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, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 33-53132
KENETECH CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3009803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 Sansome Street, Suite 300
San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 398-3825
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
12 3/4% SENIOR SECURED NOTES DUE 2002
8 1/4% PREFERRED REDEEMABLE INCREASED DIVIDEND EQUITY SECURITIES
(Title of Class)
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 (Section 229.405 of this chapter) 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.
[ ]
Based on the market price of the Common Stock at March 10, 1997
($0.031), the aggregate market value of the voting stock of non-affiliates
of the Registrant was approximately $0.590 million. As of March 10, 1997,
there were 36,829,618 shares of Common Stock outstanding. The aggregate
market value of holdings of non-affiliates of the Registrant's 8.25%
Preferred Redeemable Increased Dividend Equity Securities (with the right
of 4/5 vote for each Depositary Share owned) based on the market price at
March 10, 1997 ($1.688) was approximately $8.228 million. There were
5,124,600 Depositary Shares outstanding as of March 10, 1997.
<PAGE>
PART I
Item 1. Business
- ----------------
KENETECH Corporation ("KENETECH"), a Delaware corporation, is a holding
company which participated through its subsidiaries in the electric utility
market in two principal ways. As used in this document "Company" refers to
KENETECH and its wholly-owned subsidiaries (including KENETECH Windpower,
Inc. (KWI) only through May 29, 1996).
The Company develops, constructs, finances, sells and operates and manages
independent power projects. A wholly-owned development subsidiary is a
joint venture partner with an affiliate of Enron Corporation in a project
in late stage development in Puerto Rico. The project is a 507 MW (net)
natural gas cogeneration facility and associated liquified natural gas
facility which will produce electricity to be sold to Puerto Rico Electric
Power Authority pursuant to a 22 year Power Purchase Agreement dated March
10, 1995.
The power plant will be a combined cycle cogeneration facility consisting
of two combustion turbines capable of operating on LNG, LPG, or fuel oil to
generate electricity, and is expected to produce approximately 4 million
Mwh of electricity annually under baseload conditions. Steam generated will
also be used to convert seawater into fresh water in a desalination plant,
which is expected to produce approximately 4 million gallons of potable
water per day, of which approximately 1 million gallons per day will be
required by the project, with the remainder being available for sale to
local entities. This is the only project the Company (through its
wholly-owned development subsidiary) has in active development. The
Company's wholly-owned development subsidiary intends to sell its interest
in this project in 1997.
One of the Company's subsidiaries is a general contractor which has
constructed independent power projects since 1988. This subsidiary competes
for contracts for engineering, procurement and construction (EPC) and for
construction only. Historically, the Company has constructed all of the
thermal energy power projects it developed and recently has constructed all
of the Windplants it developed. Substantially all construction work
performed by the Company for third parties is competitively bid and most is
performed under turnkey contracts. This construction subsidiary has a joint
venture interest in the EPC contract for the Puerto Rico project described
above. The Company has signed a letter of intent to sell its interest in
this EPC contract and intends to dispose of its construction subsidiary in
1997. The chapter 11 filing of KWI discussed below has materially adversely
affected the Company's construction subsidiary and its ability to procure
contracts.
KWI manufactured wind turbines and designed and operated utility-scale wind
powered electric powerplants which incorporated large arrays of such
turbines. On May 29, 1996, KWI filed for protection under chapter 11 of the
Federal Bankruptcy Code and reported an excess of liabilities over its
assets. Although the Company continues to own the common stock of KWI and
provides certain services under the jurisdiction of the Bankruptcy Court,
the Company believes it is probable that such ownership will not exist
after completion of the bankruptcy proceedings. Accordingly, as of May 29,
1996 KWI ceased to be accounted for as a consolidated subsidiary of the
Company. The Company's financial statements exclude all KWI activities
after that date.
<PAGE>
EMPLOYEES
At March 1, 1997, the Company employed 120 persons (excluding KWI). In
addition, the Company employed 10 contract/job-site employees and 4
temporary employees.
Item 2. Property
- -----------------
The Company maintains its corporate headquarters in San Francisco,
California. The lease for approximately 8,336 square feet of corporate
office space expires in 1998. The annual lease payment is approximately
$133,000. The Company owns two buildings which are for sale in Meriden,
Connecticut, consisting of 46,300 square feet of office space and 14,700
square feet of industrial space. The Company owns the Hartford Hospital
cogeneration plant, a 17 MW combined cycle plant. The Company also retains
a 50% ownership interest in a 17 MW wood-fired electric power plant it
constructed in Chateaugay, New York. Properties of KWI are not included in
this discussion.
Item 3. Legal Proceedings
- -------------------------
THE COMPANY
On September 28, 1995, a class action complaint was filed against the
Company and certain of its officers and directors (namely, Stanley Charren,
Maurice E. Miller, Joel M. Canino and Gerald R. Alderson) in the United
States District Court for the Northern District of California alleging
federal securities laws violations. On November 2, 1995, a First Amended
Complaint was filed naming additional defendants, including underwriters of
the Company's securities and certain other officers and directors of the
Company (namely, Charles Christenson, Angus M. Duthie, Steven N.
Hutchinson, Howard W. Pifer III and Mervin E. Werth). Subsequent to the
Court's partial grant of the Company's and the underwriter defendants'
motions to dismiss, a Second Amended Complaint was filed on March 29, 1996.
The amended complaint alleges claims under sections 11 and 15 of the
Securities Act of 1933, and sections 10(b) and 20(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 thereunder, based on alleged
misrepresentations and omissions in the Company's public statements, on
behalf of a class consisting of persons who purchased the Company's common
stock during the period from September 21, 1993 (the date of the Company's
initial public offering) through August 8, 1995 and persons who purchased
the Company's preferred stock during the period from April 28, 1994 (the
public offering date of the preferred stock) through August 8, 1995. The
amended complaint alleges that the defendants misrepresented the Company's
progress on the development of its latest generation of wind turbines and
the Company's future prospects. The amended complaint seeks unspecified
damages and other relief. On December 4, 1996, with underwriters and their
counsel and the insurance carriers' counsel in attendance, a mediation
occurred in San Francisco in an attempt to settle the action; however, the
parties were unsuccessful. Plaintiffs' motion for class certification was
heard and taken under submission by the Court on January 31, 1997. The
Company intends to continue to contest the action vigorously.
On January 6, 1996, a breach of contract action was filed in the Superior
Court for Middlesex County, Massachusetts, by Tennessee Gas Pipeline
Company ("Tennessee") against Pepperell Power Associates Limited
Partnership (the "Pepperell Partnership"), its general partner, KES
Pepperell, Inc. (each in whole or in part directly or indirectly owned by
KENETECH Energy Systems, Inc. ("KES"), a wholly-owned subsidiary of the
Company), and its other general partner, in connection with the termination
of a natural gas transportation agreement, seeking to recover alleged
unpaid charges of approximately $1.8 million. KES Pepperell, Inc. has filed
a counterclaim in the action and intends to contest the action vigorously.
On December 2, 1996, Tennessee filed another action in the Superior Court
for Middlesex County, Massachusetts, against KES Pepperell, Inc. and KES,
among others, seeking to recover an $810,000 payment made to the Pepperell
Partnership plus treble damages and attorneys' fees. KES Pepperell and KES
intend to contest the action vigorously.
<PAGE>
In October 1996, the Environmental Protection Agency ("EPA") issued a final
air permit for the Puerto Rico project. On November 1, 1996, Hector Arana
and The Committee To Save The Environment of Guayanilla, a local
environmental group in Puerto Rico, filed an administrative agency appeal
with the environmental appeals board within the EPA contesting the issuance
of the air permit; the effect of such appeal is to stay the issuance of the
permit. A validly issued and effective permit is required for the
construction, financing and operation of the project.
On March 13, 1997, Mision Industrial de Puerto Rico, Inc., the Union de
Trabajadores de la Industria Electrica y Riego (UTIER), Guayamenses
Pro-Salud y Buen Ambiente, Bartolome Diana, SURCCO, Inc. and Jose E.
Olivieri Antonmarchi (the "Appellants") timely filed an appeal before the
Circuit Court of Appeal of Puerto Rico (No. KLAN 97-00236), appealing the
judgment entered against them on January 21, 1997, in the Ponce Superior
Division of the Court of First Instance of Puerto Rico (the "trial court")
(No. JPE 96-0345) dismissing Appellants' complaint against the Puerto Rico
Electric Power Authority ("PREPA") requesting injunctive and declaratory
relief. Appellants are environmental groups, citizens and the union which
represents PREPA's electrical workers; they had brought their civil action
challenging the procedure used by PREPA to select two independent power
producers (one of which is the Company's wholly-owned development
subsidiary) to design, finance, construct, own and operate the Puerto Rico
project. The trial court held that PREPA's selection of the independent
power producers need not have been done through public bidding pursuant to
section 205 of PREPA's Organic Act. The partnership which holds the power
purchase agreement for the Puerto Rico project intervened in the action
before the trial court.
The Company is also a party to various other legal proceedings normally
incident to its business activities. The Company intends to defend itself
vigorously against these actions.
It is not feasible to predict or determine whether the ultimate outcome of
the above-described matters will have a material adverse effect on the
Company's financial position.
BANKRUPTCY OF KWI
On May 29, 1996, KWI filed a voluntary petition in the United States
Bankruptcy Court for the Northern District of California, Oakland,
California to reorganize under chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code"). KWI's management attributed its filing to
continuing losses and lack of operating capital. The Bankruptcy Petition
filed by KWI stated that as of March 30, 1996 (the latest available
information prior to the filing), KWI had liabilities, as defined by
bankruptcy filing procedures which include certain commitments, claims and
other liabilities not recognized under generally accepted accounting
principles, significantly in excess of assets. Neither KWI nor the Company
had been able to complete the sale of certain assets or subsidiaries on a
basis to provide additional capital for KWI's ongoing operations and KWI
believed that it would be unable to meet, among other things, its existing
maintenance and warranty obligations under contracts undertaken in
connection with the sale of its wind turbines.
Since the filing of the chapter 11 case, KWI has sold certain development
assets, operating assets, technology rights and other assets under the
supervision of the Bankruptcy Court.
Representatives and members of the Official Unsecured Creditors' Committee,
have asserted their intention to commence litigation against the Company
and certain of its subsidiaries, as well as against officers and directors
thereof, with respect to facts which may constitute preferences under the
United States Bankruptcy Code and for other conduct engaged in assertedly
by the Company or its officers and directors which may give rise to direct
or indirect liability of the Company or its officers and directors to KWI
or to its creditors.
<PAGE>
The bar date for filing claims in the chapter 11 case was January 31, 1997.
A claim against KWI was filed by the trustee of the holders of the Notes on
behalf of the Company in an amount in excess of $206.0 million. The Company
also filed a claim against KWI in an amount in excess of $8.0 million. In
addition, certain of the Company's direct and indirect subsidiaries and
affiliated partnerships have filed claims totaling in excess of $1.0
billion. Total claims filed against KWI are in excess of $1.5 billion. It
is unknown at present whether or not any claims of the Company against KWI
will be allowed in the chapter 11 case or if allowed the extent of any
distribution with respect thereto. The Company believes that KWI will
assert certain claims in bankruptcy against the Company.
The filing of the chapter 11 case by KWI has resulted in an event of
default occurring under the Company's 12-3/4% Senior Secured Notes Due 2002
(the "Notes") in the principal amount of $100 million. Furthermore,
interest under the Notes in the approximate amount of $6.4 million is due
each June 15 and December 15 and the Company did not make its 1996 interest
payments on the Notes and does not presently anticipate timely making its
1997 interest payments on the Notes. The Notes are secured by all of the
capital stock of KWI, KENETECH Energy Systems, Inc. and KENETECH Facilities
Management, Inc. There are continuing periodic discussions with
representations of the holders of the Notes and the holders have not
commenced remedies or notified the Company of their intention to do so.
The Company maintained a revolving credit agreement for working capital
purposes which was to expire on May 30, 1996. The agreement was
renegotiated in April 1996 to provide for up to $5.0 million dollars of
working capital for the Company's construction subsidiary through April 30,
1997. The renegotiated agreement also provided a term loan of $7.5 million
which was used to pay the outstanding balance at March 30, 1996 of $5.0
million and to provide cash collateral of up to $2.5 million in outstanding
letter of credit. The lender under the revolving credit agreement to
provide up to $5.0 million of working capital to the Company's construction
subsidiaries has issued a notice of default due to the chapter 11 filing of
KWI and certain other covenant violations of the Company's construction
subsidiary and stated in such notice that it would not make any further
advances under the revolving credit agreement.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------------------
The Company's Common Stock began trading on The Nasdaq National Market
under the symbol "KWND" effective September 21, 1993. Prior to that date,
there was no public market for the Common Stock. However, the Company was
advised by the National Association of Securities Dealers, Inc. that the
Company's Common Stock was delisted from The Nasdaq National Market
effective July 1, 1996. The Company understands that bid and ask quotations
continue to be entered by market makers in the over-the-counter market for
the Common Stock. The Company has no current plans to cause the Common
Stock to be listed with The Nasdaq National Market or on any exchange. The
following table sets forth, for the periods indicated, the range of high
and low bid and ask quotations for the Common Stock as reported by a market
maker in the stock. Such over-the-counter market quotations do not include
retail markups, markdowns or commissions and may not represent actual
transactions.
High Low
---- ---
1995
----
First Quarter $16.000 $11.750
Second Quarter 12.625 10.000
Third Quarter 12.375 5.375
Fourth Quarter 6.250 1.000
1996
----
First Quarter $ 1.875 $ 0.813
Second Quarter 1.937 0.172
Third Quarter 0.625 0.190
Fourth Quarter 0.300 0.040
1997
----
First Quarter (to March 10,1997) $ 0.047 $ 0.016
The closing sale price of the Company's Common Stock as of a recent date is
set forth on the cover page hereof. There were approximately 570 holders of
record of the Common Stock as of March 10, 1997.
DIVIDEND POLICY
The Company has never paid a dividend on its Common Stock and does not
intend to pay Common Stock dividends in the foreseeable future. Also, the
Company's 12 3/4% Senior Secured Notes due 2002, and the provisions of the
Certificate of Incorporation under which the Company issued its 8 1/4%
Preferred Redeemable Increased Dividend Equity Securities restrict the
payment of Common Stock dividends except under specified circumstances. See
Item 7 and Item 8 of this Form 10-K for further restrictions on the
Company's ability to pay dividends on its Common Stock in the future.
<PAGE>
Item 6. Selected Financial Data.
- --------------------------------
The following selected consolidated financial data is qualified in its entirety
by, and should be read in conjunction with, the Consolidated Financial
Statements of the Company and the Notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere in this Form 10-K. The selected consolidated financial data
as of and for each of the five years in the period ended December 31, 1996 have
been derived from the audited Consolidated Financial Statements of the Company.
(Dollar amounts in thousands, except per share amounts.)
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
INCOME STATEMENT DATA (1):
Revenues $91,890 $327,589 $338,211 $236,424 $208,995
Total costs of revenues (2) 83,705 504,696 278,778 188,208 150,528
Gross margin
(Excess of expenses
over revenues) 8,185 (177,107) 59,433 48,216 58,467
Project development and marketing,
Engineering, General and
administrative expenses 40,559 71,368 44,677 41,428 38,815
Income (Loss) from operations (32,374) (248,475) 14,756 6,788 19,652
Income (Loss) before taxes,
extraordinary item and
cumulative effect of
accounting change (60,850) (271,647) 1,426 (18,132) 2,577
Income (Loss) before
extraordinary item and
cumulative effect of
accounting change (60,850) (250,148) 4,348 (7,584) 1,653
Net income (loss) (84,241) (250,148) 4,348 (7,584) 2,841(3)
Income (Loss) before extraordinary
item and cumulative effect of accounting
change per share:
Primary (2.52)(4) (7.12)(4) (0.03)(4) (0.27)(5) 0.5(5)
Fully diluted (2.52)(4) (7.12)(4) (0.03)(4) (0.22)(6) N/A
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Working capital $(141,621) $(3,232) $140,766 $91,461 $33,477
Property, plant and
equipment, net 24,735 118,214 148,374 119,915 108,745
Total assets 123,311 401,249 517,168 417,332 377,856
Other long term debt
(excludes current portion) - 152,048 158,522 166,276 186,783
Stockholders' equity (deficiency) (97,900) (5,559) 248,718 147,790 41,638
(1) Excludes operations of KWI after bankruptcy filing (May 29, 1996).
(2) In 1995 includes special charges of $224,551. See discussion in Item 7.
(3) Includes an extraordinary loss of $1,887. Also includes a cumulative effect
of $3,075 to recognize the benefit of the change in accounting for income
taxes effective January 1, 1992.
(4) Includes effect of deducting dividends earned on convertible preferred
stock issued in 1994.
(5) Includes effect of deducting cash dividends earned on convertible preferred
stock issued in 1992 and the actual conversion of such preferred stock and
convertible notes to common stock.
(6) Includes the effect of reducing the net loss by the interest on the
convertible notes (net of the related tax effect), and the conversion of
such notes and convertible preferred stock to common stock as if such
conversion occurred at the beginning of 1993.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
--------------
OVERVIEW
KENETECH's wholly-owned development subsidiary is a joint venture partner
with an affiliate of Enron Corporation in a 507 MW (net) natural gas
cogeneration project in late stage development in Puerto Rico. This is the
only project in active development and KENETECH's wholly-owned development
subsidiary intends to sell its interest in this project in 1997.
Historically, KENETECH, through its windpower subsidiary KENETECH
Windpower, Inc. (KWI) was a manufacturer, developer and operator of
utility-scale windpowered electric powerplants. KWI manufactured wind
turbines and designed and constructed Windplants which incorporated large
arrays of such turbines. As discussed below, as of May 29, 1996 KWI filed
for protection under chapter 11 of the Federal Bankruptcy Code and ceased
to be reflected as a consolidated subsidiary in the Company's financial
statements. One of KENETECH's other subsidiaries is a general contractor
which has constructed independent power projects since 1988. KENETECH
intends to dispose of this construction subsidiary in 1997.
CAUTIONARY STATEMENT
Certain information included in this report contains forward looking
statements within the meaning of the Securities Act of 1933, as amended,
and the Securities Act of 1934, as amended. Such forward looking
information is based on information available when such statements are made
and is subject to risks and uncertainties that could cause actual results
to differ materially from those expressed in the statements.
RESULTS OF OPERATIONS
The consolidated financial statements of KENETECH Corporation and certain
subsidiaries as of and for the periods ending December 31, 1996 and 1995
have been prepared assuming the Company will continue as a going concern.
On May 29, 1996, KWI filed for protection under chapter 11 of the Federal
Bankruptcy Code and reported an excess of liabilities over of its assets.
Although KENETECH continues to own the common stock of KWI and provides
certain services under the jurisdiction of the Bankruptcy Court, KENETECH
believes it is probable that such ownership will not exist after completion
of the bankruptcy proceedings. Accordingly, as of May 29, 1996 KWI ceased
to be accounted for as a consolidated subsidiary of KENETECH. The Company's
investment in KWI is recorded at zero in "Investments in Affiliates" in the
accompanying December 31, 1996 consolidated balance sheet. Revenues and
expenses of KWI from January 1, 1996 through May 29, 1996 are reflected in
consolidated statements of operations and cash flows.
The Company incurred a net loss for 1996 of $84.2 million as compared to a
net loss for 1995 of $250.1 million. This does not indicate an improvement
in the Company's prospects. Instead this loss reflects the ongoing effect
of the events which occurred in 1995. Sales of the Company's model KVS-33
turbine commenced in late 1993 and the Company believed this variable speed
machine would generate substantial growth for the Company. During 1995,
mechanical problems with the machines installed in 1994 and 1995 began to
appear. Also, during 1995 the domestic electric power industry was
subjected to the uncertainties and pressures of deregulation, and the price
which utilities would pay for electric power based upon their avoided costs
was at a historical low and is expected to remain at these levels for the
foreseeable future. As a result, the Company incurred substantial costs and
losses in 1995 and 1996. In 1997 the Company expects to generate operating
losses before the sale of assets described above in "Overview" due to
administrative expenses in excess of gross margin and interest expense on
debt.
<PAGE>
YEARS 1996 AND 1995
Year Ended December 31,
-----------------------
1996 1995
---- ----
(in millions)
-------------
Gross Gross
Revenues Costs Margins Revenues Costs Margins
-------- ----- ------- -------- ----- -------
Construction services $ 51.0 $ 46.6 $ 4.4 $ 63.2 $ 55.7 $ 7.5
Maintenance,
management fees
and other(1) 16.3 n/a n/a 41.4 n/a n/a
Energy sales(1) 14.4 n/a n/a 38.0 n/a n/a
Energy plant
operations(1) n/a 31.9 n/a n/a 62.6 n/a
-------- ----- ------- -------- ----- -------
Total energy plant operations 30.7 31.9 (1.2) 79.4 62.6 16.8
Windplant sales 8.1 5.0 3.1 172.5 157.2 15.3
Interest on partnership
notes and
funds in escrow 1.1 - 1.1 5.3 - 5.3
Energy management services 1.0 0.2 0.8 7.2 4.6 2.6
Special charges - - - - 224.6 (224.6)
-------- ----- ------ -------- ----- --------
Total $ 91.9 $ 83.7 $ 8.2 $327.6 $504.7 $(177.1)
======== ===== ====== ======== ===== ========
(1) Maintenance, management fees and other revenues are earned by the Company
for maintaining and operating Windplants and thermal power plants owned by
third parties and from the sale of fuel to wood-fired electric power
plants. Energy sales are the revenues generated by Windplants and a thermal
power plant owned by the Company. Energy plant operations expenses are
incurred to generate these revenues.
Construction services revenues (recorded under the percentage-of-completion
method) decreased to $51.0 million for 1996 from $63.2 million for 1995 and
gross margin decreased to 9% for 1996 from 12% for 1995. The decrease in
revenue is attributable to a decrease in backlog of new projects. The
ability to secure new construction work has been impeded by the declaration
of bankruptcy by the Company's windpower subsidiary. The decrease in gross
margin is primarily due to a negative 1% gross margin on a cogeneration
plant construction job from which the Company was terminated for
convenience during 1996. This project accounted for 38% of the construction
revenues during 1996.
Energy plant operations, Windplant sales, Interest on partnership notes and
funds in escrow and Engineering expenses all declined significantly because
of the deconsolidation of KWI. As mentioned previously, on May 29, 1996 KWI
filed for protection under chapter 11 of the Federal Bankruptcy Code,
reported an excess of liabilities over its assets, and ceased to be
accounted for as a consolidated subsidiary of the Company as of that date.
Energy management services revenues decreased to $1.0 million in 1996 from
$7.2 million in 1995. The Company sold this business in the second quarter
of 1996.
<PAGE>
Special charges in 1995 relate to performance problems with the KVS-33 and
the domestic energy price environment. For information see the discussion
on special charges included in the Years 1995 and 1994 section.
Project development and marketing expenses decreased in 1996 to $7.1
million from $18.6 million in 1995. During 1996 the Company stopped
pursuing all new projects (except for the Puerto Rico project). The
expenses in 1996 represent costs to keep existing projects viable and
marketable and write-downs of the projects being marketed to the estimated
market value.
General and administrative expenses decreased to $29.3 million for 1996
from $40.4 million for 1995. Included in 1996's amount is $2.3 million
related to a writedown of buildings and land owned by the construction
subsidiary. The decrease is due to the termination of employees.
Interest income decreased to $1.2 million in 1996 from $2.6 million in 1995
due to lower cash and investment balances.
Interest expense decreased to $19.6 million in 1996 from $23.4 million in
1995 due to the deconsolidation of KWI.
Equity income (loss) of unconsolidated affiliates. Equity investments in
affiliates resulted in a net loss of $409 thousand in 1996, compared to a
net loss of $2.4 million in 1995 due to the deconsolidation of KWI's
operations and the sale by the Company of several equity investments.
Loss on disposition of subsidiaries and assets. During 1996 the Company
sold its demand side management operations, its wood-fuel operations, a
manufacturing facility, several investments accounted for on the equity
basis, a subordinated note receivable, and various other assets. On an
aggregated basis these transactions generated cash of $13.5 million and a
net loss of $9.6 million. As mentioned previously, KWI filed for protection
on May 29, 1996 under chapter 11 of the Federal Bankruptcy Code and
reported an excess of liabilities over its assets. Although KENETECH
continues to own the common stock of KWI and provides certain services
under the jurisdiction of the Bankruptcy Court, KENETECH believes it is
probable that such ownership will not exist after completion of the
bankruptcy proceedings. Accordingly, as of May 29, 1996 KWI ceased to be
accounted for as a consolidated subsidiary of KENETECH.
Income taxes. The Company uses the asset and liability approach for
financial accounting and reporting for income taxes. The Company recorded a
tax provision of $23.4 million in 1996 attributable to the effect of
deconsolidating the net deferred tax assets relating to KWI as compared to
a benefit of $21.5 million in 1995. The remaining net deferred tax asset of
$17.9 million is expected to be realized by the generation of taxable
income from the sales of assets with appreciated values. The valuation
allowance was based on the best information available at December 31, 1996.
The actual tax assets realized may be higher or lower than the amount
recognized.
<PAGE>
YEARS 1995 AND 1994
Year Ended December 31,
-----------------------
1995 1994
---- ----
(in millions)
Gross Gross
Revenues Costs Margins Revenues Costs Margins
-------- ----- ------- -------- ----- -------
Windplant sales $172.5 $157.2 $ 15.3 $ 95.6 $ 79.1 $ 16.5
Construction services 63.2 55.7 7.5 103.0 99.0 4.0
Maintenance, management fees
and other (1) 41.4 n/a n/a 45.4 n/a n/a
Energy sales (1) 38.0 n/a n/a 43.0 n/a n/a
Energy plant operations (1) n/a 62.6 n/a n/a 66.1 n/a
-------- ----- ------- -------- ------ -------
Total energy plant
operations 79.4 62.6 16.8 88.4 66.1 22.3
Energy management services 7.2 4.6 2.6 11.2 8.1 3.1
Interest on partnership
notes and funds in escrow 5.3 - 5.3 7.1 - 7.1
Sale of power plants - - - 32.9 26.5 6.4
Special charges - 224.6 (224.6) - - -
-------- ------ -------- -------- ------ -------
Total $327.6 $504.7 $(177.1) $338.2 $278.8 $ 59.4
======== ====== ======== ======= ====== =======
(1) Maintenance, management fees and other revenues are earned by the Company
for maintaining and operating Windplants and thermal power plants owned by
third parties and from the sale of fuel to wood-fired electric power
plants. Energy sales are the revenues generated by Windplants and a thermal
power plant owned by the Company. Energy plant operations expenses are
incurred to generate these revenues.
Windplant sales increased to $172.5 million for 1995 from $95.6 million in
1994 due to increased activity in 1995, including the completion of the
remaining 90% of a Windplant in Texas commenced in 1994, the construction
and sale of Windplants in Spain and The Netherlands, and increased sales of
Windplant equipment to third party developers in India. Gross margin
decreased in 1995 to 9% of Windplant sales from 17% in 1994 primarily due
to lower margins on the Windplant equipment sales and increased
manufacturing overhead incurred in 1995 in anticipation of increased
production of the KVS-33. The amounts presented here do not include the
accrual of the estimated retrofit costs or the write-down of inventory
which are discussed under special charges.
Construction services revenues (recorded under the percentage-of-completion
method) decreased to $63.2 million for 1995 from $103.0 million for 1994;
however the gross margin increased to 12% for 1995 from 4% for 1994. Both
of these are attributable to a 126 MW cogeneration plant construction job
with a low margin. The final 4% of this project was completed in 1995, 69%
of the work was performed in 1994, and the first 27% was done in 1993. The
size and low margin of this project impacted the results of the
construction service activities in 1994.
Energy plant operations. The discussion regarding energy plant operations
aggregates revenues earned from maintaining and managing Windplants and
thermal power plants owned by third parties, energy sales from Windplants
and a thermal power plant owned by the Company, and sales of fuel to
wood-fired electric power plants with the expenses incurred to generate
these revenues.
<PAGE>
Maintenance, management fees and other revenues decreased $4.0 million to
$41.4 million for 1995 compared to $45.4 million for 1994 due to decreased
revenues earned by the Company for operating and maintaining thermal power
plants for third parties. These revenues decreased because of:
(i) the renegotiation in January 1995 of a maintenance and management
agreement the Company has for a cogeneration facility in Fort
Orange, New York. This renegotiated contract has little effect,
if any, on the Company's gross margin since expenses with this
contract were also reduced;
(ii) the loss of revenues from the maintenance and management contract
for the Pepperell facility which ceased operations in the second
quarter of 1995 and was subsequently sold; and
(iii)the inclusion of revenues in 1994 from maintaining and operating
a 17.0 megawatt wood-fired electric power plant at Chateaugay,
New York. In 1993 the Company sold a 50% interest in this power
plant to a third party and in the second quarter of 1994 an
affiliate of the acquirer began maintaining and operating this
power plant.
Energy sales decreased $5.0 million to $38.0 million for 1995 from $43.0
million due to the interaction of the following:
(i) 1994's energy sales included fees attributable to the settlement
of the PG&E curtailment law suit.
(ii) increased production capacity owned by the Company resulting from
the acquisition of Windplants. In the latter part of 1994 the
Company purchased substantially all the assets of four affiliated
windpower partnerships (subsidiaries of the Company had general
partner interests of 1%) and one unaffiliated Windplant. In 1995
the Company purchased substantially all the assets of two
affiliated windpower partnerships. This additional capacity
increased energy sales by $5.0 million in 1995 compared to 1994.
The acquisition of these Windplants did not significantly
decrease the capacity maintained and operated by the Company for
others because of the sales of the KVS-33 Windplants.
(iii)lower production by the Windplants resulting from a decrease in
the wind resource in California ($3.9 million). The wind resource
varies from period to period and for 1995 was below 1994.
Energy plant operations, the expenses related to energy sales, maintenance
and management fees, and wood fuel sales decreased $3.5 million to $62.6
million for 1995 from $66.1 million for 1994. This decrease is a direct
result of the aforementioned factors which decreased the revenues earned by
maintaining and managing thermal power plants for others.
Energy management services revenues decreased to $7.2 million in 1995 from
$11.2 million in 1994 due to declining market demand for such services
resulting from a combination of excess generating capacity and the lower
costs of electricity from new facilities. The Company sold this operation
in 1996.
<PAGE>
Interest on partnership notes and funds in escrow decreased to $5.3
million in 1995 from $7.1 million in 1994, as a result of lower
outstanding balances of notes and escrowed amounts on which such
interest is earned. The decreases in interest bearing balances are
primarily related to the payments received on partnership notes in
conjunction with the Company's acquisition of such partnerships. These
are the transactions, which increased the Company's capacity,
mentioned previously in the discussion regarding energy sales.
Sale of power plants. Revenues for 1994 represent the sale of a
wood-fired electric power plant. There was no comparable sale in 1995.
Special charges relate to:
(i) Performance problems with the KVS-33. During 1995 mechanical
problems with the KVS-33 model wind turbines installed in 1994
and 1995 began to appear, especially in the more severe weather
environments. The Company incurred substantial operating costs in
1995 as a result of the problems with the KVS-33. As a result of
these problems, the Company wrote off all of its deferred
engineering costs, reserved certain inventory costs related to
the KVS-33, reserved a significant portion of the capitalized
development costs for projects which were going to be completed
using the KVS-33 and accrued the estimated retrofit costs
attributable to the KVS-33. The aggregated amounts of writedowns
and asset reserves were $54.6 million and accruals of liabilities
of $86.8 million expected to be incurred over the next several
years were based on the best information available at
December 31, 1995. It is possible that actual losses may be
higher or lower than the amount recognized.
(ii) Energy prices. During 1995, the energy prices utilities pay based
upon their "avoided costs" continued to decrease. These energy
prices have a significant effect on the Company's financial
condition and operations through two channels: (1) the Windplant
assets owned by the Company, and (2) the profitability of
maintenance and management contracts the Company has with third
parties. Maintenance and management fees generally are based on a
percentage of the owners' energy sales.
The Company used current energy prices based upon PG&E's "avoided
costs" prices (after fixed price contract periods expire in
1997-2004), increased by modest inflation, to compute future cash
flows for assessing the impairment of Windplant assets and the
profitability of the Company's maintenance and management agreements
with third party owners of Windplants. The Company used modest
inflation because most experts expect PG&E's avoided cost to increase
at or below the inflation rate. Based on the calculations, using the
principles of SFAS No. 121 and a present value of future net cash
flows discounted at 16% to approximate fair value, certain Windplant
assets and investments were written down by approximately $50.3
million. In addition, projected negative cash flows on certain
maintenance and management contracts from 1996-2015 were discounted at
7% to approximate a risk free rate and a loss accrual was recognized
of $32.9 million. Based on the calculations, projected negative cash
flows on certain maintenance and management contracts commenced in
1996.
These writedowns and reserves were based on the best information
available as of December 31, 1995. It is possible that actual losses
may be higher or lower than the amounts recognized. The range of
variance, if any, from such amounts cannot be reasonably estimated.
<PAGE>
Project development and marketing expenses increased in 1995 to $18.6
million from $6.2 million in 1994 due to:
(i) the write-off of capitalized development costs associated with a
thermal power project as a result of the retroactive repeal by
the State of Illinois of beneficial legislation; and
(ii) an expansion of marketing activities. The amounts presented here
do not include the write-off of capitalized development costs
related to projects to be completed using the KVS-33 which are
discussed under special charges.
