-----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, A2jIvW+NT/HWLO2lSU18DvgCdI/204qm1fJ8wWOCcriaHDiDzmXyedP0SWBM+/3j CTsiB+pc2to89UzoCD1hpA== 0000807708-98-000002.txt : 19980331 0000807708-98-000002.hdr.sgml : 19980331 ACCESSION NUMBER: 0000807708-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENETECH CORP CENTRAL INDEX KEY: 0000807708 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 943009803 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-22072 FILM NUMBER: 98578149 BUSINESS ADDRESS: STREET 1: 500 SANSOME ST STE 800 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4153983825 MAIL ADDRESS: STREET 1: 500 SANSOME STREET STREET 2: SUITE 300 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 10-K 1 52-WEEK FINANCIALS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 33-53132 KENETECH CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-3009803 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 500 Sansome Street, Suite 300 San Francisco, California 94111 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 398-3825 Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK 12 3/4% SENIOR SECURED NOTES DUE 2002 8 1/4% PREFERRED REDEEMABLE INCREASED DIVIDEND EQUITY SECURITIES (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Based on the market price of the Common Stock at March 13, 1998 ($0.055), the aggregate market value of the Common Stock of non-affiliates of the Registrant was approximately $1.3 million. As of March 13, 1998, there were 36,829,618 shares of Common Stock outstanding. The aggregate market value of holdings of non-affiliates of the Registrant's 8.25% Preferred Redeemable Increased Dividend Equity Securities (with the right of 4/5 vote for each Depositary Share owned) based on the market price at March 13, 1998 ($2.5625) was approximately $13.1 million. There were 5,124,600 Depositary Shares outstanding as of March 13, 1998. Page 2 PART I Item 1. Business - ---------------- KENETECH Corporation ("KENETECH"), a Delaware corporation, is a holding company which participated through its subsidiaries in the electric utility market in two principal ways. As used in this document "Company" refers to KENETECH and its wholly-owned subsidiaries (including KENETECH Windpower, Inc. (KWI) only through May 29, 1996). Historically, the Company developed, constructed, financed, sold and operated and managed independent power projects. A wholly-owned development subsidiary is a joint venture partner with an affiliate of Enron Corporation in a project under construction in Puerto Rico. In December 1997 the project obtained construction and term debt financing. The project is a 507 MW (net) natural gas cogeneration facility and associated liquified natural gas facility which will produce electricity to be sold to Puerto Rico Electric Power Authority pursuant to a 22 year Power Purchase Agreement dated March 10, 1995. The power plant will be a combined cycle cogeneration facility consisting of two combustion turbines capable of operating on LNG, LPG, or fuel oil to generate electricity, and is expected to produce approximately 4 million megawatt hours of electricity annually under baseload conditions. Steam generated will also be used to convert sea water into fresh water in a desalination plant, which is expected to produce approximately 4 million gallons of potable water per day, of which approximately 1 million gallons per day will be required by the project, with the remainder being available for sale to local entities. This is the only project the Company (through its wholly-owned development subsidiary) has in process. The Company's wholly-owned development subsidiary intends to sell its interest in this project in 1998. One of the Company's subsidiaries is a general contractor which has constructed independent power projects since 1988. This subsidiary competed for contracts for engineering, procurement and construction (EPC) and for construction only. Historically, the Company had constructed all of the thermal energy power projects it developed and more recently had constructed all of the Windplants it developed. Substantially all construction work performed by the Company for third parties was competitively bid and most was performed under turnkey contracts. The chapter 11 filing of KWI discussed below has materially adversely affected the Company's construction subsidiary and its ability to procure contracts. This construction subsidiary had joint venture interests in the EPC contracts for the Puerto Rico project described above which were sold in December 1997. The Company is completing the projects in progress and intends to dispose of its construction subsidiary in 1998. KWI manufactured wind turbines and designed and operated utility-scale wind powered electric powerplants which incorporated large arrays of such turbines. On May 29, 1996, KWI filed for protection under chapter 11 of the Federal Bankruptcy Code and reported an excess of liabilities over its assets. Although the Company continues to own the common stock of KWI and provides certain services under the jurisdiction of the Bankruptcy Court, the Company believes it is probable that such ownership will not exist after completion of the bankruptcy proceedings. Accordingly, as of May 29, 1996 KWI ceased to be accounted for as a consolidated subsidiary of the Company. The Company's financial statements exclude all KWI activities after that date. EMPLOYEES: At March 10, 1998, the Company employed 53 persons (excluding KWI). Item 2. Property - ----------------- The Company maintains its corporate headquarters in San Francisco, California. The lease for approximately 7,404 square feet of corporate office space expires in 1998. The annual lease payment is approximately $119,000. The Company owns the Hartford Hospital cogeneration plant, a 17 MW combined cycle plant. The Company also has a 50% partnership interest in a 17 MW wood-fired electric power plant it constructed in Chateaugay, New York. In 1998 the Company's construction subsidiary sold its two buildings consisting of 46,300 square feet of office space and 14,700 square feet of industrial space which it owned in Meriden, Connecticut. Properties of KWI are not included in this discussion. Page 3 Item 3. Legal Proceedings - ------------------------- LITIGATION Shareholders' Litigation: On September 28, 1995, a class action complaint was filed against the Company and certain of its officers and directors (namely, Stanley Charren, Maurice E. Miller, Joel M. Canino and Gerald R. Alderson), in the United States District Court for the Northern District of California, alleging federal securities laws violations. On November 2, 1995, a First Amended Complaint was filed naming additional defendants, including underwriters of the Company's securities and certain other officers and directors of the Company (namely, Charles Christenson, Angus M. Duthie, Steven N. Hutchinson, Howard W. Pifer III and Mervin E. Werth). Subsequent to the Court's partial grant of the Company's and the underwriter defendants' motions to dismiss, a Second Amended Complaint was filed on March 29, 1996. The amended complaint alleges claims under sections 11 and 15 of the Securities Act of 1933, and sections 10(b) and 20(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, based on alleged misrepresentations and omissions in the Company's public statements, on behalf of a class consisting of persons who purchased the Company's common stock during the period from September 21, 1993 (the date of the Company's initial public offering) through August 8, 1995 and persons who purchased the Company's preferred stock during the period from April 28, 1994 (the public offering date of the preferred stock) through August 8, 1995. The amended complaint alleges that the defendants misrepresented the Company's progress on the development of its latest generation of wind turbines and the Company's future prospects. The amended complaint seeks unspecified damages and other relief. In separate orders dated March 24, 1997 and April 16, 1997, the Court granted plaintiffs' motion for certification of a plaintiff class consisting of all persons or entities who purchased KENETECH common stock between September 21, 1993 and August 8, 1995 or KENETECH depository shares between April 28, 1994 and August 8, 1995, appointed representatives of the certified plaintiff class, appointed counsel for the certified class and denied without prejudice plaintiffs' motion for certification of an underwriter defendant class. The plaintiffs then filed a Third Amended Complaint adding additional plaintiffs alleged to have claims based on section 11 of the Securities Act of 1933. On October 15, 1997, the Court issued an order certifying a plaintiff and defendant underwriter class as to the section 11 claim. There have been two unsuccessful attempts at mediation to settle the action and one unsuccessful settlement conference ordered by the federal judge presiding over the action. Trial in this action is scheduled for the summer of 1998. The Company intends to continue to contest the action vigorously. Enercon Litigation: In 1996, Enercon GmbH ("Enercon") filed suit in Federal Court against the Company, individual officers of the Company and/or KENETECH Windpower, Inc. ("KWI"), and KWI's expert witness in proceedings before the U.S. International Trade Commission (the "ITC"), for alleged misconduct related to patent infringement proceedings instituted by KWI against Enercon and The New World Power Corporation ("New World Power") that resulted in issuance of an exclusion order by the ITC that barred Enercon and New World Power from importing infringing wind turbines products into the United States. In its suit, Enercon alleges malicious prosecution, patent misuse and anti-trust violations. Enercon has appealed the ITC's exclusion order to the Federal Circuit Court of Appeals in addition to filing this suit. Upon motion of the defendants, this suit has been stayed by the Federal District Court pending the outcome of the appeal of the exclusion order. Puerto Rico Litigation: In connection with the LNG-fired power plant being constructed in Penuelas, Puerto Rico by EcoElectricia, L.P., a partnership whose partners are subsidiaries of the Company and Enron Corporation, certain environmental groups, citizens and the union which represents electrical workers for the Puerto Rico Electric Power Authority ("PREPA") brought a civil action challenging the procedure used by PREPA to select, among others, EcoElectrica to design, finance, construct, own and operate the Penuelas, Puerto Rico project, and requesting injunctive and declaratory relief. On January 21, 1997, the Ponce Superior Division of the Court of First Instance of Puerto Rico (the trial court) (No. JPE 96- 0345) dismissed the complaint, holding that PREPA's selection of the independent power producers need not have been done through public bidding pursuant to section 205 of PREPA's Organic Act. On March 13, 1997, the plaintiffs, Mision Industrial de Puerto Rico, Inc., the Union de Trabajadores de la Page 4 Industria Electrica y Riego (UTIER), Guayamenses Pro-Salud y Buen Ambiente, Bartolome Diana, SURCCO, Inc. and Jose E. Olivieri Antonmarchi (Appellants), filed an appeal before the Circuit Court of Appeal of Puerto Rico (No. KLAN 97-00236), appealing the judgment entered against them. EcoElectrica intervened in the action before the trial court and the appeal is currently pending. Westinghouse Litigation: C. N. Flagg Incorporated, a wholly-owned subsidiary of CNF Industries, Inc., has instituted legal proceedings against Westinghouse Electric Corporation ("Westinghouse") in the U.S. Federal District Court in Minnesota to recover $6.0 million as compensation for a termination of convenience of a project C. N. Flagg was building on behalf of Westinghouse. Westinghouse has filed a counter-claim for $2.6 million alleging overpayment. C. N. Flagg filed a motion for summary judgment which was denied. Wrongful Termination Litigation: On December 31, 1987, a former employee of CN Flagg Power, Inc. ("CN Power") (formerly, a wholly-owned subsidiary of CNF Industries, Inc.) filed a complaint with the State of Connecticut Commission of Human Rights and Opportunities (the "Commission") alleging that he was wrongfully terminated from his position at Millstone Point, a nuclear energy generation facility owned and operated by Northeast Utilities ("Northeast"). CN Flagg's motion to dismiss the complaint has been denied by the Commission; Northeast's motion to dismiss is pending. Damages are alleged to be in the area of $300,000. Eemsmond Litigation: Certain companies have threatened to bring suit against CNF Constructors, Inc. ("CNF") (a wholly-owned subsidiary of CNF Industries, Inc.) alleging CNF's failure to make payments on certain equipment or civil construction services supplied in connection with the construction of a windplant in The Netherlands. The amounts alleged to be unpaid are in the area of $2,000,000. General Motors Litigation: Plaintiffs CCF-1, Inc., Flagg Energy Development Corporation (each a direct or indirect wholly-owned subsidiary of KENETECH Energy Systems, Inc.) and Process Construction Supply, Inc. (a wholly-owned subsidiary of CNF Industries, Inc.) brought suit against defendant General Motors ("GM") in Connecticut State Court alleging breach of contract, breach of express warranty, breach of implied warranty, breach of repair warranty, misrepresentation and unfair trade practices involving gas turbine engines installed at the Hartford Hospital co-generation plant owned by CCF-1. The trial court either struck or granted summary judgment in GM's favor on all causes of action, except the claim for breach of repair warranty. A directed verdict was entered in favor of GM upon trial of the one remaining cause of action. An appeal by the plaintiffs to the Supreme Court of the State of Connecticut seeking reversal of the directed verdict, the trial court's order to strike and the grant of summary judgment and remand of the matter for trial on all causes of action is pending. Other: The Company is also a party to various other legal proceedings normally incident to its business activities. The Company intends to defend itself vigorously against these actions. It is not feasible to predict or determine whether the ultimate outcome of the above-described matters will have a material adverse effect on the Company's financial position. TERMINATED LITIGATION Tennessee Pipeline Litigation: On January 6, 1996, a breach of contract action was filed in the Superior Court for Middlesex County, Massachusetts, by Tennessee Gas Pipeline Company ("Tennessee") against Pepperell Power Associates Limited Partnership (the "Pepperell Partnership"), its general partner, KES Pepperell, Inc. (each in whole or in part directly or indirectly owned by KENETECH Energy Systems, Inc. ("KES"), a wholly-owned subsidiary of the Company), and another non-affiliated general partner, in connection with the termination of a natural gas transportation agreement. Page 5 The action sought to recover alleged unpaid charges of approximately $1,800,000. KES Pepperell, Inc. filed a counterclaim in the action. On December 2, 1996, Tennessee filed another action in the Superior Court for Middlesex County, Massachusetts, against KES Pepperell, Inc. and KES, among others, seeking to recover an $810,000 payment made to the Pepperell Partnership plus treble damages and attorneys' fees. In June 1997, the parties reached a tentative settlement which included resolution of claims pending in a related regulatory proceeding before the Federal Energy Regulatory Commission ("FERC") involving Flagg Energy Development Corporation ("FEDCO"), a wholly-owned subsidiary of KES, which obtains gas transportation services from Tennessee for the Hartford Hospital co-generation plant. The settlement was to be finalized and executed by July 15, 1997, but was not finalized or executed by such date due to Tennessee's delay. On July 16, 1997 in the related regulatory proceeding, FERC ordered Tennessee to refund in excess of $2,500,000 to FEDCO in connection with the gas transportation services agreement for the Hartford Hospital plant. After a request for a re-hearing by Tennessee, FERC ordered payment of the refund by Tennessee within 30 days. Tennessee filed a motion in the Superior Court seeking an emergency order to compel KES and its subsidiaries to complete the tentative settlement as well as filing, on September 30, 1997, a complaint in the district court of Harris County, Texas, against KES and FEDCO alleging essentially the same causes of action as in the Massachusetts actions. On November 19, 1997, the parties entered into a Settlement and Release Agreement whereby the Flagg gas transportation services agreement was terminated and by netting amounts alleged to be owing thereunder to Tennessee against refunds owed by Tennessee under the FERC order, Tennessee was paid the sum of $1,000,000. Pursuant to such settlement, all of the above-described actions have been dismissed with prejudice. BANKRUPTCY OF KWI On May 29, 1996, KWI filed a voluntary petition in the United States Bankruptcy Court for the Northern District of California, Oakland, California to reorganize under chapter 11 of the Bankruptcy Code. KWI's management attributed its filing to continuing losses and lack of operating capital. The Bankruptcy Petition filed by KWI stated that as of March 30, 1996 (the latest available information prior to the filing), KWI had liabilities, as defined by bankruptcy filing procedures which include certain commitments, claims and other liabilities not recognized under generally accepted accounting principles, significantly in excess of assets. Neither KWI nor the Company had been able to complete the sale of certain assets or subsidiaries on a basis to provide additional capital for KWI's ongoing operations and KWI believed that it would be unable to meet, among other things, its existing maintenance and warranty obligations under contracts undertaken in connection with the sale of its wind turbines. The filing of the chapter 11 case by KWI resulted in an event of default occurring under the Company's 12-3/4% Senior Secured Notes Due 2002 (the "Notes") in the principal amount of $100 million. Furthermore, interest under the Notes in the approximate amount of 6.4 million is due June 15 and December 15 and the Company has not made an interest payment on the Notes since December 15, 1995 and does not presently anticipate making its 1998 interest payments when due. The Notes are secured by all of the capital stock of KWI, KENETECH Energy Systems, Inc. and KENETECH Facilities Management, Inc. There have been continuing periodic discussions with representatives of the holders of the Notes and the holders have not commenced remedies or notified the Company of their intention to do so. Since the filing of the chapter 11 case, KWI has sold certain development assets, operating assets, technology rights and other assets under the supervision of the Bankruptcy Court. Representatives and members of the Official Unsecured Creditors' Committee, have asserted their intention to commence litigation against the Company and certain of its subsidiaries, as well as against officers and directors thereof, with respect to facts which may constitute preferences under the United States Bankruptcy Code and for other conduct engaged in assertedly by the Company or its officers and directors which may give rise to direct or indirect liability of the Company or its officers and directors to KWI or to its creditors. Such proceedings could give rise to indemnification claims against the Company by its officers and directors. Page 6 The bar date for filing claims in the chapter 11 case was January 31, 1997. A claim against KWI was filed by the trustee of the holders of the Notes on behalf of the Company in an amount in excess of $206.0 million. The Company also filed a claim against KWI in an amount in excess of $8.0 million. In addition, certain of the Company's direct and indirect subsidiaries and affiliated, or formerly-affiliated, partnerships have filed claims against KWI totaling in excess of $1.0 billion. Total claims filed against KWI are in excess of $1.5 billion. It is unknown at present whether or not any claims of the Company against KWI will be allowed in the chapter 11 case or if allowed the extent of any distribution with respect thereto. The Company believes that KWI may assert certain claims in bankruptcy against the Company. Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- None Page 7 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters - ----------------------------------------------------------------------------- Prior to September 21, 1993, the date the Company's Common Stock began trading on The Nasdaq National Market under the symbol "KWND", there was no public market for the Common Stock. The Company was advised by the National Association of Securities Dealers, Inc. that the Company's Common Stock was delisted from The Nasdaq National Market effective July 1, 1996. The Company understands that bid and ask quotations continue to be entered by market makers in the over-the-counter market for the Common Stock. The Company has no current plans to cause the Common Stock to be listed with The Nasdaq National Market or on any exchange. The following table sets forth, for the periods indicated, the range of high and low bid and ask quotations for the Common Stock as reported by a market maker in the stock. Such over-the-counter market quotations do not include retail markups(1), markdowns or commissions and may not represent actual transactions.
Year High Low -------------- ------- ------- 1996 ---- First Quarter $ 1.875 $ 0.813 Second Quarter 1.937 0.172 Third Quarter 0.625 0.190 Fourth Quarter 0.300 0.040 1997 ---- First Quarter $ 0.047 $ 0.000 Second Quarter 0.000 0.000 Third Quarter 0.125 0.000 Fourth Quarter 0.250 0.000 1998 ---- First Quarter (to March 13, 1998) $ 0.125 $ 0.055
(1) The market maker from which the Company obtained high and low bid and ask quotations for 1997 and 1996 does not report quotations under $0.125. The closing sale price of the Company's Common Stock as of a recent date is set forth on the cover page hereof. There were approximately 586 holders of record of the Common Stock as of March 1, 1998. DIVIDEND POLICY The Company has never paid a dividend on its Common Stock and does not intend to pay Common Stock dividends in the foreseeable future. Also, the Company's 12 3/4% Senior Secured Notes due 2002, and the provisions of the Certificate of Incorporation under which the Company issued its 8 1/4% Preferred Redeemable Increased Dividend Equity Securities restrict the payment of Common Stock dividends except under specified circumstances. See Item 7 and Item 8 of this Form 10-K for further restrictions on the Company's ability to pay dividends on its Common Stock in the future. Page 8 Item 6. Selected Financial Data. - -------------------------------- The following selected consolidated financial data is qualified in its entirety by, and should be read in conjunction with, the Consolidated Financial Statements of the Company and the Notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere in this Form 10-K. The selected consolidated financial data as of and for each of the five years in the period ended December 31, 1997 have been derived from the audited Consolidated Financial Statements of the Company. (Dollar amounts in thousands, except per share amounts.)
Year Ended December 31, ---------------------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- INCOME STATEMENT DATA (1): Revenues........................................... $ 40,993 $ 91,890 $327,589 $338,211 $236,424 Total costs of revenues (2)........................ 45,000 83,705 504,696 278,778 188,208 Gross margin (excess of expenses over revenues).... (4,007) 8,185 (177,107) 59,433 48,216 Project development and marketing, engineering, general and administrative expenses. 16,034 40,559 71,368 44,677 41,428 Income (loss) from operations...................... (20,041) (32,374) (248,475) 14,756 6,788 Income (loss) before taxes......................... (25,242) (60,850) (271,647) 1,426 (18,132) Net income (loss).................................. (25,242) (84,241) (250,148) 4,348 (7,584) Income (loss) per share: Basic....................................... (0.92) (3) (2.52)(3) (7.12)(3) (0.03)(3) (0.27)(4) Diluted..................................... (0.92) (3) (2.52)(3) (7.12)(3) (0.03)(3) (0.22)(5)
Year Ended December 31, --------------------------------------------------------------- 1997 1996 1995 1994 1993 --------- --------- -------- -------- -------- BALANCE SHEET DATA: Working capital.................................... $(148,781) $(141,621) $ (3,232) $140,766 $ 91,461 Property, plant and equipment, net................. 18,894 24,735 118,214 148,374 119,915 Total assets....................................... 90,586 123,311 401,249 517,168 417,332 Other long term debt (excludes current portion).... - - 152,048 158,522 166,276 Stockholders' equity (deficiency).................. (131,705) (97,900) (5,559) 248,718 147,790 (1) Excludes operations of KWI after bankruptcy filing (May 29, 1996). (2) In 1995 includes special charges of $224,551. See discussion in Item 7. (3) Includes effect of deducting dividends earned on convertible preferred stock issued in 1994. (4) Includes effect of deducting cash dividends earned on convertible preferred stock issued in 1992 and the actual conversion of such preferred stock and convertible notes to common stock. (5) Includes the effect of reducing the net loss by the interest on the convertible notes (net of the related tax effect), and the conversion of such notes and convertible preferred stock to common stock as if such conversion occurred at the beginning of 1993.
Page 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. - ---------------------------------- OVERVIEW KENETECH Corporation ("KENETECH"), a Delaware corporation, is a holding company which participated through its subsidiaries in the electric utility market. As used in this document "Company" refers to KENETECH and its wholly-owned subsidiaries (including KENETECH Windpower, Inc. (KWI) only through May 29, 1996). Historically, the Company developed, constructed, financed, sold and operated and managed independent power projects. A wholly-owned development subsidiary is a joint venture partner with an affiliate of Enron Corporation in a project under construction in Puerto Rico. In December 1997 the project obtained construction and term debt financing. The project is a 507 MW (net) natural gas cogeneration facility and associated liquified natural gas facility which will produce electricity to be sold to Puerto Rico Electric Power Authority pursuant to a 22 year Power Purchase Agreement dated March 10, 1995. The power plant will be a combined cycle cogeneration facility consisting of two combustion turbines capable of operating on LNG, LPG, or fuel oil to generate electricity, and is expected to produce approximately 4 million megawatt hours of electricity annually under baseload conditions. Steam generated will also be used to convert sea water into fresh water in a desalination plant, which is expected to produce approximately 4 million gallons of potable water per day, of which approximately 1 million gallons per day will be required by the project, with the remainder being available for sale to local entities. This is the only project the Company (through its wholly-owned development subsidiary) has in process. The Company's wholly-owned development subsidiary intends to sell its interest in this project in 1998. One of the Company's subsidiaries is a general contractor which has constructed independent power projects since 1988. This subsidiary competed for contracts for engineering, procurement and construction (EPC) and for construction only. Historically, the Company had constructed all of the thermal energy power projects it developed and more recently had constructed all of the Windplants it developed. Substantially all construction work performed by the Company for third parties was competitively bid and most was performed under turnkey contracts. The chapter 11 filing of KWI discussed below has materially adversely affected the Company's construction subsidiary and its ability to procure contracts. This construction subsidiary had joint venture interests in the EPC contracts for the Puerto Rico project described above which were sold in December 1997. The Company is completing the projects in progress and intends to dispose of its construction subsidiary in 1998. KWI manufactured wind turbines and designed and operated utility-scale wind powered electric powerplants which incorporated large arrays of such turbines. On May 29, 1996, KWI filed for protection under chapter 11 of the Federal Bankruptcy Code and reported an excess of liabilities over the fair value of its assets. Although the Company continues to own the common stock of KWI and provides certain services under the jurisdiction of the Bankruptcy Court, the Company believes it is probable that such ownership will not exist after completion of the bankruptcy proceedings. Accordingly, as of May 29, 1996 KWI ceased to be accounted for as a consolidated subsidiary of the Company. The Company's financial statements exclude all KWI activities after that date. CAUTIONARY STATEMENT Certain information included in this report contains forward looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Act of 1934, as amended. Such forward looking information is based on information available when such statements are made and is subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Page 10 RESULTS OF OPERATIONS The consolidated financial statements of KENETECH Corporation and certain subsidiaries as of December 31, 1997 and 1996 and for the three years ending December 31, 1997 have been prepared assuming the Company will continue as a going concern (see Note 3). As mentioned previously, as of May 29, 1996 KWI ceased to be accounted for as a consolidated subsidiary of KENETECH and no activities of KWI have been reflected in the consolidated financial statements of the Company since that date. The Company's investment in KWI is recorded at zero in "Investments in Affiliates" in the accompanying December 31, 1997 and 1996 consolidated balance sheets. Revenues and expenses of KWI from January 1, 1996 through May 29, 1996 are reflected in consolidated statements of operations and cash flows. The Company incurred a net loss for 1997 of $25.2 million as compared to net losses for 1996 of $84.2 million and for 1995 of $250.1 million. This does not indicate an improvement in the Company's prospects. Instead this decrease reflects the elimination of activities associated with divested assets and subsidiaries, and the deconsolidation of KWI and downsizing. In 1998 the Company expects to generate operating losses before the sale of assets described above in "Overview" due to administrative expenses and interest expense on debt. The Company has few revenue generating activities at December 31, 1997. YEARS 1997 AND 1996
Year Ended December 31, 1997 1996 -------- -------- (in millions) Gross Gross Revenues Costs Margins Revenues Costs Margins -------- ------- ------- -------- ------- ------- ............................ Construction services ........... $ 36.0 $ 36.1 $ (0.1) $ 51.0 $ 46.6 4.4 Energy sales (1) ................ 3.2 N/A N/A 14.4 N/A N/A Maintenance, management fees and other (1).............. 1.8 N/A N/A 16.3 N/A N/A Energy plant operations (1)...... N/A 8.9 N/A N/A 31.9 N/A -------- ------- ------- -------- ------- ------- Total energy plant operations 5.0 8.9 (3.9) 30.7 31.9 (1.2) Windplant sales ................. -- -- -- 8.1 5.0 3.1 Interest on partnership notes and funds in escrow ........... -- -- -- 1.1 N/A 1.1 Energy management services ...... -- -- -- 1.0 0.2 0.8 -------- ------- ------- -------- ------- ------- Total ............................ $ 41.0 $ 45.0 $ (4.0) $ 91.9 $ 83.7 $ 8.2 ======== ======= ======= ======== ======= ======= (1) Maintenance, management fees and other revenues are earned by the Company for maintaining and operating Windplants and thermal power plants owned by third parties and from the sale of fuel to wood-fired electric power plants. Energy sales are the revenues generated by Windplants and a thermal power plant owned by the Company. Energy plant operations expenses are incurred to generate these revenues.
Construction services revenues (recorded under the percentage-of-completion method) decreased to $36.0 million for 1997 from $51.0 million for 1996 due to the continued work-off of existing back-log. Construction services also incurred an excess of expenses over revenues due to unrecoverable cost overruns of approximately $2.3 million on one of the projects under construction in 1997. The Company intends to dispose of its construction subsidiary in 1998. Energy plant operations experienced an excess of expenses over revenues of $3.9 million for 1997 compared to a $1.2 million excess of expenses over revenues in 1996 because in June and July of 1997 the Company's cogeneration facility experienced, through force majeure events, catastrophic failures of both its turbines. The cost of repairing the individual units was prohibitive and there were no lease engines available for short term installation. An expense of approximately $3.0 million was recorded in energy plant operations to write-off these two turbines. The Company assembled one turbine, which operates sporadically, from the serviceable parts of the two failed turbines. In 1998 additional funding Page 11 was obtained from the lender to the facility to purchase one new turbine, to replace the reassembled one, and procure a backup boiler. This new turbine is scheduled to be installed in July 1998. The Company has reached agreement with the purchasing utility to terminate the power purchase agreement in exchange for a stream of payments through the year 2000. Under this agreement the Company will continue to sell electricity and steam to the site host using the new turbine. This agreement is currently in escrow and is expected to close in the first week of April 1998 when the appeal period for public utility commission approval of this arrangement expires. Windplant sales, interest on partnership notes and funds in escrow and engineering expenses were zero in 1997 because of the deconsolidation of KWI. Energy management services revenues decreased to zero for 1997 from $1.0 million for 1996. This operation was sold in the second quarter of 1996. Project development and marketing expenses decreased to $2.2 million for 1997 from $7.1 million for 1996. Project development expenses declined significantly because the only project the Company had in active development in 1997 was the Puerto Rico project. The costs expensed in 1997 represent expenditures to market assets and/or to keep various assets marketable. General and administrative expenses decreased to $13.8 million for 1997 from $29.3 million for 1996 due to the deconsolidation of KWI and downsizing of the Company. Interest expense decreased to $16.3 million for 1997 from $19.6 million for 1996 due to the deconsolidation of KWI, the sale of subsidiaries and increased capitalization of interest to the Puerto Rico project. Sale of subsidiaries and fixed assets: During 1997 the Company sold fixed assets, some projects in the initial stages of development and the construction subsidiary's joint venture interests in the construction contracts for the Puerto Rico project. On an aggregated basis, these transactions generated cash of $20.9 million and a net gain of $10.0 million. During 1996 the Company sold its demand side management business, its wood-fuel business, a manufacturing facility, several investments accounted for on the equity basis, a subordinated note receivable, and various fixed assets. On an aggregated basis these transactions generated cash of $13.5 million and a net loss of $9.6 million. Income taxes: The Company uses the asset and liability approach for financial accounting and reporting for income taxes. The Company recorded no tax benefit for 1997 because of the uncertainty about the Company's ability to utilize such a benefit. Page 12 YEARS 1996 AND 1995
Year Ended December 31, 1996 1995 -------------------------- -------------------------- (in millions) Gross Gross Revenues Costs Margins Revenues Costs Margins -------- ------- ------- -------- ------- ------- ............................ Construction services ........... $ 51.0 $ 46.6 $ 4.4 $ 63.2 $ 55.7 7.5 Energy sales (1) ................ 14.4 N/A N/A 38.0 N/A N/A Maintenance, management fees and other (1).............. 16.3 N/A N/A 41.4 N/A N/A Energy plant operations (1)...... N/A 31.9 N/A N/A 62.6 N/A -------- ------- ------- -------- ------- ------- Total energy plant operations 30.7 31.9 (1.2) 79.4 62.6 16.8 Windplant sales ................. 8.1 5.0 3.1 172.5 157.2 15.3 Interest on partnership notes and funds in escrow ........... 1.1 -- 1.1 5.3 -- 5.3 Energy management services ...... 1.0 0.2 0.8 7.2 4.6 2.6 Special charges.................. -- -- -- -- 224.6 (224.6) -------- ------- ------- -------- ------- ------- Total ............................ $ 91.9 $ 83.7 $ 8.2 $ 327.6 $ 504.7 $(177.1) ======== ======= ======= ======== ======= ======= (1) Maintenance, management fees and other revenues are earned by the Company for maintaining and operating Windplants and thermal power plants owned by third parties and from the sale of fuel to wood-fired electric power plants. Energy sales are the revenues generated by Windplants and a thermal power plant owned by the Company. Energy plant operations expenses are incurred to generate these revenues.
