-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bs2KGADH7qpaoQm9Y8vDuE8KuhyF4XUoI7116GxU+fvPWRzWmRIHC68EvkKthmly 66Eo1JBe8dCMUguG3BrWew== 0000807708-99-000008.txt : 19990518 0000807708-99-000008.hdr.sgml : 19990518 ACCESSION NUMBER: 0000807708-99-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENETECH CORP CENTRAL INDEX KEY: 0000807708 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 943009803 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22072 FILM NUMBER: 99628464 BUSINESS ADDRESS: STREET 1: 500 SANSOME STREET SUITE 410 CITY: SAN FRANCISCO STATE: CA ZIP: 84550 BUSINESS PHONE: 4159848507 MAIL ADDRESS: STREET 1: 500 SANSOME STREET SUITE 410 CITY: SAN FRANCISCO STATE: CA ZIP: 94550 10-Q 1 10-Q 1ST QTR FOR KENETECH CORP UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 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 On May 10, 1999, there were 41,954,218 shares of the issuer's Common Stock, $.0001 par value outstanding. 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. KENETECH Corporation Consolidated Financial Statements Page Consolidated Statements of Operations for the periods ended March 31, 1999 and 1998 4 Consolidated Balance Sheets, March 31, 1999 and December 31, 1998 5 Consolidated Statement of Stockholders' Equity (Deficiency) for the period ended March 31, 1999 6 Consolidated Statements of Cash Flows for the periods ended March 31, 1999 and 1998 7 Notes to Consolidated Financial Statements 8-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 13-16 Part II - OTHER INFORMATION Item 1. Legal Proceedings. 17 Item 2. Changes in Securities and Use of Proceeds 17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements KENETECH CORPORATION -------------------- CONSOLIDATED STATEMENTS OF OPERATIONS for the quarterly periods ended March 31, 1999 and 1998 (unaudited, in thousands, except per share amounts) March 31, March 31, 1999 1998 --------- --------- Revenues: Construction services ............................ $ 410 $ 2,894 Maintenance, management fees and other ........... 21 416 Energy sales ..................................... -- 177 --------- -------- Total revenues ................................. 431 3,487 Costs of revenues: Construction services ............................ 56 2,170 Energy plant operations .......................... -- 1,264 --------- -------- Total costs of revenues ........................ 56 3,434 Gross margin ....................................... 375 53 Project development and marketing expenses ......... 61 357 General and administrative expenses ................ 2,161 845 --------- -------- Loss from operations ............................... (1,847) (1,149) Interest income .................................... 830 101 Interest expense ................................... -- (3,615) Equity loss of unconsolidated affiliates ........... -- (35) Gain (Loss) on disposition of subsidiaries and assets 4,597 (67) Other income ....................................... 62 -- -------- -------- Gain (Loss) before taxes ........................... 3,642 (4,765) Income tax ......................................... -- -- -------- --------- Net income (loss) ............................ $ 3,642 $ (4,765) ======== ========= Net income (loss) per common share - Basic and Diluted $ .09 $ (0.19) Weighted average number of common shares used in computing per share amounts - Basic and Diluted 41,954 36,830 The accompanying notes are an integral part of these consolidated financial statements. 4 KENETECH CORPORATION -------------------- CONSOLIDATED BALANCE SHEETS March 31, 1999 and December 31, 1998 (unaudited, in thousands, except share amounts) ASSETS March 31, December 31, 1999 1998 --------- ------------ Current assets: Cash and cash equivalents ......................... $ 65,805 $ 67,424 Funds in escrow, net .............................. 478 478 Accounts receivable ............................... 909 1,079 Investment in Chateaugay Project .................. -- 15,480 --------- ------------ Total current assets ............................. 67,192 84,461 Property, plant and equipment, net ................... 21 24 --------- ------------ Total assets ................................... $ 67,213 $ 84,485 ========= ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable .................................. $ 1,875 $ 4,002 Accrued liabilities ............................... 7,982 8,871 Current taxes payable ............................. -- 2,100 Chateaugay Project debt ........................... -- 15,620 Other notes payable ............................... 6 1,071 Accrued dividends on preferred stock .............. 21,408 21,408 --------- ------------ Total current liabilities ....................... 31,271 53,072 Accrued liabilities .................................. 880 893 Deferred benefit for deconsolidated subsidiary losses ................................... 34,800 33,900 --------- ------------ Total liabilities ................................ 66,951 87,865 Commitments and contingencies Stockholders' deficiency: Common stock - 110,000,000 shares authorized, $.0001 par value; 41,954,218 issued and outstanding in 1999 and 1998 ...................... 4 4 Additional paid-in capital ........................ 224,007 224,007 Accumulated deficit ............................... (223,749) (227,391) --------- ------------ Total stockholders' equity (deficiency) .......... 262 (3,380) --------- ------------ Total liabilities and stockholders' equity (deficiency) .......................... $ 67,213 $ 84,485 ========= ============ The accompanying notes are an integral part of these consolidated financial statements. 5 KENETECH CORPORATION -------------------- CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY) for the quarterly period ended March 31, 1999 (unaudited, in thousands, except share amounts)
Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance, December 31, 1998 41,954,218 $4 $224,007 $(227,391) $ (3,380) Net income -- - -- 3,642 3,642 ---------- -- -------- --------- --------- Balance, March 31, 1999 41,954,218 $4 $224,007 $(223,749) $ 262 ========== == ======== ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
6 KENETECH CORPORATION -------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS for the quarterly periods ended March 31, 1999 and 1998 (unaudited, in thousands) March 31, March 31, 1999 1998 --------- --------- Cash flows from operating activities: Net income (loss) .............................. $ 3,642 $ (4,765) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation, amortization and other ........ 3 635 Accrued but unpaid interest ................. -- 4,696 (Gain) Loss on disposition of subsidiaries and assets ................................. (4,597) (67) Changes in assets and liabilities: Funds in escrow, net ....................... -- 1,913 Accounts receivable ........................ 170 2,655 Inventories ................................ -- 15 Accounts payable, accrued liabilities and accrued interest ...................... (2,681) (7,305) --------- --------- Net cash used in operating activities ... (3,463) (2,223) Cash flows from investing activities: Proceeds from sale of property .............. -- 2,810 Net proceeds on disposition of subsidiaries and assets ................................. 2,909 -- Expenditures on EcoElectrica Project ........ -- (833) --------- --------- Net cash provided by investing activities 2,909 1,977 Cash flows from financing activities: Borrowings on Hartford Hospital Project debt. -- 827 Payments on other notes payable ............. (1,065) (6) --------- --------- Net cash provided by (used in) financing activities ............................ (1,065) 821 --------- --------- Increase (Decrease) in cash and cash equivalents (1,619) 575 Cash and cash equivalents at beginning of period ....................... 67,424 7,294 --------- --------- Cash and cash equivalents at end of period ............................. $ 65,805 $ 7,869 ========= ========= The accompanying notes are an integral part of these consolidated financial statements. 7 1. General The interim consolidated financial statements presented herein include the accounts of KENETECH Corporation ("KENETECH") and its consolidated subsidiaries (the "Company"), but exclude KENETECH Windpower, Inc. ("KWI"), which filed for protection under Chapter 11 of the Federal Bankruptcy Code on May 29, 1996, reporting an excess of liabilities over its assets. As of May 29, 1996, KWI ceased to be accounted for as a consolidated subsidiary of the Company and the Company's financial statements exclude all KWI activity after that date. KWI's Plan of Reorganization was confirmed by the Bankruptcy Court on January 27, 1999. Although the Company continues to own the common stock of KWI, the Company believes it will not realize any value from its remaining interests in KWI other than certain tax attributes. KWI will continue to be a member of the Company's consolidated group for income tax purposes. These interim consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and the notes thereto for the year ended December 31, 1998. These interim consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary (consisting of items of a normal recurring nature) for a fair presentation of the Company's interim financial position, results of operations and cash flows. Results of operations for interim periods are not necessarily indicative of those for a full year. 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. Estimated future warranty costs are recognized as units are sold and adjusted as circumstances require. Indirect costs not specifically allocable to contracts and general and administrative expenses are charged to operations as incurred. Revisions to contract revenue and cost estimates are recognized in the accounting period in which they are determined. Provision for estimated losses on uncompleted contracts is made in the period in which such losses are determined. Sales of projects are recognized at closing when proceeds from the sale are received. 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. Depreciation: Depreciation is recorded on a straight-line basis over the estimated useful life of the asset. 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. 8 3. Liquidity As of March 31, 1999, the Company had completed its activities to raise funds for working capital purposes, had disposed of substantially all its operating assets and had repaid substantially all of its indebtedness for borrowed money. The Company currently has substantial cash balances, may have substantial net operating income tax losses to carry forward to future years and is managing significant litigation (see Note 9). Management is currently charting the future direction of the Company. It is likely that the Company's future business will be in the energy or real estate industries. The Company has retained professionals to assist it in the identification and evaluation of its business activities. 4. Net Income (Loss) Per Share Net income (loss) per share amounts for the quarters ended March 31, 1999 and 1998 were calculated as follows: Basic and Diluted (in thousands, except per share amounts) March 31, March 31, 1999 1998 --------- --------- Net income (loss) $ 3,642 $ (4,765) Less PRIDES dividends -- (2,141) --------- --------- Net income (loss) used in per share calculations $ 3,642 $ (6,906) ========= ========= Weighted average shares used in per share calculations 41,954 36,830 ========= ========= Net income (loss) per share $ 0.09 $ (0.19) ========= ========= PRIDES (as defined in Part I, Item 8) dividends are added to the March 1998 net loss. The Company incurred net losses after PRIDES dividends for the first quarter of 1998 therefore common stock equivalents are not included in weighted average shares used in the loss per share calculation because they would be anti-dilutive (reduce the loss per share). On May 14, 1998, the PRIDES were mandatorily converted into 5,124,600 shares of common stock, $.0001 par value, and dividends on the PRIDES ceased to accrue. 5. Investment In Chateaugay Project and Chateaugay Project Debt As of December 31, 1998, the Company, through KENETECH Energy Systems, Inc., 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. 9 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. (See Note 7). The Company received net cash of approximately $2,050,000. 6. Investment in Partnership and Associated Payable As of December 31, 1998, the Company owned a 50% interest in the general partner of a Dutch limited partnership. The partnership 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% general partner interest to its 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 disposition of subsidiaries and assets. 7. Other Notes Payable Other notes payable at March 31, 1999 and December 31, 1998 consisted of the following: March 31, December 31, 1999 1998 --------- ------------ (in thousands) Borrowings under a $1,200,000 loan agreement, due in 1999 bearing interest at prime plus 3% (10.75% at December 31, 1998).................... $ -- $ 1,060(1) Note bearing interest at 7.0% due in 1999........ 6 6 Other obligations bearing interest at 9.9% due through 1999, collateralized by equipment.... -- 5 --------- ---------- $ 6 $ 1,071 ========= ========== (1) Repaid in full on March 24, 1999 (See Note 5). 8. Income Taxes At March 31, 1999 and December 31, 1998, the Company had net deferred tax assets for which a valuation allowance of an equal amount has been recognized. The deferred tax benefit at March 31, 1999 and December 31, 1998 of $34.8 million and $33.9 million, respectively, consists of various tax benefits through December 31, 1998 from the Company's deconsolidated subsidiaries. 