-----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, FE4v46xQoh+Rv301g0khim3kysgtAt7YsfFDTWWKwbM+zV8oy3hN7ZdF8CO1nPQJ GR2PX1+VvOJROVm0VVFq9A== /in/edgar/work/0000950131-00-006104/0000950131-00-006104.txt : 20001108 0000950131-00-006104.hdr.sgml : 20001108 ACCESSION NUMBER: 0000950131-00-006104 CONFORMED SUBMISSION TYPE: SC TO-T PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20001107 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: KENETECH CORP CENTRAL INDEX KEY: 0000807708 STANDARD INDUSTRIAL CLASSIFICATION: [4991 ] IRS NUMBER: 943009803 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T SEC ACT: SEC FILE NUMBER: 005-43755 FILM NUMBER: 754218 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: KC HOLDING CORP CENTRAL INDEX KEY: 0001127379 STANDARD INDUSTRIAL CLASSIFICATION: [ ] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T BUSINESS ADDRESS: STREET 1: C/O VALUEACT CAPITAL PARTNERS LP STREET 2: ONE MAITIME PLAZA SUITE 1400 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4157339756 MAIL ADDRESS: STREET 1: C/O VALUEACT CAPITAL PARTNERS LP STREET 2: ONE MARITIME PLAZA SUITE 1400 CITY: SAN FRANCISCO STATE: CA ZIP: 94111 SC TO-T 1 0001.txt SCHEDULE TO-T SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- SCHEDULE TO (Rule 14d-100) Tender Offer Statement Under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934 KENETECH CORPORATION (Name of Subject Company (Issuer)) KC MERGER CORP. KC HOLDING CORPORATION VALUEACT CAPITAL PARTNERS, L.P. (Names of Filing Persons (Offerors)) Common Stock, Par Value $.0001 Per Share, Together With The Associated Rights Attached Thereto (Title of Class of Securities) 488878109 (CUSIP Number of Class of Securities) Jeffrey W. Ubben Secretary and Treasurer KC Merger Corp. KC Holding Corporation c/o ValueAct Capital Partners, L.P. One Maritime Plaza Suite 1400 San Francisco, CA 94111 (415) 362-3700 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Filing Persons) Copies to: Dennis M. Myers, Esq. Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 (312) 861-2000 CALCULATION OF FILING FEE Transaction Valuation* Amount of Filing Fee** - ------------------------------------------------------------------------------ $34,548,971 $6,910
* Estimated for purposes of calculating the amount of the filing fee only. Calculated by multiplying $1.04, the per share tender offer price, by 33,220,164, the sum of (i) 31,970,164 currently outstanding shares of Common Stock sought in the Offer, (ii) outstanding options with respect to 750,000 shares of Common Stock and (iii) outstanding warrants with respect to 500,000 shares of Common Stock, in each case as of October 20, 2000. ** Calculated as 1/50 of 1% of the transaction value. [_] Check the box if any part of the fee is offset as provided by Rule 0- 11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: None Filing Party: Not applicable -------------- -------------- Form or Registration No.: Not applicable Date Filed: Not applicable -------------- --------------
[_] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes to designate any transactions to which the statement relates: [X] third-party tender offer subject to Rule 14d-1. [_] issuer tender offer subject to Rule 13e-4. [X] going-private transaction subject to Rule 13e-3. [X] amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer: [_] CUSIP NO. 488878109 ---------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 KC Holding Corporation - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [_] (b) [X] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 OO - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) or 2(E) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 11,365,458 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 0 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 0 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 11,365,458 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 Approximately 36% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 CO - ------------------------------------------------------------------------------ CUSIP NO. 488878109 ---------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 KC Merger Corp. - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [_] (b) [X] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 OO - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) or 2(E) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 0 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 11,365,458 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 0 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 11,365,458 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 Approximately 36% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 CO - ------------------------------------------------------------------------------ CUSIP NO. 488878109 ---------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 ValueAct Capital Partners, L.P. - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [_] (b) [X] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 OO - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) or 2(E) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 0 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 11,365,458 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 0 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 11,365,458 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 Approximately 36% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 PN - ------------------------------------------------------------------------------ CUSIP NO. 488878109 ---------- - ------------------------------------------------------------------------------ NAME OF REPORTING PERSON 1 VA Partners, L.L.C. - ------------------------------------------------------------------------------ CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* 2 (a) [_] (b) [X] - ------------------------------------------------------------------------------ SEC USE ONLY 3 - ------------------------------------------------------------------------------ SOURCE OF FUNDS* 4 OO - ------------------------------------------------------------------------------ CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(D) or 2(E) [_] 5 - ------------------------------------------------------------------------------ CITIZENSHIP OR PLACE OF ORGANIZATION 6 Delaware - ------------------------------------------------------------------------------ SOLE VOTING POWER 7 NUMBER OF 0 SHARES ----------------------------------------------------------- SHARED VOTING POWER BENEFICIALLY 8 11,365,458 OWNED BY ----------------------------------------------------------- EACH SOLE DISPOSITIVE POWER 9 REPORTING 0 PERSON ----------------------------------------------------------- SHARED DISPOSITIVE POWER WITH 10 0 - ------------------------------------------------------------------------------ AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11 11,365,458 - ------------------------------------------------------------------------------ CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 12 [_] - ------------------------------------------------------------------------------ PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 13 Approximately 36% - ------------------------------------------------------------------------------ TYPE OF REPORTING PERSON* 14 OO - ------------------------------------------------------------------------------ This Tender Offer Statement on Schedule TO (this "Schedule TO") is filed by KC Merger Corp., a Delaware corporation ("Parent"), KC Holding Corporation, a Delaware corporation ("Purchaser"), and ValueAct Capital Partners, L.P., a Delaware limited partnership ("VAC"). This Schedule TO relates to the offer by Purchaser to purchase all outstanding shares of common stock, par value $.0001 per share, and the associated rights attached thereto (together, the "Shares"), of KENETECH Corporation, a Delaware corporation (the "Company"), at a purchase price of $1.04 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated November 6, 2000 (the "Offer to Purchase"), and in the related Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1)(i) and (a)(1)(ii) (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). The information set forth in the Offer to Purchase and the related Letter of Transmittal is incorporated herein by reference with respect to Items 1 through 9, 11, and 13 of this Schedule TO. The exhibits identified in Item 12 and attached hereto are incorporated herein by reference with respect to Items 5 and 11 of this Schedule TO. Item 10. Financial Statements of Certain Bidders. Not applicable. Item 12. Material to Be Filed as Exhibits. (a)(1)(i) Offer to Purchase, dated November 6, 2000.* (a)(1)(ii) Form of Letter of Transmittal.* (a)(1)(iii) Form of Notice of Guaranteed Delivery.* (a)(1)(iv) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.* (a)(1)(v) Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.* (a)(1)(vi) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.* (a)(5)(i) KENETECH Corporation Press Release, dated October 25, 2000. (a)(5)(ii) KC Holding Corporation Press Release, dated November 7, 2000. (a)(5)(iii) Pages 16 through 35 of the Annual Report on Form 10-K filed by the Company for the year ended December 31, 1999 (incorporated by reference to the Form 10-K filed by the Company on March 28, 2000). (a)(5)(iv) Pages 4 through 17 of the Quarterly Report on Form 10-Q filed by the Company for the quarterly period ended June 30, 2000 (incorporated by reference to the Form 10-Q filed by the Company on August 14, 2000). (b) None. (c)(1) Fairness Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (included as Annex A to Offer to Purchase).* (c)(2) Presentation to the Company's Special Committee and Board of Directors by Houlihan Lokey Howard & Zukin Financial Advisors, Inc., dated October 25, 2000. (d)(1) Agreement and Plan of Merger, dated as of October 25, 2000, among Parent, Purchaser and the Company (included as Schedule D to Offer to Purchase).* (d)(2) Confidentiality Agreement, dated June 29, 2000, between VAC and the Company. (d)(3) Employment Agreement, dated October 25, 2000, between Purchaser and Mark D. Lerdal. (d)(4) Voting Agreement, dated October 25, 2000, among Purchaser, Parent and Mark D. Lerdal.
(d)(5) Subscription and Contribution Agreement, dated October 24, 2000, among Parent, VAC and Mark D. Lerdal. (d)(6) Guaranty, dated October 25, 2000, executed by VAC for the benefit of the Company. (d)(7) Form of Stockholders Agreement, among Parent, Mark D. Lerdal, and the persons named therein. (f) Section 262 of the General Corporation Law of the State of Delaware; Chapter 13 of the General Corporation Law of the State of California (included as Schedule C to Offer to Purchase).* (g) None. (h) None.
- -------- *Included in mailing to stockholders. After due inquiry and to the best of its knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: November 6, 2000 Schedule TO, Schedule 13e-3 and Schedule 13D KC MERGER CORP. /s/ Jeffrey W. Ubben By: _________________________________ Name: Jeffrey W. Ubben Title: Secretary/Treasurer KC HOLDING CORPORATION /s/ Jeffrey W. Ubben By: _________________________________ Name: Jeffrey W. Ubben Title: Secretary/Treasurer VALUEACT CAPITAL PARTNERS, L.P. By: VA Partners, L.L.C. Its: General Partner /s/ Jeffrey W. Ubben By: _________________________________ Name: Jeffrey W. Ubben Title: Managing Member After due inquiry and to the best of his or her or its knowledge and belief, each of the undersigned certifies that the information set forth in this statement to the extent it constitutes a filing under Rule 13e-3 is true, complete and correct. Dated: November 6, 2000 Schedule 13e-3 KENETECH CORPORATION /s/ Dianne P. Urhausen By: _________________________________ Name: Dianne P. Urhausen Title: Vice President and Secretary /s/ Mark D. Lerdal ------------------------------------- Mark D. Lerdal EXHIBIT INDEX
Exhibit No. ----------- (a)(1)(i) Offer to Purchase, dated November 6, 2000.* (a)(1)(ii) Form of Letter of Transmittal.* (a)(1)(iii) Form of Notice of Guaranteed Delivery.* (a)(1)(iv) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.* (a)(1)(v) Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.* (a)(1)(vi) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.* (a)(5)(i) KENETECH Corporation Press Release, dated October 25, 2000. (a)(5)(ii) KC Holding Corporation Press Release, dated November 7, 2000. (a)(5)(iii) Pages 16 through 35 of the Annual Report on Form 10-K filed by the Company for the year ended December 31, 1999 (incorporated by reference to the Form 10- K filed by the Company on March 28, 2000). (a)(5)(iv) Pages 4 through 17 of the Quarterly Report on Form 10-Q filed by the Company for the quarterly period ended June 30, 2000 (incorporated by reference to the Form 10-Q filed by the Company on August 14, 2000). (b) None. (c)(1) Fairness Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (included as Annex A to Offer to Purchase).* (c)(2) Presentation to the Company's Special Committee and Board of Directors by Houlihan Lokey Howard & Zukin Financial Advisors, Inc., dated October 25, 2000. (d)(1) Agreement and Plan of Merger, dated as of October 25, 2000, among Parent, Purchaser and the Company (included as Schedule D to Offer to Purchase). (d)(2) Confidentiality Agreement, dated June 29, 2000, between VAC and the Company. (d)(3) Employment Agreement, dated October 25, 2000, between Purchaser and Mark D. Lerdal. (d)(4) Voting Agreement, dated October 25, 2000, among Purchaser, Parent and Mark D. Lerdal. (d)(5) Subscription and Contribution Agreement, dated October 24, 2000, among Parent, VAC and Mark D. Lerdal. (d)(6) Guaranty, dated October 25, 2000, executed by VAC for the benefit of the Company. (d)(7) Form of Stockholders Agreement, among Parent, Mark D. Lerdal, and the persons named therein. (f) Section 262 of the General Corporation Law of State of Delaware; Chapter 13 of the General Corporation Law of the State of California (included as Schedule C to Offer to Purchase).* (g) None. (h) None.