Engineering expenses increased $2.9 million to $12.4 million for 1995
compared to $9.5 million for 1994. This increase is directly related
to the mechanical problems with the KVS-33 which arose in 1995. The
amounts presented here do not include the write-off of deferred
engineering costs which are discussed under special charges.
General and administrative expenses increased $11.5 million to $40.4
million for 1995 from $28.9 million for 1994. During the first part of
1995, the Company believed the KVS-33 would generate substantial
growth and increased its headcount. In late 1995 when the difficulties
with the KVS-33 surfaced, reductions in force were implemented
resulting in severance costs. General and administrative expenses were
also increased by the Company's expansion in Europe and India.
Interest income decreased 37% to $2.6 million in 1995 from $4.1
million in 1994 due to lower interest earned as a result of declining
cash and investment balances.
Interest expense increased 21% to $23.4 million in 1995 from $19.3
million in 1994 due to increased bankline borrowings.
Equity income (loss) of unconsolidated affiliates. Equity investments
in affiliates resulted in a net loss of $2.4 million in 1995, compared
to a net income of $1.9 million in 1994 due to the differing
performance of investments accounted for on the equity method. The
amounts presented here do not include the write-off of investments in
affiliates which own Windplants which are discussed under special
charges.
Income taxes. The Company uses the asset and liability approach for
financial accounting and reporting for income taxes. The Company
recorded a tax benefit of $21.5 million in 1995 as compared to a
benefit of $2.9 million in 1994. The Company estimates it will realize
$41.0 million of its deferred tax assets which will require aggregate
taxable income of approximately $100.0 million in future years which
the Company believes will more likely than not be realized primarily
from the sales of assets with appreciated values. A valuation
allowance of $89.7 million was established for the remaining tax
assets.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
1996 Activities
---------------
Operating Activities
During 1996 operating activities used cash of $24.7 million because
engineering, project development and marketing and general and
administrative expenses exceeded the Company's gross margin.
Investing Activities
During 1996 investing activities provided cash of $7.8 million through
the sales of subsidiaries and assets partially offset by funds
invested in the 507 MW (net) Puerto Rico project being jointly
developed with an affiliate of Enron Corporation.
Financing activities
During 1996 financing activities provided $17.3 million cash. In
August 1996 a wholly-owned subsidiary of the Company entered into a
$30.0 million loan agreement related to the aforementioned Puerto Rico
project. As of December 31, 1996, $18.9 million had been drawn under
this agreement. No further funds are available under this agreement
because the remaining funding capacity must accommodate accrued and
unpaid interest for the remaining term of the loan.
Status
------
At December 31, 1996 the Company's working capital deficit is $141.6
million, which is $138.4 million greater than at December 31, 1995
because debt previously classified as long term is now classified as
current due to the Company's default on the interest payments on the
senior notes and resulting covenant violations in other debt
instruments.
During 1996 the Company's liquidity became severely constrained as it
consumed its cash. On February 2, 1996 the Company announced that it
would not pay the dividend scheduled for February 15, 1996 on its
preferred stock. The Company paid no dividends on the preferred stock
in 1996 and does not expect to be able to for the foreseeable future.
Under the terms of the preferred stock, dividends accrue until paid.
In December 1992 the Company sold $100.0 million of 12 3/4% Senior
Secured Notes due 2002. Interest on these notes is due June 15 and
December 15 of each year. The Company did not make the 1996 payments
and is in default. Also, the borrowings under the $5.0 million
revolving credit agreement, the $7.5 million term loan agreement and
the $4.4 million revolving loan agreement (included in Other Notes
Payable on the December 31, 1996 balance sheet) are in default due to
KWI's bankruptcy filing, cross default provisions, failure to meet
financial covenants and the Company's default on the interest payment
on the senior secured notes. The Company does not expect to cure these
defaults in the foreseeable future.
<PAGE>
The Company was able to continue its activities since it generated
$13.5 million in 1996 by selling assets and drew $18.9 million from
the $30.0 million Puerto Rico project loan obtained by a wholly-owned
subsidiary. This loan is collateralized by the stock of a special
purpose entity formed to hold through affiliates the Company's
interest in the Puerto Rico power project. No further funds are
available under this agreement because the remaining funding capacity
must accommodate accrued and unpaid interest for the remaining term of
the loan. The development subsidiary's cash of $11.3 million will be
primarily consumed by the continued development of the project. Of the
Company's $17.2 million cash at December 31, 1996 $2.8 million is
related to the construction subsidiary which is prohibited by
financial covenants from transferring cash to KENETECH. The ability of
the construction subsidiary to reestablish its backlog is hampered by
the Company's financial condition and KWI's bankruptcy filing. The
Company has signed a letter of intent to sell its interest in the EPC
construction contract related to the Puerto Rico project and intends
to dispose of its construction subsidiary in 1997. There can be no
assurance that the construction subsidiary will be successful in
selling its interest in the EPC contract or disposing of its remaining
assets.
Certain lenders and other creditors are seeking repayment and/or
restructuring of the amounts due them. The Company is unable to borrow
money and is delaying all payments except for essential services while
it attempts to raise cash through additional asset sales.
There can be no assurances that asset sales can be consummated or that
substantial proceeds can be received. If the Company is unable to sell
assets its liquidity will be further constrained. It is expected that
all proceeds received from asset sales will be used in operations or
paid to creditors.
Risks and Uncertainties
-----------------------
The consolidated financial statements as of and for the year ended
December 31, 1996 have been prepared assuming the Company will
continue as a going concern. The Company incurred significant losses
in 1996 and 1995, has negative working capital and its liquidity is
severely constrained. Certain lenders and creditors are seeking
repayment and/or restructuring of the amounts due them. In 1997 the
Company expects to generate losses before the sale of assets due to
administrative expenses in excess of gross margin and interest expense
on debt. These factors raise substantial doubt about the Company's
ability to continue as a going concern in its current form.
Management's plan to address its liquidity involves the sale of its
interests in the Puerto Rico project and construction contract for
which it expects to receive substantial cash proceeds. Management
believes that such sales will not generate sufficient proceeds to
ultimately provide any return of invested capital to the holders of
the Company's stock. In addition, the Company believes KWI will assert
certain claims in bankruptcy against the Company. There can be no
assurance that the Company will be successful in implementing its
plans and that the Company will continue as a going concern.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
- ----------------------------------------------------
KENETECH Corporation Consolidated Financial Statements Page
----
Independent Auditors' Reports 19-20
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 21
Consolidated Balance Sheets, December 31, 1996 and 1995 22
Consolidated Statements of Stockholders' Equity (Deficiency)
for the years ended December 31, 1996, 1995 and 1994 23
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 24
Notes to Consolidated Financial Statements 25-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of KENETECH Corporation:
We have audited the accompanying consolidated balance sheets of KENETECH
Corporation and subsidiaries (the "Company") as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
deficiency, and cash flows for each of the years in the two-year period
ended December 31, 1996. Our audits also included the financial statement
schedules for 1996 and 1995 of KENETECH Corporation listed in the Index at
Item 14(a)(2). These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of KENETECH Corporation and
subsidiaries at December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the two-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present in all material respects the
information set forth therein.
The accompanying consolidated financial statements as of and for the years
ended December 31, 1996 and 1995, have been prepared assuming the Company
will continue as a going concern. The Company incurred significant losses
in 1996 and 1995, has negative working capital and its liquidity is
severely constrained. Certain lenders and creditors are seeking repayment
and/or restructuring of the amounts due them. In 1997, the Company expects
to generate operating losses before the sale of assets due to
administrative expenses in excess of gross margin and interest expense on
debt. In addition, the Company believes KENETECH Windpower, Inc. (KWI), a
wholly-owned subsidiary which filed for Chapter 11 protection under
Bankruptcy Code, will assert certain claims in bankruptcy against the
Company. These factors raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
KPMG Peat Marwick LLP
San Francisco, California
March 28, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
KENETECH Corporation:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of KENETECH Corporation and
subsidiaries (the "Company") for the year ended December 31, 1994. Our
audit also included the 1994 financial statement schedules of KENETECH
Corporation listed in the Index at Item 14(a)(2). These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such 1994 consolidated financial statements present fairly,
in all material respects, the results of operations and cash flows of
KENETECH Corporation and subsidiaries for the year ended December 31, 1994
in conformity with generally accepted accounting principles. Also, in our
opinion, such 1994 financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
San Francisco, California
April 2, 1995
<PAGE>
KENETECH CORPORATION
----------------
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
(in thousands, except per share amounts)
1996 1995 1994
------ ------ ------
Revenues:
Construction services $50,958 $63,178 $102,963
Maintenance, management fees and other 16,219 41,371 45,428
Energy sales 14,434 38,034 43,011
Windplant sales 8,107 172,490 95,607
Interest on partnership notes and funds in escrow 1,125 5,320 7,133
Energy management services 1,047 7,196 11,162
Sale of power plants - - 32,907
------ ------ ------
Total revenues 91,890 327,589 338,211
Costs of revenues:
Construction services 46,557 55,674 99,001
Energy plant operations 31,886 62,649 66,028
Windplant sales 5,012 157,250 79,099
Energy management services 250 4,572 8,128
Sale of power plants - - 26,522
Special charges - 224,551 -
------ ------- -------
Total costs of revenues 83,705 504,696 278,778
Gross margin (Excess of expenses over revenues) 8,185 (177,107) 59,433
Project development and marketing expenses 7,072 18,574 6,247
Engineering expenses 4,206 12,401 9,531
General and administrative expenses 29,281 40,393 28,899
------ ------- ------
(Loss) Income from operations (32,374) (248,475) 14,756
Interest income 1,176 2,575 4,102
Interest expense (19,620) (23,387)(19,314)
Equity (loss) income of unconsolidated affiliates (409) (2,360) 1,882
Loss on disposition of subsidiaries and assets (9,623) - -
------ ------- ------
(Loss) Income before taxes (60,850) (271,647) 1,426
Income tax (benefit) provision 23,391 (21,499) (2,922)
------ ------- ------
Net (loss) income $(84,241)$(250,148) $4,348
======= ======= ======
Net loss per common share:
Primary $ (2.52) $ (7.12)$ (0.03)
Fully diluted $ (2.52) $ (7.12)$ (0.03)
Weighted average number of common shares
used in computing per share amounts:
Primary 36,781 36,341 35,783
Fully diluted 36,781 36,341 35,783
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
KENETECH CORPORATION
----------------
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(in thousands, except share amounts)
ASSETS
1996 1995
---- ----
Current assets:
Cash and cash equivalents $17,208 $16,842
Funds in escrow, net 5,221 12,531
Accounts receivable 17,940 52,593
Partnership notes and interest receivable, net - 1,477
Inventories 135 38,684
Investment in power plant held for sale 19,209 19,951
Deferred tax assets, net 4,300 2,764
Other 3,986 5,980
------- -------
Total current assets 67,999 150,822
Accounts receivable and funds in escrow, net - 21,031
Partnership notes and interest receivable, net - 22,566
Inventory, net - 18,431
Property, plant and equipment, net 24,735 118,214
Power plants under development, net 11,507 14,956
Investments in affiliates 32 9,686
Deferred tax assets, net 13,613 38,235
Other assets 5,425 7,308
------- --------
Total assets $123,311 $401,249
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $18,841 $38,663
Bank loans payable 18,860 13,200
Accrued interest 13,462 2,115
Accrued liabilities 21,010 56,950
Debt associated with power plant held for sale 16,578 16,958
Other notes payable 20,165 18,794
Senior secured notes payable 99,005 -
Estimated warranty costs - 7,374
Accrued losses on contracts 1,699 -
------- -------
Total current liabilities 209,620 154,054
Senior secured notes payable - 98,887
Accrued losses on contracts 897 36,992
Other notes payable - 53,161
Estimated warranty costs and other long-term obligations 1,061 62,643
Accrued dividends on preferred stock 9,633 1,071
-------- -------
Total liabilities 221,211 406,808
Stockholders' deficiency:
Convertible preferred stock - 10,000,000 shares
authorized, $.01 par value; issued and outstanding
102,492, $113,406 liquidation preference 99,561 99,561
Common stock -110,000,000 shares authorized,
$.0001 par value; issued and outstanding
36,829,618 in 1996 and 36,533,836 in 1995 4 4
Additional paid-in capital 136,221 144,551
Unearned compensation - (281)
Cumulative foreign exchange 35 86
Accumulated deficit (333,721) (249,480)
-------- --------
Total stockholders' deficiency (97,900) (5,559)
-------- --------
Total liabilities and stockholders' deficiency $123,311 $401,249
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
KENETECH CORPORATION
------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the years ended December 31, 1996, 1995 and 1994
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Effect of Retained
Convertible Common Stock Additional Cumulative Earnings
Preferred Stock Series A Paid-in Unearned Foreign (Accumulated
Shares Amount Shares Amount Capital Compensation Exchange Deficit) Total
------ ------ ------ ------ ------- ------------ -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 - $ - 35,596,949 $ 4 $139,784 $(1,400) - $9,402 $147,790
Exercise of stock options - - 130,845 - 307 - - - 307
Issuance of common stock - - 202,636 - 2,842 - - - 2,842
Issuance of preferred
convertible stock 102,492 99,561 - - - - - - 99,561
Recognition of unearned
compensation - - - - - 530 - - 530
Preferred stock dividends - - - - - - - (6,660) (6,660)
Net income - - - - - - - 4,348 4,348
------- ------- ----------- ------ --------- ------------ -------- --------- -------
Balance, December 31, 1994 102,492 99,561 35,930,430 4 142,933 (870) - 7,090 248,718
Exercise of stock options - - 316,805 - 469 - - - 469
Issuance of common stock - - 286,601 - 2,219 - - - 2,219
Recognition of unearned compensation - - - - 589 - - 589
Preferred stock dividends - - - - (1,070) - - (6,422) (7,492)
Foreign exchange - - - - - - 86 - 86
Net loss - - - - - - - (250,148)(250,148)
------- ------- ------------- ------ --------- ------------ -------- ----------- -------
Balance, December 31, 1995 102,492 99,561 36,533,836 4 144,551 (281) 86 (249,480) (5,559)
------- ------- ------------ ------ --------- ------------ -------- ----------- -------
Issuance of common stock - - 295,782 - 233 - - - 233
Recognition of unearned compensation - - - - 281 - 281
Preferred stock dividends - - - - (8,563) - - - (8,563)
Foreign exchange - - - - - - (51) - (51)
Net loss - - - - - - - (84,241) (84,241)
------- ------- ------------- ------ --------- ------------- -------- ----------- -------
Balance, December 31, 1996 102,492 $99,561 36,829,618 $ 4 $ 136,221 - $ 35 $ (333,721 $(97,900)
======= ======= ============= ====== ========= ============= ======== =========== =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
KENETECH CORPORATION
----------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
------- ------- -------
Cash flows from operating activities:
Net income (loss) $(84,241)$(250,148) $ 4,348
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Gain on sale of power plant - - (6,385)
Loss on disposition of subsidiaries and assets 9,623 - -
Depreciation, amortization and other, net 3,117 1,672 12,023
Special charges - 224,551 -
Deferred income taxes 23,391 (21,579) (5,007)
Change in assets and liabilities
excluding special charges:
Funds in escrow, net 2,382 (1,742) (841)
Accounts receivable 16,688 31,237 (12,674)
Partnership notes and interest receivable, net 290 (3,251) 31,536
Inventories 2,468 (9,712) (30,658)
Other assets (56) (1,031) (4,103)
Accrued warranties (1,394) (262) (531)
Accrued loss on contracts (692) 5,872 -
Accounts payable, accrued liabilities
and accrued interest 3,701 (4,977) 15,616
-------- ------- -------
Net cash provided by (used in) operating activities (24,723) (29,370) 3,324
Cash flows from investing activities:
Sales of marketable securities 3,536 19,949 51,828
Purchases of marketable securities (3,536) (481) (60,013)
Additions to property, plant and equipment (390) (11,489) (53,035)
Proceeds from sale of property, plant and equipment 1,309 3,021 -
Proceeds from sale of subsidiaries and assets 12,162 - -
Proceeds from sale of power plant, net - 4,069 10,840
Expenditures on power plants under
development or construction (4,036) 3,643 (29,512)
Acquisition of Century Contractors West, Inc.,
net of cash received - (1,360) -
Investment in affiliates - Contributions (1,814) (11,000) (7,209)
Investment in affiliates - Distributions 605 723 3,473
------- ------- -------
Net cash provided by (used in) investing activities 7,836 7,075 (83,628)
Cash flows from financing activities:
Proceeds from other notes payable 7,780 16,359 5,209
Payments on other notes payable (6,791) (27,248) (14,593)
Deposits received - - 6,179
Proceeds from bank loan 21,030 90,500 -
Bank loan repayments, net (5,000) (77,300) -
Proceeds from issuance of common stock, net 234 2,771 -
Proceeds from issuance of preferred stock, net - - 99,561
Issuance of common stock and acquisition of
call options, net - - 3,149
Payment of preferred stock dividends - (8,563) (4,518)
------- ------- -------
Net cash provided by (used in) financing activities 17,253 (3,481) 94,987
------- ------- -------
Increase (Decrease) in cash and cash equivalents 366 (25,776) 14,683
Cash and cash equivalents at beginning of year 16,842 42,618 27,935
------- ------- -------
Cash and cash equivalents at end of year $17,208 $16,842 $42,618
======= ======= =======
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
KENETECH CORPORATION
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
1. ORGANIZATION AND BASIS OF PRESENTATION
These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
This 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.
The consolidated financial statements of KENETECH Corporation and certain
subsidiaries as of and for the periods ending December 31, 1996 and 1995
have been prepared assuming the Company will continue as a going concern.
On May 29, 1996, the Company's windpower subsidiary, KENETECH Windpower,
Inc. ("KWI"), filed for protection under chapter 11 of the Federal
Bankruptcy Code and reported an excess of liabilities over its assets.
Although the Company continues to own the common stock of KWI and provides
certain services under the jurisdiction of the Bankruptcy Court, the
Company believes it is probable that such ownership will not exist after
completion of the bankruptcy proceedings. Accordingly, as of May 29, 1996
KWI ceased to be accounted for as a consolidated subsidiary of the Company.
Intercompany balances and transactions for consolidated subsidiaries are
eliminated in consolidation. The Company's investment in KWI is recorded as
zero in "Investments in Affiliates" in the accompanying December 31, 1996
consolidated balance sheet. Revenues and expenses of KWI from January 1,
1996 through May 29, 1996 are reflected in consolidated statements of
operations and cash flows.
The Company has announced its intention to dispose its construction
subsidiary, CNF Industries, Inc. ("CNF"). Since the Company continues to
own the common stock of CNF and controls its operations, the consolidated
financial statements continue to reflect the consolidation of the assets,
liabilities, revenues and expenses of CNF. Since at December 31, 1996 the
Company had not finalized its plans for the disposition of CNF, the
Company's financial statements do not include any adjustment or reserves,
that might result from the disposition. The Company's consolidated
statement of operations for the year ended December 31, 1996 and
consolidated balance sheet as of December 31, 1996 include the following
amounts relating to CNF:
Year ended December 31, 1996
(in thousands)
Revenues $52,103
Costs of revenues 47,991
-------
Gross margin 4,112
General and administrative expenses 10,517
-------
Loss from operations (6,405)
Other (157)
-------
Loss before income taxes (6,562)
=======
As of
December 31, 1996
(in thousands)
Assets: Liabilities and owner's deficiency:
Current assets $19,343 Current liabilities $ 33,902
Property plant and Long term liabilities 1,061
equipment 3,768 Owner's deficiency (9,184)
Other long term assets 2,668 --------
------- Total
Total assets $25,779 liabilities & deficiency $ 25,779
======= ========
<PAGE>
KENETECH CORPORATION
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
2. SIGNIFICANT ACCOUNTING POLICIES
Foreign Currency Translation: Assets and liabilities of certain non-U.S.
subsidiaries are translated at current exchange rates, and related revenues
and expenses are translated at average exchange rates in effect during the
period. Resulting translation adjustments are recorded as a component of
stockholders' deficiency.
Export Sales: Windplant export sales were zero in 1996, 43% of total
revenues in 1995 and 9% in 1994.
Unaffiliated Major Customers: The Company's energy sales to Pacific Gas and
Electric Company (PG&E) were 6% of total revenues in 1996, 9% in 1995, and
10% in 1994. Construction revenues from major customers were 21% and 15% of
total revenues in 1996, 6% in 1995, and 15% in 1994.
Revenues: Revenues from Windplant sales and construction services are
recognized on the percentage-of-completion, cost-to-cost method. Costs of
such revenues include all direct material and labor costs and those
indirect costs related to contract performance such as indirect labor,
supplies and tool costs that can be attributed to specific contracts.
Estimated future warranty costs are recognized as units are sold and
adjusted as circumstances require. Indirect costs not specifically
allocable to contracts and general and administrative expenses are charged
to operations as incurred. Revisions to contract revenue and cost estimates
are recognized in the accounting period in which they are determined.
Provision for estimated losses on uncompleted contracts is made in the
period in which such losses are determined.
Revenues from sales of Windplant equipment where construction is the
responsibility of third parties are recognized under the units-of-delivery
method.
Certain deferred revenue represents the noncash portion of Windplant sales
which occurred prior to 1988 for which the Company provided purchase money
financing. Deferred revenue from such Company financed sales is recognized
as revenue when payments on the partnership notes or related funds in
escrow are received by the Company (see Note 11). Such deferred revenue is
offset against funds in escrow and partnership notes in the accompanying
consolidated balance sheets and is included in maintenance, management fees
and other revenues when recognized ($6,000 in 1996, $3,218,000 in 1995, and
$5,538,000 in 1994).
Maintenance and management fees are recognized as earned under various
long-term agreements to operate and maintain the energy plants which the
Company has developed. Many of these fees are a percentage of owners'
energy sales which fluctuate based on production and price. Other revenues
include development fees earned under various independent power plant
development activities.
Energy sales revenue is recognized when electrical power or steam is
supplied to a purchaser, generally the local utility company or site host,
at the contract rate in place at the time of delivery. Certain contracts
have fixed prices for the first few years after which the prices are based
on the "avoided costs" price of utility purchasers.
Revenue from energy management services is recognized on certain long-term
contracts during the installation period of customer agreements structured
as sales-type leases using the percentage-of-completion, cost-to-cost
method and over the financing period of such leases using the
effective-interest method.
Sale of power plants revenue is recognized when earned for consummated
sales of Company-owned power plants. Costs of such revenues include all
assets, net of related liabilities, for such power plants and other direct
costs of the transaction.
<PAGE>
KENETECH CORPORATION
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
Depreciation: Depreciation is recorded on a straight-line basis over the
estimated useful lives as shown below:
Buildings and improvements 30 years
Windplants 20 to 30 years
Cogeneration and substation facilities 30 years
Machinery and equipment 2 to 10 years
Furniture and fixtures 3 to 5 years
Leasehold improvements Shorter of estimated
life or term of lease
Research and Development: Expenditures for research and development are
recorded as engineering expense when incurred and totaled zero in 1996,
$13,408,000 in 1995, and $5,870,000 in 1994.
Interest Expense: Interest is capitalized on independent power plants under
construction and self-constructed assets and totaled $587,000 in 1996,
$3,793,000 in 1995, and $3,315,000 in 1994.
Income Taxes: The Company accounts for income taxes using the liability
method under which deferred income taxes arise from temporary differences
between the tax basis of assets and liabilities and their reported amounts
in the consolidated financial statements. Changes in deferred tax assets
and liabilities include the impact of any tax rate changes enacted during
the year and changes in the valuation allowance.
Accounts Receivable/Accrued Liabilities: Costs incurred and estimated
earnings in excess of billings on uncompleted contracts are included in
accounts receivable. Billings in excess of costs and estimated earnings on
uncompleted contracts are included in accrued liabilities.
Inventories: Inventories are stated at the lower of cost or market,
principally using the average-cost method. (Note 12).
Power Plant Held for Sale: Power plant held for sale represents the
Company's share of a completed power plant (see Note 13).
Power Plants Under Development: Power plants under development include
project development costs, representing preconstruction costs incurred to
complete the design of windpower plants, independent power plants and
cogeneration facilities, to secure the necessary permits, to negotiate the
contracts to construct and operate the project, to obtain construction
financing and for other development services. Project development costs are
capitalized once a project has reached the design and permitting stage and
the Company has obtained a power purchase agreement or other enforceable
right to sell power. Such capitalized development costs are transferred to
construction in progress after construction begins. When it is probable
that future projects will not be completed or costs may not be recovered,
such costs are written off or reserved for.
Other Assets: Other assets include debt issuance costs of $3,860,000 and
$4,069,000 at December 31, 1996 and 1995 which are amortized on a
straight-line basis over the term of the related debt. Such amortization
expense was $1,176,000 in 1996, $2,390,000 in 1995, and $955,000 in 1994.
Cash Flow Information: Short-term investments purchased with original
maturities of three months or less are considered cash equivalents. Cash
paid for interest (net of amounts capitalized) was $4,683,000 in 1996,
$18,520,000 in 1995, and $17,820,000 in 1994. In 1996 and 1995 the Company
received income tax refunds of $1,343,000 and $1,393,000 respectively. Cash
paid for income taxes was zero in 1996 and 1995, and $2,460,000 in 1994.
The Company entered into capital leases for equipment of zero in 1996,
$3,205,000 in 1995, and $1,881,000 in 1994 which are included in other
notes payable.
<PAGE>
KENETECH CORPORATION
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
3. LIQUIDITY AND GOING CONCERN
The consolidated financial statements as of and for the year ended December
31, 1996 have been prepared assuming the Company will continue as a going
concern. The Company incurred significant losses in 1996 and 1995, has
negative working capital and its liquidity is severely constrained. Certain
lenders and creditors are seeking repayment and/or restructuring of the
amounts due them. In 1997 the Company expects to generate losses before the
sale of assets due to administrative expenses in excess of gross margin and
interest expense on debt. These factors raise substantial doubt about the
Company's ability to continue as a going concern in its current form.
Management's plan to address its liquidity involves the sale of its
interests in the Puerto Rico project and construction contract for which it
expects to receive substantial cash proceeds. Management believes that such
sales will not generate sufficient proceeds to ultimately provide any
return of invested capital to the holders of the Company's stock. In
addition, the Company believes KWI will assert certain claims in bankruptcy
against the Company. There can be no assurance that the Company will be
successful in implementing its plans and that the Company will continue as
a going concern.
4. DECONSOLIDATION OF KWI
As mentioned previously, KWI filed for protection on May 29, 1996 under
chapter 11 of the Federal Bankruptcy Code and reported an excess of
liabilities over its assets. Although the Company continues to own the
common stock of KWI and provides certain services under the jurisdiction of
the Bankruptcy Court, the Company believes it is probable that such
ownership will not exist after completion of the bankruptcy proceedings.
Accordingly, as of May 29, 1996 KWI ceased to be accounted for as a
consolidated subsidiary of the Company. The condensed results of operations
for the year ending December 31, 1996 of the Company as if KWI had been
deconsolidated at the beginning of that period and without giving effect to
any other changes is as follows:
KENETECH CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1996
(unaudited, in thousands)
Revenues $ 72,608
Costs of revenues (68,556)
--------
Gross margin 4,052
Marketing & general & administrative expenses (28,115)
--------
Loss from operations (24,063)
Loss on sale of subsidiaries and assets (9,651)
Interest expense and other (15,816)
--------
Loss before income taxes (49,530)
Income tax provision 23,391
--------
Net loss $(72,921)
========
The above pro forma information are for illustrative purposes and do not
necessarily reflect what would have happened had KWI actually had been
deconsolidated.
Included in the December 31, 1995 consolidated balance sheet were assets
and liabilities of KWI of approximately $214,000,000 and approximately
$213,000,000 respectively. Included in the consolidated statements of
operations for the year ended December 31, 1995 were revenues, excess of
expenses over revenues and loss before taxes of KWI of approximately
$231,000,000, approximately $188,000,000 and approximately $234,000,000
respectively.
KWI's 1996 operations through May 29, 1996 (a loss of approximately $14
million) are reflected in the accompanying consolidated financial
statements. The Company's investment in KWI is recorded as zero in
"Investments in Affiliates" in the accompanying December 31, 1996
consolidated balance sheet.
<PAGE>
KENETECH CORPORATION
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
5. DISPOSITION OF SUBSIDIARIES AND ASSETS
In conjunction with management's plans to address its liquidity the
following transactions were entered into during 1996:
1) In April 1996 the Company signed a purchase and sale agreement for its
subsidiary which holds equity investments in several funds which make
investments in power projects. The Company received $5,400,000 in
cash. These equity investments were recorded at approximately
$9,300,000 prior to a write-down of $4,800,000 in 1995 based upon
management's estimate of ultimate recoverability.
2) In the second quarter of 1996 the Company sold its demand side
management operations for approximately $250,000 in cash and the
assumption of the debt associated with these operations. The Company
incurred no loss on the sale of these operations.
3) In May 1996 the Company sold its subsidiary which supplies wood fuel
to wood-fired electric power plants for approximately $1,970,000 in
cash and the assumption of debt associated with these operations. The
Company incurred no loss on the sale of these operations.
4) In May 1996 the Company sold a manufacturing facility in Waco, Texas.
The Company received approximately $1,200,000 in cash and incurred a
small loss on the sale of this building.
5) As mentioned previously, KWI filed for protection on May 29, 1996
under chapter 11 of the Federal Bankruptcy Code and reported an excess
of liabilities over its assets. Although KENETECH continues to own the
common stock of KWI and provides certain services under the
jurisdiction of the Bankruptcy Court, KENETECH believes it is probable
that such ownership will not exist after completion of the bankruptcy
proceedings. Accordingly, as of May 29, 1996 KWI ceased to be
accounted for as a consolidated subsidiary of KENETECH. The effect of
the deconsolidation was the recognition of a loss, which primarily
related to $23,087,000 of net deferred tax assets relating to KWI.
6) In September 1996 the Company sold a subsidiary that held a 25% equity
interest in a district steam heating facility located in New Haven,
Connecticut for $200,000 cash and incurred a small gain on this
transaction.
7) In August 1996 the Company sold its rights to develop a Windplant in
Galicia, Spain for $920,000 in cash.
8) In November 1996 the Company sold a subordinated note receivable from
the owner of the Tarifa, Spain Windplant and its remaining equity
interest in this Windplant. The Company received approximately
$2,600,000 and incurred a loss of $4,930,000 on this transaction.
9) In December 1996 the Company sold a 1% general partner interest in a
cogeneration plant in Kingsburg, California for $350,000 and incurred
a loss of $1,700,000 on this transaction.
<PAGE>
KENETECH CORPORATION
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
6. LOSS PER SHARE
Loss per share amounts were calculated as follows for the years ended
December 31, 1996, 1995, and 1994 (in thousands, except for per share
amounts).
Primary and Fully Diluted
-------------------------
1996 1995 1994
---- ---- ----
Net income (loss) $ (84,241) $(250,148) $ 4,348
Less preferred stock dividends (8,563) (8,563) (5,590)
--------- --------- ---------
Net loss used in per
share calculations $ (92,804) $(258,711) $ (1,242)
========= ========= =========
Weighted average shares used
in per share calculations 36,781 36,341 35,783
========= ========= =========
Net loss per share $ (2.52) $ (7.12) $ (0.03)
========= ========= =========
Preferred stock dividends are deducted from net income or added to the
net loss. Since the Company incurred net losses after preferred stock
dividends for all periods presented, common stock equivalents are not
included in weighted average shares used in the loss per share
calculation since they would be anti-dilutive (reduce the loss per
share).
7. SPECIAL CHARGES
The Company recorded a special charge of approximately $224,600,000 as
of December 31, 1995. Of this charge approximately $218,900,000
related to KWI. The special charge is primarily related to two items:
(i) Performance problems with the KVS-33. During 1995 mechanical
problems with the KVS-33 model wind turbines installed in 1994
and 1995 began to appear, especially in the more severe weather
environments. The Company incurred substantial operating costs in
1995 as a result of the problems with the KVS-33. As a result of
these problems, the Company wrote off all of its deferred
engineering costs, reserved certain inventory costs related to
the KVS-33, reserved a significant portion of the capitalized
development costs for projects which were going to be completed
using the KVS-33 and accrued the estimated retrofit costs
attributable to the KVS-33. The aggregated amounts of writedowns
and asset reserves were approximately $54,600,000 and accruals of
liabilities of approximately $86,800,000 expected to be incurred
over the next several years were based on the best information
available at December 31, 1995. It is possible that actual losses
may be higher or lower than the amount recognized.
(ii) Energy prices. During 1995, the energy prices utilities pay based
upon their "avoided costs" continued to decrease. These energy
prices have a significant effect on the Company's financial
condition and operations through two channels: (1) the Windplant
assets owned by the Company, and (2) the profitability of
maintenance and management contracts the Company has with third
parties. Maintenance and management fees generally are based on a
percentage of the owners' energy sales.