10 9. Contingencies Preferred Stock Litigation: On May 6, 1998, Quadrangle Offshore (Cayman) LLC, and Cerberus Partners, L.P. ("Plaintiffs"), 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 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. Plaintiffs filed an amended complaint on July 7, 1998. Generally, the amended complaint alleges that the Company is currently in liquidation and was in liquidation prior to May 14, 1998, that the plaintiffs are entitled to receive the liquidation preference of $1,012.50 per share set forth in the Company's Certificate of Designations, Preferences, Rights and Limitations of PRIDES (the "Certificate of Designations") in any distribution of assets the Company may 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 are seeking, among other things, (i) a declaration that they are entitled to receive the liquidation preference in any distribution of assets before any distribution is made to holders of Common Stock and that the mandatory conversion of the PRIDES does not operate to eliminate their right to receive the liquidation preference, (ii) related injunctive relief, and (iii) other unspecified damages. The Court of Chancery entered a Temporary Restraining Order in the action on December 28, 1998 that restrains 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. A bench trial in the action was held February 16-19, 1999 before the Court of Chancery and a ruling on the merits is expected in the third quarter of 1999. Shareholders' 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 alleges claims under sections 11 and 15 of the Securities Act of 1933, and sections 10(b) and 20(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, based on alleged misrepresentations and omissions in the Company's public statements, on behalf of a class consisting of persons who purchased the Company's Common Stock during the period from September 21, 1993 (the date of the Company's initial public offering) through August 8, 1995 and persons who purchased the Company's PRIDES (depository shares) during the period from April 28, 1994 (the public offering date of the PRIDES) through August 8, 1995. The amended complaint alleges that the defendants misrepresented the Company's progress on the development of its latest generation of wind turbines and the Company's future prospects. The amended complaint seeks unspecified damages and other relief. The Court has certified a plaintiff class consisting of all persons or entities who purchased Common Stock between September 21, 1993 and August 8, 1995 or depositary 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. There have been two unsuccessful attempts at mediation to settle the action and one unsuccessful settlement conference. Defendants' motion for summary judgement is pending and no trial date has been set. 11 Lease Litigation: On October 1, 1998, Mellon US Leasing filed suit in San Francisco County Superior Court against the Company. The complaint alleged that the Company had breached an equipment lease agreement and sought damages of approximately $100,000 and other unspecified costs and relief. The complaint was dismissed, without prejudice, on or about March 26, 1999. 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 $1,118,246. On April 13, 1999, the Company filed a Motion to Dismiss challenging the exercise of personal jurisdiction and a Request to Revise. A hearing on the Motion and Request is pending. 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. It is not feasible to predict or determine whether the ultimate outcome of the above-described matters will have a material adverse effect on the Company's financial position. Settled Litigation Westinghouse Litigation: C. N. Flagg & Co, Incorporated ("C.N. Flagg"), a wholly-owned subsidiary of CNF, instituted legal proceedings against, among others, Westinghouse Electric Corporation ("Westinghouse") in March, 1997, in the U.S. Federal District Court in Minnesota (No. 97-617 JRT/RLE) to recover compensation for a termination of convenience of a project C. N. Flagg was building on behalf of Westinghouse. The parties have agreed to a settlement and a stipulation of dismissal was filed on April 27, 1999. C.N. Flagg has received approximately $690 thousand from Westinghouse after payment of outstanding counter claims, liens and amounts to subcontractors and suppliers to the project. NTS Litigation: On May 6, 1998, National Technical Services, Inc. ("NTS") filed a complaint in the Superior Court of California, County of Sacramento, against CNF Constructors, Inc., among others, alleging breach of contract related to labor and materials provided by NTS in connection with a power plant being constructed by CNF Constructors, Inc. for the Sacramento Power Authority. The parties have settled the action in exchange for the payment of $457,000 to NTS and a dismissal with prejudice has been filed. 10. PRIDES Dividend 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 names depositary receipts evidencing the depositary shares were registered on the books of the Depositary, ChaseMellon Shareholder Services, L.L.C., on the Mandatory Conversion Date. The total payment by the Company was $21,408,016. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. OVERVIEW KENETECH Corporation ("KENETECH"), a Delaware corporation, is a holding company which participated through its subsidiaries in the electric utility market. As used in this document, "Company" refers to KENETECH and its wholly-owned subsidiaries (including KENETECH Windpower, Inc. ("KWI") only through May 29, 1996). Historically, the Company developed, constructed, financed, operated, managed and sold independent power projects and manufactured wind turbines. The Company experienced severe constraints on its liquidity beginning in late 1995. In an effort to relieve such constraints, KWI filed for protection under Chapter 11 of the Federal Bankruptcy Code on May 29, 1996, reporting an excess of liabilities over its assets. The Chapter 11 filing of KWI materially adversely affected the Company's ability to procure new business. As a result of liquidity constraints, the Company limited its new development activities and focused all of its activities on raising funds for working capital and to repay debt. As of May 29, 1996, KWI ceased to be accounted for as a consolidated subsidiary of the Company and the Company's financial statements exclude all KWI activity after that date. KWI's Plan of Reorganization was confirmed by the Bankruptcy Court on January 27, 1999 and became effective, as later amended, April 8, 1999. Although the Company continues to own the common stock of KWI, the Company believes it will not realize any value from its remaining interests in KWI other than certain tax attributes. In December 1998, the Company sold its EcoElectrica Project interest for $247,000,000. An additional payment of $5 million in cash, contingent on the successful conversion of the local tax status of EcoElectrica, L.P., may occur during the first six months of 1999. This amount has not been recognized in the accompanying financial statements. As of December 31, 1998, the Company, through KENETECH Energy Systems, Inc. ("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. 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. 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 $2,050,000. 13 As of December 31, 1998, the Company owned a 50% interest in the general partner of a Dutch limited partnership. The partnership 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% general partner interest to its 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 disposition of subsidiaries and assets. CAUTIONARY STATEMENT Certain information included in this report contains forward looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Act of 1934, as amended. Such forward looking information is based on information available when such statements are made and is subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Results of Operations --------------------- The consolidated financial statements of KENETECH Corporation and certain subsidiaries as of and for the quarterly periods ending March 31, 1999 and 1998 have been prepared assuming the Company will continue as a going concern. The Company earned net income for the first quarter of 1999 of $3.6 million as compared to a net loss incurred for the first quarter of 1998 of $4.8 million. Quarters ended March 31, 1999 and March 31, 1998
Quarter Ended March 31, 1999 March 31, 1998 ------------------------ ------------------------ (in millions) Gross Gross Revenues Costs Margins Revenues Costs Margins -------- ----- ------- -------- ----- ------- ............................ Construction services ..............$ 0.4 $ 0.1 $ 0.3 $ 2.9 $ 2.2 $ 0.7 Maintenance, management fees and other .............. 0.1 -- 0.1 0.4 -- 0.4 Energy sales ................ -- -- -- 0.2 1.2 (1.0) -------- ----- ------- -------- ----- ------- Total ...............................$ 0.5 $ 0.1 $ 0.4 $ 3.5 $ 3.4 $ 0.1 ======== ===== ======= ======== ===== =======
The revenues and expenses recorded during the first quarter of 1999 represent revenue realized and expenses incurred upon the settlement of certain disputes involving construction projects (see Item 1, Note 9, Contingencies). There were no revenues from active construction projects for the quarter ended March 31, 1999, a decrease from $2.9 million for the comparable period in 1998. The gross margin during the first quarter of 1998 resulted from change orders that were finalized during that period. 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. 14 There were no maintenance, management fees and other revenues in the first quarter of 1999 other than delayed collection of $83 thousand in development and administrative fees, a decrease from $400 thousand during the first quarter of 1998. On June 30, 1998, KENETECH Facilities Management, Inc.'s (KFM), a wholly-owned subsidiary of the Company which performed operations and maintenance of thermal power plants, sole remaining contract with a third party expired and was not renewed by the owner of the power plant. 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 activity or employees and will be wound up in due course. There were no energy sales in the first quarter of 1999 because the Company sold the Hartford Hospital Project in June 1998. Energy sales experienced an excess of expenses over revenues of $1.0 million for the first quarter of 1998 due to the sporadic operation of the Hartford Hospital Project turbines. Project development and marketing expenses decreased to $61 thousand for the quarter ended March 31, 1999 from $400 thousand for the comparable period in 1998. Project development expenses decreased because the Company was only marketing the Chateaugay Project during the first quarter 1999, but had actively marketed its interest in the EcoElectrica Project in 1998. General and administrative expenses increased to $2.2 million for the quarter ended March 31, 1999 from $845 thousand for the comparable period in 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 on a non-Y2K compliant legacy system. Interest expense decreased to zero for the quarter ended March 31, 1999 from $3.6 million for the comparable period in 1998 primarily due to the repayment in December 1998 of the Senior Secured Notes (including accrued interest) and the EcoElectrica Project development loan payable in conjunction with the Company's sale of its interest in the EcoElectrica Project. The Company accounts for income taxes using the asset and liability approach for financial accounting and reporting for income taxes. The Company reported no income tax expense or benefit for the periods ended March 31, 1999 and 1998. No tax benefit was recognized for the March 31, 1998 loss, since the valuation allowance was recorded. No tax expense for the March 31, 1999 income was recognized because of the benefit of available subsidiary losses. In the quarter ended March 31, 1999, the Company made a $1.2 million federal 1998 extension payment. 15 Liquidity and Capital Resources ------------------------------- Operating activities During the first quarter of 1999, operating activities used cash of $3.5 million, principally for the items mentioned in the discussion of General and administrative expenses above, making an extension federal tax payment for 1998 and settling accounts payable associated with disputed contracts. Investing activities During the first quarter of 1999, investment activities provided cash of $2.9 million, substantially from the sale of the Chateaugay Project. Financing activities During the first quarter of 1999 the Company repaid $1.1 million of notes payable, substantially related to the Chateaugay Project (see Note 5 of Item 1). Future Activities As of March 31, 1999, the Company has completed its activities to raise funds for working capital purposes, has disposed of substantially all its operating assets and has repaid substantially all of its indebtedness for borrowed money. The Company currently has substantial cash balances, may have substantial net operating income tax losses to carry forward to future years and is managing significant litigation (see Item 1, Note 9, Contingencies). Management is currently charting the future direction of the Company. It is likely that the Company's future business will be in the energy or real estate industries. The Company has retained professionals to assist it in the identification and evaluation of business opportunities. Effect of Year 2000 The Company recently upgraded its accounting system and other systems to be Year 2000 compliant. The Company's historical tax and accounting systems are not Year 2000 compliant and the cost to convert the current system to be Year 2000 compliant is expected to exceed one million dollars. The Company may require such historical data for purposes of a federal or state income tax audit. Prior to the end of 1999, the Company will either undertake such a conversion of its historical accounting and tax data or will make such other accommodation to properly effect any audit required. The Company has not assessed and cannot predict to what extent its results of operations, financial condition or business may be adversely affected if third parties with whom the Company has a material relationship are not compliant. 16 Part II OTHER INFORMATION Item 1. Legal Proceedings. See discussion under Note 8 of Item 1 incorporated herein by reference. Item 2. Changes in Securities and Use of Proceeds. 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 payable 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 description and terms of the Rights are set forth in a Rights Agreement dated as of May 4, 1999, as the same may be amended from time to time (the "Rights Agreement"), between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights Agent"). 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. 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, and (b) an amount equal to 1000 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), (b) an amount equal to 1000 times the payment made per share of Common Stock. Each share of Preferred Stock will have 1000 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 1000 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. 17 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 $.01 per Right (the "Redemption Price") payable, at the option of the Company, in cash, shares of Common Stock or such other form of consideration as the Board of Directors of the Company shall determine. The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. Until a Right is exercised or exchanged, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. Item 5. Other Information. On or about April 29, 1999, Campus, LLC ("Campus"), initiated a tender offer for up to two million shares of common stock ("Common Stock") of the Company, together with certain legal rights for thirty cents ($.30) per share (the "Offer"). Campus is interested in purchasing only shares of Common Stock that were received by holders of the Company's preferred stock (the "PRIDES") when the PRIDES were manditorily converted into Common Stock on May 14, 1998. The Board of Directors of the Company (the "Board") has recommended to the targeted stockholders that they reject the offer of Campus for their Common Stock. The Board believes that the fair market value of the Common Stock is greater than thirty cents ($.30) per share, the amount of Campus's Offer. Item 6. Exhibits and Reports on Form 8-k. (a) Exhibits 3(i) Articles of Incorporation. 