-----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, T08xEppZciffvIdABqnIkQiqw0knLlFcDI5IT51zhjrO5DOpn/Re6VE80xUX0f9g BFXRNjqXH7ZCnBuwxxnYHw== 0000807708-99-000005.txt : 19990402 0000807708-99-000005.hdr.sgml : 19990402 ACCESSION NUMBER: 0000807708-99-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 99581976 BUSINESS ADDRESS: STREET 1: 500 SANSOME STREET SUITE 410 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4153983825 MAIL ADDRESS: STREET 1: 500 SANSOME STREET SUITE 410 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 10-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, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 33-53132 KENETECH CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-3009803 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 500 Sansome Street, Suite 410 San Francisco, California 94111 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 398-3825 Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK (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. [X] Based on the market price of the Common Stock at March 15, 1999 ($0.14), the aggregate market value of the Common Stock of non-affiliates of the Registrant was approximately $4,278,000. As of March 15, 1999, there were 41,954,218 shares of Common Stock outstanding. 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. As used in this document, "Company" refers to KENETECH and its wholly-owned subsidiaries (including KENETECH Windpower, Inc. ("KWI") only through May 29, 1996). Historically, the Company developed, constructed, financed, operated, managed and sold independent power projects and manufactured wind turbines. The Company experienced severe constraints on its liquidity beginning in late 1995. In an effort to relieve such constraints, KWI filed for protection under Chapter 11 of the Federal Bankruptcy Code on May 29, 1996, reporting an excess of liabilities over its assets. The Chapter 11 filing of KWI materially adversely affected the Company's ability to procure new business. As a result of liquidity constraints, the Company limited its new development activities and focused all of its activities on raising funds for working capital and to repay debt. As of May 29, 1996, KWI ceased to be accounted for as a consolidated subsidiary of the Company and the Company's financial statements exclude all KWI activity after that date. KWI's Plan of Reorganization was confirmed by the Bankruptcy Court on January 27, 1999. Although the Company continues to own the common stock of KWI, the Company believes it will not realize any value from its remaining interests in KWI other than certain tax attributes. As of March 31, 1999, the Company has completed its activities to raise funds for working capital purposes, has disposed of substantially all its operating assets and has repaid substantially all of its indebtedness for borrowed money. The Company currently has substantial cash balances, may have substantial net operating income tax losses to carry forward to future years and is managing significant litigation (see Item 3). Management is currently charting the future direction of the Company. It is likely that the Company's future business will be in the energy or real estate industries. The Company has retained professionals to assist it in the identification and evaluation of business opportunities. EMPLOYEES: The Company currently employs four persons. Item 2. Property - ----------------- The Company maintains its corporate headquarters in San Francisco, California. The lease for approximately 2,400 square feet of corporate office space expires in 2001. The annual lease payment is approximately $71,000. Page 3 Item 3. Legal Proceedings - ------------------------- LITIGATION Preferred Stock Litigation: On May 6, 1998, Quadrangle Offshore (Cayman) LLC, and Cerberus Partners, L.P. ("Plaintiffs"), filed a Verified Complaint for Declaratory Judgment and Injunctive Relief, in the Court of Chancery of the State of Delaware In and For New Castle County (Civil Action No. 16362-NC). Plaintiffs allege that they were beneficial owners of Preferred Redeemable Increased Dividend Equity Securities, 8-1/4% PRIDES, Convertible Preferred Stock, par value $0.01 per share (the "Preferred Stock") of the Company, that mandatorily converted, on May 14, 1998, into Common Stock, par value $0.0001 per share ("Common Stock") of the Company. Plaintiffs filed an amended complaint on July 7, 1998. Generally, the amended complaint alleges that the Company is currently in liquidation and was in liquidation prior to May 14, 1998, that the plaintiffs are entitled to receive the liquidation preference of $1,012.50 per share set forth in the Company's Certificate of Designations, Preferences, Rights and Limitations of Preferred Redeemable Increased Dividend Equity Securities, 8-1/4% PRIDES, Convertible Preferred Stock (the "Certificate of Designations") in any distribution of assets the Company may make notwithstanding that the Preferred Stock mandatorily converted and ceased to be outstanding on May 14, 1998, and that the Company breached an implied covenant of good faith and fair dealing under the Certificate of Designations. Plaintiffs are seeking, among other things, (i) a declaration that they are entitled to receive the liquidation preference in any distribution of assets before any distribution is made to holders of Common Stock and that the mandatory conversion of the Preferred Stock does not operate to eliminate their right to receive the liquidation preference, (ii) related injunctive relief, and (iii) other unspecified damages. The Court of Chancery entered a Temporary Restraining Order in the action on December 28, 1998 that restrains the Company from making payments from the proceeds of the sale of the EcoElectrica Project Interest (see Item 7, Results of Operations and Item 8, Note 5) in satisfaction of any obligations not previously disclosed in the Company's 10-K or 10-Q or their attached exhibits (except to the extent necessary for ordinary, customary and reasonable expenses) without first providing five business days advance notice to Plaintiffs. A bench trial in the action was held February 16-19, 1999 before the Court of Chancery and a ruling on the merits is expected in the third quarter of 1999. Shareholders' Class Action: On September 28, 1995, a class action complaint was filed against the Company and certain of its officers and directors (namely, Stanley Charren, Maurice E. Miller, Joel M. Canino and Gerald R. Alderson), in the United States District Court for the Northern District of California, alleging federal securities laws violations. On November 2, 1995, a First Amended Complaint was filed naming additional defendants, including underwriters of the Company's securities and certain other officers and directors of the Company (namely, Charles Christenson, Angus M. Duthie, Steven N. Hutchinson, Howard W. Pifer III and Mervin E. Werth). Subsequent to the Court's partial grant of the Company's and the underwriter defendants' motions to dismiss, a Second Amended Complaint was filed on March 29, 1996. The amended complaint alleges claims under sections 11 and 15 of the Securities Act of 1933, and sections 10(b) and 20(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, based on alleged misrepresentations and omissions in the Company's public statements, on behalf of a class consisting of persons who purchased the Company's Common Stock during the period from September 21, 1993 (the date of the Company's initial public offering) through August 8, 1995 and persons who purchased the Company's Preferred Stock (depository shares) 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. The Court has certified a plaintiff class consisting of all persons or entities who purchased Common Stock between September 21, 1993 and August 8, 1995 or depositary shares between April 28, 1994 and August 8, 1995, appointed representatives of the certified plaintiff class, appointed counsel for the certified class and certified a plaintiff and defendant underwriter class as to the section 11 claim. Page 4 There have been two unsuccessful attempts at mediation to settle the action and one unsuccessful settlement conference. Defendants' motion for summary judgement is pending and no trial date has been set. Lease Litigation: On October 1, 1998, Mellon US Leasing filed suit in San Francisco County Superior Court against the Company. The complaint alleges that the Company has breached an equipment lease agreement and seeks damages of approximately $100,000 and other unspecified costs and relief. Insurance Litigation: On January 29, 1999, Travelers Insurance Company filed a complaint against KENETECH and CNF Industries, Inc. ("CNF") in the Superior Court, Judicial District of Hartford, Connecticut. The complaint alleges that the defendants failed to pay premiums and other charges for insurance coverage and services. Damages are alleged to be in excess of $1,118,246. Wrongful Termination Litigation: On December 31, 1987, a former employee of CN Flagg Power, Inc. ("CN Power") (formerly, a wholly-owned subsidiary of CNF), 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. CN Power's motion to dismiss the complaint has been denied by the Commission. Damages are alleged to be in the area of $300,000. Other: The Company is also a party to various other legal proceedings normally incident to its business activities. The Company intends to defend itself vigorously against these actions. It is not feasible to predict or determine whether the ultimate outcome of the above-described matters will have a material adverse effect on the Company's financial position. SETTLED LITIGATION Westinghouse Litigation: C. N. Flagg & Co, Incorporated ("C.N. Flagg"), a wholly-owned subsidiary of CNF, instituted legal proceedings against, among others, Westinghouse Electric Corporation ("Westinghouse") in March, 1997, in the U.S. Federal District Court in Minnesota (No. 97-617 JRT/RLE) to recover compensation for a termination of convenience of a project C. N. Flagg was building on behalf of Westinghouse. The parties have agreed to a settlement in the action whereby C.N. Flagg will receive approximately $500 thousand from Westinghouse after payment of outstanding counter claims, liens and amounts to subcontractors and suppliers to the project. NTS Litigation: On May 6, 1998, National Technical Services, Inc. ("NTS") filed a complaint in the Superior Court of California, County of Sacramento, against CNF Constructors, Inc., among others, alleging breach of contract related to labor and materials provided by NTS in connection with a power plant being constructed by CNF Constructors, Inc. for the Sacramento Power Authority. The parties have settled the action in exchange for the payment of $457,000 to NTS and a dismissal with prejudice has been filed. BANKRUPTCY OF KWI On May 29, 1996, KWI filed a voluntary petition in the United States Bankruptcy Court for the Northern District of California (Oakland Division) under chapter 11 of the Bankruptcy Code. KWI's management attributed its filing to continuing losses and lack of operating capital. The Bankruptcy Petition filed by KWI stated that as of March 30, 1996 (the latest available information prior to the filing), KWI had liabilities, as defined by bankruptcy filing procedures which 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. The Notes, and all accrued interest thereon, were satisfied and discharged in full on December 23, 1998. The filing also materially adversely affected the Company's construction subsidiary's ability to procure new business. Page 5 Since the filing of the chapter 11 case, KWI has sold certain development assets, operating assets, technology rights and other assets under the supervision of the Bankruptcy Court. A Settlement Agreement and Release ("Release") was entered into as of May 13, 1998, and approved by the Bankruptcy Court on May 26, 1998, by and among KWI, the Official Committee of Unsecured Creditors appointed in KWI's chapter 11 case (the "Official Committee"), KENETECH, KENETECH Energy Systems, Inc., a wholly-owned subsidiary of KENETECH ("KES"), CNF Industries, Inc., a wholly owned subsidiary of KENETECH, CNF Constructors, Inc., a wholly-owned subsidiary of CNF Industries, Inc. (collectively with CNF Industries, Inc. ("CNF")), and The Bank of New York, in its capacity as successor Indenture Trustee for the Notes (the "Trustee"). In the Release, CNF, KENETECH and the Trustee released, subordinated or contributed to capital the claims filed by them against KWI in the KWI bankruptcy proceedings. KWI released KENETECH, KES and the Trustee from all claims against those entities filed by KWI, including those for preferential payments prior to the filing of the bankruptcy petition, alter ego claims, and any claim for substantive consolidation. Under the terms of the Release, KES and KENETECH have paid KWI $6.5 million from the proceeds of the sale of the EcoElectrica Project Interest (see Item 7, Results of Operations and Item 8, Note 5). KWI will continue to be a member of the Company's consolidated group for income tax purposes. A first Amended Plan of Reorganization jointly filed with the Bankruptcy Court by KWI and the Official Committee was confirmed on January 27, 1999. The Plan is expected to become effective by April 27, 1999 if certain conditions set forth therein are satisfied. Although KENETECH continues to own the common stock of KWI and provides certain services under the jurisdiction of the Bankruptcy Court, the Company believes that it will not realize any value from its remaining interests in KWI other than certain tax attributes. Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- None Page 6 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 quotations for the Common Stock as reported by a market maker in the stock (1). Such over-the-counter market quotations do not include retail markups, markdowns or commissions and may not represent actual transactions.
Year High Low -------------- ------- ------- 1997 ---- First Quarter $ 0.000 $ 0.000 Second Quarter 0.000 0.000 Third Quarter 0.125 0.000 Fourth Quarter 0.250 0.000 1998 ---- First Quarter $ 0.070 $ 0.050 Second Quarter 0.410 0.0625 Third Quarter 0.310 0.160 Fourth Quarter 0.280 0.125 1999 ---- First Quarter (to March 15, 1999) $ 0.260 $ 0.140
(1) The market maker from which the Company obtained high and low bid quotations for 1997 does not report quotations under $0.125. Quotes for 1998 and 1999 were obtained from a stock quotation system. 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 604 holders of record of the Common Stock as of March 1, 1999. 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. Formerly, the Company's 12 3/4% Senior Secured Notes, and the provisions of the Certificate of Incorporation under which the Company issued its 8 1/4% Preferred Redeemable Increased Dividend Equity Securities restricted the payment of Common Stock dividends except under specified circumstances. The Senior Secured Notes were satisfied and discharged in full on December 23, 1998 and the Preferred Stock manditorily converted into Common Stock on May 14, 1998 (the "Mandatory Conversion Date"). 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. On March 23, 1999, the Board of Directors of the Company determined, pursuant to the terms of the Certificate of Incorporation set out above, to pay cash in an amount equal to all accrued and unpaid dividends on each share of Preferred Stock, to and including the Mandatory Conversion Date, which results in a payment of $4.1775 per depositary share. The payment shall be made on or about April 14, 1999, to the persons in whose names depositary receipts evidencing the depositary shares were registered on the books of the Depository, ChaseMellon Shareholder Services, L.L.C., on the Mandatory Conversion Date. The total payment by the Company is $21,408,016. Page 7 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, 1998 have been derived from the audited Consolidated Financial Statements of the Company. (Dollar amounts in thousands, except per share amounts.)
Year Ended December 31, ---------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- INCOME STATEMENT DATA (1): Revenues (2)....................................... $251,921 $ 40,993 $ 91,890 $327,589 $338,211 Total costs of revenues (3)........................ 39,015 45,000 83,705 504,696 278,778 Gross margin (excess of expenses over revenues).... 212,906 (4,007) 8,185 (177,107) 59,433 Project development and marketing, engineering, general and administrative expenses. 4,178 16,034 40,559 71,368 44,677 Income (loss) from operations...................... 208,728 (20,041) (32,374) (248,475) 14,756 Income (loss) before taxes......................... 185,486 (25,242) (60,850) (271,647) 1,426 Net income (loss).................................. 131,572 (25,242) (84,241) (250,148) 4,348 Income (loss) per share (4): Basic....................................... 3.20 (0.92) (2.52)(3) (7.12) (0.03) Diluted..................................... 3.20 (0.92) (2.52)(3) (7.12) (0.03)
Year Ended December 31, --------------------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- -------- -------- -------- BALANCE SHEET DATA: Working capital (5)................................ $ 31,389 $(116,545) $(141,621) $ (3,232) $140,766 Total assets....................................... 84,485 90,586 123,311 401,249 517,168 Stockholders' equity (deficiency).................. (3,356) (131,705) (97,900) (5,559) 248,718 (1) Excludes operations of KWI after bankruptcy filing (May 29, 1996). (2) Includes sale of EcoElectrica Project Interest in 1998 for $247,000. (3) In 1995 includes special charges of $224,551. (4) Includes effect of deducting dividends earned on convertible preferred stock issued in 1994. (5) Includes Senior Secured Notes, accrued interest thereon, and the EcoElectrica Project loan in 1997 and 1996. These were repaid in full in 1998.