Construction services revenues (recorded under the percentage-of-completion method) decreased to $51.0 million for 1996 from $63.2 million for 1995 and gross margin decreased to 9% for 1996 from 12% for 1995. The decrease in revenue is attributable to a decrease in backlog of new projects. The ability to secure new construction work has been impeded by the declaration of bankruptcy by the Company's windpower subsidiary. The decrease in gross margin is primarily due to a negative 1% gross margin on a cogeneration plant construction job from which the Company was terminated for convenience during 1996. This project accounted for 38% of the construction revenues during 1996. Energy plant operations, Windplant sales, Interest on partnership notes and funds in escrow and Engineering expenses all declined significantly in 1996 because of the deconsolidation of KWI. As mentioned previously, on May 29, 1996 KWI filed for protection under chapter 11 of the Federal Bankruptcy Code, reported an excess of liabilities over its assets, and ceased to be accounted for as a consolidated subsidiary of the Company. Energy management services revenues decreased to $1.0 million in 1996 from $7.2 million in 1995. The Company sold this business in the second quarter of 1996. Special charges in 1995 relate to performance problems with the KVS-33 and the domestic energy price environment as follows: (i) Performance problems with the KVS-33. During 1995 mechanical problems with the KVS-33 model wind turbines installed in 1994 and 1995 began to appear, especially in the more severe weather environments. The Company incurred substantial operating costs in 1995 as a result of the problems with the KVS-33. As a result of these problems, the Company wrote off all of its deferred engineering costs, reserved certain inventory costs related to the KVS-33, reserved a significant portion of the capitalized development costs for projects which were going to be completed using the KVS-33 and accrued the estimated retrofit costs attributable to the KVS-33. The aggregated amounts of writedowns and asset reserves were $54.6 million and accruals of liabilities of $86.8 million expected to be incurred over the next several years were based on the best information available at December 31, 1995. It is possible that actual losses may be higher or lower than the amount recognized. Page 13 (ii) Energy prices. During 1995, the energy prices utilities pay based upon their "avoided costs" continued to decrease. These energy prices have a significant effect on the Company's financial condition and operations through two channels: (1) the Windplant assets owned by the Company, and (2) the profitability of maintenance and management contracts the Company has with third parties. Maintenance and management fees generally are based on a percentage of the owners' energy sales. The Company used current energy prices based upon PG&E's "avoided costs" prices (after fixed price contract periods expire in 1997-2004), increased by modest inflation, to compute future cash flows for assessing the impairment of Windplant assets and the profitability of the Company's maintenance and management agreements with third party owners of Windplants. The Company used modest inflation because most experts expect PG&E's avoided cost to increase at or below the inflation rate. Based on the calculations, using the principles of SFAS No. 121 and a present value of future net cash flows discounted at 16% to approximate fair value, certain Windplant assets and investments were written down by approximately $50.3 million. In addition, projected negative cash flows on certain maintenance and management contracts from 1996-2015 were discounted at 7% to approximate a risk free rate and a loss accrual was recognized of $32.9 million. Based on the calculations, projected negative cash flows on certain maintenance and management contracts commenced in 1996. These writedowns and reserves were based on the best information available as of December 31, 1995. It is possible that actual losses may be higher or lower than the amounts recognized. The range of variance, if any, from such amounts cannot be reasonably estimated. Project development and marketing expenses decreased in 1996 to $7.1 million from $18.6 million in 1995. During 1996 the Company stopped pursuing all new projects (except for the Puerto Rico project). The expenses in 1996 represent costs to keep existing projects viable and marketable and write-downs of the projects being marketed to the estimated market value. General and administrative expenses decreased to $29.3 million for 1996 from $40.4 million for 1995. Included in 1996's amount is $2.3 million related to a writedown of buildings and land owned by the construction subsidiary. The decrease is due to the termination of employees and the deconsolidation of KWI. Interest income decreased to $1.2 million in 1996 from $2.6 million in 1995 due to lower cash and investment balances. Interest expense decreased to $19.6 million in 1996 from $23.4 million in 1995 due to the deconsolidation of KWI. Equity income (loss) of unconsolidated affiliates. Equity investments in affiliates resulted in a net loss of $409 thousand in 1996, compared to a net loss of $2.4 million in 1995 due to the deconsolidation of KWI's operations and the sale by the Company of several equity investments. Loss on disposition of subsidiaries and assets. During 1996 the Company sold its demand side management operations, its wood-fuel operations, a manufacturing facility, several investments accounted for on the equity basis, a subordinated note receivable, and various fixed assets. On an aggregated basis these transactions generated cash of $13.5 million and a net loss of $9.6 million. As mentioned previously, KWI filed for protection on May 29, 1996 under chapter 11 of the Federal Bankruptcy Code and reported an excess of liabilities over its assets. Although KENETECH continues to own the common stock of KWI and provides certain services under the jurisdiction of the Bankruptcy Court, KENETECH believes it is probable that such ownership will not exist after completion of the bankruptcy proceedings. Accordingly, as of May 29, 1996 KWI ceased to be accounted for as a consolidated subsidiary of KENETECH. Income taxes. The Company uses the asset and liability approach for financial accounting and reporting for income taxes. The Company recorded a tax provision of $23.4 million in 1996 attributable to the effect of deconsolidating the net deferred tax assets relating to KWI as compared to a benefit of $21.5 million in 1995. The remaining net deferred tax asset of $17.9 million is expected to be realized by the generation of taxable income from the sales of assets with appreciated values. The valuation allowance was based on the best information available at December 31, 1996. The actual tax assets realized may be higher or lower than the amount recognized. Page 14 LIQUIDITY AND CAPITAL RESOURCES 1997 Activities --------------- Operating Activities During 1997 operating activities used cash of $11.1 million because general and administrative and interest expenses exceeded the Company's gross margin. Investing Activities During 1997 investing activities provided cash of $10.0 million through the sale by the Company's construction subsidiary of its joint venture interests in the construction contracts for the Puerto Rico project and the sale of various other fixed assets partially offset by funds invested in the 507 MW (net) Puerto Rico project jointly developed with an affiliate of Enron Corporation. Financing Activities During 1997 financing activities used $8.8 million of cash. Approximately $10.0 million of the construction subsidiary's proceeds from the sale of the aforementioned joint venture interests in the construction contracts for the Puerto Rico project was used to pay off the construction subsidiary's secured debt. In August 1996 a wholly-owned subsidiary of the Company entered into a $30.0 million loan facility related to the aforementioned Puerto Rico project. The interest rate on this loan decreased because certain milestones were reached by the Puerto Rico project. As a result additional funds became available under this facility and the Company borrowed an additional $2.5 million in 1997. As of December 31, 1997, the outstanding balance of this loan was $24.2 million. No further funds are available under this agreement because the remaining funding capacity is structured to accommodate accrued and unpaid interest for the remaining term of the loan. Status ------ At December 31, 1997 the Company's working capital deficit was $148.8 million, which is $7.2 million greater than at December 31, 1996 because of the decreases in cash and accounts receivable. During 1996 the Company's liquidity became severely constrained as it consumed its cash. On February 2, 1996 the Company announced that it would not pay the dividend scheduled for February 15, 1996 on its preferred stock. The Company paid no dividends on the preferred stock in 1997 and 1996 and does not expect to be able to for the foreseeable future. Under the terms of the preferred stock, dividends accrue until paid. In December 1992 the Company sold $100.0 million of 12 3/4% Senior Secured Notes due 2002. Interest on these notes is due June 15 and December 15 of each year. The Company did not make the 1997 and 1996 payments and is in default. The Company does not expect to make the 1998 interest payments when due. The Company has been able to continue its activities because: i). It generated $13.5 million in 1996 by selling assets and drew $18.9 million from the $30.0 million Puerto Rico project loan obtained by a wholly-owned subsidiary. This loan is collateralized by the stock of a special purpose entity formed to hold, through affiliates, the Company's interest in the Puerto Rico power project. No further funds are available under this agreement because the remaining funding capacity must accommodate accrued and unpaid interest for the remaining term of the loan. ii). In December 1997 the Company's construction subsidiary sold its joint venture interests in construction contracts for the Puerto Rico project for $18.7 million cash which was used to pay off the secured loans of the construction subsidiary, fund the construction costs of the remaining jobs the construction subsidiary is completing and other operational expenses of the construction subsidiary. The ability of the construction subsidiary to reestablish its backlog is hampered by the Company's financial condition and KWI's bankruptcy filing. The Company intends to dispose of its construction subsidiary in 1998. There can be no assurance that the construction subsidiary will be successful in disposing of its remaining assets. Page 15 Certain lenders and other creditors are seeking repayment and/or restructuring of the amounts due them. The Company is unable to borrow money and is delaying all payments except for essential services while it attempts to raise cash through additional asset sales. There can be no assurances that asset sales can be consummated or that substantial proceeds can be received. If the Company is unable to sell assets its liquidity will be further constrained. Management believes that such sales, even if consummated, will not generate sufficient proceeds to ultimately provide any return of invested capital to the holders of the Company's common stock and that proceeds received from asset sales will be used in operations or paid to creditors. Consequently, after, or as part of a sale of the Company's subsidiaries' interests in the Puerto Rico project (the only project in process), the Company believes that it is likely that it, or certain of its subsidiaries, will seek protection under the Federal Bankruptcy Code. Risks and Uncertainties ----------------------- The consolidated financial statements as of and for the year ended December 31, 1997 have been prepared assuming the Company will continue as a going concern. The Company incurred significant losses in 1997, 1996 and 1995, has negative working capital and its liquidity is severely constrained. Certain lenders and creditors are seeking repayment and/or restructuring of the amounts due them. In 1998 the Company expects to generate losses before the sale of assets due to administrative expenses in excess of gross margin and interest expense on debt. These factors raise substantial doubt about the Company's ability to continue as a going concern in its current form. Management's plan to address its liquidity involves the sale of its interests in the Puerto Rico project for which it expects to receive substantial cash proceeds. There can be no assurance that the Company will be successful in implementing its plans and that the Company will continue as a going concern. Management believes that such sales, even if consummated, will not generate sufficient proceeds to ultimately provide any return of invested capital to the holders of the Company's common stock. In addition, the Company believes KWI may assert certain claims in bankruptcy against the Company. Consequently, after, or as a part of a sale of the Company's subsidiaries' interests in the Puerto Rico project (the Company's only project in process), the Company believes that it is likely that it, or certain of its subsidiaries, will seek protection under the Federal Bankruptcy Code. Year 2000 Problem ----------------- The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. The Company's management has made no evaluation regarding the anticipated costs, problems and uncertainties associated with the Year 2000 issue. New Accounting Standards ------------------------ In June 1997, the Financial Accounting Standards Board issued Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS No. 130) effective for the fiscal years ending after December 15, 1998. SFAS No. 130, requires the presentation of comprehensive income in an entity's financial statements. Comprehensive income represents all changes in equity of an entity during the reporting period, including net income and charges directly to equity which are excluded from the net income. This statement is not anticipated to have any impact on the Company as the Company currently does not enter into any transactions which result in charges (or credits) directly to equity (such as additional minimum pension liability changes, currency translation adjustments, unrealized gain or loss on available for sale securities, etc.). SFAS No. 130 will be adopted by the Company during 1998. In June 1997, the Financial Accounting Standards Board also issued Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131) effective for the fiscal years ending after December 15, 1998. SFAS No. 131, provides revised disclosure guidelines for segments of an enterprise based on management approach to defining operating segments. The management of the Company believes that it currently operates in only one industry segment and analyzes operations on a Company-wide basis, therefore the statement is not expected to impact the Company. Page 16 Item 8. Financial Statements and Supplementary Data. - ---------------------------------------------------- KENETECH Corporation Consolidated Financial Statements Page ---- Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 19 Consolidated Balance Sheets, December 31, 1997 and 1996 20 Consolidated Statements of Stockholders' Deficiency for the years ended December 31, 1997, 1996 and 1995 21 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 22 Notes to Consolidated Financial Statements 23 - 39 Page 17 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of KENETECH Corporation: We have audited the accompanying consolidated balance sheets of KENETECH Corporation and subsidiaries (the "Company") as of December 31, 1997 and 1996 and the related consolidated statements of operations, stockholders' deficiency, and cash flows for each of the years in the three-year period ended December 31, 1997. Our audits also included the financial statement schedules for 1997, 1996 and 1995 of KENETECH Corporation listed in the Index at Item 14(a)(2). These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of KENETECH Corporation and subsidiaries at December 31, 1997 and 1996 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present in all material respects the information set forth therein. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern (see Note 3). The Company incurred significant losses in 1997, 1996 and 1995, has negative working capital and its liquidity is severely constrained. Certain lenders and creditors are seeking repayment and/or restructuring of the amounts due them. In 1998, the Company expects to generate operating losses before the sale of assets due to administrative expenses in excess of gross margin and interest expense on debt. The Company has indicated that after or as part of a sale of its subsidiaries' interests in the Puerto Rico project (the only project in process) that it is likely that it, or certain of its subsidiaries, will seek protection under the Federal Bankruptcy Code. In addition, the Company believes KENETECH Windpower, Inc. (KWI), a wholly-owned subsidiary which filed for Chapter 11 protection under the Bankruptcy Code, will assert certain claims in bankruptcy against the Company. These factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. KPMG Peat Marwick LLP San Francisco, California March 27, 1998 Page 18 KENETECH CORPORATION -------------------- CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 1997, 1996 and 1995 (in thousands, except per share amounts)
1997 1996 1995 ---------- ---------- ---------- Revenues: Construction services................................$ 35,994 $ 50,958 $ 63,178 Energy sales......................................... 3,170 14,434 38,034 Maintenance, management fees and other............... 1,829 16,219 41,371 Windplant sales...................................... - 8,107 172,490 Interest on partnership notes and funds in escrow.... - 1,125 5,320 Energy management services........................... - 1,047 7,196 ---------- ---------- ---------- Total revenues..................................... 40,993 91,890 327,589 Costs of revenues: Construction services................................ 36,105 46,557 55,674 Energy plant operations.............................. 8,895 31,886 62,649 Windplant sales...................................... - 5,012 157,250 Energy management services........................... - 250 4,572 Special charges...................................... - - 224,551 ---------- ---------- ---------- Total costs of revenues............................ 45,000 83,705 504,696 Gross margin (Excess of expenses over revenues)......... (4,007) 8,185 (177,107) Project development and marketing expenses.............. 2,230 7,072 18,574 Engineering expenses.................................... - 4,206 12,401 General and administrative expenses..................... 13,804 29,281 40,393 ---------- ---------- ---------- Loss from operations.................................... (20,041) (32,374) (248,475) Interest income......................................... 988 1,176 2,575 Interest expense........................................ (16,291) (19,620) (23,387) Equity (loss) income of unconsolidated affiliates....... 66 (409) (2,360) Gain (loss) on disposition of subsidiaries and assets... 10,036 (9,623) - ---------- ---------- ---------- Loss before taxes....................................... (25,242) (60,850) (271,647) Income tax (benefit) provision.......................... - 23,391 (21,499) ---------- ---------- ---------- Net loss.........................................$ (25,242) $ (84,241) $ (250,148) ========== ========== ========== Net loss per common share: Basic and Diluted............................ $ (0.92) $ (2.52) $ (7.12) Weighted average number of common shares used in computing per share amounts: Basic and Diluted.......................... 36,830 36,781 36,341
The accompanying notes are an integral part of these consolidated financial statements. Page 19 KENETECH CORPORATION -------------------- CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 (in thousands, except share amounts) ASSETS
1997 1996 ---------- ---------- Current assets: Cash and cash equivalents..................................$ 7,294 $ 17,208 Funds in escrow, net....................................... 1,997 5,221 Accounts receivable........................................ 4,669 17,940 Inventories................................................ 135 135 Investment in power plant held for sale.................... 16,128 19,209 Investment in Puerto Rico project, net..................... 19,830 - Deferred tax assets, net................................... 4,300 4,300 Other...................................................... 961 3,986 ---------- ---------- Total current assets.................................... 55,314 67,999 Property, plant and equipment, net........................... 18,894 24,735 Investment in Puerto Rico project, net....................... - 11,507 Investments in affiliates.................................... - 32 Deferred tax assets, net..................................... 13,613 13,613 Other assets................................................. 2,765 5,425 ---------- ---------- Total assets..........................................$ 90,586 $ 123,311 ========== ========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Accounts payable...........................................$ 12,579 $ 18,841 Bank loans payable......................................... 24,236 18,860 Accrued interest........................................... 26,103 13,462 Accrued liabilities........................................ 15,088 21,010 Debt associated with power plant held for sale............. 16,128 16,578 Other notes payable........................................ 8,878 20,165 Senior secured notes payable............................... 99,139 99,005 Accrued losses on contracts................................ 1,944 1,699 ---------- ---------- Total current liabilities............................... 204,095 209,620 Accrued losses on contracts.................................. - 897 Estimated warranty costs and other long-term obligations..... - 1,061 Accrued dividends on preferred stock......................... 18,196 9,633 ---------- ---------- Total liabilities....................................... 222,291 221,211 Stockholders' deficiency: Convertible preferred stock - 10,000,000 shares authorized, $.01 par value; issued and outstanding 102,492, $121,970 liquidation preference................... 99,561 99,561 Common stock - 110,000,000 shares authorized, $.0001 par value; issued and outstanding 36,829,618 in 1997 and in 1996............................. 4 4 Additional paid-in capital................................... 127,658 136,221 Cumulative foreign exchange.................................. 35 35 Accumulated deficit.......................................... (358,963) (333,721) ---------- ---------- Total stockholders' deficiency.......................... (131,705) (97,900) ---------- ---------- Total liabilities and stockholders' deficiency........$ 90,586 $ 123,311 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
Page 20 KENETECH CORPORATION -------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY for the years ended December 31, 1997, 1996 and 1995 (in thousands, except share amounts)
Effect of Retained Convertible Common Stock Additional Cumulative Earnings Preferred Stock Series A Paid-in Unearned Foreign (Accumulated Shares Amount Shares Amount Capital Compensation Exchange Deficit) Total ------- ------- ---------- ------ ---------- ------------- -------- ------------ --------- Balance, December 31, 1994 102,492 $99,561 35,930,430 $ 4 $ 142,933 $ (870) $ - $ 7,090 $ 248,718 Exercise of stock options - - 316,805 - 469 - - - 469 Issuance of common stock - - 286,601 - 2,219 - - - 2,219 Recognition of unearned compensation - - - - - 589 - - 589 Preferred stock dividends - - - - (1,070) - - (6,422) (7,492) Foreign exchange - - - - - - 86 - 86 Net loss - - - - - - - (250,148) (250,148) ------- ------- ---------- ------ ---------- ------------- -------- ------------ --------- Balance, December 31, 1995 102,492 99,561 36,533,836 4 144,551 (281) 86 (249,480) (5,559) Issuance of common stock - - 295,782 - 233 - - - 233 Recognition of unearned compensation - - - - - 281 - - 281 Preferred stock dividends - - - - (8,563) - - - (8,563) Foreign exchange - - - - - - (51) - (51) Net loss - - - - - - - (84,241) (84,241) ------- ------- ---------- ------ ---------- ------------- -------- ------------ --------- Balance, December 31, 1996 102,492 99,561 36,829,618 4 136,221 - 35 (333,721) (97,900) Preferred stock dividends - - - - (8,563) - - - (8,563) Net loss - - - - - - - (25,242) (25,242) ------- ------- ---------- ------ ---------- ------------- -------- ------------ --------- Balance, December 31, 1997 102,492 $99,561 36,829,618 $ 4 $ 127,658 $ - $ 35 $ (358,963) $(131,705) ======= ======= ========== ====== ========== ============= ======== ============ ========= The accompanying notes are an integral part of these consolidated financial statements.
Page 21 KENETECH CORPORATION -------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1997, 1996 and 1995 (in thousands)
1997 1996 1995 ---------- ---------- ---------- Cash flows from operating activities: Net loss.................................................$ (25,242) $ (84,241) $ (250,148) Adjustments to reconcile net loss to net cash used in operating activities: (Gain) loss on disposition of subsidiaries and assets... (10,036) 9,623 - Accrued and unpaid interest............................. 15,517 - - Depreciation, amortization and other, net............... 8,406 3,117 1,672 Special charges......................................... - - 224,551 Deferred income taxes................................... - 23,391 (21,579) Change in assets and liabilities excluding special charges: Funds in escrow, net................................... 3,224 2,382 (1,742) Accounts receivable.................................... 9,171 16,688 31,237 Partnership notes and interest receivable, net......... - 290 (3,251) Inventories............................................ - 2,468 (9,712) Other assets........................................... 4,204 (56) (1,031) Accrued warranties..................................... - (1,394) (262) Accrued loss on contracts.............................. (652) (692) 5,872 Accounts payable and accrued liabilities............... (15,714) 3,701 (4,977) ---------- ---------- ---------- Net cash used in operating activities...................... (11,122) (24,723) (29,370) Cash flows from investing activities: Sales of marketable securities........................... - 3,536 19,949 Purchases of marketable securities....................... - (3,536) (481) Additions to property, plant and equipment............... - (390) (11,489) Proceeds from sale of subsidiaries and assets............ 20,877 13,471 3,021 Proceeds from sale of power plant, net................... - - 4,069 Expenditures on power plants under development or construction............................. (10,896) (4,036) 3,643 Acquisition of Century Contractors West, Inc., net of cash received.................................... - - (1,360) Investment in affiliates - Contributions................. - (1,814) (11,000) Investment in affiliates - Distributions................. 14 605 723 ---------- ---------- ---------- Net cash provided by investing activities................ 9,995 7,836 7,075 Cash flows from financing activities: Proceeds from other notes payable........................ 503 7,780 16,359 Payments on other notes payable.......................... (11,790) (6,791) (27,248) Proceeds from bank loan.................................. 2,500 21,030 90,500 Bank loan repayments, net................................ - (5,000) (77,300) Proceeds from issuance of common stock, net.............. - 234 2,771 Payment of preferred stock dividends..................... - - (8,563) ---------- ---------- ---------- Net cash provided by (used in) financing activities........ (8,787) 17,253 (3,481) ---------- ---------- ---------- Increase (Decrease) in cash and cash equivalents........... (9,914) 366 (25,776) Cash and cash equivalents at beginning of year........... 17,208 16,842 42,618 ---------- ---------- ---------- Cash and cash equivalents at end of year.................$ 7,294 $ 17,208 $ 16,842 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
Page 22 KENETECH CORPORATION ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 1. ORGANIZATION AND BASIS OF PRESENTATION These financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements of KENETECH Corporation and certain subsidiaries as of and for the periods ending December 31, 1997 and 1996 have been prepared assuming the Company will continue as a going concern. On May 29, 1996, the Company's windpower subsidiary, KENETECH Windpower, Inc. ("KWI"), filed for protection under chapter 11 of the Federal Bankruptcy Code and reported an excess of liabilities over its assets. Although the Company continues to own the common stock of KWI and provides certain services under the jurisdiction of the Bankruptcy Court, the Company believes it is probable that such ownership will not exist after completion of the bankruptcy proceedings. Accordingly, as of May 29, 1996 KWI ceased to be accounted for as a consolidated subsidiary of the Company. Intercompany balances and transactions for consolidated subsidiaries are eliminated in consolidation. The Company's investment in KWI is recorded as zero in "Investments in Affiliates" in the accompanying December 31, 1997 and 1996 consolidated balance sheets. Revenues and expenses of KWI from January 1, 1996 through May 29, 1996 are reflected in consolidated statements of operations and cash flows. The Company's construction subsidiary, CNF, is completing its projects in process and is in the process of disposing of its remaining assets and liabilities. The Company's consolidated statement of operations for the year ended December 31, 1997 and consolidated balance sheet as of December 31, 1997 include the following amounts relating to CNF: Year ended December 31, 1997 (in thousands) Revenues $35,994 Costs of revenues 36,105 ------- Gross margin (111) General and administrative expenses 7,376 ------- Loss from operations (7,487) Gain on disposition of subsidiaries and assets 15,110 Other (286) ------- Income before income taxes $ 7,337 ======= As of December 31, 1997 (in thousands) Assets: Liabilities and owner's deficiency: Current assets $ 6,935 Property plant and Current liabilities $ 13,621 equipment 2,820 Other long term assets 510 Owner's deficiency (3,356) ------- -------- Total assets $10,265 Total liabilities & deficiency $ 10,265 ======= ======== Page 23 KENETECH CORPORATION ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 2. SIGNIFICANT ACCOUNTING POLICIES Export Sales: Windplant export sales were zero in 1997 and 1996, and 43% of total revenues in 1995. Unaffiliated Major Customers: The Company's energy sales to Pacific Gas and Electric Company (PG&E) were zero in 1997, 6% of total revenues in 1996, and 9% in 1995. Construction revenues from major customers were 82% of total revenues in 1997, 21% in 1996, and 6% in 1995. Revenues: Revenues from Windplant sales and construction services are recognized on the percentage-of-completion, cost-to-cost method. Costs of such revenues include all direct material and labor costs and those indirect costs related to contract performance such as indirect labor, supplies and tool costs that can be attributed to specific contracts. Estimated future warranty costs are recognized as units are sold and adjusted as circumstances require. Indirect costs not specifically allocable to contracts and general and administrative expenses are charged to operations as incurred. Revisions to contract revenue and cost estimates are recognized in the accounting period in which they are determined. Provision for estimated losses on uncompleted contracts is made in the period in which such losses are determined. Maintenance and management fees are recognized as earned under various long-term agreements to operate and maintain the energy plants which the Company has developed. Many of these fees are a percentage of owners' energy sales which fluctuate based on production and price. Other revenues include development fees earned under various independent power plant development activities. Energy sales revenue is recognized when electrical power or steam is supplied to a purchaser, generally the local utility company or site host, at the contract rate in place at the time of delivery. Certain contracts have fixed prices for the first few years after which the prices are based on the "avoided costs" price of utility purchasers. Revenue from energy management services is recognized on certain long-term contracts during the installation period of customer agreements structured as sales-type leases using the percentage-of-completion, cost-to-cost method and over the financing period of such leases using the effective-interest method. Depreciation: Depreciation is recorded on a straight-line basis over the estimated useful lives as shown below: Buildings and improvements 30 years Cogeneration and substation facilities 30 years Machinery and equipment 2 to 10 years Furniture and fixtures 3 to 5 years Leasehold improvements Shorter of estimated life or term of lease Research and Development: Expenditures for research and development are recorded as engineering expense when incurred and totaled zero in 1997 and 1996 and $13,408,000 in 1995. Interest Expense: Interest is capitalized on independent power plants under construction and self-constructed assets and totaled $2,636,000 in 1997, $587,000 in 1996 and $3,793,000 in 1995. Income Taxes: The Company accounts for income taxes using the liability method under which deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. Changes in deferred tax assets and liabilities include the impact of any tax rate changes enacted during the year and changes in the valuation allowance. Accounts Receivable/Accrued Liabilities: Costs incurred and estimated earnings in excess of billings on uncompleted contracts are included in accounts receivable. Billings in excess of costs and estimated earnings on uncompleted contracts are included in accrued liabilities. Page 24 KENETECH CORPORATION ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 Power Plant Held for Sale: Power plant held for sale represents the Company's share of a completed power plant (see Note 12). Investment in Puerto Rico Project: Investment in the Puerto Rico project represents the Company's share of a project under construction in Puerto Rico. (See Note 9). Other Assets: Other assets include debt issuance costs of $2,252,000 and $3,860,000 at December 31, 1997 and 1996 which are amortized on a straight-line basis over the term of the related debt. Such amortization expense was $1,582,000 in 1997, $1,176,000 in 1996 and $2,390,000 in 1995. Cash Flow Information: Short-term investments purchased with original maturities of three months or less are considered cash equivalents. In 1997, the Company capitalized $1,052,000 more in interest than was paid out in cash. Cash paid for interest (net of amounts capitalized) was $4,683,000 in 1996 and $18,520,000 in 1995. In 1997, 1996 and 1995 the Company received income tax refunds of $40,000, $1,343,000 and $1,393,000 respectively. Cash paid for income taxes was $146,000 in 1997 and zero in 1996 and 1995. The Company entered into capital leases for equipment of $3,205,000 in 1995, which are included in other notes payable. New Accounting Standards: In June 1997, the Financial Accounting Standards Board issued Financial Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS No. 130) effective for the fiscal years ending after December 15, 1998. SFAS No. 130, requires the presentation of comprehensive income in an entity's financial statements. Comprehensive income represents all changes in equity of an entity during the reporting period, including net income and charges directly to equity which are excluded from the net income. This statement is not anticipated to have any impact on the Company as the Company currently does not enter into any transactions which result in charges (or credits) directly to equity (such as additional minimum pension liability changes, currency translation adjustments, unrealized gain or loss on available for sale securities, etc.). In June 1997, the Financial Accounting Standards Board also issued Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131) effective for the fiscal years ending after December 15, 1998. SFAS No. 131, provides revised disclosure guidelines for segments of an enterprise based on management approach to defining operating segments. The management of the Company believes that it currently operates in only one industry segment and analyzes operations on a Company-wide basis, therefore the statement is not expected to impact the Company. 3. LIQUIDITY AND GOING CONCERN The consolidated financial statements as of and for the year ended December 31, 1997 have been prepared assuming the Company will continue as a going concern. The Company incurred significant losses in 1997, 1996 and 1995, has negative working capital and its liquidity is severely constrained. Certain lenders and creditors are seeking repayment and/or restructuring of the amounts due them. In 1998 the Company expects to generate losses before the sale of assets due to administrative expenses in excess of gross margin and interest expense on debt. These factors raise substantial doubt about the Company's ability to continue as a going concern in its current form. Management's plan to generate cash flow involves the sale of assets, primarily its interests in the Puerto Rico project for which it expects to receive substantial cash proceeds. There can be no assurance that the Company will be successful in implementing its plans and that the Company will continue as a going concern. Management believes that such sales, even if consummated, will not generate sufficient proceeds to ultimately provide any return of invested capital to the holders of the Company's common stock and that any proceeds received from asset sales will be used in operations or paid to creditors. In addition, the Company believes KWI may assert certain claims in bankruptcy against the Company. Consequently, after, or as a part of a sale of the Company's subsidiaries' interests in the Puerto Rico project (the Company's only project in process), the Company believes that it is likely that it, or certain of its subsidiaries, will seek protection under the Federal Bankruptcy Code. Page 25 KENETECH CORPORATION ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 4. DECONSOLIDATION OF KWI As mentioned previously, KWI filed for protection on May 29, 1996 under chapter 11 of the Federal Bankruptcy Code and reported an excess of liabilities over its assets. Although the Company continues to own the common stock of KWI and provides certain services under the jurisdiction of the Bankruptcy Court, the Company believes it is probable that such ownership will not exist after completion of the bankruptcy proceedings. Accordingly, as of May 29, 1996 KWI ceased to be accounted for as a consolidated subsidiary of the Company. The condensed results of operations for the year ending December 31, 1996 of the Company as if KWI had been deconsolidated at the beginning of that period and without giving effect to any other changes is as follows: KENETECH CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 1996 (unaudited, in thousands) Revenues $ 72,608 Costs of revenues (68,556) -------- Gross margin 4,052 Marketing & general & administrative expenses (28,115) -------- Loss from operations (24,063) Loss on sale of subsidiaries and assets (9,651) Interest expense and other (15,816) -------- Loss before income taxes (49,530) Income tax provision 23,391 -------- Net loss $(72,921) ======== The above pro forma information is for illustrative purposes and does not necessarily reflect what would have happened had KWI actually been deconsolidated at the beginning of 1996. Included in the consolidated statements of operations for the year ended December 31, 1995 were revenues, excess of expenses over revenues and loss before taxes of KWI of approximately $231,000,000, approximately $188,000,000 and approximately $234,000,000 respectively. KWI's 1996 operations through May 29, 1996 (a loss of approximately $14 million) are reflected in the accompanying consolidated financial statements. The Company's investment in KWI is recorded as zero in "Investments in Affiliates" in the accompanying December 31, 1996 consolidated balance sheet. 5. DISPOSITION OF SUBSIDIARIES AND ASSETS In conjunction with management's plans to address its liquidity the following transactions were entered into during 1997: 1) In December 1997 the Company's construction subsidiary sold its joint venture interests in the EPC contracts for the Puerto Rico project for $18,700,000 cash and incurred a net gain of $15,842,000 on this transaction. 2) The Company sold various fixed assets for which it received cash of $1,399,000 and incurred a net gain of $700,000. 3) In 1997 the Company sold a 1% general partner interest in a cogeneration plant in Jamaica for $16,000 and incurred a loss of $6,000 on this transaction. 4) Additionally the Company wrote various other assets held for disposal down to management's estimate of fair market value. Page 26 KENETECH CORPORATION ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 6. LOSS PER SHARE Loss per share amounts were calculated as follows for the years ended December 31, 1997, 1996, and 1995 (in thousands, except for per share amounts). Basic and Diluted --------------------------------- 1997 1996 1995 --------- --------- --------- Net loss $ (25,242) $ (84,241) $(250,148) Less preferred stock dividends (8,563) (8,563) (8,563) --------- --------- --------- Net loss used in per share calculations $ (33,805) $ (92,804) $(258,711) ========= ========= ========= Weighted average shares used in per share calculations 36,830 36,781 36,341 ========= ========= ========= Net loss per share $ (0.92) $ (2.52) $ (7.12) ========= ========= ========= Preferred stock dividends are added to the net loss. The Company incurred net losses after preferred stock dividends for all periods presented, therefore common stock equivalents are not included in weighted average shares used in the loss per share calculation because they would be anti-dilutive (reduce the loss per share). During February 1997, The Financial Accounting Standards Board issued Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No.128) and is effective for the fiscal years ending after December 15, 1997, and accordingly the Company has adopted SFAS No. 128 in the accompanying financial statements. SFAS No. 128 requires the presentation of basic and diluted earnings per share in financial statements of public enterprises rather than primary and fully diluted earnings as previously required. 7. SPECIAL CHARGES The Company recorded a special charge of approximately $224,600,000 as of December 31, 1995. Of this charge approximately $218,900,000 related to KWI. The special charge is primarily related to two items: (i) Performance problems with the KVS-33. During 1995 mechanical problems with the KVS-33 model wind turbines installed in 1994 and 1995 began to appear, especially in the more severe weather environments. The Company incurred substantial operating costs in 1995 as a result of the problems with the KVS-33. As a result of these problems, the Company wrote off all of its deferred engineering costs, reserved certain inventory costs related to the KVS-33, reserved a significant portion of the capitalized development costs for projects which were going to be completed using the KVS-33 and accrued the estimated retrofit costs attributable to the KVS-33. The aggregated amounts of writedowns and asset reserves were approximately $54,600,000 and accruals of liabilities of approximately $86,800,000 expected to be incurred over the next several years were based on the best information available at December 31, 1995. It is possible that actual losses may be higher or lower than the amount recognized. (ii) Energy prices. During 1995, the energy prices utilities pay based upon their "avoided costs" continued to decrease. These energy prices have a significant effect on the Company's financial condition and operations through two channels: (1) the Windplant assets owned by the Company, and (2) the profitability of maintenance and management contracts the Company has with third parties. Maintenance and management fees generally are based on a percentage of the owners' energy sales. The Company used current energy prices at December 31, 1995 based upon PG&E's "avoided costs" prices (after fixed price contract periods expire in 1997-2004), increased by modest inflation, to compute future cash flows for assessing the impairment of Windplant assets and the profitability of the Company's maintenance and management agreements with third party owners of Windplants. The Company used modest inflation because most experts expect Page 27 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 PG&E's avoided cost to increase at or below the inflation rate. Based on the calculations, using the principles of SFAS No. 121 and a present value of future net cash flows discounted at 16% to approximate fair value, certain Windplant assets and investments were written down by approximately $50,300,000. In addition, projected negative cash flows on certain maintenance and management contracts from 1996-2015 were discounted at 7% to approximate a risk free rate and a loss accrual was recognized of $32,900,000. Based on the calculations, projected negative cash flows on certain maintenance and management contracts commenced in 1996. These writedowns and reserves were based on the best information available as of December 31, 1995. It is possible that actual losses may be higher or lower than the amounts recognized. The range of variance, if any, from such amounts cannot be reasonably estimated. 8. RELATED PARTY TRANSACTIONS The Company had transactions with related parties in the ordinary course of business. Related parties consist primarily of energy plant investments in which the Company owned partnership interests ranging from less than 1% to 50% with most such investments being 1% or less. The 1996 amounts include KWI amounts through May 29, 1996 (see Note 4). Pursuant to contracts either to provide Windplants, construction services or power plant management and maintenance, the Company had the following revenues from related parties, after elimination in consolidation of the Company's ownership interest: 1997 1996 1995 -------- -------- -------- ` (in thousands) Windplant sales $ - $ 5,324 $128,626 Maintenance, management fees and other 167 8,939 19,209 Interest on partnership notes and funds in escrow - 1,125 3,313 -------- -------- -------- $ 167 $ 15,388 $151,148 ======== ======== ======== In addition, the Company has insignificant transactions with KWI relating to shared services. 9. INVESTMENT IN PUERTO RICO PROJECT A wholly-owned development subsidiary is a 50% joint venture partner with an affiliate of Enron Corporation in a project under construction in Puerto Rico. In December 1997 the project obtained construction and term debt financing. The project is a 507 MW (net) natural gas cogeneration facility and associated liquified natural gas facility which will produce electricity to be sold to Puerto Rico Electric Power Authority pursuant to a 22 year Power Purchase Agreement dated March 10, 1995. The power plant will be a combined cycle cogeneration facility consisting of two combustion turbines capable of operating on LNG, LPG, or fuel oil to generate electricity, and is expected to produce approximately 4 million megawatt hours of electricity annually under baseload conditions. Steam generated will also be used to convert sea water into fresh water in a desalination plant, which is expected to produce approximately 4 million gallons of potable water per day, of which approximately 1 million gallons per day will be required by the project, with the remainder being available for sale to local entities. This is the only project the Company (through its wholly-owned development subsidiary) has in process. The Company's wholly-owned development subsidiary intends to sell its interest in this project in 1998. Investment in the Puerto Rico project includes project development costs related to the Puerto Rico project, representing preconstruction costs incurred to complete the design of cogeneration facilities, to secure the necessary permits, to negotiate the contracts to construct and operate the project, to obtain construction financing and for other development services. Project development costs are capitalized once a project has reached the design and permitting stage and the Company has obtained a Page 28 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 power purchase agreement or other enforceable right to sell power. Also included are the cash deposited into escrow for equity, a note receivable from the project entity for the development fee, net of deferred revenue related to the note and funds received from the first financial closing. When it is probable that future projects will not be completed or costs may not be recovered, such costs are written off or reserved for. The balance sheet of the project entity (excluding escrowed cash provided by the partners) as of December 31, 1997 was: Balance Sheet December 31, 1997 (unaudited, in thousands) Cash and funds Accounts Payable $ 1,548 in escrow $ 1,690 Interest and notes payable to affiliates 34,319 Construction Construction loan payable 115,954 in progress 150,131 Equity - -------- -------- $151,821 $151,821 ======== ======== 10. FUNDS IN ESCROW The Company has various long-term debt agreements which have escrow fund requirements (see Note 15). The Company is required, under these agreements, to establish escrow accounts. Debt service payments are made from the escrow account. The escrow account balances at December 31, 1997 and 1996 were as follows: 1997 1996 ------ ------- (in thousands) Other notes payable $ 345 $ 1,581 Letters of credit collateral - 1,086 Project collateral 1,652 2,554 ------ ------- $1,997 $ 5,221 ====== ======= As of December 31, 1997, funds in escrow were invested in short-term cash investments at rates ranging from zero to 5.1%. As previously discussed KWI's funds in escrow are not reflected in the December 31, 1996 balance sheet. 11. ACCOUNTS RECEIVABLE Accounts Receivable: Accounts receivable at December 31, 1997 and 1996 consisted of: 1997 1996 -------- -------- (in thousands) Contracts - Billed: Completed contracts $ 1,342 $ 1,981 Contracts in progress 529 9,106 Retained 1,614 2,216 Contracts - Unbilled 2,175 2,782 Operations and other 554 1,855 Less: Allowance for doubtful collections (1,546) - -------- -------- $ 4,668 $ 17,940 ======== ======== At December 31, 1997 and 1996 billed and unbilled receivables did not include any amounts from related parties. Operations and other receivables include zero and $33,000 respectively from related parties at December 31, 1997 and 1996. Page 29 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 A summary of costs incurred and estimated earnings on uncompleted contracts at December 31, 1997 and 1996 follows: 1997 1996 -------- -------- (in thousands) Costs incurred and estimated earnings on uncompleted contracts $ 66,444 $151,850 Billings to date 64,999 157,346 -------- -------- $ 1,445 $ (5,496) ======== ======== Such amounts were included in the consolidated balance sheets at December 31, 1997 and 1996 as follows: 1997 1996 -------- -------- (in thousands) Costs incurred and estimated earnings in excess of billings on uncompleted contracts (accounts receivable) $ 2,175 $ 2,782 Billings in excess of costs and estimated earnings on uncompleted contracts (accrued liabilities) ( 730) (8,278) -------- -------- $ 1,445 $ (5,496) ======== ======== 12. INVESTMENT IN POWER PLANT HELD FOR SALE AND DEBT ASSOCIATED WITH POWER PLANT HELD FOR SALE Investment in power plant held for sale at December 31, 1997 and 1996 consisted of: 1997 1996 -------- -------- (in thousands) Chateaugay power plant $ 16,128 $ 19,209 ======== ======== The Company owns a 50% interest in a partnership which owns a 17.0 megawatt wood-fired electric power plant it constructed in Chateaugay, New York in September, 1993. Debt associated with this project held for sale at December 31, 1997 and 1996 consisted primarily of tax-exempt bonds. In July 1991, the partnership entered into an agreement with the County of Franklin (New York) Industrial Development Authority (the Authority) whereby the Authority loaned the partnership the proceeds of the Authority's Series 1991A Bonds issued of $34,800,000 (supported by a letter of credit from the partnership) to finance the construction of the Chateaugay project. The bonds are due July 1, 2021. As the partnership makes debt payments, the Company reduces its pro rata 50% share of the debt accordingly ($16,128,000 outstanding at December 31, 1997). In 1997, the carrying value of this investment was written down to the balance of the associated debt. Page 30 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 13. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1997 and 1996 consisted of: 1997 1996 -------- -------- (in thousands) Land $ 580 $ 580 Buildings and improvements 3,235 2,966 Cogeneration facility 22,282 26,467 Machinery, equipment and other 2,607 6,122 -------- -------- 28,704 36,135 Less accumulated depreciation 9,810 11,400 -------- -------- $ 18,894 $ 24,735 ======== ======== Depreciation expense was $1,481,000 in 1997, $6,814,000 in 1996, and $14,527,000 in 1995. As previously discussed property, plant and equipment of KWI are not reflected in the December 31, 1997 and 1996 balance sheets. 14. BANK LOAN PAYABLE On August 30, 1996, the Company entered into a $30,000,000 loan agreement to be used for the Puerto Rico project being jointly developed by the Company. Throughout 1996 and most of 1997, amounts borrowed under this agreement bore interest at the 90 day LIBOR plus 7.5%. This rate was reduced to the 90 day LIBOR plus 5.9% upon the project receiving construction financing in December 1997. The 90 day LIBOR rate was 5.8% at December 31, 1997. The loan is collateralized by the stock of a special purpose entity formed to hold through affiliates the Company's interest in this thermal power plant. No further funds are available under this agreement since the remaining funding capacity is structured to accommodate accrued and unpaid interest for the remaining term of the loan. The outstanding balance on this bank loan was $24,236,000 at December 31, 1997. Page 31 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 15. OTHER NOTES PAYABLE Other notes payable at December 31, 1997 and 1996 consisted of the following:
1997 1996 -------- -------- (in thousands) Note bearing interest at 11.3%, due in equal annual installments of principal and interest through 2002, collateralized by a cogeneration facility owned by the Company and requiring an escrow account. $ 7,689 $ 8,667 Borrowings under a $5,000,000 revolving credit agreement bearing interest at 1% above the bank's prime rate through November 1997. (1) - 166 Borrowings under a $7,500,000 term loan agreement bearing interest at the bank's prime rate through August 31, 1996 and at 1% above the bank's prime rate thereafter, due in quarterly installments of $267,857 plus interest through December 31, 2000 and $2,142,860 due on March 31, 2001. (1) - 6,351 Borrowings under a $4,400,000 revolving loan agreement, interest rate selected by the Company from specified alternatives (7.4% and 7.6% at December 31, 1997 and 1996, respectively), convertible to a 15-year term loan, payable semi-annually, collateralized by land, building and equipment. (1) - 3,645 Borrowings under a $1,200,000 loan agreement, due in 1999 bearing interest at prime plus 3% (11.25% at December 31, 1997). 1,144 641 Notes bearing interest at 7.0% due through 1999.(2) 6 504 Other obligations bearing interest at 8.2% to 9.9% due through 1999, collateralized by equipment. 39 191 -------- -------- $ 8,878 $ 20,165 ======== ======== (1) Facility was associated with the Company's construction subsidiary and was paid off and terminated in December 1997. (2) The Company did not make the required principal and interest payment on December 1, 1996 and the holders of the notes notified the Company of their collective intention to accelerate the obligation to pay the unpaid balance of the notes plus accrued interest. In 1997, the Company paid $360,000 in full settlement of $540,000 of unpaid principal and interest.