27 Financial Data Schedule. (b) Reports on Form 8-k The Company filed a Report on Form 8-k dated January 6, 1999 that disclosed the sale of the Company's indirect interest in the EcoElectrica Project under Item 2, Acquisition or Disposition of Assets, and another Report on Form 8-k dated March 26, 1999 that disclosed the declaration of the PRIDES dividend, paid April 14, 1999 under Item 5, Other Events. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KENETECH Corporation By: Date: May 14, 1999 Mark D. Lerdal President, Chief Executive Officer and Principal Accounting Officer 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KENETECH Corporation By: /s/ Mark D. Lerdal Date: May 14, 1999 Mark D. Lerdal President, Chief Executive Officer and Principal Accounting Officer 20 EX-3 2 ARTICLES OF INCORPORATION CERTIFICATE OF DESIGNATION of SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of KENETECH CORPORATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware KENETECH Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY: That pursuant to the authority vested in the Board of Directors in accordance with the provisions of the Certificate of Incorporation of the said Corporation, the said Board of Directors on May 4, 1999 adopted the following resolution creating a series of 84,000 shares of Preferred Stock designated as "Series A Junior Participating Preferred Stock": RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of the Certificate of Incorporation, a series of Preferred Stock, par value $.01 per share, of the Corporation be and hereby is created, and that the designation and number of shares thereof and the voting and other powers, preferences and relative, participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof are as follows: Series A Junior Participating Preferred Stock 1. Designation and Amount. There shall be a series of Preferred Stock that shall be designated as "Series A Junior Participating Preferred Stock," and the number of shares constituting such series shall be 84,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series A Junior Participating Preferred Stock to less than the number of shares then issued and outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. 2. Dividends and Distribution. (A) Subject to the prior and superior rights of the holders of any shares of any class or series of stock of the Corporation ranking prior and superior to the shares of Series A Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior Participating Preferred Stock, in preference to the holders of shares of any class or series of stock of the Corporation ranking junior to the Series A Junior Participating Preferred Stock in respect thereof, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of March, June, September and December, in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10 or (b) the Adjustment Number (as defined below) times the aggregate per share amount of all cash dividends, and the Adjustment Number times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $.0001 per share, of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. The "Adjustment Number" shall initially be 1000. In the event the Corporation shall at any time after May 5, 1999 (i) declare and pay any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock). (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. 3. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (A) Each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to a number of votes equal to the Adjustment Number on all matters submitted to a vote of the stockholders of the Corporation. (B) Except as required by law, by Section 3(C) and by Section 10 hereof, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. (C) If, at the time of any annual meeting of stockholders for the election of directors, the equivalent of six quarterly dividends (whether or not consecutive) payable on any share or shares of Series A Junior Participating Preferred Stock are in default, the number of directors constituting the Board of Directors of the Company shall be increased by two. In addition to voting together with the holders of Common Stock for the election of other directors of the Company, the holders of record of the Series A Junior Participating Preferred Stock, voting separately as a class to the exclusion of the holders of Common Stock, shall be entitled at said meeting of stockholders (and at each subsequent annual meeting of stockholders), unless all dividends in arrears on the Series A Junior Participating Preferred Stock have been paid or declared and set apart for payment prior thereto, to vote for the election of two directors of the Company, the holders of any Series A Junior Participating Preferred Stock being entitled to cast a number of votes per share of Series A Junior Participating Preferred Stock as is specified in paragraph (A) of this Section 3. Each such additional director shall not be a member of Class I, Class II or Class III of the Board of Directors of the Company, but shall serve until the next annual meeting of stockholders for the election of directors, or until his successor shall be elected and shall qualify, or until his right to hold such office terminates pursuant to the provisions of this Section 3(C). Until the default in payments of all dividends which permitted the election of said directors shall cease to exist, any director who shall have been so elected pursuant to the provisions of this Section 3(C) may be removed at any time, without cause, only by the affirmative vote of the holders of the shares of Series A Junior Participating Preferred Stock at the time entitled to cast a majority of the votes entitled to be cast for the election of any such director at a special meeting of such holders called for that purpose, and any vacancy thereby created may be filled by the vote of such holders. If and when such default shall cease to exist, the holders of the Series A Junior Participating Preferred Stock shall be divested of the foregoing special voting rights, subject to revesting in the event of each and every subsequent like default in payments of dividends. Upon the termination of the foregoing special voting rights, the terms of office of all persons who may have been elected directors pursuant to said special voting rights shall forthwith terminate, and the number of directors constituting the Board of Directors shall be reduced by two. The voting rights granted by this Section 3(C) shall be in addition to any other voting rights granted to the holders of the Series A Junior Participating Preferred Stock in this Section 3. 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or (iii)purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of Series A Junior Participating Preferred Stock, or to such holders and holders of any such shares ranking on a parity therewith, upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired promptly after the acquisition thereof. All such shares shall upon their retirement become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to any conditions and restrictions on issuance set forth herein. 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation, dissolution or winding up of the Corporation, voluntary or otherwise, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received an amount per share (the "Series A Liquidation Preference") equal to the greater of (i) $10 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) the Adjustment Number times the per share amount of all cash and other property to be distributed in respect of the Common Stock upon such liquidation, dissolution or winding up of the Corporation. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other classes and series of stock of the Corporation, if any, that rank on a parity with the Series A Junior Participating Preferred Stock in respect thereof, then the assets available for such distribution shall be distributed ratably to the holders of the Series A Junior Participating Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences. (C) Neither the merger or consolidation of the Corporation into or with another corporation nor the merger or consolidation of any other corporation into or with the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 6. 7. Consolidation, Merger, Etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the outstanding shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. 8. No Redemption. Shares of Series A Junior Participating Preferred Stock shall not be subject to redemption by the Company. 9. Ranking. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Preferred Stock as to the payment of dividends and as to the distribution of assets upon liquidation, dissolution or winding up, unless the terms of any such series shall provide otherwise, and shall rank senior to the Common Stock as to such matters. 10. Amendment. At any time that any shares of Series A Junior Participating Preferred Stock are outstanding, the Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class. 11. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock. IN WITNESS WHEREOF, the undersigned has executed this Certificate this 12th day of May, 1999. KENETECH CORPORATION By: s/Mark Lerdal Name: Mark D. Lerdal Title: President and Chief Executive Officer CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE AND OF REGISTERED AGENT It is hereby certified that: 1. The name of the corporation (hereinafter called the "corporation") is KENETECH CORPORATION 2. The registered office of the corporation within the State of Delaware is hereby changed to 32 Loockerman Square, Suite L-100, City of Dover 19904, County of Kent. 3. The registered agent of the corporation within the State of Delaware is hereby changed to The Prentice-Hall Corporation System, Inc., the business office of which is identical with the registered office of the corporation as hereby changed. 4. The corporation has authorized the changes hereinbefore set forth by resolution of its Board of Directors. Signed on December 20, 1994. s/ Mark Lerdal authorized officer Mark Lerdal Vice President CERTIFICATE OF FIRST AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION FILED SEPTEMBER 27, 1993 OF KENETECH CORPORATION _________________ Pursuant to Section 242 of the General Corporation Law of the State of Delaware. KENETECH Corporation (herein called the "Corporation" or the "Company"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: FIRST: That the Board of Directors of the Corporation at a regular meeting duly called and held on March 31, 1994 at which a quorum was at all times present and acting, adopted a resolution proposing and declaring advisable the following First Amendment to the Restated Certificate of Incorporation of the Corporation filed September 27, 1993: RESOLVED: That Article 4.1 of the Restated Certificate of Incorporation of the Company be amended to read as follows: 4.1 Authorized Stock. The Corporation is authorized to issue two classes of stock, denominated Common Stock and Preferred Stock. The Common Stock shall have a par value of $0.0001 per share, and the Preferred Stock shall have a par value of $0.01 per share. The total number of shares of Common Stock which the Corporation is authorized to issue is One Hundred Ten Million (110,000,000), and the number of shares of Preferred Stock which the Corporation is authorized to issue is Ten Million (10,000,000), which shares shall be undesignated as to series. SECOND: That said amendment was thereafter duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by a majority of the stockholders acting at the Annual Meeting duly called and held May 25, 1994. THIRD: That the capital of the Corporation will not be reduced under or by reason of said amendment. IN WITNESS WHEREOF, KENETECH Corporation has caused this Certificate to be signed by Maurice E. Miller, its Executive Vice President, and attested by Tom E. Pollock, its Assistant Secretary, and has caused its corporate seal to be affixed hereto, this 26th day of May, 1994. KENETECH Corporation By: s/ Maurice E. Miller Maurice E. Miller Executive Vice President ATTEST: s/ Tom E. Pollock Tom E. Pollock Assistant Secretary [SEAL] CERTIFICATE OF DESIGNATIONS, PREFERENCES, RIGHTS AND LIMITATIONS OF Preferred Redeemable Increased Dividend Equity Securities SM, 8-1/4% PRIDES, Convertible Preferred Stock of KENETECH CORPORATION ________________________ Pursuant to Section 151 of the General Corporation Law of the State of Delaware KENETECH Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies that, under (i) authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the Corporation, as amended to date, (ii) the provisions of Sections 141(c) and 151 of the General Corporation Law of the State of Delaware, and (iii) resolutions adopted by the Board of Directors at its meeting on March 31, 1994, the Board of Directors duly adopted the following resolution: RESOLVED, that under authority conferred upon the Board of Directors by the Restated Certificate of Incorporation (the "Restated Certificate of Incorporation"), the Board of Directors hereby authorizes the issuance of up to 110,000 shares of authorized and unissued preferred stock, par value $0.01, of the Corporation, and hereby fixes the designation, powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of such shares, in addition to those set forth in the Restated Certificate of Incorporation, as follows, to be set forth in a certificate of designations (the "Certificate of Designations"): Section 1. Designation and Size of Issue; Ranking. (a) The distinctive designation of the series of preferred stock shall be "Preferred Redeemable Increased Dividend Equity Securities SM, 8-1/4% PRIDES, Convertible Preferred Stock" (the "PRIDES"). The number of shares constituting the PRIDES shall be 110,000 shares. Each share of PRIDES shall have a stated value of $1,012.50. (b) Any shares of the PRIDES which at any time have been redeemed for, or converted into, Common Stock, par value $0.0001, of the Corporation (the "Common Stock") or otherwise reacquired by the Corporation shall, after such redemption, conversion or other acquisition, resume the status of authorized and unissued shares of preferred stock, par value $0.01 of the Corporation (the "Preferred Stock"), without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors. (c) The shares of PRIDES shall rank on a parity, both as to payment of dividends and distribution of assets upon liquidation, with any Preferred Stock issued by the Corporation after the date of this Certificate of Designations that by its terms ranks pari passu with the PRIDES ("Parity Preferred Stock"). SM Service Mark of Merrill Lynch & Co., Inc. Section 2. Dividends. (a) The holders of record of the shares of PRIDES shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available therefor, cash dividends ("Preferred Dividends") from the date of the issuance of the shares of PRIDES at the rate per annum of 8-1/4 percent of the stated value per sham (equivalent to $83.55 per annum or $20.8975 per quarter for each share of PRIDES), payable quarterly in arrears, on each February 15, May 15, August 15 and November 15 (each a "Dividend Payment Date") or, if any such date is not a business day (as defined herein), the Preferred Dividend due on such Dividend Payment Date shall be