
if such Change in Control occurs prior to a Public Offering). For
purposes of this Agreement, a Change in Control of the Company means
the occurrence of one of the following events:
A. any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) becomes, after the
Effective Date, the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing more than 50% of the
Company's then outstanding securities eligible to vote for the
election of the Company's Board of Directors (the "Company
Voting Securities"); provided, that an event described in this
paragraph A. shall not be a Change in Control if any of the
following becomes such a beneficial owner: (1) the Company or
any majority-owned subsidiary of the Company (a "Subsidiary"),
(2) any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (3) any
underwriter temporarily holding securities pursuant to an
offering of such securities, (4) any person pursuant to a
Non-Qualifying Transaction
6
<PAGE>
(as defined in paragraph B.), (5) Executive or any group of
persons including Executive (or any entity controlled by
Executive or any group of persons including Executive), or (6)
Morgan Stanley & Co. or Swiss Bank Corporation or any entity
controlled by, controlling or under common control with either
of such entities; or
B. the consummation of a merger, consolidation or
reorganization of the Company (a "Business Combination"),
unless, following such Business Combination, the owners of the
Company Voting Securities immediately prior to such Business
Combination (or their affiliates) beneficially own, directly
or indirectly, 50% or more of the combined voting power of the
then outstanding voting securities entitled to vote generally
in the election of the directors of the corporation resulting
from such Business Combination (a "Non-Qualifying
Transaction").
The initial public offering of common stock of the Company pursuant to a
registration statement filed under the Securities Act of 1933, as amended (a
"Public Offering"), shall not be treated as a Change in Control for purposes of
this Agreement.
The expiration of the term of this Agreement as a result of the failure to renew
this Agreement shall not be treated as an event of termination under this
Section 7(a).
(b) Severance Upon an Event of Termination. Upon the
occurrence of an event of termination under Section 7(a), the Company shall,
subject to the provisions of Section 9 below, monthly for the duration of the
Severance Period (as defined below) pay Executive or, in the event of
Executive's subsequent death, her beneficiary or beneficiaries or her estate, as
the case may be, as severance pay and liquidated damages the monthly Base Salary
paid to Executive at the time of termination of her employment (the "Severance
Payments"). In addition, following an event of termination under Section 7(a),
the Company shall continue to provide the health and welfare insurance benefits
provided to Executive under Section 5 hereof as of immediately prior to her date
of termination for a period of twelve (12) months following the date of
termination (provided that Executive continues to make all required employee
contributions). For purposes of this Agreement, the "Severance Period" shall
commence on the date of termination of Executive's employment with the Company
and expire upon the earlier of (i) eighteen (18) months from the date of
termination and (ii) six (6) months following the date on which the term of this
Agreement (as in effect as of Executive's date of termination) would have
otherwise expired; provided, that in no event shall the Severance Period be
longer
7
<PAGE>
than twelve (12) months in the event of a termination of employment pursuant to
Section 7(a)(ii)E. hereof. The Severance Payments shall commence on the last day
of the month in which the event of termination occurs; provided, that the first
such payment shall be reduced by the amount of any Base Salary received by
Executive for the portion of such month prior to the event of termination.
Notwithstanding the foregoing, the Company's obligation to provide severance
benefits hereunder shall be reduced by the value of any cash compensation paid
to (or deferred by) Executive with respect to employment or consulting services
performed by Executive during the Severance Period. In the event Executive
receives twelve (12) months of continued welfare benefit insurance as described
above, and the Company's level of self-insurance for medical benefits (with
respect to individual claims in any given year) as of Executive's date of
termination is not more than 10% greater than it is as of the Effective Date,
Executive's coverage period for "COBRA" continuation health coverage (to the
extent Executive is otherwise eligible for coverage) shall begin upon the
expiration of such 12-month period.
