-----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, AO3d5VPqW+p3xbP5WnBnv0pb0wYp6P6sOju94GERyE8ZGIOhO7JUqDH579BGAhZj bP5fmU6FpzMNBWc2FR+pnA== /in/edgar/work/0000807708-00-000014/0000807708-00-000014.txt : 20001115 0000807708-00-000014.hdr.sgml : 20001115 ACCESSION NUMBER: 0000807708-00-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENETECH CORP CENTRAL INDEX KEY: 0000807708 STANDARD INDUSTRIAL CLASSIFICATION: [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: 767759 BUSINESS ADDRESS: STREET 1: 500 SANSOME STREET SUITE 410 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4153983825 MAIL ADDRESS: STREET 1: 500 SANSOME STREET SUITE 410 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 10-Q 1 0001.txt QUARTERLY PERIOD AND NINE MONTH FINANCIALS 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 September 30, 2000 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 November 10, 2000, there were 31,970,164 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 three and nine months ended September 30, 2000 and 1999 4 Consolidated Balance Sheets, as of September 30, 2000 and December 31, 1999 5 Consolidated Statement of Stockholders' Equity for the nine months ended September 30, 2000 6 Consolidated Statements of Cash Flows for the nine months ended September 30, 2000 and 1999 7 Notes to Consolidated Financial Statements 8-18 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 19-25 Item 3. Quantitative and Qualitative Disclosure about Market Risk 26 Part II - OTHER INFORMATION Item 1. Legal Proceedings. 27 Item 2. Changes in Securities and Use of Proceeds. 27 Item 4. Submissions of Matters to a Vote of Security Holders. 27 Item 6. Exhibits and Reports on Form 8-K. 28 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements KENETECH CORPORATION -------------------- CONSOLIDATED STATEMENTS OF OPERATIONS for the three and nine months ended September 30, 2000 and 1999 (unaudited, in thousands, except per share amounts) For the three months ended For the nine months ended September 30, September 30, -------------------------- -------------------------- 2000 1999 2000 1999 Revenues: Sale of EcoElectrica Interest ................. $ -- $ 5,000 $ -- $ 5,000 Construction services ......................... -- -- -- 410 Other revenues ................................ 370 679 1,551 2,079 ---------- ---------- ----------- --------- Total revenues .............................. 370 5,679 1,551 7,489 Selling, general and administrative expenses ....................................... 1,192 827 2,591 3,802 ---------- ---------- ----------- --------- Income (Loss) from operations ................... (822) 4,852 (1,040) 3,687 Equity gain of unconsolidated affiliates ........ -- -- -- 27 Gain on disposition of subsidiaries and assets -- 57 -- 4,965 Gain (Loss) on trading debt securities .......... 131 (60) 152 (60) Gain on accounts payable settlement and other income ................................... 1,568 2,934 2,467 3,995 ---------- ---------- ----------- --------- Income before taxes ............................. 877 7,783 1,579 12,614 Income tax benefit .............................. -- 19,573 -- 19,573 ---------- ---------- ----------- --------- Net income ................................ $ 877 $ 27,356 $ 1,579 $ 32,187 ========== ========= =========== ========= Net income per common share: Basic and Diluted $ 0.03 $ 0.65 $ 0.04 $ 0.77 Weighted average number of common shares used in computing per share amounts: Basic and Diluted 32,117 41,934 37,030 41,952
The accompanying notes are an integral part of these consolidated financial statements. 4 KENETECH CORPORATION -------------------- CONSOLIDATED BALANCE SHEETS September 30, 2000 and December 31, 1999 (unaudited, in thousands, except share amounts) ASSETS September 30, December 31, 2000 1999 --------- ----------- Current assets: Cash and cash equivalents ......................... $ 3,514 $ 15,291 Funds in escrow ................................... 125 314 Accounts receivable ............................... 10 110 Trading debt securities ........................... 18,831 31,388 Interest receivable ............................... 347 464 Prepaid expenses .................................. 53 -- Insurance proceeds receivable ..................... 1,500 -- --------- ----------- Total current assets ................................. 24,380 47,567 Project development advances and limited liability joint venture ..................... 12,168 2,451 Investments: Held-to-maturity debt securities .................. 3,500 -- Other investments ................................. 2,190 -- --------- ----------- Total investments ................................ 5,690 -- Property, plant and equipment, net ................... 34 58 Other assets ......................................... 104 21 --------- ----------- Total assets ................................... $ 42,376 $ 50,097 ========= =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .................................. $ 1,769 $ 937 Accrued liabilities ............................... 2,170 4,580 Current taxes payable ............................. 122 130 Other notes payable ............................... -- 6 Accrued stock repurchase obligation .............. -- 26 --------- ---------- Total current liabilities ....................... 4,061 5,679 Accrued liabilities .................................. 905 1,168 Deferred benefit for deconsolidated subsidiary losses. 10,305 10,305 --------- ---------- Total liabilities ................................ 15,271 17,152 Commitments and contingencies Stockholders' equity: Common stock - 110,000,000 shares authorized, $.0001 par value; 31,970,164 and 41,919,218 issued and outstanding at September 30, 2000, and December 31, 1999, respectively. Repurchased for retirement still outstanding 401,200 at December 31, 1999, subsequently retired on April 14, 2000 .................................... 3 4 Additional paid-in capital ........................ 216,324 223,742 Accumulated deficit ............................... (189,222) (190,801) --------- ---------- Total stockholders' equity ....................... 27,105 32,945 --------- ---------- Total liabilities and stockholders' equity...... $ 42,376 $ 50,097 ========= ========== The accompanying notes are an integral part of these consolidated financial statements. 5 KENETECH CORPORATION -------------------- CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY for the nine months ended September 30, 2000 (unaudited, in thousands, except share amounts)
Common Stock Additional Paid-In Accumulated Shares Amount Capital Deficit Total Balance, December 31, 1999 41,919,218 $4 $223,742 $(190,801) $ 32,945 Common stock repurchased for retirement (9,949,054) (1) (7,437) -- (7,438) Compensatory element of warrant issued -- - 19 -- 19 Net income -- - -- 1,579 1,579 ---------- -- -------- --------- --------- Balance, September 30, 2000 31,970,164 $3 $216,324 $(189,222) $ 27,105 ========== == ======== ========= ========= The accompanying notes are an integral part of these consolidated financial statements.
6 KENETECH CORPORATION -------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS for the nine months ended September 30, 2000 and 1999 (unaudited, in thousands) September 30, September 30, 2000 1999 --------- --------- Cash flows from operating activities: Net income ..................................... $ 1,579 $ 32,187 Adjustments to reconcile net income to net cash used in operating activities: Depreciation, amortization and other ........ 24 28 Gain on sale of EcoElectrica Project ........ -- (5,000) Gain on disposition of subsidiaries and assets ................................. -- (4,965) Gain on settlement of accounts payable and other income ........................... -- (3,891) Compensatory element of warrant issued ...... 19 -- Deferred benefit from subsidiary losses ..... -- (19,573) Changes in assets and liabilities: Accounts and interest receivable ........... 217 248 Insurance receivable ....................... (1,500) -- Prepaid expenses ........................... (53) -- Other assets ............................... (83) -- Accounts payable ........................... 832 530 Accrued liabilities ........................ (2,673) (4,558) Current taxes payable ...................... (8) 1,556 Notes payable .............................. (6) -- --------- --------- Net cash used in operating activities ... (1,652) (3,438) Cash flows from investing activities: Capital expenditures ........................ -- (64) Proceeds from sale of EcoElectrica Project .. -- 5,000 Net proceeds on disposition of subsidiaries and assets ................................. -- 3,277 Decrease in funds in escrow restricted for line of credit ......................... 189 142 Gain on trading debt securities ............. 152 -- Proceeds from sales of trading debt securities ............................ 23,132 24,881 Purchase of trading debt securities ......... (10,727) (69,089) Purchase of held-to-maturity debt securities (3,500) -- Other investments ........................... (2,190) -- Project development advances ................ (3,717) (59) Purchase of limited liability joint venture interest ................................... (6,000) -- --------- --------- Net cash used in investing activities ... (2,661) (35,912) Cash flows from financing activities: Payment on other notes payable .............. -- (1,065) Payment of preferred dividend ............... -- (21,408) Increase in stock repurchase payable ........ (26) -- Stock repurchased for retirement ............ (7,438) -- --------- --------- Net cash used in financing activities .... (7,464) (22,473) --------- --------- Decrease in cash and cash equivalents............ (11,777) (61,823) Cash and cash equivalents at beginning of period ........................ 15,291 67,424 --------- --------- Cash and cash equivalents at end of period ... $ 3,514 $ 5,601 ========= ========= 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"). 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, 1999. 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 are recognized as they are earned. Investments: The Company accounts for investments in marketable equity securities and debt securities in accordance with FAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company's investment in publicly-traded debt securities are classified as trading securities under FAS No. 115. Accordingly, these investments are stated at their fair value, with any unrealized gains and losses, net of taxes, reported in results of operations. Certain of the Company's investments in non-marketable debt securities are classified as held-to-maturity under FAS No. 115. Accordingly, these investments are carried at cost. Other of the Company's investments in non-marketable equity securities are not subject to FAS No. 115. The Company employs the cost method of accounting for these investments. 