paid on the next succeeding business day; provided, however, that, with respect to any dividend period during which a redemption occurs, the Corporation may, at its option, declare accrued Preferred Dividends to, and pay such Preferred Dividends on, the date fixed for redemption, in which case such Preferred Dividends shall be payable to the holders of shares of PRIDES as of the record date for such dividend payment and shall not be included in the calculation of the related PRIDES Call Price (as defined herein). The first dividend period shall be from the date of initial issuance of the shares of PRIDES to but excluding August 15, 1994 and the first Preferred Dividend shall be payable on August 15, 1994. Preferred Dividends on shares of PRIDES shall be cumulative and shall accumulate from the date of original issuance. Preferred Dividends on shares of PRIDES shall cease to accrue from and after the Mandatory Conversion Date (as defined herein) or on and after the date of their earlier conversion or redemption, as the case may be. Preferred Dividends shall be payable to holders of record as they appear on the stock register of the Corporation on such record date, not less than 15 nor more than 60 days preceding the payment date thereof, as shall be fixed by the Board of Directors. Preferred Dividends payable on shares of PRIDES for any period less than a full quarterly dividend period (or, in the case of the first Preferred Dividend, from the date of initial issuance of the shares of PRIDES to but excluding the first Dividend Payment Date) shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in any period less than one month. Preferred Dividends shall accrue on a daily basis whether or not there are funds of the Corporation legally available for the payment of such dividends and whether or not such Preferred Dividends are declared. Accrued but unpaid Preferred Dividends shall cumulate as of the Dividend Payment Date on which they first become payable, but no interest shall accrue on accumulated but unpaid Preferred Dividends. (b) As long as shares of PRIDES are outstanding, no dividends (other than dividends payable in shares of, or warrants, rights or options exercisable for or convertible into, shares of Common Stock or any other capital stock of the Corporation ranking junior to the shares of PRIDES as to the payment of dividends and the distribution of assets upon liquidation (collectively, the "Junior Stock") and cash in lieu of fractional shares of such Junior Stock in connection with any such dividend) shall be paid or declared in cash or otherwise, nor shall any other distribution be made (other than a distribution payable in Junior Stock and cash in lieu of fractional shares of such Junior Stock in connection with any such distribution), on any Junior Stock unless (i) full dividends on Preferred Stock (including the shares of PRIDES) that does not constitute Junior Stock ("Senior Preferred Stock") have been paid, or declared and set aside for payment, for all dividend periods terminating at or before the date of such Junior Stock dividend or distribution payment to the extent such dividends are cumulative; (ii) dividends in full for the current quarterly dividend period have been paid, or declared and set aside for payment, on all Senior Preferred Stock to the extent such dividends are cumulative; (iii) the Corporation has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement, and sinking funds, if any, for any Senior Preferred Stock; and (iv) the Corporation is not in default on any of its obligations to redeem any Senior Preferred Stock. (c) As long as any shares of PRIDES are outstanding, no shares of any Junior Stock may be purchased, redeemed, or otherwise acquired by the Corporation or any of its subsidiaries (except in connection with a reclassification or exchange of any Junior Stock through the issuance of other Junior Stock (and cash in lieu of fractional shares of such Junior Stock in connection therewith)) nor may any funds be set aside or made available for any sinking fund for the purchase or redemption of any Junior Stock unless: (i) full dividends on Senior Preferred Stock have been paid, or declared and set aside for payment, for all dividend periods terminating at or before the date of such purchase, redemption or other acquisition to the extent such dividends are cumulative; (ii) dividends in full for the current quarterly dividend period have been paid, or declared and set aside for payment, on all Senior Preferred Stock to the extent such dividends are cumulative; (iii) the Corporation has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement, and sinking funds, if any. for any Senior Preferred Stock; and (iv) the Corporation is not in default on any of its obligations to redeem any Senior Preferred Stock. (d) As long as any shares of PRIDES are outstanding, dividends or other distributions may not be declared or paid on any Parity Preferred Stock (other than dividends or other distributions payable in Junior Stock and cash in lieu of fractional shares of such Junior Stock in connection therewith) and the Corporation may not purchase, redeem or otherwise acquire any Parity Preferred Stock (except with any Junior Stock and cash in lieu of fractional shares of such Junior Stock in connection therewith), unless: (a) (i) full dividends on Senior Preferred Stock have been paid, or declared and set aside for payment, for all dividend periods terminating at or before the date of such Parity Preferred Stock dividend, distribution, purchase, redemption or other acquisition payment to the extent such dividends are cumulative; (ii) dividends in full for the current quarterly dividend period have been paid, or declared and set aside for payment, on all Senior Preferred Stock to the extent such dividends are cumulative; (iii) the Corporation has paid or set aside all amounts, if any, then or theretofore required to be paid or set aside for all purchase, retirement, and sinking funds, if any, for any Senior Preferred Stock; and (iv) the Corporation is not in default on any of its obligations to redeem any Senior Preferred Stock; except that(b) with respect to the payment of dividends on the Parity Preferred Stock only, if all other conditions set forth in clause (a) are satisfied any such dividends on the Parity Preferred Stock shall be declared and paid pro rata so that the amounts of any dividends declared and paid per share of PRIDES and each other share of Senior Preferred Stock shall in all cases bear to each other the same ratio that accrued dividends (including, any accumulation with respect to unpaid dividends for prior dividend periods, if such dividends are cumulative) per share of PRIDES and such other shares of Parity Preferred Stock bear to each other. Section 3. Conversion or Redemption. (a) Unless previously either redeemed or converted at the option of the holder in accordance with the provisions of Section 3 (c), on May 14, 1998 (the "Mandatory Conversion Date"), each outstanding share of PRIDES shall manditorily convert ("Mandatory Conversion") into (i) shares of authorized Common Stock at the PRIDES Common Equivalent Rate (as defined herein) in effect on the Mandatory Conversion Date and (ii) the right to receive cash in an amount equal to all accrued and unpaid Preferred Dividends on such share of PRIDES (other than previously declared dividends payable to a holder of record as of a prior date) from and after the Mandatory Conversion Date, whether or not declared, out of funds legally available for the payment of Preferred Dividends, subject to the right of the Corporation to redeem the shares of PRIDES on or after May 15, 1997 (the "Initial Redemption Date") and before the Mandatory Conversion Date and subject to the conversion of the shares of PRIDES at the option of the holder at any time before the Mandatory Conversion Date. The "PRIDES Common Equivalent Rate" shall initially be fifty (50) shares of Common Stock for each share of PRIDES and shall be subject to adjustment as set forth in Sections 3(d) and 3(e) below. Shares of PRIDES shall cease to be outstanding from and after the Mandatory Conversion Date. The Corporation shall make such arrangements as it deems appropriate for the issuance of certificates representing shares of Common Stock and for the payment of cash in respect of such accrued and unpaid dividends if any, or cash in lieu of fractional shares of Common Stock, if any, in exchange for and contingent upon surrender of certificates representing the shares of PRIDES, and the Corporation may defer payment of dividends on such shares of Common Stock and the voting thereof until, and make such payment and voting contingent upon, the surrender of certificates representing the shares of PRIDES; provided, that the Corporation shall give the holders of the shares of PRIDES such notice of any such actions as the Corporation deems appropriate and upon surrender such holders shall be entitled to receive such dividends declared and paid, if any, on such shares of Common Stock subsequent to the Mandatory Conversion Date. (b) (i) Shares of PRIDES are not redeemable by the Corporation before the Initial Redemption Date. At any time and from time to time on or after that date until immediately before the Mandatory Conversion Date, the Corporation shall have the right to redeem, in whole or in part, the outstanding shares of PRIDES (subject to the notice provisions set forth in Section 3(b)(iv)). Upon any such redemption, the Corporation shall deliver to each holder thereof, in exchange for each such share of PRIDES subject to redemption, the greater of (A) the number of shares of Common Stock equal to the applicable PRIDES Call Price (as defined herein) in effect on the redemption date divided by the Current Market Price (as defined herein) of the Common Stock, determined as of the second Trading Day (as defined herein) immediately preceding the Notice Date (ad defined herein); or (B) 41.665 shares of Common Stock (the "Minimum Redemption Rate" which is subject to adjustment in the same manner as the PRIDES Optional Conversion Rate (as defined herein) is adjusted). Preferred Dividends on the shares of PRIDES shall cease to accrue on and after the date fixed for their redemption. (ii) The "PRIDES Call Price" of each share of PRIDES shall be the sum of (x) $1,033.40 on and after the Initial Redemption Date, to and including August 14, 1997; $1,028.15 on and after August 15. 1997, to and including November 14, 1997; $1,022.95 on and after November 15, 1997, to and including February 14, 1988; $1,017.70 on and after February 15, 1998, to and including April 14, 1998; and $1,012.50 (being the price at which shares of PRIDES are initially sold to the public) on and after April 15, 1998, to and including May 13, 1998; and (y) all accrued and unpaid Preferred Dividends thereon to but not including the date fixed for redemption (other than previously declared Preferred Dividends payable to a holder of record as of a prior date). If fewer than all the outstanding shares of PRIDES are to be called for redemption, shares of PRIDES to be called shall be selected by the Corporation from outstanding shares of PRIDES not previously called by lot or pro rata (as nearly as may be) or by any other method determined by the Board of Directors in its sole discretion to be equitable. (iii) The term "Current Market Price" per share of the Common Stock on any date of determination means the lesser of (x) the average of the Closing Prices (as defined herein) of the Common Stock for the 15 consecutive Trading Days ending on and including such date of determination, and (y) the Closing Price of the Common Stock on such date of determination; provided, however, that, with respect to any redemption of shares of PRIDES, if any event resulting in an adjustment of the PRIDES Common Equivalent Rate occurs during the period beginning on the first day of such 15-day period and ending on the applicable redemption date, the Current Market Price as determined pursuant to the foregoing shall be appropriately adjusted to reflect the occurrence of such event. (iv) The Corporation shall provide notice of any redemption of the shares of PRIDES to holders of record of the shares of PRIDES to be called for redemption not less than 15 nor more than 60 days before the date fixed for redemption. Any such notice shall be provided by mail, sent to the holders of record of the shares of PRIDES to be called at each such holder's address as it appears on the stock register of the Corporation, first class postage prepaid; provided, however, that failure to give such notice or any defect therein shall not affect the validity of the proceeding for redemption of any shares of PRIDES to be redeemed except as to the holder to whom the Corporation has failed to give such notice or whose notice was defective. A public announcement of any call for redemption shall be made by the Corporation before, or at the time of, the mailing of such notice of redemption. The term "Notice Date" with respect to any notice given by the Corporation in connection with a redemption of the shares of PRIDES means the date on which first occurs either the public announcement of such redemption or the commencement of mailing of the notice to the holders of shares of PRIDES, in each case pursuant to this Section 3(b)(iv). Each such notice shall state, as appropriate, the following and may contain such other information as the Corporation deems advisable: (A) the redemption date; (B) that all outstanding shares of PRIDES are to be redeemed or, in the case of a redemption of fewer than all outstanding shares of PRIDES, the number of such shares held by such holder to be redeemed; (C) the PRIDES Call Price, the number of shares of Common Stock deliverable upon redemption of each share of PRIDES to be redeemed and the Current Market Price used to calculate such number of shares of Common Stock; (D) the place or places where one or more certificates for such shares of PRIDES are to be surrendered for redemption; and (E) that dividends on the shares of PRIDES to be redeemed shall cease to accrue on and after such redemption date (except as otherwise provided herein). In case fewer than all of the shares of PRIDES are to be redeemed, the shares of PRIDES to be redeemed shall be selected by lot or pro rata (as nearly as possible) or by any other method determined by Board of Directors in its sole discretion to be equitable. (v) The Corporation's obligation to deliver shares of Common Stock and provide funds upon redemption in accordance with this Section 3(b) shall be deemed fulfilled if, on or before a redemption date, the Corporation shall deposit with a bank or trust company, or an affiliate of a bank or trust company, having a combined capital and surplus of at least $50,000,000 according to its last published statement of condition, or shall set aside or make other reasonable provision for the issuance of, such number of shares of Common Stork as are required to be delivered by the Corporation pursuant to this Section 3 (b) upon the occurrence of the related redemption of shares of PRIDES and for the payment of cash in lieu of the issuance of fractional share amounts and accrued