Page 8 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, operated, managed and sold independent power projects and manufactured wind turbines. The Company experienced severe constraints on its liquidity beginning in late 1995. In an effort to relieve such constraints, KWI filed for protection under Chapter 11 of the Federal Bankruptcy Code on May 29, 1996, reporting an excess of liabilities over its assets. The Chapter 11 filing of KWI materially adversely affected the Company's ability to procure new business. As a result of liquidity constraints, the Company limited its new development activities and focused all of its activities on raising funds for working capital and to repay debt. As of May 29, 1996, KWI ceased to be accounted for as a consolidated subsidiary of the Company and the Company's financial statements exclude all KWI activity after that date. KWI's Plan of Reorganization was confirmed by the Bankruptcy Court on January 27, 1999. Although the Company continues to own the common stock of KWI, the Company believes it will not realize any value from its remaining interests in KWI other than certain tax attributes. As of March 31, 1999, the Company has completed its activities to raise funds for working capital purposes, has disposed of substantially all its operating assets and has repaid substantially all of its indebtedness for borrowed money. The Company currently has substantial cash balances, may have substantial net operating income tax losses to carry forward to future years and is managing significant litigation (see Item 3). Management is currently charting the future direction of the Company. It is likely that the Company's future business will be in the energy or real estate industries. The Company has retained professionals to assist it in the identification and evaluation of business opportunities. As of December 31, 1998, the Company, through KENETECH Energy Systems, Inc. ("KES"), owned a 50% indirect interest in a partnership (the "Chateaugay Partnership"), which owned a 17.8 MW wood-fired electric generating station developed and constructed by the Company in Chateaugay, New York (the "Chateaugay Project"). The remaining 50% equity interest was owned by affiliates of CMS Generation Company. The Chateaugay Project delivered electric energy to New York State Electric & Gas Corporation under a long-term power purchase agreement. Debt associated with the Chateaugay Project consisted primarily of tax-exempt bonds. In July 1991, the Chateaugay Partnership entered into an agreement with the County of Franklin (New York) Industrial Development Authority (the "Authority") whereby the Authority loaned the Chateaugay Partnership the proceeds of the Authority's Series 1991A Bonds issued in the principal amount of $34,800,000 to finance the construction of the Chateaugay Project. In October 1998, the Chateaugay Partnership and the Authority signed a Cooperation and Termination Agreement with respect to the proposed termination of the power purchase agreement, the payment or defeasance of the Series 1991A Bonds, and the disposition of the Chateaugay Project. KES' interest in this project was disposed of in the first quarter of 1999 (see Note 21). Page 9 CAUTIONARY STATEMENT Certain information included in this report contains forward looking statements within the meaning of the Securities Act of 1933, as amended, and the Securities Act of 1934, as amended. Such forward looking information is based on information available when such statements are made and is subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. RESULTS OF OPERATIONS Consolidated net income for KENETECH Corporation and certain subsidiaries for the year ended December 31, 1998 was $131.6 million compared to net losses of $25.2 million for 1997 and $84.2 million for 1996. The net income in 1998 is due to the sale of the EcoElectrica Project Interest in December 1998 for which there were no comparative transactions in 1997 or 1996. YEARS 1998 AND 1997
Year Ended December 31, 1998 1997 -------- -------- (in millions) Gross Gross Revenues Costs Margins Revenues Costs Margins -------- ------- ------- -------- ------- ------- ............................ Sale of EcoElectrica Project Interest........................ $ 247.0 $ 34.3 $ 212.7 $ -- $ -- $ -- Construction services ........... 3.4 2.5 0.9 36.0 36.1 (0.1) Maintenance, management fees and other ................. 1.0 0.7 0.3 1.8 0.5 1.3 Energy sales ................... 0.5 1.5 (1.0) 3.2 8.4 (5.2) -------- ------- ------- -------- ------- ------- Total ............................ $ 251.9 $ 39.0 $ 212.9 $ 41.0 $ 45.0 $ (4.0) ======== ======= ======= ======== ======= =======
Sale of EcoElectrica Project Interest represents the sale, on December 23, 1998, by KES of its indirectly owned 50% equity interest in a partnership that owns a gas-fired cogeneration facility of approximately 540 MW currently under construction in Penuelas, Puerto Rico (the "EcoElectrica Project") and other associated contract rights (collectively, the "EcoElectrica Project Interest") to Edison Mission Energy, an unrelated party. The EcoElectrica Project also includes a liquefied natural gas import terminal and storage facility, a desalination plant and assorted ancillary facilities. The sale was made pursuant to a Stock Purchase and Assignment Agreement, dated as of December 23, 1998, by and among KES and certain of its affiliates and Edison Mission Energy and one of its affiliates. The EcoElectrica Project Interest was sold for cash and assumption of a KES cash collateralized equity funding commitment totaling $247 million with accompanying costs of sale totaling $34.3 million yielding a gain of $212.7 million. The consideration received for the EcoElectrica Project Interest was determined from an auction solicitation for such interest conducted by KES's and the Company's financial advisor. Page 10 Construction services revenues (recorded under the percentage-of-completion method) decreased to $3.4 million for 1998 from $36.0 million for 1997 because the Company's construction subsidiary has completed its construction projects, has no employees and is in the process of disposing of its remaining assets and liabilities. Maintenance, management fees and other decreased to $1.0 million in 1998 from $1.8 in 1997 because on June 30, 1998, KENETECH Facilities Management, Inc.'s ("KFM"), a wholly-owned subsidiary of the Company which performed operations and maintenance of thermal power plants, sole remaining contract with a third party expired and was not renewed by the owner of the power plant. Additionally, in conjunction with the sale of the Hartford Hospital Project, the operations and maintenance contract held by KFM was terminated. As a result, KFM has no further business activity or employees. Energy sales revenue decreased to $500 thousand in 1998 compared to $3.2 million in 1997 because in June and July of 1997 the Hartford Hospital Project experienced, through force majeure events, catastrophic failures of both its turbines. The cost of repairing the individual units was prohibitive and there were no lease engines available. The Company assembled one turbine, which operated sporadically, from the serviceable parts of the two failed turbines. The Company sold the Hartford Hospital Project in June 1998 (see discussion at Note 6 and Gain on disposition of subsidiaries and assets). Comparatively, the Company experienced an excess of expenses over revenues of $1.0 million in 1998 compared to $5.2 million in 1997 because the Company owned the Hartford Hospital Project for only six months in 1998 and an additional expense of approximately $3.0 million incurred in 1997 related to the write-off of the two failed turbines. Project development and marketing expenses decreased to $700 thousand for 1998 from $2.2 million for 1997 because a large portion of the Company's sales and marketing efforts in 1998 were associated with the sale of the EcoElectrica Project Interest and are recorded as costs of such sale. General and administrative expenses decreased to $3.5 million for 1998 from $13.8 million for 1997 due to continued downsizing of the Company and cost saving measures. Interest expense increased to $17.5 million for 1998 from $16.3 million for 1997 due to larger interest bearing balances outstanding during 1998 (primarily the accrued interest on the Senior Secured Notes). Gain on disposition of subsidiaries and assets. In June 1998 the Company sold the Hartford Hospital Project, including the rights under the Termination Agreement (see Note 6) and incurred no gain or loss on this transaction. The gain was generated by the receipt of a receivable, previously reserved for, and the sale of other miscellaneous assets. KWI settlement expense of $6.5 million represents the amount paid to KWI under the KWI Settlement Agreement and Release (see Note 3). Page 11 Income taxes: The Company uses the asset and liability approach for financial accounting and reporting for income taxes. The Company recorded no net tax benefit for 1997 because of the uncertainty about the Company's ability to utilize such a benefit. See Notes 4 and 17 to the financial statements. 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 .................... 3.2 8.4 (5.2) 14.4 13.8 0.6 Maintenance, management fees and other ................. 1.8 0.5 1.3 16.3 18.1 (1.8) Windplant sales ................. -- -- -- 8.1 5.0 3.1 Interest on partnership notes and funds in escrow ........... -- -- -- 1.1 -- 1.1 Energy management services ...... -- -- -- 1.0 0.2 0.8 -------- ------- ------ -------- ------- ------- Total ............................ $ 41.0 $ 45.0 $ (4.0) $ 91.9 $ 83.7 $ 8.2 ======= ======= ====== ======== ======= =======
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. The ability to secure new construction work was impeded by the declaration of bankruptcy by the Company's windpower subsidiary. 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. Energy sales decreased to $3.2 million in 1997 from $14.4 million in 1996 and resulted in an excess of revenues over expenses of $5.2 million in 1997 compared to a gross margin of $600 thousand in 1996 because of: (i) the deconsolidation of KWI in May of 1996. (ii) the catastrophic failures, through force majeure events, of both turbines at the Hartford Hospital Project in June and July of 1997. The cost of repairing the individual units was prohibitive and there were no lease engines available. An expense of approximately $3.0 million was recorded for the costs of energy sales to write-off these two turbines. The Company assembled one turbine, which operated sporadically, from the serviceable parts of the two failed turbines. Maintenance, management fees and other decreased to $1.8 million in 1997 from $16.3 million in 1996 due to the deconsolidation of KWI and sale of the wood-fuel business. An excess of expenses over revenues was incurred in 1996 due to KWI's deconsolidation in May. 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 because this operation was sold in the second quarter of 1996. Page 12 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 EcoElectrica 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 EcoElectrica Project. Gain (loss) on disposition of subsidiaries and 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 EcoElectrica 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. LIQUIDITY AND CAPITAL RESOURCES 1998 Activities --------------- At December 31, 1998 the Company had working capital of $31.4 million compared to a working capital deficit of $116.5 million at December 31, 1997. This transformation is primarily the result of the sale of the EcoElectrica Project Interest for $247.0 million in December 1998. Transaction costs, the Senior Secured Notes and accrued interest thereon, the EcoElectrica Project Development Loan, and the KWI settlement expense were paid in full in 1998 which left $56.5 million in cash. The $3.6 million difference between this and the $60.1 million increase in cash and equivalents shown on the statement of cash flows represents the net cash activity of the Company's other 1998 activities. Status ------ As of March 31, 1999, the Company has completed its activities to raise funds for working capital purposes, has disposed of substantially all its operating assets and has repaid substantially all of its indebtedness for borrowed money. The Company currently has substantial cash balances, may have substantial net operating income tax losses to carry forward to future years and is managing significant litigation (see Item 3). Management is currently charting the future direction of the Company. It is likely that the Company's future business will be in the energy or real estate industries. The Company has retained professionals to assist it in the identification and evaluation of its business activities. Page 13 Effects of Year 2000 -------------------- The Company recently upgraded its accounting system to be Year 2000 compliant. The Company's historical tax and accounting systems are not Year 2000 compliant and the cost to convert the current system to be Year 2000 compliant is expected to exceed one million dollars. The Company will require such historical data for purposes of a federal or state income tax audit. Prior to the end of 1999, the Company will either undertake such a conversion of its historical accounting and tax data or will make such other accommodation to properly effect any audit required. The Company has not assessed and cannot predict to what extent its results of operations, financial condition or business may be adversely affected if third parties with whom the Company has a material relationship are not compliant. Page 14 Item 8. Financial Statements and Supplementary Data. - ---------------------------------------------------- KENETECH Corporation Consolidated Financial Statements Page ---- Independent Auditors' Report 16 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996 17 Consolidated Balance Sheets, December 31, 1998 and 1997 18 Consolidated Statements of Stockholders' Deficiency for the years ended December 31, 1998, 1997 and 1996 19 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 20 Notes to Consolidated Financial Statements 21 - 34 Page 15 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, 1998 and 1997 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, 1998. Our audits also included the financial statement schedule for 1998, 1997 and 1996 of KENETECH Corporation listed in the Index at Item 14(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of KENETECH Corporation and subsidiaries at December 31, 1998 and 1997 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents in all material respects the information set forth therein. KPMG LLP San Francisco, California March 23, 1999 Page 16 KENETECH CORPORATION -------------------- CONSOLIDATED STATEMENTS OF OPERATIONS for the years ended December 31, 1998, 1997 and 1996 (in thousands, except per share amounts)
1998 1997 1996 ---------- ---------- ---------- Revenues: Sale of EcoElectrica Interest........................$ 247,000 -- -- Construction services................................ 3,413 35,994 50,958 Maintenance, management fees and other............... 1,036 1,829 16,219 Energy sales......................................... 472 3,170 14,434 Windplant sales...................................... -- -- 8,107 Interest on partnership notes and funds in escrow.... -- -- 1,125 Energy management services........................... -- -- 1,047 ---------- ---------- ---------- Total revenues..................................... 251,921 40,993 91,890 Costs of revenues: Sale of EcoElectrica Interest........................ 34,254 -- -- Construction services................................ 2,543 36,105 46,557 Energy plant operations.............................. 2,218 8,895 31,886 Windplant sales...................................... -- -- 5,012 Energy management services........................... -- -- 250 ---------- ---------- ---------- Total costs of revenues............................ 39,015 45,000 83,705 Gross margin (Excess of expenses over revenues)......... 212,906 (4,007) 8,185 Project development and marketing expenses.............. 700 2,230 7,072 Engineering expenses.................................... -- -- 4,206 General and administrative expenses..................... 3,478 13,804 29,281 ---------- ---------- ---------- Income (loss) from operations........................... 208,728 (20,041) (32,374) Interest income......................................... 694 988 1,176 Interest expense........................................ (17,524) (16,291) (19,620) Equity (loss) income of unconsolidated affiliates....... (82) 66 (409) Gain (loss) on disposition of subsidiaries and assets... 170 10,036 (9,623) KWI settlement expense.................................. (6,500) -- -- ---------- ---------- ---------- Income (loss) before taxes.............................. 185,486 (25,242) (60,850) Income tax provision.................................... 53,914 -- 23,391 ---------- ---------- ---------- Net income (loss)................................$ 131,572 $ (25,242) $ (84,241) ========== ========== ========== Net income (loss) per common share: Basic and Diluted............................ $ 3.20 $ (0.92) $ (2.52) Weighted average number of common shares used in computing per share amounts: Basic and Diluted.......................... 40,073 36,830 36,781
The accompanying notes are an integral part of these consolidated financial statements. Page 17 KENETECH CORPORATION -------------------- CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997 (in thousands, except share amounts) ASSETS
1998 1997 ---------- ---------- Current assets: Cash and cash equivalents..................................$ 67,424 $ 7,294 Funds in escrow, net....................................... 478 1,997 Accounts receivable, net................................... 1,079 4,669 Inventories................................................ -- 135 Hartford Hospital Project.................................. -- 15,642 Investment in EcoElectrica Project, net.................... -- 19,830 Investment in Chateaugay Project........................... 15,480 16,128 Deferred tax assets, net................................... -- 17,913 Other...................................................... -- 3,026 ---------- ---------- Total current assets.................................... 84,461 86,634 Property, plant and equipment, net........................... 24 3,252 Other assets................................................. -- 700 ---------- ---------- Total assets..........................................$ 84,485 $ 90,586 ========== ========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Accounts payable...........................................$ 4,002 $ 12,579 Accrued and other liabilities.............................. 8,871 14,175 Current taxes payable...................................... 2,100 -- Hartford Hospital Project debt............................. -- 7,689 EcoElectrica Project development loan payable.............. -- 24,236 Chateaugay Project debt.................................... 15,620 16,128 Other notes payable........................................ 1,071 1,189 Senior secured notes payable............................... -- 99,139 Accrued interest on senior secured notes payable........... -- 28,044 Accrued dividends on preferred stock....................... 21,408 -- ---------- ---------- Total current liabilities............................... 53,072 203,179 Accrued liabilities.......................................... 893 916 Deferred benefit for deconsolidated subsidiary losses........ 33,900 -- Accrued dividends on preferred stock......................... -- 18,196 ---------- ---------- Total liabilities....................................... 87,865 222,291 Stockholders' deficiency: Convertible preferred stock - 10,000,000 shares authorized, $.01 par value; converted to common stock May 14, 1998......................................... -- 99,561 Common stock - 110,000,000 shares authorized, $.0001 par value; issued and outstanding 41,954,218 in 1998 and 36,829,618 in 1997.................. 4 4 Additional paid-in capital................................... 224,007 127,658 Accumulated other comprehensive income....................... -- 35 Accumulated deficit.......................................... (227,391) (358,963) ---------- ---------- Total stockholders' deficiency.......................... (3,380) (131,705) ---------- ---------- Total liabilities and stockholders' deficiency..........................................$ 84,485 $ 90,586 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
Page 18 KENETECH CORPORATION -------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY for the years ended December 31, 1998, 1997 and 1996 (in thousands, except share amounts)
Effect of Accumulated Convertible Common Stock Additional Cumulative Other Preferred Stock Paid-in Unearned Comprehensive (Accumulated Shares Amount Shares Amount Capital Compensation Income Deficit) Total ------- ------- ---------- ------ ---------- ------------- -------- ------------ --------- 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) Mandatory preferred stock conversion (102,492) (99,561) 5,124,600 -- 99,561 -- -- -- -- Preferred stock dividends -- -- -- -- (3,212) -- -- -- (3,212) Net income -- -- -- -- -- -- -- 131,572 131,572 Foreign exchange -- -- -- -- -- -- (35) -- (35) ------- ------- ---------- ------ ---------- ------------- -------- ------------ --------- Balance, December 31, 1998 -- $ -- 41,954,218 $ 4 $ 224,007 $ -- $ -- $ (227,391) $ (3,380) ======= ======= ========== ====== ========== ============= ======== ============ ========= The accompanying notes are an integral part of these consolidated financial statements.
Page 19 KENETECH CORPORATION -------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended December 31, 1998, 1997 and 1996 (in thousands)
1998 1997 1996 ---------- ---------- ---------- Cash flows from operating activities: Net income (loss)........................................$ 131,572 $ (25,242) $ (84,241) Adjustments to reconcile net loss to net cash used in operating activities: (Gain) on sale of EcoElectrica Project Interest......... (212,746) -- -- (Gain) loss on disposition of subsidiaries and assets... (170) (10,036) 9,623 Accrued and unpaid interest............................. -- 15,517 -- Depreciation, amortization and other, net............... 5,292 8,406 3,117 Deferred taxes.......................................... 51,814 -- 23,391 Change in assets and liabilities excluding special charges: Funds in escrow, net................................... 1,519 3,224 2,382 Accounts receivable.................................... 3,213 9,171 16,688 Partnership notes and interest receivable, net......... -- -- 290 Inventories............................................ -- -- 2,468 Other assets........................................... -- 4,204 (56) Accrued warranties..................................... -- -- (1,394) Accounts payable and other accrued liabilities......... (8,339) (16,366) 3,009 Accrued interest....................................... (28,044) -- -- ---------- ---------- ---------- Net cash used in operating activities...................... (55,889) (11,122) (24,723) Cash flows from investing activities: Sales of marketable securities........................... -- -- 3,536 Purchases of marketable securities....................... -- -- (3,536) Additions to property, plant and equipment............... -- -- (390) Proceeds from sale of subsidiaries and assets............ 7,901 20,877 13,471 Proceeds from sale of EcoElectrica Project Interest...... 233,575 -- -- Expenditures on EcoElectrica Project..................... (998) (10,896) (4,036) Investment in affiliates - Contributions................. -- -- (1,814) Investment in affiliates - Distributions................. -- 14 605 ---------- ---------- ---------- Net cash provided by investing activities................ 240,478 9,995 7,836 Cash flows from financing activities: Repayment of senior secured notes........................ (100,000) -- -- Proceeds from other notes payable........................ -- 503 7,780 Payments on other notes payable.......................... (118) (11,790) (6,791) Proceeds from Hartford Hospital Project debt............. 3,011 -- -- Proceeds from EcoElectrica Project loan.................. -- 2,500 21,030 Repayment of EcoElectrica Project loan................... (27,352) -- -- Bank loan repayments, net................................ -- -- (5,000) Proceeds from issuance of common stock, net.............. -- -- 234 ---------- ---------- ---------- Net cash provided by (used in) financing activities........ (124,459) (8,787) 17,253 ---------- ---------- ---------- Increase (Decrease) in cash and cash equivalents........... 60,130 (9,914) 366 Cash and cash equivalents at beginning of year........... 7,294 17,208 16,842 ---------- ---------- ---------- Cash and cash equivalents at end of year.................$ 67,424 $ 7,294 $ 17,208 ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