Certain of the debt agreements provide events of default including provisions which allow the lenders to accelerate repayment of the debt should other debt of the Company experience an event of default which would cause such other debt to be accelerated. Because of these provisions all other notes payable are considered current. The Company maintained a revolving credit agreement for working capital purposes which was due to expire on May 30, 1996. This agreement required the Company to meet certain financial ratios, net worth tests and indebtedness tests. In April 1996 the Company renegotiated the revolving credit agreement to provide for up to $5,000,000 for working capital purposes for the Company's construction subsidiary (CNF) through April 30, 1997. The renegotiated agreement also provided a term loan of $7,500,000 which was used to pay the $5,000,000 outstanding at March 30, 1996 and to provide cash collateral for up to $2,500,000 in outstanding letters of credit. The loan would have become immediately payable upon the sale of CNF. The agreement required CNF to meet certain net worth, financial ratio and debt service coverage tests. At December 31, 1996 CNF was not in compliance with these covenants. The bank issued a notice of default letter which stated that due to KWI's bankruptcy filing and certain covenant violations it would not make any further advances under the revolving credit agreement. The balance due under this facility was paid off in December 1997 and the facility was terminated. Page 32 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 16. SENIOR SECURED NOTES PAYABLE In December 1992 the Company sold $100,000,000 of 12-3/4% Senior Secured Notes due 2002. The notes were sold at a discount of $1,389,000. Such discount is being amortized on the effective yield method through 2002. The unamortized discount was $861,000 at December 31, 1997. Interest on these notes is due June 15 and December 15 of each year. The Notes are redeemable, at the option of the Company, beginning December 15, 1997 at 106% of par, beginning December 15, 1998 at 103% of par, and beginning December 15, 1999 at par. Under the terms of the note indenture, the Company is restricted from paying cash dividends on its common stock and must comply with certain covenants, the most restrictive of which place limitations on payment of such dividends, repurchasing common stock, incurring additional indebtedness, pledging of assets and advances or loans to affiliates. The indenture provides for an event of default (including the acceleration of the repayment of the Notes) should other debt of the Company be accelerated because the other debt was in default. The Company did not pay the interest due June 15 and December 15, 1997 or June 15 and December 15, 1996 totaling $12,750,000 for each year respectively, and is in default. At December 31, 1997 and 1996 the debt was classified as a current liability. 17. STOCKHOLDERS' DEFICIENCY Convertible Preferred Stock: In May and June 1994, the Company sold 102,492 shares of 8 1/4% convertible preferred stock with a stated value of $1,012.50 per share resulting in net proceeds of approximately $99,561,000 after underwriting discount and expenses. Dividends are cumulative from the date of original issuance and are payable quarterly in arrears, when and as declared by the Company's board of directors. The voluntary and involuntary liquidation value of each preferred share is equal to the stated value plus unpaid dividends. Preferred stockholders have the same voting rights as common stockholders at the rate of 40 votes per preferred share. The holders of the preferred stock may convert their shares into common stock at any time at the rate of 41.665 common shares for each preferred share. The preferred stock is not convertible by the Company prior to May 15, 1997. However, after that date and prior to May 15, 1998, the Company may convert the preferred stock and should be expected to do so if the then current market value exceeds the call price as defined. At such time the preferred shareholder would receive the number of common shares equal to the call price (initially $1,033.40, declining ratably to $1,012.50) divided by the market price of the common stock, but in no event fewer than 41.665 common shares for each share of preferred stock. If not previously converted, on May 14, 1998, each preferred share will mandatorily convert into 50 shares of common stock and the right to receive cash equal to all accrued and unpaid dividends. The Company has recorded a liability as of December 31, 1997 and 1996 for unpaid dividends of $18,196,000 and $9,633,000 respectively. The preferred stock is held by a depositary and 5,124,600 depositary shares have been issued. Each depositary share represents one-fiftieth of a preferred share, with the holder entitled, proportionately, to all the rights and preferences of the underlying preferred stock. Stock Options: The Company currently has various stock option plans and programs under which both qualified and non-qualified incentive stock options have been granted. Options authorized and available for grant at December 31, 1997 totaled approximately 4,097,000 shares in addition to 2,019,300 shares granted and outstanding at December 31, 1997. Page 33 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 Stock option activity during 1997, 1996 and 1995 was as follows: Exercise Options Price --------- --------------- Outstanding December 31, 1995 2,135,000 1.25 - 23.25 Granted 1,750,000 0.81 Canceled (1,378,000) 1.25 - 23.25 --------- Outstanding December 31, 1996 2,507,000 0.81 - 19.75 Canceled (487,700) 0.81 - 19.75 --------- Outstanding December 31, 1997 2,019,300 0.81 - 19.75 ========= The weighted average exercise price of outstanding options at December 31, 1997 was $3.4825. Stock options vest as follows: Exercise Shares Price --------- ---------------- Currently exercisable 425,000 $ 1.25 - $19.75 1998 44,100 12.81 - 16.50 1999 25,200 12.81 - 16.50 2000 25,000 16.50 2001 - 2002 1,500,000 0.81 --------- 2,019,300 ========= The Financial Accounting Standards Board (FASB) has issued Statement No. 123. "Accounting for Stock-Based Compensation" which is effective for 1996 financial statements. SFAS No. 123 requires either recognition of compensation expenses for stock options and other stock-based compensation or supplemental disclosure of the impact such expense recognition would have had on the Company's results of operations had the Company recognized such expense. The Company has elected the supplemental disclosure option. The Company believes that the effects on the reported net loss for 1997, 1996 and 1995 had stock-based compensation been recognized as expense under the provisions of SFAS No. 123 would not be material. 18. INCOME TAXES The provision (benefit) for income taxes consists of the following: 1997 1996 1995 -------- -------- -------- (in thousands) Current: Federal $ - $ 54 $ (590) State - 150 105 Foreign - 100 - -------- -------- -------- - 304 (485) -------- -------- -------- Deferred: Federal - 20,201 (17,965) State - 2,886 (3,049) -------- -------- -------- - 23,087 (21,014) -------- -------- -------- Total income tax provision (benefit) $ - $ 23,391 $(21,499) ======== ======== ======== Page 34 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 A reconciliation of the total income tax (benefit) to income taxes calculated at the federal statutory tax rate of 35% is as follows: 1997 1996 1995 -------- -------- --------- (in thousands) (Loss) before income taxes $(25,242) $(61,568) $(271,647) ======== ========= ========= Statutory federal income tax (benefit) provision $ (8,835) $(21,549) $ (95,076) State income taxes, less federal tax benefit (1,262) (2,928) (16,136) Change in valuation allowance due to current operations 10,097 24,627 89,705 Reduction of net deferred tax asset attributable to deconsolidation of KWI - 23,087 - Other - 154 8 -------- -------- --------- Total income tax provision (benefit) $ - $ 23,391 $ (21,499) ======== ======== ========= As of December 31, 1997 and 1996, the deferred tax balances consisted of the following: 1997 1996 -------- -------- (in thousands) Current assets $ 4,340 $ 4,340 -------- -------- 4,340 4,340 Current liabilities (40) (40) -------- -------- Current deferred tax assets, net $ 4,300 $ 4,300 ======== ======== Noncurrent assets: Dealer installment sales $ - $ - Federal and state net operating loss and tax credit carryforwards 45,759 37,662 Gain on sale of fixed assets and investment interests 3,461 3,061 Project development costs 5,855 4,655 Other 800 800 -------- -------- 55,875 46,178 Valuation allowance (32,273) (22,176) -------- -------- 23,602 24,002 Noncurrent liabilities: Depreciation and basis differences (4,742) (5,142) Other (5,247) (5,247) -------- -------- (9,989) (10,389) -------- -------- Noncurrent deferred tax assets, net $ 13,613 $ 13,613 ======== ======== Deferred income tax assets and liabilities reflect the tax effects of temporary differences between the tax basis of assets and liabilities and the reported amounts of these assets and liabilities for financial reporting purposes. SFAS No. 109 requires that a valuation allowance be recorded against tax assets which are more likely than not to not be realized which resulted in $10,097,000 and $24,627,000 being recognized in 1997 and 1996. After the deconsolidation of KWI, the Company's recorded net deferred tax asset is $17,913,000. This amount will be realized if taxable net gains of approximately $50,000,000 are recognized, which management believes is more likely than not to be realized from the sale of the Company's interests in the Puerto Rico project. It is possible that the actual deferred tax assets realized may be higher or lower than the amounts currently recognized. Page 35 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 The following table summarizes carryforwards (including KWI) available for income tax purposes at December 31, 1997 (in thousands): Expiration Dates ----------------- Investment tax credits $ 1,706 2003 through 2005 Research and development tax credits, federal and state 2,307 2003 and 2008 California solar tax credits 7,693 Indefinite Alternative minimum tax credit 1,784 Indefinite Net operating loss - federal 137,462 2007 through 2012 Net operating losses of acquired subsidiaries subject to restrictions 2,202 2001 through 2005 Production Tax Credit 1,675 2009 through 2011 The Company's tax position could be adversely effected by changes in the Company's ownership or the resolution of KWI's bankruptcy. 19. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount and estimated fair values of the Company's financial instruments at December 31, 1997 and 1996 were as follows: 1997 1996 ------------------- ------------------- Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Value -------- --------- -------- --------- (in thousands) Assets: Cash and cash equivalents $ 7,294 $ 7,294 $ 17,208 $ 17,208 Funds in escrow 1,997 1,997 5,221 5,221 Liabilities: Power plant construction financing 16,128 - 16,958 - Senior secured notes payable 99,139 - 99,005 - Other notes payable 8,878 - 20,165 - The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents: The carrying amount is a reasonable estimate of fair value. Funds in escrow: Fair value represents market value as reported by the financial institution holding the funds in escrow. Power plant construction financing, Senior secured notes payable, and Other notes payable: For 1997 and 1996, the fair value is undeterminable. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1997 and 1996. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates, and estimates of fair value subsequent to those dates may differ significantly from the amounts presented herein. Page 36 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 20. COMMITMENTS AND CONTINGENCIES Leases: At December 31, 1997 the Company had various operating lease agreements covering facilities and equipment. Substantially all leases provide for renewal options which give the Company the right to extend the leases at reduced rentals. Minimum rental commitments for future years are as follows (in thousands): 1998 $ 527 1999 453 2000 316 2001 102 2002 86 Thereafter 1,634 Lease expense totaled $411,000 in 1997, $1,689,000 in 1996, and $8,699,000 in 1995. Litigation: On September 28, 1995, a class action complaint was filed against the Company and certain of its officers and directors (namely, Stanley Charren, Maurice E. Miller, Joel M. Canino and Gerald R. Alderson), in the United States District Court for the Northern District of California, alleging federal securities laws violations. On November 2, 1995, a First Amended Complaint was filed naming additional defendants, including underwriters of the Company's securities and certain other officers and directors of the Company (namely, Charles Christenson, Angus M. Duthie, Steven N. Hutchinson, Howard W. Pifer III and Mervin E. Werth). Subsequent to the Court's partial grant of the Company's and the underwriter defendants' motions to dismiss, a Second Amended Complaint was filed on March 29, 1996. The amended complaint alleges claims under sections 11 and 15 of the Securities Act of 1933, and sections 10(b) and 20(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, based on alleged misrepresentations and omissions in the Company's public statements, on behalf of a class consisting of persons who purchased the Company's common stock during the period from September 21, 1993 (the date of the Company's initial public offering) through August 8, 1995 and persons who purchased the Company's preferred stock during the period from April 28, 1994 (the public offering date of the preferred stock) through August 8, 1995. The amended complaint alleges that the defendants misrepresented the Company's progress on the development of its latest generation of wind turbines and the Company's future prospects. The amended complaint seeks unspecified damages and other relief. In separate orders dated March 24, 1997 and April 16, 1997, the Court granted plaintiffs' motion for certification of a plaintiff class consisting of all persons or entities who purchased KENETECH common stock between September 21, 1993 and August 8, 1995 or KENETECH depository shares between April 28, 1994 and August 8, 1995, appointed representatives of the certified plaintiff class, appointed counsel for the certified class and denied without prejudice plaintiffs' motion for certification of an underwriter defendant class. The plaintiffs then filed a Third Amended Complaint adding additional plaintiffs alleged to have claims based on section 11 of the Securities Act of 1933. On October 15, 1997, the Court issued an order certifying a plaintiff and defendant underwriter class as to the section 11 claim. There have been two unsuccessful attempts at mediation to settle the action and one unsuccessful settlement conference ordered by the federal judge presiding over the action. Trial in this action is scheduled for the summer of 1998. The Company intends to continue to contest the action vigorously. Enercon Litigation: In 1996, Enercon GmbH ("Enercon") filed suit in Federal Court against the Company, individual officers of the Company and/or KENETECH Windpower, Inc. ("KWI"), and KWI's expert witness in proceedings before the U.S. International Trade Commission (the "ITC"), for alleged misconduct related to patent infringement proceedings instituted by KWI against Enercon and The New World Power Corporation ("New World Power") that resulted in issuance of an exclusion order by the ITC that barred Enercon and New World Power from importing infringing wind turbines products into the United States. In its suit, Enercon alleges malicious prosecution, patent misuse and anti-trust violations. Enercon has appealed Page 37 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 the ITC's exclusion order to the Federal Circuit Court of Appeals in addition to filing this suit. Upon motion of the defendants, this suit has been stayed by the Federal District Court pending the outcome of the appeal of the exclusion order. Puerto Rico Litigation: In connection with the LNG-fired power plant being developed in Penuelas, Puerto Rico by EcoElectricia, L.P., a partnership whose partners are subsidiaries of the Company and Enron Corporation, certain environmental groups, citizens and the union which represents electrical workers for the Puerto Rico Electric Power Authority ("PREPA") brought a civil action challenging the procedure used by PREPA to select, among others, EcoElectrica to design, finance, construct, own and operate the Penuelas, Puerto Rico project, and requesting injunctive and declaratory relief. On January 21, 1997, the Ponce Superior Division of the Court of First Instance of Puerto Rico (the trial court) (No. JPE 96- 0345) dismissed the complaint, holding that PREPA's selection of the independent power producers need not have been done through public bidding pursuant to section 205 of PREPA's Organic Act. On March 13, 1997, the plaintiffs, Mision Industrial de Puerto Rico, Inc., the Union de Trabajadores de la Industria Electrica y Riego (UTIER), Guayamenses Pro-Salud y Buen Ambiente, Bartolome Diana, SURCCO, Inc. and Jose E. Olivieri Antonmarchi (Appellants), filed an appeal before the Circuit Court of Appeal of Puerto Rico (No. KLAN 97-00236), appealing the judgment entered against them. EcoElectrica intervened in the action before the trial court and the appeal is currently pending. Westinghouse Litigation: C. N. Flagg Incorporated, a wholly-owned subsidiary of CNF Industries, Inc., has instituted legal proceedings against Westinghouse Electric Corporation ("Westinghouse") in the U.S. Federal District Court in Minnesota to recover $6.0 million as compensation for a termination of convenience of a project C. N. Flagg was building on behalf of Westinghouse. Westinghouse has filed a counter-claim for $2.6 million alleging overpayment. C. N. Flagg filed a motion for summary judgment which was denied. Wrongful Termination Litigation: On December 31, 1987, a former employee of CN Flagg Power, Inc. ("CN Power") (formerly, a wholly-owned subsidiary of CNF Industries, Inc.) filed a complaint with the State of Connecticut Commission of Human Rights and Opportunities (the "Commission") alleging that he was wrongfully terminated from his position at Millstone Point, a nuclear energy generation facility owned and operated by Northeast Utilities ("Northeast"). CN Flagg's motion to dismiss the complaint has been denied by the Commission; Northeast's motion to dismiss is pending. Damages are alleged to be in the area of $300,000. Eemsmond Litigation: Certain companies have threatened to bring suit against CNF Constructors, Inc. ("CNF") (a wholly-owned subsidiary of CNF Industries, Inc.) alleging CNF's failure to make payments on certain equipment or civil construction services supplied in connection with the construction of a windplant in The Netherlands. The amounts alleged to be unpaid are in the area of $2,000,000. General Motors Litigation: Plaintiffs CCF-1, Inc., Flagg Energy Development Corporation (each a direct or indirect wholly-owned subsidiary of KENETECH Energy Systems, Inc.) and Process Construction Supply, Inc. (a wholly-owned subsidiary of CNF Industries, Inc.) brought suit against defendant General Motors ("GM") in Connecticut State Court alleging breach of contract, breach of express warranty, breach of implied warranty, breach of repair warranty, misrepresentation and unfair trade practices involving gas turbine engines installed at the Hartford Hospital co-generation plant owned by CCF-1. The trial court either struck or granted summary judgment in GM's favor on all causes of action, except the claim for breach of repair warranty. A directed verdict was entered in favor of GM upon trial of the one remaining cause of action. An appeal by the plaintiffs to the Supreme Court of the State of Connecticut seeking reversal of the directed verdict, the trial court's order to strike and the grant of summary judgment and remand of the matter for trial on all causes of action is pending. Page 38 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1997, 1996 and 1995 Other: The Company is also a party to various other legal proceedings normally incident to its business activities. The Company intends to defend itself vigorously against these actions. It is not feasible to predict or determine whether the ultimate outcome of the above-described matters will have a material adverse effect on the Company's financial position. The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. The Company's management has made no evaluation regarding the anticipated costs, problems and uncertainties associated with the Year 2000 issue. Employment Contracts: Certain officers have employment contracts. 21. QUARTERLY INFORMATION (UNAUDITED) Unaudited quarterly information for 1997 and 1996 was as follows (in thousands, except per share amounts): Year Ended December 31, 1997 - Quarters First Second Third Fourth ------- -------- ------- -------- Total revenues $11,980 $ 12,918 $ 8,624 $ 7,471 Gross margin (Excess of expenses over revenues) 295 (41) (3,954) (307) Net income (loss) (9,906) (4,874) (10,250) (212) Per common share: Basic & Diluted - net income (loss) $ (0.33) $ (0.19) $ (0.34) $ (0.06) Year Ended December 31, 1996 - Quarters First Second Third Fourth ------- -------- ------- -------- Total revenues $27,709 $ 29,491 $16,455 $ 18,235 Gross margin (Excess of expenses over revenues) 397 8,163 242 (617) Net loss (16,750) (32,435) (10,155) (24,901) Per common share: Basic & Diluted - net loss $ (0.52) $ (0.94) $ (0.33) $ (0.73) 1997: In the fourth quarter the Company's construction subsidiary sold its joint venture interests in the Puerto Rico EPC contracts for a net gain. In the third quarter the Company wrote off the two turbines which failed at its wholly-owned cogeneration plant causing the excess of expenses over revenues to increase significantly. 1996: As mentioned previously, KWI filed for protection on May 29, 1996 under chapter 11 of the Federal Bankruptcy Code and reported an excess of liabilities over its assets. Although KENETECH continues to own the common stock of KWI and provides certain services under the jurisdiction of the Bankruptcy Court, KENETECH believes it is probable that such ownership will not exist after completion of the bankruptcy proceedings. Accordingly, as of May 29, 1996 KWI ceased to be accounted for as a consolidated subsidiary of KENETECH. The effect of the deconsolidation was the recognition of a loss, a substantial portion of which primarily related to $23,087,000 million of net deferred tax assets relating to KWI. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure -------------------- Not applicable. Page 39 PART III Item 10. Directors and Executive Officers of the Registrant - -------------------------------------------------------------- Directors and Executive Officers of the Company as of March 1, 1998, their ages and their present titles: Name Age Position ---- --- -------- Gerald R. Alderson 51 Director Charles Christenson 67 Director Angus M. Duthie 58 Chairman of the Board of Directors Mark D. Lerdal 39 Director, Chief Executive Officer and President Michael U. Alvarez 41 Vice President James J. Eisen 42 General Counsel, Vice President and Assistant Secretary Nicholas H. Politan 36 Chief Financial Officer, Vice President and Assistant Secretary Mervin E. Werth 51 Controller, Chief Accounting Officer and Assistant Treasurer BIOGRAPHICAL INFORMATION KENETECH Corporation, a Delaware corporation, was formed in 1986 as a holding company of KENETECH Windpower, Inc. (formerly, U.S. Windpower, Inc.). References to KENETECH are, prior to 1986, references to KENETECH Windpower, Inc. GERALD R. ALDERSON is a Director and the President of National Kilowatt, an unregulated electric retailer, and of Wattmonitor, an information services company for the electric industry. Mr. Alderson has served as a Director of KENETECH since September 1983 and served as Chairman of the Board from March 1995 until March 1996. He served as KENETECH's President and Chief Executive Officer from August 1981 until October 1995 and December 1995, respectively. He received his B.A. from Occidental College and his M.B.A. from the Harvard University Graduate School of Business Administration. He is a Class I Director. CHARLES CHRISTENSON is the Royal Little Professor of Business Administration, Emeritus, at the Harvard University Graduate School of Business Administration and has served as a Director of KENETECH since January 1980. In the past, he was Deputy for Management Systems in the Office of the Assistant Secretary of the Air Force, and held a variety of teaching and administrative positions at the Harvard University Graduate School of Business Administration. He received his B.S. from Cornell University and his M.B.A. and D.B.A. from Harvard University. He is a Class III Director. ANGUS M. DUTHIE is a general partner of Prince Ventures and has served as a Director of KENETECH since December 1980. He was elected as Chairman of the Board of KENETECH in March 1996. Prince Ventures manages various capital funds, in all of which F.H. Prince & Co., Inc. is a significant investor. F.H. Prince & Co., Inc. is a privately held corporation with business interests in real estate, as well as investments, both private and public. Mr. Duthie is also a director of Occupational Health and Rehabilitation, Inc., a publicly held company. Mr. Duthie holds a B.A. from Miami University (Ohio). He is a Class III Director. MARK D. LERDAL has served as a Director of KENETECH since March 1996 and as Chief Executive Officer and President since April 1996. He served as Vice President and General Counsel of KENETECH from April 1992 until March 1996. From April 1990 to March 1992 he served as Vice President and Counsel of KENETECH Energy Systems, Inc. He received his A.B. from Stanford University and his J.D. from Northwestern University School of Law. He is a Class III Director. MICHAEL U. ALVAREZ has served as Vice President of KENETECH since July 1994. He has served as President of KENETECH Energy Systems, Inc. since December 1993 and served as its Vice President from September 1991 until his election as President. He received his B.A. and J.D. from the University of Virginia. JAMES J. EISEN has served as Vice President and General Counsel of KENETECH and Vice President of KENETECH Windpower, Inc. since April 1996. He has served as General Counsel of KENETECH Windpower, Inc. since April 1991 and Page 40 served as Counsel from 1986 to 1991. He received two Bachelor of Science degrees from the Massachusetts Institute of Technology and his J.D. from New York University School of Law. NICHOLAS H. POLITAN has served as Vice President and Chief Financial Officer of KENETECH since April 1996. He served as Vice President and Chief Financial Officer of KENETECH Windpower, Inc. from August 1995 and April 1996, respectively, until June 1998. He has served as Vice President of KENETECH Energy Systems, Inc. since March 1995, and served as Counsel from September 1992 until March 1995. He received his B.A. from Duke University and his J.D. from Stanford Law School. MERVIN E. WERTH has served as Controller of KENETECH since August 1991. Prior to that time, he was a Senior Manager for Deloitte & Touche LLP and Treasurer of Friends of Photography. He received his B.S. from University of California, Berkeley. Each officer is generally elected to hold office until the next Annual Meeting of the Company's Board of Directors. Directors are elected for a three-year term. Each of Gerald R. Alderson and Mark D. Lerdal were directors of and Gerald R. Alderson, Mark D. Lerdal, Michael U. Alvarez, James J. Eisen and Nicholas H. Politan were executive officers of KENETECH Windpower, Inc. within the two-year period prior to KENETECH Windpower, Inc.'s chapter 11 filing in the United States Bankruptcy Court. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 and regulations of the Securities and Exchange Commission thereunder require the Company's executive officers and directors and persons who own more than ten percent of the Company's stock, as well as certain affiliates of such persons, to file initial reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC"). Executive officers, directors and persons owning more than ten percent of the Company's stock are required by the SEC's regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of Forms 3, 4 and 5 and amendments thereto received by the Company and written representations that no other reports were required for those persons, the Company believes that, during the fiscal year ended December 31, 1997, all filing requirements applicable to its executive officers, directors and owners of more than ten percent of the Company's stock were complied with, except that Mervin E. Werth filed one late report covering one transaction. Item 11. Executive Compensation - ---------------------------------- Each Director of the Company receives a quarterly retainer of $5,000 plus a $500 fee for each board meeting attended. In addition, each Director who serves on either of the Audit Committee or the Compensation Committee receives a meeting fee of $500 for attending any meeting of such Committees not held in conjunction with a meeting of the Board of Directors (see also footnote 1 to Summary Compensation Table). Directors were also eligible to receive automatic stock option grants under the Automatic Option Grant Program of the Company. The Automatic Option Grant Program has been discontinued and the Directors have not received any automatic option grants since 1995. See "Stock Plans" below. The following table sets forth, for the fiscal years ended December 31, 1997, 1996 and 1995, all compensation, for services rendered in all capacities to KENETECH and its consolidated subsidiaries (except as otherwise noted), awarded to, earned by or paid to (i) all individuals serving as Chief Executive Officer during 1997, (ii) the four most highly compensated executive officers of the Company in addition to the Chief Executive Officer who were serving as executive officers at the end of 1997, and (iii) a former executive officer of the Company for whom disclosure would have been provided but for the fact that such individual was not serving as an executive officer at the end of 1997. The table excludes compensation paid by KENETECH Windpower, Inc. in 1996 and 1997 since it ceased to be accounted for as a consolidated subsidiary in 1996. Page 41
SUMMARY COMPENSATION TABLE ================================================================================================================ Long-Term Compensation All Other Compensation Annual Compensation Awards ($)(3) ------------------------------------------- ------------ ---------------------- Securities Other Annual Underlying Name Compensation Options Principal Position Year Salary Bonus ($)(1) (#)(2) ========================== ---- --------- --------- ------------ ------------ ---------------------- Mark D. Lerdal 1997 $ 401,295 $ 250,000 $ 21,500 - $ 1,165,071 Chief Executive Officer, 1996 $ 387,762 $ 300,000 $ 21,500 500,000 $ 1,152 President and Director 1995 $ 202,432 $ 20,000 - - - ========================== ---- --------- --------- ------------ ------------ ---------------------- Michael U. Alvarez 1997 $ 351,134 $ 364,920 - - $ 1,388 Vice President 1996 $ 380,152 $ 200,000 - 250,000 $ 1,388 1995 $ 225,729 $ 170,000 - - - ========================== ---- --------- --------- ------------ ------------ ---------------------- James J. Eisen 1997 $ 90,407 $ 59,880 - - $ 165,750 General Counsel, 1996 $ 144,395 $ 31,000 - 250,000 - Vice President and 1995 $ 105,572 $ 20,772 - - - Assistant Secretary (4) ========================== ---- --------- --------- ------------ ------------ ---------------------- Nicholas H. Politan 1997 $ 175,567(5)$ 540,440(5) - - $ 175,000 Chief Financial Officer, 1996 $ 178,261 $ 214,240 - 250,000 - Vice President and 1995 $ 125,488 - - - - Assistant Secretary ========================== ---- --------- --------- ------------ ------------ ---------------------- Mervin E. Werth 1997 $ 125,405 - - - -(6) Controller, 1996 $ 125,405 $ 125,000 - - -(6) Chief Accounting Officer 1995 $ 125,405 $ 9,375 - - - and Assistant Treasurer ========================== ---- --------- --------- ------------ ------------ ---------------------- Michael A. Haas 1997 $ 40,857 $ 252,597 - - $ 95,700 (Vice President until 1996 $ 93,780 $ 59,100 - 250,000 - 4/11/97) (7) 1995 $ 95,419 $ 50,000 - - - ================================================================================================================ (1) Includes $21,500 in 1997 and 1996 for director's fees for Mark D. Lerdal. (2) Shares of Common Stock subject to stock options granted during the fiscal year. No stock appreciation rights were granted during 1997, 1996 or 1995. (3) Includes $1,152 and $1,388 for 1997 and 1996 for insurance premiums paid by the Company with respect to term life insurance for the benefit of Mark D. Lerdal and Michael U. Alvarez, respectively, a pre-paid severance payment of $1,163,919 for Mark D. Lerdal, and severance payments of $175,000 paid to Nicholas H. Politan, $165,750 paid to James J. Eisen and $95,700 paid to Michael Haas upon termination of such individual's respective Employment Agreement with the Company. (4) In addition, KENETECH Windpower, Inc. paid Mr. Eisen a bonus of $50,999 from gross proceeds of certain asset sales occurring in 1996, $82,766 in salary, and $21,250 in bonus from gross proceeds of certain asset sales in 1997 and $183,582 in bonuses primarily earned in 1997 from proceeds of certain asset sales occurring in January 1998. (5) Includes a bonus of $267,163 primarily earned in 1997 from proceeds of certain asset sales occurring in January 1998. Although all of Mr. Politan's compensation is paid by KENETECH Corporation, approximately $640,000 was funded by KENETECH Windpower, Inc. (6) All of the defendant officers and directors (including Mr. Werth) and KENETECH Corporation are jointly represented by the same counsel in the securities class action described in Item 3 to this 10-K. A portion of such counsel's legal fees has been paid by the Company, however, such fees have not been apportioned among the individual defendants. (7) In addition, KENETECH Windpower, Inc. paid Mr. Haas $33,441 in salary and $406,823 in bonus from gross proceeds of certain asset sales in 1996 and $15,480 in salary and $19,500 in bonus from gross proceeds of certain asset sales in 1997.
No options or stock appreciation rights were awarded to the Chief Executive Officer or the named executive officers of the Company during the fiscal year ended December 31, 1997. The following table sets forth information concerning option exercises and option holdings for the fiscal year ended December 31, 1997, with respect to the Chief Executive Officer and the named executive officers of the Company. No stock appreciation rights were outstanding during such fiscal year. Page 42
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES ================================================================================================================== Number of Securities Value of Unexercised Shares Underlying Unexercised Options In-the-Money Options Acquired on Value At Fiscal Year-End At Fiscal Year-End Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable (1) =================== ------------ ------------ ------------------------------ ----------------------------- Mark D. Lerdal - - 31,000/535,000 -/- =================== ------------ ------------ ------------------------------ ----------------------------- Michael U. Alvarez - - 130,000/280,000 -/- =================== ------------ ------------ ------------------------------ ----------------------------- James J. Eisen - - -/250,000 -/- =================== ------------ ------------ ------------------------------ ----------------------------- Nicholas H. Politan - - 2,400/250,600 -/- =================== ------------ ------------ ------------------------------ ----------------------------- Mervin E. Werth - - 20,000/2,500 -/- =================== ------------ ------------ ------------------------------ ----------------------------- Michael A. Haas - - 000,000/000,000 -/- =================== ------------ ------------ ------------------------------ ----------------------------- (1) The exercise price of all options exceeds the market price of the underlying shares at December 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1997, Messrs. Christenson, Duthie and Pifer(1), served as members of the Compensation Committee of the Company. None of the members of the Compensation Committee have ever been officers or employees of the Company. Mr. Lerdal may have attended meetings of the committee, but was not present during deliberations or discussions regarding his own compensation. (1) Howard W. Pifer III resigned effective February 21, 1997 from the Board of Directors. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS Messrs. Alvarez, Lerdal and Werth are the only executive officers of the Company currently under an employment agreement. Messrs. Eisen, Haas and Politan were under employment agreements during part of the fiscal year ended December 31, 1997 and entered into the severance agreements described below. KENETECH Energy Systems, Inc. and certain direct or indirect wholly-owned subsidiaries entered into an Employment Agreement with Mr. Alvarez that became effective December 1, 1997 (such agreement superseded Mr. Alvarez's prior employment agreement). The Employment Agreement provides that Mr. Alvarez is to be employed (unless terminated for cause) at his annual base salary of $350,000 until the later of i) December 31, 1998, (ii) 90 days following the sale of the Company's interests in the Penuelas, Puerto Rico project, or (iii) the date on which all payments under the Agreement have been made. In the event of a change in control, Mr. Alvarez will receive a lump sum payment equal to his annual base salary. Under the terms of the Employment Agreement, Mr. Alvarez was paid a $350,000 bonus in 1997 upon the closing of the construction financing for the Penuelas, Puerto Rico project, and may earn a bonus of up to $1,920,000 from the proceeds of the sale of the Company's interests in the Penuelas, Puerto Rico project, if such proceeds exceed $100 million and up to $262,500 from the proceeds of the sale of certain assets of KENETECH Energy Systems, Inc. The Company entered into an Employment Agreement with Mr. Eisen on April 12, 1996 that provided that Mr. Eisen would be (i) employed by the Company at annual base salary of $165,000, and (ii) entitled to receive a lump sum severance payment equal to his base salary for one year and continue to be covered by the Company health care and life insurance for one year. Upon a Change in Control, Mr. Eisen would receive a lump sum payment equal to one year's base salary. Pursuant to the terms of a Separation Agreement and Mutual Release entered into by the Company and Mr. Eisen on June 30, 1997, Mr. Eisen's Employment Agreement was terminated and he received a lump sum payment of $165,750. Mr. Eisen continues to be employed as an at-will employee of KENETECH Windpower, Inc. Page 43 The Company entered into an Employment Agreement with Mr. Lerdal on April 1, 1996. Mr. Lerdal's initial employment period runs for a period of three years ending March 31, 1999 and is automatically renewable upon mutual agreement for an unlimited series of one-year periods. Pursuant to the terms and conditions of the Agreement, Mr. Lerdal (i) received a bonus of $100,000 upon execution of the Agreement, (ii) will receive a minimum annual base salary of $400,000 (subject to yearly adjustment), (iii) will be eligible to receive an annual bonus of up to 25% of his base salary, and (iv) will be eligible to earn additional bonuses of up to $450,000 upon the occurrence of certain stated objectives. All of the objective payments have been earned including the $250,000 paid as a bonus in 1997. In the event of Mr. Lerdal's involuntary termination (other than for cause) including non-renewal of the employment period, he will receive a severance payment equal to two years base salary plus health care and life insurance coverage for an additional two years. In the event of Mr. Lerdal's involuntary termination or resignation within six months of a Change in Control, Mr. Lerdal will receive a lump sum payment equal to one year's salary in addition to the payments set forth in the immediately preceding sentence. The severance provisions of such agreement were pre-funded in March 1997. The Company entered into an Employment Agreement with Mr. Politan on April 12, 1996 that provided that Mr. Politan would be (i) employed by the Company at an annual base salary of $175,000, (ii) entitled to receive a lump sum severance payment equal to his base salary for one year and continue to be covered by the Company health care and life insurance for one year, (iii) entitled to receive a bonus in the amount of $75,000 on December 31, 1996, and (iv) entitled to a bonus of $75,000 upon the occurrence of certain stated objectives. Upon a Change in Control, Mr. Politan would receive a lump sum payment equal to one year's base salary plus all unpaid bonuses. Pursuant to the terms of a Separation Agreement and Mutual Release entered into by the Company and Mr. Politan on August 1, 1997, Mr. Politan's Employment Agreement was terminated and he received a lump sum payment of $175,000. Mr. Politan was re-hired as an at-will employee of the Company. The Company has agreed to enter into a Retention Incentive Agreement with Mr. Werth which will provide that Mr. Werth will receive an incentive payment of $25,000 for each calendar quarter that he remains employed by the Company. The Company entered into a Separation Agreement and Mutual Release with Mr. Haas on March 12, 1997 that terminated Mr. Haas's Employment Agreement effective April 11, 1997. Pursuant to the terms and conditions of the Separation Agreement, Mr. Haas received a single lump sum payment of $95,700. STOCK PLANS The 1993 Option Plan and the 1993 Stock Purchase Plan (the "Purchase Plan") were implemented in September 1993. The Purchase Plan was discontinued following the August 1996 semi-annual purchase date. No Options were granted under the 1993 Option Plan during 1997. The Company has registered shares of Common Stock reserved for issuance under the 1993 Option Plan and the Purchase Plan thus permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act of 1933. The 1993 Option Plan Under the 1993 Option Plan, key employees (including officers), consultants to the Company and directors are provided an opportunity to acquire equity interests in the Company. The 1993 Option Plan contains three separate components: (i) a Discretionary Option Grant Program, under which key employees (including officers) and consultants may be granted options to purchase shares of Common Stock at an exercise price not less than 85% of the fair market value of such shares on the grant date; (ii) an Automatic Option Grant Program, under which option grants were automatically made at periodic intervals to directors to purchase shares of Common Stock at an exercise price equal to 100% of the fair market value of the option shares on the grant date (this part of the plan has been discontinued); and (iii) a Stock Issuance Program, under which eligible individuals may be issued shares of Common Stock directly, either through the immediate purchase of the shares (at fair market value or at discounts of up to 15%) or as a bonus tied to the performance of services or the Company's attainment of prescribed milestones. Page 44 The options granted under the Discretionary Option Grant Program may be either incentive stock options designed to meet the requirements of Section 42 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-statutory options not intended to satisfy such requirements. All grants under the Automatic Option Grant Program were non-statutory options. Options may be granted or shares issued in the Discretionary Option Grant and Stock Issuance Programs to eligible individuals in the employ or service of the Company or any parent or subsidiary corporation now or subsequently existing. Under the Automatic Option Grant Program, each person who was a director at the time of the Company's initial public offering, received at the commencement of such offering, and each new director thereafter was, at the time he or she became a director, to receive an automatic option grant for 5,000 shares of Common Stock. In addition, at each annual stockholders' meeting, beginning with the 1994 annual meeting, each person who had been a director for at least six months was to be granted an option to purchase 1,000 shares of Common Stock. If more than 50% of the outstanding Common Stock were to be acquired in a hostile tender offer, each option granted under the Automatic Option Grant Program that has been outstanding for at least six months is to be automatically converted into the right to receive from the Company the excess of the tender offer price over the option price. No grants under the Automatic Option Grant Program have been made since 1995. A total of 6,688,020 shares of Common Stock were originally reserved for issuance over the ten year term of the 1993 Option Plan. Options will have maximum terms of ten years measured from the grant date. Options will not be assignable or transferable other than by will or by the laws of inheritance following the optionee's death, and the option may, during the optionee's lifetime, be exercised only by the optionee. The optionee will not have any stockholder rights with respect to the option shares until the option is exercised and the option price is paid for the purchased shares. Individuals holding shares under the Stock Issuance Program will, however, have full stockholder rights with respect to those shares, whether the shares are vested or unvested. The Plan Administrator under the 1993 Option Plan has the authority to cancel outstanding options under the Discretionary Option Grant Program (including options incorporated from the Predecessor Plan) in return for the grant of new options for the same or a different number of shares with an exercise price based on the lower fair market value of the Common Stock on the new grant date. The Board of Directors may terminate the 1993 Option Plan at any time, and the 1993 Option Plan will in all events terminate on June 20, 2003. All of the Company's employees are eligible to participate in the Discretionary Grant Program. Non- employee directors are not eligible to participate in the Discretionary Option Grant and Stock Issuance Programs. If the Company is acquired by merger, consolidation or asset sale, or there is a hostile change in control of the Company, each option granted under the Discretionary Option Grant Program will automatically accelerate in full, and all unvested shares under the Stock Issuance Program will immediately vest. The Purchase Plan The Purchase Plan was discontinued following the August 1996 semi-annual purchase date. Prior to discontinuation of the Purchase Plan, each full-time employee upon meeting certain conditions was eligible to participate in the Purchase Plan for one or more offering periods. The Purchase Plan was intended to be an "employee stock purchase plan" within the meaning of Section 423 of the Code. The Purchase Plan was implemented in a series of successive offering periods, each with a maximum duration of twenty-four (24) months. The purchase price per share for any offering period was 85% of the lower of (i) the fair market value of the Common Stock on the start date of the offering period (or, if a participant joined the Purchase Plan after the start date of an offering period, on the date of the participant's entry into the Purchase Plan, provided that such amount was not less than the fair market value of the Common Stock on the start date of the offering period), and (ii) the fair market value on the semi-annual purchase date. Page 45 LIMITATION OF LIABILITY AND INDEMNIFICATION The Company's Restated Certificate of Incorporation limits, to the maximum extent permitted by Delaware law, the personal liability of directors for monetary damages for breach of their fiduciary duties as a director. Delaware law does not permit a corporation to eliminate a director's duty of care, nor does it permit elimination of liability for monetary damages for breach of a director's duty of loyalty. Further, the provisions of the Company's Restated Certificate of Incorporation have no effect on the availability of equitable remedies such as injunction or recession or monetary damages for a breach of a director's duty of care. Moreover, non-monetary equitable remedies may not provide effective protection due to factors such as procedural limitations on obtaining such relief and the timeliness of any such sought relief. The Company's Restated Bylaws provide that the Company shall indemnify its officers and directors and may indemnify its employees and other agents to the fullest extent permitted by law. Some current and former Directors and Officers of the Company have entered into employment agreements or severance agreements that provide that the indemnification provisions for directors and officers under the Company's Restated Bylaws (to the maximum extent permitted by law) and/or insurance coverage will be extended to such Director or Officer following termination of his or her employment with respect to matters occurring during his or her employment period. In December 1995, the Company entered into indemnification agreements with certain of its Directors and Officers whereby the Company agreed to indemnify such Directors and Officers, subject to the exceptions set forth therein, to the fullest extent permitted by the Delaware General Corporation Law and the Restated Bylaws of the Company and against expenses incurred by such Directors or Officers in connection with any liability which he or she may incur in his or her capacity as such. Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify a director, officer, employee or agent made a party to an action by reason of the fact that he was director, officer, employee or agent of the corporation or was serving at the request of the corporation against expenses actually and reasonably incurred by him in connection with such action, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action, had no reasonable cause to believe was unlawful. Insofar as the liability of directors for monetary damages for breach of fiduciary duty of care under state law may be limited as aforesaid, such limitations do not apply to liabilities of directors under federal securities laws. Insofar as the Company's Restated Certificate of Incorporation or Restated Bylaws provide for indemnification of directors, officers and persons controlling the Company against certain liabilities as aforesaid, it is the opinion of the staff of the SEC that such indemnification is against public policy as applied to liabilities under federal securities laws and is therefore unenforceable. In accordance with such position of the staff, no indemnification is available to directors, officers or controlling persons for liabilities under federal securities laws. The Company provides directors and officers liability insurance and reimbursement insurance policies for its Officers and Directors. See Item 3 of this 10-K regarding pending or threatened litigation involving any director or officer of the Company where indemnification will be required or permitted. Item 12. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- The following table sets forth certain information to the knowledge of the Company regarding the beneficial ownership of the Company's Common Stock and PRIDES as of March 1, 1998 for (i) each person known to the Company beneficially to own 5% or more of the outstanding shares of its Common Stock or PRIDES, (ii) each of the Company's directors, the Chief Executive Officer and the named executive officers, and (iii) all directors and executive officers as a group. Except as otherwise indicated, the Company believes that the beneficial owners of the Common Stock and PRIDES listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Page 46
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS =================================================================================================================== Number of Shares Number of Shares Of Common Stock of PRIDES Percentage of Beneficial Owners (1) Beneficially Owned (2) Beneficially Owned Shares Outstanding ============================================== ---------------------- ------------------ ------------------ Grace Brothers Ltd. 3,103,825(3) 5,000 8.4% Common 1560 Sherman Avenue 4.9% PRIDES Suite 900 Evanston, IL 60201 ============================================== ---------------------- ------------------ ------------------ Lawrence A. Heller 356,236(4) 8,550 0.96% Common Quadrangle Offshore 8.34% PRIDES (Cayman) LLC 31 West 52nd Street New York, NY 10019 =============================================== ---------------------- ------------------ ------------------ Gerald R. Alderson 287,000 - *(5) =============================================== ---------------------- ------------------ ------------------ Charles Christenson 67,000 - * =============================================== ---------------------- ------------------ ------------------ Angus M. Duthie 59,720 - * =============================================== ---------------------- ------------------ ------------------ Mark D. Lerdal 12,896,458 - 35% Common =============================================== ---------------------- ------------------ ------------------ Michael U. Alvarez 131,441 - * =============================================== ---------------------- ------------------ ------------------ James J. Eisen - - * =============================================== ---------------------- ------------------ ------------------ Nicholas H. Politan 2,400 - * =============================================== ---------------------- ------------------ ------------------ Mervin E. Werth 20,000 - * =============================================== ---------------------- ------------------ ------------------ Michael A. Haas 6,462(6) 70(6) * =============================================== ---------------------- ------------------ ------------------ All Directors and Executive Officers as a Group 13,464,019 - 36% Common (the above-listed 8 persons, excluding Michael A. Haas) =============================================== ---------------------- ------------------ ------------------ (1) Information for beneficial owners of 5% or more of the Company's Common Stock or PRIDES is reported from and as of the date of such owner's latest Schedule 13D or 13G (as amended) provided to the Company. (2) Except as otherwise specifically noted, the number of shares stated as being beneficially owned includes (a) all options under which officers or directors could acquire common stock currently and within 60 days following March 1, 1998 (i.e., Gerald R. Alderson (287,000 shares), Charles Christenson (47,000 shares), Angus M. Duthie (47,000 shares), Mark D. Lerdal (31,000 shares), Michael U. Alvarez (130,000 shares), Nicholas H. Politan (2,400 shares), Mervin E. Werth (20,000 shares) and all directors and officers as a group (564,400 shares)), and (b) shares believed by the Company to be held beneficially by spouses. The inclusion of shares herein, however, does not constitute an admission that the persons named as stockholders are direct or indirect beneficial owners of such shares. (3) According to a Statement on Schedule 13G/A filed with the Commission on January 27, 1998, includes 208,325 shares obtainable upon conversion of 5,000 shares of the Company's 8-1/4% Preferred Redeemable Increased Dividend Equity Securities (250,000 depositary shares) at the conversion rate of 41.665 shares of Common Stock per share. According to such Statement on Schedule 13G/A, Grace Brothers Ltd. is an Illinois limited partnership that is a Broker or Dealer registered under Section 15 of the Securities Exchange Act of 1934. (4) According to a Statement on Schedule 13D/A filed with the Commission on November 17, 1997, includes 356,236 shares obtainable upon conversion of 8,550 shares of the Company's 8-1/4% Preferred Redeemable Increased Dividend Equity Securities (427,500 depositary shares) at the conversion rate of 41.665 shares of Common Stock per share. (5) Does not exceed one percent of the class so owned. (6) Based on the latest information provided to the Company by Mr. Haas.
