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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 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 29, 2000
Common stock, $.01 par value 9,085,290
Class B Outstanding as of March 29, 2000
Common stock, $.01 par value 914,710
Page 1 of 85
Exhibit Index begins on page 74
38684.0003
<PAGE>
CHI ENERGY, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
PART I
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Page
<S> <C>
Item 1. Business..................................................................................3
Item 2. Properties...............................................................................16
Item 3. Legal Proceedings........................................................................16
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 Disclosures About Market Risk...............................33
Item 8. Financial Statements.....................................................................33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....64
PART III
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Item 10. Directors and Executive Officers of the Registrant.......................................64
Item 11. Executive Compensation...................................................................67
Item 12. Security Ownership of Certain Beneficial Owners and Management...........................72
Item 13. Certain Relationships and Related Transactions...........................................73
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..........................74
</TABLE>
2
<PAGE>
PART I
------
ITEM 1. BUSINESS
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 strategy is
the development, operation and management of renewable energy and related,
environmentally beneficial infrastructure projects. Currently, all of the
Company's revenue is derived from the ownership and operation of hydroelectric
facilities (the Company's "hydroelectric business"). However, the Company is
pursuing the acquisition and development of both hydroelectric and
non-hydroelectric renewable energy facilities that fit its strategic and return
on investment objectives. Non-hydroelectric renewable energy facilities include
those using such technologies as biomass, landfill gas, wind, solar, and
geothermal.
Based on operating megawatts, the Company is the largest independent,
non-utility affiliated hydroelectric power producer in the United States. As of
December 31, 1999, the Company owned, operated or leased 79 projects in the
United States and Canada, with aggregate capacity of approximately 254 megawatts
("MW").
The Company believes that it is well positioned to take advantage of new
business opportunities occasioned both by electric industry restructuring in the
U.S. and other countries, and by increasing public interest in environmental
issues such as global climate change and other potential effects of fossil fuel
consumption. 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.
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.
RENEWABLE ENERGY AND ENVIRONMENTAL PROJECTS
Renewable (also known as "green," "sustainable," or "environmentally
preferred") energy is defined broadly to include energy produced by
hydroelectric, biomass, landfill gas, wind, solar, geothermal and various forms
of waste conversion. "Environmental projects" may include waste treatment,
recycling or other facilities that serve such purposes as pollution reduction
and resource conservation. The Company seeks to acquire and develop a
diversified portfolio of projects using a variety of renewable and related
technologies, applying its existing core competencies (including financing,
operations, asset management, environmental permitting and project management)
that have been developed through its hydroelectric business.
The Company believes that electric industry restructuring, which is
rapidly taking place both in the United States and overseas, is converging with
widespread environmental concerns to create a favorable business opportunity for
renewable energy. In the United States, electric supply competition at the
retail level has begun in California and Pennsylvania, and a majority of other
states have taken steps toward deregulating electricity and encouraging
wholesale and retail competition. In approximately 20 of these states,
restructuring legislation or regulations also provide for favorable treatment of
renewable energy through portfolio standards, subsidies, and other requirements
and incentives, and the Company expects this trend to continue as other states
move closer to deregulation. Meanwhile, public support for renewables has
intensified in connection with growing concern over global climate change and
international pressures to limit or reduce greenhouse gases. A strong, active
environmental lobby at the state and federal levels favors action to promote
renewables and is using electric restructuring as a vehicle to institute
incentive programs. Further, there is an emerging market for "emissions
reduction credits" or "greenhouse gas credits" paid by fossil fuel-based
generators to generators of renewable energy, and the future possibility of
government action to create a national market for such credits.
In addition, in states where retail competition has begun or is scheduled
to begin soon, there are active efforts to market green energy to retail
customers who have indicated a willingness to pay a premium to promote
environmentally beneficial technologies. While the commercial success of these
marketing efforts is not yet established, they have served to publicize the
benefits of renewable energy to a wide audience. Meanwhile, large industrial
companies appear to be seeking public approval by publicizing their purchases of
green energy.
3
<PAGE>
The Company believes that the combined effect of these developments will
be to increase the value of renewable generation relative to other generating
resources. The Company further believes that its experience and capabilities
developed in the hydroelectric business has positioned it for entry into the
broader renewables field. In addition to its operating portfolio of
hydroelectric facilities, the Company began construction of a 23 MW biomass
facility in 1999 and is actively seeking to acquire or develop other renewable
energy facilities.
HYDROELECTRIC BUSINESS
The Company's operating hydroelectric projects are located in 14 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 has a 49% ownership interest in an
18.40 megawatt hydroelectric project in Newfoundland, Canada, which it also
operates. 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, 1999, the Company had a 100% ownership or long-term
lease interest in 52 projects (150 megawatts), a partial ownership interest in 9
projects (87 megawatts) and operations and maintenance contracts with 18
projects (17 megawatts). The Company sells substantially all of the output from
these 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 "-- Conventional Hydroelectric
Projects -Power Purchase Agreements".
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, in what was
then a highly regulated noncompetitive electric industry. 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,
4
<PAGE>
competitive industry providing energy customers with an increasing degree of
choice among sources of electric power supply. Reductions in wholesale 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 markets for the Company's electric generation. The Company believes,
however, that industry restructuring, including incentive programs to encourage
renewable energy resources and the advent of green power marketers in states
with deregulated electricity markets, may stimulate renewable energy demand and
increase the value of small hydroelectric facilities such as those owned by the
Company.
CHI believes that future growth opportunities in its hydroelectric
business will primarily consist of: (i) potential acquisition of additional
hydroelectric projects; (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.
5
<PAGE>
CONVENTIONAL HYDROELECTRIC PROJECTS
The following tables set forth the Company's projects as of December 31,
1999 with 100% ownership, with partial ownership and with O&M contracts:
PROJECTS WITH 100% OWNERSHIP AS OF DECEMBER 31, 1999
(INCLUDING SALE-LEASEBACKS)
<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>
Apalache(2)...... Greer, SC Duke Power Co. Dec. 1999 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
Boott(3)......... Lowell, MA Commonwealth Elec. Apr. 2023 Apr. 2023 24.82 Dec. 1986
Coneross......... Seneca, SC City of Seneca Jun. 2000 Mar. 2015 0.90 May 1989
Copenhagen....... Copenhagen, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 3.30 Feb. 1995(8)
Crescent......... Russell, MA Groton Electric Light Dept. Oct. 2009(5) Exempt 1.50 Feb. 1995
Dewey's Mill..... Hartland, VT Vermont Electric Power Jan. 2016 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(6) Columbus, GA Fieldcrest Cannon Jun. 2006 Feb. 2009 4.26 Jun. 1991
Fowler #7........ Fowler, NY Niag. Mohawk Power Corp. Dec. 2019 Oct. 2002 0.90 Feb. 1995
Fries............ Fries, VA Sempra Energy Trading Corp. Open Ended May 2020 5.21 May 1989
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(5) 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 Co. Apr. 2012 Exempt 1.56 Jul. 1993
Kelley's Falls... Manchester, NH Public Serv. Co. of NH Dec. 2005 Mar. 2024 0.45 Dec. 1985
Kings River...... Fresno, CA Pacific Gas & Electric Jan. 2021 Jul. 2037 1.35 Jun. 1994
Kinneytown....... Seymour, CT CT Light & Power Nov. 2016 Exempt 2.36 Nov. 1986
LaChute Lower(3). Ticonderoga, NY Niag. Mohawk Power Corp. Dec. 2015 Exempt 3.60 Dec. 1987
LaChute Upper(3). Ticonderoga, NY Niag. Mohawk Power Corp. Dec. 2015 Exempt 4.90 Dec. 1987
Lawrence......... Lawrence, MA New England Power Co. Dec. 2011(7) Nov. 2028 16.80 Jul. 1986
Long Shoals...... Long Shoals, NC Duke Power Co. Nov. 2000(9) 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. 2000(9) Nov. 2017 3.30 Feb. 1990
Pelzer Upper..... Pelzer, SC Duke Power Co. Sept. 2000(9) Nov. 2017 2.00 Feb. 1990
Piedmont......... Piedmont, SC Duke Power Co. Dec. 2000(9) Dec. 2018 1.00 May 1989
Pyrites.......... Canton, NY Niag. Mohawk Power Corp. Dec. 2023 Aug. 2023 8.20 Feb. 1995(10)
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
<PAGE>
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(11) May 2022 2.82 Apr. 1986
Ware Shoals...... Ware Shoals, SC Duke Power Co. Dec. 2000(9) 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. 2000(9) Non- 0.40 May 1989
Jurisdictional
Woodside II...... Cateechee, SC Duke Power Co. Dec. 2000(9) Non- 0.44 May 1989
Jurisdictional---------
Number of Projects: 52 Megawatt Subtotal: 149.79
=========
</TABLE>
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(1) Whichever is later.
(2) This project ceased operations on December 31, 1999 and decommissioning is
in process.
(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) The term of the power purchase agreement may be extended by mutual
agreement.
(6) Revenue is derived pursuant to a lease arrangement.
(7) The term of the power purchase agreement may be extended through 2028 at
the option of the utility.
(8) The remaining 50% ownership interest in this project was acquired in
November 1999.
(9) The power purchase agreements for these projects were renewed at
negotiated rates subject to termination upon twelve months notice.
(10) The remaining 50% ownership interest in this project was acquired in May
1999.
(11) The original power purchase agreement for this project expired in November
1998. The project is currently operating pursuant to an interim power
purchase arrangement, pending a new power purchase agreement.
PROJECTS WITH PARTIAL OWNERSHIP AS OF DECEMBER 31, 1999(1)
<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>
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
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
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
Star Lake........ Newfoundland, Canada Newfoundland and Oct. 2023 Exempt 18.40 Nov. 1998
Labrador Hydro
Twin Falls....... North Bend, WA Puget Sound Energy, Inc. Dec. 2025 Apr. 2035 24.00 Apr. 1989
---------
Number of Projects: 9 Megawatt Subtotal: 87.47
=========
</TABLE>
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(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 term of the power purchase agreement may be extended through 2023 at
the option of the utility.
7
<PAGE>
PROJECTS WITH OPERATION AND MAINTENANCE CONTRACTS AS OF DECEMBER 31, 1999(1)
APPROXIMATE CAPACITY DATE OF
-------------------- -------
IN MEGAWATTS 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
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
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
Weeks Falls North Bend, WA 4.34 Jun. 1990
-----
Number of Projects: 18 Megawatt Subtotal: 17.46
=====
(1) These are projects in which the Company's only current significant
interest is through operation and maintenance contracts.
Total Number of Projects: 79
Total Megawatts Owned, Leased or Operated: 254.72
======
Power Purchase Agreements. As of December 31, 1999, substantially all
energy and capacity of the Company's existing wholly-owned projects in the
United States was being sold to 16 public utilities pursuant to take or pay
long-term power purchase agreements with remaining terms ranging from
approximately 4 months to 26 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
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 have remained low as a result of reductions in the cost of power
produced from natural gas due to lower natural gas prices and technological
improvements that 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 power pooling arrangements
and 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.
8
<PAGE>
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' 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, but the Company does not expect
such challenges to affect its existing contracts. See "-- Energy and
Environmental Regulation - Electric Industry Restructuring".
The following table sets forth the Company's power sales by customer for
the year ended December 31, 1999:
<TABLE>
<CAPTION>
REVENUES OF COMBINED
PROJECTS IN REVENUES OF
CONSOLIDATED REVENUES OF PROJECTS 100%
RESULTS OF PROJECTS OWNED AND
PARTIALLY PARTIALLY
OPERATIONS % OWNED % OWNED %
---------- - ----- - ----- -
<S> <C> <C> <C> <C> <C> <C>
Niagara Mohawk Power Corp. ........... $10,527,068 25.5 $ 2,811,335 11.2 $13,338,403 20.1
Commonwealth Electric Co. ............ 9,398,077 22.7 -- -- 9,398,077 14.1
Vermont Electric Power Producers, Inc. 1,235,291 3.0 6,566,719 26.0 7,802,010 11.7
Puget Sound Energy, Inc. ............. -- -- 7,200,555 28.5 7,200,555 10.8
Newfoundland and Labrador Hydro ...... -- -- 6,211,033 24.6 6,211,033 9.3
New England Power Co. ................ 5,041,606 12.2 -- -- 5,041,606 7.6
N.Y. State Electric & Gas Corp. ...... 1,282,911 3.1 2,167,363 8.6 3,450,274 5.2
Central Maine Power Co. .............. 3,173,163 7.7 -- -- 3,173,163 4.8
Idaho Power Co. ...................... 2,993,730 7.2 -- -- 2,993,730 4.5
Public Service Co. of NH ............. 1,730,516 4.2 273,942 1.1 2,004,458 3.0
PacifiCorp ........................... 1,146,053 2.8 -- -- 1,146,053 1.7
Groton Electric Light Dept ........... 1,043,411 2.5 -- -- 1,043,411 1.6
CT Light and Power ................... 971,346 2.3 -- -- 971,346 1.5
Duke Power Co. ....................... 837,427 2.0 -- -- 837,427 1.3
All other customers .................. 1,961,124 4.8 -- -- 1,961,124 2.8
----------- ----- ----------- ----- ----------- -----
Total ............................ $41,341,723 100.0% $25,230,947 100.0% $65,572,670 100.0%
=========== ===== =========== ===== =========== =====
</TABLE>
Substantially all of the Company's existing power purchase agreements
contain scheduled rates for delivered energy through 2000 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, which is being influenced by an increasingly
deregulated and competitive energy market. 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 or the continued operation of
certain existing projects.
9
<PAGE>
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, 1999. 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 cost or market rates 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 or market rates during the period
shown. No assurance can be provided as to what the actual avoided cost or market
rate risk will be for the period shown.
<TABLE>
<CAPTION>
% OF CURRENT REVENUES
SUBJECT TO MINIMUM % OF CURRENT REVENUES SUBJECT TO
FIXED OR SCHEDULED RATES DETERMINED PURSUANT TO
CALENDAR YEAR RATES(1) AVOIDED COST OR MARKET RATES
------------- -------- ----------------------------
<S> <C> <C>
2000 ...................................................... 89.0 11.0
2001 ...................................................... 68.9 31.1
2002 ...................................................... 68.9 31.1
2003 ...................................................... 66.1 33.9
2004 ...................................................... 66.1 33.9
2005 ...................................................... 65.2 34.8
2006 ...................................................... 63.9 36.1
2007 ...................................................... 63.1 36.9
2008 ...................................................... 63.1 36.9
2009 ...................................................... 63.1 36.9
</TABLE>
(1) Includes contracts with GDP or other similar adjustment provisions.
The Company believes that its power purchase agreements are valid,
binding, and enforceable contracts. From time to time, the Company has received
proposals from utility companies with which the Company has power purchase
agreements to restructure the terms of these agreements, including the scheduled
rates. Generally such proposals are to "buy out" the agreement (that is, the
utility offers to pay the Company in return for terminating the agreement) or to
"buy down" the agreement (that is, the utility offers to maintain the agreement
but at lower scheduled rates, and pay the Company an amount representing the
present value of the difference between the currently scheduled rates and the
lower rates). During 1999, the Company reached an agreement with a utility to
"buy down" three of its power purchase agreements. Closing of the actual buy
down is subject to regulatory approval and certain other conditions precedent,
none of which can be assured, and if concluded is expected to close in the
latter half of 2000. The Company has considered and will continue to consider
such proposals in light of its overall investment objectives.
In 1999, local utilities in Vermont which purchase power from Vermont
Electric Power Producers Inc. ("VEPPI"), a customer which accounted for 3.0% of
the Company's consolidated revenues, commenced legal proceedings to alter or
void VEPPI's power purchase agreements, claiming that they result in unfairly
high rates to consumers. The Company, in conjunction with other similarly
affected power producers in Vermont, is vigorously defending the enforceability
of the power purchase agreements and although management believes that it will
prevail in this matter, it also believes that any such modifications would not
have a material adverse effect on the Company's financial position or results of
operations.
In 1992, Niagara Mohawk Power Corporation ("NIMO"), a customer of the
Company which has accounted for approximately 18 to 25% of consolidated power
sales revenues over the past several years, unilaterally imposed a "generation
cap" on three of the fifteen power purchase agreements it has with the Company,
claiming reduced rates for power produced over a cap specified by the utility,
and has withheld approximately $0.9 million of revenues to date. In response,
the Company, in conjunction with others, sought redress in court. In November
1999, the court ruled in favor of the Company. NIMO has informed the Company
that it may appeal the decision, although as of the date hereof, no such appeal
has been filed.
10
<PAGE>
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 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 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 January
through June, when water flow is at its highest at most of the Company's
projects, and lowest in 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 other renewable energy
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; (iii) the Public Utilities Holding Company Act of 1935 ("PUHCA");
(iv) PURPA; and (v) the National Energy Policy Act of 1992.
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 energy facilities that it may
acquire or develop in the future may not be QFs.
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;
and retail competition has or is scheduled to go into effect in several states.
The Company believes that the impacts of such restructuring are likely to be
both positive and negative on the Company. 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. At the same time, retail competition and consumer demand
for renewable energy may stimulate demand for small hydroelectric and other
renewable generation. The Company believes that its existing long-term power
purchase contracts with utilities are legally binding for the duration of the
contracts, and that legislation to repeal PURPA, if any, will include
appropriate protection for existing QF contracts under PURPA. See
"--Conventional Hydroelectric Projects -- Power Purchase Agreements".
11
<PAGE>
Environmental Regulation. The Company is subject to extensive federal,
state (or 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 closing down 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 renewable energy
facilities are likely to be subject to federal and state laws and regulations
governing a wide range of potential environmental impacts. Environmental
regulatory requirements for such facilities are often complex, and specific
requirements are dependent upon the nature of the individual project and site.
COMPETITION
The renewable energy business includes a large number of companies that
seek to own or develop such facilities. In most cases, such companies are small
and are focused on a single technology, such as wind, solar or geothermal, etc.
The Company believes that there are relatively few companies seeking to build an
operating portfolio of diversified renewable energy facilities in the same
manner as the Company.
In its hydroelectric business, the Company competes both with smaller and
regional independent hydroelectric development companies and 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.
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;
Twin Falls, Idaho; Andover, Massachusetts; Bellevue, Washington; and Montreal,
Canada, with aggregate annual rental payments of approximately $300,000. 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, 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, 1999" 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.
12
<PAGE>
EMPLOYEES
The Company employs approximately 144 full-time and 63 part-time and
temporary employees as of December 31, 1999. 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 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 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 believed it had in certain 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.
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 no longer had any significant parent company debt
obligations. Currently, CHI has a secured, revolving $35 million working capital
and letter of credit facility, under which $0.3 million in loans were
outstanding at March 29, 2000.
13
<PAGE>
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, renewable energy and other acquisition and
development projects; risks related to the Company's power purchase agreements;
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.
Uncertainty as to Future Opportunities in Renewable Energy. The Company is
pursuing opportunities to develop, acquire, operate and manage renewable energy
facilities using such technologies as hydroelectric, biomass, landfill gas,
wind, solar, and geothermal. Generally, the costs of such renewable energy
facilities are high relative to the current energy market in North America.
Therefore, the economic viability of such facilities may depend, to a greater or
lesser extent, on non-market factors such as green power incentives (including
tax credits, subsidies, or renewable portfolio standards) established by the
federal or state governments, and on the willingness of electric consumers to
pay a premium for renewable energy. While the Company believes that government
incentives in support of renewable energy will continue, that consumer demand
for renewable energy will increase, and that costs for certain renewable
technologies will decline, there can be no assurance that renewable energy will
be regarded favorably by the government or consumers, or that it will be
competitive in the North American electric power market. With respect to its
conventional hydroelectric business, the Company believes that opportunities to
continue to expand are principally through the acquisition of additional
facilities and the securing of operation and maintenance contracts rather than
the development of new hydroelectric facilities in North America. 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 may limit the Company's near-term opportunities to acquire
additional hydroelectric capacity at acceptable rates of return. In addition,
the Company believes that near-term prospects for successful development of new
hydroelectric facilities in North America, in particular the United States, are
limited, due to regulatory restrictions that increase the cost of hydroelectric
development combined with the current energy market, in which low energy prices
often do not make hydroelectric development economically attractive.
Leveraged Project Financing. The Company's existing hydroelectric projects
are, and its future hydroelectric and other renewable energy 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, 1999, the Company had
$75.9 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 performance guarantee relating to one project remains in effect.
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. 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. See Note 10 of the Notes to Consolidated Financial Statements for
additional information.
14
<PAGE>
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. 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 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 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.
Changes in Applicable Rates; Energy Price Declines. From calendar years
2000 through 2009, rates paid to the Company pursuant to power purchase
agreements representing approximately 36.9% 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 either on the applicable utilities' then
current avoided cost or on prices determined in a competitive market. 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 rate 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 NIMO, Commonwealth Electric Company ("CEC"), New England
Power Company ("NEPCO"), Central Maine Power Company ("CMP") and Idaho Power
Company ("IPCO"); 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 NIMO, CEC, NEPCO, CMP and IPCO
represented approximately 25.5%, 22.7%, 12.2%, 7.7% and 7.2%, respectively, of
the consolidated revenues of the Company for the year ended December 31, 1999.
The Company is not aware of any specific circumstances that might materially
affect its revenues pursuant to the sale of power to these customers. However,
given the uncertainties associated with electric industry restructuring, there
can be no assurance that one or more of these customers will not attempt to
modify their contracts with the Company or that their future credit worthiness
will not be adversely affected.
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
15
<PAGE>
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.
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 Dean Witter & Co. 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. Subsequently, the plaintiff filed a substitute complaint in which
CHI is not named as a defendant, although CHI continues to provide
indemnification for the remaining defendants in the case. In addition, the
Company maintains directors and officers liability insurance and for that
reason, among others, management believes that they 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.
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 trial was argued during January 2000, but a verdict has
not yet been reached. The Company has vigorously defended 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.
16
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
year ended December 31, 1999 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 29, 2000, to the best of the Company's knowledge, the number
of holders of record of the New Class A Common Stock of CHI was 22, 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
years ended December 31, 1999 and 1998 or 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. In addition, pursuant to its
working capital agreement, CHI is 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:
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 entitles 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 entitles 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 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 contain customary
antidilution provisions and protections against certain extraordinary
distributions. As of March 29, 2000, the Company has not completed any
industrial infrastructure transactions and is not currently in negotiations to
develop or acquire any industrial infrastructure projects.
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 contain customary antidilution provisions and protections against
certain extraordinary distributions.
Management Options. The Management Options, which have been issued to
certain members of CHI's management 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 of the Effective Date, 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.
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. 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 Part I, 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 applied fresh
start reporting as of the Effective Date which 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 was 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 PricewaterhouseCoopers LLP,
independent accountants. The data set forth below should be read in conjunction
with the Consolidated Financial Statements for the years ended December 31, 1999
and 1998, 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 and 1995
and the related Notes thereto, and Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations":
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
-------------------------------- ---------------------------------------------
Year Year
Ended Ended Nov. 8 - July 1 - Fiscal Year Ended June 30,
Dec. 31, Dec. 31, Dec. 31, Nov. 7, ---------------------------------
1999 1998 1997 1997 1997 1996 1995
--------- --------- --------- --------- --------- --------- ---------
(Dollars in Thousands,
STATEMENT OF OPERATIONS Except Per Share Amounts) (Dollars in Thousands)
Operating Revenues: --------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Power generation revenue ..................... $ 41,342 $ 43,868 $ 6,598 $ 8,661 $ 50,665 $ 49,761 $ 39,387
Management fees
and operation & maintenance revenue ........ 5,777 7,059 1,437 2,713 5,395 4,986 4,326
Equity income in partnership
interests and other partnership income ..... 1,628 3,572 203 212 1,320 737 245
--------- --------- --------- --------- --------- --------- ---------
Total revenue .................................. 48,747 54,499 8,238 11,586 57,380 55,484 43,958
--------- --------- --------- --------- --------- --------- ---------
Costs and expenses
Operating .................................... 15,470 18,337 2,566 6,588 18,015 17,957 15,895
General and administrative ................... 6,522 9,754 1,199 2,217 8,575 6,578 6,899
Charge for employee and director equity
participation programs (1) ................. -- -- -- -- 100 259 339
Reorganization costs(2) ...................... -- -- -- 3,978 -- -- --
Fair value adjustments(2) .................... -- -- -- 4,855 -- -- --
Depreciation and amortization ................ 7,435 7,334 1,105 3,009 8,661 9,846 9,625
Lease expense ................................ 5,837 5,896 900 2,001 5,764 6,072 5,753
(Adjustment to)/charge for impairment of
long-lived assets ......................... -- -- -- (75) 83 87,202 1,272
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses ....................... 35,264 41,321 5,770 22,573 41,198 127,914 39,783
--------- --------- --------- --------- --------- --------- ---------
Income/(loss) from operations .................. 13,483 13,178 2,468 (10,987) 16,182 (72,430) 4,175
Interest income ................................ 1,472 1,488 242 739 1,661 1,032 1,416
Other income ................................... 348 459 6 57 434 368 185
Gain on adjustment to project development debt . -- -- -- 8,568 -- -- --
Interest expense ............................... (6,745) (8,048) (1,260) (7,741) (29,591) (26,876) (21,778)
Minority interests in loss of consolidated
subsidiaries ................................ -- -- -- -- -- 2,063 3
--------- --------- --------- --------- --------- --------- ---------
Income/(loss) before income taxes and
extraordinary items ......................... 8,558 7,077 1,456 (9,364) (11,314) (95,843) (15,999)
(Provision)/benefit for income taxes ........... (3,557) (3,104) (751) 114 272 7,512 (277)
--------- --------- --------- --------- --------- --------- ---------
Income/(loss) before extraordinary items ..... 5,001 3,973 705 (9,250) (11,042) (88,331) (16,276)
Extraordinary items (3)
Gain on extinguishment of debt (net of
income tax of $0 and $3,414 as of November
7, 1997 and June 30, 1997, respectively) .... -- -- -- 87,218 5,658 -- --
--------- --------- --------- --------- --------- --------- ---------
Net income/(loss) .............................. $ 5,001 $ 3,973 $ 705 $ 77,968 $ (5,384) $ (88,331) $ (16,276)
========= ========= ========= ========= ========= ========= =========
Net income per common share,
basic and diluted (4) ....................... $ .50 $ .40 $ .07 -- -- -- --
Cash dividends per common share ................ -- -- -- -- -- -- --
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
-------------------------------- ---------------------------------------------
Nov. 8 - July 1 - Fiscal Year Ended June 30,
Year Ended Dec. 31 Dec. 31, Nov. 7, ---------------------------------
1999 1998 1997 1997 1997 1996 1995
--------- --------- --------- --------- --------- --------- ---------
(Dollars in Thousands, (Dollars in Thousands)
--------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Megawatts operated 254.72 272.42 335.50 335.50 342.61 343.66 379.08
Capital expenditures
Cost of acquisitions and partnership interests $ 8,924 $ -- $ -- $ -- $ -- $ -- $35,503
Cost of development expenditures 12,985 -- -- -- 2,045 1,968 6,086(5)
All other capital expenditures associated with
operating
projects, including changes in other long-term
assets,
net 2,837 2,691 375 2,430 9,226 3,460 2,288
Interest, net (6) 5,273 6,560 1,018 7,002 27,930 25,844 20,362
Cash interest, net (7) 4,705 5,969 1,190 2,876 6,962 7,725 4,702
Ratios and Other Data:
EBDIAT (8) 21,266 20,971 3,604 (3,096) 25,613 25,376 15,696
EBDIAT/Interest, net (9) 4.03 3.20 3.54 10,098 2,317 468 4,666
EBDIAT/Cash interest, net (9) 4.52 3.51 3.80 5,233 3.68 3.28 3.34
Ratio of earnings to fixed charges (11) 2.08 1.76 2.18 -- -- -- --
Deficiency of earnings to fixed charges(10)(11) -- -- -- 9,387 11,350 97,417 18,850
Ratio of earnings to fixed charges
and Preferred Stock Dividends (12) 2.08 1.76 2.18 -- -- -- --
Deficiency of earnings to fixed charges
and Preferred Stock Dividends (10)(12) -- -- -- 15,447 37,241 121,149 40,958
</TABLE>
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
-------------------------------- ---------------------------------
Dec. 31, June 30,
-------------------------------- ---------------------------------
1999 1998 1997 1997 1996 1995
--------- --------- --------- --------- --------- ---------
(Dollars in Thousands, (Dollars in Thousands)
---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents 15,954 21,778 11,998 32,502 23,834 16,682
Current assets 26,493 28,535 21,361 41,003 33,041 25,454
Total assets 238,932 219,871 221,961 243,628 244,657 330,617
Current liabilities 22,400 16,143 13,345 13,924 16,061 13,602
Long-term debt 70,001 74,486 82,616 262,615 260,158 248,887
Mandatorily redeemable preferred stock -- -- -- 114,372 98,604 84,690
Stockholders' equity/(deficit) 94,779 89,778 85,805 (189,679) (168,627) (66,641)
</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 $87,218 was
recorded. The fiscal year ended June 30, 1997 amount results from the
purchase of a non-recourse project term loan, $14,500 at June 30, 1996,
for $5,000, including certain required reserves and closing costs of
approximately $500. The gain recorded is net of certain transaction costs
of approximately $187 and income tax of $3,414.
(4) 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.
(5) These amounts were substantially funded with proceeds from outside lenders
on a non-recourse basis or sales of CHI equity securities.
(6) Interest, net is defined as interest expense less interest income.
(7) Cash interest, net is defined as cash interest expense less cash interest
income.
(8) 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.
21
<PAGE>
(9) 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.
(10) Computations resulting in a ratio of less than one are disclosed as a
deficiency and represent the dollar amount of earnings required to attain
a ratio of one-to-one.
(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 and
extraordinary items. 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 - Fiscal Year Ended June 30,
Year Ended Dec. 31 Dec. 31, Nov. 7, ---------------------------------
1999 1998 1997 1997 1997 1996 1995
--------- --------- --------- --------- --------- --------- ---------
(Dollars in Thousands, (Dollars in Thousands)
--------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-cash interest $ 568 $ 591 $ 70 $ 4,865 $ 19,709 $ 18,629 $ 16,610
Depreciation and amortization 7,435 7,334 1,105 3,009 8,661 9,846 9,625
Other non-cash (gains)/charges, net -- -- -- (75) (5,475) 87,461 1,611
-------- -------- -------- -------- -------- -------- --------
Total non-cash charges $ 8,003 $ 7,925 $ 1, 175 $ 7,799 $ 22,895 $115,936 $ 27,846
======== ======== ======== ======== ======== ======== ========
Resulting ratio of earnings
to fixed charges 3.10 2.61 3.11 1.38 1.36 1.61 1.34
</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 and extraordinary items.
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 - Fiscal Year Ended June 30,
Year Ended Dec. 31 Dec. 31, Nov. 7, ---------------------------------
1999 1998 1997 1997 1997 1996 1995
--------- --------- --------- --------- --------- --------- ---------
(Dollars in Thousands)
----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Resulting ratio of earnings
to fixed charges and
preferred stock dividends 3.10 2.61 3.11 -- -- -- --
Resulting deficiency of earnings
to fixed charges and
preferred stock dividends -- -- -- $ 2,793 $14,346 $ 5,213 $13,112
</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, acquisition, operation and management of renewable energy
and related, environmentally beneficial infrastructure assets. Non-hydroelectric
renewable energy facilities include those using such technologies as biomass,
landfill gas, wind, solar and geothermal. 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 14 states and one Canadian province.
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 years ended
December 31, 1999 and 1998 and the period from 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.
Since its inception, the Company has expanded primarily by acquiring
existing hydroelectric facilities in the United States. As of December 31, 1999,
the Company had a 100% ownership or long-term lease interest in 52 projects (150
megawatts), a partial ownership interest in 9 projects (87 megawatts), and
operations and maintenance ("O&M") contracts with 18 projects (17 megawatts).
CHI sells substantially all of the electric energy and capacity from its
projects to public utility companies pursuant to take or pay power purchase
agreements. These contracts vary in their terms but typically provide scheduled
rates throughout the life of the contracts, which are generally for a term of 15
to 40 years from inception.
The Company seeks opportunities to acquire and develop a diversified
portfolio of projects using a variety of renewable technologies to take
advantage of what it perceives to be a favorable market climate for renewable
and environmentally beneficial energy and related infrastructure assets, as
described in Part I, Item 1, "--Renewable Energy and Environmental Projects."
For purposes of the discussion of results of operations for the six months
ended December 31, 1997, the results of the Predecessor Company and Reorganized
Company have been combined.
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 26
years. After the expiration of such power purchase agreements, rates generally
change to the purchasing utility's avoided cost for delivered energy or market
rates, which are likely to be lower than expiring power purchase agreement
rates. See Part I, Item 1, "--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 or market rates. Fluctuations in revenues
and related cash flows are generally attributable to changes in projects in
operation, coupled with variations in water flows and the effect of escalating
and declining contract rates in the Company's power purchase agreements.
23
<PAGE>
Management Fees and Operations & Maintenance Revenues
O&M contracts, from which management fees and operations and maintenance
revenues are derived, generally enable the Company to maximize the use of its
available resources and to generate additional income.
Equity Income in Partnership Interests and Other Partnership Income
In accordance with generally accepted accounting principles, certain of
the Company's partnership interests are accounted for under the equity and the
cost methods of accounting. Fluctuations in equity income and other partnership
income are generally attributable to variations in results of operations and
timing of cash distributions of certain partnerships.
Operating Expenses
Operating expenses consist primarily of project-related costs such as
labor, repairs and maintenance, supplies, insurance and real estate taxes.
Operating expenses include direct expenses related to the production of power
generation revenue as well as direct costs associated with O&M contracts which
are rebillable to applicable third party owners directly or not rebillable since
they are covered through an established management fee.
Lease Expense
Lease expense includes operating leases associated with some of the
hydroelectric projects as well as leases for the corporate and regional
administrative offices. Certain leases provide for payments that are based upon
power sales revenue or cash flow for specific projects. Hence, varying project
revenues will impact overall lease expense, year-to-year.
24
<PAGE>
CERTAIN KEY OPERATING RESULTS AND TRENDS
The information in the tables below provides 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, 1999
Consolidated Financial Statements and the related Notes thereto, included
herein.
Power Producing Facilities
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
---- ---- ----
MEGAWATTS #PROJECTS MEGAWATTS #PROJECTS MEGAWATTS #PROJECTS
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Northeast:
100% Ownership (1) 102.38(8) 31(8) 90.88 29 90.88 29
Partial Ownership (2) 59.27(8) 7(8) 70.77(4) 9(4) 52.37 8
O&M Contracts (3) 11.32 15 12.02(5) 16(5) 92.16 19
--------- --------- --------- --------- --------- ---------
Total 172.97 53 173.67 54 235.41 56
========= ========= ========= ========= ========= =========
Southeast:
100% Ownership (1) 27.42 13 27.42 13 27.42 13
Partial Ownership (2) -- -- -- -- -- --
O&M Contracts (3) -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total 27.42 13 27.42 13 27.42 13
========= ========= ========= ========= ========= =========
West:
100% Ownership (1) 5.38 3 5.38 3 5.38 3
Partial Ownership (2) 4.20 1 4.20 1 4.20 1
O&M Contracts (3) 1.80(9) 2(9) 18.80 3 19.08 4
--------- --------- --------- --------- --------- ---------
Total 11.38 6 28.38 7 28.66 8
========= ========= ========= ========= ========= =========
Northwest:
100% Ownership (1) 14.61 5 14.61(6) 5(6) 14.71 6
Partial Ownership (2) 24.00 1 24.00(7) 1(7) 24.96 2
O&M Contracts (3) 4.34 1 4.34 1 4.34 1
--------- --------- --------- --------- --------- ---------
Total 42.95 7 42.95 7 44.01 9
========= ========= ========= ========= ========= =========
Total:
100% Ownership (1) 149.79 52 138.29 50 138.39 51
Partial Ownership (2) 87.47 9 98.97 11 81.53 11
O&M Contracts (3) 17.46 18 35.16 20 115.58 24
--------- --------- --------- --------- --------- ---------
Total 254.72 79 272.42 81 335.50 86
========= ========= ========= ========= ========= =========
</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 addition of one project (18.40 megawatts) on November 11,
1998.
(5) Reflects the termination of three O&M contracts (80.14 megawatts) on
October 31, 1998.
(6) Reflects the sale of one project (0.10 megawatts) on December 31, 1998.
(7) Reflects the dissolution of one project (0.96 megawatts) on June 18, 1998.
(8) Reflects the purchase of the remaining ownership interest of two projects
(8.20 and 3.30 megawatts, respectively) on May 25, 1999 and November 30,
1999, respectively.
(9) Reflects the termination of one O&M contract (17.00 megawatts) on January
31, 1999.
25
<PAGE>
Selected Operating Information(1)
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS SIX MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DEC. 31, 1999 DEC. 31, 1998 DEC. 31, 1997(2) JUNE 30, 1997
---------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Power generation revenues (thousands) $41,342 $43,868 $15,259 $50,665
Kilowatt hours produced (thousands) 539,706 585,112 209,453 663,920
Average rate per kilowatt hour 7.7(cent) 7.5(cent) 7.3(cent) 7.6(cent)
</TABLE>
- ---------
(1) Limited to projects included in consolidated revenues.
(2) 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.
As the above tables indicate, the Company's portfolio of operating
projects may fluctuate from year to year in terms of total operating megawatts.
The Company expects to develop, acquire, sell, or discontinue operations of
certain projects, as it has in the past, if it perceives such actions to be
beneficial. In the case of O&M contracts, such contracts are subject to
termination for a variety of reasons. The total number of operating megawatts in
the Company's portfolio is not necessarily indicative of overall financial
results.
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>
TWELVE MONTHS TWELVE MONTHS SIX MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED
DEC. 31, 1999 DEC. 31, 1998 DEC. 31, 1997(2) JUNE 30, 1997
----------------- ------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Northeast Average Average Below Average Above Average
Southeast Below Average Below Average Below Average Average
West Below Average Above Average Below Average Below Average
Northwest Above Average Above Average Above Average Above 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 the Predecessor Company from July 1,
1997 through November 7, 1997 and the 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.
26
<PAGE>
The following tables, which present 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.
Power Generation Revenues (in thousands)(1)
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS SIX MONTHS
ENDED ENDED ENDED TWELVE MONTHS ENDED
DEC. 31, 1999(2) DEC. 31, 1998 DEC. 31, 1997(4) JUNE 30, 1997(2)(3)
-------------------- ------------------ ------------------ ---------------------
$ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jan. 1 - Mar. 31 14,016 33.9 14,712 33.6 -- -- 15,078 29.8
Apr. 1 - Jun. 30 10,220 24.7 14,185 32.3 -- -- 13,461 26.5
Jul. 1 - Sep. 30 6,382 15.4 8,259 18.8 6,422 N/A 8,855 17.5
Oct. 1 - Dec. 31 10,724 26.0 6,712 15.3 8,837 N/A 13,271 26.2
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 41,342 100.0 43,868 100.0 15,259 100.0 50,665 100.0
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
- -----------
(1) Limited to projects included in consolidated revenues.
(2) Includes business interruption revenue of $907 and $604 representing
claims for lost generation recoverable from an insurance company for the
twelve months ended December 31, 1999 and June 30, 1997, respectively.
(3) Comprised of the period from July 1 - December 31, 1996 and January 1 -
June 30, 1997.
(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.
Kilowatt Hours ("kWh") Produced (in thousands)(1)
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS SIX MONTHS
ENDED ENDED ENDED TWELVE MONTHS ENDED
DEC. 31, 1999(2) DEC. 31, 1998 DEC. 31, 1997(4) JUNE 30, 1997(2)(3)
------------------ ------------------- -------------------- ---------------------
kWh % kWh % kWh % kWh %
--- - --- - --- - --- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jan. 1 - Mar. 31 175,172 32.4 192,355 32.9 -- -- 193,576 29.2
Apr. 1 - Jun. 30 145,505 27.0 191,969 32.8 -- -- 178,824 26.9
Jul. 1 - Sep. 30 84,707 15.7 108,649 18.6 95,852 N/A 125,197 18.9
Oct. 1 - Dec. 31 134,322 24.9 92,139 15.7 113,601 N/A 166,323 25.0
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 539,706 100.0 585,112 100.0 209,453 100.0 663,920 100.0
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
- -------------
(1) Limited to projects included in consolidated revenues.
(2) Includes the production equivalent of 15,483 and 9,412 kWh of the business
interruption revenue recoverable as a result of insurance claims for the
twelve months ended December 31, 1999 and June 30, 1997, respectively.
(3) Comprised of the period from July 1 - December 31, 1996 and January 1 -
June 30, 1997.
(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.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Operating Revenues
Power Generation Revenue. The Company's power generation revenue decreased
by $2.6 million (5.9%) from $43.9 million to $41.3 million for the year ended
December 31, 1998 and the year ended December 31, 1999, respectively.
The Northeast region experienced a minimal increase of $0.1 million
primarily as a result of the acquisition of two partnerships during 1999,
partially offset by decreased water flows during 1999.
The Southeast region experienced decreased revenues of $2.0 million
primarily as a result of the expiration and renegotiation, at reduced rates, of
some of the power purchase agreements and decreased water flows during 1999.
27
<PAGE>
The West and Northwest regions (combined) experienced decreased revenues
of $0.7 million primarily as a result of average water flows in the West during
the year ended December 31, 1999 as compared to above average water flows during
the year ended December 31, 1998.
The average rate earned by the Company increased by 0.2(cent) (2.7%) from
7.5(cent) to 7.7(cent) in the year ended December 31, 1998 versus the year ended
December 31, 1999, respectively, primarily as a result of variations in the
production mix and contract rates among various projects.
Management Fees and Operations & Maintenance Revenues. Management fees and
operations & maintenance revenues decreased by $1.3 million (18.3%) from $7.1
million to $5.8 million for the year ended December 31, 1998 and the year ended
December 31, 1999, respectively, primarily due to decreased levels of rebillable
work performed during the year ended December 31, 1999 versus the year ended
December 31, 1998.
Equity Income in Partnership Interests and Other Partnership Income.
Equity income in partnership interests and other partnership income decreased by
$2.0 million (55.6%) from $3.6 million to $1.6 million for the year ended
December 31, 1998 and the year ended December 31, 1999, respectively, primarily
due to (i) a decreased distribution of $1.4 million from a minority owned
partnership which owns a hydroelectric project in the Northeast; (ii) a decrease
of $0.9 million resulting from a one-time cash distribution received during 1998
in connection with the dissolution of a partnership in the West; and (iii) the
purchase and subsequent consolidation of two partnerships during 1999, which
were previously accounted for under the equity method, partially offset by (iv)
increased equity income from a partnership which owns a hydroelectric project in
Canada.
Costs and Expenses
Operating Expenses. Operating expenses decreased by $2.8 million (15.3%)
from $18.3 million to $15.5 million for the year ended December 31, 1998 and the
year ended December 31, 1999, respectively primarily due to (i) decreased levels
of rebillable labor and contract costs due to decreased levels of rebillable
work for the year ended December 31, 1999 and (ii) decreased maintenance and
supplies expense during the year ended December 31, 1999 due to less maintenance
required.
General and Administrative. General and administrative expenses decreased
by $3.3 million (33.7%) from $9.8 million to $6.5 million for the year December
31, 1998 and the year ended December 31, 1999, respectively. The decrease is
primarily due to a $2.4 million decrease in development expenditures and a $0.8
million decrease in salaries and benefits.
Interest Expense
Interest expense decreased by $1.3 million (16.3%) from $8.0 million to
$6.7 million for the year ended December 31, 1998 and the year ended December
31, 1999, respectively. The decrease was primarily due to lower principal
balances on outstanding debt and the modification of terms of a note payable,
which resulted in an effective rate of 0% on such note during the year ended
December 31, 1999.
Income Taxes
The Company's effective income tax rate was 41.6% on net income for the
year ended December 31, 1999. The effective rate was higher than the federal
statutory rate primarily due to deferred tax assets for which the Company did
not recognize a current tax benefit and current state tax liability.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
Operating Revenues
Power Generation Revenue. The Company's power generation revenue decreased
by $6.8 million (13.4%) from $50.7 million to $43.9 million for the fiscal year
ended June 30, 1997 and the year ended December 31, 1998, respectively.
Excluding the effects of the sale of 15 projects on December 23, 1996, power
generation revenue decreased by $4.9 million (10.0%), from $48.8 million to
$43.9 million for the fiscal year ended June 30, 1997 and the year ended
December 31, 1998, respectively.
28
<PAGE>
The Northeast region experienced decreased revenues of $3.4 million
primarily as a result of above average water flows throughout the region during
the fiscal year ended June 30, 1997 as compared to average water flows during
the year ended December 31, 1998, coupled with lost generation at four of its
New York sites for six months as a result of a severe ice storm which crippled
the Northeastern United States and Southern Quebec during January 1998.
The Southeast region experienced decreased revenues of $1.4 million
primarily as a result of average water flows throughout the region during the
fiscal year ended June 30, 1997 as compared to below average water flows during
the year ended December 31, 1998 and the expiration and renegotiation, at
reduced rates, of some of the power purchase agreements.