- -------- * Included in mailing to stockholders. EX-99.(A)(1)(I) 2 0002.txt OFFER TO PURCHASE Offer to Purchase for Cash All Outstanding Shares of Common Stock, Together With The Associated Rights Attached Thereto of KENETECH Corporation at $1.04 Net Per Share by KC Merger Corp. a wholly owned subsidiary of KC Holding Corporation a wholly owned subsidiary of ValueAct Capital Partners, L.P. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, DECEMBER 7, 2000, UNLESS THE OFFER IS EXTENDED. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE TRANSACTION, PASSED UPON THE MERITS OR FAIRNESS OF THE TRANSACTION, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. A SUMMARY OF THE PRINCIPAL TERMS OF THE OFFER APPEARS ON PAGES 1 THROUGH 3. YOU SHOULD READ THIS ENTIRE DOCUMENT CAREFULLY BEFORE DECIDING WHETHER TO TENDER YOUR SHARES AND THE RIGHTS ATTACHED THERETO. ----------------------------- The Information Agent For The Offer is: MacKenzie Partners, Inc. November 6, 2000 INTRODUCTION............................................................. 4 SPECIAL FACTORS.......................................................... 6 1. Background of the Transaction; Past Contacts, Negotiations and Agreements............................................... 6 2. Purposes, Alternatives, Reasons, Effects and Plans........... 11 3. Recommendation of the Special Committee and the Board of Directors of KENETECH; Fairness of the Transaction........... 12 4. Position of Parent, Purchaser, VAC and Mr. Lerdal as to the Fairness of the Offer and the Merger......................... 16 5. Interests of Certain Persons in the Offer and the Merger..... 17 6. Reports, Opinions, Appraisals and Negotiations............... 18 THE TENDER OFFER......................................................... 25 1. Terms of the Offer........................................... 25 2. Acceptance for Payment and Payment for Shares................ 27 3. Procedure for Tendering Shares............................... 28 4. Withdrawal Rights............................................ 30 5. Certain United States Federal Income Tax Consequences of the Transactions................................................. 31 6. Price Range of Shares; Dividends............................. 32 7. Possible Effects of the Offer on the Market for the Shares and Exchange Act Registration................................ 32 8. Certain Information Concerning KENETECH...................... 33 9. Certain Information Concerning Purchaser and Parent.......... 35 10. The Transaction Agreements................................... 35 11. Source and Amount of Funds................................... 43 12. Certain Conditions of the Offer.............................. 43 13. Certain Legal Matters; Regulatory Approvals.................. 44 14. State Takeover Laws.......................................... 45 15. Appraisal Rights............................................. 45 16. Fees and Expenses............................................ 48 17. Provisions For Unaffiliated Security Holders................. 48 18. Miscellaneous................................................ 48 ANNEX A Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ........................................................ 50 SCHEDULE A Certain Information Concerning Purchaser, Parent, and VAC.... A-1 SCHEDULE B Certain Information Concerning Members of the Board of Directors and the Executive Officers of KENETECH............. B-1 SCHEDULE C Schedule 262 of the General Corporation Law of State of Delaware; Chapter 13 of the General Corporation Law of the State of California.......................................... C-1 SCHEDULE D Agreement and Plan of Merger, dated as of October 25, 2000, among KC Merger Corp., KC Holding Corporation, and KENETECH Corporation.................................................. D-1
SUMMARY OF THE OFFER PRINCIPAL TERMS . KC Holding Corporation, through its wholly owned subsidiary KC Merger Corp., is offering to buy all outstanding shares of KENETECH Corporation's common stock, together with the associated rights attached thereto. KC Holding Corporation is a wholly owned subsidiary of ValueAct Capital Partners, L.P. The offer is the first step in our plan to acquire all of KENETECH's stock and for KENETECH to become a private company. The tender price is $1.04 per share, in cash. Tendering stockholders will not have to pay brokerage fees or commissions. . If the offer is successful, we will acquire any remaining shares of KENETECH stock in a later merger for $1.04 per share in cash as provided in a merger agreement entered into on October 25, 2000 among KC Holding Corporation, KC Merger Corp. and KENETECH. KENETECH stockholders will not have appraisal rights in the tender offer but will have appraisal rights in the merger. . The offer will expire at 12:00 midnight, New York City time on December 7, 2000, unless we extend the offer. We may extend the offer if, among other reasons, the number of shares of KENETECH stock that have been validly tendered and not withdrawn represents less than 85% of the then issued and outstanding shares of KENETECH stock on a fully diluted basis, not including shares held by Mr. Mark D. Lerdal, KENETECH's President and Chief Executive Officer. See pages 25 through 27 of this document. . If we are required to extend the offer under the circumstances described above or if we otherwise decide to extend the offer, we will issue a press release giving the new expiration date no later than 9:00 a.m., New York City time, on the first business day after the previously scheduled expiration of the offer. . If we receive at least 85% of the then issued and outstanding shares of KENETECH stock and Mr. Lerdal contributes his shares to us as described below, we will own at least 90% of the outstanding shares of KENETECH stock. Our ownership of 90% or more of the outstanding shares of KENETECH stock will allow us to complete a "short-form" merger under applicable state law. This type of merger will not require approval by any KENETECH stockholder. AGREEMENTS WITH EXECUTIVE OFFICER . On October 24, 2000, KC Holding Corporation and ValueAct Capital Partners, L.P. entered into a separate agreement with Mark D. Lerdal in which Mr. Lerdal agreed to contribute all of his shares of KENETECH stock to KC Holding Corporation for shares of KC Holding Corporation stock. As a result, Mr. Lerdal will become a stockholder of KC Holding Corporation and will not receive any cash for the shares he contributes. He will, however, have the opportunity to share in any future growth of KENETECH, which following completion of the offer and the merger will be a wholly owned subsidiary of KC Holding Corporation. The shares to be contributed represent approximately 36% of the outstanding shares of KENETECH stock. See pages 35 and 36 of this document. . Simultaneously with entering into the merger agreement, we entered into a voting agreement with Mr. Lerdal in which Mr. Lerdal agreed not to tender his shares in the offer and to vote all of his shares in favor of the merger and the merger agreement and against any takeover proposal. RECOMMENDATION OF KENETECH'S BOARD AND THE SPECIAL COMMITTEE . KENETECH's Board of Directors, with Mr. Lerdal abstaining, based on the recommendation of a special committee of the Board of Directors comprised solely of independent directors, has . determined that the merger agreement and the transactions contemplated therein, including the offer and the merger, are fair to and in the best interests of KENETECH and its stockholders, . approved and declared advisable the merger agreement and the transactions contemplated therein, including the offer and the merger, and . recommended that the stockholders tender their KENETECH stock in the offer and, if applicable, approve and adopt the merger agreement in all respects. See pages 12 through 16 of this document. CONDITIONS We are not required to complete the tender offer unless: . the number of tendered and not withdrawn shares represents at least 85% of the shares of KENETECH stock outstanding on a fully diluted basis as defined in the merger agreement, excluding shares held by Mr. Lerdal, . there is no material adverse change in KENETECH or its business, and . there is no pending suit, action or proceeding before any court or governmental entity challenging the tender offer or proposed merger. The offer is also subject to a number of other conditions. See pages 43 through 44 of this document. FINANCIAL CONDITION OF KC HOLDING CORPORATION We do not think our financial condition is relevant to your decision whether to tender shares and accept the offer because: . the offer is being made for all outstanding shares solely for cash, . the offer is not subject to any financing condition, and . if we consummate the offer, we will acquire all remaining shares for the same cash price pursuant to the merger. ValueAct Capital Partners, L.P. will provide KC Holding Corporation with sufficient funds from its own resources to acquire all tendered shares or shares to be acquired pursuant to the merger. KC Holding Corporation will contribute these funds to KC Merger Corp. ValueAct Capital Partners, L.P. has guaranteed the performance by each of KC Holding Corporation and KC Merger Corp. of its covenants, duties and obligations under the merger agreement. See pages 42 and 43 of this document. PROCEDURES FOR TENDERING If you wish to accept the offer, you must do the following: . If you are a record holder (and, therefore, a stock certificate has been issued to you) you must complete and sign the enclosed letter of transmittal and send it with your stock certificate to the depositary for the offer or follow the procedures described in the offer for book- entry transfer. These materials must reach the depositary before the offer expires. Detailed instructions are contained in the letter of transmittal and on pages 28 through 30 of this document. . If you are a record holder but your stock certificate is not available or you cannot deliver it to the depositary before the offer expires, you may be able to tender your shares using the enclosed notice of guaranteed delivery. Please call our information agent, MacKenzie Partners, Inc., at (212) 929-5500 for assistance. 2 . If you hold your shares through a broker or bank, you should contact your broker or bank and give instructions that your shares be tendered. WITHDRAWAL RIGHTS . If, after tendering your shares in the offer, you decide that you do NOT want to accept the offer, you can withdraw your shares by instructing the depositary before the offer expires. If you tendered by giving instructions to a broker or bank, you must instruct the broker or bank to arrange for the withdrawal of your shares. See pages 30 and 31 of this document for further details. . If we decide to provide a "subsequent offering period," we will accept shares tendered during that period immediately and thus you will not be able to withdraw shares tendered during any subsequent offering period. See pages 26, 27 and 31 of this document. SUBSEQUENT OFFERING PERIOD . We do not currently intend to include a subsequent offering period for the offer, although we reserve our right to do so. A subsequent offering period, if one is included, will be an additional period of time beginning after we have purchased shares tendered during the offer, during which stockholders may tender their shares and receive the offer consideration. . If we decide to provide a subsequent offering period, we will make a public announcement of our decision by 9:00 a.m., New York City time, on the next business day following the initial closing of the tender offer. See pages 26 and 27 of this document. RECENT KENETECH TRADING PRICES; SUBSEQUENT TRADING The closing bid price for a share of KENETECH stock was: . $0.71 on October 25, 2000, the last full trading day before we announced the execution of the merger agreement with KENETECH, and . $0.99 on November 3, 2000, the last trading day before the printing of these materials. Before deciding whether to tender your shares, you should obtain a current market quotation for the shares. See page 32 of this document. FURTHER INFORMATION . You can call MacKenzie Partners at (212) 929-5500. MacKenzie Partners is acting as the information agent for our tender offer. See the cover page of this document. 3 To The Holders of Shares of Common Stock of KENETECH Corporation: INTRODUCTION KC Merger Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of KC Holding Corporation, a Delaware corporation ("Parent"), hereby offers to purchase all of the outstanding shares, together with the associated rights attached thereto issued pursuant to that certain Rights Agreement, dated May 4, 1999, as amended (the "Shares"), of common stock, par value $.000l per share (the "Common Stock"), of KENETECH Corporation, a Delaware corporation ("KENETECH"), at $1.04 per Share, net to the seller in cash (the "Per Share Amount"), without interest thereon upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Parent is a wholly owned subsidiary of ValueAct Capital Partners, L.P., a Delaware limited partnership ("VAC"). You will not be obligated to pay brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by Purchaser. We will pay all charges and expenses of ChaseMellon Shareholder Services, L.L.C. (the "Depositary") and MacKenzie Partners, Inc. (the "Information Agent"). THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED BELOW) THAT NUMBER OF SHARES THAT EQUALS AT LEAST 85% OF THE TOTAL NUMBER OF OUTSTANDING SHARES ON A FULLY DILUTED BASIS (I.E., GIVING EFFECT TO ALL THE CURRENTLY EXERCISABLE STOCK OPTIONS AND OTHER SECURITIES EXERCISABLE OR CONVERTIBLE INTO SHARES), EXCLUDING SHARES HELD BY MR. MARK D. LERDAL (THE "MINIMUM CONDITION"). THE OFFER IS ALSO SUBJECT TO CERTAIN OTHER TERMS AND CONDITIONS. SEE SECTION 12. THE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 7, 2000, UNLESS EXTENDED. See "The Tender Offer--Terms of the Offer, --Certain Conditions of the Offer, --and Certain Legal Matters and Regulatory Approvals." The Offer is being made pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), dated as of October 25, 2000, among KENETECH, Parent and Purchaser, pursuant to which, after the completion of the Offer and the satisfaction or waiver of certain conditions, Purchaser will be merged (the "Merger") with and into KENETECH and KENETECH will be the surviving corporation (the "Surviving Corporation"). The Merger Agreement is attached to this Offer to Purchase as Schedule D and is an exhibit to the Tender Offer Statement on Schedule TO of Purchaser, Parent, and VAC (the "Schedule TO") filed with the Securities and Exchange