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
The Company used current energy prices at December 31, 1995 based upon
PG&E's "avoided costs" prices (after fixed price contract periods expire in
1997-2004), increased by modest inflation, to compute future cash flows for
assessing the impairment of Windplant assets and the profitability of the
Company's maintenance and management agreements with third party owners of
Windplants. The Company used modest inflation because most experts expect
PG&E's avoided cost to increase at or below the inflation rate. Based on
the calculations, using the principles of SFAS No. 121 and a present value
of future net cash flows discounted at 16% to approximate fair value,
certain Windplant assets and investments were written down by approximately
$50,300,000. In addition, projected negative cash flows on certain
maintenance and management contracts from 1996-2015 were discounted at 7%
to approximate a risk free rate and a loss accrual was recognized of
$32,900,000. Based on the calculations, projected negative cash flows on
certain maintenance and management contracts commenced in 1996.
These writedowns and reserves were based on the best information available
as of December 31, 1995. It is possible that actual losses may be higher or
lower than the amounts recognized. The range of variance, if any, from such
amounts cannot be reasonably estimated.
8. RELATED PARTY TRANSACTIONS
The Company has transactions with related parties in the ordinary course of
business. Related parties consist primarily of energy plant investments in
which the Company owned partnership interests ranging from less than 1% to
50% with most such investments being 1% or less. The 1996 amounts include
KWI amounts through May 29, 1996 (see Note 4). Pursuant to contracts either
to provide Windplants, construction services or power plant management and
maintenance, the Company had the following revenues from related parties,
after elimination in consolidation of the Company's ownership interest:
1996 1995 1994
-------- ------- ------
` (in thousands)
Windplant sales $ 5,324 $128,626 $ 57,599
Maintenance, management fees
and other 8,939 19,209 24,786
Sale of power plants - - 32,907
Interest on partnership notes and funds
in escrow 1,125 3,313 4,432
-------- ------- --------
$ 15,388 $151,148 $119,724
======== ======== ========
In addition, partnership notes and interest receivable, net in the
consolidated 1995 balance sheet, originated from KWI's Windplant sale
transactions with partnerships affiliated with the Company.
Windplant Purchases: In 1995, the Company purchased substantially all of the
assets of two windpower partnerships utilizing the KVS 56-100 turbine for
approximately $30,400,000 including, $20,600,000 in cash and $3,700,000 in
liabilities owed to the Company and $6,100,000 in notes payable to an
unrelated party. These Windplants were recorded in property, plant and
equipment (Note 14) at a cost of approximately $19,500,000 representing the
purchase price, net of previously recorded deferred revenue associated with
the partnership note.
In 1994, the Company purchased substantially all of the assets of four
affiliated windpower partnerships, in which subsidiaries of the Company had
general partner interests (1% in each), for approximately $42,900,000
($36,700,000 in cash and $6,200,000 in partnership notes interest and other
receivables owed to the Company). The Windplants were recorded in property,
plant and equipment (Note 14) at a cost of approximately $25,000,000
representing the purchase price net of previously recorded deferred revenue
associated with the partnership notes owned by the Company.
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
Sale of Windplant Options and Partnership Interest: KPC Investors, L.P.
(KPCI) is a partnership in which the Company has a 1% general partner
interest and a 1.5 % limited partner interest and Energy Investors Fund, L.P.
(EIF) has the remaining 97.5% limited partnership interest. In 1993, KPCI
purchased the stock of a wholly-owned subsidiary of the Company which leased
a Windplant from a third party lessor for the cancellation of $2,658,000 of
the Company's other notes payable and interest previously owned by EIF and a
$12,263,000 note receivable. The Company had deferred, until collected in
cash, revenue (net of related costs) related to such note. As a result
deferral, related party revenue, net of related costs, was $2,376,000 in
1994.
Investments in Affiliates: Investments in affiliates include one and 18
investment(s) at December 31, 1996 and 1995, respectively, accounted for on
the equity method. The Company's individual ownership interests consist
primarily of interests of 1% or less. Summarized financial information of
these investees was as follows:
As of December 31,
1996 1995
---- ----
(in thousands)
Current assets $ 1,845 $88,135
Plant and other assets 3,265 734,389
Current liabilities 145 69,507
Long-term liabilities 74 428,643
Equity 4,896 324,374
For the year ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
(in thousands)
Revenues $ 13,499 $140,563 $142,032
Income from operations 11,038 47,981 63,240
Net income 1,385 12,353 32,638
9. FUNDS IN ESCROW
The Company has various long-term debt agreements which have escrow fund
requirements (see Note 16). The Company is required, under these agreements,
to establish escrow accounts. Debt service payments are made from the escrow
account. The escrow account balances at December 31, 1996 and 1995 were as
follows:
1996 1995
(in thousands)
Funds in escrow - Lease agreements $ - $ 475
Other notes payable 1,581 14,038
Letters of credit collateral 1,086 2,195
Project collateral 2,554 -
------- ------
5,221 16,708
Less current portion 5,221 12,531
------- --------
$ - $ 4,177
======= ========
As of December 31, 1996, funds in escrow were invested in short-term cash
investments at rates ranging from zero to 6.4%. As previously discussed KWI's
funds in escrow are not reflected in the December 31, 1996 balance sheet.
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
10. ACCOUNTS RECEIVABLE
Accounts Receivable: Accounts receivable at December 31, 1996 and 1995
consisted of:
1996 1995
---- ----
(in thousands)
Contracts - Billed:
Completed contracts $ 1,981 $ 22,243
Contracts in progress 9,106 23,992
Retained 2,216 4,915
Contracts - Unbilled 2,782 3,106
Operations and other 1,855 15,191
------- --------
Subtotal 17,940 69,447
Less current portion 17,940 52,593
------- --------
$ - $ 16,854
======= ========
At December 31, 1996 billed and unbilled receivables did not include any
amounts from related parties. At December 31, 1995 billed and unbilled
receivables included $31,417,000 related to contracts with related parties.
Operations and other receivables include $33,000 and $11,793,000 from related
parties at December 31, 1996 and 1995.
A summary of costs incurred and estimated earnings on uncompleted contracts
at December 31, 1996 and 1995 follows:
1996 1995
---- ----
(in thousands)
Costs incurred and estimated earnings on
uncompleted contracts $151,850 $381,812
Billings to date 157,346 (380,753)
-------- --------
$ (5,496) $ 1,059
======== ========
Such amounts were included in the consolidated balance sheets at December
31, 1996 and 1995 as follows:
1996 1995
---- ----
(in thousands)
Costs incurred and estimated earnings in excess
of billings on uncompleted contracts
(accounts receivable) $ 2,782 $ 4,998
Billings in excess of costs and
estimated earnings on uncompleted
contracts (accrued liabilities) (8,278) (3,939)
-------- --------
$ (5,496) $ 1,059
======== ========
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
11. PARTNERSHIP NOTES AND INTEREST RECEIVABLE
Partnership notes receivable are summarized below. The Company deferred a
portion of the selling price of certain Windplants sold prior to 1988 (see
Notes 2 and 8). At December 31, 1996 there were no partnerships notes on the
balance sheet as a result of the deconsolidation of KWI and the sale of a
subordinated note receivable from the owner of the Tarifa, Spain Windplant
(see Note 5). The related principal and interest receivable at December 31,
1995, offset by deferred revenue, was as follows:
1995
(in thousands)
Partnership notes and interest receivable $ 32,970
Deferred revenue (8,927)
--------
24,043
Less current portion 1,477
--------
$ 22,566
========
These notes bear interest at rates ranging from prime plus 1% (prime was 8.5%
at December 31, 1995) to 14.5% and generally require level payments of
principal and interest after 1998. Accrued interest receivable was $1,100,000
at December 31, 1995.
12. INVENTORIES
Inventories at December 31, 1996 and 1995 are summarized as follows:
1996 1995
---- ----
(in thousands)
Current inventories:
Work-in-process $ - $ 5,616
Unassembled parts and supplies 135 15,114
Projects held for sale:
Texas Windplant - 3,568
Project in Construction - Costa Rica Windplant - 14,386
------- --------
Total current inventories $ 135 $ 38,684
======= ========
Long-term inventories:
Long-term inventory $ - $ 33,177
Reserve - (14,746)
------- --------
Total long-term inventories $ - $ 18,431
======= ========
As previously discussed, inventories of KWI are not reflected in the
December 31, 1996 balance sheet.
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
13. INVESTMENT IN POWER PLANT HELD FOR SALE AND DEBT ASSOCIATED WITH POWER
PLANT HELD FOR SALE
Investment in power plant held for sale at December 31, 1996 and 1995
consisted of:
1996 1995
---- ----
(in thousands)
Chateaugay power plant $19,209 $19,951
======= =======
The Company owns a 50% ownership interest in a 17.0 megawatt wood-fired
electric power plant it constructed in Chateaugay, New York in September
1993. Debt associated with this project held for sale at December 31, 1996
and 1995 consisted primarily of tax-exempt bonds. In July 1991, the Company
entered into an agreement with the County of Franklin (New York) Industrial
Development Authority (the Authority) whereby the Authority loaned the
Company the proceeds of the Authority's Series 1991A Bonds issued of
$34,800,000 to finance the construction of the Chateaugay project. The bonds
are due July 1, 2021. Upon expiration of the partnership repurchase option in
1994, the Company recognized a gain on the sale of its 50% interest. As the
Partnership makes debt payments, the Company reduces its pro rata 50% share
of the debt accordingly ($16,578,000 outstanding at December 31, 1996).
14. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and 1995 consisted of:
1996 1995
---- ----
(in thousands)
Land $ 580 $ 3,585
Buildings and improvements 2,966 23,839
Windplants, net of impairment (Notes 7 and 8) - 73,529
Cogeneration facility 26,467 39,385
Machinery, equipment and other 6,122 39,313
Construction in progress - 123
------- --------
36,135 179,774
Less accumulated depreciation 11,400 61,560
------- --------
$24,735 $118,214
======= ========
Depreciation expense was $6,814,000 in 1996, $14,527,000 in 1995, and
$12,661,000 in 1994. As previously discussed property, plant and equipment of
KWI are not reflected in the December 31, 1996 balance sheet.
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
15. BANK LOAN PAYABLE
On August 30, 1996, the Company entered into a $30,000,000 loan agreement to
be used for the Puerto Rico project being jointly developed by the Company.
Amounts borrowed under this agreement bear interest at the 90 day LIBOR plus
7.5%. This rate can change when the project reaches certain milestones. The
90 day LIBOR rate was 5.6% at December 31, 1996. The loan is collateralized
by the stock of a special purpose entity formed to hold through affiliates
the Company's interest in this thermal power plant. No further funds are
available under this agreement since the remaining funding capacity must
accommodate accrued and unpaid interest for the remaining term of the loan.
The outstanding balance on this bank loan was $18,860,000 at December 31,
1996.
KWI Bank Loan Payable: On September 30, 1994, KWI entered into a $75,000,000
two year revolving credit agreement (the Windplant construction line) to
finance the construction of Windplants with a group of seven banks. This
agreement required KWI to meet certain financial ratios and net worth tests.
In February 1996 the Company and KWI entered into a Waiver Agreement with the
banks that did not include waiver of the financial ratios and net worth
requirements. However, under the terms of this Waiver Agreement, the banks
agreed to fund a draw request and waive declaring a default based upon a
"material adverse change" and the Company agreed to suspend payment of
dividends on its preferred stock so long as borrowings remain outstanding. On
May 13, 1996 KWI and the banks agreed to reduce the size of the facility to
$12,050,000 (the amount outstanding at that time). Subsequently, KWI sold a
project held for sale. The proceeds from this sale repaid the amount due and
the revolving credit agreement was terminated.
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
16. OTHER NOTES PAYABLE
Other notes payable at December 31, 1996 and 1995 consisted of the following:
1996 1995
---- ----
(in thousands)
Notes bearing interest at 7.5% to 11.5%, due in equal
semi-annual installments of principal and interest through
2003, collateralized by Windplants and $25,862,000 of
notes receivable from the sale of Windplants (1) $ - $ 37,031
Note bearing interest at 11.3%, due in equal annual
installments of principal and interest through 2002,
collateralized by a cogeneration facility owned by
the Company and requires an escrow account 8,667 9,624
Borrowings under a $15,000,000 term loan agreement,
interest at specified rates through 2002 (11% and 6.7%
at December 31, 1995 and 1994) - 14,512
Notes bearing interest at 10.8%, due through 2001,
collateralized by real property (1) - 3,317
Borrowings under a $5,000,000 revolving credit
agreement bearing interest at 1% above the bank's
prime rate through April 30, 199 166 -
Borrowings under a $7,500,000 term loan agreement
bearing interest at the bank's prime rate through
August 31, 1996 and at 1% above the bank's prime
rate thereafter, due in quarterly installments of
$267,857 plus interest through December 31, 2000
and $2,142,860 due on March 31, 2001 6,351 -
Borrowings under a $4,400,000 revolving loan
agreement, interest rate selected by the
Company from specified alternatives (7.4% and 7.6% at
December 31, 1996 and 1995, respectively),
convertible to a 15-year term loan payable
semi-annually, collateralized by land, building
and equipment 3,645 3,797
Borrowings under a $1,000,000 loan agreement,
due in 1999 bearing interest at prime plus 3%
(11.25% at December 31, 1996) 641 -
Notes bearing interest at 7.0% due through 1999 (2) 504 600
Other obligations bearing interest at 8.2% to 9.9% due
through 1999, collateralized by equipment 191 3,074
------- --------
20,165 71,955
Less current portion 20,165 18,794
------- --------
$ - $ 53,161
======= ========
(1) Amount was eliminated with the deconsolidation of KWI.
(2) The Company did not make the required principal and interest payment on
December 1, 1996 and the holders of the notes notified the Company of their
collective intention to accelerate the obligation to pay the unpaid balance
of the notes plus accrued interest. On February 21, 1997, the Company paid
$322,000 in full settlement of $460,000 of unpaid principal and interest.
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
Certain of the debt agreements provide events of default including provisions
which allow the lenders to accelerate repayment of the debt should other debt
of the Company experience an event of default which would cause such other
debt to be accelerated. Because of these provisions all other notes payable
are considered current.
The Company maintained a revolving credit agreement for working capital
purposes which was due to expire on May 30, 1996. This agreement required the
Company to meet certain financial ratios, net worth tests and indebtedness
tests. In April 1996 the Company renegotiated the revolving credit agreement
to provide for up to $5,000,000 for working capital purposes for the
Company's construction subsidiary (CNF) through April 30, 1997. The
renegotiated agreement also provided a term loan of $7,500,000 which was used
to pay the $5,000,000 outstanding at March 30, 1996 and to provide cash
collateral for up to $2,500,000 in outstanding letters of credit. The loan
becomes immediately payable on the sale of CNF. The agreement requires CNF to
meet certain net worth, financial ratio and debt service coverage tests. At
December 31, 1996 CNF was not in compliance with these covenants. The bank
has issued a notice of default letter which stated that due to KWI's
bankruptcy filing and certain covenant violations it would not make any
further advances under the revolving credit agreement. The ability of CNF to
transfer cash to KENETECH Corporation is prohibited by provisions of this
line of credit. CNF's cash and cash equivalents totaled $2,802,000 at
December 31, 1996.
17. SENIOR SECURED NOTES PAYABLE
In December 1992 the Company sold $100,000,000 of 12-3/4% Senior Secured
Notes due 2002. The notes were sold at a discount of $1,389,000. Such
discount is being amortized on the effective yield method through 2002. The
unamortized discount was $995,000 at December 31, 1996. Interest on these
notes is due June 15 and December 15 of each year. The Notes are redeemable,
at the option of the Company, beginning December 15, 1997 at 106% of par,
beginning December 15, 1998 at 103% of par, and beginning December 15, 1999
at par.
Under the terms of the note indenture, the Company is restricted from paying
cash dividends on its common stock and must comply with certain covenants,
the most restrictive of which place limitations on payment of such dividends,
repurchasing common stock, incurring additional indebtedness, pledging of
assets and advances or loans to affiliates. The indenture provides for an
event of default (including the acceleration of the repayment of the Notes)
should other debt of the Company be accelerated because the other debt was in
default. The Company did not pay the interest due June 15 and December 15,
1996 totaling $12,750,000 and is in default. At December 31, 1996 the debt
was classified as a current liability.
18. STOCKHOLDERS' EQUITY (DEFICIENCY)
Convertible Preferred Stock: In May and June 1994, the Company sold 102,492
shares of 8 1/4% convertible preferred stock with a stated value of $1,012.50
per share resulting in net proceeds of approximately $99,561,000 after
underwriting discount and expenses. Dividends are cumulative from the date of
original issuance and are payable quarterly in arrears, when and as declared
by the Company's board of directors. The voluntary and involuntary
liquidation value of each preferred share is equal to the stated value plus
unpaid dividends. Preferred stockholders have the same voting rights as
common stockholders at the rate of 40 votes per preferred share.
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
The holders of the preferred stock may convert their shares into common stock
at any time at the rate of 41.665 common shares for each preferred share. The
preferred stock is not convertible by the Company prior to May 15, 1997.
However, after that date and prior to May 15, 1998, the Company may convert
the preferred stock and should be expected to do so if the then current
market value exceeds the call price as defined. At such time the preferred
shareholder would receive the number of common shares equal to the call price
(initially $1,033.40, declining ratably to $1,012.50) divided by the market
price of the common stock, but in no event fewer than 41.665 common shares
for each share of preferred stock. If not previously converted, on May 14,
1998, each preferred share will mandatorily convert into 50 shares of common
stock and cash equal to all accrued and unpaid dividends. The Company has
recorded a liability as of December 31, 1996 for unpaid dividends of
$9,633,000 and $1,070,000 as of December 31, 1995.
The preferred stock is held by a depositary and 5,124,600 depositary shares
have been issued. Each depositary share represents one-fiftieth of a
preferred share, with the holder entitled, proportionately, to all the rights
and preferences of the underlying preferred stock.
Stock Options: The Company currently has various stock option plans and
programs under which both qualified and non-qualified incentive stock options
have been granted. Options authorized and available for grant at December 31,
1996 totaled approximately 3,610,000 shares in addition to 2,507,000 shares
granted and outstanding at December 31, 1996.
Stock option activity during 1994, 1995 and 1996 was as follows:
Exercise
Options Price
Outstanding December 31, 1993 2,974,250 1.25 - 16.50
Granted 42,500 12.81 - 23.25
Exercised (130,845) 1.25 - 9.00
Canceled (137,940) 9.00 - 16.50
--------
Outstanding December 31, 1994 2,747,965 1.25 - 23.25
Granted 235,000 11.50 - 15.75
Exercised (316,805) 1.25 - 9.00
Canceled (531,160) 9.00 - 23.25
--------
Outstanding December 31, 1995 2,135,000 1.25 - 23.25
Granted 1,750,000 0.81
Canceled (1,378,000) 1.25 - 23.25
---------
Outstanding December 31, 1996 2,507,000 0.81 - 19.75
=========
The weighted average exercise price of outstanding options at December 31,
1996 was $4.0423. Stock options vest as follows:
Exercise
Shares Price
Currently exercisable 525,640 $ 1.25 - $19.75
1997 104,860 9.00 - 16.50
1998 76,100 9.00 - 16.50
1999 25,400 12.81 - 16.50
2000 25,000 16.50
2001 -
2002 1,750,000 0.81
---------
2,507,000
=========
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
The Financial Accounting Standards Board (FASB) has issued Statement No.
123. "Accounting for Stock-Based Compensation" which is effective for 1996
financial statements. SFAS No. 123 requires either recognition of
compensation expenses for stock options and other stock-based compensation
or supplemental disclosure of the impact such expense recognition would
have had on the Company's results of operations had the Company recognized
such expense. The Company has elected the supplemental disclosure option.
The Company believes that the effects on the reported net loss for 1996 and
1995 had stock-based compensation been recognized as expense under the
provisions of SFAS No. 123 would not be material.
19. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
1996 1995 1994
-------- ------- ------
(in thousands)
Current:
Federal $ 54 $ (590) $ 626
State 150 105 1,122
Foreign 100 - 337
-------- ------- --------
304 (485) 2,085
-------- ------- --------
Deferred:
Federal 20,201 (17,965) (1,137)
State 2,886 (3,049) (3,870)
-------- ------- --------
23,087 (21,014) (5,007)
-------- ------- --------
Total income tax
provision (benefit) $ 23,391 $(21,499) $ (2,922)
======== ======== ========
A reconciliation of the total income tax (benefit) to income taxes calculated
at the federal statutory tax rate of 35% is as follows:
1996 1995 1994
-------- ------- ------
(in thousands)
(Loss) Income before income taxes $(61,568) $(271,647) $ 1,426
======== ========= =========
Statutory federal income tax
(benefit) provision $ (21,549) $ (95,076) $ 499
State income taxes, less
federal tax benefit (2,928) (16,136) 489
Change in valuation allowance due to
current operations 24,627 89,705 (3,500)
Renewable energy credit - - (284)
Reduction of net deferred tax asset
attributable to
deconsolidation of KWI 23,087 - -
Other 154 8 (126)
-------- -------- --------
Total income tax
provision (benefit) $ 23,391 $(21,499) $ (2,922)
======== ======== ========
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
As of December 31, 1996 and 1995, the deferred tax balances consisted of the
following:
1996 1995
---- ----
(in thousands)
Current assets $ 4,340 $ 10,080
Valuation allowance - (1,536)
------- --------
4,340 8,544
Current liabilities (40) (5,780)
------- --------
Current deferred tax assets, net $ 4,300 $ 2,764
======= ========
Noncurrent assets:
Dealer installment sales $ - $ 26,430
Federal and state net operating loss
and tax credit carryforwards 37,662 35,770
Gain on sale of fixed assets
and investment interests 3,061 24,400
Warranty reserve - 26,782
Project development costs 4,655 17,158
Accrued loss on operations - 25,708
Fixed asset impairment - 13,814
Other 800 8,929
------- --------
46,178 178,991
Valuation allowance (22,176) (88,169)
------- --------
24,002 90,822
Noncurrent liabilities:
Depreciation and basis differences (5,142) (42,139)
Other (5,247) (10,448)
------- --------
(10,389) (52,587)
-------- --------
Noncurrent deferred tax assets, net $ 13,613 $ 38,235
======== ========
Deferred income tax assets and liabilities reflect the tax effects of
temporary differences between the tax basis of assets and liabilities and the
reported amounts of these assets and liabilities for financial reporting
purposes. SFAS No. 109 requires that a valuation allowance be recorded
against tax assets which are more likely than not to not be realized which
resulted in $24,627,000 and $89,705,000 being recognized in 1996 and 1995.
During 1994 the Company determined, due to continued commercial production
and established backlog, that $3,500,000 of its previously established
valuation allowance for California solar energy credits was no longer
required. After the deconsolidation of KWI, the Company's recorded net
deferred tax asset is $17,913,000. This amount will be realized if taxable
gains of approximately $50,000,000 are recognized which management believes
is more likely than not to be realized from the sale of assets with
appreciated value. It is possible that the actual deferred tax assets
realized may be higher or lower than the amounts currently recognized.
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
The following table summarizes carryforwards available for income tax
purposes at December 31, 1996 (in thousands):
Expiration Dates
----------------
Investment tax credits $ 1,622 2003 through 2005
Research and development tax credits,
federal and state 2,307 2003 and 2008
California solar tax credits 7,693 Indefinite
Alternative minimum tax credit 2,010 Indefinite
Net operating loss - federal 89,691 2007 through 2011
Net operating losses of acquired subsidiaries,
subject to restrictions 2,202 2001 through 2005
20. Fair Value of Financial Instruments
The carrying amount and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 were as follows:
1996 1995
---------------- --------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(in thousands)
Assets:
Cash and cash equivalents $17,208 $17,208 $16,842 $16,842
Funds in escrow 5,221 5,221 16,708 16,708
Partnership notes and
interest receivable - - 32,983 -
Liabilities:
Power plant construction
financing 16,578 - 16,958 -
Senior secured notes payable 99,005 - 98,887 -
Other notes payable 20,165 - 71,955 -
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and cash equivalents: The carrying amount is a reasonable estimate of
fair value.
Funds in escrow: Fair value represents market value as reported by the
financial institution holding the funds in escrow.
Partnership notes and interest receivable, Power plant construction
financing, Senior secured notes payable, and Other notes payable: For 1996
and 1995, the fair value is undeterminable.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1996 and 1995. Although management
is not aware of any factors that would significantly affect the estimated
fair value amounts, such amounts have not been comprehensively revalued for
purposes of these financial statements since those dates, and estimates of
fair value subsequent to those dates may differ significantly from the
amounts presented herein.
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
21. COMMITMENTS AND CONTINGENCIES
Leases: At December 31, 1996 the Company had various operating lease
agreements covering facilities and equipment. Substantially all leases
provide for renewal options which give the Company the right to extend the
leases at reduced rentals. Minimum rental commitments for future years are
as follows (in thousands):
1997 $ 527
1998 453
1999 316
2000 102
2001 86
Thereafter 1,634
Lease expense totaled $1,689,000 in 1996, $8,699,000 in 1995, and
$9,513,000 in 1994.
Subsidiary General Partners: Separate subsidiaries of the Company act as
general partners for certain partnerships, holding a 1% or less interest
therein. As a general partner, together with the other general partners, each
subsidiary is liable for all debts, liabilities and obligations of the
partnership (except non-recourse loans) to the extent such obligations are
not paid by the partnership. Since the partnerships' obligations (except
non-recourse loans) are primarily notes payable and fees due to the Company
and other relatively minor liabilities related to administration, insurance
and property taxes, management believes the potential liability, if any, to
the Company, as the partnerships' general partner, will not have a material
adverse effect on the Company's financial position or results of operations.
Litigation: On September 28, 1995, a class action complaint was filed against
the Company and certain of its officers and directors (namely, Stanley
Charren, Maurice E. Miller, Joel M. Canino and Gerald R. Alderson) in the
United States District Court for the Northern District of California alleging
federal securities laws violations. On November 2, 1995, a First Amended
Complaint was filed naming additional defendants, including underwriters of
the Company's securities and certain other officers and directors of the
Company (namely, Charles Christenson, Angus M. Duthie, Steven N. Hutchinson,
Howard W. Pifer III and Mervin E. Werth). Subsequent to the Court's partial
grant of the Company's and the underwriter defendants' motions to dismiss, a
Second Amended Complaint was filed on March 29, 1996. The amended complaint
alleges claims under sections 11 and 15 of the Securities Act of 1933, and
sections 10(b) and 20(b) of the Securities Exchange Act of 1934 and Rule
10b-5 thereunder, based on alleged misrepresentations and omissions in the
Company's public statements, on behalf of a class consisting of persons who
purchased the Company's common stock during the period from September 21,
1993 (the date of the Company's initial public offering) through August 8,
1995 and persons who purchased the Company's preferred stock during the
period from April 28, 1994 (the public offering date of the preferred stock)
through August 8, 1995. The amended complaint alleges that the defendants
misrepresented the Company's progress on the development of its latest
generation of wind turbines and the Company's future prospects. The amended
complaint seeks unspecified damages and other relief. On December 4, 1996,
with underwriters and their counsel and the insurance carriers' counsel in
attendance, a mediation occurred in San Francisco in an attempt to settle the
action; however, the parties were unsuccessful. Plaintiffs' motion for class
certification was heard and taken under submission by the Court on January
31, 1997. The Company intends to continue to contest the action vigorously.
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
On January 6, 1996, a breach of contract action was filed in the Superior
Court for Middlesex County, Massachusetts, by Tennessee Gas Pipeline
Company ("Tennessee") against Pepperell Power Associates Limited
Partnership (the "Pepperell Partnership"), its general partner, KES
Pepperell, Inc. (each in whole or in part directly or indirectly owned by
KENETECH Energy Systems, Inc. ("KES"), a wholly-owned subsidiary of the
Company), and its other general partner, in connection with the termination
of a natural gas transportation agreement, seeking to recover alleged
unpaid charges of approximately $1.8 million. KES Pepperell, Inc. has filed
a counterclaim in the action and intends to contest the action vigorously.
On December 2, 1996, Tennessee filed another action in the Superior Court
for Middlesex County, Massachusetts, against KES Pepperell, Inc. and KES,
among others, seeking to recover an $810,000 payment made to the Pepperell
Partnership plus treble damages and attorneys' fees. KES Pepperell and KES
intend to contest the action vigorously.
In October 1996, the Environmental Protection Agency ("EPA") issued a final
air permit for the Puerto Rico project. On November 1, 1996, Hector Arana
and The Committee To Save The Environment of Guayanilla, a local
environmental group in Puerto Rico, filed an administrative agency appeal
with the environmental appeals board within the EPA contesting the issuance
of the air permit; the effect of such appeal is to stay the issuance of the
permit. A validly issued and effective permit is required for the
construction, financing and operation of the project.
On March 13, 1997, Mision Industrial de Puerto Rico, Inc., the Union de
Trabajadores de la Industria Electrica y Riego (UTIER), Guayamenses
Pro-Salud y Buen Ambiente, Bartolome Diana, SURCCO, Inc. and Jose E.
Olivieri Antonmarchi (the "Appellants") timely filed an appeal before the
Circuit Court of Appeal of Puerto Rico (No. KLAN 97-00236), appealing the
judgment entered against them on January 21, 1997, in the Ponce Superior
Division of the Court of First Instance of Puerto Rico (the "trial court")
(No. JPE 96-0345) dismissing Appellants' complaint against the Puerto Rico
Electric Power Authority ("PREPA") requesting injunctive and declaratory
relief. Appellants are environmental groups, citizens and the union which
represents PREPA's electrical workers; they had brought their civil action
challenging the procedure used by PREPA to select two independent power
producers (one of which is the Company's wholly-owned development
subsidiary) to design, finance, construct, own and operate the Puerto Rico
project. The trial court held that PREPA's selection of the independent
power producers need not have been done through public bidding pursuant to
section 205 of PREPA's Organic Act. The partnership which holds the power
purchase agreement for the Puerto Rico project intervened in the action
before the trial court. The Company is also a party to various other legal
proceedings normally incident to its business activities. The Company
intends to defend itself vigorously against these actions.
It is not feasible to predict or determine whether the ultimate outcome of
the above-described matters will have a material adverse effect on the
Company's financial position.
Employment contracts: Certain officers have employment contracts.
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1996, 1995 and 1994
22. QUARTERLY INFORMATION (UNAUDITED)
Unaudited quarterly information for 1996, 1995 and 1994 was as follows (in
thousands, except per share amounts):
Year Ended December 31, 1996 - Quarters
First Second Third Fourth
----- ------ ----- ------
Total revenues $27,709 $29,491 $16,455 $18,235
Gross margin (Excess of
expenses over revenues) 397 8,163 242 (617)
Net loss (16,750) (32,435) (10,155) (24,901)
Per common share:
Primary & fully diluted
- net loss $ (0.52) $ (0.94) $ (0.33) $ (0.73)
Year Ended December 31, 1995 - Quarters
First Second Third Fourth
----- ------ ----- ------
Total revenues $74,806 $100,848 $104,897 $47,038
Gross margin (Excess of
expenses over revenues) 12,035 21,804 23,730 (234,676)
Net income (loss) (3,051) 1,492 2,332 (250,921)
Per common share:
Primary - net income (loss) $ (0.14) $ (0.02) $ 0.01 $ (6.93)
Fully diluted -
net income (loss) (0.14) (0.02) 0.01 (6.93)
Year Ended December 31, 1994 - Quarters
First Second Third Fourth
----- ------ ----- ------
Total revenues $65,206 $97,607 $90,709 $84,689
Gross margin 8,475 19,729 22,438 8,791
Net income (loss) (4,200) 4,314 5,415 (1,181)
Per common share:
Primary - net income (loss) $ (0.12) $ 0.08 $ 0.09 $ (0.09)
Fully diluted -
net income (loss) (0.12) 0.08 0.09 (0.09)
1996: As mentioned previously, KWI filed for protection on May 29, 1996
under chapter 11 of the Federal Bankruptcy Code and reported an excess of
liabilities over its assets. Although KENETECH continues to own the common
stock of KWI and provides certain services under the jurisdiction of the
Bankruptcy Court, KENETECH believes it is probable that such ownership will
not exist after completion of the bankruptcy proceedings. Accordingly, as
of May 29, 1996 KWI ceased to be accounted for as a consolidated subsidiary
of KENETECH. The effect of the deconsolidation was the recognition of a
loss, a substantial portion of which primarily related to $23,087,000
million of net deferred tax assets relating to KWI.
1995: The Company had significant revenue from Windplant sales during the
first three quarters. Windplant sales revenues decreased in the fourth
quarter due to the timing of Windplant sales, and also as certain sales
were delayed as a result of mechanical problems encountered with the KVS-33
model turbine toward the end of 1995. During the fourth quarter the Company
recorded a special charge of $224,551,000 (see Note 2).
1994: During the third quarter, the Company settled a suit with PG&E. In
November 1993 a jury awarded $17,600,000 to the Company and affiliated
partnerships (Company and Affiliates) related to a contract disagreement
with PG&E. The Company and Affiliates settled the suit consistent with the
Company's expectation at the time of the award. Under the terms of the
settlement the Company and Affiliates are precluded from disclosing the
amount and other details of the settlement. Net income and earnings per
share was substantially increased by the settlement. During the fourth
quarter, the Company determined that $3,500,000 ($0.10 per share) of its
valuation allowance for California solar credits was no longer required. In
addition, during the fourth quarter the Company recorded Windplant sales of
$18,000,000 to a company in India.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
--------------------
As previously disclosed in the Company's Report on Form 8-K dated May
11, 1995, the auditor client relationship between the Company and
Deloitte & Touche, LLP ("Deloitte & Touche") ceased on May 11, 1995. On
such date, the Company informed Deloitte & Touche that the Audit
Committee of the Board of Directors recommended that Deloitte & Touche
be dismissed. On the same day, the Company received a letter from
Deloitte & Touche stating that it had resigned as the Company's
auditor. The reports prepared by Deloitte & Touche for each of the
fiscal years 1993 and 1994 did not contain an adverse opinion or
disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles.