and unpaid dividends payable in cash on the shares of PRIDES to be redeemed as required by this Section 3 (b), in trust for the account of the holder of such shares of PRIDES to be redeemed (and so as to be and continue to be available therefor), with irrevocable instructions and authority to such bank or trust company that such shares and funds be delivered upon redemption of the shares of PRIDES so called for redemption. Any interest accrued on such funds shall be paid to the Corporation from time to time. Any shares of Common Stock or funds so deposited and unclaimed at the end of three years from such redemption date shall be repaid and released to the Corporation, after which the holder or holders of such shares of PRIDES so called for redemption shall look only to the Corporation for delivery of shares of Common Stock and the payment of any other funds due in connection with the redemption of the shares of PRIDES. (vi) Each holder of shares of PRIDES called for redemption must surrender the certificates evidencing such shares (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the notice shall so state) to the Corporation at the place designated in the notice of such redemption and shall thereupon be entitled to receive certificates evidencing shares of Common Stock and to receive any fund payable pursuant to this Section 3(b) following such surrender and following the date of such redemption. In case fewer than all the shares represented by any such surrendered certificate are called for redemption, a new certificate shall be issued at the expense of the Corporation representing the unredeemed shares. If such notice of redemption shall have been given, and if on the date fixed for redemption shares of Common Stock and funds necessary for the redemption shall have been irrevocably either set aside by the Corporation separate and apart from its other funds or assets in trust for the account of the holders of the shares to be redeemed (and so as to be and continue to be available therefor) or deposited with a bank or trust company or an affiliate thereof as provided herein or the Corporation shall have made other reasonable provision therefor, then notwithstanding that the certificates evidencing any shares of PRIDES so called for redemption shall not have been surrendered, the shares represented thereby so called for redemption shall be deemed no longer outstanding and Preferred Dividends with respect to the shares so called for redemption and all rights with respect to the shares so called for redemption shall forthwith on and after such date cease and terminate (unless the Corporation defaults on the payment of the redemption price), except for (i) the rights of the holders to receive the shares of Common Stock and funds, if any, payable pursuant to this Section 3 (b) without interest upon surrender of their certificates therefor and (ii) the right of the holders, pursuant to Section 3 (c) to convert the shares of PRIDES called for redemption until immediately before the close of business on any redemption date; provided, however, that holders of shares of PRIDES at the close of business on a record date for any payment of Preferred Dividends shall be entitled to receive the Preferred Dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares following such record date and before the Dividend Payment Date. Holders of shares of PRIDES that are redeemed shall not be entitled to receive dividends declared and paid on such shares of Common Stock, and such shares of Common Stock shall not be entitled to vote, until such shares of Common Stock are issued upon the surrender of the certificates representing such shares of PRIDES, and upon such surrender such holders shall be entitled to receive such dividends declared and paid on such shares of Common Stock subsequent to such redemption date. (c) Shares of PRIDES are convertible, in whole or in part, at the option of the holders thereof ("Optional Conversion"), at any time before the Mandatory Conversion Date, unless previously redeemed, into shares of Common Stock at a rate of 41.665 shares of Common Stock for each share of PRIDES (the "PRIDES Optional Conversion Rate"), subject to adjustment as set forth below. The right of Optional Conversion of shares of PRIDES called for redemption shall terminate immediately before the close of business on any redemption date with respect to such shares. Optional Conversion of shares of PRIDES may be effected by delivering certificates evidencing such shares of PRIDES, together with written notice of conversion and a proper assignment of such certificates to the Corporation or in blank (and, if applicable, cash payment of an amount equal to the Preferred Dividend attributable to the current quarterly dividend period payable on such shares), to the office of the transfer agent for the shares of PRIDES or to any other office or agency maintained by the Corporation for that purpose and otherwise in accordance with Optional Conversion procedures established by the Corporation. Each Optional Conversion shall be deemed to have been effected immediately before the close of business on the date on which the foregoing requirements shall have been satisfied. The Optional Conversion shall be at the PRIDES Optional Conversion Rate in effect at such time and on such date. Holders of shares of PRIDES at the close of business on a record date for any payment of declared Preferred Dividends shall be entitled to receive the Preferred Dividend payable on such shares of PRIDES on the corresponding Dividend Payment Date notwithstanding the Optional Conversion of such shares of PRIDES following such record date and before such Dividend Payment Date. However, shares of PRIDES surrendered for Optional Conversion after the close of business on a record date for any payment of declared Preferred Dividends and before the opening of business on the next succeeding Dividend Payment Date must be accompanied by payment in cash of an amount equal to the Preferred Dividends attributable to the current quarterly dividend period payable on such date (unless such shares of PRIDES are subject to redemption on a redemption date between such record date established for such Dividend Payment Date and such Dividend Payment Date). Except as provided above, upon any Optional Conversion of shares of PRIDES, the Corporation shall make no payment of or allowance for unpaid Preferred Dividends, whether or not in arrears, on such shares of PRIDES as to which Optional Conversion has been effected or for previously declared dividends or distributions on the shares of Common Stock issued upon Optional Conversion. (d) The PRIDES Common Equivalent Rate, the PRIDES Minimum Redemption Rate and the PRIDES Optional Conversion Rate (collectively, referred to as the "Rates") are each subject to adjustment from time to time as provided below in this paragraph (d). (i) If the Corporation shall pay a stock dividend or make a distribution with respect to its Common Stock in shares of Common Stock (including by way of reclassification of any shares of its Common Stock), the Rates in effect at the opening of business on the day following the date fixed for the determination by stockholders entitled to receive such dividend or other distribution shall each be increased by multiplying such Rates by a fraction of which the numerator shall be the sum of the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination, immediately before such dividend or distribution, plus the total number of shares of Common Stock constituting such dividend or other distribution, and of which the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination, immediately before such dividend or distribution, such increase to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this clause (i), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Corporation but shall include shares issuable in respect of certificates issued in lieu of fractions of shares of Common Stock. (ii) In case outstanding shares of Common Stock shall be subdivided or split into a greater number of shares of Common Stock, the Rates in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall each be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Rates in effect at the opening of business on the day following the day upon which such combination becomes effective shall each be proportionately reduced, such increases or reductions, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (iii) If the Corporation shall, after the date of this Certificate of Designations, issue rights or warrants to all holders of its Common Stock entitling them (for a period not exceeding 45 days from the date of such issuance) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price of the Common Stock (determined pursuant to Section 3(b)(ii)) on the record date for the determination of stockholders entitled to receive such rights or warrants, then in each case the Rates shall be adjusted by multiplying the Rates in effect on such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately before such issuance, plus the number of additional shares of Common Stock offered for subscription or purchase pursuant to such rights or warrants, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants, immediately before such issuance, plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase pursuant to such rights or warrants would purchase at such Current Market Price (determined by multiplying such total number of shares by the exercise price of such rights or warrants and dividing the product so obtained by such Current Market Price). Shares of Common Stock held by the Corporation or by another corporation of which a majority of the shares entitled to vote in the election of directors are held, directly or indirectly, by the Corporation shall not be deemed to be outstanding for purposes of such computation. Such adjustments shall become effective at the opening of business on the business day next following the record date for the determination of stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Rates shall each be readjusted to the Rates which would then be in effect had the adjustments made after the issuance of such rights or warrants been made upon the basis of issuance of rights or warrants in respect of only the number of shares of Common Stock actually delivered. (iv) If the Corporation shall pay a dividend or make a distribution to all holders of its Common Stock consisting of evidences of its indebtedness, cash or other assets (including shares of capital stock of the Corporation other than Common Stock but excluding any cash dividends or distributions, other than Extraordinary Cash Distributions (as defined herein) and dividends referred to in clauses (i) and (ii) above), or shall issue to all holders of its Common Stock rights or warrants to subscribe for or purchase any of its securities (other than those referred to in clause (iii) above), then in each such case, the Rates shall each be adjusted by multiplying such Rates in effect on the record date for such dividend or distribution or for the determination of stockholders entitled to receive such rights or warrants, as the case may be, by a fraction of which the numerator shall be the Current Market Price per share of the Common Stock (determined pursuant to 3(b)(ii) an such record date), and of which the denominator shall be such Current Market Price per share of Common Stock less either (i) the fair market value (as determined by the Board of Directors, whose determination shall be conclusive) on such record date of the portion of the assets or evidences of indebtedness so distributed, or of such subscription rights or warrants, applicable to one share of Common Stock, or (ii) if applicable, the amount of the Extraordinary Cash Distributions. Such adjustment shall become effective on the opening of business on the business day next following the record date for such dividend or distribution or for the determination of holders entitled to receive such rights or warrants, as the case may be. (v) Any shares of Common Stock issuable in payment of a dividend or other distribution shall be deemed to have been issued immediately before the close of business on the record date for such dividend or other distribution for purposes of calculating the number of outstanding shares of Common Stock under this Section 3. (vi) Anything in this Section 3 notwithstanding, the Corporation shall be entitled (but shall not be required) to make such upward adjustments in the Rates and the PRIDES Call Price in addition to those set forth by this Section 3, as the Corporation, in its sole discretion, shall determine to be advisable, in order that any stock dividends, subdivision of stock, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock (or any transaction that could be treated as any of the foregoing transactions pursuant to Section 305 of the Internal Revenue Code of 1986. as amended) hereafter made by the Corporation to its stockholders shall not be taxable. The term "Extraordinary Cash Distribution" means, with respect to any consecutive 12-month period, all cash dividend and cash distributions on the Common Stock during such period (other than cash dividends and cash distributions for which a prior adjustment to the Rates was previously made) to the extent such dividends and distributions exceed, on a per share of Common Stock basis, 10% of the average daily Closing Price of the Common Stock over such period. (vi) In any case in which this Section 3(d) shall require that an adjustment as a result of any event become effective at the opening of business on the business day next following a record date and the date fixed for conversion pursuant to Section 3(a) or redemption pursuant to Section 3(b) on and after such record date, but before the occurrence of such event, the Corporation may, in its sole discretion, elect to defer the following until after the occurrence of such event: (A) issuing to the holder of any shares of PRIDES surrendered for conversion or redemption the fractional shares of Common Stock issuable before giving effect to such adjustment; and (B) paying to such holder any amount in cash in lieu of a fractional share of Common Stock pursuant to Section 4. (viii) All adjustments to the Rates shall be calculated to the nearest 1/100th of a share of Common Stock. No adjustment in any of the Rates shall be required unless such adjustment would require an increase or decrease of at least one percent therein; provided, however, that any adjustments which by reason of this Section 3(d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All adjustments to the Rates shall be made successively. (ix) Before redeeming any shares of PRIDES, the Corporation shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock upon such redemption. (e) In case of any consolidation or merger to which the Corporation is a party (other than a consolidation or merger in which the Corporation is the surviving or continuing corporation and in which the shares of Common Stock outstanding immediately before the merger or consolidation remain unchanged) or in the case of any sale or transfer to another corporation of the property of the Corporation