REGISTRATION RIGHTS The beneficial holders (or their transferees) of approximately 14,000,000 shares of Common Stock, are entitled to certain rights with respect to the registration of such shares under the Securities Act of 1933 (the "Securities Act"). Under the terms of the Registration Rights Agreements dated as of June 28, 1985 (the "Registration Rights Agreement"), between the Company and such holders, if the Company proposes to register any of its securities under the Securities Act, either for its own account or the account of other security holders exercising registration rights, such holders are entitled to notice of such registration and are entitled to include shares of such Common Stock therein; provided, among other Page 47 conditions, that the underwriters of any offering have the right to limit the number of shares included in such registration. In addition, for a period of eight years after September 21, 1993, the date of the Company's initial public offering of its Common Stock, a holder or holders of an aggregate of 40% or more of the shares subject to such registration rights may require the Company on not more than six occasions to file a registration statement under the Securities Act with respect to their shares of Common Stock. Additionally, parties to the Stock Purchase Agreement dated as of June 30, 1992, and the Note Purchase Agreement dated as of June 25, 1992 (the "Notes"), are entitled to notice of any registration of Common Stock proposed by the Company, either for its own account or the account of other security holders exercising registration rights, and, are entitled to include shares of the Common Stock which they own by virtue of the conversion of the preferred stock and/or Notes obtained pursuant to such agreements, subject to (i) the underwriters' limitations, and (ii) in the case of a secondary offering on behalf of holders of registration rights pursuant to the Registration Rights Agreement, the consent of the holders of such rights. The parties to such agreements are also given the right to require the Company to register their shares of Common Stock, but may exercise such right not more than once every two years. Item 13. Certain Relationships and Related Transactions - ------------------------------------------------------- KWI entered into certain Asset Sale Compensation Agreements with each of James J. Eisen, and Nicholas H. Politan and KWI and KENETECH International Ltd. ("KIL") entered into a certain Asset Sale Compensation Agreement with Michael A. Haas pursuant to which such executive officers of the Company have received or will receive a percentage ranging from 0.5% to 3% of the gross proceeds derived from the disposition of certain specified assets of KWI or KIL (see footnotes to the Summary Compensation Table for amounts earned in 1996 and 1997). All of the defendant officers and directors and KENETECH Corporation are jointly represented by the same counsel in the securities class action described in Item 3 to this 10-K. A portion of such counsel's legal fees has been paid by the Company, however, such fees have not been apportioned among the individual defendants. Page 48 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------- (a) (1)FINANCIAL STATEMENTS KENETECH Corporation: The consolidated financial statements of KENETECH Corporation are included in Part II, Item 8 as follows: KENETECH Corporation Consolidated Financial Statements Page ------------------------------------------------------ ------ Independent Auditors' Reports 18 Consolidated Statements of Operations for the years ended December 31, 1997, 1996, and 1995 19 Consolidated Balance Sheets, December 31, 1997 and 1996 20 Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 1997, 1996 and 1995 21 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 22 Notes to Consolidated Financial Statements 23 - 39 (a) (2)KENETECH Corporation Financial Statement Schedules -------------------------------------------------- I. Condensed Financial Information of Registrant for the years ended December 31, 1997, 1996 and 1995 54 II. Valuation and Qualifying Accounts for the years ended December 31, 1997, 1996 and 1995 55 Financial statements and supplemental schedules not included have been omitted because of the absence of conditions under which they are required or because the information is included elsewhere in this report. Page 49 (a)(3) EXHIBITS - All of the Exhibits (except 10.51 - 10.56 and 21.1) listed below were previously filed with Registration Statements or Reports on Form 10-K of KENETECH Corporation as specified below. Number Description 3 ARTICLES OF INCORPORATION AND BYLAWS 3.1(3) Restated Certificate of Incorporation of KENETECH Corporation ("KENETECH"). 3.2(10) Restated Bylaws of KENETECH, as amended November 16, 1995 and February 27, 1997. 10 MATERIAL CONTRACTS FINANCING AGREEMENTS AND RELATED DOCUMENTS 10.1(4) Third Amended and Restated Line of Credit and Security Agreement dated as of March 31, 1994, among KENETECH, CNF Industries, Inc., Process Construction Supply, Inc., CNF Construction, Inc., KENETECH Windpower, Inc. and Shawmut Bank Connecticut, N.A. 10.2(5) Indenture dated as of December 28, 1992, between Meridian Trust Company of California, as Trustee, and KENETECH Corporation. 10.3(7) Indenture of Trust and Security Agreement dated as of February 13, 1992, between Meridian Trust Company of California, as Trustee, and KENETECH Windpower, Inc. ("Windpower") (formerly U.S. Windpower, Inc.). 10.4(4) First Supplemental Indenture of Trust and Security Agreement dated as of June 15, 1993, between Meridian Trust Company of California, as Trustee, and KENETECH Windpower, Inc. 10.5(7) Term Loan Agreement dated as of October 31, 1991, among KEM Partners 1991, L.P., Banque Paribas, as a bank and agent, and certain other banks named therein. 10.6(4) Amended and Restated Term Loan Agreement dated June 7, 1993, between KC One Company and U.S. West Financial Services, Inc. (which restates the Term Loan Agreement dated as of November 20, 1992). POWER SALES AGREEMENTS 10.7(7) Pacific Gas & Electric Co. ("PG&E") Standard Offer #4 Power Purchase Agreement (PG&E Log No. 01W004) dated March 5, 1984, between PG&E and KENETECH Windpower, Inc. relating to a 110,0000 KW facility, filed as an exemplar pursuant to Instruction 2 to Item 601 of Regulation S-K. 10.8(7) Electricity Purchase Agreement dated as of April 10, 1987, between CCF-1, Inc. and The Connecticut Light and Power Company, amended and restated as of March 3, 1987. 10.9(7) Power Sale Agreement dated April 13, 1987, between Commonwealth Electric Company and Pepperell Power Associates Limited Partnership. 10.10(7) Agreement (Power Purchase) dated September 30, 1988, between New York State Electric & Gas Corporation and Northern Energy Group, Inc. ("NEG"), as amended by Amendment No. 1 and Amendment No. 2, each dated September 30, 1988, and Amendment No. 3 approved July 27, 1989, as assigned by NEG and Chateaugay Energy Limited Partnership to KES Chateaugay, L.P., pursuant to an Assignment and Assumption of Power Purchase Agreement dated as of July 1, 1991. 10.11(7) Power Purchase Agreement dated as of April 29, 1992, between KENETECH Windpower, Inc. and NV Energiebedrjf voor Groningen en Drenthe. 10.12(5) Power Purchase Agreement dated as of June 23, 1993, among The Narragansett Electric Company, Massachusetts Electric Company and Granite State Electric Company (all of which are wholly-owned subsidiaries of New England Electric System). 10.13(3) Power Purchase Agreement dated November 18, 1993, between Lower Colorado River Authority and KENETECH Windpower, Inc. 10.14(3) Power Purchase Agreement dated as of April 2, 1993, between KENETECH Windpower, Inc. and TransAlta Utilities Corporation. 10.15(7) Power Savings Agreement dated as of September 28, 1990, between KENETECH Energy Management, Inc. ("KEM") (previously Econoler/USA, Inc.) and Orange and Rockland Utilities, Inc., filed as an exemplar pursuant to Item 2 of Section 601 of Regulation S-K. 10.16(3) Electricity Purchase Agreement dated December 13, 1993, between KENETECH Ltd. and Hydro-Quebec (Site No. 1). 10.17(7) Form of Energy Service Agreement between KEM and the Host Customer. 10.18(3) Restatement of the Project Agreement dated January 29, 1993, between USW and the Sacramento Municipal Utility District. Page 50 DEVELOPMENT AGREEMENTS 10.19(6) Mutual Services and Financing Agreement dated April 28, 1989, between PG&E, Electric Power Research Institute, Inc. and KENETECH Windpower, Inc. and Sponsor Accession Agreement dated April 28, 1989, among PG&E, EPRI, KENETECH Windpower, Inc. and Niagara Mohawk Power Corporation. 10.20(7) Demonstration Agreement dated as of October 1, 1991, between Her Majesty the Queen in Right of Alberta and KENETECH Windpower, Inc. 10.21(6) Wind Energy Facility Sales Agreement made as of June 29, 1992, among Krimenergo, Ukrenerguresuorsy, PHB Ukraine Ltd. and KENETECH Windpower, Inc. 10.22(3) Development Agreement dated as of February 7, 1994, between KENETECH Windpower, Inc. and Sacramento Municipal Utility District. 10.23(3) Development Agreement dated as of February 14, 1994, among Puget Sound Power & Light Company, PacifiCorp, Portland General Electric Company and KENETECH Windpower, Inc. 10.24(3) Joint Development Agreement dated as of June 21, 1993, among Central Power Limited, The Wing-Merrill Group, Ltd., and KENETECH Windpower, Inc. 10.25(2) Development Agreement dated as of March 7, 1994, between PacifiCorp and KENETECH Windpower, Inc. OTHER AGREEMENTS 10.26(7) Seaboard Surety Company Contractor's General Agreement of Indemnity dated November 15, 1989, among KENETECH, CNF Constructors, and C.N. Flagg & Co., Incorporated. 10.27(4) Stock Purchase Agreement dated as of June 30, 1993, among KENETECH, Weiss, Peck & Greer ("WP&G") and certain affiliates of WP&G. 10.28(1) $75,000,000 Credit Agreement among KENETECH Windpower, Inc., (Borrower), Morgan Guaranty Trust Company of New York (Administrative Agent, Issuing Bank and Lender, ABN AMRO Bank N.V. San Francisco International Branch (Collateral Agent and Lender) and The Bank of Nova Scotia, Sanwa Bank California, Shawmut Bank Connecticut, N.A., Banque Nationale de Paris, Banco Central Hispanoamericano, S.A., and San Francisco Agency (Lenders) dated as of September 30, 1994. 10.29(8) Wind Operated Electricity Generator Purchase Order - Order No: 1 between KENETECH Windpower, Inc. and ABAN Loyd Chiles Offshore Ltd. dated November 11, 1994. 10.30(8) Wind Operated Electricity Generator Purchase Order - Order No: 2 between KENETECH Windpower, Inc. and ABAN Loyd Chiles Offshore Ltd. dated December 22, 1994. 10.31(8) Amendment to Purchase Order dated December 15, 1994 between KENETECH Windpower, Inc. and ABAN Loyd Chiles Offshore Ltd. 10.32(8) Amendment No. 1 to Purchase Documents between KENETECH Windpower, Inc. and ABAN Loyd Chiles Offshore Ltd. dated December 22, 1994. EMPLOYMENT AND SEVERANCE AGREEMENTS 10.33(8) Employment Agreement dated as of March 1, 1995 between KENETECH and Gerald R. Alderson. 10.34(8) Employment Agreement dated as of December 1, 1994 between KENETECH and Joel M. Canino. 10.35(8) Severance Agreement and Offer Letters both dated January 23, 1995 between KENETECH and Ralph B. Muse. 10.36(9) Employment Agreement dated as of December 31, 1995 between KENETECH and Mark D. Lerdal. 10.37(9) Employment Agreement, dated as of January 1, 1996, between KENETECH Energy Systems, Inc. and Michael U. Alvarez. 10.38(9) Agreement, dated November 1, 1995, between KENETECH and GGG Inc. 10.39(9) Agreement, dated April 2, 1996, between KENETECH and GGG Inc. 10.40(9) Separation Agreement and Mutual Release, dated as of October 12, 1995, between KENETECH and Jean-Yves Dexmier. 10.41(10) Employment Agreement Amendment, dated as of December 11, 1996, between KENETECH Energy Systems, Inc. and Michael U. Alvarez. 10.42(10) Employment Agreement, dated as of April 12, 1996, between KENETECH Corporation and James J. Eisen. 10.43(10) Employment Agreement, dated as of April 12, 1996, between KENETECH Corporation and Michael A. Haas. 10.44(10) Employment Agreement, dated as of April 1, 1996, between KENETECH Corporation and Mark D. Lerdal. 10.45(10) Employment Agreement, dated as of April 12, 1996, between KENETECH Corporation and Nicholas H. Politan. 10.46(10) Separation Agreement and Mutual Release, dated as of April 9, 1996, between KENETECH Corporation and Gerald R. Alderson. 10.47(10) Separation Agreement and Release, dated October 7, 1996, among KENETECH Corporation, CNF Industries, Inc. and Joel M. Canino. Page 51 10.48(10) First Amendment to Separation Agreement and Release, dated October 28, 1996, among KENETECH Corporation, CNF Industries, Inc. and Joel M. Canino. 10.49(10) Retention Agreement, dated February 2, 1996, by and between KENETECH Corporation and Mervin E. Werth. 10.50(10) Employment Agreement, dated as of April 12, 1996, between KENETECH Windpower, Inc. and Steven A. Kern. 10.51 Employment Agreement, effective December 1, 1997, among KENETECH Corporation, KENETECH Energy Systems, Inc., certain direct and in-direct subsidiaries of KENETECH Energy Systems and Michael U. Alvarez. 10.52 Separation Agreement and Mutual Release, dated as of June 30, 1997, between KENETECH Corporation and James J. Eisen. 10.53 Separation Agreement and Mutual Release, dated as of August 1, 1997, between KENETECH Corporation and Nicholas H. Politan. 10.54 Separation Agreement and Mutual Release, dated as of March 12, 1997, between KENETECH Corporation and Michael A. Haas. ASSET SALE AGREEMENTS 10.55 Master Agreement of Dissolution, Distribution and Assignment, dated as of August 27, 1997, between Enron Power I (Puerto Rico), Inc. and CNF Penuelas, Inc. 10.56 Master Agreement of Dissolution, Distribution and Assignment, dated as of August 27, 1997, between Enron Equipment Procurement Company and CNF Equipment, Inc. 16 LETTER RE: CHANGE IN CERTIFYING ACCOUNTANT 16.1 (9) Letter from Deloitte & Touche, LLP dated May 11, 1995. 16.2 (9) Letter from Deloitte & Touche, LLP dated May 17, 1995. 21 SUBSIDIARIES OF THE REGISTRANT 21.1 Subsidiaries (1) Incorporated by reference to Form 10-Q filed with the Securities and Exchange Commission & by Registrant on November 16, 1994. (2) Incorporated by reference to Amendment No. 3 to Form S-1, File No. 33-76590 filed April 27, 1994. (3) Incorporated by reference to Form S-1, File No. 33-76590 filed with the Securities and Exchange Commission by the Registrant on March 18, 1994. (4) Incorporated by reference to Amendment No. 1 to Form S-1, File No. 33-65902, filed with the Securities and Exchange Commission by the Registrant on August 19, 1993. (5) Incorporated by reference to Form S-1, File No. 33-65902, filed with the Securities and Exchange Commission by Registrant on July 7, 1993. (6) Incorporated by reference to Amendment No. 2 to Form S-1, file No. 33-53132, filed with the Securities and Exchange Commission by the Registrant on December 19, 1992. (7) Incorporated by reference to Form S-1, File No. 33-53132, filed with the Securities and Exchange Commission by the Registrant on October 9, 1992. (8) Incorporated by reference to Form 10-K, File No. 33-53132, filed with the Securities and Exchange Commission by the Registrant on April 5, 1995. (9) Incorporated by reference to Form 10-K, File No. 33-53132, filed with the Securities and Exchange Commission by the Registrant on April 15, 1996. (10) Incorporated by reference to Form 10-K, File No. 33-53132, filed with the Securities and Exchange Commission by the Registrant on April 1, 1997. (b) Reports on Form 8-K: The Registrant filed a Report on Form 8-K, dated December 17, 1997, annexing a press release issued on December 15, 1997 announcing the closing of the construction financing for the Penuelas, Puerto Rico project. (c) Exhibits: Other than items 10.51 - 10.56 and 21.1, the documents and agreements listed in Item 14(a)3 have been previously filed with the Securities and Exchange Commission and are hereby incorporated by reference. (d) Financial Statement Schedules: The financial statements and financial statement schedules listed in item 14(a)(1) and (2) are filed as part of this report. Page 52 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, therewith duly authorized. KENETECH Corporation By: /s/ Mark D. Lerdal Mark D. Lerdal President, Chief Executive Officer, and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated: Signature Title Date /s/ Mark D. Lerdal President, Chief Executive March 30, 1998 Officer, and Director Mark D. Lerdal /s/ Nicholas H. Politan Chief Financial Officer, March 30, 1998 Vice President and Assistant Secretary Nicholas H. Politan /s/ Mervin E. Werth Corporate Controller, March 30, 1998 Chief Accounting Officer and Assistant Treasurer Mervin E. Werth /s/ Gerald R. Alderson Director March 30, 1998 Gerald R. Alderson /s/ Charles Christenson Director March 30, 1998 Charles Christenson /s/ Angus M. Duthie Chairman of the Board March 30, 1998 of Directors Angus M. Duthie Page 53 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (in thousands) CONDENSED STATEMENTS OF OPERATIONS for the years ended December 31, 1997, 1996 and 1995 1997 1996 1995 --------- --------- --------- Equity in earnings of consolidated subsidiaries $(16,676) $ (28,597) $(257,313) General and administrative (expenses) (4,624) (12,619) (6,513) reimbursement Interest income 118 4,061 7,210 Interest expense (14,096) (14,072) (15,031) Gain (loss) on sales of subsidiaries and assets 10,036 (9,623) - -------- --------- --------- Income (Loss) before taxes (25,242) (60,850) (271,647) Income tax expense (benefit) - 23,391 (21,499) -------- --------- --------- Net income (loss) $(25,242) $ (84,241) $(250,148) ======== ========= ========= CONDENSED BALANCE SHEETS December 31, 1997 and 1996 ASSETS Current assets: 1997 1996 -------- -------- Cash and cash equivalents $ 2,383 $ 2,865 Other 72 3,076 -------- -------- Total current assets 2,455 5,941 Investments in subsidiaries (22,346) (14,427) Due from affiliates 30,342 27,673 Other assets 16,171 15,700 -------- ------- Total assets $ 26,622 $ 34,887 ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Accounts payable $ 340 $ 814 Accrued liabilities 35,462 17,760 Senior secured notes payable 99,139 99,005 Other 5,190 5,575 -------- -------- Total current liabilities 140,131 123,154 Accrued dividends on preferred stock 19,196 9,633 -------- -------- Total liabilities 158,327 132,787 Stockholders' deficiency: Preferred Convertible Stock 99,561 99,561 Common stock 4 4 Other stockholders' deficiency (231,270) (197,465) -------- -------- Total stockholders' deficiency (131,705) (97,900) -------- -------- Total liabilities and stockholders' deficiency $ 26,622 $ 34,887 ======== ======== Page 54 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (in thousands) CONDENSED STATEMENTS OF CASH FLOWS for the years ended December 31, 1997, 1996 and 1995 1997 1996 1995 -------- -------- -------- Net cash used in operating activities $ (972) $ (7,122) $(40,346) Net cash provided by investing activities 1,140 11,205 16,299 Net cash provided by (used in) financing activities (650) (5,089) 949 -------- -------- -------- Increase (Decrease) in cash and cash equivalents (482) (1,006) (23,098) Cash and cash equivalents at beginning of year 2,865 3,871 26,969 -------- -------- -------- Cash and cash equivalents at end of year $ 2,383 $ 2,865 $ 3,871 ======== ======== ======== SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands) Balance Charged to Balance Beginning Costs & Deductions at End Description of Period Expenses (1) of Period - ----------- --------- ---------- ---------- --------- Warranty reserves: Year ended December 31, 1995 $ 2,157 $ 73,586 $ 9,831 $ 65,912 Year ended December 31, 1996 65,912 - 65,912 - Year ended December 31, 1997 - - - - Project development allowance (2): Year ended December 31, 1995 $ - $ 24,805 $ 3,279 $ 21,526 Year ended December 31, 1996 21,526 1,557 21,526 1,557 Year ended December 31, 1997 1,557 1,943 - 3,500 Allowance for doubtful accounts: Year ended December 31, 1997 $ - $ 1,546 $ - $ 1,546 - --------------- (1) 1996 deductions result from the deconsolidaiton of KWI and the write-off of wood project in Illinois. (2) Deducted from power plants under development. Page 55 EX-10.51 2 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is entered into and effective as of this 1st day of December 1997, by and between KENETECH Energy Systems, Inc. a Delaware corporation (the "Company"), KENETECH Corporation (the "Parent"), KES Penuelas Holdings, Inc., KES LNG, Ltd.; KES Penuelas Ltd., KES Puerto Rico, L.P., KES Bermuda, Inc. (collectively referred to as the "Subsidiaries"), and Michael U. Alvarez, an individual currently employed by the Company (the "Executive"). RECITALS: A. The Executive presently is employed as an Executive Officer by the Company and has valuable experience and knowledge with respect to the business and affairs of the Company, the Parent and its Subsidiaries; B. The Parent, the Company and its Subsidiaries (each jointly and severally an "Employer" and, collectively, the "Employers") desire to continue the services of the Executive for the purposes of disposing of the Company's interests (the "EcoElectrica Interest") in EcoElectrica, L.P. ("EcoElectrica"), and are willing to offer the Executive the incentive to do so in the form of a written Employment Agreement which supersedes all prior Employment Agreements executed by the parties hereto, and the Executive desires to enter into a new Employment Agreement; C. Representatives of the holders of not less than $34 million principal amount of the Parent's 12 3/4% Secured Notes (the "Secured Notes") have participated in the negotiation of this Employment Agreement and have represented that such holders, and perhaps others, are prepared to give written assurances to the Executive substantially to the effect that such holders (and their assignees and transferees) will not object to and will support the terms of this Employment Agreement before any tribunal with appropriate jurisdiction (the "Assurances") and each Employer has agreed to use its best efforts to obtain Assurances from the holders of not less than $51 million principal amount of Secured Notes which, when received, shall be filed by the Secretary of each Employer with minutes of meetings of the Board of Directors of such Employer. The Executive has specifically relied on the expectation of receiving the Assurances prior to the filing by any Employer of any bankruptcy petition under the Federal Bankruptcy Code as an inducement to enter into this Employment Agreement and cancel the existing employment agreement. D. This Employment Agreement has been approved by the Board of Directors of the Parent and is to be approved by the Board of Directors of each of the Company and the Subsidiaries. The execution of this Employment Agreement conclusively evidences that such approvals have been duly authorized by the respective Boards of Directors certifying that each of the obligations owing to the Executive hereunder are joint and several obligations of each of the Employers. Copies of the Resolutions of the respective Boards of Directors are attached hereto. NOW, THEREFORE, in consideration of the above recitals; the continued employment of the Executive by the Employers, the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is agreed as follows: AGREEMENT 1. EMPLOYMENT 1.1 Duties. The Employers will continue to employ the Executive in his current position for the Employment Period. The Executive agrees to continue in such employment for the duration of the Employment Period and to perform in good faith and to the best of the Executive's ability all services which may be required of the Executive's position and to be available to render such services at all reasonable times and places in accordance with reasonable directives and assignments issued by the President of the Company and the Company's Board of Directors. During the Executive's Employment Period, he will devote such time and effort as may be necessary to implement the business and affairs of the Employers within the scope of the executive office. The Executive's principal employment location shall be San Francisco, California and the Executive shall have no obligation to relocate at the request of the Company. Except to the extent allowed by the Board of Directors of the Company, the Executive will not, whether for the Executive's own account or as an employee, consultant or advisor, provide services to any business enterprise which is in direct competition with the Employers, provided, however, that the Executive will have the right to consult with and provide services to any other business enterprise, and to perform such incidental services as are necessary in connection with (a) the Executive's private passive investments, (b) the Executive's charitable or community activities, and (c) the Executive's participation in trade or professional organizations, but only to the extent in each case that such services do not interfere with the performance of the Executive's services hereunder. 1.2 Term of Employment. Unless sooner terminated in connection with a termination for cause (pursuant to paragraph 1.5 hereof), the Executive is and will continue to be employed by the Employers for a period (the "Employment Period") until the later to occur of: (a) December 31, 1998; (b) 90 days following the closing of the sale of the EcoElectrica Interest; and (c) the date on which all payments due hereunder are fully and finally paid; at the Executive's current annual base salary ("Base Salary") and with the same employee benefits applicable as of January 1, 1997. 1.3 Death of Executive. The employment relationship established by this Employment Agreement shall be terminated automatically upon the death of the Executive; provided, however, that if any of the Special Bonus Payments (as defined in paragraph 2 hereof) would otherwise have been earned or would have been payable within one year of the date of the Executive's death, the Employers will pay the Executive's estate such Special Bonus Payments. 1.4 Disability of Executive. This Employment Agreement shall be terminated automatically upon the permanent disability of the Executive. For purposes of this Employment Agreement, a permanent disability shall be deemed to have occurred if (a) the Executive is unable to perform his material duties hereunder for a period of ninety (90) consecutive days, or one hundred eighty (180) days in any one (1) year period, on account of any physical or mental disability, or (b) a licensed physician selected by the Company and approved by the Executive (or his closest relative if the Executive is unable to act), which approval shall not be unreasonably withheld, makes a medical determination of physical or mental disability or incapacity of the Executive, provided, however, that if any of the Special Bonus Payments would otherwise have been earned or would have been payable within one year of the date of the Executive's permanent disability, the Employers will pay the Executive such Special Bonus Payments. 1.5 Termination for Cause. This Employment Agreement may be terminated voluntarily by the Employers at any time during its term upon (a) any finding of felonious conduct or material fraud by the Executive or (b) embezzlement or misappropriation of funds or property of the Employers by the Executive, in each case upon written notice to the Executive specifying the cause for termination. This Employment Agreement may be terminated by the Employers at any time during its term upon (A) any material breach by the Executive of his duties under this Employment Agreement, (B) gross negligence by the Executive, (C) any conduct or act of moral turpitude, or any conduct or act done or committed by the Executive that will, in the minds of reasonable people, reflect negatively on the Employers, or that brings the Employers into public hatred, contempt or ridicule or that tends to shock or offend the community in which the Executive represents the Employers, in each case in a material or significant way, (D) the Executive's consistent refusal to perform his material duties and obligations, or (E) the Executive's willful and intentional misconduct in the performance of his material duties and obligations, in each case after written notice to the Executive specifying the cause for termination, and, in the case of the causes described in subparagraph (A) and (D) above, the passage of not less than thirty (30) days after receipt of such notice, during which time the Executive shall have the right to respond to the Employers' notice and cure the breach or other event giving rise to the termination. 1.6 Change in Control. Upon a Change in Control, the Employers will pay the Executive a lump sum amount equal to one year's Base Salary. For purposes of this Employment Agreement, "Change in Control" means: (a) a merger or acquisition in which the Parent is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Parent's incorporation; (b) the sale, transfer or other disposition of all or substantially all of the assets of the Parent in liquidation or dissolution of the Parent; (c) any reverse merger in which the Parent is the surviving entity, but in which fifty percent (50%) or more of the Parent's outstanding voting stock is transferred to holders different from those who held the stock immediately prior to such merger; or (d) the acquisition of more than fifty percent (50%) of the Parent's outstanding voting stock pursuant to a tender or exchange offer made by a person or related group of persons (other than the Parent or a person that directly or indirectly controls, is controlled by or is under common control with the Parent). 1.7 Withholding. The Employers will deduct and withhold, from the compensation payable to the Executive under this Employment Agreement, any and all Federal, State and local income and employment withholding taxes and any other amounts required to be deducted or withheld by the Employers under the applicable statute or regulation. 2. SPECIAL BONUS PAYMENTS The Employers shall pay the Executive certain bonuses (collectively referred to as "Special Bonus Payments") as set forth below. 2.1 Financial Closing Bonus. On the date EcoElectrica closes the funding of a nonrecourse construction loan pursuant to a Credit Agreement, dated as of October 31, 1997, among EcoElectrica, Banque Paribas and ABN AMRO Bank (the "Financial Closing"), the Employers will pay to the Executive a Financial Closing bonus in the amount of $350,000. 2.2 ECOELECTRICA BONUS. An EcoElectrica bonus (the "EcoElectrica Incentive") shall be paid to the Executive as follows. The EcoElectrica Incentive shall be determined with reference to Distributable Cash (as defined below) resulting from the transactions in which the Employers directly or indirectly sell, transfer or otherwise dispose of all or substantially all of the EcoElectrica Interest and shall not exceed six million dollars ($6,000,000) in an aggregate amount to be shared by the Executive, Aaron T. Samson and Scott J. Taylor. "Distributable Cash" means cash and or cash equivalents distributable or available for distribution by the Company and the Subsidiaries, to the Parent (including all cash paid, advanced, or distributed to the Parent and its affiliates after the date hereof) net of (a) amounts due under the Loan Agreement, dated as of August 30, 1996, by and between Lyon Credit Corporation and KES Penuelas Holdings, Inc., (b) liabilities known to the Company and those actually known by the Executive (other than nonrecourse debt or obligations) arising from the Company's ownership of Hartford Hospital, Chateaugay, Pepperell and other Company assets (other than the EcoElectrica Interest), (c) direct and approved costs of sale of EcoElectrica Interest, (d) up to $10 million in the aggregate in respect of the provision or payment of taxes payable by the Parent (on a consolidated basis) arising from the sale of the EcoElectrica Interest and/or amounts, if any, paid or provided by the Parent to reduce or settle intercompany claims or debts within the Parent's family as certified by the Chief Financial Officer, or other authorized officer of the Parent as of the date of such distribution (including crossclaims involving KENETECH Windpower, Inc. ("KWI")) and (e) Gross Sales Proceeds (as defined below) with respect to which Other Asset Incentive (as defined below) is paid. Distributable Cash is not reduced by (a) payments with respect to the EcoElectrica Incentive and the Other Asset Incentive or (b) costs or fees associated with bankruptcy filings, if any, by the Parent and/or affiliates. The Executive shall be entitled to receive a forty percent (40%) share (the "Share") of the EcoElectrica Incentive. The Share shall be paid to the Executive (the "Share Payments") as and when payments are made to the holders of the Secured Notes (the "Note Payments") in the same proportion each Note Payments bear to the lesser of (x) amounts of principal and interest remaining due on the Secured Notes on the date of such Note Payment or (y) the amount the holders of the Secured Notes have agreed to accept in full satisfaction of the Secured Notes; provided, however, that to the extent a Note Payment has been reduced, in effect, by an offset against Distributable Cash not described above, such Note Payment shall be deemed not to have been so reduced for purposes of the corresponding Share Payment; and, provided further, that in no event shall the entire Share be paid to the Executive later than the earlier of the first anniversary of the date of the sale of the EcoElectrica Interest or the date that the obligations under the Secured Notes have been cancelled. In his sole discretion, the Executive may direct the Company to allocate a portion of his share of the EcoElectrica Incentive (and the Other Asset Incentive) to other employees as additional compensation to them. If, due to reasons reasonably beyond the control of the Employers, the liabilities described in clause (d) have not been paid or provided for as of the time of distribution, then the Executive shall be entitled to distribution of 100% of his share of the EcoElectrica Incentive calculated to be due, assuming the total of such liabilities is $10 million less the amount that such liabilities as have been paid or provided for prior to the date of distribution; provided, however, that the balance due to the Executive shall from time to time be distributed immediately upon the provision or payment of any such liability (up to $10 million in the aggregate) or upon any determination that no further liabilities described in clause (d) exist, whichever first occurs. In the event the Parent determines not to sell the EcoElectrica Interest by December 31, 1998, and instead determines to refinance or otherwise provide for the payment or satisfaction of the Secured Notes or determines to recapitalize the Parent, Distributable Cash shall be determined at that time, with reference to the implied value of the EcoElectrica Interest and/or the Employers' then going concern value and shall make the Share Payments as and when the Note Payments are made as above provided, but in no event shall the entire Share be paid to the Executive later than the earlier of the first anniversary of the date of such refinancing or recapitalization or the date the Secured Notes have been cancelled. Distributable Cash EcoElectrica Incentive (Expressed as Incremental % of Distributable Cash) $100 million to $110 million 5 $110 million to $120 million 6 $120 million to $130 million 7.5 $130 million to $140 million 9 more than $140 million 10 2.3 Other Asset Bonuses. Fifteen percent (15%) (but not to exceed $750,000 in the aggregate for the Executive, Aaron T. Samson and Scott J. Taylor) of the Gross Sales Proceeds resulting from the disposition of all miscellaneous assets of the Company (other than EcoElectrica) or settlement of any claims by or against the Company, including, but not limited to Hartford Hospital, KES Chateaugay, L.P. and Pepperell, shall be set aside at the time of each closing thereof for a fund to make bonus payments to the Executive, Aaron T. Samson and Scott J. Taylor (the "Other Asset Incentive"). The Executive shall be entitled to a forty percent (40%) share of the Other Asset Incentive funds received from the disposition of such assets or settlement of such claims within five (5) days of receipt by the Employers thereof. "Gross Sales Proceeds" means the amount of cash proceeds realized or to be realized by the Company and affiliates, without regard to actual or proposed timing of receipt, from a purchaser or through escrow releases (e.g., cash releases securing equity funding or indemnity deposits) and, in any case, without deduction for legal expenses, taxes, other fees, loan repayments, compensation payments or amounts paid to the KWI estate to settle creditors' claims. 3. CONFIDENTIALITY. The Executive hereby acknowledges that the Employers may, from time to time during the Employment Period, disclose to the Executive confidential information pertaining to the Employers' business and affairs and client base, including (without limitation) customer lists and accounts, other similar items indicating the source of the Employers' income, and information pertaining to the salaries and performance levels of the Employers' employees. The Executive will not, at any time during or after such Employment Period, disclose to any third party or directly or indirectly make use of any such confidential information, including (without limitation) the names, addresses and telephone numbers of the Employers' customers, other than in connection with, and in furtherance of, the Employers' business and affairs. All documents and data (whether written, printed or otherwise reproduced or recorded) containing or relating to any such proprietary information of the Employers which come into the Executive's possession during the Employment Period will be returned by the Executive to the Employers immediately upon the termination of the Employment Period or upon any earlier request by the Employers, and the Executive will not retain any copies, notes or excerpts thereof. The Executive's obligations under this Section 3 will continue in effect after termination of the Executive's employment with the Employers, whatever the reason or reasons for such termination, and the Employers will have the right to communicate with any of the Executive's future or prospective employers concerning the Executive's continuing obligations under this Section 3. 4. INDEMNIFICATION. The indemnification provisions for Officers and Directors under the Employers' Bylaws will (to the maximum extent permitted by law) be extended to the Executive, and during the period following the Executive's termination irrespective of a Change in Control, with respect to any and all matters, events or transactions occurring or effected during the Executive's Employment Period. 5. GOVERNING LAW. This Employment Agreement shall be governed, construed and interpreted under, and in accordance with, the laws of the State of California. 6. ENTIRE EMPLOYMENT AGREEMENT. This Employment Agreement constitutes the entire Employment Agreement (and supersedes and replaces in their entirety any prior Employment Agreements, arrangements and understandings) between the Executive, the Parent, the Company or the Subsidiaries with respect to the subject matter hereof, and no amendment hereof shall be deemed valid unless in writing and signed by the parties hereto. 7. INTERPRETATION AND CONSTRUCTION. The headings and sections of this Employment Agreement are inserted for convenience only and shall not be deemed to constitute part of this Employment Agreement. It is the intention of the parties hereto that the provisions contained herein be enforceable to the fullest extent permitted by applicable law. In the event that any provision of this Employment Agreement shall be finally determined to be unenforceable, such provision shall not be entirely void, but rather shall be limited or revised by a court of competent jurisdiction only to the extent necessary to make it enforceable, but every other provision of this Employment Agreement shall remain in full force and effect. In the event that this Employment Agreement is rejected as an executory contract or otherwise by any one, or more of the obligors hereunder, such rejection shall have no effect upon the liability of the remaining obligors. 8. BINDING EFFECT NONASSIGNABILITY; WAIVER. The rights and obligations of the Company, the Parent and the Subsidiaries under this Employment Agreement shall inure to the benefit of, and shall be binding upon, the Parent, the Company and its Subsidiaries and their successors and assigns. The rights and obligations of the Executive under this Employment Agreement are personal to the Executive and may not be assigned, transferred or delegated by the Executive to any other person or entity except as provided for herein. The waiver of any of the parties of any breach of any provision hereof shall not be effective unless in writing and shall not constitute a waiver by such party of any other succeeding breach of any provision hereof. 9. ACKNOWLEDGMENT. The Executive acknowledges that he has carefully read all of the provisions of this Employment Agreement, and has given careful consideration to the restrictions imposed upon him hereby, and he agrees that the same are necessary for the proper protection of the Employer's business and that the Employers have agreed to enter into this Employment Agreement in partial consideration of the representation of the Executive that he will abide by and be bound by such provisions. He further confirms that he considers each of said provisions to be reasonable with respect to the subject matter thereof. 10. DISPUTES. Any dispute or controversy arising among the parties to this Employment Agreement relating to the validity, enforceability, enforcement, performance, construction, and interpretation of this Employment Agreement, including a dispute pertaining to the validity or enforceability of this provision shall be enforceable in law and in equity and the expenses and attorneys' fees incurred by the Executive in seeking relief, in addition to such other relief as may be granted, shall be paid by the Employers. Any proceeding for injunctive relief (including temporary restraining orders, preliminary injunctions and permanent injunctions) may be brought in any court of competent jurisdiction. 11. COUNTERPARTS. This Employment Agreement may be executed in two or more counterparts, all of which, when taken together, shall constitute one and the same Employment Agreement. IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the day and year first above written. Dated: February 20, 1998 ______________________________ KES PENUELAS, LTD. Michael U. Alvarez a BVI Company KENETECH ENERGY SYSTEMS, INC. By: a Delaware corporation Mark D. Lerdal, Vice President By: KES PUERTO RICO, L.P. Mark D. Lerdal, Vice President a Bermuda Exempted Limited Partnership KENETECH CORPORATION, By: Delaware corporation Mark D. Lerdal, Vice President KES LNG, Ltd., General Partner By: KES BERMUDA, INC. Mark D. Lerdal, CEO & President a Delaware corporation KES PENUELAS HOLDINGS, INC. By: a Delaware corporation Mark D. Lerdal, Vice President By: Mark D. Lerdal, Vice President KES LNG, LTD. a BVI Company By: Mark D. Lerdal, Vice President EX-10.52 3 SEPARATION AGREEMENT SEPARATION AGREEMENT THIS SEPARATION AGREEMENT (the Agreement) is made and entered into as of June 30, 1997, by and between KENETECH CORPORATION (the Company), a Delaware corporation, and JAMES J. EISEN (the Employee), who has been employed by the Company. RECITALS The Company and the Employee are parties to an Employment Agreement dated April 12, 1996 (the Employment Agreement). The Company is terminating the Employee's employment on or about June 30, 1997. The Employee will continue to act as the Company's Vice President and General Counsel. NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein, and for other good and valuable consideration, the Company and the Employee agree as follows: 1. Separation Date. The Company and the Employee agree that the Employee's employment by the Company shall terminate effective June 30, 1997 (the Separation Date). 2. Terms of Separation. In consideration of the agreements by the Employee provided herein, the Company agrees as follows: (a) In full satisfaction of any claims by the Employee in connection with his employment by the Company or the termination of his employment by the Company, including any claims for compensation (but subject to Section 6(d) and (e) below), severance payments or benefits, and the like, the Company shall pay to the Employee a lump sum amount equal to $165,750, less all applicable deductions, within five (5) business days following the Separation Date. (b) The Employee shall cease participation in all employee benefit plans of the Company effective as of the Separation Date, and the Company shall not be liable for any payments to or on behalf of the Employee in respect of any fringe benefits incurred after the Separation Date. The foregoing shall not be in lieu of any continued health care coverage to which the Employee or his dependents would otherwise, at the Employee's expense, be entitled in accordance with the requirements of Code Section 4980B by reason of termination of his employment. (c) The Company will deduct and withhold, from the compensation payable to the Employee under this Agreement, any and all Federal, State and local income and employment withholding taxes and any other amounts required to be deducted or withheld by the Company under the applicable statute or regulation. 3. Indemnification and Insurance. To the extent permitted by applicable law, the Company agrees that all rights to indemnification from the Company existing under the law and under the Company's certificate of incorporation and by-laws as of the Separation Date, in favor of the Employee as an officer, employee, or agent of the Company shall survive this Agreement and shall continue in full force and effect with respect to any liability for any acts or omissions by the Employee prior to or after the Separation Date. The Company further agrees that, for so long as it maintains directors' and officers' liability insurance that covers any active or former officers or employees of KENETECH Corporation, it shall include the Employee among the insured officers or employees. 4. Confidentiality Agreement. The Employee acknowledges that any confidentiality, proprietary or ownership rights or nondisclosure agreement(s) in favor of the Company which he may have entered into in connection with his employment (the Confidentiality Agreement(s)) by the Company, are understood to survive, and do survive, the termination of his employment and this Agreement for a period of six (6) months, and accordingly nothing in this Agreement shall be construed as terminating, limiting or otherwise affecting any such Confidentiality Agreement(s) or the Employee's obligations thereunder for such period. 