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. Cash equivalents: Short-term investments purchased with original maturities of three months or less and other instruments which are readily tradeable and without significant interest rate risk are considered cash equivalents. Project development advances and limited liability joint venture: The Company capitalizes amounts funded under various project participation agreements, as described in Note 3, until such time as the funding is repaid. Amounts funded under the limited liability joint venture, as described in Note 3, are accounted for using the equity method. Comprehensive Income: The Company has adopted Financial Accounting Standards Board SFAS No. 130, "Reporting Comprehensive Income," as of January 1, 1998. SFAS No. 130 requires that all items required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Company currently has no reportable comprehensive income items. Recent Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement No. 133", and SFAS No. 138, " Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133", which establishes accounting and reporting standards for derivative instruments and hedging activities. The terms of SFAS No. 133 and SFAS No. 138 are effective as of the beginning of the first quarter of the fiscal year beginning after June 15, 2000. The Company is determining the effect of SFAS Nos. 133, 137 and 138 on its financial instruments. 8 In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101. The SAB summarized certain of the SEC Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company believes it conforms to the guidance contained in the bulletin. 3. Business Activities The Company continues its involvement in project development activities. The Company is currently participating with other parties in developing two electric generating facilities and one oriented strand-board facility. OSB Chateaugay In July 1999, the Company entered into a funding and participation agreement with OSB Chateaugay, LLC ("OSB"). The funding will be used by OSB to pursue the development of an oriented strand-board project in Chateaugay, New York (the "OSB Project"). In addition to development services, the Company agreed to fund up to $1.25 million. The OSB Project is expected to produce up to 475 million square feet of strand-board per year. Construction is anticipated to commence in 2001. In exchange for the services and funding, the Company will receive participation distributions. The funding is to be repaid upon the completion of certain development milestones as specified in the funding and participation agreement. Repayment of the funding is to occur before any participation distributions. Repayment of the funding and participation distributions are both dependent upon the ultimate success of the OSB Project. The Company has advanced $844,000 as of September 30, 2000. As of November 10, 2000, the Company has funded an additional $55,000 on the OSB Project, bringing the total amount funded to $899,000. Astoria In October 1999, the Company entered into funding and participation agreements with Astoria Energy, LLC ("Astoria") to provide funding under a note agreement of up to $3 million for the development of a 1,000 megawatt independent power plant (the "Astoria Project") to be located in Astoria, Queens, New York. The Astoria Project is currently under development and is expected to commence construction in the second half of 2001. In exchange for the services and funding, the Company will receive, in addition to repayment of the note evidencing the funding, certain participation distributions. The note is secured by all property and assets of Astoria. On March 14, 2000, the note was amended to change the due date of the original note to December 15, 2000, and provide for interest at 20% on the balance outstanding beginning on April 15, 2000. On March 14, 2000, the Company also committed to fund an additional $2 million toward the development of the Astoria Project in the form of a second note. The second note is due and payable on December 15, 2000, and carries interest at 20% on the balance outstanding. In conjunction with the acquisition of a 20% membership interest in Steinway Creek Electric Generating Company LLC, discussed below, the Company agreed to postpone the due dates of both notes. The due dates of the aforesaid notes were changed to March 15, 2001, or, depending upon the status of the project's funding, June 30, 2003. The notes' maturity dates are accelerated upon certain project financing milestones being attained. Recovery of the notes, interest on the notes, and participation distributions are all dependent upon the ultimate success of the Astoria Project. Accordingly, interest income and participation distributions will be recognized upon the completion of certain project milestones. As of September 30, 2000, the Company has advanced $4,974,000 on the Astoria Project, consisting of $3,000,000 on the original note and $1,974,000 on the second note. 9 On August 10, 2000, the Company agreed to invest $6 million for a twenty-percent membership interest in Steinway Creek Electric Generating Company LLC ("Steinway"), a Delaware limited liability company. Steinway directly owns 100% of Astoria Project Partners LLC, which in turn owns 100% of Astoria. The Company funded the $6 million initial obligation on August 15, 2000. The Company has the obligation to fund a further $2 million in exchange for an additional ten-percent interest in Steinway, depending upon the status of the project's funding as of December 1, 2000. Because Astoria is currently negotiating additional development financing with a third party, it is unlikely that the Company will fund the additional $2 million. The Company accounts for the interest using APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. Under the equity method, the Company has recorded its initial investment in Steinway at cost. The carrying amount is adjusted for the Company's share of Steinway's income or loss, of which there has been none to date. The Company is required under the equity method of accounting to reduce the carrying amount of the investment by equity distributions received from Steinway. The Company believes that as of September 30, 2000, there is no difference between the carrying amount and the amount of underlying equity in net assets of Steinway. Whinash In February 2000, the Company agreed to fund up to $600,000 for the development of a wind-powered electrical generating facility to be located in Whinash, Cumbria, England. The project is a 50 megawatt facility. In exchange for the funding, the Company will receive certain participation distributions upon the sale or financial closing of the Whinash project. As of September 30, 2000, the Company had funded $350,000. Other Information On October 25, 2000, the Company entered into an agreement and plan of merger with KC Holding Corporation and KC Merger Corp. Under the terms of the merger agreement, KC Merger Corp. has commenced a cash tender offer for all of the issued and outstanding shares of common stock, $.0001 par value (the "Common Stock"), of the Company at a price of $1.04 per share. Following the successful completion of the tender offer, KC Merger Corp. will merge with and into the Company and the Company will become a wholly owned subsidiary of KC Holding Corporation. In the merger, the remaining stockholders of the Company will be entitled to receive the per share consideration paid in the tender offer. KC Holding Corporation is a subsidiary of ValueAct Capital Partners, L.P., and KC Merger Corp. is a subsidiary of KC Holding Corporation. Mark D. Lerdal, Chairman of the Board, Chief Executive Officer and President of KENETECH, has agreed with KC Holding Corporation and KC Merger Corp. not to tender any of the shares of Common Stock held by him. Mr. Lerdal has agreed with KC Holding Corporation to contribute his shares of Common Stock to KC Holding Corporation in exchange for shares of capital stock of KC Holding Corporation. The Board of Directors of the Company, based on the recommendation of a Special Committee consisting of independent members of the Board of Directors, has approved the tender offer and the merger and recommended that stockholders accept the offer. The tender offer is conditioned upon, among other things, the tender of 85% of the outstanding shares of Common Stock (excluding those shares held by Mr. Lerdal), determined on a fully diluted basis. It is anticipated that the transaction will be completed by the end of 2000. Notwithstanding its recommendation and consistent with the terms of the merger agreement, the Special Committee of the Board of Directors requested that the Special Committee's financial advisor, Houlihan Lokey Howard & Zukin Financial Advisors, Inc., be available to receive unsolicited inquiries from any other parties interested in the possible acquisition of the Company. If the Special Committee or the Company's Board of Directors, after consultation with its independent legal counsel, determines that taking such actions is appropriate in light of its fiduciary duties to the Company's stockholders under applicable law, the Company may provide information to and engage in discussions and negotiations with such other parties and take appropriate actions in connection with any such indicated interest. 10 As of September 30, 2000, the Company had incurred expenses of $464,000 for legal and financial advisory services related to the agreement and plan of merger, and expects that merger-related expenses will total approximately $1,500,000. Upon consummation of the merger, the Company's outstanding stock options and warrant will be cancelled and converted into the right to receive cash equal to the excess of the price per share paid in the tender offer over the exercise price multiplied by the total number of shares subject to the options and warrant, payable upon the effective date of the merger. 4. Net Income Per Share Net income per share amounts for the periods ended September 30, 2000 and 1999 were calculated as follows: Basic and Diluted (in thousands, except per share amounts)
Three months Ended Nine months Ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 --------- --------- --------- --------- Net income $ 877 $ 27,356 $ 1,579 $ 32,187 --------- --------- --------- --------- Net income used in per share calculations $ 877 $ 27,356 $ 1,579 $ 32,187 ========= ========= ========= ========= Weighted average shares used in per share calculations 32,117 41,934 37,030 41,952 ========= ========= ========= ========= Net income per share $ 0.03 $ 0.65 $ 0.04 $ 0.77 ========= ========= ========= =========
