SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year
ended December 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [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 410
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, par value $0.0001
(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
Based on the closing market price of the Common Stock at March 15, 2000 ($0.66),
the aggregate market value of the Common Stock of non-affiliates of the
Registrant was approximately $18,667,677. As of March 15, 2000, there were
41,919,218 shares of Common Stock outstanding.
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. [X]
Page 2
<PAGE>
PART I
Item 1. Business
- ----------------
KENETECH Corporation ("KENETECH") is a Delaware corporation that has
historically been involved in the development, construction, and management
of independent power projects. The Company continues in project development
activities at this time; however, it has ceased its construction and
management activities. The Company is currently participating with other
parties in developing two electric generating facilities and one oriented
strand board facility. As used in this document, "Company" refers to
KENETECH and its wholly-owned subsidiaries (including KENETECH Windpower,
Inc. ("KWI") only through May 29, 1996).
In 1995 and 1996, the Company experienced severe liquidity constraints. In
an effort to relieve such constraints, the Company undertook to sell its
assets. As of December 31, 1999, the Company has disposed of substantially
all its operating assets and has repaid substantially all of its
indebtedness. The Company currently has substantial cash balances and net
operating income tax losses and other tax attributes to carry forward to
future years. While pursuing development projects, management continues to
evaluate different businesses that the Company might pursue, through
acquisition or otherwise. In addition, the Company is evaluating all
strategic alternatives available to it. The Company has retained
professionals to assist it in such evaluations.
The Company is participating with OSB Chateaugay, LLC ("OSB") in the
development of an oriented strand board project in Chateaugay, New York
(the "Project"). In addition to development services, the Company has
agreed to fund up to $1.25 million to finance the development of the
Project. The Project is expected to produce up to 475 million square feet
of strand board per year. Construction is anticipated to commence in the
second half of 2000. The funding made to OSB is scheduled to be repaid upon
the financial closing or sale of the Project. In exchange for providing
funding and services, the Company will receive certain participation
distributions made by OSB which are contingent upon the success of the
Project.
The Company has agreed to participate in the development process and to
fund up to $5.0 million for the development of a 1,000 megawatt independent
power plant to be located in Astoria, Queens, New York. The project is
currently under development and is expected to commence construction in the
second half of 2001. In exchange for the services and funding, the Company
will be repaid the funding plus certain participation distributions, both
of which are contingent upon the success of the Astoria project.
Subsequent to the close of year-end, the Company agreed to fund up to
$600,000 for the development of a wind-powered electrical generating
facility to be located in Whinash, Cumbria, England. The project is a 50
megawatt facility. In exchange for the funding, the Company will receive
certain participation distributions which are contingent upon the sale or
financial closing of the Whinash project.
See also discussion of KWI bankruptcy under Note 3 and sale of EcoElectrica
Project Interest under Note 4 to the Financial Statements.
EMPLOYEES: The Company currently employs four persons.
Item 2. Property
- -----------------
The Company maintains its corporate headquarters in San Francisco,
California. The lease for approximately 2,400 square feet of corporate
office space expires in 2001. The annual lease payment is approximately
$75,000.
Page 3
<PAGE>
Item 3. Legal Proceedings
- -------------------------
LITIGATION
Delaware Stockholders' Class and Derivative Litigation: On February 2,
2000, plaintiffs Robert L. Kohls and Louise A. Kohls filed two actions in
the Court of Chancery of the State of Delaware In and For New Castle
County, against the Company, Angus M. Duthie, Mark D. Lerdal, Gerald R.
Alderson and Charles Christenson. Plaintiffs filed amended complaints on
February 23, 2000.
Plaintiffs allege that they were beneficial owners of Preferred Redeemable
Increased Dividend Equity Securities, 8-1/4% PRIDES, Convertible Preferred
Stock, par value $0.01 per share (the "PRIDES") of the Company, that
mandatorily converted, on May 14, 1998, into common stock, par value
$0.0001 per share ("Common Stock"), of the Company.
The first action is purportedly brought as a class action on behalf of the
named plaintiffs and all other persons who owned the PRIDES as of May 13,
1998. Plaintiffs allege, among other things, that defendants breached the
terms of the Company's Certificate of Designations, Preferences, Rights and
Limitations (the "Certificate of Designations") under which the PRIDES were
issued and breached their fiduciary duty to protect the interests of the
holders of the PRIDES prior to the PRIDES mandatory conversion. Plaintiffs
are seeking, among other things, (i) certification of the action as a class
action, (ii) a declaration that the holders of PRIDES are entitled to be
paid a liquidation preference of up to $1,012.50 per share of PRIDES, and
(iii) a judgment that the defendants are liable to the PRIDES holders in an
amount up to $1,012.50 per share.
The second action is purportedly brought as a derivative action on behalf
of the Company. Plaintiffs generally allege that the purchase of the
Company's Common Stock by defendant Mark D. Lerdal in December 1997 was a
corporate opportunity and that such Common Stock should have been instead
purchased by the Company. Plaintiffs are seeking, among other things, (i) a
declaration that the purchase of the Common Stock by defendant Lerdal
constituted the taking of a corporate opportunity and is null and void,
(ii) an order requiring defendant Lerdal to transfer the Common Stock to
the Company for the consideration he paid, and (iii) to the extent the
Common Stock may not be transferred to the Company, damages for the fair
value of the Common Stock.
The defendants moved to dismiss both actions on March 20, 2000. The Company
intends to defend each of these actions vigorously.
PRIDES Litigation: On May 6, 1998, plaintiffs, Quadrangle Offshore (Cayman)
LLC, and Cerberus Partners, L.P., filed a Verified Complaint for
Declaratory Judgment and Injunctive Relief, in the Court of Chancery of the
State of Delaware In and For New Castle County (Civil Action No. 16362-NC).
Plaintiffs alleged that they were beneficial owners of shares of PRIDES.
Plaintiffs filed an amended complaint on July 7, 1998. Generally, the
amended complaint alleged that the Company was currently in liquidation and
was in liquidation prior to May 14, 1998, that the plaintiffs were entitled
to receive the liquidation preference of $1,012.50 per share set forth in
the Certificate of Designations in any distribution of assets the Company
might make notwithstanding that the PRIDES mandatorily converted and ceased
to be outstanding on May 14, 1998, and that the Company breached an implied
covenant of good faith and fair dealing under the Certificate of
Designations. Plaintiffs sought, among other things, (i) a declaration that
they were entitled to receive the liquidation preference in any
distribution of assets before any distribution was made to holders of
Common Stock and that the mandatory conversion of the PRIDES did not
operate to eliminate their right to receive the liquidation preference,
(ii) related injunctive relief, and (iii) other unspecified damages.
Page 4
<PAGE>
A bench trial in the action was held February 16-19, 1999, before the Court
of Chancery and on October 13, 1999, the Court entered judgment in favor of
the Company on all counts and denied the relief requested by plaintiffs.
The Court of Chancery subsequently vacated the Temporary Restraining Order
previously entered in the action that restrained the Company from making
payments from the proceeds of the sale of the EcoElectrica Project Interest
(see Item 7, Results of Operations and Note 4 to the Financial Statements)
in satisfaction of any obligations not previously disclosed in the
Company's 10-K or 10-Q or their attached exhibits (except to the extent
necessary for ordinary, customary and reasonable expenses) without first
providing five business days advance notice to plaintiffs. On October 26,
1999, plaintiffs filed a Notice of Appeal with the Delaware Supreme Court.
Oral argument at the Delaware Supreme Court is scheduled for April 4, 2000.
The Company intends to defend the appeal vigorously.
Federal Stockholders' Class Action: 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 alleged 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 PRIDES (depository shares) during the
period from April 28, 1994 (the public offering date of the PRIDES) through
August 8, 1995. The amended complaint alleged 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 sought unspecified damages and other relief.
The Court certified a plaintiff class consisting of all persons or entities
who purchased Common Stock between September 21, 1993 and August 8, 1995 or
depository shares between April 28, 1994 and August 8, 1995, appointed
representatives of the certified plaintiff class, appointed counsel for the
certified class and certified a plaintiff and defendant underwriter class
as to the section 11 claim.
On August 9, 1999, the Court granted defendants' motion for summary
judgment and ordered that plaintiffs take nothing and that the action be
dismissed on its merits. The plaintiffs have appealed the Court's order.
The Company intends to defend the appeal vigorously.
Insurance Litigation: On January 29, 1999, Travelers Insurance Company
filed a complaint against KENETECH and CNF Industries, Inc. ("CNF") in the
Superior Court, Judicial District of Hartford, Connecticut. The complaint
alleges that the defendants failed to pay premiums and other charges for
insurance coverage and services. Damages are alleged to be in excess of
$1,121,305. On April 13, 1999, the Company filed a Motion to Dismiss for
lack of personal jurisdiction and also filed a Request to Revise. A hearing
on the Motion and Request is pending. The Company intends to defend this
action vigorously.
Annual Meeting Litigation: On July 30, 1999, Campus, LLC and Joseph A.
Wagda filed a complaint against the Company and its directors (namely,
Angus M. Duthie, Mark D. Lerdal, Gerald R. Alderson and Charles
Christenson) in the Court of Chancery of the State of Delaware In and For
New Castle County. The plaintiffs in this action purport to be stockholders
of the Company. The Complaint alleges, among other things, that plaintiffs
were deprived of the opportunity to nominate directors for election at the
Company's annual meeting which took place on August 18, 1999. Plaintiffs
are seeking, among other things, (i) a declaration that the annual meeting
was illegally and inequitably scheduled and that any actions taken at the
annual meeting are null and void, and (ii) an order requiring the
defendants to schedule a meeting, allowing stockholders an opportunity to
nominate directors, file solicitation materials with the Securities and
Exchange Commission and conduct a proxy solicitation. The litigation has
been stayed by agreement of the parties. In the event that the litigation
resumes, the Company intends to defend this action vigorously.
Page 5
<PAGE>
Other: 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.
The Company does not believe that 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 Division)
under chapter 11 of 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 included 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.
The filing of the chapter 11 case by KWI 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. The Notes, and all
accrued interest thereon, were satisfied and discharged in full on December
23, 1998. The filing also materially adversely affected the Company's
construction subsidiary's ability to procure new business.
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.
A Settlement Agreement and Release ("Release") was entered into as of May
13, 1998, and approved by the Bankruptcy Court on May 26, 1998, by and
among KWI, the Official Committee of Unsecured Creditors appointed in KWI's
chapter 11 case (the "Official Committee"), KENETECH, KENETECH Energy
Systems, Inc., a wholly-owned subsidiary of KENETECH ("KES"), CNF
Industries, Inc., a wholly owned subsidiary of KENETECH, CNF Constructors,
Inc., a wholly-owned subsidiary of CNF Industries, Inc. (collectively with
CNF Industries, Inc. ("CNF")), and The Bank of New York, in its capacity as
successor Indenture Trustee for the Notes (the "Trustee"). In the Release,
CNF, KENETECH and the Trustee released, subordinated or contributed to
capital the claims filed by them against KWI in the KWI bankruptcy
proceedings. KWI released KENETECH, KES and the Trustee from all claims
against those entities filed by KWI, including those for preferential
payments prior to the filing of the bankruptcy petition, alter ego claims,
and any claim for substantive consolidation. Under the terms of the
Release, KES and KENETECH have paid KWI $6.5 million from the proceeds of
the sale of the EcoElectrica Project Interest (see Item 7, Results of
Operations and Note 4 to the Financial Statements).
A First Amended Plan of Reorganization jointly filed with the Bankruptcy
Court by KWI and the Official Committee was confirmed on January 27, 1999
and became effective, as later amended, on April 8, 1999. Claim
distributions of approximately $50.0 million were made in 1999 pursuant to
the approved plan. Although the Company continues to own the common stock
of KWI, the Company believes that it will not realize any value from its
remaining interests in KWI other than certain tax attributes. KWI continues
to be a member of the Company's consolidated group for income tax purposes.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None
Page 6
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------------------
Market Information
Prior to September 21, 1993, the date the Company's Common Stock began
trading on The Nasdaq National Market under the symbol "KWND", there was no
public market for the Common Stock. 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 quotations
for the Common Stock as reported by a stock quotation system. Such
over-the-counter market quotations do not include retail markups, markdowns
or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Year High Low
-------------- ------- -------
<S> <C> <C>
1998
----
First Quarter $ 0.070 $ 0.050
Second Quarter 0.410 0.0625
Third Quarter 0.310 0.160
Fourth Quarter 0.280 0.125
1999
----
First Quarter $ 0.280 $ 0.125
Second Quarter 0.375 0.125
Third Quarter 0.450 0.260
Fourth Quarter 0.650 0.340
2000
----
First Quarter (to March 15, 2000) $0.710 $ 0.510
</TABLE>
Holders
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 681 holders of
record of the Common Stock as of March 15, 2000.
Cash Dividend Policy
The Company has never paid a dividend on its Common Stock. Formerly, the
Company's 12 3/4% Senior Secured Notes, and the provisions of the
Certificate of Designations under which the Company issued the PRIDES
restricted the payment of Common Stock dividends except under specified
circumstances. The Senior Secured Notes were satisfied and discharged in
full on December 23, 1998 and the PRIDES mandatorily converted into Common
Stock on May 14, 1998. In connection with the review of its strategic
alternatives, the Company may consider the payment of a cash dividend to
stockholders.
Page 7
<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, 1999 have been derived from the audited
Consolidated Financial Statements of the Company. (Dollar amounts in
thousands, except per share amounts.)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (1):
Revenues (2)....................................... $ 5,431 $251,921 $ 40,993 $ 91,890 $327,589
Total costs of revenues (3)........................ 56 39,015 45,000 83,705 504,696
Gross margin (excess of expenses over revenues).... 5,375 212,906 (4,007) 8,185 (177,107)
Project development and marketing,
engineering, general and administrative expenses. 5,700 4,178 16,034 40,559 71,368
Income (loss) from operations...................... (325) 208,728 (20,041) (32,374) (248,475)
Income (loss) before taxes......................... 11,017 185,486 (25,242) (60,850) (271,647)
Net income (loss).................................. 36,590 131,572 (25,242) (84,241) (250,148)
Income (loss) per share:
Basic....................................... 0.87 3.20(4) (0.92)(4) (2.52)(4) (7.12)(4)
Diluted..................................... 0.87 3.20(4) (0.92)(4) (2.52)(4) (7.12)(4)
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (5)................................ $ 41,888 $ 31,389 $(116,545) $(141,621) $ (3,232)
Total assets....................................... 50,097 84,485 90,586 123,311 401,249
Stockholders' equity (deficiency).................. 32,945 (3,356) (131,705) (97,900) (5,559)
(1) Excludes operations of KWI after bankruptcy filing (May 29, 1996).