5. Notices. Any notice given to either party to this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently give such notice of. If to the Company: KENETECH Corporation 500 Sansome Street, Suite 300 San Francisco, CA 94111 Attn: Chief Executive Officer If to the Employee: James J. Eisen 6001 Harbord Drive Oakland, CA 94611 6. General Provisions. (a) The effect, intent and construction of this Agreement shall be governed by the laws of the State of California, without giving effect to the conflict of laws rules thereof. (b) The Company and the Employee mutually agree that neither may assign this Agreement, or any rights or obligations under this Agreement, to any person or entity without the express prior written approval of the other. (c) Except as set forth in subparagraphs (d) and (e) below, this Agreement sets forth the entire agreement between the Company and the Employee and supersedes any and all prior agreements or understandings between the Company and the Employee pertaining to the subject matter hereof, including the Employment Agreement and any other agreements relating to the Employee's employment by the Company. Except as specifically set forth in Paragraph 4 hereof, the Employment Agreement shall be null and void as of the Separation Date. This Agreement shall inure to the benefit of and be binding upon the successors in interest and assigns of each party except as otherwise provided herein. (d) With respect to the Asset Sale Compensation Agreement between the Employee and KENETECH Windpower, Inc. (KWI), now debtor in possession, dated as of May 17, 1996, as amended by Addendum dated August 26, 1996 and as it may be further amended from time to time, the parties hereto agree that nothing herein shall be deemed to alter or amend such agreement insofar as KWI's obligations to the Employee are concerned. (e) Nothing herein shall amend or alter the Incentive Stock Option Agreements between the Employee and KENETECH Corporation entered into in 1986 and 1989 or the Grant of Stock Option between the Employee and KENETECH Corporation dated as of April 12, 1996, or any grant of stock options or issuance of stock thereunder, or rights related thereto. (f) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original. IN WITNESS WHEREOF, the Company and the Employee have duly executed this Agreement as of the date first set forth above. KENETECH CORPORATION By_________________________ ___________________________ Name: Mark D. Lerdal JAMES J. EISEN Title: Chief Executive Officer EX-10.53 4 SETTLEMENT AGREEMENT SETTELEMENT AGREEMENT AND MUTUAL RELEASE THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE (this "Agreement") is made and entered into as of August 1, 1997, by and between KENETECH CORPORATION (the "Company"), a Delaware corporation, and NICHOLAS H. POLITAN (the "Employee"), an individual employed by the Company. RECITALS A. The Company and the Employee are parties to an Employment Agreement dated April 12, 1996 (the "Employment Agreement"). B. The Employee and the Company have certain disputes concerning the Employment Agreement. C. The Employee and the Company desire to terminate the Employment Agreement and to compromise, settle and release fully and finally all outstanding matters relating to the Employment Agreement. D. Subject to the terms and conditions of this Agreement, upon such termination of the Employment Agreement, the Employee shall be employed by the Company as an at-will employee. NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein, and for other good and valuable consideration, the Company and the Employee agree as follows: 1. Terms of Settlement. (a) In consideration of the agreements by the Employee provided herein, including, without limitation, the releases by the Employee in Section 2 below, the Company agrees as follows: (i) In full satisfaction of any claims by the Employee in connection with his employment or the termination of the Employment Agreement (but subject to Sections 6(e), (f) and (g) below), including, but not limited to, any claims for compensation, bonuses, severance payments or benefits, change in control benefits, out-placement services or any other payments under the Employment Agreement, the Company shall pay to the Employee a lump sum amount equal to $175,000.00, less all applicable deductions, within five (5) business days following the execution of this Agreement. (ii) Upon termination of the Employment Agreement, the Employee shall be employed as an at-will employee of the Company as its Chief Financial Officer and a Vice President on the same terms and conditions as other at-will employees of the Company, including the right to participate in all employee benefit plans of the Company available to other at-will employees of the Company. (iii)The Company shall deduct and withhold, from the compensation payable to the Employee under this Agreement, any and all Federal, State and local income and employment withholding taxes and any other amounts required to be deducted or withheld by the Company under any applicable statute or regulation. (b) The Employee agrees that nothing in this Agreement shall confer upon the Employee any right to continue as an employee of the Company for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any direct or indirect subsidiary employing the Employee), which rights are expressly reserved by the Company, to terminate the Employee's employment at any time for any reason whatsoever, with or without cause. 2. Mutual Releases. (a) Release By The Employee. Except as to any claims arising out of rights provided under this Agreement, in consideration of the agreements set forth herein and upon indefeasible payment in full of all amounts payable to Employee under Section 1 of this Agreement, the Employee hereby irrevocably and unconditionally releases, acquits and forever discharges for himself and his heirs, executors, administrators, agents, successors and assigns, the Company and any related entity and their stockholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, attorneys, divisions, and subsidiaries, and all persons acting by, through, under or in concert with any of them (collectively, the "Company Releasees"), or any of them, from any and all charges, complaints, claims, assertions of claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees and costs actually incurred) of any nature whatsoever, whether known or unknown, suspected or unsuspected, arising directly or indirectly out of the Employment Agreement, which the Employee or his heirs, executors, administrators, agents, successors or assigns, now has, or ever claimed to have, or could claim against each or any of the Company Releasees, including, without limitation, any of the following: claims in equity or law for wrongful discharge, and personal injury claims, claims under federal, state or local laws prohibiting discrimination on account of age, national origin, race, sex, disability, religion and other protected classifications, or claims under the Civil Rights Acts of 1866 and 1871, as amended, Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, as amended, the Employee Retirement Income Security Act of 1974, as amended, the Americans with Disabilities Act of 1990, the Family Medical and Leave Act, the California Fair Employment and Housing Act or any comparable law of any other State. (b) Release By The Company. Except as to any claims arising out of rights provided under this Agreement, in consideration for the agreements set forth herein, the Company hereby irrevocably and unconditionally releases, acquits and forever discharges for itself and its agents, successors and assigns, the Employee and his successors and assigns (collectively, the "Employee Releasees"), or any of them, from any and all charges, complaints, claims, assertions of claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees and costs actually incurred) of any nature whatsoever, known or unknown, suspected or unsuspected, arising directly or indirectly out of any interactions between the Company and the Employee Releasees, arising out of the Employment Agreement, which the Company now has, or ever claimed to have, or could claim against each or any of the Employee Releasees. 3. Waiver of Unknown Claims. The Employee acknowledges that he is aware that he may hereafter discover claims or facts different from or in addition to those he now knows or believes to be true with respect to the matters herein released, and except as to any claims arising out of the rights provided under this Agreement, he agrees that the releases set forth above shall be and remain in effect in all respects a complete general release as to the matters released and all claims relative thereto which may exist or may heretofore have existed, notwithstanding any such different or additional facts. The Employee acknowledges that he has considered the possibility that he may not fully know the number or magnitude of all of the claims which he has or may have against the Company and the Company Releasees and, except as set forth in this Agreement, intends to assume the risk that he is releasing unknown claims. The Employee acknowledges that he has been informed of Section 1542 of the Civil Code of the State of California and, except as set forth in this Agreement, he does hereby expressly waive and relinquish all rights and benefits which he has or may have under such Section, which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." The Employee understands and acknowledges the significance and consequences of such specific waiver of Section 1542 and hereby assumes full responsibility for any injuries, damages or losses that he may incur as the result of such waiver. 4. Indemnification and Insurance. To the extent permitted by applicable law, the Company agrees that all rights to indemnification from the Company existing under the law and under the Company's certificate of incorporation and by-laws as of the date hereof, in favor of the Employee as an officer, employee, or agent of the Company shall survive this Agreement and shall continue in full force and effect with respect to any liability for any acts or omissions by the Employee during the period of his employment by the Company. The Company further agrees that, for so long as it maintains directors' and officers' liability insurance that covers any employees of the Company, it shall include the Employee among the insured employees; provided, however, that this Agreement shall not be construed or implied as an obligation to continue to maintain directors' and officers' liability insurance for active or former employees for any period of time. 5. Non-disclosure Agreements. The Employee acknowledges that any confidentiality, proprietary or ownership rights or nondisclosure agreement(s) in favor of the Company or the Company Releasees which he may have entered into in connection with his employment (the "Nondisclosure Agreement(s)") by the Company, are understood to survive, and do survive, the termination of his Employment Agreement, and accordingly nothing in this Agreement shall be construed as terminating, limiting or otherwise affecting any such Nondisclosure Agreement(s) or the Employee's obligations thereunder. 6. General Provisions. (a) The Employee represents and acknowledges that in executing this Agreement, he does not rely and has not relied upon any representation, inducement agreement or statement not set forth herein made by any of the Company Releasees or by any of the Company Releasees' agents, representatives or attorneys with regard to the subject matter of this Agreement. (b) The provisions of this Agreement are severable, and if any part of it is found to be unenforceable, the other provisions shall remain fully valid and enforceable. This Agreement shall survive the termination of any arrangements contained herein. (c) The Company and the Employee mutually agree that neither may assign this Agreement, or any rights or obligations under this Agreement, to any person or entity without the express prior written approval of the other. (d) This Agreement sets forth the entire agreement between the Company and the Employee and supersedes any and all prior agreements or understandings between the Company and the Employee pertaining to the subject matter hereof. The Employment Agreement shall be null and void upon execution of this Agreement. This Agreement shall inure to the benefit of and be binding upon the successors in interest and assigns of each party except as otherwise provided herein. (e) With respect to the Asset Sale Compensation Agreement between the Employee and KENETECH Windpower, Inc. ("KWI"), now debtor in possession, dated as of May 20, 1996, as it may be amended from time to time, the parties hereto agree that nothing herein shall be deemed to alter or amend such agreement insofar as KWI's obligations to the Employee are concerned. (f) Nothing herein shall amend or alter any Incentive Stock Option Agreement between the Employee and the Company or the Grant of Stock Option between the Employee and the Company dated as of April 12, 1996, or any grant of stock options thereunder. (g) Notwithstanding anything to the contrary in this Agreement, the Employment Agreement and all payments due thereunder shall be reinstated, and the release by the Employee hereunder shall be null and void, if at any time payment, or any part thereof, of any amount under this Agreement is rescinded or must otherwise be restored or returned by the Employee upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for the Company, all as though such payment hereunder had not been made. (h) The effect, intent and construction of this Agreement shall be governed by the laws of the State of California, without giving effect to the conflict of laws rules thereof. (i) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original. IN WITNESS WHEREOF, the Company and the Employee have duly executed this Agreement as of the date first set forth above. KENETECH CORPORATION By_________________________ ___________________________ Name: Mark D. Lerdal NICHOLAS H. POLITAN Title: President and Chief Executive Officer EX-10.54 5 SEPARATION AGREEMENT SEPARATION AGREEMENT AND MUTUAL RELEASE THIS SEPARATION AGREEMENT AND MUTUAL RELEASE (the "Agreement") is made and entered into as of March 12, 1997, by and between KENETECH CORPORATION (the "Company"), a Delaware corporation, and MICHAEL A. HAAS (the "Employee"), who has been employed by the Company. RECITALS A. The Company and the Employee are parties to an Employment Agreement dated April 12, 1996 (the "Employment Agreement") pursuant to which the Employee has acted as a Vice President of the Company. The Company is terminating the Employee's employment on or about April 11, 1997. B. The Employee acknowledges that he has received full salary, vacation pay and benefits payments from the Company in accordance with the Company's regular payroll practices to date. C. The Employee and the Company desire to compromise, settle and release fully and finally all outstanding matters between the Employee and the Company, including all matters relating to the Employment Agreement, the Employee's employment, his separation from the Company and the termination of his employment. NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein, and for other good and valuable consideration, the Company and the Employee agree as follows: 1. Separation Date. The Company and the Employee agree that the Employee's employment by the Company shall terminate effective April 11, 1997 (the "Separation Date"). The Employee understands and agrees that, effective as of the Separation Date, he is no longer authorized to incur any expenses, obligations or liabilities on behalf of the Company. He acknowledges that he has been reimbursed for all expenses incurred by him to date. 2. Termination. The execution of this Agreement shall confirm the Employee's termination as an officer and employee of the Company effective as of the Separation Date. 3. Terms of Separation. In consideration of the agreements by the Employee provided herein, including, without limitation, the releases by the Employee in Paragraph 4 below, the Company agrees as follows: (a) In full satisfaction of any claims by the Employee in connection with his employment or the termination of his employment, including, but not limited to, any claims for compensation (but subject to Section 12(e) below), severance payments or benefits, change in control benefits, and outplacement services, the Company shall pay to the Employee a lump sum amount equal to $95,700.00 less all applicable deductions within five (5) business days following the Separation Date. (b) The Employee has ceased participation in all employee benefit plans of the Company effective as of the Separation Date, and the Company shall not be liable for any payments to or on behalf of the Employee in respect of any fringe benefits. The foregoing shall not be in lieu of any continued health care coverage to which the Employee or his dependents would otherwise, at the Employee's expense, be entitled in accordance with the requirements of Code Section 4980B by reason of termination of his employment. (c) The Employee's employment will be deemed terminated effective on the Separation Date. (d) The Company will deduct and withhold, from the compensation payable to the Employee under this Agreement, any and all Federal, State and local income and employment withholding taxes and any other amounts required to be deducted or withheld by the Company under the applicable statute or regulation. 4. Mutual Releases. (a) Release By The Employee. Except as to any claims arising out of rights provided under this Agreement, in consideration for the agreements set forth herein, the Employee hereby irrevocably and unconditionally releases, acquits and forever discharges for himself and his heirs, executors, administrators, agents, successors and assigns, KENETECH Corporation and any related entity (other than KENETECH Windpower, Inc. and its subsidiaries) and their stockholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, attorneys, divisions, and subsidiaries, and all persons acting by, through, under or in concert with any of them (collectively, the "Company Releasees"), or any of them, from any and all charges, complaints, claims, assertions of claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees and costs actually incurred) of any nature whatsoever, known or unknown, suspected or unsuspected, arising directly or indirectly out of any interactions between the Employee or his heirs, executors, administrators, agents, successors or assigns, and the Company Releasees from the beginning of time to the present, including but not limited to any matter arising out of the Employment Agreement, the Employee's employment by the Company, his separation from employment with the Company, or the termination of the Employee's employment, which the Employee or his heirs, executors, administrators, agents, successors or assigns, now has, or ever claimed to have, or could claim against each or any of the Company Releasees, including, without limitation, any of the following: claims in equity or law for wrongful discharge, and personal injury claims, claims under federal, state or local laws prohibiting discrimination on account of age, national origin, race, sex, disability, religion and other protected classifications, or claims under the Civil Rights Acts of 1866 and 1871, as amended, Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, as amended, the Employee Retirement Income Security Act of 1974, as amended, the Americans with Disabilities Act of 1990, the Family Medical and Leave Act, the California Fair Employment and Housing Act or any comparable law of any other State (collectively, the "Employee Claims"). The Employee hereby agrees to forego any right to file any charges or complaints with any governmental agencies or any legal action against the Company Releasees under any of the laws referenced in this paragraph or with respect to any of the Employee Claims. Notwithstanding the foregoing, the release by the Employee in this paragraph shall not limit the right of the Employee to seek to enforce the provisions of this Agreement, including without limitation the provisions of Paragraph 8 below. (b) Release By The Company. Except as to any claims arising out of rights provided under this Agreement, in consideration for the agreements set forth herein, the Company hereby irrevocably and unconditionally releases, acquits and forever discharges for itself and its agents, successors and assigns, the Employee and his successors and assigns (collectively, the "Employee Releasees"), or any of them, from any and all charges, complaints, claims, assertions of claims, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees and costs actually incurred) of any nature whatsoever, known or unknown, suspected or unsuspected, arising directly or indirectly out of any interactions between the Company and the Employee Releasees from the beginning of time to the present, arising out of the Employment Agreement, the Employee's employment by the Company, his separation from employment with the Company, or the termination of the Employee's employment, which the Company now has, or ever claimed to have, or could claim against each or any of the Employee Releasees (collectively, the "Company Claims"). The Company hereby agrees to forego any right to file any charges or complaints with any governmental agencies or any legal action against the Employee Releasees with respect to any of the Company Claims. Notwithstanding the foregoing, the release by the Company in this paragraph shall not limit the right of the Company to seek to enforce the provisions of this Agreement, including without limitation the provisions of Paragraph 8 below. (d) Indemnification and Insurance. To the extent permitted by applicable law, the Company agrees that all rights to indemnification from the Company existing under the law and under the Company's certificate of incorporation and by-laws as of the Separation Date, in favor of the Employee as an officer, employee, or agent of the Company shall survive this Agreement and shall continue in full force and effect with respect to any liability for any acts or omissions by the Employee during the period of his employment by the Company. The Company further agrees that, for so long as it maintains directors' and officers' liability insurance that covers any former employees of KENETECH Corporation whose employment terminated in April 1997 or earlier, it shall include the Employee among the insured former employees; provided, however, that this Agreement shall not be construed or implied as an obligation to continue to maintain directors' and officers' liability insurance for active or former employees for any period of time. The Employee shall hold the Company harmless from any liability arising out of his tax situation and any taxes, penalties, or other assessments that may hereafter be asserted on account of any payments or other compensation hereunder, over and above taxes withheld and paid in a timely manner by the Company. 5. Waiver of Unknown Claims. The Employee acknowledges that he is aware that he may hereafter discover claims or facts different from or in addition to those he now knows or believes to be true with respect to the matters herein released, and except as to any claims arising out of the rights provided under this Agreement, he agrees that the releases set forth above shall be and remain in effect in all respects a complete general release as to the matters released and all claims relative thereto which may exist or may heretofore have existed, notwithstanding any such different or additional facts. The Employee acknowledges that he has considered the possibility that he may not fully know the number or magnitude of all of the claims which he has or may have against the Company and the Company Releasees and, except as set forth in this Agreement and Paragraph 8 below, intends to assume the risk that he is releasing unknown claims. The Employee acknowledges that he has been informed of Section 1542 of the Civil Code of the State of California and, except as set forth in this Agreement and Paragraph 8 below, he does hereby expressly waive and relinquish all rights and benefits which he has or may have under such Section, which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." The Employee understands and acknowledges the significance and consequences of such specific waiver of Section 1542 and, except as set forth in this Agreement and Paragraph 8 below, hereby assumes full responsibility for any injuries, damages or losses that he may incur as the result of such waiver. 6. Confidentiality and Non-disclosure Agreements. (a) The Employee acknowledges that any confidentiality, proprietary or ownership rights or nondisclosure agreement(s) in favor of the Company or the Company Releasees which he may have entered into in connection with his employment (the "Nondisclosure Agreement(s)") by the Company, are understood to survive, and do survive, the termination of his employment and this Agreement, and accordingly nothing in this Agreement shall be construed as terminating, limiting or otherwise affecting any such Nondisclosure Agreement(s) or the Employee's obligations thereunder. (b) The Employee agrees that, except to the extent compelled by law or legal process or except to the extent he is required to disclose to governmental authorities in connection with any inquiry, audit or assessment relating to the taxation of any payments provided for herein or except in any litigation or arbitration proceeding between the Company and the Employee as provided herein (in which case the Employee will use his best efforts to ensure that such information is maintained as confidential by the persons to whom he is compelled or required to disclose such information), the Employee will not: (i) disclose or communicate confidential information of the Company to any third party (including governmental agencies and employees and former employees of the Company); (ii) make use of confidential information of the Company for his own behalf, or on behalf of any third party; and (iii) facilitate, assist, persuade or attempt to facilitate, assist or persuade any third party to commence or prosecute any legal proceedings against the Company or any Company Releasees. If the Employee receives, is notified of, or is served with a subpoena, summons, complaint, order, notice, notice of deposition or any other legal process or request for information (collectively, "Legal Process") in connection with any legal or quasi-legal proceeding, including, but not limited to, any action at law or equity, arbitration, administrative proceeding or governmental, self-regulating organization or stock exchange investigation (collectively, "Litigation"), relating to the performance of his services as an employee, officer or as a director of the Company, or which, if complied with by the Employee, might compel or lead to the disclosure by the Employee of confidential information of the Company, the Employee shall immediately notify the Company and provide the Company with a copy of the same. 7. Company Property and Information. The Company and the Employee agree that the Employee shall, as of the Separation Date, return to the Company all Company Information (defined below) and files containing Company Information; credit cards; cardkey passes; door and file keys; computers, computer access codes, computer discs, and magnetic media; software; and all other physical property which the Employee received in connection with his employment. The term "Company Information" as used in this Agreement means confidential or proprietary business or financial information of the Company. The Employee further represents and warrants that he has not, except in the ordinary course of business and in accordance with Company policies and procedures, destroyed or discarded any documents or information. 8. Confidentiality of This Agreement. (a) The Employee and the Company mutually represent and agree that, except to the extent required by law, they will keep the terms, and the fact, of this Agreement completely confidential and they will not hereafter disclose any information concerning this Agreement to any person; provided, however, that the Employee may disclose the terms, and the fact, of this Agreement to his immediate family and either party may disclose the terms hereof to his or its legal and tax advisors if such persons agree to keep such information confidential and not disclose it to others, except as provided in Paragraph 6(b) above; provided, however, that either party may make any disclosures that may be required or appropriate under applicable laws or regulations. (b) The provisions set forth in subparagraph (a) above are material terms of this Agreement, and a breach of any of those provisions shall constitute a material breach of this Agreement. 9. Consideration. The Company and the Employee mutually acknowledge that neither is required to enter into this Agreement, and the Employee acknowledges that the consideration to be received by him under this Agreement is adequate and that the promises and agreements made by the Company in this Agreement are in consideration of the Employee's agreement to provide the releases set forth in Paragraph 4 above. 10. Voluntary Agreement. The Employee represents and agrees that he has been advised by the Company of his right to discuss all aspects of this Agreement with his attorneys, that he has voluntarily chosen whether to avail himself of this right, that he has carefully read and fully understands all of the provisions of this Agreement, and that he is voluntarily entering into this Agreement. 11. Notices. Any notice given to either party to this Agreement shall be in writing and shall be deemed to have been given when delivered personally or sent by certified mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently give such notice of. If to the Company: KENETECH Corporation 500 Sansome Street, Suite 300 San Francisco, CA 94111 Attn: General Counsel If to the Employee: Michael A. Haas 1737 University Avenue Palo Alto, CA 94301 12. General Provisions. (a) The Employee represents and acknowledges that in executing this Agreement, he does not rely and has not relied upon any representation, inducement agreement or statement not set forth herein made by any of the Company Releasees or by any of the Company Releasees' agents, representatives or attorneys with regard to the subject matter of this Agreement or otherwise. (b) The provisions of this Agreement are severable, and if any part of it is found to be unenforceable, the other provisions shall remain fully valid and enforceable. This Agreement shall survive the termination of any arrangements contained herein. (c) The Company and the Employee mutually agree that neither may assign this Agreement, or any rights or obligations under this Agreement, to any person or entity without the express prior written approval of the other. (d) Except as set forth in subparagraphs (e) and (f) below, this Agreement sets forth the entire agreement between the Company and the Employee and supersedes any and all prior agreements or understandings between the Company and the Employee pertaining to the subject matter hereof, including the Employment Agreement and any other agreements relating to the Employee's employment. Except as specifically set forth in Paragraph 6 hereof, the Employment Agreement shall be null and void as of the Separation Date. This Agreement shall inure to the benefit of and be binding upon the successors in interest and assigns of each party except as otherwise provided herein. (e) With respect to the Asset Sale Compensation Agreement between the Employee, KENETECH International Ltd. ("KIL"), a subsidiary of the Company, and KENETECH Windpower, Inc. ("KWI"), now debtor in possession, dated as of May 17, 1996, as amended by Addendum dated August 26, 1996 and as it may be further amended from time to time, the parties hereto agree as follows: (i) Nothing herein shall be deemed to alter or amend such agreement insofar as KWI's obligations to the Employee are concerned; and (ii) The parties acknowledge that KIL shall have no further obligations to the Employee under such agreement except with respect to sale of the asset identified as "Gaspe" on Table 2b thereto. (f) Nothing herein shall amend or alter the Incentive Stock Option Agreement between the Employee and KENETECH Corporation dated as of March 25, 1993 or the Grant of Stock Option between the Employee and KENETECH Corporation dated as of April 12, 1996, or any grant of stock options thereunder. (g) The effect, intent and construction of this Agreement shall be governed by the laws of the State of California, without giving effect to the conflict of laws rules thereof. (h) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original. IN WITNESS WHEREOF, the Company and the Employee have duly executed this Agreement as of the date first set forth above. KENETECH CORPORATION By_________________________ ___________________________ Name: Mark D. Lerdal MICHAEL A. HAAS Title: Chief Executive Officer Date Signed: March __, 1997 Date Signed: March __, 1997 EX-10.55 6 AGREEMENT MASTER AGREEMENT OF DISSOLUTION, DISTRIBUTION AND ASSIGNMENT This Master Agreement of Dissolution, Distribution and Assignment (this "Agreement"), dated as of August 27, 1997 (the "Execution Date"), is entered into by and between Enron Power I (Puerto Rico), Inc., a Delaware corporation ("Enron Power"), and CNF Penuelas, Inc., a Delaware corporation ("CNF"): WHEREAS, pursuant to the Partnership Agreement of Enron Power Construction Partnership dated as of October 16, 1995 (the "Original Joint Venture Agreement"), Enron Power and Enron Power II (Puerto Rico), Inc. ("ENRON II") formed Enron Power Construction Partnership (the "Joint Venture"); WHEREAS, pursuant to the Assignment dated as of November 1, 1995, ENRON II assigned its 50% interest in the Joint Venture to CNF; WHEREAS, pursuant to the Amended and Restated Joint Venture Agreement of Enron/CNF Power Construction Partnership dated as of November 1, 1995 (the "Amended Joint Venture Agreement"), Enron Power and CNF (hereinafter individually called the "Partner" and collectively called the "Partners") amended and restated the Original Joint Venture Agreement, and renamed the Joint Venture as Enron/CNF Power Construction Partnership (the "General Partnership"); WHEREAS, pursuant to the Limited Partnership Agreement of Enron/CNF Power Construction, L.P. dated as of December 13, 1996 (the "Partnership Agreement") and a certificate of limited partnership filed December 17, 1996 with the Delaware Secretary of State, the Partners formed Enron/CNF Power Construction, L.P., a Delaware limited partnership (the "Partnership"), with each Partner owning a 49% general partner interest and a 1% limited partner interest in the Partnership; WHEREAS, pursuant to the Assignment and Assumption Agreement dated as of December 18, 1996 the Partners transferred and assigned all of their interests in the General Partnership to the Partnership, and continued the business of the Joint Venture under the Partnership; WHEREAS, except for certain site preparation activities, the Partnership has not commenced construction under that certain Onshore Construction Contract dated as of November 1, 1995 (the "Construction Contract"), originally between EcoElectrica, L.P. and the Joint Venture, and substantially all of the costs and expenses of the Joint Venture to date have been covered by Enron Engineering & Construction Company, a Delaware corporation ("EE&CC"), CNF Constructors, Inc., a Tennessee corporation, and their respective affiliates; WHEREAS, subject to the terms and conditions of this Agreement, the Partners desire (i) to dissolve the Partnership and cause any and all right, title and interest in and to the assets and property of the Partnership (the "Partnership Property"), including, but not limited to, the Partners' interests in the Construction Contract, to be distributed to the Partners as agreed to herein; (ii) CNF to assign and transfer to Enron Power all of CNF's interests in and to the Partnership Property to be distributed to CNF pursuant to the dissolution of the Partnership (the "CNF Interest"); and (iii) Enron Power to thereafter perform under the Construction Contract in lieu of the Partnership. NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants, agreements and conditions contained herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to set forth the terms and conditions of the dissolution of the Partnership, the distribution of Partnership Property and the assignment and transfer to Enron Power of the CNF Interest, the parties hereto hereby agree as follows: ARTICLE I Dissolution, Distribution and Assignment; Closing Section 1.1 Dissolution. Subject to the terms and conditions of this Agreement, and in accordance with Section 22.3(a) of the Partnership Agreement, the Partners agree to dissolve the Partnership and to wind up expeditiously the Partnership's affairs and business. In accordance with Section 22.4 of the Partnership Agreement, Enron Power and CNF will act as the liquidators of the Partnership. Section 1.2 Distribution and Termination. Subject to the terms and conditions of this Agreement, on the Effective Date (as hereinafter defined), all of the Partnership Property shall be distributed to the Partners in accordance with the Distribution and Assignment Agreement referred to in Section 1.6(ii) of this Agreement. Upon such distribution, the Partnership's affairs shall be terminated and the liquidators shall promptly cause to be filed all certificates and instruments required to effect the termination of the Partnership, including a Certificate of Cancellation in substantially the form attached hereto as Exhibit 1.2 to be filed with the Secretary of State of the State of Delaware. Section 1.3 Assignment of CNF Interest. Immediately following the distribution of the Partnership Property to the Partners on the Effective Date, (i) CNF shall assign and transfer to Enron Power the CNF Interest, including, but not limited to, all of CNF's interest in the Construction Contract, and (ii) Enron Power shall accept the CNF Interest, and will thereby assume and agree to perform all the duties and obligations of CNF under the Construction Contract. Each of the Partners acknowledges that upon the assignment of the CNF Interest to Enron Power, Enron Power shall possess all of the rights, title and interest which had been held by the Partnership in and to the Construction Contract. Section 1.4 Time and Place of Closing on the Effective Date. Unless the Partners agree otherwise in writing, and subject to the terms and conditions of this Agreement, (i) the winding up of the Partnership's business and affairs, (ii) the distribution to the Partners of all of their respective rights, title and interest in and to the Partnership Property, and (iii) the assignment and transfer of the CNF Interest shall each be consummated (the "Closing") at the offices of Enron Power, 333 Clay, Suite 400, Houston, Texas 77002, or at such other place as the Partners may agree in writing. The date when the Closing actually occurs is referred to in this Agreement as the "Effective Date." Section 1.5 Conditions Precedent to Closing. The Closing shall be held on a mutually acceptable date within three (3) business days after the satisfaction or mutual waiver of the following ("Conditions Precedent"): (a) the mutually satisfactory execution and delivery of all Related Agreements (as defined below); (b) Enron Power receiving a Notice to Proceed (as defined in the Construction Contract); and (c) the satisfaction or waiver of all conditions precedent to the Notice to Proceed Date (as defined in the Construction Contract). Section 1.6 Related Agreements. Subject to the terms and conditions stated in this Agreement along with the right for CNF and Enron Power to mutually agree in writing to waive any requirement under this Section 1.6, at or prior to the Effective Date the appropriate parties shall execute and deliver the following agreements (the agreements listed in this Section 1.6 are collectively referred to in this Agreement as the "Related Agreements") and where applicable CNF and Enron Power shall cause their affiliates to deliver: (i) The Distribution and Assignment Agreement, in the form attached hereto as Exhibit 1.6(i), providing for the distribution of the Partnership Property to each of the Partners (the "Distribution and Assignment Agreement"); (ii) The Assignment and Assumption Agreement, in the form attached hereto as Exhibit 1.6(ii), providing for the assignment and transfer by CNF of the CNF Interest to Enron Power, and the acceptance and assumption of the CNF Interest by Enron Power (the "CNF Assignment Agreement"); (iii)The acknowledgment and consent of EcoElectrica, L.P. of the transactions contemplated by this Agreement in substantially the form attached to the Distribution and Assignment Agreement and the CNF Assignment Agreement (the "Consents"), provided, however, that in the event CNF's affiliated partner in EcoElectrica has executed both Consents, but Enron Power's affiliated partner in EcoElectrica has not executed both Consents within three (3) business days after the Notice to Proceed Date, then Enron Power will be deemed to have waived the requirement under Section 1.6 (iii); (iv) The letter agreement (the "Enron Development/KESI Cancellation Letter") between Enron Development Corp. ("Enron Development") and Kenetech Energy Systems, Inc. ("KESI"), in substantially the form attached hereto as Exhibit 1.6(iv), cancelling the Side Letter Agreement dated November 1, 1995 between Enron Development and KESI pursuant to which each has the right to cancel the Construction Contract and that certain Offshore Supply Contract dated as of November 1, 1995, originally between EcoElectrica, L.P. and Enron Equipment Procurement Company (the "Offshore Supply Contract"); (v) Except to the extent waived in accordance with the terms thereof, all documents required to be delivered at or prior to the closing contemplated by the Master Agreement of Dissolution, Distribution and Assignment (the "Equipment L.P. Dissolution Agreement") entered into on the date of this Agreement between Enron Equipment Procurement Company ("Enron Procurement") and CNF Equipment, Inc. ("CNF Equipment") relating to the dissolution of Enron/CNF Equipment, L.P., a Delaware limited partnership (the "Equipment L.P.") and the distribution and assignment of its property (collectively, the "Equipment L.P. Agreements"); (vi) The guaranty of Kenetech Corporation, a Delaware corporation ("Kenetech"), in the form attached hereto as Exhibit 1.6(vi), pursuant to which Kenetech unconditionally guarantees any and all obligations of CNF under Section 3.1, Section 3.2, Section 3.3, Section 5.1 and Section 5.2 of this Agreement (the "Kenetech Guaranty"); (vii)The guaranty of Enron Power Corp., a Delaware corporation, in the form attached hereto as Exhibit 1.6(vii), pursuant to which Enron Power Corp. unconditionally guarantees any and all obligations of Enron Power under Section 3.1, Section 5.1 and Section 5.2; (viii) The Global Change Order, in substantially the form attached hereto as Exhibit 1.6(viii), relating to the consent and amendment required by the lenders to the project; (ix) The Change Order, in substantially the form attached hereto as Exhibit 1.6(ix), relating to the LPG storage facility (the "LPG Change Order"), provided, however, that in the event the LPG Change Order has not been executed within three (3) business days after the Notice to Proceed Date, then Enron Power will be deemed to have waived the requirement under Section 1.6 (ix); (x) The letter agreement between CNF Industries, Inc. and Enron Power I, in the form attached hereto as Exhibit 1.6(x), releasing the guaranty of CNF Industries, Inc. granted pursuant to Section 11.3 of the Partnership Agreement; and (xi) The letter agreement between Enron Power Corp. and CNF, in the form attached hereto as Exhibit 1.6(xi), releasing the guaranty of Enron Power Corp. granted pursuant to Section 11.3 of the Partnership Agreement. ARTICLE II Representations and Warranties Section 2.1 Representations and Warranties of CNF. CNF represents and warrants to Enron Power that: (a) Organization of CNF. CNF is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease, operate and otherwise hold all of its properties and assets and to carry on its business as presently conducted and is duly qualified to do business in each jurisdiction in which the nature of its business as now conducted or its assets makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on it. (b) Authorization and Validity of Agreement. CNF has all necessary corporate power and authority to enter into this Agreement and each of the Related Agreements to which it is a party and to perform its obligations hereunder and thereunder, and the execution, delivery and performance by CNF of this Agreement and each of the Related Agreements to which it is a party has been duly and validly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by CNF and at or prior to the Effective Date each of the Related Agreements to which CNF is a party will have been duly executed and delivered by CNF, and, assuming this Agreement and each of the Related Agreements to which CNF is a party constitute legal, valid and binding obligations of the other parties thereto, when executed and delivered will constitute legal, valid and binding obligations of CNF, enforceable against it in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) Consent and Approval; No Conflict. Neither the execution and delivery of this Agreement or the Related Agreements to which CNF is a party nor the consummation of the transactions and performance of the terms and conditions contemplated hereby or thereby will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws of CNF; (ii) except as otherwise provided in this Agreement, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, except (A) any regulatory approvals or routine governmental consents normally acquired after the consummation of transactions such as transactions of the nature contemplated by this Agreement or (B) where it is reasonably expected that the failure to obtain such consent, approval, authorization or permit, or to make such filing or notification, would not prevent or delay in any material respect the consummation of the transactions contemplated hereby or thereby; (iii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any agreement, instrument or obligation to which CNF is a party or by which CNF may be bound and to which any of the Partnership Property is subject, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or will be obtained prior to the Closing; (iv) violate any order, writ, injunction, decree, statute, rule or regulation to which CNF is subject and which relate to any of its assets; or (v) result in the imposition or creation of any lien, charge or encumbrance upon any Partnership Property under any agreement by which Partnership Property is bound. (d) Ownership of Partnership Interests; Title. As of the date of this Agreement and immediately prior to the Closing, CNF is and will be the owner of record and beneficially of a 49% general partner interest and a 1% limited partner interest in the Partnership, and it has not received any notice of adverse claim to the ownership of such interests and does not have any reason to know of any such adverse claim. (e) No Liens. CNF shall transfer and assign the CNF Interest to Enron Power pursuant to the CNF Assignment Agreement free and clear of all liens, encumbrances or similar rights. (f) Solvency. As of the date hereof CNF is Solvent, and following the transfer of