During the Company's fiscal years ended December 31, 1993 and 1994 and
through May 11, 1995, the Company had three disagreements with Deloitte
& Touche as follows:
The first occurred in the first quarter of 1993 and concerned the
revenue recognition for the sale of a limited partnership interest in a
wholly-owned limited partnership that constructed a wood burning power
plant. Initially, the Company had recorded 100% of the revenue and
related income, but also retained an option to purchase 49% of the
limited partnership. Deloitte & Touche advised the Company that in
their opinion, the retention of an option would result in the deferral
of revenue and related income on this transaction. The Company
restructured the transaction so that it did not retain an option to
repurchase an interest in the partnership. Deloitte & Touche and the
Company then agreed on the treatment of the transaction.
The second disagreement occurred in March of 1995 related to the
Company's 1994 consolidated financial statements with respect to the
method of revenue recognition used on long-term contracts for the sale
of wind turbines and associated services entered into in November and
December of 1994. The Company proposed to recognize revenue on the
percentage-of-completion cost-to-cost basis and issued its preliminary
earnings report for 1994 on that basis, with the understanding that
Deloitte & Touche considered this method acceptable. In late March
1995, upon completion of its audit, Deloitte & Touche notified the
Company that it did not agree with the original treatment. The Company
adopted the percentage-of-completion units-of-delivery method which was
acceptable to Deloitte & Touche.
The third disagreement occurred in the first quarter of 1995 related to
the Company's acquisition of a business. The Company proposed to
recognize all the revenues and expenses related to the acquired
business during the first quarter of 1995 because the acquisition was
based upon the year-end balance sheet and the Company's management had
participated in the day-to-day operations of the acquired business.
Deloitte & Touche advised the Company that the purchase method of
accounting required that only the revenues and expenses from the actual
date of the closing of the business combination should be recorded. The
Company adopted Deloitte & Touche's recommended treatment.
During each of the two fiscal years ended December 31, 1993 and 1994
and through May 11, 1995, the Company had one reportable event. As of
May 11, 1995, the documentation provided to corroborate the
representation made by the Company's management supporting certain
Windplant sales recorded under the percentage-of-completion
cost-to-cost method for the 13 weeks ended April 1, 1995 was
incomplete. As a result, and because of the cessation of the audit
relationship, Deloitte & Touche was unable to reach a conclusion as to
the recording of revenue and income for the transaction.
This includes information as to all disagreements and reportable events
through the date of this report. The Audit Committee of the Board of
Directors discussed the subject matter of all three disagreements and
the reportable event with Deloitte & Touche. In addition, the Company
has authorized Deloitte & Touche to respond fully to the inquiries of
any successor accountant concerning the subject matter of each such
disagreement.
<PAGE>
On May 11, 1995, Deloitte & Touche notified the Securities and Exchange
Commission that the client-auditor relationship between the Company and
Deloitte & Touche had ceased and by letter dated May 17, 1995, notified
the Commission that Deloitte & Touche had read and agreed with the
comments in Item 4 of the Company's Form 8-K. On June 9, 1995, the
Company engaged KPMG Peat Marwick LLP as its principal accountant to
audit the Company's financial statements.
PART III
Item 10. Directors and Executive Officers of the Registrant
- --------------------------------------------------------------
Directors and Executive Officers of the Company as of March 10, 1997(1),
their ages and their present titles:
Name Age Position
---- --- --------
Gerald R. Alderson 50 Director
Charles Christenson 66 Director
Angus M. Duthie 57 Chairman of the Board of Directors
Mark D. Lerdal 38 Director, Chief Executive Officer and President
Michael U. Alvarez 40 Vice President
James J. Eisen 41 General Counsel, Vice President
and Assistant Secretary
Michael A. Haas 33 Vice President
Nicholas H. Politan 35 Chief Financial Officer, Vice President and
Assistant Secretary
Mervin E. Werth 50 Controller, Chief Accounting Officer and
Assistant Treasurer
(1) Howard W. Pifer III resigned from the Board of Directors effective February
21, 1997. Steven A. Kern is President of KENETECH Windpower, Inc.
BIOGRAPHICAL INFORMATION
KENETECH Corporation, a Delaware corporation, was formed in 1986 as a
holding company of KENETECH Windpower, Inc. (formerly, U.S. Windpower,
Inc.). References to KENETECH are, prior to 1986, references to KENETECH
Windpower, Inc.
GERALD R. ALDERSON is the President of National Kilowatt and has served as
a Director of KENETECH since September 1983 and served as Chairman of the
Board from March 16, 1995 until March 27, 1996. He served as KENETECH's
President and Chief Executive Officer from August 1981 until October 1995
and December 1995, respectively. He received his B.A. from Occidental
College and his M.B.A. from the Harvard University Graduate School of
Business Administration. He is a Class I Director with his term expiring at
the 1997 Annual Meeting of Stockholders.
CHARLES CHRISTENSON is the Royal Little Professor of Business
Administration, Emeritus, at the Harvard University Graduate School of
Business Administration and has served as a Director of KENETECH since
January 1980. In the past, he was Deputy for Management Systems in the
Office of the Assistant Secretary of the Air Force, and held a variety of
teaching and administrative positions at the Harvard University Graduate
School of Business Administration. He received his B.S. from Cornell
University and his M.B.A. and D.B.A. from Harvard University. He is a Class
III Director with his term expiring at the 1999 Annual Meeting of
Stockholders.
ANGUS M. DUTHIE is a general partner of Prince Ventures and has served as a
Director of KENETECH since December 1980. He was elected as Chairman of the
Board of KENETECH on March 27, 1996. Prince Ventures manages various
capital funds, in all of which F.H. Prince & Co., Inc. is a significant
investor. F.H. Prince & Co., Inc. is a privately held corporation with
business interests in real estate, as well as investments, both private and
public. Mr. Duthie is also a director of Occupational Health and
Rehabilitation, Inc., a publicly held company. Mr. Duthie holds a B.A. from
Miami University (Ohio). He is a Class III Director with his term expiring
at the 1999 Annual Meeting of Stockholders.
<PAGE>
MARK D. LERDAL was elected as a Director of KENETECH on March 27, 1996 and
as Chief Executive Officer and President on April 1, 1996. He served as
Vice President and General Counsel of KENETECH from April 1992 until March
1996. From April 1990 to March 1992 he served as Vice President and Counsel
of KENETECH Energy Systems, Inc. He received his A.B. from Stanford
University and his J.D. from Northwestern University School of Law. He is a
Class III Director with his term expiring at the 1999 Annual Meeting of
Stockholders.
MICHAEL U. ALVAREZ has served as Vice President of KENETECH since July
1994. He has served as President of KENETECH Energy Systems, Inc. since
December 1993 and served as its Vice President from September 1991 until
his election as President. Prior to joining KENETECH Energy Systems, Inc.,
he was a partner at the law firm of Thelen, Marrin, Johnson & Bridges. He
received his B.A. and J.D. from the University of Virginia.
JAMES J. EISEN was elected Vice President and General Counsel of KENETECH
and Vice President of KENETECH Windpower, Inc. on April 12, 1996. He has
served as General Counsel of KENETECH Windpower, Inc. since April 1991 and
served as Counsel from 1986 to 1991. He received two Bachelor of Science
degrees from the Massachusetts Institute of Technology and his J.D. from
New York University School of Law.
MICHAEL A. HAAS was elected Vice President of KENETECH on April 12, 1996
and President of KENETECH International Ltd. on August 8, 1996. He served
as Managing Director for KENETECH International Ltd. from May 1994 to
August 1996 and as Director of International Projects for KENETECH from
June 1993 to May 1994. Prior to June 1993, he served in various management
positions with KENETECH Windpower, Inc., including Manager of Engineering,
Director of 56-100 Engineering and Maintenance, and General Manager 56-100
Division. He received his B.S. in Aerospace Engineering from the University
of Missouri-Rolla and his M.S. in Aeronautical Engineering from Stanford
University.
STEVEN A. KERN was elected President of KENETECH Windpower on April 12,
1996. He served as Senior Vice President of KENETECH Windpower from July
1994 to April 1996 and as Vice President of Operations and Maintenance from
1993 to July 1994. He served as President of KENETECH Facilities
Management, Inc. from January 1995 to August 1996. Prior to joining
KENETECH Windpower, he was General Manager of ALCOA Composites. He received
his B.S. from Alfred University College of Ceramics.
NICHOLAS H. POLITAN was elected Vice President and Chief Financial Officer
of KENETECH on April 12, 1996. He has served as Vice President of KENETECH
Energy Systems, Inc. since March 1995 and as Vice President and Chief
Financial Officer of KENETECH Windpower, Inc. from August 1995 and April
1996, respectively. From September 1992 until March 1995 he served as
Counsel for KENETECH Energy Systems, Inc. Prior to joining KENETECH Energy
Systems, Inc., he was an associate at Heller, Ehrman, White & McAuliffe. He
received his B.A. from Duke University and his J.D. from Stanford Law
School.
MERVIN E. WERTH has served as Controller of KENETECH since August 21, 1991.
In the past, he was a Senior Manager for Deloitte & Touche LLP and
Treasurer of Friends of Photography. He received his B.S. from University
of California, Berkeley.
Each officer is generally elected to hold office until the next Annual
Meeting of the Company's Board of Directors.
Each of Gerald R. Alderson and Mark D. Lerdal were directors of and Gerald
R. Alderson, Mark D. Lerdal, Michael U. Alvarez, Steven A. Kern, and
Nicholas H. Politan were executive officers of KENETECH Windpower, Inc.
within the two-year period prior to KENETECH Windpower, Inc.'s chapter 11
filing in the United States Bankruptcy Court.
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 and regulations of the
Securities and Exchange Commission thereunder require the Company's
executive officers and directors and persons who own more than ten percent
of the Company's stock, as well as certain affiliates of such persons, to
file initial reports of ownership and changes in ownership with the
Securities and Exchange Commission and the National Association of
Securities Dealers. Executive officers, directors and persons owning more
than ten percent of the Company's stock are required by the Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on its review of the copies of
Forms 3, 4 and 5 and amendments thereto received by the Company and written
representations that no other reports were required for those persons, the
Company believes that, during the fiscal year ended December 31, 1996, all
filing requirements applicable to its executive officers, directors and
owners of more than ten percent of the Company's stock were complied with;
except that: (i) Joel M. Canino filed one late report covering one
transaction, (ii) Michael A. Haas filed one late report covering two
transactions, and (iii) James J. Eisen filed one late report covering one
transaction. Each of the late reports was filed before the end of the month
in which such report was due.
Item 11. Executive Compensation
- ----------------------------------
Each Director receives an annual retainer of $18,000 plus a $500 fee for
each board meeting attended. In addition, each Director who serves on
either of the Audit Committee or the Compensation Committee receives a
meeting fee of $500 for attending any meeting of such Committees not held
in conjunction with a meeting of the Board of Directors. (see also footnote
4 to Summary Compensation Table).
Under the Automatic Option Grant Program of the Company, each person who
was a director at the time of the Company's initial public offering
received at the commencement of such offering, and each new Director
thereafter received at the time he or she became a director, an automatic
option to purchase 5,000 shares of Common Stock at 100% of the fair market
value on the date of grant. In addition, at each annual stockholders'
meeting in 1994 and 1995, each person who had been a director for at least
six months was granted an option to purchase 1,000 shares of Common Stock.
The Automatic Option Grant Program has been discontinued and the Directors
did not receive any option grants in 1996. Mr. Lerdal declined the
automatic option grant of 5,000 shares at the time he became a director.
See "Stock Plans" below.
The following table sets forth, for the fiscal years ended December 31,
1996, 1995 and 1994, all compensation, for services rendered in all
capacities to KENETECH and its subsidiaries (except as otherwise noted),
awarded to, earned by or paid to (i) all individuals serving as Chief
Executive Officer during 1996, (ii) the four most highly compensated
executive officers of the Company in addition to the Chief Executive
Officer who were serving as executive officers at the end of 1996, and
(iii) the two former executive officers of the Company for whom disclosure
would have been provided but for the fact that such individuals were not
serving as executive officers at the end of 1996. The table excludes
compensation paid by KENETECH Windpower, Inc. after May 29, 1996 (the date
it ceased to be accounted for as a consolidated subsidiary). (1)
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
================= ======================================== ============ ========
Long-Term All
Name and Compensation Other
Principal Awards Compensation
Position Annual Compensation ($)
------- -------- --------- ----------- --------- -----------
Other Securities (4)
($) ($) Annual Underlying
Compensation Options
Year Salary Bonus ($) (2) (#) (3)
================== ------- -------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Saunders 1996 $150,000 - - - -
Chief Executive 1995 $150,000 - - - -
Officer 1994 - - - - -
(until April 1,
1996)
================== ------- -------- ---------- ---------- ---------- -----------
Mark D. Lerdal 1996 $387,762 $300,000 $21,500 500,000 $1,152
Chief Executive 1995 $202,432 $20,000 - - -
Officer, 1994 $183,076 - - - -
President and
Director
================== ------- -------- ---------- ---------- ---------- -----------
Michael U. Alvarez 1996 $380,152 $200,000 - 250,000 $1,388
Vice President 1995 $225,729 $170,000 - - -
1994 $209,412 $20,000 - - -
================== ------- -------- ---------- ---------- ---------- -----------
James J. Eisen 1996 $144,395 $31,000(5) - 250,000 -
General Counsel 1995 $105,572 $20,772 - - -
Vice President and 1994 $101,050 - - - -
Assistant Secretary
================== ------- -------- ---------- ---------- ---------- -----------
Nicholas H. Politan 1996 $178,261 $214,240 - 250,000 -
Chief Financial 1995 $125,488 - - - -
Officer, 1994 $104,247 $30,000 - - -
Vice President and
Assistant Secretary
================== ------- -------- ---------- ---------- ---------- -----------
Mervin E. Werth 1996 $125,405 $125,000 - - -
Controller, Chief 1995 $125,405 $9,375 - - -
Accounting Officer 1994 $112,854 - - - -
and Assistant
Treasurer
================== ------- -------- ---------- ---------- ---------- -----------
Gerald R. Alderson 1996 $125,552 - $29,500 - $965,000
Non-Executive 1995 $519,226 $50,000 $22,500 1,000 -
Chairman 1994 $450,881 - $22,000 1,000 -
(until April 1,
1996)
================== ------- -------- ---------- ----------- --------- -----------
Joel M. Canino 1996 $453,929 $123,958(6) - - $429,000
Chief Executive 1995 $350,877 $175,000(6) - - -
Officer 1994 $350,877 $175,000(6) $58,238 - -
CNF Industries
(until
September 15, 1996)
================== ======= ======== ========== ========== ========== ===========
<PAGE>
(1) If compensation paid by KENETECH Windpower, Inc. after May 29, 1996 was not
excluded, the table would have included (i) Steven A. Kern with total
compensation of $387,989 (consisting of $168,924 in salary, $66,000 in
bonus and $3,440 in insurance premiums paid by KENETECH and $215,625 in
salary paid by KENETECH Windpower, Inc.), and (ii) Michael A. Haas with
total compensation of $593,143 (consisting of $93,780 in salary and $59,100
in bonus paid by KENETECH and $33,441 in salary and $406,823 in bonus paid
by KENETECH Windpower, Inc. from gross proceeds of certain asset sales
occurring in 1996).
(2) Includes $21,500 in 1996 for director's fees for Mark D. Lerdal; $29,500,
$22,500 and $22,000 in 1996, 1995 and 1994, respectively, for director's
fees for Gerald R. Alderson; and $23,238 in relocation expenses and $35,000
in housing differential for Joel M. Canino in 1994.
(3) Shares of Common Stock subject to stock options granted during the fiscal
year. No stock appreciation rights were granted during 1996, 1995 or 1994.
(4) Includes for 1996 insurance premiums of $1,152 and $1,388 paid by the
Company with respect to life insurance for the benefit of Mark D. Lerdal
and Michael U. Alvarez, respectively, and severance payments totaling
$965,000 for Gerald R. Alderson and $429,000 for Joel M. Canino. All of the
defendant officers and directors and KENETECH Corporation are jointly
represented by the same counsel in the securities class action described in
Item 3 to this 10-K. A portion of such counsel's legal fees has been paid
by the Company, however, such fees have not been apportioned among the
individual defendants.
(5) In addition, Mr. Eisen was paid a bonus of $50,999 by KENETECH Windpower,
Inc. from gross proceeds of certain asset sales occurring in 1996.
(6) Joel M. Canino was paid a guaranteed bonus pursuant to his employment
contract. He received a pro-rata portion of his bonus for the 1996 fiscal
year.
</TABLE>
The following table sets forth all options awarded to the Chief
Executive Officer and the named executive officers of the Company
during the fiscal year ended December 31, 1996 (excluding KENETECH
Windpower, Inc. after May 29, 1996) (1). No stock appreciation rights
were granted during 1996.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
======================================================== =======================
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Individual Grants Appreciation for
Option Term (2)
------------------------------------------------------- -----------------------
Number % of
of Total
Underlying Options Exercise
Name Securities Granted Price Expiration 5% ($) 10% ($)
Underlying to ($) Date
Options Employees
Granted in Fiscal
(#) Year
============ ---------- --------- --------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard D. - - - - - -
Saunders
============ ------- ---------- --------- --------- ------------- -----------
Mark D. 500,000(3) 29% $0.8125 April 12, - -
Lerdal 2006
============ ------- ---------- --------- --------- ------------- -----------
Michael U. 250,000(3) 14% $0.8125 April 12, - -
Alvarez 2006
============ ------- ---------- --------- --------- ------------- -----------
James J. 250,000(3) 14% $0.8125 April 12, - -
Eisen 2006
============ ------- ---------- --------- --------- ------------- -----------
Nicholas H. 250,000(3) 14% $0.8125 April 12, - -
Politan 2006
============ ------- ---------- --------- --------- ------------- -----------
<PAGE>
(1) Steven A. Kern and Michael A. Haas were each granted options for 250,000
shares of common stock on the same terms as the named executive officers.
(2) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants made to the executive officers.
(3) All of such options vest on April 12, 2002, except that such vesting may be
accelerated on the following basis: 50% shall vest if and when the fair
market value of the shares underlying such options equals or exceeds $2.00
per share, and the other 50% shall vest if and when the fair market value
of the shares underlying such options equals or exceeds $3.00 per share.
</TABLE>
The following table sets forth information concerning option exercises
and option holdings for the fiscal year ended December 31, 1996, with
respect to the Chief Executive Officer and the named executive officers
of the Company (excluding KENETECH Windpower, Inc. after May 29, 1996)
(1). No stock appreciation rights were outstanding during such fiscal
year.
<TABLE>
<CAPTION>
AGGREGATED
OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
================ --------- -------- ---------------------- ===================
Number of
Securities
Underlying
Shares Unexercised Value of
Acquired Value Options at Unexercised
Name on Realized Fiscal Year-End In-the-Money
Exercise ($) Exercisable/ Options at Fiscal
(#) Unexercisable Year-End
Exercisable/
Unexercisable
(2)
================ --------- -------- ------ -------------- ===================
<S> <C> <C> <C> <C>
Richard D. Saunders - - -/- -/-
================ --------- -------- ------ --------------- ===================
Mark D. Lerdal - - 21,000/545,000 -/-
================ --------- -------- ------ --------------- ===================
Michael U. Alvarez - - 115,000/295,000 -/-
================ --------- -------- ------ --------------- ===================
James J. Eisen - - -/250,000 -/-
================ --------- -------- ------ --------------- ===================
Nicholas H. Politan - - 1,800/251,200 -/-
================ --------- -------- ------ --------------- ===================
Mervin E. Werth - - 14,960/7,540 -/-
================ --------- -------- ------ --------------- ===================
Gerald R. Alderson - - 292,000/245,000 -/-
================ ========= ======== ====== =============== ===================
Joel M. Canino - - - -/-
================ ========= ======== ====================== ===================
(1) Steven A. Kern held options for 20,600 exercisable and 277,000
unexercisable and Michael A. Haas held options for 12,000 exercisable and
258,000 unexercisable shares at December 31, 1996.
(2) The exercise price of all options exceeds the market price of the
underlying shares at December 31, 1996 ($0.047).
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, Messrs. Christenson, Duthie, Laskow(1), and Pifer, served as
members of the Compensation Committee of the Company. None of the members
of the Compensation Committee have ever been officers or employees of the
Company. Mr. Lerdal and Mr. Saunders may have attended meetings of the
committee, but neither was present during deliberations or discussions
regarding his own compensation.
(1) Mark J. Laskow resigned effective June 3, 1996 from the Board of
Directors.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Messrs. Alvarez, Eisen, Lerdal and Politan are currently under employment
contracts. Messrs. Alderson, Canino and Saunders were formerly under
employment contracts or consulting contracts.
KENETECH Energy Systems, Inc. entered into an Employment Agreement with
Mr. Alvarez on January 1, 1996. Pursuant to the Agreement, Mr. Alvarez
was (i) to be employed by KENETECH Energy Systems, Inc., in his current
capacity for a period of one year at his annual base salary of $350,000
(unless terminated for cause), (ii) eligible to participate in the
executive incentive bonus program, and (iii) eligible to earn an
additional bonus of 100% of his base salary, as well as certain other
bonuses, upon the occurrence of certain stated objectives. In the event
of a Change in Control, Mr. Alvarez was to receive a lump sum payment
equal to his annual base salary. Mr. Alvarez's Employment Agreement was
amended as of December 11, 1996; the amendment provides (i) that Mr.
Alvarez's employment period shall be extended for an additional year,
(ii) that he shall receive a lump sum payment of 100% of his base salary
if he is terminated during the employment period (unless terminated for
cause), (iii) for a letter of credit to be issued in the face amount of
$150,000 as security for a portion of his severance benefits, and (iv)
for a bonus of 100% of his base salary upon the disposition of the
Company's interest in the project being jointly developed in Puerto Rico.
The Company entered into an Employment Agreement with Mr. Eisen on April
12, 1996 that provides that Mr. Eisen will be (i) employed by the Company
at annual base salary of $165,000, and (ii) entitled to receive a lump
sum severance payment equal to his base salary for one year and continue
to be covered by the Company health care and life insurance for one year.
Upon a Change in Control, Mr. Eisen will receive a lump sum payment equal
to one year's base salary.
The Company entered into an Employment Agreement with Mr. Lerdal on April
1, 1996. Mr. Lerdal's initial employment period runs for a period of
three years ending March 31, 1999 and is automatically renewable upon
mutual agreement for an unlimited series of one-year periods. Pursuant to
the terms and conditions of the Agreement, Mr. Lerdal (i) received a
bonus of $100,000 upon execution of the Agreement, (ii) will receive a
minimum annual base salary of $400,000 (subject to yearly adjustment),
(iii) will be eligible to receive an annual bonus of up to 25% of his
base salary, and (iv) will be eligible to earn additional bonuses of up
to $450,000 upon the occurrence of certain stated objectives (the
"Objective Payments"). In the event of Mr. Lerdal's involuntary
termination (other than for cause) including non-renewal of the
employment period, he will receive a severance payment equal to two years
of base salary and any unpaid Objective Payments plus health care and
life insurance coverage for an additional two years. In the event of Mr.
Lerdal's involuntary termination or resignation within six months of a
Change in Control, Mr. Lerdal will receive a lump sum payment equal to
one year's salary in addition to the payments set forth in the
immediately preceding sentence.
The Company entered into an Employment Agreement with Mr. Politan on
April 12, 1996 that provides that Mr. Politan will be (i) employed by the
Company at annual base salary of $175,000, (ii) entitled to receive a
lump sum severance payment equal to his base salary for one year and
continue to be covered by the Company health care and life insurance for
one year, (iii) entitled to receive a bonus in the amount of $75,000 on
December 31, 1996, and (iv) entitled to a bonus of $75,000 upon the
occurrence of certain stated objectives. Upon a Change in Control, Mr.
Politan will receive a lump sum payment equal to one year's base salary
plus all unpaid bonuses.
The Company entered into a Separation Agreement and Mutual Release with
Mr. Alderson on April 9, 1996, that terminated his prior employment
agreement. Pursuant to the terms and conditions of the Separation
Agreement, the Company made two promissory notes in favor of Mr. Alderson
(one in the principal amount of $250,000 and the other in the principal
amount of $715,000) evidencing the obligations of the Company under the
Separation Agreement; each of such notes have been paid in full without
interest. Mr. Alderson continues to be covered under the Company's group
life insurance plan, group medical plan, accidental death and
dismemberment plan and short-term disability plan until April 1, 1998.
The Company and CNF Industries, Inc. entered into a Separation Agreement
and Mutual Release with Mr. Canino on October 7, 1996, as amended as of
October 28, 1996, that terminated his prior employment agreement.
Pursuant to the terms and conditions of the Separation Agreement, Mr.
Canino received (i) a single lump sum payment of $429,000, (ii)
accelerated vesting of certain restricted stock, (iii) health coverage
until the earlier of June 30, 1999 or the first date that Mr. Canino is
covered under another employer's health plan and (iv) certain other
consideration.
The Company entered into an agreement with GGG Inc., dated November 1,
1995, with respect to Richard D. Saunders which provided that GGG Inc.
would be paid $50,000 per month for the services of Mr. Saunders as
President and Chief Executive Officer. The Agreement was terminated April
1, 1996. The Company and GGG Inc. entered into a new agreement, dated April
2, 1996, which provided that GGG Inc. would be paid $50,000 per month for
the services of Mr. Saunders as a consultant to the Company.
STOCK PLANS
The 1993 Option Plan and the 1993 Stock Purchase Plan (the "Purchase
Plan") were implemented in September 1993. The Purchase Plan was
discontinued following the August 1996 semi-annual purchase date.
The Company has registered shares of Common Stock reserved for issuance
under the 1993 Option Plan and the 1993 Stock Purchase Plan, thus
permitting the resale of such shares by non-affiliates in the public
market without restriction under the Securities Act of 1933.
The 1993 Option Plan
Under the 1993 Option Plan, key employees (including officers),
consultants to the Company and directors are provided an opportunity to
acquire equity interests in the Company. The 1993 Option Plan contains
three separate components: (i) a Discretionary Option Grant Program,
under which key employees (including officers) and consultants may be
granted options to purchase shares of Common Stock at an exercise price
not less than 85% of the fair market value of such shares on the grant
date; (ii) an Automatic Option Grant Program, under which option grants
will automatically be made at periodic intervals to directors to purchase
shares of Common Stock at an exercise price equal to 100% of the fair
market value of the option shares on the grant date (this part of the
plan has been discontinued); and (iii) a Stock Issuance Program, under
which eligible individuals may be issued shares of Common Stock directly,
either through the immediate purchase of the shares (at fair market value
or at discounts of up to 15%) or as a bonus tied to the performance of
services or the Company's attainment of prescribed milestones. The
options granted under the Discretionary Option Grant Program may be
either incentive stock options designed to meet the requirements of
Section 42 of the Internal Revenue Code of 1986, as amended (the "Code"),
or non-statutory options not intended to satisfy such requirements. All
grants under the Automatic Option Grant Program will be non-statutory
options. Options may be granted or shares issued in the Discretionary
Option Grant and Stock Issuance Programs to eligible individuals in the
employ or service of the Company or any parent or subsidiary corporation
now or subsequently existing.
Under the Automatic Option Grant Program, each person who was a director
at the time of the Company's initial public offering, received at the
commencement of such offering, and each new director thereafter was, at
the time he or she became a director, to receive an automatic option
grant for 5,000 shares of Common Stock. In addition, at each annual
stockholders' meeting, beginning with the 1994 annual meeting, each
person who has been a director for at least six months was to be granted
an option to purchase 1,000 shares of Common Stock. If more than 50% of
the outstanding Common Stock were to be acquired in a hostile tender
offer, each option granted under the Automatic Option Grant Program that
has been outstanding for at least six months will be automatically
converted into the right to receive from the Company the excess of the
tender offer price over the option price.
A total of 6,688,020 shares of Common Stock were originally reserved for
issuance over the ten year term of the 1993 Option Plan.
Options will have maximum terms of ten years measured from the grant
date. Options will not be assignable or transferable other than by will
or by the laws of inheritance following the optionee's death, and the
option may, during the optionee's lifetime, be exercised only by the
optionee. The optionee will not have any stockholder rights with respect
to the option shares until the option is exercised and the option price
is paid for the purchased shares. Individuals holding shares under the
Stock Issuance Program will, however, have full stockholder rights with
respect to those shares, whether the shares are vested or unvested. The
Plan Administrator under the 1993 Option Plan has the authority to cancel
outstanding options under the Discretionary Option Grant Program
(including options incorporated from the Predecessor Plan) in return for
the grant of new options for the same or a different number of shares
with an exercise price based on the lower fair market value of the Common
Stock on the new grant date. The Board of Directors may terminate the
1993 Option Plan at any time, and the 1993 Option Plan will in all events
terminate on June 20, 2003.
All of the Company's employees are eligible to participate in the
Discretionary Grant Program. Non- employee directors are not eligible to
participate in the Discretionary Option Grant and Stock Issuance
Programs.
If the Company is acquired by merger, consolidation or asset sale, or
there is a hostile change in control of the Company, each option granted
under the Discretionary Option Grant Program will automatically
accelerate in full, and all unvested shares under the Stock Issuance
Program will immediately vest.
The Purchase Plan
The Purchase Plan was discontinued following the August 1996 semi-annual
purchase date. Prior to discontinuation of the Purchase Plan, each
full-time employee who was customarily employed by the Company or any
participating subsidiary corporation on a basis requiring more than 20
hours of service per week for more than five months per calendar year
was, upon completion of 90 days of employment, eligible to participate in
the Purchase Plan for one or more offering periods. The Purchase Plan is
intended to be an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
The Purchase Plan was to be implemented in a series of successive
offering periods, each with a maximum duration of twenty-four (24)
months. At the time that an employee becomes eligible to participate in
the Purchase Plan, he or she was to be granted a right to acquire shares
of Common Stock at semi-annual intervals over the remainder of the
offering period then in effect. The purchase dates occurred on the last
business day of February and August each year, and all payroll deductions
collected from the participants for the period ending with each such
semi-annual purchase date were automatically applied to the purchase of
Common Stock.
The purchase price per share for any offering period was to be 85% of the
lower of (i) the fair market value of the Common Stock on the start date
of the offering period (or, if a participant joined the Purchase Plan
after the start date of an offering period, on the date of the
participant's entry into the Purchase Plan, provided that such amount is
not less than the fair market value of the Common Stock on the start date
of the offering period), and (ii) the fair market value on the
semi-annual purchase date. The fair market value of the Common Stock on
any relevant date under the Purchase Plan was to be the closing selling
price of the Common Stock on the date in question, as quoted on The
Nasdaq National Market.
No participant could purchase more than $25,000 worth of Common Stock
(based on the fair market value of the Common Stock on the start date of
the offering period (or the participant's entry into the Purchase Plan,
if later)) for each calendar year the participant's purchase right
remains outstanding. In addition, no participant could purchase more than
2,000 shares of Common Stock in any semi-annual period.
The Board of Directors may amend or terminate the Purchase Plan
immediately after the close of any semi-annual period of participation,
and the Purchase Plan will in all events terminate on the last business
day of February 2003.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Restated Certificate of Incorporation limits, to the
maximum extent permitted by Delaware law, the personal liability of
directors for monetary damages for breach of their fiduciary duties as a
director. Delaware law does not permit a corporation to eliminate a
director's duty of care, nor does it permit elimination of liability for
monetary damages for breach of a director's duty of loyalty. Further, the
provisions of the Company's Restated Certificate of Incorporation have no
effect on the availability of equitable remedies such as injunction or
recession or monetary damages for a breach of a director's duty of care.
Moreover, non-monetary equitable remedies may not provide effective
protection due to factors such as procedural limitations on obtaining
such relief and the timeliness of any such sought relief. The Company's
Restated Bylaws provide that the Company shall indemnify its officers and
directors and may indemnify its employees and other agents to the fullest
extent permitted by law. Some current and former Directors and Officers
of the Company have entered into employment agreements or severance
agreements that provide that the indemnification provisions for directors
and officers under the Company's Restated Bylaws (to the maximum extent
permitted by law) and/or insurance coverage will be extended to such
Director or Officer following termination of his or her employment with
respect to matters occurring during his or her employment period.
In December 1995, the Company entered into indemnification agreements
with certain of its Directors and Officers whereby the Company agreed to
indemnify such Directors and Officers, subject to the exceptions set
forth therein, to the fullest extent permitted by the Delaware General
Corporation Law and the Restated Bylaws of the Company and against
expenses incurred by such Directors or Officers in connection with any
liability which he or she may incur in his or her capacity as such.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify a director, officer, employee or agent made a
party to an action by reason of the fact that he was director, officer,
employee or agent of the corporation or was serving at the request of the
corporation against expenses actually and reasonably incurred by him in
connection with such action, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of
the corporation and, with respect to any criminal action, had no
reasonable cause to believe was unlawful.
Insofar as the liability of directors for monetary damages for breach of
fiduciary duty of care under state law may be limited as aforesaid, such
limitations do not apply to liabilities of directors under federal
securities laws.