Common stock equivalents are not included in weighted average shares used in the per share calculations because they would be anti-dilutive. At September 30, 2000, all of the Company's outstanding stock options were anti-dilutive. 5. Other Income The Company recorded other income of $2,467 thousand for the nine months ended September 30, 2000, primarily due to the reduction in accrued liabilities, related to the favorable resolution of various legal matters, the reversal of construction-related accounts payable upon which the statute of limitations had expired, and gain realized on the sale of demutualized insurance company stock. Also included in other income are proceeds of $1,500,000, net of associated costs of $275,000, received in settlemnt of disputed business interruption insurance coverage on the Hartford Hospital facility, formerly owned by the Company. 6. Investments A. Held-to-maturity debt securities Indosuez Capital Funding VI, Ltd: On September 14, 2000, the Company purchased $2,500,000 of Income Notes of Indosuez Capital Funding VI, Ltd. ("Indosuez"). The Income Notes are non-recourse, junior and subordinated, with a stated maturity of September 14, 2012. Indosuez is a newly-formed company organized under the laws of the Cayman Islands to acquire and manage a diversified portfolio of corporate and other debt obligations. The portfolio consists primarily of U.S. dollar denominated senior secured term loans and high-yield bonds generally rated below investment grade which, at the time of purchase of Indosuez, represent obligations of obligors located in the United States or other non-emerging market countries. The notes are non-marketable and highly illiquid. 11 ServiSense.com: On April 18, 2000, the Company entered into a Bridge Loan and Warrant Agreement with ServiSense.com, Inc. ("ServiSense"), a Delaware corporation, whereby the Company loaned ServiSense $1 million in exchange for a note receivable and a warrant to purchase ServiSense preferred stock. ServiSense is a bundler of core energy and telecommunications products sold to small businesses and residential customers. Its services include local and long distance telephone, natural gas and home heating oil supplied at rates lower than the incumbent's rate. The note, which earned interest at 10% per annum, matured upon the earlier of April 18, 2001, or the date that ServiSense closed an equity financing that yielded at least $5 million in gross proceeds. The note was non-marketable and highly illiquid. On October 31, 2000, ServiSense repaid the note receivable in full. The receipt of principal and interest income will be reflected in the financial statements of the Company as of December 31, 2000. In connection with the note repayment, the Company returned the ServiSense warrants to ServiSense, unexercised. The Company recognizes revenue on the above held-to-maturity debt securities when received. B. Other Investments Francisco Partners: In April 2000, the Company agreed to invest $5 million over the next six years in Francisco Partners, L.P. ("Francisco Partners"), a partnership formed to make private information technology buy-out investments. The Company received limited partnership interests for its investment which aggregate to a less than 0.5% ownership interest in the partnership. The limited partnership interests are highly illiquid and Francisco Partners has a term of at least ten years. The Company uses the cost method of accounting to account for its investment in Francisco Partners. The Company had invested $840,000 as of September 30, 2000. Draper Atlantic Venture Fund II, L.P.: In April 2000, the Company agreed to invest $2,500,000 over the next two years in Draper Atlantic Venture Fund II, L.P. ("Draper Atlantic"), a partnership formed to invest primarily in early-stage information technology companies. The Company received limited partnership interests for its investment which approximate a one percent ownership interest in the partnership. The Company uses the cost method to account for its investment in Draper Atlantic. The limited partnership interests are highly illiquid and Draper Atlantic has a term of at least ten years. The Company had invested $250,000 as of September 30, 2000. Sage Systems, Inc.: On April 14, 2000, the Company invested $500,000 in Sage Systems, Inc. ("Sage"), in exchange for 390,625 shares of Sage's Series A Preferred Stock. Sage is an early stage technology company that possesses networking technology which offers web-based control over everyday devices with a proprietary operating system which operates over existing power lines. The Company's ownership percentage of Sage is approximately seven percent. The Company uses the cost method of accounting with respect to its investment in Sage. There is no public market for the capital stock of Sage. Odin Millennium Partnership, Ltd.: On April 14, 2000, the Company invested $250,000 in Odin Millenium Partnership, Ltd., a Texas limited partnership formed to purchase the FPS Laffit Pincay, a semi-submersible offshore drilling rig. The Company received limited partnership interests for its investment and approximately owns a one and a half percentage interest in the partnership. The Company uses the cost method to account for its investment in the partnership. The limited partnership interests are highly illiquid. The partnership may operate the drilling rig, lease it to a third party, or sell it. GenPhar, Inc.: On June 22, 2000, the Company invested $250,000 in GenPhar, Inc. ("GenPhar") in exchange for 62,500 shares of Series C Preferred Stock. GenPhar is a development stage biopharmaceutical company focusing on viral and oncological diseases with products derived from advanced DNA technology. The Company's ownership percentage of GenPhar is approximately 0.7%. The Company uses the cost method of accounting with respect to its investment in GenPhar. There is no public market for the stock of GenPhar. 12 International Interactive Commerce, Ltd.: On June 29, 2000, the Company invested $100,000 in International Interactive Commerce, Ltd. ("IIC"), in exchange for 33,333 shares of Series B Preferred Stock. IIC is an internet commerce enabling technology company in the development stage. The Company's ownership percentage in IIC is approximately 0.3%. The Company uses the cost method of accounting with respect to its investment in IIC. There is no public market for the stock of IIC. Breitburn working interest: On August 23, 2000, the Company entered into an oil and gas exploration agreement with Breitburn Energy Company LLC ("Breitburn") to explore three prospects in Natrona County, Wyoming. In exchange for committing to fund its share of development and production expenses, the Company received a 12.5% working interest in the prospects. On October 6, 2000, Breitburn decided, as a result of geological and geophysical analysis, to concentrate development efforts on one prospect, known specifically as the Wild Horse Dome Prospect. At September 30, 2000, the Company estimated that its obligation to fund under the contract was $150,000, payable upon demand over the exploration and production phases. The estimated obligation is variable to the extent that the actual costs of production and exploration differ from those forecasted. On September 6, 2000, the Company funded $42,500, representing its share of geological and geophysical costs. The Company accounts for the Breitburn working interest in conformity with Financial Accounting Standard No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies. Accordingly, the Company's share of geological and geophysical costs have been expensed. Subsequent to September 30, 2000, the Company increased its working interest percentage to 25% in exchange for additional funding commitments. The above investments involve significant investment risk. They are long-term in duration and highly illiquid. There is no assurance that the investments will realize net profits or achieve returns commensurate with the risks associated with such investments, or that the investments will not experience losses, which may be substantial. 7. Income Taxes At September 30, 2000 and December 31, 1999, the Company had substantial net deferred tax assets for which a valuation allowance of an equal amount has been established. The balance of the deferred benefit for deconsolidated subsidiary losses remains unchanged from December 31, 1999, to September 30, 2000, with a balance of $10,305,000 at both periods. 8. Trading Securities Cumulative unrealized losses on trading securities equaled approximately $73,000 at September 30, 2000 and $249,000 at December 31, 1999. The decrease of $176,000 in unrealized losses from December 31, 1999, to September 30, 2000, has been included in earnings during the nine months ended September 30, 2000. The Company recorded a $152,000 gain on trading securities for the nine months ended September 30, 2000, consisting of the above $176,000 unrealized gain less $24,000 in realized losses. The Company uses specific identification to determine the basis used in the computation of gain or loss on the sale of trading securities. 9. Stockholder's Equity Stock Repurchase: In November 1999, the Company's Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company's Common Stock. The repurchase program was to continue until the Company acquired the 2,000,000 shares or until September 30, 2000. The Company, on March 22, 2000, authorized the repurchase of an additional 2,000,000 shares and extended the repurchase period to December 31, 2000. In May 2000, the Company's Board of Directors authorized the repurchase of an additional 5,000,000 shares, bringing the total number of shares authorized for repurchase to 9,000,000. As of September 30, 2000, the Company had reacquired under the program 8,975,734 shares out of the 9,000,000 shares authorized at a cost of $6,878,000 resulting in a decrease of Additional Paid in Capital of $6,877,000 from inception of the program and $6,612,000 during the nine months ended September 30, 2000. As of September 30, 2000, the Company had retired all of the shares repurchased. 13 In May and June 2000, the Company's Board of Directors authorized the repurchase of 973,320 shares directly from stockholders at a cost of $825,000, resulting in a decrease of Additional Paid in Capital of $825,000 for the nine months ended September 30, 2000. As of September 30, 2000, all of the shares purchased directly had been retired. Warrants: In connection with a consulting agreement with Terrasearch, Inc., the Company issued a warrant to purchase up to 500,000 shares of Common Stock of the Company at an exercise price of $1.00 per share. The warrant becomes exercisable on January 1, 2002 and expires on December 31, 2005. Upon consummation of the merger, as described in Note 3, the warrant will convert into the right to receive cash equal to the difference between the price per share paid in the tender offer and the exercise price, multiplied by the total number of shares subject to the warrant, payable upon the effective date of the merger. 10. Preferred Stock Rights On May 4, 1999, the Board of Directors of the Company declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock, par value $.0001 per share, of the Company (the "Common Stock"). The dividend was paid on May 13, 1999 to the stockholders of record on May 5, 1999 (the "Record Date"). Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $.01 per share, of the Company (the "Preferred Stock") at a price of $10 per one one-thousandth of a share of Preferred Stock (the "Purchase Price"), subject to adjustment. The Rights are not exercisable until the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (with certain exceptions, an "Acquiring Person") has acquired beneficial ownership of 15% or more of the outstanding shares of Common Stock or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding shares of Common Stock (the earlier of such dates being called the "Distribution Date"). The Rights will expire on May 4, 2009 (the "Final Expiration Date"), unless the Final Expiration Date is advanced or extended or unless the Rights are earlier redeemed or exchanged by the Company, in each case as described below. Shares of Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each share of Preferred Stock will be entitled, when, as and if declared, to a minimum preferential quarterly dividend payment of the greater of (a) $10 per share, or (b) an amount equal to 1,000 times the dividend declared per share of Common Stock. In the event of liquidation, dissolution or winding up of the Company, the holders of the Preferred Stock will be entitled to a minimum preferential payment of the greater of (a) $10 per share (plus any accrued but unpaid dividends), or (b) an amount equal to 1,000 times the payment made per share of Common Stock. Each share of Preferred Stock will have 1,000 votes, voting together with the Common Stock. Finally, in the event of any merger, consolidation or other transaction in which outstanding shares of Common Stock are converted or exchanged, each share of Preferred Stock will be entitled to receive 1,000 times the amount received per share of Common Stock. These rights are protected by customary antidilution provisions. In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a Right that number of shares of Common Stock having a market value of two times the exercise price of the Right. 