Commission (the "Commission") on November 6, 2000. At the effective time of the Merger (the "Effective Time"), each outstanding Share (other than Shares owned by Parent, Purchaser or any subsidiary of Parent or KENETECH or held in the treasury of KENETECH or by any stockholders who properly exercise appraisal rights) will by virtue of the Merger, and without action by the holder thereof, be canceled and converted into the right to receive an amount in cash, without interest thereon, equal to the Per Share Amount paid pursuant to the Offer (the "Merger Consideration"), payable upon the surrender of the certificate formerly representing such Share. The Merger Agreement is more fully described in "The Tender Offer--The Transaction Agreements--The Merger Agreement." The United States federal income tax consequences of the sale of Shares pursuant to the Offer and the Merger, as the case may be, are summarized in "The Tender Offer--Certain United States Federal Income Tax Consequences of the Transactions." KENETECH'S BOARD OF DIRECTORS (THE "BOARD"), WITH MR. LERDAL ABSTAINING, BASED ON THE RECOMMENDATION OF A SPECIAL COMMITTEE OF THE BOARD, COMPRISED SOLELY OF INDEPENDENT DIRECTORS (THE "SPECIAL COMMITTEE"), HAS (I) 4 DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, ARE FAIR TO AND IN THE BEST INTERESTS OF KENETECH AND ITS STOCKHOLDERS, (II) APPROVED AND DECLARED ADVISABLE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, AND (III) RECOMMENDED THAT THE STOCKHOLDERS TENDER THEIR SHARES IN THE OFFER AND, IF APPLICABLE, APPROVE AND ADOPT THE MERGER AGREEMENT IN ALL RESPECTS. Mr. Lerdal has agreed to contribute all of his Shares (the "Contribution Shares") to Parent pursuant to a Subscription and Contribution Agreement dated October 24, 2000 among Mr. Lerdal, Parent, and VAC (the "Subscription Agreement"). As a result, Mr. Lerdal will become a stockholder of Parent. As of October 20, 2000, Mr. Lerdal held 11,365,458 Shares. Mr. Lerdal will not receive the Per Share Amount or the Merger Consideration for the Contribution Shares and will have an indirect continuing interest in KENETECH after the Merger through his ownership of Parent. The obligation of Mr. Lerdal to contribute the Contribution Shares is not conditioned upon or subject to the completion of the Offer. There are potential conflicts of interest that the Board had to consider in connection with this aspect of the transaction, which are described in more detail in "Special Factors--Recommendation of the Special Committee and the Board of Directors of KENETECH; Fairness of the Transaction." Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey"), the financial advisor to the Special Committee in connection with the potential transaction, has delivered to the Special Committee a written opinion, dated October 25, 2000, to the effect that, as of that date, and based upon and subject to the assumptions made, procedures followed, matters considered, and limitations on the review set forth therein and described to the Special Committee, the $1.04 per Share cash consideration to be received in the Offer and the Merger, by the holders of Shares was fair, from a financial point of view, to such holders (other than Mr. Lerdal). A copy of Houlihan Lokey's written opinion is attached as Annex A to this Offer to Purchase and a copy of the presentation Houlihan Lokey gave to the Special Committee and the Board is attached as an exhibit to the Schedule TO. The Offer is conditioned upon, among other things, the Minimum Condition being satisfied, which is more fully described in "The Tender Offer--Certain Conditions of the Offer." KENETECH has informed us that, as of October 20, 2000, there were 31,970,164 shares of Common Stock issued and outstanding and there were 95,600 shares of Common Stock issuable upon the exercise of currently exercisable outstanding options for purposes of determining the number of shares of Common Stock outstanding on a fully diluted basis as defined in the Merger Agreement. Based on the foregoing, we believe that, as of the date of this Offer to Purchase, the Minimum Condition would be satisfied if at least 17,514,000 Shares are validly tendered prior to the Expiration Date and not properly withdrawn. All of the currently exercisable outstanding options are exercisable at a price per share significantly in excess of the Per Share Amount and, therefore, were not considered in determining the number of Shares necessary to satisfy the Minimum Condition. If the Minimum Condition and the other conditions to the Offer are satisfied and the Offer is consummated, we will own approximately 55% of the outstanding Shares (not including any Contribution Shares), which is a sufficient number of Shares to ensure that the Merger Agreement will be adopted. In addition, if the Minimum Condition and the other conditions to the Offer are satisfied and the Offer is consummated and Mr. Lerdal contributes the Contribution Shares to us in accordance with the terms of the Subscription Agreement, we will own at least 90% of the Shares then outstanding and, as a result, we will be able to cause the Merger to occur without a vote of KENETECH's stockholders under applicable state law. See "The Tender Offer--The Transaction Agreements--The Merger Agreement." No appraisal rights are available in connection with the Offer; however, stockholders not tendering in the Offer will have appraisal rights in connection with the Merger. See "The Tender Offer--Appraisal Rights." 5 THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION THAT YOU SHOULD READ CAREFULLY AND IN THEIR ENTIRETY BEFORE YOU MAKE ANY DECISION WITH RESPECT TO THE OFFER. SPECIAL FACTORS 1. Background of the Transaction; Past Contacts, Negotiations and Agreements The following information (other than the information concerning Parent, Purchaser or VAC) has been provided to Purchaser by KENETECH: From 1995 through the end of 1998, KENETECH experienced severe liquidity constraints. In an effort to relieve such constraints, KENETECH undertook to sell its assets. By the end of March 1999, KENETECH had disposed of substantially all its operating assets and, by the end of April 1999, KENETECH had repaid substantially all its indebtedness. In addition, as early as March 1999, KENETECH started to evaluate the various strategic alternatives available to it. Initially, throughout early 1999, KENETECH sought to identify and evaluate various business and investment opportunities. Later, in mid to late 1999, KENETECH began to consider various other strategic alternatives, including the possibility of acquiring or merging with another company, and announced its considerations in its securities filings. Beginning in November 1999, KENETECH's Board instituted a stock repurchase program, and KENETECH also later repurchased shares of Common Stock directly from stockholders that eventually resulted in the repurchase and retirement of almost 10,000,000 shares of Common Stock. Throughout 1999 and 2000, contact with KENETECH was initiated by (and in some instances, KENETECH itself initiated contact with) various companies regarding possible mergers, joint ventures, investment opportunities and other strategic alternatives. KENETECH also considered strategic opportunities that would maximize the potential benefits to be derived from its existing tax- related characteristics. Although several companies expressed an initial interest in considering an acquisition of KENETECH, none of these discussions proceeded beyond preliminary stages. KENETECH also contacted or was contacted by various investment banks, capital funds and other investment groups. While KENETECH was rebuffed by most of the larger investment banks, several contacts with smaller investment banks resulted in some additional investment opportunities for KENETECH. KENETECH considered a number of these opportunities, but none involved the acquisition of KENETECH or were large enough to result in a material change in KENETECH's operations or structure. One of these previously considered strategic investment alternatives indirectly resulted in VAC's initial expression of interest in potentially acquiring KENETECH. Jeffrey Ubben, a founding member of VAC, previously worked for one of the capital funds that KENETECH had approached in mid-1999 regarding possible joint venture opportunities. Now representing VAC, Mr. Ubben, in mid-June 2000, expressed to Mr. Lerdal VAC's potential interest in considering an acquisition of KENETECH. Mr. Lerdal reported VAC's potential interest to KENETECH's Board during a meeting held on June 21, 2000. Shortly thereafter, on June 29, 2000, KENETECH and VAC entered into the Confidentiality Agreement to allow VAC to review information regarding KENETECH. Following the execution of the Confidentiality Agreement, VAC began its due diligence review of KENETECH. At a meeting of KENETECH's Board on July 5, 2000, Mr. Lerdal advised the Board that VAC had informed him that it might consider a transaction that could require his participation. Mr. Lerdal then left the meeting. KENETECH's outside legal counsel advised the Board of its fiduciary duties in connection with any acquisition of KENETECH by a group that could potentially include Mr. Lerdal and discussed with the Board the advisability of the creation of a special committee of independent directors. The Board then established the Special Committee with the authority to review and evaluate the terms of, and determine the advisability of, any 6 potential transaction with VAC, and appointed Messrs. Winn, Morgan and Christenson to the Special Committee. The Board resolved that, without a favorable recommendation by the Special Committee of any transaction that might be proposed by VAC, the Board would not recommend to KENETECH's stockholders or otherwise approve such a transaction. The Board also gave the Special Committee the power to retain independent legal counsel, investment bankers and other advisors to assist it in connection with its duties. On July 5, 2000, the Special Committee held its initial meeting. The Special Committee authorized Mr. Winn to meet with VAC and to provide additional information regarding KENETECH as necessary. The Special Committee also resolved to retain an independent financial advisor and independent counsel if consideration of a potential transaction proceeded. Throughout the next six weeks, Mr. Winn and other employees at KENETECH provided information to VAC in the course of VAC's diligence investigation of KENETECH. On August 17, 2000, the Special Committee met and resolved to retain Potter Anderson & Corroon LLP as its independent legal counsel. The Special Committee also resolved to solicit proposals from and to retain an independent investment banking firm to act as its financial advisor. The Special Committee discussed with its counsel the scope of its duties and the status of the Special Committee. At the end of the meeting, Mr. Winn resigned from the Special Committee, and Dr. Christenson and Mr. Morgan continued as the members of the Special Committee. On August 23, 2000, KENETECH received a letter of intent from VAC with respect to a potential acquisition of KENETECH pursuant to a tender offer at a price of $0.95 per Share, followed by a merger in which the Shares not tendered would be converted into the right to receive the consideration paid in the tender offer. The letter contemplated that Mr. Lerdal would not tender his Shares in the offer and would contribute his Shares to a subsidiary of VAC. The letter contemplated that, at the time of execution of any definitive agreement with respect to the acquisition, KENETECH would grant to VAC an option to purchase up to 19.9% of KENETECH's outstanding Common Stock at a purchase price of $0.95 per Share, exercisable in the event KENETECH engaged in an acquisition transaction with a third party rather than the transaction proposed by VAC. The letter also contemplated that KENETECH would pay VAC a $1,000,000 termination fee in the event such an alternative transaction was entered into prior to the first anniversary of the execution of the letter. The letter provided that any obligation to consummate an acquisition would be subject to several conditions, including the negotiation of a definitive merger agreement, VAC's satisfaction with its due diligence review of KENETECH, the absence of any material adverse change in KENETECH's operations or financial condition and VAC reaching agreement with Mr. Lerdal as to his participation in the transaction. The letter also contemplated that, if executed by KENETECH, KENETECH would agree not to solicit alternative proposals from any other party for the lesser of a period of 120 days or until a definitive agreement was reached. The Special Committee met with its legal counsel on August 24, 2000 to conduct a preliminary review of VAC's letter. The Special Committee's legal counsel discussed the structure of the potential transaction as outlined in VAC's letter. At the meeting, the Special Committee also received presentations from several investment banks and financial consultants. After hearing the presentations, the Special Committee resolved to retain Houlihan Lokey as its financial advisor to assist it in evaluating the terms of the Offer and the Merger and to render an opinion as to whether the consideration to be received by KENETECH's stockholders, except Mr. Lerdal, in connection with the Offer and the Merger, is fair to such stockholders from a financial point of view. Subsequent to the meeting, the Special Committee entered into an engagement letter with Houlihan Lokey, and directed Houlihan Lokey to begin its analysis of VAC's letter. The Special Committee met with its legal counsel on August 30, 2000. At the meeting, the Special Committee further discussed the terms of VAC's August 23, 2000 letter. The Special Committee also discussed the retention of additional counsel to advise it in connection with California and federal securities matters. On September 1, 2000, the Special Committee met with its legal counsel and resolved to retain Morrison & Foerster LLP as its independent legal counsel with respect to California and federal securities law matters in connection with the potential acquisition. A representative of Houlihan Lokey also discussed with the Special Committee the results of its due diligence undertaken to that date. The Special Committee also discussed with legal counsel and representatives of Houlihan Lokey the possibility of enhancing the valuation of KENETECH by insuring certain of its contingent liabilities. 