Insofar as the Company's Restated Certificate of Incorporation or
Restated Bylaws provide for indemnification of directors, officers and
persons controlling the Company against certain liabilities as aforesaid,
it is the opinion of the staff of the SEC that such indemnification is
against public policy as applied to liabilities under federal securities
laws and is therefore unenforceable. In accordance with such position of
the staff, no indemnification is available to directors, officers or
controlling persons for liabilities under federal securities laws.
The Company provides directors and officers liability insurance and
reimbursement insurance policies for its Officers and Directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------
The following table sets forth certain information to the knowledge of
the Company regarding the beneficial ownership of the Company's Common
Stock and PRIDES as of March 10, 1997(1) for (i) each person known to the
Company beneficially to own 5% or more of the outstanding shares of its
Common Stock or PRIDES, (ii) each of the Company's directors and the
named executive officers, and (iii) all directors and executive officers
as a group. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock and PRIDES listed below, based on
information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws
where applicable.
<PAGE>
<TABLE>
<CAPTION>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
================== --------------- ----------------- =================
Beneficial Owners
(Directors, Named
Executive Number of Shares
Officers, 5% or of Number of Shares of
more Stockholders Common Stock PRIDES Beneficially Percentage of
and all Directors Beneficially Owned Shares
and Executive Owned(2) Outstanding
Officers as a
Group)
================== --------------- ----------------- =================
<S> <C> <C> <C>
Affiliates of The 12,864,879(3) - 34.93%
Hillman Company
824 Market Street,
Suite 900
Wilmington, Delaware
================== --------------- ----------------- =================
Grace Brothers Ltd. 3,128,825(4) 5,000 8.5% Common
1560 Sherman Avenue 4.9% PRIDES
Suite 900
Evanston, IL 60201
================== --------------- ----------------- =================
F.H. Prince & Co., Inc. 1,832,695 - 4.9%
10 South Wacker Drive
Chicago, Illinois 60606
================== --------------- ----------------- =================
Gerald R. Alderson 292,000 - *(5)
================== --------------- ----------------- =================
Charles Christenson 67,000 - *
================== --------------- ----------------- =================
Angus M. Duthie 59,720 - *
================== --------------- ----------------- =================
Mark D. Lerdal 21,000 - *
================== --------------- ----------------- =================
Richard D. Saunders 20,000 - *
================== --------------- ----------------- =================
Michael U. Alvarez 116,441 - *
================== --------------- ----------------- =================
James J. Eisen - - *
================== --------------- ----------------- =================
Nicholas H. Politn 1,800 - *
================== --------------- ----------------- =================
Mervin E. Werth 24,845 - *
================== --------------- ----------------- =================
Joel M. Canino 90,000(6) - *
================== =============== ================= =================
All Directors and 740,267 70 2%
Executive Officers
as a Group (12
persons, including
those listed above)
================== =============== ================= =================
(1) Information for beneficial owners of 5% or more of the Company's Common
Stock or PRIDES is reported from and as of the date of such owner's
Schedule 13G provided to the Company.
(2) Except as otherwise specifically noted, the number of shares stated as
being owned beneficially includes (a) all options under which persons could
acquire common stock currently and within 60 days following March 10, 1997
(i.e., Gerald R. Alderson (292,000 shares), Charles Christenson (47,000
shares), Angus M. Duthie (47,000 shares), Mark D. Lerdal (21,000 shares),
Michael U. Alvarez (115,000 shares), Nicholas H. Politan (1,800 shares),
Mervin E. Werth (18,300 shares) and all directors and officers as a group
(564,800 shares)), and 2,916 shares obtainable upon conversion of 70 shares
of the Company's 8 1/4% Preferred Redeemable Increased Dividend Equity
Securities and (b) shares believed by the Company to be held beneficially
by spouses, minor children and grandchildren. The inclusion of shares
herein, however, does not constitute an admission that the persons named as
stockholders are direct or indirect beneficial owners of such shares.
(3) According to a Statement on Schedule 13G dated February 12, 1997, includes
12,368,940 shares owned by HCC Investments, Inc. ("HCC"), 12,131 shares
owned by Hillman Properties West, Inc. ("HPW"), 403,000 shares owned by
Hillman 1984 Limited Partnership ("H84LP") and 80,808 shares owned by the
HLH Trust (as described below). HCC and HPW (the sole general partner of
H84LP) are private investment companies owned by The Hillman Company, a
firm engaged in diversified investments and operations which is controlled
by a trust for the benefit of Henry L. Hillman (the "HLH Trust"). The
Trustees of the HLH Trust are Henry L. Hillman, Elsie Hilliard Hillman and
C.G. Grenfenstette (the "HLH Trustees"). The HLH Trustees share voting and
investment power with respect to the shares held of record by HCC and
H84LP.
(4) According to a Statement on Schedule 13G filed with the Commission on
February 7, 1997, includes 208,325 shares obtainable upon conversion of
5,000 shares of the Company's 8 1/4% Preferred Redeemable Increased
Dividend Equity Securities at the conversion rate of 41.665 shares of
Common Stock per share. According to a Statement on Schedule 13G filed with
the Commission on February 7, 1997, Grace Brothers Ltd. is an Illinois
limited partnership that is a Broker or Dealer registered under Section 15
of the Securities Exchange Act of 1934.
(5) Does not exceed one percent of the class so owned.
(6) To the Company's knowledge, Joel M. Canino is the holder of record of
90,000 shares of Common Stock based on information supplied by the transfer
agent of the Company's stock.
</TABLE>
REGISTRATION RIGHTS
The beneficial holders (or their transferees) of approximately 14,000,000
shares of Common Stock, are entitled to certain rights with respect to
the registration of such shares under the Securities Act of 1933 (the
"Securities Act"). Under the terms of the Registration Rights Agreements
dated as of June 28, 1985 (the "Registration Rights Agreement"), between
the Company and such holders, if the Company proposes to register any of
its securities under the Securities Act, either for its own account or
the account of other security holders exercising registration rights,
such holders are entitled to notice of such registration and are entitled
to include shares of such Common Stock therein; provided, among other
conditions, that the underwriters of any offering have the right to limit
the number of shares included in such registration. In addition, for a
period of eight years after September 21, 1993, the date of the Company's
initial public offering of its Common Stock, a holder or holders of an
aggregate of 40% or more of the shares subject to such registration
rights may require the Company on not more than six occasions to file a
registration statement under the Securities Act with respect to their
shares of Common Stock.
Additionally, parties to the Stock Purchase Agreement dated as of June
30, 1992, and the Note Purchase Agreement dated as of June 25, 1992 (the
"Notes"), are entitled to notice of any registration of Common Stock
proposed by the Company, either for its own account or the account of
other security holders exercising registration rights, and, are entitled
to include shares of the Common Stock which they own by virtue of the
conversion of the preferred stock and/or Notes obtained pursuant to such
agreements, subject to (i) the underwriters' limitations, and (ii) in the
case of a secondary offering on behalf of holders of registration rights
pursuant to the Registration Rights Agreement, the consent of the holders
of such rights. The parties to such agreements are also given the right
to require the Company to register their shares of Common Stock, but may
exercise such right not more than once every two years.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
An Irrevocable Standby Letter of Credit in the face amount of $600,000, was
issued by the Company in favor of Mark D. Lerdal, as beneficiary, with an
expiration of April 1, 1999, as security for a portion of the severance
benefits provided in Mr. Lerdal's Employment Agreement.
An Irrevocable Standby Letter of Credit in the face amount of $150,000, was
issued by KENETECH Energy Systems, Inc. to Michael U. Alvarez, as
beneficiary, with an expiration of December 31, 1997, as security for a
portion of the severance benefits provided in Mr. Alvarez's Employment
Agreement.
GGG Inc. was paid $50,000 per month for the services of Richard D. Saunders
as President and Chief Executive Officer of the Company.
KWI has entered into certain Asset Sale Compensation Agreements with each
of James J. Eisen, and Nicholas H. Politan and KWI and KENETECH Ltd.
("KIL") have entered into a certain Asset Sale Compensation Agreement with
Michael A. Haas pursuant to which such executive officers of the Company
have or will receive a percentage ranging from 0.5% to 3% of the gross
proceeds derived from the disposition of certain specified assets of KWI or
KIL (see footnotes to the Summary Compensation Table for amounts earned in
1996).
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) (1)FINANCIAL STATEMENTS
KENETECH Corporation:
The consolidated financial statements of KENETECH Corporation are
included in Part II, Item 8 as follows:
KENETECH Corporation Consolidated Financial Statements Page
------------------------------------------------------ ----
Independent Auditors' Reports 19-20
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 21
Consolidated Balance Sheets, December 31, 1996 and 1995 22
Consolidated Statements of Stockholders' Equity (Deficiency)
for the years ended December 31, 1996, 1995 and 1994 23
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 24
Notes to Consolidated Financial Statements 25-45
KENETECH Corporation Financial Statement Schedules
--------------------------------------------------
I. Condensed Financial Information of Registrant for the
years ended December 31, 1996, 1995 and 1994 64
II. Valuation and Qualifying Accounts for the years ended
December 31, 1996, 1995 and 1994 65
Financial statements and supplemental schedules not included have been
omitted because of the absence of conditions under which they are
required or because the information is included elsewhere in this report.
<PAGE>
(a) (2) Exhibits - All of the Exhibits (except 3.2 and 10.40-10.49) listed
below were previously filed with Registration Statements or Reports on
Form 10-K of KENETECH Corporation as specified below.
Number Description
3.1(3) Restated Certificate of Incorporation of KENETECH Corporation
("KENETECH").
3.2 Restated Bylaws of KENETECH, as amended November 16, 1995 and February 27,
1997.
10 MATERIAL CONTRACTS
FINANCING AGREEMENTS AND RELATED DOCUMENTS
10.1(4) Third Amended and Restated Line of Credit and Security Agreement dated
as of March 31, 1994, among KENETECH, CNF Industries, Inc., Process
Construction Supply, Inc., CNF Construction, Inc., KENETECH Windpower, Inc.
and Shawmut Bank Connecticut, N.A.
10.2(5) Indenture dated as of December 28, 1992, between Meridian Trust Company
of California, as Trustee, and KENETECH Corporation.
10.3(7) Indenture of Trust and Security Agreement dated as of February 13, 1992,
between Meridian Trust Company of California, as Trustee, and KENETECH
Windpower, Inc. ("Windpower") (formerly U.S. Windpower, Inc.).
10.4(4) First Supplemental Indenture of Trust and Security Agreement dated as of
June 15, 1993, between Meridian Trust Company of California, as Trustee,
and KENETECH Windpower, Inc.
10.5(7) Term Loan Agreement dated as of October 31, 1991, among KEM Partners
1991, L.P., Banque Paribas, as a bank and agent, and certain other banks
named therein.
10.6(4) Amended and Restated Term Loan Agreement dated June 7, 1993, between KC
One Company and U.S. West Financial Services, Inc. (which restates the Term
Loan Agreement dated as of November 20, 1992).
POWER SALES AGREEMENTS
10.7(7) Pacific Gas & Electric Co. ("PG&E") Standard Offer #4 Power Purchase
Agreement (PG&E Log No. 01W004) dated March 5, 1984, between PG&E and
KENETECH Windpower, Inc. relating to a 110,0000 kW facility, filed as an
exemplar pursuant to Instruction 2 to Item 601 of Regulation S-K.
10.8(7) Electricity Purchase Agreement dated as of April 10, 1987, between
CCF-1, Inc. and The Connecticut Light and Power Company, amended and
restated as of March 3, 1987.
10.9(7) Power Sale Agreement dated April 13, 1987, between Commonwealth Electric
Company and Pepperell Power Associates Limited Partnership.
10.10(7) Agreement (Power Purchase) dated September 30, 1988, between New York
State Electric & Gas Corporation and Northern Energy Group, Inc. ("NEG"),
as amended by Amendment No. 1 and Amendment No. 2, each dated September 30,
1988, and Amendment No. 3 approved July 27, 1989, as assigned by NEG and
Chateaugay Energy Limited Partnership to KES Chateaugay, L.P., pursuant to
an Assignment and Assumption of Power Purchase Agreement dated as of July
1, 1991.
10.11(7) Power Purchase Agreement dated as of April 29, 1992, between KENETECH
Windpower, Inc. and NV Energiebedrjf voor Groningen en Drenthe.
10.12(5) Power Purchase Agreement dated as of June 23, 1993, among The
Narragansett Electric Company, Massachusetts Electric Company and Granite
State Electric Company (all of which are wholly-owned subsidiaries of New
England Electric System).
10.13(3) Power Purchase Agreement dated November 18, 1993, between Lower
Colorado River Authority and KENETECH Windpower, Inc.
10.14(3) Power Purchase Agreement dated as of April 2, 1993, between KENETECH
Windpower, Inc. and TransAlta Utilities Corporation.
10.15(7) Power Savings Agreement dated as of September 28, 1990, between
KENETECH Energy Management, Inc. ("KEM") (previously Econoler/USA, Inc.)
and Orange and Rockland Utilities, Inc., filed as an exemplar pursuant to
Item 2 of Section 601 of Regulation S-K.
10.16(3) Electricity Purchase Agreement dated December 13, 1993, between
KENETECH Ltd. and Hydro-Quebec (Site No. 1).
10.17(7) Form of Energy Service Agreement between KEM and the Host Customer.
10.18(3) Restatement of the Project Agreement dated January 29, 1993, between
USW and the Sacramento Municipal Utility District.
DEVELOPMENT AGREEMENTS
10.19(6) Mutual Services and Financing Agreement dated April 28, 1989, between
PG&E, Electric Power Research Institute, Inc. and KENETECH Windpower, Inc.
and Sponsor Accession Agreement dated April 28, 1989, among PG&E, EPRI,
KENETECH Windpower, Inc. and Niagara Mohawk Power Corporation.
10.20(7) Demonstration Agreement dated as of October 1, 1991, between Her
Majesty the Queen in Right of Alberta and KENETECH Windpower, Inc.
10.21(6) Wind Energy Facility Sales Agreement made as of June 29, 1992, among
Krimenergo, Ukrenerguresuorsy, PHB Ukraine Ltd. and KENETECH Windpower,
Inc.
10.22(3) Development Agreement dated as of February 7, 1994, between KENETECH
Windpower, Inc. and Sacramento Municipal Utility District.
10.23(3) Development Agreement dated as of February 14, 1994, among Puget Sound
Power & Light Company, PacifiCorp, Portland General Electric Company and
KENETECH Windpower, Inc.
10.24(3) Joint Development Agreement dated as of June 21, 1993, among Central
Power Limited, The Wing-Merrill Group, Ltd., and KENETECH Windpower, Inc.
10.25(2) Development Agreement dated as of March 7, 1994, between PacifiCorp and
KENETECH Windpower, Inc.
OTHER AGREEMENTS
10.26(7) Seaboard Surety Company Contractor's General Agreement of Indemnity
dated November 15, 1989, among KENETECH, CNF Constructors, and C.N. Flagg &
Co., Incorporated.
10.27(4) Stock Purchase Agreement dated as of June 30, 1993, among KENETECH,
Weiss, Peck & Greer ("WP&G") and certain affiliates of WP&G.
10.28(1) $75,000,000 Credit Agreement among KENETECH Windpower, Inc.,
(Borrower), Morgan Guaranty Trust Company of New York (Administrative
Agent, Issuing Bank and Lender, ABN AMRO Bank N.V. San Francisco
International Branch (Collateral Agent and Lender) and The Bank of Nova
Scotia, Sanwa Bank California, Shawmut Bank Connecticut, N.A., Banque
Nationale de Paris, Banco Central Hispanoamericano, S.A., and San Francisco
Agency (Lenders) dated as of September 30, 1994.
10.29(8) Wind Operated Electricity Generator Purchase Order - Order No: 1
between KENETECH Windpower, Inc. and ABAN Loyd Chiles Offshore Ltd. dated
November 11, 1994.
10.30(8) Wind Operated Electricity Generator Purchase Order - Order No: 2
between KENETECH Windpower, Inc. and ABAN Loyd Chiles Offshore Ltd. dated
December 22, 1994.
10.31(8) Amendment to Purchase Order dated December 15, 1994 between KENETECH
Windpower, Inc. and ABAN Loyd Chiles Offshore Ltd.
10.32(8) Amendment No. 1 to Purchase Documents between KENETECH Windpower, Inc.
and ABAN Loyd Chiles Offshore Ltd. dated December 22, 1994.
EMPLOYMENT AND SEVERANCE AGREEMENTS
10.33(8) Employment Agreement dated as of December 1, 1994 between KENETECH and
Joel M. Canino.
10.34(8) Severance Agreement and Offer Letters both dated January 23, 1995
between KENETECH and Ralph B. Muse.
10.35(9) Employment Agreement dated as of December 31, 1995 between KENETECH
and Mark D. Lerdal.
10.36(9) Employment Agreement, dated as of January 1, 1996, between KENETECH
Energy Systems, Inc. and Michael U. Alvarez.
10.37(9) Agreement, dated November 1, 1995, between KENETECH and GGG Inc.
10.38 (9) Agreement, dated April 2, 1996, between KENETECH and GGG Inc.
10.39(9) Separation Agreement and Mutual Release, dated as of October 12, 1995,
between KENETECH and Jean-Yves Dexmier.
10.40Employment Agreement Amendment, dated as of December 11, 1996, between
KENETECH Energy Systems, Inc. and Michael U. Alvarez.
10.41Employment Agreement, dated as of April 12, 1996, between KENETECH
Corporation and James J. Eisen.
10.42Employment Agreement, dated as of April 12, 1996, between KENETECH
Corporation and Michael A. Haas.
10.43Employment Agreement, dated as of April 1, 1996, between KENETECH
Corporation and Mark D. Lerdal.
10.44Employment Agreement, dated as of April 12, 1996, between KENETECH
Corporation and Nicholas H. Politan.
10.45Separation Agreement and Mutual Release, dated as of April 9, 1996,
between KENETECH Corporation and Gerald R. Alderson.
10.46Separation Agreement and Release, dated October 7, 1996, among KENETECH
Corporation, CNF Industries, Inc. and Joel M. Canino.
10.47First Amendment to Separation Agreement and Release, dated October 28,
1996, among KENETECH Corporation, CNF Industries, Inc. and Joel M. Canino.
10.48Retention Agreement, dated February 2, 1996, by and between KENETECH
Corporation and Mervin E. Werth.
10.49Employment Agreement, dated as of April 12, 1996, between KENETECH
Windpower, Inc. and Steven A. Kern.
16 LETTER RE: CHANGE IN CERTIFYING ACCOUNTANT
16.1 (9) Letter from Deloitte & Touche, LLP dated May 11, 1995.
16.2 (9) Letter from Deloitte & Touche, LLP dated May 17, 1995.
(1) Incorporated by reference to Form 10-Q filed with the Securities and
Exchange Commission & by Registrant on November 16, 1994.
(2) Incorporated by reference to Amendment No. 3 to Form S-1, File No. 33-76590
filed April 27, 1994.
(3) Incorporated by reference to Form S-1, File No. 33-76590 filed with the
Securities and Exchange Commission by the Registrant on March 18, 1994.
(4) Incorporated by reference to Amendment No. 1 to Form S-1, File No.
33-65902, filed with the Securities and Exchange Commission by the
Registrant on August 19, 1993.
(5) Incorporated by reference to Form S-1, File No. 33-65902, filed with the
Securities and Exchange Commission by Registrant on July 7, 1993.
(6) Incorporated by reference to Amendment No. 2 to Form S-1, file No.
33-53132, filed with the Securities and Exchange Commission by the
Registrant on December 19, 1992.
(7) Incorporated by reference to Form S-1, File No. 33-53132, filed with the
Securities and Exchange Commission by the Registrant on October 9, 1992.
(8) Incorporated by reference to Form 10-K, File No. 33-53132, filed with the
Securities and Exchange Commission by the Registrant on April 5, 1995.
(9) Incorporated by reference to Form 10-K, File No. 33-53132, filed with the
Securities and Exchange Commission by the Registrant on April 15, 1996.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
Other than Items 3.2 and 10.40 through 10.49, the documents and agreements
listed in item 14(a)2 have been previously filed with the Securities and
Exchange Commission and are hereby incorporated by reference.
(d) Financial Statement Schedules:
The financial statements and financial statement schedules listed in item
14(a)1 are filed as part of this report.
SUBSIDIARIES OF THE REGISTRANT
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, therewith duly authorized.
KENETECH Corporation
By: /s/ Mark D. Lerdal
Mark D. Lerdal
President, Chief Executive Officer,
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated:
Signature Title Date
/s/ Mark D. Lerdal President, Chief Executive March 31, 1997
Officer, and Director
Mark D. Lerdal
/s/ Nicholas H. Politan Chief Financial Officer, March 31, 1997
Vice President and
Assistant Secretary
Nicholas H. Politan
/s/ Mervin E. Werth Corporate Controller, March 31, 1997
Chief Accounting Officer
and Assistant Treasurer
Mervin E. Werth
/s/ Gerald R. Alderson Director March 31, 1997
Gerald R. Alderson
/s/ Charles Christenson Director March 31, 1997
Charles Christenson
/s/ Angus M. Duthie Chairman of the Board of Directors March 31, 1997
Angus M. Duthie
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(in thousands)
CONDENSED STATEMENTS OF OPERATIONS
for the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
-------- -------- --------
Equity in earnings of consolidated
subsidiaries $(28,597) $(257,313) $(3,383)
General and administrative (expenses) (12,619) (6,513) (986)
reimbursement
Interest income 4,061 7,210 20,513
Interest expense (14,072) (15,031) (14,718)
Loss on sales of subsidiaries and Assets (9,623) - -
-------- --------- --------
Income (Loss) before taxes (60,850) (271,647) 1,426
Income tax expense (benefit) 23,391 (21,499) (2,922)
-------- --------- --------
Net income (loss) $(84,241) $(250,148) $ 4,348
======== ========= ========
CONDENSED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
Current assets: 1996 1995
-------- --------
Cash and cash equivalents $ 2,865 $ 3,871
Other 3,076 3,682
-------- --------
Total current assets 5,941 7,553
Investments in subsidiaries (14,427) 11,088
Due from affiliates 27,673 60,691
Other assets 15,700 31,106
-------- -------
Total assets $ 34,887 $110,438
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 814 $ 1,773
Accrued liabilities 17,760 9,304
Bank loan payable - 5,000
Senior secured notes payable 99,005 -
Other 5,575 -
-------- --------
Total current liabilities 123,154 16,077
Senior secured notes payable - 98,887
Accrued dividends on perferred stock and other 9,633 1,033
-------- --------
Total liabilities 132,787 115,997
Stockholders' deficiency:
Preferred Convertible Stock 99,561 99,561
Common stock 4 4
Other stockholders' deficiency (197,465) (105,124)
-------- --------
Total stockholders' deficiency (97,900) (5,559)
-------- --------
Total liabilities and stockholders' deficiency $ 34,887 $ 110,438
======== ========
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(in thousands)
CONDENSED STATEMENTS OF CASH FLOWS for the
years ended December 31, 1996, 1995 and 1994
1996 1995 1994
-------- -------- -------
Net cash used in
operating activities $ (7,122) $(40,346) $(80,286)
Net cash provided by (used in)
investing activities 11,205 16,299 (7,477)
Net cash provided by (used in)
financing activities (5,089) 949 97,932
-------- -------- --------
Increase (Decrease) in cash and
cash equivalents (1,006) (23,098) 10,169
Cash and cash equivalents at
beginning of year 3,871 26,969 16,800
-------- -------- --------
Cash and cash equivalents at end of year $ 2,865 $ 3,871 $ 26,969
======== ======== ========
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions(1) of Period
- ----------- --------- ---------------------- ---------
Warranty reserves:
Year ended December 31, 1994 $ 2,688 $ 2,493 $ 3,024 $ 2,157
Year ended December 31, 1995 2,157 73,586 9,831 65,912
Year ended December 31, 1996 65,912 - 65,912 -
Project development allowance (deducted
from power plants under development)
Year ended December 31, 1994 $ - $ - $ - $ -
Year ended December 31, 1995 - 24,805 3,279 21,526
Year ended December 31, 1996 21,526 1,557 21,526 1,557
- ----------
(1) 1996 deductions result from the deconsolidaiton of KWI and the write-off of
wood project in Illinois.
<PAGE>
KENETECH CORPORATION
-----------------------
RESTATED BYLAWS
OF
KENETECH CORPORATION
A Delaware Corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be located at the Corporation Trust Center, 1209
Orange Street, in the City of Wilmington, County of New Castle. The name of the
corporation's registered agent at such address shall be the Corporation Trust
Company. The registered office and/or registered agent of the corporation may be
changed from time to time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of stockholders
shall be held each year at such place as shall be determined by the board of
directors of the corporation, for the purpose of electing directors and
conducting such other proper business as may come before the meeting. The date,
time and place of the annual meeting shall be determined by the board of
directors.
Section 2. Special Meetings. [amended 11/16/95] Special meetings of
stockholders may be called for any purpose and may be held at such time and
place, within or without the State of Delaware, as shall be stated in a notice
of meeting or in a duly executed waiver of notice thereof. Such meetings may be
called at any time by the board of directors, the president or the chief
executive officer of the corporation. No business may be transacted at any
special meeting otherwise than as specified in the notice to stockholders of
such meeting.
Section 3. Place of Meetings. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting is otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time,
and, in the case of special meetings, the purpose or purposes, of such meeting,
shall be given to each stockholder entitled to vote at such meeting not less
than 10 nor more than 60 days before the date of the meeting. All such notices
shall be delivered, either personally or by mail, by or at the direction of the
board of directors, the president or the secretary, and if mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its address as the
same appears on the records of the corporation. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. The holders of a majority of the outstanding shares of
capital stock, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders, except as otherwise provided by
statute or by the certificate of incorporation. If a quorum is not present, the
holders of a majority of the shares present in person or represented by proxy at
the meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place.
Section 7. Adjourned Meetings. When a meeting is adjourned to another time
and place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Vote Required. When a quorum is present, the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the certificate of incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question. Where a separate vote by class is required, the
affirmative vote of the majority of shares of such class present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of such class.
Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of Delaware or by the certificate of incorporation of the
corporation or any amendments thereto and subject to Section 3 of Article VI
hereof, every stockholder shall at every meeting of the stockholders be entitled
to one vote in person or by proxy for each share of common stock held by such
stockholder. The holders of preferred stock will be entitled to vote as provided
by law and by the corporation's certificate of incorporation or any amendments
thereto.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him, her or
it by proxy, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and if, and only
as long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the stockholders,
and before any voting commences, all proxies filed at or before the meeting
shall be submitted to and examined by the secretary or a person designated by
the secretary, and no shares may be represented or voted under a proxy that has
been found to be invalid or irregular.
Section 11. Advance Notice of Stockholder Nominees and Stockholder
Business. To be properly brought before an annual meeting or special meeting,
nominations for the election of director or other business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the board of directors, (b) otherwise properly brought before the
meeting by or at the direction of the board of directors, or (c) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder, such stockholder must have given timely notice and in proper form
of such stockholder's intent to bring such business before such meeting. To be
timely, such stockholder's notice must be delivered or mailed to and received by
the secretary of the corporation not less than 90 days prior to the meeting;
provided, however, that in the event that less than 100 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. To be in
proper form, a stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who intends to make the
nominations or propose the business, and, as the case may be, the name and
address of the person or persons to be nominated or the nature of the
business to be proposed;
(ii) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice or introduce the
business specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to be
proposed by the board of directors; and
(v) if applicable, the consent of each nominee to serve as director of
the corporation if so elected.
The chairman of the meeting may refuse to acknowledge the nomination
of any person or the proposal of any business not made in compliance with
the foregoing procedure.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. [amended 2/27/97] The
number of directors which shall constitute the board of directors shall be fixed
by resolution of the board of directors from time to time, but in no event shall
be less than one nor more than nine. The directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote in the election of directors. The directors
shall be elected in this manner at the annual meeting of the stockholders,
except as provided in Section 5 of this Article III.
Section 3. Classes of Directors. The directors shall be divided and
elected into three classes designated as Class I, Class II and Class III,
respectively. At the first annual meeting of stockholders following the initial
election and designation of directors into classes, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second annual meeting of stockholders following the
initial election and designation, the term of office of the Class II directors
shall expire and Class II directors shall be elected for a full term of three
years. At the third annual meeting of stockholders following the initial
election and designation, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his or her successor is duly elected and qualified or until
his or her earlier death, resignation or removal. No decrease in the number of
directors constituting the board of directors shall shorten the term of any
incumbent director.
Section 4. Removal and Resignation. Any director or the entire board of
directors of the corporation may be removed at any time, but only for cause and
only by the affirmative vote of the holders of 75% or more of the outstanding
shares of capital stock of the corporation entitled to vote generally in the
election of directors (considered for this purpose as one class) cast at a
meeting of the stockholders called for that purpose. Notwithstanding the
foregoing, and except as otherwise required by law, whenever the holders of any
class or series are entitled to elect one or more directors by the provisions of
the corporation's certificate of incorporation, the provisions of this Section
shall apply, in respect to the removal of a director or directors so elected, to
the vote of the holders of the outstanding shares of that class or series and
not to the vote of the outstanding shares as a whole. Any director may resign at
any time upon written notice to the corporation.
Section 5. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors shall be filled by the
holders of a majority of the corporation's outstanding stock entitled to vote
for the election of directors. Each director so chosen shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as herein provided.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or
by a sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a
majority of the directors elected by such class or classes or series
thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
of directors (as constituted immediately prior to any such increase), then the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
Section 6. Annual Meetings. The annual meeting of each newly elected board
of directors shall be held without other notice than this bylaw immediately
after, and at the same place as, the annual meeting of stockholders.
Section 7. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board of directors. Special meetings of the board of directors may be called
by or at the request of the president or any two directors on at least 48 hours
notice to each director, either personally, by telephone, by mail, by telegraph,
by facsimile transmission or by other like electronic means.
Section 8. Quorum, Required Vote and Adjournment. A majority of the total
number of directors shall constitute a quorum for the transaction of business.
The vote of a majority of directors present at a meeting at which a quorum is
present shall be the act of the board of directors. If a quorum shall not be
present at any meeting of the board of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Committees. The board of directors may, by resolution passed by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation, which to the
extent provided in such resolution or these bylaws shall have and may exercise
the powers of the board of directors in the management and affairs of the
corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 10. Committee Rules. Each committee of the board of directors may
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 9 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
Section 11. Communications Equipment. Members of the board of directors or
any committee thereof may participate in and act at any meeting of such board or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this Section shall
constitute presence in person at the meeting.
Section 12. Waiver of Notice and Presumption of Assent. Any member of the
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.
Section 13. Action by Written Consent. Unless otherwise restricted by the
certificate of incorporation of the corporation, any action required or
permitted to be taken at any meeting of the board of directors, or of any
committee thereof, may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be elected by the
board of directors and shall consist of a chief executive officer, one or more
vice-presidents, a secretary and a chief financial officer, and such other
officers and assistant officers as may be deemed necessary or desirable by the
board of directors. The corporation may also have, at the discretion of the
board of directors, a chairman of the board, a president, a chief operating
officer, one or more executive, senior or assistant vice presidents, assistant
secretaries and any such other officers as may be appointed in accordance with
the provisions of Section 2 of Article IV of these bylaws. Any number of offices
may be held by the same person. In its discretion, the board of directors may
choose not to fill any office for any period as it may deem advisable.
Section 2. Election and Term of Office. The officers of the corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. Vacancies may be filled or new offices created and filled at any meeting
of the board of directors. Each officer shall hold office until a successor is
duly elected and qualified or until his or her earlier death, resignation or
removal as hereinafter provided.
Section 3. Removal and Resignation. Any officer or agent elected by the
board of directors may be removed by the board of directors whenever in its
judgment the best interest of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term by the board of
directors then in office.
Section 5. Compensation. Compensation of all officers shall be fixed by the
board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. Chairman of the Board. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may from time
to time be assigned to him or her by the board of directors or as may be
prescribed by these bylaws. If there is no chief executive officer, then the
chairman of the board shall also be the chief executive officer of the
corporation and shall have the powers and duties prescribed in Section 7 of
Article IV of the bylaws.
Section 7. Chief Executive Officer. The chief executive officer of the
corporation shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and the officers of
the corporation. He or she shall preside at all meetings of the stockholders
and, in the absence or nonexistence of a chairman of the board at all meetings
of the board of directors. He or she shall have the general powers and duties of
management usually vested in the chief executive officer of a corporation,
including general supervision, direction and control of the business and
supervision of other officers of the corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
The chief executive officer shall, without limitation, have the authority
to execute bonds, mortgages and other contracts requiring a seal, under the seal
of the corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the corporation.
Section 8. President. Subject to such supervisory powers as may be given
by these bylaws or the board of directors to the chairman of the board or the
chief executive officer, if there be such officers, the president shall have
general supervision, direction and control of the business and supervision of
other officers of the corporation, and shall have such other powers and duties
as may be prescribed by the board of directors or these bylaws. In the event a
chief executive officer shall not be appointed, the president shall have the
duties of such office.
Section 9. Vice-Presidents. The vice-president, or if there shall be more
than one, the vice-presidents in the order determined by the board of directors,
shall, in the absence or disability of the president, act with all of the powers
and be subject to all the restrictions of the president. The vice-presidents
shall also perform such other duties and have such other powers as the board of
directors, the president or these bylaws may, from time to time, prescribe.