as an entirety or substantially as an entirety, or in the case of a statutory exchange of securities with another corporation (other than in connection with a merger or acquisition), each share of PRIDES shall, after consummation of such transaction, be subject to (i) conversion at the option of the holder into the kind and amount of securities, cash, or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock into which such share of PRIDES might have been converted immediately before consummation of such transaction, (ii) conversion on the Mandatory Conversion Date into the kind and amount of securities, cash, or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock into which such share of PRIDES would have been converted if the conversion on the Mandatory Conversion Date had occurred immediately before the date of consummation of such transaction, plus the right to receive cash in an amount equal to all accrued and unpaid dividends on such share of PRIDES (other than previously declared dividends payable to a holder of record as of a prior date), and (iii) redemption on any redemption date in exchange for the kind and amount of securities, cash, or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock that would have been issuable at the PRIDES Call Price in effect on such redemption date upon a redemption of such share of PRIDES immediately before consummation of such transaction, assuming that, if the Notice Date for such redemption is not before such transaction, the Notice Date had been the date of such transaction; and assuming in each case that such holder of shares of Common Stock failed to exercise rights of election, if any, as to the kind or amount of securities, cash, or other property receivable upon consummation of such transaction (provided that, if the kind or amount of securities, cash, or other property receivable upon consummation of such transaction is not the same for each non-electing share, then the kind and amount of securities, cash, or other property receivable upon consummation of such transaction for each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). The kind and amount of securities into or for which the shares of PRIDES shall be convertible or redeemable after consummation of such transaction shall be subject to adjustment as described in Section 3(d) following the date of consummation of such transaction. The Corporation may not become a party to any such transaction unless the terms thereof are consistent with the foregoing. (f) Whenever the Rates are adjusted as provided in Section 3(d), the Corporation shall: (i) forthwith compute the Rates in accordance with this Section 3 and prepare a certificate signed by the Chief Financial Officer, any Vice President, the Treasurer or the Controller of the Corporation setting forth the adjusted Rates, the method of calculation thereof in reasonable detail and the facts requiring such adjustment and upon which such adjustment is based, which certificate shall be conclusive, final and binding evidence of the correctness of the adjustment, and shall rile such certificate forthwith with the transfer agent for the shares of the PRIDES and the Common Stock; (ii) make a prompt public announcement stating that the Rates have been adjusted and setting forth the adjusted Rates; and (iii) mail a notice stating that the Rates have been adjusted, the facts requiring such adjustment and upon which such adjustment is based and setting forth the adjusted Rates, to the holders of record of the outstanding shares of PRIDES, at or prior to the time the Corporation mails an interim statement, if any, to its stockholders covering the fiscal quarter period during which the facts requiring such adjustment occurred, but in any event within 45 days of the end of such fiscal quarter period. (g) In case, at any time while any of the shares of PRIDES are outstanding, (i) the Corporation shall declare a dividend (or any other distribution) on the Common Stock, excluding any cash dividends other than Extraordinary Cash Distributions; or (ii) the Corporation shall authorize the issuance to all holders of the Common Stock of rights or warrants to subscribe for or purchase shares of the Common Stock or of any other subscription rights or warrants, or (iii) the Corporation shall authorize any reclassification of the Common Stock (other than a subdivision or combination thereof) or any consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required (except for a merger of the Corporation into one of its subsidiaries solely for the purpose of changing the corporate domicile of the Corporation to another state of the United States and in connection with which there is no substantive change in the rights or privileges of any securities of the Corporation other than changes resulting from differences in the corporate statutes of the state the Corporation was then domiciled in and the new state of domicile), or the sale or transfer of all or substantially all of the assets of the Corporation; then the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of the shares of PRIDES, and shall cause to be mailed to the holders of shares of PRIDES at their last addresses as they shall appear on the stock register of the Corporation, at least 10 business days before the date hereinafter specified in clause (A) or (B) below (or the earlier of the dates hereinafter specified, in the event that more than one date. is specified), a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (B) the date on which any such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property (including cash), if any, deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up. The failure to give or receive the notice required by this paragraph (g) or any defect therein shall not affect the legality or validity of any such dividend, distribution, right or warrant or other action. Section 4. Conversion into Series U Preferred Stock. (a) In the event a holder of shares of the PRIDES shall become an Electric Utility Interest (as defined below), each share of PRIDES held by such holder shall, automatically and immediately and without further action either by the holder or by the Corporation, be converted into that number of shares of Common Stock into which such shares of PRIDES would then be convertible at the PRIDES Optional Conversion Rate. Upon conversion, the holder of the converted stock shall not be recognized as a holder of PRIDES for any purpose whatsoever, including, but not limited to, the right to vote such shares of PRIDES or to receive dividends or other distributions in respect thereof, if any, but such stockholder shall thereafter be recognized as a holder of Common Stock, subject to all terms and restrictions contained in the Restated Certificate of Incorporation, including automatic and immediate conversion into sham of Series U Preferred Stock and redemption as provided in Section 4.7 of the Corporation's Restated Certificate of Incorporation. (b) For the purpose of this Certificate of Designation, the term "Electric Utility Interest" means an electric utility or utilities or an electric utility holding company or companies, or any affiliate of either, in each case as those terms are utilized by the Federal Energy Regulatory Commission ("FERC") in regulations or orders implementing the Public Utility Regulatory Policies Act of 1978, as amended, and its successors, and the regulations promulgated thereunder ("PURPA"), if such entity's interest in the Corporation would be a utility interest for purposes of 18 C.F.R. Section 292.206. Section 5. No Fractional Shares. (a) No fractional shares of Common Stock shall be issued upon redemption or conversion of any shares of the PRIDES. In lieu of any fractional share otherwise issuable in respect of the aggregate number of shares of the PRIDES of any holder that are redeemed or converted on any redemption date or upon Mandatory Conversion or Optional Conversion, such holder shall be entitled to receive an amount in cash (computed to the nearest cent) equal to the same fraction of the (i) Current Market Price of the Common Stock (determined as of the second Trading Day immediately preceding the Notice Date) in the case of redemption, or (ii) Closing Price of the Common Stock determined (A) as of the fifth Trading Day immediately preceding the Mandatory Conversion Date, in the case of Mandatory Conversion, or (B) as of the second Trading Day immediately preceding the effective date of conversion, in the case of an Optional Conversion by a holder. If more than one share of PRIDES shall be surrendered for conversion or redemption at one time by or for the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the PRIDES so surrendered or redeemed. (b) No fractional shares of PRIDES shall be tendered for redemption or conversion, or issued upon redemption or conversion of any shares of PRIDES, except by or to a depositary (the "Depositary") selected by the Corporation pursuant to a deposit agreement between the Corporation and the Depositary relating to the execution and delivery of depositary receipts representing interests in shares of PRIDES deposited by the Corporation with the Depositary. In lieu of any fractional shares of PRIDES that would otherwise be issuable to any person other than the Depositary upon the redemption or conversion of a share of PRIDES, such person shall be entitled to receive the maximum number of full shares of Common Stock then issuable upon such redemption or conversion and, in lieu of any fractional share of Common Stock, an amount in cash computed as provided in Section 5(a). Section 6. Reservation of Common Stock. The Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion or redemption of shares of PRIDES, as herein provided, free from preemptive rights, such maximum number of shares of Common Stock as shall from time to time be issuable upon the Mandatory Conversion or Optional Conversion or redemption of all the shares of PRIDES then outstanding. Section 7. Definitions. As used in this Certificate of Designations: (i) the term "business day" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close; (ii) the term "Closing Price", on any day, shall mean the average of the closing bid and asked prices of the Common Stock on the Nasdaq National Market, or if not so available, as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose; (iii) the term "record date" shall be such date as from time to time shall be fixed by the Board of Directors with respect to the receipt of dividends, the receipt of a redemption price upon redemption or the taking of any action or exercise of any voting rights permitted hereby; and (iv) the term "Trading Day" shall mean a date on which the Nasdaq National Market (or any successor) is open for the transaction of business. Section 8. Payment of Taxes. The Corporation shall pay any and all documentary, stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on the redemption or conversion of shares of PRIDES pursuant to Section 3; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any registration of transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the registered holder of shares of PRIDES redeemed or converted or to be redeemed or converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax or has established. to the satisfaction of the Corporation, that such tax has been paid. Section 9. Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, and subject to the rights of holders of any other series of Preferred Stock, the holders of outstanding shares of PRIDES are entitled to receive the sum of $1,012.50 per share, plus an amount equal to any accrued and unpaid Preferred Dividends thereon, out of the assets of the Corporation available for distribution to stockholders, before any distribution of assets is made to holders of Junior Stock. If upon any voluntary or involuntary liquidation, dissolution, or winding up of the Corporation, the assets of the Corporation are insufficient to permit the payment of the full preferential amounts payable with respect to the shares of PRIDES and all other series of Parity Preferred Stock, the holders of shares of PRIDES and of all other series of Parity Preferred Stock shall share ratably in any distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of shares of PRIDES shall not be entitled to any further participation in any distribution of assets by the Corporation. A consolidation or merger of the Corporation with or into one or more other corporations (whether or not the Corporation is the corporation surviving such consolidation or merger), or a sale, lease or exchange of all or substantially all Of the assets of the Corporation shall not be deemed to be a voluntary or involuntary liquidation, dissolution, or winding up of the Corporation. Section 10. Voting Rights. (a) The holders of shares of PRIDES shall have the right with the holders of Common Stock to vote in the election of directors and upon each other matter coming before any meeting of the holders of Common Stock on the basis of 40 votes for each share of PRIDES held. The holders of shares of PRIDES and the holders of Common Stock shall vote together as one class on such matters except as otherwise provided by law or by the Restated Certificate of Incorporation. (b) In the event that dividends on the shares of PRIDES or any other series of Preferred Stock shall be in arrears and unpaid for six quarterly dividend periods, or if any series of Preferred Stock (other than the PRIDES) shall be entitled for any other reason to exercise voting rights, separate from the Common Stock, to elect any directors of the Corporation ("Preferred Stock Directors"), the holders of the shares of PRIDES (voting separately as a class with holders of all other series of Preferred Stock upon which like voting rights have been conferred and arc exercisable), with each share of PRIDES entitled to one vote on this and other matters in which Preferred Stock votes as a group, shall be entitled to vote for the election of two directors of the Corporation, such directors to be in addition to the number of directors constituting the Board of Directors immediately before the accrual of such right. Such right, when vested, shall continue until all cumulative dividends accumulated and payable on the shares of PRIDES and such other series of Preferred Stock shall have been paid in full and the right of any other series of Preferred Stock to exercise voting rights, separate from the Common Stock, to elect Preferred Stock Directors shall terminate or have terminated, and, when so paid and any such termination occurs or has occurred, such right of the holders of the shares of PRIDES shall cease. The term of office of any directors elected by the holders of the shares of PRIDES and such other series shall terminate on the earlier of (i) the next annual meeting of stockholders at which a successor shall have been elected and qualified or (ii) the termination of the right of holders of the shares of PRIDES and such other series to vote for such directors. (c) The Corporation shall not, without the approval of the holders of at least 66-2/3 percent of the shares of PRIDES then outstanding: (i) amend, alter, or repeal any of the provisions