7 The Special Committee met with its legal counsel on September 6, 2000. At the meeting, a representative of Houlihan Lokey discussed with the Special Committee its preliminary evaluation of KENETECH. The Houlihan Lokey representative also discussed with the Special Committee, in the context of preparing to issue an opinion, the strategic alternatives that might be pursued by KENETECH. The alternatives included remaining independent, pursuing the potential acquisition by VAC, pursuing a sale to a strategic buyer, making strategic acquisitions, pursuing a financial buyer or liquidating. The assessment of strategic alternatives included a qualitative assessment of the valuation impact of the Offer and the Merger relative to the alternatives considered by Houlihan Lokey. The analysis did not quantify the valuation impact because, in the opinion of Houlihan Lokey, it was not feasible to so quantify this impact (due to the significant number of non-quantifiable variables). Following the discussions with Houlihan Lokey, the Special Committee discussed with its legal counsel potential responses to VAC's August 23, 2000 letter, including changes to the structure of the potential transaction that would give KENETECH a greater right to respond to unsolicited acquisition proposals. The Special Committee determined to respond generally to VAC's August 23, 2000 letter by proposing a purchase price of $1.17 per share; proposing a decrease in the termination fee potentially payable by KENETECH in the event VAC's proposed acquisition was not consummated; proposing to eliminate VAC's option to purchase KENETECH's Common Stock; proposing that the period during which a termination fee might be payable be shortened; and proposing that the offer not be closed until at least 30 business days had passed after the announcement of the offer (in order to allow greater time for other parties to make alternative proposals). The Special Committee further determined to include as a condition to KENETECH's obligation to consummate the potential acquisition that at least a majority of the outstanding Shares, other than the Shares held by Mr. Lerdal, be tendered in the tender offer. After the meeting, counsel to the Special Committee contacted a representative of VAC and VAC's counsel to relay the Special Committee's proposals. Mr. Morgan also contacted a representative of VAC to discuss the potential transaction and the Special Committee's views with respect to the proposed adjusted purchase price. After some discussion, the representative of VAC told Mr. Morgan that VAC potentially would be willing to offer to pay $1.00 per share. The Special Committee met with its legal counsel on September 8, 2000. At the meeting, Mr. Morgan described his conversations with VAC. The Special Committee resolved to request that VAC respond in writing to the proposals made on behalf of the Special Committee after its September 6 meeting. On September 11, 2000, VAC delivered a revised letter of intent to the Special Committee. The revised letter provided for, among other things, a purchase price of $1.00 per share and the elimination of the option to purchase KENETECH Common Stock that was included in the initial letter. The revised letter also incorporated the Special Committee's proposed reduction in the termination fee and the period during which it might be applicable and the Special Committee's proposal that the offer not be closed until at least 30 business days had passed after the announcement of the offer. On September 12, 2000, the Special Committee met with its legal counsel and a representative of Houlihan Lokey to discuss the revised letter. At the meeting, the Special Committee's counsel discussed KENETECH's right to receive and consider third party proposals during the pendency of any offer that might be made by VAC. The discussion included the provision of the revised letter that would allow KENETECH to publicly announce, upon the signing of any definitive agreement with respect to a transaction, that Houlihan Lokey was prepared to accept other offers relating to the acquisition of KENETECH. The Special Committee also discussed making a counter-proposal with respect to the price per share to be paid in the potential transaction and other terms. The Special Committee met with its legal counsel on September 13, 2000, to discuss the status of the discussions with VAC. The Special Committee then met with its legal counsel and representatives from Houlihan Lokey on September 14, 2000. At the meeting, representatives of Houlihan Lokey discussed with the Special Committee the potential range of valuations of KENETECH and some of KENETECH's larger investments. The Special Committee requested that Houlihan Lokey meet with VAC to discuss the parties' respective views relating to the valuation of KENETECH. 8 Representatives of Houlihan Lokey met with representatives of VAC on September 15, 2000, to discuss the potential valuation of KENETECH. Later that day, the Special Committee met with its legal counsel to receive Houlihan Lokey's report on those discussions. After discussing valuation issues with Houlihan Lokey, the Special Committee authorized Houlihan Lokey to make a counterproposal at $1.08 per Share. Counsel to the Special Committee contacted VAC's counsel to relay the proposal and to discuss other terms of the potential transaction. The Special Committee, its legal counsel and representatives of Houlihan Lokey met on September 19, 2000, with representatives of VAC and its counsel to discuss the potential transaction. After further negotiations, VAC's representatives stated that they might be willing to offer to pay $1.02 per Share. The representatives of VAC then left the meeting and the Special Committee continued to discuss pricing issues with its advisors. Later that day, counsel for the Special Committee contacted counsel for VAC to discuss the terms and status of the potential transaction. On September 20, 2000, the Special Committee met with its legal counsel and Houlihan Lokey to discuss the status of the discussions with VAC. After counsel reviewed with the Special Committee the terms and conditions of VAC's letter, the Special Committee directed its counsel to contact VAC's counsel to request a letter indicating a willingness to pay more than $1.02 per Share. After the Special Committee's counsel communicated such to VAC's counsel, VAC responded that it might be willing to pay $1.04 per share. The Special Committee, its legal counsel and Houlihan Lokey met thereafter to consider the revised share price. The Special Committee instructed its counsel to request $1.05 per Share. On September 25, 2000, counsel to VAC stated that VAC was not willing to consider paying more than $1.04 per Share. On September 26, 2000, VAC delivered to the Special Committee a revised letter of intent, providing for, among other things, a potential purchase price of $1.04 per Share. The letter also contemplated that KENETECH would pay VAC a termination fee of as much as $750,000 in the event such an alternative transaction was entered into during the term of the letter and in other circumstances. The letter further contemplated that KENETECH would not solicit alternative proposals from any other parties for the lesser of a period of 30 days or until a definitive agreement was reached. The revised letter also provided that the potential price was subject to renegotiation in the event KENETECH was able to insure on reasonable terms certain contingent liabilities. On September 27, 2000, the Special Committee met with its legal counsel and representatives of Houlihan Lokey. At the meeting, the Special Committee's counsel described the terms of the revised letter and the history of the negotiations of the letter. The Special Committee noted that the letter required each party to use reasonable best efforts to enter into a definitive agreement with respect to the potential transaction. Following discussion, the Special Committee resolved to approve the revised letter of intent and to recommend that the Board authorize KENETECH to execute the letter. Later that same day, the Board met (with all members present, other than Mr. Lerdal, who was traveling) to consider the revised letter of intent. At the request of the Special Committee, the legal counsel to the Special Committee described the terms of the revised letter of intent and the history of the negotiations of the letter. Following discussion, the Board, by the unanimous vote of all members present, approved execution of the letter. After the Board meeting, a representative of KENETECH executed a counterpart of the revised letter of intent. Over the next several weeks, VAC continued its due diligence review of KENETECH and commenced negotiations regarding the principal terms of a definitive agreement with respect to the potential transaction. In addition, during this period, VAC and Mr. Lerdal held several discussions regarding the terms and conditions upon which Mr. Lerdal would participate in the potential transaction. On October 7, 2000, the Special Committee met with its legal counsel. At the meeting the Special Committee discussed the possible timing of a potential transaction. Over the next several weeks, the Special 9 Committee met a number of times with its legal counsel and Houlihan Lokey to, among other things, review the status of the negotiations with VAC with respect to the terms and conditions of the Merger Agreement. Several drafts of the Merger Agreement were exchanged with VAC. During the week of October 16, VAC's counsel prepared and distributed preliminary drafts of the various agreements to be entered into between VAC, Purchaser or Parent and Mr. Lerdal in connection with the proposed transactions, including the Subscription Agreement, a certain voting agreement among Parent, Purchaser and Mr. Lerdal (the "Voting Agreement"), an employment agreement between Purchaser and Mr. Lerdal (the "Employment Agreement") and a stockholders agreement among Parent, VAC, Mr. Lerdal and the parties named therein (the "Stockholders Agreement"). Revised drafts of such agreements were prepared based on subsequent discussions between VAC and Mr. Lerdal and their respective counsel. On October 24, 2000, Mr. Lerdal, Purchaser and VAC entered into the Subscription Agreement, pursuant to which Mr. Lerdal agreed, subject to the terms and conditions of the Subscription Agreement, to contribute his 11,365,458 Shares to Parent in exchange for capital stock in Parent. Also on October 24, 2000, the Special Committee met with its legal counsel to review a revised draft of the Merger Agreement. At the meeting, the Special Committee's counsel discussed the terms of the Merger Agreement and the history and status of the negotiations, and noted the Special Committee members' earlier analysis and ultimate conclusion that certain of KENETECH's contingent liabilities, for which insurance had been considered, could not be insured on reasonable terms. Counsel also discussed with the Special Committee, among other things, the duties of the Special Committee in considering the Merger Agreement. The meeting was then recessed to be reconvened the next day. On October 25, 2000, at the continued meeting, Houlihan Lokey presented its financial analyses as they related to the proposed transaction and its oral opinion, subsequently confirmed in writing, that, as of that date, and based upon and subject to the assumptions made, procedures followed, matters considered, and limitations on the review set forth therein and described to the Special Committee, the consideration to be received by KENETECH's stockholders (other than by Mr. Lerdal) in the Offer and the Merger was fair to such stockholders, from a financial point of view. A copy of Houlihan Lokey's opinion is attached hereto as Annex A, and is incorporated herein by this reference. A copy of Houlihan Lokey's presentation is attached as an exhibit to the Schedule TO. After discussion, the Special Committee, by unanimous vote, determined that the proposed Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, were fair to, and in the best interests of, KENETECH and its stockholders, and recommended that the Board approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger. The Board met immediately after the adjournment of the Special Committee's meeting. At the meeting, the Special Committee made its report and delivered its recommendation. At the request of the Special Committee, its counsel described to the Board the terms of the Merger Agreement, including Mr. Lerdal's participation in the proposed transaction, and the history and status of the negotiations and discussed with the Board its fiduciary duties in considering the Merger Agreement. Houlihan Lokey presented its financial analyses as they related to the proposed transaction and its oral opinion, subsequently confirmed in writing, that, as of that date, and based upon and subject to the assumptions made, procedures followed, matters considered, and limitations on the review set forth therein and described to the Board, the consideration to be received by KENETECH's stockholders (other than by Mr. Lerdal) in the Offer and the Merger was fair to such stockholders, from a financial point of view. After discussion, the Board determined, by unanimous vote (with the exception of Mr. Lerdal, who abstained from the vote), that the proposed Merger Agreement was fair to, and in the best interests of, KENETECH and its stockholders, approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, and recommended that stockholders tender their Shares in the Offer and, if applicable, approve and adopt the Merger Agreement. 10 During the evening of October 25, 2000, the Merger Agreement was executed by Parent, Purchaser and KENETECH, and the Guaranty was executed by VAC and KENETECH. KENETECH also entered into an amendment to its Rights Agreement with ChaseMellon Shareholder Services L.L.C. Shortly after the execution of those agreements, KENETECH issued a press release announcing the transaction. Concurrently with the execution of the Merger Agreement, Mr. Lerdal entered into the Voting Agreement with Parent and Purchaser and an Employment Agreement with Purchaser. 