Section 10. The Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose. Under the
president's supervision, the secretary shall give, or cause to be given, all
notices required to be given by these bylaws or by law; shall have such powers
and perform such duties as the board of directors, the president or these bylaws
may, from time to time, prescribe; and shall have custody of the corporate seal
of the corporation. The secretary, or an assistant secretary, shall have
authority to affix the corporate seal to any instrument requiring it and when so
affixed, it may be attested by his or her signature or by the signature of such
assistant secretary. The board of directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his or her signature. The assistant secretary, or if there be more than one, the
assistant secretaries in the other determined by the board of directors, shall,
in the absence or disability of the secretary, perform the duties and exercise
the powers of the secretary and shall perform such other duties and have such
other powers as the board of directors, the president or secretary may, from
time to time, prescribe.
Section 11. Chief Financial Officer. The chief financial officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
chief executive officer and directors, whenever they request it, an account of
all of his or her transactions as chief financial officer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or these bylaws.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by the board of directors or the
president.
Section 13. Absence or Disability of Officers. In the case of the absence
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may delegate the powers and duties of such
officer to any other officer or to any director, or to any other person who it
may select.
ARTICLE V
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 1. Nature of Indemnity. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation to the fullest extent which it is empowered to
do so unless prohibited from doing so by the General Corporation Law of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment) against all expense,
liability and loss including attorneys' fees actually and reasonably incurred by
such person in connection with such proceeding, and such indemnification shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Section 2 hereof, the corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the board of directors of the corporation. The right to indemnification
conferred in this Article V shall be a contract right and, subject to Sections 2
and 5 hereof, shall include the right to require the corporation, from time to
time, to advance any necessary and reasonable amounts for the preparation and/or
conduct of the defense incurred in defending any such proceeding in advance of
its final disposition. The corporation may, by action of its board of directors,
provide indemnification to employees and agents of the corporation with the same
scope and effect as the foregoing indemnification of directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers. Any
indemnification of a director or officer of the corporation under Section 1 of
this Article V or advance of expenses under Section 5 of this Article V shall be
made promptly, and in any event within 30 days, upon the written request of the
director or officer. If a determination by the corporation that the director or
officer is entitled to indemnification pursuant to this Article V is required,
and the corporation fails to respond within 60 days to a written request for
indemnity, the corporation shall be deemed to have approved the request. If the
corporation denies a written request for indemnification or advancing of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within 60 days, the right to indemnification or advances as granted by
this Article V shall be enforceable by the director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of Delaware for the corporation
to indemnify the claimant for the amount claimed, but the burden of such defense
shall be on the corporation. Neither the failure of the corporation (including
its board of directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard of conduct set forth in the General Corporation
Law of Delaware, nor an actual determination by the corporation (including its
board of directors, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 3. Article Not Exclusive. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article V shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The corporation may purchase and maintain insurance
on its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of the corporation or was serving at the request
of the corporation as a director, officer, employee, fiduciary or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him or her and incurred by him or her in
any such capacity, whether or not the corporation would have the power to
indemnify such person against such liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in Section
1 of this Article V in defending a proceeding shall be paid by the corporation
in advance of such proceeding's final disposition unless otherwise determined by
the board of directors in the specific case, upon receipt of an undertaking by
or on behalf of the director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
corporation. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the board of directors deems
appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
foregoing provisions of the Article V and who are or were employees, fiduciaries
or agents of the corporation, or who are or were serving at the request of the
corporation as directors, officers, employees, fiduciaries or agents of another
corporation, partnership, joint venture, trust or other enterprise, may be
indemnified to the extent authorized at any time or from time to time by the
board of directors.
Section 7. Contract Rights. The provisions of this Article V shall be
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of Delaware or other
applicable law are in effect, and any repeal or modification of this Article V
or any such law shall not affect any rights or obligations then existing with
respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees, fiduciaries or agents, so that any person
who is or was a director, officer, employee, fiduciary or agent of such
constituent corporation , or is or was serving at the request of such
constituent corporation as a director, officer, employee, fiduciary or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this Article V with respect to the
resulting or surviving corporation as he or she would have with respect to such
constituent corporation if its separate existence had continued.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
the president or a vice-president and the chief financial officer, the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by such holder in the corporation. If such a certificate is countersigned
(1) by a transfer agent or an assistant transfer agent other than the
corporation or its employee or (2) by a registrar, other than the corporation or
its employee, the signature of any such president, vice-president, chief
financial officer, secretary, or assistant secretary may be facsimiles. In case
any officer or officers who have signed, or whose facsimile signature or
signatures have been used on, any such certificate or certificates shall cease
to be such officer or officers of the corporation whether because of death,
resignation or otherwise before such certificate or certificates have been
delivered by the corporation, such certificate or certificates may nevertheless
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer of the corporation. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the books of the
corporation. Shares of stock of the corporation shall only be transferred on the
books of the corporation by the holder of record thereof or by such holder's
attorney duly authorized in writing, upon surrender to the corporation of the
certificate or certificates for such shares endorsed by the appropriate person
or persons, with such evidence of the authenticity of such endorsement,
transfer, authorization, and other matters as the corporation may reasonably
require, and accompanied by all necessary stock transfer stamps. In that event,
it shall be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate or certificates, and record the
transaction on its books. The board of directors may appoint a bank or trust
company organized under the laws of the United States or any state thereof to
act as its transfer agent or registrar, or both in connection with the transfer
of any securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
board of directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the next day preceding the day on which notice is given, or if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting (if such action by written consent
is permitted by the certificate of incorporation of the corporation), the board
of directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten (10) days after the date
upon which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by statute, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the board of directors and prior action by the board of
directors is required by statute, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the board of directors adopts the
resolution taking such prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any lawful action, the board of directors may
fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be not
more than sixty (60) days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for in the
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the corporation may proceed to collect the
amount due in the same manner as any debt due the corporation.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property or in shares of the capital
stock, subject to the provisions of the certificate of incorporation. Before
payment of any dividend, there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or any other purpose, and the directors may
modify or abolish any such reserve in the manner in which it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by the board of directors or a duly authorized
committee thereof.
Section 3. Contracts. The board of directors or the chief executive
officer of the president may authorize any officer or officers, or any agent or
agents, of the corporation to enter into any contract or to execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
corporation or of a subsidiary, including any officer or employee who is a
director of the corporation or a subsidiary, whenever, in the judgment of the
directors such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured or secured in such manner as the board of
directors shall approve, including without limitation a pledge of shares of
stock of the corporation. Nothing in this Section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed
by the board of directors.
Section 6. Corporate Seal. The board of directors shall provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned by Corporation. Voting securities in
any other corporation held by the corporation shall be voted by the chief
executive officer, president, chief financial officer or secretary, unless the
board of directors specifically confers authority to vote with respect thereto,
which authority may be general or confined to specific instances, upon some
other person or officer. Any person authorized to vote securities shall have the
power to appoint proxies, with general power of substitution.
Section 8. Inspection of Books and Records. Any stockholder of record, in
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in the State of Delaware or at its principal place of business.
Section 9. Section Headings. Section headings in these bylaws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
these bylaws is or becomes inconsistent with any provision of the certificate of
incorporation, the General Corporation Law of Delaware or any other applicable
law, the provision of these bylaws shall not be given any effect to the extent
of such inconsistency but shall otherwise be given full force and effect.
ARTICLE VIII
ELECTION NOT TO BE GOVERNED BY SECTION 203
This Corporation elects not to be governed by Section 203 of the General
Corporation Law of Delaware. This Article 8 was added by action of the board of
directors of this corporation taken on March 10, 1988, adopting an amendment
adding this Article to these bylaws, and such amendment shall not be further
amended by the board of directors of this corporation.
ARTICLE IX
AMENDMENTS
Except as otherwise restricted by the General Corporation Law of Delaware,
these bylaws may be amended, altered, or repealed and new bylaws adopted at any
meeting of the board of directors by a majority vote. The fact that the power to
adopt, amend, alter, or repeal the bylaws has been conferred upon the board of
directors shall not divest the stockholders of the same powers.
<PAGE>
EMPLOYMENT AGREEMENT AMENDMENT
THIS EMPLOYMENT AGREEMENT AMENDMENT (this "Amendment") is entered into as
of the 11th day of December, 1996, by and between KENETECH Energy Systems, Inc.,
a Delaware corporation (the "Company"), a subsidiary of KENETECH Corporation,
and Michael U. Alvarez (the "Employee").
RECITALS
A. The Employee and the Company have entered into an Employment
Agreement, dated as of January 1, 1996 (the "Agreement").
B. The Company and the Employee desire to extend the term of the
Agreement and to revise certain other provisions thereof.
C. The obligations of the Company under the Agreement are the joint and
several obligations of KES Penuelas Holdings, Inc., KES Bermuda, Inc.
and KES LNG, Ltd, on behalf of KES Puerto Rico, L.P. and KES Penuelas,
Ltd.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and in the Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
1. Employment. Paragraph 1 of the Agreement is hereby amended to read in
full as follows:
Unless sooner terminated in connection with a Termination for Cause
(as defined below), the Employee is and will continue to be employed
by the Company for a period (the "Employment Period") ending two years
from the date of this Agreement, at the Employee's current annual base
salary ("Base Salary") and with the same employee benefits applicable
on the date of this Agreement.
2. Severance Benefits. The following sentences shall be added to the end
of Section 3.1 of the Agreement:
If you are terminated during the Employment Period for other in
connection with a Termination for Cause, the Company will pay you a
lump sum amount equal to 100% of your Base Salary. A letter of credit,
in the face amount $150,000, shall be issued to you, as the
beneficiary, by the Company, as the account party, with an expiration
of December 31, 1997, as security for a portion of the severance
benefits described in Sections 3.1 and 3.2 of the Agreement.
3. Special Bonus Payments. Section 3.4 of the Agreement shall be amended
and restated in full as follows:
(a) Notwithstanding the payment of any amount to you on or prior to
the date the Company directly or indirectly sells, transfers or
otherwise disposes of all or substantially all of the Company's
interests in EcoElectrica, L.P. (the "EcoElectrica Sale Closing
Date"), on the EcoElectrica Sale Closing Date, the Company will
pay to you a bonus in the amount of 100% of your Base Salary.
(b) The Company has created a KIP Bonus Plan attached hereto (the
"KIP Plan"). You will be an eligible participant in such plan.
(c) All bonus payments with respect to EcoElectrica, L.P. shall be
made prior to the distribution of any proceeds from the Company
to KENETECH Corporation and shall be the joint and several
obligations of KES Penuelas Holdings, Inc., KES Bermuda, Inc. and
KES LNG, Ltd, on behalf of KES Puerto Rico, L.P. and KES
Penuelas, Ltd..
4. Full Force and Effect. Except as amended by this Amendment, the Agreement
shall remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
KENETECH Energy Systems, Inc.
KES Penuelas Holdings, Inc.
KES Bermuda, Inc.
KES LNG, Inc., on behalf of:
KES Puerto Rico, L.P.
KES Penuelas, Ltd.
By: ________________________
Mark D. Lerdal, Vice President
------------------------
Michael U. Alvarez
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
12th day of April, 1996, by and between KENETECH Corporation, a Delaware
corporation (the "Company"), and James J. Eisen, an individual currently
employed by the Company or its affiliates (the "Employee" or "you").
RECITALS
A. The Employee is assuming new responsibilities as an executive officer of
the Company.
B. The Company and the Employee desire to enter into a written employment
agreement on the terms set forth below.
NOW THEREFORE, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT
1. Employment. Unless terminated in connection with a Termination For Cause
(as defined below), the Employee will be employed by the Company at an
annual base salary of $165,000 and with the same employee benefits
applicable as of the date of this Agreement.
2. Employment Duties. The Company will employ you as General Counsel and Vice
President of the Company. You agree to perform in good faith and to the
best of your ability all services which may be required of you in your
executive position and to be available to render such services at all
reasonable times and places in accordance with reasonable directives and
assignments issued by the Company's Chief Executive Officer and the Board
of Directors. During your employment, you will devote your full time and
effort to the business and affairs of the Company within the scope of your
executive office.
3. Benefits.
3.1 Payments. The Company and you have agreed that if your
employment with the Company is terminated for any reason (other than a
Termination For Cause), (a) you will receive severance payments equal to your
base salary for a period of one (1) year from and after the effective date of
your termination, and (b) you and your eligible dependents will continue to
receive the Company's health care coverage and life insurance (on the same terms
as you had while an employee) for one year after the date of termination.
3.2 Termination For Cause. If you commit one or more acts of fraud,
embezzlement, misappropriation of property or information or engage in any other
conduct materially adversely affecting the business reputation of the Company,
you may be terminated for cause (a "Termination For Cause") and you will not be
paid any of the payments or benefits described in this Agreement.
3.3 Change in Control. Upon a Change In Control, the Company will
pay you a lump sum amount equal to one year's base salary. For purposes of this
Agreement, "Change in Control" means:
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal
purpose of which is to change the State of the Company's
incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in
liquidation or dissolution of the Company;
(iii)any reverse merger in which the Company is the surviving
entity, but in which fifty percent (50%) or more of the
Company's outstanding voting stock is transferred to holders
different from those who held the stock immediately prior to
such merger; or
(iv) the acquisition of more than fifty percent (50%) of the
Company's outstanding voting stock pursuant to a tender or
exchange offer made by a person or related group of persons
(other than the Company or a person that directly or
indirectly controls, is controlled by or is under common
control with the Company).
3.4 Withholding. The Company will deduct and withhold, from the
compensation payable to you under this Agreement, any and all Federal, State and
local income and employment withholding taxes and any other amounts required to
be deducted or withheld by the Company under the applicable statute or
regulation.
4. Death. Upon your death during employment, the employment relationship
created pursuant to this Agreement will immediately terminate, and no further
compensation will become payable to you hereunder. In connection with such
termination, the Company will only be required to pay you (or your estate) any
unpaid compensation earned for services rendered through the date of your death.
5. Restrictive Covenant. During your employment:
(i) You will devote your full working time and effort to the
performance of your duties as an executive officer of the
Company; and
(ii) You will not directly or indirectly, whether for your own
account or as an employee, consultant or advisor, provide
services to any business enterprise other than the Company,
unless otherwise authorized by the Company in writing.
However, you will have the right to perform such incidental services as
are necessary in connection with (a) your private passive investments, (b) your
charitable or community activities, and (c) your participation in trade or
professional organizations, but only to the extent such incidental services do
not interfere with the performance of your services hereunder.
6. Confidentiality. You hereby acknowledge that the Company may, from time
to time during your employment, disclose to you confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income, and information pertaining to the salaries
and performance levels of the Company's employees. You will not, at any time
during or after such employment, disclose to any third party or directly or
indirectly make use of any such confidential information, including (without
limitation) the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of, the Company's
business and affairs. All documents and data (whether written, printed or
otherwise reproduced or recorded) containing or relating to any such proprietary
information of the Company which come into your possession during your
employment will be returned by you to the Company immediately upon the
termination of your employment or upon any earlier request by the Company, and
you will not retain any copies, notes or excerpts thereof. Your obligations
under this Section 6 will continue in effect after termination of your
employment with the Company, whatever the reason or reasons for such
termination, and the Company will have the right to communicate with any of your
future or prospective employers concerning your continuing obligations under
this Section 6.
7. Ownership Rights. All materials, ideas, discoveries and inventions
pertaining to the Company's business, including (without limitation) all patents
and copyrights, patent applications, patent renewals and extensions, and the
names, addresses and telephone numbers of customers, will belong solely to the
Company. You will continue to be bound by all the terms and provisions of your
existing Proprietary Information and Inventions Agreements with the Company or
its subsidiaries or affiliated companies, and nothing in this document will be
deemed to modify or affect your duties and obligations under those other
agreements.
8. Indemnification. The indemnification provisions for Officers and
Directors under the Company's Bylaws will (to the maximum extent permitted by
law) be extended to you, during your employment and the period following your
termination irrespective of a Change in Control, with respect to any and all
matters, events or transactions occurring or effected during your employment.
9. Miscellaneous. The provisions of this Agreement will be binding upon
the Company, its successors and assigns (including, without limitation, the
surviving entity or successor party resulting from a Change in Control) and will
be construed and interpreted under the laws of the State of California. Each of
the parties acknowledges and agrees that upon any breach of this Agreement by
you, the Company will not have an adequate remedy at law, and will be entitled
to specific performance and other equitable relief. This Agreement incorporates
the entire agreement between you and the Company relating to the terms of your
employment and supersedes all prior agreements and understandings with respect
thereto. This Agreement may only be amended by written instrument signed by you
and an authorized officer of the Company. The provisions of this Agreement will
be deemed severable, and if any part of any provision is held illegal, void, or
invalid under applicable law, the remaining provisions of the Agreement will not
in any way be affected or impaired, but will remain binding in accordance with
their terms.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date first written above.
KENETECH CORPORATION, a Delaware corporation
By___________________________
Name: Mark D. Lerdal
Title: President and Chief Executive Officer
JAMES J. EISEN
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
12th day of April, 1996, by and between KENETECH Corporation, a Delaware
corporation (the "Company"), and Michael Haas, an individual currently employed
by the Company or its affiliates (the "Employee" or "you").
RECITALS
A. The Employee is assuming new responsibilities as an executive officer of
the Company.
B. The Company and the Employee desire to enter into a written employment
agreement on the terms set forth below.
NOW THEREFORE, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT
1. Employment. Unless terminated in connection with a Termination For Cause
(as defined below), the Employee will be employed by the Company at an
annual base salary of $125,000 and with the same employee benefits
applicable as of the date of this Agreement.
2. Employment Duties. The Company will employ you as a Vice President of the
Company. You agree to perform in good faith and to the best of your ability
all services which may be required of you in your executive position and to
be available to render such services at all reasonable times and places in
accordance with reasonable directives and assignments issued by the
Company's Chief Executive Officer and the Board of Directors. During your
employment, you will devote your full time and effort to the business and
affairs of the Company within the scope of your executive office.
3. Benefits.
3.1 Payments. The Company and you have agreed that if your
employment with the Company is terminated for any reason
(other than a Termination For Cause), (a) you will receive
severance payments equal to your base salary for a period of
one (1) year from and after the effective date of your
termination, and (b) you and your eligible dependents will
continue to receive the Company's health care coverage and
life insurance (on the same terms as you had while an
employee) for one year after the date of termination.
3.2 Termination For Cause. If you commit one or more acts of
fraud, embezzlement, misappropriation of property or
information or engage in any other conduct materially
adversely affecting the business reputation of the Company,
you may be terminated for cause (a "Termination For Cause")
and you will not be paid any of the payments or benefits
described in this Agreement.
3.3 Change in Control. Upon a Change In Control, the Company
will pay you a lump sum amount equal to one year's base
salary. For purposes of this Agreement, "Change in Control"
means:
(i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or substantially all of
the assets of the Company in liquidation or dissolution of the
Company;
(iii)any reverse merger in which the Company is the surviving entity, but
in which fifty percent (50%) or more of the Company's outstanding
voting stock is transferred to holders different from those who held
the stock immediately prior to such merger; or
(iv) the acquisition of more than fifty percent (50%) of the Company's
outstanding voting stock pursuant to a tender or exchange offer made
by a person or related group of persons (other than the Company or a
person that directly or indirectly controls, is controlled by or is
under common control with the Company).
3.4 Bonuses. You will be entitled to such bonuses (if any) for
service rendered during your employment as the Company's
President may determine in his or her sole discretion and
such additional factors as the President deems appropriate,
specifically including your individual performance and the
Company's profitability.
3.5 Withholding. The Company will deduct and withhold, from the
compensation payable to you under this Agreement, any and
all Federal, State and local income and employment
withholding taxes and any other amounts required to be
deducted or withheld by the Company under the applicable
statute or regulation.
4. Death. Upon your death during employment, the employment relationship
created pursuant to this Agreement will immediately terminate, and no
further compensation will become payable to you hereunder. In
connection with such termination, the Company will only be required to
pay you (or your estate) any unpaid compensation earned for services
rendered through the date of your death.
5. Restrictive Covenant. During your employment:
(i) You will devote your full working time and effort to the
performance of your duties as an executive officer of the
Company; and
(ii) You will not directly or indirectly, whether for your own account
or as an employee, consultant or advisor, provide services to any
business enterprise in the energy business or a related business
other than the Company, unless otherwise authorized by the
Company in writing.
However, you will have the right to perform such incidental
services as are necessary in connection with (a) your private
passive investments, (b) your charitable or community activities,
and (c) your participation in trade or professional
organizations, but only to the extent such incidental services do
not interfere with the performance of your services hereunder.
6. Confidentiality. You hereby acknowledge that the Company may, from time to
time during your employment, disclose to you confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items
indicating the source of the Company's income, and information pertaining
to the salaries and performance levels of the Company's employees. You will
not, at any time during or after such employment, disclose to any third
party or directly or indirectly make use of any such confidential
information, including (without limitation) the names, addresses and
telephone numbers of the Company's customers, other than in connection
with, and in furtherance of, the Company's business and affairs. All
documents and data (whether written, printed or otherwise reproduced or
recorded) containing or relating to any such proprietary information of the
Company which come into your possession during your employment will be
returned by you to the Company immediately upon the termination of your
employment or upon any earlier request by the Company, and you will not
retain any copies, notes or excerpts thereof. Your obligations under this
Section 6 will continue in effect after termination of your employment with
the Company, whatever the reason or reasons for such termination, and the
Company will have the right to communicate with any of your future or
prospective employers concerning your continuing obligations under this
Section 6.
7. Ownership Rights. All materials, ideas, discoveries and inventions
pertaining to the Company's business, including (without limitation) all
patents and copyrights, patent applications, patent renewals and
extensions, and the names, addresses and telephone numbers of customers,
will belong solely to the Company. You will continue to be bound by all the
terms and provisions of your existing Proprietary Information and
Inventions Agreements with the Company or its subsidiaries or affiliated
companies, and nothing in this document will be deemed to modify or affect
your duties and obligations under those other agreements.
8. Indemnification. The indemnification provisions for Officers and Directors
under the Company's Bylaws will (to the maximum extent permitted by law) be
extended to you, during your employment and the period following your
termination irrespective of a Change in Control, with respect to any and
all matters, events or transactions occurring or effected during your
employment.
9. Miscellaneous. The provisions of this Agreement will be binding upon the
Company, its successors and assigns (including, without limitation, the
surviving entity or successor party resulting from a Change in Control) and
will be construed and interpreted under the laws of the State of
California. Each of the parties acknowledges and agrees that upon any
breach of this Agreement by you, the Company will not have an adequate
remedy at law, and will be entitled to specific performance and other
equitable relief. This Agreement incorporates the entire agreement between
you and the Company relating to the terms of your employment and supersedes
all prior agreements and understandings with respect thereto. This
Agreement may only be amended by written instrument signed by you and an
authorized officer of the Company. The provisions of this Agreement will be
deemed severable, and if any part of any provision is held illegal, void,
or invalid under applicable law, the remaining provisions of the Agreement
will not in any way be affected or impaired, but will remain binding in
accordance with their terms.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date first written above.
KENETECH CORPORATION, a Delaware corporation
By___________________________
Name: Mark D. Lerdal
Title: President and Chief Executive Officer
MICHAEL HAAS
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the 1st
day of April, 1996 by and between KENETECH Corporation, a Delaware corporation
with its principal place of business at 500 Sansome Street, Suite 300, San
Francisco, California 94111 (the "Company") and Mark D. Lerdal, an individual
currently employed by the Company ("Employee" or "you").
1. Employment Period. The Company shall employ you for an initial period
of three years running from the date hereof to March 31, 1999. The employment
period shall be renewed upon mutual agreement of the Company and the Employee
for an unlimited series of one year renewal periods. Each renewal period shall
run from April 1 of a year to the last day of March the following year with the
first such renewal period beginning April 1, 1999. Such renewal shall be
automatic unless either the Company or you notify the other in writing prior to
January 1 of any year that such party is not renewing for the next year. The
initial term and any renewals are referred to herein as the "Employment Period."
2. Employment Duties. The Company will employ you as the President and
Chief Executive Officer. You agree to continue in such employment for the
duration of the Employment Period and to perform in good faith and to the best
of your ability all services which may be required of you in your executive
position and to be available to render such services at all reasonable times and
places in accordance with reasonable directives and assignments issued by the
Company's Board of Directors. During your Employment Period, you will devote
your full time and effort to the business and affairs of the Company within the
scope of your executive office.
3. Compensation.
A Upon the execution hereof, you shall be paid a bonus in the amount of One
Hundred Thousand Dollars ($100,000.00).
B. For service in the remainder of the 1996 calendar year, your base
salary will be at the annual rate of Four Hundred Thousand
Dollars ($400,000). Your annual rate of base salary will be
subject to adjustment every year by the Company's Board of
Directors (or its Compensation Committee) but in no circumstances
will it be decreased below the current level. Your first
adjustment date will be July 1, 1997. There is no current
agreement as to the level of future increases, if any.
C. Your base salary will be paid at periodic intervals in accordance
with the Company's payroll for salaried employees.
D. You will be entitled to such bonuses (if any) for service
rendered during the Employment Period as the Company's Board of
Directors (or its Compensation Committee) may determine in its
sole discretion and such additional factors as the Board (or its
Compensation Committee) deems appropriate, specifically including
your individual performance and the Company's profitability. You
are currently eligible for an annual bonus equal to 25% of your
base salary.
E. The Company will deduct and withhold, from the compensation
payable to you hereunder, any and all Federal, State and local
income and employment withholding taxes and any other amounts
required to be deducted or withheld by the Company under the
applicable statute or regulation.
4. Expense Reimbursement. You will be entitled to reimbursement from the
Company for all customary, ordinary and necessary business expenses incurred by
you in the performance of your duties hereunder in accordance with Company
policy.
5. Fringe Benefits. During the Employment Period, you will be eligible to
participate in any group life insurance plan, group medical and/or dental
insurance plan, accidental death and dismemberment plan, short-term disability
program and other employee benefit plans, including profit sharing plans,
cafeteria benefit programs, and stock option plans, which are made available to
other Company executives and for which you qualify.
6. Objective Payments. Notwithstanding the provisions of Section 3.D above,
the Company will pay to you certain sums upon the completion of certain events
as follows:
(a) the sale, transfer or other disposition of all or substantially
all of the assets or stock of CNF Industries, Inc. or CNF
Constructors, Inc.;
(b) the sale, transfer or other disposition of all or substantially
all of the assets making up the independent power business (as
defined in the Smith Barney offering memorandum) or any other
transaction effecting the disposition of the assets or stock of
the Puerto Rico co-generation plant or other realization of the
value by the Company of the Puerto Rico co-generation plant; and
(c) final settlement or adjudication of Lilley v. Charren, et al.
The sums to be paid upon the completion of the above noted events are: (a)
$150,000; (b) $200,000; and (c) $100,000. Additionally, if events (a) and (b)
are completed before (c) is complete, (c) is accelerated and paid as if it had
occurred on such date as the later to be completed of (a) or (b).
The amounts described in (a), (b) and (c) above are referred to as the
"Objective Payments". All amounts are due and payable within 5 business days of
the day on which the event occurs.
7. Vacation. You will accrue paid vacation benefits during the Employment
Period in accordance with the Company policy in effect for other Company
executive officers.
8. Death. Upon your death during the Employment Period, the employment
relationship created pursuant to this letter agreement will immediately
terminate, and no further compensation will become payable to you pursuant to
Paragraph 3. In connection with such termination, the Company will only be
required to pay you (or your estate) any unpaid compensation earned under
Paragraph 3 for services rendered through the date of your death. The Company
shall maintain the current life insurance in effect at the date hereof and shall
pay such amounts to your estate upon receipt.
9. Disability. Upon your disability during the Employment Period, the
employment relationship created will terminate. You will be deemed disabled if
you are, in the Company's reasonable opinion, unable by reason of any permanent
physical and mental injury or illness to substantially perform the services
required of you hereunder either for a period in excess of one hundred eighty
(180) consecutive days or for a period of one hundred eighty (180) days in the
aggregate during any three-hundred sixty (360)-day period. In such event, you
will be deemed disabled as of such three hundred sixtieth (360th) day.
10. Restrictive Covenant. During the Employment Period:
(i) You will devote your full working time and effort to the
performance of your duties as an executive officer of the
Company.
(ii) You will not directly or indirectly, whether for your own account
or as an employee, consultant or advisor, provide services to any
business enterprise other than the Company, unless otherwise
authorized by the Company in writing.
However, you will have the right to perform such incidental services as are
necessary in connection with (a) your private passive investments, (b) your
charitable or community activities, and (c) your participation in trade or
professional organizations, but only to the extent such incidental services do
not interfere with the performance of your services hereunder.
11. Confidentiality.
A. You hereby acknowledge that the Company may, from time to time
before or during the Employment Period, disclose to you
confidential information pertaining to the Company's business and
affairs and client base, including (without limitation) customer
lists and accounts, other similar items indicating the source of
the Company's income, and information pertaining to the salaries,
during and performance levels of the Company's employees. You
will not, at any time during or after such Employment Period,
disclose to any third party or directly or indirectly make use of
any such confidential information, including (without limitation)
the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of,
the Company's business and affairs.
B. All documents and data (whether written, printed or otherwise
reproduced or recorded) containing or relating to any such
confidential or proprietary information of the Company which come
into your possession during the Employment Period will be
returned by you to the Company immediately upon the termination
of the Employment Period or upon any earlier request by the
Company, and you will not retain any copies, notes or excerpts
thereof.
C. Your obligations under this Paragraph 11 will continue in effect
after termination of your employment with the Company, whatever
the reason or reasons for such termination, and the Company will
have the right to communicate with any of your future or
prospective employers concerning your continuing obligations
under this Paragraph 11.
12. Ownership Rights.
A. All materials, ideas, discoveries and inventions pertaining to
the Company's business, including (without limitation) all
patents and copyrights, patent applications, patent renewals and
extensions, and the names, addresses and telephone numbers of
customers, will belong solely to the Company.
B. You will continue to be bound by all the terms and provisions of
your existing Proprietary Information and Inventions Agreements
with the Company or its affiliates, and nothing in this document
will be deemed to modify or affect your duties and obligations
under those other agreements.
13. Severance Benefits.
A. If the Company terminates you for any reason (other than a
termination for cause, described below), including non-renewal of
the Employment Period as provided in paragraph 2 above, the
Company shall pay to you an amount equal to two years salary plus
any unpaid Objective Payments pursuant to Section 6, payable on
the date of termination. In addition, you and your eligible
dependents will continue to receive the Company's health care
coverage and life insurance (on the same terms as you had while
an employee) for two years after the date of termination.
B. If you commit one or more acts of fraud, embezzlement,
misappropriation of property or information or engage in any
other conduct materially adversely affecting the business
reputation of the Company, you may be terminated for cause and
you will not be paid the severance benefits described in
paragraph 13(A) above.
14. Change in Control Benefits.
A. For purposes of this Agreement, the following definition shall
apply:
Change in Control means:
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principal
purpose of which is to change the State of the Company's
incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in
liquidation or dissolution of the Company;
(iii)any reverse merger in which the Company is the surviving
entity but in which fifty percent (50%) or more of the
Company's outstanding voting stock is transferred to holders
different from those who held the stock immediately prior to
such merger;
(iv) the acquisition of more than fifty percent (50%) of the
Company's outstanding voting stock pursuant to a tender or
exchange offer made by a person or related group of persons
(other than the Company or a person that directly or
indirectly controls, is controlled by or is under common
control with the Company);
(v) a change in the composition of the Board such that the
individuals elected to the Board at the last meeting of the
stockholders at which there is not a contested election
subsequently cease to comprise a majority of the Board; or
(vi) a change in a composition of the Board such that any
combination of the individuals currently serving on the
Board (Messrs. Alderson, Christenson, Duthie, Laskow,
Lerdal, Pifer, and Wagner) do not comprise a majority of the
members of the Board.
B. Should there occur a Change in Control and you are subsequently
involuntarily terminated or you resign, in either case within six
months of the Change in Control, you will become entitled to the
special change in control benefits specified below: (i) You will
receive all of the benefits provided in Section 13(A) above; and
(ii) You will receive a lump sum payment equal to one year of salary.
15. Non-Competition Covenant. During any period subsequent to the
Employment Period that you are eligible to receive the Company's health care
coverage you agree that you will not engage in any act which is directly
competitive with the Company's wind generated electricity activities or any
other line of business where the Company has a significant technological
advantage. Prohibited acts include acting as an employee, directly or indirectly
investing, serving as a board member, serving as a consultant or otherwise
assisting any company, other than KENETECH, which has as one of its businesses,
any activity associated with the generation of electricity from wind turbines.
16. Indemnification. The indemnification provisions for Officers and
Directors under the Company's Bylaws will (to the maximum extent permitted by
law) be extended to you, during the period following your termination
irrespective of a Change in Control, with respect to any and all matters, events
or transactions occurring or effected during your Employment Period.
17. Miscellaneous. The provisions of this letter agreement will be binding
upon the Company, its successors and assigns (including, without limitation, the
surviving entity or successor party resulting from the Change in Control) and
will be construed and interpreted under the laws of the State of California.
This agreement incorporates the entire agreement between you and the Company
relating to the terms of your employment and the subject of severance benefits
and supersedes all prior agreements and understandings with respect to such
subject matter including, without limitation, that certain Employment Agreement
between you and the Company dated December 31, 1995. This agreement may only be
amended by written instrument signed by you and an authorized officer of the
Company.