(2) Includes sale of EcoElectrica Project Interest in 1998 for $247,000 and $5,000 in 1999.
(3) In 1995 includes special charges of $224,551.
(4) Includes effect of deducting dividends earned on PRIDES issued in 1994.
(5) Includes Senior Secured Notes, accrued interest thereon, and the EcoElectrica
Project loan in 1997 and 1996. These were repaid or satisfied in full in 1998.
</TABLE>
Page 8
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
- ----------------------------------
OVERVIEW
KENETECH Corporation ("KENETECH") is a Delaware corporation that has
historically been involved in the development, construction, and management
of independent power projects. The Company continues in project development
activities at this time; however it has ceased its construction and
management activities. The Company is currently participating with other
parties in developing two electric generating facilities and one oriented
strand board facility. As used in this document, "Company" refers to
KENETECH and its wholly-owned subsidiaries (including KENETECH Windpower,
Inc. ("KWI") only through May 29, 1996).
In 1995 and 1996, the Company experienced severe liquidity constraints. In
an effort to relieve such constraints, the Company undertook to sell its
assets. As of December 31, 1999, the Company has disposed of substantially
all its operating assets and has repaid substantially all of its
indebtedness. The Company currently has substantial cash balances and net
operating income tax losses and other tax attributes to carry forward to
future years. While pursuing development projects, management continues to
evaluate different businesses that the Company might pursue, through
acquisition or otherwise. In addition, the Company is evaluating all
strategic alternatives available to it. The Company has retained
professionals to assist it in such evaluations.
PROJECT DEVELOPMENT
The Company is participating with OSB Chateaugay, LLC ("OSB") in the
development of an oriented strand board project in Chateaugay, New York
(the "Project"). In addition to development services, the Company has
agreed to fund up to $1.25 million to finance the development of the
Project. The Project is expected to produce up to 475 million square feet
of strand board. Construction is anticipated to commence in the second half
of 2000. The funding made to OSB is scheduled to be repaid upon the
financial closing or sale of the Project. In exchange for providing funding
and services, the Company will receive certain participation distributions
made by OSB which are contingent upon the success of the Project.
The Company has agreed to participate in the development process and to
fund up to $5.0 million for the development of a 1,000 megawatt independent
power plant to be located in Astoria, Queens, New York. The project is
currently under development and is expected to commence construction in the
second half of 2001. In exchange for the services and funding, the Company
will be repaid the funding plus certain participation distributions, both
of which are contingent upon the success of the Astoria project.
Subsequent to the close of year-end, the Company agreed to fund up to
$600,000 for the development of a wind-powered electrical generating
facility to be located in Whinash, Cumbria, England. The project is a 50
megawatt facility. In exchange for the funding, the Company will receive
certain participation distributions which are contingent upon the sale or
financial closing of the Whinash project.
Page 9
<PAGE>
DISPOSITION OF ASSETS
During the year, the Company participated in the disposition of its
indirect interest in a partnership (the "Chateaugay Partnership") which
owned a wood-fired electric generating station located in Chateaugay, New
York. The Company recorded approximately $3,614,000 of gain on the
transaction. The debt associated with the Project and carried on the
Company's books has been satisfied. The transaction is described in Note 5
to the Financial Statements.
The Company also recorded, during the year, approximately $1,349,000 of
gain associated with the disposition of its 50% general partnership
interest in a Dutch limited partnership. The transaction is described in
Note 5 to the Financial Statements.
The total gain recorded on these dispositions during the year approximates
$5.0 million.
STOCK REPURCHASE
In November 1999, the Company's Board of Directors authorized the
repurchase of up to 2,000,000 shares of the Company's Common Stock. The
repurchase program was to continue until the Company acquired the 2,000,000
shares or until September 30, 2000. The Company subsequently authorized the
repurchase of an additional 2,000,000 shares and extended the repurchase
period to December 31, 2000. As of December 31, 1999, the Company had
reacquired 401,200 shares at a cost of $265 thousand. At March 15, 2000,
the Company had reacquired 2,049,400 shares at a cost of $1.34 million. The
Company intends to retire all of the repurchased stock.
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 Exchange Act of 1934, as amended. Such forward looking
statements are based on information available when such statements are made
and are subject to risks and uncertainties that could cause actual results
to differ materially from those expressed in the statements.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 133 is effective for the Company's quarter ending
March 31, 2001. The Company does not expect SFAS No. 133 to have a material
effect on its financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101.
The SAB summarized certain of the SEC Staff's views in applying generally
accepted accounting principles to revenue recognition in financial
statements. The Company currently conforms to the guidance contained in the
bulletin.
YEAR 2000 COMPLIANCE
The Company currently is not aware of any Year 2000 problem in any of the
Company's critical systems and services. However, the success to date of
our Year 2000 efforts cannot guarantee that a Year 2000 problem affecting
third parties upon which the Company relies will not become apparent in the
future that could have a material adverse effect on the Company's business
or operations.
Page 10
<PAGE>
RESULTS OF OPERATIONS
Consolidated net income for the Company for the year ended December 31,
1999 was $36.6 million compared to net income of $131.6 million for 1998
and net loss of $25.2 million for 1997.
YEARS 1999 AND 1998
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
-------- --------
(in millions)
Gross Gross
Revenues Costs Margins Revenues Costs Margins
-------- ------- ------- -------- ------- -------
<S> ............................ <C> <C> <C> <C> <C> <C>
Sale of EcoElectrica Project
Interest........................ $ 5.0 $ -- $ 5.0 $ 247.0 $ 34.3 $ 212.7
Construction services ........... 0.4 -- 0.4 3.4 2.5 0.9
Maintenance, management
fees and other ................. -- -- -- 1.0 0.7 0.3
Energy sales ................... -- -- -- 0.5 1.5 (1.0)
-------- ------- ------- -------- ------- -------
Total ............................ $ 5.4 $ -- $ 5.4 $ 251.9 $ 39.0 $ 212.9
======== ======= ======= ======== ======= =======
</TABLE>
The EcoElectrica Project Interest was sold in December of 1998 for cash and
assumption of a KES cash collateralized equity funding commitment totaling
$247 million with accompanying costs of sale totaling $34.3 million
yielding a gain of $212.7 million. The consideration received for the
EcoElectrica Project Interest resulted from an auction solicitation for
such interest conducted by KES's and the Company's financial advisor. On
July 27, 1999, KES received $5.0 million in cash as a result of the
successful conversion of the local tax status of EcoElectrica, L.P. No
other proceeds will be received from the sale of the EcoElectrica Project
Interest.
The revenues and costs of construction services recorded during the year
ended December 31, 1999 represent revenue realized upon the settlement of
certain disputes involving construction projects. There were no revenues
from active construction projects for the year ended December 31, 1999, a
decrease from approximately $3.4 million revenue and $2.5 million expense
for the comparable period in 1998. The Company's construction subsidiary is
not working on any construction projects, has no employees and is in the
process of disposing of its remaining assets and liabilities.
Maintenance, management fees and other revenues totalled $21 thousand in
1999, a decrease from approximately $1.0 million of revenues in 1998.
Associated costs declined to zero in 1999 from $697 thousand in 1998.
KENETECH Facilities Management, Inc. ("KFM"), a wholly-owned subsidiary of
the Company which performed operations and maintenance of thermal power
plants, has no further business activity or employees and is in the process
of disposing of its remaining assets and liabilities.
There were no energy sales or associated costs in 1999 because the Company
sold the Hartford Hospital Project in 1998. In 1998, energy sales
experienced an excess of expenses over revenues of approximately $1.0
million due to the sporadic operation of the Hartford Hospital Project
turbines.
Project development and marketing expenses decreased to $87 thousand for
1999 from $700 thousand for 1998. Project development and marketing
expenses incurred in 1999 related principally to the sale of the Chateaugay
Project and the development of the Chateaugay OSB Project. In 1998, project
development and marketing costs related primarily to the EcoElectrica
Project.
Page 11
<PAGE>
General and administrative expenses increased to $5.6 million for 1999 from
$3.5 million for 1998 due principally to (i) an increase in legal expenses
associated with the PRIDES litigation, (ii) severance of several senior
personnel, (iii) additional expense due to preparation of the federal
income tax return earlier in the year than is customary, and (iv) a change
of accounting system and costs related to archiving files from a non-Year
2000 compliant system.
Interest income increased to $2.7 million in 1999 from $694 thousand in
1998 due principally to the investment of cash proceeds from the sale of
the EcoElectrica Project Interest.
Interest expense decreased to zero for 1999 from $17.5 million for 1998
primarily due to the satisfaction and discharge in December 1998 of the
Company's Senior Secured Notes (including interest) and the repayment of
the EcoElectrica Project development loan following the Company's sale of
its indirect interest in the EcoElectrica Project.
Equity income from unconsolidated affiliates increased to $27 thousand for
1999, compared to a loss of $82 thousand for 1998.
The Company recorded realized and unrealized losses on investment in
trading debt securities totaling $364 thousand in 1999. Included is a
realized loss of $115 thousand on the sale of trading debt securities. The
Company did not hold such securities in 1998.
The Company recorded a $5.0 million gain on disposition of subsidiaries and
assets in 1999, compared with a $170 thousand gain for 1998. The $5.0
million gain in 1999 represents primarily the gain on the disposition of
the Chateaugay Project and a Dutch limited partnership, as described in
Note 5 to the Financial Statements. The gain of $170 thousand recorded in
1998 represents the sale of the Hartford Hospital Project, including the
rights under the termination agreement, upon which no gain or loss was
incurred, and the gain on sale of other miscellaneous assets.
The Company recorded $3.1 million of other income in 1999, compared to zero
in 1998. Included in the $3.1 million of other income is a reduction of
$2.9 million in accrued liabilities related to various legal matters. The
Company also recorded a $943 thousand net gain on settlement of accounts
payable in 1999, compared to zero in 1998.
The Company's recorded tax expense in 1998 primarily relates to the sale of
the EcoElectrica Project. In 1999, the Company reduced the balance of the
deferred benefit for deconsolidated subsidiary losses, resulting in an
income tax benefit of $25.6 million. The reduction in the deferred benefit
is due to the recognition of additional tax benefits of KWI which are
primarily attributable to the KWI 1999 bankruptcy distributions.
KWI settlement expense of $6.5 million in 1998 represents the amount paid
to KWI under the KWI Settlement Agreement and Release (see Note 3 to the
Financial Statements).
Income taxes: The Company uses the asset and liability approach for
financial accounting and reporting for income taxes (Note 16 to the
Financial Statements).
YEARS 1998 AND 1997
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
-------------------------- --------------------------
(in millions)
Gross Gross
Revenues Costs Margins Revenues Costs Margins
-------- ------- ------- -------- ------- -------
<S> ............................ <C> <C> <C> <C> <C> <C>
Sale of EcoElectrica Project
Interest ....................... $ 247.0 $ 34.3 $ 212.7 $ -- $ -- $ --
Construction services ........... 3.4 2.5 0.9 36.0 36.1 (0.1)
Energy sales .................... 0.5 1.5 (1.0) 3.2 8.4 (5.2)
Maintenance, management
fees and other ................. 1.0 0.7 0.3 1.8 0.5 1.3
------- ------- ------- -------- ------- -------
Total ............................ $ 251.9 $ 39.0 $ 212.9 $ 41.0 $ 45.0 $ (4.0)
======= ======= ======= ======== ======= =======
</TABLE>
Page 12
<PAGE>
The EcoElectrica Project Interest was sold in December 1998 for cash and
assumption of a KES cash collateralized equity funding commitment totalling
$247 million with accompanying costs of sales totalling $34.3 million,
yielding a gain of $212.7 million. The consideration received for the
EcoElectrica Project Interest resulted from an auction solicitation for
such interest conducted by KES's and the Company's financial advisor.
Construction services revenues (recorded under the percentage-of-completion
method) decreased to $3.4 million for 1998 from $36.0 million for 1997
because the Company's construction subsidiary had completed its
construction projects, had no employees and was in the process of disposing
of its remaining assets and liabilities.
Energy sales revenue decreased to $500 thousand in 1998 compared to $3.2
million in 1997 because in June and July of 1997 the Hartford Hospital
Project experienced, through force majeure events, catastrophic failures of
both its turbines. The costs of repairing the individual units were
prohibitive and there were no lease engines available. The Company
assembled one turbine, which operated sporadically, from the serviceable
parts of the two failed turbines. The Company sold the Hartford Hospital
Project in June 1998. Comparatively, the Company experienced an excess of
expenses over revenues of $1.0 million in 1998 compared to $5.2 million in
1997 because the Company owned the Hartford Hospital Project for only six
months in 1998 and an additional expense of approximately $3.0 million
incurred in 1997 related to the write-off of the two failed turbines.
Maintenance, management fees and other decreased to $1.0 million in 1998
from $1.8 million in 1997 because on June 30, 1998, the sole remaining
contract between KENETECH Facilities Management, Inc. ("KFM"), a
wholly-owned subsidiary of the Company, which performed operations and
maintenance of thermal power plants, and a third party expired and was not
renewed by the third party. Additionally, in conjunction with the sale of
the Hartford Hospital Project, the operations and maintenance contract held
by KFM was terminated. As a result, KFM has no further business activities
or employees.
Project development and marketing expenses decreased to $700 thousand for
1998 from $2.2 million for 1997 because a large portion of the Company's
sales and marketing efforts in 1998 were associated with the sale of the
EcoElectrica Project Interest and are recorded as costs of such sale.