Page 20 KENETECH CORPORATION ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 1. ORGANIZATION AND BASIS OF PRESENTATION These financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On May 29, 1996, the Company's windpower subsidiary, KENETECH Windpower, Inc. ("KWI"), filed for protection under chapter 11 of the Federal Bankruptcy Code and reported an excess of liabilities over its assets. On January 27, 1999, KWI's Plan of Reorganization was confirmed by the Bankruptcy Court. The Plan is expected to become effective by April 27, 1999 if certain conditions set forth therein are satisfied. Although KENETECH continues to own the common stock of KWI and provides certain services under the jurisdiction of the Bankruptcy Court, the Company believes that it will not realize any value from its remaining interests in KWI other than certain tax attributes. 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. Revenues and expenses of KWI from January 1, 1996 through May 29, 1996 are reflected in consolidated statements of operations and cash flows. 2. SIGNIFICANT ACCOUNTING POLICIES 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. Sales of projects are recognized at closing and proceeds from the sale are received. Maintenance and management fees are recognized as earned under various long-term agreements to operate and maintain energy plants. 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. 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. Page 21 KENETECH CORPORATION ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 Depreciation: Depreciation is recorded on a straight-line basis over the estimated useful life of the asset. Interest Expense: Interest is capitalized on independent power plant projects under development or construction and self-constructed assets and totaled $2,829,000 in 1998, $2,636,000 in 1997, and $587,000 in 1996. 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. Other Assets: Other assets include debt issuance costs of $2,252,000 at December 31, 1998 which were expensed during 1998 since the related debt was repaid. In 1997 and 1996 such debt issuance costs were amortized on a straight-line basis over the term of the related debt. Such amortization expense was $1,582,000 in 1997 and $1,176,000 in 1996. Cash Flow Information: Short-term investments purchased with original maturities of three months or less are considered cash equivalents. Cash paid for interest (net of amounts capitalized) was $44,013,000 in 1998 and $1,052,000 in 1997 and $4,683,000 in 1996. Comprehensive Income: The Company has adopted Financial Standards Board SFAS No. 130, "Reporting Comprehensive Income," as of January 1, 1998. SFAS No. 130 requires all items that are required to be recognized under accounting standards as components of comprehensive income to be reported in a financial statement that is displayed with the same prominence as other financial statements. Foreign currency translation adjustments are the Company's only components of comprehensive income. 3. KWI SETTLEMENT EXPENSE On May 29, 1996, KWI filed a voluntary petition in the United States Bankruptcy Court for the Northern District of California (Oakland Division) under chapter 11 of the Bankruptcy Code. KWI's management attributed its filing to continuing losses and lack of operating capital. The Bankruptcy Petition filed by KWI stated that as of March 30, 1996 (the latest available information prior to the filing), KWI had liabilities, as defined by bankruptcy filing procedures which include certain commitments, claims and other liabilities not recognized under generally accepted accounting principles, significantly in excess of assets. Neither KWI nor the Company had been able to complete the sale of certain assets or subsidiaries on a basis to provide additional capital for KWI's ongoing operations and KWI believed that it would be unable to meet, among other things, its existing maintenance and warranty obligations under contracts undertaken in connection with the sale of its wind turbines. The filing of the chapter 11 case by KWI resulted in an event of default occurring under the Company's 12-3/4% Senior Secured Notes Due 2002 (the "Notes") in the principal amount of $100 million. The Notes, and all accrued interest thereon, were satisfied and discharged in full on December 23, 1998. The filing also materially adversely affected the Company's construction subsidiary's ability to procure new business. Page 22 KENETECH CORPORATION ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 Since the filing of the chapter 11 case, KWI has sold certain development assets, operating assets, technology rights and other assets under the supervision of the Bankruptcy Court. A Settlement Agreement and Release ("Release") was entered into as of May 13, 1998, and approved by the Bankruptcy Court on May 26, 1998, by and among KWI, the Official Committee of Unsecured Creditors appointed in KWI's chapter 11 case (the "Official Committee"), KENETECH, KENETECH Energy Systems, Inc., a wholly-owned subsidiary of KENETECH ("KES"), CNF Industries, Inc., a wholly owned subsidiary of KENETECH, CNF Constructors, Inc., a wholly-owned subsidiary of CNF Industries, Inc. (collectively with CNF Industries, Inc. ("CNF")), and The Bank of New York, in its capacity as successor Indenture Trustee for the Notes (the "Trustee"). In the Release, CNF, KENETECH and the Trustee released, subordinated, or contributed to capital the claims filed by them against KWI in the KWI bankruptcy proceedings. KWI released KENETECH, KES and the Trustee from all claims against those entities filed by KWI, including those for preferential payments prior to the filing of the bankruptcy petition, alter ego claims, and any claim for substantive consolidation. Under the terms of the Release, KES and KENETECH have paid KWI $6.5 million from the proceeds of the sale of the EcoElectrica Project Interest (see Item 7, Results of Operations and Item 8, Note 5). KWI will continue to be a member of the Company's consolidated group for income tax purposes. A first Amended Plan of Reorganization jointly filed with the Bankruptcy Court by KWI and the Official Committee was confirmed on January 27, 1999. The Plan is expected to become effective by April 27, 1999 if certain conditions set forth therein are satisfied. Although KENETECH continues to own the common stock of KWI and provides certain services under the jurisdiction of the Bankruptcy Court, the Company believes that it will not realize any value from its remaining interests in KWI other than certain tax attributes. 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 will not realize any value from its remaining interests in KWI other than certain tax attributes. 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 year 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. KWI's 1996 operations through May 29, 1996 (a loss of approximately $14 million) are reflected in the accompanying consolidated financial statements. Page 23 KENETECH CORPORATION ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 The deferred benefit of $33,900,000 at December 31, 1998 consists of various tax benefits from the Company's deconsolidated subsidiary (KWI). These benefits have been deferred for financial statement purposes until the availability of such benefits have been confirmed under various provisions of the Internal Revenue and Bankruptcy codes. 5. SALE OF ECOELECTRICA PROJECT INTEREST On December 23, 1998, KES sold its indirectly owned 50% equity interest in a partnership that owns a gas-fired cogeneration facility of approximately 540 MW currently under construction in Penuelas, Puerto Rico (the "EcoElectrica Project") and other associated contract rights (collectively, the "EcoElectrica Project Interest") to Edison Mission Energy, an unrelated party. The EcoElectrica Project also includes a liquefied natural gas import terminal and storage facility, a desalination plant and assorted ancillary facilities. The sale was made pursuant to a Stock Purchase and Assignment Agreement, dated as of December 23, 1998, by and among KES and certain of its affiliates and Edison Mission Energy and one of its affiliates. The EcoElectrica Project Interest was sold for cash and assumption of a KES equity funding commitment in the approximate aggregate amount of $247 million. The consideration received for the EcoElectrica Interest was determined from an auction solicitation for such interest conducted by KES's and the Registrant's financial advisor. The proceeds have been used, in part, (i) to satisfy and discharge in full, in the amount of approximately $145.5 million, the Registrant's 12 3/4% Senior Secured Notes due 2002 after acceleration by the Trustee for such notes, on December 23, 1998, of the unpaid principal thereof in the face amount of $100 million, accrued and unpaid interest and fees and expenses, (ii) in payment in full of a development loan for the EcoElectrica Project in the approximate amount of $27 million, (iii) in payment of $6.5 million to KWI, and (iv) in payment of costs of sale of the EcoElectrica Interest of approximately $13 million. An additional payment of $5 million in cash, contingent on the successful conversion of the local tax status of EcoElectrica, L.P., may occur during the first six months of 1999. This amount has not been recognized in the accompanying financial statements. The Company realized a gain of $212.7 million on this transaction. 6. DISPOSITION OF SUBSIDIARIES AND ASSETS The Company indirectly owned a cogeneration plant located in Hartford, Connecticut (the "Hartford Hospital Project"). In May 1998 the Company and the utility with which the Company had an Electricity Purchase Agreement (the "EPA") completed a Termination Agreement providing for the termination of the EPA in exchange for a stream of monthly payments payable through December 1, 2000. In June 1998 the Company sold the Hartford Hospital Project, including the rights to the aforementioned monthly stream of payments, for $4,891,000 in cash (net) and assumption of the $10,700,000 note payable collateralized by the Hartford Hospital Project and approximately $350,000 of other liabilities. The Company realized no gain or loss on this transaction. See also Note 21. The gain shown on the income statement for 1998 was generated by receipt of a receivable previously reserved for and the sale of other miscellaneous assets. Page 24 KENETECH CORPORATION ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 7. INCOME (LOSS) PER SHARE Income (loss) per share amounts were calculated as follows for the years ended December 31, 1998, 1997, and 1996 (in thousands, except for per share amounts). Basic and Diluted --------------------------------- 1998 1997 1996 --------- --------- --------- Net income (loss) $ 131,572 $ (25,242) $ (84,241) Less preferred stock dividends (3,212) (8,563) (8,563) --------- --------- --------- Net income (loss) used in per share calculations $ 128,360 $ (33,805) $ (92,804) ========= ========= ========= Weighted average shares used in per share calculations 40,073 36,830 36,781 ========= ========= ========= Net income (loss) per share $ 3.20 $ (0.92) $ (2.52) ========= ========= ========= Common stock equivalents are not included in weighted average shares used in the per share calculations because they would be anti-dilutive. 8. RELATED PARTY TRANSACTIONS The Company had transactions with related parties in the ordinary course of business. Related parties consisted primarily of energy plant investments in which the Company owned partnership interests ranging from less than 1% to 50% with most such investments being 1% or less. 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: 1998 1997 1996 -------- -------- -------- (in thousands) Windplant sales $ -- $ -- $ 5,324 Maintenance, management fees and other 206 167 8,939 Interest on partnership notes and funds in escrow -- -- 1,125 -------- -------- -------- $ 206 $ 167 $ 15,388 ======== ======== ======== In addition, the Company has insignificant transactions with KWI relating to shared services. Page 25 KENETECH CORPORATION ---------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 9. FUNDS IN ESCROW The Company has funds in escrow collateralizing a letter of credit for an insurance contract. In 1997, the Company had various long-term debt agreements which had escrow fund requirements (see Note 14). Debt service payments were made from the escrow accounts. The escrow account balances at December 31, 1998 and 1997 were as follows: 1998 1997 ------ ------- (in thousands) Other notes payable $ -- $ 345 Letter of credit collateral 478 -- Project collateral -- 1,652 ------ ------- $ 478 $ 1,997 ====== ======= 10. ACCOUNTS RECEIVABLE Accounts Receivable: Accounts receivable at December 31, 1998 and 1997 consisted of: 1998 1997 -------- -------- (in thousands) Contracts - Billed: Completed contracts $ 1,905 $ 1,342 Contracts in progress -- 529 Retained -- 1,614 Contracts - Unbilled -- 2,175 Operations and other -- 554 Less: Allowance for doubtful collections (826) (1,546) -------- -------- $ 1,079 $ 4,668 ======== ======== 11. INVESTMENT IN CHATEAUGAY PROJECT AND CHATEAUGAY PROJECT DEBT As of December 31, 1998, the Company, through KES, owned a 50% indirect interest in a partnership (the "Chateaugay Partnership"), which owned a 17.8 MW wood-fired electric generating station developed and constructed by the Company in Chateaugay, New York (the "Chateaugay Project"). The remaining 50% equity interest was owned by affiliates of CMS Generation Company. The Chateaugay Project delivered electric energy to New York State Electric & Gas Corporation under a long-term power purchase agreement. Debt associated with the Chateaugay Project consisted primarily of tax-exempt bonds. In July 1991, the Chateaugay Partnership entered into an agreement with the County of Franklin (New York) Industrial Development Authority (the "Authority") whereby the Authority loaned the Chateaugay Partnership the proceeds of the Authority's Series 1991A Bonds issued in the principal amount of $34,800,000 to finance the construction of the Chateaugay Project. In October 1998, the Chateaugay Partnership and the Authority signed a Cooperation and Termination Agreement with respect to the proposed termination of the power purchase agreement, the payment or defeasance of the Series 1991A Bonds, and the disposition of the Chateaugay Project. In 1997, the carrying value of this investment was written down to its then existing balance of the associated debt. The Chateaugay Project was sold in March, 1999 (see Note 21). Page 26 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 12. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 1998 and 1997 consisted of: 1998 1997 -------- -------- (in thousands) Land $ -- $ 580 Buildings and improvements -- 3,235 Machinery, equipment and other 729 2,607 -------- -------- 729 6,422 Less accumulated depreciation 705 3,170 -------- -------- $ 24 $ 3,252 ======== ======== Depreciation expense was $894,000 in 1998, $1,481,000 in 1997, and $6,814,000 in 1996. 13. BANK LOAN PAYABLE On August 30, 1996, the Company entered into a $30,000,000 loan agreement to be used for the EcoElectrica Project. Throughout 1996 and most of 1997, amounts borrowed under this agreement bore interest at the 90 day LIBOR plus 7.5%. This rate was reduced to the 90 day LIBOR plus 5.9% upon the project receiving construction financing in December 1997. The loan was paid in full in December 1998. 14. OTHER NOTES PAYABLE Other notes payable at December 31, 1998 and 1997 consisted of the following:
1998 1997 -------- -------- (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 Borrowings under a $1,200,000 loan agreement, due in 1999 bearing interest at prime plus 3% (10.75% at December 31, 1998).(1) 1,060(1) 1,144 Note bearing interest at 7.0% due in 1999. 6 6 Other obligations bearing interest at 9.9% due in 1999, collateralized by equipment. 5 39 -------- -------- $ 1,071 $ 8,878 ======== ========
(1) Repaid in full in March 1999. Page 27 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 15. SENIOR SECURED NOTES PAYABLE In December 1992 the Company sold $100,000,000 of 12-3/4% Senior Secured Notes due 2002. The notes were sold at a discount of $1,389,000. Such discount was amortized on the effective yield method through 2002. Interest on these notes was due June 15 and December 15 of each year. The Notes were redeemable, at the option of the Company, beginning December 15, 1998 at 103% of par, and beginning December 15, 1999 at par. Under the terms of the note indenture, the Company was restricted from paying cash dividends on its common stock and was required to comply with certain covenants, the most restrictive of which placed limitations on payment of such dividends, repurchasing common stock, incurring additional indebtedness, pledging of assets and advances or loans to affiliates. The indenture provided for an event of default (including the acceleration of the repayment of the Notes) should other debt of the Company be accelerated because such other debt was in default. The Company did not pay the interest due June 15 and December 15, 1998, June 15 and December 15, 1997 or June 15 and December 15, 1996 and was in default. At December 31, 1997 the debt was classified as a current liability. The Trustee accelerated the obligation to repay the principal under the notes on December 23, 1998 and the Notes were satisfied and discharged in full, including principal, accrued and unpaid interest and fees and expenses, on such date. 16. 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 were cumulative from the date of original issuance and payable quarterly in arrears, when and as declared by the Company's board of directors. The voluntary and involuntary liquidation value of each preferred share was equal to the stated value plus unpaid dividends. Preferred stockholders had the same voting rights as common stockholders at the rate of 40 votes per preferred share. On May 14, 1998, each preferred share mandatorily converted into 50 shares of common stock and the right to receive cash equal to all accrued and unpaid dividends out of funds legally available therefor. The Company has recorded a liability as of December 31, 1998 and 1997 for unpaid dividends of $21,384,000 and $18,196,000 respectively. 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, 1998 totaled approximately 5,000,000 shares in addition to options for 1,437,300 shares granted and outstanding at December 31, 1998. Page 28 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 Stock option activity during 1998, 1997 and 1996 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 or expired (487,700) 0.81 - 19.75 --------- Outstanding December 31, 1997 2,019,300 0.81 - 19.75 Canceled or expired (582,000) 0.81 - 19.75 --------- Outstanding December 31, 1998 1,437,300 0.81 - 19.75 ========= The weighted average exercise price of outstanding options at December 31, 1998 was $3.99. Stock options vest as follows: Exercise Shares Price --------- ---------------- Currently exercisable 387,100 2.40 - 19.75 1999 25,200 12.81 - 16.50 2000 25,000 16.50 2001 - 2002 1,000,000 0.81 --------- 1,437,300 ========= 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 income for 1996 had stock-based compensation been recognized as expense under the provisions of SFAS No. 123 would not be material. No options were granted in 1997 or 1998. 17. INCOME TAXES The provision for income taxes consists of the following: 1998 1997 1996 ------- -------- -------- (in thousands) Current: Federal $ 1,200 $ -- $ 54 State 100 -- 150 Foreign 800 -- 100 -------- -------- -------- 2,100 -- 304 -------- -------- -------- Deferred: Federal 44,042 -- 20,201 State 7,772 -- 2,886 -------- -------- -------- 51,814 -- 23,087 -------- -------- -------- Total income tax provision $ 53,914 $ -- $ 23,391 ======== ======== ======== Page 29 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 A reconciliation of the total income tax provision to income taxes calculated at the federal statutory tax rate of 35% is as follows: 1998 1997 1996 -------- -------- --------- (in thousands) Income (loss) before income taxes $185,486 $(25,242) $ (61,568) ======== ========= ========= Statutory federal income tax provision (benefit) $ 64,920 $ (8,835) $ (21,549) State income taxes, less federal tax provision (benefit) 9,274 (1,262) (2,928) Change in valuation allowance due to current operations -- 10,097 24,627 Benefit of deconsolidated subsidiary losses (18,695) -- -- Reduction of net deferred tax asset attributable to deconsolidation of KWI -- -- 23,087 Reversal of prior year valuation allowance (1,625) -- -- Other 40 -- 154 -------- -------- --------- Total income tax provision $ 53,914 $ -- $ 23,391 ======== ======== ========= As of December 31, 1998 and 1997, the deferred tax balances consisted of the following: 1998 1997 -------- -------- (in thousands) Current assets $ -- $ 4,340 -------- -------- 4,340 Current liabilities -- (40) -------- -------- Current deferred tax assets, net $ -- $ 4,300 ======== ======== Noncurrent assets: Federal and state net operating loss and tax credit carryforwards $ 19,666 $ 37,052 Gain on sale of fixed assets and investment interests -- 3,461 Project development costs 2,775 5,855 Other -- 800 -------- -------- 22,441 47,168 Valuation allowance (21,941) (23,566) -------- -------- 500 23,602 Noncurrent liabilities: Depreciation and basis differences -- (4,742) Other (500) (5,247) -------- -------- (500) (9,989) -------- -------- Noncurrent deferred tax assets (liability), net $ -- $ 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. In 1998, the Company realized gains from the sale of the Puerto Rico project, resulting in the utilization of tax losses for which a valuation allowance had been provided and certain tax losses of KWI (see Note 4). Page 30 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 The following table summarizes carryforwards (including KWI which is not consolidated) available for income tax purposes at December 31, 1998 (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 (subject 43,799 2011 to limitation) Net operating loss - federal (not 40,397 2012 subject to current limitation) Net operating losses of acquired subsidiaries subject to restrictions 2,202 2001 through 2005 Production Tax Credit 2,561 2009 through 2011 18. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount and estimated fair values of the Company's financial instruments at December 31, 1998 and 1997 were as follows: 1998 1997 ------------------- ------------------- Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Value -------- --------- -------- --------- (in thousands) Assets: Cash and cash equivalents $ 67,424 $ 67,424 $ 7,294 $ 7,294 Funds in escrow 478 478 1,997 1,997 Accounts receivable 1,079 1,079 4,669 4,669 Liabilities: Chateaugay Project Debt 15,620 15,620 16,128 -- Senior secured notes payable -- -- 99,139 -- Other notes payable 1,071 1,071 8,878 -- 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. Chateaugay Project Debt, Senior secured notes payable, and Other notes payable: For 1998 the carrying amount is a reasonable estimate of fair value. For 1997, the fair value is undeterminable. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1998 and 1997. 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 31 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 19. COMMITMENTS AND CONTINGENCIES Preferred Stock Litigation: On May 6, 1998, Quadrangle Offshore (Cayman) LLC, and Cerberus Partners, L.P. ("Plaintiffs"), filed a Verified Complaint for Declaratory Judgment and Injunctive Relief, in the Court of Chancery of the State of Delaware In and For New Castle County (Civil Action No. 16362-NC). Plaintiffs allege that they were beneficial owners of Preferred Redeemable Increased Dividend Equity Securities, 8-1/4% PRIDES, Convertible Preferred Stock, par value $0.01 per share (the "Preferred Stock") of the Company, that mandatorily converted, on May 14, 1998, into Common Stock, par value $0.0001 per share ("Common Stock") of the Company. Plaintiffs filed an amended complaint on July 7, 1998. Generally, the amended complaint alleges that the Company is currently in liquidation and was in liquidation prior to May 14, 1998, that the plaintiffs are entitled to receive the liquidation preference of $1,012.50 per share set forth in the Company's Certificate of Designations, Preferences, Rights and Limitations of Preferred Redeemable Increased Dividend Equity Securities, 8-1/4% PRIDES, Convertible Preferred Stock (the "Certificate of Designations") in any distribution of assets the Company may make notwithstanding that the Preferred Stock mandatorily converted and ceased to be outstanding on May 14, 1998, and that the Company breached an implied covenant of good faith and fair dealing under the Certificate of Designations. Plaintiffs are seeking, among other things, (i) a declaration that they are entitled to receive the liquidation preference in any distribution of assets before any distribution is made to holders of Common Stock and that the mandatory conversion of the Preferred Stock does not operate to eliminate their right to receive the liquidation preference, (ii) related injunctive relief, and (iii) other unspecified damages. The Court of Chancery entered a Temporary Restraining Order in the action on December 28, 1998 that restrains the Company from making payments from the proceeds of the sale of the EcoElectrica Project Interest (see Item 7, Results of Operations and Item 8, Note 5) in satisfaction of any obligations not previously disclosed in the Company's 10-K or 10-Q or their attached exhibits (except to the extent necessary for ordinary, customary and reasonable expenses) without first providing five business days advance notice to Plaintiffs. A bench trial in the action was held February 16-19, 1999 before the Court of Chancery and a ruling on the merits is expected in the third quarter of 1999. Shareholders' Class Action: On September 28, 1995, a class action complaint was filed against the Company and certain of its officers and directors (namely, Stanley Charren, Maurice E. Miller, Joel M. Canino and Gerald R. Alderson), in the United States District Court for the Northern District of California, alleging federal securities laws violations. On November 2, 1995, a First Amended Complaint was filed naming additional defendants, including underwriters of the Company's securities and certain other officers and directors of the Company (namely, Charles Christenson, Angus M. Duthie, Steven N. Hutchinson, Howard W. Pifer III and Mervin E. Werth). Subsequent to the Court's partial grant of the Company's and the underwriter defendants' motions to dismiss, a Second Amended Complaint was filed on March 29, 1996. The amended complaint alleges claims under sections 11 and 15 of the Securities Act of 1933, and sections 10(b) and 20(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, based on alleged misrepresentations and omissions in the Company's public statements, on behalf of a class consisting of persons who purchased the Company's Common Stock during the period from September 21, 1993 (the date of the Company's initial public offering) through August 8, 1995 and persons who purchased the Company's Preferred Stock (depository shares) 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. The Court has certified a plaintiff class consisting of all persons or entities who purchased Common Stock between September 21, 1993 and August 8, 1995 or depositary shares between April 28, 1994 and August 8, 1995, appointed representatives of the certified plaintiff class, appointed counsel for the certified class and certified a plaintiff and defendant underwriter class as to the section 11 claim. Page 32 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 There have been two unsuccessful attempts at mediation to settle the action and one unsuccessful settlement conference. Defendants' motion for summary judgement is pending and no trial date has been set. Lease Litigation: On October 1, 1998, Mellon US Leasing filed suit in San Francisco County Superior Court against the Company. The complaint alleges that the Company has breached an equipment lease agreement and seeks damages of approximately $100,000 and other unspecified costs and relief. Insurance Litigation: On January 29, 1999, Travelers Insurance Company filed a complaint against KENETECH and CNF Industries, Inc. ("CNF") in the Superior Court, Judicial District of Hartford, Connecticut. The complaint alleges that the defendants failed to pay premiums and other charges for insurance coverage and services. Damages are alleged to be in excess of $1,118,246. Wrongful Termination Litigation: On December 31, 1987, a former employee of CN Flagg Power, Inc. ("CN Power") (formerly, a wholly-owned subsidiary of CNF), 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. CN Power's motion to dismiss the complaint has been denied by the Commission. Damages are alleged to be in the area of $300,000. Other: The Company is also a party to various other legal proceedings normally incident to its business activities. The Company intends to defend itself vigorously against these actions. It is not feasible to predict or determine whether the ultimate outcome of the above-described matters will have a material adverse effect on the Company's financial position. SETTLED LITIGATION Westinghouse Litigation: C. N. Flagg & Co, Incorporated ("C.N. Flagg"), a wholly-owned subsidiary of CNF, instituted legal proceedings against, among others, Westinghouse Electric Corporation ("Westinghouse") in March, 1997, in the U.S. Federal District Court in Minnesota (No. 97-617 JRT/RLE) to recover compensation for a termination of convenience of a project C. N. Flagg was building on behalf of Westinghouse. The parties have agreed to a settlement in the action whereby C.N. Flagg will receive approximately $500 thousand from Westinghouse after payment of outstanding counter claims, liens and amounts to subcontractors and suppliers to the project. NTS Litigation: On May 6, 1998, National Technical Services, Inc. ("NTS") filed a complaint in the Superior Court of California, County of Sacramento, against CNF Constructors, Inc., among others, alleging breach of contract related to labor and materials provided by NTS in connection with a power plant being constructed by CNF Constructors, Inc. for the Sacramento Power Authority. The parties have settled the action in exchange for the payment of $457,000 to NTS and a dismissal with prejudice has been filed. Effects of Year 2000 -------------------- The Company recently upgraded its accounting system to be Year 2000 compliant. The Company's historical tax and accounting systems are not Year 2000 compliant and the cost to convert the current system to be Year 2000 compliant is expected to exceed one million dollars. The Company will require such historical data for purposes of a federal or state income tax audit. Prior to the end of 1999, the Company will either undertake such a conversion of its historical accounting and tax data or will make such other accommodation to properly effect any audit required. The Company has not assessed and cannot predict to what extent its results of operations, financial condition or business may be adversely affected if third parties with whom the Company has a material relationship are not compliant. Page 33 KENETECH CORPORATION ------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the years ended December 31, 1998, 1997 and 1996 20. QUARTERLY INFORMATION (UNAUDITED) Unaudited quarterly information for 1998 and 1997 was as follows (in thousands, except per share amounts): Year Ended December 31, 1998 - Quarters First Second Third Fourth ------- -------- ------- -------- Total revenues $ 3,487 $ 1,352 $ 16 $247,066 Gross margin 53 25 16 212,812 Net income (loss) (4,765) (5,173) (5,787) 147,297 Per common share: Basic & Diluted - net income (loss) $ (0.19) $ (0.16) $ (0.14) $ 3.51 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 loss (9,906) (4,874) (10,250) (212) Per common share: Basic & Diluted - net loss $ (0.33) $ (0.19) $ (0.34) $ (0.06) 1998: In the fourth quarter the Company sold the EcoElectrica Project Interest for $247,000,000 yielding a gross margin of $212,746,000. 