the CNF Interest to Enron Power pursuant to the CNF Assignment Agreement and the receipt by CNF of the payment contemplated by Section 3.1(a) and Section 3.1(b) (i) and (ii) of this Agreement, CNF shall be Solvent. For purposes of this Section 2.1(f) the term "Solvent" shall mean: (i) the assets of CNF, at a fair valuation, exceed CNF's total liabilities (including contingent, subordinated, unmatured and unliquidated liabilities); (ii) based on current projections, which are based on underlying assumptions which provide a reasonable basis for the projections and which reflect CNF's judgment based on present circumstances of the most likely set of conditions and CNF's most likely course of action for the period projected (including any payments that may be received by CNF under Section 3.1), CNF has sufficient cash flow to enable it to pay its debts as they mature; and (iii) CNF does not have unreasonably small capital with which to engage in its anticipated business. For purposes of this Section 2.1(f), the "fair valuation" of the assets of CNF means a valuation on the basis of the amount which may be realized within a reasonable time, either through collection or sale of such assets at the regular market value, conceiving the latter as the amount which could be obtained for the property in question within such period by a capable and diligent businessman from an interested buyer who is willing to purchase under ordinary selling conditions, including obtaining necessary consents. (g) Fair Consideration. The consideration payable to CNF pursuant to Article III of this Agreement equals or exceeds the reasonable equivalent value of the CNF Interest to be transferred to Enron Power pursuant to the CNF Assignment Agreement. (h) Delivery of CNF Work Product. CNF and affiliated parties have delivered to Enron Power all work, of any kind or nature, related to the Project (as defined in the Construction Contract) in the possession or under the control of such person, including but not limited to: drawings, specifications, calculations, purchase orders, quotations, estimates, budgets, cost reports, cost forecasts, labor or manpower projections or forecasts, cash flow projections, schedules, work plans, transportation studies, installation plans or procedures, arrangements with subcontractors or subsuppliers, monthly reports, daily logs, engineering studies, correspondence with or between any party related to the Project and including that with any possible subcontractors, monthly reports, daily logs, engineering studies, and related data. (i) No Agreements, Claims, Actions or Proceedings. Except for this Agreement, the Related Agreements, and any agreement entered into jointly by CNF and Enron Power, CNF is not a party to any contract, agreement or arrangement relating to the Partnership Property or the Construction Contract which binds or purports to bind the Partnership or its assets. Except as disclosed on Schedule 2.1(i), as of the Execution Date and, except as may be provided on an amended Schedule 2.1(i) delivered by CNF at or prior to the Effective Date, as of the Effective Date there are no claims, actions or proceedings pending that arise from activities conducted by CNF, its affiliates or their representatives that relate to the Partnership, Partnership Property or the Construction Contract and, to the knowledge of CNF, no such claims, actions or proceedings are threatened. Section 2.2 Representations and Warranties of Enron Power. Enron Power hereby represents and warrants to CNF that: (a) Organization of Enron Power. Enron Power is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware and has all requisite corporate power and authority to own, lease, operate and otherwise hold all of its properties and assets and to carry on its business as presently conducted and is duly qualified to do business in each jurisdiction in which the nature of its business as now conducted or its assets makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on it. (b) Authorization and Validity of Agreement. Enron Power has all necessary corporate power and authority to enter into this Agreement and each of the Related Agreements to which it is a party and to perform its obligations hereunder and thereunder, and the execution, delivery and performance by Enron Power of this Agreement and each of the Related Agreements to which it is a party has been duly and validly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by Enron Power and at or prior to the Effective Date each of the Related Agreements to which Enron Power is a party will have been duly executed and delivered by Enron Power, and, assuming this Agreement and each of the Related Agreements to which Enron Power is a party constitute legal, valid and binding obligations of the other parties thereto, when executed and delivered will constitute legal, valid and binding obligations of Enron Power, enforceable against it in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) Consent and Approval; No Conflict. Neither the execution and delivery of this Agreement or the Related Agreements to which Enron Power is a party nor the consummation of the transactions and performance of the terms and conditions contemplated hereby or thereby will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws of Enron Power; (ii) except as otherwise provided in this Agreement, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, except (A) any regulatory approvals or routine governmental consents normally acquired after the consummation of transactions such as transactions of the nature contemplated by this Agreement or (B) where it is reasonably expected that the failure to obtain such consent, approval, authorization or permit, or to make such filing or notification, would not prevent or delay in any material respect the consummation of the transactions contemplated hereby or thereby; (iii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any agreement, instrument or obligation to which Enron Power is a party or by which Enron Power may be bound and to which any of the Partnership Property is subject, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or will be obtained prior to the Closing; (iv) violate any order, writ, injunction, decree, statute, rule or regulation to which Enron Power is subject and which relate to any of its assets; or (v) result in the imposition or creation of any lien, charge or encumbrance upon any Partnership Property under any agreement by which the Partnership Property is bound. (d) Ownership of Partnership Interests; Title. As of the date of this Agreement and immediately prior to the Closing, Enron Power is and will be the owner of record and beneficially of a 49% general partner interest and a 1% limited partner interest in the Partnership, and it has not received any notice of adverse claim to the ownership of such interests and does not have any reason to know of any such adverse claim. (e) No Claims. As of the date of this Agreement and, except as may be set forth on an amended Schedule 2.1(i) delivered by CNF pursuant to Section 2.1(i), immediately prior to the Closing, there are no claims, actions or proceedings pending that arise from the gross negligence or willful misconduct of CNF, its affiliates or their representatives that relate to the Partnership, Partnership Property or the Construction Contract and, to the knowledge of Enron Power, no such claims, actions or proceedings are threatened. ARTICLE III Additional Covenants and Agreements Section 3.1 Certain Payments to CNF. (a) Payment on the Execution Date. Subject to the terms and conditions of this Agreement, Enron Power shall pay to CNF on the Execution Date, by wire transfer or certified bank check, an aggregate of $300,000 in partial consideration for the transactions contemplated in this Agreement. (b) Payments Following the Effective Date. Subject to, and conditioned upon the satisfaction or valid waiver of the Conditions Precedent, Enron Power shall pay to CNF, by wire transfer or a certified bank check, the following amounts: (i) Four Hundred Eighty Eight Thousand One Hundred and Seven Dollars ($488,107) on the Effective Date to CNF or its designee for the out-of-pocket costs incurred and paid by CNF and its affiliates on behalf of the Partnership and constituting Contract Costs (as defined in the Partnership Agreement) through April 30, 1997 for which CNF and its affiliates had not been reimbursed as of April 30, 1997; and (ii) Four Million One Hundred Thousand Dollars ($4,100,000) on the Effective Date. (c) Cancellation Option. In the event a Notice to Proceed under the Construction Contract is not issued by EcoElectrica, L.P. to Enron Power by December 15, 1997, Enron Power shall have the right, but not the obligation, to terminate this Agreement by giving written notice of such election to CNF on or prior to December 19, 1997 (the "Revocation Option"). Should Enron Power elect to exercise the Revocation Option, CNF shall be obligated to promptly repay to Enron Power (and in any event no later than December 31, 1997) any and all amounts paid to CNF pursuant to this Section 3.1 of this Agreement. In the event that Enron Power elects to exercise the Revocation Option, and subject to the repayment by CNF to Enron Power of any and all amounts owed by CNF hereunder, then this Agreement shall be considered terminated effective upon delivery by Enron Power of notice of the Revocation Option, and thereafter Enron Power shall have no further payment obligations under the Agreement and CNF and Enron Power shall continue as partners. (d) Cancellation of Project. In the event the Project is terminated or cancelled prior to the receipt of a Notice to Proceed (including, without limitation, because of the denial of a permit or license necessary to the Project or the termination or cancellation of the Power Purchase Agreement (as defined in the Construction Contract)), CNF shall be obligated to promptly repay Enron Power (in any event no later than thirty (30) days after notice of such termination or cancellation is given by Enron Power to CNF) any and all amounts paid to CNF pursuant to this Section 3.1 of the Agreement. In the event that the Project is terminated or cancelled, and subject to the repayment by CNF to Enron Power of any and all amounts owed by CNF hereunder, then this Agreement shall be considered terminated effective upon delivery by Enron Power of notice of the Project cancellation, and thereafter Enron Power shall have no further payment obligations under the Agreement and CNF and Enron Power shall continue as partners. Section 3.2 Alteration of Construction Contract and Offshore Supply Contract. Prior to the Effective Date, CNF agrees to assist Enron Power in the negotiations with EcoElectrica L.P. pertaining to the Global Change Order and the LPG Change Order in order to minimize modifications or alterations to the Construction Contract and the Offshore Supply Contract that result in a negative impact on, or decrease the profit accruing under, the Construction Contract and the Offshore Supply Contract. Section 3.3 Continued Existence. CNF shall maintain its corporate existence as a Delaware corporation in good standing under the laws thereunder for a period equal to the earlier of (x) one year following the date of this Agreement or (y) the Notice to Proceed Date. Section 3.4 Certain Other Obligations. In addition, Enron Power acknowledges that between the Effective Date and the earlier of the Effective Date or the termination of this Agreement CNF will not be performing any obligations under the Partnership Agreement relating to the performance of the Construction Contract, including the obligation under Article 11 with respect to obtaining a payment and performance bond. ARTICLE IV Arbitration Section 4.1 Management Resolution of Disputes. In the event of any claim, dispute, disagreement or controversy arising out of or relating to this Agreement or the transactions contemplated herein or the breach or termination of this Agreement or any Related Agreement (each, hereinafter referred to as a "Dispute"), which the parties to this Agreement have been unable to settle or agree upon within a period of fifteen (15) days after such Dispute arises, each party shall nominate a senior officer of its management to meet at a mutually agreed time and place not later than thirty (30) days after the Dispute has arisen to attempt to resolve such Dispute. Should a resolution of such Dispute not be obtained within ten (10) days after the meeting of senior officers for such purpose, or such longer period as the parties may mutually agree upon, then either party may by notice to the other submit the Dispute to arbitration in accordance with the provisions of Section 4.2 of this Agreement. Section 4.2 Binding Arbitration of Disputes. Any Dispute which is not settled in accordance with the provisions of Section 4.1 of this Agreement shall be submitted to binding arbitration to be conducted in accordance with the following procedure: (a) The party seeking arbitration hereunder may request such arbitration in writing, which writing shall include a clear statement of the matter(s) in dispute and shall name one arbitrator appointed by such party. Within twenty (20) business days after receipt of such request, the other party shall appoint one arbitrator, or in default thereof, such arbitrator shall be named as soon as practicable by the Arbitration Committee of the American Arbitration Association, and the two arbitrators so appointed shall name a third arbitrator within ten (10) business days, or failing such agreement on a third arbitrator by the two arbitrators so appointed, a third arbitrator shall be appointed by the Arbitration Committee of the American Arbitration Association. (b) The arbitration hearing shall be held in New York, New York, on at least twenty (20) business days' prior written notice to the parties. Except as otherwise provided herein, the proceedings shall be conducted in accordance with the Commercial Arbitration Rules and procedures of the American Arbitration Association. Any decision of the arbitrators shall be joined in by at least two of the arbitrators and shall be set forth in a written award which shall state the basis of the award and shall include both findings of fact and conclusions of law. Notwithstanding the foregoing, in the case of any monetary dispute or claim for damages, the amount of which is contested, each party shall submit in writing a proposed arbitration award at the commencement of the arbitration hearing, and the arbitrators shall be required to adopt in full the proposed arbitration award of one of the parties with respect to such monetary amount or damages. Any award rendered pursuant to the foregoing, which may include an award or decree of specific performance hereunder, shall be final and binding on the parties and not subject to review or appeal, and judgment thereon may be entered or enforcement thereof sought by either party in a court of competent jurisdiction. (c) Notwithstanding the foregoing, nothing contained herein shall be deemed to give the arbitrators appointed pursuant to the foregoing any authority, power or right to alter, change, amend, modify, waive, add to or delete from any of the provisions of this Agreement or the Related Agreements. (d) The losing party shall bear all costs of the arbitration including costs of all arbitrators, both parties' attorneys' fees and disbursements and expert fees. In the event that the arbitrators allocate liability among the parties, then the costs of the arbitration shall be shared pro rata by the parties. (e) Each of the parties to this Agreement agree that compliance by a party with the provisions of subparagraphs (a) through (e) of this Section 4.2 shall be a complete defense to any suit, action or proceeding instituted in any federal or state court, or before any administrative tribunal by another party with respect to any controversy or dispute arising under or pursuant to this Agreement and which is subject to arbitration as set forth herein, other than a suit or action alleging non-compliance with a final and binding arbitration award rendered hereunder. Section 4.3 Enforceability in Federal and State Court. The agreement to arbitrate set forth in Section 4.2 shall be enforceable in either federal or state court. The enforcement of such agreement and all procedural aspects thereof, including the construction and interpretation of this agreement to arbitrate, the scope of the arbitrable issues, allegations of waiver, delay or defenses as to arbitrability, and the rules (except as otherwise expressly provided herein) governing the conduct of the arbitration, shall be governed by and construed pursuant to the United States Arbitration Act, 9 U.S.C. 1-16. In deciding the substance of any such claim, dispute or disagreement, the arbitrators shall apply the substantive laws of the State of Delaware; provided, however, that the arbitrators shall have no authority to award punitive damages under any circumstances (whether it be exemplary damages, treble damages, or any other penalty or punitive type of damages) regardless of whether such damages may be available under Delaware law, the parties to this Agreement hereby waiving their right, if any, to recover punitive damages in connection with any such claims, disputes or disagreements. ARTICLE V Indemnification Section 5.1 Mutual Indemnification. Each of Enron Power and CNF (each an "Indemnifying Party") hereby agrees to indemnify, defend and hold harmless the other, its directors, officers, and employees, its controlled and controlling persons and persons under common control, and their respective directors, officers and employees (collectively "related persons"), from and against all Claims (as hereinafter defined) asserted against, resulting to, imposed upon or incurred by such party or such party's related persons (an "Indemnified Person"), directly or indirectly, by reason of, arising out of, or resulting from (a) the inaccuracy or breach of any representation or warranty of the Indemnifying Party contained in this Agreement and (b) the breach of any covenant or agreement of the Indemnifying Party contained in this Agreement. "Claim" shall include (i) all debts, liabilities and obligations; (ii) losses, damages, costs and expenses including, without limitation, interest (including prejudgment interest in any litigated matter), penalties, court costs and reasonable attorneys' fees and expenses; and (iii) all demands, claims, actions, costs of investigation, causes of action, proceedings, arbitrations, judgments, settlements and assessments, whether or not ultimately determined to be valid ; provided, however, that "Claims" shall not include any of the foregoing to the extent covered by insurance maintained by or for the benefit of the applicable Indemnified Person; however the Indemnifying Party shall be liable for the deductible and any uninsured portion of the applicable Claim. Section 5.2 Additional Indemnification. In addition to its obligations under Section 5.1, Enron Power hereby agrees to indemnify, defend and hold harmless CNF and its related persons from and against (a) all Claims asserted against, imposed upon or incurred by CNF or any of its related persons by reason of, arising out of, or resulting from the performance of the Construction Contract before or after the Closing (including any Claim arising from activities conducted jointly by Enron Power and CNF, their affiliates and representatives) and (b) all Claims asserted against, imposed upon or incurred by CNF or any of its related persons by reason of, arising out of, or resulting from the performance of the Construction Contract after the Effective Date but prior to the termination of this Agreement under either Section 3.1(c) or Section 3.1(d), except for Claims under Section 5.1 and Claims that shall have been determined by the arbitrators under Article IV to have resulted from (i) the sole negligence of CNF or its related persons, or (ii) the willful misconduct of CNF or its related persons (such excluded Claims under (i) and (ii) referred to as a "CNF Obligation"). CNF shall indemnify, defend and hold harmless Enron Power and its related persons from and against all Claims arising out of CNF Obligations, but only if the aggregate Claims incurred by Enron Power and its related persons arising from CNF Obligations exceeds $625,000, and then only with respect to the amount in excess of $625,000. ARTICLE VI Notices Section 6.1 Notices. Any notice or other written instrument required or permitted to be given pursuant to this Agreement shall be in writing signed by the party giving such notice and shall, to the extent reasonably practicable, be sent by telefax, and if not reasonably practicable to send by telefax, then by hand delivery, overnight courier, telegram or registered mail, to the other party at such address as set forth below: If delivered to CNF: CNF Constructors, Inc. 900 Rockmead Drive 4 Kingwood Place, Suite 200 Kingwood, TX 77339 Attention: Douglas L. Kieta Telefax No.: (713) 356-3845 with a copy to: Kenetech Corporation 500 Sansome Street San Francisco, CA 94111 Attention: President Telefax No.: (415) 984-8111 If delivered to Enron Power: Enron Power I (Puerto Rico), Inc. 333 Clay Street, Suite 400 Houston, Texas 77002 Attention: Legal Department Telefax No.: (713) 646-6280 with a copy to: Enron Engineering & Construction Company 333 Clay Street, Suite 400 Houston, Texas 77002 Attention: Legal Department Telefax No.: (713) 646-6280 Each party shall have the right to change the place to which notice shall be sent or delivered or to specify one additional address to which copies of notices may be sent, in either case by similar notice sent or deliveries in like manner to the other parties. Without limiting any other means by which a party to this Agreement maybe able to prove that a notice has been received by another party, a notice shall be deemed to be duly received: (a) if delivered by hand, overnight courier or telegram, the date when left at the address of the recipient; (b) if sent by registered mail, the date of the return receipt; or (c) if sent by telefax, upon receipt by the sender of an acknowledgment or transmission report generated by the machine from which the telefax was sent indicating that the telefax was sent in its entirety to the recipient's telefax number. ARTICLE VII Miscellaneous Section 7.1 Confidentiality. Each Partner acknowledges that Article 14 of the Partnership Agreement shall survive the dissolution and termination of the Partnership, and that no Partner shall disclose any Confidential Information (as defined in the Partnership Agreement) to any third party except as provided therein. Furthermore, the terms and conditions of this Agreement and the transactions contemplated hereby shall remain subject to the terms and conditions of that certain Confidentiality Agreement dated as of March 4, 1997 among EE&CC, CNFC Industries Inc. and Kenetech. Section 7.2 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. Section 7.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to the choice of law principles thereof. Section 7.4 Entire Agreement. This Agreement (including the Related Agreements and other agreements incorporated herein) and the exhibits hereto contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties between the parties other than those set forth or referred to herein. Section 7.5 Expenses. Whether the transactions contemplated hereby are or are not consummated, all legal and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. Section 7.6 Headings; Definitions. The section and article headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections or Articles contained herein mean Sections or Articles of this Agreement unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. Section 7.7 Amendments and Waivers. This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment is sought. Any party hereto may, only by an instrument in writing, waive compliance by the other parties hereto with any term or provision of this Agreement on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach. Section 7.8 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. Section 7.9 Additional Documents. In connection with this Agreement and the transactions contemplated hereby, each party hereto agrees to execute and deliver, or cause the execution and delivery of, such additional documents and instruments, and to perform such additional acts, as may be necessary as appropriate to effectuate, carry out and perform all of the terms, provisions and conditions of this Agreement and the transactions contemplated hereby. Section 7.10 Survival. The provisions of Article IV and V shall survive the termination of this Agreement for a period of five (5) years from the Execution Date. IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of the parties as of the day first above written. Enron Power I (Puerto Rico), Inc. By: _____________________________ Name: Title: CNF Penuelas, Inc. By: _____________________________ Name: Title: ONSHORE CERTIFICATE EXHIBIT 1.2 CERTIFICATE OF CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP OF ENRON/CNF POWER CONSTRUCTION, L.P. This Certificate of Cancellation, dated as of [_____], 1997, is being filed by the undersigned in the Office of the Secretary of State of the State of Delaware (the "Secretary of State") in accordance with the provisions of 6 Del.C. 17-203 to cancel the Certificate of Limited Partnership of Enron/CNF Power Construction, L.P. (the "Partnership"). 1. The name of the limited partnership is Enron/CNF Power Construction, L.P. 2. The Partnership filed in the Office of the Secretary of State a Certificate of Limited Partnership on December 17, 1996. 3. The reason for the filing of this Certificate of Cancellation is that the Partnership has been dissolved and the winding up of the Partnership has been completed. 4. This Certificate of Cancellation shall be effective immediately upon filing. IN WITNESS WHEREOF, the undersigned have executed this Certificate of Cancellation as of the date first-above written. GENERAL PARTNERS: Enron Power I (Puerto Rico), Inc., a Delaware corporation By: _________________________________ Name: Title: CNF Penuelas, Inc., a Delaware corporation By: _________________________________ Name: Title: ONSHORE EXHIBIT 1.6(i) DISTRIBUTION AND ASSIGNMENT AGREEMENT This Distribution and Assignment Agreement (this "Agreement"), dated as of [______], 1997, is entered into by and among Enron/CNF Power Construction, L.P., a Delaware limited partnership (the "Partnership"), Enron Power I (Puerto Rico), Inc. a Delaware corporation ("Enron Power"), and CNF Penuelas, Inc., a Delaware corporation ("CNF"). WHEREAS, pursuant to the Limited Partnership Agreement of Enron/CNF Power Construction, L.P. dated as of December 13, 1996 (the "Partnership Agreement") and a certificate of limited partnership filed December 16, 1996 with the Delaware Secretary of State, Enron Power and CNF (hereinafter individually called a "Partner" and collectively called the "Partners") formed the Partnership, with each Partner owning a 49% general partner interest and a 1% limited partner interest in the Partnership; WHEREAS, the Partners are the sole limited partners and general partners of the Partnership; WHEREAS, pursuant to that certain Master Agreement of Dissolution, Distribution and Assignment, dated [______], 1997 (the "Master Agreement"), the Partners agreed, among other things, to dissolve the Partnership in accordance with Section 22.3(a) of the Partnership Agreement; WHEREAS, as contemplated by the Master Agreement, the Partners have paid all debts and liabilities of the Partnership (including, without limitation, all expenses incurred in liquidation) or have otherwise made adequate provisions for such debt and liabilities; WHEREAS, the Partners, as liquidators of the Partnership, have completed, or have otherwise made adequate provisions for, all actions necessary to wind up the affairs of the Partnership in accordance with the Partnership Agreement and Section 17-803 of the Delaware Revised Uniform Limited Partnership Act, as amended (the "Act"); WHEREAS, pursuant to this Agreement, the Partners wish to distribute to each Partner a 50% undivided interest in the right, title and interest in and to all of the assets owned, leased or held by the Partnership as of the date hereof, whether tangible or intangible (the "Partnership Property," including, without limitation, all of the assets and property described in Exhibit A hereto); NOW THEREFORE, in consideration of the mutual covenants set forth below and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby acknowledge and ratify their agreement as follows: Distribution and Assignment. The Partners, as liquidators of the Partnership, hereby distribute, assign, convey and deliver (i) to Enron Power and its successors and assigns a 50% undivided interest in and to the Partnership Property, and (ii) to CNF and its successors and assigns a 50% undivided interest in and to the Partnership Property. Acceptance of Assignment. Each of the Partners hereby accepts the assignment of its 50% undivided interest in the Partnership Property and acknowledges that such assignment constitutes a complete return of its capital contribution and a complete distribution of its interest in the Partnership and all of the Partnership's property and assets. Acknowledgment and Consent to Release of Partnership. Each Partner acknowledges, consents to and agrees to be bound by, the terms and conditions set forth in the attached Acknowledgment, Consent and Release. Effective Date. This Agreement is effective as of the date first above written. Certificate of Cancellation. Upon the distribution and assignment of the Partnership Property pursuant to this Agreement, the Partners agree to file a Certificate of Cancellation with the Secretary of State of the State of Delaware in order to cancel the Certificate of Limited Partnership of the Partnership in accordance with Section 17-203 of the Act. Further Assurances. The parties shall take all acts and execute all documents as any other party may reasonably request to fully carry out and effectuate the transactions contemplated by this Agreement. Miscellaneous. This Agreement (including the Acknowledgment, Consent and Release attached hereto): (i) shall be governed by and construed in accordance with the laws of the State of Delaware; (ii) shall not be amended or modified except by an instrument in writing executed by all parties; (iii) shall be binding upon the successors and assigns of the respective parties; and (iv) may be executed in several counterparts, all of which together shall constitute one agreement binding on all parties hereto notwithstanding that all parties have not signed the same counterpart. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. THE PARTNERSHIP: ENRON/CNF POWER CONSTRUCTION, L.P. a Delaware limited partnership By: ENRON POWER I (PUERTO RICO), INC. as a General and Limited Partner By: ___________________________ Name: Title: By: CNF PENUELAS, INC. as a General and Limited Partner By: ___________________________ Name: Title: THE PARTNERS: ENRON POWER I (PUERTO RICO), INC. a Delaware corporation By: __________________________ Name: Title: CNF PENUELAS, INC. a Delaware corporation By: __________________________ Name: Title: ACKNOWLEDGMENT CONSENT AND RELEASE THE UNDERSIGNED, EcoElectrica, L.P., hereby acknowledges and agrees that it has been informed of and consents to the distribution and assignment of the Partnership Property pursuant to the terms and conditions of the Distribution and Assignment Agreement (the "Agreement") to which this Acknowledgment, Consent and Release is attached. Each capitalized term used herein and not otherwise defined herein shall have the definition assigned thereto in the Agreement. EcoElectrica, L.P. hereby further agrees that, subject to the execution and delivery of the Assignment and Assumption Agreement whereby CNF assigns its interest in the Partnership Property to Enron Power, all references to "Supplier" and "Contractor" in that certain Offshore Construction Contract dated as of November 1, 1995 (the "Construction Contract"), originally between EcoElectrica, L.P. and Enron Power, shall refer to Enron Power. Finally, EcoElectrica, L.P. hereby releases the Partnership, and each of the Partners solely in their capacities as general partners and limited partners in the Partnership (the "Released Parties"), from all duties and obligations under the Construction Contract and agrees to accept performance of all such duties and obligations from Enron Power in place of the Partnership and the Released Parties. ECOELECTRICA, L.P., a Bermuda exempted limited partnership By: KES Bermuda, Inc. a Delaware corporation, its general partner By: ______________________________ Name: Title: By: Buenergia, B.V. a Dutch limited liability company, its general partner By: ______________________________ Name: Title: ONSHORE ASSIGNMENT EXHIBIT 1.6 (ii) ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement (this "Agreement"), dated as of [_____], 1997, is entered into by and between Enron Power I (Puerto Rico), Inc., a Delaware corporation ("Enron Power") and CNF Penuelas, Inc., a Delaware corporation ("CNF"). WHEREAS, pursuant to the Limited Partnership Agreement of Enron/CNF, L.P. dated as of December 13, 1996 (the "Partnership Agreement") and a certificate of limited partnership filed December 16, 1996 with the Delaware Secretary of State, Enron Power and CNF (hereinafter individually called a "Partner" and collectively called the "Partners") formed the Partnership, with each Partner owning a 49% general partner interest and a 1% limited partner interest in the Partnership; WHEREAS, pursuant to that certain Master Agreement of Dissolution, Distribution and Assignment, dated [_______], 1997 (the "Master Agreement"), the Partners agreed, among other things, to dissolve the Partnership in accordance with Section 22.3(a) of the Partnership Agreement; WHEREAS, pursuant to that certain Distribution and Assignment Agreement, dated as of the date hereof (the "Distribution and Assignment Agreement"), the Partners distributed, assigned, conveyed, and delivered to each Partner a 50% undivided interest in the right, title and interest in and to all of the assets owned, leased or held by the Partnership as of the date hereof, whether tangible or intangible (the "Partnership Property," including, without limitation, all of the assets and property described in Exhibit A hereto); WHEREAS, pursuant to the Master Agreement, CNF desires to assign and transfer to Enron Power all of CNF's interest in and to the Partnership Property distributed and assigned to CNF under the Distribution and Assignment Agreement (the "CNF Interest"); NOW THEREFORE, in consideration of the promises, covenants and agreements set forth herein and in the Master Agreement and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby acknowledge and ratify their agreement as follows: Assignment. CNF hereby assigns, conveys, transfers and delivers to Enron Power all of CNF's right title and interest in and to the CNF Interest in exchange for the consideration specified in the Master Agreement. Acceptance of Assignment. Enron Power hereby accepts the assignment of the CNF Interest and hereby assumes and agrees to perform or to satisfy and discharge any and all duties and obligations relating to and arising out of the Construction Contract. Acknowledgment and Consent to Release of Partnership. Each Partner acknowledges, consents to and agrees to be bound by, the terms and conditions set forth in the attached Acknowledgment, Consent and Release. Effective Date. This Agreement is effective as of the date first above written. Further Assurances. The parties shall take all acts and execute all documents as any other party may reasonably request to fully carry out and effectuate the transactions contemplated by this Agreement. Miscellaneous. This Agreement (including the Acknowledgment, Consent and Release attached hereto): (i) shall be governed by and construed in accordance with the laws of the State of Delaware; (ii) shall not be amended or modified except by an instrument in writing executed by all parties; (iii) shall be binding upon the successors and assigns of the respective parties; and (iv) may be executed in several counterparts, all of which together shall constitute one agreement binding on all parties hereto notwithstanding that all parties have not signed the same counterpart. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. CNF PENUELAS, INC. Delaware corporation, as assignor By: ______________________________ Name: Title: ENRON POWER I (PUERTO RICO), INC. a Delaware corporation, as assignee By: ______________________________ Name: Title: ACKNOWLEDGMENT CONSENT AND RELEASE THE UNDERSIGNED, EcoElectrica, L.P., hereby acknowledges and agrees that it has been informed of and consents to the assignment and conveyance of the CNF Interest pursuant to the terms and conditions of the Assignment and Assumption Agreement (the "Agreement") to which this Acknowledgment, Consent and Release is attached. Each capitalized term used herein and not otherwise defined herein shall have the definition assigned thereto in the Agreement. EcoElectrica, L.P. hereby further agrees that all references to "Supplier" and "Contractor" in that certain Onshore Construction Contract dated as of November 1, 1995 (the "Construction Contract"), originally between EcoElectrica, L.P. and Enron Power Construction Partnership, shall refer to Enron Power. Finally, EcoElectrica, L.P. hereby releases the Partnership, and each of the Partners solely in their capacities as general partners and limited partners in the Partnership (the "Released Parties"), from all duties and obligations under the Construction Contract and agrees to accept performance of all such duties and obligations from Enron Power in place of the Partnership and the Released Parties. ECOELECTRICA, L.P., a Bermuda exempted limited partnership By: KES Bermuda, Inc. a Delaware corporation, its general partner By: ________________________ Name: Title: By: Buenergia, B.V. a Dutch limited liability company, its general partner By: ________________________ Name: Title: ONSHORE LETTER AGREEMENT Exhibit 1.6(iv) Enron Development Corp. 333 Clay Street, Suite 1700 Houston, Texas 77002 [___________], 1997 Kenetech Energy Systems, Inc. 500 Sansome Street Suite 300 San Francisco, CA 94111 Re: Cancellation of Side Letter Agreement Gentlemen: I refer to that certain Side Letter Agreement dated November 1, 1995 (the "Side Letter Agreement") between Enron Development Corp. and Kenetech Energy Systems, Inc., pursuant to which each has the right to cancel (i) the Onshore Construction Contract dated as of November 1, 1995, originally between EcoElectrica, L.P. and Enron Power Construction Partnership and (ii) the Offshore Supply Contract dated as of November 1, 1995, originally between EcoElectrica, L.P. and Enron Equipment Procurement Company ("Enron Procurement"). In accordance with (i) the Master Agreement of Dissolution, Distribution and Assignment dated the date hereof, by and between Enron Power I (Puerto Rico), Inc. and CNF Penuelas, Inc., and (ii) the Master Agreement of Dissolution Distribution and Assignment dated the date hereof, by and between Enron Procurement, and CNF Equipment Inc., please evidence your agreement to cancel the terms and conditions of the Side Letter Agreement by signing and returning this letter agreement to the undersigned. Very truly yours, [Authorized Signatory] AGREED AND ACCEPTED: KENETECH ENERGY SYSTEMS, INC. By: __________________________ Date: __________________________ Name: Title: ONSHORE KENETECH GUARANTY GUARANTY This Guaranty, dated as of [_______], 1997 (this "Guaranty"), is by Kenetech Corporation, a Delaware corporation (the "Guarantor"), in favor of Enron Power I (Puerto Rico), Inc., a Delaware corporation (the "Beneficiary"): WHEREAS, the Beneficiary and CNF Penuelas, Inc., a Delaware corporation and an indirect wholly-owned subsidiary of the Guarantor ("CNF"), are the sole general partners and limited partners of Enron/CNF Power Construction, L.P., a Delaware limited partnership (the "Partnership"); WHEREAS, the Beneficiary and CNF entered into that certain Master Dissolution, Distribution and Assignment Agreement, dated as of [_______], 1997, (the "Master Agreement"), whereby the parties agreed, among other things, (i) to dissolve the Partnership and cause any and all right, title and interest in and to the assets and property of the Partnership (the "Partnership Property"), including, but not limited to, that certain Onshore Construction Contract dated as of November 1, 1995 (the "Construction Contract"), originally between EcoElectrica, L.P. and Enron Power Construction Partnership, to be distributed to the Beneficiary and CNF; (ii) that CNF assign and transfer to the Beneficiary all of CNF's interests in and to the Partnership Property to be distributed to CNF pursuant to the dissolution of the Partnership (the "CNF Interest"); and (iii) that the Beneficiary thereafter perform under the Construction Contract in lieu of the Partnership; WHEREAS, it is a condition to the Beneficiary consummating the transactions under the Master Agreement that the Guarantor enter into this Guaranty; WHEREAS, Guarantor acknowledges that it will benefit if CNF consummates the transactions under the Master Agreement; NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, receipt of which is hereby acknowledged, and as an inducement to the Beneficiary to enter into the Master Agreement, the Guarantor hereby agrees as follows: 1. Guaranty. In consideration of the Beneficiary entering into the Master Agreement, the Guarantor absolutely, unconditionally and irrevocably guarantees to Beneficiary, its successors and assigns, the prompt payment when due, of all obligations and liabilities of CNF to Beneficiary arising from Section 3.1, Section 3.2, Section 3.3, Section 5.1 and Section 5.2 of the Master Agreement (the "Obligations") for so long as any Obligation may arise under the Master Agreement. If for any reason CNF shall fail fully and punctually to pay and perform any Obligation, the Guarantor shall pay such sum to the Beneficiary, plus interest thereon calculated at the thirty day LIBOR rate from the date CNF became obligated to make such payment under the Master Agreement through the date payment is made by the Guarantor. This Guaranty is an absolute, unconditional guaranty of payment and performance and not of collectability, and is in no way conditioned or contingent upon any attempt to collect from CNF, enforce performance by CNF or on any other condition or contingency. 2. Nature of Guaranty. The Guarantor's obligations hereunder shall not be affected by the validity or enforceability of CNF's obligations under the Master Agreement or any other agreement relating thereto or by any other event, occurrence or circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety. In the event that any payment of CNF in respect of any Obligations is rescinded or must otherwise be returned for any reason whatsoever, the Guarantor shall remain liable hereunder in respect to such Obligations as if such payment had not been made. However, notwithstanding anything herein to the contrary, nothing herein is intended to deny to the Guarantor, and it is expressly agreed that the Guarantor shall have and may assert, any and all of the defenses, set-offs, counterclaims and other rights with regard to any Obligations that CNF may possess, including without limitation, any defense based upon the payment or satisfaction by CNF of such Obligations (or the performance or observance of any terms or provisions of the Master Agreement out of which such Obligations are alleged to arise), except any defense that CNF may possess relating to (i) lack of validity or enforceability of the Master Agreement against CNF arising from the defective incorporation of CNF; (ii) lack of qualification by CNF to do business in any applicable jurisdiction; (iii) defective corporate authority by CNF to enter into or perform the Master Agreement; or (iv) the insolvency, bankruptcy, or other reorganization of CNF. The Beneficiary shall not be obligated to file any claim relating to the Obligations in the event that CNF becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of Beneficiary to file shall not affect the Guarantor's obligations hereunder. 3. Modification and Amendments. The Guarantor agrees that Beneficiary may at any time and from time to time, without notice to or further consent of the Guarantor, make any agreement with CNF or with any other party to or person liable on any of the Obligations, or interested therein, for the payment, compromise, discharge or release thereof, in whole or in part, or for any modification of the terms thereof or of any agreement between Beneficiary and CNF or any such other party or person, without in any way impairing or affecting this Guaranty. Except the modifications allowed pursuant to this Section 3, this Guaranty may be amended only with the written consent of the Beneficiary and the Guarantor. 4. Expenses. The Guarantor agrees to pay on demand all out-of-pocket expenses (including the reasonable fees and expenses of Beneficiary's counsel) in any way relating to the enforcement or protection of the rights of Beneficiary hereunder. 5. Subrogation. The Guarantor will not exercise any rights which it may acquire by way of subrogation until all the Obligations to Beneficiary shall have been paid in full. Subject to the foregoing, upon payment of all the Obligations, the Guarantor shall be subrogated to the rights of Beneficiary against CNF. 6. No Waiver; Cumulative Rights. No failure on the part of Beneficiary to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by Beneficiary of any right, remedy or power hereunder preclude any other or future exercise of any right, remedy or power. Each and every right, remedy and power hereby granted to Beneficiary or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by Beneficiary from time to time. 7. Waiver of Notice. The Guarantor waives notice of the acceptance of this Guaranty, presentment, demand, notice of dishonor, protest and all other notices whatsoever. 8. Representations and Warranties. (a) The Guarantor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full corporate power to execute, deliver and perform this Guaranty. (b) The execution, delivery and performance of this Guaranty have been and remain duly authorized by all necessary corporate action and do not contravene any provision of law or of the Guarantor's constitutional documents or any contractual restriction binding on the Guarantor or its assets. (c) All consents, authorizations and approvals of, and registrations and declarations with, any governmental authority necessary for the due execution, delivery and performance of this Guaranty have been obtained and remain in full force and effect and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority is required in connection with the execution, delivery or performance of this Guaranty. (d) This Guaranty constitutes the legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors rights and to general equity principles. (e) (i) The Guarantor is not, and will not as a result of the execution and delivery of this Guaranty, be rendered insolvent, (ii) the Guarantor does not intend to incur, or believe it is incurring, obligations beyond its ability to pay, and (iii) the Guarantor's property remaining after the delivery and performance of this Guaranty will not constitute unreasonably small capital. 