14 In the event that, after a person or group has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold, proper provisions will be made so that each holder of a Right (other than Rights beneficially owned by an Acquiring Person which will have become void) will thereafter have the right to receive upon the exercise of a Right that number of shares of common stock of the person with whom the Company has engaged in the foregoing transaction (or its parent) that at the time of such transaction have a market value of two times the exercise price of the Right. At any time after any person or group becomes an Acquiring Person and prior to the earlier of one of the events described in the previous paragraph or the acquisition by such Acquiring Person of 50% or more of the outstanding shares of Common Stock, the Board of Directors of the Company may exchange the Rights (other than Rights owned by such Acquiring Person which will have become void), in whole or in part, for shares of Common Stock or Preferred Stock (or a series of the Company's preferred stock having equivalent rights, preferences and privileges), at an exchange ratio of one share of Common Stock, or a fractional share of Preferred Stock (or other preferred stock) equivalent in value thereto, per Right. At any time prior to the time an Acquiring Person becomes such, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption Price") payable, at the option of the Company, in cash, shares of Common Stock or such other form of consideration as the Board of Directors of the Company shall determine. The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish. Immediately upon any redemption of the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. Until a Right is exercised or exchanged, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. In connection with the approval of the Merger Agreement, as described in Note 3, the Company modified the terms of the Rights Agreement. Pursuant to the Rights Agreement Amendment, dated and effective October 25, 2000, neither the execution of the Merger Agreement or the various actions contemplated by and described in the Merger Agreement will trigger the distribution or exercisability of the Rights. Furthermore, the Rights Agreement will terminate immediately prior to the closing of the cash tender offer. 11. Commitments and Contingencies As described in Note 3, the Company has committed to fund approximately $12.9 million to various development projects, of which approximately $12.2 million had been funded by November 10, 2000. An additional $2,000,000 contribution to Steinway is contingent upon certain events, as described in Note 3. As described in Note 6, the Company has committed to several long-term investments, which require $12.3 million in cash to be invested. As of November 10, 2000, approximately $5.7 million had been invested. Litigation Delaware Stockholders' Class Action and Derivative Litigation: On February 2, 2000, plaintiffs Robert L. Kohls and Louise A. Kohls filed two actions in the Court of Chancery of the State of Delaware In and For New Castle County, against the Company, Angus M. Duthie, Mark D. Lerdal, Gerald R. Alderson and Charles Christenson. Plaintiffs filed amended complaints on February 23, 2000. Plaintiffs allege that they were beneficial owners of Preferred Redeemable Increased Dividend Equity Securities, 8-1/4% PRIDES, Convertible Preferred Stock, par value $0.01 per share (the "PRIDES") of the Company, that mandatorily converted, on May 14, 1998, into common stock, par value $0.0001 per share ("Common Stock"), of the Company. 15 The first action was purportedly brought as a class action on behalf of the named plaintiffs and all other persons who owned the PRIDES as of May 13, 1998. Plaintiffs alleged, among other things, that defendants breached the terms of the Company's Certificate of Designations, Preferences, Rights and Limitations (the "Certificate of Designations") under which the PRIDES were issued and breached their fiduciary duty to protect the interests of the holders of the PRIDES prior to the PRIDES mandatory conversion. Plaintiffs sought, among other things, (i) certification of the action as a class action, (ii) a declaration that the holders of PRIDES were entitled to be paid a liquidation preference of up to $1,012.50 per share of PRIDES, and (iii) a judgment that the defendants were liable to the PRIDES holders in an amount up to $1,012.50 per share. The Delaware Court of Chancery dismissed the class action by opinion dated July 26, 2000, and order dated August 4, 2000. The plaintiffs filed a notice of appeal on August 31, 2000. On November 6, 2000, the Company and the other defendants filed a motion to affirm the Court of Chancery's judgment. The Company intends, and has been informed that the individual defendants intend, to continue to defend this action vigorously. The second action is purportedly brought as a derivative action on behalf of the Company. Plaintiffs generally allege that the purchase of the Company's Common Stock by defendant Mark D. Lerdal in December 1997 was a corporate opportunity and that such Common Stock should have been instead purchased by the Company. Plaintiffs are seeking, among other things, (i) a declaration that the purchase of the Common Stock by defendant Lerdal constituted the taking of a corporate opportunity and is null and void, (ii) an order requiring defendant Lerdal to transfer the Common Stock to the Company for the consideration he paid, and (iii) to the extent the Common Stock may not be transferred to the Company, damages for the fair value of the Common Stock. On July 26, 2000, the Delaware Court of Chancery denied defendants' motion to dismiss the derivative action. On August 7, 2000, defendants filed an application seeking certification of an interlocutory appeal to the Delaware Supreme Court of the Court's opinion denying their motion to dismiss. The interlocutory appeal and a motion to stay the proceedings pending the potential appeal were denied. The parties are proceeding with discovery and trial is scheduled to commence in April 2001. If the merger, as described in Note 3, is consummated, the plaintiffs in this action may lose standing to pursue the action. However, stockholders would still be entitled to have the cause of action evaluated in an appraisal action to determine the fair value of their shares of Common Stock. Moreover, the cause of action itself would not be extinguished. On November 9, 2000, the plaintiffs moved to file a second amended and supplemental complaint (the "Second Amended Complaint") in the action pending in the Court of Chancery of the State of Delaware in and for New Castle County (the "Chancery Court") styled Kohls v. Duthie, et al. (the "Action"). The Second Amended Complaint names Gerald R. Morgan, Jr., Michael D. Winn and the Company as additional defendants. The Company previously was a nominal defendant. The first cause of action of the Second Amended Complaint sets forth all of the allegations and seeks all of the relief set forth in the Plaintiffs' first amended complaint described above. The first cause of action of the Second Amended Complaint is purportedly brought as a derivative action on behalf of the Company. The second cause of action of the Second Amended Complaint seeks to enjoin preliminarily and permanently the agreement and plan of merger among the Company, KC Merger Corp. and KC Holding Corporation (the "Merger Agreement") as further described in Note 3. 16 As it pertains to the Merger Agreement, the Second Amended Complaint alleges in substance the following: * that the tender offer and the merger are the result of an unfair process, and will constitute an unfair transaction to the KENETECH stockholders; * that Charles Christenson, one of the members of the Special Committee, has, as a defendant in the Action, a personal interest in approving the Merger Agreement because the closing of the merger would eliminate the standing of the Plaintiffs to bring the Action, and therefore the transactions contemplated by the Merger Agreement were not the product of arms-length negotiations, but instead constituted self-dealing; * that because Gerald R. Morgan, Jr., one of the members of the Special Committee, has, as the Chief Operating Officer of an entity in which KENETECH invests, an interest in pleasing Mr. Lerdal, and because the tender offer and the merger provide a unique benefit to Mr. Lerdal in the form of a "roll over" of his investment in KENETECH, the process whereby the tender offer and the merger were agreed to by KENETECH was unfair; * that the per share amount of $1.04 to be paid in the tender offer and merger was the product of an analysis of Houlihan Lokey that failed to consider the value of the Action, failed to investigate the Action by contacting the Plaintiffs, failed to consider that the Action is scheduled to go to trial in April 2001, and failed to evaluate independently the deferred benefit for deconsolidated losses, as a result of which the process whereby the tender offer and the merger were agreed to by the Company was unfair; * that the per share amount of $1.04 fails to properly account for issues relating to the deferred benefit for deconsolidated losses and overhead costs, as a result of which the per share amount is unfair; * that the per share amount of $1.04 is based on Mr. Lerdal owning the shares of the Company's Common Stock that are the subject of the Action, title to which is contested by the Action; as a result of which both the process whereby the tender offer and the merger were agreed to by the Company and the per share amount are unfair; and * that the disclosures surrounding the tender offer and merger contain material misstatements and fail to include information necessary to make the statements not misleading. The Plaintiffs allege that the second cause of action of the Second Amended Complaint, including the above allegations, is maintainable as a class action, and that there are questions of law and fact which are common to the KENETECH stockholders who comprise the class, including: (i) whether the transactions contemplated by the tender offer and the Merger Agreement are the product of a fair process and provide a fair price to the stockholders of KENETECH; and (ii) whether the materials that describe the tender offer and merger contain any misrepresentations or fail to disclose material facts which are necessary for the disclosures that have been made to not be misleading. The Plaintiffs request that the Chancery Court: (i) issue a preliminary injunction enjoining the consummation of the Merger Agreement; (ii) enter a permanent injunction prohibiting the consummation of the Merger Agreement; and (iii) award Plaintiffs their attorneys' fees, costs, and other expenses. Also on November 9, 2000, the Plaintiffs asked the Chancery Court to hold a scheduling conference to determine whether to schedule an expedited hearing on the Plaintiffs' application for a preliminary injunction enjoining the consummation of the Merger Agreement. On November 13, 2000, the Chancery Court held a conference and scheduled a hearing on the Plaintiffs' application for a preliminary injunction for December 5, 2000, at 3:00p.m. The Company intends, and has been informed that the individual defendants intend, to continue to defend this action vigorously. 