1997: In the fourth quarter the Company's construction subsidiary sold its joint venture interests in the EcoElectrica Project engineering, procurement and construction contracts for a net gain. In the third quarter the Company wrote off the two turbines which failed at the Hartford Hospital Project causing the excess of expenses over revenues to increase significantly. 21. SUBSEQUENT EVENTS On March 23, 1999, the Board of Directors of the Company determined, pursuant to the terms of the Certificate of Incorporation of the Company, to pay cash in an amount equal to all accrued and unpaid dividends on each share of Preferred Stock, to and including May 14, 1998 (the "Mandatory Conversion Date"), which results in a payment of $4.1775 per depositary share. The payment shall be made on or about April 14, 1999, to the persons in whose names depositary receipts evidencing the depositary shares were registered on the books of the Depositary, ChaseMellon Shareholder Services, L.L.C., on the Mandatory Conversion Date. The total payment by the Company is $21,408,016. On March 24, 1999, the Chateaugay Partnership entered into and consummated a number of agreements under which the Chateaugay Partnership (i) terminated the power purchase agreement, (ii) received a payment from an affiliate of Citizens Power LLC, a Delaware limited liability company, in connection with such termination, (iii) sold substantially all its rights in the Chateaugay Project to an affiliate of Boralex, Inc., a Quebec corporation, (iv) terminated its relationship with the Authority pursuant to the Termination Agreement, (v) satisfied in full all of its obligations with respect to the Series 1991A Bonds, and (vi) terminated certain agreements entered into in connection with the Chateaugay Project relating, among other matters, to the operation and administration of the Project. The Company has been released from the Chateaugay Project debt, the liabilities relating to Chateaugay Project included in other notes payable of $1,059,000 at December 31, 1998 have been paid in full, and the Company received net cash of approximately $2,394,000. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure -------------------- Not applicable. Page 34 PART III Item 10. Directors and Executive Officers of the Registrant - -------------------------------------------------------------- Directors and Executive Officers of the Company as of March 15, 1999, their ages and their present titles: Name Age Position ---- --- -------- Gerald R. Alderson 52 Director Charles Christenson 68 Director Angus M. Duthie 59 Chairman of the Board of Directors Mark D. Lerdal 40 Director, Chief Executive Officer and President Michael U. Alvarez (1) 42 Chief Financial Officer, Vice President and Assistant Secretary Aaron T. Samson (1) 39 Vice President (KENETECH Energy Systems, Inc.) Scott J. Taylor (1) 38 Vice President (KENETECH Energy Systems, Inc.) Dianne P. Urhausen 41 General Counsel, Vice President and Corporate Secretary Mervin E. Werth (1) 52 Controller, Chief Accounting Officer and Assistant Treasurer (1) Mr. Alvarez's employment agreement expired and Mr. Werth, Mr. Taylor and Mr. Samson entered into separation agreements with the Company effective March 31, 1999. 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. Wattmonitor is a publicly held company. 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, and as Chief Financial Officer since May 1998. 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. Page 35 AARON T. SAMSON has served as Vice President of KENETECH Energy Systems, Inc. since May 1995. Prior to that time, he served as Vice President, Project Development from 1991 to 1995 and as Manager, Project Development from 1988 to 1991. SCOTT J. TAYLOR has served as Vice President of KENETECH Energy Systems, Inc. since May 1995. Mr. Taylor joined KES in 1991 and served as Director, Project Finance from 1991 to 1993 and as Vice President, Project Finance from 1993 to 1995. He received his MBA from the University of Chicago Graduate School of Business and his B.S. from University of Illinois, Chicago. DIANNE P. URHAUSEN has served as Vice President, Corporate Secretary, and General Counsel of KENETECH since August 1998. She served as Administrative Counsel and Corporate Secretary from August 1995 to August 1998. Prior to that, she was an Associate at the law firm of Thelen, Marrin, Johnson & Bridges. She received her B.A. from St. Mary's College of California and her J.D. from the University of San Francisco. 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, and Michael U. Alvarez 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, 1998, all filing requirements applicable to its executive officers, directors and owners of more than ten percent of the Company's stock were complied with. Item 11. Executive Compensation - ---------------------------------- Each Director of the Company receives a quarterly retainer of $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 $500 for attending any meeting of such Committees not held in conjunction with a meeting of the Board of Directors (see also footnote 1 to Summary Compensation Table). Directors were also eligible to receive automatic stock option grants under the Automatic Option Grant Program of the Company. The Automatic Option Grant Program has been discontinued and the Directors have not received any automatic option grants since 1995. See "Stock Plans" below. The following table sets forth, for the fiscal years ended December 31, 1998, 1997 and 1996, all compensation, for services rendered in all capacities to the Company, awarded to, earned by or paid to (i) all individuals serving as Chief Executive Officer during 1998, and (ii) the four most highly compensated executive officers of the Company in addition to the Chief Executive Officer who were serving as executive officers at the end of 1998. Page 36
SUMMARY COMPENSATION TABLE ================================================================================================================ Long-Term Compensation All Other Compensation Annual Compensation Awards ($)(3)(4) ------------------------------------------- ------------ ---------------------- Securities Other Annual Underlying Name Compensation Options Principal Position Year Salary Bonus ($)(1) (#)(2) ========================== ---- --------- --------- ------------ ------------ ---------------------- Mark D. Lerdal 1998 $ 443,189 $ - $ 23,500 - $ 1,152 Chief Executive Officer, 1997 $ 401,295 $ 250,000 $ 21,500 - $ 1,165,071 President and Director 1996 $ 387,762 $ 300,000 $ 21,500 500,000 1,152 ========================== ---- --------- ---------- ------------ ------------ ---------------------- Michael U. Alvarez 1998 $ 382,005 $2,887,980 - - $ 1,388 Vice President, Chief 1997 $ 351,134 $ 364,920 - - $ 1,388 Financial Officer and 1996 $ 380,152 $ 200,000 - 250,000 1,388 Assistant Secretary ========================== ---- --------- ---------- ------------ ------------ ---------------------- Aaron T. Samson 1998 $ 155,637 $2,498,779 - - $ - Vice President (KES) 1997 $ 150,486 $ 619,190 - - - 1996 $ 135,755 $ 350,000 - - - ========================== ---- --------- ---------- ------------ ------------ ---------------------- Scott J. Taylor 1998 $ 161,525 $2,536,779 - - $ - Vice President (KES) 1997 $ 150,486 $ 111,190 - - - 1996 $ 133,025 195,000 - - - ========================== ---- --------- ---------- ------------ ------------ ---------------------- Mervin E. Werth 1998 $ 139,645 $ 100,000 - - - Controller, 1997 $ 125,405 $ - - - - Chief Accounting Officer 1996 $ 125,405 $ 125,000 - - - and Assistant Treasurer ========================== ---- --------- ---------- ------------ ------------ ---------------------- (1) Includes $23,500 in 1998 and $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 1998, 1997 or 1996. (3) Includes $1,152 and $1,388 for 1998, 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, and a pre-paid severance payment in 1997 of $1,163,919 for Mark D. Lerdal. (4) Mr. Werth, the other defendants and KENETECH Corporation are jointly represented by the same counsel in the securities class action described in Item 3 to this 10-K. A portion of such counsel's legal fees has been paid by the Company, however, such fees have not been apportioned among the individual defendants.
No options or stock appreciation rights were awarded to the Chief Executive Officer or the named executive officers of the Company during the fiscal year ended December 31, 1998. The following table sets forth information concerning option exercises and option holdings for the fiscal year ended December 31, 1998, with respect to the Chief Executive Officer and the named executive officers of the Company. No stock appreciation rights were outstanding during such fiscal year. Page 37
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES ================================================================================================================== Number of Securities Value of Unexercised Shares Underlying Unexercised Options In-the-Money Options Acquired on Value At Fiscal Year-End At Fiscal Year-End Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable (1) =================== ------------ ------------ ------------------------------ ----------------------------- Mark D. Lerdal - - 46,000/520,000 -/- =================== ------------ ------------ ------------------------------ ----------------------------- Michael U. Alvarez - - 140,000/270,000 -/- =================== ------------ ------------ ------------------------------ ----------------------------- Aaron T. Samson - - 25,000/- -/- =================== ------------ ------------ ------------------------------ ----------------------------- Scott J. Taylor - - 10,000/- -/- =================== ------------ ------------ ------------------------------ ----------------------------- Mervin E. Werth - - 22,500/- -/- =================== ------------ ------------ ------------------------------ ----------------------------- (1) The exercise price of all options exceeds the market price of the underlying shares at December 31, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1998, Messrs. Christenson and Duthie served as members of the Compensation Committee of the Company. Neither member of the Compensation Committee has ever been an officer or employee of the Company. Mr. Lerdal may have attended meetings of the Committee, but was not present during deliberations or discussions regarding his own compensation. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS Mr. Lerdal is the only named executive officer of the Company currently under an employment agreement. Mr. Alvarez's employment agreement expired March 31, 1999. Messrs. Samson, Taylor and Werth were under employment agreements or retention agreements during the fiscal year ended December 31, 1998 and have recently entered into the severance agreements described below. The Company 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 EcoElectrica Project, or (iii) the date on which all payments under the Agreement have been made. Accordingly, Mr. Alvarez's Employment Agreement expired March 31, 1999. Under the terms of the Employment Agreement, Mr. Alvarez was paid a bonus in 1997 upon the closing of the construction financing for the EcoElectrica Project, and a bonus in 1998 from the proceeds of the sale of the EcoElectrica Project Interest (see Summary Compensation Table). Mr. Alvarez received a bonus in 1999 from the proceeds of the sale of the Chateaugay Project. Page 38 The Company entered into an Employment Agreement with Mr. Lerdal on April 1, 1996. Mr. Lerdal's initial employment period ran for a period of three years ending March 31, 1999 and the Agreement is automatically renewable for an unlimited series of one-year periods. The Agreement was automatically renewed for a one-year period ending March 31, 2000. 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) was eligible to earn additional bonuses of up to $450,000 upon the occurrence of certain stated objectives. All of the objective payments have been earned including the $250,000 paid as a bonus in 1997. In the event of Mr. Lerdal's involuntary termination (other than for cause) including non-renewal of the employment period, he 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 and certain direct or indirect wholly-owned subsidiaries entered into an Employment Agreement with Mr. Samson effective December 1, 1997 that provided that Mr. Samson would be employed by the Company at an annual base salary of $150,486 for a period ending on the latest to occur of (i) 90 days following the later to occur of commercial operations or sale of the EcoElectrica Project Interest, or (ii) the date of final payment of all amounts due under the Agreement. Under the terms of the Agreement, Mr. Samson was paid a bonus in 1997 upon the closing of the construction financing for the EcoElectrica Project, a bonus in 1998 upon the closing of the sale of the EcoElectrica Project Interest and other bonuses in 1998 and 1999 from the proceeds of the sale of certain other assets of KENETECH Energy Systems, Inc. (see Summary Compensation Table). Pursuant to the terms of a Separation Agreement and Mutual Release entered into by the Company, certain direct or indirect wholly-owned subsidiaries of the Company and Mr. Samson as of March 31, 1999, upon mutual agreement of Mr. Samson and the Company, Mr. Samson's Employment Agreement was terminated and he received a lump sum payment of $211,407 consisting of amounts still due under the Employment Agreement, severance and accrued vacation. Mr. Samson received a bonus in 1999 upon the sale of the Chateaugay Project. The Company and certain direct or indirect wholly-owned subsidiaries entered into an Employment Agreement with Mr. Taylor effective December 1, 1997 that provided that Mr. Taylor would be employed by the Company at an annual base salary of $150,486 for a period ending on the latest to occur of (i) 90 days following the later to occur of commercial operations or sale of the EcoElectrica Project Interest, or (ii) the date of final payment of all amounts due under the Agreement. Under the terms of the Agreement, Mr. Taylor was paid a bonus in 1997 upon the closing of the construction financing for the EcoElectrica Project, a bonus in 1998 upon the closing of the sale of the EcoElectrica Project Interest and other bonuses in 1998 and 1999 from the proceeds of the sale of certain other assets of KENETECH Energy Systems, Inc. (see Summary Compensation Table). Pursuant to the terms of a Separation Agreement and Mutual Release entered into by the Company, certain direct or indirect wholly-owned subsidiaries of the Company and Mr. Taylor as of March 31, 1999, upon mutual agreement of Mr. Taylor and the Company, Mr. Taylor's Employment Agreement was terminated and he received a lump sum payment of $194,099 consisting of amounts still due under the Employment Agreement, severance and accrued vacation. Mr. Taylor received a bonus in 1999 upon the sale of the Chateaugay Project. Mr. Werth and the Company entered into a retention incentive agreement in 1998 pursuant to which Mr. Werth received a quarterly bonus (see Summary Compensation Table). Pursuant to the terms of a Separation Agreement and Mutual Release entered into by the Company and Mr. Werth as of March 31, 1999, upon mutual agreement of Mr. Werth and the Company, Mr. Werth's employment with the Company terminated effective March 31, 1999 and he received a lump sum payment of $281,250 consisting of a bonus payment, severance and accrued vacation. STOCK PLANS The 1993 Option Plan (described below) and the 1993 Employee Stock Purchase Plan (the "Purchase Plan") were implemented in September 1993. The Purchase Plan was discontinued following the August 1996 semi-annual purchase date. No Options have been granted under the 1993 Option Plan since 1996. Page 39 The Company has registered shares of Common Stock reserved for issuance under the 1993 Option Plan thus permitting the resale of such shares by non-affiliates in the public market without restriction under the Securities Act of 1933. Under the 1993 Option Plan, key employees (including officers), consultants to the Company and directors are provided an opportunity to acquire equity interests in the Company. The 1993 Option Plan contains three separate components: (i) a Discretionary Option Grant Program, under which key employees (including officers) and consultants may be granted options to purchase shares of Common Stock at an exercise price not less than 85% of the fair market value of such shares on the grant date; (ii) an Automatic Option Grant Program, under which option grants were automatically made at periodic intervals to directors to purchase shares of Common Stock at an exercise price equal to 100% of the fair market value of the option shares on the grant date (this part of the plan has been discontinued); and (iii) a Stock Issuance Program, under which eligible individuals may be issued shares of Common Stock directly, either through the immediate purchase of the shares (at fair market value or at discounts of up to 15%) or as a bonus tied to the performance of services or the Company's attainment of prescribed milestones. The options granted under the Discretionary Option Grant Program may be either incentive stock options designed to meet the requirements of Section 42 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-statutory options not intended to satisfy such requirements. All grants under the Automatic Option Grant Program were non-statutory options. Options may be granted or shares issued in the Discretionary Option Grant and Stock Issuance Programs to eligible individuals in the employ or service of the Company or any parent or subsidiary corporation now or subsequently existing. Under the Automatic Option Grant Program, each person who was a director at the time of the Company's initial public offering, received at the commencement of such offering, and each new director thereafter was, at the time he or she became a director, to receive an automatic option grant for 5,000 shares of Common Stock. In addition, at each annual stockholders' meeting, beginning with the 1994 annual meeting, each person who had been a director for at least six months was to be granted an option to purchase 1,000 shares of Common Stock. If more than 50% of the outstanding Common Stock were to be acquired in a hostile tender offer, each option granted under the Automatic Option Grant Program that has been outstanding for at least six months is to be automatically converted into the right to receive from the Company the excess of the tender offer price over the option price. No grants under the Automatic Option Grant Program have been made since 1995. A total of 6,688,020 shares of Common Stock were originally reserved for issuance over the ten year term of the 1993 Option Plan. Options will have maximum terms of ten years measured from the grant date. Options will not be assignable or transferable other than by will or by the laws of inheritance following the optionee's death, and the option may, during the optionee's lifetime, be exercised only by the optionee. The optionee will not have any stockholder rights with respect to the option shares until the option is exercised and the option price is paid for the purchased shares. Individuals holding shares under the Stock Issuance Program will, however, have full stockholder rights with respect to those shares, whether the shares are vested or unvested. The Plan Administrator under the 1993 Option Plan has the authority to cancel outstanding options under the Discretionary Option Grant Program (including options incorporated from the Predecessor Plan) in return for the grant of new options for the same or a different number of shares with an exercise price based on the lower fair market value of the Common Stock on the new grant date. The Board of Directors may terminate the 1993 Option Plan at any time, and the 1993 Option Plan will in all events terminate on June 20, 2003. All of the Company's employees are eligible to participate in the Discretionary Grant Program. Non- employee directors are not eligible to participate in the Discretionary Option Grant and Stock Issuance Programs. If the Company is acquired by merger, consolidation or asset sale, or there is a hostile change in control of the Company, each option granted under the Discretionary Option Grant Program will automatically accelerate in full, and all unvested shares under the Stock Issuance Program will immediately vest. Page 40 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. 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. In December 1995, the Company entered into indemnification agreements with certain of its Directors and Officers whereby the Company agreed to indemnify such Directors and Officers, subject to the exceptions set forth therein, to the fullest extent permitted by the Delaware General Corporation Law and the Restated Bylaws of the Company and against expenses incurred by such Directors or Officers in connection with any liability which he or she may incur in his or her capacity as such. The Company provides Directors and Officers liability insurance and reimbursement insurance policies for its Officers and Directors. See Item 3 of this 10-K regarding pending or threatened litigation involving any director or officer of the Company where indemnification will be required or permitted. Item 12. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- The following table sets forth certain information to the knowledge of the Company regarding the beneficial ownership of the Company's Common Stock as of March 15, 1999 for (i) each person known to the Company beneficially to own 5% or more of the outstanding shares of its Common Stock, (ii) each of the Company's directors, the Chief Executive Officer and the named executive officers, and (iii) all directors and executive officers as a group. Except as otherwise indicated, the Company believes that the beneficial owners of the Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Page 41
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS =============================================================================================== Number of Shares Of Common Stock Percentage of Beneficial Owners (1) Beneficially Owned (2) Shares Outstanding (3) ============================================== ---------------------- ------------------ Gerald R. Alderson 7,000 * =============================================== ---------------------- ------------------ Charles Christenson 67,000 * =============================================== ---------------------- ------------------ Angus M. Duthie 59,720 * =============================================== ---------------------- ------------------ Mark D. Lerdal 11,411,458 27.2% Common =============================================== ---------------------- ------------------ Michael U. Alvarez 141,441 * =============================================== ---------------------- ------------------ Aaron T. Samson 25,329 * =============================================== ---------------------- ------------------ Scott J. Taylor 10,000 * =============================================== ---------------------- ------------------ Mervin E. Werth 22,500 * =============================================== ---------------------- ------------------ All Directors and Executive Officers as a Group 11,744,448 27.8% Common =============================================== ---------------------- ------------------ (1) Information for beneficial owners of 5% or more of the Company's Common Stock is reported from and as of the date of such owner's latest Schedule 13D or 13G (as amended) provided to the Company. (2) Except as otherwise specifically noted, the number of shares stated as being beneficially owned includes (a) all options under which officers or directors could acquire common stock currently and within 60 days following March 15, 1999 (i.e., Gerald R. Alderson (7,000 shares), Charles Christenson (47,000 shares), Angus M. Duthie (47,000 shares), Mark D. Lerdal (46,000 shares), Michael U. Alvarez (140,000 shares), Aaron T. Samson (25,000 shares), Scott J. Taylor (10,000 shares), Mervin E. Werth (22,500 shares) and all directors and officers as a group (344,500 shares)), and (b) shares believed by the Company to be held beneficially by spouses. The inclusion of shares herein, however, does not constitute an admission that the persons named as stockholders are direct or indirect beneficial owners of such shares. (3) * Does not exceed one percent of the class so owned.