The West and Northwest regions (combined) experienced a minimal decrease
of $0.1 million.
The average rate earned by the Company decreased by 0.1(cent) (1.3%) from
7.6(cent) to 7.5(cent) in the fiscal year ended June 30, 1997 versus the year
ended December 31, 1998, respectively, primarily as a result of variations in
the production mix and contract rates among various projects.
Management Fees and Operations & Maintenance Revenues. Management fees and
operations & maintenance revenues increased by $1.7 million (31.5%) from $5.4
million to $7.1 million for the fiscal year ended June 30, 1997 and the year
ended December 31, 1998, respectively. Excluding the addition of 15 O&M
contracts on December 23, 1996, management fees and operations & maintenance
revenues increased by $0.5 million (10.2%) from $4.9 million to $5.4 million for
the fiscal year ended June 30, 1997 and the year ended December 31, 1998,
respectively, primarily due to increased levels of rebillable work performed
during the year ended December 31, 1998 versus the fiscal year ended June 30,
1997.
Equity Income in Partnership Interests and Other Partnership Income.
Equity income in partnership interests and other partnership income increased by
$2.3 million (176.9%) from $1.3 million to $3.6 million for the fiscal year
ended June 30, 1997 and the year ended December 31, 1998, respectively,
primarily due to an increased distribution of $1.0 million received from a
minority owned partnership which owns a hydroelectric project located in the
Northeast, a $0.9 million one-time cash distribution received in connection with
the dissolution of a partnership in the West, in which the Company had general
and limited partnership interests, and a $0.3 million increase due to a change
from the cost method to the equity method of accounting for a certain
investment.
Costs and Expenses
General and Administrative. General and administrative expenses increased
by $1.2 million (14.0%) from $8.6 million to $9.8 million for the fiscal year
ended June 30, 1997 and the year ended December 31, 1998, respectively. The
increase is primarily due to (i) a $1.7 million increase in development
expenditures; (ii) a $1.2 million increase in salaries and benefits, including a
$0.7 million severance accrual; (iii) a $0.7 million increase in net worth and
franchise taxes due to the Company's improved financial position; offset by (iv)
a $2.4 million decrease resulting from the accrual of reorganization expenses
during the fiscal year ended June 30, 1997.
Depreciation and Amortization. Depreciation and amortization decreased by
$1.4 million (16.1%) from $8.7 million to $7.3 million for the fiscal year ended
June 30, 1997 and the year ended December 31, 1998, respectively, due to the
revaluation of the Company's assets in conjunction with the adoption of fresh
start reporting.
Interest Expense
Interest expense decreased by $21.6 million (73.0%) from $29.6 million to
$8.0 million for the fiscal year ended June 30, 1997 and the year ended December
31, 1998, respectively. The decrease was primarily due to the cessation of
accruing interest on CHI's 12% Senior Discount Notes due 2003, Series B (the
"Senior Discount Notes") as of September 15, 1997, the date CHI commenced its
case under chapter 11 of Bankruptcy Code. See Note 1 of the Notes to
Consolidated Financial Statements.
29
<PAGE>
Income Taxes
The Company's effective income tax rate was 43.9% on net income for the
year ended December 31, 1998. The effective rate was higher than the federal
statutory rate primarily due to deferred tax assets for which the Company did
not recognize a current tax benefit and current state tax liability. The
Company's effective income tax rate was 2.4% on loss before extraordinary items
for the fiscal year ended June 30, 1997. The effective rate on loss before
extraordinary items was higher than the federal statutory rate primarily due to
deferred tax assets for which the Company did not recognize a current tax
benefit. In addition, for the fiscal year ended June 30, 1997, the effective
income tax rate of 37.6% on the extraordinary gain was higher than the federal
statutory rate primarily due to current state tax liability.
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
by $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 15 projects 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 for the six months ended December 31, 1997 as compared
to above average water flows for the six months ended December 31, 1996.
The Southeast region experienced decreased revenues of $0.4 million due to
below average water flows for the six months ended December 31, 1997, as
compared to average water flows 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 three projects totaling
7.01 megawatts.
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 the 15 projects sold
on December 23, 1996, 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 three projects, 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 these projects 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 15 O&M contracts, 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 an increase in O&M rebillable contract costs and 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 15 projects sold and the
1997 addition of the 15 O&M contracts, 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
in O&M rebillable contract costs; and (ii) an increase in 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.
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 Senior Discount
Notes and (ii) a $2.5 million non-cash write-off of loan acquisition costs
related to the Senior Discount Notes.
30
<PAGE>
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.
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 believed would
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.
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 15 projects sold, 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. See Note 1 of the Notes to Consolidated Financial Statements.
Extraordinary Gain
As a result of the reorganization, a gain on extinguishment of debt of
$87.2 million was recorded on the Effective Date.
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
------------------------------------------------ --------------------------------
(IN THOUSANDS) (IN THOUSANDS)
-------------- --------------
TWELVE MONTHS TWELVE MONTHS NOV. 8 - JULY 1 - TWELVE MONTHS
ENDED ENDED DEC. 31, NOV. 7, ENDED
DEC. 31, 1999 DEC. 31, 1998 1997 1997 JUNE 30, 1997
------------- -------------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Net cash provided by/(used in)
Operating activities............... $ 14,958 $ 18,176 $ 2,327 $ (1,457) $ 14,172
Investing activities............... (24,746) (1,737) (876) (425) 731
Financing activities............... 3,964 (6,659) (10,718) (9,355) (6,235)
------------- -------------- ----------- ---------- --------------
Net (decrease)/increase in cash and
cash equivalents...................... $ (5, 824) $ 9,780 $ (9,267) $ (11,237) $ 8,668
============= ============== =========== ========== ==============
</TABLE>
The Company's primary source of liquidity is internally generated cash
from operations. Management believes that cash provided by operations will be
sufficient to satisfy all of the Company's working capital, capital expenditure
and debt service requirements during 2000. Available external sources of
liquidity include a $35.0 million secured revolving working capital and letter
of credit facility (see "--Summary of Indebtedness"). This facility provides
additional liquidity to support the Company's existing operations as well as its
future growth. As of March 29, 2000, $0.3 million in revolving loans and $8.3
million of letters of credit are outstanding under the facility and therefore
$24.6 million was available for working capital purposes or additional letter of
credit issuances. In addition, should growth opportunities warrant significant
additional cash requirements, the Company may pursue other external sources of
funds through debt and/or equity offerings.
31
<PAGE>
For the year ended December 31, 1999, the cash provided by operating
activities of $15.0 million was principally the result of the $16.0 million of
net income adjusted for non-cash items offset by a decrease of $1.0 million due
to a change in operating assets and liabilities. Significant non-cash items
include $7.4 million of depreciation and amortization, a $3.2 million provision
relating to deferred tax liabilities and $0.5 million of non-cash interest and
other charges. The cash used in investing activities of $24.7 million was
primarily attributable to $13.0 million of development expenditures, $8.9
million used to purchase partnership interests and $3.1 million of capital
expenditures, offset by a $0.3 million decrease in investments and other
long-term assets. The cash provided by financing activities of $4.0 million was
due to $5.6 million in borrowings and a $3.7 million contribution from minority
interests, offset by repayment of $5.4 million of project debt.
Cash provided by operating activities decreased by $3.2 million for the
year ended December 31, 1999 as compared to the year ended December 31, 1998.
The decrease resulted from a difference in cash generated from operating assets
and liabilities of $6.0 million, offset by an increase in net income adjusted
for non-cash items of $2.6 million and cash used for reorganization items of
$0.2 million. The difference in net income adjusted for non-cash items is mainly
attributed to an increase in net income of $1.0 million and non-recurring income
from the sale of partnership assets of $0.9 million in 1998.
SUMMARY OF INDEBTEDNESS (IN THOUSANDS)
PRINCIPAL AMOUNT OUTSTANDING AS OF
DEC. 31, DEC. 31,
1999 1998
----------- ------------
Company debt, excluding non-recourse
debt of subsidiaries $ 5,550 $ --
Non-recourse debt of subsidiaries 75,906 80,813
Current portion of long-term debt (11,455) (6,327)
----------- ------------
Total long-term debt obligations $ 70,001 $ 74,486
=========== ============
In November 1999, the Company obtained a $35 million secured revolving
working capital and letter of credit facility with an initial expiration date of
December 31, 2001 (the "Facility"). The Company may use proceeds available under
the Facility to support its development, acquisition and operating activities.
Upon expiration of the Facility, any outstanding revolving loans will, at the
Company's option, be converted into a five year term loan. The interest rate on
the revolving loans is prime + 1.5%. As of March 29, 2000, $0.3 million in
revolving loans are outstanding under the Facility and $8.3 million of letters
of credit have been issued and are outstanding.
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 ("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,
8% Senior Convertible Voting Preferred Stock and 9 1/2% Junior Convertible
Voting Preferred Stock (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.
32
<PAGE>
Under the Plan of Reorganization, CHI's Senior Discount Notes were
converted into, among other things, $15.0 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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
33
<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, 1999 and 1998 and the results of
their operations and their cash flows for the years ended December 31, 1999 and
1998 and the eight weeks ended December 31, 1997, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States 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
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.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 20, 2000
34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
(PRE-EMERGENCE)
To the Board of Directors
and Stockholders of CHI Energy, Inc.
In our opinion, the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows present fairly, in all material
respects, the results of operations, stockholders' equity (deficit) and cash
flows of CHI Energy, Inc. (formerly Consolidated Hydro, Inc.) and its
subsidiaries (collectively, the "Company") for the eighteen weeks ended November
7, 1997 and for the year ended June 30, 1997, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States 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.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 27, 1998
35
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in thousands except share and per share amounts)
<TABLE>
<CAPTION>
REORGANIZED COMPANY PREDECESSOR COMPANY
--------------------------------------- -----------------------
FISCAL YEAR
YEAR ENDED NOV. 8 TO JULY 1 TO ENDED
DEC. 31 DEC. 31 DEC. 31 NOV. 7 JUNE 30
1 9 9 9 1 9 9 8 1 9 9 7 1 9 9 7 1 9 9 7
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Power generation revenue $ 41,342 $ 43,868 $ 6,598 $ 8,661 $ 50,665
Management fees and operations & maintenance revenues 5,777 7,059 1,437 2,713 5,395
Equity income in partnership interests and other partnership income 1,628 3,572 203 212 1,320
---------- ---------- ---------- ---------- ----------
48,747 54,499 8,238 11,586 57,380
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Operating 15,470 18,337 2,566 6,588 18,015
General and administrative 6,522 9,754 1,199 2,217 8,575
Charge for employee and director equity participation programs - - - - 100
Reorganization costs - - - 3,978 -
Fair value adjustments - - - 4,855 -
Depreciation and amortization 7,435 7,334 1,105 3,009 8,661
Lease expense to a related party - - - 1,274 3,549
Lease expense to unrelated parties 5,837 5,896 900 727 2,215
(Adjustment to)/charge for impairment of long-lived assets - - - (75) 83
---------- ---------- ---------- ---------- ----------
35,264 41,321 5,770 22,573 41,198
---------- ---------- ---------- ---------- ----------
Income/(loss) from operations 13,483 13,178 2,468 (10,987) 16,182
INTEREST INCOME 1,472 1,488 242 739 1,661
OTHER INCOME 348 459 6 57 434
GAIN ON ADJUSTMENT TO PROJECT DEVELOPMENT DEBT - - - 8,568 -
INTEREST EXPENSE ON INDEBTEDNESS TO RELATED PARTIES - - - (2,752) (10,519)
INTEREST EXPENSE ON INDEBTEDNESS TO UNRELATED PARTIES (6,745) (8,048) (1,260) (4,989) (19,072)
---------- ---------- ---------- ---------- ----------
Income/(loss) before (provision)/benefit for income taxes and
extraordinary item 8,558 7,077 1,456 (9,364) (11,314)
(PROVISION)/BENEFIT FOR INCOME TAXES (3,557) (3,104) (751) 114 272
---------- ---------- ---------- ---------- ----------
Income/(loss) before extraordinary item 5,001 3,973 705 (9,250) (11,042)
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) $ 5,001 $ 3,973 $ 705 $ 77,968 $ (5,384)
========== ========== ========== ========== ==========
NET INCOME/(LOSS) APPLICABLE TO COMMON STOCK:
Net income/(loss) $ 5,001 $ 3,973 $ 705 $ 77,968 $ (5,384)
Dividends declared on preferred stock - - - (3,370) (14,911)
Accretion of preferred stock - - - (179) (857)
Undeclared dividends on cumulative preferred stock - - - (2,511) (10,123)
---------- ---------- ---------- ---------- ----------
$ 5,001 $ 3,973 $ 705 $ 71,908 $(31,275)
========== ========== ========== ========== ==========
BASIC AND DILUTED NET INCOME PER COMMON SHARE (A) $ 0.50 $ 0.40 $ 0.07
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES (A) 10,000,000 10,000,000 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.
36
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED BALANCE SHEET
(Amounts in thousands except share amounts)
<TABLE>
<CAPTION>
DEC. 31, DEC. 31,
1 9 9 9 1 9 9 8
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents unrestricted $ 9,674 $ 16,106
Cash and cash equivalents restricted 6,280 5,672
Accounts receivable, net of allowance for doubtful accounts of $608 and $443, respectively 7,472 4,728
Prepaid expenses and other current assets 3,067 2,029
--------- ---------
Total current assets 26,493 28,535
PROPERTY, PLANT AND EQUIPMENT, NET 109,184 92,331
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS, NET 8,655 11,805
INTANGIBLE ASSETS, NET 58,959 45,535
INVESTMENTS AND OTHER ASSETS 35,641 41,665
--------- ---------
$ 238,932 $ 219,871
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 10,945 $ 9,816
Current portion of long-term debt and obligations under capital leases 11,455 6,327
--------- ---------
Total current liabilities 22,400 16,143
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES 70,001 74,486
DEFERRED CREDIT, STATE INCOME TAXES AND OTHER LONG-TERM LIABILITIES 48,057 39,464
COMMITMENTS AND CONTINGENCIES
--------- ---------
Total liabilities 140,458 130,093
--------- ---------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 3,695 -
--------- ---------
STOCKHOLDERS' EQUITY
COMMON STOCK, $.01 PAR VALUE, 20,000,000 SHARES AUTHORIZED
Class A common stock, 9,085,290 shares issued and outstanding at December 31, 1999 and 1998 91 91
Class B common stock, 914,710 shares issued and outstanding at December 31, 1999 and 1998 9 9
ADDITIONAL PAID-IN CAPITAL, INCLUDING $2,064 RELATED TO WARRANTS AT DECEMBER 31, 1999 AND 1998 85,000 85,000
RETAINED EARNINGS 9,679 4,678
--------- ---------
Total stockholders' equity 94,779 89,778
--------- ---------
$ 238,932 $ 219,871
========= =========
</TABLE>
37
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(Amounts in thousands except share amounts)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------- ------------ RETAINED
NUMBER NUMBER ADDITIONAL EARNINGS
OF SHARES REPORTED OF SHARES PAR PAID-IN (ACCUMULATED
OUTSTANDING AMOUNT OUTSTANDING VALUE CAPITAL DEFICIT)
----------- ------ ----------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY
BALANCE JUNE 30, 1996 110,000 $98,712 1,285,762 $ 2 $13,497 $ (259,427)
Annual dividend of $108.88 per share, mandatorily redeemable
Series H Preferred (14,911)
Accretion of Series H Preferred (857)
Recognition of employee compensation
expense related to the issuance of common stock
Issuance of preferred stock 2,558
Net loss (5,384)
----------- ------ ----------- ----- ------- --------
BALANCE JUNE 30, 1997 112,558 98,712 1,285,762 2 13,497 (280,579)
Dividend of $24.63 per share, mandatorily redeemable
Series H Preferred - July 1, 1997 to September 14, 1997 (3,370)
Accretion of Series H Preferred (179)
Net income 77,968
Fair value adjustments (112,558) (98,712) 8,714,238 98 71,503 206,160
----------- ------ ----------- ----- ------- --------
REORGANIZED COMPANY
BALANCE NOVEMBER 7, 1997 - - 10,000,000 100 85,000 -
Net income 705
----------- ------ ----------- ----- ------- --------
BALANCE DECEMBER 31, 1997 - - 10,000,000 100 85,000 705
Net income 3,973
----------- ------ ----------- ----- ------- --------
BALANCE DECEMBER 31, 1998 - - 10,000,000 100 85,000 4,678
Net income 5,001
----------- ------ ----------- ----- ------- --------
BALANCE DECEMBER 31, 1999 - - 10,000,000 $ 100 $85,000 $ 9,679
=========== ====== =========== ===== ======= ========
Table continued...
<PAGE>
TOTAL
STOCKHOLDERS'
DEFERRED TREASURY EQUITY
COMPENSATION STOCK (DEFICIT)
------------ ----- ---------
<S> <C> <C> <C>
PREDECESSOR COMPANY $ (350) $ (21,061) $ (168,627)
BALANCE JUNE 30, 1996
Annual dividend of $108.88 per share, mandatorily redeemable
Series H Preferred (14,911)
Accretion of Series H Preferred (857)
Recognition of employee compensation
expense related to the issuance of common stock 100 100
Issuance of preferred stock
Net loss (5,384)
------------ --------- ---------
BALANCE JUNE 30, 1997 (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)
Accretion of Series H Preferred (179)
Net income 77,968
Fair value adjustments 250 21,061 200,360
------------ --------- ---------
REORGANIZED COMPANY
BALANCE NOVEMBER 7, 1997 - - 85,100
Net income 705
------------ --------- ---------
BALANCE DECEMBER 31, 1997 - - 85,805
Net income 3,973
------------ --------- ---------
BALANCE DECEMBER 31, 1998 - - 89,778
Net income 5,001
------------ --------- ---------
BALANCE DECEMBER 31, 1999 - - $ 94,779
============ ========= =========
</TABLE>
38
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------------------ --------------------
Fiscal Year
Year Ended Year Ended Nov. 8 to July 1 to Ended
Dec. 31 Dec. 31 Dec. 31 Nov. 7 June 30
1 9 9 9 1 9 9 8 1 9 9 7 1 9 9 7 1 9 9 7
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ 5,001 $ 3,973 $ 705 $ 77,968 $ (5,384)
Adjustments to reconcile net income/(loss) to net cash
provided by/(used in) operating activities before reorganization items:
Non-cash interest and other charges 473 668 32 4,629 21,279
Reorganization costs -- -- -- 3,978 --
Fair value adjustments -- -- -- 4,855 --
Provision/(benefit) relating to deferred tax liabilities 3,173 2,600 571 (213) (1,032)
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
Gain on disposal of assets -- (24) -- (17) --
Depreciation and amortization 7,435 7,334 1,105 3,009 8,661
(Undistributed)/distributed earnings of affiliates (126) (269) 90 788 (696)
Income from sale of partnership assets -- (930) -- -- --
(Increase)/decrease in accounts receivable (2,127) 3,229 (1,643) 546 240
Decrease/(increase) in prepaid expenses and other current assets 163 (623) 415 (123) (375)
Decrease/(increase) in accounts payable and accrued expenses 966 2,419 1,598 (267) (2,946)
-------- -------- -------- -------- --------
Net cash provided by/(used in) operating activities before
reorganization items 14,958 18,377 2,873 (708) 14,172
-------- -------- -------- -------- --------
Operating cash flows used for reorganization items:
Professional fees -- (201) (546) (749) --
-------- -------- -------- -------- --------
Net cash used for reorganization items -- (201) (546) (749) --
-------- -------- -------- -------- --------
Net cash provided by/(used in) operating activities 14,958 18,176 2,327 (1,457) 14,172
-------- -------- -------- -------- --------
Cash flows from investing activities:
Proceeds from disposition of assets -- 24 -- 2,006 12,002
Proceeds from sale of partnership assets -- 930 -- -- --
Cost of development expenditures (12,985) -- -- -- (2,045)
Capital expenditures (3,094) (3,103) (230) (1,109) (4,358)
Decrease/(increase) in investments and other long-term assets 257 412 (646) (1,322) (4,868)
Purchase of partnership interests, net of cash acquired (8,924) -- -- -- --
-------- -------- -------- -------- --------
Net cash (used in)/provided by investing activities (24,746) (1,737) (876) (425) 731
-------- -------- -------- -------- --------
Cash flows from financing activities:
Payment of refinancing costs -- -- -- -- (310)
Borrowings from unrelated parties 5,550 -- 4 9 149
Payments to a related party on borrowings -- -- -- (2,271) (2,304)
Payments to unrelated parties on borrowings (5,441) (6,673) (296) (2,245) (3,999)
Contribution from minority interest 3,695 -- -- -- --
Increase/(decrease) in other long-term liabilities 160 14 (426) 152 229
Payment to holders of Senior Discount Notes -- -- (10,000) (5,000) --
-------- -------- -------- -------- --------
Net cash provided by/(used in) financing activities 3,964 (6,659) (10,718) (9,355) (6,235)
-------- -------- -------- -------- --------
Net (decrease)/increase in cash and cash equivalents (5,824) 9,780 (9,267) (11,237) 8,668
Cash and cash equivalents, at beginning of the period 21,778 11,998 21,265 32,502 23,834
-------- -------- -------- -------- --------
Cash and cash equivalents, at end of the period $ 15,954 $ 21,778 $ 11,998 $ 21,265 $ 32,502
======== ======== ======== ======== ========
</TABLE>
39
<PAGE>
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
(continued)
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------------------------- -------------------
Fiscal Year
Year Ended Year Ended Nov. 8 to July 1 to Ended
Dec. 31 Dec. 31 Dec. 31 Nov. 7 June 30,
1 9 9 9 1 9 9 8 1 9 9 7 1 9 9 7 1 9 9 7
------- ------- ------- ------- -------
<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
======= ======= ===== ======= ======
Interest paid to unrelated parties $ 6,121 $ 7,484 $ 290 $ 2,100 $5,047
======= ======= ===== ======= ======
Income taxes, net $ 503 $ 483 $ 112 $ 379 $ 288
======= ======= ===== ======= ======
Schedules of noncash investing and financing activities:
The Company acquired the common stock or hydroelectric assets
of certain entities amounting to the following:
Fair value of assets acquired $ -- $ -- $-- $ -- $ 28 -
Cash paid -- -- -- -- --
------- ------- ----- ------- ------
Liabilities assumed $ -- $ -- $-- $ -- $ 28
======= ======= ===== ======= ======
</TABLE>
During the year ended December 31, 1999, the Company purchased additional
partnership interests in three partnerships for $9,629 resulting in 100%
ownership of these projects. In conjuction with the acquisitions, liabilities
were assumed as follows:
Partnership
Interests
---------
Fair value of assets acquired $ 19,111
Prior ownership interests (9,076)
Cash paid (9,872)
--------
Liabilities assumed $ 163
========
As a result of the settlement of certain pre-reorganization contingencies and
the realization of net operating loss credits, during the year ended December
31, 1999, reorganization value in excess of amounts allocable to identifiable
assets and deferred credit, state income taxes and other long-term liabilities
decreased by $2,358.
As a result of the settlement of certain pre-reorganization contingencies and
the realization of net operating loss credits, during the year ended December
31, 1998, reorganization value in excess of amounts allocable to identifiable
assets decreased by $4,479. In addition, accounts payable and accrued expenses
decreased by $392, deferred credit, state income taxes and other long-term
liabilities decreased by $3,050 and long-term debt and obligations under capital
leases decreased by $1,037.
Series H mandatorily redeemable preferred stock increased $179 for the period
from July 1 to November 7, 1997, and $857 for the fiscal year ended June 30,
1997 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 and $14,911 for
the period from July 1 to November 7, 1997 and the fiscal year ended June 30,
1997, respectively, as a result of declared dividends which increased the
liquidation preference.
Long-term debt and obligations under capital leases increased by $10,189 and
$18,682 for the period from July 1 to November 7, 1997, and the fiscal year
ended June 30, 1997, respectively, as a result of non-cash interest accrued on
the Senior Discount Notes.
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.
40
<PAGE>
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 strategy is
the development, acquisition, operation and management of renewable energy and
other energy-related assets. Renewable energy generally includes hydroelectric,
biomass, landfill gas, wind, solar and geothermal generating facilities.
Currently, all of the Company's revenue is derived from the ownership and
operation of hydroelectric facilities. As of December 31, 1999, 1998 and 1997
and June 30, 1997, the Company had ownership interests in, leased and/or
operated projects with a total operating capacity of 254, 272, 336 and 343
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") 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 no longer had any
significant parent company debt obligations.
41
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED 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>
42
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED 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 $ 6,346
========
Loss before benefit for
income taxes and extraordinary item $ (7,642)
Benefit for income taxes 1,520
--------
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.
43
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED 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. Certain prior period amounts have been reclassified
to conform with current year presentation.
USE OF MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE
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.
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
Plant and equipment are depreciated on a straight-line basis 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 $4,236, $4,127, $603, $2,026 and $5,654 for
the years ended December 31, 1999 and 1998, the period from November 8, 1997 to
December 31, 1997, the period from July 1, 1997 to November 7, 1997 and the
fiscal year ended June 30, 1997, respectively.
Property, plant and equipment additions are recorded at cost (Note 7).
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.
INTEREST CAPITALIZATION
The Company capitalizes interest costs associated with the development and
construction of its facilities in accordance with Statement of Financial
Accounting Standards No. 34 "Capitalization of Interest Cost". Interest
capitalized in the period from July 1, 1997 to November 7, 1997 and the fiscal
year ended June 30, 1997 is disclosed in Note 10.
44
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets principally include costs incurred in connection with
power purchase agreements and Federal Energy Regulatory Commission ("FERC")
licenses, all of which are capitalized and amortized on a straight-line basis
over the periods to be benefited by such costs, ranging from 2 to 40 years (Note
8). 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.
Amortization expense was $2,817 $2,601, $412, $983 and $3,007 in the years ended
December 31, 1999 and 1998, the period from November 8, 1997 to December 31,
1997, the period from July 1, 1997 to November 7, 1997 and the fiscal year ended
June 30, 1997, respectively. 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
("Reorganization Value") resulted from the application of fresh start reporting
as described in Note 2, which required the excess of the fair value of the
Company over the fair value allocated to its identifiable assets to be recorded.
This excess is classified as Reorganization Value and is being amortized on a
straight-line basis over a fifteen-year period. Reorganization Value was reduced
by $2,358 and $4,479 during the years ended December 31, 1999 and 1998,
respectively, as a result of the reversal of tax valuation allowances related to
net operating loss carryforwards and the settlement of certain
pre-reorganization contingencies. Amortization was $792, $1,017 and $152 in the
years ended December 31, 1999 and 1998 and the period from November 8, 1997 to
December 31, 1997, respectively.
INVESTMENTS
In accordance with generally accepted accounting principles, the Company's
investments in partnership interests are accounted for under either the equity
method or the cost method of accounting. Investments accounted for under the
equity method of $9,394 and $16,932 at December 31, 1999 and 1998 respectively,
are included as part of long-term investments.
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's FERC license. Amortized benefit of $410, $411 and $62 was recorded in
the years ended December 31, 1999 and 1998 and the period from November 8, 1997
to December 31, 1997, respectively.
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. Business development costs related to the St.
Felicien Congeneration Limited Partnership (Note 11) were capitalized during the
year ended December 31, 1999.
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 income taxes under the liability
method required by Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("SFAS 109").
45
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 years ended December 31, 1999 and 1998 and the
period from November 8, 1997 to December 31, 1997, the exercise of stock options
and warrants were excluded from diluted net income per common share under the
treasury stock method as inclusion of such 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 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.
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. Accordingly, at
December 31, 1999 and 1998, a reasonable estimate of fair value could not be
made without incurring excessive costs.
46
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED 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 DEBT AND REDEEMABLE PREFERRED STOCK
Market rate obligations approximate their fair value because of interest
rates which fluctuate with market rates.
The fair value of fixed rate obligations is based on discounted future
cash flows using rates currently available to the Company for non-recourse
project-finance loans with similar terms and average maturities. Loans related
to the Company's pumped storage development assets have a fair value based on
the prospects of the project development and fair value of such assets.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash and cash equivalents 15,954 15,954 21,778 21,778
Long-term investments:
Escrow deposits 9,443 9,443 9,127 9,127
Investments in affiliates 13,917 --(1) 14,561 --(1)
Long-term debt:
Market rate obligations 35,558 35,558 31,132 31,132
Fixed rate obligations 19,189 15,193 21,389 20,638
Pumped storage obligations 8,358 -- 7,939 --
</TABLE>
(1) An estimate of fair value could not be made because it is not practicable.
47
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 5 - ACQUISITIONS
On May 25, 1999, the Company acquired an additional 50% ownership interest
in Pyrites Associates, a partnership which owns an 8.2 MW hydroelectric
facility, for $4.1 million and an additional 50% ownership interest in Hydro
Power Associates, a partnership which owns 25% of three hydroelectric facilities
aggregating 5.4 MW, for $3.2 million. On November 30, 1999, the Company acquired
an additional 50% ownership interest in Copenhagen Associates, a partnership
which owns a 3.3 MW hydroelectric facility, for $2.5 million. The Company now
has a 100% ownership interest in all three partnerships. The transactions were
funded with unrestricted cash. The Company has applied purchase accounting for
the acquisitions on a step-by-step basis. Accordingly, the results of operations
have been included in the Company's consolidated financial statements since the
dates of acquisition.
In addition, the Company has restated its prior period financial
statements to reflect a change from the cost to equity method of accounting for
the investment in Hydro Power Associates, in accordance with the provisions of
Accounting Principles Board Opinion No. 18 "Equity Method of Accounting for
Investments in Common Stock". As a result of this restatement, equity income in
partnership interests and other partnership income has been increased by $123
and $287 in the years ended December 31, 1999 and 1998, respectively, and
investments and other assets has been increased by $287, deferred credit, state
income taxes and other long-term liabilities has been increased by $115 and
retained earnings has been increased by $172 at December 31, 1998.
The following unaudited pro forma consolidated results of operations for
the years ended December 31, 1999 and 1998 assume the acquisitions occurred as
of the beginning of the periods presented:
Year ended December 31,
1999 1998
---- ----
Operating revenues $ 49,407 $ 56,073
Net income $ 5,174 $ 4,496
Basic and diluted net income per common share $ .52 $ .45
Weighted average number of common shares 10,000,000 10,000,000
The pro forma results are not necessarily indicative of the results that
would have been obtained if the acquisitions had been completed as of the
beginning of each of the fiscal periods presented, nor are they necessarily
indicative of future consolidated results.
48
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 6 - 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 4 months and 26 years. Consolidated power
generation revenues, by major customer, for the years ended December 31, 1999
and 1998, the period from November 8, 1997 to December 31, 1997, the period from
July 1, 1997 to November 7, 1997 and the fiscal year ended June 30, 1997 were as
follows:
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
---------------------------------------------------------- -----------------------------------
Fiscal
Year Ended Year Ended Nov. 8 - July 1 - Year Ended
Dec. 31 Dec. 31 Dec. 31, Nov. 7, June 30,
1999 1998 1997 1997 1997
--------------- ----------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Niagara Mohawk Power Corp. $ 10,527 $ 8,797 $ 1,554 $ 1,181 $ 10,285
Commonwealth Electric Co. 9,398 9,649 1,451 1,563 10,685
New England Power Co. 5,042 5,460 841 963 6,184
Central Maine Power Co. 3,173 3,883 732 1,334 4,615
Idaho Power Co. 2,994 2,885 123 1,657 3,258
All other customers 10,208 13,194 1,897 1,963 15,638
---------- ---------- ---------- --------- ---------
$ 41,342 $ 43,868 $ 6,598 $ 8,661 $ 50,665
========== ========== ========== ========= ==========
</TABLE>
During the year ended December 31, 1999, the amount shown for Niagara
Mohawk Power Corp. includes approximately $754 of business interruption revenue
representing lost generation recoverable from an insurance company as a result
of an insurance claim. During the fiscal year ended June 30, 1997, the amount
shown for Commonwealth Electric Co. includes approximately $212 of business
interruption revenue.
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 a new contract with another customer on similar economic terms in the
current environment.
49
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 7 - PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment includes assets acquired or refinanced under
capitalized lease obligations of $18,351 and $20,353 at December 31, 1999 and
1998, respectively (Note 10).
Property, plant and equipment are comprised of the following at December
31, 1999 and 1998:
<TABLE>
<CAPTION>
Range of
December 31, 1999 December 31, 1998 Asset Lives
------------------------- ------------------------ ----------------
<S> <C> <C> <C>
Land $ 4,476 $ 3,738
Dam and appurtenant structures 57,260 49,414 50 years
Mechanical and electrical equipment 39,533 38,721 30 years
Buildings and other 2,747 2,346 3-12 years
Construction in progress 14,121 2,841
---------------- ----------------
118,137 97,060
Less - accumulated depreciation (8,953) (4,729)
---------------- ----------------
$ 109,184 $ 92,331
================ ================
</TABLE>
NOTE 8 - INTANGIBLE ASSETS
Intangible assets are comprised of the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
Range of
December 31, 1999 December 31, 1998 Asset Lives
------------------------ ----------------------- ------------------
<S> <C> <C> <C>
Power purchase contracts $ 52,399 $ 39,264 3 - 32 years
FERC licenses 6,926 6,926 4 - 40 years
Goodwill 2,788 -- 24 years
Other intangibles 2,674 2,364 2 - 40 years
-------------- --------------
64,787 48,554
Less - accumulated
amortization (5,828) (3,019)
-------------- --------------
$ 58,959 $ 45,535
============== ==============
</TABLE>
Power purchase contracts and goodwill include those purchased in
conjunction with the acquisition of an additional 50% ownership interest in
Pyrites Associates and Copenhagen Associates (Note 5). 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.
50
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are comprised of the following at
December 31, 1999 and 1998:
December 31, December 31,
1999 1998
------------ ------------
Accounts payable $ 3,109 $ 1,082
Accrued lease expense 1,972 2,083
Accrued taxes 1,405 1,375
Accrued compensation 1,582 1,720
Accrued interest 840 954
Accrued severance 393 715
Other accrued expenses 1,644 1,887
------------ ------------
$ 10,945 $ 9,816
============ ============
51
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 10 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and capitalized lease obligations are comprised of the
following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Parent Company Debt:
Debt guaranteed or issued by the Parent Company directly - Revolving credit
loan with a bank, interest payable monthly at the
prime rate, as defined, plus a margin of 1.5% (10.0% at December
31, 1999). $ 5,550 --
------------ ------------
5,550 --
------------ ------------
Non-Recourse Debt of Subsidiaries secured by project assets unless otherwise
noted:
Capitalized lease obligations maturing at various dates
through 2008. 18,351 $ 20,353
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%, (9.51% and 8.88%, at December 31, 1999 and 1998,
respectively).
26,265 26,958
Term loan agreement with an investor due in quarterly payments through
2013, interest at 11.59%. 2,767 2,902
Term loan agreement with a bank, principal due in quarterly payments
through 2008. Interest payable 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%.
1,913 2,772
Note payable to an insurance company, due in monthly payments through
2007, interest at 12.7%. 5,601 6,490
Notes payable to an insurance company, due December 31, 2008. Interest
on $2,060 of principal payable monthly at 6.5%.
6,023 6,157
Termloan 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% (8.03% and 7.06% at December 31, 1999 and 1998,
respectively).
766 1,006
</TABLE>
52
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 10 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Termloan agreement with a bank, due in quarterly payments through 2006,
interest at LIBOR, as defined, plus a margin of 2.0% (8.03% and 7.06%,
at December 31, 1999 and 1998, respectively).
1,672 1,718
Unsecured notes payable to investors, interest payable annually at the prime
rate, as defined (8.5% and 7.75% at December 31, 1999 and 1998,
respectively) for certain notes and 15% for other notes.
3,360 3,067
Security deed held by the previous owners of a hydroelectric facility, due
Jan 18, 2006. Interest payable monthly at 6%.
900 1,000
Notes payable to an insurance company, due in quarterly payments
through 2005, interest at 8.5%. 557 622
Term loan agreement with a bank, due in quarterly payments through
2006, interest at LIBOR, as defined, plus a margin of 2.0% (8.03% and
7.06%, at December 31, 1999 and 1998, respectively).
1,017 1,130
Termloan agreement with a bank, due in quarterly payments through 2006,
interest at LIBOR, as defined, plus a margin of 2.0% (8.03% and 7.06% at
December 31, 1999 and 1998, respectively).
288 320
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%.
1,157 1,031
Other long-term liabilities with various rates and maturities. 5,269 5,287
------------ ------------
75,906 80,813
------------ ------------
Total debt and obligations under capital leases 81,456 80,813
Less: current portion (11,455) (6,327)
------------ ------------
Total long-term debt and obligations under capital leases $70,001 $74,486
============ ============
</TABLE>
53
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 10 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
Total interest charges associated with the above obligations were as
follows:
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
--------------------------------------------------- --------------------------------
Year Year Fiscal Year
Ended Ended Nov. 8 - July 1 - Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 Nov. 7, 1997 June 30, 1997
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Total Interest $ 6,745 $ 8,048 $ 1,260 $ 7,809 $ 29,780
Capitalized Interest -- -- -- $ 68 $ 189
</TABLE>
The aggregate long-term debt payments due each year ending December 31,
including capitalized lease obligations, net of amounts representing interest
totaling $7,876, are as follows:
2000 11,455
2001 5,605
2002 5,950
2003 28,764
2004 3,938
Thereafter 25,744
----------
$ 81,456
==========
In November 1999, the Company obtained a $35,000 secured revolving working
capital and letter of credit facility with an initial expiration date of
December 31, 2001 (the "Facility"). The Company may use proceeds available under
the Facility to support its development, acquisition and operating activities.
Upon expiration of the Facility, any outstanding revolving loans will, at the
Company's option, be converted into a five year term loan. The interest rate on
the revolving loans is prime + 1.5%. As of March 29, 2000, $250 in revolving
loans are outstanding under the Facility and $8,286 of letters of credit have
been issued and are outstanding. Fees on each outstanding letter of credit are
2.0% per annum on the available amount of such letter of credit, plus confirming
bank fees, if applicable, payable annually in arrears.
As of December 31, 1999, 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.
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. Minimum rental commitments under these
leases for the five years following December 31, 1999 and thereafter are
included in the table above.
54
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 10 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
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 General Electric Capital
Corporation ("GECC"). The agreement provides for two term loans, the GECC A Term
Loan ("GECC A Loan") and the GECC B Term Loan ("GECC B Loan"), a revolving
credit facility, and a letter of credit in support of HDG project obligations.
The GECC A Loan, with an outstanding principal balance at December 31, 1999 of
$26,265, is secured by the stock and assets of the HDG projects. The GECC B
Loan, with an outstanding principal balance at December 31, 1999 of $2,767, is
secured by certain other projects owned by the Company. 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 a letter of credit totaling $100 in support of certain HDG projects.
The $1,913 term loan agreement with a bank, 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 this loan have been capitalized and are included in Intangible
assets, net on the Company's Balance Sheet as of December 31, 1999.
The $5,601 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 $21,048 at
December 31, 1999) have been pledged as security.
On December 31, 1998, the Company modified the terms of its 11.25%, $6,157
note payable to an insurance company which was assumed in connection with
another acquisition by the Company. The insurance company agreed to accept 6.5%
interest only monthly payments on a new $2,060 Senior Note with principal due
December 31, 2008 and contingent payments on an 11.5%, $2,940 Subordinated Note.
Beginning on December 31, 2002, the Subordinated Note may be converted into
85-100% of the common equity of the related projects, subject to the Company's
option to redeem the Subordinated Note upon notice of conversion. The
modification of the terms of this note qualified for accounting treatment under
Statement of Financial Accounting Standards No. 15 "Accounting by Debtors and
Creditors for Troubled Debt Restructurings" ("SFAS 15"). In accordance with SFAS
15, no gain was recognized upon modification and the carrying value of the note
was not adjusted. In addition, the modifications have resulted in an effective
interest rate of 0%; therefore, no interest expense will be recognized. Pursuant
to the terms of the notes, substantially all of the acquired hydroelectric
assets (approximately $1,000 at December 31, 1999) have been pledged as
security.
The $766 term loan agreement with a bank (the "Loan Agreement") was
entered into 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 $1,672 term loan agreement with a bank was originally assumed by the
Company as an interim loan in conjunction with the acquisition of a
hydroelectric facility.
The $3,360 unsecured notes payable to investors relate to the financing
for one of the Company's pumped storage development projects. 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 $900 security deed is secured by substantially all of the related
hydroelectric facility's assets (approximately $841 at December 31, 1999).
55
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 10 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
The $557 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 $368 at
December 31, 1999) have been pledged as security. As of February 16, 2000, the
note was in default due to non-payment of principal and interest due in February
2000. The insurance company has waived the default until the next payment due
date in May, 2000.
The $1,017 term loan agreement with a bank 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 $4,291 at December 31,
1999) have been pledged as security.
The $288 term loan agreement with a bank was entered into in connection
with the acquisition of a hydroelectric facility. Pursuant to the terms of the
note, substantially all of the acquired hydroelectric assets (approximately $510
at December 31, 1999) have been pledged as security.
The $1,157 unsecured 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, is added to the outstanding principal balance which
earns interest at a penalty rate equal to the stated rate plus 3.0%.
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 11 - MINORITY INTEREST
CHI S.F., L.P. and Hydrodev, Inc. ("Hydrodev"), wholly owned subsidiaries
of the Company, and Societe en commandite Centrale Thermique SF formed the St.
Felicien Cogeneration Limited Partnership (the "Partnership") to develop, own
and operate a biomass fueled power plant located in Quebec, Canada, which is
expected to commence commercial operations in April 2001. In November 1999, the
partnership agreement was amended to admit Soquip Energie Inc. ("Soquip") as a
limited partner and to replace Hydrodev as general partner with Gestion
Cogeneration Inc., which is 60% owned by Hydrodev and 40% owned by Soquip. As a
result of the amendment, the Company's general and limited partnership interests
total 59.9%. The Partnership's assets and liabilities are included in the
Company's consolidated Balance Sheet at December 31, 1999 and Soquip's limited
partnership interest has been recorded as Minority interest in consolidated
subsidiaries.
NOTE 12 - 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, and adjusted to reflect non-cash dividends
declared. The recorded value of the Series H Preferred was adjusted by $179 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 year ended June 30,
1997.
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).
56
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 13 - 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.
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 14). 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 is
$10. The New Series B Warrants have customary antidilution provisions, and
protections against extraordinary distributions. As of December 31, 1999, the
Company has not completed any industrial infrastructure transactions and is not
currently in negotiations to develop or acquire any industrial infrastructure
projects.
57
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 13 - CAPITAL STOCK (CONTINUED)
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 contain customary antidilution provisions, and protections against
certain extraordinary distributions.
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, 1999.
58
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 13 - CAPITAL STOCK (CONTINUED)
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).
Dividends on the Series F Preferred and Series G Preferred were cumulative
(amounting to $53,540 and $51,029 at November 7, 1997 and June 30, 1997,
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.
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).
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 14 - 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 issued on the Effective Date will vest,
or have vested 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 will terminate on the seventh
(7th) anniversary of the Effective Date unless terminated at an earlier date
following termination of an optionee's employment. Management Options issued
subsequent to the Effective Date may have different exercise prices or vesting
provisions, in accordance with the Management Option Plan. 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.
59
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 14 - 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, 1999 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
Options exercised -- --
Options canceled (11,811) 10.00
Options issued 8,478 10.00
-------- ---------
Outstanding at December 31, 1998 807,478 $ 10.00
Options exercised -- --
Options canceled (225,125) 10.00
Options issued 228,458 10.00
-------- ---------
Outstanding at December 31, 1999 810,811 $ 10.00
======== =========
Exercisable at December 31, 1999 628,506 $ 10.00
======== =========
Weighted average remaining
Contractual life (years) 4.43
========
The Company applies the principles of Accounting Principles Board Opinion
No. 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. The total fair value of these options was
$2,618, $2,201 and $2,201 at December 31, 1999, 1998 and 1997, respectively,
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 5.7%, 4.9% and 6.2% for 1999, 1998 and 1997 respectively, (ii)
expected life of five, six and seven years for 1999, 1998 and 1997,
respectively, (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 $836, $700 and $105 and
$.08, $.07 and $.01, respectively, for the years ended December 31, 1999 and
1998 and the period from November 8, 1997 to December 31, 1997.
DIRECTOR COMPENSATION
Non-employee Directors of the Company, are entitled to receive an annual
retainer of $40 for services as a director, plus $2 for attendance at each
meeting of the Board of Directors as well as each committee meeting attended.
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.