of the Restated Certificate of Incorporation or Restated By-Laws of the Corporation so as to affect adversely the powers, preferences or rights of the holders of the shares of PRIDES then outstanding or reduce the minimum time for any required notice to which the holders of the shares of PRIDES then outstanding may be entitled (an amendment of the Restated Certificate of Incorporation to authorize or create, or to increase the authorized amount of, Junior Stock or any stock of any class ranking on a parity with the PRIDES being deemed not to affect adversely the powers, preferences, or rights of the holders of the shares of PRIDES); (ii) authorize or create, or increase the authorized amount of, any stock (whether or not convertible into capital stock of any class), ranking prior to the shares of PRIDES either as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation; or (iii) merge or consolidate with or into any other corporation, unless each holder of shares of PRIDES immediately preceding such merger or consolidation shall receive or continue to hold in the resulting corporation the same number of shares, with substantially the same rights and preferences, as correspond to the shares of PRIDES so held. (d) The Corporation shall not, without the approval of the holders of at least a majority of the shares of PRIDES then outstanding, increase the authorized number of shares of Preferred Stock to greater than 10,000,000 shares. (e) Notwithstanding the provisions set forth in Sections 10(c) and 10(d), no such approval described therein of the holders of the shares of PRIDES shall be required if, at or before the time when such amendment, alteration or repeal is to take effect or when the authorization, creation, increase or issuance of any such prior or parity stock or convertible security is to be made, or when such consolidation or merger, voluntary liquidation, dissolution, or winding up. sale. lease. conveyance, purchase, or redemption is to take effect, as the case may be, provision is made for the redemption of all shares of PRIDES at the time outstanding. Section 11. Prohibition of Electric Utility Ownership of PRIDES. (a) Any attempted sale, transfer, assignment, conveyance, pledge or other dispositions of any share of PRIDES to any Electric Utility Interest (as defined in Section 4(b) herein) shall be null and void ab initio. No employee or agent, including any independent transfer agent or registrar of the Corporation, shall be permitted to record any attempted or purported transfer made in violation of the Section 11, and no intended transferee of shares of the PRIDES attempted to be transferred in violation of this Section 11 shall be recognized as a holder of such shares for any purpose whatsoever, including, but not limited to, the right to vote such shares of PRIDES or to receive dividends or other distributions in respect thereof, if any. The transferor and any such intended transferee shall be deemed to have appointed the Corporation as attorney-in-fact, with full power and substitution and full power and authority, in the name and on behalf of the intended transferor and transferee, to sell, assign and transfer the shares of PRIDES attempted to be transferred in violation of this Section 11, and to do all lawful acts and execute all documents deemed necessary of advisable to effect such sale, assignment and transfer, in an arm's length transaction, to another entity or person; provided that the sale, assignment and transfer to such other entity or person does not violate the provisions of this Section 11. The Corporation shall apply the proceeds of any such sale first, to pay the expenses of the sale; second, to pay the intended transferee on whose behalf the shares were sold, an amount equal to (i) the sum of the intended transferee's cost of such shares (inclusive of brokerage fees and expenses), plus interest on such costs at the then minimum rate of interest which would prevent interest on a non-interest bearing obligation from being imputed by the Internal Revenue Service, less the amount of any dividends or other distribution inadvertently paid to said intended transferee in respect of such shares, or (ii) the balance of such proceeds, whichever is less; and third, the balance of such proceeds, if any, shall be paid to the Corporation. Notwithstanding the foregoing, the Corporation shall not provide any proceeds to the intended transferee, if such intended transferee has received consideration from any subsequent attempted transfer. (b) The Corporation shall take all appropriate legal action to enforce the provisions of this Section 11 in every case where there has been an attempted or purported transfer made in violation hereof. In taking any action hereunder, the Corporation, and its directors, officers and agents, will be fully protected in relying upon any notice, paper or other document reasonably believed by the Corporation or any such person to be genuine and sufficient, and, to the extent permitted by law, in no event shall the Corporation, or any of is directors, officers or agents, be liable for any act performed or omitted to be performed hereunder in the absence of gross negligence or willful misconduct. The Corporation and each of its directors, officers and agents may consult with counsel in connection with its respective duties hereunder and, to the extent permitted by law, each shall be fully protected by any act taken, suffered or permitted in good faith in accordance with the advice of such counsel. (c) Whenever it is deemed by the Board of Directors to be prudent in protecting, preserving, or obtaining for any of its projects (including projects in which the Corporation or a subsidiary has an interest, whether by ownership, lease or contract) the status of a "Qualifying Facility" (as defined in PURPA), the Board of Directors of the Corporation may require to be filed with Corporation as a condition to permit any proposed transfer, and/or the registration of any transfer of any shares of the Corporation's PRIDES a statement or affidavit from any proposed transferee to the effect that such transferee is not an Electric Utility Interest, as defined herein. (d) The Board of Directors of the Corporation shall have the right to determine whether any transferee or purported transferee of shares of PRIDES is an Electric Utility Interest and to determine whether the Corporate projects (including projects in which the Corporation or a subsidiary has an interest, whether by ownership, lease or contract) meet the requirements for Qualifying Facility status under PURPA. (e) Nothing contained in this Section 11 shall limit the authority of the Board of Directors of the Corporation to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its stockholders by protecting, preserving or obtaining for any of the Corporation's projects (including projects in which the Corporation or a subsidiary has an interest, whether by ownership, lease or contract) the status of a "Qualifying Facility" under PURPA. (f) All certificates representing shares of the PRIDES shall bear a legend in substantially the following form: "Any attempted sale, transfer, assignment, conveyance, pledge or other disposition of any of the shares of PRIDES represented by this certificate to any "Electric Utility Interest" (as hereinafter defined) shall be null and void ab initio in accordance with the provisions of the Certificate of Designations, Preferences, Rights and Limitations relating to the PRIDES (the "Certificate of Designations"). In the event a holder of shares of the PRIDES shall become an Electric Utility Interest, each share of PRIDES held by such holder shall be automatically and immediately converted into the Corporation's Common Stock at the then applicable Common Equivalent Rate (as defined in the Certificate of Designations) and without further action either by the holder or by the Corporation, and such Common Stock shall thereupon be further automatically and immediately converted into an equal number of shares of the Corporation's Series U Preferred Stock, and shall be subject to redemption as provided in Article 4.7 of the Corporation's Restated Certificate of Incorporation. For these purposes, the term "Electric Utility Interest" means an electric utility or utilities or an electric utility holding company or companies, or any affiliate of either, in each case as those terms are utilized by the Federal Energy Regulatory Commission ("FERC') in regulations or orders implementing the Public Utility Regulatory Policies Act of 1978, as amended, and its successors, and the regulations promulgated hereunder ("PURPA"), if such entity's interest in the Corporation would be a utility interest for purposes of 18 C.F.R. Section 292.206.'" IN WITNESS WHEREOF, KENETECH Corporation has caused this certificate to be signed and attested this 4th day of May, 1994. KENETECH CORPORATION Attested By: s/ Mark Lerdal Vice President and Secretary Signed: s/ Maurice E. Miller Maurice E. Miller, Executive Vice President and Chief Financial Officer RESTATED CERTIFICATE OF INCORPORATION OF KENETECH CORPORATION KENETECH Corporation (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: The original Certificate of Incorporation of USW, Inc. (the original name of the Corporation) was filed with the Secretary of State of the State of Delaware on February 25, 1986. Such Certificate of Incorporation was restated by Restated Certificate of Incorporation of USW, Inc., which was filed with the Secretary of State of the State of Delaware on March 13, 1988, and was amended by Certificate of Amendment filed with the Secretary of State of the State of Delaware on June 10, 1991, and by Certificate of Second Amendment filed with the Secretary of State of the State of Delaware on June 17, 1992, and by Certificate of Third Amendment filed with the Secretary of State of the State of Delaware on June 30, 1993. A Certificate of Designations, Preferences and Rights of the $40 Cumulative Convertible Preferred Stock of the Corporation was filed with the Secretary of State of the State of Delaware on June 26, 1992, and was amended by Certificate of First Amendment to Certificate of Designations, Preferences and Rights which was filed with the Secretary of State of the State of Delaware on September 29, 1992. All of the above documents are, for purposes of this restatement, deemed to comprise the "Certificate of Incorporation." SECOND: This Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware by the Board of Directors of the Corporation. THIRD: This Restated Certificate of Incorporation was approved by the stockholders pursuant to Section 228 of the General Corporation Law of the State of Delaware. FOURTH: The Certificate of Incorporation of the Corporation is amended and restated in its entirety to read as follows: Article 1. NAME The name of the corporation (hereinafter called the "Corporation") is KENETECH CORPORATION. Article 2. REGISTERED OFFICE AND AGENT The address of its registered office in the State of Delaware is the Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is the Corporation Trust Company. Article 3. PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. Article 4. SHARES 4.1. Authorized Stock. The Corporation is authorized to issue two classes of stock, denominated Common Stock and Preferred Stock. The Common Stock shall have a par value of $0.0001 per share, and the Preferred Stock shall have a par value of $0.01 per share. The total number of shares of Common Stock which the Corporation is authorized to issue is One Hundred Ten Million (110,000,000), and the number of shares of Preferred Stock which the Corporation is authorized to issue is One Hundred Twenty Five Thousand (125,000), which shares shall be undesignated as to series. 4.2. Conversion of Common Stock. In the event a holder of shares of the Corporation's Common Stock shall become an Electric Utility Interest (as defined below), each share of Common Stock held by such holder shall be automatically and immediately converted into one share of Series U Preferred Stock of the Corporation without further action either by the holder or by the Corporation. Upon conversion, the holder of the converted stock shall not be recognized as a holder of Common Stock for any purpose whatsoever, including, but not limited to, the right to vote such shares of Common Stock or to receive dividends or other distributions in respect thereof, if any, but such stockholder shall thereafter be recognized as a holder of Series U Preferred Stock. For the purposes of this Restated Certificate of Incorporation, the term "Electric Utility Interest" means an electric utility or utilities or an electric utility holding company or companies, or any affiliate of either, in each case as those terms are utilized by the Federal Energy Regulatory Commission ("FERC") in regulations or orders implementing the Public Utility Regulatory Policies Act of 1978, as amended, and its successors, and the regulations promulgated thereunder ("PURPA"), if such entity's interest in the Corporation would be a utility interest for the purposes of 18 C.F.R. Section 292.206. 4.3. Issuance of Preferred Stock. Any Preferred Stock not previously designated as to series may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board), and such resolution or resolutions shall also set forth the voting powers, full or limited or none, of each such series of Preferred Stock and shall fix the designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of each such series of Preferred Stock. The Board of Directors is authorized to alter the designation, rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, to increase or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. 4.4 Dividends. Subject to any preferential rights granted to any series of Preferred Stock, the holders of shares of the Common Stock shall be entitled to receive dividends, out of the funds of the Corporation legally available therefor, at the rate and at the time or times, whether cumulative or noncumulative, as may be provided by the Board of Directors. The holders of shares of Series U Preferred Stock shall not be entitled to receive any dividends. The holders of shares of other Preferred Stock shall be entitled to receive dividends to the extent provided by the Board of Directors in designating the particular series of Preferred Stock. 4.5 Voting Rights of Preferred Stock. Except as otherwise required by law, the holders of shares of Series U Preferred Stock shall not be entitled to vote on any matter submitted to a vote or consent of the stockholders, including the election of directors. The voting rights of the holders of shares of a series of Preferred Stock other than shares of Series U Preferred Stock shall be as set forth in the certificate or statement of rights and preferences of such series. 