(c) Other Termination of Employment. Notwithstanding Sections
7(a) and (b) or any other provision of this Agreement to the contrary, if on or
after the date of this Agreement and prior to the end of the term hereof:
(i) Executive has been convicted of, or plead guilty or
nolo contendere to, any crime or offense constituting a felony under
applicable law, including, without limitation, any act of dishonesty
such as embezzlement, theft or larceny;
(ii) Executive's commission of a material act of fraud
or dishonesty against the Company or any of its subsidiaries or
Executive s willful engaging in conduct which is significantly
injurious to the Company or any of its subsidiaries, monetarily or
otherwise;
(iii) Executive's abuse of illegal drugs and other
controlled substances or Executive's habitual intoxication, which
conduct continues after written demand for cessation of such conduct is
delivered to Executive by the Board; or
(iv) any willful or continuous neglect of or refusal to
perform Executive's duties or responsibilities or the willful taking of
actions which directly and materially impair Executive's ability to
perform her duties and responsibilities hereunder which continues after
detailed written notice thereof has been given to Executive, or the
imposition of a severe sanction by a regulatory organization
8
<PAGE>
rendering it impossible for Executive to carry out her
material duties and obligations under this Agreement;
then, and in each such case, the Company shall have the right to give notice of
termination of Executive's services hereunder as of a date (not earlier than 10
days from such notice) to be specified in such notice and this Agreement (other
than the provisions of Sections 8 and 9 hereof) shall terminate on such date.
8. Duties Upon Termination. Executive agrees that he will,
-----------------------
upon termination of her employment with the Company for any reason whatsoever,
deliver to the Company any and all records, forms, contracts, memoranda, work
papers, lists of names or other customer data and any other articles or papers
which have come into her possession by reason of her employment with the Company
or which she holds for the Company, irrespective of whether or not any of said
items were prepared by her, and she shall not retain memoranda or copies of any
of said items. Executive shall assign to the Company all rights to trade secrets
and the products relating to the Company's business developed by her alone or in
conjunction with others at any time alike employed by the Company.
9. Post-Termination Obligations. All payments and benefits to
----------------------------
Executive under this Agreement shall be subject to Executive's compliance with
the following provisions during the Compliance Period, as defined below.
(a) Confidential Information. Executive shall not disclose or
reveal to any unauthorized person any trade secret or other
confidential information relating to the Company, its subsidiaries or
its affiliates, or to any businesses operated by them, including,
without limitation, any customer lists; and Executive confirms that
such information constitutes the exclusive property of the Company. For
purposes of this Section 9(a), the "Compliance Period" shall commence
on the Effective Date and continue thereafter.
(b) Competitive Conduct. Executive shall not otherwise act or
conduct herself to the material detriment of the Company, its
subsidiaries or affiliates, or in a manner which is inimical or
contrary to the interests thereof, and shall not engage, directly or
indirectly, alone, in association with or as a shareholder, principal,
agent, partner, member, officer, director, employee or consultant of
any person, firm or entity, in any business within the United States or
Canada in competition with any part of the business being conducted by
the Company or its subsidiaries; provided, however, that Executive's
ownership
9
<PAGE>
of less than 2 percent of the outstanding stock of a publicly traded
corporation (other than a corporation engaged primarily in the business
of developing or operating hydroelectric projects) shall not by itself
be deemed to constitute such competition. Executive shall not (i)
divert to any entity which is engaged in any business conducted by the
Company or any of its subsidiaries, any customer of such entities or
any project which such entities are pursuing, developing or attempting
to develop as of Executive's date of termination or (ii) solicit any
officer, employee (other than secretarial staff) or consultant of the
Company or any of its subsidiaries to leave the employ of such
entities. Executive recognizes that the possible restrictions on her
activities which may occur as a result of her performance of her
obligations under this Section 9(b) are required for the reasonable
protection of the Company and its investments.
(c) Compliance Period. For purposes of Section 9(b) of this
Agreement, the "Compliance Period" shall commence on the Effective
Date. If an event of termination under Section 7(a) hereof occurs prior
to the expiration of the term of this Agreement, the Compliance Period
shall end on the later of (A) the expiration of six months from the
date of termination of Executive's employment, and (B) the end of the
period for which Executive is entitled to receive Severance Payments.