2. Purposes, Alternatives, Reasons, Effects and Plans Purposes. The purpose of the Offer and the Merger is for Parent to acquire control of, and the entire equity interest in, KENETECH. The Offer, as the first step in the acquisition of KENETECH, is intended to facilitate the acquisition of all outstanding Shares. The purpose of the Merger is to acquire all of the outstanding Common Stock not purchased pursuant to the Offer or otherwise acquired by Parent or Purchaser. If, after consummation of the Offer and the contribution by Mr. Lerdal of the Contribution Shares, we own at least 90% of the Shares then outstanding, we believe that we will be able to cause the Merger to occur without a vote of KENETECH's stockholders. If, however, after consummation of the Offer, we own less than 90% of the Shares then outstanding, a meeting of KENETECH's stockholders will be required under applicable state law to adopt the Merger Agreement. In such event, however, we would own, as a result of the Minimum Condition being satisfied, enough Shares to adopt the Merger Agreement in accordance with the applicable state law and the Restated Certificate without the affirmative vote of any other stockholder. Alternatives. The following information has been provided to Purchaser by KENETECH: KENETECH considered various alternatives to the Merger. For a discussion regarding specific alternatives considered by KENETECH, see "Special Factors-- Background of the Transaction; Past Contacts, Negotiations and Agreements" and "--Reports, Opinions, Appraisals and Negotiations." Reasons of Parent, Purchaser and VAC. Each of Parent, Purchaser and VAC believe that it is in KENETECH's best interest to operate as a privately held entity. From 1995 through the end of 1998, KENETECH experienced severe liquidity constraints. In an effort to relieve such constraints, KENETECH undertook to sell its assets. By the end of March 1999, KENETECH had disposed of substantially all its operating assets and, by the end of April 1999, had repaid substantially all of its indebtedness. While pursuing development projects, KENETECH's management continues to evaluate different businesses that KENETECH might pursue, through acquisition or otherwise. Many of the project development activities currently conducted by KENETECH are highly speculative, require significant capital expenditures and may take years to mature. In addition, as a privately held entity, KENETECH will be able to make decisions that may negatively affect quarterly earnings but that may increase the value of KENETECH's assets or earnings over the long-term. In a public company setting, it is difficult to make decisions that could negatively affect earnings when the result of those decisions could significantly reduce per share price. In addition, after the Merger, KENETECH will no longer be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which will allow KENETECH to eliminate the time devoted by its management and certain other employees to matters which relate exclusively to KENETECH being a publicly held company. "Going-private" will also reduce certain other costs which relate to being a public company, including the costs of certain accounting, auditing and legal activities, the cost of preparing, printing and mailing corporate reports and proxy statements, and the expense of a transfer agent. These assessments are based upon publicly available information regarding KENETECH and VAC's due diligence investigation or knowledge of KENETECH and the experience of the principals of VAC in investing in or managing public companies generally. While VAC believes that there will be significant opportunities associated with its investment in KENETECH, it realizes that there are also substantial and significant risks that such opportunities may not be fully realized. 11 Effects. As a result of the Offer and the Merger, the entire equity interest in KENETECH will be owned indirectly by VAC and Mr. Lerdal through their ownership of Parent. The other stockholders of KENETECH (the "Public Stockholders") will no longer have any interest in, and will not be stockholders of, KENETECH, and therefore, will not participate in KENETECH's future earnings and potential growth. Instead, the Public Stockholders will have the right to receive $1.04 in cash, without interest, for each Share held (other than Shares for which appraisal rights have been perfected). To the extent that Mr. Lerdal receives shares of Parent common stock for the Contribution Shares, he will have the ability to participate in KENETECH's future earnings and potential growth. However, to the extent that Mr. Lerdal receives shares of Parent for the Contribution Shares, he will also bear the risk of any decreases in the value of KENETECH. An equity investment in Parent following the Merger will involve substantial risk resulting from the limited liquidity of any such investment and the highly speculative nature of KENETECH's project development activities. Nonetheless, if KENETECH successfully executes its business strategy, the value of such an equity investment could be considerably greater than the original cost thereof. See "The Tender Offer--Possible Effects of the Offer on the Market for the Shares and Exchange Act Registration." In addition, the Common Stock will no longer be traded as an over-the- counter equity security on the OTC Bulletin Board and price quotations for sales of Shares in the public market will no longer be available. The registration of the Common Stock under the Exchange Act will terminate and KENETECH will no longer file periodic or annual reports. KENETECH's officers, directors and the owners of more than 10% of the Common Stock will no longer be subject to the short-swing profit provisions of Section 16(b) of the Exchange Act. Plans For KENETECH. Pursuant to the Merger Agreement, upon completion of the Offer, we intend to effect the Merger in accordance with the terms and conditions of the Merger Agreement. The Merger Agreement provides that, effective upon the consummation of the Offer, Purchaser will be entitled to designate a number of directors (rounded up to the nearest whole number) to the Board in proportion to the percentage of the total number of outstanding Shares owned by Parent and its affiliates. Except as otherwise described in this Offer to Purchase and except for the transactions contemplated by the Merger Agreement, we have no current plans or proposals which relate to or would result in: (a) an extraordinary corporate transaction, such as a merger, reorganization or liquidation involving KENETECH; (b) a sale or transfer of a material amount of assets of KENETECH; or (c) any other material change in KENETECH's corporate structure or business. Nevertheless, we may initiate a review of KENETECH and its assets, corporate structure, capitalization, operations, properties, policies, management and personnel to determine what changes, if any, would be desirable following the Merger in order best to organize and coordinate the activities of KENETECH and Parent. Furthermore, in connection with our ongoing review of KENETECH's long term strategy, we may, in the future, consider transactions such as the disposition or acquisition of material assets, alliances, joint ventures, other forms of co-operation with third parties or other extraordinary transactions affecting KENETECH or its operations. To minimize future tax liability, Parent expects to distribute to its stockholders the excess cash generated by KENETECH, if any. 3. Recommendation of the Special Committee and the Board of Directors of KENETECH; Fairness of the Transaction The Special Committee's and the Board's Recommendations The following information (other than the information concerning Parent, Purchaser or VAC) has been provided to Purchaser by KENETECH: At a meeting held on October 25, 2000, the Special Committee, consisting of independent directors not affiliated with Purchaser and its affiliates or Mr. Lerdal (other than by being members of the Board) and not employed by KENETECH or its affiliates, by unanimous vote of all Special Committee members, 12 determined that the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, are fair to, and in the best interests of, KENETECH and its stockholders (other than Mr. Lerdal) and recommended that the Board approve and declare advisable the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger. Based on the Special Committee's recommendation and by unanimous vote of all directors (with the exception of Mr. Lerdal, who abstained from such vote), the Board thereafter: . determined that the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, are fair to and in the best interests of KENETECH and its stockholders; . approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger; and . recommended that holders of Shares tender their Shares in the Offer and, if applicable, approve and adopt the Merger Agreement in all respects. In making the determinations and recommendations set forth above, the Special Committee and the Board each considered a number of factors, including the following: . KENETECH's financial performance and outlook, and KENETECH's assets, business, financial condition, business strategy, results of operations and prospects, including the risk that if it remained independent KENETECH would not have the means to enable it to obtain sufficient strategic resources to reach critical mass. . Possible alternatives to the Offer and the Merger (including the possibility of continuing to operate KENETECH as an independent entity, pursuing a sale to a strategic buyer or to another financial buyer, making strategic acquisitions or liquidating) and the range of possible benefits to KENETECH's stockholders of such alternatives and the timing and likelihood of accomplishing the goal of any of such alternatives. . Since KENETECH began stating in November of 1999 that it was considering all strategic alternatives, no person or entity, other than Purchaser and its affiliates, had been willing to enter into a letter of intent or make a definitive offer to acquire KENETECH. . The Merger Agreement permits KENETECH to furnish information to, and enter into discussions or negotiations with, any person that makes an unsolicited bona fide expression of interest to acquire KENETECH pursuant to a merger, consolidation, share exchange, business combination, tender or exchange offer or other similar transaction, subject to the terms of the Merger Agreement. . The Merger Agreement permitted KENETECH to issue a press release upon signing the Merger Agreement, stating that the Special Committee had requested that Houlihan Lokey be available to receive unsolicited inquiries from any third party interested in a possible acquisition of KENETECH. . Purchaser is not allowed to purchase Shares pursuant to the Offer for at least 30 business days following announcement of the execution of the Merger Agreement, allowing greater time for third parties potentially to make alternative offers for KENETECH. . The Merger Agreement permits the Board or the Special Committee to withdraw or modify its approval or recommendation of the Offer and the Merger if the Board or the Special Committee determines in good faith, after consultation with independent counsel, that the failure to take such action would be inconsistent with its fiduciary duties under applicable law. . The historical and recent trading activity and market prices of Shares, and the fact that the Offer and the Merger will enable the holders of Shares to realize a premium of 46.5% over the last sale price of Shares reported on the OTC Bulletin Board on October 24, 2000, the trading day prior to the date of execution of the Merger Agreement, and 42.5%, 44.4%, 96.2% and 60.0%, over the last sale price of Shares reported on the OTC Bulletin Board 20, 60, 90 and 180 days, respectively, prior to the date of execution of the Merger Agreement. 13 . The purchase price in the Offer and the Merger would be payable in cash, thus eliminating any uncertainties in valuing the consideration to be received by KENETECH's stockholders. . The Offer provides stockholders who are considering selling their Shares with the opportunity to sell their Shares at the Offer Price without incurring the transaction costs typically associated with market sales. . The Offer and the Merger provide for a prompt cash tender offer for all Shares to be followed by a merger for the same consideration, thereby enabling KENETECH's stockholders to obtain cash in exchange for their Shares at the earliest possible time. . KENETECH's liquidity situation, which limits opportunities to grow KENETECH through acquisitions. . The absence of analyst coverage for KENETECH and the low trading volume in Common Stock, which makes it difficult for any stockholder to acquire or dispose of any substantial block of Shares. . The presentation of Houlihan Lokey to the Special Committee and the Board on October 25, 2000, and the oral opinion of Houlihan Lokey on October 25, 2000 (subsequently confirmed in writing) to the effect that, as of such date, and based upon and subject to the assumptions made, procedures followed, matters considered, and limitations on review set forth therein and described to the Special Committee and the Board, the $1.04 per Share cash consideration to be received by holders of Shares, other than Mr. Lerdal, was fair, from a financial point of view, to such holders. The full text of Houlihan Lokey's written opinion which sets forth the assumptions made, matters considered and limitations on the review undertaken by Houlihan Lokey, is attached hereto as Annex A and is incorporated herein by reference. A copy of Houlihan Lokey's presentation is attached as an exhibit to the Schedule TO. . The judgments of the Special Committee and the Board, based on the extended arm's-length negotiations with Purchaser and Parent, that the Offer Price represented the highest price that Purchaser and Parent would be willing to pay in acquiring the Shares. . The Special Committee was able to negotiate a lower termination fee and more restrictive conditions for payment of the termination fee than Purchaser and Parent had initially proposed, and, based on similar transactions, the Special Committee's and the Board's judgments that the termination fee would not materially impair the ability of a third party to make a competing proposal. . The Merger Agreement requires that there have been tendered and not withdrawn Shares which represent more than 85% of the outstanding Shares on a fully diluted basis, excluding Shares held by Mr. Lerdal, as a condition to the Offer. . The Shares to be contributed by Mr. Lerdal to Parent pursuant to the Subscription Agreement, for purposes of determining the number of shares of Parent capital stock to be issued to Mr. Lerdal, will be valued by Parent at the Per Share Amount to be paid by Purchaser to KENETECH's other stockholders. . The Merger Agreement does not condition Purchaser's obligations to consummate the Merger on Purchaser's or Parent's ability to obtain financing for the Merger, Parent's representations in the Merger Agreement that it will have available to it funds sufficient to satisfy its and Purchaser's obligation to consummate the Offer and the Merger, and the guaranty of Parent's and Purchaser's