18. Arbitration. Any controversy which may arise between you and the
Company with respect to the construction, interpretation or application of any
of the terms, provisions, covenants or conditions of this agreement or any claim
arising from or relating to this Agreement will be submitted to final and
binding arbitration in San Francisco, California in accordance with the rules of
the American Arbitration Association then in effect.
Please indicate your acceptance of the foregoing provisions of this Employment
Agreement by signing the enclosed copy of this Agreement and returning it to the
Company.
Very truly yours,
KENETECH CORPORATION
By___________________________
Name: Nicholas H. Politan
Title: Vice President and Chief
Financial Officer
By___________________________
Name: Angus M. Duthie
For the Compensation Committee of the
Board of Directors
ACCEPTED AND AGREED TO:
Signature:_________________________
Mark D. Lerdal
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
12th day of April, 1996, by and between KENETECH Corporation, a Delaware
corporation (the "Company"), and Nicholas H. Politan, an individual currently
employed by the Company or its affiliates (the "Employee" or "you").
RECITALS
A. The Employee is assuming new responsibilities as an executive officer of the
Company.
B. The Company and the Employee desire to enter into a written employment
agreement on the terms set forth below.
NOW THEREFORE, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT
1. Employment. Unless terminated in connection with a Termination For Cause
(as defined below), the Employee will be employed by the Company at an annual
base salary of $175,000 and with the same employee benefits applicable as of the
date of this Agreement.
2. Employment Duties. The Company will employ you as the Chief Financial
Officer and Vice President of the Company. You agree to perform in good faith
and to the best of your ability all services which may be required of you in
your executive position and to be available to render such services at all
reasonable times and places in accordance with reasonable directives and
assignments issued by the Company's Chief Executive Officer and the Board of
Directors. During your employment, you will devote your full time and effort to
the business and affairs of the Company within the scope of your executive
office.
3. Benefits.
3.1 Termination. The Company and you have agreed that if your
employment with the Company is terminated for any reason (other
than a Termination For Cause), (a) you will receive severance
payments equal to your base salary for a period of one (1) year
from and after the effective date of your termination, and (b)
you and your eligible dependents will continue to receive the
Company's health care coverage and life insurance (on the same
terms as you had while an employee) for one year after the date
of termination.
3.2 Bonus Payments.
(a) The Company will pay to you a bonus in the amount of $75,000 upon
the first closing of a construction finance arrangement of the
cogeneration facility located in Puerto Rico (the "Facility").
(b) The Company will pay to you a bonus in the amount of $75,000 on
December 31, 1996. The payments described in Sections 3.2 (a) and
(b) shall be referred to as the "Bonus Payments".
(c) If the Facility is sold to a third party or the Company or its
affiliates otherwise realize value therefor, or in the event of a
Change in Control (defined below), all Bonus Payments which have
not been paid will be immediately due and payable at the time of
such event.
3.3 Termination For Cause. If you commit one or more acts of fraud,
embezzlement, misappropriation of property or information or
engage in any other conduct materially adversely affecting the
business reputation of the Company, you may be terminated for
cause (a "Termination For Cause") and you will not be paid any of
the payments or benefits described in this Agreement.
3.4 Change in Control. Upon a Change In Control, the Company will pay
you a lump sum amount equal to one year's base salary. For
purposes of this Agreement, "Change in Control" means:
(i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which
is to change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company in liquidation or dissolution of
the Company;
(iii)any reverse merger in which the Company is the surviving entity,
but in which fifty percent (50%) or more of the Company's
outstanding voting stock is transferred to holders different from
those who held the stock immediately prior to such merger; or
(iv) the acquisition of more than fifty percent (50%) of the Company's
outstanding voting stock pursuant to a tender or exchange offer
made by a person or related group of persons (other than the
Company or a person that directly or indirectly controls, is
controlled by or is under common control with the Company).
3.5 Withholding. The Company will deduct and withhold, from the
compensation payable to you under this Agreement, any and all
Federal, State and local income and employment withholding taxes
and any other amounts required to be deducted or withheld by the
Company under the applicable statute or regulation.
4. Death. Upon your death during employment, the employment relationship
created pursuant to this Agreement will immediately terminate, and no further
compensation will become payable to you hereunder. In connection with such
termination, the Company will only be required to pay you (or your estate) any
unpaid compensation earned for services rendered through the date of your death.
5. Restrictive Covenant. During your employment:
(i) You will devote your full working time and effort to the
performance of your duties as an executive officer of the
Company; and
(ii) You will not directly or indirectly, whether for your own account
or as an employee, consultant or advisor, provide services to any
business enterprise other than the Company, unless otherwise
authorized by the Company in writing.
However, you will have the right to perform such incidental services as are
necessary in connection with (a) your private passive investments, (b) your
charitable or community activities, and (c) your participation in trade or
professional organizations, but only to the extent such incidental services do
not interfere with the performance of your services hereunder.
6. Confidentiality. You hereby acknowledge that the Company may, from time
to time during your employment, disclose to you confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income, and information pertaining to the salaries
and performance levels of the Company's employees. You will not, at any time
during or after such employment, disclose to any third party or directly or
indirectly make use of any such confidential information, including (without
limitation) the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of, the Company's
business and affairs. All documents and data (whether written, printed or
otherwise reproduced or recorded) containing or relating to any such proprietary
information of the Company which come into your possession during your
employment will be returned by you to the Company immediately upon the
termination of your employment or upon any earlier request by the Company, and
you will not retain any copies, notes or excerpts thereof. Your obligations
under this Section 6 will continue in effect after termination of your
employment with the Company, whatever the reason or reasons for such
termination, and the Company will have the right to communicate with any of your
future or prospective employers concerning your continuing obligations under
this Section 6.
7. Ownership Rights. All materials, ideas, discoveries and inventions
pertaining to the Company's business, including (without limitation) all patents
and copyrights, patent applications, patent renewals and extensions, and the
names, addresses and telephone numbers of customers, will belong solely to the
Company. You will continue to be bound by all the terms and provisions of your
existing Proprietary Information and Inventions Agreements with the Company or
its subsidiaries or affiliated companies, and nothing in this document will be
deemed to modify or affect your duties and obligations under those other
agreements.
8. Indemnification. The indemnification provisions for Officers and
Directors under the Company's Bylaws will (to the maximum extent permitted by
law) be extended to you, during your employment and the period following your
termination irrespective of a Change in Control, with respect to any and all
matters, events or transactions occurring or effected during your employment.
9. Miscellaneous. The provisions of this Agreement will be binding upon
the Company, its successors and assigns (including, without limitation, the
surviving entity or successor party resulting from a Change in Control) and will
be construed and interpreted under the laws of the State of California. Each of
the parties acknowledges and agrees that upon any breach of this Agreement by
you, the Company will not have an adequate remedy at law, and will be entitled
to specific performance and other equitable relief. This Agreement incorporates
the entire agreement between you and the Company relating to the terms of your
employment and supersedes all prior agreements and understandings with respect
thereto including, without limitation, that certain Employment Agreement between
you and KENETECH Energy Systems, Inc., a subsidiary of the Company, dated
January 1, 1996. This Agreement may only be amended by written instrument signed
by you and an authorized officer of the Company. The provisions of this
Agreement will be deemed severable, and if any part of any provision is held
illegal, void, or invalid under applicable law, the remaining provisions of the
Agreement will not in any way be affected or impaired, but will remain binding
in accordance with their terms.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date first written above.
KENETECH CORPORATION, a Delaware corporation
By___________________________
Name: Mark D. Lerdal
Title: President and Chief Executive Officer
NICHOLAS H. POLITAN
<PAGE>
SEPARATION AGREEMENT AND MUTUAL RELEASE
THIS SEPARATION AGREEMENT AND MUTUAL RELEASE (the "Agreement") is made and
entered into as of the 9th day of April, 1996, by and between KENETECH
CORPORATION (the "Company'), a Delaware corporation with its principal place of
business at 500 Sansome Street, Suite 300, San Francisco, California 94111, and
GERALD R. ALDERSON (the "Employee"), who was previously employed by the Company.
RECITALS
A. The Employee was employed by the Company, and his employment was
subject to the provisions of a written Employment Agreement between
the Company and the Employee entered into as of March 1, 1995 as
amended by letter dated December 13, 1995 (the "Employment
Agreement").
B. The Employee and the Company wish to terminate the Employment
Agreement, and the Employee wishes to resign from this employment with
the Company.
C. The Employee and the Company therefore deem it to be in their mutual
interest that Employee terminate his positions with the Company.
D. The Employee acknowledges that he has received full current salary,
vacation pay and benefits payments from the Company up to March 31,
1996, in accordance with the Company's regular payroll practices.
E. The Employee and the Company desire to compromise, settle and release
fully and finally all outstanding matters between them, including all
matters relating to the Employee's separation from the Company and the
termination of the Employment Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, and for other good and valuable consideration, the Company and
the Employee agree as follows:
1. Separation Date. The Company and the Employee agree that the Employee's
employment by the Company was terminated effective as of March 31, 1996 (the
"Separation Date"). The Employee understands and agrees that, effective as of
the Separation Date, he was no longer authorized to incur any expenses,
obligations or liabilities on behalf of the Company and he agrees, on or before
April 19, 1996, to submit for reimbursement, with appropriate supporting
documentation, all outstanding expenses incurred by him prior to such date. The
Company shall reimburse the Employee for such prior expenses in accordance with
Company policy to the extent that such expenses were reasonably and necessarily
incurred by the Employee in connection with the performance of his duties on
behalf of the Company.
2. Resignation. The execution of this Agreement shall confirm the
Employee's resignation as an officer and employee of the Company effective as of
the Separation Date.
3. Terms of Separation. In consideration of the agreements by the Employee
provided herein, including without limitation the releases by the Employee in
Paragraph 4 below, the Company agrees as follows:
(a) The Company shall deliver to the Employee, in full satisfaction of any
claims by him under the Employment Agreement, including but not
limited to any claims for compensation, bonus payments, fringe
benefits, disability benefits, ownership rights, severance benefits,
change in control benefits and options, the following two promissory
notes:
(i) The first promissory note ("Note A") shall be in the amount of
$215,000 and shall be payable in regular semimonthly installments
through the Company's regular payroll system during the period ending
October 1, 1996. Each installment under Note A shall be equal to the
amount payable to the Employee as base salary under the Employment
Agreement prior to the Separation Date, provided that the Company
shall treat each payment under Note A as employment compensation to
the Employee for all purposes and shall deduct and withhold from each
such payment any and all Federal, state and local taxes, deductions
and withholdings related to employment, taxes or compensation required
to be withheld or deducted by the Company under applicable law.
Payments under Note A shall be accelerated to the extent that Note B
(described below) is prepaid in full due to one or more Asset Sales
(described below) and there are Asset Sale Proceeds remaining after
prepayment in full of Note B with which to prepay Note A. Note A shall
not bear interest except that any amounts due and payable thereunder
that are not paid by the Company on or before October 1, 1996 shall
bear interest at the maximum rate permitted by applicable law.
(ii) The second promissory note ("Note B") shall be in the amount of
$750,000 and shall be provided to the Employee on account of the pain
and suffering sustained by the Employee in connection with the
termination of his employment by the Company. Note B shall be due and
payable in full on October 1, 1996 except that payments shall be
accelerated to the extent of any Asset Sale Proceeds (described
below). Note B shall not bear interest except that any amounts due and
payable that are not paid by the Company on or before October 1, 1996
shall bear interest at the maximum rate permitted by applicable law.
(iii)In the event that the Company sells or finances any asset or business
of the Company (such as, for example, KENETECH Resource Recovery, CNF
Constructors, KENETECH Independent Power, or the Company's general
partnership interest in the Energy Investors Fund) on or before the
date that both Note A and Note B are paid in full and the Company
receives proceeds therefrom of more than $500,000 in a single sale or
financing ("Asset Sale"), the Company shall prepay Note B and, once
Note B has been prepaid in full, Note A as provided above, in an
amount equal to two percent (2%) of the gross proceeds of such sale or
financing received by the Company ("Asset Sale Proceeds").
(b) The Employee shall cease participation in all employee benefit plans
of the Company effective as of the Separation Date, and the Company
thereafter shall not be liable for any payments to or on behalf of the
Employee in respect of any Fringe Benefits as set forth in the
Employment Agreement, except as follows: For the period ending April
1, 1998, the Employee and his eligible dependents will continue to be
eligible to participate in the Company's group life insurance plan,
group medical and/or dental insurance plan, accidental death and
dismembership plan, and short-term disability plan on the same terms
as apply to other regular employees of the Company so long as each
such plan remains in effect.
(c) The Employment Agreement will be deemed terminated effective on the
Separation Date, except as otherwise specifically provided in this
Agreement.
(d) Notwithstanding Section 15 of the Employment Agreement, the Company
acknowledges that from the date hereof the Employee may engage in any
act which is directly competitive with the Company's activities,
including its wind generated electricity activities.
4. Mutual Releases.
(a) Release by the Employee. Except as to any claims arising out of rights
provided under this Agreement, and if all payments hereunder are made
when due, in consideration for the agreements contained herein, the
Employee hereby irrevocably and unconditionally releases, acquits and
forever discharges for himself and his heirs, executors,
administrators, agents, successors and assigns, the Company or any
related entity and their stockholders, predecessors, successors,
assigns, agents, directors, officers, employees, representatives,
attorneys, divisions, and subsidiaries, and all persons acting by,
through, under or in concert with any of them (collectively, the
"Company Releasees"), or any of them, from any and all charges,
complaints, claims, assertions of claims, liabilities, obligations,
promises, agreements, controversies, damages, actions, causes of
action, suits, rights, demands, costs, losses, debts and expenses
(including attorneys' fees and costs actually incurred) of any nature
whatsoever, known or unknown, suspected or unsuspected, arising
directly or indirectly out of the Employee's employment by the
Company, his separation from employment with the Company, or the
termination of the Employment Agreement, which the Employee now has,
or ever claimed to have, or could claim against each or any of the
Company Releasees, including, without limitation, any of the
following: claims under the Employment Agreement, claims for workers'
compensation, claims in equity or law for wrongful discharge, and
personal injury claims, claims under federal, state or local laws
prohibiting discrimination on account of age, national origin, race,
sex, disability, religion and other protected classifications, or
claims under the Civil Rights Acts of 1866 and 1871, as amended, Title
VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act
of 1991, the Age Discrimination in Employment Act of 1967, as amended,
the Employee Retirement Income Security Act of 1974, as amended, the
Americans with Disabilities Act of 1990, the Family Medical and Leave
Act, or the California Fair Employment and Housing Act (collectively,
the "Claims"). The Employee hereby agrees to forego any right to file
any charges or complaints with any governmental agencies or any legal
action against the Company Releasees under any of the laws referenced
in this paragraph or with respect to any of the Claims.
Notwithstanding the foregoing, the release by the Employee in this
paragraph shall not limit the right of the Employee to seek to enforce
the provisions of this Agreement, including without limitation the
provisions of Paragraph 8 below.
(b) Release by the Company. Except as to any claims arising out of rights
provided under this Agreement, in consideration for the agreements
contained herein, the Company Releasees hereby irrevocably and
unconditionally release, acquit and forever discharge for themselves
and each of their stockholders, predecessors, successors, assigns,
divisions and subsidiaries, the Employee and his heirs, executors,
administrators, agents, successors and assigns, and all persons acting
by, through, under or in concert with any of them (collectively, the
"Employee Releasees"), or any of them, from any and all charges,
complaints, claims, liabilities, obligations, promises, agreements,
controversies, damages, actions, causes of action, suits, rights,
demands, costs, losses, debts and expenses (including attorney's fees
and costs actually incurred) of any nature whatsoever, known or
unknown, suspected or unsuspected, arising directly or indirectly out
of the Employee's employment by the Company, his separation from
employment with the Company, or the termination of the Employment
Agreement, which the Company now has, or ever claimed to have or could
claim against each or any of the Employee Releasees. The Company
hereby agrees to forego any right to file any legal action against the
Employee Releasees with respect to any matters covered by the release
in this paragraph. Notwithstanding the foregoing, the release by the
Company in this paragraph shall not limit the right of the Company to
seek to enforce the provisions of this Agreement, including without
limitation the provisions of Paragraph 8 below.
(c) Indemnification and Insurance. To the extent permitted by applicable
law, the Company agrees that all rights, if any, to indemnification
from the Company existing under the law and under the Company's
certificate of incorporation and by-laws as of the Separation Date, in
favor of the Employee as a director, officer, employee, or agent of
the Company shall survive this Agreement and shall continue in full
force and effect with respect to any liability for any acts or
omissions by the Employee during the period of his employment by the
Company. The Company further agrees that, for so long as it maintains
directors' and officers' liability insurance that covers former
employees whose employment terminated in April 1996 or earlier, it
shall include the Employee among the insured former employees;
provided, however, that this Agreement shall not be construed or
implied as an obligation to continue to maintain directors' and
officers' liability insurance for active or former employees for any
period of time. The Employee shall hold the Company harmless from any
liability arising out of his tax situation and any taxes, penalties,
or other assessments that may hereafter be asserted on account of any
payments under the Notes.
5. Waiver of Unknown Claims. The Company and the Employee acknowledge that
they are aware that they may hereafter discover claims or facts different from
or in addition to those they now know or believe to be true with respect to the
matters herein released, and except as to any claims arising out of the rights
provided under this Agreement, they agree that the mutual releases set forth
above shall be and remain in effect in all respects a complete general release
as to the matters released and all claims relative thereto which may exist or
may heretofore have existed, notwithstanding any such different or additional
facts. The Company and the Employee acknowledge that they have considered the
possibility that they may not fully know the number or magnitude of all of the
claims which they have or may have against each other and the Releasees of the
other party and, except as set forth in this Agreement and Paragraph 8 below,
intend to assume the risk that they are releasing unknown claims. The Company
and the Employee acknowledge that they have been informed of Section 1542 of the
Civil Code of the State of California and, except as set forth in this Agreement
and Paragraph 8 below, they do hereby expressly waive and relinquish all rights
and benefits which they have or may have under such Section, which reads as
follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor."
The Company and the Employee understand and acknowledge the significance
and consequences of such specific waiver of Section 1542 and, except as set
forth in this Agreement and Paragraph 8 below, hereby assume full
responsibility for any injuries, damages or losses that they may incur as
the result of such waiver.
6. Confidentiality and Non-disclosure Agreements.
(a) The Employee acknowledges that any confidentiality, proprietary or
ownership rights or nondisclosure agreement(s) in favor of the Company
or the Company Releasees, including but not limited to Paragraphs 11
and 12 of the Employment Agreement and any agreements which he may
have entered into in connection with his employment (the
"Nondisclosure Agreement(s)") by the Company, are understood to
survive, and do survive, the termination of his employment and the
termination of the Employment Agreement, and accordingly nothing in
this Agreement shall be construed as terminating, limiting or
otherwise affecting any such Nondisclosure Agreement(s) (including
Paragraphs 11 and 12 of the Employment Agreement) or Employee's
obligations thereunder.
(b) The Employee agrees that, except to the extent compelled by law or
legal process or except to the extent he is required to disclose to
governmental taxing authorities in connection with any inquiry, audit
or assessment relating to the taxation of any payments provided for
herein or except in any litigation or arbitration proceeding between
the Company and the Employee as provided herein (in which case the
Employee will use his best efforts to ensure that such information is
maintained as confidential by the persons to whom he is compelled or
required to disclose such information), the Employee will not: (i)
disclose or communicate confidential information of the Company to any
third party (including governmental agencies and employees and former
employees of the Company); (ii) make use of confidential information
of the Company for his own behalf, or on behalf of any third party;
and (iii) facilitate, assist, persuade or attempt to facilitate,
assist or persuade any third party to commence or prosecute any legal
proceedings against the Company or any Company Releasees. In the event
the Employee receives, is notified of, or is served with a subpoena,
summons, complaint, order, notice, notice of deposition or any other
legal process or request for information (collectively, "Legal
Process") in connection with any legal or quasi-legal proceeding,
including but not limited to any action at law or equity, arbitration,
administrative proceeding or governmental, self-regulating
organization or stock exchange investigation (collectively,
"Litigation"), relating to the performance of his services as an
employee, officer or as a director of the Company, or which, if
complied with by the Employee, might compel or lead to the disclosure
by the Employee of confidential information of the Company, the
Employee shall promptly, but in no event later than 3 business days
after receipt (unless 3 business days is not reasonable under the
circumstances), provided the Company with a copy of the same, and
shall in no event and under no circumstances disclose any such
information prior to the last date specified in the Legal Process for
making such disclosure. The Company shall, not later than 2 business
days prior to the date specified in such Legal Process for compliance,
either: (i) notify the Employee in writing that the Company wishes the
Employee to contest such Legal Process and agree to pay the Employee
the reasonable costs, expenses and attorneys' fees incurred by the
Employee in connection with contesting the Legal Process; or (ii)
notify the Employee that the Company agrees to pay the Employee the
reasonable costs, expenses and attorneys' fees incurred by the
Employee in responding to such Legal Process. The Employee agrees to
take such lawful action in connection with contesting any such Legal
Process as the Company reasonably shall request from time to time. The
Employee agrees promptly to notify the Company of any action taken or
proposed to be taken from time to time in connection with any Legal
Process or Litigation which might lead to the disclosure of the
confidential information of the Company, and to make available to the
Company any Legal Process or documents related thereto. The Employee
further agrees to respond in a timely manner to the Company's
reasonable requests for information involving any pending or future
Litigation, and to provide complete and truthful testimony in any such
Litigation.
7. Company Property and Information. The Company and the Employee agree
that the Employee, as of the date of the execution of this Agreement, has
returned to the Company all Company Information (defined below) and related
reports, customer lists, trade secrets, notes, maps, files, blueprints,
drawings, memoranda, manuals, and records; credit cards; cardkey passes; door
and file keys; automobiles; computer access codes, computer discs, magnetic
media or business information in any form; software; other business information
of the Company Releasees; and all other physical or personal property which the
Employee received or prepared or helped prepare in connection with his
employment The Employee represents and warrants that he has not retained and
will not retain any copies, duplicated, reproductions or excepts thereof in any
form. The term "Company Information" as used in this Agreement includes, without
limitation, information received from third parties, other confidential business
or financial information of the Company and other materials and information
described in this Paragraph. The Employee further represents and warrants that
he has not, except in the ordinary course of business and in accordance with
Company policies and procedures, destroyed or discarded any documents or
information.
8. Confidentiality of This Agreement.
(a) The Employee and the Company mutually represent and agree that, except
to the extent required by law, they will keep the terms, and the fact,
of this Agreement completely confidential and they will not hereafter
disclose any information concerning this Agreement to any person;
provided, however, that the Employee may disclose the terms, and the
fact, of this Agreement to his immediate family and his legal and tax
advisors, if such persons agree to keep such information confidential
and not disclose it to others, except as provided in Paragraph 6(b)
above; provided, however, that the Company may issue a press release
announcing the Employee's resignation, and will file with the
Securities and Exchange Commission a report on Form 10-K or 8-K
regarding his resignation.
(b) The provisions set forth in subparagraph (a) above are material terms
of this Agreement, and a breach of any of those provisions shall
constitute a material breach of this Agreement.
9. Consideration. The Company and the Employee mutually acknowledge that
neither is required to enter into this Agreement, and the Employee acknowledges
that the consideration to be received by him under this Agreement is adequate
and that the promises and agreements made by the Company in this Agreement are
in consideration of the Employee's agreement to provide the releases set forth
in Paragraph 4 above.
10. Receipt of This Agreement. The Employee acknowledges that he has had
twenty-one (21) days to consider the terms of this Agreement.
11. Revocability. This Agreement is revocable by the Employee for seven
(7) days after it is signed by him. This Agreement shall not be effective or
enforceable until the period for revocation has expired and the Employee has
delivered to the Company an original executed version of the Waiver of
Revocation in the form attached hereto as Exhibit A.
12. Arbitration. In the event there shall arise any questions or dispute
between the Company and the Employee with respect to the provisions of this
Agreement or its interpretation, such dispute shall be settled exclusively by
arbitration in Reno, Nevada, in accordance with the commercial rules then in
effect of the American Arbitration Association. Judgment upon an award rendered
by the arbitrators may be entered in any court of competent jurisdiction,
including courts in the States of California and Nevada. Any award so rendered
shall be final and binding upon the Company and the Employee. All costs and
expenses of the arbitrator(s) and any court proceedings, and all costs and
expenses of experts, attorneys, witnesses and other persons retained by the
prevailing parties shall be borne by the party that does not prevail in such
arbitration(s) and court proceedings to the extent that such expenses relate to
claims as to which the prevailing party was successful. In the event that
injunctive relief shall become necessary under this Agreement, both the Company
and the Employee shall have the right to seek provisional remedies prior to an
ultimate resolution by arbitration.
13. Voluntary Agreement. The Employee represents and agrees that he has
been advised by the Company of his right to discuss all aspects of this
Agreement with his attorneys, that he has availed himself of this right, that he
has carefully read and fully understands all of the provisions of this
Agreement, and that he is voluntarily entering into this Agreement.
14. Notices. Any notice given to either party to this Agreement shall be
in writing and shall be deemed to have been given when delivered personally or
sent by certified or registered mail, postage prepaid, return receipt requested,
duly addressed to the party concerned at the address indicated below or to such
changed address as such party may subsequently give such notice of.
If to the Company: KENETECH Corporation
500 Sansome Street, Suite 300
San Francisco, CA 94111
Attn: General Counsel
If to the Employee: Gerald R. Alderson
745 California Avenue
Reno, Nevada 89509
15. General Provisions.
(a) The Employee represents and acknowledges that in executing this
Agreement, he does not rely and has not relied upon any
representation, inducement agreement or statement not set forth herein
made by any of the Company Releasees or by any of the Company
Releasees' agents, representatives or attorneys with regard to the
subject matter of this Agreement or otherwise.
(b) The provisions of this Agreement are severable, and if any part of it
is found to be unenforceable, the other provisions shall remain fully
valid and enforceable. This Agreement shall survive the termination of
any arrangements contained herein.
(c) The Company and the Employee mutually agree that neither may assign
this Agreement, or any rights or obligations under this Agreement, to
any person or entity without the express prior written approval of the
other, except that the Employee may assign Note B or his payment
rights under Note B without the Company's consent.
(d) This Agreement sets forth the entire agreement between the Company and
the Employee and supersedes any and all prior agreements or
understandings between the Company and the Employee pertaining to the
subject matter hereof, including the Employment Agreement. This
Agreement shall inure to the benefit of and be binding upon the
successors in interest and assigns of each party except as otherwise
provided herein.
(e) The effect, intent and construction of this Agreement shall be
governed by the laws of the State of California, without giving effect
to the conflict of laws rules thereof.
(f) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original.
IN WITNESS WHEREOF, the Company and the Employee have duly executed this
Agreement as of the date first set forth above.
KENETECH CORPORATION
By_________________________ ___________________________
Name: Mark D. Lerdal GERALD R. ALDERSON
Title: President and Chief Executive Officer
EXHIBIT A
April , 1996
The Board of Directors
KENETECH Corporation
500 Sansome Street, Suite 300
San Francisco, CA 94111
Attention: Mark D. Lerdal
Gentlemen:
On April 9, 1996, I executed a Separation Agreement and Mutual Release
(the "Agreement") between KENETECH Corporation ("KENETECH") and me, effective as
of March 31, 1996. I acknowledge that I was advised by KENETECH that I had the
right to consult with an attorney, and I have availed myself of that right. I
also acknowledge that I was advised by KENETECH and my attorney that I had the
right to revoke the Agreement at any time during the seven-day period following
the date of my execution of the Agreement, which revocation period expired on
April , 1996.
By providing this letter, I represent and warrant to KENETECH that I have
not revoked the Agreement within the seven-day revocation period that expired on
April , 1996 , and that I will not attempt to revoke the Agreement at any time
in the future. I acknowledge that I am providing this letter to induce KENETECH
to deliver two promissory notes to me in accordance with the provisions of
Paragraph 3(a) of the Agreement. I also acknowledge that I have no basis upon
which to claim that the Agreement is invalid for any reason.
Very truly yours,
<PAGE>
SEPARATION AGREEMENT AND RELEASE
THIS SEPARATION AGREEMENT AND RELEASE (the "Agreement") is made and
entered into as of October 7, 1996, by and between KENETECH CORPORATION and CNF
INDUSTRIES, INC. (together with their affiliated companies, the "Company'), both
Delaware corporations, and JOEL M. CANINO (the "Employee"), who was previously
employed by the Company.
RECITALS
A. The Employee's employment with the Company terminated on or about
September 15, 1996.
B. The Employee acknowledges that he received full salary, vacation pay
and benefits payments from the Company in accordance with the
Company's regular payroll practices prior to termination.
C. The Employee desires to compromise, settle and release fully and
finally all outstanding matters between the Employee and the Company,
including all matters relating to the Employee's employment, his
separation from the Company and the termination of his employment.
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, and for other good and valuable consideration, the Company and
the Employee agree as follows:
1. Separation Date. The Company and the Employee agree that the Employee's
employment by the Company was terminated effective on or about September 15,
1996 (the "Separation Date"). The Employee understands and agrees that,
effective as of the Separation Date, he was no longer authorized to incur any
expenses, obligations or liabilities on behalf of the Company and he
acknowledges that he has been reimbursed for all expenses incurred by him prior
to such date.
2. Resignation. The execution of this Agreement shall confirm the
Employee's resignation as an officer and employee of the Company effective as of
the Separation Date.
3. Terms of Separation. In consideration of the agreements by the Employee
provided herein, including, without limitation, the releases by the Employee in
Paragraph 4 below and cancellation of the Promissory Note from the Company to
the Employee dated December 1, 1994 ("Promissory Note") as provided in Paragraph
15(d) below, the Company agrees as follows:
(a) In full satisfaction of any claims by the Employee in connection with
his employment or the termination of his employment, including, but
not limited to, any claims for compensation, bonus payments, fringe
benefits, disability benefits, ownership rights, severance benefits,
change in control benefits, out-placement services, relocation
expenses, payments of principal and interest under the Promissory
Note, life insurance premiums or coverage, membership fees and
options, the Company shall, concurrently with the Company's receipt of
the Waiver of Revocation described in Paragraph 11 below, (i) pay to
the Employee a lump sum amount equal to $445,000 less all applicable
deductions, and (ii) transfer to the Employee as owner/payor the
Company's life insurance policies naming the Employee as the insured
issued by Security-Connecticut Life Insurance Company, Policy Nos.
0008-47934E and 0008-41548R, free of loans, and (iii) deliver to the
Employee restricted stock certificates as contemplated by Paragraph
15(f) below.
(b) The Employee has ceased participation in all employee benefit plans of
the Company effective as of the Separation Date, and the Company shall
not be liable for any payments to or on behalf of the Employee in
respect of any fringe benefits, except that the Employee shall
continue to be covered by the Company's health and group disability
and life insurance plan until October 31, 1996. The foregoing health
coverage shall not be in lieu of any continued health care coverage to
which the Employee or his dependents would otherwise, at the
Employee's expense, be entitled in accordance with the requirements of
Code Section 4980B by reason of termination of his employment.
(c) The Employee's employment will be deemed terminated effective on the
Separation Date.
(d) The Company will deduct and withhold, from the compensation payable to
the Employee under this Agreement, any and all Federal, State and
local income and employment withholding taxes and any other amounts
required to be deducted or withheld by the Company under the
applicable statute or regulation.
4. Mutual Releases.
(a) Release By The Employee. Except as to any claims arising out of rights
provided under this Agreement, in consideration for the agreements set
forth herein, the Employee hereby irrevocably and unconditionally
releases, acquits and forever discharges for himself and his heirs,
executors, administrators, agents, successors and assigns, CNF
Industries, Inc., KENETECH Corporation and any related entity and
their stockholders, predecessors, successors, assigns, agents,
directors, officers, employees, representatives, attorneys, divisions,
and subsidiaries, and all persons acting by, through, under or in
concert with any of them (collectively, the "Company Releasees"), or
any of them, from any and all charges, complaints, claims, assertions
of claims, liabilities, obligations, promises, agreements,
controversies, damages, actions, causes of action, suits, rights,
demands, costs, losses, debts and expenses (including attorneys' fees
and costs actually incurred) of any nature whatsoever, known or
unknown, suspected or unsuspected, arising directly or indirectly out
of any interactions between the Employee or his heirs, executors,
administrators, agents, successors or assigns, and the Company
Releasees from the beginning of time to the present, including but not
limited to any matter arising out of the Employee's employment by the
Company, his separation from employment with the Company, the proposed
purchase of CNF Industries, Inc. or any affiliate by Gemma Inc. or any
affiliate, or the termination of the Employee's employment, which the
Employee or his heirs, executors, administrators, agents, successors
or assigns, now has, or ever claimed to have, or could claim against
each or any of the Company Releasees, including, without limitation,
any of the following: claims in equity or law for wrongful discharge,
and personal injury claims, claims under federal, state or local laws
prohibiting discrimination on account of age, national origin, race,
sex, disability, religion and other protected classifications, or
claims under the Civil Rights Acts of 1866 and 1871, as amended, Title
VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act
of 1991, the Age Discrimination in Employment Act of 1967, as amended,
the Employee Retirement Income Security Act of 1974, as amended, the
Americans with Disabilities Act of 1990, the Family Medical and Leave
Act, the California Fair Employment and Housing Act or any comparable
law of any other State (collectively, the "Employee Claims"). The
Employee hereby agrees to forego any right to file any charges or
complaints with any governmental agencies or any legal action against
the Company Releasees under any of the laws referenced in this
paragraph or with respect to any of the Employee Claims.