9. Assignment. This Guaranty is binding upon Guarantor and its successors and permitted assigns. Neither the Guarantor nor the Beneficiary may assign its rights, interest or obligations hereunder to any other person without the prior written consent of the other party. 10. Notices. All notices or other communications in connection with this guaranty shall be given in the same manner and with the same effect as set forth in Section 6.1 of the Master Agreement. The Guarantor's address for notices is as follows: Kenetech Corporation 500 Sansome Street San Francisco, California 94111 Attention: President Telefax No. (415) 984-8111 or such other address as the Guarantor shall from time to time specify to Beneficiary. 11. Governing Law. This Guaranty shall be governed by and construed in accordance with the laws of the State of Delaware without reference to choice of law doctrine. 12. Severability. The invalidity of one or more phrases, sentences, clauses or Sections contained in this Guaranty shall not affect the validity of the remaining portions of this Guaranty so long as the material purposes of this Guaranty can be determined and effectuated. IN WITNESS WHEREOF, the Guarantor has caused its duly authorized officer to execute and deliver this Guaranty as of the date first above written. KENETECH CORPORATION By: ______________________________ Name: Title: ONSHORE ENRON GUARANTY Exhibit 1.6(vii) GUARANTY This Guaranty, dated as of [______], 1997 (this "Guaranty"), is by Enron Power Corp., a Delaware corporation (the "Guarantor"), in favor of CNF Penuelas, Inc, a Delaware corporation (the "Beneficiary"): WHEREAS, the Beneficiary and Enron Power I (Puerto Rico), Inc. a Delaware corporation and an affiliate of the Guarantor ("EPI"), are the sole general partners and limited partners of Enron/CNF Power Construction, L.P., a Delaware limited partnership (the "Partnership"); WHEREAS, the Beneficiary and CNF entered into that certain Master Dissolution, Distribution and Assignment Agreement, dated as of [_____], 1997, (the "Master Agreement"), whereby the parties agreed, among other things, (i) to dissolve the Partnership and cause any and all right, title and interest in and to the assets and property of the Partnership (the "Partnership Property"), including, but not limited to, that certain Onshore Construction Contract dated as of November 1, 1995 (the "Construction Contract"), originally between EcoElectrica, L.P. and Enron Power Construction Partnership, to be distributed to the Beneficiary and EPI; (ii) that the Beneficiary assign and transfer to EPI all of the Beneficiary's interests in and to the Partnership Property to be distributed to the Beneficiary pursuant to the dissolution of the Partnership (the "CNF Interest"); and (iii) that EPI thereafter perform under the Construction Contract in lieu of the Partnership; WHEREAS, it is a condition to the Beneficiary consummating the transactions under the Master Agreement that the Guarantor enter into this Guaranty; WHEREAS, Guarantor acknowledges that it will benefit if the Beneficiary consummates the transactions under the Master Agreement; NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, receipt of which is hereby acknowledged, and as an inducement to CNF to enter into the Master Agreement, the Guarantor hereby agrees as follows: 1. Guaranty. In consideration of the Beneficiary entering into the Master Agreement, the Guarantor absolutely, unconditionally and irrevocably guarantees to Beneficiary, its successors and assigns, the prompt payment when due, of all obligations and liabilities of EPI to Beneficiary arising from Section 3.1, Section 5.1, and Section 5.2 of the Master Agreement (the "Obligations") for so long as any Obligation may arise under the Master Agreement. If for any reason EPI shall fail fully and punctually to pay and perform any Obligation, the Guarantor shall pay such sum to the Beneficiary, plus interest thereon calculated at the thirty day LIBOR rate from the date EPI became obligated to make such payment under the Master Agreement through the date payment is made by the Guarantor. This Guaranty is an absolute, unconditional guaranty of payment and performance and not of collectability, and is in no way conditioned or contingent upon any attempt to collect from EPI, enforce performance by EPI or on any other condition or contingency. 2. Nature of Guaranty. The Guarantor's obligations hereunder shall not be affected by the validity or enforceability of EPI's obligations under the Master Agreement or any other agreement relating thereto or by any other event, occurrence or circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety. In the event that any payment of EPI in respect of any Obligations is rescinded or must otherwise be returned for any reason whatsoever, the Guarantor shall remain liable hereunder in respect to such Obligations as if such payment had not been made. However, notwithstanding anything herein to the contrary, nothing herein is intended to deny to the Guarantor, and it is expressly agreed that the Guarantor shall have and may assert, any and all of the defenses, set-offs, counterclaims and other rights with regard to any Obligations that EPI may possess, including without limitation, any defense based upon the payment or satisfaction by EPI of such Obligations (or the performance or observance of any terms or provisions of the Master Agreement out of which such Obligations are alleged to arise), except any defense that EPI may possess relating to (i) lack of validity or enforceability of the Master Agreement against EPI arising from the defective incorporation of EPI; (ii) lack of qualification by EPI to do business in any applicable jurisdiction; (iii) defective corporate authority by EPI to enter into or perform the Master Agreement; or (iv) the insolvency, bankruptcy, or other reorganization of EPI. The Beneficiary shall not be obligated to file any claim relating to the Obligations in the event that EPI becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of Beneficiary to file shall not affect the Guarantor's obligations hereunder. 3. Modification and Amendments. The Guarantor agrees that Beneficiary may at any time and from time to time, without notice to or further consent of the Guarantor, make any agreement with EPI or with any other party to or person liable on any of the Obligations, or interested therein, for the payment, compromise, discharge or release thereof, in whole or in part, or for any modification of the terms thereof or of any agreement between Beneficiary and EPI or any such other party or person, without in any way impairing or affecting this Guaranty. Except the modifications allowed pursuant to this Section 3, this Guaranty may be amended only with the written consent of the Beneficiary and the Guarantor. 4. Expenses. The Guarantor agrees to pay on demand all out-of-pocket expenses (including the reasonable fees and expenses of Beneficiary's counsel) in any way relating to the enforcement or protection of the rights of Beneficiary hereunder. 5. Subrogation. The Guarantor will not exercise any rights which it may acquire by way of subrogation until all the Obligations to Beneficiary shall have been paid in full. Subject to the foregoing, upon payment of all the Obligations, the Guarantor shall be subrogated to the rights of Beneficiary against EPI. 6. No Waiver; Cumulative Rights. No failure on the part of Beneficiary to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by Beneficiary of any right, remedy or power hereunder preclude any other or future exercise of any right, remedy or power. Each and every right, remedy and power hereby granted to Beneficiary or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by Beneficiary from time to time. 7. Waiver of Notice. The Guarantor waives notice of the acceptance of this Guaranty, presentment, demand, notice of dishonor, protest and all other notices whatsoever. 8. Representations and Warranties. (a) The Guarantor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full corporate power to execute, deliver and perform this Guaranty. (b) The execution, delivery and performance of this Guaranty have been and remain duly authorized by all necessary corporate action and do not contravene any provision of law or of the Guarantor's constitutional documents or any contractual restriction binding on the Guarantor or its assets. (c) All consents, authorizations and approvals of, and registrations and declarations with, any governmental authority necessary for the due execution, delivery and performance of this Guaranty have been obtained and remain in full force and effect and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority is required in connection with the execution, delivery or performance of this Guaranty. (d) This Guaranty constitutes the legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors rights and to general equity principles. (e) (i) The Guarantor is not, and will not as a result of the execution and delivery of this Guaranty, be rendered insolvent, (ii) the Guarantor does not intend to incur, or believe it is incurring, obligations beyond its ability to pay, and (iii) the Guarantor's property remaining after the delivery and performance of this Guaranty will not constitute unreasonably small capital. 9. Assignment. This Guaranty is binding upon Guarantor and its successors and permitted assigns. Neither the Guarantor nor the Beneficiary may assign its rights, interest or obligations hereunder to any other person without the prior written consent of the other party. 10. Notices. All notices or other communications in connection with this guaranty shall be given in the same manner and with the same effect as set forth in Section 6.1 of the Master Agreement. The Guarantor's address for notices is as follows: Kenetech Corporation 500 Sansome Street San Francisco, California 94111 Attention: President Telefax No. (415) 984-8111 or such other address as the Guarantor shall from time to time specify to Beneficiary. 11. Governing Law. This Guaranty shall be governed by and construed in accordance with the laws of the State of Delaware without reference to choice of law doctrine. 12. Severability. The invalidity of one or more phrases, sentences, clauses or Sections contained in this Guaranty shall not affect the validity of the remaining portions of this Guaranty so long as the material purposes of this Guaranty can be determined and effectuated. IN WITNESS WHEREOF, the Guarantor has caused its duly authorized officer to execute and deliver this Guaranty as of the date first above written. ENRON POWER CORP. By: ______________________________ Name: Title: ONSHORE RELEASE OF CNF Exhibit 1.6(x) CNF Industries, Inc. 355 Research Parkway Meriden, Connecticut 06450 [______], 1997 Enron Power I (Puerto Rico), Inc. 333 Clay Street, Suite 400 Houston, Texas 77002 Attn: Legal Department Re: Release of CNF Industries, Inc. Guaranty Gentlemen: I refer to that certain Guaranty dated as of December 18, 1996 (the "CNF Onshore Guaranty") by CNF Industries, Inc., a Delaware corporation (the "Guarantor"), for the benefit of Enron Power I (Puerto Rico), Inc., a Delaware corporation ("Enron Power I"), entered into pursuant to Section 11.3 of the Limited Partnership Agreement of Enron/CNF Power Construction, L.P., a Delaware limited partnership. In accordance with (i) the Master Agreement of Dissolution, Distribution and Assignment dated [________], 1997, by and between Enron Power I and CNF Penuelas, Inc., and (ii) Section 16 of the CNF Onshore Guaranty, please evidence your agreement to terminate the CNF Onshore Guaranty and release the Guarantor from any and all obligations thereunder by signing and returning this letter agreement to the undersigned. Very truly yours, [Authorized Signatory] AGREED AND ACCEPTED: ENRON POWER I (PUERTO RICO), INC. By: __________________________ Date: July __, 1997 Name: Title: ONSHORE RELEASE OF ENRON Exhibit 1.6(xi) Enron Power Corp. P.O. Box 1188 Houston, Texas 77251-1188 [______], 1997 CNF Penuelas, Inc. 355 Research Parkway Meriden, Connecticut 06450 Attn:___________________ Re: Release of Enron Power Corp. Guaranty Gentlemen: I refer to that certain Guaranty dated as of December 18, 1996 (the "EPC Onshore Guaranty") by Enron Power Corp., a Delaware corporation (the "Guarantor"), for the benefit of CNF Penuelas, Inc., a Delaware corporation ("CNF"), entered into pursuant to Section 11.3 of the Limited Partnership Agreement of Enron/CNF Power Construction, L.P., a Delaware limited partnership. In accordance with (i) the Master Agreement of Dissolution, Distribution and Assignment dated [_____], 1997, by and between Enron Power I (Puerto Rico) I, Inc. and CNF, and (ii) Section 16 of the EPC Onshore Guaranty, please evidence your agreement to terminate the EPC Onshore Guaranty and release the Guarantor from any and all obligations thereunder by signing and returning this letter agreement to the undersigned. Very truly yours, [Authorized Signatory] AGREED AND ACCEPTED: CNF PENUELAS, INC. By: __________________________ Date: July __, 1997 Name: Title: EX-10.56 7 AGREEMENT OFFSHORE MASTER AGREEMENT MASTER AGREEMENT OF DISSOLUTION, DISTRIBUTION AND ASSIGNMENT This Master Agreement of Dissolution, Distribution and Assignment (this "Agreement"), dated as of August 27, 1997, is entered into by and between Enron Equipment Procurement Company, a Delaware corporation ("Enron Procurement"), and CNF Equipment, Inc., a Delaware corporation ("CNF Equipment"): WHEREAS, Enron Procurement, acting on its own behalf, entered into that certain Offshore Supply Contract dated November 1, 1995 (the "Supply Contract") with EcoElectrica, L.P., a limited partnership formed under the laws of Bermuda ("EcoElectrica"); WHEREAS, in order to participate jointly in the performance of the Supply Contract, Enron Procurement and CNF Equipment (hereinafter individually called a "Partner" and collectively called the "Partners") associated themselves in the form of a joint venture (the "Joint Venture") by entering into that certain Joint Venture Agreement dated as of November 1, 1995; WHEREAS, pursuant to the Limited Partnership Agreement of Enron/CNF Power Equipment, L.P. dated as of December 13, 1996 (the "Partnership Agreement") and a certificate of limited partnership filed December 17, 1996 with the Delaware Secretary of State, the Partners formed Enron/CNF Equipment, L.P., a Delaware limited partnership (the "Partnership"), with each Partner owning a 49% general partner interest and a 1% limited partner interest in the Partnership; WHEREAS, pursuant to the Assignment and Assumption Agreement dated as of December 18, 1996 the Partners transferred and assigned all of their interests in the Joint Venture to the Partnership, and continued the business of the Joint Venture under the Partnership; WHEREAS, the Partnership has not commenced supply under the Supply Contract and substantially all of the costs and expenses of the Joint Venture to date have been covered by Enron Engineering & Construction Company, a Delaware corporation ("EE&CC"), CNF Constructors, Inc., a Tenessee corporation, and their respective affiliates; WHEREAS, subject to the terms and conditions of this Agreement, the Partners desire (i) to dissolve the Partnership and cause any and all right, title and interest in and to the assets and property of the Partnership (the "Partnership Property"), including, but not limited to, the Partners' interests in the Supply Contract, to be distributed to the Partners as agreed to herein; (ii) CNF Equipment to assign and transfer to Enron Procurement all of CNF Equipment's interests in and to the Partnership Property to be distributed to CNF Equipment pursuant to the dissolution of the Partnership (the "CNF Equipment Interest"); and (iii) Enron Procurement to thereafter perform under the Supply Contract in lieu of the Partnership. NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants, agreements and conditions contained herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to set forth the terms and conditions of the dissolution of the Partnership, the distribution of Partnership Property and the assignment and transfer to Enron Procurement of the CNF Equipment Interest, the parties hereto hereby agree as follows: ARTICLE I Dissolution, Distribution and Assignment; Closing Section 1.1 Dissolution. Subject to the terms and conditions of this Agreement, and in accordance with Section 22.3(a) of the Partnership Agreement, the Partners agree to dissolve the Partnership and to wind up expeditiously the Partnership's affairs and business. In accordance with Section 22.4 of the Partnership Agreement, Enron Procurement and CNF Equipment will act as the liquidators of the Partnership. Section 1.2 Distribution and Termination. Subject to the terms and conditions of this Agreement, on the Effective Date (as hereinafter defined), all of the Partnership Property shall be distributed to the Partners in accordance with the Distribution and Assignment Agreement referred to in Section 1.6(ii) of this Agreement. Upon such distribution, the Partnership's affairs shall be terminated and the liquidators shall promptly cause to be filed all certificates and instruments required to effect the termination of the Partnership, including a Certificate of Cancellation in substantially the form attached hereto as Exhibit 1.2 to be filed with the Secretary of State of the State of Delaware. Section 1.3 Assignment of CNF Equipment Interest. Immediately following the distribution of the Partnership Property to the Partners on the Effective Date, (i) CNF Equipment shall assign and transfer to Enron Procurement the CNF Equipment Interest, including, but not limited to, all of CNF Equipment's interest in the Supply Contract, and (ii) Enron Procurement shall accept the CNF Equipment Interest, and will thereby assume and agree to perform all the duties and obligations of CNF Equipment under the Supply Contract. Each of the Partners acknowledges that upon the assignment of the CNF Equipment Interest to Enron Procurement, Enron Procurement shall possess all of the rights, title and interest which had been held by the Partnership in and to the Supply Contract. Section 1.4 Time and Place of Closing on the Effective Date. Unless the Partners agree otherwise in writing, and subject to the terms and conditions of this Agreement, (i) the winding up of the Partnership's business and affairs, (ii) the distribution to the Partners of all of their respective rights, title and interest in and to the Partnership Property, and (iii) the assignment and transfer of the CNF Equipment Interest shall each be consummated (the "Closing") at the offices of Enron Procurement, 333 Clay, Suite 400, Houston, Texas 77002, or at such other place as the Partners may agree in writing. The date when the Closing actually occurs is referred to in this Agreement as the "Effective Date." Section 1.5 Conditions Precedent to Closing. The Closing shall be held on a mutually acceptable date within three (3) business days after the satisfaction or mutual waiver of the following ("Conditions Precedent"): (a) the mutually satisfactory execution and delivery of all Related Agreements (as defined below); (b) Enron Procurement receiving a Notice to Proceed (as defined in the Supply Contract); and (c) the satisfaction or waiver of all conditions precedent to the Notice to Proceed Date (as defined in the Supply Contract). Section 1.6 Related Agreements. Subject to the terms and conditions stated in this Agreement along with the right for CNF Equipment and Enron Procurement to mutually agree in writing to waive any requirement under this Section 1.6, at or prior to the Effective Date the appropriate parties shall execute and deliver the following agreements (the agreements listed in this Section 1.6 are collectively referred to in this Agreement as the "Related Agreements") and where applicable CNF Equipment and Enron Procurement shall cause their affiliates to deliver: (i) The Distribution and Assignment Agreement, in the form attached hereto as Exhibit 1.6(i), providing for the distribution of the Partnership Property to each of the Partners (the "Distribution and Assignment Agreement"); (ii) The Assignment and Assumption Agreement, in the form attached hereto as Exhibit 1.6(ii), providing for the assignment and transfer by CNF Equipment of the CNF Equipment Interest to Enron Procurement, and the acceptance and assumption of the CNF Equipment Interest by Enron Procurement (the "CNF Equipment Assignment Agreement"); (iii)The acknowledgment and consent of EcoElectrica, L.P. of the transactions contemplated by this Agreement in substantially the form attached to the Distribution and Assignment Agreement and the CNF Equipment Assignment Agreement (the "Consents"), provided, however, that in the event CNF Equipment's affiliated partner in EcoElectrica has executed both Consents, but Enron Procurement's affiliated partner in EcoElectrica has not executed both Consents within three (3) business days after the Notice to Proceed Date, then Enron Procurement will be deemed to have waived the requirement under Section 1.6 (iii); (iv) The letter agreement (the "Enron Development/KESI Cancellation Letter") between Enron Development Corp. ("Enron Development") and Kenetech Energy Systems, Inc. ("KESI"), in substantially the form attached hereto as Exhibit 1.6(iv), cancelling the Side Letter Agreement dated November 1, 1995 between Enron Development and KESI pursuant to which each has the right to cancel the Supply Contract and that certain Offshore Supply Contract dated as of November 1, 1995, originally between EcoElectrica, L.P. and Enron Equipment Procurement Company (the "Offshore Supply Contract"); (v) Except to the extent waived in accordance with the terms thereof, all documents required to be delivered at or prior to the closing contemplated by the Master Agreement of Dissolution, Distribution and Assignment (the "Construction L.P. Dissolution Agreement") entered into on the date of this Agreement between Enron Power I (Puerto Rico) ("Enron Power") and CNF Penuelas, Inc. ("CNF Penuelas") relating to the dissolution of Enron Power/CNF Penuelas, L.P., a Delaware limited partnership (the "Construction L.P.") and the distribution and assignment of its property (collectively, the "Construction L.P. Agreements"); (vi) The guaranty of Kenetech Corporation, a Delaware corporation ("Kenetech"), in the form attached hereto as Exhibit 1.6(vi), pursuant to which Kenetech unconditionally guarantees any and all obligations of CNF Equipment under Section 3.1, Section 3.2, Section 3.3, Section 5.1 and Section 5.2 of this Agreement (the "Kenetech Guaranty"); (vii)The guaranty of Enron Power Corp., a Delaware corporation, in the form attached hereto as Exhibit 1.6(vii), pursuant to which Enron Power Corp. unconditionally guarantees any and all obligations of Enron Procurement under Section 3.1, Section 5.1 and Section 5.2; (viii) The Global Change Order, in substantially the form attached hereto as Exhibit 1.6(viii), relating to the consent and amendment required by the lenders to the project; (ix) The Change Order, in substantially the form attached hereto as Exhibit 1.6(ix), relating to the LPG storage facility (the "LPG Change Order"), provided, however, that in the event the LPG Change Order has not been executed within three (3) business days after the Notice to Proceed Date, then Enron Procurement will be deemed to have waived the requirement under Section 1.6 (ix); (x) The letter agreement between CNF Industries, Inc. and Enron Power I, in the form attached hereto as Exhibit 1.6(x), releasing the guaranty of CNF Industries, Inc. granted pursuant to Section 11.3 of the Partnership Agreement; and (xi) The letter agreement between Enron Power Corp. and CNF Equipment, in the form attached hereto as Exhibit 1.6(xi), releasing the guaranty of Enron Power Corp. granted pursuant to Section 11.3 of the Partnership Agreement. ARTICLE II Representations and Warranties Section 2.1 Representations and Warranties of CNF Equipment. CNF Equipment represents and warrants to Enron Procurement that: (a) Organization of CNF Equipment. CNF Equipment is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease, operate and otherwise hold all of its properties and assets and to carry on its business as presently conducted and is duly qualified to do business in each jurisdiction in which the nature of its business as now conducted or its assets makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on it. (b) Authorization and Validity of Agreement. CNF Equipment has all necessary corporate power and authority to enter into this Agreement and each of the Related Agreements to which it is a party and to perform its obligations hereunder and thereunder, and the execution, delivery and performance by CNF Equipment of this Agreement and each of the Related Agreements to which it is a party has been duly and validly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by CNF Equipment and at or prior to the Effective Date each of the Related Agreements to which CNF Equipment is a party will have been duly executed and delivered by CNF Equipment, and, assuming this Agreement and each of the Related Agreements to which CNF Equipment is a party constitute legal, valid and binding obligations of the other parties thereto, when executed and delivered will constitute legal, valid and binding obligations of CNF Equipment, enforceable against it in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) Consent and Approval; No Conflict. Neither the execution and delivery of this Agreement or the Related Agreements to which CNF Equipment is a party nor the consummation of the transactions and performance of the terms and conditions contemplated hereby or thereby will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws of CNF Equipment; (ii) except as otherwise provided in this Agreement, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, except (A) any regulatory approvals or routine governmental consents normally acquired after the consummation of transactions such as transactions of the nature contemplated by this Agreement or (B) where it is reasonably expected that the failure to obtain such consent, approval, authorization or permit, or to make such filing or notification, would not prevent or delay in any material respect the consummation of the transactions contemplated hereby or thereby; (iii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any agreement, instrument or obligation to which CNF Equipment is a party or by which CNF Equipment may be bound and to which any of the Partnership Property is subject, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or will be obtained prior to the Closing; (iv) violate any order, writ, injunction, decree, statute, rule or regulation to which CNF Equipment is subject and which relate to any of its assets; or (v) result in the imposition or creation of any lien, charge or encumbrance upon any Partnership Property under any agreement by which Partnership Property is bound. (d) Ownership of Partnership Interests; Title. As of the date of this Agreement and immediately prior to the Closing, CNF Equipment is and will be the owner of record and beneficially of a 49% general partner interest and a 1% limited partner interest in the Partnership, and it has not received any notice of adverse claim to the ownership of such interests and does not have any reason to know of any such adverse claim. (e) No Liens. CNF Equipment shall transfer and assign the CNF Equipment Interest to Enron Procurement pursuant to the CNF Equipment Assignment Agreement free and clear of all liens, encumbrances or similar rights. (f) Solvency. As of the date hereof CNF Equipment is Solvent, and following the transfer of the CNF Equipment Interest to Enron Procurement pursuant to the CNF Equipment Assignment Agreement and the receipt by CNF Equipment of the payment contemplated by Section 3.1(a) and Section 3.1(b) (i) and (ii) of this Agreement, CNF Equipment shall be Solvent. For purposes of this Section 2.1(f) the term "Solvent" shall mean: (i) the assets of CNF Equipment, at a fair valuation, exceed CNF Equipment's total liabilities (including contingent, subordinated, unmatured and unliquidated liabilities); (ii) based on current projections, which are based on underlying assumptions which provide a reasonable basis for the projections and which reflect CNF Equipment 's judgment based on present circumstances of the most likely set of conditions and CNF Equipment's most likely course of action for the period projected (including any payments that may be received by CNF Equipment under Section 3.1), CNF Equipment has sufficient cash flow to enable it to pay its debts as they mature; and (iii) CNF Equipment does not have unreasonably small capital with which to engage in its anticipated business. For purposes of this Section 2.1(f), the "fair valuation" of the assets of CNF Equipment means a valuation on the basis of the amount which may be realized within a reasonable time, either through collection or sale of such assets at the regular market value, conceiving the latter as the amount which could be obtained for the property in question within such period by a capable and diligent businessman from an interested buyer who is willing to purchase under ordinary selling conditions, including obtaining necessary consents. (g) Fair Consideration. The consideration payable to CNF Equipment pursuant to Article III of this Agreement equals or exceeds the reasonable equivalent value of the CNF Equipment Interest to be transferred to Enron Procurement pursuant to the CNF Equipment Assignment Agreement. (h) Delivery of CNF Equipment Work Product. CNF Equipment and affiliated parties have delivered to Enron Procurement all work, of any kind or nature, related to the Project (as defined in the Supply Contract) in the possession or under the control of such person, including but not limited to: drawings, specifications, calculations, purchase orders, quotations, estimates, budgets, cost reports, cost forecasts, labor or manpower projections or forecasts, cash flow projections, schedules, work plans, transportation studies, installation plans or procedures, arrangements with subcontractors or subsuppliers, monthly reports, daily logs, engineering studies, correspondence with or between any party related to the Project and including that with any possible subcontractors, monthly reports, daily logs, engineering studies, and related data. (i) No Agreements, Claims, Actions or Proceedings. Except for this Agreement, the Related Agreements, and any agreement entered into jointly by CNF Equipment and Enron Procurement, CNF Equipment is not a party to any contract, agreement or arrangement relating to the Partnership Property or the Supply Contract which binds or purports to bind the Partnership or its assets. Except as disclosed on Schedule 2.1(i), as of the Execution Date and, except as may be provided on an amended Schedule 2.1(i) delivered by CNF Equipment at or prior to the Effective Date, as of the Effective Date there are no claims, actions or proceedings pending that arise from activities conducted by CNF Equipment, its affiliates or their representatives that relate to the Partnership, Partnership Property or the Supply Contract and, to the knowledge of CNF Equipment, no such claims, actions or proceedings are threatened. Section 2.2 Representations and Warranties of Enron Procurement. Enron Procurement hereby represents and warrants to CNF Equipment that: (a) Organization of Enron Procurement. Enron Procurement is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware and has all requisite corporate power and authority to own, lease, operate and otherwise hold all of its properties and assets and to carry on its business as presently conducted and is duly qualified to do business in each jurisdiction in which the nature of its business as now conducted or its assets makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on it. (b) Authorization and Validity of Agreement. Enron Procurement has all necessary corporate power and authority to enter into this Agreement and each of the Related Agreements to which it is a party and to perform its obligations hereunder and thereunder, and the execution, delivery and performance by Enron Procurement of this Agreement and each of the Related Agreements to which it is a party has been duly and validly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by Enron Procurement and at or prior to the Effective Date each of the Related Agreements to which Enron Procurement is a party will have been duly executed and delivered by Enron Procurement, and, assuming this Agreement and each of the Related Agreements to which Enron Procurement is a party constitute legal, valid and binding obligations of the other parties thereto, when executed and delivered will constitute legal, valid and binding obligations of Enron Procurement, enforceable against it in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) Consent and Approval; No Conflict. Neither the execution and delivery of this Agreement or the Related Agreements to which Enron Procurement is a party nor the consummation of the transactions and performance of the terms and conditions contemplated hereby or thereby will (i) conflict with or result in any breach of any provision of the certificate of incorporation or bylaws of Enron Procurement; (ii) except as otherwise provided in this Agreement, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, except (A) any regulatory approvals or routine governmental consents normally acquired after the consummation of transactions such as transactions of the nature contemplated by this Agreement or (B) where it is reasonably expected that the failure to obtain such consent, approval, authorization or permit, or to make such filing or notification, would not prevent or delay in any material respect the consummation of the transactions contemplated hereby or thereby; (iii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any agreement, instrument or obligation to which Enron Procurement is a party or by which Enron Procurement may be bound and to which any of the Partnership Property is subject, except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or will be obtained prior to the Closing; (iv) violate any order, writ, injunction, decree, statute, rule or regulation to which Enron Procurement is subject and which relate to any of its assets; or (v) result in the imposition or creation of any lien, charge or encumbrance upon any Partnership Property under any agreement by which the Partnership Property is bound. (d) Ownership of Partnership Interests; Title. As of the date of this Agreement and immediately prior to the Closing, Enron Procurement is and will be the owner of record and beneficially of a 49% general partner interest and a 1% limited partner interest in the Partnership, and it has not received any notice of adverse claim to the ownership of such interests and does not have any reason to know of any such adverse claim. (e) No Claims. As of the date of this Agreement and, except as may be set forth on an amended Schedule 2.1(i) delivered by CNF Equipment pursuant to Section 2.1(i), immediately prior to the Closing, there are no claims, actions or proceedings pending that arise from the gross negligence or willful misconduct of CNF Equipment, its affiliates or their representatives that relate to the Partnership, Partnership Property or the Supply Contract and, to the knowledge of Enron Procurement, no such claims, actions or proceedings are threatened. ARTICLE III Additional Covenants and Agreements Section 3.1 Certain Payments to CNF Equipment. (a) Payment on the Execution Date. Subject to the terms and conditions of this Agreement, Enron Procurement shall pay to CNF Equipment on the Execution Date, by wire transfer or certified bank check, an aggregate of Seven Hundred Thousand ($700,000) in partial consideration for the transactions contemplated in this Agreement. (b) Payments Following the Effective Date. Subject to, and conditioned upon the satisfaction or valid waiver of the Conditions Precedent, Enron Procurement shall pay to CNF Equipment, by wire transfer or a certified bank check, the following amounts: (i) Two Million Four Hundred Thousand Dollars ($2,400,000 on the Effective Date to CNF Equipment or its designee for the out-of-pocket costs incurred and paid by CNF Equipment and its affiliates on behalf of the Partnership and constituting Contract Costs (as defined in the Partnership Agreement) through April 30, 1997 for which CNF Equipment and its affiliates had not been reimbursed as of April 30, 1997; and (ii) Nine Million Nine Hundred Thousand Dollars ($9,900,000) on the Effective Date. (c) Cancellation Option. In the event a Notice to Proceed under the Supply Contract is not issued by EcoElectrica, L.P. to Enron Procurement by December 15, 1997, Enron Procurement shall have the right, but not the obligation, to terminate this Agreement by giving written notice of such election to CNF Equipment on or prior to December 19, 1997 (the "Revocation Option"). Should Enron Procurement elect to exercise the Revocation Option, CNF Equipment shall be obligated to promptly repay to Enron Procurement (and in any event no later than December 31, 1997) any and all amounts paid to CNF Equipment pursuant to this Section 3.1 of this Agreement. In the event that Enron Procurement elects to exercise the Revocation Option, and subject to the repayment by CNF Equipment to Enron Procurement of any and all amounts owed by CNF Equipment hereunder, then this Agreement shall be considered terminated effective upon delivery by Enron Procurement of notice of the Revocation Option, and thereafter Enron Procurement shall have no further payment obligations under the Agreement and CNF Equipment and Enron Procurement shall continue as partners. (d) Cancellation of Project. In the event the Project is terminated or cancelled prior to the receipt of a Notice to Proceed (including, without limitation, because of the denial of a permit or license necessary to the Project or the termination or cancellation of the Power Purchase Agreement (as defined in the Supply Contract)), CNF Equipment shall be obligated to promptly repay Enron Procurement (in any event no later than thirty (30) days after notice of such termination or cancellation is given by Enron Procurement to CNF Equipment) any and all amounts paid to CNF Equipment pursuant to this Section 3.1 of the Agreement. In the event that the Project is terminated or cancelled, and subject to the repayment by CNF Equipment to Enron Procurement of any and all amounts owed by CNF Equipment hereunder, then this Agreement shall be considered terminated effective upon delivery by Enron Procurement of notice of the Project cancellation, and thereafter Enron Procurement shall have no further payment obligations under the Agreement and CNF Equipment and Enron Procurement shall continue as partners. Section 3.2 Alteration of Supply Contract and Onshore Construction Contract. Prior to the Effective Date, CNF Equipment agrees to assist Enron Procurement in the negotiations with EcoElectrica L.P. pertaining to the Global Change Order and the LPG Change Order in order to minimize modifications or alterations to the Supply Contract and the Onshore Construction Contract that result in a negative impact on, or decrease the profit accruing under, the Supply Contract and the Onshore Construction Contract. Section 3.3 Continued Existence. CNF Equipment shall maintain its corporate existence as a Delaware corporation in good standing under the laws thereunder for a period equal to the earlier of (x) one year following the date of this Agreement or (y) the Notice to Proceed Date. Section 3.4 Certain Other Obligations. Enron Procurement acknowledges that in the event that the Closing occurs, CNF Equipment will not be obligated to pay the "Base Rate Fee" or "Additional Risk Fee" referred to in Section 2.1 of the Partnership Agreement. In addition, Enron Procurement acknowledges that between the Effective Date and the earlier of the Effective Date or the termination of this Agreement CNF Equipment will not be performing any obligations under the Partnership Agreement relating to the performance of the Supply Contract, including the obligation under Article 11 with respect to obtaining a payment and performance bond. ARTICLE IV Arbitration Section 4.1 Management Resolution of Disputes. In the event of any claim, dispute, disagreement or controversy arising out of or relating to this Agreement or the transactions contemplated herein or the breach or termination of this Agreement or any Related Agreement (each, hereinafter referred to as a "Dispute"), which the parties to this Agreement have been unable to settle or agree upon within a period of fifteen (15) days after such Dispute arises, each party shall nominate a senior officer of its management to meet at a mutually agreed time and place not later than thirty (30) days after the Dispute has arisen to attempt to resolve such Dispute. Should a resolution of such Dispute not be obtained within ten (10) days after the meeting of senior officers for such purpose, or such longer period as the parties may mutually agree upon, then either party may by notice to the other submit the Dispute to arbitration in accordance with the provisions of Section 4.2 of this Agreement. Section 4.2 Binding Arbitration of Disputes. Any Dispute which is not settled in accordance with the provisions of Section 4.1 of this Agreement shall be submitted to binding arbitration to be conducted in accordance with the following procedure: (a) The party seeking arbitration hereunder may request such arbitration in writing, which writing shall include a clear statement of the matter(s) in dispute and shall name one arbitrator appointed by such party. Within twenty (20) business days after receipt of such request, the other party shall appoint one arbitrator, or in default thereof, such arbitrator shall be named as soon as practicable by the Arbitration Committee of the American Arbitration Association, and the two arbitrators so appointed shall name a third arbitrator within ten (10) business days, or failing such agreement on a third arbitrator by the two arbitrators so appointed, a third arbitrator shall be appointed by the Arbitration Committee of the American Arbitration Association. (b) The arbitration hearing shall be held in New York, New York, on at least twenty (20) business days' prior written notice to the parties. Except as otherwise provided herein, the proceedings shall be conducted in accordance with the Commercial Arbitration Rules and procedures of the American Arbitration Association. Any decision of the arbitrators shall be joined in by at least two of the arbitrators and shall be set forth in a written award which shall state the basis of the award and shall include both findings of fact and conclusions of law. Notwithstanding the foregoing, in the case of any monetary dispute or claim for damages, the amount of which is contested, each party shall submit in writing a proposed arbitration award at the commencement of the arbitration hearing, and the arbitrators shall be required to adopt in full the proposed arbitration award of one of the parties with respect to such monetary amount or damages. Any award rendered pursuant to the foregoing, which may include an award or decree of specific performance hereunder, shall be final and binding on the parties and not subject to review or appeal, and judgment thereon may be entered or enforcement thereof sought by either party in a court of competent jurisdiction. (c) Notwithstanding the foregoing, nothing contained herein shall be deemed to give the arbitrators appointed pursuant to the foregoing any authority, power or right to alter, change, amend, modify, waive, add to or delete from any of the provisions of this Agreement or the Related Agreements. (d) The losing party shall bear all costs of the arbitration including costs of all arbitrators, both parties' attorneys' fees and disbursements and expert fees. In the event that the arbitrators allocate liability among the parties, then the costs of the arbitration shall be shared pro rata by the parties. (e) Each of the parties to this Agreement agree that compliance by a party with the provisions of subparagraphs (a) through (e) of this Section 4.2 shall be a complete defense to any suit, action or proceeding instituted in any federal or state court, or before any administrative tribunal by another party with respect to any controversy or dispute arising under or pursuant to this Agreement and which is subject to arbitration as set forth herein, other than a suit or action alleging non-compliance with a final and binding arbitration award rendered hereunder. Section 4.3 Enforceability in Federal and State Court. The agreement to arbitrate set forth in Section 4.2 shall be enforceable in either federal or state court. The enforcement of such agreement and all procedural aspects thereof, including the construction and interpretation of this agreement to arbitrate, the scope of the arbitrable issues, allegations of waiver, delay or defenses as to arbitrability, and the rules (except as otherwise expressly provided herein) governing the conduct of the arbitration, shall be governed by and construed pursuant to the United States Arbitration Act, 9 U.S.C. 1-16. In deciding the substance of any such claim, dispute or disagreement, the arbitrators shall apply the substantive laws of the State of Delaware; provided, however, that the arbitrators shall have no authority to award punitive damages under any circumstances (whether it be exemplary damages, treble damages, or any other penalty or punitive type of damages) regardless of whether such damages may be available under Delaware law, the parties to this Agreement hereby waiving their right, if any, to recover punitive damages in connection with any such claims, disputes or disagreements. ARTICLE V Indemnification Section 5.1 Mutual Indemnification. Each of Enron Procurement and CNF Equipment (each an "Indemnifying Party") hereby agrees to indemnify, defend and hold harmless the other, its directors, officers, and employees, its controlled and controlling persons and persons under common control, and their respective directors, officers and employees (collectively "related persons"), from and against all Claims (as hereinafter defined) asserted against, resulting to, imposed upon or incurred by such party or such party's related persons (an "Indemnified Person"), directly or indirectly, by reason of, arising out of, or resulting from (a) the inaccuracy or breach of any representation or warranty of the Indemnifying Party contained in this Agreement and (b) the breach of any covenant or agreement of the Indemnifying Party contained in this Agreement. "Claim" shall include (i) all debts, liabilities and obligations; (ii) losses, damages, costs and expenses including, without limitation, interest (including prejudgment interest in any litigated matter), penalties, court costs and reasonable attorneys' fees and expenses; and (iii) all demands, claims, actions, costs of investigation, causes of action, proceedings, arbitrations, judgments, settlements and assessments, whether or not ultimately determined to be valid ; provided, however, that "Claims" shall not include any of the foregoing to the extent covered by insurance maintained by or for the benefit of the applicable Indemnified Person; however the Indemnifying Party shall be liable for the deductible and any uninsured portion of the applicable Claim. Section 5.2 Additional Indemnification. In addition to its obligations under Section 5.1, Enron Procurement hereby agrees to indemnify, defend and hold harmless CNF Equipment and its related persons from and against (a) all Claims asserted against, imposed upon or incurred by CNF Equipment or any of its related persons by reason of, arising out of, or resulting from the performance of the Supply Contract before or after the Closing (including any Claim arising from activities conducted jointly by Enron Procurement and CNF Equipment, their affiliates and representatives) and (b) all Claims asserted against, imposed upon or incurred by CNF or any of its related persons by reason of, arising out of, or resulting from the performance of the Supply Contract after the Effective Date but prior to the termination of this Agreement under either Section 3.1(c) or Section 3.1(d), except for Claims under Section 5.1 and Claims that shall have been determined by the arbitrators under Article IV to have resulted from (i) the sole negligence of CNF Equipment or its related persons, or (ii) the willful misconduct of CNF Equipment or its related persons (such excluded Claims under (i) and (ii) referred to as a "CNF Equipment Obligation"). CNF Equipment shall indemnify, defend and hold harmless Enron Procurement and its related persons from and against all Claims arising out of CNF Equipment Obligations, but only if the aggregate Claims incurred by Enron Procurement and its related persons arising from CNF Equipment Obligations exceeds $625,000, and then only with respect to the amount in excess of $625,000. ARTICLE VI Notices Section 6.1 Notices. Any notice or other written instrument required or permitted to be given pursuant to this Agreement shall be in writing signed by the party giving such notice and shall, to the extent reasonably practicable, be sent by telefax, and if not reasonably practicable to send by telefax, then by hand delivery, overnight courier, telegram or registered mail, to the other party at such address as set forth below: If delivered to CNF Equipment: CNF Constructors, Inc. 900 Rockmead Drive 4 Kingwood Place, Suite 200 Kingwood, TX 77339 Attention: Douglas L. Kieta Telefax No.: (713) 356-3845 with a copy to: Kenetech Corporation 500 Sansome Street San Francisco, CA 94111 Attention: President Telefax No.: (415) 984-8111 If delivered to Enron Procurement: Enron Equipment Procurement Company 333 Clay Street, Suite 400 Houston, Texas 77002 Attention: Legal Department Telefax No.: (713) 646-6280 with a copy to: Enron Engineering & Construction Company 333 Clay Street, Suite 400 Houston, Texas 77002 Attention: Legal Department Telefax No.: (713) 646-6280 Each party shall have the right to change the place to which notice shall be sent or delivered or to specify one additional address to which copies of notices may be sent, in either case by similar notice sent or deliveries in like manner to the other parties. Without limiting any other means by which a party to this Agreement maybe able to prove that a notice has been received by another party, a notice shall be deemed to be duly received: (a) if delivered by hand, overnight courier or telegram, the date when left at the address of the recipient; (b) if sent by registered mail, the date of the return receipt; or (c) if sent by telefax, upon receipt by the sender of an acknowledgment or transmission report generated by the machine from which the telefax was sent indicating that the telefax was sent in its entirety to the recipient's telefax number. ARTICLE VII Miscellaneous Section 7.1 Confidentiality. Each Partner acknowledges that Article 14 of the Partnership Agreement shall survive the dissolution and termination of the Partnership, and that no Partner shall disclose any Confidential Information (as defined in the Partnership Agreement) to any third party except as provided therein. Furthermore, the terms and conditions of this Agreement and the transactions contemplated hereby shall remain subject to the terms and conditions of that certain Confidentiality Agreement dated as of March 4, 1997 among EE&CC, CNFC Industries Inc. and Kenetech. Section 7.2 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. Section 7.