REGISTRATION RIGHTS The beneficial holders (or their transferees) of approximately 14,000,000 shares of Common Stock, are entitled to certain rights with respect to the registration of such shares under the Securities Act of 1933 (the "Securities Act"). Under the terms of the Registration Rights Agreements dated as of June 28, 1985 (the "Registration Rights Agreement"), between the Company and such holders, if the Company proposes to register any of its securities under the Securities Act, either for its own account or the account of other security holders exercising registration rights, such holders are entitled to notice of such registration and are entitled to include shares of such Common Stock therein; provided, among other conditions, that the underwriters of any offering have the right to limit the number of shares included in such registration. In addition, for a period of eight years after September 21, 1993, the date of the Company's initial public offering of its Common Stock, a holder or holders of an aggregate of 40% or more of the shares subject to such registration rights may require the Company on not more than six occasions to file a registration statement under the Securities Act with respect to their shares of Common Stock. Page 42 Additionally, parties to the Stock Purchase Agreement dated as of June 30, 1992, and the Note Purchase Agreement dated as of June 25, 1992 (the "Notes"), are entitled to notice of any registration of Common Stock proposed by the Company, either for its own account or the account of other security holders exercising registration rights, and, are entitled to include shares of the Common Stock which they own by virtue of the conversion of the preferred stock and/or Notes obtained pursuant to such agreements, subject to (i) the underwriters' limitations, and (ii) in the case of a secondary offering on behalf of holders of registration rights pursuant to the Registration Rights Agreement, the consent of the holders of such rights. The parties to such agreements are also given the right to require the Company to register their shares of Common Stock, but may exercise such right not more than once every two years. Item 13. Certain Relationships and Related Transactions - ------------------------------------------------------- All of the defendant 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 43 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - -------------------------------------------------------------------------- (a) (1)FINANCIAL STATEMENTS The consolidated financial statements of KENETECH Corporation are included in Part II, Item 8 as follows: KENETECH Corporation Consolidated Financial Statements Page ------------------------------------------------------ ------ Independent Auditors' Reports 16 Consolidated Statements of Operations for the years ended December 31, 1998, 1997, and 1996 17 Consolidated Balance Sheets, December 31, 1998 and 1997 18 Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 1998, 1997 and 1996 19 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 20 Notes to Consolidated Financial Statements 21 - 34 (a) (2)KENETECH Corporation Financial Statement Schedules -------------------------------------------------- I. Valuation and Qualifying Accounts for the years ended December 31, 1998, 1997 and 1996 50 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 44 (a)(3) EXHIBITS - All of the Exhibits (except 10.57 - 10.60 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 45 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 46 10.48(10) First Amendment to Separation Agreement and Release, dated October 28, 1996, among KENETECH Corporation, CNF Industries, Inc. and Joel M. Canino. 10.49(10) Retention Agreement, dated February 2, 1996, by and between KENETECH Corporation and Mervin E. Werth. 10.50(10) Employment Agreement, dated as of April 12, 1996, between KENETECH Windpower, Inc. and Steven A. Kern. 10.51(11) Employment Agreement, effective December 1, 1997, among KENETECH Corporation, KENETECH Energy Systems, Inc., certain direct and in-direct subsidiaries of KENETECH Energy Systems and Michael U. Alvarez. 10.52(11) Separation Agreement and Mutual Release, dated as of June 30, 1997, between KENETECH Corporation and James J. Eisen. 10.53(11) Separation Agreement and Mutual Release, dated as of August 1, 1997, between KENETECH Corporation and Nicholas H. Politan. 10.54(11) Separation Agreement and Mutual Release, dated as of March 12, 1997, between KENETECH Corporation and Michael A. Haas. ASSET SALE AGREEMENTS 10.55(11) Master Agreement of Dissolution, Distribution and Assignment, dated as of August 27, 1997, between Enron Power I (Puerto Rico), Inc. and CNF Penuelas, Inc. 10.56(11) Master Agreement of Dissolution, Distribution and Assignment, dated as of August 27, 1997, between Enron Equipment Procurement Company and CNF Equipment, Inc. SEVERANCE AGREEMENTS 10.57 Separation Agreement and Mutual Release, dated as of March 31, 1999, among KENETECH Corporation, KENETECH Energy Systems, Inc., and certain subsidiaries and Aaron T. Samson. 10.58 Separation Agreement and Mutual Release, dated as of March 31, 1999, among KENETECH Corporation, KENETECH Energy Systems, Inc., and certain subsidiaries and Scott J. Taylor. 10.59 Separation Agreement and Mutual Release, dated as of March 31, 1999, among KENETECH Corporation and Mervin E. Werth. SALE AGREEMENTS 10.60 Stock Purchase and Assignment Agreement, dated as of December 23, 1998, among KENETECH Energy Systems, Inc., certain Subsidiaries and Edison Mission Electric. 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 23.1 Consent of Independent Public Accountants. 27 FINANCIAL DATA SCHEDULE (1) Incorporated by reference to Form 10-Q filed with the Securities and Exchange Commission & by Registrant on November 16, 1994. (2) Incorporated by reference to Amendment No. 3 to Form S-1, File No. 33-76590 filed April 27, 1994. (3) Incorporated by reference to Form S-1, File No. 33-76590 filed with the Securities and Exchange Commission by the Registrant on March 18, 1994. (4) Incorporated by reference to Amendment No. 1 to Form S-1, File No. 33-65902, filed with the Securities and Exchange Commission by the Registrant on August 19, 1993. (5) Incorporated by reference to Form S-1, File No. 33-65902, filed with the Securities and Exchange Commission by Registrant on July 7, 1993. (6) Incorporated by reference to Amendment No. 2 to Form S-1, file No. 33-53132, filed with the Securities and Exchange Commission by the Registrant on December 19, 1992. (7) Incorporated by reference to Form S-1, File No. 33-53132, filed with the Securities and Exchange Commission by the Registrant on October 9, 1992. (8) Incorporated by reference to Form 10-K, File No. 33-53132, filed with the Securities and Exchange Commission by the Registrant on April 5, 1995. (9) Incorporated by reference to Form 10-K, File No. 33-53132, filed with the Securities and Exchange Commission by the Registrant on April 15, 1996. (10) Incorporated by reference to Form 10-K, File No. 33-53132, filed with the Securities and Exchange Commission by the Registrant on April 1, 1997. (11) Incorporated by reference to Form 10-K, File No. 33-53132, filed with the Securities and Exchange Commission by the Registrant on March 30, 1998. Page 47 (b) Reports on Form 8-K: The Registrant filed a Report on Form 8-K, on May 11, 1998, reporting the filing of the Preferred Stockholder litigation described in Item 3 of this Form 10-K. The Registrant filed a Report on Form 8-K on January 6, 1999, reporting the sale of the EcoElectrica Project Interest. (c) Exhibits: Other than items 10.57 - 10.60 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 48 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, therewith duly authorized. KENETECH Corporation By: /s/ Mark D. Lerdal Mark D. Lerdal President, Chief Executive Officer, and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the date indicated: Signature Title Date /s/ Mark D. Lerdal President, Chief Executive March 31, 1999 Officer, and Director Mark D. Lerdal /s/ Michael U. Alvarez Chief Financial Officer, March 31, 1999 Vice President, and Assistant Secretary Michael U. Alvarez /s/ Mervin E. Werth Corporate Controller, March 31, 1999 Chief Accounting Officer and Assistant Treasurer Mervin E. Werth /s/ Gerald R. Alderson Director March 31, 1999 Gerald R. Alderson /s/ Charles Christenson Director March 31, 1999 Charles Christenson /s/ Angus M. Duthie Chairman of the Board March 31, 1999 of Directors Angus M. Duthie Page 49 SCHEDULE I - VALUATION AND QUALIFYING ACCOUNTS (in thousands) Balance Charged to Balance Beginning Costs & Deductions at End Description of Period Expenses (1) of Period - ----------- --------- ---------- ---------- --------- Warranty reserves: Year ended December 31, 1996 $ 65,912 $ - $ 65,912 $ - Year ended December 31, 1997 - - - - Year ended December 31, 1998 - - - - Project development allowance (2): Year ended December 31, 1996 $ 21,526 $ 1,557 $ 21,526 $ 1,557 Year ended December 31, 1997 1,557 1,943 - 3,500 Year ended December 31, 1998 3,500 3,500 - - Allowance for doubtful accounts: Year ended December 31, 1997 $ - $ 1,546 $ - $ 1,546 Year ended December 31, 1998 1,546 720 - 826 - --------------- (1) 1996 deductions result from the deconsolidation of KWI and the write-off of a wood project in Illinois. (2) Deducted from power plants under development. Page 50 EX-10.57 2 SEPARATION AGREEMENT SEPARATION AGREEMENT AND MUTUAL RELEASE THIS SEPARATION AGREEMENT AND MUTUAL RELEASE (this "Agreement") is made and entered into as of March 31, 1999, by and between KENETECH ENERGY SYSTEMS, INC., a Delaware corporation, KENETECH CORPORATION, a Delaware corporation, KES PENUELAS HOLDINGS, INC., a Delaware corporation, KES LNG, LTD., a Delaware corporation, KES PENUELAS, LTD., a Delaware corporation, KES PUERTO RICO, L.P., a Bermuda exempted limited partnership, KES BERMUDA, INC., a Delaware corporation (collectively referred to as the "Company"), and AARON T. SAMSON (the "Employee"), an individual currently employed by the Company. RECITALS The Company and the Employee entered into an Employment Agreement dated as of the lst day of December, 1997 (the "Employment Agreement"). B. The Employee and the Company desire to mutually terminate the Employment Agreement and the Employee's employment with the Company and to compromise, settle and release fully and finally all outstanding matters between the Employee and the Company, including all matters relating to the termination of the Employment Agreement, the Employee's employment with the Company, his separation from the Company and the termination of his employment with the Company. 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: Separation Date. The Company and the Employee have agreed that the Employment Agreement and the Employee's employment with the Company shall terminate effective at the close of business on March 31, 1999 (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 and he has submitted or will submit for reimbursement, with appropriate supporting documentation, all outstanding expenses incurred by him prior to such date. Notwithstanding the preceding sentence, to the extent the Employee has not yet received invoices, receipts or other evidence of expenses incurred by the Employee on behalf of the Company on or prior to the Separation Date, the Employee shall be reimbursed for such expenses incurred in the ordinary course, if appropriate supporting documentation is submitted to the Company within 45 days of the Separation Date. 2. Resignation. The execution of this Agreement shall confirm the Employee's resignation as an officer and employee of the Company effective as of the Separation Date. Terms of Separation. In consideration of the agreements by the Employee provided herein, including, without limitation, the release by the Employee in Section 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 the Employment Agreement or his employment, including, but not limited to, any claims for compensation, bonuses, retention payments, severance payments, fringe benefits, change in control benefits, options, out-placement services or any other payments payable under the Employment Agreement or otherwise, the Company shall pay to the Employee, on or prior to the Separation Date, a lump sum amount equal to $211,407.05. The Employee shall also receive, prior to the Separation Date, payment of all accrued vacation. Upon receipt of such accrued vacation pay and any bi-weekly salary payments for the month of March, 1999 not previously paid to the Employee, the Employee acknowledges that he has received his full salary, vacation pay and benefits from the Company in accordance with the Company's regular payroll practices. (b) 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. (c) The Employee shall cease participation in all employee benefit plans of the Company effective as of the Separation Date, and the Company thereafter shall not be liable for any payments on behalf of the Employee in respect of any fringe benefits provided by the Company. Notwithstanding the preceding sentence, to the extent that the Employee has incurred claims for health care expenses on or prior to the Separation Date and such claims are submitted to the Company within 45 days of the Separation Date, the Employee shall be reimbursed for such claims in the ordinary course by the Company pursuant to the terms and conditions of the Company's employee benefit plan. 4. 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, the Employee hereby irrevocably and unconditionally releases, acquits and forever discharges 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, the Employee's employment with the Company, his separation from employment with the Company or the termination of his employment with the Company, 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, from the beginning of time to the present, including, without limitation, any of the following: claims for workers' compensation, claims in equity or law for wrongful discharge, 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, and 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 subparagraph or with respect to any of the Employee Claims. Notwithstanding the foregoing, the release by the Employee in this subparagraph shall not limit the right of the Employee to seek to enforce the provisions of this Agreement. (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 the Employee's employment with the Company, his separation from employment with the Company or the termination of his employment with the Company, which the Company now has, or ever claimed to have, or could claim against each or any of the Employee Releasees. The Company hereby agrees to forego any right to file any charges or complaints with any governmental agencies or any legal action against the Employee Releasees under any of the laws referenced in this paragraph or with respect to any of the foregoing claims. Notwithstanding the foregoing, the release by the Company in this subparagraph shall not limit the right of the Company to seek to enforce the provisions of this Agreement. 5. Waiver of Unknown Claims. The Company and the Employee acknowledge that they are aware that they may hereafter discover claims or facts different from or in addition to those they now know or believe to be true with respect to the matters herein released, and except as to any claims arising out of the rights provided under this Agreement, they agree that the mutual releases set forth above shall be and remain in effect in all respects a complete general release as to the matters released and all claims relative thereto which may exist or may heretofore have existed, notwithstanding any such different or additional facts. The Company and the Employee acknowledge that they have considered the possibility that they may not fully know the number or magnitude of all of the claims which they have or may have against each other and the Releasees of the other party and intend to assume the risk that they are releasing unknown claims. The Company and the Employee acknowledge that they have been informed of Section 1542 of the Civil Code of the State of California and, except as set forth in this Agreement, they do hereby expressly waive and relinquish all rights and benefits which they have or may have under such Section, which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." The Company and the Employee understand and acknowledge the significance and consequences of such specific waiver of Section 1542 and, except as set forth in this Agreement, hereby assume full responsibility for any injuries, damages or losses that they may incur as the result of such waiver. 6. 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. 7. 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 (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; or (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 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, 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 within two (2) business days. 8. Company Property and Information. The Company and the Employee agree that the Employee, as of the Separation Date, has returned or will return to the Company all Company Information (defined below) and files containing Company Information; credit cards; cardkey passes; door and file keys; automobiles; computer access codes, computer discs, magnetic media; software; and all other physical property which the Employee received in connection with his employment. The term "Company Information" as used in this Agreement means confidential or proprietary business or financial information of the Company. The Employee further represents and warrants that he has not, except in the ordinary course of business and in accordance with Company policies and procedures, destroyed or discarded any documents or information. 9. Confidentiality of This Agreement. (a) The Company will file with the Securities and Exchange Commission a current report on Form 10-K disclosing the Employee's resignation and may make such other disclosure as required or appropriate under applicable laws and regulations. (b) The Company agrees that it shall respond to all inquiries concerning the Employee's employment by the Company, including inquiries by prospective employers, by confirming the dates of the Employee's employment and the positions he held. 10. 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 Section 4 above. 11. 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 not 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. 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) 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, without limitation, the Employment Agreement. The Employment Agreement shall be null and void and of no further effect as of the Separation Date. This Agreement shall inure to the benefit of and be binding upon the successors in interest and assigns of each party except as otherwise provided herein. (e) The effect, intent and construction of this Agreement shall be governed by the laws of the State of California, without giving effect to the conflict of laws rules thereof. (f) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original. IN WITNESS WHEREOF, the Company and the Employee have duly executed this Agreement as of the date first set forth above. KENETECH ENERGY SYSTEMS, INC. By_________________________ ___________________________ Name: Mark D. Lerdal AARON T. SAMSON Title: Vice President and Assistant Secretary KENETECH CORPORATION By_________________________ Name: Mark D. Lerdal Title: President and CEO KES PENUELAS HOLDINGS, INC. By_________________________ Name: Mark D. Lerdal Title: Vice President and Assistant Secretary KES LNG, LTD. By_________________________ Name: Mark D. Lerdal Title: Vice President and Assistant Secretary KES PENUELAS, LTD. By_________________________ Name: Mark D. Lerdal Title: Vice President and Assistant Secretary KES BERMUDA, INC. By_________________________ Name: Mark D. Lerdal Title: Vice President and Assistant Secretary KES PUERTO RICO, L.P. By KES LNG, Ltd., its general partner By_________________________ Name: Mark D. Lerdal Title: Vice President and Assistant Secretary EX-10.58 3 SEPARATION AGREEMENT SEPARATION AGREEMENT AND MUTUAL RELEASE THIS SEPARATION AGREEMENT AND MUTUAL RELEASE (this "Agreement") is made and entered into as of March 31, 1999, by and between KENETECH ENERGY SYSTEMS, INC., a Delaware corporation, KENETECH CORPORATION, a Delaware corporation, KES PENUELAS HOLDINGS, INC., a Delaware corporation, KES LNG, LTD., a Delaware corporation, KES PENUELAS, LTD., a Delaware corporation, KES PUERTO RICO, L.P., a Bermuda exempted limited partnership, KES BERMUDA, INC., a Delaware corporation (collectively referred to as the "Company"), and SCOTT J. TAYLOR (the 'Employee"), an individual currently employed by the Company. RECITALS The Company and the Employee entered into an Employment Agreement dated as of the lst day of December, 1997 (the "Employment Agreement"). B. The Employee and the Company desire to mutually terminate the Employment Agreement and the Employee's employment with the Company and to compromise, settle and release fully and finally all outstanding matters between the Employee and the Company, including all matters relating to the termination of the Employment Agreement, the Employee's employment with the Company, his separation from the Company and the termination of his employment with the Company. 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: Separation Date. The Company and the Employee have agreed that the Employment Agreement and the Employee's employment with the Company shall terminate effective at the close of business on March 31, 1999 (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 and he has submitted or will submit for reimbursement, with appropriate supporting documentation, all outstanding expenses incurred by him prior to such date. Notwithstanding the preceding sentence, to the extent the Employee has not yet received invoices, receipts or other evidence of expenses incurred by the Employee on behalf of the Company on or prior to the Separation Date, the Employee shall be reimbursed for such expenses incurred in the ordinary course, if appropriate supporting documentation is submitted to the Company within 45 days of the Separation Date. 2. Resignation. The execution of this Agreement shall confirm the Employee's resignation as an officer and employee of the Company effective as of the Separation Date. Terms of Separation. In consideration of the agreements by the Employee provided herein, including, without limitation, the release by the Employee in Section 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 the Employment Agreement or his employment, including, but not limited to, any claims for compensation, bonuses, retention payments, severance payments, fringe benefits, change in control benefits, options, out-placement services or any other payments payable under the Employment Agreement or otherwise, the Company shall pay to the Employee, on or prior to the Separation Date, a lump sum amount equal to $194,099.36. The Employee shall also receive, prior to the Separation Date, payment of all accrued vacation. Upon receipt of such accrued vacation pay and any bi-weekly salary payments for the month of March, 1999 not previously paid to the Employee, the Employee acknowledges that he has received his full salary, vacation pay and benefits from the Company in accordance with the Company's regular payroll practices. (b) 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. (c) The Employee shall cease participation in all employee benefit plans of the Company effective as of the Separation Date, and the Company thereafter shall not be liable for any payments on behalf of the Employee in respect of any fringe benefits provided by the Company. Notwithstanding the preceding sentence, to the extent that the Employee has incurred claims for health care expenses on or prior to the Separation Date and such claims are submitted to the Company within 45 days of the Separation Date, the Employee shall be reimbursed for such claims in the ordinary course by the Company pursuant to the terms and conditions of the Company's employee benefit plan. 4. 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, the Employee hereby irrevocably and unconditionally releases, acquits and forever discharges 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, the Employee's employment with the Company, his separation from employment with the Company or the termination of his employment with the Company, 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, from the beginning of time to the present, including, without limitation, any of the following: claims for workers' compensation, claims in equity or law for wrongful discharge, 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, and 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 subparagraph or with respect to any of the Employee Claims. Notwithstanding the foregoing, the release by the Employee in this subparagraph shall not limit the right of the Employee to seek to enforce the provisions of this Agreement. (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 the Employee's employment with the Company, his separation from employment with the Company or the termination of his employment with the Company, which the Company now has, or ever claimed to have, or could claim against each or any of the Employee Releasees. The Company hereby agrees to forego any right to file any charges or complaints with any governmental agencies or any legal action against the Employee Releasees under any of the laws referenced in this paragraph or with respect to any of the foregoing claims. Notwithstanding the foregoing, the release by the Company in this subparagraph shall not limit the right of the Company to seek to enforce the provisions of this Agreement. 