17 Federal Stockholders' Class Action: On September 28, 1995, a class action complaint was filed against the Company and certain of its officers and directors (namely, Stanley Charren, Maurice E. Miller, Joel M. Canino and Gerald R. Alderson), in the United States District Court for the Northern District of California, alleging federal securities laws violations. On November 2, 1995, a First Amended Complaint was filed naming additional defendants, including underwriters of the Company's securities and certain other officers and directors of the Company (namely, Charles Christenson, Angus M. Duthie, Steven N. Hutchinson, Howard W. Pifer III and Mervin E. Werth). Subsequent to the Court's partial grant of the Company's and the underwriter defendants' motions to dismiss, a Second Amended Complaint was filed on March 29, 1996. The amended complaint alleged claims under sections 11 and 15 of the Securities Act of 1933, and sections 10(b) and 20(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, based on alleged misrepresentations and omissions in the Company's public statements, on behalf of a class consisting of persons who purchased the Company's Common Stock during the period from September 21, 1993 (the date of the Company's initial public offering) through August 8, 1995 and persons who purchased the Company's PRIDES (depository shares) during the period from April 28, 1994 (the public offering date of the PRIDES) through August 8, 1995. The amended complaint alleged that the defendants misrepresented the Company's progress on the development of its latest generation of wind turbines and the Company's future prospects. The amended complaint sought unspecified damages and other relief. The Court certified a plaintiff class consisting of all persons or entities who purchased Common Stock between September 21, 1993 and August 8, 1995 or 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. On August 9, 1999, the Court granted defendants' motion for summary judgment and ordered that plaintiffs take nothing and that the action be dismissed on the merits. The plaintiffs have appealed the Court's order, and both parties have filed briefs and are waiting for oral argument to be scheduled by the Ninth Circuit of the United States Court of Appeals. The Company intends, and has been informed that the individual defendants intend, to continue to defend this action vigorously. Insurance Litigation: On January 29, 1999, Travelers Insurance Company filed a complaint against KENETECH and CNF Industries, Inc. ("CNF") in the Superior Court, Judicial District of Hartford, Connecticut. The complaint alleged that the defendants failed to pay premiums and other charges for insurance coverage and services. Damages were alleged to be in excess of $1,121,305. On September 20, 2000, the Company entered into a confidential settlement agreement with the plantiff. Under the settlement agreement, the Company paid $875,000 to settle this action on October 3, 2000. Annual Meeting Litigation: On July 30, 1999, Campus, LLC and Joseph A. Wagda filed a complaint against the Company and its directors (namely, Angus M. Duthie, Mark D. Lerdal, Gerald R. Alderson and Charles Christenson) in the Court of Chancery of the State of Delaware In and For New Castle County. The plaintiffs in this action purport to be stockholders of the Company. The complaint alleges, among other things, that plaintiffs were deprived of the opportunity to nominate directors for election at the Company's annual meeting which took place on August 18, 1999. Plaintiffs are seeking, among other things, (i) a declaration that the annual meeting was illegally and inequitably scheduled and that any actions taken at the annual meeting are null and void and (ii) an order requiring the defendants to schedule a meeting, allowing stockholders an opportunity to nominate directors, file solicitation materials with the Securities and Exchange Commission and conduct a proxy solicitation. The litigation had been stayed by agreement of both parties since October 1999. On November 7, 2000, the defendants filed a motion to dismiss the litigation. Other: The Company is also a party to various other legal proceedings normally incident to its historical business activities. The Company intends to continue to defend itself vigorously against these actions. The Company does not believe that the ultimate outcome of the above-described matters will have a material adverse effect on the Company's financial position. Lease Commitments: The Company leases approximately 2,400 square feet of office space in San Francisco, CA. The associated lease commitment is approximately $75,000 annually, expiring on September 30, 2001. 18 12. Subsequent events As more fully described in Note 3, on October 25, 2000, the Company entered into an agreement and plan of merger with KC Holding Corporation and KC Merger Corp. Under the terms of the merger agreement, KC Merger Corp. has commenced a cash tender offer for all of the issued and outstanding shares of the Company's Common Stock at a price of $1.04 per share. Following the successful completion of the tender offer, KC Merger Corp. will merge with and into the Company and the Company will become a wholly owned subsidiary of KC Holding Corporation. In the merger, the remaining stockholders of the Company will be entitled to receive the per share consideration paid in the tender offer. KC Holding Corporation is a subsidiary of ValueAct Capital Partners, L.P., and KC Merger Corp. is a subsidiary of KC Holding Corporation. Mark D. Lerdal, Chairman of the Board, Chief Executive Officer and President of KENETECH, has agreed with KC Holding Corporation and KC Merger Corp. not to tender any of the shares of Common Stock held by him. Mr. Lerdal has agreed with KC Holding Corporation to contribute his shares of Common Stock to KC Holding Corporation in exchange for shares of capital stock of KC Holding Corporation. As of September 30, 2000, the Company had incurred expenses of $464,000 for legal and financial advisory services related to the agreement and plan of merger, and expects that merger-related expenses will total approximately $1,500,000. 19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. OVERVIEW KENETECH Corporation ("KENETECH") is a Delaware corporation that has historically been involved in the development, construction, and management of independent power projects. The Company continues in project development activities at this time; however, it has ceased its construction and management activities. The Company is currently participating with other parties in developing two electric generating facilities and one oriented strand-board facility. As used in this document, "Company" refers to KENETECH and its wholly-owned subsidiaries (including KENETECH Windpower, Inc. ("KWI") only through May 29, 1996). Merger Agreement On October 25, 2000, the Company entered into an agreement and plan of merger with KC Holding Corporation and KC Merger Corp. Under the terms of the merger agreement, KC Merger Corp. has commenced a cash tender offer for all of the issued and outstanding shares of common stock, $.0001 par value (the "Common Stock"), of the Company at a price of $1.04 per share. Following the successful completion of the shares of Common Stock pursuant to the tender offer, KC Merger Corp. will merge with and into the Company and the Company will become a wholly owned subsidiary of KC Holding Corporation. In the merger, the remaining stockholders of the Company will be entitled to receive the per share consideration paid in the tender offer. KC Holding Corporation is a subsidiary of ValueAct Capital Partners, L.P., and KC Merger Corp. is a subsidiary of KC Holding Corporation. Mark D. Lerdal, Chairman of the Board, Chief Executive Officer and President of KENETECH, has agreed with KC Holding Corporation and KC Merger Corp. not to tender any of the shares of Common Stock held by him. Mr. Lerdal has agreed with KC Holding Corporation to contribute his shares of Common Stock to KC Holding Corporation in exchange for shares of capital stock of KC Holding Corporation. The Board of Directors of the Company, based on the recommendation of a Special Committee consisting of independent members of the Board of Directors, has approved the tender offer and the merger and recommended that stockholders accept the offer. The tender offer is conditioned upon, among other things, the tender of 85% of the outstanding shares of Common Stock (excluding those shares held by Mr. Lerdal), determined on a fully diluted basis. It is anticipated that the transaction will be completed by the end of 2000. Notwithstanding its recommendation and consistent with the terms of the merger agreement, the Special Committee of the Board of Directors requested that the Special Committee's financial advisor, Houlihan Lokey Howard & Zukin Financial Advisors, Inc., be available to receive unsolicited inquiries from any other parties interested in the possible acquisition of the Company. If the Special Committee or the Company's Board of Directors, after consultation with its independent legal counsel, determines that taking such actions is appropriate in light of its fiduciary duties to the Company's stockholders under applicable law, the Company may provide information to and engage in discussions and negotiations with such other parties and take appropriate actions in connection with any such indicated interest. As of September 30, 2000, the Company had incurred expenses of $464,000 for legal and financial advisory services related to the agreement and plan of merger, and expects that merger-related expenses will total approximately $1,500,000. OSB Chateaugay In July 1999, the Company entered into a funding and participation agreement with OSB Chateaugay, LLC ("OSB"). The funding will be used by OSB to pursue the development of an oriented strand-board project in Chateaugay, New York (the "OSB Project"). In addition to development services, the Company agreed to fund up to $1.25 million. The OSB Project is expected to produce up to 475 million square feet of strand-board per year. Construction is anticipated to commence in 2001. In exchange for the services and funding, the Company will receive participation distributions. The funding is to be repaid upon the completion of certain development milestones as specified in the funding and participation agreement. Repayment of the funding is to occur before any participation distributions. Repayment of the funding and participation distributions are both dependent upon the ultimate success of the OSB Project. 