obligations by VAC. . The stockholders who may not support the Merger have the ability to obtain "fair value" for their Shares if they do not tender their Shares in the Offer and properly perfect and exercise their appraisal rights under applicable law. 14 The Special Committee and the Board each also considered a number of uncertainties and risks in their deliberations concerning the Offer and the Merger, including the following: . The possibility that, although the Offer gives KENETECH's stockholders the opportunity to realize a premium over the price at which the Common Stock traded prior to the public announcement of the Offer and the Merger, the price or value of the Common Stock may increase in the future, and KENETECH's stockholders would not benefit from such future increases. . The circumstances under the Merger Agreement under which the termination fee and expense reimbursement become payable by KENETECH. . Pursuant to the Merger Agreement, between the execution of the Merger Agreement and Effective Time, KENETECH is required to obtain Parent's consent before it can take certain actions. . Certain members of the Board and KENETECH's management may have interests in the Offer and the Merger that are in addition to those of KENETECH's other stockholders. . The conditions to Purchaser's and Parent's obligations to purchase Shares in the Offer, and the possibility that such conditions might not be satisfied. In view of the variety of factors considered in connection with its evaluation of the Merger Agreement, the Special Committee and the Board each found it impracticable to, and did not, quantify, rank or otherwise assign relative weights to the factors considered or determine that any factor was of particular importance in reaching its determination that the Merger Agreement and the transactions contemplated thereby are fair to, and in the best interests of, KENETECH's stockholders. Rather, the Special Committee and the Board each viewed their respective recommendations as being based upon their own judgment, in light of the totality of the information presented and considered, of the overall effect of the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, on KENETECH's stockholders compared to any alternative transaction. The Special Committee was composed of independent directors, none of whom had or have any interest in Purchaser. Furthermore, none of the members of the Special Committee were employed by or affiliated with KENETECH, other than in their capacities as directors. THE BOARD HAS UNANIMOUSLY (WITH THE EXCEPTION OF MR. LERDAL WHO ABSTAINED FROM SUCH VOTE) RECOMMENDED THAT THE PUBLIC STOCKHOLDERS TENDER THEIR SHARES PURSUANT TO THE OFFER AND APPROVE AND ADOPT THE MERGER AGREEMENT AND THE MERGER. Fairness of the Transaction The following information has been provided to Purchaser by KENETECH: The Special Committee and the Board believe that the procedure that was followed in determining the purchase price and other terms of the Merger Agreement were fair to, and in the best interest of, the Public Stockholders for the following reasons: . The Board appointed non-employee directors as the only members of the Special Committee. . The Special Committee had exclusive authority on behalf of the Board to review, evaluate and negotiate the proposed transactions. . All of the non-employee directors, including the one non-employee director who was not a member of the Special Committee, approved the Merger Agreement and the transactions contemplated thereby. . The Merger Agreement contains provisions that enable the Board or the Special Committee to withdraw or modify its recommendation regarding the Offer and the Merger and to enter into an agreement with respect to a more favorable transaction with a third party. 15 . The Merger Agreement contains provisions (without which the Special Committee believes the Purchaser would not have entered into the Merger Agreement) imposing upon KENETECH termination fee obligations that, in the view of the Special Committee, would not have the effect of unreasonably discouraging competing bids. . The Special Committee retained Houlihan Lokey, an unaffiliated financial advisor, to act solely on behalf of the Special Committee to assist it in evaluating the terms of the Offer and the Merger and to render an opinion as to whether the consideration to be received by KENETECH's stockholders, except Mr. Lerdal, in connection with the Offer and the Merger, is fair to such stockholders from a financial point of view. . The Special Committee retained independent counsel to represent the Special Committee with respect to the transactions contemplated by the Merger Agreement. . The Public Stockholders may decide not to tender their Shares in the Offer and be paid cash for the "fair value" of their Shares in connection with the Merger as determined in accordance with applicable law. . The Offer is structured to require the tender of Shares which represent more than 85% of the outstanding Shares on a fully diluted basis, excluding Shares held by Mr. Lerdal, as a condition of the Offer. The discussion of the fairness of the transaction in this Section is qualified in its entirety by the discussion of the reasons for the Offer and the Merger set forth above in Section 2. Based on the foregoing, on October 25, 2000, the Special Committee unanimously determined that the Offer, the Merger, and the Merger Agreement and the transactions contemplated thereby were fair to, and in the best interests of the Public Stockholders and recommended to the Board approval of the Merger Agreement and that the Offer, the Merger and the Merger Agreement be recommended to the stockholders of KENETECH. On October 25, 2000, the Board (with Mr. Lerdal abstaining) approved the Offer, the Merger and the Merger Agreement and has determined that the Merger Agreement and the transactions contemplated thereby are fair to, and in the best interests of, the Public Stockholders. Mr. Lerdal may be considered to have an interest in the Offer and the Merger. Accordingly, the Board (with Mr. Lerdal abstaining) based its determination that the Merger Agreement and the transactions contemplated thereby are fair to the Public Stockholders primarily upon the conclusions and recommendations of the Special Committee described above, and the factors described above for the Special Committee. 4. Position of Parent, Purchaser, VAC and Mr. Lerdal as to the Fairness of the Offer and the Merger By virtue of the Subscription Agreement, Parent may be deemed to beneficially own approximately 36% of the outstanding Shares. As a result, Parent and its affiliates, including VAC and Purchaser, may be deemed to be "affiliates" of KENETECH. Rule 13e-3 of the Exchange Act governs "going- private" transactions by certain issuers and their affiliates. In addition, by virtue of the Subscription Agreement, the Employment Agreement and the Stockholders Agreement, Mr. Lerdal may be deemed to be a participant in the "going-private" transaction. Accordingly, in compliance with Rule 13e-3, Parent, Purchaser, VAC and Mr. Lerdal are required to consider the fairness of the Offer and the Merger to the Public Stockholders. Parent, Purchaser, VAC and Mr. Lerdal believe the Offer, the Merger, and the Merger Agreement and the transactions contemplated thereby to be substantively and procedurally fair to the Public Stockholders. Parent, Purchaser, VAC and Mr. Lerdal have considered the following factors: . The fact that the Board (with Mr. Lerdal abstaining) and the Special Committee concluded that the Offer, the Merger, and the Merger Agreement and the transactions contemplated thereby are fair to and in the best interests of the Public Stockholders. 16 . The historical and projected financial performance of KENETECH and its financial results. . The Per Share Amount represents a 46% premium over the closing bid price for the Shares on October 25, 2000, the last full trading day prior to announcement of the $1.04 per share Offer. . The Offer is an all cash offer for all of the outstanding Shares and the Public Stockholders can accept or reject the Offer. . The ability of Public Stockholders who do not tender their Shares and object to the Merger to obtain "fair value" for their Shares if they exercise and perfect their appraisal rights under applicable state law. . The Offer is not subject to a financing condition. . The Offer provides the Public Stockholders who are considering selling their Shares with the opportunity to sell their Shares at the Per Share Amount without incurring the transaction costs typically associated with market sales, which as a percentage of sales, would be substantial. . The terms of the Merger Agreement were determined through arm's-length negotiations between the Special Committee and its legal and financial advisors, on the one hand, and representatives of Parent, on the other hand, and provide for the Offer to allow Public Stockholders to receive payment for their Shares on an accelerated basis. These terms were negotiated before Parent or Purchaser beneficially owned any Shares and without any involvement by Mr. Lerdal. . The provisions of the Merger Agreement that permit KENETECH to furnish information to, and enter into discussions or negotiations with, any person that makes an unsolicited bona fide expression of interest to acquire KENETECH pursuant to a merger, consolidation, share exchange, business combination, tender or exchange offer or other similar transaction. . KENETECH's liquidity situation, which limits opportunities to grow KENETECH through acquisitions. . Notwithstanding that the Houlihan Lokey opinion was provided solely for the information and assistance of the Special Committee and that Parent, Purchaser, and Mr. Lerdal are not entitled to rely on such opinion, the fact that the Special Committee received an opinion from Houlihan Lokey that the $1.04 per Share in cash to be received by the Public Stockholders in the Offer and the Merger is fair to such holders from a financial point of view. Parent, Purchaser, VAC and Mr. Lerdal have reviewed the factors considered by the Special Committee and the Board in support of their decisions as described above and in the Schedule 14D-9, and have no basis to question their consideration of or reliance on these factors. None of Parent, Purchaser, VAC or Mr. Lerdal find it practicable to assign specific relative weights to the foregoing factors in reaching its opinion as to the fairness of the Offer, the Merger, and the Merger Agreement and the transactions contemplated thereby to the Public Stockholders. 5. Interests of Certain Persons in the Offer and the Merger In considering the recommendations of the Board and the Special Committee with respect to the Offer, the Merger, and the Merger Agreement and the transactions contemplated thereby, you should be aware that officers and directors of KENETECH, including Mr. Lerdal, have interests in connection with the Offer and the Merger which may present them with actual or potential conflicts of interest as described below. The Special Committee and the Board were aware of these interests and considered them among the other matters described in "Special Factors--Recommendation of the Special Committee and the Board of Directors of KENETECH; Fairness of the Transaction." VAC entered into the Subscription Agreement pursuant to which it agreed to contribute to Parent an aggregate of $21.6 million for Parent common stock. See "The Tender Offer--The Transaction Agreements--The 17 Subscription Agreement." Mr. Lerdal is Chairman, President and Chief Executive Officer of KENETECH and owns approximately 36% of the outstanding Shares. Mr. Lerdal entered into the Subscription Agreement pursuant to which he agreed to contribute to Parent 11,365,458 Shares for Parent common stock. Mr. Lerdal also entered into the Voting Agreement pursuant to which he agreed to support the Offer and the Merger. Mr. Lerdal will continue as a director and as a member of management in the Surviving Corporation pursuant to the Employment Agreement which will take effect upon consummation of the Merger and provides for severance payments and non-compete periods. See "The Tender Offer--The Transaction Agreements." Upon the consummation of the Merger, VAC and Mr. Lerdal will enter into the Stockholders Agreement. For a more complete description of such agreement see "The Tender Offer--The Transaction Agreements--The Stockholders Agreement." Members of the Special Committee, in exchange for services relating to the evaluation and negotiation of the proposed transaction, received base compensation equal to $10,000 and an additional $1,000 for each Special Committee meeting attended, with the aggregate compensation not to exceed $20,000 per member. Mr. Lerdal currently holds stock options to acquire 500,000 Shares at an exercise price of $0.8125. Pursuant to the Merger Agreement, at the Effective Time, such stock options will be converted into the right to receive the difference between the Price Per Share and the exercise price, multiplied by the number of Shares subject to the stock options, minus all applicable federal, state and local taxes. Michael D. Winn, a member of the Board, is the president, sole director and sole stockholder of Terrasearch, Inc. Terrasearch entered into a consulting agreement with KENETECH on January 1, 2000. In connection with the consulting agreement, KENETECH issued to Terrasearch warrants to purchase up to 500,000 shares of Common Stock at an exercise price of $1.00 per share. The warrants provide that they may not be exercised until January 1, 2002. However, pursuant to the Merger Agreement, at the Effective Time, the warrants will be converted into the right to receive the difference between the Price Per Share and the exercise price, multiplied by the number of Shares subject to the warrants, minus all applicable federal, state and local taxes. Following the consummation of the Merger, the Merger Agreement requires the Surviving Corporation to indemnify, defend and hold harmless (and make advances for expenses as incurred to) all past and present officers and directors of KENETECH and its subsidiaries to the same extent and in the same manner such persons are entitled to indemnification and advancement of expenses as of the date of the Merger Agreement (to the extent consistent with applicable law). The Surviving Corporation will provide, for a period not less than three years following the consummation of the Merger, to or for those persons covered by KENETECH's directors and officers' insurance and indemnification policy as of the date of the Merger Agreement or the consummation of the Merger, insurance that is substantially similar to KENETECH's existing policy, provided that the Surviving Corporation will not be required to pay an annual premium for such insurance in excess of 175% of the last annual premium paid prior to the date of the Merger Agreement. For a more detailed discussion of the indemnification and insurance provisions of the Merger Agreement, see "The Tender Offer--The Transaction Agreements--The Merger Agreement." It is anticipated that immediately following the Merger VAC will own 865,214 shares of Parent common stock and Mr. Lerdal will own 472,803 shares of Parent common stock. Such ownership of shares will represent all of the outstanding shares of Parent common stock. See also Item 3 of the Schedule 14D-9 of KENETECH being distributed with this Offer to Purchase. The text of Item 3 is incorporated herein by this reference. 