If Executive's employment by the Company terminates in accordance with
Section 7(c) hereof or if Executive voluntarily terminates employment
(other than pursuant to Section 7(a)(ii)) prior to the expiration of
the term of this Agreement, the Compliance Period shall end on the
later of the expiration of the term of this Agreement and the second
anniversary of the termination of Executive's employment. In all cases
other than those described in the two preceding sentences, the
Compliance Period shall end on the expiration of the term of this
Agreement.
(d) Failure of Executive to Comply. If for any reason other
than death or disability, Executive shall, without written consent of
the Company, fail to comply with the provisions of Section 9(a) or 9(b)
above, her rights to any future payments or other benefits hereunder
shall terminate, and the Company's obligations to make such payments
and provide such benefits shall cease; provided, however, that no
failure to comply with any provision of Section 9(a) or 9(b) above
shall be deemed to have occurred unless and until Executive receives
written notice from the Company specifying the conduct alleged to
constitute such failure.
(e) Remedies. Executive agrees that monetary damages would not
be adequate compensation for any loss incurred by the Company by reason
of a breach of the provisions of
10
<PAGE>
Sections 8 and 9 of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law
would be adequate. Accordingly, in addition to any other remedies that
the Company may have at law or in equity, Company shall have the right
to have all obligations, agreements and other provisions of Sections 8
and 9 specifically performed by Executive, and the Company shall have
the right to obtain preliminary injunctive relief to secure specific
performance and to prevent a breach of Section 8 or 9.
10. Effect of Prior Agreements. This Agreement contains the
--------------------------
entire understanding between the parties hereto and, upon effectiveness of this
Agreement pursuant to Section 3(a) hereof, supersedes all prior employment
agreements between the Company and Executive (including without limitation the
Prior Agreement), except that this Agreement shall not affect or operate to
reduce any benefit or compensation inuring to Executive of a kind elsewhere
provided and not expressly provided ia this Agreement (other than benefits set
forth in the Prior Agreement).
11. General Provisions.
------------------
(a) Binding Agreement. This Agreement shall be binding upon,
and inure to the benefit of Executive and the Company and their respective
permitted successors and assigns.
(b) Legal Expenses. In the event that Executive incurs legal
expenses in contesting any provision of this Agreement and such contest results
in a determination that the Company has breached any of its obligations
hereunder, Executive shall be reimbursed by the Company for any such legal
expenses reasonably incurred.
(c) Mitigation. Executive shall not be obligated to seek other
employment or take any other action to mitigate any severance benefits
hereunder.
12. Successors and Assigns.
----------------------
(a) Assignment by the Company. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the Company and,
unless clearly inapplicable, reference herein to the Company shall be deemed to
include its successors and assigns.
(b) Assignment by Executive. Executive may not assign this
Agreement in whole or in part.
11
<PAGE>
13. Modification and Waiver.
-----------------------
(a) Amendment of Agreement. Except for increases in
compensation made as provided in Section 4(a), this Agreement may not be changed
or modified except by an instrument in writing signed by both of the parties
hereto.
(b) Waiver. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement, except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each such
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.
14. Beneficiaries. This Agreement shall be for the express
-------------
benefit of the Company, Executive and, for so long as Morgan Stanley & Co. or
Swiss Bank Corporation or their successors shall be a holder of at least 3% of
the equity of the Company, Morgan Stanley & Co. or Swiss Bank Corporation (or
their successors), as the case may be.
15. Severability. In the event any provision of this Agreement
------------
or any part hereof is held invalid, such invalidity shall not affect any
remaining part of such provision or any other provision, and to this end, the
provisions of this Agreement are intended to be and shall be deemed severable.
If any court construes any provision of this Agreement to be illegal, void or
unenforceable because of the duration or the area or matter covered thereby,
such court shall reduce the duration, area or matter of such provision, and, in
its reduced form, such provision shall then be enforceable and shall be
enforced.
16. Withholding. Employer may withhold from any amounts
-----------
payable under this Agreement such taxes and governmentally required withholdings
as may be required to be withheld pursuant to any applicable law or regulation.