20 The Company has advanced $844,000 as of September 30, 2000. As of November 10, 2000, the Company has funded an additional $55,000 on the OSB Project, bringing the total amount funded to $899,000. Astoria In October 1999, the Company entered into funding and participation agreements with Astoria Energy, LLC ("Astoria") to provide funding under a note agreement of up to $3 million for the development of a 1,000 megawatt independent power plant (the "Astoria Project") to be located in Astoria, Queens, New York. The Astoria Project is currently under development and is expected to commence construction in the second half of 2001. In exchange for the services and funding, the Company will receive, in addition to repayment of the note evidencing the funding, certain participation distributions. The note is secured by all property and assets of Astoria. On March 14, 2000, the note was amended to change the due date of the original note to December 15, 2000, and provide for interest at 20% on the balance outstanding beginning on April 15, 2000. On March 14, 2000, the Company also committed to fund an additional $2 million toward the development of the Astoria Project in the form of a second note. The second note is due and payable on December 15, 2000, and carries interest at 20% on the balance outstanding. In conjunction with the acquisition of a 20% membership interest in Steinway Creek Electric Generating Company LLC, discussed below, the Company agreed to postpone the due dates of both notes. The due dates of the aforesaid notes were changed to March 15, 2001, or, depending upon the status of the project's funding, June 30, 2003. The notes' maturity dates are accelerated upon certain project financing milestones being attained. Recovery of the notes, interest on the notes, and participation distributions are all dependent upon the ultimate success of the Astoria Project. Accordingly, interest income and participation distributions will be recognized upon the completion of certain project milestones. As of September 30, 2000, the Company has advanced $4,974,000 on the Astoria Project, consisting of $3,000,000 on the original note and $1,974,000 on the second note. On August 10, 2000, the Company agreed to invest $6 million for a twenty-percent membership interest in Steinway Creek Electric Generating Company LLC ("Steinway"), a Delaware limited liability company. Steinway directly owns 100% of Astoria Project Partners LLC, which in turn owns 100% of Astoria. The Company funded the $6 million initial obligation on August 15, 2000. The Company has the obligation to fund a further $2 million in exchange for an additional ten-percent interest in Steinway, depending upon the status of the project's funding as of December 1, 2000. Because Astoria is currently negotiating additional development financing with a third party, it is unlikely that the Company will fund the additional $2 million. The Company accounts for the interest using APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. Under the equity method, the Company has recorded its initial investment in Steinway at cost. The carrying amount is adjusted for the Company's share of Steinway's income or loss, of which there has been none to date. The Company is required under the equity method of accounting to reduce the carrying amount of the investment by equity distributions received from Steinway. The Company believes that as of September 30, 2000, there is no difference between the carrying amount and the amount of underlying equity in net assets of Steinway. Whinash In February 2000, the Company agreed to fund up to $600,000 for the development of a wind-powered electrical generating facility to be located in Whinash, Cumbria, England. The project is a 50 megawatt facility. In exchange for the funding, the Company will receive certain participation distributions upon the sale or financial closing of the Whinash project. As of September 30, 2000, the Company had funded $350,000. 21 Other Investments A. Held-to-maturity debt securities Indosuez Capital Funding VI, Ltd: On September 14, 2000, the Company purchased $2,500,000 of Income Notes of Indosuez Capital Funding VI, Ltd. ("Indosuez"). The Income Notes are non-recourse, junior and subordinated, with a stated maturity of September 14, 2012. Indosuez is a newly-formed company organized under the laws of the Cayman Islands to acquire and manage a diversified portfolio of corporate and other debt obligations. The portfolio consists primarily of U.S. dollar denominated senior secured term loans and high-yield bonds generally rated below investment grade which, at the time of purchase of Indosuez, represent obligations of obligors located in the United States or other non-emerging market countries. The notes are non-marketable and highly illiquid. ServiSense: On April 18, 2000, the Company entered into a Bridge Loan and Warrant Agreement with ServiSense.com, Inc. ("ServiSense"), a Delaware corporation, whereby the Company loaned ServiSense $1 million in exchange for a note receivable and a warrant to purchase ServiSense preferred stock. ServiSense is a bundler of core energy and telecommunications products sold to small businesses and residential customers. Its services include local and long distance telephone, natural gas and home heating oil supplied at rates lower than the incumbent's rate. The note, which earned interest at 10% per annum, matured upon the earlier of April 18, 2001, or the date that ServiSense closed an equity financing that yielded at least $5 million in gross proceeds. The note was non-marketable and highly illiquid. On October 31, 2000, ServiSense repaid the note receivable in full. The receipt of principal and interest income will be reflected in the financial statements of the Company as of December 31, 2000. In connection with the note repayment, the Company returned the ServiSense warrants to ServiSense, unexercised. The Company recognizes revenue on the above held-to-maturity debt securities when received. B. Other Investments Francisco Partners: In April 2000, the Company agreed to invest $5 million over the next six years in Francisco Partners, L.P. ("Francisco Partners"), a partnership formed to make private information technology buy-out investments. The Company received limited partnership interests for its investment which aggregate to a less than 0.5% ownership interest in the partnership. The limited partnership interests are highly illiquid and Francisco Partners has a term of at least ten years. The Company uses the cost method of accounting to account for its investment in Francisco Partners. The Company had invested $840,000 as of September 30, 2000. Draper Atlantic Venture Fund II, L.P.: In April 2000, the Company agreed to invest $2,500,000 over the next two years in Draper Atlantic Venture Fund II, L.P. ("Draper Atlantic"), a partnership formed to invest primarily in early-stage information technology companies. The Company received limited partnership interests for its investment which approximate a one percent ownership interest in the partnership. The Company uses the cost method to account for its investment in Draper Atlantic. The limited partnership interests are highly illiquid and Draper Atlantic has a term of at least ten years. The Company had invested $250,000 as of September 30, 2000. Sage Systems, Inc.: On April 14, 2000, the Company invested $500,000 in Sage Systems, Inc. ("Sage"), in exchange for 390,625 shares of Sage's Series A Preferred Stock. Sage is an early stage technology company that possesses networking technology which offers web-based control over everyday devices with a proprietary operating system which operates over existing power lines. The Company's ownership percentage of Sage is approximately seven percent. The Company uses the cost method of accounting with respect to its investment in Sage. There is no public market for the capital stock of Sage. 22 Odin Millennium Partnership, Ltd.: On April 14, 2000, the Company invested $250,000 in Odin Millenium Partnership, Ltd., a Texas limited partnership formed to purchase the FPS Laffit Pincay, a semi-submersible offshore drilling rig. The Company received limited partnership interests for its investment and approximately owns a one and a half percentage interest in the partnership. The Company uses the cost method to account for its investment in the partnership. The limited partnership interests are highly illiquid. The partnership may operate the drilling rig, lease it to a third party, or sell it. GenPhar, Inc.: On June 22, 2000, the Company invested $250,000 in GenPhar, Inc. ("GenPhar") in exchange for 62,500 shares of Series C Preferred Stock. GenPhar is a development stage biopharmaceutical company focusing on viral and oncological diseases with products derived from advanced DNA technology. The Company's ownership percentage of GenPhar is approximately 0.7%. The Company uses the cost method of accounting with respect to its investment in GenPhar. There is no public market for the stock of GenPhar. International Interactive Commerce, Ltd.: On June 29, 2000, the Company invested $100,000 in International Interactive Commerce, Ltd. ("IIC"), in exchange for 33,333 shares of Series B Preferred Stock. IIC is an internet commerce enabling technology company in the development stage. The Company's ownership percentage in IIC is approximately 0.3%. The Company uses the cost method of accounting with respect to its investment in IIC. There is no public market for the stock of IIC. Breitburn working interest: On August 23, 2000, the Company entered into an oil and gas exploration agreement with Breitburn Energy Company LLC ("Breitburn") to explore three prospects in Natrona County, Wyoming. In exchange for committing to fund its share of development and production expenses, the Company received a 12.5% working interest in the prospects. On October 6, 2000, Breitburn decided, as a result of geological and geophysical analysis, to concentrate development efforts on one prospect, known specifically as the Wild Horse Dome Prospect. At September 30, 2000, the Company estimated that its obligation to fund under the contract was $150,000, payable upon demand over the exploration and production phases. The estimated obligation is variable to the extent that the actual costs of production and exploration differ from those forecasted. On September 6, 2000, the Company funded $42,500, representing its share of geological and geophysical costs. The Company accounts for the Breitburn working interest in conformity with Financial Accounting Standard No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies. Accordingly, the Company's share of geological and geophysical costs have been expensed. Subsequent to September 30, 2000, the Company increased its working interest percentage to 25% in exchange for additional funding commitments. The above investments involve significant investment risk. They are long-term in duration and highly illiquid. There is no assurance that the investments will realize net profits or achieve returns commensurate with the risks associated with such investments, or that the investments will not experience losses, which may be substantial. CAUTIONARY STATEMENT Certain information included in this report contains forward looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Such forward looking 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. 