Notwithstanding the foregoing, the release by the Employee in this
paragraph shall not limit the right of the Employee to seek to enforce
the provisions of this Agreement, including without limitation the
provisions of Paragraph 8 below.
(b) Release By The Company. Except as to any claims arising out of rights
provided under this Agreement, in consideration for the agreements set
forth herein, the Company hereby irrevocably and unconditionally
releases, acquits and forever discharges for itself and its agents,
successors and assigns, the Employee and his successors and assigns
(collectively, the "Employee Releasees"), or any of them, from any and
all charges, complaints, claims, assertions of claims, liabilities,
obligations, promises, agreements, controversies, damages, actions,
causes of action, suits, rights, demands, costs, losses, debts and
expenses (including attorneys' fees and costs actually incurred) of
any nature whatsoever, known or unknown, suspected or unsuspected,
arising directly or indirectly out of any interactions between the
Company and the Employee Releasees from the beginning of time to the
present, arising out of the Employee's employment by the Company, his
separation from employment with the Company, or the termination of the
Employee's employment, which the Company now has, or ever claimed to
have, or could claim against each or any of the Employee Releasees
(collectively, the "Company Claims"). The Company hereby agrees to
forego any right to file any charges or complaints with any
governmental agencies or any legal action against the Employee
Releasees with respect to any of the Company Claims. Notwithstanding
the foregoing, the release by the Company in this paragraph shall not
limit the right of the Company to seek to enforce the provisions of
this Agreement, including without limitation the provisions of
Paragraph 8 below.
(c) Gemma. The Employee shall not benefit from or promote any action or
legal proceeding of any kind against any of the Company Releasees
arising out of or in connection with, directly or indirectly, Gemma
Inc.'s attempt to purchase CNF Industries, Inc. or any affiliate
thereof, and shall oppose any such action or legal proceeding,
including but not limited to voting against any such action or legal
proceeding in his capacity as an officer or director of Gemma Inc. The
Employee represents and warrants to the Company that the Employee
knows of no plans to initiate any such action or proceeding and that
he does not have a controlling interest in or control Gemma Inc. or
its actions. The Company shall not benefit from or promote any action
or legal proceeding of any kind against the Employee arising out of or
in connection with, directly or indirectly, Gemma Inc.'s attempt to
purchase CNF Industries, Inc. or any affiliate thereof, and shall
oppose any such action or legal proceeding.
(d) Indemnification and Insurance. To the extent permitted by applicable
law, the Company agrees that all rights to indemnification from the
Company existing under the law and under the Company's certificate of
incorporation and by-laws as of the Separation Date, in favor of the
Employee as a director, officer, employee, or agent of the Company
shall survive this Agreement and shall continue in full force and
effect with respect to any liability for any acts or omissions by the
Employee during the period of his employment by the Company. The
Company further agrees that, for so long as it maintains directors'
and officers' liability insurance that covers any former employees of
CNF Industries, Inc. or KENETECH Corporation whose employment
terminated in September 1996 or earlier, it shall include the Employee
among the insured former employees; provided, however, that this
Agreement shall not be construed or implied as an obligation to
continue to maintain directors' and officers' liability insurance for
active or former employees for any period of time. The Employee shall
hold the Company harmless from any liability arising out of his tax
situation and any taxes, penalties, or other assessments that may
hereafter be asserted on account of any payments or other compensation
hereunder, over and above taxes withheld and paid in a timely manner
by the Company.
5. Waiver of Unknown Claims. The Employee acknowledges that he is aware
that he may hereafter discover claims or facts different from or in addition to
those he now knows or believes to be true with respect to the matters herein
released, and except as to any claims arising out of the rights provided under
this Agreement, he agrees that the releases set forth above shall be and remain
in effect in all respects a complete general release as to the matters released
and all claims relative thereto which may exist or may heretofore have existed,
notwithstanding any such different or additional facts. The Employee
acknowledges that he has considered the possibility that he may not fully know
the number or magnitude of all of the claims which he has or may have against
the Company and the Company Releasees and, except as set forth in this Agreement
and Paragraph 8 below, intends to assume the risk that he is releasing unknown
claims. The Employee acknowledges that he has been informed of Section 1542 of
the Civil Code of the State of California and, except as set forth in this
Agreement and Paragraph 8 below, he does hereby expressly waive and relinquish
all rights and benefits which he has or may have under such Section or under any
comparable law of any other State, which reads as follows:
"A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor."
The Employee understands and acknowledges the significance and consequences
of such specific waiver of Section 1542 and, except as set forth in this
Agreement and Paragraph 8 below, hereby assumes full responsibility for any
injuries, damages or losses that he may incur as the result of such waiver.
6. Confidentiality and Non-disclosure Agreements.
(a) The Employee acknowledges that any confidentiality, proprietary or
ownership rights or nondisclosure agreement(s) in favor of the Company
or the Company Releasees which he may have entered into in connection
with his employment (the "Nondisclosure Agreement(s)") by the Company,
are understood to survive, and do survive, the termination of his
employment and this Agreement, and accordingly nothing in this
Agreement shall be construed as terminating, limiting or otherwise
affecting any such Nondisclosure Agreement(s) or the Employee's
obligations thereunder.
(b) The Employee agrees that, except to the extent compelled by law or
legal process or except to the extent he is required to disclose to
governmental authorities in connection with any inquiry, audit or
assessment relating to the taxation of any payments provided for
herein or except in any litigation or arbitration proceeding between
the Company and the Employee as provided herein (in which case the
Employee will use his best efforts to ensure that such information is
maintained as confidential by the persons to whom he is compelled or
required to disclose such information), the Employee will not: (i)
disclose or communicate confidential information of the Company to any
third party (including governmental agencies and employees and former
employees of the Company); (ii) make use of confidential information
of the Company for his own behalf, or on behalf of any third party;
and (iii) facilitate, assist, persuade or attempt to facilitate,
assist or persuade any third party to commence or prosecute any legal
proceedings against the Company or any Company Releasees. If the
Employee receives, is notified of, or is served with a subpoena,
summons, complaint, order, notice, notice of deposition or any other
legal process or request for information (collectively, "Legal
Process") in connection with any legal or quasi-legal proceeding,
including, but not limited to, any action at law or equity,
arbitration, administrative proceeding or governmental,
self-regulating organization or stock exchange investigation
(collectively, "Litigation"), relating to the performance of his
services as an employee, officer or as a director of the Company, or
which, if complied with by the Employee, might compel or lead to the
disclosure by the Employee of confidential information of the Company,
the Employee shall immediately notify the Company and provide the
Company with a copy of the same.
7. Company Property and Information. The Company and the Employee agree
that the Employee, as of the date of the execution of this Agreement, has
returned to the Company all Company Information (defined below) and files
containing Company Information; credit cards; cardkey passes; door and file
keys; automobiles; apartments; computer access codes, computer discs, magnetic
media; software; and all other physical property which the Employee received in
connection with his employment. The term "Company Information" as used in this
Agreement means confidential or proprietary business or financial information of
the Company. The Employee further represents and warrants that he has not,
except in the ordinary course of business and in accordance with Company
policies and procedures, destroyed or discarded any documents or information.
8. Confidentiality of This Agreement.
(a) The Employee and the Company mutually represent and agree that, except
to the extent required by law, they will keep the terms, and the fact,
of this Agreement completely confidential and they will not hereafter
disclose any information concerning this Agreement to any person;
provided, however, that the Employee may disclose the terms, and the
fact, of this Agreement to his immediate family and either party may
disclose the terms hereof to his or its legal and tax advisors if such
persons agree to keep such information confidential and not disclose
it to others, except as provided in Paragraph 6(b) above; provided,
however, that either party may make any disclosures that may be
required or appropriate under applicable laws or regulations.
(b) The provisions set forth in subparagraph (a) above are material terms
of this Agreement, and a breach of any of those provisions shall
constitute a material breach of this Agreement.
9. Consideration. The Company and the Employee mutually acknowledge that
neither is required to enter into this Agreement, and the Employee acknowledges
that the consideration to be received by him under this Agreement is adequate
and that the promises and agreements made by the Company in this Agreement are
in consideration of the Employee's agreement to provide the releases set forth
in Paragraph 4 above.
10. Receipt of This Agreement. The Employee acknowledges that he has been
given twenty-one (21) days to consider the terms of this Agreement.
11. Revocability. This Agreement is revocable by the Employee for seven
(7) days after it is signed by him. This Agreement shall not be effective or
enforceable until the period for revocation has expired and the Employee has
delivered to the Company an original executed version of the Waiver of
Revocation in the form attached hereto as Exhibit A.
12. Arbitration. In the event there shall arise any questions or dispute
between the Company and the Employee with respect to the provisions of this
Agreement or its interpretation, such dispute shall be settled exclusively by
arbitration in San Francisco, California, in accordance with the commercial
rules then in effect of the American Arbitration Association. Any award so
rendered shall be final and binding upon the Company and the Employee and in
lieu of any right to a jury trial. In the event that injunctive relief shall
become necessary under this Agreement, both the Company and the Employee shall
have the right to seek provisional remedies prior to an ultimate resolution by
arbitration.
13. Voluntary Agreement. The Employee represents and agrees that he has
been advised by the Company of his right to discuss all aspects of this
Agreement with his attorneys, that he has voluntarily chosen whether to avail
himself of this right, that he has carefully read and fully understands all of
the provisions of this Agreement, and that he is voluntarily entering into this
Agreement.
14. Notices. Any notice given to either party to this Agreement shall be
in writing and shall be deemed to have been given when delivered personally or
sent by certified or registered mail, postage prepaid, return receipt requested,
duly addressed to the party concerned at the address indicated below or to such
changed address as such party may subsequently give such notice of.
If to the Company: KENETECH Corporation
500 Sansome Street, Suite 300
San Francisco, CA 94111
Attn: General Counsel
If to the Employee: Joel M. Canino
100 Wells Street
Unit 710
Hartford, Connecticut 06103
15. General Provisions.
(a) The Employee represents and acknowledges that in executing this
Agreement, he does not rely and has not relied upon any
representation, inducement agreement or statement not set forth herein
made by any of the Company Releasees or by any of the Company
Releasees' agents, representatives or attorneys with regard to the
subject matter of this Agreement or otherwise.
(b) The provisions of this Agreement are severable, and if any part of it
is found to be unenforceable, the other provisions shall remain fully
valid and enforceable. This Agreement shall survive the termination of
any arrangements contained herein.
(c) The Company and the Employee mutually agree that neither may assign
this Agreement, or any rights or obligations under this Agreement, to
any person or entity without the express prior written approval of the
other.
(d) This Agreement sets forth the entire agreement between the Company and
the Employee and supersedes any and all prior agreements or
understandings between the Company and the Employee pertaining to the
subject matter hereof, including the Employment Agreement dated
December 1, 1994 between the Company and the Employee ("Employment
Agreement"), the Promissory Note and any other agreements relating to
the Employee's employment. Except as specifically set forth in
Paragraph 6 hereof, the Employment Agreement shall be null and void as
of the Separation Date. The Promissory Note shall be null and void as
of the Separation Date. This Agreement shall inure to the benefit of
and be binding upon the successors in interest and assigns of each
party except as otherwise provided herein.
(e) The Employee and the Company agree that the payments and other
consideration paid by the Company to the Employee under this
Agreement, and the cancellation by the Employee of the Company's debt
to the Employee under this Agreement, represent the parties'
bargained-for compromise of their dispute regarding the consideration
(if any) which is due the Employee as a result of the termination of
his existing Employment Agreement under the circumstances which led to
that termination. The parties agree that this compromise provides fair
consideration to each of them.
(f) Nothing herein shall amend or alter the Restricted Stock Purchase
Agreement between the Employee and KENETECH Corporation dated as of
December 6, 1990 or the grants of stock options by KENETECH
Corporation to the Employee dated December 28, 1990 and September 23,
1993, except that (A) all of the unvested or restricted Common Stock
the Employee holds (to the extent not otherwise vested) shall
automatically vest as of the Separation Date and (B) each of the
outstanding stock options (to the extent not otherwise exercisable)
shall automatically accelerate as of the Separation Date so that each
such option is immediately exercisable for the total number of shares
purchasable thereunder in accordance with the applicable stock option
agreement.
(g) The effect, intent and construction of this Agreement shall be
governed by the laws of the State of California, without giving effect
to the conflict of laws rules thereof.
(h) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original.
IN WITNESS WHEREOF, the Company and the Employee have duly executed this
Agreement as of the date first set forth above.
KENETECH CORPORATION
By_________________________ ___________________________
Name: Mark D. Lerdal JOEL M. CANINO
Title: Chief Executive Officer Date Signed: October __, 1996
Date Signed: October __, 1996
<PAGE>
EXHIBIT A
October __, 1996
The Board of Directors
KENETECH Corporation
500 Sansome Street, Suite 300
San Francisco, CA 94111
Attention: Mark D. Lerdal
Gentlemen:
On October __, 1996, I executed a Separation Agreement and Mutual Release
(the "Agreement") between KENETECH Corporation ("KENETECH") and me, effective as
of October __, 1996. I acknowledge that I was advised by KENETECH that I had the
right to consult with an attorney, and I have voluntarily chosen whether to
avail myself of that right. I also acknowledge that I was advised by KENETECH
that I had the right to revoke the Agreement at any time during the seven-day
period following the date of my execution of the Agreement, which revocation
period expired on October __, 1996.
By providing this letter, I represent and warrant to KENETECH that I have
not revoked the Agreement within the seven-day revocation period that expired on
October __, 1996, and that I will not attempt to revoke the Agreement at any
time in the future. I acknowledge that I am providing this letter to induce
KENETECH to make a payment to me in accordance with the provisions of Paragraph
3(a) of the Agreement. I also acknowledge that I have no basis upon which to
claim that the Agreement is invalid for any reason.
Very truly yours,
<PAGE>
FIRST AMENDMENT TO
SEPARATION AGREEMENT AND RELEASE
THIS FIRST AMENDMENT TO SEPARATION AGREEMENT AND RELEASE (the "Amendment")
is made and entered into as of October 28, 1996, by and between KENETECH
CORPORATION and CNF INDUSTRIES, INC. (together with their affiliated companies,
the "Company'), both Delaware corporations, and JOEL M. CANINO (the "Employee"),
who was previously employed by the Company.
RECITALS
A. The Employee's employment with the Company terminated on or about
September 15, 1996.
B. The Employee and the Company entered into a Separation Agreement and
Release dated as of October 7, 1996 ("Agreement") under which the
Employee compromised, settled and released fully and finally all
outstanding matters between the Employee and the Company, including
all matters relating to the Employee's employment, his separation from
the Company and the termination of his employment.
C. The Employee and the Company now wish to amend the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual promises
contained herein, and for other good and valuable consideration, the Company and
the Employee amend the Agreement as follows:
1. Amendment. The parties hereby amend Sections 3(a) and (b) to read in
their entirety as follows:
"3. Terms of Separation. In consideration of the agreements by the
Employee provided herein, including, without limitation, the releases
by the Employee in Paragraph 4 below and cancellation of the
promissory note from the Company to the Employee dated December 1,
1994 ("Promissory Note") as provided in Paragraph 15(d) below, the
Company agrees as follows:
(a) In full satisfaction of any claims by the Employee in connection with
his employment or the termination of his employment, including, but
not limited to, any claims for compensation, bonus payments, fringe
benefits, disability benefits, ownership rights, severance benefits,
change in control benefits, out-placement services, relocation
expenses, payments of principal and interest under the Promissory
Note, life insurance premiums or coverage, membership fees and
options, the Company shall, concurrently with the Company's receipt of
the Waiver of Revocation described in Paragraph 11 below, do the
following: (i) pay to the Employee a lump sum amount equal to $429,000
less all applicable deductions, and (ii) transfer to the Employee as
owner/payor the Company's life insurance policies naming the Employee
as the insured issued by Security-Connecticut Life Insurance Company,
Policy Nos. 0008-47934E and 0008-41548R, free of loans, and (iii)
deliver to the Employee restricted stock certificates as contemplated
by Paragraph 15(f) below.
(b) The Employee has ceased participation in all employee benefit plans of
the Company effective as of the Separation Date, and the Company shall
not be liable for any payments to or on behalf of the Employee in
respect of any fringe benefits, except that (1) the Employee shall
continue to be covered by the Company's health and group disability
and life insurance plan until October 31, 1996, and (2) CNF
Industries, Inc. will provide health coverage (i.e., medical and
dental) to the Employee and his eligible dependents, without charge or
tax, from October 31, 1996 until the earlier of June 30, 1999 or the
first date that the Employee is covered under another employer's
health benefit program without exclusion for any pre-existing medical
condition. The foregoing health coverage shall be in lieu of any
continued health care coverage to which the Employee or his dependents
would otherwise, at the Employee's expense, be entitled in accordance
with the requirements of Code Section 4980B by reason of termination
of his employment."
2. No Modification. Except as expressly set forth in this Amendment,
the Agreement shall continue in full force and effect without
modification.
IN WITNESS WHEREOF, the Company and the Employee have duly executed this
Agreement as of the date first set forth above.
KENETECH CORPORATION
By_________________________ ___________________________
Name: Mark D. Lerdal JOEL M. CANINO
Title: Chief Executive Officer Date Signed: October __, 1996
Date Signed: October __, 1996
Subsidiaries of
KENETECH Corporation as of 03/19/97
CNF Industries, Inc.
(Delaware)
C.N. Flagg & Co., Incorporated
(Connecticut)
CNF Century Acquisition, Inc.
(Delaware)
Century Contractors West, Inc.
(Texas)
CNF Constructors, Inc.
(Tennessee)
CNF Equipment, Inc.
(Delaware)
CNF Penuelas, Inc.
(Delaware)
KENETECH - CNF Texas, Inc.
(Delaware)
CNF Power, Inc.
(Connecticut)
Process Construction Supply, Inc.
(Delaware)
KENETECH Energy Systems, Inc.
(Delaware)
CCF-6, Inc.
(Connecticut)
Flagg Energy Development Corporation
(Delaware)
CCF-1, Inc.
(Connecticut)
CCF-3, Inc.
(Connecticut)
KEM, Inc.
(Delaware)
KES Bloom, Inc.
(Delaware)
KES Chateaugay, Inc.
(Delaware)
KES Chicago Heights, Inc.
(Delaware)
KES Kingsburg, Inc. (Delaware)
KES Kingston, Inc.
(Delaware)
KES LNG, Inc.
(Delaware)
KES Montego, Inc.
(Delaware)
KES Penuelas Holdings, Inc.
(Delaware)
KES Bermuda, Inc.
(Delaware)
KES Bermuda, Ltd. (British Virgin
Islands)
KES LNG, Ltd. (British Virgin
Islands)
KES Penuelas, Ltd. (British Virgin
Islands)
KES Pepperell, Inc.
(Delaware)
KES Renville, Inc.
(Delaware)
Mill Street GP, Inc.
(Delaware)
Mill Street LP, Inc.
(Delaware)
KENETECH Facilities Management, Inc.
(Delaware)
KFM Pepperell, Inc.
(Delaware)
KENETECH International Ltd.
(Delaware)
9003-2301 Quebec Inc.
(Quebec)
9007-8585 Quebec Inc.
(Quebec)
Energia Eolica de Galicia, S.A.
(Spain)
Energie Eolienne KENETECH, Inc./KENETECH Windpower, Inc.
(Quebec)
Kenwind Industries Ltd./Industries Kenwind Ltee
(Quebec)
Kenwind Industries Magdalen Ltd./Les Industries de la Madeleine Kenwind Ltee
(Quebec)
KW Groningen B.V.
(Netherlands)
KW Eemsmond B.V.
(Netherlands)
KENETECH Management Services, Inc.
(Delaware)
KENETECH Merger Company
(Delaware)
KENETECH Service Company
(Delaware)
KENETECH Windpower India Company Limited (Mauritius)
(Mauritius)
KENETECH India Private Limited (India)
(India)
KENETECH Windpower, Inc.
(Delaware)
AWP Plantas Eolicas, S.A.
(Spain)
East Wind Limited (Channel
Islands)
Windergo
Ltd.
Fiberblade Corporation
(Delaware)
GP WPP93 LP, Inc.
(Delaware)
KC One Company
(Delaware)
KENETECH Assembly and Test, Inc.
(Delaware)
KENETECH Canadian Operations, Inc.
(Alberta)
KENETECH Finance Company
(Delaware)
KENETECH Project Company
(Delaware)
USW Altamont Corporation
(Delaware)
KENETECH Leasing Company
USW Delta Company
KENETECH FSC, Inc.
(Barbados)
KENETECH Solar Energy Ventures, Inc.
(Delaware)
KW Altamont I, Inc.
(Delaware)
KW Altamont II, Inc.
(Delaware)
KW Altamont SCE, Inc.
(Delaware)
KW Boulevard I, Inc.
(Delaware)
KW Boulevard II, Inc.
(Delaware)
KW Cottonwood I, Inc.
(Delaware)
KW Cottonwood II, Inc.
(Delaware)
KW Eemsmond GP, Inc.
(Delaware)
KW Eemsmond LP, Inc.
(Delaware)
KW Europe Project Development Limited Liability
Company
KW Greenville Company
(Delaware)
KW Hayward, Inc.
(Delaware)
KW India, Inc.
(Delaware)
KW Jackson, Inc.
(Delaware)
KW Kelso I, Inc.
(Delaware)
KW Kelso II, Inc.
(Delaware)
KW Kelso III, Inc.
(Delaware)
KW Kelso IV, Inc.
(Delaware)
KW Kramer I, Inc.
(Delaware)
KW Kramer II, Inc.
(Delaware)
KW Kramer PV, Inc.
(Delaware)
KW La Rumorosa I, Inc.
(Delaware)
KW La Rumorosa II, Inc.
(Delaware)
KW La Rumorosa III, Inc.
(Delaware)
KW Llyn Alaw LP, Inc.
(Delaware)
KW San Diego, Inc.
(Delaware)
KW SCE, Inc.
(Delaware)
KW SDG&E, Inc.
(Delaware)
KW Sidewinder, Inc.
(Delaware)
KW Solano I, Inc.
(Delaware)
KW Solano II, Inc.
(Delaware)
KW Tehachapi II, Inc.
(Delaware)
KW Tehachapi III, Inc.
(Delaware)
KW Tejona, S.A. (Costa
Rica)
KW Texas Manufacturing, Inc.
(Delaware)
KW Texas, Inc.
(Delaware)
KW Vansycle I, Inc.
(Delaware)
KW Vansycle II, Inc.
(Delaware)
KW WPP94, Inc.
(Delaware)
Northeast Windpower Systems, Inc.
(Delaware)
U.S. Windpower 1983-1, Inc.
(California)
U.S. Windpower 1984, Inc.
(California)
U.S. Windpower Transmission Corporation
(Delaware)
US WEG, Inc.
(Delaware)
USW Concord Company
(Delaware)
USW Fremont Company
(Delaware)
USW Land Corporation
(Delaware)
USW Midwest Windpower Land Company
(Delaware)
USW WindRiver Company
(Delaware)
USW WPP93 GP, Inc.
(Delaware)
Wind Generator Parks, Inc.
(California)
Windplant Operations B.V.
(Netherlands)
Windpower Management Associates 1984-2, Inc.
(California)
Windpower Management Associates 1984-3, Inc.
(California)
Windpower Management Associates 1985-1, Inc.
(California)
Windpower Management Associates 1985-2, Inc.
(California)
Windpower Management Associates 1985-3, Inc.
(California)
Windpower Partners 1993 (SCE), Inc.
(Delaware)
WPP94 GP, Inc.
(Delaware)
KW Transmission, Inc.
KENETECH Wood Fuels, Inc.
(Delaware)
KWF Chateaugay, Inc.
(Delaware)
KWF Wareham, Inc.
(Delaware)
U.S. Windpower Development Corporation
(Delaware)
NOTE: * designates entities with multiple parents.
<PAGE>
RETENTION AGREEMENT
This agreement is entered into as of February 2, 1996, by and between KENETECH
Corporation (the "Company" and Mervin E. Werth, an individual currently employed
by the Company (the "employee" or "you").
This agreement pays a retention benefit as an incentive for an employee to
remain employed through a designated retention period. The Company and the
Employee desire to enter into a written employment agreement on the terms set
forth below. The parties agree as follows:
Agreement
1. Retention Payment.
a. The Company and you have agreed that, if you remain employed by the
Company until December 31, 1996, you will receive $125,000, an amount
equal to 12 months of your current salary. The full payment will be
made on January 2, 1997. The Company will deduct and withhold all
Federal, State and local income and employment withholding taxes and
any other amounts required to be deducted or withheld by the Company
under the applicable statute or regulation.
b. If you are offered continued employment with KENETECH or one of its
successors, you will receive the full retention payment as described
above.
c. Upon a Change in Control, the Company will be obligated to make the
full retention payment on the date described above. "Change in
Control" means:
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the principle
purpose of which is to change the State of the Company's
incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in
liquidation or dissolution of the Company;
(iii)any reverse merger in which the Company is the surviving
entity, but in which fifty percent (50%) or more of the
Company's outstanding voting stock is transferred to holders
different from those who held the stock immediately prior to
such merger; or
(iv) the acquisition of more than fifty percent (50%) of the
Company's outstanding voting stock pursuant to a tender or
exchange offer made by a person or related group of persons
(other than the Company or a person that directly or
indirectly controls, is controlled by or is under common
control with the Company).
d. If you are terminated by KENETECH or one of its successors for a
reason other than Termination for Cause, the Company will be obligated
to make the full retention payment on your termination date. You will
also be eligible for severance benefits applicable to you at the time
of your termination. If you are terminated for cause, you will not be
paid the retention payment described above not severance benefits. You
may be terminated for cause (a "Termination for Cause") if you commit
one or more acts of fraud, embezzlement, misappropriation of property
or information or engage in any other conduct materially adversely
affecting the business reputation of the Company.
e. If you voluntarily terminate your employment prior to December 31,
1996, you will not receive any portion of the retention payment.
2. Employment Duties. You agree to continue in your employment until December
31, 1996 and to perform in good faith and to the best of your ability all
services which may be required of you in your position. You also agree to
be available to render such services at all reasonable times and places in
accordance with reasonable directives and assignments issued by the
Company's President and Board of Directors. You will devote your full
effort to the business and affairs of the Company within the scope of your
responsibilities.
3. Health Benefits. Your eligibility for health benefits in not impacted by
this Agreement. This Agreement does not provide for benefits continuation
beyond your termination date.
4. Ownership Rights and General Employee Obligations. You will continue to be
bound by all the terms and provision of your existing Proprietary
Information and Inventions Agreement and other agreements with the Company,
and nothing in this document will modify or affect your duties or
obligations as an executive in the Company.
5. Miscellaneous. The provisions of this Agreement will be binding upon the
Company, its successors and assigns (including, without limitation, the
surviving entity or successor party resulting from the Change in Control)
and will be construed and interpreted under the laws of the State of
California. This Agreement may only be amended by written instrument signed
by you and the President.
KENETECH Corporation
By Richard Saunders
President & Chief Executive Officer
Mervin E. Werth
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the
12th day of April, 1996, by and between KENETECH Windpower, Inc., a Delaware
corporation (the "Company"), and Steven A. Kern, an individual currently
employed by the Company (the "Employee" or "you").
RECITALS
A. The Employee is assuming new responsibilities as an executive officer of
the Company.
B. The Company and the Employee desire to enter into a written employment
agreement on the terms set forth below.
NOW THEREFORE, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT
1. Employment. Unless terminated in connection with a Termination For
Cause (as defined below), the Employee is and will continue to be employed by
the Company at an annual base salary of $200,000 and with the same employee
benefits applicable as of the date of this Agreement.
2. Employment Duties. The Company will employ you as President of the
Company. You agree to perform in good faith and to the best of your ability all
services which may be required of you in your executive position and to be
available to render such services at all reasonable times and places in
accordance with reasonable directives and assignments issued by the Company's
Chief Executive Officer and the Board of Directors. During your employment, you
will devote your full time and effort to the business and affairs of the Company
within the scope of your executive office.
3. Benefits.
3.1 Termination. The Company and you have agreed that if your
employment with the Company is terminated for any reason (other than a
Termination For Cause), (a) you will receive severance payments equal to your
base salary for a period of one (1) year from and after the effective date of
your termination, and (b) you and your eligible dependents will continue to
receive the Company's health care coverage and life insurance (on the same terms
as you had while an employee) for one year after the date of termination.
3.2 Bonus Payments.
(a) The Company will pay to you a bonus in the amount of $66,000
on May 15, 1996.
(b) The Company will pay to you a bonus in the amount of
$134,000 on December 31, 1996. The payments described in
Sections 3.2 (a) and (b) shall be referred to as the "Bonus
Payments".
3.3 Termination For Cause. If you commit one or more acts of fraud,
embezzlement, misappropriation of property or information or engage in any other
conduct materially adversely affecting the business reputation of the Company,
you may be terminated for cause (a "Termination For Cause") and you will not be
paid any of the payments or benefits described in this Agreement.
3.4 Change in Control. Upon a Change In Control, the Company will
pay you a lump sum amount equal to one year's base salary. For purposes of this
Agreement, "Change in Control" means:
(i) a merger or acquisition in which the Company is not the
surviving entity, except for a transaction the
principal purpose of which is to change the State of
the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in
liquidation or dissolution of the Company;
(iii)any reverse merger in which the Company is the
surviving entity, but in which fifty percent (50%) or
more of the Company's outstanding voting stock is
transferred to holders different from those who held
the stock immediately prior to such merger; or
(iv) the acquisition of more than fifty percent (50%) of the
Company's outstanding voting stock pursuant to a tender
or exchange offer made by a person or related group of
persons (other than the Company or a person that
directly or indirectly controls, is controlled by or is
under common control with the Company).
3.5 Withholding. The Company will deduct and withhold, from the
compensation payable to you under this Agreement, any and all Federal, State and
local income and employment withholding taxes and any other amounts required to
be deducted or withheld by the Company under the applicable statute or
regulation.
4. Death. Upon your death during employment, the employment relationship
created pursuant to this Agreement will immediately terminate, and no further
compensation will become payable to you hereunder. In connection with such
termination, the Company will only be required to pay you (or your estate) any
unpaid compensation earned for services rendered through the date of your death.
5. Restrictive Covenant. During your employment:
(i) You will devote your full working time and effort to
the performance of your duties as an executive officer
of the Company; and
(ii) You will not directly or indirectly, whether for your
own account or as an employee, consultant or advisor,
provide services to any business enterprise other than
the Company, unless otherwise authorized by the Company
in writing.
However, you will have the right to perform such incidental services as
are necessary in connection with (a) your private passive investments, (b) your
charitable or community activities, and (c) your participation in trade or
professional organizations, but only to the extent such incidental services do
not interfere with the performance of your services hereunder.
6. Confidentiality. You hereby acknowledge that the Company may, from time
to time during your employment, disclose to you confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income, and information pertaining to the salaries
and performance levels of the Company's employees. You will not, at any time
during or after such employment, disclose to any third party or directly or
indirectly make use of any such confidential information, including (without
limitation) the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of, the Company's
business and affairs. All documents and data (whether written, printed or
otherwise reproduced or recorded) containing or relating to any such proprietary
information of the Company which come into your possession during your
employment will be returned by you to the Company immediately upon the
termination of your employment or upon any earlier request by the Company, and
you will not retain any copies, notes or excerpts thereof. Your obligations
under this Section 6 will continue in effect after termination of your
employment with the Company, whatever the reason or reasons for such
termination, and the Company will have the right to communicate with any of your
future or prospective employers concerning your continuing obligations under
this Section 6.
7. Ownership Rights. All materials, ideas, discoveries and inventions
pertaining to the Company's business, including (without limitation) all patents
and copyrights, patent applications, patent renewals and extensions, and the
names, addresses and telephone numbers of customers, will belong solely to the
Company. You will continue to be bound by all the terms and provisions of your
existing Proprietary Information and Inventions Agreements with the Company or
its subsidiaries or affiliated companies, and nothing in this document will be
deemed to modify or affect your duties and obligations under those other
agreements.
8. Indemnification. The indemnification provisions for Officers and
Directors under the Company's Bylaws will (to the maximum extent permitted by
law) be extended to you, during your employment and the period following your
termination irrespective of a Change in Control, with respect to any and all
matters, events or transactions occurring or effected during your employment.
9. Miscellaneous. The provisions of this Agreement will be binding upon
the Company, its successors and assigns (including, without limitation, the
surviving entity or successor party resulting from a Change in Control) and will
be construed and interpreted under the laws of the State of California. Each of
the parties acknowledges and agrees that upon any breach of this Agreement by
you, the Company will not have an adequate remedy at law, and will be entitled
to specific performance and other equitable relief. This Agreement incorporates
the entire agreement between you and the Company relating to the terms of your
employment and supersedes all prior agreements and understandings with respect
thereto. This Agreement may only be amended by written instrument signed by you
and an authorized officer of the Company. The provisions of this Agreement will
be deemed severable, and if any part of any provision is held illegal, void, or
invalid under applicable law, the remaining provisions of the Agreement will not
in any way be affected or impaired, but will remain binding in accordance with
their terms.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date first written above.
KENETECH CORPORATION, a Delaware corporation
By___________________________
Name: Mark D. Lerdal
Title: President and Chief Executive Officer
STEVEN A. KERN
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