5. Waiver of Unknown Claims. The Company and the Employee acknowledge that they are aware that they may hereafter discover claims or facts different from or in addition to those they now know or believe to be true with respect to the matters herein released, and except as to any claims arising out of the rights provided under this Agreement, they agree that the mutual releases set forth above shall be and remain in effect in all respects a complete general release as to the matters released and all claims relative thereto which may exist or may heretofore have existed, notwithstanding any such different or additional facts. The Company and the Employee acknowledge that they have considered the possibility that they may not fully know the number or magnitude of all of the claims which they have or may have against each other and the Releasees of the other party and intend to assume the risk that they are releasing unknown claims. The Company and the Employee acknowledge that they have been informed of Section 1542 of the Civil Code of the State of California and, except as set forth in this Agreement, they do hereby expressly waive and relinquish all rights and benefits which they have or may have under such Section, which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." The Company and the Employee understand and acknowledge the significance and consequences of such specific waiver of Section 1542 and, except as set forth in this Agreement, hereby assume full responsibility for any injuries, damages or losses that they may incur as the result of such waiver. 6. 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. 7. 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 (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; or (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 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, 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 within two business days. 8. Company Property and Information. The Company and the Employee agree that the Employee, as of the Separation Date, has returned or will return to the Company all Company Information (defined below) and files containing Company Information; credit cards; cardkey passes; door and file keys; automobiles; computer access codes, computer discs, magnetic media; software; and all other physical property which the Employee received in connection with his employment. The term "Company Information" as used in this Agreement means confidential or proprietary business or financial information of the Company. The Employee further represents and warrants that he has not, except in the ordinary course of business and in accordance with Company policies and procedures, destroyed or discarded any documents or information. 9. Disclosure of this Agreement. (a) The Company will file with the Securities and Exchange Commission a current report on Form 10-K disclosing the Employee's resignation and may make such other disclosure as required or appropriate under applicable laws and regulations. (b) The Company agrees that it shall respond to all inquiries concerning the Employee's employment by the Company, including inquiries by prospective employers, by confirming the dates of the Employee's employment and the positions he held. 10. 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 Section 4 above. 11. 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 not 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. 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) 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, without limitation, the Employment Agreement. The Employment Agreement shall be null and void and of no further effect as of the Separation Date. This Agreement shall inure to the benefit of and be binding upon the successors in interest and assigns of each party except as otherwise provided herein. (e) The effect, intent and construction of this Agreement shall be governed by the laws of the State of California, without giving effect to the conflict of laws rules thereof. (f) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original. IN WITNESS WHEREOF, the Company and the Employee have duly executed this Agreement as of the date first set forth above. KENETECH ENERGY SYSTEMS, INC. By_________________________ ___________________________ Name: Mark D. Lerdal SCOTT J. TAYLOR Title: Vice President and Assistant Secretary KENETECH CORPORATION By_________________________ Name: Mark D. Lerdal Title: President and CEO KES PENUELAS HOLDINGS, INC. By_________________________ Name: Mark D. Lerdal Title: Vice President and Assistant Secretary KES LNG, LTD. By_________________________ Name: Mark D. Lerdal Title: Vice President and Assistant Secretary KES PENUELAS, LTD. By_________________________ Name: Mark D. Lerdal Title: Vice President and Assistant Secretary KES BERMUDA, INC. By_________________________ Name: Mark D. Lerdal Title: Vice President and Assistant Secretary KES PUERTO RICO, L.P. By KES LNG, Ltd., its general partner By_________________________ Name: Mark D. Lerdal Title: Vice President and Assistant Secretary EX-10.59 4 SEPARATION AGREEMENT SEPARATION AGREEMENT AND MUTUAL RELEASE THIS SEPARATION AGREEMENT AND MUTUAL RELEASE (this "Agreement") is made and entered into as of March 31, 1999, by and between KENETECH CORPORATION (the "Company"), a Delaware corporation, and MERVIN E. WERTH (the "Employee"), an individual currently employed by the Company as Controller. RECITALS The Company has employed the Employee since 1991. B. The Company and the Employee have previously entered into an agreement concerning the payment of certain bonuses to the Employee during 1998. C. The Employee and the Company desire to mutually terminate the Employee's employment with the Company and to compromise, settle and release fully and finally all outstanding matters between the Employee and the Company, including all matters relating to the Employee's employment with the Company, his separation from the Company and the termination of his employment with the Company. 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: Separation Date. The Company and the Employee have agreed that the Employee's employment with the Company shall terminate effective at the close of business on March 31, 1999 (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 and he has submitted or will submit for reimbursement, with appropriate supporting documentation, all outstanding expenses incurred by him prior to such date. 2. Resignation. The execution of this Agreement shall confirm the Employee's resignation as an officer and employee of the Company effective as of the Separation Date. Terms of Separation. In consideration of the agreements by the Employee provided herein, including, without limitation, the release by the Employee in Section 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, bonuses, retention payments, severance payments, fringe benefits, change in control benefits, options, out-placement services or any other payments, the Company shall pay to the Employee a lump sum amount equal to $281,250.00 (which consists of a $250,000 bonus and a $31,250 severance payment), less all applicable deductions, on or prior to the Separation Date. The Employee shall receive, prior to the Separation Date, payment of all accrued vacation. Upon receipt of such accrued vacation pay and any bi-weekly salary payments for the month of March, 1999 not previously paid to the Employee, the Employee acknowledges that he has received his full salary, vacation pay and benefits from the Company in accordance with the Company's regular payroll practices. The Employee further acknowledges that he received a bonus of $81,250 on the first bi-weekly payday in January 1999. (b) 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. (c) The Employee shall cease participation in all employee benefit plans of the Company effective as of the Separation Date, and the Company thereafter shall not be liable for any payments on behalf of the Employee in respect of any fringe benefits provided by the Company. 4. 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, the Employee hereby irrevocably and unconditionally releases, acquits and forever discharges 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 Employee's employment with the Company, his separation from employment with the Company or the termination of his employment with the Company, 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, from the beginning of time to the present, including, without limitation, any of the following: claims for workers' compensation, claims in equity or law for wrongful discharge, 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, and 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 subparagraph or with respect to any of the Employee Claims. Notwithstanding the foregoing, the release by the Employee in this subparagraph shall not limit the right of the Employee to seek to enforce the provisions of this Agreement. (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 the Employee's employment with the Company, his separation from employment with the Company or the termination of his employment with the Company, which the Company now has, or ever claimed to have, or could claim against each or any of the Employee Releasees. The Company hereby agrees to forego any right to file any charges or complaints with any governmental agencies or any legal action against the Employee Releasees under any of the laws referenced in this paragraph or with respect to any of the foregoing claims. Notwithstanding the foregoing, the release by the Company in this subparagraph shall not limit the right of the Company to seek to enforce the provisions of this Agreement. 5. Waiver of Unknown Claims. The Company and the Employee acknowledge that they are aware that they may hereafter discover claims or facts different from or in addition to those they now know or believe to be true with respect to the matters herein released, and except as to any claims arising out of the rights provided under this Agreement, they agree that the mutual releases set forth above shall be and remain in effect in all respects a complete general release as to the matters released and all claims relative thereto which may exist or may heretofore have existed, notwithstanding any such different or additional facts. The Company and the Employee acknowledge that they have considered the possibility that they may not fully know the number or magnitude of all of the claims which they have or may have against each other and the Releasees of the other party and intend to assume the risk that they are releasing unknown claims. The Company and the Employee acknowledge that they have been informed of Section 1542 of the Civil Code of the State of California and, except as set forth in this Agreement, they do hereby expressly waive and relinquish all rights and benefits which they have or may have under such Section, which reads as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." The Company and the Employee understand and acknowledge the significance and consequences of such specific waiver of Section 1542 and, except as set forth in this Agreement, hereby assume full responsibility for any injuries, damages or losses that they may incur as the result of such waiver. 6. 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. 7. 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; or (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 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, 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. 8. Company Property and Information. The Company and the Employee agree that the Employee, as of the Separation Date, has returned or will return to the Company all Company Information (defined below) and files containing Company Information; credit cards; cardkey passes; door and file keys; automobiles; computer access codes, computer discs, magnetic media; software; and all other physical property which the Employee received in connection with his employment. The term "Company Information" as used in this Agreement means confidential or proprietary business or financial information of the Company. The Employee further represents and warrants that he has not, except in the ordinary course of business and in accordance with Company policies and procedures, destroyed or discarded any documents or information. 9. Confidentiality of This Agreement. (a) The Employee and the Company mutually represent and agree that, except to the extent required by law or as otherwise provided herein, 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 herein or as otherwise required by applicable laws and regulations. The Company will file with the Securities and Exchange Commission a current report on Form 10-K disclosing the Employee's resignation and may make such other disclosure as required or appropriate under applicable laws and regulations. Without limitation of the foregoing, the Company and the Employee further mutually represent and agree that they will not make any statements, whether of a public or private nature, to any person that reasonably could be construed as damaging to the business, image, reputation or integrity of the other, except such statements as he or his legal advisers may make in connection with a disclosure permitted herein. (b) The Company agrees that it shall respond to all inquiries concerning the Employee's employment by the Company, including inquiries by prospective employers, by confirming the dates of the Employee's employment and the positions he held. (c) The provisions set forth in subparagraphs (a) and (b) above are material terms of this Agreement, and a breach of any of those provisions shall constitute a material breach of this Agreement. (d) The Employee (including the Employee Releasees) and the Company (including the Company Releasees) specifically reserve all of their rights in connection with any claims for personal injuries and non-economic damages, including or resulting from injuries to their health and personal reputation, business reputation, defamation, tortious denial of contract, tortious interference with contract, intentional or negligent infliction of emotional distress, mental suffering, anxiety, anguish, humiliation, fraud, violation of public policy, or any other damages which may arise out of any conduct by the Employee or by the Company or it officers, directors, employees or agents which is inconsistent with the provisions of subparagraphs (a) and (b) above. 10. 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 Section 4 above. 11. Receipt of This Agreement. The Employee acknowledges that he has been given the opportunity to consider the terms of this Agreement for up to twenty-one (21) days. 12. Revocability. This Agreement is revocable by the Employee for seven (7) days after it is signed by him. This Agreement shall not be effective or enforceable until eight (8) days after the Employee signs this Agreement and shall only be effective and enforceable if he does not revoke it in the meantime. To revoke this Agreement, the Employee shall deliver a letter of revocation to the Company at 500 Sansome Street, Suite 410 within seven (7) days following the date the Employee signs this Agreement, and such letter of revocation shall be accompanied by the Employee's repayment in full of all amounts paid by the Company to or on behalf of the Employee pursuant to Section 3 hereof, exclusive of accrued vacation and regular bi-weekly salary payments. 13. Voluntary Agreement. The Employee represents and agrees that he has been advised by the Company of his right to discuss all aspects of this Agreement with his attorneys, that he has voluntarily chosen not to avail himself of this right, that he has carefully read and fully understands all of the provisions of this Agreement, and that he is voluntarily entering into this Agreement. 14. General Provisions. (a) The Employee represents and acknowledges that in executing this Agreement, he does not rely and has not relied upon any representation, inducement, agreement or statement not set forth herein made by any of the Company Releasees or by any of the Company Releasees' agents, representatives or attorneys with regard to the subject matter of this Agreement or otherwise. (b) The provisions of this Agreement are severable, and if any part of it is found to be unenforceable, the other provisions shall remain fully valid and enforceable. This Agreement shall survive the termination of any arrangements contained herein. (c) The Company and the Employee mutually agree that neither may assign this Agreement, or any rights or obligations under this Agreement, to any person or entity without the express prior written approval of the other. (d) This Agreement sets forth the entire agreement between the Company and the Employee and supersedes any and all prior agreements or understandings between the Company and the Employee pertaining to the subject matter hereof. This Agreement shall inure to the benefit of and be binding upon the successors in interest and assigns of each party except as otherwise provided herein. (e) The effect, intent and construction of this Agreement shall be governed by the laws of the State of California, without giving effect to the conflict of laws rules thereof. (f) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original. IN WITNESS WHEREOF, the Company and the Employee have duly executed this Agreement as of the date first set forth above. KENETECH CORPORATION By_________________________ ___________________________ Name: Mark D. Lerdal MERVIN E. WERTH Title: President and Chief Executive Officer EX-10.60 5 AGREEMENT STOCK PURCHASE AND ASSIGNMENT AGREEMENT By and Among KES PUERTO RICO, L.P., and KENETECH ENERGY SYSTEMS, INC. and KES BERMUDA, INC. and EME DEL CARIBE and EDISON MISSION ENERGY dated as of December 23, 1998 TABLE OF CONTENTS Page 2. SALE AND PURCHASE. 2 3. CLOSING. 2 3.1. Time and Place. 2 3.2. Transactions at Closing. 2 4. REPRESENTATIONS AND WARRANTIES OF THE KES ENTITIES. 4 4.1. Organization; Authority. 4 4.2. Approval; Binding Effect. 5 4.3. Non-Contravention. 5 4.4. Governmental Consents. 5 4.5. Proceedings. 6 4.6. Financial Statements. 6 4.7. Shareholders Agreement. 6 4.8. Brokers. 6 4.9. Bankruptcy. 6 4.10. Investment Company Act. 7 4.11. Capitalization. 7 4.12. Special Purpose Entities. 8 4.13. Title to the Interest, Liens, etc. 8 4.14. All Required KPR Capital Contributions Made Under Shareholders Agreement. 8 4.15. The Project. 8 4.16. Limitations on Representations and Warranties. 10 5. REPRESENTATIONS AND WARRANTIES OF BUYER. 11 5.1. Organization; Authority. 11 5.2. Corporate Approval; Binding Effect. 11 5.3. Non-Contravention 12 5.4. Governmental Consents. 12 5.5. Brokers. 12 5.6. No Financing. 12 5.7. Investment Company Act. 12 5.8. Due Diligence Review. 12 5.9. No Registration; Investment Representation; Accredited Investor; Sophisticated Person. 13 5.10. Employee Benefits Plan. 13 5.11. Status as an "Electric Utility". 14 5.12. Compliance with Confidentiality Agreement. 14 6. INTENTIONALLY OMITTED. 14 7. CONDITIONS PRECEDENT TO BUYER PARTIES' OBLIGATIONS. 14 7.1. Representations and Warranties True at Closing. 14 7.2. Compliance With Agreement. 14 7.3. Officer's Certificate. 14 7.4. Resolution of the QF Issue. 14 7.5. Consents. 14 7.6. Suits and Proceedings. 14 7.7. No Material Adverse Change. 15 7.8. Resignations of Directors and Officers. 15 7.9. Releases. 15 7.10. Affidavit. 15 7.11. Fieldstone Fairness Opinion. 15 7.12. KPMG Comfort Letter. 15 7.13. Notices Under the Credit Agreement. 16 7.14. Opinion of Counsel. 16 7.15. Certificate, Documents. 16 8. CONDITIONS PRECEDENT TO KES ENTITY OBLIGATIONS. 16 8.1. Representations and Warranties True at Closing. 16 8.2. Compliance with Agreement. 16 8.3. Officer's Certificate. 17 8.4. Opinion of Counsel. 17 8.5. Assumption of Certain Obligations. 17 8.6. Certificates, Documents. 17 9. CONFIDENTIAL INFORMATION. 17 10. HSR ACT. 17 11. POST CLOSING TAX INCENTIVE. 17 12. RELEASE. 18 13. GENERAL. 18 13.1. Expenses. 18 13.2. Notices. 18 13.3. Entire Agreement. 20 13.4. Governing Law; CONSENT TO JURISDICTION. 20 13.5. Sections and Section Headings. 20 13.6. Assigns. 20 13.7. Further Assurances. 21 13.8. No Implied Rights or Remedies. 21 13.9. Knowledge. 21 13.10. Counterparts. 21 13.11. Satisfaction of Conditions Precedent. 21 13.12. Time is of the Essence and Best Efforts. 21 13.13. Survival of Representations and Warranties. 21 Schedules 4.5 Proceedings 4.6 Material Liabilities 7.5 Required Consents 7.9 Resignations of Directors and Officers Exhibits A Assignment and Assumption Agreement B Confidentiality Agreement C PREPA Waiver Agreement 2. STOCK PURCHASE AND ASSIGNMENT AGREEMENT THIS STOCK PURCHASE AND ASSIGNMENT AGREEMENT (this "Agreement") is dated as of the 23rd day of December, 1998, by and between (i) EME del Caribe, a Cayman Islands company limited by shares ("Buyer") and Edison Mission Energy, a California corporation ("Assignee," collectively with the Buyer, the "Buyer Parties") and (ii) KES Puerto Rico, L.P., a Bermuda exempted limited partnership ("KPR"), KENETECH Energy Systems, Inc., a Delaware corporation ("KES") and KES Bermuda, Inc., a Delaware corporation ("KBI", collectively with KPR and KES, the "KES Entities"). WHEREAS, KPR owns a fifty percent (50%) interest in EcoElectrica Holdings, Ltd., a Cayman Islands company limited by shares (the "Company"), in the form of the issued and outstanding Class B Shares (as defined in Section 4.11 hereof) of the Company (the "Interest"); WHEREAS, the Company directly owns a one hundred percent (100%) interest in EcoElectrica, Ltd., a Cayman Islands company limited by shares (the "General Partner"), and owns a ninety-nine percent (99%) interest in EcoElectrica, L.P., a Bermuda exempted limited partnership (the "Project Partnership"), which was formed to develop, design, finance, construct, own and operate an approximately 540 megawatt (net) natural gas-fired cogeneration facility, liquefied natural gas import terminal, a desalination facility and certain other auxiliary and related assets (collectively, the "Project"); the General Partner owns a one percent (1%) interest in the Project Partnership; WHEREAS, in order to set forth an understanding regarding certain elements of the relationships involving the Company, the Project Partnership and the General Partner, KPR entered into that certain Shareholders Agreement, dated as of December 10, 1997, by and among KPR, the Company and Buenergia Gas & Power, Ltd., a Cayman Islands company limited by shares (the "Shareholders Agreement"); WHEREAS, KBI has entered into an Administrative Services Agreement with the Project Partnership, dated as of October 31, 1997 (the "Administrative Services Agreement"), pursuant to which KBI receives a fee, plus expense reimbursement for providing advisory services to the Project Partnership; WHEREAS, KES has received a note issued by the Project Partnership payable to KES in the original principal amount of $22,064,185 for unpaid development fees (the "Project Note"); WHEREAS, KPR desires to sell the Interest to Buyer, KES desires to assign all of its rights and other interests in the Project Note to Assignee, and KBI desires to assign all of its rights and other interests in the Administrative Services Agreement to Buyer, and Buyer desires to purchase the Interest of KPR in the Company and to take in assignment the Administrative Services Agreement from KBI, and Assignee desires to take in assignment the Project Note from KES, each upon the terms and subject to the conditions contained in this Agreement; NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, the Buyer Parties and the KES Entities agree as follows: (1) DEFINITIONS. Capitalized terms used herein without definition, which are defined in or by reference in the Shareholders Agreement, shall have the same meanings herein as therein. (2) SALE AND PURCHASE. Subject to the terms and conditions set forth in this Agreement: (a) KPR agrees to sell to Buyer, and Buyer agrees to purchase from KPR, the Interest; (b) KES agrees to assign to Assignee, and Assignee agrees to take in assignment from KES, all of KES's rights and other interests in the Project Note; and (c) KBI agrees to assign to Buyer, and Buyer agrees to take in assignment from KBI, all of KBI's rights and other interests in the Administrative Services Agreement. In exchange for these items, the Buyer Parties shall tender payment of an aggregate cash purchase price equal to $213,500,000, which payment shall be applied in accordance with Section 3.2(c) plus the payment, if any, to be made pursuant to Section 11 (such payments collectively, the "Purchase Price"). 3. CLOSING. 3.1 Time and Place. The closing of the sale and purchase of the Interest and the assignment of the Project Note and the Administrative Services Agreement (the "Closing") shall be held at the offices of Bingham Dana LLP, 399 Park Avenue, New York, NY 10022-4689 at 10:00 a.m. on December 23, 1998, or at such other time, or at such other place as the Buyer Parties and the KES Entities may agree. The date on which the Closing is actually held hereunder is sometimes referred to herein as the "Closing Date". 