17. Notices. Any notice to be given hereunder shall be in
-------
writing and shall be deemed given when delivered personally, sent by courier or
telecopy or registered or certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or to
such other address as such party may subsequently give notice of hereunder in
writing:
12
<PAGE>
To Executive at:
3 Links Court
Kingwood, TX 77339
To the Company at:
680 Washington Boulevard
Stamford, CT 06901
Attention: Controller
18. Governing Law. The parties hereto intend that
-------------
this Agreement shall be governed by the laws of the State of Connecticut.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer, and Executive has signed this
Agreement, all as of the day and year first above written.
CONSOLIDATED HYDRO, INC.
By: /s/ James T. Stewart
----------------------------
Title: CHAIRMAN-CEO
/s/ Mary V. Gilbert
------------------------------
Mary V. Gilbert
13
NYFS10...:\84\38684\0003\1219\AGR3288K.280
EXHIBIT 12.1
CHI ENERGY, INC.
STATEMENT REGARDING COMPUTATIONS OF DEFICIENCY
OF EARNINGS TO FIXED CHARGES AND
OF DEFICIENCY OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
REORGANIZED
COMPANY PREDECESSOR COMPANY
------- ----------------------------------------------------------------
NOV. 8 TO JULY 1 TO
DEC. 31 NOV. 7 YEAR ENDED JUNE 30,
1997 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income/(loss) before provision for income
taxes, extraordinary item and cumulative
effect of accounting changes $ 1,481 $(9,319) $(11,161) $(95,712) $(15,899) $(14,126) $(8,190)
Add: Interest expense 1260 7741 29591 26876 21778 18980 13868
Amortization of debt 0 108 448 448 448 451 237
Imputed interest - operating
lease (a) 0 677 1436 1533 1621 1705 1785
--------- -------- --------- --------- -------- -------- -------
Total earnings/(loss) $ 2,741 $ (793) $ 20,314 $ (66,855) $7,948 $ 7,010 $ 7,700
========= ======== ========= ========= ======== ======== =======
Fixed charges:
Interest expense $ 1,260 $ 7,741 $ 29,591 $ 26,876 $ 21,778 $ 18,980 $ 13,868
Capitalized interest 0 68 189 1705 2951 2303 553
Amortization of debt 0 108 448 448 448 451 237
Imputed interest - operating
lease (a) 0 677 1436 1533 1621 1705 1785
--------- -------- --------- --------- -------- -------- -------
$ 1,260 $ 8,594 $ 31,664 $ 30,562 $ 26,798 $ 23,439 $ 16,443
========= ======== ========= ========= ======== ======== =======
Ratio of earnings to fixed charges 2.18 - - - - - -
========= ======== ========= ========= ======== ======== =======
Deficiency of earnings to fixed charges - $ 9,387 $ 11,350 $ 97,417 $ 18,850 $ 16,429 $ 8,743
========= ======== ========= ========= ======== ======== =======
Preferred dividend requirement - $ 6,060 $ 25,891 $ 23,732 $ 22,108 $ 20,688 $ 18,229
========= ======== ========= ========= ======== ======== =======
Ratio of earnings to fixed charges and
preferred stock dividends 2.18 - - - - - -
========= ======== ========= ========= ======== ======== =======
Deficiency of earnings to fixed charges
and preferred stock dividends - $ 15,447 $ 37,241 $ 121,149 $ 40,958 $ 37,117 $ 26,972
========= ======== ========= ========= ======== ======== =======
</TABLE>
(a) The percent of rent included above represents a reasonable approximation of
the interest factor.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
THE DECEMBER 31, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,998
<SECURITIES> 0
<RECEIVABLES> 7,957
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,361
<PP&E> 94,295
<DEPRECIATION> (603)
<TOTAL-ASSETS> 221,961
<CURRENT-LIABILITIES> 13,345
<BONDS> 87,971
0
0
<COMMON> 100
<OTHER-SE> 85,705
<TOTAL-LIABILITY-AND-EQUITY> 221,961
<SALES> 0
<TOTAL-REVENUES> 8,238
<CGS> 0
<TOTAL-COSTS> 4,571
<OTHER-EXPENSES> 1,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,481
<INCOME-TAX> (776)
<INCOME-CONTINUING> 705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 705
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