4.6 Rights on Liquidation, Dissolution or Winding Up. In the event of any liquidation, dissolution or winding up of the Corporation, after payment shall have been made to holders of any series of Preferred Stock then outstanding of the full amount to which they shall be entitled to be paid before any payment shall be made to the holders of any shares of Common Stock or any other class or series of stock ranking junior to the Series U Preferred Stock upon a liquidation, dissolution or winding up of the Corporation, the holders of shares of Series U Preferred Stock shall be entitled to receive an amount equal to the amount per share that would have been payable to such holders if the Corporation had exercised its right pursuant to Article 4.7 hereof on the date of such liquidation, dissolution or winding up to redeem outstanding shares of Series U Preferred Stock. In the event the assets of the Corporation available for distribution to the holders of Series U Preferred Stock upon any liquidation, dissolution or winding up of the Corporation shall be insufficient to pay the full amounts to which the holders of Series U Preferred Stock shall be entitled, then such assets, or the proceeds thereof, shall be distributed among such holders ratably in accordance with the respective amounts such holders would be entitled to receive if they were paid in full. In the event of any liquidation, dissolution or winding up of the Corporation and after payment shall have been made to the holders of Series U Preferred Stock of the full amount to which they shall be entitled as aforesaid, the holders of Common Stock shall be entitled, to the exclusion of the holders of Series U Preferred Stock, to share in all remaining assets of the Corporation available for distribution to its stockholders. 4.7. Redemption. The Corporation may, at any time and from time to time, redeem any shares of the Series U Preferred Stock at a redemption price equal to the "Fair Market Value" (as defined below) of such shares of Series U Preferred Stock. Each date fixed for redemption pursuant to this Article 4.7 is hereinafter referred to as a "Preferred Redemption Date." For purposes of this Article 4.7, "Fair Market Value" of the Series U Preferred Stock shall mean the lower of the closing price with respect to a share of the Corporation's Common Stock on the National Association of Securities Dealers, Inc. Automated Quotation National Market System, or the closing sales price or closing bid quotation (whichever is higher) on any exchange or any system on which the Common Stock is registered or on which it is qualified to trade, on (i) the date the Series U Preferred Stock to be redeemed comes into existence as a result of the conversion of the corresponding share of the Corporation's Common Stock pursuant to Article 4.2 hereof or (ii) the Preferred Redemption Date. If the Corporation's Common Stock is not then qualified to trade on any system or listed on any exchange, the Fair Market Value on the Preferred Redemption Date of such stock shall be determined by the Board of Directors in good faith. The total sum payable with respect to any such share to be redeemed is hereinafter referred to as the "Preferred Redemption Price." The Preferred Redemption Price is payable on the Preferred Redemption Date established pursuant to this Article 4.7, and the payment is hereinafter referred to as a "Preferred Redemption Payment." In the event the Corporation shall redeem any shares of its Series U Preferred Stock pursuant hereto, notice of such redemption shall be given by first-class mail, postage prepaid, mailed not less than thirty (30) days nor more than sixty (60) days prior to the Preferred Redemption Date, to each holder of record of the shares to be redeemed at such holder's address as the same appears on the books of the Corporation; provided, however, that no failure to mail such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of Series U Preferred Stock to be redeemed except as to the holder to whom the Corporation has failed to mail said notice or except as to the holder whose notice was defective. Each such notice shall state: (i) the Preferred Redemption Date; (ii) the number of shares of Series U Preferred Stock to be redeemed from such holder; (iii) the Preferred Redemption Price; and (iv) the place or places where certificates for such shares are to be surrendered for payment of the Preferred Redemption Price. On or after the Preferred Redemption Date stated in a notice delivered pursuant to the above, a holder of shares of Series U Preferred Stock to be redeemed shall surrender the certificate or certificates evidencing such shares to the Corporation at the place designated in such notice and shall, upon surrender of such certificates or certificates, receive the Preferred Redemption Payment therefor. In case less than all the shares of preferred stock represented by any such surrendered certificate or certificates are redeemed, a new certificate or certificates shall be issued representing the unredeemed shares. Article 5. TERM The Corporation is to have perpetual existence. Article 6. ELECTION OF DIRECTORS The election of directors need not be by written ballot unless a stockholder demands election by written ballot at a meeting of stockholders and before voting begins or unless the Bylaws of the Corporation shall so provide. Article 7. NUMBER OF DIRECTORS The number of directors which constitute the whole Board of Directors of the Corporation shall be designated in the Bylaws of the Corporation. Article 8. BYLAWS In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation. Article 9. INDEMNIFICATION OF DIRECTORS To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as the same may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment nor repeal of this Article, nor the adoption of any provision of this Restated Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. Article 10. CLASSIFIED BOARD OF DIRECTORS At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders meeting called and held in accordance with the Delaware General Corporation Law. The directors of the Corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The term of office of the initial Class I directors shall expire at the next succeeding annual meeting of stockholders, the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of the stockholders. For the purposes hereof, the initial Class I, Class II and Class III directors shall be those directors so designated and elected at the time of the effectiveness of this Restated Certificate of Incorporation. At each annual meeting after this Restated Certificate of Incorporation becomes effective, directors to replace those of a class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly elected and qualified. If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the provisions of the first paragraph of this Article shall not apply with respect to the director or directors elected by such holders of Preferred Stock. Vacancies occurring on the Board of Directors for any reason may be filled by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, at any meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy shall hold office until the next succeeding annual meeting of stockholders of the Corporation and until his or her successor shall have been duly elected and qualified. Article 11. PROHIBITION ON STOCK OWNERSHIP BY ELECTRIC UTILITIES (a) Any attempted sale, transfer, assignment, conveyance, pledge or other disposition of any share of the Corporation's Common Stock to any Electric Utility Interest (as defined in Article 4.2 of this Restated Certificate of Incorporation) shall be null and void ab initio. No employee or agent, including any independent transfer agent or registrar of the Corporation, shall be permitted to record any attempted or purported transfer made in violation of this Article 11, and no intended transferee of shares of the Corporation's Common Stock attempted to be transferred in violation of this Article 11 shall be recognized as a holder of such shares for any purpose whatsoever, including, but not limited to, the right to vote such shares of Common Stock or to receive dividends or other distributions in respect thereof, if any. The transferor and any such intended transferee shall be deemed to have appointed the Corporation as attorney-in-fact, with full power of substitution and full power and authority, in the name and on behalf of the intended transferor and transferee, to sell, assign and transfer the shares of Common Stock of the Corporation attempted to be transferred in violation of this Article 11, and to do all lawful acts and execute all documents deemed necessary or advisable to effect such sale, assignment and transfer, in an arm's-length transaction, to another entity or person; provided that the sale, assignment and transfer to such other entity or person does not violate the provisions of this Article 11. The Corporation shall apply the proceeds of any such sale first, to pay the expenses of the sale; second, to pay the intended transferee on whose behalf the shares were sold, an amount equal to (i) the sum of the intended transferee's cost of such shares (inclusive of brokerage fees and expenses), plus interest on such cost at the then minimum rate of interest which would prevent interest on a non-interest bearing obligation from being imputed by the Internal Revenue Service, less the amount of any dividends or other distributions inadvertently paid to said intended transferee in respect of such shares, or (ii) the balance of such proceeds, whichever is less; and third, the balance of such proceeds, if any, shall be paid to the Corporation. Notwithstanding the foregoing, the Corporation shall not provide any proceeds to the intended transferee, if such intended transferee has received consideration from any subsequent attempted transfer. (b) The Corporation shall take all appropriate legal action to enforce the provisions of this Article 11 in every case where there has been an attempted or purported transfer made in violation hereof. In taking any action hereunder, the Corporation, and its directors, officers and agents, win be fully protected in relying upon any notice, paper or other document reasonably believed by the Corporation or any such person to be genuine and sufficient, and, to the extent permitted by law, in no event shall the Corporation, or any of its directors, officers or agents, be Liable for any act performed or omitted to be performed hereunder in the absence of gross negligence or willful misconduct. The Corporation and each of its directors, officers and agents may consult with counsel in connection with its respective duties hereunder and, to the extent permitted by law, each shall be fully protected by any act taken, suffered or permitted in good faith in accordance with the advice of such counsel. (c) Whenever it is deemed by the Board of Directors to be prudent in protecting, preserving or obtaining for any of its projects (including projects in which the Corporation or a subsidiary has an interest, whether by ownership, lease or contract) the status of a "Qualifying Facility" (as defined under PURPA), the Board of Directors of the Corporation may require to be filed with the Corporation as a condition to permitting any proposed transfer, and/or the registration of any transfer, of any shares of the Corporation's Common Stock a statement or affidavit from any proposed transferee to the effect that such transferee is not an "Electric Utility Interest," as defined herein. (d) The Board of Directors of the Corporation shall have the right to determine whether any transferee or purported transferee of shares of Common Stock of the Corporation is an "Electric Utility Interest" and to determine whether the Corporation's projects (including projects in which the Corporation or a subsidiary has an interest, whether by ownership, lease or contract) meet the requirements for "Qualifying Facility" status under PURPA. (e) Nothing contained in this Article 11 shall limit the authority of the Board of Directors of the Corporation to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its stockholders by protecting, preserving or obtaining for any of the Corporation's projects (including projects in which the Corporation or a subsidiary has an interest, whether by ownership, lease or contract) the status of a "Qualifying Facility" under PURPA. (f) All certificates representing shares of the Corporation's Common Stock shall bear the following legend: "Any attempted sale, transfer, assignment, conveyance, pledge or other disposition of any of the shares represented by this certificate to any "Electric Utility Interest" (as hereinafter defined) shall be null and void ab initio, in accordance with the provisions of the Restated Certificate of Incorporation of the Corporation. In the event a holder of shares of the Corporation's Common Stock shall become an Electric Utility Interest, each share of Common Stock held by such holder shall be automatically and immediately converted into one share of Series U Preferred Stock of the Corporation without further action either by the holder or by the Corporation. For these purposes, the term "Electric Utility Interest" means an electric utility or utilities or an electric utility holding company or companies, or any affiliate of either, in each case as those terms are utilized by the Federal Energy Regulatory Commission ("FERC") in regulations or orders implementing the Public Utility Regulatory Policies Act of 1978, as amended, and its successors, and the regulations promulgated thereunder ("PURPA"), if such entity's interest in the Corporation would be a utility interest for purposes of 18 C.F.R. Section 292.206." Article 12. MEETINGS AND RECORDS Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. Article 13. ACTION BY STOCKHOLDERS Stockholders of the Corporation may not take action by written consent in lieu of a meeting but must take any actions at a duly called annual or special meeting. Article 14. AMENDMENTS TO CERTIFICATE OF INCORPORATION The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding any other provision of this Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of the capital stock required by law or this Restated Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds (2/3) of the combined voting power of all of the then-outstanding shares of the Corporation entitled to vote shall be required to alter, amend or repeal Articles ELEVEN, THIRTEEN OR FOURTEEN or any provision thereof, unless such amendment shall be approved by a majority of the directors of the Corporation not affiliated or associated with any person or entity holding (or which has announced an intention to obtain) 25% or more of the voting power of the Corporation's outstanding capital stock. IN WITNESS WHEREOF, KENETECH CORPORATION has caused this Restated Certificate of Incorporation to be signed by its Executive Vice President and attested to by its Secretary this 22nd day of September, 1993. s/ Maurice E. Miller Maurice E. Miller Executive Vice President [SEAL] Attested this 22nd day of September, 1993 s/ Mark Lerdal Mark D. Lerdal Secretary EX-27 3 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KENETECH CORPORATION'S MARCH 31, 1999 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000807708 KENETECH CORPORATION 1 U.S. DOLLARS 3-mos DEC-31-1999 JAN-1-1999 MAR-31-1999 1 65,805 0 909 0 0 67,192 729 (708) 67,213 31,271 0 0 0 4 262 67,213 431 431 56 56 (2,222) 0 0 3,642 0 3,642 0 0 0 3,642 0.09 0.09
-----END PRIVACY-ENHANCED MESSAGE-----