3.2 Transactions at Closing. At the Closing: (a) KPR shall deliver to Buyer, free and clear of any lien, claim or encumbrance, a certificate representing all of the Interest, duly endorsed in blank or with duly executed stock powers attached, and Buyer shall undertake certain duties and obligations under the Shareholder's Agreement pursuant to an Assignment and Assumption Agreement in the form of Exhibit A-1 hereto. KBI shall assign to Buyer, free and clear of any lien, claim or encumbrance, the Administrative Services Agreement pursuant to an Assignment and Assumption Agreement in the form of Exhibit A-2 hereto. KES shall assign to Assignee, free and clear of any lien, claim or encumbrance, the Project Note pursuant to an Assignment and Assumption Agreement in the form of Exhibit A-3 hereto (collectively, the "Assignment and Assumption Agreements"). (b) The Buyer Parties shall execute and deliver to the KES Entities the following documents: (i) an Equity Support Guarantee in the form attached as Exhibit E-2-B to the Depositary Agreement (as defined in the Credit Agreement), providing a $33.5 million equity funding guarantee; (ii) a Master Guarantee and Support Instrument in the form attached as Exhibit D-1 to the Depositary Agreement; (iii) a Guarantee Assumption Agreement in the form attached as Exhibit C to the Shareholders Agreement; (iv) a Consent and Assignment in the form of that which was delivered by KBI on October 31, 1997, mutatis mutandis, pursuant to the Credit Agreement; and (v) the Assignment and Assumption Agreements in the forms of Exhibit A-1, A-2, and A-3. (c) The Buyer Parties shall deliver the Purchase Price by wire transfer of immediately available funds: (i) to Fleet National Bank, Hartford, CT to ABA #011-500-010, for the account of Lyon Credit Corporation at Account No. 007030-0226 in the amount of $27,351,564.53; (ii) to Sanwa Bank California, Los Angeles, CA to ABA #122003516, for the account of KENETECH Windpower Inc. Debtor in Possession, Account No. 0665-28604, in the amount of $6,500,000; (iii)to Bank of New York, New York, NY to ABA #0210 00018, as Indenture Trustee for GLA #111-565, for further credit to Account No. 308335, for A/C Risk - KENETECH (the account of the Indenture Trustee), in the amount of $145,346,695.50; (iv) to Bank of New York, 48 Wall Street, New York, NY to ABA #021000018, for the account of Fieldstone Private Capital Group, L.P. at Account Name: FPCG Services, L.P., Account No.: 8900148829, in the amount of $2,000,000; (v) to Sanwa Bank California, San Francisco, CA to ABA #122003516, for the account of KENETECH Energy Systems, Inc., Payroll Account, Account No. 0662-26054 in the amount of $8,000,000; and (vi) the balance of the Purchase Price (not including any amount payable under Section 11) to Bank of New York, New York, NY to ABA #021000018, Account No. 8900 11 8245, for the account of Fidelity Group of Funds Institutional Account, for further credit to KENETECH Energy Systems, Inc., Account No. 0059-00080389620 in the amount of $24,301,740.00. (vii)The Buyer Parties shall make the payment to PREPA under the Waiver Agreement (each as defined in Section 7.4), to Citibank, NY, New York, NY to ABA #021000089, for Citibank, PR as Receiving Bank, Account No. 10-99-1506, for further credit to PREPA Citi-Cogen Funds, Account No. 0-400015-112, in the amount of $29,275,000; 4. REPRESENTATIONS AND WARRANTIES OF THE KES ENTITIES. The KES Entities represent and warrant to the Buyer Parties as follows: 4.1 Organization; Authority. Each of KES and KBI is a corporation duly organized, validly existing and in good standing in the State of Delaware. KPR is a Bermuda exempted limited partnership under the Bermuda Exempted Limited Partnership Act, 1992 and the Bermuda Limited Partnership Act, 1883, duly established, validly existing and in good standing in Bermuda. Each of the Company and the General Partner is a Cayman Islands company limited by shares, duly organized, validly existing and in good standing in the Cayman Islands. The Project Partnership is a limited partnership under the Bermuda Exempted Limited Partnership Act, 1992 and the Bermuda Limited Partnership Act, 1883, duly established, validly existing and in good standing in Bermuda. Each of the KES Entities has delivered to the Buyer Parties complete and correct copies of its limited partnership or corporate charter documents and by-laws or other organizational documents, and all amendments thereto, as applicable. KPR has delivered to Buyer complete and correct copies of the limited partnership or corporate charter documents and by-laws or other organizational documents and all amendments thereto, as applicable, for the Company, the General Partner and the Project Partnership. Each of KPR, KES and KBI has all requisite power and authority under its limited partnership or corporate charter documents and bylaws or other organizational documents, as applicable, and all amendments thereto, and under applicable laws to execute and deliver this Agreement and to consummate the transactions contemplated hereby, and to perform all its agreements and obligations under this Agreement in accordance with its terms, and to sell the Interest and assign the Administrative Services Agreement to the Buyer and the Project Note to Assignee. 4.2 Approval; Binding Effect. The KES Entities have given all necessary notices and obtained all necessary authorizations and approvals of any Person, other than a Governmental Person, required for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by each of the KES Entities and constitutes the legal, valid and binding obligation of each of the KES Entities, enforceable against each of the KES Entities in accordance with its terms, except to the extent such enforceability is subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or other law affecting or relating to creditors' rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.3 Non-Contravention. Neither the execution and delivery of this Agreement by any KES Entity nor the consummation by any KES Entity of the transactions contemplated hereby will constitute a violation of, or be in conflict with, or constitute or create a default under, or result in the creation or imposition of any lien, claim or encumbrance upon any property of any KES Entity, KENETECH Corporation ("KES's Parent"), the Company, the General Partner or the Project Partnership, which either individually or in the aggregate could reasonably be expected to have a material adverse effect on the business, operations or financial condition of the Company, the General Partner, the Project Partnership or any of the KES Entities taken as a whole (a "Material Adverse Effect") pursuant to: (a) the charter documents or by-laws or other organizational documents of KES's Parent, the Company, the General Partner, the Project Partnership or any of the KES Entities, each as amended to date; (b) any material agreement or commitment to which KES's Parent, the Company, the General Partner, the Project Partnership or any of the KES Entities is a party; (c) the Settlement Agreement and any other agreement to which KES is or may be a party with its creditors; or (d) any statute or any judgment, decree, order, regulation or rule of any court or other Governmental Person. 4.4 Governmental Consents. No consent, approval or authorization of, or registration, qualification or filing with, any Governmental Person is required for the execution and delivery of this Agreement by the KES Entities or for the consummation by the KES Entities of the transactions contemplated hereby, other than those already obtained on or prior to Closing. 4.5 Proceedings. Except as disclosed in Schedule 4.5, to the actual knowledge of its officers, the KES Entities know of no material actions, suits, proceedings or investigations pending or threatened against or affecting any KES Entity, the Company, the General Partner or the Project Partnership, in, by or before any court, agency, commission, arbitrator, board, authority or other tribunal. 4.6 Financial Statements. Each unaudited balance sheet dated December 31, 1997, March 31, 1998, June 30, 1998 and September 30, 1998, and statement of income for the quarter then ended, delivered to Buyer with respect to each KES Entity, the Company, the General Partner and the Project Partnership ("Financial Statements") has been prepared in accordance with generally accepted accounting principles, consistently applied, and fairly and accurately presents the financial condition and results of operations of each such entity as at the date and for the period shown therein, subject to normal year-end adjustments made to conform such statements to generally accepted accounting principles. Except as (a) reflected in such Financial Statements or, (b) disclosed in Schedule 4.6 and which will be released at Closing, none of the KES Entities, the Company, the General Partner or the Project Partnership has any material liabilities or obligations, which are required to be disclosed in a balance sheet prepared in accordance with generally accepted accounting principles. Since the date of such Financial Statements, each of the KES Entities, the Company, the General Partner and the Project Partnership has conducted its business in the ordinary course of its business consistent with past practice, and has not entered into any material agreement, commitment or transaction except in the ordinary course of its business or increased its indebtedness (other than by means of preexisting credit facilities) or other material liabilities. 4.7 Shareholders Agreement. Prior to the date hereof, KPR has delivered to the Buyer Parties, true, correct and complete copies of the Company's charter documents and the Shareholders Agreement, each of which is in full force and effect and has not been amended, modified or supplemented. 4.8 Brokers. Except for Fieldstone Private Capital Group, L.P., which has been retained by KES, no KES Entity has retained, utilized or been represented by any broker or finder in connection with the transactions contemplated by this Agreement. KES shall be responsible for the payment of all commissions, fees and expenses of Fieldstone Private Capital Group, L.P., other than those payable by the Buyer in connection with the Opinion mentioned in Section 7.11. 4.9 Bankruptcy. Neither KES's Parent, the Company, the General Partner, the Project Partnership nor any KES Entity has filed any voluntary petition in bankruptcy or been adjudicated as bankrupt or insolvent, filed any petition or answer seeking any reorganization, liquidation, dissolution or similar relief under any federal bankruptcy, insolvency, or other debtor relief law, or sought or consented to or acquiesced in the appointment of any trustee, receiver, conservator or liquidator of all or any substantial part of its properties. No court of competent jurisdiction has entered an order, judgment or decree approving a petition filed against KES's Parent or any KES Entity seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any bankruptcy act, or other debtor relief law, and no other liquidator, receiver or trustee has been appointed for KES's Parent, the Company, the General Partner, the Project Partnership or any KES Entity, or for all or any substantial part of their properties, nor has any involuntary petition been filed with respect to any such entity. The Settlement Agreement and Release dated as of May 13, 1998, among KES, KENETECH Windpower, Inc. ("KWI"), the Official Unsecured Creditors' Committee of KWI, and certain other parties named therein (the "Settlement Agreement") is in full force and effect and no breach or default has occurred thereunder or will occur thereunder as a result of the transactions contemplated to occur pursuant to this Agreement at Closing. 4.10 Investment Company Act. None of the KES Entities, the Company, the General Partner or the Project Partnership is an "investment company" or a company "controlled" by an investment company, within the meaning of the Investment Company Act of 1940, as amended. 4.11 Capitalization. (a) The Company. The initial authorized capital of the Company consists of 500,000,000 Class A ordinary limited liability shares (the "Class A Shares") and 500,000,000 Class B ordinary limited liability shares (the "Class B Shares"), each with a par value of US$0.01. On the Closing Date, 100 Class A Shares and 100 Class B Shares are issued and outstanding. All the Class B Shares are validly issued and outstanding, fully paid and nonassessable, are not subject to any transfer restrictions, except as set forth in the Shareholders Agreement and in applicable securities laws, and are owned of record and beneficially by KPR, free and clear of any claims, liens, or encumbrances, except as provided in the Shareholders Agreement. The Company does not have outstanding rights (preemptive or other) to subscribe for or to purchase, or any warrants for the purchase of, or any agreements, understandings or arrangements providing for or other obligations requiring the issuance (contingent or other) of, or any calls, options, commitments or claims of any character relating to, any shares of any class of its capital stock or any securities convertible or exchangeable for any such stock. The Company is not subject to any obligations (contingent or other) to repurchase or otherwise acquire or rescind the sale of any shares of any class of its stock or any securities, rights or options related thereto. (b) The Project Partnership. The Company directly owns (i) a ninety-nine percent (99%) interest in the Project Partnership and (ii) a one hundred percent (100%) in the General Partner, which directly owns a one percent (1%) interest in the Project Partnership. 4.12 Special Purpose Entities. Each of KPR and KBI is a special purpose entity, created as a part of the vehicle through which KES holds its interests in the Project. Neither KPR nor KBI engages in any other business or activities or holds any material assets other than its indirect interest in the Project, or is subject to any material contractual liabilities, other than those incurred in connection with the Project, all of which assets and liabilities have been disclosed to Buyer in writing on or prior to the date of this Agreement. Such disclosed liabilities include certain liabilities associated with employment contracts of certain KES Entity employees and the debt of KES Penuelas Holdings, Inc., a subsidiary of KES, to Lyon Credit Corporation. All obligations of KES Penuelas Holdings, Inc. owing to Lyon Credit Corporation shall be paid in full on the Closing Date. All compensation related to the Project payable to employees of the KES Entities pursuant to such employment contracts as of the Closing Date (other than normal salary compensation) will be paid in full from the proceeds of the transaction contemplated hereby. 4.13 Title to the Interest, Liens, etc. Upon consummation of the transactions contemplated hereby at Closing, Buyer and Assignee, as the case may be, will have, record and beneficial ownership of, and good marketable title to the Interest, the Administrative Services Agreement and the Project Note, free and clear of any mortgage, lien, pledge, charge, security interest, encumbrance, option, equity or other adverse claim thereto, except as set forth in the Shareholders Agreement and the Credit Agreement with respect to the subordination provisions applicable to the Project Note and the Administrative Services Agreement. 4.14 All Required KPR Capital Contributions Made Under Shareholders Agreement. KPR has made all capital contributions required by the terms of the Shareholders Agreement payable prior to the date hereof. No capital contributions are required to be made by KPR in the future, except as required by the terms of the Shareholders Agreement. 4.15 The Project. (a) Project Contracts. Prior to the date of this Agreement, the KES Entities have delivered to the Buyer Parties true, correct and complete copies of all Project Agreements, and all amendments, supplements and modifications thereto. The KES Entities have not received any notice of the occurrence of any default or event of default or material breach by the Project Partnership, as such terms are defined under any of the Project Agreements. (b) Project Note and Administrative Services Contract. Each of the Project Note and the Administrative Services Agreement is in full force and effect and has not been modified, amended or supplemented. No breach or default by any KES Entity has occurred and is continuing under the Project Note or the Administrative Services Agreement, or will occur as a result of the transactions contemplated to occur at Closing pursuant to this Agreement. (c) Ownership of Property and Assets. As of the date hereof, each of the Company, the General Partner and the Project Partnership, as the case may be, has good and marketable title to, and is in peaceable possession of, all properties and assets of the Company, the General Partner and the Project Partnership, respectively, shown on the most recent balance sheet of each of the Company, the General Partner and the Project Partnership, as the case may be, free and clear of any material liens, claims or encumbrances, except those granted by the Project Partnership, the Company and the General Partner pursuant to the Financing Documents. (d) Tax Matters. Each of the KES Entities, the Company, the General Partner and the Project Partnership has filed all federal, state and local tax returns it is required to file, has paid any tax it is required to pay to the extent due (other than any tax it is contesting in good faith and by appropriate proceedings and with appropriate reserves therefore). Neither KPR, the Company, the General Partner nor the Project Partnership has taken any action to affect in a material adverse manner the Grant of Industrial Tax Exemption (Case No. 95-8-1-6) and its amendment (Case No. EI-96-5 (95-8-1-6)A and Case No. EI-97-7(95-8-1-6)B) by the government of Puerto Rico. On November 25, 1998, the Project Partnership filed a Petition for Conversion to the Tax Incentives Act of 1998 (Case No. 95-8-I-6) (the "Project Partnership's Tax Petition"). (e) Conduct of Business. The Company, the General Partner and the Project Partnership have conducted no business other than their activities with respect to the Project. The Company, the General Partner and the Project Partnership have no subsidiaries except as set forth in this Agreement. (f) Qualifying Facility Status. Without regard to the ownership criteria set forth in 18 C.F.R. S~292.206, the Project is designed to meet all requirements applicable to qualifying cogeneration facilities pursuant to 18 C.F.R. Sec 292.203(b). The Federal Energy Regulatory Commission on November 1, 1996, in Docket No. QF 95-328-001, found the project to be a qualifying facility pursuant to its regulations. A Notice of self-recertification was filed by the Project Partnership on December 15, 1997, in Docket No. QF 95-328-002. Following the consummation of the transactions pursuant to this Agreement, the Project will no longer qualify to be a qualifying facility due solely to the change in ownership. Other than the consummation of the transaction pursuant to this Agreement, there is no action threatened or pending in respect of the qualifying facility status of the Project and there have been no other changes that would affect the qualifying facility status of the Project. (g) Foreign Utility Company Status. The Project Partnership is a "foreign utility company" within the meaning to Section 33(a) of the Public Utilities Holding Company Act of 1935, as amended by the Energy Policy Act of 1992 ("PUHCA"), and is therefore not a public utility company (which include both electric and gas utility companies) under Section 2(a)(5) of PUHCA. Pursuant to Section 33(a)(3) of PUHCA, a notice of foreign utility company status was filed on December 15, 1997, with the Securities and Exchange Commission. There is no action threatened or pending in respect of the status of the Project Partnership as a foreign utility company under PUHCA. (h) Securities Act. Based in part on the representations and warranties of Buyer set forth in Section 5.9 hereof, the transfer by KPR to Buyer of the Interest is exempt from the registration requirements of the Securities Act of 1933, as amended from time to time, and neither KPR nor any Affiliate of KPR has taken any action with respect to the Interest, which would adversely effect the exemption of the sale of the Interest pursuant hereto from such registration requirements. (i) Employees and Employee Benefits. Neither the Company, the General Partner nor the Project Partnership has ever maintained or contributed to, nor has the Company, the General Partner or the Project Partnership ever been required to contribute to, any "employee welfare benefit plan" (as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), any "employee pension benefit plan" (as defined in Section 3(2) of ERISA), or any foreign pension benefit plan, which provides or results in the type of benefits described in section 3(1) or 3(2) of ERISA. Neither the Company, the General Partner nor the Project Partnership has any ERISA Affiliates (as defined in Section 3(9) of ERISA). 4.16 Limitations on Representations and Warranties. KPR is selling to Buyer and Buyer is buying from KPR the Interest, and thereby its indirect interest in the Project Partnership and the Project, KES is assigning to Assignee and Assignee taking in assignment from KES, the Project Note and KBI is assigning to Buyer and Buyer is taking in assignment from KBI, the Administrative Services Agreement, (together with the Interest and the Project Note, the "Purchased Assets"), each on a "AS IS" and "WITH ALL FAULTS" basis, except as expressly set forth herein. The Buyer Parties hereby acknowledge that OTHER THAN THOSE SPECIFIC REPRESENTATIONS AND WARRANTIES MADE IN THIS SECTION 4, THE KES ENTITIES HAVE NOT MADE, DO NOT MAKE, AND HEREBY DISCLAIM ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO SUCH PURCHASED ASSETS INCLUDING, BUT NOT LIMITED TO, THE DESIGN, CAPACITY, CONDITION, MERCHANTABILITY, OR FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE, OF ANY PORTION OF THE PURCHASED ASSETS, INCLUDING WITHOUT LIMITATION, THE INTEREST AND THE INDIRECT INTEREST IN THE PROJECT PARTNERSHIP AND/OR THE PROJECT. The Buyer Parties further acknowledge that the KES Entities are not, except to the extent of representation and warranties set forth in this Section 4, responsible for compliance with requirements of any laws, ordinances, governmental rules or regulations including, but not limited to, laws with respect to environmental matters, patent, trademark, copyright or trade secret infringement, or for any direct, indirect, incidental, punitive, consequential or other damages arising out of the ownership, use of or inability to use the Purchased Assets, including any portion of the Interest or the indirect interest in the Project Partnership or the Project. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Each of the Buyer Parties represent and warrant to the KES Entities as follows: 5.1 Organization; Authority. Buyer is a Cayman Islands exempted company limited by shares, duly organized, validly existing and in good standing under the laws of the Cayman Islands. Assignee is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Buyer and Assignee each has all requisite power and authority under its charter or other organization documents as applicable and applicable laws to execute and deliver this Agreement and to consummate the transactions contemplated hereby, and to perform all its agreements and obligations under this Agreement in accordance with its terms, and to purchase the Interest and take assignment of the Administrative Services Agreement and the Project Note from the KES Entities. 5.2 Corporate Approval; Binding Effect. Each of the Buyer Parties has obtained all necessary authorizations and approvals required for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by such Buyer Party and constitutes the legal, valid and binding obligation of such Buyer Party, enforceable against such Buyer Party in accordance with its terms, except to the extent such enforceability is subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or other law affecting or relating to creditors' rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3 Non-Contravention. Neither the execution and delivery of this Agreement by such Buyer Party nor the consummation by such Buyer Party of the transactions contemplated hereby will constitute a violation of, or be in conflict with, constitute or create a default under, or result in the creation or imposition of any liens upon any property of such Buyer Party pursuant to (a) the charter documents or by-laws or other organization documents of such Buyer Party, each as amended to date; (b) any agreement or commitment to which such Buyer Party is a party or by which such Buyer Party or any of its properties is bound or to which such Buyer Party or any of its properties is subject; or (c) any statute or any judgment, decree, order, regulation or rule of any court or other Governmental Person relating to Buyer. 5.4 Governmental Consents. No consent, approval or authorization of, or registration, designation, declaration or filing with, any Governmental Person is required for the execution and delivery of this Agreement by such Buyer Party or for the consummation by such Buyer Party of the transactions contemplated hereby, other than those already obtained on or prior to Closing. 