General and administrative expenses decreased to $3.5 million for 1998 from
$13.8 million for 1997 due to the continued downsizing of the Company and
cost saving measures.
Interest expense increased to $17.5 million for 1998 from $16.3 million for
1997 due to larger interest bearing balances outstanding during 1998
(primarily the accrued interest on the Senior Secured Notes).
Gain (loss) on disposition of subsidiaries and assets: In June 1998, the
Company sold the Hartford Hospital Project, including the rights under the
Termination Agreement, and incurred no gain or loss on this transaction.
The gain was generated by the receipt of a receivable, previously reserved
for, and the sale of other miscellaneous assets (Note 5 to the Financial
Statements). During 1997, the Company sold fixed assets, some projects in
the initial stages of development, and the construction subsidiaries' joint
venture interests in the construction contracts for the EcoElectrica
Project. On an aggregated basis, these transactions generated cash of $20.9
million and a net gain of $10.0 million.
Page 13
<PAGE>
KWI settlement expense of $6.5 million in 1998 represents the amount paid
to KWI under the KWI Settlement Agreement and Release.
Income taxes: The Company uses the asset and liability approach for
financial accounting and reporting for income taxes. The Company's recorded
tax expense in 1998 primarily relates to the sale of the EcoElectrica
Project Interest. The Company recorded no tax benefit for 1997 because of
the uncertainty about its ability to utilize such a benefit (Note 16 to the
Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
1999 Activities
---------------
At December 31, 1999, the Company had working capital of $41.9 million
compared to $31.4 million at December 31, 1998. The statement of cash flows
shows a reduction in cash of approximately $52.1 million which is
attributable primarily to the investment of $31.6 million in trading debt
securities, the funding of $2.5 million on the OSB and Astoria projects,
and the payment of $21.4 million in accrued PRIDES dividends, offset
primarily by proceeds from the sale of the Company's indirect interests in
the Chateaugay and EcoElectrica Projects, equaling $2.4 million and $5.0
million, respectively, leaving $4.0 million attributable to cash used in
operations and other activities. Given the current operations and strategy
of the Company, its cash balances are adequate for the forseeable future.
The Company has committed approximately $7 million in connection with its
development projects.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
-------------------------------------------------------------------
Market Risk. The Company's exposure to market risk is principally confined
to its investment in trading debt securities, which are subject primarily
to interest rate risk. The Company's investment in trading debt securities
is a material component of the Company's total assets; therefore, market
risk exposure should be considered to be material.
The Company manages its interest rate risk through specific investment
criteria designed to minimize such risk. The Company also employs
discretionary selling practices aimed at minimizing realized market losses.
The Company could foreseeably hold its investment in trading debt
securities until the investments' maturity, thereby effectively eliminating
associated interest rate risk. The majority of the Company's investment in
trading debt securities that is subject to interest rate risk matures
within three years.
The potential gain or loss in fair value to the Company's investment in
trading debt securities resulting from selected hypothetical increases in
interest rates is expressed in the following sensitivity analysis.
Change in market interest rates
-------------------------------
Current 10% 20%
--------------------------------------
(in thousands)
Fair value of trading debt
securities $31,388 $31,227 $31,069
Increase or decrease from
current fair value - $161 $319
The sensitivity analysis above, known as a stress test in the banking
industry, models the change in fair value based upon specific changes in
the prime interest rate.
The Company has no material market risk relating to foreign exchange rate
risk or commodity price risk.
Page 14
<PAGE>
Item 8. Financial Statements and Supplementary Data.
- ----------------------------------------------------
KENETECH Corporation Consolidated Financial Statements Page
----
Independent Auditors' Report 16
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 17
Consolidated Balance Sheets, December 31, 1999 and 1998 18
Consolidated Statements of Stockholders' Equity (Deficiency)
for the years ended December 31, 1999, 1998 and 1997 19
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 20
Notes to Consolidated Financial Statements 21 - 35
Page 15
<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, 1999 and
1998 and the related consolidated statements of operations, stockholders'
equity (deficiency), and cash flows for each of the years in the three-year
period ended December 31, 1999. Our audits also included the financial
statement schedule for 1999, 1998 and 1997 of KENETECH Corporation listed
in the Index at Item 14(a)(2). These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements and financial statement schedule 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, 1999 and 1998 and the results of its
operations and its cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents in all material respects
the information set forth therein.
KPMG LLP
San Francisco, California
March 16, 2000
Page 16
<PAGE>
<TABLE>
KENETECH CORPORATION
--------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1999, 1998 and 1997
(in thousands, except per share amounts)
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Sale of EcoElectrica Project Interest................$ 5,000 247,000 --
Construction services................................ 410 3,413 35,994
Maintenance, management fees and other............... 21 1,036 1,829
Energy sales......................................... -- 472 3,170
---------- ---------- ----------
Total revenues..................................... 5,431 251,921 40,993
Costs of revenues:
Sale of EcoElectrica Project Interest................ -- 34,254 --
Construction services................................ 56 2,543 36,105
Energy plant operations.............................. -- 2,218 8,895
---------- ---------- ----------
Total costs of revenues............................ 56 39,015 45,000
Gross margin (Excess of expenses over revenues)......... 5,375 212,906 (4,007)
Project development and marketing expenses.............. 87 700 2,230
General and administrative expenses..................... 5,613 3,478 13,804
---------- ---------- ----------
Income (loss) from operations........................... (325) 208,728 (20,041)
Interest income......................................... 2,721 694 988
Interest expense........................................ -- (17,524) (16,291)
Equity (loss) income of unconsolidated affiliates....... 27 (82) 66
Loss on trading debt securities......................... (364) -- --
Gain on disposition of subsidiaries and assets.......... 4,963 170 10,036
KWI settlement expense ................................. -- (6,500) --
Gain on accounts payable settlement and other income ... 3,995 -- --
---------- ---------- ----------
Income (loss) before taxes.............................. 11,017 185,486 (25,242)
Income tax benefit (provision) ........................ 25,573 (53,914) --
---------- ---------- ----------
Net income (loss)................................$ 36,590 $ 131,572 $ (25,242)
========== ========== ==========
Net income (loss) per common share:
Basic and Diluted............................ $ 0.87 $ 3.20 $ (0.92)
Weighted average number of common shares
used in computing per share amounts:
Basic and Diluted.......................... 41,944 40,073 36,830
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 17
<PAGE>
<TABLE>
KENETECH CORPORATION
--------------------
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(in thousands, except share amounts)
ASSETS
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................$ 15,291 $ 67,424
Funds in escrow............................................ 314 478
Accounts receivable, net................................... 110 1,079
Trading debt securities.................................... 31,388 --
Interest receivable ....................................... 464 --
Investment in Chateaugay Project........................... -- 15,480
---------- ----------
Total current assets.................................... 47,567 84,461
Astoria Project advances..................................... 2,241 --
Property, plant and equipment, net........................... 58 24
Other assets................................................. 231 --
---------- ----------
Total assets..........................................$ 50,097 $ 84,485
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable...........................................$ 937 $ 4,002
Accrued liabilities........................................ 4,580 8,871
Current taxes payable...................................... 130 2,100
Chateaugay Project debt.................................... -- 15,620
Other notes payable........................................ 6 1,071
Accrued dividends on PRIDES................................ -- 21,408
Accrued stock repurchase obligation........................ 26 --
---------- ----------
Total current liabilities............................... 5,679 53,072
Accrued liabilities.......................................... 1,168 893
Deferred benefit for deconsolidated subsidiary losses........ 10,305 33,900
---------- ----------
Total liabilities....................................... 17,152 87,865
Stockholders' equity (deficiency):
Common stock - 110,000,000 shares authorized,
$.0001 par value; issued and outstanding
41,919,218 at December 31,1999 and 41,954,218
at December 31, 1998, repurchased for retirement
still outstanding 401,200 in 1999 and none in 1998......... 4 4
Additional paid-in capital................................... 223,742 224,007
Accumulated deficit.......................................... (190,801) (227,391)
---------- ----------
Total stockholders' equity (deficiency) ................ 32,945 (3,380)
---------- ----------
Total liabilities and stockholders'
equity (deficiency) ................................$ 50,097 $ 84,485
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Page 18
<PAGE>
KENETECH CORPORATION
--------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the years ended December 31, 1999, 1998 and 1997
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Effect of Accumulated
Convertible Common Stock Additional Cumulative Other
Preferred Stock Paid-in Unearned Comprehensive (Accumulated
Shares Amount Shares Amount Capital Compensation Income Deficit) Total
------- ------- ---------- ------ ---------- ------------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 102,492 $99,561 36,829,618 $ 4 $ 136,221 $ -- $ 35 $ (333,721) $ (97,900)
Preferred stock dividends -- -- -- -- (8,563) -- -- -- (8,563)
Net loss -- -- -- -- -- -- -- (25,242) (25,242)
------- ------- ---------- ------ ---------- ------------- -------- ------------ ---------
Balance, December 31, 1997 102,492 99,561 36,829,618 4 127,658 -- 35 (358,963) (131,705)
Mandatory preferred stock
conversion (102,492) (99,561) 5,124,600 -- 99,561 -- -- -- --
Preferred stock dividends -- -- -- -- (3,212) -- -- -- (3,212)
Net income -- -- -- -- -- -- -- 131,572 131,572
Foreign exchange -- -- -- -- -- -- (35) -- (35)
------- ------- ---------- ------ ---------- ------------- -------- ------------ ---------
Balance, December 31, 1998 -- -- 41,954,218 4 224,007 -- -- (227,391) (3,380)
Shares cancelled and retired -- -- (35,000) -- -- -- -- -- --
Shares repurchased pending
retirement, still outstanding -- -- -- -- (265) -- -- -- (265)
Net income -- -- -- -- -- -- -- 36,590 36,590
------- ------- ---------- ------ ---------- ------------- -------- ------------ ---------
Balance, December 31, 1999 -- $ -- 41,919,218 $ 4 $ 223,742 $ -- $ -- $ (190,801) $ 32,945
======= ======= ========== ====== ========== ============= ======== ============ =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Page 19
<PAGE>
<TABLE>
KENETECH CORPORATION
--------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
(in thousands)
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................$ 36,590 $ 131,572 $ (25,242)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation, amortization and other, net............... 31 5,292 8,406
Sale of EcoElectrica Project Interest, net of costs..... (5,000) (212,746) --
Gain on disposition of subsidiaries and assets.......... (4,963) (170) (10,036)
Gain on settlement of accounts payable
and other income....................................... (3,891) -- --
Accrued and unpaid interest............................. -- -- 15,517
Deferred benefit for subsidiary losses.................. (25,573) 51,814 --
Unrealized loss on trading debt securities.............. 249 -- --
Change in assets and liabilities
excluding special charges:
Funds in escrow, net................................... 164 1,519 3,224
Accounts and interest receivable....................... 492 3,213 9,171
Other assets........................................... -- -- 4,204
Accounts payable, other accrued liabilities,
and accrued interest.................................. (1,637) (36,383) (16,366)
---------- ---------- ----------
Net cash used in operating activities................ (3,538) (55,889) (11,122)
Cash flows from investing activities:
Investment in trading debt securities.................... (31,637) -- --
Capital expenditures..................................... (64) -- --
Net proceeds from sale of subsidiaries and assets........ 3,277 7,901 20,877
Proceeds from sale of EcoElectrica Project Interest...... 5,000 233,575 --
Expenditures on EcoElectrica Project..................... -- (998) (10,896)
Investment in affiliates - Distributions ................ -- -- 14
Investment in Astoria Project............................ (2,249) -- --
Investment in Chateaugay OSB Project..................... (210) -- --
---------- ---------- ----------
Net cash provided by (used in) investing
activities.......................................... (25,883) 240,478 9,995
Cash flows from financing activities:
Repayment of senior secured notes........................ -- (100,000) --
Proceeds from other notes payable........................ -- -- 503
Payments on other notes payable.......................... (1,065) (118) (11,790)
Proceeds from Hartford Hospital Project debt............. -- 3,011 --
Proceeds from EcoElectrica Project loan.................. -- -- 2,500
Repayment of EcoElectrica Project loan................... -- (27,352) --
Stock repurchased for retirement......................... (239) -- --
Payment of PRIDES dividends.............................. (21,408) -- --
---------- ---------- ----------
Net cash used in financing activities................ (22,712) (124,459) (8,787)
---------- ---------- ----------
Increase (Decrease) in cash and cash equivalents........... (52,133) 60,130 (9,914)
Cash and cash equivalents at beginning of year........... 67,424 7,294 17,208
---------- ---------- ----------
Cash and cash equivalents at end of year.................$ 15,291 $ 67,424 $ 7,294
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Page 20
<PAGE>
KENETECH CORPORATION
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
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.
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. KWI
ceased to be accounted for as a consolidated subsidiary of the Company and
the Company's consolidated financial statements exclude all KWI activity
after that date. On January 27, 1999, KWI's Plan of Reorganization was
confirmed by the Bankruptcy Court and became effective, as later amended,
on April 8, 1999. Although the Company continues to own the common stock of
KWI, the Company believes that it will not realize any value from its
remaining interests in KWI other than certain tax attributes. KWI continues
to be a member of the Company's consolidated group for income tax purposes.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenues
Revenues from 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. 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.
Project Development Revenues: Project development revenues are recognized
as they are earned.
Maintenance and management fees are recognized as earned under various
long-term agreements to manage or operate and maintain certain energy
production facilities. Other revenues include development fees earned in
connection with 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.
Investments: The Company accounts for investments in trading debt
securities in accordance with FAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under FAS 115, the Company's
publicly traded debt securities are classified as trading securities.
Publicly traded securities are stated at their fair value, with the
realized and unrealized gains and losses, net of taxes, reported in results
of operations.
Page 21
<PAGE>
KENETECH CORPORATION
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
Depreciation: The Company records property and equipment at cost.
Depreciation is recorded on a straight-line basis over the estimated useful
life of the asset.