60
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 15 - TAXES
The (provision)/benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
-------------------------------------------------- ------------------------------
Year Year Fiscal Year
Ended Ended Nov. 8 - July 1 - Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 Nov. 7, 1997 June 30, 1997
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Federal income taxes $ (184) $ (200) $ (100) $ -- $ (408)
State income taxes (200) (304) (80) (99) (352)
Deferred tax (provision)/benefits (3,173) (2,485) (571) 213 (2,382)
------------- ------------- ------------- ------------ -------------
$ (3,557) $ (2,989) $ (751) $ 114 $ (3,142)
============= ============= ============= ============= =============
</TABLE>
The (provision)/benefit for income 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
----------------------------------------------------- ----------------------------------
Year Year Fiscal Year
Ended Ended Nov. 8- July 1- Ended
Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 Nov. 7, 1997 June 30, 1997
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Tax (provision)/benefit at US
statutory rate $ (2,995) $ (2,377) $ (518) $ (27,265) $ 731
State income tax expense (119) (304) (80) (99) (352)
Losses without current tax benefit -- -- -- (383) (3,113)
Alternative minimum tax (184) (200) (100) -- (408)
Goodwill amortization (277) -- -- -- --
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) --
Other 18 (108) -- -- --
------------- ------------- ------------- ------------ -------------
$ (3,557) $ (2,989) $ (751) $ 114 $ (3,142)
============= ============= ============= ============= =============
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss $14,138 $ 17,345
Tax credits 4,068 4,635
Lease payment obligations 6,687 7,504
Deferred revenue 2,052 --
Pumped storage development costs 6,750 6,750
Valuation reserve (30,169) (32,765)
----------- -----------
Total deferred tax assets, net 3,526 3,469
----------- -----------
</TABLE>
61
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 15 - TAXES (CONTINUED)
<TABLE>
<CAPTION>
Deferred tax liabilities: December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Depreciation and Amortization $39,552 $35,893
----------- ------------
Total deferred tax liabilities 39,552 35,893
----------- ------------
Net deferred tax liability $36,026 $32,424
=========== ============
</TABLE>
The valuation allowance decreased by $2,596 primarily due to a decrease in
the gross deferred tax assets relating to the utilization of NOL carryforwards
and expiring tax credits.
At December 31, 1999 and 1998, the Company had U.S. federal tax NOLs of
$40,396 and $48,684, respectively, expiring through 2012. Of the amounts at
December 31, 1999, the Company has available acquired federal income tax net
operating loss ("Acquisition NOL") carryforwards in the amount of $4,522
representing unused losses accumulated by certain entities prior to their
acquisition by the Company. These NOLs, which expire in varying amounts
beginning in 2001, are restricted in terms of utilization.
At December 31, 1999, the Company has $2,825 of investment, energy and
Alternative Minimum Tax ("AMT") credits available to reduce future income taxes
for federal income tax reporting purposes which begin to expire during the year
2000. Additionally, the Company has available investment, energy and AMT credits
in the amount of $1,243, 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 2001.
The Company's NOL carryforwards for federal income tax purposes were
reduced by $15,712 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.
62
<PAGE>
CHI ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 16 - 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, 1999 are approximately $4,800 per year and
approximately $18,700 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 trial was argued during the first quarter of 2000, but a
verdict has not yet been reached. The Company has vigorously defended 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.
NOTE 17 - RELATED PARTY TRANSACTIONS
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.
63
<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 March 29, 2000, and positions with CHI
are as follows:
NAME AGE POSITION
- ---- --- --------
Charles F. Goff, Jr. 59 Chairman, Interim Chief Executive Officer
and Director
Edward M. Stern 41 President, Chief Operating Officer, Secretary
and Director
Michael I. Storch 48 Executive Vice President
Pascal J. Brun 50 Senior Vice President
Daniel S. Pease 45 Senior Vice President
James F. Groelinger 55 Senior Vice President
J. Christopher Hocker 49 Vice President
James W. Fulmer 40 Vice President
Victor A. Engel 39 Vice President
James J. Duplessie 40 Director
Michael J. Petrick 38 Director
- ---------------
64
<PAGE>
The Executive Officers and Directors of the Company are:
Charles F. Goff, Jr., Chairman, Interim Chief Executive Officer and
Director -- Mr. Goff has served as a Director of the Company since 1997 and was
elected Chairman and Interim Chief Executive Officer effective March 9, 1999. He
previously served as Chairman and Chief Executive Officer of Destec Energy,
Inc., a major worldwide independent power developer, producer and marketer that
owned 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.
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 BayBanks, Inc., a
Boston-based $10 billion financial services organization, where for six years he
specialized in energy project finance, foreclosures, debt restructurings and
asset management. He received BA, 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 -- Mr. Storch began his
employment with CHI in June 1987. He was elected to his current position in 1988
and is currently responsible for strategic planning relative to the future
development and growth of the Company. Previously, he was responsible for
operations of hydroelectric facilities owned by CHI and its affiliates, and for
financial matters related to the Company, including its existing operations,
acquisitions, and development. Before joining CHI he served as Vice President --
Corporate Development for G.O. Holdings Management, Inc., a management company
controlled by Anglo-French financier Sir James Goldsmith. For the preceding ten
years, he was employed by the accounting firm of Price Waterhouse in various
capacities, last serving as Senior Audit Manager. Mr. Storch holds a Bachelor of
Business Administration degree from Baruch College. He is a member of the
American Institute of Certified Public Accountants and the New York State
Society of Certified Public Accountants.
Pascal J. Brun, Senior Vice President of CHI; President, CHI Canada Inc.
- -- Mr. Brun joined CHI in June 1988. He was elected to his current position in
1991 and 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.
Daniel S. Pease, Senior Vice President -- 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.
65
<PAGE>
James F. Groelinger, Senior Vice President -- Mr. Groelinger joined CHI in
1997 after five years as an independent consultant and business unit head
specializing in the development and financial structuring aspects of energy
projects in the U.S. and internationally. Mr. Groelinger was elected to his
current position in 1999 and currently serves as head of the Company's business
development team. His more than 30 years of experience include positions as a
director of Putnam, Hayes & Bartlett, Inc., an international strategy management
consulting firm, and chief financial officer of U.S. Synthetic Fuels
Corporation. Mr. Groelinger holds a Finance MBA from Temple University and a
Bachelors degree in Chemical Engineering from City College of New York.
J. Christopher Hocker, Vice President -- Mr. Hocker joined CHI in November
1990 as Director of Communications and was elected to his current position in
1991. 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. 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. He has also
been elected President of the National Hydropower Association for a one year
term, commencing in April 2000. Mr. Hocker received a BA degree from Stanford
University in 1973.
James W. Fulmer, Vice President -- Mr. Fulmer joined CHI in January 1993
as Director of Southeast Operations, was made Vice President of Consolidated
Hydro Southeast, Inc. in 1994 and was elected to his current position in 1999.
He is currently responsible for the operations and financial management of CHI's
hydroelectric facilities in the southeast and west, as well as a number of
hydroelectric facilities in the northeast region. Prior to joining CHI, he
worked as a consultant and business development professional for the engineering
and design firm of Piedmont Olsen Hensley, and served as project manager of
Aquenergy Systems, Inc. where he oversaw the construction and operation of six
hydroelectric projects. Mr. Fulmer received his Bachelors degree in mechanical
engineering from Clemson University. He is a registered Professional Engineer
and is active in the National Hydropower Association and the National Society of
Professional Engineers.
Victor A. Engel, Vice President -- Mr. Engel joined CHI in March 1993 as a
Construction Manager and was promoted to Director of Engineering and
Construction in 1995 before being elected to his current position in 1999. He is
currently responsible for the planning and management of engineering and
construction activities, permitting, compliance and regulatory functions,
operations interface, and coordination of technical aspects of development and
acquisition activities. Prior to joining CHI, he served as a project manager and
departmental head of Rivers Engineering Corporation, an engineering firm
specializing in the hydroelectric and water resources industries. Mr. Engel
received a Bachelor's degree from the University of Massachusetts and is a
registered Professional Engineer. He also holds officer and board seats on
various state and regional industry associations, and is active in a number of
professional societies.
James J. Duplessie, Director -- Mr. Duplessie has served as a director of
the Company since 1997. Mr. Duplessie is currently an Executive Director of
United Bank of Switzerland ("UBS"). He joined UBS in June 1998 following its
merger with Swiss Bank Corporation, where he was an Executive Director since
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.
Michael J. Petrick, Director -- Mr. Petrick has served as a director of
the Company since 1997. Mr. Petrick is currently a Managing Director in the
fixed income division of Morgan Stanley Dean Witter & Co. ("Morgan Stanley"),
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. In addition, Mr. Petrick currently serves on the boards
of Marvel Enterprises, Premium Standard Farms and Earth Watch Incorporated. 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.
There are no family relationships among the Directors and Executive
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. During his tenure as Interim
Chief Executive Officer, Mr. Goff will not serve on either of these committees.
66
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth information concerning
compensation of the following Executive Officers for services rendered during
the twelve months ended December 31, 1999, 1998 and 1997.
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 ($) Grants (#) ($)(7)
- ------------------ ----- -------------------- ---- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Charles F. Goff, Jr.(1....................... 1999 150,000 -- 86,169(5) 80,000 --
Chairman, Interim Chief Executive Officer 1998 -- -- 44,000(6) -- --
and Director 1997 -- -- 8,000(6) 20,000 --
James T. Stewart(2) ........................ 1999 65,000 -- -- -- 699,667(8)
Former Chairman and Chief Executive Officer 1998 325,000 162,500 -- -- 8,592
1997 311,538(4) 325,000 -- 250,000 6,572
Edward M. Stern(3) ........................ 1999 250,000 175,000 -- -- 7,134
President, Chief Operating Officer, 1998 250,000 125,000 -- -- 6,853
Secretary and Director 1997 247,991(4) 149,700 -- 115,000 5,085
Michael I. Storch ........................ 1999 250,000 12,500 -- 3,000 7,350
Executive Vice President 1998 250,000 83,333 -- -- 7,182
1997 259,512(4) 39,990 -- 55,000 4,800
Pascal J. Brun ........................ 1999 133,000 75,000 -- 13,000 7,842
Senior Vice President 1998 129,000 19,000 -- -- 6,351
1997 130,809(4) 52,000 -- 45,000 5,720
Daniel S. Pease ........................ 1999 133,500 28,000 -- 13,000 6,982
Senior Vice President 1998 130,000 28,000 -- -- 6,810
1997 130,327(4) 27,500 -- 45,000 5,457
</TABLE>
- --------------------------
(1) Mr. Goff has served as a Director of the Company since November 1997 and
was elected Chairman and Interim Chief Executive Officer effective March
9, 1999.
(2) Mr. Stewart resigned from his position as Chairman and Chief Executive
Officer effective March 9, 1999.
(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) The salaries listed for 1997 include an extra bi-weekly pay period, or
twenty-seven pay periods for the year, whereas the other years listed
include twenty-six pay periods.
(5) Comprised of amount reimbursed during 1999 for the payment of taxes.
(6) Amounts represent compensation for serving as a Director of the Company.
(7) Unless otherwise noted, comprised of contributions made by the Company to
the 401(k) plan and life insurance premiums paid by the Company on behalf
of each Executive Officer.
(8) Comprised of termination amounts (paid and to be paid), contributions made
by the Company to the 401(k) plan and life insurance premiums paid on
behalf of Mr. Stewart of $690,625, $6,400 and $2,642, respectively, in
1999.
67
<PAGE>
The following table contains information about stock options granted in
1999 to the named Executive Officers pursuant to the Company's Management Option
Plan.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term(1)
- ------------------------------------------------------------------------------------------- ------------------------------
Number of
Securities % of Total Exercise
Underlying Options Granted or Base
Options to Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh)(2) Date 5% ($) 10% ($)
---- ----------- ----------- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Charles F. Goff, Jr. ...... 80,000(3) 35.02% $10.00 11/7/04 $168,000 $421,600
James T. Stewart ...... -- -- -- -- -- --
Edward M. Stern ..... -- -- -- -- -- --
Michael I. Storch ..... 3,000(4) 1.31% $10.00 $ 6,300 $ 15,810
11/7/04(5)
Pascal J. Brun ..... 13,000(4) 5.69% $10.00 $ 27,300 $ 68,510
11/7/04(5)
Daniel S. Pease ..... 13,000(4) 5.69% $10.00 $ 27,300 $ 68,510
11/7/04(5)
</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) 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.
(3) Mr. Goff received 60,000 options on March 9, 1999 and 20,000 on June 1,
1999. All options were fully vested and exercisable on the date of grant
of such options. Each of the option grants was made at the same exercise
price of $10.00 per share and has the same expiration date of November 7,
2004.
(4) Options were granted on December 31, 1999 pursuant to the Management
Option Plan. For a more detailed description of the plan, see "--1997
Stock Option Plan and Management Option Agreements".
(5) One-quarter of options granted are exercisable on the date of grant. An
additional 25% of the options will vest and become exercisable on each of
12/31/00, 12/31/01 and 12/31/02. All options will terminate on November 7,
2004, unless terminated at an earlier date following termination of an
optionee's employment.
68
<PAGE>
The following table sets forth information with respect to the following
Executive Officers concerning the exercise of options during the year ended
December 31, 1999 of the Company and unexercised options held as of December 31,
1999.
AGGREGATED OPTION EXERCISES DURING THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------
AND YEAR-END OPTION VALUES(1)
-----------------------------
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options at In-the-Money Options
December 31, 1999 (#) at December 31, 1999 ($)(2)
--------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles F. Goff, Jr. 100,000 -- -- --
James T. Stewart 138,875 -- -- --
Edward M. Stern 89,436 25,564 -- --
Michael I. Storch 43,524 14,476 -- --
Pascal J. Brun 38,247 19,753 -- --
Daniel S. Pease 38,247 19,753 -- --
</TABLE>
- --------------------------
(1) No options were exercised by any of the above Executive Officers during
the year ended December 31, 1999.
(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, 1999.
69
<PAGE>
Employment Contracts. On the Effective Date, CHI entered into an
employment agreement with Edward M. Stern, the Company's President and Chief
Operating Officer. On July 1, 1999, CHI entered into a new employment agreement
(the "New Agreement") with Mr. Stern. The New Agreement with Mr. Stern provides
for an initial 42 month term, subject to automatic extension for successive 12
month periods (unless CHI notifies Mr. Stern of its intent not to renew the
employment agreement prior to January 1 in any year, commencing with January 1,
2002).
Pursuant to the New Agreement, if Mr. Stern's employment is terminated by
CHI or Mr. Stern resigns during the term of the employment agreement (other than
in certain specified circumstances), Mr. Stern will receive, among other
benefits, monthly severance payments for a period equal to the shorter of (i) 24
months from the date of termination or (ii) nine months following the date on
which the term of the employment agreement expires.
Mr. Stern received a base salary of $250,000 for 1999. In addition to his
base salary, Mr. Stern is eligible to (i) receive an annual bonus, (ii)
participate in benefits plans, (iii) receive Management Options, and (iv)
receive disability and death benefits. For a discussion of the Management
Options, see "1997 Stock Option Plan and Management Option Agreement" below.
On March 9, 1999, CHI entered into an agreement with Charles F. Goff, Jr.
The agreement provided for Mr. Goff to serve in the position of Chairman and
Interim Chief Executive Officer for a minimum three-month term, which Mr. Goff
has agreed to extend for an indefinite period. Mr. Goff's compensation for 1999
consisted of an initial payment of approximately $86,000, monthly payments of
$15,000 and certain stock option grants.
Director Compensation. Non-employee directors of the Company are entitled
to receive an annual retainer of $40,000 for services as a director, plus $2,000
for attendance at each meeting of the Board of Directors as well as each
committee meeting attended.
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.
70
<PAGE>
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 on the
Effective Date to Charles F. Goff, Jr., the Management Options issued on the
Effective Date will vest, or have vested 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.
In accordance with the Management Option Plan, Management Options issued
subsequent to the Effective Date may have different exercise prices or vesting
provisions. 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.
71
<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 29, 2000 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 Officers
and 5% Stockholders Number %(1) Number %(1) %
------------------- ------ ---- ------ ---- -
<S> <C> <C> <C> <C> <C>
Morgan Stanley Dean Witter & Co.
1585 Broadway
New York, N.Y. 10036 3,610,630 39.74% -- -- 39.70%
United Bank of Switzerland
299 Park Avenue
New York, N.Y. 10171 3,137,206 34.53% -- -- 34.50%
Gem Capital Management
70 East 55th Street
New York, N.Y. 10022 475,000 5.23% -- -- 5.22%
Merrill Lynch Asset Management
800 Scudders Mill Road
Plainsboro, N,J. 08536 454,883 5.01% 914,710 100% 5.10%
Charles F. Goff, Jr.(2)(3) 100,000 1.10% -- -- 1.10%
Edward M. Stern(2)(4) 89,436 0.98% -- -- 0.98%
Michael I. Storch(2) 43,524 0.48% -- -- 0.48%
Pascal J. Brun(2) 38,247 0.42% -- -- 0.42%
Daniel S. Pease(2) 38,247 0.42% -- -- 0.42%
All Directors and Executive Officers
as a group(2) 393,375 4.33% -- -- 4.33%
</TABLE>
72
<PAGE>
- ---------------
(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) Mr. Goff was elected Chairman and Interim Chief Executive Officer
effective March 9, 1999.
(4) 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.
73
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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. 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.
74
<PAGE>
PART IV
-------
<TABLE>
<CAPTION>
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K PAGE
----
<S> <C>
(a) 1. Financial Statements 34
Report of Independent Accountants
Consolidated Statements of Operations for the years ended December 31, 1999
and 1998 ,the period from November 8, 1997 to
December 31, 1997, the period from July 1,
1997 to November 7, 1997, and the
fiscal year ended June 30, 1997 36
Consolidated Balance Sheet at December 31, 1999 and 1998 37
Consolidated Statement of Stockholders' Equity for the for the years
ended December 31, 1999 and 1998, the period from November 8, 1997
to December 31, 1997, the period from July 1, 1997 to
November 7, 1997, and the fiscal year ended June 30, 1997 38
Consolidated Statement of Cash Flows for the years ended
December 31, 1999 and 1998, the period from
November 8, 1997 to December 31, 1997, the
period from July 1, 1997 to November 7, 1997,
and the
fiscal year ended June 30, 1997 39
Notes to Consolidated Financial Statements 41
(a) 2. Financial Statement Schedules
</TABLE>
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 Agreements
+++++++10.4 CHI Energy, Inc. 1997 Stock Option Plan and Form
Management Option Agreement
++++++10.5 Form of Series B Warrant
++++++10.6 Form of Series C Warrant
+10.7 Power Purchase Agreement between Boott Hydropower,
Inc. and Commonwealth Electric Company, dated
January 10, 1983 and amendment dated March 6, 1985
75
<PAGE>
+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
76
<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)
77
<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.
78
<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
79
<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
80
<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
81
<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.
82
<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.
83
<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.
+++++++++10.126 Loan and Security Agreement dated as of March 31,
1998 between CHI Energy, Inc. and Lyon Credit
Corporation
++++++++++10.127 Amended and Restated Trust Indenture dated as of
December 31, 1998 between Aquenergy Systems, Inc
and UNUM Life Insurance Company of America, as
Trustee.
++++++++++10.128 Agreement dated as of March 9, 1999 between
Charles F. Goff, Jr. and CHI Energy, Inc.
10.129 Second Amendment to Pyrites Project Agreement
dated May 25, 1999 between Hydra-Co Enterprises,
Inc. and Hydro Development Group Inc.
10.130 Amendment to Cataldo Partnership Agreement dated
May 25, 1999 between Hydra-Co Enterprises, Inc.
and Hydro Development Group Inc.
10.131 Copenhagen Project Agreement dated May 25, 1999
between Hydra-Co Enterprises, Inc. and Hydro
Development Group Inc.
10.132 First Amendment to Promissory Note dated June 1,
1999 between Eagle & Phenix Hydro Company, Inc.
and Fieldcrest Cannon, Inc.
84
<PAGE>
10.133 First Amendment to Security Deed dated June 1,
1999 between Eagle & Phenix Hydro Company, Inc.
and Fieldcrest Cannon, Inc. as security for the
Promissory Note dated June 1, 1999
10.134 First Amendment to Lease Agreement dated June 1,
1999 between Eagle & Phenix Hydro Company, Inc.
and Fieldcrest Cannon, Inc. as lessee
10.135 Amended and Restated Loan and Security Agreement
among CHI Energy, Inc., as Borrower, each of the
financial institutions parties hereto, as Lenders,
and Hudson United Bank, as Agent dated as of
November 3, 1999
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.
+++++++ Incorporated by reference to the Company's Report
on Form 10-K for the transition period from July
1, 1997 to December 31, 1997.
++++++++ Incorporated by reference to the Company's Report
on Form 10-Q for the quarterly period ended
December 31, 1996.
+++++++++ Incorporated by reference to the Company's Report
on Form 10-Q for the quarterly period ended March
31, 1998.
++++++++++ Incorporated by reference to the Company's Report
on Form 10-K for the year ended December 31, 1998.
(b) Reports on Form 8-K:
NONE.
85
<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.
(Registrant)
Date: March 30, 2000 By: /s/ Charles F. Goff, Jr.
-------------------------------
Chairman, Interim Chief
Executive Officer and Director
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
by:
/s/Charles F. Goff, Jr.
- ------------------------------------
Charles F. Goff, Jr. Chairman, Interim Chief Executive Officer March 30, 2000
and Director
by:
/s/ Edward M. Stern
- ------------------------------------
Edward M. Stern President, Chief Operating Officer, March 30, 2000
Secretary, and Director
by:
/s/Thomas G. Beaumonte
- ------------------------------------
Thomas G. Beaumonte Controller March 30, 2000
(principal accounting officer)
by:
/s/ Michael J. Petrick
- ------------------------------------
Michael J. Petrick Director March 30, 2000
by:
/s/ James J. Duplessie
- ------------------------------------
James J. Duplessie Director March 30, 2000
</TABLE>
86
SECOND AMENDMENT TO
PYRITES PROJECT AGREEMENT
WHEREAS, Hydra-Co Enterprises, Inc., a New York corporation ("HCE"),
and Hydro Development Group Inc., a New York corporation ("HDG"), entered into
the Pyrites Project Agreement dated as of November 18, 1982 (as amended through
the date hereof, the "Partnership Agreement"), pursuant to which Pyrites
Associates, a New York general partnership (the "Partnership"), was created.
WHEREAS, HCE transferred a .1% economic interest in the Partnership
to IPP Investment Partnership, a Michigan general partnership ("IPP");
WHEREAS, pursuant to the Purchase and Option Agreement, dated as of
May 25, 1999 (the "Purchase Agreement"), by and among HCE, IPP, CHI-Black River,
Inc., a Delaware corporation ("Black River") and CHI-Dexter, Inc., a Delaware
corporation ("Dexter"), HCE transferred to Dexter 100% of HCE's Economic
Interests and 98% of HCE's Voting Interests (each as defined below), thereby
leaving HCE with only the Residual Interest (as defined below). For the purposes
hereof, (a) the "Voting Interests" shall consist of a Partner's rights to act as
a general partner in the management or administration of the Partnership, the
rights to inspect the books of the Partnership, and the obligations of a general
partner for the liabilities of the Partnership, (b) the "Economic Interests"
shall consist of a Partner's rights to distributions, allocations of profits and
losses, and capital accounts, and all other rights pertaining to Partnership
Interests, other than those which constitute Voting Interests, and (c) the
"Residual Interest" shall consist of a 1% Voting Interest in the Partnership;
WHEREAS, pursuant to the Purchase Agreement, IPP transferred to
Dexter 100% of IPP's interests in the Partnership;
NOW THEREFORE, the parties agree as follows:
1. Dexter is hereby admitted as a general partner of the Partnership
with a 49% Voting Interest and a 50% Economic Interest, succeeding to all
partnership interests and capital accounts of HCE other than the Residual
Interest. HDG hereby consents to such admission and succession.
2. Dexter hereby becomes a party to the Partnership Agreement and
assumes all obligations thereunder which accrue on and after the date this
amendment becomes effective.
3. The Partnership Agreement is hereby amended to require a vote of
not less than a majority in interest of all Voting Interests for all matters
which (a) the Partnership Agreement requires consent of both Partners or permits
either Partner to act unilaterally or (b) applicable law requires consent of
both Partners unless varied by agreement; in no event shall unanimous approval
be required as to any matter. Without limitation,
<PAGE>
(i) Section 11(a) is amended to read as follows:
" (a) Management Rights. HDG shall manage the Partnership
business as "Managing Partner". Except as provided in
subsection (d) below, HCE shall have no rights to manage
the Partnership business or to bind the Partnership."
(ii) Subsections (d) through (f) of Section 11 are amended to
read as follows:
" (d) Consent Required. Without the consent of the holders
of 51% of the Voting Interests, the Managing Partner shall
not, on behalf of the Partnership, borrow or lend money;
or make, deliver, or accept any commercial paper; or
execute any mortgage, security agreement, bond, or lease;
or purchase or contract to purchase; sell or contract to
sell any property for or of the Partnership, other than
the type of property bought and sold in the regular course
of its business; assign, mortgage, grant a security
interest in, or sell its share in the Partnership or in
the capital assets or property, or enter into any
agreement as a result of which any person shall become
interested in it in the Partnership, or do any act
detrimental to the best interests of the Partnership or
which would make it impossible to carry on the ordinary
business of the Partnership."
" (e) Bank Accounts. All funds of the Partnership shall be
deposited or invested in its name in such accounts as may
be designated by the Managing Partner. All withdrawals
from such accounts shall be made upon such signatures and
utilize such procedures as may be determined by the
Managing Partner."
" (f) Accounting Records. The books of account of the
Partnership shall be audited by an independent certified
public accountant selected by the Managing Partner. The
Partnership books shall be maintained at the principal
office of the Partnership, and each Partner shall at all
times have access to such books."
(iii) Sections 12(b) and 13 are amended to read as follows:
" (b) Termination. This Agreement may be terminated by
vote of the Partners holding 75% of all Voting Interests
upon ten days' notice if the Project shall be taken or
condemned, in whole or in such part that its estimated
annual generation is less than 7,000 MWh, by any competent
authority and, after making a reasonable effort to do so,
Associates is unable to remain in possession of the
Project or if the Project or any part of the Project shall
be damaged, destroyed, or ordered to be demolished by any
public authority and Associates is unable to repair,
rebuild, and restore the Project to substantially the same
condition as it was immediately prior to such damage or
destruction with all reasonable dispatch."
2
<PAGE>
"13. Miscellaneous.
This agreement, as amended, contains the complete understanding of
the Partners as to its subject matter. Any additions, deletions, or
modifications to this Agreement are valid and binding between the Partners only
if in writing, dated, and signed by Partners holding 75% of all Voting
Interests. All notices shall be given in writing, addressed to the parties as
first above written, as such addresses may be changed from time to time by
notice."
4. The Partnership Agreement is hereby amended to add thereto the
definitions of terms as provided in the third "Whereas" clause of this
Amendment.
5. Except as amended hereby, the Partnership Agreement remains
unchanged and is presently in full force and effect and binding upon the
Partners.
Dated: May 25, 1999
HYDRA-CO ENTERPRISES, INC.
By:
------------------------------------
Its
CHI-DEXTER, INC.
By:
------------------------------------
Its
HYDRO DEVELOPMENT GROUP INC.
By:
------------------------------------
Its
3
AMENDMENT TO
CATALDO PARTNERSHIP AGREEMENT
WHEREAS, Hydra-Co Enterprises, Inc., a New York corporation ("HCE"),
and Hydro Development Group Inc., a New York corporation ("HDG"), entered into
an agreement of general partnership (as amended through the date hereof, the
"Partnership Agreement"), pursuant to which Cataldo Hydro Power Associates, a
New York general partnership (the "Partnership"), was created.
WHEREAS, pursuant to the Purchase and Option Agreement, dated as of
May 25, 1999 (the "Purchase Agreement"), by and among HCE, IPP Investment
Partnership, a Michigan general partnership ("IPP"), CHI-Black River, Inc., a
Delaware corporation ("Black River") and CHI-Dexter, Inc., a Delaware
corporation ("Dexter"), HCE transferred to Black River 100% of HCE's Economic
Interests and 98% of HCE's Voting Interests (each as defined below), thereby
leaving HCE with only the Residual Interest (as defined below). For the purposes
hereof, (a) the "Voting Interests" shall consist of a Partner's rights to act as
a general partner in the management or administration of the Partnership, the
rights to inspect the books of the Partnership, and the obligations of a general
partner for the liabilities of the Partnership, (b) the "Economic Interests"
shall consist of a Partner's rights to distributions, allocations of profits and
losses, and capital accounts, and all other rights pertaining to Partnership
Interests, other than those which constitute Voting Interests, and (c) the
"Residual Interest" shall consist of a 1% Voting Interest in the Partnership;
NOW THEREFORE, the parties agree as follows:
1. Black River is hereby admitted as a general partner of the
Partnership with a 49% Voting Interest and a 50% Economic Interest, succeeding
to all partnership interests and capital accounts of HCE other than the Residual
Interest. HDG hereby consents to such admission and succession.
2. Black River hereby becomes a party to the Partnership Agreement
and assumes all obligations thereunder which accrue on and after the date this
amendment becomes effective.
3. The Partnership Agreement is hereby amended to require a vote of
not less than a majority in interest of all Voting Interests for all matters
which (a) the Partnership Agreement requires consent of both Partners or permits
either Partner to act unilaterally or (b) applicable law requires consent of
both Partners unless varied by agreement; in no event shall unanimous approval
be required as to any matter.
4. The Partnership Agreement is hereby amended to add thereto the
definitions of terms as provided in the third "Whereas" clause of this
Amendment.
<PAGE>
5. Except as amended hereby, the Partnership Agreement remains
unchanged and is presently in full force and effect and binding upon the
Partners.
Dated: May 25, 1999
HYDRA-CO ENTERPRISES, INC.
By:
-----------------------------------
Its
CHI-BLACK RIVER, INC.
By:
-----------------------------------
Its
HYDRO DEVELOPMENT GROUP INC.
By:
-----------------------------------
Its
2
AMENDMENT TO
COPENHAGEN PROJECT AGREEMENT
WHEREAS, Hydra-Co Enterprises, Inc., a New York corporation ("HCE"),
and Hydro Development Group Inc., a New York corporation ("HDG"), entered into
the Copenhagen Project Agreement dated as of November 18, 1982 (as amended
through the date hereof, the "Partnership Agreement"), pursuant to which
Copenhagen Associates, a New York general partnership (the "Partnership"), was
created.
WHEREAS, HCE transferred a .1% economic interest in the Partnership
to IPP Investment Partnership, a Michigan general partnership ("IPP");
WHEREAS, pursuant to the Purchase and Option Agreement, dated as of
May 25, 1999 (the "Purchase Agreement"), by and among HCE, IPP, CHI-Black River,
Inc., a Delaware corporation ("Black River") and CHI-Dexter, Inc., a Delaware
corporation ("Dexter"), HCE granted Dexter an option to purchase HCE's Interests
in the Partnership, either in their entirety or initially by transfer to Dexter
100% of HCE's Economic Interests and 98% of HCE's Voting Interests (each as
defined below), thereby leaving HCE with only the Residual Interest (as defined
below). For the purposes hereof, (a) the "Voting Interests" shall consist of a
Partner's rights to act as a general partner in the management or administration
of the Partnership, the rights to inspect the books of the Partnership, and the
obligations of a general partner for the liabilities of the Partnership, (b) the
"Economic Interests" shall consist of a Partner's rights to distributions,
allocations of profits and losses, and capital accounts, and all other rights
pertaining to Partnership Interests, other than those which constitute Voting
Interests, and (c) the "Residual Interest" shall consist of a 1% Voting Interest
in the Partnership;
WHEREAS, pursuant to the Purchase Agreement, IPP granted Dexter an
option to purchase 100% of IPP's interests in the Partnership;
WHEREAS, Dexter has exercised its options as to all but the Residual
Interest;
NOW THEREFORE, the parties agree as follows:
1. Dexter is hereby admitted as a general partner of the Partnership
with a 49% Voting Interest and a 50% Economic Interest, succeeding to all
partnership interests and capital accounts of HCE other than the Residual
Interest. HDG hereby consents to such admission and succession.
2. Dexter hereby becomes a party to the Partnership Agreement and
assumes all obligations thereunder which accrue on and after the date this
amendment becomes effective.
3. The Partnership Agreement is hereby amended to require a vote of
not less than a majority in interest of all Voting Interests for all matters
which (a) the Partnership Agreement
F-30
<PAGE>
requires consent of both Partners or permits either Partner to act unilaterally
or (b) applicable law requires consent of both Partners unless varied by
agreement; in no event shall unanimous approval be required as to any matter.
Without limitation,
(i) Section 9(a) is amended to read as follows:
" (a) Management Rights. HDG shall manage the Partnership
business as "Managing Partner". Except as provided in
subsection (d) below, HCE shall have no rights to manage
the Partnership business or to bind the Partnership."
(ii) Subsections (d) through (f) of Section 9 are amended to
read as follows:
" (d) Consent Required. Without the consent of the holders
of 51% of the Voting Interests, the Managing Partner shall
not, on behalf of the Partnership, borrow or lend money; or
make, deliver, or accept any commercial paper; or execute
any mortgage, security agreement, bond, or lease; or
purchase or contract to purchase; sell or contract to sell
any property for or of the Partnership, other than the type
of property bought and sold in the regular course of its
business; assign, mortgage, grant a security interest in,
or sell its share in the Partnership or in the capital
assets or property, or enter into any agreement as a result
of which any person shall become interested in it in the
Partnership, or do any act detrimental to the best
interests of the Partnership or which would make it
impossible to carry on the ordinary business of the
Partnership."
" (e) Bank Accounts. All funds of the Partnership shall be
deposited or invested in its name in such accounts as may
be designated by the Managing Partner. All withdrawals
from such accounts shall be made upon such signatures and
utilize such procedures as may be determined by the
Managing Partner."
" (f) Accounting Records. The books of account of the
Partnership shall be audited by an independent certified
public accountant selected by the Managing Partner. The
Partnership books shall be maintained at the principal
office of the Partnership, and each Partner shall at all
times have access to such books."
(iii) Sections 10(b) and 11 are amended to read as follows:
" (b) Termination. This Agreement may be terminated by
vote of the Partners holding 75% of all Voting Interests
upon ten days' notice if the Project shall be taken or
condemned, in whole or in such part that its estimated
annual generation is less than 7,000 MWh, by any competent
authority and, after making a reasonable effort to do so,
Associates is unable to remain in possession of the
Project or if the Project or any part of the Project shall
be damaged, destroyed, or ordered to be demolished by any
public authority and Associates is unable to repair,
rebuild, and restore the Project to substantially the same
condition as it was immediately prior to such damage or
destruction with all reasonable dispatch."
2
<PAGE>
"11. Miscellaneous.
This agreement, as amended, contains the complete understanding of
the Partners as to its subject matter. Any additions, deletions, or
modifications to this Agreement are valid and binding between the Partners only
if in writing, dated, and signed by Partners holding 75% of all Voting
Interests. All notices shall be given in writing, addressed to the parties as
first above written, as such addresses may be changed from time to time by
notice."
4. The Partnership Agreement is hereby amended to add thereto the
definitions of terms as provided in the third "Whereas" clause of this
Amendment.
5. Except as amended hereby, the Partnership Agreement remains
unchanged and is presently in full force and effect and binding upon the
Partners.
Dated:____________, 1999
HYDRA-CO ENTERPRISES, INC.
By:
---------------------------------------
Its
CHI-DEXTER, INC.
By: /s/ Daniel S. Pease
---------------------------------------
Daniel S. Pease, Senior Vice President
HYDRO DEVELOPMENT GROUP INC.
By: /s/ Daniel S. Pease
---------------------------------------
Daniel S. Pease, Senior Vice President
3
AMENDMENT TO PROMISSORY NOTE
----------------------------
WHEREAS, Eagle & Phenix Hydro Company, Inc., a Delaware corporation,
(the "Borrower") issued its promissory note to Fieldcrest Cannon, Inc., a
Delaware corporation (the "Lender") dated June 18, 1991 (the "Note"); and
WHEREAS, the Lender has agreed to certain changes in the Note in
consideration for a $100,000 payment and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged;
NOW, THEREFORE, the parties agree as follows:
1. As of the date hereof, the principal amount of the Note is
reduced to $900,000.
2. The interest rate on the Note until maturity is changed to
six percent (6%), and after maturity to twelve percent
(12%).
3. The date on which all principal and interest on the note
is due and payable in full is changed to January 18, 2006.
Except as hereby amended, the terms of the Note remain the same, and
the Borrower ratifies and reaffirms all of its obligations thereunder.
Dated: June __, 1999
WITNESS: EAGLE & PHENIX HYDRO COMPANY, INC.
By: /s/ James W. Fulmer
- --------------------------- -------------------------------
James W. Fulmer, Vice President
FIELDCREST CANNON, INC.
By:
- --------------------------- -------------------------------
Its
AMENDMENT TO SECURITY AGREEMENT
-------------------------------
WHEREAS, Eagle & Phenix Hydro Company, Inc., a Delaware corporation,
(the "Borrower") and Fieldcrest Cannon, Inc., a Delaware corporation entered
into a Security Agreement (the "Secured Party") dated June 18, 1991 (the
"Security Agreement"); and
WHEREAS, the parties have agreed to amendments to that certain
Promissory Note in the principal amount of $1,000,000 dated June 18, 1991, from
Borrower to Secured Party (the "Note"), which is the same Note referenced in the
Security Agreement, and in connection therewith have agreed to certain other
changes;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
The following is added as an additional provision of the Security
Agreement:
"Secured Party acknowledges that the Collateral
includes the FERC License as a hydroelectric generating
facility for FERC project number 2655-001 (the "License"),
and agrees that if it exercises its rights to the
Collateral in the event of a Default, it shall apply to
have the License transferred to Secured Party or its
assignee, and shall assert all reasonable efforts in
connection therewith, and Borrower agrees to execute and
deliver, or cause to be executed and delivered, such
documents as the Secured Party shall reasonably request in
connection therewith.
Except as hereby amended, the terms of the Security Agreement remain
the same, and the parties ratify and reaffirm all of their obligations
thereunder.
Dated: June __, 1999
WITNESS: EAGLE & PHENIX HYDRO COMPANY, INC.
By: /s/ James W. Fulmer
- --------------------------- -------------------------------
James W. Fulmer, Vice President
FIELDCREST CANNON, INC.
By:
- --------------------------- -------------------------------
Its
AMENDMENT TO LEASE AGREEMENT
----------------------------
WHEREAS, Eagle & Phenix Hydro Company, Inc., a Delaware corporation,
(the "Lessor") and Fieldcrest Cannon, Inc., a Delaware corporation entered into
a Lease Agreement (the "Lessee") dated January 18, 1991 (the "Lease"); and
WHEREAS, the parties have agreed to certain changes in the Lease in
conjunction with amendments to that certain Promissory Note in the principal
amount of $1,000,000 dated June 18, 1991 (the "Note"), from Lender to Lessee,
and;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. The $100,000 held by Lessee as Escrow Agent under Section
7 of the Lease is hereby released, and such amount is
hereby applied to reduce the amount of principal
outstanding under the Note.
2. Section 7 of the Lease is hereby deleted in its entirety
and replaced with the following:
"Section 7. Funding of Operating Deficits. If,
for any month, Lessee's Operating Costs exceed the Gross
Monthly Rent Amount, as defined in Section 9.A, Lessor
shall, within thirty (30) days of written notice from
Lessee, pay the amount stated in such notice, subject to
reasonable verification, and until such payment is made,
the amount shall accrue interest at the rate of twelve
percent (12%) per annum, compounded monthly, and Lessee
shall be entitled to apply all Rent (i.e., amounts over
Lessee's Operating Costs) toward reducing the amount so
owed by Lessor."
Except as hereby amended, the terms of the Lease remain the same, and
the parties ratify
<PAGE>
and reaffirm all of their obligations thereunder.
Dated: June __, 1999
WITNESS: EAGLE & PHENIX HYDRO COMPANY, INC.
By: /s/ James W. Fulmer
- --------------------------- -------------------------------
James W. Fulmer, Vice President
FIELDCREST CANNON, INC.
By:
- --------------------------- -------------------------------
Its
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into
as of November 3, 1999, among CHI ENERGY, INC., a Delaware corporation having
its chief executive office and principal place of business at 680 Washington
Boulevard, Stamford, Connecticut 06901 (the "Borrower"), each of the financial
institutions identified as Lenders on Schedule 1 hereto (together with each of
their respective successors and assigns, each, a "Lender," and collectively, the
"Lenders"), and HUDSON UNITED BANK, a bank organized under the laws of the State
of New Jersey, acting in the manner and to the extent described in Article X (in
such capacity, the "Agent").
W I T N E S S E T H :
---------------------
WHEREAS, the Borrower and Lyon Credit Corporation, as predecessor in
interest to Hudson United Bank, entered into a Loan and Security Agreement dated
as of March 31, 1998 (as heretofore amended, supplemented or otherwise modified,
the "Original Loan Agreement");
WHEREAS, the Borrower has requested Hudson United Bank to amend and
restate the terms and conditions of the Original Loan Agreement to, among other
things, increase the amount and extend the term of the credit facility and to
provide that Hudson United Bank act as agent for itself and other lenders under
such increased and extended facility, and Hudson United Bank has agreed to amend
and restate the Original Loan Agreement upon the terms and subject to the
conditions herein set forth; and
WHEREAS, upon the terms and subject to the conditions set forth
herein, (a) the Lenders are willing to (i) make revolving credit loans to the
Borrower and (ii) purchase participations in letters of credit caused to be
issued by the Agent for the account of the Borrower and certain of its
Subsidiaries and (b) the Agent is willing to cause to be issued letters of
credit for the account of the Borrower and certain of its Subsidiaries;
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the Borrower, the
Lenders and the Agent hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
-----------
SECTION I.1. General Definitions. As used herein, the following terms
shall have the meanings herein specified (to be equally applicable to both the
singular and plural forms of the terms defined):
"Affiliate" means, as to any Person, any other Person who directly or
indirectly controls, is under common control with, is controlled by or is a
director or officer of such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common control
with") means possession, directly or indirectly, of the power to direct or cause
the direction of management or policies (whether through ownership of voting
securities or partnership or other ownership interests, by contract or
otherwise).
"Agent" has the meaning specified in the introductory paragraph.
"Agreement" means this Amended and Restated Loan and Security
Agreement, as amended, supplemented or otherwise modified from time to time.
"Annual Term Loan Amortization" means, for any consecutive four
calendar quarter period, (i) the Projected Adjusted Consolidated Unrestricted
Cash Flow for such consecutive four calendar quarter period divided by (ii) the
aggregate Projected Adjusted Consolidated Unrestricted Cash Flow for the period
commencing on the Availability Expiration Date and ending on the Term Loan
Maturity Date, as determined from the final Projected Cash Flow Statement
delivered by the Borrower prior to the Availability Expiration Date multiplied
by (iii) the outstanding principal amount of the Term Loans on the Availability
Expiration Date.
"Auditors" means PricewaterhouseCoopers LLP, another "Big Five" firm
of independent public accountants, or another nationally-recognized firm of
independent public accountants selected by the Borrower and satisfactory to the
Agent in its reasonable discretion.
"Availability Expiration Date" means the earlier of (i) the Initial
Availability Expiration Date, as such date may be extended from time to time
under Section 2.4, and (ii) the date of termination of the Lenders' obligation
to make Revolving
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<PAGE>
Credit Loans or of the Agent to use its best efforts to cause Letters of Credit
to be issued pursuant to the terms hereof.
"Base Rate" means the prime, base or equivalent rate of interest
announced from time to time by The Chase Manhattan Bank in New York City (which
may not be the lowest rate of interest charged by such bank).
"Blocked Account" means the account maintained with the Blocked
Account Bank, account number 56096749, which is the bank account established for
the benefit of the Agent under the Blocked Account Agreement.
"Blocked Account Agreement" means the amended and restated blocked
account agreement among the Agent, CHI Finance and the Blocked Account Bank,
substantially in the form of Exhibit F hereto, as amended, supplemented or
otherwise modified from time to time.
"Blocked Account Bank" means BankBoston, N.A. or any successor bank
acceptable to the Agent.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which commercial banks in New York, New York are required or permitted by law
to close.
"Business Plan" means a business plan for the Borrower and its
Subsidiaries, as updated from time to time under Section 7.1(k)(vi), in form and
substance satisfactory to the Required Lenders, consisting of a projected
balance sheet, a related cash flow statement and a profit and loss statement,
together with appropriate supporting details, a statement of the underlying
assumptions (which shall be fair in the context of the conditions existing at
the time of delivery of, and projected for the period covered by, such Business
Plan) and the calculation of the Projected Adjusted Consolidated Cash Flow for
all periods covered thereby (which calculation shall be prepared in good faith,
on the basis of such assumptions and in accordance with Exhibit P), and which is
prepared to show quarterly financial information for the first year and annual
financial information for each year thereafter.
"Capital Expenditures" means expenditures (or commitments to make
expenditures that are required to be recorded as capital expenditures in
accordance with GAAP) for the acquisition of any fixed assets or improvements,
replacements, substitutions or additions thereto which have a useful life of
more than one year, and shall include all such commitments and payments in
respect of expenditures for any fixed assets or improvements, replacements,
substitutions or additions of or to Facilities covered by Capitalized Lease
Obligations, operating leases and leasehold improvements.
-3-
<PAGE>
"Capitalized Lease Obligations" means any rental obligation which,
under GAAP, is or will be required to be capitalized on the books of the lessee,
taken at the amount thereof accounted for as indebtedness (net of interest
expense) in accordance with GAAP.