5.5 Brokers. Such Buyer Party has not retained, utilized or been represented by any broker or finder in connection with the transactions contemplated by this Agreement. No broker's, finder's or financial advisor's fees or commissions are or will become payable by any KES Entity arising out of any action, or omissions to act on the part of such Buyer Party in connection with the transactions contemplated hereby. 5.6 No Financing. The Buyer Parties have adequate funds at their disposal to finance the Purchase Price on the Closing Date. The consummation of the purchase described in this Agreement is not subject to the Buyer Parties' ability to obtain financing. 5.7 Investment Company Act. Neither the Buyer nor Assignee is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 5.8 Due Diligence Review. Each of the Buyer Parties acknowledges and agrees that, except for the representations and warranties of the KES Entities contained in Section 4 hereof, it is purchasing the Interest and taking assignment of the Administrative Services Agreement and the Project Note on an AS IS/WHERE IS basis. Each of the Buyer Parties further acknowledges and agrees that upon consummation of the transactions contemplated hereby, it will have no further recourse against the KES Entities or KES's Parent with respect to the Interest, the Administrative Services Agreement or the Project Note, except in connection with any breach of such representations and warranties as contemplated by Section 4.16. The Buyer Parties are sophisticated and knowledgeable with respect to independent power projects and related matters and have performed their own independent investigation, with due diligence, assisted by legal counsel and other professionals, of the investment represented by the sale of the Interest, the Administrative Services Agreement and the Project Note and have formed their own independent assessment of the risks and potential returns of the Interest, the Administrative Services Agreement and the Project Note. The Buyer Parties acknowledge that they have completed to their satisfaction their own due diligence investigation with respect to the KES Entities, the Interest, the Project Note and the Administrative Services Agreement. The Buyer Parties, except as to any representation expressly set forth in a closing document, are not relying, to any extent, on any representation or statement of any KES Entity or KES's Parent. 5.9 No Registration; Investment Representation; Accredited Investor; Sophisticated Person. The Buyer Parties acknowledge that the Interest has not been registered under any federal, state or local securities laws, and may not be resold unless permitted under applicable exemptions contained in such securities laws or upon satisfaction of the registration or qualification requirements of such securities laws (nor does KPR have any obligation to effect any such registration). The Buyer Parties will refrain from acquiring, transferring or otherwise disposing of the Interest or any interest therein, in such manner as to violate any registration requirements of any applicable federal, state or local securities laws, and the rules and regulations promulgated thereunder regulating the disposition thereof. Buyer is acquiring the Interest for its own account for investment purposes only, and not with a view to, or for sale in connection with, any distribution or public offering thereof or any portion thereof. The Buyer Parties have extensive financial experience with investments such as the investment contemplated by this Agreement and therefore have the ability to protect their own interests in connection with this Agreement. The Buyer is a "Sophisticated Person" as defined in the Credit Agreement. 5.10 Employee Benefits Plan. The Buyer Parties are buying the Interest, the Administrative Services Agreement and the Project Note with their general assets. No funds used to acquire the Interest, the Administrative Services Agreement or the Project Note will be furnished directly or indirectly out of the assets of or in connection with any Employee Benefit Plan. 5.11 Status as an "Electric Utility". Each Buyer Party is a subsidiary of an electric utility holding company exempt under Section 3(a)(1) of PUHCA. 5.12 Compliance with Confidentiality Agreement. The Buyer Parties have complied with all the terms and conditions of that certain Confidentiality Agreement, by and between KES and Assignee, and attached hereto as Exhibit B (the "Confidentiality Agreement"). 6. INTENTIONALLY OMITTED. 7. CONDITIONS PRECEDENT TO BUYER PARTIES' OBLIGATIONS. The obligation of the Buyer Parties to consummate the Closing shall be subject to the satisfaction at the Closing of each of the following conditions: 7.1 Representations and Warranties True at Closing. The representations and warranties made by the KES Entities in or pursuant to this Agreement shall be true and correct in all material respects at and as of the Closing Date. 7.2 Compliance With Agreement. The KES Entities shall have performed and complied in all material respects with all of their obligations under this Agreement to be performed or complied with by the KES Entities on or prior to the Closing Date. 7.3 Officer's Certificate. The KES Entities shall have delivered to the Buyer Parties in writing, at and as of the Closing, a certificate, in form and substance satisfactory to the Buyer Parties, certifying that the conditions in each of Sections 7.1 and 7.2 hereof have been satisfied. 7.4 Resolution of the QF Issue. As of the Closing Date, KES and Assignee shall have entered into that certain Waiver Agreement with the Puerto Rico Electric Power Authority ("PREPA"), EcoElectrica, L.P., and Enron Development Corp., substantially in the form of Exhibit C hereto (the "Waiver Agreement"). 7.5 Consents. The Buyer Parties shall have received copies of any and all consents set forth on Schedule 7.5, which shall be in full force and effect. 7.6 Suits and Proceedings. There shall not be pending or threatened against the Buyer Parties, any KES Entity, the Company, the General Partner or the Project Partnership, any suit, action, proceeding or investigation seeking to challenge, enjoin, delay or set aside any of the transactions contemplated hereby. 7.7 No Material Adverse Change. Between July 31, 1998, and the Closing Date, there shall be no change in the business or the assets of the Company, the General Partner, any KES Entity, or the Project Partnership, including any Unfavorable Decision (as defined in the Credit Agreement), which either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. 7.8 Resignations of Directors and Officers. Except as set forth on Schedule 7.8 hereto, all the directors, officers and authorized signatories appointed by KPR to the Company, the General Partner and the Project Partnership shall have resigned their positions with the Company, the General Partner or the Project Partnership on or prior to the Closing Date, and all necessary notices shall have been given pursuant to the Shareholders Agreement and the Articles of Association and other organizational documents of the Company, the General Partner and the Project Partnership, as applicable, substituting representatives of the Buyer Parties on the Board of Directors pursuant to the Shareholders Agreement and the Articles of Association of the Company, the General Partner and the Project Partnership as applicable. 7.9 Releases. The KES Entities shall have provided to the Buyer Parties at Closing executed releases of all liens held by Lyon Credit Corporation and by each Person party to the employment contracts listed on Schedule 4.6 a Satisfaction and Discharge from the Bank of New York, as Indenture Trustee and representative of bondholders of KES's Parent evidencing satisfaction and discharge of claims by the bondholders, a receipt or other appropriate documentation acknowledging receipt of funds by the bankruptcy trustee in respect of the KENETECH Windpower Inc. estate in the full amount of KES's Settlement Obligation as defined in the Settlement Agreement in form and substance reasonably satisfactory to the Buyer Parties. 7.10 Affidavit. An affidavit of Michael U. Alvarez in form and substance acceptable to the Buyer Parties addressing certain issues concerning the transactions contemplated under this Agreement shall be signed. 7.11 Fieldstone Fairness Opinion. Fieldstone Private Capital Group, L.P., financial advisor to KES, shall have delivered to the Buyer Parties a written opinion, addressed to the Buyer Parties and dated the Closing Date, addressing the fairness of the terms and conditions of the transactions contemplated under this Agreement. 7.12 KPMG Comfort Letter. KMPG, auditors of KES's Parent shall have delivered to the Buyer Parties a comfort letter dated as of the Closing Date and covering all information included in KES's Parent's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 1998, including a bring down of such information as of the Closing Date, which shall identify any material changes in the financial condition of KES's Parent subsequent to September 30, 1998. 7.13 Notices Under the Credit Agreement. The Project Partnership shall provide a copy to the Buyer Parties of the acknowledgment of receipt by the Administrative Agent of the draft PREPA Waiver Agreement including an acknowledgment that no further action under the Credit Agreement is required by the Project Partnership in respect of executing the PREPA Waiver Agreement, other than the delivery of a certified copy of the same promptly after the execution and delivery thereof. 7.14 Opinion of Counsel. (a) Bingham Dana LLP, special counsel the KES Entities, shall have delivered to the Buyer Parties a written opinion, addressed to Buyer and dated the Closing Date, covering the matters referred to in Sections 4.1, 4.2, 4.3(a), Section 4.3(c) hereof relating to the Settlement Agreement and 4.10 with respect to KES and KBI; (b) Appleby, Spurling & Kempe, special counsel to KPR in Bermuda and Harney, Westwood & Riegels, special counsel to the KES Entities in the British Virgin Islands ("HWR"), shall have each delivered to the Buyer Parties an opinion, addressed to Buyer Parties and dated the Closing Date, having the matters referenced in 4.1, 4.2, 4.3(a) and 4.10 with respect to KPR; and (c) Richards Layton and Finger, special Delaware counsel to KES's Parent, shall have delivered to the Buyer Parties a written opinion, addressed to the Buyer Parties and dated the Closing Date, covering certain issues identified by the Parties to the KES Entities, including but not limited to due authorization by KES's Parent of the transactions contemplated by this Agreement and the corporate separateness of KES's Parent and the KES Entities (other than KPR). 7.15 Certificate, Documents. The Buyer Parties shall have received such other certificates and documents as may be reasonably requested by it with respect to the foregoing matters. 8. CONDITIONS PRECEDENT TO KES ENTITY OBLIGATIONS. The obligation of the KES Entities to consummate the Closing shall be subject to the satisfaction, at the Closing, of each of the following conditions: 8.1 Representations and Warranties True at Closing. The representations and warranties made by the Buyer Parties in this Agreement shall be true and correct in all material respects at and as of the Closing Date. 8.2 Compliance with Agreement. Each of the Buyer Parties shall have performed and complied in all material respects with all of its obligations under this Agreement that are to be performed or complied with by it at or prior to the Closing. 8.3 Officer's Certificate. The Buyer Parties shall have delivered to the KES Entities in writing, at and as of the Closing, a certificate, in form and substance satisfactory to the KES Entities, to the effect that the conditions in each of Sections 8.1 and 8.2 hereof have been satisfied. 8.4 Opinion of Counsel. Hunton & Williams, counsel to Buyer Parties, shall have delivered to the KES Entities a written opinion, addressed to the KES Entities and dated the Closing Date, covering the matters referred to in Sections 5.1, 5.2 and 5.3. W.S. Walker & Company, special counsel to the Buyer in the Cayman Islands, shall have delivered to the KES Entities a written opinion, addressed to the KES Entities and dated the Closing Date, covering the matters referenced to in Sections 5.1, 5.2 and 5.3 with respect to the Buyer. 8.5 Assumption of Certain Obligations. Buyer shall have executed and/or delivered the documentation required in Section 3.2(b) and the cash collateral pledged by KES to secure its obligation to Union Bank of California, shall have been released by Union Bank of California to KES. 8.6 Certificates, Documents. The KES Entities shall have received such other certificates and documents as may be reasonably requested by them with respect to the foregoing material. 9. CONFIDENTIAL INFORMATION. The KES Entities and the Buyer Parties agree that the Confidentiality Agreement shall remain in full force and effect for the duration thereof, and that the parties hereto shall be governed by its terms and conditions, which are hereby incorporated into this Agreement by reference. 10. HSR ACT. Each of the Buyer Parties and the KES Entities acknowledge that they have filed with the United States Department of Justice and the United States Federal Trade Commission the Notification and Report Form required to be filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), concerning the transactions contemplated hereby, and that the waiting period for such filing specified in the HSR Act has expired. 11. POST CLOSING TAX INCENTIVE. Within five (5) business days of receipt by the Company of notice of final approval not subject to appeal by the Government of Puerto Rico of the Project Partnership's Tax Petition referred to in Section 4.15(d), the Buyer Parties shall remit to KES by wire transfer to Sanwa Bank California, San Francisco, CA to ABA #122003516, for the account of KENETECH Energy Systems, Inc., Account No. 0668-26065, a payment in an amount equal to $5,000,000. 12. RELEASE. In consideration of the Purchased Assets, and for other valuable consideration, the receipt of which is hereby acknowledged, each of the Buyer Parties, for itself and on behalf of its successors and assigns, hereby releases and discharges the KES Entities and KES's Parent, their past and present partners, heirs, assigns, successors, officers, directors, agents, employees and affiliates of and from any and all actions, causes of actions, claims, demands, damages, liabilities, costs or expenses of any kind arising from the beginning of time to the date hereof in connection with the KES Entities, KES's Parent, the Company, the General Partner, the Project Partnership and/or the Project, except to the extent any liability for breach of representations and warranties set forth in Section 4 to the extent set forth in Section 4.13. 13. GENERAL. 13.1 Expenses. All expenses of the preparation, execution and consummation of this Agreement and of the transactions contemplated hereby, including, without limitation, attorneys', accountants' and outside advisers' fees and disbursements, shall be borne by (a) the Buyer Parties, if incurred for the Buyer Parties' account or (b) the KES Entities, if incurred for the account of the KES Entities or any of the KES Entities. Notwithstanding the foregoing, all commissions, fees and expenses of Fieldstone Private Capital Group, L.P. shall be paid by the KES Entities, except for those incurred by the Buyer Parties at their request, which shall be paid by the Buyer Parties. 13.2 Notices. All notices, demands and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally or by overnight courier or if mailed by certified mail, return receipt requested, postage prepaid, or sent by written telecommunication, as follows: If to the KES Entities, to: KENETECH Energy Systems, Inc. 1501 E. Main Street P.O. Box 1007 Meriden, CT 06450-1007 Tel: (203) 238-9892 Fax: (203) 238-7874 Attention: Aaron Samson, Vice President Scott Taylor, Vice President with copies sent contemporaneously to: KENETECH Corporation 500 Sansome Street, Suite 410 San Francisco, CA 94111 Tel: (415) 984-8585 Fax: (415) 984-8100 Attention: Michael U. Alvarez Vice President and Chief Financial Officer and to: Marc A. Reardon, Esq. Bingham Dana LLP 150 Federal Street Boston, Massachusetts 02110 Tel: (617) 951-8000 Fax: (617) 951-8736 If to Assignee, to: Edison Mission Energy 18101 Von Karman Avenue Suite 1700 Irvine, CA 92612 Tel: (949) 798-7852 Fax: (949) 833-9274 Attention: Michael P. Childers Regional Vice President If to Buyer, to: EME del Caribe c/o W.S. Walker & Company P.O. Box 265GT Caledonian House Grand Cayman, Cayman Islands Attn: Michael P. Childers, Director with a copy sent contemporaneously to: Edison Mission Energy 18101 Von Karman Avenue Suite 1700 Irvine, CA 92612 Tel: (949) 798-7787 Fax: (949) 752-1420 Attn: Reggie Rice, Esq. Director, Legal Department Americas Bruce D. Peterson, Esq. Hunton & Williams 1900 K Street, N.W. Washington, D.C. 20006-1109 Tel: (202) 955-1521 Fax: (202) 788-2201 13.3 Entire Agreement. This Agreement, together with the Confidentiality Agreement, incorporated herein by reference and the Assignment and Assumption Agreements, entered into contemporaneously herewith, contain the entire understanding of the parties, supersede all prior agreements and understandings relating to the subject matter hereof and shall not be amended except by a written instrument hereafter signed by all of the parties hereto. If the terms of this Agreement shall conflict with any of those of the Assignment and Assumption Agreements, this Agreement shall govern. 13.4 Governing Law; CONSENT TO JURISDICTION. (a) The validity and construction of this Agreement shall be governed by the internal laws (and not the choice-of-law rules other than Section 5-1401 of the New York General Obligations Law) of the State of New York. (b) The parties agree that any suit based upon or arising out of this Agreement or the dealings or the relationship between or among the KES Entities and Buyer Parties and either party's successors and assigns may be brought in the courts of the State of New York or the Federal Court of the Southern District of New York and consent to the non-exclusive jurisdiction of such court and to service of process in any such suit being made upon either party by mail in the manner specified in Section 13.2 hereof. Each of Buyer Parties and the KES Entities hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit was brought in an inconvenient forum. 13.5 Sections and Section Headings. All enumerated subdivisions of this Agreement are herein referred to as "Section" or "subsection." The headings of Sections and subsections are for reference only and shall not limit or control the meaning thereof. 13.6 Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. Neither this Agreement nor the obligations of any party hereunder shall be assignable or transferable by such party without the prior written consent of the other parties hereto, except that either of the Buyer Parties may assign or transfer its rights hereunder to one or more Affiliates, without the prior written consent of the KES Entities. Such transfer shall not relieve either of the Buyer Parties of any of its obligations hereunder. 13.7 Further Assurances. The KES Entities and Buyer Parties shall execute and deliver to all appropriate other parties such other instruments as may be reasonably required in connection with the performance of this Agreement and each shall take all such further actions as may be reasonably required to carry out the transactions contemplated by this Agreement. 13.8 No Implied Rights or Remedies. Except as otherwise expressly provided herein, nothing herein expressed or implied is intended or shall be construed to confer upon or to give any person, firm or corporation, other than the KES Entities and the Buyer Parties and their respective shareholders, any rights or remedies under or by reason of this Agreement. 13.9 Knowledge. Whenever the phrase "to the knowledge of the KES Entities" or another similar qualification is used herein, the relevant knowledge is limited solely to the actual knowledge the officers and directors of the KES Entities, without imputing to the KES Entities any knowledge of any other Person. 13.10 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 13.11 Satisfaction of Conditions Precedent. The KES Entities and Buyer Parties will each use their best efforts to cause the satisfaction of the conditions precedent contained in this Agreement; provided, however, that nothing contained in this Section 14.11 shall obligate any party hereto to waive any right or condition under this Agreement. 13.12 Time is of the Essence and Best Efforts. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence. 13.13 Survival of Representations and Warranties. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Closing, regardless of any investigation made by or on behalf of any party hereto; provided, however, that all representations and warranties (and any claim for indemnification made in respect thereof) shall expire and be of no further force and effect from and after the date six (6) months following the Closing except to the extent a claim is made in good faith by the aggrieved party against the other party with respect thereto prior to the expiration of such 6 month period. If, under any applicable federal or state bankruptcy, insolvency, reorganization or other laws relating to creditors' rights generally, any of the transfers contemplated by S3.2(a) or the payment contemplated by S3.2(d) is avoided or invalidated within six (6) years of the Closing, Buyer Parties shall have a claim for damages to the extent of any such avoidance or invalidation; and any claim for damages they may have as a result of such avoidance or invalidation shall be expressly preserved. IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Agreement to be duly executed and delivered by their respective duly authorized officers as of the date and year first above written. SELLER: KES PUERTO RICO L.P. By: KES LNG, Ltd., its General Partner By: Name: Michael U. Alvarez Title: President KENETECH ENERGY SYSTEMS, INC. By: Name: Michael U. Alvarez Title: President KES BERMUDA, INC. By: Name: Michael U. Alvarez Title: President BUYER PARTIES: EME DEL CARIBE By: Name: Title: EDISON MISSION ENERGY By: Name: Title: Schedule 4.5 Proceedings 1. Settlement Agreement - KENETECH Energy Systems, Inc. Schedule 4.6 Material Liabilities 1. Employment Contracts for: Michael U. Alvarez Aaron T. Samson Scott J. Taylor Christopher Diez Schedule 7.5 Required Consents 1. Filing with Office of Industrial Tax Exemption of Puerto Rico, request for approval of Transfer. 2. Puerto Rico Electric Power Authority waiver of requirement under Power Purchase Agreement that Project maintain Qualifying Facility status by entry into a Waiver Agreement, substantially in the form of Exhibit C. Schedule 7.8 Resignation of Directors, Officers and Authorized Signatories The following individuals shall resign as of the Closing Date: 1. Company: A. Directors: Michael U. Alvarez, Director Aaron T. Samson, Director B. Officers: Michael U. Alvarez, Assistant Secretary Aaron T. Samson, Assistant Secretary C. Authorized Signatory: Michael U. Alvarez Aaron T. Samson Scott J. Taylor Mark Lerdal Dianne Urhausen Jorge El Koury 2. General Partner: EcoElectrica, Ltd. A. Directors: Michael U. Alvarez, Director Aaron T. Samson, Director B. Officers: Michael U. Alvarez, Assistant Secretary Aaron T. Samson, Assistant Secretary C. Authorized Signatory: Michael U. Alvarez Aaron T. Samson Scott J. Taylor Mark Lerdal Dianne Urhausen Jorge El Koury 3. Project Partnership: None Exhibit C Form of Waiver Agreement (form to be attached) EX-21.0 6 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARIES OF THE REGISTRANT Subsidiaries of KENETECH Corporation as of 03/31/99: 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 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) KENETECH Facilities Management, Inc. (Delaware) KENETECH International Ltd. (Delaware) Energia Eolica de Galicia, S.A. (Spain) Energie Eolienne KENETECH, Inc./KENETECH Windpower, Inc. (Quebec) KW Groningen B.V. (Netherlands) KW Eemsmond B.V. (Netherlands) KENETECH Merger Company (Delaware) KENETECH Windpower 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) KC One Company (Delaware) KENETECH Assembly and Test, Inc. (Delaware) KENETECH Canadian Operations, Inc. (Alberta) KENETECH Finance Company (Delaware) KENETECH Project Company (Delaware) KENETECH Leasing Company (Delaware) USW Delta Company (Delaware) KENETECH FSC, Inc. (Barbados) KW Boulevard I, Inc. (Delaware) KW Boulevard II, Inc. (Delaware) KW Eemsmond GP, Inc. (Delaware) KW Eemsmond LP, Inc. (Delaware) KW Europe Project Development Limited Liability Company KW India, Inc. (Delaware) KW La Rumorosa I, Inc. (Delaware) KW La Rumorosa II, Inc. (Delaware) KW Solano I, 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) U.S. Windpower 1984, Inc. (California) US WEG, Inc. (Delaware) USW WindRiver Company (Delaware) USW WPP93 GP, Inc. (Delaware) Windplant Operations B.V. (Netherlands) Windpower Management Associates 1985-3, Inc. (California) Windpower Partners 1993 (SCE), Inc. (Delaware) WPP94 GP, Inc. (Delaware) KW Transmission, Inc. KENETECH Wood Fuels, Inc. (Delaware) KWF Chateaugay, Inc. (Delaware) NOTE: * designates entities with multiple parents. EX-23.1 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statement No. 33-69054 on Form S-8. EX-27 8 FDS -- YEAR ENDING 12/31/98 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-31-1998 JAN-01-1998 DEC-31-1998 1 67,424 0 1,079 0 0 84,461 729 705 84,485 43,564 0 0 0 4 (3,356) 84,485 472 247,472 2,218 39,015 0 0 (17,524) 185,486 53,914 131,572 0 0 0 131,572 3.20 3.20
-----END PRIVACY-ENHANCED MESSAGE-----