Sale of projects and gains or losses on disposition of subsidiaries and
assets (net of costs) are recognized at closing, when proceeds are
received.
Interest Expense: Interest is capitalized on independent power plant
projects under development or construction and self-constructed assets and
totalled zero in 1999, $2,829,000 in 1998, and $2,636,000 in 1997.
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.
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 zero in 1999,
$44,013,000 in 1998, and $1,052,000 in 1997.
Comprehensive Income: The Company has adopted Financial Accounting
Standards Board SFAS No. 130, "Reporting Comprehensive Income," as of
January 1, 1998. SFAS No. 130 requires that all items required to be
recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same
prominence as other financial statements. The Company currently has no
reportable comprehensive income items.
Recent Accounting Pronouncements: In June 1998, the Financial Accounting
Standards Boards issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 133 is effective for the Company's quarter ending
March 31, 2001. The Company does not expect SFAS No. 133 to have a material
effect on its financial position or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101.
The SAB summarized certain of the SEC Staff's views in applying generally
accepted accounting principles to revenue recognition in financial
statements. The Company currently conforms to the guidance contained in the
bulletin.
3. KWI BANKRUPTCY AND RELATED SETTLEMENT EXPENSE
On May 29, 1996, KWI filed a voluntary petition in the United States
Bankruptcy Court for the Northern District of California (Oakland Division)
under chapter 11 of 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.
Page 22
<PAGE>
KENETECH CORPORATION
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
The filing of the chapter 11 case by KWI 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. The Notes, and all
accrued interest thereon, were satisfied and discharged in full on December
23, 1998. The filing also materially adversely affected the Company's
construction subsidiary's ability to procure new business.
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.
A Settlement Agreement and Release ("Release") was entered into as of May
13, 1998, and approved by the Bankruptcy Court on May 26, 1998, by and
among KWI, the Official Committee of Unsecured Creditors appointed in KWI's
chapter 11 case (the "Official Committee"), KENETECH, KENETECH Energy
Systems, Inc., a wholly-owned subsidiary of KENETECH ("KES"), CNF
Industries, Inc., a wholly owned subsidiary of KENETECH, CNF Constructors,
Inc., a wholly-owned subsidiary of CNF Industries, Inc. (collectively with
CNF Industries, Inc. ("CNF")), and The Bank of New York, in its capacity as
successor Indenture Trustee for the Notes (the "Trustee"). In the Release,
CNF, KENETECH and the Trustee released, subordinated, or contributed to
capital the claims filed by them against KWI in the KWI bankruptcy
proceedings. KWI released KENETECH, KES and the Trustee from all claims
against those entities filed by KWI, including those for preferential
payments prior to the filing of the bankruptcy petition, alter ego claims,
and any claim for substantive consolidation. Under the terms of the
Release, KES and KENETECH have paid KWI $6.5 million from the proceeds of
the sale of the EcoElectrica Project Interest (Note 4).
A First Amended Plan of Reorganization jointly filed with the Bankruptcy
Court by KWI and the Official Committee was confirmed on January 27, 1999
and became effective, as later amended, on April 8, 1999. Claim
distributions of approximately $50.0 million were made in 1999 pursuant to
the approved plan. Although the Company continues to own the common stock
of KWI, the Company believes that it will not realize any value from its
remaining interests in KWI other than certain tax attributes. KWI continues
to be a member of the Company's consolidated tax group for income tax
purposes.
4. SALE OF ECOELECTRICA PROJECT INTEREST
On December 23, 1998, KES sold its indirectly owned 50% equity interest in
a partnership that owns a gas-fired cogeneration facility of approximately
540 MW in Penuelas, Puerto Rico (the "EcoElectrica Project") and other
associated contract rights (collectively, the "EcoElectrica Project
Interest") to Edison Mission Energy, an unrelated party. The EcoElectrica
Project also includes a liquefied natural gas import terminal and storage
facility, a desalination plant and assorted ancillary facilities. The sale
was made pursuant to a Stock Purchase and Assignment Agreement, dated as of
December 23, 1998, by and among KES and certain of its affiliates and
Edison Mission Energy and one of its affiliates.
The EcoElectrica Project Interest was sold for cash and assumption of a KES
equity funding commitment in the approximate aggregate amount of $247
million. The consideration received for the EcoElectrica Project Interest
resulted from an auction solicitation for such interest conducted by KES's
and the Company's financial advisor. The proceeds have been used, in part,
(i) to satisfy and discharge in full, in the amount of approximately $145.5
million, the Company's 12 3/4% Senior Secured Notes due 2002 after
acceleration by the Trustee for such notes, on December 23, 1998, of the
unpaid principal thereof in the face amount of $100 million, accrued and
unpaid interest and fees and expenses, (ii) to pay in full a development
loan for the EcoElectrica Project in the approximate amount of $27 million,
(iii) to pay $6.5 million to KWI, and (iv) to pay costs of sale of the
EcoElectrica Project Interest of approximately $13 million.
Page 23
<PAGE>
KENETECH CORPORATION
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
As a result of the successful conversion of the local tax status of
EcoElectrica, L.P., an additional payment of $5 million in cash was
received on July 27, 1999. No other proceeds will be received from the sale
of the EcoElectrica Project Interest.
The Company realized net revenues of $212.7 million in 1998 and $5.0
million in 1999 from the sale of the EcoElectrica Project Interest.
5. DISPOSITION OF SUBSIDIARIES AND ASSETS
In 1999, the Company recorded approximately $5.0 million of gain relating
to the disposition of two partnership interests.
Chateaugay: The Company, through KES, owned a 50% indirect interest in a
partnership (the "Chateaugay Partnership"), which owned a 17.8 MW
wood-fired electric generating station developed and constructed by the
Company in Chateaugay, New York (the "Chateaugay Project"). The remaining
50% equity interest was owned by affiliates of CMS Generation Company. The
Chateaugay Project delivered electric energy to New York State Electric &
Gas Corporation under a long-term power purchase agreement. Debt associated
with the Chateaugay Project consisted primarily of tax-exempt bonds. In
July 1991, the Chateaugay Partnership entered into an agreement with the
County of Franklin (New York) Industrial Development Authority (the
"Authority") whereby the Authority loaned the Chateaugay Partnership the
proceeds of the Authority's Series 1991A Bonds issued in the principal
amount of $34,800,000 to finance the construction of the Chateaugay
Project. In October 1998, the Chateaugay Partnership and the Authority
signed a Cooperation and Termination Agreement with respect to the proposed
termination of the power purchase agreement, the payment or defeasance of
the Series 1991A Bonds, and the disposition of the Chateaugay Project.
In 1997, the carrying value of this investment was written down to its then
existing balance of the associated debt.
On March 24, 1999, the Chateaugay Partnership entered into and consummated
a number of agreements under which the Chateaugay Partnership (i)
terminated the power purchase agreement, (ii) received a payment from an
affiliate of Citizens Power LLC, a Delaware limited liability company, in
connection with such termination, (iii) sold substantially all its rights
in the Chateaugay Project to an affiliate of Boralex, Inc., a Quebec
corporation, (iv) terminated its relationship with the Authority pursuant
to the Termination Agreement, (v) satisfied in full all of its obligations
with respect to the Series 1991A Bonds, and (vi) terminated certain
agreements entered into in connection with the Chateaugay Project relating,
among other matters, to the operation and administration of the project.
The Company has been released from the Chateaugay Project debt, and the
liabilities relating to the Chateaugay Project included in other notes
payable of $1,060,000 at December 31, 1998, have been paid in full. The
Company received net cash of approximately $2,391,000 and recorded
approximately $3,614,000 of gain related to the transaction.
Dutch Limited: The Company owned a 50% interest in the general partner of a
Dutch limited partnership that owned a windplant in the Netherlands. In
addition, a subsidiary of the Company had a payable to the co-general
partner of the partnership of approximately $1,549,000. On January 14,
1999, the Company transferred its 50% interest in the general partner to
its co-general partner, paid $200,000 to the partner and was released from
the remainder of the payable. The transaction accounted for approximately
$1,349,000 of the gain on the disposition of subsidiaries and assets.
The Company indirectly owned a cogeneration plant located in Hartford,
Connecticut (the "Hartford Hospital Project"). In May 1998 the Company and
the utility with which the Company had an Electricity Purchase Agreement
(the "EPA") completed a Termination Agreement providing for the termination
of the EPA in exchange for a stream of monthly payments payable through
December 1, 2000. In June 1998 the Company sold the Hartford Hospital
Project, including the rights to the aforementioned monthly stream of
payments, for $4,891,000 in cash (net) and assumption of the $10,700,000
note payable collateralized by the Hartford Hospital Project and
approximately $350,000 of other liabilities. The Company realized no gain
or loss on this transaction.
Page 24
<PAGE>
KENETECH CORPORATION
----------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
The gain shown on the income statement for 1998 was generated by receipt of
a receivable previously reserved for and the sale of other miscellaneous
assets.
6. INCOME (LOSS) PER SHARE
Income (loss) per share amounts were calculated as follows for the years
ended December 31, 1999, 1998, and 1997 (in thousands, except for per share
amounts).
Basic and Diluted
---------------------------------
1999 1998 1997
--------- --------- ---------
Net income (loss) $ 36,590 $ 131,572 $ (25,242)
Less preferred stock dividends -- (3,212) (8,563)
--------- --------- ---------
Net income (loss) used in per
share calculations $ 36,590 $ 128,360 $ (33,805)
========= ========= =========
Weighted average shares used
in per share calculations 41,944 40,073 36,830
========= ========= =========
Net income (loss) per share $ 0.87 $ 3.20 $ (0.92)
========= ========= =========
In 1997, common stock equivalents are not included in weighted average
shares used in the per share calculations because they would be
anti-dilutive.
7. RELATED PARTY TRANSACTIONS
The Company had transactions with related parties in the ordinary course of
business. Related parties consisted 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. Pursuant to contracts
to provide power plant management and maintenance, the Company had the
following revenues from related parties, after elimination in consolidation
of the Company's ownership interest:
1999 1998 1997
-------- -------- --------
(in thousands)
Maintenance, management fees
and other $ 21 $ 206 $ 167
-------- -------- --------
$ 21 $ 206 $ 167
======== ======== ========
In addition, the Company had insignificant transactions with KWI relating
to shared services.
8. ACCOUNTS RECEIVABLE
Accounts Receivable: Accounts receivable at December 31, 1999 and 1998
consisted of:
1999 1998
-------- --------
(in thousands)
Contracts - Billed:
Completed contracts $ -- $ 1,905
Contracts in progress -- --
Retained 100 --
Contracts - Unbilled -- --
Operations and other 10 --
Less: Allowance for
doubtful collections -- (826)
-------- --------
$ 110 $ 1,079
======== ========
Page 25
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
9. SETTLEMENT OF ACCOUNTS PAYABLE AND OTHER INCOME
In 1999, the Company recognized $942,000 of gains on accounts payable
settlements. One transaction resulted in a gain of $924,000 on settlement
of a $1,074,000 payable to a German vendor related to the Dutch windplant.
The Company recorded other income of $2,900,000 because the Company reduced
its accrued liabilities related to various legal matters.
10. ACTIVE DEVELOPMENT PROJECTS
OSB Chateaugay
In July 1999, the Company entered into a funding and participation
agreement with OSB Chateaugay, LLC ("OSB"). The funding will be used by OSB
to pursue the development of an oriented, strand-board project in
Chateaugay, New York (the "OSB Project"). The Company agreed to fund up to
$1.25 million. The OSB Project is expected to produce up to 475 million
square feet of strand board per year. Construction is anticipated to
commence in the second half of 2000. The Company has advanced $210,000 as
of December 31, 1999. In exchange for the note, the Company will receive
participation distributions. The note is to be repaid upon the completion
of certain development milestones as specified in the funding and
participation agreement. Repayment of the note is to occur before any
participation distributions. Repayment of the note and participation
distributions are both dependent upon the ultimate success of the OSB
Project.
Astoria
In October 1999, the Company entered into funding and participation
agreements with Astoria Energy, LLC ("Astoria") to provide funding of up to
$3 million for the development of a 1,000 megawatt independent power plant
(the "Astoria Project") to be located in Astoria, Queens, New York. The
Astoria Project is currently under development and is expected to commence
construction in the second half of 2001. The Company has advanced $2.2
million, in the form of a note, as of December 31, 1999. In exchange for
the funding, the Company will receive in addition to repayment of the note,
certain participation distributions. The note is secured by all property
and assets of Astoria. Recovery of the note and participation distributions
are both dependent upon the ultimate success of the Astoria Project.
As of March 15, 2000, the Company has committed to fund a further
$2 million toward the development of the Astoria Project.
Whinash
In February 2000, the Company agreed to finance up to $600,000 for the
development of a wind-powered electrical generating facility to be located
in Whinash, Cumbria, England. The project is a 50 megawatt facility. In
exchange for the funding, the Company will receive certain participation
distributions upon the sale or financial closing of the Whinash project. As
of March 15, 2000, the Company had advanced $350,000.
11. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1999 and 1998 consisted of:
1999 1998
-------- --------
(in thousands)
Machinery, equipment and other $ 128 729
-------- --------
128 729
Less accumulated depreciation 70 705
-------- --------
$ 58 $ 24
======== ========
Depreciation expense was $31,000 in 1999, $894,000 in 1998, and $1,481,000
in 1997.
Page 26
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
12. BANK LOAN PAYABLE
On August 30, 1996, the Company entered into a $30,000,000 loan agreement
to be used for the development of the EcoElectrica Project. Throughout 1996
and most of 1997, amounts borrowed under this agreement bore interest at
the 90 day LIBOR plus 7.5%. This rate was reduced to the 90 day LIBOR plus
5.9% upon the project receiving construction financing in December 1997.
The loan was paid in full in December 1998.
13. OTHER NOTES PAYABLE
Other notes payable at December 31, 1999 and 1998 were repaid in full in
1999 and 1998.
14. 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 was amortized on the effective yield method through 2002. Interest
on these notes was due June 15 and December 15 of each year. The Notes were
redeemable, at the option of the Company, beginning December 15, 1998 at
103% of par, and beginning December 15, 1999 at par.