"Cash Equivalents" means (i) securities issued, guaranteed or insured
by the United States or any of its agencies with maturities of not more than six
months from the date acquired; (ii) certificates of deposit with maturities of
not more than six months from the date acquired, issued by a U.S. federal or
state chartered commercial bank of recognized standing, which has capital and
unimpaired surplus in excess of $500,000,000 and which bank or its holding
company has a short-term commercial paper rating of at least A-2 or the
equivalent by Standard & Poor's Corporation or at least P-2 or the equivalent by
Moody's Investors Service, Inc.; (iii) repurchase agreements and reverse
repurchase agreements with terms of not more than seven days from the date
acquired, for securities of the type described in clause (i) above and entered
into only with commercial banks having the qualifications described in clause
(ii) above; and (iv) commercial paper, other than commercial paper issued by the
Borrower or any of its Affiliates, issued by any Person incorporated under the
laws of the United States or any state thereof and rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investors Service, Inc., in each case with
maturities of not more than six months from the date acquired.
"Change of Control" means one or more of the following events:
(a) the shareholders of the Borrower shall approve any plan or
proposal for the liquidation or dissolution of the Borrower;
(b) the shareholders of the Borrower shall approve any plan or
proposal for a merger or consolidation to which the Borrower is a
party and as a result of which either
(i) the Tangible Net Worth of the survivor or successor
entity is less than that required under Section 8.1, or
(ii) the shareholders of the Borrower, as a group, as
constituted immediately before the merger or consolidation, cease to
own a sufficient
-4-
<PAGE>
amount of the voting stock of the Borrower with rights to elect a
majority of the members of the Borrower's board of directors, except
as the result of a public offering of the Borrower's capital stock;
or
(c) any of the Persons serving as the chairman, the chief
executive officer, the president, the controller or the chief
accounting officer of the Borrower on the Closing Date shall cease to
remain in such office and shall not be replaced temporarily or
permanently within sixty days by a Person reasonably acceptable to
the Agent, provided that (i) the Agent shall have fifteen days from
the date the Agent receives notification of such proposed replacement
officer to give or decline its consent (which consent shall not be
unreasonably withheld) and (ii) if the Agent timely gives notice that
it does not consent to a proposed replacement officer within such
sixty-day period, the Borrower shall have an additional 120 days to
propose another replacement officer.
"CHI Finance" means CHI Finance, Inc., a Delaware corporation.
"Closing Date" means the date of execution and delivery of this
Agreement.
"Code" has the meaning specified in Section 1.3.
"Collateral" means the Receivables of the Borrower (other than
Restricted Receivables), the Inventory, the Equipment, the collateral pledged
under the Pledge Agreement, all proceeds thereof and all other property
identified as security for the Obligations under the Loan Documents.
"Collections" means (i) all cash, funds, checks, notes, instruments
and any other form of remittance tendered by account debtors in payment of
Receivables of the Borrower and its Subsidiaries, other than Restricted
Receivables and (ii) all other proceeds of Collateral.
"Confidential Information" means information that the Borrower or any
of its Affiliates furnishes to the Agent or any Lender that is designated by the
Borrower or such Affiliate as being confidential, but does not include any such
information that is or becomes generally available to the public or that is or
becomes available to the Agent or such Lender from a source other than the
Borrower or such Affiliate which is not known at such time by the Agent or such
Lender, as the case may be, to be subject to a confidentiality restriction.
-5-
<PAGE>
"Contingent Obligation" means any direct, indirect, contingent or
non-contingent guaranty or obligation for the Indebtedness of another, except
endorsements in the ordinary course of business.
"Contribution Agreement" means the amended and restated contribution,
subrogation and indemnity agreement among the Pledgors (other than the
Borrower), substantially in the form of Exhibit H hereto, as amended,
supplemented or otherwise modified from time to time.
"Default" means any of the events specified in Section 9.1, whether
or not any of the requirements for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Defaulting Lender" has the meaning specified in Section 2.9.
"Depository Account Agreement" means the amended and restated
depository account agreement among the Agent, the Borrower, CHI Finance and the
Depository Account Bank, substantially in the form of Exhibit G hereto, as
amended, supplemented or otherwise modified from time to time.
"Depository Account Bank" means BankBoston or any successor bank
acceptable to the Lender.
"Depository Accounts" means the accounts maintained with the
Depository Bank, account numbers 223-91453 and 224-00347, which are the bank
accounts of the Borrower and CHI Finance, respectively, established under the
Depository Account Agreement.
"Designated Subsidiary" means (i) each of the Subsidiaries of the
Borrower indicated as such on Schedule 6.1(g) and (ii) each other Subsidiary
(other than Excluded Future Subsidiaries) of the Borrower, whether now existing
or hereafter organized, the loss of whose business, operations, assets or income
could reasonably be expected to have a Material Adverse Effect.
"Dollars" and the sign "$" mean freely transferable lawful currency
of the United States.
"Electric Utility" means a public utility, an electric utility or an
electric utility holding company or a Subsidiary of any thereof or an Affiliate
of an electric utility holding company, as those terms are used in PUHCA, PURPA,
the rules or regulations implementing PUHCA or PURPA or under any other
Requirement of Law.
-6-
<PAGE>
"Environmental Laws" means all federal, state and local statutes,
laws (including, without limitation, common or case law), rulings, regulations
or governmental, administrative or judicial policies, directives, orders or
interpretations applicable to the business or property of the Borrower relating
to pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata) including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery Act and all other laws and regulations relating to emissions,
discharges, releases or threatened releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of any Hazardous Materials.
"Equipment" means all items of machinery, equipment, furniture,
fixtures, conveyors, tools, materials, storage and handling equipment, hydraulic
presses, cutting equipment, computer equipment and hardware, including, without
limitation, central processing units, terminals, drives, memory units, printers,
keyboards, screens, peripherals and input or output devices, molds, dies, stamps
and other equipment of every kind and nature and wherever situated now or
hereafter owned by the Borrower or in which the Borrower may have any interest
as lessee or otherwise (but not including any equitable interest held by the
Borrower directly or indirectly in any Subsidiary), together with all additions
and accessions thereto, all replacements and all accessories and parts therefor,
all manuals, blueprints, know-how, warranties and records in connection
therewith, all rights against suppliers, warrantors, manufacturers, sellers or
others in connection therewith, and together with all substitutes for any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
U.S.C. "" 1000 et seq., amendments thereto, successor statutes and regulations
or guidelines promulgated thereunder.
"ERISA Affiliate" means any entity required to be aggregated with the
Borrower under Section 414(b), (c), (m) or (o) of the Internal Revenue Code.
"Event of Default" means the occurrence of any of the events
specified in Section 9.1.
"Excluded Existing Subsidiary" means a Subsidiary of the Borrower
which, as of the Closing Date, (i) has no ongoing business operations and (ii)
has a net worth of less than $5,000.
-7-
<PAGE>
"Excluded Future Subsidiaries" means any Subsidiary formed or
acquired, directly or indirectly, by the Borrower after the Closing Date that
(i) has acquired or developed a Facility, a majority of the purchase price or
investment cost of which is paid with the proceeds of Permitted Indebtedness or
equity capital contributed by a Person that is not an Affiliate of the Borrower,
or by Persons who are shareholders or directors of the Borrower as of the
Closing Date, after the Closing Date and (ii) does not have a negative projected
cash flow for any fiscal year based on the criteria specified in the definition
of Projected Adjusted Consolidated Cash Flow, as applied to such Subsidiary.
"Existing Indebtedness" means the Indebtedness of the Borrower
existing on the Closing Date as specified in Schedule 7.2(a).
"Facility" means a power plant, industrial infrastructure asset,
hydroelectric generating plant or other alternative energy plant and related
facilities including, without limitation, landfill gas facilities owned or
leased (whether existing or under construction) by the Borrower or any of its
Subsidiaries, in each case with related rights under power purchase contracts,
sales and service agreements, leases, easements, permits and similar contractual
rights.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal, for each day during such period, to the weighted average
of the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by it.
"Federal Reserve Board" has the meaning specified in Section 6.1(q).
"FERC" means the Federal Energy Regulatory Commission and any Person
succeeding to the functions thereof.
"Financial Covenants" means those covenants set forth in Article
VIII.
"Financial Statements" means the consolidated balance sheets and
statements of cash flow (including detail as to capital expenditures made for
(i) Facilities existing on the Closing Date and (ii) other acquisition or
development
-8-
<PAGE>
expenditures), profits and losses and shareholders' equity of the Borrower and
its Subsidiaries for the period specified, prepared in accordance with GAAP and
consistently with prior practices.
"GAAP" means generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination. Whenever any accounting
term is used herein which is not otherwise defined, it shall be interpreted in
accordance with GAAP.
"Governing Documents" means the certificate of incorporation and
by-laws, partnership or limited liability company operating agreement, or other
organizational or governing documents of the Borrower or any of its
Subsidiaries.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions thereof or
pertaining thereto.
"Guaranty" means the amended and restated guaranty made by each
Pledgor (other than the Borrower) in favor of the Agent for the ratable benefit
of the Lenders, substantially in the form of Exhibit D hereto, as amended,
supplemented or otherwise modified from time to time.
"Hazardous Materials" means any and all pollutants and contaminants
and any and all toxic, caustic, radioactive or hazardous materials, substances
or wastes that are regulated under any Environmental Laws.
"HUB" means Hudson United Bank, a bank organized under the laws of
the State of New Jersey, in its individual capacity.
"Indebtedness" means as of the date of determination thereof (without
duplication), (i) all obligations of a Person to borrow money or for borrowed
money of any kind or nature, including, without limitation, funded and unfunded
debt, and obligations in respect of currency and interest rate hedging or swap
agreements or arrangements therefor, regardless of whether the same is evidenced
by any note, debenture, bond or other instrument, (ii) all obligations of a
Person to pay the deferred purchase price of property or services (other than
current trade accounts payable under normal trade terms and which arise in the
ordinary course of business and are not delinquent), (iii) all obligations of a
Person to acquire or for the acquisition or use of any fixed asset, including,
without limitation, Capitalized
-9-
<PAGE>
Lease Obligations, or improvements which are payable over a period longer than
one year, regardless of the term thereof or the Person or Persons to whom the
same are payable, (iv) the then outstanding amount of withdrawal or termination
liability incurred under ERISA, (v) all Indebtedness of others secured by a Lien
on any asset of a Person whether or not the Indebtedness is assumed by such
Person, (vi) all Indebtedness of others to the extent guaranteed by a Person and
(vii) all obligations of a Person in respect of letters of credit, bankers
acceptances or similar instruments issued or accepted by banks or other
financial institutions for the account of such Person.
"Initial Availability Expiration Date" means December 31, 2001.
"Insolvency Event" means, with respect to any Person, the occurrence
of any of the following: (a) such Person shall be adjudicated insolvent or
bankrupt, or shall generally fail to pay or admit in writing its current
inability to pay its debts as they become due, (b) such Person shall seek
dissolution or reorganization or the appointment of a receiver, trustee,
custodian or liquidator for it or a substantial portion of its property, assets
or business or to effect a plan or other arrangement with its creditors, (c)
such Person shall make a general assignment for the benefit of its creditors, or
consent to or acquiesce in the appointment of a receiver, trustee, custodian or
liquidator for a substantial portion of its property, assets or business, (d)
such Person shall file a voluntary petition under any bankruptcy, insolvency or
similar law, or (e) such Person, or a substantial portion of its property,
assets or business shall become the subject of (i) an involuntary proceeding or
petition for its liquidation, dissolution or reorganization, or (ii) the
appointment of a receiver, trustee, custodian or liquidator.
"Intercompany Note" means the subordinated promissory note dated June
23, 1993 in the original principal amount of $176,572,853.53 by the Borrower in
favor of CHI Finance, as amended, supplemented or otherwise modified from time
to time.
"Interest Reserve" means, as of any date during the period August 1
through December 31 of each year, an amount equal to (i) the amount of interest,
calculated at the Base Rate then in effect plus 1.50%, that would accrue during
such period on an outstanding amount of Revolving Credit Loans assumed at all
times during such period to be equal to (a) the Maximum Amount of the Facility
less (b) the aggregate amount of all outstanding Letters of Credit less (ii) the
amount on deposit in the Blocked Account on such date.
"Internal Revenue Code" means the Internal Revenue Code
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<PAGE>
of 1986, as amended, any successor statute and any regulations or guidelines
promulgated thereunder.
"Internal Revenue Service" or "IRS" means the United States Internal
Revenue Service and any successor agency.
"Inventory" means all present and future goods intended for sale,
lease or other disposition by the Borrower, including, without limitation, all
raw materials, work in process, finished goods, goods in the possession of
outside processors or other third parties, goods consigned to the Borrower to
the extent of its interest therein as consignee, materials and supplies of any
kind, nature or description which are or might be used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of any such
goods, all documents of title or documents representing the same and all
records, files and writings with respect thereto.
"Investment" in any Person means, as of the date of determination
thereof, the amount paid or committed to be paid or the value of property
contributed or committed to be contributed by the Person making the Investment
on its account for or in connection with its acquisition of (i) any stock,
bonds, notes, debentures, limited liability company, partnership or other equity
or ownership interest, or right to acquire or participate in profits or gains
accruing with respect to any thereof, or any other security of the Person in
whom such Investment is made or (ii) any Indebtedness by reason of a loan,
advance, extension of credit, guaranty or other similar obligation of any debt,
liability or indebtedness of such Person in whom the Investment is made. In
determining the aggregate amount of Investments outstanding at any particular
time, (i) a guaranty shall be valued at not less than the principal amount
outstanding; (ii) returns of capital (but only by repurchase, redemption,
retirement, repayment, liquidating dividend or liquidating distribution) shall
be deducted; (iii) earnings, whether as dividends, interest or otherwise, shall
not be deducted; and (iv) decreases in the market value shall not be deducted
unless such decreases are computed in accordance with GAAP.
"L/C Cash Collateral Account" means the interest-bearing cash
collateral account established by the Borrower with the Blocked Account Bank at
its office at 100 Federal Street, Boston, Massachusetts 02110, Account No.
40-002-05439, in the name of the Borrower but under the sole dominion and
control of the Agent and subject to the terms of this Agreement.
"Letter of Credit Agreement" means the collective reference to any
and all agreements from time to time entered into by the Agent and a bank or
financial institution (each, an "issuing bank") pursuant to which the Agent
causes such issuing
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<PAGE>
bank to issue Letters of Credit for the account or benefit of the Borrower or
any of its Affiliates.
"Letters of Credit" means all letters of credit issued under Section
2.11(a) hereof or under the Original Loan Agreement for the account or benefit
of the Borrower or any of its Affiliates.
"Liabilities" of a Person as of the date of determination thereof
means the liabilities of such Person on such date as determined in accordance
with GAAP. Liabilities to Affiliates shall be treated as Liabilities except
where eliminated by consolidation in financial statements prepared in accordance
with GAAP or as otherwise provided herein.
"Lien" means any lien, claim, charge, pledge, security interest,
assignment, hypothecation, deed of trust, mortgage, lease, conditional sale,
retention of title or other encumbrance or preferential arrangement having
substantially the same economic effect as any of the foregoing, whether
voluntary or imposed by law.
"Loan Documents" means this Agreement and all documents and
instruments delivered or to be delivered by the Borrower or any Affiliate under
or in connection with this Agreement or the or the Letters of Credit issued
under the Original Loan Agreement as each of the same may be amended,
supplemented or otherwise modified from time to time, including, without
limitation, the Notes, the Pledge Agreement, the Subordination Agreement, the
Support Letter, the Blocked Account Agreement, the Depository Account Agreement
and the Letter of Credit Agreement.
"Loans" means the Revolving Credit Loans and the Term Loans.
"Material Adverse Effect" means, with respect to any event, act,
condition or occurrence of whatever nature, whether singly or in conjunction
with any one or more other events, acts, conditions or occurrences, whether or
not related, (i) a material and adverse effect on the business, operations,
results of operations, assets, liabilities or condition (financial or otherwise)
of the Borrower individually, or the Borrower and its Subsidiaries in the
aggregate, (ii) the Projected Unrestricted Adjusted Consolidated Cash Flow of
the Borrower (including, for these purposes only, amounts available in the
Depository Accounts and the Blocked Account) would be insufficient to repay, in
accordance with their terms, the outstanding Loans and the reimbursement or cash
collateralization obligations of the Borrower with respect to the Letters of
Credit (which, for purposes hereof, (a) before the Availability Expiration Date,
shall be deemed to be in an amount equal to the Maximum Amount of
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the Facility and (b) thereafter, shall be the total of (I) the actual
outstanding amount of the Term Loans, (II) the actual aggregate amount of
outstanding Letters of Credit and (III) the drawn but unreimbursed amounts of
Letters of Credit that have not been funded by the Lenders under Section 2.11(f)
less all amounts then on deposit in the L/C Cash Collateral Account or otherwise
held by the Agent as cash collateral for the Letters of Credit), (iii) a
material impairment of the Borrower's ability to perform its obligations under
the Loan Documents to which it is a party including, without limitation, as a
result of any drawing or payment under a Letter of Credit with respect to which
cash collateral has not been deposited in the L/C Cash Collateral Account for
the full amount thereof, or of the Agent to enforce the Obligations or realize
upon the Collateral or (iv) a material and adverse effect on the value of the
Collateral or the amount which the Agent would be likely to receive (after
giving consideration to delays in payment and costs of enforcement) in the
liquidation of the Collateral, provided that, for purposes of clause (iv)
hereof, a material and adverse effect shall be determined after giving
consideration to, among other things, the amount of Loans and Letters of Credit
outstanding hereunder at the time of determination.
"Material Contract" means the contracts specified in Schedule 6.1(ae)
or any other contract or agreement including, without limitation, any contract
relating to the operation of a Facility or any related power supply contract or
disbursement agreement to which the Borrower or any of its Subsidiaries is a
party (other than the Loan Documents) for which breach, nonperformance,
cancellation or failure to renew could have a Material Adverse Effect.
"Maximum Amount of the Facility" means Thirty-Five Million Dollars
($35,000,000) less the amount of any reduction of the Lenders' commitments under
Section 2.1(d).
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate has
contributed within the past six years or with respect to which the Borrower or
any ERISA Affiliate may incur any liability.
"Non-Recourse Debt" means Indebtedness (including refinancings
thereof) of the Borrower or any of its Affiliates that is incurred solely to
finance or acquire a Facility or group of Facilities, or any interest therein,
so long as (i) such Indebtedness is without recourse to (a) the Borrower or such
Affiliate other than any single-purpose entity whose existence is solely related
to such Facility or group of Facilities, or (b) any assets of the Borrower or
such Affiliate other than (I) any such Facility or group of Facilities, (II) the
income
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from and proceeds of any such Facility or group of Facilities or (III) the
capital stock or other equity interests of the Affiliates that own the Facility
or group of Facilities and (ii) neither the Borrower nor any Subsidiary of the
Borrower has any actual or contingent recourse obligation to or for the benefit
of the obligor under such Indebtedness which, directly or indirectly, supports
the repayment of such Indebtedness.
"Notes" means the Revolving Credit Notes and the Term Notes.
"Notice of Borrowing" has the meaning specified in Section 2.2.
"Obligations" means all loans, advances, debts, liabilities,
obligations, covenants and duties owing by the Borrower to the Agent or any of
the Lenders of any kind or nature, present or future, whether or not evidenced
by any note, guaranty or other instrument, which may arise under, out of, or in
connection with, this Agreement, the Notes, the other Loan Documents or any
other agreement executed in connection herewith or therewith, whether or not for
the payment of money, whether arising by reason of an extension of credit,
opening, guaranteeing or confirming of a letter of credit (including, but not
limited to, the Letters of Credit), loan, guaranty, indemnification or in any
other manner, whether direct or indirect (including, without limitation, those
acquired by assignment, purchase, discount or otherwise), whether absolute or
contingent, due or to become due, now due or hereafter arising and however
acquired. The term includes, without limitation, all interest (including
interest accruing on or after an Insolvency Event, whether or not an allowed
claim), charges, expenses, commitment, facility, closing, collateral management,
letter of credit or other fees, attorneys' fees, and any other sum properly
chargeable to the Borrower under this Agreement, the Notes, the other Loan
Documents or any other agreement executed in connection herewith or therewith.
"Original Loan Agreement" has the meaning specified in the first
Recital.
"PBGC" means the Pension Benefit Guaranty Corporation and any Person
succeeding to the functions thereof.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA (other than a Multiemployer Plan) which the
Borrower or any ERISA Affiliate sponsors or maintains, or to which it makes, is
making or is obligated to make contributions, or in the case of a multiple
employer plan (as described in Section 4064(a) of ERISA) has made contributions
at any time within the immediately preceding five plan years.
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"Permitted Indebtedness" means (without duplication) (i) the
Obligations, (ii) Existing Indebtedness, (iii) Indebtedness of the Borrower and
its Subsidiaries created in the ordinary course of business in an aggregate
amount not exceeding $250,000 at any time, (iv) Indebtedness of the Borrower to
any of its Subsidiaries and of any of its Subsidiaries to the Borrower or
another Subsidiary of the Borrower which, in the case of Indebtedness owed by
(A) the Borrower or (B) a Subsidiary of the Borrower to another Subsidiary of
the Borrower that is not a Pledged Subsidiary, has been subordinated to the
Obligations (or the guaranty thereof) on terms and under documents in form and
substance satisfactory to the Agent, (v) Indebtedness incurred to refinance
Indebtedness outstanding on the Closing Date (with no capitalized interest or
increased principal), provided that the terms and conditions are, in the
reasonable opinion of the Agent, no less favorable to the Borrower or any
Subsidiary of the Borrower than those of the Indebtedness being refinanced, (vi)
Indebtedness constituting leases permitted by Sections 7.2(r) and (s), (vii)
Non-Recourse Debt incurred in connection with Permitted Investments, (viii)
Contingent Obligations (other than guaranties by the Borrower of Indebtedness
permitted under clause (ix) hereof) to the extent permitted under Section
7.2(b), (ix) Indebtedness and Contingent Obligations of an Excluded Future
Subsidiary and (x) to the extent they constitute Indebtedness, obligations to
match employee contributions under a Plan established under Section 401(k) of
ERISA (or any similar Plan), so long as such obligation is not deferred past the
date when due under applicable law or regulation.
"Permitted Investments" means (i) Investments made in Affiliates of
the Borrower before the Closing Date, (ii) Investments in Affiliates of the
Borrower with the proceeds of any offering of capital stock of the Borrower,
(iii) Investments in Affiliates of the Borrower in the form of loans or advances
from the Borrower representing capitalized labor costs for services performed by
the Borrower to such Affiliates in the ordinary course of business, (iv)
Investments made solely with the proceeds of Non-Recourse Debt and any
refinancings thereof that constitute Non-Recourse Debt, or partly with the
proceeds of Non-Recourse Debt if the balance of such Investments is comprised
entirely of other Permitted Investments, (v) Investments consisting of cash in
wholly-owned Subsidiaries of the Borrower after the Closing Date not to exceed
$500,000 in the aggregate outstanding at any time (not including in such amount
Investments permitted under the other clauses hereof), (vi) Investments in
Pledged Subsidiaries or Excluded Future Subsidiaries which are consistent with
the Business Plan and any update to the Business Plan delivered under Section
7.1(k)
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(vi) approved by the Required Lenders, (vii) Investments specified in Schedule
7.2(k), (vii) Investments of the adjusted consolidated net income as reported by
the Borrower for the year ended December 31, 1998, to the extent that it exceeds
that which was projected under the Business Plan delivered on the Closing Date,
(ix) Investments specified in the Business Plan delivered on the Closing Date or
in any update to the Business Plan delivered under Section 7.1(k)(vi) approved
by the Required Lenders and (x) Investments by Subsidiaries and Affiliates of
the Borrower of cash in accounts subject to restrictions under the terms of (A)
instruments of Permitted Indebtedness, (B) the Governing Documents of such
Affiliates or (C) contracts for the sale of electric power.
"Permitted Liens" means (i) Liens for taxes, assessments and other
governmental charges not due and payable or which can be paid without penalty or
in installments, or which are currently being contested in good faith by
appropriate proceedings, provided that the Borrower shall have set aside on its
books adequate reserves in accordance with GAAP with respect to any such tax,
assessment or other governmental charge so being contested, (ii) workmen's,
repairmen's, mechanics', materialmen's, warehousemen's and carriers' Liens and
other similar Liens arising in the ordinary course of business for charges not
delinquent for more than sixty days or which are currently being contested in
good faith by appropriate proceedings, provided that the Borrower shall have set
aside on its books adequate reserves in accordance with GAAP with respect to
such Liens so being contested, (iii) Liens in respect of judgments or awards
with respect to which the Borrower shall in good faith currently be prosecuting
an appeal or proceedings for review and with respect to which the Borrower shall
have secured a stay of execution pending such appeal or proceedings for review,
provided that the Borrower shall have set aside on its books adequate reserves
in accordance with GAAP with respect to any such judgments or awards, (iv) other
Liens incurred in the ordinary course of the Borrower's business or incidental
to the ownership of its property and assets which were not incurred in
connection with Indebtedness for borrowed money and which do not, either
individually or in the aggregate, materially detract from the value of such
property or assets or materially impair the use thereof in the operation of its
business, (v) existing Liens specified in Schedule 7.2(c), but only to secure
Indebtedness in the maximum principal amount secured thereby on the Closing
Date, (vi) any Lien securing any obligation incurred in connection with the
renewing, extending or refunding of any obligation secured by a Lien permitted
by clause (v) above or clause (x) below, provided that the principal amount of
the obligation so secured is not increased and such Lien is not extended to
other assets, (vii) Liens in favor of the Agent for the ratable benefit of the
Lenders, (viii) Liens securing Permitted Indebtedness of the type
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described in clause (iii) or (x) of the definition of Permitted Indebtedness,
provided that such Liens do not extend to any property other than the property
then being acquired with the proceeds of such Indebtedness, (ix) Liens securing
Non-Recourse Debt, (x) Liens on amounts deposited or prepaid in connection with
contractual obligations or for the purchase of goods or services in the ordinary
course of business, (xi) Liens on assets of Excluded Future Subsidiaries which
secure Permitted Indebtedness, (xii) Liens in favor of Electric Utilities
securing obligations under power purchase contracts, such as the obligation to
repay the excess of the contract's scheduled rate over the avoided cost rate to
the extent the Lien securing such obligation is secured solely by the related
Facility and the income and proceeds therefrom, and (xiii) Liens securing other
Indebtedness not exceeding $250,000 in the aggregate at any time.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
joint stock company, association, corporation, institution, entity, party or
government (including, without limitation, any division, agency or department
thereof) or any other legal entity, whether acting in an individual, fiduciary
or other capacity, and, as applicable, the successors, heirs and assigns of
each.
"Plan" means any employee benefit plan, as defined in Section 3(3) of
ERISA, maintained or contributed to by the Borrower or any ERISA Affiliate with
respect to which any of them may incur liability.
"Pledge Agreement" means the amended and restated pledge agreement
made by the Borrower and the other Pledgors in favor of the Agent for the
ratable benefit of the Lenders, substantially in the form of Exhibit E hereto,
as amended, supplemented or otherwise modified from time to time.
"Pledged Subsidiary" means, at any time, a Subsidiary of the Borrower
whose capital stock or other equity interests are subject at such time to the
Lien created under the Pledge Agreement.
"Pledgors" means the Borrower and each of its Subsidiaries specified
as an "Owner" in Schedule 5.1(a)(ii).
"Prohibited Transaction" has the meaning specified in Section
6.1(z)(v).
"Projected Adjusted Consolidated Cash Flow" means, for any Person,
for any period, the sum, calculated in accordance with Exhibit P, of (i)
Projected Adjusted Consolidated Net Income of such Person and its consolidated
Subsidiaries for such period
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plus (ii) the aggregate amount of all projected non-cash charges deducted in
arriving at such Projected Adjusted Consolidated Net Income less (iii) the
aggregate amount of all projected non-cash credits included in arriving at such
Projected Adjusted Consolidated Net Income less (iv) all projected Capital
Expenditures for such period less (v) principal payments projected or required
to be made on account of Permitted Indebtedness.
"Projected Adjusted Consolidated Net Income" means, for any period,
the projected aggregate net income (or loss) of any Person and its consolidated
Subsidiaries for such period on account of the operations of Facilities which
have achieved commercial operation and whose financing has converted from a
construction loan to a permanent term loan financing arrangement determined in
conformity with GAAP and calculated in accordance with Exhibit P.
"Projected Adjusted Consolidated Unrestricted Cash Flow" means, for
any Person, for any period, the sum, calculated in accordance with Exhibit P, of
(i) the Projected Adjusted Consolidated Cash Flow of such Person and its
consolidated Subsidiaries for such period less (ii) the amount of such Projected
Adjusted Consolidated Cash Flow projected to be restricted for use by, or
transfer to, the Borrower during such period under the terms of instruments of
Permitted Indebtedness or Requirements of Law applicable to the Borrower or any
of its Subsidiaries plus (iii) actual cash flow corresponding to Projected
Adjusted Consolidated Cash Flow from prior periods originally projected to be
restricted under clause (ii) hereof that has ceased to be so restricted and is
available for distribution to the Borrower.
"Projected Cash Flow Statement" means a statement, substantially in
the form of Exhibit P hereto, setting forth the Projected Adjusted Consolidated
Unrestricted Cash determined as of the date of such statement, which shall be
prepared by the chief accounting officer of the Borrower.
"Projected Minimum Coverage Ratio" means, at any time, the ratio,
calculated in accordance with Exhibit P, of (i) the Projected Adjusted
Consolidated Unrestricted Cash Flow projected to be received by the Borrower for
the period commencing on the Availability Expiration Date until the Term Loan
Maturity Date and discounted at a discount rate equal from time to time to the
current applicable interest rate under Section 4.1 plus the amount of all of the
Borrower's and its Subsidiaries' cash on hand that is not restricted for use by
the Borrower or such Subsidiaries under the terms of Instruments of Permitted
Indebtedness or Requirements of Law applicable to the Borrower or such
Subsidiaries to (ii) the aggregate amount of the outstanding Obligations and the
undrawn amount of all outstanding Letters of Credit at such time.
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"Property" means any real property owned, leased or controlled by the
Borrower.
"Proportionate Share" of a Lender means a fraction, expressed as a
decimal, obtained by (a) prior to the Availability Expiration Date, dividing its
Revolving Credit Commitment by the aggregate Revolving Credit Commitments of all
the Lenders or (b) after the Availability Expiration Date, dividing the amount
of its Term Loan by the aggregate amount of all Term Loans then outstanding.
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended, any successor statute and any regulations or guidelines promulgated
thereunder.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, as
amended, any successor statute and regulations or guidelines promulgated
thereunder.
"Qualification" or "Qualified" means, with respect to any report of
independent public accountants covering financial statements, a material
qualification to such report (i) resulting from a limitation on the scope of
examination of such financial statements or the underlying data or (ii) as to
the capability of the Borrower to continue operations as a going concern.
"Receivables" means all present and future accounts, contract rights,
promissory notes, chattel paper, documents, tax refunds, rights to receive tax
refunds, rights to receive fees, bonds, certificates, insurance policies,
insurance proceeds, patents, patent applications, copyrights (registered and
unregistered), royalties, licenses, customer lists, rights of indemnification,
contribution and subrogation, leases, drafts, computer tapes, programs and
software, trade secrets, computer service contracts, trademarks, trade names,
service marks and names, logos, goodwill, deposits, cash, cash equivalents,
causes of action, choses in action, judgments, designs, blueprints, plans,
know-how, all other general intangibles, claims against third parties of every
kind or nature, investment securities, notes, drafts, acceptances, letters of
credit, rights to receive payments under letters of credit, deposit and other
accounts (including, without limitation, the Depository Accounts, the Blocked
Account and the L/C Cash Collateral Account), book accounts, credits and
reserves and all forms of obligations whatsoever owing, instruments, documents
of title, leasehold rights in any goods and books, ledgers, files and records
with respect to any collateral or security, together with all right, title,
security and guaranties with respect to each Receivable.
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"Replacement Lender" means a financial institution proposed by the
Borrower in accordance with Section 2.9 that is satisfactory to the Agent in its
sole discretion which has agreed to acquire and assume all or a part of a
Defaulting Lender's Loans and Revolving Credit Commitments under Section 2.9.
"Reportable Event" means any of the events described in Section 4043
of ERISA and the regulations thereunder, other than a reportable event for which
the thirty-day notice requirement to the PBGC has been waived.
"Required Lenders" means those Lenders the sum of whose outstanding
(i) prior to the Availability Expiration Date, Revolving Credit Commitments and
(ii) after the Availability Expiration Date, Term Loans, exceeds 70% or more of
the sum of the total outstanding Revolving Credit Commitments or Term Loans, as
the case may be, at such time.
"Requirement of Law" means (a) the Governing Documents, (b) any law,
treaty, rule or regulation or determination of an arbitrator, court or other
Governmental Authority, or (c) any franchise, license, lease, permit,
certificate, authorization, qualification, easement, right of way, or other
right or approval binding on the Borrower or any of its property.
"Restricted Receivables" means Receivables of the Borrower or any
Affiliates of the Borrower specified in Schedule 2.15 and the proceeds thereof
which, under the terms of instruments of Permitted Indebtedness or any
Requirement of Law applicable to such Subsidiary or Affiliate, (i) are required
to be free and clear of all Liens and (ii) in the case of proceeds, are required
to be used for a purpose contrary to the requirements of Section 2.15.
"Revolving Credit Commitment" means, with respect to a Lender, its
commitment to make Revolving Credit Loans and to participate in Letters of
Credit up to the amount set forth opposite its name on Schedule 1 under the
heading "Revolving Credit Commitment," as such amount may be decreased from time
to time in accordance with Section 2.1(d).
"Revolving Credit Loans" has the meaning specified in Section 2.1(a).
"Revolving Credit Note" means an amended and restated or other
revolving credit promissory note of the Borrower payable to the order of a
Lender, substantially in the form of Exhibit A hereto, as amended, supplemented
or otherwise modified from time to time.
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"Solvency Certificate" means the solvency certificate of each of the
Borrower and the Designated Subsidiaries, substantially in the form of Exhibit I
hereto.
"Solvent" means, when used with respect to any Person, that as of the
date as to which such Person's solvency is to be measured:
(a) the fair saleable value of its assets is in excess of the
total amount of its liabilities (including, without limitation,
contingent liabilities as valued in accordance with applicable law)
as they become absolute and matured;
(b) it has sufficient capital to conduct its business; and
(c) it is able to meet its debts as they mature.
"Subordination Agreement" means the amended and restated
subordination agreement made by CHI Finance in favor of the Agent for the
ratable benefit of the Lenders, substantially in the form of Exhibit Q hereto,
as amended, supplemented or otherwise modified from time to time.
"Subsidiary" means, as to any Person, a corporation or other entity
in which that Person directly or indirectly owns or controls the shares of stock
or other ownership interests having ordinary voting power to elect a majority of
the board of directors or appoint other managers of such corporation or other
entity.
"Support Letter" means the amended and restated letter agreement
executed by Edward M. Stern, substantially in the form of Exhibit J hereto, as
amended, supplemented or otherwise modified from time to time.
"Tangible Net Worth" means, as at any date for the determination
thereof, with respect to any Person, (i) total assets determined under GAAP less
(ii) intangible assets including, without limitation, goodwill, patents, patent
rights, trademarks, trade names, copyrights, design rights, franchises, bond
discounts, underwriting expenses, treasury stock, organization expenses, and
other similar items (other than the value of power purchase agreements and FERC
licensing costs), less (iii) total Liabilities determined under GAAP.
"Term Loan" has the meaning specified in Section 2.10(a).
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"Term Loan Maturity Date" means the earlier of (i) the date occurring
five years from the Availability Expiration Date and (ii) the date of any
acceleration of the Term Loans under Section 9.2(a).
"Term Note" means a promissory note of the Borrower payable to the
order of a Lender, substantially in the form of Exhibit B hereto, as amended,
supplemented or otherwise modified from time to time.
"Termination Event" means (i) a Reportable Event with respect to any
Pension Plan or Multiemployer Plan; (ii) the withdrawal of the Borrower or any
ERISA Affiliate from a Pension Plan during a plan year in which it was a
"substantial employer" (as defined in Section 4001(a)(2) of ERISA); (iii) the
providing of notice of intent to terminate a Pension Plan in a distress
termination (as described in Section 4041(c) of ERISA); (iv) the institution by
the PBGC of proceedings to terminate a Pension Plan or Multiemployer Plan; (v)
any event or condition (a) which is reasonably likely to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan or Multiemployer Plan, or (b) that is
reasonably likely to result in termination of a Multiemployer Plan pursuant to
Section 4041A of ERISA; or (vi) the partial or complete withdrawal, within the
meaning of Sections 4203 and 4205 of ERISA, of the Borrower or any ERISA
Affiliate from a Multiemployer Plan.
"Termination Notice" has the meaning specified in Section 2.4.
SECTION I.2. Accounting Terms and Determinations. Unless otherwise
defined or specified herein, all accounting terms used in this Agreement shall
be construed in accordance with GAAP, applied on a basis consistent in all
material respects with the Financial Statements delivered to the Agent on or
before the Closing Date. All accounting determinations for purposes of
determining compliance with Article VIII shall be made in accordance with GAAP
as in effect on the Closing Date and applied on a basis consistent in all
material respects with the Financial Statements delivered to the Agent on or
before the Closing Date. The Financial Statements required to be delivered
hereunder from and after the Closing Date, and all financial records, shall be
maintained in accordance with GAAP. If GAAP shall change from the basis used in
preparing the Financial Statements delivered to the Agent on or before the
Closing Date, the certificates required to be delivered pursuant to Section
7.1(k) demonstrating compliance with the covenants contained herein shall
include calculations setting forth the adjustments necessary to demonstrate how
the Borrower is in compliance with the financial covenants based upon GAAP as in
effect on the Closing Date.
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SECTION I.3. Other Terms; Headings. Terms used herein that are
defined in the Uniform Commercial Code, from time to time, in effect in the
State of New York (the "Code") shall have the meanings given in the Code. Each
of the words "hereof," "herein," and "hereunder" refer to this Agreement as a
whole. An Event of Default shall "continue" or be "continuing" unless and until
such Event of Default has been waived in accordance with Section 11.11.
References to Articles, Sections, Annexes, Schedules and Exhibits are internal
references to this Agreement, and to its attachments, unless otherwise
specified. The headings and the Table of Contents are for convenience only and
shall not affect the meaning or construction of any provision of this Agreement.
ARTICLE II
THE CREDIT FACILITIES
---------------------
SECTION II.1. The Revolving Credit Loans.
(a) Subject to the terms and conditions set forth in this Agreement,
on and after the Closing Date until (but excluding) the Availability Expiration
Date, each Lender severally agrees to make loans to the Borrower (the "Revolving
Credit Loans") in an aggregate principal amount (including such Lender's
Proportionate Share of the aggregate amount of all outstanding Letters of
Credit) not to exceed its Proportionate Share of the lesser of (i) the Maximum
Amount of the Facility and (ii) 87% of the Projected Adjusted Consolidated
Unrestricted Cash Flow at such time projected to be received by the Borrower for
the period commencing on the Availability Expiration Date until the Term Loan
Maturity Date and discounted at a discount rate equal from time to time to the
current applicable interest rate under Section 4.1.
(b) Subject to the right of the Borrower to convert all Revolving
Credit Loans to Term Loans under Section 2.10, each Revolving Credit Loan shall
be payable in full, with all interest accrued thereon, on the Availability
Expiration Date. The Borrower may borrow, repay and reborrow Revolving Credit
Loans, in whole or in part, in accordance with the terms hereof.
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(c) The proceeds of the Revolving Credit Loans shall be used by the
Borrower only for working capital purposes including, without limitation, for
(i) the type of expenditures reflected in the Business Plan, including, without
limitation, operating and maintenance expenses, general and administrative
expenses, development expenses (including the acquisition and development of,
and investment in, Facilities to the extent permitted under this Agreement), and
Capital Expenditures and (ii) expenses caused by waterflow shortfalls or other
unexpected events, and, in all cases, to the extent not otherwise prohibited by
this Agreement.
(d) Upon not less than three Business Days' prior notice from the
Borrower to the Agent, the Borrower may reduce permanently, in whole or in part,
the commitment of the Lenders to make Revolving Credit Loans and to purchase
participations in Letters of Credit caused to be issued by the Agent, and of the
Agent to cause to be issued Letters of Credit, provided that (i) any partial
reduction shall be in an integral multiple of $1,000,000, (ii) any such notice
shall be irrevocable once given and (iii) any reduction of such commitment in
full shall be subject to the payment of the fee specified in Section 4.7, if
such reduction occurs prior to the first anniversary of the Closing Date.
SECTION II.2. Procedures for Borrowing of Revolving Credit Loans;
Disputes.
(a) So long as the conditions for borrowing contained in Section 5.1
or 5.2 (whichever section is applicable) are satisfied, upon notice from the
Borrower to the Agent, substantially in the form of Exhibit O (a "Notice of
Borrowing") received by the Agent as set forth in Section 2.5, Revolving Credit
Loans shall be made to the Borrower to the extent of each Lender's Proportionate
Share of the requested Borrowing.
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(b) Within two Business Days after the making of each Revolving
Credit Loan (other than the initial Revolving Credit Loans), the Agent will
provide each Lender with copies of the documentation furnished by the Borrower
supporting such Revolving Credit Loan. In the event that any Lender reasonably
determines in good faith that such documentation does not comply with the
requirements of Section 5.2 of this Agreement in any material respect, such
Lender shall promptly so notify the Agent and the Borrower. Failure to give any
such notice within five days after its receipt of such documentation shall
preclude a Lender from giving such notice with respect to the applicable
Revolving Credit Loan (but not any future Revolving Credit Loan). Upon receipt
of any such notice, the Agent and the Lender giving the same shall promptly
endeavor to resolve the discrepancies raised by such Lender. In the event the
discrepancies are not resolved to the Lender's reasonable satisfaction, and the
Lender so notifies the Agent and the Borrower in writing, such Lender shall have
no obligation to make available to the Agent its Proportionate Share of any
later Revolving Credit Loan until the discrepancy is resolved and, so long as
the discrepancy is unresolved, the Borrower shall have the right to replace such
Lender with a Replacement Lender in accordance with the procedures specified in
Section 2.9. Upon resolution of any such discrepancy or if the Required Lenders
determine that the discrepancy is immaterial or otherwise agree to waive such
discrepancy, the applicable Lender shall promptly remit all withheld amounts to
the Agent.
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SECTION II.3. Disbursement of Revolving Credit Loans. Except as
provided in Section 2.11(f), the proceeds of the Revolving Credit Loans shall be
transmitted by the Agent as requested by the Borrower in each applicable Notice
of Borrowing.
SECTION II.4. Term. Each Lender's obligation under Sections 2.1(a)
and 2.11(a) and (f) to make Revolving Credit Loans and to purchase
participations in letters of credit caused to be issued by the Agent, and the
Agent's obligation to use its best efforts to cause to be issued Letters of
Credit, shall commence on the Closing Date and extend through the Initial
Availability Expiration Date, unless sooner terminated by the terms hereof,
provided that the Availability Expiration Date shall be extended for successive
one-year periods beyond the then-effective expiration date unless the Borrower
notifies the Agent and the Lenders, or the Agent notifies the Borrower, in
writing at least ninety and no more than one hundred fifty days prior to the
then effective Availability Expiration Date that it does not wish to extend the
Availability Expiration Date. Without limitation of the preceding sentence, each
Lender's obligations under Sections 2.1(a) and 2.11(a) and (f) to make Revolving
Credit Loans and to purchase participations in Letters of Credit shall terminate
if such terminating Lender notifies the Agent, the Borrower and the other
Lenders in writing (a "Termination Notice") at least one hundred fifty and no
more than two hundred ten days prior to the then effective Availability
Expiration Date that it wishes to terminate such obligations, provided that each
non-terminating Lender shall have, upon receipt of a timely Termination Notice
from a terminating Lender, an additional five Business Days to deliver a
Termination Notice to the Agent and the other Lenders, which Termination Notice
shall be fully effective to terminate such Lender's obligations under Section
2.1(a) and 2.11(a) and (f) to make Revolving Credit Loans and to purchase
participations in Letters of Credit, and provided, further, that no Termination
Notice shall be effective if delivered less than one hundred forty-five days
prior to the then effective Availability Expiration Date.
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SECTION II.5. Notices of Borrowing.
(a) Each Revolving Credit Loan shall be requested by the Borrower
pursuant to a Notice of Borrowing given to the Agent no later than 11:00 a.m.
(New York time) on the third Business Day prior to the proposed date of such
Revolving Credit Loan (which date shall be a Business Day). Each request for a
Revolving Credit Loan shall be made by telephone, confirmed immediately by
telecopier in a Notice of Borrowing signed by a Secretary or Assistant Secretary
of the Borrower, and shall specify therein (i) the proposed date of such
Revolving Credit Loan, (ii) the proposed aggregate principal amount of such
Revolving Credit Loan, (iii) the proposed use of the proceeds of such Revolving
Credit Loan and (iv) that the Projected Minimum Coverage Ratio as of the date
thereof is not less than the ratio projected in the Business Plan as of such
date or, if such ratio is less than such projected ratio, a calculation of the
Projected Minimum Coverage Ratio as of such date taking into account the
aggregate principal amount of the proposed Revolving Credit Loan, which ratio
shall not be less than 1.15:1.00).