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to the choice of law principles thereof. Section 7.4 Entire Agreement. This Agreement (including the Related Agreements and other agreements incorporated herein) and the exhibits hereto contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties between the parties other than those set forth or referred to herein. Section 7.5 Expenses. Whether the transactions contemplated hereby are or are not consummated, all legal and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. Section 7.6 Headings; Definitions. The section and article headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections or Articles contained herein mean Sections or Articles of this Agreement unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. Section 7.7 Amendments and Waivers. This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment is sought. Any party hereto may, only by an instrument in writing, waive compliance by the other parties hereto with any term or provision of this Agreement on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach. Section 7.8 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any adverse manner to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. Section 7.9 Additional Documents. In connection with this Agreement and the transactions contemplated hereby, each party hereto agrees to execute and deliver, or cause the execution and delivery of, such additional documents and instruments, and to perform such additional acts, as may be necessary as appropriate to effectuate, carry out and perform all of the terms, provisions and conditions of this Agreement and the transactions contemplated hereby. Section 7.10 Survival. The provisions of Article IV and V shall survive the termination of this Agreement for a period of five (5) years from the Execution Date. IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of the parties as of the day first above written. ENRON EQUIPMENT PROCUREMENT COMPANY By: _____________________________ Name: Title: CNF Penuelas, Inc. By: _____________________________ Name: Title: OFFSHORE CERTIFICATE Exhibit 1.2 CERTIFICATE OF CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP OF ENRON/CNF EQUIPMENT, L.P. This Certificate of Cancellation, dated as of [_____], 1997, is being filed by the undersigned in the Office of the Secretary of State of the State of Delaware (the "Secretary of State") in accordance with the provisions of 6 Del.C. 17-203 to cancel the Certificate of Limited Partnership of Enron/CNF Power Equipment, L.P. (the "Partnership"). 1. The name of the limited partnership is Enron/CNF Equipment, L.P. 2. The Partnership filed in the Office of the Secretary of State a Certificate of Limited Partnership on December 17, 1996. 3. The reason for the filing of this Certificate of Cancellation is that the Partnership has been dissolved and the winding up of the Partnership has been completed. 4. This Certificate of Cancellation shall be effective immediately upon filing. IN WITNESS WHEREOF, the undersigned have executed this Certificate of Cancellation as of the date first-above written. GENERAL PARTNERS: Enron Equipment Procurement Company, a Delaware corporation By: _________________________________ Name: Title: CNF Equipment, Inc., a Delaware corporation By: _________________________________ Name: Title: OFFSHORE Exhibit 1.6(i) DISTRIBUTION AND ASSIGNMENT AGREEMENT This Distribution and Assignment Agreement (this "Agreement"), dated as of [______], 1997, is entered into by and among Enron/CNF Equipment, L.P., a Delaware limited partnership (the "Partnership"), Enron Equipment Procurement Company, a Delaware corporation ("Enron Procurement"), and CNF Equipment, Inc., a Delaware corporation ("CNF Equipment"). WHEREAS, pursuant to the Limited Partnership Agreement of Enron/CNF Equipment, L.P. dated as of December 13, 1996 (the "Partnership Agreement") and a certificate of limited partnership filed December 16, 1996 with the Delaware Secretary of State, Enron Procurement and CNF Equipment (hereinafter individually called a "Partner" and collectively called the "Partners") formed the Partnership, with each Partner owning a 49% general partner interest and a 1% limited partner interest in the Partnership; WHEREAS, the Partners are the sole limited partners and general partners of the Partnership; WHEREAS, pursuant to that certain Master Agreement of Dissolution, Distribution and Assignment, dated [_________], 1997 (the "Master Agreement"), the Partners agreed, among other things, to dissolve the Partnership in accordance with Section 22.3(a) of the Partnership Agreement; WHEREAS, as contemplated by the Master Agreement, the Partners have paid all debts and liabilities of the Partnership (including, without limitation, all expenses incurred in liquidation) or have otherwise made adequate provisions for such debt and liabilities; WHEREAS, the Partners, as liquidators of the Partnership, have completed, or have otherwise made adequate provisions for, all actions necessary to wind up the affairs of the Partnership in accordance with the Partnership Agreement and Section 17-803 of the Delaware Revised Uniform Limited Partnership Act, as amended (the "Act"); WHEREAS, pursuant to this Agreement, the Partners wish to distribute to each Partner a 50% undivided interest in the right, title and interest in and to all of the assets owned, leased or held by the Partnership as of the date hereof, whether tangible or intangible (the "Partnership Property," including, without limitation, all of the assets and property described in Exhibit A hereto); NOW THEREFORE, in consideration of the mutual covenants set forth below and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby acknowledge and ratify their agreement as follows: Distribution and Assignment. The Partners, as liquidators of the Partnership, hereby distribute, assign, convey and deliver (i) to Enron Procurement and its successors and assigns a 50% undivided interest in and to the Partnership Property, and (ii) to CNF Equipment and its successors and assigns a 50% undivided interest in and to the Partnership Property. Acceptance of Assignment. Each of the Partners hereby accepts the assignment of its 50% undivided interest in the Partnership Property and acknowledges that such assignment constitutes a complete return of its capital contribution and a complete distribution of its interest in the Partnership and all of the Partnership's property and assets. Acknowledgment and Consent to Release of Partnership. Each Partner acknowledges, consents to and agrees to be bound by, the terms and conditions set forth in the attached Acknowledgment, Consent and Release. Effective Date. This Agreement is effective as of the date first above written. Certificate of Cancellation. Upon the distribution and assignment of the Partnership Property pursuant to this Agreement, the Partners agree to file a Certificate of Cancellation with the Secretary of State of the State of Delaware in order to cancel the Certificate of Limited Partnership of the Partnership in accordance with Section 17-203 of the Act. Further Assurances. The parties shall take all acts and execute all documents as any other party may reasonably request to fully carry out and effectuate the transactions contemplated by this Agreement. Miscellaneous. This Agreement (including the Acknowledgment, Consent and Release attached hereto): (i) shall be governed by and construed in accordance with the laws of the State of Delaware; (ii) shall not be amended or modified except by an instrument in writing executed by all parties; (iii) shall be binding upon the successors and assigns of the respective parties; and (iv) may be executed in several counterparts, all of which together shall constitute one agreement binding on all parties hereto notwithstanding that all parties have not signed the same counterpart. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. THE PARTNERSHIP: ENRON/CNF EQUIPMENT, L.P. a Delaware limited partnership By: ENRON EQUIPMENT PROCUREMENT COMPANY as a General and Limited Partner By: ______________________________ Name: Title: By: CNF EQUIPMENT, INC. as a General and Limited Partner By: ______________________________ Name: Title: THE PARTNERS: ENRON EQUIPMENT PROCUREMENT COMPANY a Delaware corporation By: ______________________________ Name: Title: CNF EQUIPMENT, INC. a Delaware corporation By: ______________________________ Name: Title: ACKNOWLEDGMENT CONSENT AND RELEASE THE UNDERSIGNED, EcoElectrica, L.P., hereby acknowledges and agrees that it has been informed of and consents to the distribution and assignment of the Partnership Property pursuant to the terms and conditions of the Distribution and Assignment Agreement (the "Agreement") to which this Acknowledgment, Consent and Release is attached. Each capitalized term used herein and not otherwise defined herein shall have the definition assigned thereto in the Agreement. EcoElectrica, L.P. hereby further agrees that, subject to the execution and delivery of the Assignment and Assumption Agreement whereby CNF Equipment assigns its interest in the Partnership Property to Enron Procurement, all references to "Supplier" and "Contractor" in that certain Offshore Supply Contract dated as of November 1, 1995 (the "Supply Contract"), originally between EcoElectrica, L.P. and Enron Procurement, shall refer to Enron Procurement. Finally, EcoElectrica, L.P. hereby releases the Partnership, and each of the Partners solely in their capacities as general partners and limited partners in the Partnership (the "Released Parties"), from all duties and obligations under the Supply Contract and agrees to accept performance of all such duties and obligations from Enron Procurement in place of the Partnership and the Released Parties. ECOELECTRICA, L.P., a Bermuda exempted limited partnership By: KES Bermuda, Inc. a Delaware corporation, its general partner By: ______________________________ Name: Title: By: Buenergia, B.V. a Dutch limited liability company, its general partner By: ______________________________ Name: Title: OFFSHORE ASSIGNMENT Exhibit 1.6(ii) ASSIGNMENT AND ASSUMPTION AGREEMENT This Assignment and Assumption Agreement (this "Agreement"), dated as of [______], 1997, is entered into by and between Enron Equipment Procurement Company, a Delaware corporation ("Enron Procurement") and CNF Equipment, Inc., a Delaware corporation ("CNF Equipment"). WHEREAS, pursuant to the Limited Partnership Agreement of Enron/CNF Equipment, L.P. dated as of December 13, 1996 (the "Partnership Agreement") and a certificate of limited partnership filed December 16, 1996 with the Delaware Secretary of State, Enron Procurement and CNF Equipment (hereinafter individually called a "Partner" and collectively called the "Partners") formed the Partnership, with each Partner owning a 49% general partner interest and a 1% limited partner interest in the Partnership; WHEREAS, pursuant to that certain Master Agreement of Dissolution, Distribution and Assignment, dated [________], 1997 (the "Master Agreement"), the Partners agreed, among other things, to dissolve the Partnership in accordance with Section 22.3(a) of the Partnership Agreement; WHEREAS, pursuant to that certain Distribution and Assignment Agreement, dated as of the date hereof (the "Distribution and Assignment Agreement"), the Partners distributed, assigned, conveyed, and delivered to each Partner a 50% undivided interest in the right, title and interest in and to all of the assets owned, leased or held by the Partnership as of the date hereof, whether tangible or intangible (the "Partnership Property," including, without limitation, all of the assets and property described in Exhibit A hereto); WHEREAS, pursuant to the Master Agreement, CNF Equipment desires to assign and transfer to Enron Procurement all of CNF Equipment's interest in and to the Partnership Property distributed and assigned to CNF Equipment under the Distribution and Assignment Agreement (the "CNF Interest"); NOW THEREFORE, in consideration of the promises, covenants and agreements set forth herein and in the Master Agreement and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby acknowledge and ratify their agreement as follows: Assignment. CNF Equipment hereby assigns, conveys, transfers and delivers to Enron Procurement all of CNF Equipment's right title and interest in and to the CNF Interest in exchange for the consideration specified in the Master Agreement. Acceptance of Assignment. Enron Procurement hereby accepts the assignment of the CNF Interest and hereby assumes and agrees to perform or to satisfy and discharge any and all duties and obligations relating to and arising out of the Supply Contract. Acknowledgment and Consent to Release of Partnership. Each Partner acknowledges, consents to and agrees to be bound by, the terms and conditions set forth in the attached Acknowledgment, Consent and Release. Effective Date. This Agreement is effective as of the date first above written. Further Assurances. The parties shall take all acts and execute all documents as any other party may reasonably request to fully carry out and effectuate the transactions contemplated by this Agreement. Miscellaneous. This Agreement (including the Acknowledgment, Consent and Release attached hereto): (i) shall be governed by and construed in accordance with the laws of the State of Delaware; (ii) shall not be amended or modified except by an instrument in writing executed by all parties; (iii) shall be binding upon the successors and assigns of the respective parties; and (iv) may be executed in several counterparts, all of which together shall constitute one agreement binding on all parties hereto notwithstanding that all parties have not signed the same counterpart. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. CNF EQUIPMENT, INC. a Delaware corporation, as assignor By: ______________________________ Name: Title: ENRON EQUIPMENT PROCUREMENT COMPANY a Delaware corporation, as assignee By: ______________________________ Name: Title: ACKNOWLEDGMENT CONSENT AND RELEASE THE UNDERSIGNED, EcoElectrica, L.P., hereby acknowledges and agrees that it has been informed of and consents to the assignment and conveyance of the CNF Interest pursuant to the terms and conditions of the Assignment and Assumption Agreement (the "Agreement") to which this Acknowledgment, Consent and Release is attached. Each capitalized term used herein and not otherwise defined herein shall have the definition assigned thereto in the Agreement. EcoElectrica, L.P. hereby further agrees that all references to "Supplier" and "Contractor" in that certain Offshore Supply Contract dated as of November 1, 1995 (the "Supply Contract"), originally between EcoElectrica, L.P. and Enron Procurement, shall refer to Enron Procurement. Finally, EcoElectrica, L.P. hereby releases the Partnership, and each of the Partners solely in their capacities as general partners and limited partners in the Partnership (the "Released Parties"), from all duties and obligations under the Supply Contract and agrees to accept performance of all such duties and obligations from Enron Procurement in place of the Partnership and the Released Parties. ECOELECTRICA, L.P., a Bermuda exempted limited partnership By: KES Bermuda, Inc. a Delaware corporation, its general partner By: ________________________ Name: Title: By: Buenergia, B.V. a Dutch limited liability company, its general partner By: ________________________ Name: Title: OFFSHORE LETTER AGREEMENT Exhibit 1.6(iv) Enron Development Corp. 333 Clay Street, Suite 1700 Houston, Texas 77002 [________________], 1997 Kenetech Energy Systems, Inc. 500 Sansome Street Suite 300 San Francisco, CA 94111 Re: Cancellation of Side Letter Agreement Gentlemen: I refer to that certain Side Letter Agreement dated November 1, 1995 (the "Side Letter Agreement") between Enron Development Corp. and Kenetech Energy Systems, Inc., pursuant to which each has the right to cancel (i) the Onshore Construction Contract dated as of November 1, 1995, originally between EcoElectrica, L.P. and Enron Power Construction Partnership and (ii) the Offshore Supply Contract dated as of November 1, 1995, originally between EcoElectrica, L.P. and Enron Equipment Procurement Company ("Enron Procurement"). In accordance with (i) the Master Agreement of Dissolution, Distribution and Assignment dated the date hereof, by and between Enron Power I (Puerto Rico), Inc. and CNF Penuelas, Inc., and (ii) the Master Agreement of Dissolution Distribution and Assignment dated the date hereof, by and between Enron Procurement, and CNF Equipment Inc., please evidence your agreement to cancel the terms and conditions of the Side Letter Agreement by signing and returning this letter agreement to the undersigned. Very truly yours, [Authorized Signatory] AGREED AND ACCEPTED: KENETECH ENERGY SYSTEMS, INC. By: __________________________ Date: __________________________ Name: Title: OFFSHORE KENETECH GUARANTY Exhibit 1.6(vi) GUARANTY This Guaranty, dated as of [________________], 1997 (this "Guaranty"), is by Kenetech Corporation, a Delaware corporation (the "Guarantor"), in favor of Enron Equipment Procurement Company, a Delaware corporation (the "Beneficiary"): WHEREAS, the Beneficiary and CNF Equipment, Inc., a Delaware corporation and an indirect wholly-owned subsidiary of the Guarantor ("CNF Equipment"), are the sole general partners and limited partners of Enron/CNF Equipment, L.P., a Delaware limited partnership (the "Partnership"); WHEREAS, the Beneficiary and CNF Equipment entered into that certain Master Agreement of Dissolution, Distribution and Assignment, dated as of [_____________], 1997, (the "Master Agreement"), whereby the parties agreed, among other things, (i) to dissolve the Partnership and cause any and all right, title and interest in and to the assets and property of the Partnership (the "Partnership Property"), including, but not limited to, that certain Offshore Supply Contract dated as of November 1, 1995 (the "Supply Contract"), originally between EcoElectrica, L.P. and Enron Procurement, to be distributed to the Beneficiary and CNF Equipment; (ii) that CNF Equipment assign and transfer to the Beneficiary all of CNF Equipment's interests in and to the Partnership Property to be distributed to CNF Equipment pursuant to the dissolution of the Partnership (the "CNF Interest"); and (iii) that the Beneficiary thereafter perform under the Supply Contract in lieu of the Partnership; WHEREAS, it is a condition to the Beneficiary entering into the Master Agreement that the Guarantor enter into this Guaranty; WHEREAS, Guarantor acknowledges that it will benefit if CNF Equipment enters into the Master Agreement; NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, receipt of which is hereby acknowledged, and as an inducement to the Beneficiary to enter into the Master Agreement, the Guarantor hereby agrees as follows: 1. Guaranty. In consideration of the Beneficiary entering into the Master Agreement, the Guarantor absolutely, unconditionally and irrevocably guarantees to Beneficiary, its successors and assigns, the prompt payment when due, of all obligations and liabilities of CNF Equipment to Beneficiary arising from Section 3.1, Section 3.2, Section 3.4 and Section 5.1 of the Master Agreement (the "Obligations") for so long as any Obligation may arise under the Master Agreement. If for any reason CNF Equipment shall fail fully and punctually to pay and perform any Obligation, the Guarantor shall pay such sum to the Beneficiary, plus interest thereon calculated at the thirty day LIBOR rate from the date CNF Equipment became obligated to make such payment under the Master Agreement through the date payment is made by the Guarantor. This Guaranty is an absolute, unconditional guaranty of payment and performance and not of collectability, and is in no way conditioned or contingent upon any attempt to collect from CNF Equipment, enforce performance by CNF Equipment or on any other condition or contingency. 2. Nature of Guaranty. The Guarantor's obligations hereunder shall not be affected by the validity or enforceability of CNF Equipment's obligations under the Master Agreement or any other agreement relating thereto or by any other event, occurrence or circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety. In the event that any payment of CNF Equipment in respect of any Obligations is rescinded or must otherwise be returned for any reason whatsoever, the Guarantor shall remain liable hereunder in respect to such Obligations as if such payment had not been made. However, notwithstanding anything herein to the contrary, nothing herein is intended to deny to the Guarantor, and it is expressly agreed that the Guarantor shall have and may assert, any and all of the defenses, set-offs, counterclaims and other rights with regard to any Obligations that CNF Equipment may possess, including without limitation, any defense based upon the payment or satisfaction by CNF Equipment of such Obligations (or the performance or observance of any terms or provisions of the Master Agreement out of which such Obligations are alleged to arise), except any defense that CNF Equipment may possess relating to (i) lack of validity or enforceability of the Master Agreement against CNF Equipment arising from the defective incorporation of CNF Equipment; (ii) lack of qualification by CNF Equipment to do business in any applicable jurisdiction; (iii) defective corporate authority by CNF Equipment to enter into or perform the Master Agreement; or (iv) the insolvency, bankruptcy, or other reorganization of CNF Equipment. The Beneficiary shall not be obligated to file any claim relating to the Obligations in the event that CNF Equipment becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of Beneficiary to file shall not affect the Guarantor's obligations hereunder. 3. Modification and Amendments. The Guarantor agrees that Beneficiary may at any time and from time to time, without notice to or further consent of the Guarantor, make any agreement with CNF Equipment or with any other party to or person liable on any of the Obligations, or interested therein, for the payment, compromise, discharge or release thereof, in whole or in part, or for any modification of the terms thereof or of any agreement between Beneficiary and CNF Equipment or any such other party or person, without in any way impairing or affecting this Guaranty. Except the modifications allowed pursuant to this Section 3, this Guaranty may be amended only with the written consent of the Beneficiary and the Guarantor. 4. Expenses. The Guarantor agrees to pay on demand all out-of-pocket expenses (including the reasonable fees and expenses of Beneficiary's counsel) in any way relating to the enforcement or protection of the rights of Beneficiary hereunder. 5. Subrogation. The Guarantor will not exercise any rights which it may acquire by way of subrogation until all the Obligations to Beneficiary shall have been paid in full. Subject to the foregoing, upon payment of all the Obligations, the Guarantor shall be subrogated to the rights of Beneficiary against CNF Equipment. 6. No Waiver; Cumulative Rights. No failure on the part of Beneficiary to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by Beneficiary of any right, remedy or power hereunder preclude any other or future exercise of any right, remedy or power. Each and every right, remedy and power hereby granted to Beneficiary or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by Beneficiary from time to time. 7. Waiver of Notice. The Guarantor waives notice of the acceptance of this Guaranty, presentment, demand, notice of dishonor, protest and all other notices whatsoever. 8. Representations and Warranties. (a) The Guarantor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full corporate power to execute, deliver and perform this Guaranty. (b) The execution, delivery and performance of this Guaranty have been and remain duly authorized by all necessary corporate action and do not contravene any provision of law or of the Guarantor's constitutional documents or any contractual restriction binding on the Guarantor or its assets. (c) All consents, authorizations and approvals of, and registrations and declarations with, any governmental authority necessary for the due execution, delivery and performance of this Guaranty have been obtained and remain in full force and effect and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority is required in connection with the execution, delivery or performance of this Guaranty. (d) This Guaranty constitutes the legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors rights and to general equity principles. (e) (i) The Guarantor is not, and will not as a result of the execution and delivery of this Guaranty, be rendered insolvent, (ii) the Guarantor does not intend to incur, or believe it is incurring, obligations beyond its ability to pay, and (iii) the Guarantor's property remaining after the delivery and performance of this Guaranty will not constitute unreasonably small capital. 9. Assignment. This Guaranty is binding upon Guarantor and its successors and permitted assigns. Neither the Guarantor nor the Beneficiary may assign its rights, interest or obligations hereunder to any other person without the prior written consent of the other party. 10. Notices. All notices or other communications in connection with this guaranty shall be given in the same manner and with the same effect as set forth in Section 6.1 of the Master Agreement. The Guarantor's address for notices is as follows: Kenetech Corporation 500 Sansome Street San Francisco, California 94111 Attention: President Telefax No. (415) 984-8111 or such other address as the Guarantor shall from time to time specify to Beneficiary. 11. Governing Law. This Guaranty shall be governed by and construed in accordance with the laws of the State of Delaware without reference to choice of law doctrine. 12. Severability. The invalidity of one or more phrases, sentences, clauses or Sections contained in this Guaranty shall not affect the validity of the remaining portions of this Guaranty so long as the material purposes of this Guaranty can be determined and effectuated. IN WITNESS WHEREOF, the Guarantor has caused its duly authorized officer to execute and deliver this Guaranty as of the date first above written. KENETECH CORPORATION By: ______________________________ Name: Title: OFFSHORE ENRON GUARANTY Exhibit 1.6 (vii) GUARANTY This Guaranty, dated as of [_____________], 1997 (this "Guaranty"), is by Enron Power Corp., a Delaware corporation (the "Guarantor"), in favor of CNF Equipment, Inc., a Delaware corporation (the "Beneficiary"): WHEREAS, the Beneficiary and Enron Equipment Procurement Company, a Delaware corporation and an indirect [wholly-owned] subsidiary of the Guarantor ("Enron Procurement"), are the sole general partners and limited partners of Enron/CNF Equipment, L.P., a Delaware limited partnership (the "Partnership"); WHEREAS, the Beneficiary and Enron Procurement entered into that certain Master Agreement of Dissolution, Distribution and Assignment, dated as of [___________], 1997, (the "Master Agreement"), whereby the parties agreed, among other things, (i) to dissolve the Partnership and cause any and all right, title and interest in and to the assets and property of the Partnership (the "Partnership Property"), including, but not limited to, that certain Offshore Supply Contract dated as of November 1, 1995 (the "Supply Contract"), originally between EcoElectrica, L.P. and Enron Procurement, to be distributed to the Beneficiary and Enron Procurement; (ii) that the Beneficiary assign and transfer to the Enron Procurement all of the Beneficiary's interests in and to the Partnership Property to be distributed to the Beneficiary pursuant to the dissolution of the Partnership (the "CNF Interest"); and (iii) that the Enron Procurement thereafter perform under the Supply Contract in lieu of the Partnership; WHEREAS, it is a condition to the Beneficiary consummating the transactions under the Master Agreement that the Guarantor enter into this Guaranty; WHEREAS, Guarantor acknowledges that it will benefit if Enron Procurement consummates the transactions under the Master Agreement; NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, receipt of which is hereby acknowledged, and as an inducement to the Beneficiary to enter into the Master Agreement, the Guarantor hereby agrees as follows: 1. Guaranty. In consideration of the Beneficiary entering into the Master Agreement, the Guarantor absolutely, unconditionally and irrevocably guarantees to Beneficiary, its successors and assigns, the prompt payment when due, of all obligations and liabilities of Enron Procurement to Beneficiary arising from Section 3.1, Section 5.1 and Section 5.2 of the Master Agreement (the "Obligations") for so long as any Obligation may arise under the Master Agreement. If for any reason Enron Procurement shall fail fully and punctually to pay and perform any Obligation, the Guarantor shall pay such sum to the Beneficiary, plus interest thereon calculated at the thirty day LIBOR rate from the date Enron Procurement became obligated to make such payment under the Master Agreement through the date payment is made by the Guarantor. This Guaranty is an absolute, unconditional guaranty of payment and performance and not of collectability, and is in no way conditioned or contingent upon any attempt to collect from Enron Procurement, enforce performance by Enron Procurement or on any other condition or contingency. 2. Nature of Guaranty. The Guarantor's obligations hereunder shall not be affected by the validity or enforceability of Enron Procurement's obligations under the Master Agreement or any other agreement relating thereto or by any other event, occurrence or circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor or surety. In the event that any payment of Enron Procurement in respect of any Obligations is rescinded or must otherwise be returned for any reason whatsoever, the Guarantor shall remain liable hereunder in respect to such Obligations as if such payment had not been made. However, notwithstanding anything herein to the contrary, nothing herein is intended to deny to the Guarantor, and it is expressly agreed that the Guarantor shall have and may assert, any and all of the defenses, set-offs, counterclaims and other rights with regard to any Obligations that Enron Procurement may possess, including without limitation, any defense based upon the payment or satisfaction by Enron Procurement of such Obligations (or the performance or observance of any terms or provisions of the Master Agreement out of which such Obligations are alleged to arise), except any defense that Enron Procurement may possess relating to (i) lack of validity or enforceability of the Master Agreement against Enron Procurement arising from the defective incorporation of Enron Procurement; (ii) lack of qualification by Enron Procurement to do business in any applicable jurisdiction; (iii) defective corporate authority by Enron Procurement to enter into or perform the Master Agreement; or (iv) the insolvency, bankruptcy, or other reorganization of Enron Procurement. The Beneficiary shall not be obligated to file any claim relating to the Obligations in the event that Enron Procurement becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of Beneficiary to file shall not affect the Guarantor's obligations hereunder. 3. Modification and Amendments. The Guarantor agrees that Beneficiary may at any time and from time to time, without notice to or further consent of the Guarantor, make any agreement with Enron Procurement or with any other party to or person liable on any of the Obligations, or interested therein, for the payment, compromise, discharge or release thereof, in whole or in part, or for any modification of the terms thereof or of any agreement between Beneficiary and Enron Procurement or any such other party or person, without in any way impairing or affecting this Guaranty. Except the modifications allowed pursuant to this Section 3, this Guaranty may be amended only with the written consent of the Beneficiary and the Guarantor. 4. Expenses. The Guarantor agrees to pay on demand all out-of-pocket expenses (including the reasonable fees and expenses of Beneficiary's counsel) in any way relating to the enforcement or protection of the rights of Beneficiary hereunder. 5. Subrogation. The Guarantor will not exercise any rights which it may acquire by way of subrogation until all the Obligations to Beneficiary shall have been paid in full. Subject to the foregoing, upon payment of all the Obligations, the Guarantor shall be subrogated to the rights of Beneficiary against Enron Procurement. 6. No Waiver; Cumulative Rights. No failure on the part of Beneficiary to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by Beneficiary of any right, remedy or power hereunder preclude any other or future exercise of any right, remedy or power. Each and every right, remedy and power hereby granted to Beneficiary or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by Beneficiary from time to time. 7. Waiver of Notice. The Guarantor waives notice of the acceptance of this Guaranty, presentment, demand, notice of dishonor, protest and all other notices whatsoever. 8. Representations and Warranties. (a) The Guarantor is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full corporate power to execute, deliver and perform this Guaranty. (b) The execution, delivery and performance of this Guaranty have been and remain duly authorized by all necessary corporate action and do not contravene any provision of law or of the Guarantor's constitutional documents or any contractual restriction binding on the Guarantor or its assets. (c) All consents, authorizations and approvals of, and registrations and declarations with, any governmental authority necessary for the due execution, delivery and performance of this Guaranty have been obtained and remain in full force and effect and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority is required in connection with the execution, delivery or performance of this Guaranty. (d) This Guaranty constitutes the legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors rights and to general equity principles. (e) (i) The Guarantor is not, and will not as a result of the execution and delivery of this Guaranty, be rendered insolvent, (ii) the Guarantor does not intend to incur, or believe it is incurring, obligations beyond its ability to pay, and (iii) the Guarantor's property remaining after the delivery and performance of this Guaranty will not constitute unreasonably small capital. 9. Assignment. This Guaranty is binding upon Guarantor and its successors and permitted assigns. Neither the Guarantor nor the Beneficiary may assign its rights, interest or obligations hereunder to any other person without the prior written consent of the other party. 10. Notices. All notices or other communications in connection with this guaranty shall be given in the same manner and with the same effect as set forth in Section 6.1 of the Master Agreement. The Guarantor's address for notices is as follows: Enron Power Corp. P.O. Box 1188 Houston, TX 77251-1188 Attn: Legal Department Telefax No. or such other address as the Guarantor shall from time to time specify to Beneficiary. 11. Governing Law. This Guaranty shall be governed by and construed in accordance with the laws of the State of Delaware without reference to choice of law doctrine. 12. Severability. The invalidity of one or more phrases, sentences, clauses or Sections contained in this Guaranty shall not affect the validity of the remaining portions of this Guaranty so long as the material purposes of this Guaranty can be determined and effectuated. IN WITNESS WHEREOF, the Guarantor has caused its duly authorized officer to execute and deliver this Guaranty as of the date first above written. ENRON POWER CORP. By: ________________________________ Name: Title: OFFSHORE RELEASE OF CNF Exhibit 1.6(x) CNF Industries, Inc. 355 Research Parkway Meriden, Connecticut 06450 [_______], 1997 Enron Equipment Procurement Company 333 Clay Street, Suite 400 Houston, Texas 77002 Attn: Legal Department Re: Release of CNF Industries, Inc. Guaranty Gentlemen: I refer to that certain Guaranty dated as of December 18, 1996 (the "CNF Offshore Guaranty") by CNF Industries, Inc., a Delaware corporation (the "Guarantor"), for the benefit of Enron Equipment Procurement Company, a Delaware corporation ("Enron Procurement"), entered into pursuant to Section 11.3 of the Limited Partnership Agreement of Enron/CNF Equipment, L.P., a Delaware limited partnership. In accordance with (i) the Master Agreement of Dissolution, Distribution and Assignment dated [________], 1997, by and between Enron Procurement and CNF Equipment, Inc., and (ii) Section 16 of the CNF Offshore Guaranty, please evidence your agreement to terminate the CNF Offshore Guaranty and release the Guarantor from any and all obligations thereunder by signing and returning this letter agreement to the undersigned. Very truly yours, [Authorized Signatory] AGREED AND ACCEPTED: ENRON EQUIPMENT PROCUREMENT COMPANY By: __________________________ Date: July __, 1997 Name: Title: OFFSHORE RELEASE OF ENRON Exhibit 1.6(xi) Enron Power Corp. P.O. Box 1188 Houston, Texas 77251-1188 [_______], 1997 CNF Equipment, Inc. 355 Research Parkway Meriden, Connecticut 06450 Attn:__________________ Re: Release of Enron Power Corp. Guaranty Gentlemen: I refer to that certain Guaranty dated as of December 18, 1996 (the "EPC Offshore Guaranty") by Enron Power Corp., a Delaware corporation (the "Guarantor"), for the benefit of CNF Equipment, Inc., a Delaware corporation ("CNF Equipment"), entered into pursuant to Section 11.3 of the Limited Partnership Agreement of Enron/CNF Equipment, L.P., a Delaware limited partnership. In accordance with (i) the Master Agreement of Dissolution, Distribution and Assignment dated [______], 1997, by and between Enron Equipment Procurement Company and CNF Equipment, and (ii) Section 16 of the EPC Offshore Guaranty, please evidence your agreement to terminate the EPC Offshore Guaranty and release the Guarantor from any and all obligations thereunder by signing and returning this letter agreement to the undersigned. Very truly yours, [Authorized Signatory] AGREED AND ACCEPTED: CNF EQUIPMENT, INC. By: __________________________ Date: July __, 1997 Name: Title: EX-21 8 SUBSIDIARIES OF THE REGISTRANT Subsidiaries of KENETECH Corporation as of 03/01/98: CNF Industries, Inc. (Delaware) C.N. Flagg & Co., Incorporated (Connecticut) CNF Century Acquisition, Inc. (Delaware) Century Contractors West, Inc. (Texas) CNF Constructors, Inc. (Tennessee) CNF Equipment, Inc. (Delaware) CNF Penuelas, Inc. (Delaware) KENETECH - CNF Texas, Inc. (Delaware) CNF Power, Inc. (Connecticut) Process Construction Supply, Inc. (Delaware) KENETECH Energy Systems, Inc. (Delaware) Flagg Energy Development Corporation (Delaware) CCF-1, Inc. (Connecticut) KEM, Inc. (Delaware) KES Bloom, Inc. (Delaware) KES Chateaugay, Inc. (Delaware) KES Chicago Heights, Inc. (Delaware) KES Kingsburg, Inc. (Delaware) KES Kingston, Inc. (Delaware) KES LNG, Inc. (Delaware) KES Penuelas Holdings, Inc. (Delaware) KES Bermuda, Inc. (Delaware) KES Bermuda, Ltd. (British Virgin Islands) KES LNG, Ltd. (British Virgin Islands) KES Penuelas, Ltd. (British Virgin Islands) KES Pepperell, Inc. (Delaware) KES Renville, Inc. (Delaware) Mill Street GP, Inc. (Delaware) Mill Street LP, Inc. (Delaware) KENETECH Facilities Management, Inc. (Delaware) KFM Pepperell, Inc. (Delaware) KENETECH International Ltd. (Delaware) Energia Eolica de Galicia, S.A. (Spain) Energie Eolienne KENETECH, Inc./KENETECH Windpower, Inc. (Quebec) KW Groningen B.V. (Netherlands) KW Eemsmond B.V. (Netherlands) KENETECH Merger Company (Delaware) KENETECH Windpower India Company Limited (Mauritius) KENETECH India Private Limited (India) KENETECH Windpower, Inc. (Delaware) AWP Plantas Eolicas, S.A. (Spain) East Wind Limited (Channel Islands) Windergo Ltd. Fiberblade Corporation (Delaware) GP WPP93 LP, Inc. (Delaware) KC One Company (Delaware) KENETECH Assembly and Test, Inc. (Delaware) KENETECH Canadian Operations, Inc. (Alberta) KENETECH Finance Company (Delaware) KENETECH Project Company (Delaware) USW Altamont Corporation (Delaware) KENETECH Leasing Company USW Delta Company KENETECH FSC, Inc. (Barbados) KENETECH Solar Energy Ventures, Inc. (Delaware) KW Altamont I, Inc. (Delaware) KW Altamont II, Inc. (Delaware) KW Altamont SCE, Inc. (Delaware) KW Boulevard I, Inc. (Delaware) KW Boulevard II, Inc. (Delaware) KW Cottonwood I, Inc. (Delaware) KW Cottonwood II, Inc. (Delaware) KW Eemsmond GP, Inc. (Delaware) KW Eemsmond LP, Inc. (Delaware) KW Europe Project Development Limited Liability Company KW Greenville Company (Delaware) KW Hayward, Inc. (Delaware) KW India, Inc. (Delaware) KW Jackson, Inc. (Delaware) KW Kelso I, Inc. (Delaware) KW Kelso II, Inc. (Delaware) KW Kelso III, Inc. (Delaware) KW Kelso IV, Inc. (Delaware) KW Kramer I, Inc. (Delaware) KW Kramer II, Inc. (Delaware) KW Kramer PV, Inc. (Delaware) KW La Rumorosa I, Inc. (Delaware) KW La Rumorosa II, Inc. (Delaware) KW La Rumorosa III, Inc. (Delaware) KW Llyn Alaw LP, Inc. (Delaware) KW San Diego, Inc. (Delaware) KW SCE, Inc. (Delaware) KW SDG&E, Inc. (Delaware) KW Sidewinder, Inc. (Delaware) KW Solano I, Inc. (Delaware) KW Solano II, Inc. (Delaware) KW Tehachapi II, Inc. (Delaware) KW Tehachapi III, Inc. (Delaware) KW Tejona, S.A. (Costa Rica) KW Texas Manufacturing, Inc. (Delaware) KW Texas, Inc. (Delaware) KW Vansycle I, Inc. (Delaware) KW Vansycle II, Inc. (Delaware) KW WPP94, Inc. (Delaware) Northeast Windpower Systems, Inc. (Delaware) U.S. Windpower 1983-1, Inc. (California) U.S. Windpower 1984, Inc. (California) US WEG, Inc. (Delaware) USW Concord Company (Delaware) USW Fremont Company (Delaware) USW Midwest Windpower Land Company (Delaware) USW WindRiver Company (Delaware) USW WPP93 GP, Inc. (Delaware) Wind Generator Parks, Inc. (California) Windplant Operations B.V. (Netherlands) Windpower Management Associates 1985-3, Inc. (California) Windpower Partners 1993 (SCE), Inc. (Delaware) WPP94 GP, Inc. (Delaware) KW Transmission, Inc. KENETECH Wood Fuels, Inc. (Delaware) KWF Chateaugay, Inc. (Delaware) NOTE: * designates entities with multiple parents. EX-27 9 FDS -- YEAR ENDING 12/31/97 FOR KENETECH CORP
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE KENETECH CORP 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. 0000807708 KENETECH CORPORATION 1 US YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1 7,294 0 4,669 0 135 55,314 28,704 9,810 90,586 204,095 0 18,196 0 4 (131,705) 90,586 3,170 40,993 8,895 45,000 0 0 (16,291) (25,242) 0 (25,242) 0 0 0 (25,242) (0.92) (0.92)
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