Under the terms of the note indenture, the Company was restricted from
paying cash dividends on its common stock and was required to comply with
certain covenants, the most restrictive of which placed limitations on
payment of such dividends, repurchasing common stock, incurring additional
indebtedness, pledging of assets and advances or loans to affiliates. The
indenture provided for an event of default (including the acceleration of
the repayment of the Notes) should other debt of the Company be accelerated
because such other debt was in default. The Company did not pay the
interest due June 15 and December 15, 1998, June 15 and December 15, 1997,
June 15 and December 15, 1996 or June 15 and December 15, 1995 and was in
default. At December 31, 1997, the debt was classified as a current
liability. The Trustee accelerated the obligation to repay the principal
and interest under the notes on December 23, 1998 and the Notes were
satisfied and discharged in full, including principal, accrued and unpaid
interest and fees and expenses, on such date.
15. STOCKHOLDERS' EQUITY
PRIDES: In May and June 1994, the Company sold 102,492 shares of 8 1/4%,
Preferred Redeemable Increased Dividend Equity Securities (PRIDES),
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 were cumulative from the date of original
issuance and payable quarterly in arrears, when and as declared by the
Company's board of directors. The voluntary and involuntary liquidation
value of each depositary share underlying the PRIDES was equal to the
stated value plus unpaid dividends. PRIDES holders had the same voting
rights as common stockholders at the rate of 40 votes per depositary share.
On May 14, 1998, each PRIDES share mandatorily converted into 50 shares of
common stock and the right to receive cash equal to all accrued and unpaid
dividends out of funds legally available therefor. The Company recorded a
liability as of December 31, 1998 for unpaid dividends of approximately
$21,408,000.
On March 23, 1999, the Board of Directors of the Company determined,
pursuant to the terms of the Certificate of Incorporation of the Company,
to pay cash in an amount equal to all accrued and unpaid dividends on each
share of PRIDES, to and including May 14, 1998 (the "Mandatory Conversion
Date"), which resulted in a payment of $4.1775 per depositary share. The
payment was made on April 14, 1999, to the persons in whose name depositary
receipts evidencing depositary shares were registered on the books of the
Depositary, Chase Mellon Shareholder Services, L.L.C., on the Mandatory
Conversion Date. The total payment by the Company was approximately
$21,408,016.
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, 1999 totaled approximately 6,000,000 shares in addition to
options for 548,000 shares granted and outstanding at December 31, 1999.
Page 27
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
Stock option activity during 1999, 1998 and 1997 was as follows:
Exercise
Options Price
--------- ---------------
Outstanding December 31, 1996 2,507,000 0.81 - 19.75
Canceled or expired (487,700) 0.81 - 19.75
---------
Outstanding December 31, 1997 2,019,300 0.81 - 19.75
Canceled or expired (582,000) 0.81 - 19.75
---------
Outstanding December 31, 1998 1,437,300 0.81 - 19.75
Canceled or expired (889,300) 0.81 - 19.75
---------
Outstanding December 31, 1999 548,000 0.81 - 19.75
=========
The weighted average exercise price of outstanding options at December 31,
1999 was $1.63. Stock options vest as follows:
Exercise
Shares Price
--------- ----------------
Currently exercisable 48,000 9.00 - 19.75
2000 -
2001 -
2002 500,000 0.81
---------
548,000
=========
Stock Repurchase: In November 1999, the Company's Board of Directors
authorized the repurchase of up to 2,000,000 shares of the Company's Common
Stock. The repurchase program was to continue until the Company acquired
the 2,000,000 shares or until September 30, 2000. The Company subsequently
authorized the repurchase of an additional 2,000,000 shares and extended
the repurchase period to December 31, 2000. As of December 31, 1999, the
Company had reacquired 401,200 shares at a cost of $265 thousand, also
resulting in a decrease of Additional Paid in Capital of $265 thousand. As
of March 15, 2000, the Company had reacquired 2,049,400 shares at a cost of
$1.34 million. The Company intends to retire all of the repurchased stock.
The Financial Accounting Standards Board (FASB) has issued Statement No.
123. "Accounting for Stock-Based Compensation" which is effective for 1996
and subsequent 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 pronouncement has no impact on the
Company. No options were granted in 1997, 1998, or 1999.
16. INCOME TAXES
The provision for income taxes consists of the following:
1999 1998 1997
------- -------- --------
(in thousands)
Current:
Federal $ -- $ 1,200 $ --
State -- 100 --
Foreign -- 800 --
-------- -------- --------
-- 2,100 --
-------- -------- --------
Deferred:
Federal (22,376) 44,042 --
State (3,197) 7,772 --
-------- -------- --------
(25,573) 51,814 --
-------- -------- --------
Total income tax provision $(25,573) $ 53,914 $ --
======== ======== ========
Page 28
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
A reconciliation of the total income tax provision to income taxes
calculated at the federal statutory tax rate of 35% is as follows:
1999 1998 1997
-------- -------- ---------
(in thousands)
Income (loss) before income taxes $ 11,017 $ 185,486 $ (25,242)
======== ========= =========
Statutory federal income tax
provision (benefit) $ 3,856 $ 64,920 $ (8,835)
State income taxes, less
federal tax provision (benefit) 551 9,274 (1,262)
Change in valuation allowance (2,275) (1,625) 10,097
Benefit of deconsolidated subsidiary
losses (4,110) (18,695) --
Reduction of net deferred tax liability
attributable to deconsolidation of KWI (23,595) -- --
Increase in deferred tax asset of
$6,528 offset by increase in valuation
allowance due to true-up adjustment -- -- --
Other -- 40 --
-------- --------- --------
Total income tax provision $(25,573) $ 53,914 $ --
======== ========= ========
As of December 31, 1999 and 1998, the deferred tax balances (excluding
those of KWI) consisted of the following:
1999 1998
-------- --------
(in thousands)
Noncurrent assets:
Federal and state net operating loss
and tax credit carryforwards $ 26,194 $ 19,666
Project development costs -- 2,775
-------- --------
26,194 22,441
Valuation allowance (26,194) (21,941)
-------- --------
-- 500
Noncurrent liabilities:
Other -- (500)
-------- --------
-- (500)
-------- --------
Noncurrent deferred tax assets
(liability), net $ -- $ --
======== ========
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. In 1998, the Company realized significant gains from the sale of
the EcoElectrica Project Interest, resulting in the utilization of tax
losses for which a valuation allowance had been provided (see Note 4).
Page 29
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
The Company recorded tax expense in 1998 primarily relating to the sale of
the EcoElectrica Project Interest. In 1999, the Company reduced the balance
of the Deferred Benefit for Deconsolidated Subsidiary Losses, resulting in
an income tax benefit of $25.6 million. The reduction to the deferred
benefit is due to the recognition of additional tax benefits of KWI which
are primarily attributable to the KWI bankruptcy distributions.
The following table summarizes carryforwards (including approximately $75
million of net operating loss carryforward and $14 million in various tax
credits attributable to KWI which are not consolidated for financial
statement purposes) available for income tax purposes at December 31, 1999
(in thousands):
Expiration Dates
-----------------
Investment tax credits $ 1,706 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 1,875 Indefinite
Production tax credit 2,561 2009 through 2012
Production tax credit 392 2018
Net operating loss - federal (subject 46,751 2011
to limitation)
Net operating loss - federal (no
longer subject to limitation) 4,068 2011
Net operating loss - federal (not 52,226 2012
subject to current limitation)
Net operating losses of acquired
subsidiaries subject to restrictions 2,202 2001 through 2005
Net operating loss - federal (not
subject to limitation) 28,359 2019
17. TRADING SECURITIES
The Company held trading securities for the first time during the year
ended December 31, 1999. Unrealized losses on trading securities equaled
approximately $249,000 at December 31, 1999.
The Company recorded a $364,000 loss on trading securities for the year
ended December 31, 1999, as follows:
Loss on
Trading Debt
Securities
---------------
(in thousands)
Unrealized losses $ (249)
Realized losses (115)
---------------
Loss included in earnings for the year
ended December 31, 1999 $ (364)
===============
The Company uses specific identification to determine the basis used in the
computation of gain or loss on the sale of trading securities.
Page 30
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount and estimated fair values of the Company's financial
instruments at December 31, 1999 and 1998 were as follows:
1999 1998
------------------- -------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
(in thousands)
Assets:
Cash and cash equivalents $ 15,291 $ 15,291 $ 67,424 $ 67,424
Funds in escrow 314 314 478 478
Accounts receivable 110 110 1,079 1,079
Trading debt securities 31,388 31,388 -- --
Interest receivable 464 464 -- --
Liabilities:
Chateaugay Project Debt -- -- 15,620 15,620
Other notes payable 6 6 1,071 1,071
Estimated fair values are based upon reasonable estimates, using
independent sources whenever possible.
Trading debt securities are carried at fair value. All other instruments
are carried at cost which approximates fair value because they are
short-term in nature.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1999 and 1998.
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.
19. PREFERRED STOCK RIGHTS
On May 4, 1999, the Board of Directors of the Company declared a dividend
of one preferred share purchase right (a "Right") for each outstanding
share of common stock, par value $.0001 per share, of the Company (the
"Common Stock"). The dividend was paid on May 13, 1999 to the stockholders
of record on May 5, 1999 (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a
share of Series A Junior Participating Preferred Stock, par value $.01 per
share, of the Company (the "Preferred Stock") at a price of $10 per one
one-thousandth of a share of Preferred Stock (the "Purchase Price"),
subject to adjustment.
The Rights are not exercisable until the earlier to occur of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons (with certain exceptions, an "Acquiring Person") has
acquired beneficial ownership of 15% or more of the outstanding shares of
Common Stock or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any
person or group of affiliated persons becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in
the beneficial ownership by a person or group of 15% or more of the
outstanding shares of Common Stock (the earlier of such dates being called
the "Distribution Date"). The Rights will expire on May 4, 2009 (the "Final
Expiration Date"), unless the Final Expiration Date is advanced or extended
or unless the Rights are earlier redeemed or exchanged by the Company, in
each case as described below.
Page 31
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
Shares of Preferred Stock purchasable upon exercise of the Rights will not
be redeemable. Each share of Preferred Stock will be entitled, when, as and
if declared, to a minimum preferential quarterly dividend payment of the
greater of (a) $10 per share, or (b) an amount equal to 1,000 times the
dividend declared per share of Common Stock. In the event of liquidation,
dissolution or winding up of the Company, the holders of the Preferred
Stock will be entitled to a minimum preferential payment of the greater of
(a) $10 per share (plus any accrued but unpaid dividends), or (b) an amount
equal to 1,000 times the payment made per share of Common Stock. Each share
of Preferred Stock will have 1,000 votes, voting together with the Common
Stock. Finally, in the event of any merger, consolidation or other
transaction in which outstanding shares of Common Stock are converted or
exchanged, each share of Preferred Stock will be entitled to receive 1,000
times the amount received per share of Common Stock. These rights are
protected by customary antidilution provisions.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become
void), will thereafter have the right to receive upon exercise of a Right
that number of shares of Common Stock having a market value of two times
the exercise price of the Right.
In the event that, after a person or group has become an Acquiring Person,
the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are
sold, proper provisions will be made so that each holder of a Right (other
than Rights beneficially owned by an Acquiring Person which will have
become void) will thereafter have the right to receive upon the exercise of
a Right that number of shares of common stock of the person with whom the
Company has engaged in the foregoing transaction (or its parent) that at
the time of such transaction have a market value of two times the exercise
price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the earlier of one of the events described in the previous paragraph or
the acquisition by such Acquiring Person of 50% or more of the outstanding
shares of Common Stock, the Board of Directors of the Company may exchange
the Rights (other than Rights owned by such Acquiring Person which will
have become void), in whole or in part, for shares of Common Stock or
Preferred Stock (or a series of the Company's preferred stock having
equivalent rights, preferences and privileges), at an exchange ratio of one
share of Common Stock, or a fractional share of Preferred Stock (or other
preferred stock) equivalent in value thereto, per Right.
At any time prior to the time an Acquiring Person becomes such, the Board
of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price") payable, at the
option of the Company, in cash, shares of Common Stock or such other form
of consideration as the Board of Directors of the Company shall determine.
The redemption of the Rights may be made effective at such time, on such
basis and with such conditions as the Board of Directors in its sole
discretion may establish. Immediately upon any redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
Until a Right is exercised or exchanged, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.
Page 32
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
20. COMMITMENTS AND CONTINGENCIES
PRIDES Litigation: On May 6, 1998, plaintiffs, Quadrangle Offshore (Cayman)
LLC, and Cerberus Partners, L.P., filed a Verified Complaint for
Declaratory Judgment and Injunctive Relief, in the Court of Chancery of the
State of Delaware In and For New Castle County (Civil Action No. 16362-NC).
Plaintiffs alleged that they were beneficial owners of Preferred Redeemable
Increased Dividend Equity Securities, 8-1/4% PRIDES, Convertible Preferred
Stock, par value $0.01 per share (the "PRIDES") of the Company, that
mandatorily converted, on May 14, 1998, into Common Stock, par value
$0.0001 per share ("Common Stock") of the Company.
Plaintiffs filed an amended complaint on July 7, 1998. Generally, the
amended complaint alleged that the Company was currently in liquidation and
was in liquidation prior to May 14, 1998, that the plaintiffs were entitled
to receive the liquidation preference of $1,012.50 per share set forth in
the Certificate of Designations, Preferences, Rights and Limitations of
Preferred Redeemable Increased Dividend Equity Securities, 8-1/4% PRIDES,
Convertible Preferred Stock (the "Certificate of Designations") in any
distribution of assets the Company might make notwithstanding that the
PRIDES mandatorily converted and ceased to be outstanding on May 14, 1998,
and that the Company breached an implied covenant of good faith and fair
dealing under the Certificate of Designations. Plaintiffs sought, among
other things, (i) a declaration that they were entitled to receive the
liquidation preference in any distribution of assets before any
distribution was made to holders of Common Stock and that the mandatory
conversion of the PRIDES did not operate to eliminate their right to
receive the liquidation preference, (ii) related injunctive relief, and
(iii) other unspecified damages.