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(b) Promptly after receipt of a Notice of Borrowing, the Agent shall
provide each Lender with a copy thereof.
SECTION II.6. Disbursement of Funds; Evidence of Debt to Lenders;
Account Statements; Adjustments.
(a) Subject to the satisfaction of the conditions for each Revolving
Credit Loan under Section 5.1 (for the initial Revolving Credit Loan) and
Section 5.2 (for each other Revolving Credit Loan), each Lender shall, before
11:00 a.m. (New York time) on the requested date of such Revolving Credit Loan,
make available to the Agent at the Agent's address, in United States dollars and
immediately available funds, such Lender's Proportionate Share of such Revolving
Credit Loan. After the Agent's receipt of such funds, the Agent will make such
received funds available to the Borrower by 2:00 p.m. (New York time) on the
proposed date of the applicable Revolving Credit Loan by wire transfer to the
Borrower. Unless the Agent receives contrary written notice prior to the date of
any such borrowing of Revolving Credit Loans, the Agent is entitled to assume
that each Lender will make available its Proportionate Share of the borrowing
and in reliance upon that assumption, but without any obligation to do so, may
advance such Proportionate Share on behalf of such Lender. The Agent shall
promptly notify the Borrower of the Agent's receipt of each Lender's
Proportionate Share, provided that the Agent's failure to provide such notice to
the Borrower shall not limit or otherwise affect any of the rights of the Agent
hereunder. If and to the extent that such Lender shall not have made such amount
available to the Agent, but the Agent has made such amount available to the
Borrower, such Lender and the Borrower severally agree to pay and repay the
Agent forthwith on demand such corresponding amount and to pay interest thereon,
for each day from the date such amount is transferred by the Agent to the
Borrower until the date such amount is paid or repaid to the Agent, at (i) in
the case of the Borrower, the interest rate applicable at such time to such
Revolving Credit Loan and (ii) in the case of each Lender, for the period from
the date such amount was wire transferred to the Borrower to (and including)
three days after demand therefor by the Agent to such Lender, at the Federal
Funds Rate and, following such third day, at the interest rate applicable at
such time to such Revolving Credit Loan, provided, that such Lender shall not be
required to pay to the Agent the principal of any amount not made available to
the Agent by such Lender and any interest payable by such Lender thereon to the
extent such principal and interest have been repaid by the Borrower. If a Lender
shall pay to the Agent any or all of such amount, such amount so paid shall
constitute a Revolving Credit Loan by such Lender to the Borrower for purposes
of this Agreement.
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(b) The Agent shall maintain in its records one or more accounts
evidencing the Obligations and the amounts of Loans made by each Lender and of
principal and interest payable and paid to each Lender from time to time under
this Agreement. In any legal action or proceeding in respect of this Agreement,
the Agent's records shall be conclusive evidence of the existence and amounts of
the Obligations, absent manifest error. The Agent shall provide the Borrower and
the Lenders with statements of the accounts maintained by it hereunder promptly
following the making of each Revolving Credit Loan, the receipt of each payment
to the Agent under this Agreement and any other adjustments made by the Agent to
such accounts from time to time.
(c) If the Agent inadvertently distributes to a Lender under Section
2.7 an amount in excess of the amount then due such Lender by the Agent under
Section 2.7, then such Lender shall repay to the Agent forthwith, on demand,
such excess amount distributed to such Lender together with interest thereon,
for each day from the date such amount is distributed to such Lender until the
date such Lender repays such amount to the Agent, at the Federal Funds Rate.
SECTION II.7. Payments.
The Borrower shall make each payment hereunder not later than 11:00
a.m. (New York time) on the day when due, in Dollars, to the Agent at the
Agent's address in immediately available funds. The Agent will promptly after
receiving payments from the Borrower hereunder cause like funds to be
distributed to the Lenders, ratably, at their addresses and in accordance with
the terms of this Agreement.
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SECTION II.8. Sharing of Payments. If any Lender shall obtain any
payment on account of any of the Obligations (whether voluntary, involuntary,
through the exercise of any right of set-off or otherwise), such Lender shall
forthwith purchase from the other Lenders such participations in the Obligations
as shall be necessary to cause such purchasing Lender to share the excess
payment ratably with each of them; provided, however, that if all or any portion
of such excess payment is thereafter recovered from such purchasing Lender, such
purchase from each Lender shall be rescinded and each such Lender shall repay to
the purchasing Lender the purchase price to the extent of such recovery together
with an amount equal to such Lender's ratable share (according to the proportion
of (i) the amount of such Lender's required repayment to (ii) the total amount
so recovered from the purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect to the total amount so recovered;
and provided, further that this Section shall not apply with respect to any fees
payable solely to the Agent or any other fees that are intended to be for the
benefit of less than all of the Lenders. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section may, to
the fullest extent permitted by law, exercise all of its rights of payment
(including, without limitation, the right of setoff) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation. Notwithstanding anything contained
herein to the contrary, the sharing provisions of this Section shall not apply
to any payments received by any Lender from or on behalf of the Borrower or the
Agent that is not made pursuant to the express terms and provisions of this
Agreement.
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SECTION II.9. Defaulting Lenders.
(a) A Lender who fails to pay the Agent its Proportionate Share of
any Revolving Credit Loans duly made available by the Agent on such Lender's
behalf, or who fails to pay any other amount owing by it to the Agent, is a
defaulting lender (a "Defaulting Lender"). The Agent may recover all such
amounts owing by a Defaulting Lender on demand. If the Defaulting Lender does
not pay such amounts on the Agent's demand, the Agent shall promptly notify the
Borrower and the Borrower shall pay such amounts with all accrued interest
thereon until the date of payment within five Business Days or, in the case of a
Revolving Credit Loan deemed to be made on account of a drawing under a Letter
of Credit, within thirty days. In addition, the Defaulting Lender and the
Borrower shall pay (without duplication) the Agent interest on such amount for
each day from the date it was made available by the Agent to the Borrower to the
date it is recovered by the Agent at a rate per annum equal to (x) the overnight
Federal Funds Rate, if paid by the Defaulting Lender, or (y) the then applicable
rate of interest calculated under Section 4.1, if paid by the Borrower; plus, in
each case, the expenses and losses, if any, incurred as a result of the
Defaulting Lender's failure to perform its obligations. The Borrower shall
reimburse a Defaulting Lender for all interest paid by such Defaulting Lender to
the Agent under the preceding sentence which the Borrower has not paid to the
Agent under the preceding sentence so long as the Borrower has paid all
Obligations to the Agent and the other Lenders then due and payable and no Event
of Default has occurred and is continuing. The Borrower may, by notice (a
"Replacement Notice") in writing to the Agent and such Defaulting Lender, (A)
request the Defaulting Lender to cooperate with the Borrower in obtaining a
Replacement Lender; (B) request the non-Defaulting Lenders to acquire and assume
all or a portion of the Defaulting Lender's Loans and Revolving Credit
Commitments, but none of such Lenders shall be obligated to do so; or (C)
propose a Replacement Lender. If a Replacement Lender shall be accepted by the
Agent or one or more of the non-Defaulting Lenders shall agree to acquire and
assume all or part of the Defaulting Lender's Loans and Revolving Credit
Commitment, then such Defaulting Lender shall assign, in accordance with Section
11.8, all or part, as the case may be, of its Revolving Credit Commitment,
Loans, Notes and other rights and obligations under this Agreement and all other
Loan Documents to such Replacement Lender or non-Defaulting Lenders, as the case
may be, in exchange for payment of the principal amount or the portion thereof
so assigned and all interest and fees accrued on the portion thereof so
assigned, plus all or part, as the case may be, of the other Obligations then
due and payable to the Defaulting Lender; provided, however, that (i) such
assignment shall be on the terms and conditions set forth in Section 11.8, and
(ii) prior to any such assignment, the Borrower shall have (x) paid to such
Defaulting Lender all amounts properly demanded and theretofore unpaid by the
Borrower under Section 4.9
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(less costs and expenses incurred by the Borrower directly as a result of the
actions of the Defaulting Lender) and (y) paid to the Agent all amounts properly
demanded and theretofore unpaid by the Borrower under Sections 4.1, 4.4 and 4.5
(but not Section 4.7). If the Replacement Lender and non-Defaulting Lenders
shall only be willing to acquire less than all of the Defaulting Lender's
outstanding Loans and Revolving Credit Commitment, the Revolving Credit
Commitment of the Defaulting Lender shall not terminate, but shall be reduced
proportionately, and the Defaulting Lender shall continue to be a "Lender"
hereunder with a reduced Revolving Credit Commitment and Proportionate Share.
Upon the effective date of such assignment, the Borrower shall issue replacement
Notes to such Replacement Lender, non-Defaulting Lenders and the Defaulting
Lender, as the case may be, in exchange for the Notes of the Defaulting Lender
theretofore outstanding, and such Replacement Lender shall, if not already a
Lender, become a "Lender" for all purposes under this Agreement and the other
Loan Documents.
(b) The failure of any Lender to fund its Proportionate Share of any
Revolving Credit Loan shall not relieve any other Lender of its obligation to
fund its Proportionate Share of such Revolving Credit Loan. Conversely, no
Lender shall be responsible for the failure of another Lender to fund such other
Lender's Proportionate Share of a Revolving Credit Loan.
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(c) The Agent shall not be obligated to transfer to a Defaulting
Lender any payments made by the Borrower to the Agent for the Defaulting
Lender's benefit; nor shall a Defaulting Lender be entitled to the sharing of
any payments hereunder. Amounts payable to a Defaulting Lender shall instead be
paid to or retained by the Agent. The Agent may hold and, in its discretion,
re-lend to the Borrower the amount of all such payments received or retained by
it for the account of such Defaulting Lender, provided that, the Defaulting
Lender shall be entitled to interest at the Federal Funds Rate on all such
amounts held by the Agent for the account of such Defaulting Lender from the
initial date on which such amount is so held by the Agent until the date on
which such amount is released to such Defaulting Lender. For purposes of voting
or consenting to matters with respect to the Loan Documents and determining
Proportionate Shares, such Defaulting Lender shall be deemed not to be a
"Lender" and such Lender's Commitment and Loans shall be deemed to be zero,
provided that, with respect to any action hereunder requiring the consent of all
the Lenders, the Agent agrees to provide a Defaulting Lender with two Business
Days' prior notice before taking such action, and provided, further, that the
failure of the Agent to provide a Defaulting Lender with such notice shall not
limit or otherwise affect any such action taken by the Agent. This Section shall
remain effective with respect to such Lender until (x) the Defaulting Lender has
paid all amounts required to be paid to the Agent hereunder or (y) the Required
Lenders, the Agent and the Borrower shall have waived such Lender's default in
writing. The operation of this Section shall not be construed to increase or
otherwise affect the Commitment of any Lender, or relieve or excuse the
performance by the Borrower of its duties and obligations hereunder.
SECTION II.10. Conversion to Term Loan.
(a) Subject to and upon the satisfaction of the terms and conditions
specified in subsection (b) below, the Borrower may, on the Availability
Expiration Date, convert the amount of all, but not less than all, outstanding
Revolving Credit Loans of each Lender to a Term Loan of such Lender (as such
amount may be increased from time to time under Section 2.11(c), each, a "Term
Loan").
(b) The right of the Borrower to convert all outstanding Revolving
Credit Loans to Term Loans is subject to the satisfaction of each of the
following conditions:
(i) The Agent shall have received written notice from the
Borrower before the Availability Expiration Date requesting such
conversion and specifying the aggregate principal amount of the Term
Loans (which shall be equal to the amount of all outstanding
Revolving Credit Loans on the Availability Expiration Date). The
Agent shall promptly notify each of the Lenders of such request.
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(ii) The Lenders shall have each received a Term Note,
payable to it and duly executed by the Borrower with appropriate
insertions as to the date and principal amount.
(iii) The aggregate principal amount of all outstanding
Revolving Credit Loans, before giving effect to the conversion, shall
be greater than $2,000,000.
(iv) The Agent shall have received a certificate of the
Borrower, in form and substance satisfactory to the Agent, duly
executed by the chief accounting officer of the Borrower, as of the
date of such conversion, truthfully stating that (A) the
representations and warranties contained in Article VI are true and
correct, except to the extent that such representations and
warranties expressly relate to an earlier date, in which case such
representations and warranties shall be true and correct as of such
earlier date and (B) no Default has occurred and is continuing or
would result after giving effect to the conversion.
(v) No material provision of this Agreement or any other
Loan Document shall for any reason have ceased to be valid and
binding on the Borrower or any other Pledgor or party thereto or
shall have been declared to be null and void by any court,
Governmental Authority or administrative body.
(vi) The Agent shall have received a board resolution
authorizing such conversion, certified by the Secretary or an
Assistant Secretary of the Borrower, in form and substance
satisfactory to the Agent.
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SECTION II.11. Letters of Credit.
(a) Subject to the terms and conditions set forth in this Agreement,
on and after the Closing Date until (but excluding) the Availability Expiration
Date, the Agent, upon the request of the Borrower, shall use its best efforts to
cause a bank or financial institution acceptable to the Agent and the Borrower
to issue Letters of Credit for the account or benefit of the Borrower or any of
its Affiliates. Each Letter of Credit shall be requested in accordance with the
Borrower's or such Affiliate's ordinary business requirements in the operation
and development of Facilities to support equity commitments or obligations of
such Person under power purchase or other material project agreements, each with
(i) a tenor and containing terms acceptable to the Borrower, the Agent and the
issuer of such Letter of Credit and (ii) in the case of a Letter of Credit
issued for the account or benefit of an Affiliate that is not wholly owned by
the Borrower, a purpose and benefit to the Borrower reasonably acceptable to the
Lender. The Agent shall not be required to use its best efforts to cause, and
the Borrower shall not request, the issuance of any Letter of Credit if (i)
after giving effect thereto, the maximum aggregate amount of all Letters of
Credit and Revolving Credit Loans outstanding at such time would exceed the
lesser of (A) the Maximum Amount of the Facility and (B) 87% of the Projected
Adjusted Consolidated Unrestricted Cash Flow at such time projected to be
received by the Borrower for the period commencing on the Availability
Expiration Date until the Term Loan Maturity Date and discounted at a discount
rate equal from time to time to the current applicable interest rate under
Section 4.1; or (ii) a default of any Lender's obligations to fund under this
Section 2.11 exists, or any Lender is a Defaulting Lender, unless the Agent has
entered into satisfactory arrangements with the Borrower to eliminate the
Agent's risk with respect to such Lender, including cash collateralization of
such Lender's Proportionate Share of the Obligations in respect of Letters of
Credit.
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(b) Unless otherwise previously agreed in writing by the Borrower and
the Agent, the initial term of any Letter of Credit shall not exceed one
calendar year from the date of issuance, subject to automatic renewal unless
notice to the contrary is given by the Agent or the issuing bank in writing by
the applicable date specified in such Letter of Credit. Each Letter of Credit
shall state that, except as otherwise provided therein, such Letter of Credit is
governed by the Uniform Customs and Practice for Documentary Credits (as most
recently published by the International Chamber of Commerce). Notwithstanding
the purpose of any Letter of Credit or any reference therein or herein to an
Affiliate of the Borrower, each Letter of Credit shall be deemed issued for the
account of the Borrower and the obligations arising in connection therewith
shall be part of the Obligations.
(c) Subject to the agreement of the beneficiary thereof, any Letter
of Credit outstanding after the earlier of (i) the occurrence and continuance of
an Event of Default or (ii) the fifth anniversary of the Availability Expiration
Date, may be reduced, in whole or in part, in an amount to be advanced by the
Agent, from funds made available by the Lenders, to such beneficiary for the
account of the Borrower (or any Subsidiary of the Borrower for whose account
such Letter of Credit was issued). The amount of such advance by each Lender
shall be added to the then outstanding balance of such Lender's respective Term
Loan and shall be deemed a part thereof. The proceeds of such advance shall be
held by a depository for the account of such beneficiary and, to the extent such
proceeds are no longer required as collateral by such beneficiary, shall
thereupon be returned to each of the Lenders for application to such Lender's
Term Loan, in inverse order of maturity or, if such Term Loan has been paid in
full, for deposit to the L/C Cash Collateral Account.
(d) Immediately upon issuance or amendment of any Letter of Credit in
accordance with the procedures set forth in this Section 2.11, each Lender shall
be deemed to have irrevocably and unconditionally purchased and received from
the Agent, without recourse or warranty, an undivided interest and
participation, to the extent of such Lender's Proportionate Share, of the
liability and obligations under and with respect to such Letter of Credit and
the Letter of Credit Agreement (including, without limitation, all obligations
of the Borrower with respect thereto, other than amounts owing to the Agent
consisting of fees payable in connection with the issuance of Letters of Credit)
and any security therefor or guaranty pertaining thereto.
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(e) Whenever the Borrower desires the issuance of a Letter of Credit,
the Borrower shall deliver to the Agent a written notice no later than 1:00 P.M.
New York City time at least five Business Days (or such shorter period as may be
agreed to by the Agent) in advance of the proposed date of issuance of a letter
of credit request in substantially the form attached as Exhibit K (a "Letter of
Credit Request"). The transmittal by the Borrower of each Letter of Credit
Request shall be deemed to be a representation and warranty by the Borrower that
the Letter of Credit may be issued in accordance with and will not violate any
of the requirements of this Section 2.11. Prior to the date of issuance of each
Letter of Credit, the Borrower shall provide to the Agent a precise description
of the documents and the text of any certificate to be presented by the
beneficiary of such Letter of Credit which, if presented by such beneficiary on
or prior to the expiration date of such Letter of Credit, would require the
issuing bank to make payment under such Letter of Credit. The Agent, in its
reasonable judgment, may require changes in any such documents and certificates.
A Letter of Credit Request may be given in writing or electronically with prompt
written confirmation. Any electronic Letter of Credit Request shall be deemed to
have been prepared by, or under the supervision of, the chief accounting officer
of the Borrower.
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(f) In the event of any request for drawing under any Letter of
Credit by the beneficiary thereof prior to the Availability Expiration Date, (i)
the Borrower shall be deemed to have timely given a Notice of Borrowing to the
Agent to make Revolving Credit Loans on the date on which such drawing is
honored in an amount equal to the amount of such drawing and (ii) without regard
to satisfaction of the applicable conditions specified in Section 5.2 and the
other terms and conditions of borrowings contained herein, the Lenders shall, on
the date of such drawing, make Revolving Credit Loans in the amount of such
drawing, the proceeds of which shall be applied directly by the Agent to
reimburse the issuing bank for the amount of such drawing or payment. If for any
reason, proceeds of Revolving Credit Loans are not received by the Agent on such
date in an amount equal to the amount of such drawing, the Borrower and the
non-funding Lender shall be obligated to and shall reimburse the Agent as
provided in Section 2.6(a), on the Business Day immediately following the date
of such drawing in the case of the non-funding Lender and within thirty days in
the case of the Borrower, in an amount in same day funds equal to the excess of
the amount of such drawing over the amount of such Loans, if any, which are so
received, plus accrued interest on such amount at the rate set forth in Section
4.1. In the event of a request for drawing under any Letter of Credit by the
beneficiary thereof after the Availability Expiration Date but prior to the Term
Loan Maturity Date, the amount of such drawing shall be payable by the Borrower
on demand (to be paid from cash on deposit in the L/C Cash Collateral Account to
the extent available) and, until paid by the Borrower, shall bear interest
applicable to Term Loans under Section 4.1(ii).
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(g) As among the Borrower, the Agent and each Lender, the Borrower
assumes all risks of the acts and omissions of the Agent and the issuing bank or
misuse of the Letters of Credit by the respective beneficiaries of such Letters
of Credit. In furtherance and not in limitation of the foregoing, neither the
Agent nor any of the Lenders shall be responsible (i) for the form, validity,
sufficiency, accuracy, genuineness or legal effects of any document submitted by
any party in connection with the application for and issuance of or any drawing
honored under such Letters of Credit even if it should in fact prove to be in
any or all respects invalid, insufficient, inaccurate, fraudulent or forged,
(ii) for the validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign any such Letter of Credit, or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason, (iii) for failure of the beneficiary
of any such Letter of Credit to comply fully with conditions required in order
to draw upon such Letter of Credit, (iv) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex, telecopy or otherwise, whether or not they be in cipher, (v) for errors
in interpretation of technical terms, (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit, or of the proceeds thereof, (vii) for the
misapplication by the beneficiary of any such Letter of Credit, of the proceeds
of any drawing honored under such Letter of Credit, and (viii) for any
consequences arising from causes beyond the control of the issuing bank, the
Agent or the Lenders. None of the above shall affect, impair, or prevent the
vesting of any of the Agent's rights or powers hereunder. Any action taken or
omitted to be taken by the Agent under or in connection with any Letter of
Credit, if taken or omitted in the absence of gross negligence or willful
misconduct, shall not create any liability of the Agent to the Borrower or any
Lender.
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(h) The obligations of the Borrower to reimburse the Agent for
drawings honored under the Letters of Credit and the obligations of the Lenders
under this Section 2.11 shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances
including, without limitation, the following circumstances: (i) any lack of
validity or enforceability of this Agreement, any Letter of Credit, any Letter
of Credit Agreement or any other agreement or instrument relating thereto; (ii)
the existence of any claim, setoff, defense or other right which the Borrower or
any Affiliate of the Borrower may have at any time against a beneficiary or any
transferee of any Letter of Credit (or any Persons or entities for whom any such
beneficiary or transferee may be acting), the Agent, any Lender or any other
Person, whether in connection with this Agreement, the other Loan Documents, the
transactions contemplated herein or therein or any unrelated transaction; (iii)
any draft, demand, certificate or other documents presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect; (iv) the
surrender or impairment of any security for the performance or observance of any
of the terms of any of the Loan Documents; (v) payment by the issuing bank under
any Letter of Credit against presentation of a demand, draft or certificate or
other document which does not comply with the terms of such Letter of Credit;
(vi) failure of any drawing under a Letter of Credit or any non-application or
misapplication by the beneficiary of the proceeds of any drawing; or (vii) the
fact that a Default or Event of Default shall have occurred and be continuing.
Any action taken or omitted to be taken by an issuing bank in connection with
any payment under a Letter of Credit, if taken or omitted in the absence of
gross negligence or willful misconduct, shall not create any liability of the
Agent or the issuing bank to the Borrower or any Lender or of any Lender to the
Borrower.
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SECTION II.12. Amortization of Term Loan; Cash Collateralization of
Letters of Credit.
(a) Commencing on the Availability Expiration Date, the Borrower
shall pay to the Agent for the ratable benefit of the Lenders, in consecutive
quarterly installments commencing on the last Business Day of the calendar
quarter immediately following the Availability Expiration Date, and on the last
Business Day of each calendar quarter thereafter, 25% of the Annual Term Loan
Principal Amortization for each consecutive four calendar quarter period
commencing with such initial calendar quarter, which payments shall continue
until the repayment in full of the principal outstanding amount of the Term
Loans and any accrued and unpaid interest thereon, and the cash
collateralization in full of the undrawn amount of all outstanding Letters of
Credit; provided, however, that all such amounts shall be repaid or
cash-collateralized in full on or before the Term Loan Maturity Date. The
amounts required to be paid hereunder may be reduced by all prepayments and
deposits received by the Agent under Section 2.13 and the amount of all letters
of credit issued in replacement of the Letters of Credit, in each case after the
Availability Expiration Date.
(b) All payments received by the Lenders under subsection (a) hereof
or under Section 4.1(ii) shall be (i) applied first to any accrued and unpaid
interest on the Term Loans and then to the outstanding principal amount of the
Term Loans and (ii) upon the repayment in full of the Term Loans, deposited into
the L/C Cash Collateral Account to be held and applied as provided in Section
9.2(d).
(c) If requested by the Borrower, the Agent will, so long as no
Default has occurred and is continuing, from time to time, (i) invest amounts on
deposit in the L/C Cash Collateral Account in such Cash Equivalents in the name
of the Agent as the Borrower may select and (ii) invest interest paid on the
Cash Equivalents referred to in clause (i) hereof, and reinvest other proceeds
of any such Cash Equivalents that may mature or be sold, in each case in such
Cash Equivalents in the name of the Agent as the Borrower may select. Interest
and proceeds that are not invested or reinvested as provided above shall be
deposited and held in the L/C Cash Collateral Account.
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(d) No amount (including interest and other income earned on any
Investments) shall be paid or released to or for the account of, or withdrawn by
or for the account of, the Borrower or any other Person from the L/C Cash
Collateral Account until the payment in full of all the Obligations, provided
that interest and other income earned on Investments may, upon the written
request of the Borrower (but in no event more frequently than once each calendar
quarter), be applied toward payment of the Obligations specified by the Borrower
in such written request, and provided further that, so long as all the
Obligations have been paid in full and the Borrower has deposited in the L/C
Cash Collateral Account an amount not less than the aggregate then undrawn
amount of the outstanding Letters of Credit, all investment income will be paid
to the Borrower when received.
(e) The L/C Cash Collateral Account shall be subject to such
applicable laws, and such applicable regulations of the Federal Reserve Board
and of any other appropriate Governmental Authority, as may now or hereafter be
in effect.
SECTION II.13. Maximum Amount of the Facility; Mandatory Prepayments;
Optional Prepayments.
(a) In no event shall the sum of the aggregate outstanding principal
balances of the Revolving Credit Loans (plus the Interest Reserve) or the Term
Loans, as the case may be, and the aggregate undrawn amount of all outstanding
Letters of Credit exceed the Maximum Amount of the Facility.
(b) In addition to any prepayment required as a result of an Event of
Default hereunder, the Borrower shall make mandatory prepayments as follows:
(i) not later than thirty days after the receipt by the
Borrower or any of its Designated Subsidiaries of any proceeds of a
sale permitted under Section 7.2(g)(iii) or (vi) that occurs after
the Availability Expiration Date, the Borrower shall prepay or cause
such Designated Subsidiary to prepay to the Agent for the ratable
benefit of the Lenders an amount equal to all net proceeds of all of
such sales (other than proceeds that may not be so applied under the
terms of instruments of Permitted Indebtedness or any Requirement of
Law applicable to the Borrower or such Designated Subsidiary) in
excess of $100,000 in the aggregate in any fiscal year (except, if
any such sale is of Equipment, to the extent such proceeds are used
within thirty days of receipt thereof to purchase replacement
equipment of equal or greater value in
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which equipment the Agent has been granted a perfected first priority
security interest for the benefit of the Lenders, satisfactory proof
of which shall have been given to the Agent within such thirty-day
period), which payments shall be ratably applied to the Term Loans in
inverse order of maturity;
(ii) immediately upon discovery by or notice to the
Borrower that the lending limit specified in Section 2.13(a) has been
exceeded, the Borrower shall prepay to the Agent an amount sufficient
to reduce the outstanding balances to the applicable maximum allowed
amount, without the necessity of a demand by the Agent; and
(iii) immediately upon the release of any proceeds held by
a beneficiary of such proceeds as provided in Section 2.11(c), the
Borrower shall prepay to the Agent for the ratable benefit of the
Lenders an amount equal to all such proceeds, which amount shall be
ratably applied to the Term Loans in inverse order of maturity.
(c) The Borrower shall have the right at any time to make prepayments
of the Loans, or deposit cash in the L/C Cash Collateral Account before any date
on which such deposit is required, in each case without premium or penalty,
except as provided in Section 4.7, upon irrevocable notice given to the Agent
prior to 11:00 A.M., New York City time, at least two Business Days prior to the
date of such prepayment or deposit, specifying the date and amount thereof. If
any such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein. Any prepayment of the Loans under this
Section shall be applied as reasonably specified by the Borrower in such notice
or, if an Event of Default has occurred and is continuing, as the Required
Lenders shall elect in their sole discretion.
(d) The entire outstanding principal amount of the Revolving Credit
Loans, subject to Section 2.10, together with all accrued and unpaid interest
thereon and fees related thereto, shall become due and payable on the
Availability Expiration Date, provided that the Revolving Credit Loans may be
converted to Term Loans subject to the satisfaction by the Borrower of the
requirements of Section 2.10.
(e) The entire outstanding principal amount of the Term Loans,
together with all accrued and unpaid interest thereon, shall become due and
payable on the Term Loan Maturity Date.
SECTION II.14. Payment Procedures.
(a) The Borrower hereby authorizes the Agent to charge the Borrower
with the amount of all interest, fees, expenses and other payments to be made
hereunder and under the other Loan Documents by adding such amount to the
Obligations. The Agent may, but shall not be obligated to, discharge the
Borrower's payment obligations hereunder by so increasing the amount of the
Obligations.
(b) Whenever any payment or other transfer of funds to be made
hereunder shall be stated to be due or made on a day that is not a Business Day,
such payment or transfer may be made on the next succeeding Business Day, and,
if applicable, such extension of time shall be included in the computation of
the amount of interest due hereunder.
SECTION II.15. Collection of Receivables; Application of Collections;
Deposit to Blocked Account.
(a) The Borrower and CHI Finance shall maintain the Depository
Accounts in accordance with the terms of the Depository Account Agreement, to
which the Borrower and CHI Finance shall, except as provided in Section 9.3,
remit all Collections. CHI Finance shall maintain the Blocked Account in
accordance with the terms of the Blocked Account Agreement. All Collections, in
addition to all other cash received by the Borrower and CHI Finance from any
other source including, without limitation, all cash dividends, partnership or
similar distributions and other similar forms of payment made on account of
equity interests, shall promptly upon receipt be deposited into the Depository
Accounts (with the allocation of deposits between the two Depository Accounts to
be made in the reasonable discretion of the Borrower). On the last Business Day
of each month, the aggregate amount of all funds in the Depository Accounts in
excess of $3,000,000 shall be wire transferred to the Blocked Account for
application under Section 2.15(b).
(b) Until the Availability Expiration Date, the Agent shall, so long
as no Event of Default has occurred and is continuing, instruct the Blocked
Account Bank to disburse on the first Business Day of each month amounts held in
the Blocked Account (to the extent the disbursement of such amounts would not
cause the aggregate amount of the outstanding principal balance of the Revolving
Credit Loans plus the aggregate amount of all outstanding Letters of Credit plus
the Interest Reserve to exceed $35,000,000 in the following order of priority:
(i) first, for deposit into the Depository Accounts (with
the allocation of deposits between the
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two Depository Accounts to be made in the reasonable discretion of
the Borrower) an aggregate amount, based on evidence satisfactory to
the Agent submitted to it by the Borrower (including, without
limitation, the reports specified in Section 7.1(k)(iii) and the
statements specified in Section 7.1(k)(iv)) necessary to restore the
aggregate balances in the Depository Accounts to $3,000,000, after
giving effect to all Collections received by the Borrower and CHI
Finance and deposited by them in the Depository Accounts in the
preceding month;
(ii) second, to be applied to the payment of accrued and
unpaid fees and expenses payable to the Agent under or in connection
with this Agreement and the other Loan Documents;
(iii) third, to be ratably applied to the payment of
accrued and unpaid interest, fees and expenses payable to the Lenders
under or in connection with this Agreement and the other Loan
Documents; and
(iv) fourth, to be ratably applied to the payment of such
portion of the principal amount of the Revolving Credit Loans then
outstanding, if any, as the Borrower requests in writing.
Amounts remaining unapplied in the Blocked Account on the first Business Day of
each month shall be invested in a manner similar to that provided in Section
2.12(c). Notwithstanding anything to the contrary set forth above, upon the
occurrence and during the continuance of an Event of Default, the Agent may
apply any and all such amounts for deposit in the L/C Cash Collateral Account or
for ratable payment of such of the Obligations and in such order as it may elect
in its sole and absolute discretion.
(c) Commencing on the Availability Expiration Date, subject to
Section 8.3, the Agent shall, so long as no Event of Default has occurred and is
continuing, instruct the Blocked Account Bank to disburse on the first Business
Day of each month amounts held in the Blocked Account in the following order of
priority:
(i) first, for deposit into the Depository Accounts (with
the allocation of deposits between the two Depository Accounts to be
made in the reasonable discretion of the Borrower), an aggregate
amount, based on evidence satisfactory to the Agent submitted to it
by the Borrower (including, without limitation, the reports specified
in Section 7.1(k)(iii) and the statements specified in Section
7.1(k)(iv)) necessary to restore the aggregate balances in the
Depository Accounts to $3,000,000, after giving effect to all
Collections received by the Borrower and CHI Finance deposited in the
Depository Accounts in the preceding month;
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(ii) second, to be applied to the payment of accrued and
unpaid fees and expenses payable to the Agent under or in connection
with this Agreement and the other Loan Documents;
(iii) third, to be applied ratably to the ratable payment
of accrued and unpaid interest, fees and expenses payable to the
Lenders under or in connection with this Agreement and the other Loan
Documents;
(iv) fourth, to be applied ratably to the payment or
prepayment, as the case may be, of the principal amount then due
under the Term Loans;
(v) fifth, to be applied ratably to prepay such portion of
the principal amount of the Term Loans then outstanding, if any, as
the Borrower requests in writing; and
(vi) sixth, if the Term Loans have been paid in full, to
be deposited in the L/C Cash Collateral Account to the extent
required by Section 2.12(a).
Amounts remaining unapplied in the Blocked Account on the first Business Day of
each month shall be invested in a manner similar to that provided in Section
2.12(c). Notwithstanding anything to the contrary set forth above, upon the
occurrence and during the continuance of an Event of Default, the Agent may
apply any and all such amounts for deposit in the L/C Cash Collateral Account or
for payment of such of the Obligations and in such order as it may elect in its
sole and absolute discretion.
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ARTICLE III
SECURITY
--------
SECTION III.1. General. As security for all of the Obligations, the
Borrower hereby reaffirms, ratifies and grants to the Agent for the ratable
benefit of the Lenders a Lien on all of its right, title and interest in and to
Receivables, other than Restricted Receivables, Inventory, Equipment and (except
as specified below) all other property in all of its forms, tangible and
intangible, wherever located and whether now owned or hereafter acquired, and
all additions and accessions thereto and substitutions and replacements therefor
and improvements thereon, and all proceeds (whether or not cash) and products
thereof including, without limitation, all proceeds of insurance covering the
same and all tort claims in connection therewith, provided that the Borrower (i)
shall be deemed to have granted the Agent for the ratable benefit of the Lenders
a Lien on its right, title and interest in and to each of its Receivables that
no longer constitute Restricted Receivables immediately upon the date that each
such Receivable becomes so unrestricted and (ii) has granted to the Agent for
the ratable benefit of the Lenders a Lien only on the capital stock or other
equity interests of the Borrower in the Pledged Subsidiaries. As further
security for the Obligations, and to provide other assurances to the Agent and
the Lenders, the Agent acknowledges receipt, for the ratable benefit of the
Lenders, of, among other things:
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(a) the Pledge Agreement;
(b) the Support Letter;
(c) the Blocked Account Agreement; and
(d) the Depository Account Agreement.
SECTION III.2. Further Security. The Borrower also grants to the
Agent for the ratable benefit of the Lenders, as further security for all of the
Obligations, a security interest in all of its right, title and interest in and
to all property of the Borrower in the possession of or deposited with or in the
custody of the Agent, any Lender, or any Affiliate of the Agent or any Lender,
or any representative, agent or correspondent of the Agent or any Lender and in
all present and future deposit accounts (as that term is defined in the Code)
including, without limitation, the Depository Accounts, the Blocked Account and
the L/C Cash Collateral Account. For purposes of this Agreement, any property in
which the Agent, any Lender or any such Affiliate has any security or title
retention interest shall be deemed to be in the custody of the Agent, such
Lender or of such Affiliate.
SECTION III.3. Termination. Upon (i) the termination of this
Agreement and the indefeasible payment in full of all Obligations and (ii) (A)
the acknowledgment in writing of all beneficiaries of Letters of Credit as to
the termination of each Letter of Credit or (B) the deposit in the L/C Cash
Collateral Account of an amount not less than 105% of the aggregate then undrawn
amount of the outstanding Letters of Credit, the Agent shall promptly deliver to
the Borrower upon the Borrower's request and at the Borrower's expense, releases
and satisfactions of all financing statements, notices of assignment and other
registrations of security and the Borrower shall deliver to the Agent and the
Lenders a general release of all of the Agent's and the Lenders' liabilities and
obligations under all Loan Documents and an acknowledgment that the same have
been terminated (except for (a) those provisions which are expressly stated to
survive the termination of this Agreement and (b) any obligations with respect
to outstanding Letters of Credit secured by cash collateral). For purposes of
this Section 3.3, the Obligations shall be deemed to be indefeasibly paid in
full (a) if the Borrower (or, if final payment is made by another Person, such
other Person) is Solvent on the date of such payment, after giving effect
thereto or (b) in all other cases, ninety-one days after such final payment in
full.
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SECTION III.4. Recourse to Security. Recourse to security shall not
be required for any Obligation hereunder and the Borrower hereby waives any
requirement that the Agent exhaust any right or take any action against any of
the Collateral before proceeding to enforce the Obligations against the
Borrower.
SECTION III.5. Special Provisions Relating to Receivables and Related
Matters.
(a) Receivables Documents. Upon the occurrence and continuance of an
Event of Default, the Borrower shall deliver to the Agent the following, all in
form, content and scope satisfactory to the Agent:
(i) (A) copies or the originals of each signed note,
letter of credit or other instrument for the payment of money which
evidences a Receivable of the Borrower, (B) any power therefor
executed in blank, duly endorsed to the order of the Agent, and (C) a
schedule listing its Receivables so evidenced; and
(ii) such endorsements or assignments of its Receivables
and other information relating to the Receivables of the Borrower as
the Agent may from time to time reasonably request, and the originals
of any such document or instrument, including, without limitation,
those referred to in clause (i) above, delivered to the Agent shall
be held as collateral by the Agent.
(b) Disputes. Except in the ordinary course of business, the Borrower
shall not, from and after the Closing Date, settle or adjust any Receivable, or
grant any credit or allowance with respect thereto, except, so long no Event of
Default has occurred and is continuing, the Borrower may settle or adjust
Receivables, or grant such credits or allowances, involving a disputed amount
not to exceed $1,000,000 in the aggregate, without the Required Lenders'
consent. The Agent may, with the consent of the Required Lenders (if sought by
the Agent), following the occurrence and continuance of an Event of Default and
after giving written notice of its intent to act in accordance herewith, settle
or adjust disputes or claims directly with account debtors for amounts and upon
terms which it considers advisable.
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SECTION III.6. Special Provisions Relating to Equipment.
(a) Location. Each item of Equipment of the Borrower with a book or
fair market value in excess of $50,000, now owned or hereafter acquired, will be
kept at a location shown on Schedule 3.6(a) and may not be moved for a period of
more than sixty days to a location not specified in such Schedule unless the
Borrower has given the Agent at least thirty days' prior written notice thereof
and the Required Lenders have given their prior written consent thereto, which
shall not be unreasonably withheld or delayed. In no event shall any Equipment
be moved outside the United States or Canada. The Borrower shall at all times
hereafter keep correct and accurate records itemizing and describing the
location, kind, type, age and condition of Equipment, the Borrower's cost
therefor and accumulated depreciation thereof and retirements, sales, or other
dispositions thereof, all of which records shall be available on demand during
the Borrower's usual business hours to any of the officers, employees or agents
of the Agent.
(b) Repair. The Borrower shall keep all of its Equipment in good
repair and good operating condition in accordance with industry standards in all
material respects (normal wear and tear excepted), and will make all repairs and
replacements when and where necessary and practical, consistent with the
then-current Business Plan, will not waste or destroy it or any part thereof,
and will not be negligent in the care or use thereof. The Borrower shall repair
and maintain all Equipment in accordance with industry practices in all material
respects and in a manner sufficient to continue the operation of its business as
heretofore conducted. The Borrower shall keep accurate lists and records of all
the Equipment. The Equipment shall be used in accordance with law and the
manufacturer's instructions and shall be kept separate from and shall not be
annexed or affixed to or become part of any Property or any other realty.
(c) Disposal. Where the Borrower is permitted to dispose of any
Equipment under this Agreement or by any consent thereto hereafter given by the
Required Lenders, the Borrower shall do so at arm's length, in good faith and by
obtaining the maximum amount of recovery practicable therefor and without
impairing the operating integrity or value of the remaining Equipment in any
material respect.
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ARTICLE IV
INTEREST, FEES AND EXPENSES
---------------------------
SECTION IV.1. Interest. The Borrower shall pay to the Agent for the
ratable benefit of the Lenders interest on the Loans calculated monthly in
arrears at an interest rate per annum equal to (i) a fluctuating rate equal to
the Base Rate then in effect, plus 1.50%, with respect to the Revolving Credit
Loans, which shall change each day as the Base Rate changes, and (ii) a
fluctuating rate equal to the Base Rate then in effect, plus 3.50%, with respect
to the Term Loan, in each case to be payable in arrears on the first Business
Day of each month, commencing with the month immediately following the Closing
Date, on the Availability Expiration Date, and on the Term Loan Maturity Date.
SECTION IV.2. Interest After Event of Default. Upon the occurrence
and during the continuance of an Event of Default, interest on the Revolving
Credit Loans shall be payable on the dates referred to in Section 4.1 and on
demand at a rate per annum equal to the rate in effect under Section 4.1(i) plus
2%.
SECTION IV.3. Facility Fee. The Borrower shall pay to the Agent on
the Closing Date a non-refundable facility fee in the amount set forth in the
letter agreement of even date herewith between the Borrower and the Agent.
SECTION IV.4. Unused Line Fee. The Borrower shall, for the period
from the Closing Date through the Availability Expiration Date, pay in arrears
to the Agent for the ratable benefit of the Lenders on the first Business Day of
each month, commencing December, 1999, and on the Availability Expiration Date,
in arrears, an unused line fee equal to .375% per annum of the difference
between (i) the Maximum Amount of the Facility, and (ii) the average daily
outstanding amount of (A) the Revolving Credit Loans and (B) the aggregate
undrawn amount of all outstanding Letters of Credit during such month or portion
thereof; provided, however, that the unused line fee shall be reduced by an
amount equal to .375% of the difference between (i) the aggregate Proportionate
Share of all Defaulting Lenders (if any) and (ii) the average daily outstanding
amount of Revolving Credit Loans made by such Defaulting Lenders during such
month or portion thereof, and all unused line fees shall thereafter be payable
only to non-defaulting Lenders.
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SECTION IV.5. Letter of Credit Fees. The Borrower shall promptly pay
to the Agent, for the account of HUB or any other issuer of Letters of Credit,
all issuance fees, fronting fees, transfer fees and other customary fees and
charges reasonably charged by HUB or such other issuing bank in connection with
the issuance or administration of each Letter of Credit and a letter of credit
fee in the amount set forth in the letter agreement of even date herewith
between the Borrower and the Agent.
SECTION IV.6. Agency Fees. The Borrower shall pay to the Agent for
its own account such closing fees and other fees as may from time to time be
agreed between the Borrower and the Agent.
SECTION IV.7. Early Termination Fee. The Borrower shall have the
right to terminate this Agreement at any time on thirty days' prior written
notice to the Agent, provided that on the date of such termination all
Obligations, including, without limitation, all interest and fees payable to the
date of such termination, including, without limitation, the accrued and unpaid
amount of any agency or similar fees, shall be paid in full, and an amount equal
to the amount of all outstanding Letters of Credit shall be on deposit in the
L/C Cash Collateral Account. If (i) the Borrower gives such notice to terminate
or (ii) the obligations of the Agent to cause Letters of Credit to be issued,
and of the Lenders to purchase participations in Letters of Credit or to make
Revolving Credit Loans, terminate pursuant to Section 9.2(b), in each case prior
to December 31, 2000, the Borrower shall, in addition to all accrued and unpaid
agency and other fees payable under or in connection with this Agreement, pay a
fee to the Agent for the ratable benefit of the Lenders in an amount equal to
$120,000; provided, however, that the Borrower shall not be required to pay the
fee under this Section if the Borrower terminates this Agreement and pays the
Obligations in full (which shall include, without limitation, all Obligations
payable under Section 4.9) within thirty days following the imposition of any
claim for indemnification by any Lender under Section 4.9, (B) the Agent resigns
or (C) the Agent does not hold at least 50.1% of the aggregate Loans outstanding
at any time).
SECTION IV.8. Calculations. All calculations of interest and fees
hereunder shall be made by the Agent, on the basis of a year of 365 or 366 (as
applicable) days for the actual number of days elapsed in the period for which
such interest or fees are payable. Each determination by the Agent of an
interest rate, fee or other payment hereunder shall be final, conclusive and
binding for all purposes, absent manifest error.