23 Results of Operations --------------------- The Company recognized net income for the third quarter of 2000 of $877 thousand as compared to $27,356 thousand in the third quarter of 1999. On July 27, 1999, KENETECH Energy Systems, Inc., received $5.0 million in cash, upon the successful conversion of the local tax status of EcoElectrica, L.P. No other proceeds will be received from the sale of the Company's indirect interests in EcoElectrica, L.P. The Company recorded other revenue of $370 thousand for the quarter ended September 30, 2000, compared to $679 thousand for the comparable quarter in 1999. Other revenue consists primarily of interest income earned on trading debt securities. The decrease in interest income from the comparable period in 1999 is due to the reduction in funds invested. Selling, general and administrative expenses increased to $1,192 thousand for the quarter ended September 30, 2000, from $827 thousand for the comparable period in 1999. Current period general and administrative expense consists primarily of salary and wages, legal costs associated with litigation, consulting expenses, and costs associated with the agreement and plan of merger. The Company recorded no gain or loss on the disposition of subsidiaries and assets for the quarter ended September 30, 2000, compared to a $57 thousand gain for the comparable quarter in 1999. The $57 thousand gain in 1999 related primarily to the sales of partnership interests. During the quarter ended September 30, 2000, the Company recorded a $131 thousand gain on trading debt securities, compared to a $60 thousand loss for the comparable quarter in 1999. The Company recorded other income of $1,568 thousand for the quarter ended September 30, 2000 compared to $2,919 thousand in this period in 1999. Other income in 2000 relates primarily to the reduction in accrued liabilities related to the favorable resolution of various legal matters and to the receipt of business interruption insurance proceeds in settlement of litigation, net of related expenses. The Company recorded no gain on settlement of accounts payable in the current quarter compared to $15 thousand in 1999. Income taxes: The Company uses the asset and liability approach for financial accounting and reporting for income taxes. The Company reported no income tax expense for the period ended September 30, 2000, due to the expected utilization of deferred tax benefits offset by reduction in valuation reserve. During the quarter ended September 30, 1999, the Company reduced the balance of the deferred benefit for deconsolidated subsidiary losses, resulting in an income tax benefit of $19.6 million. The Company recognized net income for the nine months ended September 30, 2000, of $1,579 thousand, compared to net income of $32,187 thousand for the comparable period in 1999. On July 27, 1999, KENETECH Energy Systems, Inc., received $5.0 million in cash, upon the successful conversion of the local tax status of EcoElectrica, L.P. No other proceeds will be received from the sale of the Company's indirect interests in EcoElectrica, L.P. The Company recorded other revenue of $1,551 thousand for the nine months ended September 30, 2000, compared to $2,079 thousand for the comparable period in 1999. Other revenue consists primarily of interest income earned on trading debt securities. The decrease in interest income from the comparable period in 1999 is due to the reduction in funds invested. Selling, general and administrative expenses decreased to $2,591 thousand for the nine months ended September 30, 2000, from $3,802 thousand for the comparable period in 1999 due principally to reduced personnel expenses related to the payment of severance to several senior level executives in 1999. Current period general and administrative expense consists primarily of salary and wages, legal costs associated with litigation, consulting expenses, and costs associated with the agreement and plan of merger. The Company recorded no gain or loss on the disposition of subsidiaries and assets for the nine months ended September 30, 2000, compared to a $5 million gain for the comparable period in 1999. The $5 million gain in 1999 represents primarily the gain on the disposition of the Chateaugay Project and a Dutch limited partnership. 24 During the nine months ended September 30, 2000, the Company recorded a $152 thousand gain on trading debt securities, compared to a $60 thousand loss for the comparable period in 1999. The Company recorded other income of $2,467 thousand for the nine months ended September 30, 2000, compared to $3,052 thousand in this period in 1999. Other income in 2000 relates primarily to the reduction in accrued liabilities related to the favorable resolution of various legal matters, the reversal of construction-related accounts payable upon which the statute of limitations had expired, gain realized on the sale of the demutualized insurance company stock, and the receipt of business interruption insurance proceeds in settlement of litigation, net of related expenses. The Company recognized no gain on settlement of accounts payable in the nine-month period ended September 30, 2000, compared to $943 thousand in 1999. Income taxes: The Company uses the asset and liability approach for financial accounting and reporting for income taxes. The Company reported no income tax expense for the period ended September 30, 2000 due to the expected utilization of deferred tax benefits offset by reduction in valuation reserve. During the nine months ended September 30, 1999, the Company reduced the balance of the deferred benefit for deconsolidated subsidiary losses, resulting in an income tax benefit of $19.6 million. Liquidity and Capital Resources ------------------------------- Operating activities During the first nine months of 2000, operating activities used cash of approximately $1,652 principally due to the payment of general and administrative expenses. Investing activities During the first nine months of 2000, investment activities used cash of approximately $2,261, consisting primarily of the purchase of nonmarketable investments of $5,690, the funding of $3,717 in project development costs, the purchase for $6,000 of the limited liability joint venture interest, the purchase of trading debt securities of $10,727, offset by proceeds from the sale of trading debt securities of $23,132. Financing activities During the first nine months of 2000, the Company used cash of approximately $7,464 in repurchasing its Common Stock. Status Given the current operations and strategy of the Company, its cash balances are adequate for the foreseeable future. As of November 10, 2000, the Company had approximately $700 thousand remaining to be funded under its project development funding commitments and approximately $6.6 million remaining under its investment funding commitments. An additional $2,000,000 contribution to Steinway is contingent upon certain events. Effect of Recent Accounting Pronouncements Recent Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement No. 133", and SFAS No. 138, " Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133", which establishes accounting and reporting standards for derivative instruments and hedging activities. The terms of SFAS No. 133 and SFAS No. 138 are effective as of the beginning of the first quarter of the fiscal year beginning after June 15, 2000. The Company is determining the effect of SFAS Nos. 133, 137 and 138 on its financial instruments. In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101. The SAB summarized certain of the SEC Staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company believes it conforms to the guidance contained in the bulletin. 25 Item 3. Quantitative and Qualitative Disclosure about Market Risk Market Risk - Trading Securities As of September 30, 2000, the Company's exposure to market risk associated with instruments entered into for trading purposes is principally confined to its investment in trading debt securities, which are subject primarily to interest rate risk. The Company's investment in trading debt securities is a material component of the Company's total assets; therefore, market risk exposure should be considered to be material. The Company manages its interest rate risk through specific investment criteria designed to minimize such risk. The Company also employs discretionary selling practices aimed at minimizing realized market losses. The Company could foreseeably hold its investment in trading debt securities until the investments' maturity, thereby effectively eliminating associated interest rate risk. The majority of the Company's investment in trading debt securities that is subject to interest rate risk matures within three years. The potential gain or loss in fair value to the Company's investment in trading debt securities resulting from selected hypothetical increases in interest rates is expressed in the following sensitivity analysis. Change in market interest rates ------------------------------- Current 10% 20% ------------------------------------- (in thousands) Fair value of trading debt securities $ 18,831 $ 18,729 $ 18,628 Decrease from current fair value -- $ (102) $ (203) The sensitivity analysis above, known as a stress test in the banking industry, models the change in fair value based upon specific changes in the prime interest rate. The Company has no material market risk relating to foreign exchange rate risk or commodity price risk. Market Risk - Non-Trading Securities As of September 30, 2000, market risk associated with instruments entered into for other than trading purposes, namely the Company's investments in held-to-maturity debt securities and other investments, is not material. The Company's held-to-maturity debt securities and other investments are non-marketable and non-tradeable. Many of the Company's held-to-maturity debt securities and other investments represent investments in development-stage entities. The fair value of such investments may suffer adverse consequences should the investee entities fail to develop successfully. With respect to both investments entered into for trading purposes and instruments entered into for purposes other than trading, the Company is exposed to risk of classification as an investment company under the Investment Company Act of 1940. Some of the Company's investments may constitute investment securities under the 1940 Act. A company may be deemed to be an investment company if it owns investment securities with a value exceeding forty percent of its total assets, subject to certain exclusions. Investment companies are subject, in general, to registration under, and compliance with, the 1940 Act. If the Company was deemed to be an investment company under the 1940 Act, the Company would be prohibited from engaging in business or issuing securities as it has in the past, and might be subject to civil and criminal penalties for noncompliance. Additionally, certain