A bench trial in the action was held February 16-19, 1999 before the Court
of Chancery. On October 13, 1999, the Court entered judgment in favor of
the Company on all counts and denied the relief requested by plaintiffs.
The Court of Chancery subsequently vacated the Temporary Restraining Order
previously entered in the action that restrained the Company from making
payments from the proceeds of the sale of the EcoElectrica Project Interest
in satisfaction of any obligations not previously disclosed in the
Company's 10-K or 10-Q or their attached exhibits (except to the extent
necessary for ordinary, customary and reasonable expenses) without first
providing five business days advance notice to plaintiffs. On October 26,
1999, plaintiffs filed a Notice of Appeal with the Delaware Supreme Court.
Oral argument at the Delaware Supreme Court is scheduled for April 4, 2000.
The Company intends to defend the appeal vigorously.
Federal Stockholders' Class Action: 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 alleged 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 PRIDES (depository shares) during the
period from April 28, 1994 (the public offering date of the PRIDES) through
August 8, 1995. The amended complaint alleged 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 sought unspecified damages and other relief.
Page 33
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
The Court certified a plaintiff class consisting of all persons or entities
who purchased Common Stock between September 21, 1993 and August 8, 1995 or
depository shares between April 28, 1994 and August 8, 1995, appointed
representatives of the certified plaintiff class, appointed counsel for the
certified class and certified a plaintiff and defendant underwriter class
as to the section 11 claim.
On August 9, 1999, the Court granted defendants' motion for summary
judgment and ordered that plaintiffs take nothing and that the action be
dismissed on its merits. The plaintiffs have appealed the Court's order.
The Company intends to defend the appeal vigorously.
Insurance Litigation: On January 29, 1999, Travelers Insurance Company
filed a complaint against KENETECH and CNF Industries, Inc. ("CNF") in the
Superior Court, Judicial District of Hartford, Connecticut. The complaint
alleges that the defendants failed to pay premiums and other charges for
insurance coverage and services. Damages are alleged to be in excess of
$1,121,305. On April 13, 1999, the Company filed a Motion to Dismiss for
lack of personal jurisdiction and also filed a Request to Revise. A hearing
on the Motion and Request is pending. The Company intends to defend this
action vigorously.
Annual Meeting Litigation: On July 30, 1999, Campus, LLC and Joseph A.
Wagda filed a complaint against the Company and its Directors (namely,
Angus M. Duthie, Mark D. Lerdal, Gerald R. Alderson and Charles
Christenson) in the Court of Chancery of the State of Delaware In and For
New Castle County. The plaintiffs in this action purport to be stockholders
of the Company. The Complaint alleges, among other things, that plaintiffs
were deprived of the opportunity to nominate directors for election at the
Company's annual meeting which took place on August 18, 1999. Plaintiffs
are seeking, among other things, (i) a declaration that the annual meeting
was illegally and inequitably scheduled and that any actions taken at the
annual meeting are null and void, and (ii) an order requiring the
defendants to schedule a meeting, allowing stockholders an opportunity to
nominate directors, file solicitation materials with the Securities and
Exchange Commission and conduct a proxy solicitation. The litigation has
been stayed by agreement of the parties. In the event that the litigation
resumes, the Company intends to defend this action vigorously.
Other: 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.
The Company does not believe that the ultimate outcome of the
above-described matters will have a material adverse effect on the
Company's financial position.
Lease Commitments: The Company leases approximately 2,400 square feet of
office space in San Francisco, CA. The associated lease commitment is
approximately $75,000 annually, expiring on September 30, 2001.
Page 34
<PAGE>
KENETECH CORPORATION
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended December 31, 1999, 1998 and 1997
21. QUARTERLY INFORMATION (UNAUDITED)
Unaudited quarterly information for 1999 and 1998 was as follows (in
thousands, except per share amounts):
Year Ended December 31, 1999 -Quarters
First Second Third Fourth
------- -------- ------- -------
Total revenues $ 431 $ -- $ 5,000 $ --
Gross margin 375 -- 5,000 --
Net income 3,642 1,188 27,356 4,404
Per common share:
Basic & Diluted
- net income $ 0.09 $ 0.03 $ 0.65 $ 0.11
Year Ended December 31, 1998 - Quarters
First Second Third Fourth
------- -------- ------- --------
Total revenues $ 3,487 $ 1,352 $ 16 $247,066
Gross margin 53 25 16 212,812
Net income (loss) (4,765) (5,173) (5,787) 147,297
Per common share:
Basic & Diluted
- net income (loss) $ (0.19) $ (0.16) $ (0.14) $ 3.51
22. SUBSEQUENT EVENTS
On February 2, 2000, plaintiffs Robert L. Kohls and Louise A. Kohls filed
two actions in the Court of Chancery of the State of Delaware In and For
New Castle County, against defendants the Company, Angus M. Duthie, Mark D.
Lerdal, Gerald R. Alderson and Charles Christenson. Plaintiffs filed
amended complaints on February 23, 2000.
Plaintiffs allege that they were beneficial owners of Preferred Redeemable
Increased Dividend Equity Securities, 8-1/4% PRIDES, Convertible Preferred
Stock, par value $0.01 per share (the "PRIDES") of the Company, that
mandatorily converted, on May 14, 1998, into common stock, par value
$0.0001 per share ("Common Stock"), of the Company.
The first action is purportedly brought as a class action on behalf of the
named plaintiffs and all other persons who owned the PRIDES as of May 13,
1998, and plaintiffs allege, among other things, that defendants breached
the terms of the Company's Certificate of Designations, Preferences, Rights
and Limitations under which the PRIDES were issued and breached their
fiduciary duty to protect the interests of the holders of the PRIDES prior
to the PRIDES mandatory conversion. Plaintiffs are seeking, among other
things, (i) certification of the action as a class action, (ii) a
declaration that the holders of PRIDES are entitled to be paid a
liquidation preference of up to $1,012.50 per share of PRIDES, and (iii) a
judgment that the defendants are liable to the PRIDES holders in an amount
up to $1,012.50 per share.
The second action is purportedly brought as a derivative action on behalf
of the Company and plaintiffs generally allege that the purchase of the
Company's Common Stock by defendant Mark D. Lerdal in December 1997 was a
corporate opportunity and that such Common Stock should have been instead
purchased by the Company. Plaintiffs are seeking, among other things, (i) a
declaration that the purchase of the Common Stock by defendant Lerdal
constituted the taking of a corporate opportunity and is null and void,
(ii) and an order requiring defendant Lerdal to transfer the Common Stock
to the Company for the consideration he paid, and (iii) to the extent the
Common Stock may not be transferred to the Company, damages for the fair
value of the Common Stock.
The defendants moved to dismiss both actions on March 20, 2000. The Company
intends to defend each of these actions vigorously.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
--------------------
Not applicable.
Page 35
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- --------------------------------------------------------------
Directors and Executive Officers of the Company as of March 15, 2000, their
ages and their present titles:
Name Age Position
---- --- --------
Charles Christenson 69 Director
Mark D. Lerdal 41 Chairman of the Board of Directors,
Chief Executive Officer and
President
Gerald R. Morgan, Jr. 37 Director
Michael D. Winn 37 Director
Dianne P. Urhausen 42 General Counsel, Vice President and
Corporate Secretary
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.
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. He is also a director of Profile Technologies, Inc., a public
company. 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 I Director.
MARK D. LERDAL has served as a Director of KENETECH since March 1996 and as
Chief Executive Officer and President since April 1996. He was elected as
Chairman of the Board of Directors in August 1999. He served as Vice
President and General Counsel of KENETECH from April 1992 until March 1996.
He received his A.B. from Stanford University and his J.D. from
Northwestern University School of Law. He is a Class III Director.
GERALD R. MORGAN, JR. has served as a Director of KENETECH since August
1999. He is the Chief Operating Officer of Francisco Partners, L.P., a
private partnership focused on technology buyouts. Previously, Mr. Morgan
served in various capacities for Security Capital Group and affiliates,
including Senior Vice President, Corporate Finance, and Chief Financial
Officer for Security Capital European Realty. He received his B.S. from
Stanford University and his M.B.A from Stanford University Graduate School
of Business. He is a Class II Director.
Page 36
<PAGE>
MICHAEL D. WINN has served as a Director of the Company since November
1999. He is the President and a Director of Terrasearch Inc., a financial
consulting company. He is also a Director and Officer of Sanu Resources
Inc., a mineral exploration company, and a Manager of MDW Associates, LLC,
a private investment partnership. Prior to forming Terrasearch Inc., he was
a financial analyst for a Southern California based brokerage firm covering
the oil and gas sector. He received his B.S. from the University of
Southern California. He is a Class I Director.
DIANNE P. URHAUSEN has served as Vice President, Corporate Secretary, and
General Counsel of KENETECH since August 1998. She served as Administrative
Counsel and Corporate Secretary from August 1995 to August 1998. Prior to
that, she was an Associate at the law firm of Thelen, Marrin, Johnson &
Bridges. She received her B.A. from St. Mary's College of California and
her J.D. from the University of San Francisco.
Each officer is generally elected to hold office until the next Annual
Meeting of the Company's Board of Directors. Directors are generally
elected for a three-year term.
Mark D. Lerdal was a director and executive officer of KENETECH Windpower,
Inc. within the two-year period prior to KENETECH Windpower, Inc.'s chapter
11 filing in the United States Bankruptcy Court.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 ("SEC"). Executive officers, directors
and persons owning more than ten percent of the Company's stock are
required by the SEC's 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, 1999, all
filing requirements applicable to its executive officers, directors and
owners of more than ten percent of the Company's stock were complied with.
Item 11. Executive Compensation
- ----------------------------------
Each Director of the Company receives a quarterly retainer of $6,000 (see
also footnote 1 to Summary Compensation Table).
The following table sets forth, for the fiscal years ended December 31,
1999, 1998, and 1997, all compensation, for services rendered in all
capacities to the Company, awarded to, earned by or paid to (i) all
individuals serving as Chief Executive Officer during 1999, (ii) the most
highly compensated executive officers of the Company in addition to the
Chief Executive Officer who were serving as executive officers at the end
of 1999, and (iii) the two former executive officers of the Company for
whom disclosure would have been provided but for the fact such individuals
were not serving as executive officers at the end of 1999.
Page 37
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
================================================================================================================
Long-Term
Compensation All Other Compensation
Annual Compensation Awards ($)(3)(4)
------------------------------------------- ------------ ----------------------
Securities
Other Annual Underlying
Name Compensation Options
Principal Position Year Salary Bonus ($)(1) (#)(2)
========================== ---- --------- --------- ------------ ------------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
Mark D. Lerdal 1999 $ 423,861 $ 350,000(5) $ 24,000 - $ 1,152
Chairman of the Board, 1998 $ 443,189 $ 250,000(5) $ 23,500 - $ 1,152
Chief Executive Officer, 1997 $ 401,295 $ 250,000 $ 21,500 - $ 1,165,071
and President
========================== ---- --------- ---------- ----------- ------------ ----------------------
Michael U. Alvarez (6) 1999 $ 214,377 $ 191,360 - - $ -
Vice President, Chief 1998 $ 382,005 $2,887,980 - - $ 1,388
Financial Officer and 1997 $ 351,134 $ 364,920 - - $ 1,388
Assistant Secretary
========================== ---- --------- ---------- ----------- ------------ ----------------------
Andrew M. Langtry 1999 $ 106,226 $ 49,750 - - $ -
Corporate Controller 1998 $ 88,125 $ 22,263 - - $ -
and Chief Accounting 1997 $ 103,275 $ 10,000 - - $ -
Officer
========================== ---- --------- ---------- ----------- ------------ ----------------------
Dianne P. Urhausen 1999 $ 129,249 $ 160,000 - - -
Vice President, 1998 $ 132,548 $ 40,000 - - -
Corporate Secretary 1997 $ 75,243 $ 37,901 - - -
and General Counsel
========================== ---- --------- ---------- ----------- ------------ ----------------------
Mervin E. Werth (6) 1999 $ 38,522 $ 331,250 - - $ 31,250
Controller, Chief 1998 $ 139,645 $ 100,000 - - -
Accounting Officer and 1997 $ 125,405 $ - - - -
Asst. Treasurer
========================== ---- --------- ---------- ----------- ------------ ----------------------
(1) Includes $24,000 in 1999, $23,500 in 1998, and $21,500 in 1997 for director's fees for Mark D. Lerdal.
(2) Shares of Common Stock subject to stock options granted during the fiscal year. No stock appreciation
rights were granted during 1999, 1998 or 1997.
(3) Includes $1,152 for 1999, 1998, and 1997 for insurance premiums paid by the Company with respect to term life
insurance for the benefit of Mark D. Lerdal and $1,388 in 1998 and 1997 for Michael U. Alvarez, respectively,
and a pre-paid severance payment in 1997 of $1,163,919 for Mark D. Lerdal. Also includes a severance payment of $31,250
for Mr. Werth.
(4) Mr. Lerdal, Mr. Werth, the other defendants and KENETECH Corporation are jointly represented by the same respective
counsel in the Federal Stockholders' Class Action, the Annual Meeting Litigation and Delaware Stockholders' Class and
Derivative Litigation described in Item 3 to this 10-K. A portion of counsel's legal fees have been paid by the Company,
however, such fees have not been apportioned among the individual defendants.
(5) Includes a bonus of $350,000 earned for 1999 and $250,000 for 1998 for Mr. Lerdal. Such bonuses were approved by the
Board of Directors and paid in 2000.
(6) Mr. Alvarez's employment agreement expired March 23, 1999 and Mr. Werth entered into a separation agreement effective
March 31, 1999.
</TABLE>
No options or stock appreciation rights were awarded to the Chief Executive
Officer or the named executive officers of the Company during the fiscal
year ended December 31, 1999.
The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended December 31, 1999, with respect
to the Chief Executive Officer and the named executive officers of the
Company. No stock appreciation rights were outstanding during such fiscal
year.