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SECTION IV.9. Indemnification in Certain Events. If, after the
Closing Date, either (i) any change in or in the interpretation of any law or
regulation is introduced, including, without limitation, with respect to reserve
requirements, applicable to any of the Lenders or any other banking or financial
institution from which any of the Lenders borrows funds or obtains credit, (ii)
any of the Lenders complies with any future guideline or request from any
central bank or other Governmental Authority or (iii) any of the Lenders
determines that the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof has or would
have the effect described below, or any of the Lenders complies with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, and in the case of any
event set forth in this clause (iii), such adoption, change or compliance has or
would have the direct or indirect effect of reducing the rate of return on any
of the Lender's capital as a consequence of its obligations hereunder to a level
below that which such Lender could have achieved but for such adoption, change
or compliance (taking into consideration such Lender's policies as the case may
be with respect to capital adequacy) by an amount deemed by such Lender to be
material, and any of the foregoing events described in clauses (i), (ii) and
(iii) increases any Lender's cost of funding or maintaining the Loans, or
reduces the amount receivable in respect thereof by any of the Lenders, then the
Borrower shall, upon demand by the Agent, pay to the Agent for the account of
the applicable Lender additional amounts sufficient to indemnify such Lender
against such increase in cost or reduction in amount receivable. Upon the
occurrence of any event giving rise to the application of this Section involving
an amount in excess of $25,000 in the aggregate, or $10,000 per Lender, the
applicable Lender shall, if requested by the Borrower, use reasonable efforts to
avoid or minimize the increase of costs or reduction in the amount receivable
resulting from such event so long as such avoidance or minimization can be made
in such a manner that such Lender, in its sole determination, suffers no
economic, legal or regulatory disadvantage.
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ARTICLE V
CONDITIONS PRECEDENT
--------------------
SECTION V.1. Conditions to Initial Revolving Credit Loans and Initial
Letter of Credit. The obligation of the Agent to cause to be issued the initial
Letter of Credit or of the Lenders to make the initial Revolving Credit Loans or
purchase participations in such Letters of Credit hereunder is subject to the
satisfaction of the following conditions prior to or concurrent with such
initial Revolving Credit Loans or Letter of Credit:
(a) the Agent shall have received the following, each dated the date
of the initial Revolving Credit Loans or Letter of Credit or as of such earlier
date acceptable to the Agent, in form and substance satisfactory to the Agent
and, except for the Revolving Credit Notes, in sufficient copies for each
Lender:
(i) a Revolving Credit Note to the order of each Lender,
duly executed by the Borrower;
(ii) the Pledge Agreement, duly executed by each of the
Pledgors and acknowledged by each of the Borrower's Subsidiaries
specified in Schedule 5.1(a)(ii), together with original certificates
evidencing the shares of stock or other equity interests pledged
thereunder and undated transfer powers therefor, executed in blank,
and the original promissory notes pledged thereunder (including,
without limitation, the Intercompany Note) and undated note powers
therefor, executed in blank;
(iii) the Guaranty, duly executed by each of the Pledgors;
(iv) the Contribution Agreement, duly executed by each of
the Pledgors;
(v) the Blocked Account Agreement, duly executed by the
Agent, CHI Finance and the Blocked Account Bank;
(vi) the Depository Account Agreement, duly executed by
the Agent, the Borrower, CHI Finance and the Depository Account Bank;
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(vii) acknowledgment copies of Uniform Commercial Code
financing statements (naming the Agent as secured party and each of
the Pledgors as debtors) and termination statements, in form and
substance satisfactory to the Agent, duly filed in all jurisdictions
that the Agent deems necessary or desirable to perfect and protect
the Liens created hereunder and under the other Loan Documents;
(viii) completed requests for information, dated on or
before the date of the initial Revolving Credit Loans or Letter of
Credit, listing all effective financing statements that name each of
the Pledgors as debtor, together with copies of such financing
statements;
(ix) the Support Letter, duly executed by Edward M. Stern;
(x) the Subordination Agreement, duly executed by CHI
Finance;
(xi) a Solvency Certificate of each of the Borrower and
the other Pledgors, duly executed by the chief accounting officer of
the Borrower or such Pledgor, as the case may be;
(xii) a completed perfection certificate, substantially in
the form of Exhibit L, signed by a Responsible Officer of the
Borrower and each other Pledgor;
(xiii) (A) the audited Financial Statements for the fiscal
year ended December 31, 1998 certified by PricewaterhouseCoopers LLP,
(B) a certificate executed by the chief accounting officer of the
Borrower certifying that since December 31, 1998, no change, event,
occurrence or development or event involving a prospective change in
the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Borrower or
otherwise has occurred which has had or could reasonably be expected
to have a Material Adverse Effect, and that all information provided
by or on behalf of the Borrower to the Agent hereunder or in
connection herewith is true and correct in all respects and (C) an
internally-prepared balance sheet and profit and loss statement of
CHI Finance for the six-month period ended June 30, 1999, certified
by the chief accounting officer of CHI Finance;
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(xiv) the opinion of counsel for the Borrower and the
other Pledgors, substantially in the form of Exhibit M hereto, which
the Borrower hereby requests its counsel to provide;
(xv) evidence satisfactory to the Agent of all insurance
policies required by this Agreement and the other Loan Documents,
together with loss payee endorsements for all such policies naming
the Agent as lender loss payee or assignee and, in the case of such
policies covering the Facilities, as an additional insured;
(xvi) a copy of the Business Plan, covering the
eleven-year period commencing with the fiscal year of the Borrower
ending December 31, 1999, accompanied by a certificate executed by
the Borrower's chief accounting officer certifying to the Agent that
the Business Plan has been prepared in good faith based upon the
assumptions contained therein and all information currently available
and, as of the date of such certificate, he is not aware of any
information contained in the Business Plan which is false or
misleading;
(xvii) a copy of the Governing Documents of the Borrower
and each other Pledgor and a copy of the resolutions of the board of
directors of the Borrower and each other Pledgor authorizing the
execution, delivery and performance of this Agreement, the other Loan
Documents and the transactions contemplated hereby and thereby,
attached to which is a certificate of the Secretary or an Assistant
Secretary of the Borrower or such Pledgor certifying (A) that such
copies of the Governing Documents and resolutions are true, complete
and accurate copies thereof, have not been amended or modified since
the date of such certificate and are in full force and effect and (B)
the incumbency, names and true signatures of the officers of the
Borrower or such Pledgor authorized to sign the Loan Documents to
which it is or is to be a party;
(xviii) a certified copy of the certificate of the
Secretary of State of the state of incorporation of the Borrower and
each other Pledgor, dated within five days of the Closing Date,
listing the certificate of incorporation of the Borrower or such
other Pledgor and each amendment thereto on file in such official's
office and certifying that such amendments are the only amendments to
such certificate of incorporation on file in that office;
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(xix) a good standing certificate from the Secretary of
State of each state in which the Borrower, each Pledgor and each
Pledged Subsidiary is incorporated or qualified as a foreign
corporation or limited partnership, each dated within five days of
the Closing Date;
(xx) a certified copy of the employment agreement between
the Borrower and Edward M. Stern, which shall be for an initial term
expiring on December 31, 2002, subject to subsequent automatic
renewal absent notice to the contrary, together with evidence
satisfactory to the Agent that Edward M. Stern has been elected to
the board of directors of the Borrower commencing November 7, 1997;
(xxi) copies of any other material agreements, or other
documents or instruments evidencing obligations of the Borrower due
to any Person other than the Agent and the Lenders;
(xxii) an environmental assessment of the Facilities and
other real property of the Borrower and its Subsidiaries, in form and
substance satisfactory to the Agent, prepared by Victor Engel, the
Borrower's Director of Engineering and Construction, or another
certified environmental engineer satisfactory to the Agent;
(xxiii) such agreements and instruments as any issuer of
Letters of Credit deems necessary to issue letters of credit; and
(xxiv) such other agreements and instruments as the Agent
reasonably deems necessary.
(b) There shall be no pending or threatened litigation, proceeding,
inquiry or other action seeking an injunction or other restraining order,
damages or other relief with respect to the transactions contemplated by this
Agreement, the other Loan Documents, or the transactions contemplated hereby or
thereby or the Borrower's business, prospects, operations, assets, liabilities
or conditions (financial or otherwise), except where such litigation,
proceeding, inquiry or other action could not reasonably be expected to have a
Material Adverse Effect.
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(c) The Borrower shall have paid all accrued fees and expenses of the
Agent in connection with the negotiation, preparation, execution and delivery of
the Loan Documents (including, without limitation, all of the Agent's
examination, audit, appraisal, environmental assessment, recording and travel
expenses and the fees and expenses of counsel to the Agent) and all other fees
required to be paid by the Borrower on or before the Closing Date under Article
IV.
(d) Except for (i) the filing of financing and termination statements
under the Code specified in Section 5.1(a)(vii) and (ii) consents or
authorizations which have been obtained and are specified in Schedule 6.1(f), no
consent or authorization of, filing with or other act by or in respect of, any
Governmental Authority or any other Person shall be required in connection with
the execution, delivery, performance, validity or enforceability of this
Agreement, the Notes or the other Loan Documents or the consummation of the
transactions contemplated hereby or thereby or the continuing operations of the
Borrower or any of its Subsidiaries following the consummation of such
transactions.
(e) (i) No change, occurrence, event or development or event
involving a prospective change that could reasonably be expected to have a
Material Adverse Effect shall have occurred and be continuing since December 31,
1998, and (ii) there shall not have occurred a substantial impairment of the
financial markets generally that could reasonably be expected to affect
materially and adversely the transactions contemplated hereby, in each case as
determined by the Agent in its sole discretion.
(f) The Agent and its counsel shall have performed (i) a review
satisfactory to the Agent of all of the Material Contracts and other assets of
the Borrower, the financial condition of the Borrower, including, without
limitation, all of its tax, litigation, environmental, ERISA and other
liabilities (including contingent liabilities and all liabilities of the
Borrower under its chapter 11 plan), and the corporate and capital structure of
the Borrower; (ii) site visits and reference checks; and (iii) a collateral
review, in each case with results satisfactory to the Agent.
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(g) The Borrower shall be in compliance in all material respects with
all Requirements of Law and Material Contracts.
(h) There shall exist no Default, and the representations and
warranties contained in this Agreement and the other Loan Documents shall be
true and correct immediately prior to, and after giving effect to, the Revolving
Credit Loans to be made or Letters of Credit to be issued on the Closing Date
and the application of the proceeds thereof.
SECTION V.2. Conditions Precedent to Each Revolving Credit Loan and
Each Letter of Credit. The obligation of the Lenders to make any Revolving
Credit Loans other than the initial Revolving Credit Loans or to purchase
participations in any Letters of Credit caused to be issued by the Agent, and of
the Agent to cause to be issued any Letters of Credit, in each case other than
the initial Letter of Credit, are subject to the following conditions precedent:
(a) all representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct on and as of the date of
such Revolving Credit Loan or Letter of Credit as if then made, other than
representations and warranties that expressly relate solely to an earlier date,
in which case they shall be true and correct as of such earlier date;
(b) no Default shall have occurred and be continuing, or would result
from the making of, the requested Revolving Credit Loan or Letter of Credit as
of the date of such request;
(c) no Material Adverse Effect shall have occurred or shall be
reasonably likely to occur, after giving effect to the making of such Revolving
Credit Loan or the issuance of such Letter of Credit, as a result of any drawing
or payment under a Letter of Credit with respect to which the Agent has not
received for the ratable benefit of the Lenders cash collateral for the full
amount thereof; and
(d) the Projected Minimum Coverage Ratio, as of the date of such
Revolving Credit Loans and taking into account the aggregate principal amount of
such Revolving Credit Loans, is not less than 1:15 to 1.00.
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SECTION V.3. Determinations Under Section 5.1. For purposes of
determining compliance with the conditions specified in Section 5.1, each Lender
shall be deemed to have consented to, approved or accepted or to be satisfied
with each document or other matter required thereunder to be consented to or
approved by or to be acceptable or satisfactory to the Lenders unless the Agent
and the Borrower shall have received written notice from such Lender prior to
the initial Revolving Credit Loans or Letter of Credit specifying its objection
thereto.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION VI.1. Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a) Organization, Good Standing and Qualification. Each of the
Borrower and its Subsidiaries (i) is a corporation or partnership duly
organized, validly existing and (if a corporation or limited partnership) in
good standing under the laws of the state of its organization specified in
Schedule 6.1(a), (ii) has the power and authority to own its properties and
assets and to conduct the business in which it now is, or proposes to be,
engaged and (iii) except for CHI-Dexter, Inc. and CHI-Black River, Inc. (which
are not qualified or authorized to do business in the State of New York), is
duly qualified, authorized to do business and (if a corporation or limited
partnership) in good standing in each jurisdiction where it now is, or proposes
to be, engaged in business. Schedule 6.1(a) specifies each jurisdiction in which
the Borrower and its Subsidiaries is qualified to do business as a foreign
corporation or limited partnership as of the Closing Date.
(b) Locations of Offices, Records and Collateral. The address of the
principal place of business and chief executive office of each of the Borrower
and the other Pledgors is the address specified in the introductory paragraph of
this Agreement (other than Essex Company, whose principal place of business and
chief executive office is located in Andover, Massachusetts), and the books and
records of the Borrower and all of its chattel paper are maintained at, the
address of the Borrower specified in the introductory paragraph of this
Agreement and the other locations specified in Schedule 6.1(b). Records of the
Borrower's Receivables are maintained at the offices specified in Schedule
6.1(b). There is no jurisdiction in which the Borrower has any Collateral valued
in excess of $50,000 in the aggregate other than those jurisdictions specified
in Schedule 6.1(b).
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(c) Authority. Each of the Borrower and the other Pledgors has the
requisite corporate power and authority to execute, deliver and perform its
obligations under each of the Loan Documents. All corporate action necessary for
the execution, delivery and performance by the Borrower and each other Pledgor
of the Loan Documents (including the consent of shareholders where required) has
been taken.
(d) Enforceability. This Agreement is and, when executed and
delivered, each other Loan Document to which the Borrower and each other Pledgor
is a party will be, the legal, valid and binding obligation of the Borrower or
such Pledgor enforceable in accordance with its terms, except as enforceability
may be limited by (i) bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) general principles of equity.
(e) No Conflict. The execution, delivery and performance of each Loan
Document by the Borrower and each other Pledgor do not and will not contravene
(i) any of the Governing Documents of the Borrower or such Pledgor, (ii) any
Requirement of Law or (iii) any Material Contract, and will not, except as
expressly specified herein, result in the imposition of any Liens upon any of
its properties.
(f) Consents and Filings. No consent, authorization or approval of,
or filing with or other act by, any Governmental Authority or other Person is
required in connection with the execution, delivery, performance, validity or
enforceability of this Agreement or any other Loan Document, the consummation of
the transactions contemplated hereby or thereby or the continuing operations of
the Borrower or any of its Subsidiaries following such consummation, except (i)
those that have been obtained or made and are specified in Schedule 6.1(f) and
(ii) the filing of financing and termination statements under the Code.
(g) Subsidiaries; Ownership. As of the Closing Date, the Borrower has
no Subsidiaries and owns no capital stock or other equity interests, directly or
indirectly, of any other Person except as specified in Schedule 6.1(g). The
capital stock of the Borrower and its Subsidiaries is owned by the Persons and
in the amounts specified in Schedule 6.1(g). Each Designated Subsidiary and
Excluded Existing Subsidiary is designated as such on Schedule 6.1(g).
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(h) Affiliate Transactions. Except as specified in Schedule 6.1(h),
neither the Borrower nor any of its Subsidiaries is a party to or bound by any
agreement or arrangement (whether oral or written) to which any Affiliate of the
Borrower or such Subsidiary is a party except (i) in the ordinary course of and
pursuant to the reasonable requirements of the Borrower's or such Subsidiary's
business and (ii) upon fair and reasonable terms no less favorable to the
Borrower or such Subsidiary than it could obtain in a comparable arm's-length
transaction with an unaffiliated Person.
(i) Financial Data. The Borrower has provided to the Agent complete
and accurate copies of audited Financial Statements for the fiscal year ended
December 31, 1998. Such statements have been prepared in accordance with
accounting principles consistently applied throughout the period involved and
fairly present the results of operations and profits and losses of the Borrower
for the period covered. Except as specified in such Financial Statements or
Schedule 6.1(i), neither the Borrower nor any of its Designated Subsidiaries
has, as of the Closing Date, any Contingent Obligation, or liability for taxes,
unrealized losses, unusual forward or long-term commitments or long-term leases,
in each case involving an amount in excess of $50,000. During the period from
December 31, 1998 to and including the date hereof, there has been no sale,
transfer or other disposition by the Borrower or any of its Subsidiaries of any
part of its business or property and no purchase or other acquisition of any
business or property (including any capital stock of any other Person) with a
book or fair market value in excess of $1,000,000 in the aggregate for all such
sales, transfers or other dispositions. Since December 31, 1998, (i) there has
been no change, occurrence, development or event which has had or could
reasonably be expected to have a Material Adverse Effect and (ii) none of the
capital stock of the Borrower has been redeemed, retired, purchased or otherwise
acquired for value by the Borrower.
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(j) Accuracy and Completeness of Information. All data, reports and
information heretofore or contemporaneously furnished by or on behalf of the
Borrower in writing to the Agent, any of the Lenders or the Auditors for
purposes of or in connection with this Agreement or any other Loan Document, or
any transaction contemplated hereby or thereby, are true and accurate in all
material respects on the date as of which such data, reports and information are
dated or certified and not incomplete by omitting to state any material fact
necessary to make such data, reports and information not misleading at such
time. There are no facts now known to any officer of the Borrower which
individually or in the aggregate could reasonably be expected to have a Material
Adverse Effect and which have not been specified herein, in the Financial
Statements, or in any certificate, opinion or other written statement made or
furnished by the Borrower to the Agent or any of the Lenders.
(k) No Joint Ventures or Partnerships. As of the Closing Date, the
Borrower is not engaged in any joint venture or partnership with any other
Person except as specified in Schedule 6.1(k).
(l) Corporate and Trade Name. During the past five years, the
Borrower has not been known by or used any corporate, trade or fictitious name
other than Consolidated Hydro, Inc., CHI and CHI Energy, Inc.
(m) No Actual or Pending Material Modification of Business. Except as
specified in the Business Plan delivered to the Agent on the Closing Date, there
exists no actual or, to the best of the Borrower's knowledge, threatened
termination, cancellation, limitation, modification or change in or of the
business relationship of the Borrower or any of its Subsidiaries with any
customer or group of customers whose purchases individually or in the aggregate
could reasonably be expected to have a Material Adverse Effect.
(n) No Broker's or Finder's Fees. No broker or finder brought about
the obtaining, making or closing of the financial accommodations afforded
hereunder or in connection herewith by the Agent or the Lenders. No broker's or
finder's fees or commissions will be payable by the Borrower to any Person in
connection with the transactions contemplated by this Agreement.
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(o) Investment Company. The Borrower is not an "investment company,"
or an "affiliated Person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended. Neither the making of any Revolving Credit Loan or the
application of the proceeds or repayment thereof by the Borrower, nor the
consummation of the other transactions contemplated by this Agreement or the
other Loan Documents will violate any provision of such Act or any rule,
regulation or order of the Securities and Exchange Commission thereunder.
(p) Public Utility.
(i) Neither the Borrower nor any of its Subsidiaries (by
reason of any action or inaction or by reason of the ownership or
operation by it or any Affiliate of any Facility or otherwise) is
subject to any type of financial, organizational or rate regulation
as an Electric Utility or to be regulated as a "public utility
company" or a company which is a "holding company" of a "public
utility company" subject to registration with the Securities and
Exchange Commission or to regulation under PUHCA.
(ii) Neither the Agent or the Lenders, nor any of their
Affiliates will, solely (i.e., without regard to any other activity
or operation) by reason of this Agreement and the other Loan
Documents and the consummation of the transactions contemplated
hereby and thereby, be or deemed to be, or subject to regulation as a
"public utility company" or a company which is a "holding company" of
a "public utility company" subject to registration with the
Securities and Exchange Commission or to regulation under PUHCA or
any other Requirement of Law regulating utilities or independent
power procedures.
(iii) Each Facility owned by the Borrower or any of its
Affiliates on the Closing Date is (A) a "qualifying facility" within
the meaning of the PURPA regulations, eligible for the benefit of the
exemptions provided by 18 C.P.R. " 292.601 or an "exempt wholesale
generator" under the National Energy Policy Act of 1992 or (B) exempt
from all regulation under PUHCA.
(q) Margin Stock. The Borrower does not own any "margin stock" as
that term is defined in Regulation U of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") and the proceeds of Revolving
Credit Loans will be used only for the purposes contemplated hereunder.
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(r) Taxes and Tax Returns.
(i) The Borrower has properly completed and timely filed
all income tax returns it is required to file up to and including for
the year ended December 31, 1998. The information filed is complete
and accurate in all material respects. To the best of the Borrower's
knowledge, after due inquiry, all deductions taken in such income tax
returns are appropriate and in accordance with applicable laws and
regulations.
(ii) Except as specified in Schedule 6.1(r), all taxes,
assessments, fees and other governmental charges for periods
beginning prior to the date hereof have been timely paid (or, if not
yet due, adequate reserves therefor have been established) and the
Borrower has no liability for taxes in excess of the amounts so paid
or reserves so established, except for those outstanding taxes
secured by Permitted Liens.
(iii) Except as specified in Schedule 6.1(r), (A) no
deficiencies for taxes have been claimed, proposed or assessed by any
taxing or other Governmental Authority against the Borrower and no
tax Liens have been filed other than Permitted Liens and (B) there
are no pending or threatened audits, investigations or claims for or
relating to any liability of the Borrower for taxes and there are no
matters under discussion with any Governmental Authority which could
result in an additional liability of the Borrower for taxes beyond
amounts reserved therefor in accordance with GAAP. Except as is
required solely for the use by the Borrower of net operating loss
carryforwards, no extension of a statute of limitations relating to
taxes, assessments, fees or other governmental charges is in effect
as of the Closing Date with respect to the Borrower.
(iv) As of the Closing Date, the Borrower is not a party
to and has no obligations under any written tax sharing agreement or
agreement regarding payments in lieu of taxes.
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(s) No Judgments or Litigation. Except as specified in Schedule
6.1(s), no judgments, orders, writs or decrees are outstanding against the
Borrower or any of its Subsidiaries or otherwise involving any Facility, nor is
there pending or threatened any litigation, contested claim, investigation,
arbitration, or governmental proceeding by or against the Borrower or any of its
Subsidiaries or otherwise involving any Facility that (i) individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of this Agreement,
the Notes or any other Loan Document or the consummation of the transactions
contemplated hereby or thereby.
(t) Real Property. Except as specified in Schedule 6.1(t), as of the
Closing Date, the Borrower does not own or lease any real property.
(u) Title to Property. The Borrower has (i) good and marketable fee
simple title to or valid leasehold interests in all of its real property and
(ii) good and marketable title to all of its other property, in each case free
and clear of Liens other than those Liens permitted by Section 7.2(c).
(v) No Other Indebtedness. After giving effect to the closing of this
Agreement and the transactions contemplated hereby, (A) the Borrower and its
Subsidiaries have no Indebtedness other than Indebtedness that is permitted
under Section 7.2(a) and (B) CHI Finance has no indebtedness, liabilities or
Contingent Obligations of any kind except as permitted under Section
7.2(b)(iii).
(w) Investments; Contracts. Except as specified in the Business Plan
or Schedule 6.1(i), neither the Borrower nor any of its Subsidiaries (i) has
committed to make any Investment to be paid from Projected Adjusted Consolidated
Unrestricted Cash Flow generated after the Availability Expiration Date and
involving an amount in excess of $1,000,000 in the aggregate, (ii) is a party to
any indenture, agreement, contract, instrument or lease or subject to any
charter, by-law or other corporate restriction or any injunction, order,
restriction or decree, which would materially and adversely affect its business,
operations, assets or financial condition, (iii) is a party to any "take or pay"
contract or (iv) has any material contingent or long-term liability, including,
without limitation, management contracts (excluding employment contracts of
full-time individual officers or employees and severance plans for former
officers or employees previously disclosed to the Agent in writing).
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(x) No Defaults. After giving effect to the closing of the
transactions contemplated herein, neither the Borrower nor any of its
Subsidiaries is in default under any term of any Material Contract or
Requirement of Law, which default could reasonably be expected to have a
Material Adverse Effect or otherwise cause an Event of Default to occur, nor has
the Borrower or any of its Subsidiaries received notice of any such default.
(y) Rights in Collateral; Priority of Liens. All of the Collateral is
owned or leased by the Borrower or the Pledgors, as applicable, free and clear
of any and all Liens, other than Permitted Liens. Upon the proper filing of the
financing statements and the termination statements specified in Section
5.1(a)(vii), the Liens granted pursuant to the Loan Documents constitute valid
and enforceable first, prior and perfected Liens on the Collateral.
(z) ERISA.
(i) Except as specified in Schedule 6.1(z), as of the
Closing Date, neither the Borrower nor any ERISA Affiliate maintains
or contributes to any Plan.
(ii) The Borrower and each ERISA Affiliate have fulfilled
all contribution obligations for each Plan (including obligations
related to the minimum funding standards of ERISA and the Internal
Revenue Code), and no application for a funding waiver or an
extension of any amortization period pursuant to Sections 303 and 304
of ERISA or Section 412 of the Internal Revenue Code has been made
with respect to any Plan.
(iii) No Termination Event has occurred nor has any other
event occurred that is likely to result in a Termination Event.
Neither the Borrower or any ERISA Affiliate, nor any fiduciary of any
Plan, is subject to any direct or indirect liability with respect to
any Plan under any Requirement of Law or agreement.
(iv) Neither the Borrower nor any ERISA Affiliate is
required to or reasonably expects to be required to provide security
to any Plan under Section 307 of ERISA or Section 401(a)(29) of the
Internal Revenue Code.
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(v) The Borrower and each ERISA Affiliate are in
compliance in all respects with any applicable provisions of ERISA
with respect to all Plans. There has been no prohibited transaction
as defined in Section 406 of ERISA or Section 4975 of the Internal
Revenue Code (a "Prohibited Transaction") with respect to any Plan or
any Multiemployer Plan. The Borrower and each ERISA Affiliate have
made when due any and all payments required to be made under any
agreement relating to a Multiemployer Plan or any Requirement of Law
pertaining thereto. With respect to each Plan and Multiemployer Plan,
the Borrower and each ERISA Affiliate have not incurred any liability
to the PBGC and have not had asserted against them any penalty for
failure to fulfill the minimum funding requirements of ERISA.
(vi) Each Plan which is intended to qualify under Section
401(a) of the Internal Revenue Code has received a favorable
determination letter from the IRS and no event has occurred which
would cause the loss of such qualification.
(vii) Neither the Borrower nor any ERISA Affiliate has
instituted or intends to institute proceedings to terminate any Plan.
(aa) Intellectual Property. Neither the Borrower nor any of its
Subsidiaries has any patents, trademarks, trade names, service marks or
copyrights, or any applications therefor or licenses thereof. To the best of the
Borrower's knowledge, neither the Borrower nor any of its Subsidiaries has
infringed any patent, trademark, service-mark, tradename, copyright, license or
other right owned by any other Person by the sale or use of any product,
process, method, substance, part or other material presently contemplated to be
sold or used, where such sale or use could reasonably be expected to have a
Material Adverse Effect and no claim or litigation is pending, or to the best of
the Borrower's knowledge, threatened against or affecting the Borrower or any of
its Subsidiaries that contests its right to sell or use any such product,
process, method, substance, part or other material.
(bb) Labor Matters. There are no collective bargaining agreements to
which the Borrower or any of its Subsidiaries is a party as of the Closing Date.
There are no existing or threatened strikes, lockouts or other disputes relating
to any collective bargaining or similar agreement to which the Borrower or any
of its Subsidiaries is a party which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(cc) Compliance with Environmental Laws. Except as specified in
Schedule 6.1(ac), (i) neither the Borrower nor any of its Subsidiaries is the
subject of a judicial or administrative proceeding or investigation relating to
the violation of any Environmental Law or asserting potential liability arising
from the release or disposal by any Person of any Hazardous Materials, (ii)
neither the Borrower nor, to the best of its knowledge after due inquiry, any of
its Subsidiaries has filed or received any notice under any Environmental Law
concerning the treatment, storage, disposal, spill or release or threatened
release of any Hazardous Materials at, on, beneath or adjacent to property owned
or leased by it, or the release or threatened release at any other location of
any Hazardous Material generated, used, stored, treated, transported or released
by or on behalf of the Borrower or any of its Subsidiaries and (iii) the
Borrower has no knowledge of any contingent liability of the Borrower or any of
its Subsidiaries for any release of any Hazardous Materials, which proceedings,
investigations notices and liabilities involve an amount in excess of $1,000,000
in the aggregate.
(dd) Licenses and Permits. Each of the Borrower and its Subsidiaries
has obtained, and holds in full force and effect, all franchises, licenses,
leases, permits, certificates, authorizations, qualifications, easements, rights
of way and other rights and approvals which are material to and necessary or
advisable for the operation of its business as now conducted and as proposed to
be conducted.
(ee) Material Contracts. Set forth on Schedule 6.1(ae) is a complete
and accurate list of all Material Contracts, as of the date hereof, showing the
parties, subject matter and term thereof. Each such contract has been duly
authorized, executed and delivered by the Borrower or its Subsidiary, as the
case may be, and each other party thereto. Each Material Contract is in full
force and effect and is binding upon and enforceable against all parties thereto
in accordance with its terms, and there exists no continuing default under such
contract by any party thereto which would enable any party to terminate the same
or be excused from performance thereunder.
(ff) Business and Properties. The business of the Borrower or any of
its Subsidiaries is not affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God or of the public enemy or other casualty (whether or not covered by
insurance) that could reasonably be expected to have a Material Adverse Effect.
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(gg) Business Plan. The Business Plan and the Financial Statements
described in Section 6.1(i) delivered to the Agent on the Closing Date were
prepared in good faith on the basis of assumptions which were fair in the
context of the conditions existing at the time of delivery thereof and projected
for the period covered thereby, and, with respect to the Business Plan,
represented, at the time of delivery, the Borrower's best estimate of its future
financial performance.
(hh) Pledged Subsidiaries. The Pledged Subsidiaries constitute all
Subsidiaries of the Borrower, other than Excluded Existing Subsidiaries, whose
capital stock or other equity interests are not subject to restrictions
including, without limitation, terms of instruments of Permitted Indebtedness,
prohibiting the creation of a Lien thereon in favor of the Agent or the Lenders.
(ii) Instruments. The Borrower has furnished to the Agent the
originals of all letters of credit, promissory notes and other instruments in
its favor and such endorsements or assignments required by the Agent, and there
exist no other such instruments as of the Closing Date.
(jj) Survival of Representations. All representations made by the
Borrower in this Agreement and in any other Loan Document executed and delivered
by it in connection herewith shall survive the execution and delivery hereof and
thereof and the closing of the transactions contemplated hereby and thereby.
ARTICLE VII
COVENANTS OF THE BORROWER
-------------------------
SECTION VII.1. Affirmative Covenants. Until the satisfaction of all
Obligations in full, the termination of the Revolving Credit Commitments and the
Agent's obligation to cause to be issued Letters of Credit, and the expiration
or full cash collateralization of all Letters of Credit:
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(a) Corporate Existence. The Borrower shall, and shall cause each of
its Subsidiaries to, (i) maintain its corporate existence (if it is a
corporation) or its status as a partnership (if it is a partnership), (ii)
qualify to transact business as a foreign corporation or partnership where the
nature or extent of its business or the ownership of its property requires it to
be so qualified and (iii) maintain in full force and effect all licenses, bonds,
franchises, leases, trademarks and qualifications to do business, and all
patents, contracts and other rights and privileges necessary or advisable to the
profitable conduct of its businesses or the performance of its obligations under
this Agreement and the other Loan Documents, except to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
(b) Maintenance of Property. The Borrower shall, and shall cause each
of its Designated Subsidiaries to, keep all property useful, necessary and
material to its business in good working order and condition (ordinary wear and
tear excepted) as may be required or appropriate.
(c) Affiliate Transactions. The Borrower shall conduct transactions
with its Affiliates on an arm's-length basis or other basis no less favorable to
the Borrower than could be obtained in a comparable arm's-length transaction
with a Person that is not an Affiliate of the Borrower.
(d) Taxes and other Claims. The Borrower shall, and shall cause each
of its Subsidiaries to, pay and discharge when due (i) all federal, state and
local tax assessments and other governmental charges and levies imposed against
the Borrower or such Subsidiary or any of its property; and (ii) all lawful
claims that, if unpaid, might by law become a Lien upon its property; provided,
however, that any such tax assessment, charge, levy or claim need not be paid if
it is being contested, in good faith, by appropriate proceedings diligently
conducted and if an adequate reserve or other appropriate provision shall have
been made therefor as required in accordance with GAAP.
(e) Government Regulations. The Borrower shall, and shall cause each
of its Subsidiaries to, comply with all applicable federal, state, local or
foreign laws and regulations, including, without limitation, those relating to
environmental matters, employee matters (including the collection, payment and
deposit of employees' income, unemployment and social security taxes) and with
respect to pension liabilities, except where the failure to comply would not
have a Material Adverse Effect.
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(f) Insurance. The Borrower shall, and shall cause each of its
Subsidiaries to, maintain adequate insurance on all property and assets of the
Borrower or such Subsidiary (including, without limitation, the Collateral) and
its Subsidiaries (including, without limitation, the Facilities), including
fire, theft, burglary, pilferage, casualty, general liability, worker's
compensation, public liability, business interruption, third party property
damage and replacement value insurance under such policies of insurance, with
such insurance companies, in such amounts and covering such risks as are at all
times reasonably satisfactory to the Agent, all of which policies covering (i)
the Collateral shall name the Agent as loss payee and (ii) the Facilities (to
the extent available) shall name the Agent as an additional insured.
(g) Books and Records; Inspections. The Borrower shall, and shall
cause each of its Subsidiaries to, (i) maintain adequate books and records
(including, without limitation, computer printouts and programs) in accordance
with GAAP and otherwise reflecting all financial transactions of the Borrower or
such Subsidiary, (ii) maintain books and records (including, without limitation,
computer printouts and programs) pertaining to the Collateral in such detail,
form and scope as is consistent with good business practice and (iii) provide
the Agent and its agents access to the premises of the Borrower or such
Subsidiary at any reasonable time and from time to time, during normal business
hours and upon reasonable notice under the circumstances, and at any reasonable
time on and after the occurrence of a Default, for the purposes of (A)
inspecting and verifying the Collateral, (B) inspecting and copying (at the
Borrower's expense) any and all records pertaining thereto, and (C) discussing
the affairs, finances and business of the Borrower or any of its Subsidiaries
with any officers or directors of the Borrower or any of its Subsidiaries or
with the Auditors.
(h) Notification Requirements. The Borrower shall timely give to each
Lender the following notices and other documents:
(i) Notice of Defaults. Promptly, and in any event within
five Business Days after becoming aware of the occurrence of a
Default, a certificate of the chief accounting officer of the
Borrower specifying the nature thereof and the Borrower's proposed
response thereto, each in reasonable detail.
(ii) Proceedings, Adverse Changes and other Events.
Promptly, and in any event within ten Business Days after the
Borrower becomes aware of any of the following, (A) notice of (I) any
proceeding being
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instituted or threatened to be instituted by or against the Borrower
or any of its Subsidiaries in any federal, state, local or foreign
court or before any commission or other regulatory body (federal,
state, local or foreign) which has or could reasonably be expected to
have a Material Adverse Effect, (II) any order, judgment or decree
which has or could reasonably be expected to have a Material Adverse
Effect being entered against the Borrower or any of its Subsidiaries
or any of its properties or assets, (III) any actual change,
development or event including, without limitation, any investigation
or proceeding before any Governmental Authority which has had or
could reasonably be expected to have a Material Adverse Effect, (IV)
a change in the location of any of the Collateral from the places
indicated in or permitted by this Agreement or any other Loan
Document, or (V) a proposed or actual change of the Borrower's or any
of its Designated Subsidiaries' or any Pledgor's name, identity or
corporate structure, and (B) a written statement describing such
proceeding, order, judgment, decree, change, development or event and
any action being taken with respect thereto by the Borrower or such
Subsidiary.
(iii) ERISA Notices.
(A) Promptly, and in any event within ten
Business Days after a Termination Event has occurred, a
written statement of the chief accounting officer of the
Borrower describing such Termination Event and any action
that is being taken with respect thereto by the Borrower
or any ERISA Affiliate, and any action taken or threatened
by the Internal Revenue Service, the Department of Labor
or the PBGC;
(B) promptly, and in any event within ten
Business Days after the filing thereof with the Internal
Revenue Service, a copy of each funding waiver request
filed with respect to any Plan subject to the funding
requirements of Section 412 of the Internal Revenue Code
and all communications received by the Borrower or any
ERISA Affiliate with respect to such request;
(C) promptly, and in any event within ten
Business Days after receipt by the Borrower or any ERISA
Affiliate of the PBGC's intention to terminate a Pension
Plan or to have a trustee appointed to administer a
Pension Plan, a copy of each such notice;
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(D) promptly, and in any event within ten
Business Days after the occurrence thereof, notice
(including the nature of the event and, when known, any
action taken or threatened by the Internal Revenue Service
or the PBGC with respect thereto) of:
(I) any Prohibited Transaction which
could subject the Borrower or any ERISA
Affiliate to a civil penalty assessed pursuant
to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Internal Revenue Code in
connection with any Plan, or any trust created
thereunder,
(II) any cessation of operations (by
the Borrower or any ERISA Affiliate) at a
facility in the circumstances described in
Section 4062(e) of ERISA,
(III) a failure by the Borrower or
any ERISA Affiliate to make a payment to a Plan
required to avoid imposition of a Lien under
Section 302(f) of ERISA or Section 412(n) of
the Internal Revenue Code,
(IV) the adoption of an amendment to
a Plan requiring the provision of security to
such Plan pursuant to Section 307 of ERISA or
Section 401(a)(29) of the Internal Revenue
Code, or
(V) any change in the actuarial
assumptions or funding methods used for any
Plan, where the effect of such change is
materially to increase or reduce the unfunded
benefit liability or obligation to make
periodic contributions;
(E) promptly upon the request of the Agent,
each annual report (IRS Form 5500 series) and all
accompanying schedules, the most recent actuarial reports,
the most recent financial information concerning the
financial status of each Plan administered or maintained
by the Borrower or any ERISA Affiliate, and schedules
showing the amounts contributed to each such Plan by or on
behalf of the Borrower or any ERISA Affiliate in which any
of its personnel participate or from which such
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personnel may derive a benefit, and each Schedule B
(Actuarial Information) to the annual report filed by the
Borrower or any ERISA Affiliate with the Internal Revenue
Service with respect to each such Plan;
(F) promptly upon the filing thereof, copies of
any Form 5310, or any successor or equivalent form to Form
5310, filed with the PBGC in connection with the
termination of any Plan, and copies of any standard
termination notice or distress termination notice filed
with the PBGC in connection with the termination of any
Pension Plan;
(G) promptly, and in any event within ten
Business Days after receipt thereof by the Borrower or any
ERISA Affiliate, notice and demand for payment of
withdrawal liability under Section 4201 of ERISA with
respect to a Multiemployer Plan;
(H) promptly, and in any event within ten
Business Days after receipt thereof by the Borrower or any
ERISA Affiliate, notice by the Department of Labor of any
penalty, audit, investigation or any purported violation
of ERISA with respect to a Plan;
(I) promptly, and in any event within ten
Business Days after receipt thereof by the Borrower or any
ERISA Affiliate, notice by the Internal Revenue Service or
the Treasury Department of any income tax deficiency or
delinquency, excise tax penalty, audit or investigation
with respect to a Plan; and
(J) promptly, and in any event within ten
Business Days after receipt thereof by the Borrower or any
ERISA Affiliate, notice of any administrative or judicial
complaint, or the entry of a judgment, award or settlement
agreement, in either case with respect to a Plan that
could have a Material Adverse Effect.
(iv) Material Contracts. Promptly, and in any event within
ten Business Days after (A) any Material Contract is terminated or
amended (other than amendments which are ministerial or
non-substantive in nature as determined by the Agent in its sole
discretion) or (B) any new Material Contract is entered into,
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a written statement describing such event, with copies of
amendments or new contracts, and an explanation of any
actions being taken with respect thereto.
(v) Environmental Matters. Promptly, and in any event
within ten Business Days after receipt by the Borrower or any of its
Subsidiaries thereof, copies of each (A) written notice that any
violation of any Environmental Law may have been committed or is
about to be committed by the Borrower or such Subsidiary, (B) written
notice that any administrative or judicial complaint or order has
been filed or is about to be filed against the Borrower or such
Subsidiary alleging violations of any Environmental Law or requiring
the Borrower or such Subsidiary to take any action in connection with
the release of toxic or Hazardous Materials into the environment, or
(C) written notice from a Governmental Authority or other Person
alleging that the Borrower or such Subsidiary may be liable or
responsible for costs associated with a response to or cleanup of a
release of a Hazardous Material into the environment or any damages
caused thereby, which notices involve an amount in excess of
$1,000,000 in the aggregate.
(i) Casualty Loss. The Borrower shall (i) provide written notice to
the Agent, within ten Business Days, of any damage to, the destruction of or any
other loss to any asset or property owned or used by the Borrower or any
condemnation, confiscation or other taking, in whole or in part, or any use that
otherwise diminishes so as to render impracticable or unreasonable the use of
such asset or property owned or used by the Borrower together with the amount of
the damage, destruction, loss or diminution in value, in each case if the amount
involved exceeds $200,000 (a "Casualty Loss") and (ii) diligently file and
prosecute its claim or claims for any award or payment in connection with a
Casualty Loss.
(j) Instruments. The Borrower shall furnish to the Agent the
originals of all letters of credit, promissory notes and other instruments in
its favor and such endorsements or assignments as the Agent may reasonably
request.
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(k) Financial Reporting. The Borrower shall deliver to the Agent and
each Lender the following:
(i) Annual Financial Statements. As soon as available, but
not later than one hundred twenty days after the end of each fiscal
year of the Borrower, beginning with the fiscal year ending December
31, 1999, (A) the Borrower's annual audited Financial Statements; (B)
to the extent not included in the Financial Statements delivered
pursuant to clause (A) above, a comparison in reasonable detail to
the prior year's financial statements in form satisfactory to the
Agent; (C) the Auditors' unqualified opinion, a "Management Letter"
and a statement indicating (I) that, in conducting the audit for such
opinion, nothing came to the attention of the Auditors (without
making any special examination for the purpose of such statement)
causing them to believe that the Borrower was not in compliance with
Section 8.1, 8.2 or 8.4 insofar as it relates to accounting matters,
provided that the Auditors shall not be liable in respect of such
statement by reason of any failure to obtain knowledge of any such
Default that would not be disclosed in the course of an audit
examination conducted in accordance with GAAP and (II) if, in the
opinion of the Auditors, any such Default referred to in the
foregoing clause (I) shall exist, the nature and status thereof shall
be included; and (D) to the extent not included in the Financial
Statements delivered pursuant to clause (A) above, a narrative
discussion of the Borrower's financial condition and results of
operations and the liquidity and capital resources for such fiscal
year, prepared by the chief accounting officer of the Borrower.
(ii) Quarterly Financial Statements. As soon as available,
but not later than sixty days after the end of the first three
quarters of each fiscal year of the Borrower, commencing with the
first fiscal quarter ending September 30, 1999, quarterly Financial
Statements as at the end of such quarter, certified by the chief
accounting officer of the Borrower, together with a compliance
certificate signed by the chief accounting officer of the Borrower,
substantially in the form of Exhibit N hereto, with an attached
schedule of calculations demonstrating compliance with the Financial
Covenants.
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(iii) Monthly Revenue Reports. As soon as available, but
not later than thirty days after the end of each month, commencing
with the month of September 1999, a report setting forth on a
Facility-by-Facility basis the power production and the revenues of
the Facilities during such month, and otherwise in form satisfactory
to the Agent, together with a comparison to the revenues projected in
the then-current Business Plan for such month, certified by the chief
accounting officer of the Borrower.
(iv) Weekly Depository Account and other Statements. On
the first Business Day of each week, commencing with the week
beginning November 8, 1999, (i) copies of statements reflecting all
activity in the Depository Accounts and the Blocked Account during
the preceding week, including, without limitation, opening and
closing balances, and (ii) a statement of all other bank accounts
maintained by the Borrower or its Subsidiaries, substantially in the
form of the weekly "Corporate Bank Account Balances" report delivered
by the Borrower to Lyon Credit Corporations under the Original Loan
Agreement, which report shall list all such accounts by bank, owner,
account number and amount on deposit.
(v) Excluded Future Subsidiaries. As soon as available,
but not later than sixty days after the end of each of the first
three fiscal quarters of each fiscal year (or 120 days after the end
of each fiscal year) of the Borrower, a certificate of the chief
accounting officer of the Borrower (A) identifying each Excluded
Future Subsidiary that has had negative cash flow in the preceding
fiscal quarter based on the criteria specified in the definition of
Projected Adjusted Consolidated Cash Flow and (B) specifying the
amount of such negative cash flow.
(vi) Projections. Not later than thirty days after the end
of each fiscal year of the Borrower, an update (calculated in
accordance with Exhibit P) to the cash flow projections contained in,
and any other modifications required to maintain the accuracy of, the
Business Plan of the Borrower, in form and substance satisfactory to
the Required Lenders, for the period commencing with the next fiscal
year of the Borrower and covering the period ending on the earlier of
the eleventh anniversary of (A) the date thereof and (B) the
Availability Expiration Date (which projections shall be prepared on
a quarterly basis for the first year of such eleven-year period and
on an annual basis thereafter), certified by the chief accounting
officer of the Borrower.