of the Company's contracts might be voidable, and a court-appointed receiver could take control of the Company and liquidate its business. Although the Company's investments currently comprise less than forty percent of its total assets, fluctuations in the value of these securities or in other of the Company's assets may cause the limitation to be exceeded. To avoid exceeding the limitation, the Company may dispose of assets, realizing losses as a consequence, or may purchase additional non-investment assets. If the Company sells investment securities, it may sell them sooner than it otherwise would, perhaps at depressed prices or on unfavorable terms. Some investments may not be sold due to restrictions on transfer or non-marketability. Moreover, the Company may incur substantial tax liabilities upon any sale. 26 Part II OTHER INFORMATION Item 1. Legal Proceedings. See discussion under Note 11 of Item 1 incorporated herein by reference. Item 2. Changes in Securities and Use of Proceeds. On August 24, 2000, the Company amended its Restated Certificate of Incorporation to eliminate the Company's Series U Preferred Stock. No shares of the Series U Preferred Stock have ever been issued by the Company. Item 4. Submission of Matters to a Vote of Security Holders. (a) The 2000 Annual Meeting of Stockholders of the Company was held August 23, 2000. (b) The meeting involved the election of two Class I Directors to hold office for three-year terms. Charles Christenson and Michael D. Winn were duly nominated and seconded as the nominees for the Class I Directors with a term expiring on the date of the Annual Stockholder Meeting in 2003. Gerald R. Morgan, Jr.'s and Mark D. Lerdal's terms of office continued after such meeting until the date of the Annual Stockholder Meeting in 2001 and 2002, respectively. (c) The matters voted upon at the meeting, and vote tabulations for each matter, were as follows: (1) Election of Directors: Charles Christenson In Favor 28,395,214 Against 0 Withheld 328,598 Abstentions 0 Broker Non-Voters 0 Michael D. Winn. In Favor 28,393,415 Against 0 Withheld 330,397 Abstentions 0 Broker Non-Voters 0 (2) Approval of Amendment of the Company's Restated Certificate of Incorporation to Eliminate the Company's Series U Preferred Stock. In Favor 17,322,855 Against 303,778 Abstentions 32,778 Broker Non-Voters 11,064,401 (3) Approval of Amendment of the Company's Restated Certificate of Incorporation to Effect a One-For-Ten Reverse Stock Split of the Issued and Outstanding Shares of the Company's Common Stock. In Favor 28,421,396 Against 257,828 Abstentions 44,588 Broker Non-Voters 0 27 (4) Approval of Amendment of the Company's Restated Certificate of Incorporation to Decrease the Number of Authorized Shares of the Company's Common Stock from 110,000,000 to 11,000,000 and Decrease the Number of Authorized Shares of the Company's Preferred Stock From 10,000,000 to 1,000,000. In Favor 17,373,123 Against 239,180 Abstentions 47,108 Broker Non-Voters 11,064,401 (5) Ratification of the selection of KPMG LLP as the independent auditors of the Company for its fiscal year ending December 31, 2000. In Favor 28,389,941 Against 265,392 Abstentions 68,479 Broker Non-Voters 0 (d) Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 3 Restated Certificate of Incorporation. 27 Financial Data Schedule. (b) Reports on Form 8-K The Company filed a Report on Form 8-K, on October 26, 2000, reporting under Item 5, the execution of the agreement and plan of merger described in Part I, Item 1, Note 3. 28 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: November 14, 2000 Mark D. Lerdal President, Chief Executive Officer and Principal Accounting Officer Date: November 14, 2000 By: Andrew M. Langtry Corporate Controller and Chief Accounting Officer 29 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: November 14, 2000 Mark D. Lerdal President, Chief Executive Officer and Principal Accounting Officer Date: November 14, 2000 By: /s/ Andrew M. Langtry Andrew M. Langtry Corporate Controller and Chief Accounting Officer 30 EXHIBIT INDEX The following constitute the exhibits to the Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2000: Sequential Exhibit Page Number Exhibit Number 3 Restated Certificate of Incorporation 33 27 Financial Data Schedule 63 99.1 Notice of Motion and Motion for Leave -- to File Second Amended and Supplemental Complaint in the action styled Kohls vs. Duthie, et. al.* * Incorporated by reference to Amendment No. 1 to Schedule 14D-9, filed with the Securities and Exchange Commission by Registrant on November 14, 2000. 31 EX-3 2 0002.txt RESTATED CERTIFICATE OF INCORPORATION CERTIFICATE OF 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 April 19, 2000 at which a quorum was at all times present and acting, unanimously adopted resolutions proposing and declaring advisable the following Amendment to the Restated Certificate of Incorporation of the Corporation filed September 27, 1993 and directed that said amendment be considered and submitted to a vote at the next annual meeting of the stockholders of the Corporation: RESOLVED: That the Restated Certificate of Incorporation of the Company be amended by deleting Section 4.2 of Article 4 in its entirety. RESOLVED FURTHER: That the Restated Certificate of Incorporation of the Company be amended by revising Section 4.4 of Article 4 to read in its entirety as follows: 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 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. RESOLVED FURTHER: That the Restated Certificate of Incorporation of the Company be amended by revising Section 4.5 of Article 4 to read in its entirety as follows: 4.5 Voting Rights of Preferred Stock. The voting rights of the holders of shares of a series of Preferred Stock shall be as set forth in the certificate or statement of rights and preferences of such series. RESOLVED FURTHER: That the Restated Certificate of Incorporation of the Company be amended by deleting each of Section 4.6 and Section 4.7 of Article 4 in its entirety. RESOLVED FURTHER: That the Restated Certificate of Incorporation of the Company be amended by deleting Article 11 in its entirety. RESOLVED FURTHER: That the Restated Certificate of Incorporation of the Company be amended by revising Article 14 to read in its entirety as follows: 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 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. 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 the holders of a majority of the outstanding shares entitled to vote thereon acting at the Annual Meeting duly called and held August 23, 2000. IN WITNESS WHEREOF, KENETECH Corporation has caused this Certificate to be signed by it duly authorized officer on this 23rd day of August, 2000. KENETECH Corporation By: Name: Dianne P. Urhausen Title: Secretary [SEAL] CERTIFICATE OF ELIMINATION OF THE PREFERRED REDEEMABLE INCREASED DIVIDEND EQUITY SECURITIES SM, 8-1/4% PRIDES SM, CONVERTIBLE PREFERRED STOCK OF KENETECH CORPORATION Pursuant to Section 151(g) 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 "Company"), in accordance with the provisions of Section 151(g) of the General Corporation Law of the State of Delaware, hereby certifies as follows: 1. That, pursuant to Section 151 of the General Corporation Law of the State of Delaware and authority granted in the Certificate of Incorporation of the Company, as theretofore amended and restated, the Board of Directors of the Company, by resolution duly adopted, authorized the issuance of a series of one hundred and ten thousand (110,000) shares of Preferred Redeemable Increased Dividend Equity Securities SM, 8-1/4% PRIDES SM, Convertible Preferred Stock, par value $.01 per share (the "PRIDES"), and established the voting powers, designations, preferences and relative, participating and other rights, and the qualifications, limitations or restrictions thereof, and, on May 4, 1994, filed a Certificate of Designation (the "Certificate of Designation") with respect to such PRIDES in the office of the Secretary of State of the State of Delaware. 2. That no shares of said PRIDES are outstanding and no shares thereof will be issued subject to said Certificate of Designation. 3. That the Board of Directors of the Company has adopted the following resolutions: WHEREAS, by resolution of the Board of Directors of the Company and by a Certificate of Designation (the "Certificate of Designation") filed in the office of the Secretary of State of the State of Delaware on May 4, 1994, this Company authorized the issuance of a series of one hundred ten thousand (110,000) shares of Preferred Redeemable Increased Dividend Equity Securities SM, 8-1/4% PRIDES SM, Convertible Preferred Stock, par value $.01 per share, of the Company (the "PRIDES") and established the voting powers, designations, preferences and relative, participating and other rights, and the qualifications, limitations or restrictions thereof; and WHEREAS, as of the date hereof no shares of such PRIDES are outstanding and no shares of such PRIDES will be issued subject to said Certificate of Designation; and WHEREAS, it is desirable that all matters set forth in the Certificate of Designation with respect to such PRIDES be eliminated from the Certificate of Incorporation, as heretofore amended and restated, of the Company; NOW, THEREFORE, BE IT AND IT HEREBY IS RESOLVED, that all matters set forth in the Certificate of Designation with respect to such PRIDES be eliminated from the Certificate of Incorporation, as heretofore amended and restated, of the Company; and it is further RESOLVED, that the officers of the Company be, and hereby are, authorized and directed to execute and file a Certificate of Elimination with the office of the Secretary of State of the State of Delaware setting forth a copy of these resolutions whereupon all matters set forth in the Certificate of Designation with respect to such PRIDES shall be eliminated from the Certificate of Incorporation, as heretofore amended and restated, of the Company. 4. That, accordingly, all matters set forth in the Certificate of Designation with respect to such PRIDES be, and hereby are, eliminated from the Certificate of Incorporation, as heretofore amended and restated, of the Company. IN WITNESS WHEREOF, KENETECH Corporation has caused this Certificate of Elimination to be signed by Dianne P. Urhausen its Secretary, as of this 3rd day of May, 2000. KENETECH CORPORATION By:_s/ Dianne P. Urhausen__________ Name: Dianne P. Urhausen Office: Secretary 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. SM Service Mark of Merrill Lynch & Co., Inc. (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"). 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 cummulate 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 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 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 0003.txt FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KENETECH CORPORATION'S SEPTEMBER 30, 2000 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000807708 KENETECH CORPORATION 1 U.S. DOLLARS 9-mos DEC-31-2000 JAN-1-2000 SEP-30-2000 1 3,514 18,831 1,857 0 0 24,380 128 (94) 42,376 4,061 0 0 0 3 27,102 42,376 0 1,551 0 0 2,591 0 0 1,579 0 1,579 0 0 0 1,579 0.04 0.04
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