Page 38
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
==================================================================================================================
Number of Securities Value of Unexercised
Shares Underlying Unexercised Options In-the-Money Options
Acquired on Value At Fiscal Year-End At Fiscal Year-End
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable (1)
=================== ------------ ------------ ------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Mark D. Lerdal - - -/500,000 -/-
=================== ------------ ------------ ------------------------------ -----------------------------
Michael U. Alvarez - - -/- -/-
=================== ------------ ------------ ------------------------------ -----------------------------
Andrew M. Langtry - - -/- -/-
=================== ------------ ------------ ------------------------------ -----------------------------
Dianne P. Urhausen - - -/- -/-
=================== ------------ ------------ ------------------------------ -----------------------------
Mervin E. Werth - - -/- -/-
=================== ------------ ------------ ------------------------------ -----------------------------
(1) The exercise price of all options exceeds the market price of the underlying shares at December 31, 1999.
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, Messrs. Christenson, Duthie (1), Morgan and Winn served as
members of the Compensation Committee of the Company. No member of the
Compensation Committee has ever been an officer or employee of the Company.
Mr. Lerdal and Ms. Urhausen may have attended meetings of the Committee,
but were not present during deliberations or discussions regarding his or
her own compensation.
Mr. Winn is the president, sole director and sole stockholder of
Terrasearch, Inc. Terrasearch entered into a Consulting Agreement with the
Company on January 1, 2000. Pursuant to the terms of the Consulting
Agreement, Terrasearch will be paid a yearly consulting fee of $225,000,
plus expenses through December 31, 2000. The Agreement will automatically
renew for a one-year period unless either party gives notice of its intent
not to renew. In connection with the Consulting Agreement, the Company also
issued Terrasearch warrants to purchase up to 500,000 shares of Common
Stock of the Company at an exercise price of $1.00 per share. The warrants
become exercisable on January 1, 2002 and expire December 31, 2005.
(1) Angus M. Duthie did not stand for re-election to the Board of Directors at
the 1999 Annual Stockholder Meeting.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
KENETECH, KENETECH Energy Systems, Inc. and certain direct or indirect
wholly-owned subsidiaries entered into an Employment Agreement with Mr.
Alvarez that became effective December 1, 1997 (such agreement superseded
Mr. Alvarez's prior employment agreement). The Employment Agreement
provided that Mr. Alvarez was to be employed (unless terminated for cause)
at his annual base salary of $350,000 until the later of (i) December 31,
1998, (ii) 90 days following the sale of the Company's interests in the
EcoElectrica Project, or (iii) the date on which all payments under the
Agreement had been made. Accordingly, Mr. Alvarez's Employment Agreement
expired March 23, 1999. Under the terms of the Employment Agreement, Mr.
Alvarez was paid a bonus in 1997 upon the closing of the construction
financing for the EcoElectrica Project, and a bonus in 1998 from the
proceeds of the sale of the EcoElectrica Project Interest (see Summary
Compensation Table). Mr. Alvarez also received a bonus in 1999 from the
proceeds of the sale of the Chateaugay Project and other bonuses in 1997
and 1998 from the proceeds of the sale of certain other assets of KES.
Page 39
<PAGE>
The Company entered into an Employment Agreement with Mr. Lerdal on April
1, 1996. Mr. Lerdal's initial employment period ran for a period of three
years ending March 31, 1999 and the Agreement was automatically renewed for
a one-year period. Pursuant to the terms and conditions of the Agreement,
Mr. Lerdal (i) received a bonus of $100,000 upon execution of the
Agreement, (ii) received a minimum annual base salary of $400,000 (subject
to yearly adjustment), (iii) was eligible to receive an annual bonus of up
to 25% of his base salary, and (iv) was eligible to earn additional bonuses
of up to $450,000 upon the occurrence of certain stated objectives. All of
the objective payments have been earned including the $250,000 paid as a
bonus in 1997. In the event of Mr. Lerdal's involuntary termination (other
than for cause) including non-renewal of the employment period, he would
receive a severance payment equal to two years base salary 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 would receive a lump sum payment equal to one
year's salary in addition to the payments set forth in the immediately
preceding sentence. The severance provisions of the Agreement were paid in
March 1997. Mr. Lerdal has given the Company notice of his intent not to
renew the Agreement. The Agreement will expire by its terms on March 31,
2000, and effective April 1, 2000, Mr. Lerdal will be an at-will employee
with an annual base salary of $250,000.
The Company and Mr. Langtry entered into a Retention Agreement on April 1,
1999 that provided that Mr. Langtry would be paid his annual base salary of
$95,000 until the Agreement expired on September 30, 1999. Under the terms
of the Agreement, after September 30, 1999, Mr. Langtry continued to be
employed by the Company as an at will employee, his annual base salary was
raised to $120,000 and he was paid a bonus in the amount of $36,250 on
December 31,1999. If Mr. Langtry is discharged (other than as a result of a
termination for cause) he will receive a lump sum severance payment in the
amount of $72,500.
Ms. Urhausen and the Company entered into an Employment Agreement on
December 22, 1998, that provided that Ms. Urhausen was to be employed
(unless terminated for cause) at her annual base salary of $160,000 for the
one-year period beginning January 1, 1999. Under the terms of the
Employment Agreement, if Ms. Urhausen's employment with the Company ceased
for any reason during the term of the Agreement she was to receive a lump
sum severance payment equal to $160,000. If Ms. Urhausen's employment did
not cease, on each of March 31, June 30, September 30 and December 31,
1999, she was to receive a quarterly payment of $40,000 and the severance
payment was to be reduced by any quarterly payment made (see Summary
Compensation Table).
Mr. Werth and the Company entered into a retention incentive agreement in
1998 pursuant to which Mr. Werth received a quarterly bonus (see Summary
Compensation Table). Pursuant to the terms of a Separation Agreement and
Mutual Release entered into by the Company and Mr. Werth as of March 31,
1999, upon mutual agreement of Mr. Werth and the Company, Mr. Werth's
employment with the Company terminated effective March 31, 1999 and he
received a lump sum payment of $281,250 consisting of a bonus payment,
severance and accrued vacation.
STOCK PLANS
The 1993 Option Plan (described below) and the 1993 Employee Stock Purchase
Plan (the "Purchase Plan") were implemented in September 1993. The Purchase
Plan was discontinued following the August 1996 semi-annual purchase date.
No Options have been granted under the 1993 Option Plan since 1996.
Page 40
<PAGE>
The Company has registered shares of Common Stock reserved for issuance
under the 1993 Option Plan thus permitting the resale of such shares by
non-affiliates in the public market without restriction under the
Securities Act of 1933.
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 were automatically 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 were 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 had 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 is to be automatically converted into the right to receive
from the Company the excess of the tender offer price over the option
price. No grants under the Automatic Option Grant Program have been made
since 1995 and this part of the Plan has been discontinued.
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.
Page 41
<PAGE>
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 rescission for a
breach of a director's duty of care. 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.
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 as a director, officer, employee or agent of another enterprise
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.
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.
The Company provides Directors and Officers liability insurance and
reimbursement insurance policies for its Officers and Directors.
See Item 3 of this 10-K regarding pending or threatened litigation
involving any director or officer of the Company where indemnification will
be required or permitted.
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 as
of March 15, 2000 for (i) each person known to the Company beneficially to
own 5% or more of the outstanding shares of its Common Stock, (ii) each of
the Company's directors, the Chief Executive Officer 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 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 42
<PAGE>
<TABLE>
<CAPTION>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
===============================================================================================
Number of Shares
Of Common Stock Percentage of
Beneficial Owners (1) Beneficially Owned (2) Shares Outstanding (3)(4)
============================================== ---------------------- ------------------
<S> <C> <C>
Charles Christenson 67,000 *
=============================================== ---------------------- ------------------
Mark D. Lerdal 11,365,458 28.5% Common
=============================================== ---------------------- ------------------
Gerald R. Morgan, Jr. 115,000 *
=============================================== ---------------------- ------------------
Michael D. Winn 50,000 *
=============================================== ---------------------- ------------------
Andrew M. Langtry - *
=============================================== ---------------------- ------------------
Dianne P. Urhausen 35,000 *
=============================================== ---------------------- ------------------
Michael U. Alvarez (5) 1,441 *
=============================================== ---------------------- ------------------
Mervin E. Werth (5) - *
=============================================== ---------------------- ------------------
All Directors and Executive Officers as a Group 11,633,899 29.1% Common
=============================================== ---------------------- ------------------
(1) Information for beneficial owners of 5% or more of the Company's Common Stock is reported from and as
of the date of such owner's latest Schedule 13D or 13G (as amended) provided to the Company.
(2) Except as otherwise specifically noted, the number of shares stated as being beneficially owned includes
(a) all options under which officers or directors could acquire common stock currently and within 60 days following
March 15, 2000, (i.e., Charles Christenson (47,000 shares) and all directors and officers as a group
(47,000 shares)), and
(b) shares believed by the Company to be held beneficially by spouses.
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) * Does not exceed one percent of the class so owned.
(4) The percentages are calculated based on the amount of outstanding shares, excluding the shares held by the Company
pursuant to its stock repurchase program.
(5) Mr. Alvarez's employment agreement expired March 23, 1999 and Mr. Werth entered into a separation agreement effective
March 31, 1999.
</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.
Page 43
<PAGE>
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
- -------------------------------------------------------
All of the defendant current and former officers and directors and the
Company are jointly represented by the same respective counsel in the
Federal Stockholders' Class Action, the Annual Meeting Litigation and the
Delaware Stockholders' Class and Derivative Litigation described in Item 3
to this 10-K. A portion of such counsels' legal fees has been paid by the
Company, however, such fees have not been apportioned among the individual
defendants.
Terrasearch Inc., the president, sole director, and sole stockholder of
which is Michael D. Winn, a Director of the Company, entered into a
Consulting Agreement with the Company on January 1, 2000. Pursuant to the
terms of the Consulting Agreement, Terrasearch will be paid a yearly
consulting fee of $225,000, plus expenses through December 31, 2000. The
Agreement will automatically renew for a one-year period unless either
party gives notice of its intent not to renew. In connection with the
Consulting Agreement, the Company also issued Terrasearch warrants to
purchase up to 500,000 shares of Common Stock of the Company at an exercise
price of $1.00 per share. The warrants become exercisable on January 1,
2002 and expire December 31, 2005.
Page 44
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a) (1)FINANCIAL STATEMENTS
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 16
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998, and 1997 17
Consolidated Balance Sheets, December 31, 1999 and 1998 18
Consolidated Statements of Stockholders' Equity (Deficiency)
for the years ended December 31, 1999, 1998 and 1997 19
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 20
Notes to Consolidated Financial Statements 21 - 35
(a) (2)KENETECH Corporation Financial Statement Schedules
--------------------------------------------------
I. Valuation and Qualifying Accounts for the years ended
December 31, 1999, 1998 and 1997 51
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 45
<PAGE>
(a)(3) EXHIBITS - All of the Exhibits (except 21.1, 27, 10.61 and 10.62) listed
below were previously filed with Registration Statements or Reports on Form
10-K or 10-Q of KENETECH Corporation as specified below.
Number Description
3 ARTICLES OF INCORPORATION AND BYLAWS
3.1(13) Restated Certificate of Incorporation of KENETECH Corporation
("KENETECH").
3.2(10) 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.
Page 46
<PAGE>
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 March 1, 1995 between KENETECH and
Gerald R. Alderson.
10.34(8) Employment Agreement dated as of December 1, 1994 between KENETECH and
Joel M. Canino.
10.35(8) Severance Agreement and Offer Letters both dated January 23, 1995
between KENETECH and Ralph B. Muse.
10.36(9) Employment Agreement dated as of December 31, 1995 between KENETECH
and Mark D. Lerdal.
10.37(9) Employment Agreement, dated as of January 1, 1996, between KENETECH
Energy Systems, Inc. and Michael U. Alvarez.
10.38(9) Agreement, dated November 1, 1995, between KENETECH and GGG Inc.
10.39(9) Agreement, dated April 2, 1996, between KENETECH and GGG Inc.
10.40(9) Separation Agreement and Mutual Release, dated as of October 12, 1995,
between KENETECH and Jean-Yves Dexmier.
10.41(10) Employment Agreement Amendment, dated as of December 11, 1996, between
KENETECH Energy Systems, Inc. and Michael U. Alvarez.
10.42(10) Employment Agreement, dated as of April 12, 1996, between KENETECH
Corporation and James J. Eisen.
10.43(10) Employment Agreement, dated as of April 12, 1996, between KENETECH
Corporation and Michael A. Haas.
10.44(10) Employment Agreement, dated as of April 1, 1996, between KENETECH
Corporation and Mark D. Lerdal.
10.45(10) Employment Agreement, dated as of April 12, 1996, between KENETECH
Corporation and Nicholas H. Politan.
10.46(10) Separation Agreement and Mutual Release, dated as of April 9, 1996,
between KENETECH Corporation and Gerald R. Alderson.
10.47(10) Separation Agreement and Release, dated October 7, 1996, among
KENETECH Corporation, CNF Industries, Inc. and Joel M. Canino.
Page 47
<PAGE>
10.48(10) First Amendment to Separation Agreement and Release, dated October 28,
1996, among KENETECH Corporation, CNF Industries, Inc. and Joel M. Canino.
10.49(10) Retention Agreement, dated February 2, 1996, by and between KENETECH
Corporation and Mervin E. Werth.
10.50(10) Employment Agreement, dated as of April 12, 1996, between KENETECH
Windpower, Inc. and Steven A. Kern.
10.51(11) Employment Agreement, effective December 1, 1997, among KENETECH
Corporation, KENETECH Energy Systems, Inc., certain direct and in-direct
subsidiaries of KENETECH Energy Systems and Michael U. Alvarez.
10.52(11) Separation Agreement and Mutual Release, dated as of June 30, 1997,
between KENETECH Corporation and James J. Eisen.
10.53(11) Separation Agreement and Mutual Release, dated as of August 1, 1997,
between KENETECH Corporation and Nicholas H. Politan.