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(vii) Shareholder and SEC Reports. As soon as available,
but not later than five days after the same are sent or filed, as the
case may be, copies of all financial statements and reports that the
Borrower sends to all of its shareholders or files with the
Securities and Exchange Commission or any other Governmental
Authority.
(viii) Other Financial Information. Promptly after the
request by the Agent therefor, such additional financial statements
and other related data and information as to the business, prospects,
operations, results of operations, assets, liabilities or condition
(financial or otherwise) of the Borrower or any of its Subsidiaries
as the Agent may from time to time reasonably request.
(l) Punctual Payment. The Borrower shall timely pay the principal and
interest and any other amount due under this Agreement and the other Loan
Documents.
(m) ERISA. The Borrower shall, and shall cause each of its ERISA
Affiliates to, (i) maintain each Plan intended to qualify under Section 401(a)
of the Internal Revenue Code so as to satisfy the qualification requirements
thereof; (ii) contribute, or require that contributions be made, in a timely
manner (A) to each Plan in amounts sufficient (I) to satisfy the minimum funding
requirements of Section 302 of ERISA or Section 412 of the Internal Revenue
Code, if applicable, (II) to satisfy any other Requirements of Law and (III) to
satisfy the terms and conditions of each such Plan, and (B) to each Foreign Plan
in amounts sufficient to satisfy the minimum funding requirements of any
applicable law or regulation, without any application for a waiver from any such
funding requirements; (iii) cause each Plan or Foreign Plan to comply in all
material respects with applicable law (including, without limitation, all
applicable statutes, orders, rules and regulations); and (iv) pay in a timely
manner, in all material respects, all required premiums to the PBGC. As used in
this Section, "Foreign Plan" means a plan that provides retirement or health
benefits and that is maintained by, or otherwise contributed to, the Borrower
for the benefit of employees outside the United States.
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(n) Environmental Matters. The Borrower shall, and shall cause each
of its Subsidiaries to, conduct its business so as to comply in all respects
with all applicable Environmental Laws in all jurisdictions in which it is doing
business including, without limitation, compliance with the terms and conditions
of all permits and governmental authorizations, except to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.
(o) Payment of Dividends and Distributions. Subject to contractual
restrictions applicable to Subsidiaries of the Borrower that are in effect on
the Closing Date or are contained in instruments of Permitted Indebtedness or
the Governing Documents applicable to such Subsidiaries, the Borrower shall
cause each of its Subsidiaries (other than Excluded Future Subsidiaries) (i) to
declare and pay cash dividends, partnership or similar distributions or similar
forms of payment made on account of equity interests, as the case may be, so as
to maximize the amount of cash distributable to the Borrower from time to time.
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(p) Certain Subsidiary Guaranties and Pledges. If any Person (i)
becomes a wholly owned Subsidiary of the Borrower after the Closing Date, (ii)
is a wholly owned Subsidiary of the Borrower whose capital stock or other equity
interests are, on the Closing Date, prohibited from being subjected to any Lien
in favor of the Agent for the benefit of the Lenders which prohibition
thereafter ceases to exist or (iii) is a wholly owned Excluded Existing
Subsidiary on the Closing Date and thereafter becomes a Subsidiary that is not
an Excluded Existing Subsidiary, then the Borrower shall (A) promptly notify the
Agent thereof, (B) within 120 days thereof (or in the case of CHI Canada, Inc.,
within thirty days thereof), cause the owner of the capital stock or other
equity interests of such Subsidiary (other than an Excluded Future Subsidiary),
if it is theretofore not a Pledgor, to execute and deliver to the Agent a
counterpart of the Guaranty, the Contribution Agreement and the Pledge Agreement
and (C) take, and cause such Subsidiary to take, all such further actions and
execute all such further documents and instruments as may be required to grant
and perfect in favor of the Agent for the ratable benefit of the Lenders, a
first priority Lien (or, if such Subsidiary is acquired, a Lien subject to any
existing Liens) on all the shares of capital stock or the equity interests of
such Subsidiary including, without limitation, the delivery to the Agent, of all
such other documents and instruments as the Agent may reasonably request
including, without limitation, a Notice in the form of Annex II thereto, duly
executed by the applicable Pledgor and Pledged Subsidiary, a Supplement to the
Pledge Agreement in the form of Annex III thereto, duly executed by the
applicable Pledgor, and an Acknowledgment and Consent in the form attached
thereto, duly executed by the applicable Pledged Subsidiary; provided, however,
that (I) none of the foregoing requirements shall apply with respect to any
Subsidiary that is restricted from entering into the Guaranty or whose shares or
other equity interests may not be pledged under the Pledge Agreement based upon
restrictions contained in an instrument of Permitted Indebtedness applicable to
such Subsidiary and (II) if any such Subsidiary becomes an Excluded Future
Subsidiary after the actions specified in clause (B) hereof have been taken, the
Agent shall release (x) such Subsidiary from the Guaranty and (y) the capital
stock or other equity interests of such Subsidiary from the Lien of the Pledge
Agreement, and such Subsidiary shall thereafter cease to be deemed a party to
the Contribution Agreement.
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(q) CHI Canada; CHI-Dexter, Inc. and CHI-Black River, Inc.. The
Borrower shall, (i) on or before December 31, 1999, cause the capital stock of
CHI Canada, Inc. to cease to be subject to any restriction on the creation of a
Lien thereon in favor of the Agent and (ii) on or before March 3, 2000, cause
each of CHI-Dexter, Inc. and CHI-Black River, Inc. to qualify and become
authorized to do business, and to be in good standing, in each jurisdiction in
which it is or proposes to be engaged in business.
(r) Solvency. The Borrower shall, and shall cause each of its
Designated Subsidiaries to, maintain a Solvent Condition at all times.
(s) Further Assurances. The Borrower shall take all such further
actions and execute all such further documents and instruments as the Agent may
at any time determine in its reasonable discretion to be necessary or desirable
to carry out and consummate the transactions contemplated by the Loan Documents
and to perfect or protect the Liens (and the priority status thereof) of the
Agent on the Collateral.
SECTION VII.2. Negative Covenants. Until the satisfaction of all
Obligations in full, the termination of the Revolving Credit Commitments and the
Agent's obligation to cause to be issued Letters of Credit, and the expiration
or full cash collateralization of all Letters of Credit:
(a) Indebtedness. The Borrower will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Indebtedness other than Permitted Indebtedness.
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(b) Contingent Obligations. The Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, incur, assume, or
suffer to exist any Contingent Obligation, other than (i) Contingent Obligations
that constitute Permitted Indebtedness, (ii) Contingent Obligations incurred in
the ordinary course of business and of a type consistent with the Borrower's or
such Subsidiary's prior practices and not exceeding $1,000,000 in the aggregate
at any time, (iii) Contingent Obligations arising under guaranties or
indemnities incurred in connection with the acquisition, sale or financing of
assets or property, if such acquisition, sale or financing is otherwise
permitted hereunder (other than any Contingent Obligations with respect to
Non-Recourse Debt unless such Contingent Obligations are included in the
definition of Non-Recourse Debt), in each case so long as such Contingent
Obligations are not required by GAAP to be disclosed on the Borrower's or such
Subsidiary's financial statements or in any financial statement or report
delivered by the Borrower or such Subsidiary to its shareholders or to the
Securities and Exchange Commission, or (iv) Contingent Obligations specified in
Schedule 7.2(b) hereto.
(c) Liens, etc. The Borrower will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on or with respect to any of its assets or any interest therein
of any character whether now owned or hereafter acquired other than Permitted
Liens. If, notwithstanding the foregoing provision of this Section, the Borrower
or any of its Subsidiaries creates, assumes or suffers to exist any Lien (other
than a Permitted Lien) on its property or assets (including, without limitation,
property which is acquired after the date hereof) not expressly permitted by
this Section, the Borrower will, or will cause such Subsidiary to,
simultaneously therewith make effective provision to secure the Obligations
equally and ratably with all other indebtedness so secured (but shall not take
any steps to secure such other indebtedness equally and ratably with the
Obligations) and will promptly provide written notice thereof to the Agent.
Nothing in this subsection is intended to relieve the Borrower from its
obligations set forth in the first sentence of this Section.
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(d) Consolidation and Merger. The Borrower will not, and will not
permit any of its Designated Subsidiaries to, wind up, liquidate or dissolve its
affairs or enter into any transaction of merger or consolidation, or agree to do
any of the foregoing at any future time, except (i) any wholly-owned Subsidiary
of the Borrower may be merged or consolidated with or into the Borrower
(provided that the Borrower shall be the continuing or surviving corporation) or
with or into any one or more wholly-owned Subsidiaries of the Borrower and (ii)
any group of wholly-owned Subsidiaries of the Borrower may be merged or
consolidated with or into each other, provided that, (A) if the Borrower is a
party to such merger or consolidation, it shall be the continuing or surviving
corporation and its Tangible Net Worth shall, immediately after giving effect to
such merger or consolidation, not be reduced as a result thereof and (B) if a
Pledgor or a Pledged Subsidiary and another Subsidiary of the Borrower that is
not a Pledgor or a Pledged Subsidiary are the parties to such merger or
consolidation, such Pledgor or Pledged Subsidiary shall be the continuing or
surviving corporation (unless, in the case that a non-Pledgor is a party to such
merger or consolidation, it simultaneously therewith becomes a Pledgor and a
party to the Guaranty) and its Tangible Net Worth shall, immediately after
giving effect to such merger or consolidation, not be reduced as a result
thereof.
(e) Corporate Changes, etc. Except to the extent otherwise expressly
permitted under this Agreement, the Borrower will not, and will not permit any
of its Subsidiaries to, (A) amend, alter or modify its Governing Documents or
its corporate or capital structure or status in a manner that could reasonably
be expected to have a Material Adverse Effect or (B) except in the case of the
Borrower or any Excluded Future Subsidiary, issue any capital stock or warrants,
options or rights to purchase capital stock.
(f) Change of Business. Except to the extent otherwise expressly
permitted under this Agreement, the Borrower will not, and will not permit any
of its Subsidiaries to, make any material change in the nature of its business
as carried on at the date hereof or enter into any new type of business except
as specified in the Business Plan delivered to the Agent under Section
5.1(a)(xvi).
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(g) Sales, etc. of Assets. The Borrower will not, and will not permit
any of its Designated Subsidiaries to, directly or indirectly, sell, lease,
transfer or otherwise dispose of any assets, or grant any option or other right
to purchase, lease or otherwise acquire any assets, except for the sale or other
disposition of (i) water from its impoundments at rates that compensate for any
lost power production revenues, to the extent required under local or state law
or ordinances and permitted under the permits and licenses governing a Facility,
(ii) inventory and spare parts and other assets not necessary to the conduct of
its business which are sold or otherwise disposed of in the ordinary course of
business, (iii) assets (A) the costs of operation or maintenance of which are,
in the reasonable determination of the Agent, greater than the revenues related
thereto or (B) which are specified in Schedule 7.2(g), the proceeds of which
shall be applied in accordance with the provisions of Section 2.13(b)(i), (iv)
equipment, if the proceeds thereof are used within thirty days of receipt
thereof to purchase replacement equipment of equal or greater value to the
extent permitted under Section 2.13(b)(i), (v) assets by Persons that become
Subsidiaries of the Borrower after the Closing Date if the Borrower shall have
given the Agent evidence satisfactory to the Agent that the net present value of
the amount to be paid for the assets sold exceeds the net book value or the net
present value thereof, the proceeds of which shall be deposited in the
Depository Accounts and applied in accordance with the provisions of Section
2.15(a) and (b), (vi) the assets or capital stock or other equity interests of
an Excluded Future Subsidiary if (A) written notice of such sale or other
disposition shall have been given by the Borrower to the Agent not less than
fifteen days before such sale or other disposition and (B) the Borrower shall
have given the Agent evidence satisfactory to the Agent that the net present
value of the amount to be paid for such assets or equity interests exceeds the
net book value or the net present value thereof, (vii) assets identified in
writing to the Agent at least ten days before sale, that are to be sold for
their fair market value in cash, not to exceed $200,000 in the aggregate in any
fiscal year, the proceeds of which shall be applied in accordance with the
provisions of Section 2.15(a) and (b), (viii) assets (A) to a Pledgor or (B) by
a Subsidiary of the Borrower that is not a Pledgor or a Pledged Subsidiary to
another Subsidiary of the Borrower, (ix) assets by CHI Finance to any Person
that becomes, by operation of law or otherwise, a party to the Guaranty
simultaneously with its acquisition of such assets and (x) emissions offsets or
other emissions reductions credits to the extent they are not required for the
operation of the Facilities under applicable Requirements of Law.
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(h) Cancellation of Debt. The Borrower will not, and will not permit
any of its Subsidiaries, other than Excluded Future Subsidiaries, to, cancel any
claim or debt owed to it, except (i) for consideration in the ordinary course of
business, (ii) cancellation of debt from a Pledgor to a Subsidiary of the
Borrower that is not a Pledgor, (iii) cancellation of debt that occurs by
operation of law in a transaction permitted under Section 7.2(d) and (iv)
cancellation of debt owed by a Subsidiary of the Borrower whose continued
existence is not required under Section 7.1(a).
(i) Loans to Other Persons. The Borrower will not, and will not
permit any of its Subsidiaries, other than Excluded Future Subsidiaries, to,
make any loan or otherwise advance any credit to any Person, except for loans
and advances (i) constituting Permitted Investments and (ii) made in the
ordinary course of business in an amount not exceeding $50,000 as to any Person,
and $250,000 as to all Persons, outstanding at any one time.
(j) Dividends, Stock Redemptions, Exchange, etc. The Borrower will
not, directly or indirectly, declare or pay any dividends on, or purchase,
redeem or retire any shares of any class of its capital stock (other than the
retirement of shares of the Borrower's Class B Common Stock upon the conversion
of such shares into shares of the Borrower's Class A Common Stock), or make any
payment on account of, or set apart assets for a sinking or other analogous fund
for, the purchase, redemption, defeasance, retirement or other acquisition of,
any shares of any class of its capital stock or any warrants, options or rights
to purchase any such capital stock, whether now or hereafter outstanding, or
make any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Borrower other than (i)
dividends payable in shares of its common stock and (ii) so long as no Default
exists or would result therefrom (A) exchanges of capital stock of the Borrower
for capital stock of an Affiliate of the Borrower and (B) the repurchase of
capital stock of the Borrower, or warrants, options or rights therefor
(including, without limitation, employee stock options) not to exceed $100,000
in the aggregate for each fiscal year of the Borrower commencing with the fiscal
year of the Borrower ending December 31, 1998 ("Permitted Distributions"),
provided that any amount of Permitted Distributions that is not made by the
Borrower in any fiscal year may be carried forward to future fiscal years.
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(k) Investments. The Borrower will not, and will not permit any of
its Subsidiaries, other than Excluded Future Subsidiaries, to, directly or
indirectly, make or hold any Investment in any Person (whether in cash,
securities or other property of any kind) other than Permitted Investments.
(l) CHI Finance. The Borrower will not permit CHI Finance to,
directly or indirectly, create, incur, assume or suffer to exist any
indebtedness, liabilities or Contingent Obligations except as permitted under
Section 7.2(b)(iii).
(m) Fiscal Year. The Borrower will not change its fiscal year from a
year ending on December 31.
(n) Accounting Changes. The Borrower will not at any time make or
permit any change in accounting policies or reporting practices, except as
required or permitted by GAAP.
(o) No Prohibited Transactions Under ERISA. The Borrower will not,
and will not permit any of its ERISA Affiliates to, directly or indirectly:
(i) engage in any prohibited transaction which could
reasonably be expected to result in a civil penalty or excise tax
described in Section 406 of ERISA or 4975 of the Internal Revenue
Code for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the
Department of Labor;
(ii) permit to exist with respect to any Pension Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA
and 412 of the Internal Revenue Code), whether or not waived;
(iii) terminate any Pension Plan where such event would
result in any liability of the Borrower or any ERISA Affiliate under
Title IV of ERISA;
(iv) fail to make any required contribution or payment to
any Multiemployer Plan;
(v) fail to pay any required installment or any other
payment required under Section 412 of the Internal Revenue Code on or
before the due date for such installment or other payment;
(vi) amend a Pension Plan resulting in an increase in
current liability for the plan year such that the Borrower or any
ERISA Affiliate is required to provide security to such Plan under
Section 307 of ERISA or Section 401(a)(29) of the Internal Revenue
Code; or
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(vii) withdraw from any Multiemployer Plan where such
withdrawal is reasonably likely to result in any liability of any
such entity under Title IV of ERISA.
(p) Unusual Terms of Sale. The Borrower will not, and will not permit
any of its Designated Subsidiaries to, sell any material goods or services to
customers on consignment terms or on any other unusual terms of sale that are
not in the ordinary course of business or in accordance with prior practice.
(q) Prepayments and Amendments of Material Contracts. Except as
specified in Schedule 7.2(q), the Borrower will not, and will not permit any of
its Subsidiaries, other than Excluded Future Subsidiaries, to, (i) prepay
(except (A) as required under the terms of the governing instrument or (B) in
the case of prepayments by Subsidiaries, to allow or accelerate distributions to
the Borrower), redeem, purchase, defease or otherwise satisfy prior to the
scheduled maturity thereof in any manner, or make any payment in violation of
any subordination terms of, any Indebtedness, other than the prepayment of the
Loans in accordance with the terms of this Agreement, or (ii) amend, modify,
cancel or terminate, or permit the amendment, modification, cancellation or
termination of, any of the Material Contracts, except in the event that any such
amendment, modification, cancellation or termination could not reasonably be
expected to have a Material Adverse Effect.
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(r) Leases. The Borrower will not, and will not permit any of its
Subsidiaries, other than Excluded Future Subsidiaries, to, enter into or permit
to remain in effect (i) any agreements to rent or lease any real or personal
property except for (A) leases existing on the date hereof and specified in
Schedule 7.2(r), and replacement leases for the same or comparable assets at
prevailing market rates, (B) leases in connection with Facilities whose
acquisition or expansion is otherwise permitted hereunder, (C) leases permitted
under Section 7.2(s) and (D) other leases entered into in the ordinary course of
business of the Borrower and its Subsidiaries, provided that the aggregate
amount of all payments by the Borrower and its Subsidiaries for all such leases
(other than leases permitted under clause (ii) hereof) under this clause (D)
during any twelve-month period commencing on or after the Closing Date shall not
exceed $500,000 or (ii) any agreements to rent or lease as lessee any personal
property for a period in excess of three years other than in connection with any
Facility site lease renewal or any Facility site leases executed in connection
with Facilities developed after the Closing Date to the extent permitted under
the Business Plan.
(s) Leasebacks. The Borrower will not, and will not permit any of its
Subsidiaries, other than Excluded Future Subsidiaries, to, enter into any
arrangement with any lender or investor providing for the leasing to the
Borrower or such Subsidiary of any property (i) which at the time has been or is
to be sold or transferred by the Borrower or such Subsidiary to such lender or
investor or to any Person to whom funds have been or are to be advanced by such
lender or investor on the security of such property or rental obligations of the
Borrower or such Subsidiary; or (ii) which has been or is being acquired from
another Person by such lender or investor or, if real property, on which one or
more buildings have been or are to be constructed by such lender or investor,
for the purpose of leasing the same to the Borrower or such Subsidiary except
for (A) leasebacks existing on the date hereof and specified in Schedule 7.2(s),
and leases of the same property from other owners and (B) leasebacks which would
constitute Non-Recourse Debt if the related lease obligations constituted
Indebtedness.
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(t) Purchase or Sale Agreements. The Borrower will not, and will not
permit any of its Subsidiaries, other than Excluded Future Subsidiaries, to,
enter into or be a party to any contract for the purchase or use of materials,
supplies or other property or for the performance of services if such contract
requires that payment for such materials, supplies or other property or the use
thereof, or for such services, shall be made by the Borrower or such Subsidiary
regardless of whether or not delivery is ever made of such materials, supplies
or other property, or such services are performed.
(u) Blocked Account and Depository Account Agreements. The Borrower
will not, and will not permit CHI Finance to, amend, modify or change, or
consent or otherwise agree to any amendment, modification or change to, the
Blocked Account Agreement or the Depository Account Agreement, except as
provided therein.
(v) Negative Pledge. The Borrower will not, and will not permit any
of its Subsidiaries to, enter into or suffer to exist any agreement prohibiting
or conditioning the creation or assumption of any Lien upon any of its assets,
except for (i) restrictions in existence on the Closing Date in connection with
Existing Indebtedness, and (ii) similar types of restrictions which may be
incurred with respect to Permitted Indebtedness.
(w) Use of Proceeds. The Borrower will not use any portion of the
proceeds of any Revolving Credit Loan in violation of Section 2.1(c) or for the
purpose of purchasing or carrying any "margin stock" (as defined in Regulation U
of the Federal Reserve Board) in any manner which violates the provisions of
Regulation T, U or X of such Board or for any other purpose in violation of any
applicable statute or regulation, or of the terms and conditions of this
Agreement.
(x) Limitation on Actions Affecting Public Utility Regulation.
(i) The Borrower will not, and will not permit any of its
Subsidiaries to, take or fail to take any action if, as a direct
consequence thereof, the Borrower or any of its Subsidiaries (other
than CHI Power Marketing, Inc.) would be, or be deemed to be, subject
to any financial, organizational or rate regulation as an Electric
Utility or to be regulated as a "public utility company" or a company
which is a "holding company" or a "public utility company" subject to
registration with the Securities and Exchange Commission or to
regulation under PUHCA.
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(ii) The Borrower will not, and will not permit any of its
Subsidiaries to, take or fail to take any action if, (A) as a sole
result of such action or inaction or (B) as a result of such action
or inaction in combination with other events, including, without
limitation, events that do not involve the Borrower or any of its
Subsidiaries (provided that the Agent or any of the Lenders has given
prior written notice to the Borrower of such other events), the Agent
or any of the Lenders would be "a public utility company" or a
company which is a "holding company" of a "public utility company" or
otherwise be subject to registration with the Securities and Exchange
Commission or to regulation under PUHCA or any other Requirement of
Law regulating utilities or independent power producers, provided
that it shall not be a violation of this Section if as a result of
the exercise of its remedies hereunder or under applicable law the
Agent or any of the Lenders obtains control of any Facility and thus
becomes subject to regulation as the owner of a "qualifying facility"
as defined under the PURPA regulations, or as an "exempt wholesale
generator" as defined under the National Energy Policy Act of 1992.
(y) Limitation on Dividend and Other Payment Restrictions. Except to
the extent required under the terms of the instruments of Permitted Indebtedness
or Requirements of Law applicable to the Borrower or any of its Subsidiaries,
the Borrower will not create or otherwise cause or suffer to exist or become
effective any restriction of any kind on the ability of any of its Subsidiaries
to (i) pay dividends or make any other distributions permitted by applicable law
on any capital stock of such Subsidiary or any other Subsidiary of the Borrower,
(ii) pay any Indebtedness owed to the Borrower or any other Subsidiary of the
Borrower, (iii) make loans or advances to the Borrower or any other Subsidiary
of the Borrower or (iv) transfer any of its property or assets to the Borrower
or any other Subsidiary of the Borrower.
(z) Bank Accounts, etc. Neither the Borrower nor any of its
Subsidiaries will maintain any checking, savings or other account at any bank or
other financial institution, or any other account where money or securities may
be deposited or maintained with any other Person other than the Blocked Account,
the Depository Accounts, the L/C Cash Collateral Account, any account maintained
by an Excluded Future Subsidiary, payroll accounts, the accounts specified in
Schedule 7.2(z) and any other accounts which are disclosed by the Borrower to
the Agent in the weekly reports delivered to the Agent under Section 7.1(k)(iv).
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ARTICLE VIII
FINANCIAL COVENANTS
-------------------
Until the satisfaction of all Obligations in full, the termination of
the Revolving Credit Commitments and the Agent's obligation to cause to be
issued Letters of Credit, and the expiration or cash collateralization in full
of all Letters of Credit:
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SECTION VIII.1. Tangible Net Worth. The Tangible Net Worth of the
Borrower shall not be less than $45,000,000 at any time.
SECTION VIII.2. Capital Expenditures. The amount of the Borrower's
and its Subsidiaries' aggregate Capital Expenditures made or committed to be
made (to the extent such commitments are required to be recorded as capital
expenditures in accordance with GAAP) in any fiscal year with respect to
Facilities owned by the Borrower or any of its Affiliates on the Closing Date,
other than Capital Expenditures (i) required to be made by the FERC or ordered
to be made by any other Regulatory Authority, (ii) made for the purpose of
repairing or rebuilding, substantially to their pre-existing condition,
Facilities which are damaged or destroyed by an act of nature or as the result
of any unforeseeable event, whether or not covered by insurance, (iii) made or
committed to be made (to the extent such commitments are required to be recorded
as capital expenditures in accordance with GAAP) from the proceeds of Permitted
Indebtedness or the sale of capital stock or other equity interests of the
Borrower or any of its Affiliates (to the extent permitted under the Loan
Documents) and (iv) made or committed to be made (to the extent such commitments
are required to be recorded as capital expenditures in accordance with GAAP)
from proceeds maintained in reserve or restricted accounts in accordance with
prior practices, which, in the case of Capital Expenditures of the type
specified in clause (ii), (iii) or (iv) above, to the extent such Capital
Expenditures exceed the amounts of Capital Expenditures projected in the
Business Plan to be made with proceeds from such sources, shall be made only
upon prior written notice to the Agent and shall not exceed the amount set forth
below opposite such fiscal year:
Fiscal Year Amount
- ----------- ------
2000 $2,781,000
2001 $2,119,000
2002 $2,169,000
2003 $2,126,000
2004 $2,196,000
2005 $2,268,000
2006 $2,341,000
provided that, so long as no Default or Event of Default has occurred and is
continuing or would result therefrom, any such amount, if not expended during a
fiscal year for which it is permitted above, may be carried over for expenditure
in subsequent fiscal years.
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SECTION VIII.3. Post-Availability Expiration Date Expenditures.
Commencing on the Availability Expiration Date, (a) the Borrower will not, and
will not permit any of its Subsidiaries, other than Excluded Future
Subsidiaries, to, make any expenditures, from proceeds of Collections or
otherwise, for business development or general and administrative expenses
except as specified in the Business Plan for the period covered thereby and (b)
the release of funds to the Depository Accounts (with the allocation of such
funds between the two Depository Accounts to be made in the reasonable
discretion of the Borrower) from the Blocked Account under Section 2.10(c)(i)
shall be limited to the amounts authorized in the preceding clause (a).
SECTION VIII.4. Projected Minimum Coverage Ratio. The Projected
Minimum Coverage Ratio shall not be less than 1.15 to 1.00 as of December 31 of
any year.
ARTICLE IX
EVENTS OF DEFAULT
-----------------
SECTION IX.1. Events of Default. The occurrence of any of the
following events shall constitute an "Event of Default":
(a) the Borrower shall fail to pay any principal, interest, fees,
expenses or other Obligations within five days of the date when due, except with
respect to the last payments of principal, interest or fees due hereunder
(including, without limitation, upon acceleration), which shall be payable on
the date when due (or on the date of acceleration); or
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(b) the Borrower or any of its Subsidiaries shall fail to perform or
observe
(i) any term, condition, covenant or agreement contained
in Section 7.1(a), (b), (d), (e), (j), (k), (m) or (n) more than
thirty days after the earlier of (A) the date on which any officer of
the Borrower or such Subsidiary knew or reasonably should have known
of such failure in the ordinary course of his or her responsibilities
and (B) the date on which the Agent notified the Borrower and such
Subsidiary in writing of such failure, provided that, if (I) such
failure is capable of being cured within such thirty-day period and
(II) the Borrower or such Subsidiary initiates a cure thereof within
such period, it shall not become an Event of Default unless it
continues to exist on the earlier of (x) the Borrower or such
Subsidiary has ceased to attempt diligently (in the reasonable
judgment of the Agent) to cure such failure, and (y) ninety days
after the initial occurrence of such failure; or
(ii) the covenant contained in Section 8.4 by March 31 of
any year with respect to the preceding December 31; or
(iii) any other term, condition, covenant or agreement
contained in this Agreement or any other Loan Document to which it is
a party (except as provided in Section 9.1(a), (b)(i) or(b)(ii)),
provided that, if such failure (A) was unintentional, (B) could not
reasonably be expected to have a Material Adverse Effect and (C) is
capable of being cured within thirty days, it shall not become an
Event of Default unless it continues to exist at the end of such
thirty-day period; or
(c) the Borrower or any Designated Subsidiary (other than any
Subsidiary whose continued existence is not required under Section 7.1(a)) shall
dissolve, wind up or otherwise cease to conduct its business except as permitted
under Section 7.2(d); or
(d) the Borrower or any Designated Subsidiary shall become the
subject of (i) an Insolvency Event as set forth in clause (e) of the definition
of Insolvency Event that is not resolved or dismissed within sixty days or (ii)
any Insolvency Event except as set forth in clause (e) of the definition of
Insolvency Event; or
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(e) the Borrower or any of its Subsidiaries, other than Excluded
Future Subsidiaries, (i) shall fail to pay any Indebtedness (other than
Non-Recourse Debt)in an aggregate amount in excess of $250,000 (other than the
Indebtedness hereunder) including, without limitation, any interest or premium
thereon, when due (whether at scheduled maturity (taking into account all cure
periods) or by required prepayment, acceleration, demand or otherwise), or (ii)
shall otherwise be in breach or default in any of its obligations under any
agreement with respect to any such Indebtedness, if the effect of such breach,
default or failure to pay is to cause such Indebtedness to become due or
redeemed or permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to declare such Indebtedness due or
require such Indebtedness to be redeemed prior to its stated maturity; or
(f) any representation or warranty made by the Borrower or any of its
Subsidiaries under or in connection with any Loan Document, Financial Statement
or certificate delivered in connection therewith (i) shall prove to have been
incorrect in any respect when made or deemed made in the case of the
representations and warranties contained in Section 6.1(m), (s), (x), (ab), (ac)
or (af), or (ii) shall prove to have been materially incorrect when made or
deemed made in the case of any of the other representations or warranties of the
Borrower under the Loan Documents; or
(g) one or more federal tax liens (other than Permitted Liens) for
more than $100,000 shall be filed of record against the Borrower or any of its
Subsidiaries and shall not be stayed, bonded or discharged within thirty days;
or
(h) a Change of Control shall have occurred; or
(i) one or more judgments or orders for the payment of money in
excess of $500,000 in the aggregate (other than judgments and orders that are
fully covered by insurance and with respect to which the insurance company has
accepted liability) shall be rendered against the Borrower or any of its
Subsidiaries, other than Excluded Future Subsidiaries, and shall not be stayed,
vacated, bonded or discharged within thirty days; or
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(j) any covenant, agreement or obligation of the Borrower or any of
its Subsidiaries contained in or evidenced by any of the Loan Documents shall
cease to be enforceable, or shall be determined to be unenforceable, in
accordance with its terms and the Borrower or such Subsidiary shall not have
provided a substitute therefor which is reasonably acceptable to the Agent
within ten days of written notice thereof to the Borrower; the Borrower or any
of its Subsidiaries shall deny or disaffirm its obligations under any of the
Loan Documents or any Lien granted in connection therewith; or any Lien granted
on any of the Collateral shall be determined to be void, voidable or invalid, is
subordinated or is not given the priority contemplated by this Agreement or the
Pledge Agreement and the Borrower or such Subsidiary shall have not provided
substitute collateral therefor of a type, with a value, and under documentation
in form and substance reasonably acceptable to the Agent within ten days of
written notice thereof to the Borrower; or
(k) the Auditors shall deliver a Qualified opinion on the Borrower's
Financial Statements; or
(l) the occurrence of any event that could reasonably be expected to
have a Material Adverse Effect if such event continues to exist more than ten
days after the date on which the Agent notified the Borrower in writing of such
event.
SECTION IX.2. Acceleration and Cash Collateralization. Upon the
occurrence and during the continuance of an Event of Default, the Agent may or,
upon the request of the Required Lenders, the Agent shall:
(a) Acceleration. Declare all Obligations immediately due and payable
by written notice to the Borrower (except with respect to any Event of Default
with respect to the Borrower specified in Section 9.1(d), in which case the
Obligations shall automatically become immediately due and payable without
presentment, demand, protest or any other action or obligation of the Agent or
any of the Lenders except as stated in this subsection.
(b) Termination of Commitment. Declare the Revolving Credit
Commitments, or the Agent's obligations to use its best efforts to cause to be
issued Letters of Credit, immediately terminated (except with respect to any
Event of Default with respect to the Borrower specified in Section 9.1(d), in
which case such Commitments and obligation shall automatically terminate) and,
at all times thereafter, any Revolving Credit Loans made by a Lender or Letters
of Credit caused to be issued by the Agent pursuant to this Agreement shall be
in such Lender's or the Agent's sole and absolute discretion.
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(c) Blocked and Depository Accounts. Notify the Blocked Account Bank
and the Depository Account Bank to deliver to the Agent for application to the
outstanding Obligations all amounts on deposit in the Blocked Account or the
Depository Accounts.
(d) Cash Collateralization. With respect to all Letters of Credit
outstanding at the time of an acceleration pursuant to Section 9.2(a), or within
thirty days thereof in the case of an acceleration based solely upon an Event of
Default specified in Section 9.1(b) as it relates to a failure to perform any
term, covenant or agreement in Section 7.1(a), (b), (d), (e), (j), (m), (n) or
(o), require the Borrower to deposit in the L/C Cash Collateral Account an
amount equal to the aggregate then undrawn amount of the outstanding Letters of
Credit. Amounts held in the L/C Cash Collateral Account shall be under the sole
dominion and control of the Agent and shall be applied by the Agent to the
payment of drafts drawn under such Letters of Credit, and the balance, if any,
in the L/C Cash Collateral Account, after all such Letters of Credit shall have
expired or been fully drawn upon, shall be applied to repay the other
Obligations. After all such Letters of Credit shall have expired or been fully
drawn upon, all Obligations in respect of Letters of Credit shall have been
satisfied and all other Obligations shall have been paid in full, the balance,
if any, in the L/C Cash Collateral Account shall be returned to the Borrower.
SECTION IX.3. Other Remedies. In addition to those remedies set forth
in Section 9.2, upon the occurrence and during the continuance of an Event of
Default, the Agent shall have all rights and remedies with respect to the
Obligations and the Collateral under the Code, other applicable laws and the
Loan Documents, and the Agent may do any or all of the following:
(a) have full access to all documents, instruments, files and records
(including the copying of any computer records) relating to the Receivables of
the Borrower or use (at the expense of the Borrower) such supplies or space of
the Borrower at the Borrower's places of business necessary to administer and
collect its Receivables, other than Restricted Receivables;
(b) accelerate or extend the time of payment, compromise, issue
credits, or bring suit on the Receivables, other than Restricted Receivables, of
the Borrower (in the name of the Borrower or the Agent) and otherwise administer
and collect such Receivables;
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(c) sell, assign and deliver the Receivables of the Borrower, other
than Restricted Receivables, and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for cash,
on credit or otherwise, subject to applicable law;
(d) foreclose the security interests created pursuant to the Loan
Documents by any available procedure, or take possession of any or all of the
Collateral, without judicial process and enter any premises where any Collateral
may be located for the purpose of taking possession of or removing the same; and
(e) make any payment or take any other action necessary or desirable
to protect or preserve any Collateral, any of the Facilities or any other aspect
of the business of the Borrower or any of its Subsidiaries including, without
limitation, the maintenance of permits, rights of way, easements and licenses
relating to the Facilities or otherwise to the business activities of the
Borrower and paying on behalf of the Borrower or such Subsidiary insurance
premiums, tax obligations or any other liabilities which, if unpaid, could
result in the creation of a Lien on any of the Collateral or reasonably be
expected to have a Material Adverse Effect, all of which payments shall be
Obligations and secured by the Collateral, provided that nothing herein shall be
deemed to create any obligation on the part of the Agent to make any of the
foregoing payments or to take any other action.
To the extent permitted by applicable law, the Agent may bid or become a
purchaser at any sale, free from any right of redemption, which right is
expressly waived by the Borrower. If notice of intended disposition of any
Collateral is required by law, it is agreed that five Business Days' notice
shall constitute reasonable notification. The Borrower will assemble the
Collateral and make it available to the Agent at such locations as the Agent may
specify, whether at the premises of the Borrower or elsewhere, and will make
available to the Agent the premises and facilities of the Borrower for the
purpose of the Agent's taking possession of or removing the Collateral or
putting the Collateral in saleable form.
SECTION IX.4. License for Use of Software and Other Intellectual
Property. Unless expressly prohibited by any licensor thereof, the Agent is
hereby granted a license to use all computer software programs, data bases,
processes and materials used by the Borrower in connection with its businesses
or the Collateral. The Agent agrees not to use any such license prior to the
occurrence of an Event of Default without giving the Borrower prior notice
thereof.
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SECTION IX.5. No Marshalling; Deficiencies; Remedies Cumulative. The
Borrower waives any right to require the Agent to marshal any Collateral or
otherwise to compel the Agent to seek recourse against or satisfaction of the
Obligations from one source before seeking recourse or satisfaction from another
source. The net cash proceeds resulting from the Agent's exercise of any of the
foregoing rights to liquidate all or substantially all of the Collateral (after
deducting all of the Agent's expenses related thereto) shall be applied by the
Agent to the payment of the Obligations, whether due or to become due, in such
order as the Agent may elect. The Borrower shall remain liable to the Agent and
the Lenders for any deficiencies and the Agent and the Lenders in turn agree to
remit to the Borrower or its successors or assigns any surplus resulting
therefrom. The foregoing remedies are not intended to be exhaustive and the full
or partial exercise of any of them shall not preclude the full or partial
exercise of any other available remedy under this Agreement, under any other
Loan Document, at equity or at law.
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SECTION IX.6. Defense of Collateral; Continuation of Liens; Further
Assurances. The Borrower shall defend the Collateral against all claims and
demands of all Persons at any time claiming any interest therein, other than
Permitted Liens. The Borrower agrees to comply with the requirements of all
state and federal laws to grant to and continue in favor of the Agent for the
ratable benefit of the Lenders valid and perfected first security interests in
the Collateral. The Borrower agrees, from time to time, at the Agent's request,
to file notices of Liens, financing statements, and amendments, renewals and
continuations thereof, and cooperate with the Agent's representatives, in
connection with the continued perfection and protection of the Collateral. The
Borrower shall do all things and shall deliver all instruments reasonably
requested by the Agent to protect or perfect any security interest, pledge,
mortgage or lien given hereunder including, without limitation, financing
statements under the Code. The Borrower authorizes the Agent (i) to execute
alone any financing statement or other documents or instruments that the Agent
may reasonably require to perfect, protect or establish any Lien or security
interest hereunder, (ii) to sign the Borrower's name on the same and (iii) to
file this Agreement or any copy thereof as a financing statement, where
permitted by law. The Borrower appoints such Person or Persons as the Agent may
designate as its attorney-in-fact and upon the occurrence and continuance of an
Event of Default, such attorney-in-fact may endorse the name of the Borrower on
any checks, notes, drafts or other forms of payment or security that may come
into the possession of either the Agent or any Affiliate of the Agent to sign
the Borrower's name on invoices or bills of lading, drafts against customers,
notices of assignment, verifications and schedules and, generally, to do all
things necessary to carry out this Agreement. Upon the occurrence and
continuance of an Event of Default, such attorney-in-fact may notify the post
office authorities to change the address of delivery of mail to the then
existing address of the Borrower to an address designated by the Agent, and open
and dispose of mail addressed to the Borrower. The powers granted herein, being
coupled with an interest, are irrevocable, and the Borrower approves and
ratifies all acts of the attorney-in-fact. Neither the Agent nor the
attorney-in-fact shall be liable for any act or omission, error in judgment or
mistake of law so long as such act, omission, error or mistake does not
constitute intentional misconduct or gross negligence.
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ARTICLE X
THE AGENT
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SECTION X.1. Appointment of Agent.
(a) Each Lender hereby designates HUB as its Agent and irrevocably
authorizes the Agent to take action on such Lender's behalf under the Loan
Documents as is provided herein and to exercise the powers and to perform the
duties described therein and to exercise such other powers as are reasonably
incidental thereto. The Agent may perform any of its duties by or through its
agents or employees.
(b) Other than the Borrower's rights under Section 10.9, the
provisions of this Article X are solely for the benefit of the Agent and the
Lenders, and the Borrower shall not have any rights as a third party beneficiary
of any of the provisions hereof. The Agent shall act solely as agent of the
Lenders and assumes no obligation toward or relationship of agency or trust with
or for the Borrower.
SECTION X.2. Nature of Duties of Agent. The Agent shall have no
duties or responsibilities except those expressly set forth in the Loan
Documents. Neither the Agent nor any of its officers, directors, employees or
agents shall be liable for any action taken or omitted by it as such hereunder
or in connection herewith, unless caused by its or their gross negligence or
willful misconduct. The duties of the Agent shall be mechanical and
administrative in nature. The Agent does not have a fiduciary relationship in
respect of any Lender or any participant of any Lender.
SECTION X.3. Lack of Reliance on Agent.
(a) Independently and without reliance upon the Agent, each Lender,
to the extent it deems appropriate, has made and shall continue to make (i) its
own independent investigation of the financial or other condition and affairs of
the Borrower in connection with the taking or not taking of any action in
connection herewith and (ii) its own appraisal of the creditworthiness of the
Borrower, and, except as expressly provided in this Agreement, the Agent shall
have no duty or responsibility, either initially or on a continuing basis, to
provide any Lender with any credit or other information with respect thereto,
whether coming into its possession before the making of the initial Revolving
Credit Loans or the issuance of the Initial Letter of Credit or at any time or
times thereafter.
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(b) The Agent shall not be responsible to any Lender for any
recitals, statements, information, representations or warranties herein or in
any document, certificate or other writing delivered in connection herewith or
for the execution, effectiveness, genuineness, validity, enforceability,
collectability, priority or sufficiency of this Agreement or the Notes or the
financial or other condition of the Borrower. The Agent shall not be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement or the Notes, or the financial
condition of the Borrower, or the existence or possible existence of any Default
or Event of Default, unless specifically requested to do so in writing by any
Lender.
SECTION X.4. Certain Rights of the Agent. The Agent may request
instructions from the Required Lenders at any time. If the Agent requests
instructions from the Required Lenders with respect to any action or inaction,
the Agent shall be entitled to await instructions from the Required Lenders
before such action or inaction. No Lender shall have any right of action based
upon the Agent's action or inaction in response to instructions from the
Required Lenders.
SECTION X.5. Reliance by Agent. The Agent may rely upon written or
telephonic communication it believes to be genuine and to have been signed, sent
or made by the proper person. The Agent may obtain the advice of legal counsel
(including counsel for the Borrower with respect to matters concerning the
Borrower), independent public accountants and other experts selected by it and
shall have no liability for any action or inaction taken or omitted to be taken
by it in good faith based upon such advice.
SECTION X.6. Indemnification of Agent. To the extent the Agent is not
reimbursed and indemnified by the Borrower, each Lender will reimburse and
indemnify the Agent to the extent of its Proportionate Share for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including, without limitation, counsel fees and disbursements)
or disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in performing its duties hereunder or
otherwise relating to the Loan Documents unless resulting from the Agent's gross
negligence or willful misconduct. The agreements contained in this Section shall
survive any termination of this Agreement and the other Loan Documents and the
payment in full of the Obligations.
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SECTION X.7. The Agent in Its Individual Capacity. In its individual
capacity, the Agent shall have the same rights and powers hereunder as any other
Lender or holder of a Note or participation interests and may exercise the same
as though it was not performing the duties specified herein. The terms
"Lenders," "Required Lenders," "holders of Notes," or any similar terms shall,
unless the context clearly otherwise indicates, include the Agent in its
individual capacity. The Agent and its Affiliates may accept deposits from, lend
money to, acquire equity interests in, and generally engage in any kind of
banking, trust, financial advisory or other business with the Borrower or any
Affiliate of the Borrower as if it were not performing the duties specified
herein, and may accept fees and other consideration from the Borrower for
services in connection with this Agreement and otherwise without having to
account for the same to the Lenders. The Lenders hereby acknowledge that (i) HUB
has certain lending relationships with Subsidiaries of the Borrower and (ii) the
Borrower has agreed to pay to HUB, for its own account, certain fees in
connection with the issuance of Letters of Credit from time to time by HUB for
the account of the Borrower or its Subsidiaries.
SECTION X.8. Holders of Notes. The Agent may deem and treat the payee
of any Note as the owner thereof for all purposes hereof unless and until a
written notice of the assignment or transfer thereof shall have been filed with
the Agent. Any request, authority or consent of any Person who, at the time of
making such request or giving such authority or consent, is the holder of any
Note, shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or Notes issued in exchange therefor.
SECTION X.9. Successor Agent.
(a) The Agent may, upon ten Business Days' notice to the Lenders and
the Borrower, resign by giving written notice thereof to the Lenders and the
Borrower. The Agent's resignation shall be effective upon the appointment of a
successor Agent.
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(b) Upon receipt of the Agent's resignation, the Required Lenders may
appoint a successor Agent which shall also be a Lender. Unless an Event of
Default shall have occurred and be continuing at the time of such appointment,
any successor Agent shall be subject to approval by the Borrower, which approval
shall not be unreasonably withheld and shall be delivered to the Required
Lenders within ten Business Days after the Borrower's receipt of notice of a
proposed successor Agent. If a successor Agent has not accepted its appointment
within fifteen Business Days, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent in compliance with the preceding sentence.
(c) Upon its acceptance of the agency hereunder, such successor Agent
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be discharged from
its duties and obligations under this Agreement. The retiring Agent shall
continue to have the benefit of this Article X for any action or inaction while
it was Agent.
SECTION X.10. Collateral Matters.
(a) The Agent is authorized to release any Lien granted to or held by
the Agent upon any Collateral (i) upon termination of the Revolving Credit
Commitments, expiration of all outstanding Letters of Credit and payment and
satisfaction of all of the Obligations, (ii) required to be delivered from
permitted sales of Collateral hereunder, if any, upon receipt of the proceeds or
(iii) if the release can be and is approved by the Required Lenders. The Agent
may request and the Lenders will provide confirmation of the Agent's authority
to release particular types or items of Collateral.
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(b) Upon any sale and transfer of Collateral which is expressly
permitted pursuant to the terms of this Agreement, or consented to in writing by
the Required Lenders or all of the Lenders, as applicable, and upon at least
five Business Days' prior written request by the Borrower, the Agent shall (and
is hereby irrevocably authorized by the Lenders to) execute such documents as
may be necessary to evidence the release of the Liens granted to the Agent for
the benefit of the Lenders herein or pursuant hereto upon the Collateral that
was sold or transferred; provided that (i) the Agent shall not be required to
execute any such document on terms which, in the Agent's opinion, would expose
the Agent to liability or create any obligation or entail any consequence other
than the release of such Liens without recourse or warranty and (ii) such
release shall not in any manner discharge, affect or impair the Obligations or
any Liens upon (or obligations of the Borrower or any other Pledgor in respect
of) all interests retained by the Borrower or any Pledgor, including (without
limitation) the proceeds of the sale, all of which shall continue to constitute
part of the Collateral. In the event of any sale or transfer of Collateral, or
any foreclosure with respect to any of the Collateral, the Agent shall be
authorized to deduct all of the expenses reasonably incurred by the Agent from
the proceeds of any such sale, transfer or foreclosure.
(c) The Agent shall have no obligation to assure that the Collateral
exists or is owned by the Borrower or any other Pledgor, that such Collateral is
cared for, protected or insured, or that the Liens on the Collateral have been
created, perfected or have any particular priority. With respect to the
Collateral, the Agent may act in any manner it may deem appropriate, in its sole
discretion, given the Agent's own interest in the Collateral as one of the
Lenders and it shall have no duty or liability whatsoever to the Lenders, except
for its gross negligence or willful misconduct.
SECTION X.11. Actions with Respect to Defaults. In addition to the
Agent's right to take actions on its own accord as permitted under this
Agreement, the Agent shall take such action with respect to an Event of Default
as shall be directed by the Required Lenders. Until the Agent shall have
received such directions, the Agent may act or not act as it deems advisable and
in the best interests of the Lenders.
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SECTION X.12. Delivery of Information. The Agent shall not be
required to deliver to any Lender originals or copies of any documents,
instruments, notices, communications or other information received by the Agent
from the Borrower, any Subsidiary, the Required Lenders, any Lender or any other
Person under or in connection with this Agreement or any other Loan Document
except (i) as specifically provided in this Agreement or any other Loan Document
and (ii) as specifically requested from time to time in writing by any Lender
with respect to a specific document, instrument, notice or other written
communication received by and in the possession of the Agent at the time of
receipt of such request and then only in accordance with such specific request.
ARTICLE XI
GENERAL PROVISIONS
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SECTION XI.1. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND
ENFORCEMENT OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE
GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS
OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) AND DECISIONS
OF THE STATE OF NEW YORK.
SECTION XI.2. SUBMISSION TO JURISDICTION. ALL DISPUTES AMONG THE
BORROWER AND THE LENDERS (OR THE AGENT ACTING ON THEIR BEHALF), WHETHER SOUNDING
IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND
FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, AND THE COURTS TO WHICH AN APPEAL
THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT THE AGENT ON BEHALF OF THE
LENDERS SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED
BY THE AGENT IN GOOD FAITH TO ENABLE THE AGENT TO REALIZE ON SUCH PROPERTY, OR
TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE AGENT. THE BORROWER
AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR
CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY THE LENDERS (OR THE AGENT ACTING ON
THEIR BEHALF). THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT IN WHICH THE LENDERS (OR THE AGENT ACTING ON THEIR BEHALF)
HAVE COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.
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SECTION XI.3. SERVICE OF PROCESS. THE BORROWER HEREBY IRREVOCABLY
DESIGNATES CURTIS THAXTER STEVENS BRODER & MICOLEAU LLC, ONE CANAL PLAZA, 10TH
FLOOR, PORTLAND, MAINE 04101, ATTENTION: MICHAEL PEISNER, ESQ., AS THE DESIGNEE
AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE BORROWER, SERVICE
OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON
SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY FORWARDED BY MAIL TO THE BORROWER,
BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY
THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT
OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
SECTION XI.4. JURY TRIAL. THE BORROWER, THE AGENT AND THE LENDERS
EACH HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL
BY JURY.
SECTION XI.5. LIMITATION OF LIABILITY. NEITHER THE AGENT NOR ANY
LENDER SHALL HAVE ANY LIABILITY TO THE BORROWER (WHETHER SOUNDING IN TORT,
CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE BORROWER IN CONNECTION WITH,
ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS OR RELATIONSHIPS
CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE
JUDGMENT OR COURT ORDER BINDING ON THE AGENT OR ANY SUCH LENDER THAT THE LOSSES
WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE AGENT OR ANY SUCH LENDER. THE BORROWER HEREBY WAIVES ALL
FUTURE CLAIMS AGAINST THE AGENT AND THE LENDERS FOR SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES UNLESS RESULTING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF THE AGENT OR ANY SUCH LENDER.
SECTION XI.6. Delays; Partial Exercise of Remedies. No delay or
omission of the Agent or the Lenders to exercise any right or remedy hereunder
shall impair any such right or operate as a waiver thereof. No single or partial
exercise by the Agent or the Lenders of any right or remedy shall preclude any
other or further exercise thereof, or preclude any other right or remedy.
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SECTION XI.7. Notices. Except as otherwise provided herein, all
notices and correspondence hereunder shall be in writing and sent by certified
or registered mail, return receipt requested, by overnight delivery service,
with all charges prepaid, or by telecopier followed by a hard copy sent by
regular mail, if to the Agent, then to Hudson United Bank, Soundview Plaza, 1266
East Main Street, Stamford, Connecticut 06902, Telecopy: (203) 328-9339,
Attention: Mr. Jerome P. Peters, Jr., Senior Vice President, with a copy to
Luskin, Stern & Eisler LLP, 330 Madison Avenue, New York, New York 10017,
Telecopy: (212) 293-2705, Attention: Nathan M. Eisler, Esq., if to any Lender,
then to its address specified opposite its name on Schedule 1, and if to the
Borrower, then to CHI Energy, Inc., Stamford Towers, 680 Washington Boulevard,
Suite 500, Stamford, Connecticut 06901, Telecopy: (203) 425-8880, Attention: Mr.
Edward M. Stern, President, with a copy to Curtis Thaxter Stevens Broder &
Micoleau LLC, One Canal Plaza, 10th Floor, Portland, Maine 04101, Telecopy:
(207) 775-0612, Attention: Michael Peisner, Esq., or, in each case, to such
other address specified by any party in writing to the other parties in the
manner required under this Section. All such notices and correspondence shall be
deemed given (i) if sent by certified or registered mail, three Business Days
after being postmarked, (ii) if sent by overnight delivery service, when
received at the above stated addresses or when delivery is refused and (iii) if
sent by telecopier transmission, when such transmission is confirmed.
SECTION XI.8. Assignments and Participations.
(a) Borrower Assignment. The Borrower shall not assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
Agent and the Required Lenders.
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(b) Lender Assignments. Each Lender may, with the prior consent of
the Agent and the Borrower which, except as provided in the penultimate sentence
of this subsection (b), shall not be unreasonably withheld or delayed, assign to
one or more banks or other financial institutions all or a portion of its rights
and obligations under this Agreement, the Notes and the other Loan Documents,
and upon execution and delivery to the Agent, for its acceptance and recording
in the Register, of an agreement in substantially the form of Exhibit C (an
"Assignment and Assumption Agreement"), together with surrender of any Note or
Notes subject to such assignment and a processing and recordation fee of $2,500.
No such assignment shall be for less than $3,000,000 of the Revolving Credit
Commitments or Loans unless it is to another Lender. Any assignment by a Lender
hereunder shall include such Lender's Revolving Credit Loans, Revolving Credit
Commitment and Term Loan. Upon such execution and delivery to the Agent of an
Assignment and Assumption Agreement, from and after the date specified as the
effective date in the Assignment and Assumption Agreement (the "Acceptance
Date"), (x) the assignee thereunder shall be a party hereto, and, to the extent
that rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Assumption Agreement, such assignee shall have the rights and
obligations of a Lender hereunder and (y) the assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it pursuant
to such Assignment and Assumption Agreement, relinquish its rights (other than
any rights it may have pursuant to Section 11.9 which will survive) and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Assumption Agreement covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto). No consent of the Borrower shall be required
under the first sentence of this Section, (i) if an Event of Default has
occurred and is continuing, (ii) with respect to an assignment to a Lender, a
branch office of a Lender or an Affiliate of a Lender or (iii) with respect to a
pledge by a Lender of all or a portion of its rights and interests under this
Agreement, the Notes or the other Loan Documents to any Federal Reserve Bank in
accordance with Regulation A of the Board of Governors of the Federal Reserve
System or U.S. Treasury Regulation 31 CFR " 203.14, and such Federal Reserve
Bank shall be permitted to enforce such pledge in any manner permitted by
applicable law. If the Borrower's consent is required hereunder with respect to
an assignment by HUB other than in connection with a sale of a division, or
portfolio of assets, of the Lender, the Borrower may withhold such consent in
its sole and absolute discretion if, after giving effect to such assignment,
HUB's Proportionate Share would be less than 50.1%. In all cases where the
Borrower's consent to an assignment by a Lender is not required hereunder, the
Agent agrees to use reasonable efforts to give written notice of such assignment
to the Borrower promptly after its effectiveness, provided that the Agent's
failure to give such notice shall not invalidate or limit such assignment.
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(c) Agreements of Assignee. By executing and delivering an Assignment
and Assumption Agreement, the assignee thereunder confirms and agrees as
follows: (i) other than as provided in such Assignment and Assumption Agreement,
the assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
the Notes or any other instrument or document furnished pursuant hereto, (ii)
such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any
other Pledgor or the performance or observance by the Borrower or any other
Pledgor of any of their obligations under this Agreement, the Pledge Agreement
or any other instrument or document furnished pursuant hereto or thereto, (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the Financial Statements referred to in Section 6.1(i), the
Financial Statements delivered pursuant to Section 7.1(k), if any, and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Assumption
Agreement, (iv) such assignee will, independently and without reliance upon the
Agent, such assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement, (v) such
assignee appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers as are reasonably
incidental thereto and (vi) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
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(d) Agent's Register. The Agent shall maintain a register of the
names and addresses of the Lenders, their Commitments and the principal amount
of their Loans (the "Register"). The Agent shall also maintain a copy of each
Assignment and Assumption Agreement delivered to and accepted by it and modify
the Register to give effect to each Assignment and Assumption Agreement. The
entries in the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Agent and the Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register and copies of each Assignment and
Assumption Agreement shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice. Upon its receipt of each Assignment and Assumption Agreement and
surrender of the affected Note or Notes subject to such assignment, the Agent
will give prompt notice thereof to the Borrower. Within five Business Days after
its receipt of such notice, the Borrower shall execute and deliver to the Agent
(i) before the Availability Expiration Date, a new Revolving Credit Note to the
order of the assignee in the amount of the Revolving Credit Commitment assumed
by it and to the assignor in the amount of the Revolving Credit Commitment
retained by it, if any, and (ii) after the Availability Expiration Date, a new
Term Note to the order of the assignee in the amount of the Term Loan assumed by
it and to the assignor in the amount of the Term Loan retained by it, if any.
Such new Note or Notes shall re-evidence the indebtedness outstanding under the
surrendered Note or Notes and shall be in an aggregate principal amount equal to
the aggregate principal amount of such surrendered Note or Notes and shall be
dated as of the Closing Date. The Agent shall be entitled to rely upon the
Register exclusively for purposes of identifying the Lenders hereunder.
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(e) Lender Participations. Each Lender may sell participations
(without the consent of the Agent, the Borrower or any other Lender) to one or
more parties in or to all or a portion of its rights and obligations under this
Agreement, the Notes and the other Loan Documents. Notwithstanding a Lender's
sale of a participation interest, such Lender's obligations hereunder shall
remain unchanged. The Borrower, the Agent, and the other Lenders shall continue
to deal solely and directly with such Lender. No participant shall have rights
to approve any amendment or waiver of this Agreement except to the extent such
amendment or waiver would (i) increase the Commitment of the Lender from whom
the participant purchased its participation interest; (ii) reduce the principal
of, or rate or amount of interest on the Loans subject to such participation
interest; (iii) postpone any date fixed for any payment of principal of, or
interest on, the Loans subject to such participation interest; or (iv) release
all or a substantial portion of the Collateral, other than in each case when
otherwise permitted hereunder.
(f) Securities Laws. Each Lender agrees that, without the prior
written consent of the Borrower and the Agent, it will not make any assignment
hereunder in any manner or under any circumstances that would require
registration or qualification of, or filings in respect of, any Loan, Note or
other Obligation under the securities laws of the United States or of any other
jurisdiction.
(g) Information. In connection with their efforts to assign their
rights or obligations or sell participations pursuant to Sections 11.8(b) and
(e) hereof, respectively, the Agent and the Lenders may disclose any information
they have, now or in the future, with respect to the business of the Borrower to
prospective assignees or purchasers, provided that, prior to any such
disclosure, the assignee or participant or proposed assignee or proposed
participant shall agree in writing to preserve the confidentiality of any
Confidential Information received by it from the Agent or any Lender.
-111-
<PAGE>
SECTION XI.9. Indemnification; Reimbursement of Expenses of
Collection.
(a) The Borrower hereby indemnifies and agrees to defend and hold
harmless the Agent and the Lenders, and its and their directors, officers,
agents, employees and counsel (each, an "Indemnified Party") from and against
any and all losses, claims, damages, liabilities, deficiencies, judgments or
expenses incurred by any of them (except to the extent that it is finally
judicially determined to have resulted from their own gross negligence or
willful misconduct) arising out of or by reason of (i) any litigations,
investigations, claims or proceedings which arise out of or are in any way
related to (A) this Agreement, any other Loan Document or the transactions
contemplated hereby or thereby, (B) any actual or proposed use by the Borrower
or any of its Subsidiaries of the Letters of Credit or the proceeds of the
Revolving Credit Loans or (C) the Agent's or any Lender's entering into this
Agreement, the other Loan Documents or any other agreement or document relating
hereto, including, without limitation, amounts paid in settlement, court costs
and the reasonable fees and disbursements of counsel incurred in connection with
any such litigation, investigation, claim or proceeding or any advice rendered
in connection with any of the foregoing and (ii) any remedial or other action
taken by the Borrower or the Agent or any Lender in connection with compliance
by the Borrower, or any of its properties, with any federal, state or local
Environmental Laws. In addition, the Borrower shall, upon demand, pay to the
Agent all costs and expenses incurred by the Agent (including, without
limitation, recording costs and the reasonable fees and disbursements of counsel
and other professionals) in connection with the preparation, execution,
delivery, administration, modification and amendment of the Loan Documents, and,
upon the occurrence and during the continuance of an Event of Default, pay to
the Agent and the Lenders all costs and expenses (including, without limitation,
the reasonable fees and disbursements of counsel and other professionals) paid
or incurred by the Agent or the Lenders in (A) enforcing or defending its rights
under or in respect of this Agreement, the other Loan Documents or any other
document or instrument now or hereafter executed and delivered in connection
herewith, (B) collecting the Obligations, (C) foreclosing or otherwise
collecting upon the Collateral or any part thereof and (D) obtaining any legal,
accounting or other advice reasonably required in connection with any of the
foregoing. If and to the extent that the Obligations of the Borrower hereunder
are unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of such Obligations which is
permissible under applicable law.
-112-
<PAGE>
(b) The Borrower's obligations under Section 4.9 and this Section
11.9 shall survive any termination of this Agreement and the other Loan
Documents and the payment in full of the Obligations, and are in addition to,
and not in substitution of, any of its other obligations set forth in this
Agreement.
SECTION XI.10. Right of Setoff. In addition to and not in limitation
of all rights of offset that the Agent, any Lender or any of their respective
Affiliates may have under applicable law, and whether or not the Agent has made
any demand or the Obligations of the Borrower have matured, the Agent, the
Lenders and their respective Affiliates shall have the right to appropriate and
apply to the payment of the Obligations of the Borrower all (i) deposits of the
Borrower or any of its Affiliates held by the Agent, any Lender or any of their
respective Affiliates and (ii) other obligations then or thereafter owing by the
Agent, any Lender or any of their respective Affiliates to the Borrower or any
of its Affiliates.
SECTION XI.11. Amendments and Waivers.
(a) No amendment or waiver of any provision of this Agreement or any
other Loan Document shall be effective unless in writing and signed by the
Required Lenders (or signed by the Agent on their behalf after specific
authorization therefrom), determined without taking into account the Revolving
Credit Commitments or the Loans held by any Defaulting Lender, and any other
party to be charged thereby, except that:
(i) the consent of all the Lenders (other than any
Defaulting Lender) is required to (A) reduce the principal of, or
interest on, the Notes, any Letter of Credit reimbursement
obligations or any fees hereunder (other than fees that are
exclusively for the account of the Agent), (B) postpone the final
scheduled date of maturity of the Notes or any date fixed for any
payment in respect of interest on the Notes, any Letter of Credit
reimbursement obligations or any fees hereunder, (C) amend or waive
this Section 11.11(a), or change the definition of Required Lenders,
or (D) release any Liens in favor of the Lenders on all or
substantially all of the Collateral, except as otherwise expressly
provided in this Agreement, and other than in connection with the
financing, refinancing, sale or other disposition of any asset of the
Borrower permitted under this Agreement;
(ii) no such amendment or waiver shall increase the
Revolving Credit Commitment of any Lender over the amount thereof
then in effect without the
-113-
<PAGE>
consent of such Lender (it being understood that amendments or
waivers by the Required Lenders of conditions precedent, covenants,
Defaults or Events of Default shall not constitute an increase in the
Revolving Credit Commitment of any Lender, and that an increase in
the available portion of any Revolving Credit Commitment of any
Lender shall not constitute an increase in the Commitment of such
Lender);
(iii) the consent of the Agent shall be required for any
amendment, waiver or consent affecting the rights or duties of the
Agent under any Loan Document, in addition to the consent of the
Lenders otherwise required by this Section 11.11; and
(iv) the consent of the Borrower shall not be required for
any amendment, modification or waiver of the provisions of Article X
(other than Section 10.9).
(b) The Borrower and the Lenders hereby authorize the Agent to modify
this Agreement by unilaterally amending or supplementing Schedule 1 to reflect
assignments of the Commitments.
(c) If, in connection with any proposed amendment or waiver of any of
the provisions of this Agreement as contemplated by Section 11.11(a), the
consent of the Required Lenders is obtained but the consent of one or more of
such other Lenders whose consent is required is not obtained, then the Borrower
shall have the right to replace each such non-consenting Lender or Lenders (so
long as all non-consenting Lenders are so replaced) with one or more replacement
Lenders pursuant to Section 11.8 so long as at the time of such replacement,
each such replacement Lender consents to the proposed amendment or waiver. No
early termination fee shall be payable under Section 4.7 to any Lender that is
replaced under this subsection.
SECTION XI.12. Nonliability of Agent and Lenders. The relationship
between the Borrower and the Lenders and the Agent shall be solely that of
borrower and lender. Neither the Agent nor any Lender shall have any fiduciary
responsibilities to the Borrower. Neither the Agent nor any Lender undertakes
any responsibility to the Borrower to review or inform the Borrower of any
matter in connection with any phase of the Borrower's business or operations.
-114-
<PAGE>
SECTION XI.13. Independent Nature of Lenders' Rights. The amount
payable at any time hereunder to each Lender under such Lender's Note shall be a
separate and independent debt.
SECTION XI.14. Counterparts; Telecopied Signatures. This Agreement
and any waiver or amendment hereto may be executed in counterparts and by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one
and the same instrument. This Agreement may be executed and delivered by
telecopier or other facsimile transmission all with the same force and effect as
if the same was a fully executed and delivered original counterpart.
SECTION XI.15. Severability. In case any provision in or obligation
under this Agreement, the Notes or any other Loan Document shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.
-115-
<PAGE>
SECTION XI.16. Maximum Rate. Notwithstanding anything to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the
Borrower, the Agent and the Lenders hereby agree that all agreements among them
under this Agreement and the other Loan Documents, whether now existing or
hereafter arising and whether written or oral, are expressly limited so that in
no contingency or event whatsoever shall the amount paid, or agreed to be paid,
to the Agent or any Lender for the use, forbearance, or detention of the money
loaned to the Borrower and evidenced hereby or thereby or for the performance or
payment of any covenant or obligation contained herein or therein, exceed the
maximum non-usurious interest rate, if any, that at any time or from time to
time may be contracted for, taken, reserved, charged or received on the
Obligations, under the laws of the State of New York (or the law of any other
jurisdiction whose laws may be mandatorily applicable notwithstanding other
provisions of this Agreement and the other Loan Documents), or under applicable
federal laws which may presently or hereafter be in effect and which allow a
higher maximum non-usurious interest rate than under New York (or such other
jurisdiction's) law, in any case after taking into account, to the extent
permitted by applicable law, any and all relevant payments or charges under this
Agreement and the other Loan Documents, and any available exemptions, exceptions
and exclusions (the "Highest Lawful Rate"). If due to any circumstance
whatsoever, fulfillment of any provisions of this Agreement or any of the other
Loan Documents at the time performance of such provision shall be due shall
exceed the Highest Lawful Rate, then, automatically, the obligation to be
fulfilled shall be modified or reduced to the extent necessary to limit such
interest to the Highest Lawful Rate, and if from any such circumstance the Agent
or any Lender should ever receive anything of value deemed interest by
applicable law which would exceed the Highest Lawful Rate, such excessive
interest shall be applied to the reduction of the principal amount then
outstanding hereunder or on account of any other then outstanding Obligations
and not to the payment of interest, or if such excessive interest exceeds the
principal unpaid balance then outstanding hereunder and such other then
outstanding Obligations, such excess shall be refunded to the Borrower. All sums
paid or agreed to be paid to the Agent or any Lender for the use, forbearance,
or detention of the Obligations and other Indebtedness of the Borrower to the
Lenders shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such Indebtedness,
until payment in full thereof, so that the actual rate of interest on account of
all such Indebtedness does not exceed the Highest Lawful Rate throughout the
entire term of such Indebtedness. The terms and provisions of this Section shall
control every other provision of this Agreement and all agreements between the
Borrower, the Agent and the Lenders.
-116-
<PAGE>
SECTION XI.17. Amendment and Restatement. This Agreement amends and
restates, and supersedes in its entirety, the Original Loan Agreement.
SECTION XI.18. ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS. THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE AGREEMENT AMONG THE
BORROWER, THE AGENT AND THE LENDERS, SUPERSEDE ANY PRIOR WRITTEN AND VERBAL
AGREEMENTS BETWEEN OR AMONG THEM, AND SHALL BIND AND BENEFIT THE BORROWER, THE
AGENT AND THE LENDERS AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS.
-117-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their proper and duly authorized officers as of the date first
set forth above.
BORROWER:
---------
CHI ENERGY, INC.
By: /s/ Neil A. Manna
--------------------------
Neil A. Manna
Vice President
AGENT:
------
HUDSON UNITED BANK
By: /s/ Jerome P. Peters, Jr.
--------------------------
Jerome P. Peters, Jr.
Senior Vice President
LENDERS:
--------
HUDSON UNITED BANK
By: /s/ Jerome P. Peters, Jr.
--------------------------
Jerome P. Peters, Jr.
Senior Vice President
BANC OF AMERICA COMMERCIAL FINANCE CORPORATION
By: /s/ Michael R. Abandond
---------------------------------
Michael R. Abandond
Senior Vice President
-118-
<PAGE>
SCHEDULE 1
LENDERS, LENDING OFFICES AND COMMITMENTS
Lender Lending Office Total
------ -------------- Commitments
Hudson United Bank 1266 East Main Street $20,000,000
Stamford, Connecticut 06901
Banc of America $15,000,000
Commercial Finance 187 Danbury Road
Corporation Wilton, Connecticut 06897-4079
-----------
$35,000,000
<PAGE>
================================================================================
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
among
CHI ENERGY, INC.,
AS BORROWER,
EACH OF THE FINANCIAL INSTITUTIONS
PARTIES HERETO,
AS LENDERS,
and
HUDSON UNITED BANK,
AS AGENT
Dated as of November 3, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
SECTION I.1. General Definitions...............................................................................2
-------------------
SECTION I.2. Accounting Terms and Determinations..............................................................22
-----------------------------------
SECTION I.3. Other Terms; Headings............................................................................23
---------------------
ARTICLE II
SECTION II.1. The Revolving Credit Loans......................................................................23
--------------------------
SECTION II.2. Procedures for Borrowing of Revolving Credit Loans; Disputes....................................24
------------------------------------------------------------
SECTION II.3. Disbursement of Revolving Credit Loans..........................................................26
--------------------------------------
SECTION II.4. Term............................................................................................26
----
SECTION II.5. Notices of Borrowing............................................................................27
--------------------
SECTION II.6. Disbursement of Funds; Evidence of Debt to Lenders; Account Statements; Adjustments.............28
-----------------------------------------------------------------------------------
SECTION II.7. Payments........................................................................................29
--------
SECTION II.8. Sharing of Payments.............................................................................30
-------------------
SECTION II.9. Defaulting Lenders..............................................................................31
------------------
SECTION II.10. Conversion to Term Loan........................................................................34
-----------------------
SECTION II.11. Letters of Credit..............................................................................36
-----------------
SECTION II.12. Amortization of Term Loan; Cash Collateralization of Letters of Credit.........................42
----------------------------------------------------------------------
SECTION II.13. Maximum Amount of the Facility; Mandatory Prepayments; Optional Prepayments....................43
---------------------------------------------------------------------------
SECTION II.14. Payment Procedures.............................................................................45
------------------
SECTION II.15. Collection of Receivables; Application of Collections; Deposit to Blocked Account..............45
---------------------------------------------------------------------------------
ARTICLE III
SECTION III.1. General........................................................................................48
-------
SECTION III.2. Further Security...............................................................................49
----------------
SECTION III.3. Termination....................................................................................49
-----------
SECTION III.4. Recourse to Security...........................................................................50
--------------------
SECTION III.5. Special Provisions Relating to Receivables and Related Matters.................................50
--------------------------------------------------------------
SECTION III.6. Special Provisions Relating to Equipment.......................................................51
----------------------------------------
ARTICLE IV
SECTION IV.1. Interest........................................................................................52
--------
SECTION IV.2. Interest After Event of Default.................................................................52
-------------------------------
SECTION IV.3. Facility Fee....................................................................................52
------------
SECTION IV.4. Unused Line Fee.................................................................................52
---------------
SECTION IV.5. Letter of Credit Fees...........................................................................53
---------------------
SECTION IV.6. Agency Fees.....................................................................................53
-----------
SECTION IV.7. Early Termination Fee...........................................................................53
---------------------
SECTION IV.8. Calculations....................................................................................53
------------
SECTION IV.9. Indemnification in Certain Events...............................................................54
---------------------------------
<PAGE>
Page
----
ARTICLE V
SECTION V.1. Conditions to Initial Revolving Credit Loans and Initial Letter of Credit........................55
-------------------------------------------------------------------------
SECTION V.2. Conditions Precedent to Each Revolving Credit Loan and Each Letter of Credit.....................60
----------------------------------------------------------------------------
SECTION V.3. Determinations Under Section 5.1.................................................................61
--------------------------------
ARTICLE VI
SECTION VI.1. Representations and Warranties of the Borrower..................................................61
----------------------------------------------
ARTICLE VII
SECTION VII.1. Affirmative Covenants..........................................................................71
---------------------
SECTION VII.2. Negative Covenants.............................................................................83
------------------
ARTICLE VIII
SECTION VIII.1. Tangible Net Worth............................................................................94
------------------
SECTION VIII.2. Capital Expenditures..........................................................................94
--------------------
SECTION VIII.3. Post-Availability Expiration Date Expenditures................................................95
----------------------------------------------
SECTION VIII.4. Projected Minimum Coverage Ratio..............................................................95
--------------------------------
ARTICLE IX
SECTION IX.1. Events of Default...............................................................................95
-----------------
SECTION IX.2. Acceleration and Cash Collateralization.........................................................98
---------------------------------------
SECTION IX.3. Other Remedies..................................................................................99
--------------
SECTION IX.4. License for Use of Software and Other Intellectual Property....................................100
-----------------------------------------------------------
SECTION IX.5. No Marshalling; Deficiencies; Remedies Cumulative..............................................101
-------------------------------------------------
SECTION IX.6. Defense of Collateral; Continuation of Liens; Further Assurances...............................102
----------------------------------------------------------------
ARTICLE X
SECTION X.1. Appointment of Agent............................................................................103
--------------------
SECTION X.2. Nature of Duties of Agent.......................................................................103
-------------------------
SECTION X.3. Lack of Reliance on Agent.......................................................................103
-------------------------
SECTION X.4. Certain Rights of the Agent.....................................................................104
---------------------------
SECTION X.5. Reliance by Agent...............................................................................104
-----------------
SECTION X.6. Indemnification of Agent........................................................................104
------------------------
SECTION X.7. The Agent in Its Individual Capacity............................................................105
------------------------------------
SECTION X.8. Holders of Notes................................................................................105
----------------
SECTION X.9. Successor Agent.................................................................................105
---------------
SECTION X.10. Collateral Matters.............................................................................106
------------------
SECTION X.11. Actions with Respect to Defaults...............................................................107
--------------------------------
SECTION X.12. Delivery of Information........................................................................108
-----------------------
-ii-
<PAGE>
Page
----
ARTICLE XI
SECTION XI.1. GOVERNING LAW..................................................................................108
-------------
SECTION XI.2. SUBMISSION TO JURISDICTION.....................................................................108
--------------------------
SECTION XI.3. SERVICE OF PROCESS.............................................................................109
------------------
SECTION XI.4. JURY TRIAL.....................................................................................109
----------
SECTION XI.5. LIMITATION OF LIABILITY........................................................................109
-----------------------
SECTION XI.6. Delays; Partial Exercise of Remedies...........................................................109
------------------------------------
SECTION XI.7. Notices........................................................................................110
-------
SECTION XI.8. Assignments and Participations.................................................................110
------------------------------
SECTION XI.9. Indemnification; Reimbursement of Expenses of Collection.......................................116
--------------------------------------------------------
SECTION XI.10. Right of Setoff...............................................................................117
---------------
SECTION XI.11. Amendments and Waivers........................................................................117
----------------------
SECTION XI.12. Nonliability of Agent and Lenders.............................................................118
---------------------------------
SECTION XI.13. Independent Nature of Lenders' Rights.........................................................119
-------------------------------------
SECTION XI.14. Counterparts; Telecopied Signatures...........................................................119
-----------------------------------
SECTION XI.15. Severability..................................................................................119
------------
SECTION XI.16. Maximum Rate..................................................................................120
------------
SECTION XI.17. Amendment and Restatement.....................................................................121
-------------------------
SECTION XI.18. ENTIRE AGREEMENT; SUCCESSORS AND ASSIGNS......................................................121
----------------------------------------
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Schedules
- ---------
<S> <C>
Schedule 1 - Lenders, Lending Offices and Commitments
Schedule 2.15 - Restricted Receivables
Schedule 3.6(a) - Equipment Locations
Schedule 5.1(a)(ii) - Pledged Subsidiaries
Schedule 6.1(a) - Jurisdictions Where Borrower and Subsidiaries are Qualified to do Business
Schedule 6.1(b) - Jurisdictions Where Records of Receivables are Kept; List of Jurisdictions Where
Equipment Collateral is Located
Schedule 6.1(f) - Consents and Filings
Schedule 6.1(g) - Stock and other Equity Interests in Subsidiaries and Affiliates; Designated
Subsidiaries; Inactive Subsidiaries
Schedule 6.1(h) - Affiliate Transactions
Schedule 6.1(i) - Capital Stock of the Borrower Which Has Been Redeemed, Retired, Purchased or
Otherwise Acquired for Value by the Borrower Since September 30, 1998; Other
Matters Referenced in Section 6.1(i)
Schedule 6.1(k) - Joint Ventures and Partnerships between CHI Energy, Inc. and any other Person
Schedule 6.1(r) - Tax Disclosures
Schedule 6.1(s) - Litigation
Schedule 6.1(t) - Real Property
Schedule 6.1(z) - ERISA Plans
Schedule 6.1(ac) - Environmental Actions
Schedule 6.1(ae) - Material Contracts
Schedule 7.2(a) - Existing Indebtedness
Schedule 7.2(b) - Existing Contingent Obligations
Schedule 7.2(c) - Existing Liens
Schedule 7.2(g) - Pending Asset Sales and other Dispositions
Schedule 7.2(k) - Permitted Investment
Schedule 7.2(q) - Permitted Amendments of Material Contracts
Schedule 7.2(r) - Leases
Schedule 7.2(s) - Leasebacks
Schedule 7.2(z) - Bank Accounts
Exhibits
- --------
Exhibit A - Revolving Credit Note
Exhibit B - Term Note
Exhibit C - Assignment and Assumption Agreement
Exhibit D - Guaranty
Exhibit E - Pledge Agreement
Exhibit F - Blocked Account Agreement
Exhibit G - Depository Account Agreement
Exhibit H - Contribution Agreement
Exhibit I - Solvency Certificate
Exhibit J - Support Letter
Exhibit K - Letter of Credit Request
Exhibit L - Perfection Certificate
Exhibit M - Opinion of Counsel
Exhibit N - Compliance Certificate
Exhibit O - Notice of Borrowing
Exhibit P - Projected Cash Flow Statement
Exhibit Q - Subordination Agreement
</TABLE>
-iv-
EXHIBIT 12.1
CHI ENERGY, INC.
STATEMENT REGARDING COMPUTATIONS OF RATIO/DEFICIENCY
OF EARNINGS TO FIXED CHARGES AND OF
RATIO/DEFICIENCY OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED
COMPANY
---------------------------------------
YEAR ENDED YEAR ENDED NOV. 8 TO
DEC. 31 DEC. 31 DEC. 31
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income/(loss) before provision for income taxes, extraordinary item
and cumulative effect of accounting changes $ 8,558 $ 7,077 $ 1,481
Add: Interest expense 6,745 8,048 1,260
Amortization of debt -- -- --
Imputed interest - operating lease (a) 1,148 1,268 --
------- ------- -------
Total earnings/(loss) $16,451 $16,393 $ 2,741
======= ======= =======
Fixed charges:
Interest expense $ 6,745 $ 8,048 $ 1,260
Capitalized interest -- -- --
Amortization of debt -- -- --
Imputed interest - operating lease (a) 1,148 1,268 --
------- ------- -------
$ 7,893 $ 9,316 $ 1,260
======= ======= =======
Ratio of earnings to fixed charges 2.08 1.76 2.18
======= ======= =======
Deficiency of earnings to fixed charges -- -- --
======= ======= =======
Preferred dividend requirement -- -- --
======= ======= =======
Ratio of earnings to fixed charges and preferred stock dividends 2.08 1.76 2.18
======= ======= =======
Deficiency of earnings to fixed charges and preferred
stock dividends -- -- --
======= ======= =======
<PAGE>
Table continued...
PREDECESSOR COMPANY
------------------------------------------------
JULY 1 TO
NOV. 7 FISCAL YEAR ENDED JUNE 30,
1997 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income/(loss) before provision for income taxes, extraordinary item
and cumulative effect of accounting changes $ (9,319) $ (11,161) $ (95,712) $ (15,899)
Add: Interest expense 7,741 29,591 26,876 21,778
Amortization of debt 108 448 448 448
Imputed interest - operating lease (a) 677 1,436 1,533 1,621
--------- --------- --------- ---------
Total earnings/(loss) $ (793) $ 20,314 $ (66,855) $ 7,948
========= ========= ========= =========
Fixed charges:
Interest expense $ 7,741 $ 29,591 $ 26,876 $ 21,778
Capitalized interest 68 189 1,705 2,951
Amortization of debt 108 448 448 448
Imputed interest - operating lease (a) 677 1,436 1,533 1,621
--------- --------- --------- ---------
$ 8,594 $ 31,664 $ 30,562 $ 26,798
========= ========= ========= =========
Ratio of earnings to fixed charges -- -- -- --
========= ========= ========= =========
Deficiency of earnings to fixed charges $ 9,387 $ 11,350 $ 97,417 $ 18,850
========= ========= ========= =========
Preferred dividend requirement $ 6,060 $ 25,891 $ 23,732 $ 22,108
========= ========= ========= =========
Ratio of earnings to fixed charges and preferred stock dividends -- -- -- --
========= ========= ========= =========
Deficiency of earnings to fixed charges and preferred
stock dividends $ 15,447 $ 37,241 $ 121,149 $ 40,958
========= ========= ========= =========
</TABLE>
(a) The percent of rent included above represents a reasonable
approximation of the interest factor.
SUBSIDIARIES AND WHOLLY-OWNED AFFILIATES OF CHI ENERGY, INC, #06-1138478
SUBSIDIARIES AND PARTNERSHIPS OF CHI ENERGY, INC.
FEDERAL I.D. NUMBERS
Aquenergy Systems, Inc. 57-0736018
Asotin Hydro Company, Inc. 06-1226531
Aziscohos Hydro Company, Inc. 06-1163591
Beaver Water Power Company
Beaver Valley Holdings Ltd. 31-0990607
Beaver Valley Power Company 31-0990606
Bedard Electrics, Inc. * 15-0599437
Boott Hydropower, Inc. 04-2798952
BP Hydro Associates 06-1401488
BP Hydro Finance Partnership 06-1401492
CHI Acquisitions, Inc. 06-1259880
CHI Acquisitions II, Inc. 06-1413523
CHI Argentina USA, Inc. * 06-1391063
CHI-Black Canyon, Inc. (sold 12/31/98) 06-1325221
CHI-Black River, Inc. 06-1325223
CHI Canada, Inc. No FEID #: Canadian Corp.
CHI-Dexter, Inc. 06-1325222
CHI Finance, Inc. 06-1338722
CHI Highfalls, Inc. 06-1383520
CHI Hydroelectric Company, Inc. No FEID #: Canadian Corp.
CHI-Idaho, Inc. 06-1326247
CHI-Magic Valley, Inc. 06-1325226
CHI Mountain States Operations, Inc. 06-1299910
CHI Operations, Inc. 06-1163588
CHI Patagonia, Inc.* 06-1370569
CHI Philippines, Inc. * 06-1398884
CHI Power, Inc. 06-1226530
CHI Power Marketing, Inc. 06-1257762
CHI S.F., LP No FEID #: Canadian Partnership
CHI Universal, Inc. 06-1163590
CHI West, Inc. 06-1281001
CHI Western Operations, Inc. 06-1326249
Coneross Power Corporation 57-0853383
Consolidated Hydro Mountain States, Inc. 06-1299911
Consolidated Hydro New Hampshire, Inc. 06-1206274
Consolidated Hydro New York, Inc. 06-1220156
Consolidated Hydro Southeast, Inc. 06-1267066
Consolidated Hydro Vermont, Inc. 06-1254838
Coosa Pines Energy LLC (CHI Division)
Coosa Pines Energy Holdings LLC (CHI Division)
Copenhagen Associates 16-1229159
Crosby Drive Investments, Inc. 04-3040899
Eagle & Phenix Hydro Company, Inc. 06-1288081
Echo Summit Hydro Company, Inc. * 06-1396364
Essex Company 04-1291880
Fulcrum, Inc. 82-0391234
Great Dam Corp. 04-2684057
Highfalls Hydro Company, Inc. 06-1383519
Hosiery Mill Hydro Company, Inc. 06-1279378
Hydrodev, Inc. No FEID#: Canadian Corp.
Hydro Development Group, Inc. 16-1141332
Hydro Energies Corporation 03-0282579
Hydro Power Associates (Cataldo) 16-1214491
Iriquorp Acquisitions, Inc. * 16-1350126
Iriquorp Ltd. * 16-1283233
Iriquorp Steel Corporation 22-3039821
Joseph Hydro Company, Inc. * 06-1310385
Kings River Hydro Company, Inc. 06-1390733
Kinneytown Hydro Company, Inc. 06-1167454
LaChute Hydro Company, Inc. 06-1203686
Lawrence Hydroelectric Associates 04-2684094
Les Developpements Hydroelectriques CHI, Inc. 06-1307651
Littlefield Hydro Company* 06-1163612
Littlefield Hydro Company, Inc.* 06-1163600
Littleville Power Company, Inc. 04-2839064
Lower Saranac Corporation 13-3367119
Mill Shoals Hydro Company, Inc. 06-1307652
Minnewawa Hydro Company, Inc.* 06-1163604
North Canal Waterworks 04-6450580
Notch Butte Hydro Company, Inc. 06-1326248
Ottauquechee Hydro Company, Inc. 06-1342764
Pelzer Hydro Company, Inc. 06-1268834
Phoenix Hydro Company, Inc.* 06-1314432
Pioneer Hydro Company, Inc. * 06-1385379
Pyrites Associates 16-1211396
Schoolfield Hydro Company, Inc.* 06-1261756
Sheldon Vermont Hydro Company, Inc. 06-1325231
Slate Creek Hydro Company, Inc. 06-1292715
Somersworth Hydro Company, Inc. 06-1163606
TKO Power, Inc. 68-0134284
Triton Power Company 14-1630384
Twin Falls Hydro Company, Inc. 06-1263090
Ware Hydro Company, Inc. * 06-1320766
Willimantic Hydro Company, Inc. 06-1295505
Willimantic Power Corporation 03-0312305
<PAGE>
MAJORITY OWNED SUBSIDIARIES AND PARTNERSHIPS OF CHI ENERGY, INC.
Cascade Energy Limited Partnership * 06-1367501
Cascade Pumped Storage, Inc. 06-1366654
CHI Patagonia Investments, L.P. * 06-1370600
Consolidated Pumped Storage Arkansas, Inc. 06-1302365
Consolidated Pumped Storage, Inc. 06-1267071
River Mountain Limited Partnership 06-1391062
SOCAL Energy Limited Partnership * 06-1366760
SOCAL Pumped Storage, Inc. 06-1366651
Societe de Cogeneration
de St-Felicien (LP) No FEID #: Canadian Partnership
Summit Energy Storage Inc. * 06-1230814
Summit Finance, Inc. 06-1236388
<PAGE>
AFFILIATES OF CHI ENERGY, INC.
Black River Hydro Associates 16-1214489
Hillsborough Hydroelectric, L.P. 13-3187877
Hydrodev Societe en Commandite
No FEID #: Canadian Partnership
LaComb Hydro Limited Partnership 68-0105524
(Final Return 12/31/98)
Lower Saranac Hydro Partners, L.P. 13-3532743
Missisquoi Associates 82-0387855
Sheldon Springs Hydro Associates, L.P. 06-1383502
Slate Creek Hydro Associates, L.P. 13-3187471
Star Lake Hydro Partnership, GP
No FEID #: Canadian Partnership
Summit Energy Limited Partnership * 06-1344738
Twin Falls Hydro Associates, L.P. 06-1279573
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE ACCOMPANYING FORM 10-K AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,954
<SECURITIES> 0
<RECEIVABLES> 8,080
<ALLOWANCES> (608)
<INVENTORY> 0
<CURRENT-ASSETS> 26,493
<PP&E> 118,137
<DEPRECIATION> (8,953)
<TOTAL-ASSETS> 238,932
<CURRENT-LIABILITIES> 22,400
<BONDS> 81,456
0
0
<COMMON> 100
<OTHER-SE> 94,679
<TOTAL-LIABILITY-AND-EQUITY> 238,932
<SALES> 0
<TOTAL-REVENUES> 48,747
<CGS> 0
<TOTAL-COSTS> 28,742
<OTHER-EXPENSES> 6,522
<LOSS-PROVISION> 165
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,558
<INCOME-TAX> (3,557)
<INCOME-CONTINUING> 5,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,001
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.50
</TABLE>