10.54(11) Separation Agreement and Mutual Release, dated as of March 12, 1997,
between KENETECH Corporation and Michael A. Haas.
ASSET SALE AGREEMENTS
10.55(11) Master Agreement of Dissolution, Distribution and Assignment, dated as
of August 27, 1997, between Enron Power I (Puerto Rico), Inc. and CNF
Penuelas, Inc.
10.56(11) Master Agreement of Dissolution, Distribution and Assignment, dated as
of August 27, 1997, between Enron Equipment Procurement Company and CNF
Equipment, Inc.
SEVERANCE AGREEMENTS
10.57(12) Separation Agreement and Mutual Release, dated as of March 31, 1999,
among KENETECH Corporation, KENETECH Energy Systems, Inc., and certain
subsidiaries and Aaron T. Samson.
10.58(12) Separation Agreement and Mutual Release, dated as of March 31, 1999,
among KENETECH Corporation, KENETECH Energy Systems, Inc., and certain
subsidiaries and Scott J. Taylor.
10.59(12) Separation Agreement and Mutual Release, dated as of March 31, 1999,
among KENETECH Corporation and Mervin E. Werth.
SALE AGREEMENTS
10.60(12) Stock purchase and Assignment Agreement, December 23, 1998, among KES,
certain subsidiaries and EME.
EMPLOYMENT AGREEMENTS
10.61 Retention Agreement, dated as of April 1, 1999, between KENETECH
Corporation and Andrew M. Langtry.
10.62 Employment Agreement, dated as of December 22, 1998, between KENETECH
Corporation and Dianne P. Urhausen.
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.
21 SUBSIDIARIES OF THE REGISTRANT
21.1 Subsidiaries
27 FINANCIAL DATA SCHEDULE
(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.
(10) Incorporated by reference to Form 10-K, File No. 33-53132, filed with the
Securities and Exchange Commission by the Registrant on April 1, 1997.
Page 48
<PAGE>
(11) Incorporated by reference to Form 10-K, File No. 33-53132, filed with the
Securities and Exchange Commission by the Registrant on March 30, 1998.
(12) Incorporated by reference to Form 10-K, File No. 33-53132, filed with the
Securities and Exchange Commission by the Registrant on March 31, 1999.
(13) Incorporated by reference to Form 10-Q, File No. 33-53132, filed with the
Securities and Exchange Commission by the Registrant on May 17, 1999.
(b) Reports on Form 8-K:
The Registrant filed a Report on Form 8-K, on October 14, 1999, reporting
the ruling in favor of the Registrant on all counts in the PRIDES
litigation described in Item 3 of this Form 10-K.
The Registrant filed a Report on Form 8-K on November 24, 1999, reporting
the commencement of the Registrant's Common Stock buy-back program.
(c) Exhibits:
Other than items 21.1, 27, 10.61, and 10.62 the documents and agreements
listed in Item 14(a)(3) 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) and (2) are filed as part of this report.
Page 49
<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:
Mark D. Lerdal
Chairman of the Board, Chief Executive Officer,
and President
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 Chairman of the Board, March 28, 2000
Chief Executive Officer,
and President
Mark D. Lerdal
/s/ Andrew M. Langtry Corporate Controller and March 28, 2000
Chief Accounting Officer
Andrew M. Langtry
/s/ Charles Christenson Director March 28, 2000
Charles Christenson
/s/ Gerald R. Morgan, Jr. Director March 28, 2000
Gerald R. Morgan, Jr.
/s/ Michael D. Winn Director March 28, 2000
Michael D. Winn
Page 50
<PAGE>
SCHEDULE I - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance Charged to Balance
Beginning Costs & Deductions at End
Description of Period Expenses (1) of Period
- ----------- --------- ---------- ---------- ---------
Warranty reserves:
Year ended December 31, 1997 $ - $ - $ - $ -
Year ended December 31, 1998 - - - -
Year ended December 31, 1999 - - - -
Project development allowance (1):
Year ended December 31, 1997 $ 1,557 $ 1,943 $ - $ 3,500
Year ended December 31, 1998 3,500 3,500 - -
Year ended December 31, 1999 - - - -
Allowance for doubtful accounts:
Year ended December 31, 1997 $ - $ 1,546 $ - $ 1,546
Year ended December 31, 1998 1,546 720 - 826
Year ended December 31, 1999 - - - -
- ---------------
(1) Deducted from power plants under development.
Page 51
RETENTION AGREEMENT
This Retention Agreement (this "Agreement") is entered into as of the 1st
day of April, 1999, by and between KENETECH Corporation, a Delaware corporation
(the "Company"), and Andrew M. Langtry, an individual currently employed by the
Company ("you" or the "Employee").
A. The Company desires that the Employee remains as an employee of the Company
and assists the Company in its restructuring or other disposition of its
assets. The Employee has valuable experience and knowledge regarding the
Company and its affairs.
B. The Company and the Employee desire to enter into a written 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. This Agreement contains the complete terms and understanding
between the Company and the Employee concerning the terms and conditions of
employment.
2. The Employee agrees to continue to perform comparable duties and
responsibilities in good faith and to the best of his ability for the
duration of this Agreement. This Agreement shall automatically terminate,
without notice from either party, on September 30, 1999, except that
Sections 4, 5 and 6 below shall survive the termination of this Agreement.
The Employee's principal place of operation will be San Francisco,
California and the Employee shall be available to render such services at
all reasonable times and places in accordance with reasonable direction and
assignments issued by the Company. During the employment period, the
Employee will devote his full time and efforts to the business and affairs
of the Company within the scope of his responsibilities.
3. The Company will provide the following to the Employee during the
term of this Agreement:
a. Annual gross compensation of $95,000.
b. Health insurance, dental, group life, and Long Term Disability
coverage under any now existing plan or program of the Company,
subject to the right of the Company to terminate, modify, amend, or
change at any time any of such benefits if such termination,
modification, amendment, or change in each case is part of a general
program to terminate, modify, amend, or change such benefits on a
proportional basis relative to other employees of the Company.
c. Vacation in accordance with the customary policy of the
Company.
d. Other normal employee expense reimbursements consistent with
the current practice of the Company.
4. Upon termination of this Agreement on September 30, 1999, the
Employee may, at the option of the Company, continue to be employed by the
Company as an "at will" employee, and in such event shall receive annual
gross compensation of $145,000. Following termination of this Agreement,
the Employee agrees that nothing in this Agreement shall confer upon the
Employee any right to continue as an employee of the Company for any period
of specific duration or interfere with or otherwise restrict in any way the
rights of the Company, which rights are expressly reserved by the Company,
to terminate the Employee's employment at any time for any reason
whatsoever, with or without cause.
5. The Company will pay you a bonus in the amount of $36,250 on
December 31,1999.
<PAGE>
6. If the Employee is discharged other than as a result of a
"Termination for Cause" during the term of this Agreement, the Employee
will receive the following:
a. a lump sum severance payment in the amount of $47,500.
b. accrued vacation pay.
c. Any unpaid bonus under Section 5 above.
If the Employee is discharged other than as a result of a "Termination
for Cause" after September 30, 1999 as an at will employee of the Company,
the Employee will receive the following:
a. a lump sum severance payment in the amount of $72,500.
b. accrued vacation pay.
c. Any unpaid bonus under Section 5 above.
7. 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, or
if you willfully, fail to perform your duties and responsibilities, 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 other than
accrued vacation and any unpaid compensation earned for services rendered
through the date of termination.
8. The Company shall 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 any applicable statute or
regulation.
9. The Employee will preserve as confidential all knowledge and
information pertaining uniquely to the business of the Company obtained by
the Employee during the course of the Employee's employment with the
Company.
10. This Agreement represents the entire agreement and understanding
between the parties hereto relating to the subject matter hereof and
supersedes all prior agreements and understandings. This Agreement may be
amended, modified, superseded, canceled, renewed or extended and the terms
and conditions hereof may be waived, only by a written instrument executed
by the Company and the Employee, or in the case of a waiver, by the party
waiving compliance.
11. Upon your death during the term hereof, 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.
12. This Agreement will be construed in accordance with the laws of
California. Any provisions of this Agreement determined invalid or
unenforceable shall not affect the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written.
KENETECH Corporation, a Delaware corporation
By: ___________________________
Name: Mark D. Lerdal
Title: Chief Executive Officer and
President
__________________________
Andrew M. Langtry
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of the 22nd
day of December, 1998, by and between KENETECH Corporation, a Delaware
corporation (the "Company"), and Dianne P. Urhausen, an individual currently
employed by the Company or its affiliates (the "Employee" or "you").
RECITALS
A. The Company desires that the Employee remain as an employee of the
Company and assist the Company in its restructuring or other disposition of
its assets and the Employee has valuable experience and knowledge regarding
the Company and its affairs and is foregoing pursuing other employment
opportunities to remain employed with the Company.
B. The Company and the Employee desire to enter into a written
employment agreement on the terms set forth below. This Agreement
supersedes any prior written agreement between the Company and the
Employee.
NOW THEREFORE, in consideration of the mutual promises contained herein,
the continued services of the Employee, 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 continue to be employed by the
Company, for a period of one year beginning January 1, 1999, at her current
annual base salary and with the same employee benefits applicable as of the
date of this Agreement.
2. Employment Duties. The Company will continue to employ you as Vice
President, General Counsel and Corporate Secretary 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 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. The principal place of
employment shall be located in San Francisco, California and the Employee
shall have no obligation to relocate. During your employment, you will
devote your time and effort to the business and affairs of the Company
within the scope of your office and within the currently agreed number of
hours to be worked by the Employee.
3. Benefits.
3.1 Payments. The Company and you have agreed that if your employment
with the Company ceases for any reason whether upon termination by the
Company (other than a Termination For Cause) or voluntary resignation by
the Employee, you will receive a lump sum severance payment equal to
$160,000. On each of March 31, June 30, September 30 and December 31, 1999,
if the Employee's employment with the Company has not ceased, the Employee
shall receive a payment of $40,000. Any payment to you pursuant to the
preceding sentence shall reduce the $160,000 severance by the same amount.
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 unpaid payments or benefits described in
this Agreement.
<PAGE>
3.3 Change in Control. Upon a Change In Control, the Company will pay
you a lump sum amount equal to $160,000 (to the extent not already paid
under Section 3.1). 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;
(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); or
(v) a change in the composition of the Board of Directors of the
Company 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.
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 working time and effort to the performance
of your duties as an officer of the Company in accordance with
the currently agreed number of hours to be worked by you; 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.
<PAGE>
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 and Insurance. The indemnification provisions for
Officers and Directors under the Company's Certificate of Incorporation and
By-Laws and at law will (to the maximum extent permitted by law) be
extended to you, during your employment and the period following cessation
of your employment irrespective of a Change in Control, with respect to any
and all matters, events or transactions occurring or effected during your
employment. The Company further agrees that, for so long as it maintains
directors' and officers' liability insurance that covers any employees or
Officers and Directors of the Company, it shall include the Employee among
the insured persons; 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.
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
_____________________________
DIANNE P. URHAUSEN
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Subsidiaries of KENETECH Corporation as of 03/15/00:
CNF Industries, Inc. (Delaware)
C.N. Flagg & Co., Incorporated (Connecticut)
CNF Century Acquisition, Inc. (Delaware)
CNF Constructors, Inc. (Tennessee)
KENETECH Energy Systems, Inc. (Delaware)
KES Bloom, Inc. (Delaware)
KES Chateaugay, Inc. (Delaware)
KES Penuelas Holdings, Inc. (Delaware)
KES Bermuda, Ltd. (British Virgin Islands)
KES LNG, Ltd. (British Virgin Islands)
KES Penuelas, Ltd. (British Virgin Islands)
KENETECH Facilities Management, Inc. (Delaware)
KENETECH International Ltd. (Delaware)
Energia Eolica de Galicia, S.A. (Spain)
Energie Eolienne KENETECH, Inc./KENETECH Windpower, Inc. (Quebec)
KW Groningen B.V. (Netherlands)
KW Eemsmond B.V. (Netherlands)
KENETECH Merger Company (Delaware)
KENETECH Windpower, Inc. (Delaware)
AWP Plantas Eolicas, S.A. (Spain)
East Wind Limited (Channel Islands)
Windergo Ltd.
KC One Company (Delaware)
KENETECH Leasing Company (Delaware)
KENETECH FSC, Inc. (Barbados)
KW Boulevard I, Inc. (Delaware)
KW Boulevard II, Inc. (Delaware)
KW Eemsmond GP, Inc. (Delaware)
KW Eemsmond LP, Inc. (Delaware)
KW Europe Project Development Limited Liability Company
KW La Rumorosa I, Inc. (Delaware)
KW La Rumorosa II, Inc. (Delaware)
KW Tehachapi II, Inc. (Delaware)
KW Tehachapi III, Inc. (Delaware)
KW Tejona, S.A. (Costa Rica)
KW Vansycle I, Inc. (Delaware)
KW Vansycle II, Inc. (Delaware)
KW WPP94, Inc. (Delaware)
U.S. Windpower 1984, Inc. (California)
US WEG, Inc. (Delaware)
USW WPP93 GP, Inc. (Delaware)
Windplant Operations B.V. (Netherlands)
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)
NOTE: * designates entities with multiple parents.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE KENETECH
CORP 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENT.
</LEGEND>
<CIK> 0000807708
<NAME> KENETECH CORPORATION
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 15,291
<SECURITIES> 31,388
<RECEIVABLES> 110
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 47,567
<PP&E> 128
<DEPRECIATION> 70
<TOTAL-ASSETS> 50,097
<CURRENT-LIABILITIES> 5,679
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 32,945
<TOTAL-LIABILITY-AND-EQUITY> 50,097
<SALES> 0
<TOTAL-REVENUES> 5,431
<CGS> 56
<TOTAL-COSTS> 56
<OTHER-EXPENSES> 5,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,017
<INCOME-TAX> (25,573)
<INCOME-CONTINUING> 36,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,590
<EPS-BASIC> 0.87
<EPS-DILUTED> 0.87
</TABLE>