6. Reports, Opinions, Appraisals and Negotiations The following information (other than the information concerning Parent, Purchaser or VAC) has been provided to Purchaser by KENETECH: 18 The Special Committee retained Houlihan Lokey to assist it in evaluating the terms of the Offer and the Merger and to render an opinion as to whether the consideration to be received by KENETECH's stockholders, except Mr. Lerdal, in connection with the Offer and the Merger, is fair to such stockholders from a financial point of view. At the October 25, 2000 meeting of the Special Committee, Houlihan Lokey presented its analysis as hereinafter described and delivered its oral opinion (subsequently confirmed in writing) that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered, and limitations on the review set forth therein and described to the Special Committee, the consideration to be received by KENETECH's stockholders (except Mr. Lerdal) in connection with the Offer and the Merger is fair to such stockholders from a financial point of view. The preparation of a fairness opinion is a complex process and is not necessarily conducive to partial analysis or summary description. The following is a brief summary and general description of the valuation methodologies and approaches utilized by Houlihan Lokey in its evaluation of KENETECH in connection with the Offer and the Merger, but does not purport to be a complete statement of the analyses and procedures applied, the judgments made or the conclusions reached by Houlihan Lokey, nor does it purport to be a complete description of its presentation. Houlihan Lokey believes, and so advised the Special Committee and the Board, that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it (without considering all factors and analyses) could create an incomplete view of the process underlying Houlihan Lokey's analyses and opinions. The complete text of Houlihan Lokey's written opinion as presented to the Special Committee and the Board is attached hereto as Annex A. The summary of the opinion set forth below is qualified in its entirety by reference to the full text of such opinion. Stockholders are urged to read such opinion carefully in its entirety for a description of the procedures followed, the factors considered, the assumptions made, and the limitations on the analysis undertaken by Houlihan Lokey. Houlihan Lokey's written opinion is for the information and assistance of the Special Committee and the Board, and does not constitute a recommendation as to whether any holder of Common Stock should accept the Offer or as to how any holder of Common Stock should vote with respect to the Merger. A copy of the presentation Houlihan Lokey gave to the Special Committee and the Board is attached as an exhibit to the Schedule TO. Houlihan Lokey's opinion does not address the Special Committee's, the Board's or KENETECH's underlying business decision to proceed with the Offer and the Merger. Houlihan Lokey has not been requested to, and did not, participate in the process to explore strategic alternatives for KENETECH nor did it actively solicit third party indications of interest in acquiring all or any part of KENETECH. In connection with the preparation of its opinion, Houlihan Lokey made such reviews, analyses and inquiries as its representatives deemed necessary and appropriate under the circumstances. Among other things, Houlihan Lokey: . reviewed KENETECH's annual reports on Form 10-K for the fiscal years ended 1995 through 1999, the quarterly reports on Form 10-Q for the two quarters ended June 30, 2000 and KENETECH's financial statements for the period ended September 30, 2000, which KENETECH's management has identified as being the most current financial statements available; . met with certain members of KENETECH's management, auditors and tax advisors, and Astoria Energy, LLC to discuss the operations, financial condition, future prospects and projected operations and performance of KENETECH; . discussed the operations, financial condition, future prospects and projected operations and performance of certain companies in which KENETECH has invested (the "Company Investments") with KENETECH's management and certain members of the senior management of various Company Investments; . reviewed the Merger Agreement and the letter from KENETECH, dated October 25, 2000 (the "Company Letter"); 19 . reviewed financial statements and forecasts and projections for certain of the Company Investments; . reviewed the historical market prices and trading volume for KENETECH's publicly traded securities; . reviewed certain other publicly available financial data for certain companies that Houlihan Lokey deemed comparable to KENETECH and the Company Investments; . reviewed various documents relating to KENETECH and the Company Investments; . reviewed various documents provided by counsel to the Special Committee relating to the cause of action filed in the Delaware Court of Chancery styled Kohls v. Duthie, et al., and relied on the views expressed by counsel to the Special Committee with respect to it; and . conducted such other studies, analyses and inquiries as Houlihan Lokey deemed appropriate. In assessing the fairness of the consideration to KENETECH's stockholders (other than Mr. Lerdal) in the Offer and the Merger, Houlihan Lokey independently valued KENETECH and the Company Investments using widely accepted valuation methodologies. The consideration to be paid by Purchaser in the Offer and the Merger was determined through negotiations between the Special Committee and Purchaser. Houlihan Lokey assisted the Special Committee in evaluating the terms of the Offer and the Merger. Assessment of KENETECH's Stock Price Houlihan Lokey analyzed the trading volume and the trading prices of the Common Stock over the past twelve months. Based on these analyses, Houlihan Lokey observed that: (i) KENETECH's market capitalization is small; (ii) the Common Stock is thinly traded; and (iii) KENETECH has no analyst coverage. Analysis of Control Premiums The analysis of control premiums involved the application of control premium evidence using a comparable transactions approach to KENETECH's unaffected stock price. The unaffected stock price for KENETECH is considered to be the closing trading price for the five days prior to the initial public announcement of the Merger Agreement. The control premium comparables for the latest twelve-month period included: . 22 transactions in the energy services industry; . one transaction in the electrical, gas, water and sanitary industry; and . 823 U.S. acquisitions overall, and such control premiums were 23.0%, 33.3% and 40.5%, respectively. Applying this range of control premiums to the unaffected stock price of KENETECH yielded an implied value range for the Common Stock of $0.87 to $1.00 per Share. Based on the unaffected stock price of KENETECH and the Per Share Amount of $1.04, the implied control premium is 46.5%. Adjusted Net Asset Value Approach As part of its analysis, Houlihan Lokey completed an independent valuation of KENETECH using the adjusted net asset value approach. This was the primary methodology used by Houlihan Lokey to value KENETECH. The adjusted net asset value approach focuses on individual asset and liability values, as reported on KENETECH's balance sheet, and as adjusted to fair market value. This going- concern approach is appropriate in instances where the subject company invests heavily in tangible assets, identifiable assets and investments, or where operating earnings are insignificant relative to the value of the underlying assets. KENETECH's assets consisted primarily of cash, traded debt securities, advances and various investments (which are principally minority interest investments in privately-held companies and investments in venture 20 funds). Cash and traded debt securities were adjusted to reflect cash outflows subsequent to the September 30, 2000 balance sheet date and were otherwise valued at book value. Advances and the Company Investments were valued using the prior transactions and discounted cash flow approaches (which approaches are described in more detail below). KENETECH's liabilities consisted primarily of accounts payable, accrued liabilities and other long-term liabilities. The accounts payable and accrued liabilities were adjusted to reflect post-balance sheet transactions and were otherwise valued at book value. The Deferred Benefit for Deconsolidated Subsidiary Losses liability (reported in the long-term liabilities section) was adjusted to market value based on discussions with KENETECH's advisors and by using the discounted cash flow approach. Houlihan Lokey examined the assets and liabilities on the most current balance sheet available and adjusted the reported value, where appropriate, to reflect a range of the fair market values of such assets or liabilities. The aggregate market value of the liabilities was subtracted from the aggregate fair market value of the assets to arrive at the adjusted net asset value. Further adjustments were made to net asset value to deduct the present value of the costs of managing the assets and to deduct the associated taxes on appreciated assets, as determined in Houlihan Lokey's valuation. One or both of the following two approaches (the prior transactions approach and the discounted cash flow approach) were used to arrive at indications of fair market value for each of the Company Investments. From these two approaches, a range of indicated fair market values was determined for each of the Company Investments. The reported book value for such Company Investments was then adjusted to reflect the concluded range of fair market values for each of the Company Investments. In this manner, Houlihan Lokey adjusted the reported book value of the Company Investments and other assets to fair market value and then aggregated the overall adjusted market value of KENETECH's assets (as discussed above). A discussion of these valuation approaches follows. Prior Transactions Approach The prior transactions approach examines prior stock transactions for the companies or securities being valued. This approach was highly relevant to most of the Company Investments for which no public market existed and because most of KENETECH's investments were made in the nine months prior to the date of Houlihan Lokey's opinion. The prior transactions approach demonstrates what a third party might be willing to pay for the securities of a company in an arms-length transaction. Based on discussions with KENETECH's management and the management of several of the Company Investments, Houlihan Lokey calculated implied equity values for select Company Investments based on prior rounds of financing or capital raised, and third party indications of interest in such Company Investments. In valuing each of the Company Investments, the prior transactions approach was considered. Discounted Cash Flow Approach The discounted cash flow approach utilizes projections prepared by the respective managements of certain of the Company's Investments, and discounts such projections of future earnings to the present. The projected cash flows were analyzed on a "leveraged" basis (after cash payments to interest-bearing debt investors) in order to develop a valuation for such investments. A provision for the value of these Company Investments at the end of the forecast period, or terminal value, based on after-tax earnings was also made. The present value of the interim cash flows and the terminal value were determined using a risk-adjusted rate of return or "discount rate." This discount rate, in turn, was developed through an analysis of rates of return on alternative investment opportunities in companies with similar risk characteristics as the Company Investments being valued. In determining the value of certain Company Investments using the discounted cash flow approach, Houlihan Lokey utilized the exit multiple method by capitalizing the earnings for the final projection period at an appropriate price-to-earnings multiple to determine the terminal value. Houlihan Lokey used the discounted cash flow approach for certain of the Company Investments for which forecasts were obtained from management. 21 Summary Based on the approaches described above, the per Share equity value of KENETECH was in the range of $0.96 to $1.13. Fairness Analysis To determine the fairness of the consideration to KENETECH's stockholders (other than Mr. Lerdal) from a financial point of view, Houlihan Lokey reviewed the Per Share Amount to be paid in the Offer and the Merger. Houlihan Lokey concluded that the Per Share Amount of $1.04 per share was within the concluded per Share equity value range of $0.96 to $1.13. Assessment of KENETECH's Strategic Alternatives to the Offer and the Merger In evaluating the fairness of the consideration to KENETECH's stockholders (other than Mr. Lerdal), from a financial point of view, Houlihan Lokey qualitatively considered the expected value to the stockholders of completing the Offer and the Merger and certain alternatives to the Offer and the Merger. In the course of working for the Special Committee, Houlihan Lokey held discussions with KENETECH's representatives and reviewed the materials and information provided by KENETECH with respect to KENETECH's strategic alternatives and, for purposes of issuing an opinion, considered the following strategic alternatives: . maintaining the status quo; . sale of KENETECH to a strategic buyer; . strategic acquisitions by KENETECH; . sale of KENETECH to a financial buyer; and . liquidation. The assessment of strategic alternatives included a qualitative assessment of the valuation impact of the Offer and the Merger relative to the alternatives considered by Houlihan Lokey. The analysis did not quantify the valuation impact because, in the opinion of Houlihan Lokey, it was not feasible to so quantify this impact (due to the significant number of non- quantifiable variables). In connection with the preparation and delivery of its opinion to the Special Committee and the Board, Houlihan Lokey performed a variety of financial and comparative analyses, as described above. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial and comparative analysis, and the application of those methods to the particular circumstances. Furthermore, in arriving at its opinion, Houlihan Lokey did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Houlihan Lokey believes that its analyses must be considered as a whole and that considering any portion of such analyses and factors, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying its opinion. In its analyses, Houlihan Lokey made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of KENETECH. In arriving at its opinion, Houlihan Lokey relied upon and assumed, without independent verification, that the financial forecasts and projections provided to it were reasonably prepared and reflected the best currently available estimates of the future financial results and condition of KENETECH and the Company Investments, 22 where applicable. Houlihan Lokey also assumed that, except to the extent provided for in the Company Letter, there had been no material change in the assets, financial condition, business or prospects of KENETECH and the Company Investments, where applicable, since the date of the most recent financial statements made available to Houlihan Lokey. Houlihan Lokey did not independently verify the accuracy and completeness of the information supplied to it with respect to KENETECH and the Company Investments, and did not assume any responsibility with respect to such information. Houlihan Lokey did not make any physical inspection or independent appraisal of any of the properties, assets or liabilities of KENETECH and the Company Investments. Houlihan Lokey's opinion was necessarily based on business, economic, market and other conditions as they existed and could be evaluated by it at the date of its opinion letter. Accordingly, although subsequent developments may affect its opinion, Houlihan Lokey has not assumed the obligation to update, revise or reaffirm its written opinion dated as of October 25, 2000. Houlihan Lokey's opinion and presentation are directed to the Special Committee and the Board, address only the fairness of the consideration to be received by KENETECH's stockholders (other than Mr. Lerdal) in the Offer and the Merger and do not address the relative merits of the Offer and the Merger, any other matter provided for or contemplated by the Merger Agreement or any other transaction that may have been available as an alternative to the Offer and the Merger, whether or not any such alternative could be or could have been achieved, or the terms upon which any such alternative transaction could be or could have been achieved. Further, Houlihan Lokey's opinion addresses only issues related to the fairness, from a financial point of view to KENETECH's stockholders (except Mr. Lerdal), of the consideration to be received, and Houlihan Lokey does not express any views on any other terms of the Merger Agreement, or any other agreement. In addition, Houlihan Lokey has assumed that in the course of obtaining the necessary regulatory and third party consents for the Offer and the Merger, no delay or restrictions will be imposed that will have a material adverse effect on the contemplated benefits of the Offer and the Merger. The opinion of Houlihan Lokey and its presentation to KENETECH's Special Committee and the Board constituted only one of a number of factors taken into consideration by the Special Committee and the Board in making their respective recommendations and determinations to approve the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger. Houlihan Lokey's opinion and presentation do not constitute a recommendation to the Special Committee, the Board or any stockholder of KENETECH as to whether the stockholders should tender their shares in the Offer or how the Special Committee, the Board or the stockholders should vote with respect to any matter relating to the Offer and the Merger, and do not address the underlying business decisions of the Special Committee and the Board to enter into the Merger Agreement and to consummate the transactions contemplated thereby, including the Offer and the Merger. Houlihan Lokey is a nationally recognized investment banking firm with special expertise in, among other things, valuing businesses and securities and rendering fairness opinions. Houlihan Lokey is continually engaged in the valuation of businesses and securities in connection with mergers and acquisitions, leveraged buyouts, private placements of debt and equity, corporate reorganizations, employee stock ownership plans, corporate and other purposes. The Special Committee selected Houlihan Lokey because of its industry experience and expertise in performing valuation and fairness analyses. Houlihan Lokey does not beneficially own, nor has it ever beneficially owned, any interest in KENETECH. Materials summarizing Houlihan Lokey's analyses were presented to the Special Committee and the Board on October 25, 2000. Parent has filed these materials with the Commission as an exhibit to the Schedule TO. Copies of these materials are available for inspection and copying at KENETECH's principal executive offices, during regular business hours, by any interested KENETECH stockholder or representative who has been so designated in writing. You may also obtain these materials from the SEC in the same manner as set forth for KENETECH's SEC filings in "The Tender Offer--Certain Information Concerning KENETECH." 23 Fees and Expenses The Special Committee retained Houlihan Lokey pursuant to a letter agreement, dated August 24, 2000. The Special Committee retained Houlihan Lokey to assist it in evaluating the terms of the Offer and the Merger and to render an opinion as to the fairness of the consideration to be received by KENETECH's stockholders (except for Mr. Lerdal) in connection with the proposed transaction and, additionally, to assist the Special Committee in reviewing and negotiating the financial structure and terms of the Offer and the Merger, and to provide assistance in connection with defining, from a financial point of view, strategic and financial objectives. Pursuant to the engagement letter, KENETECH agreed to pay Houlihan Lokey $350,000 for its services. KENETECH made a partial payment of $150,000 when it signed the engagement letter, and the remaining $200,000 became due and payable when Houlihan Lokey issued its opinion on October 25, 2000. KENETECH also agreed in the letter agreement to reimburse Houlihan Lokey for all reasonable travel and out-of-pocket expenses (including reasonable fees and expenses of legal counsel) and to indemnify Houlihan Lokey and its employees, agents, officers, shareholders and persons who control Houlihan Lokey against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of Houlihan Lokey's engagement. In June 1996, Houlihan Lokey was retained by an unofficial committee of KENETECH's 12 3/4% senior secured noteholders (which notes were satisfied and discharged in 1998) to provide financial advisory services for the benefit of such committee and Houlihan Lokey received compensation for such services. Although KENETECH was a party to the agreement between the unofficial committee and Houlihan Lokey, this past engagement is unrelated to the Offer and the Merger. 24 THE TENDER OFFER 1. Terms of the Offer Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any extension or amendment), the Purchaser will purchase all Shares validly tendered on or prior to the Expiration Date and not theretofore properly withdrawn in accordance with Section 4 below. The term "Expiration Date" means 12:00 Midnight, New York City time, on December 7, 2000, unless we have extended the initial period of time during which the Offer is open, in which event, the term "Expiration Date" will mean the latest time and date at which the Offer, as so extended by us, will expire. If we decide, in our sole discretion, to increase the consideration offered in the Offer to holders of Shares and if, at the time that notice of such change is first published, sent or given to holders of Shares in the manner specified below, the Offer is scheduled to expire at any time earlier than the expiration of a period ending on the twentieth Business Day from, and including, the date that such notice is first so published, sent or given, then the Offer will be extended until the expiration of a period of 10 Business Days from the date of such notice. For purposes of the Offer, a "Business Day" means any day other than a Saturday, Sunday or a federal holiday and consists of the time period from 12:01 a.m. through 12:00 Midnight, New York City time. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, SATISFACTION OF THE MINIMUM CONDITION, AND CERTAIN OTHER CONDITIONS AS SET OUT IN SECTION 12 BELOW. THE MERGER AGREEMENT AND THE OFFER MAY BE TERMINATED BY PURCHASER AND PARENT SHOULD ANY OF THE EVENTS SET FORTH IN SECTION 10 OCCUR. SEE SECTION 10. We reserve the right (but are not obligated), in accordance with applicable rules and regulations of the Commission and subject to the limitations set forth in the Merger Agreement described below, to waive any condition to the Offer. Pursuant to the Merger Agreement, however, we have agreed not to waive the Minimum Condition without the consent of KENETECH (which will not unreasonably be withheld). Subject to certain limitations in the Merger Agreement (including the requirement that we obtain KENETECH'S consent in connection with a waiver of the Minimum Condition, if applicable), if the Minimum Condition or any condition set forth in Section 13 below has not been satisfied by 12:00 Midnight, New York City time, on the Expiration Date (or any other time then set as the Expiration Date), we may elect to (a) extend the Offer and, subject to applicable withdrawal rights, retain all tendered Shares until the expiration of the Offer, as extended, (b) subject to complying with applicable rules and regulations of the Commission, accept for payment all Shares so tendered and not extend the Offer or (c) terminate the Offer and not accept for payment any Shares and return all tendered Shares to tendering stockholders. Pursuant to the Merger Agreement, we may, without the consent of KENETECH, extend the Offer if at the scheduled or extended Expiration Date any of the conditions of the Offer have not been satisfied or waived, until such time as such conditions are satisfied or waived, and extend the Offer for any period reasonably determined by Purchaser after consultation with its legal advisors to be required by any rule, regulation, interpretation or position of the Commission or the staff thereof, subject in each case to any right of KENETECH to terminate the Merger Agreement pursuant to the terms of such Merger Agreement. Pursuant to the Merger Agreement, however, Purchaser may not extend the Offer without the consent of KENETECH for reasons other than those stated in the preceding sentence, or, unless it is obligated to extend the Offer under the Merger Agreement because, at the scheduled Expiration Date, several of the conditions to the Offer have at that time been satisfied, subject in either case to any right of Parent, Purchaser, or KENETECH to terminate the Merger Agreement pursuant to the terms of the Merger Agreement. We expressly reserve the right, at any time and from time to time, to modify the terms of the Offer, except that, without the consent of KENETECH, we will not reduce the number of Shares subject to the Offer, reduce the Per Share Amount, impose any other conditions to the Offer other than the Offer Conditions, change the form of consideration payable in the Offer, or amend any other term of the Offer in a manner adverse to the holders of Shares. 25 Subject to the applicable rules and regulations of the Commission and subject to the limitations set forth in the Merger Agreement, we expressly reserve the right, at any time and from time to time, in our sole discretion, to delay payment for any Shares regardless of whether such Shares were previously accepted for payment, or to terminate the Offer and not to accept for payment or pay for any Shares not previously accepted for payment or paid for, upon the occurrence of any of the conditions set forth in Section 12, by giving oral or written notice of such delay or termination to the Depositary. Our right to delay payment for any Shares or not to pay for any Shares previously accepted for payment is subject to the applicable rules and regulations of the Commission, including Rule l4e-l(c) under the Exchange Act, relating to our obligation to pay for or return tendered Shares promptly after the termination or withdrawal of the Offer. Any extension of the period during which the Offer is open, delay in acceptance for payment or payment, termination or amendment of the Offer, will be followed, as promptly as practicable, by public announcement thereof, such announcement in the case of an extension to be issued not later than 9:00 a.m., New York City time, on the next Business Day after the previously scheduled Expiration Date, in accordance with the public announcement requirements of Rules l4d-4(c) and l4e-l(d) under the Exchange Act. Without limiting our obligation under such rule or the manner in which we may choose to make any public announcement, we currently intend to make announcements by issuing a press release to the Dow Jones News Service or PR Newswire (or such other national media outlet or outlets we deem prudent) and by making any appropriate filing with the Commission. If, subject to the terms of the Merger Agreement, we make a material change in the terms of the Offer or the information concerning the Offer, or we waive a material condition of the Offer (including, with the consent of KENETECH, a waiver of the Minimum Condition), we will disseminate additional tender offer materials and extend the Offer if and to the extent required by Rules l4d-4 (c), 14d-6(d) and l4e-l under the Exchange Act or otherwise. The minimum period during which a tender offer must remain open following material changes in the terms of the Offer or the information concerning the Offer, other than a change in the consideration offered or a change in the percentage of securities sought, will depend upon the facts and circumstances, including the relative materiality of the terms or information changes. With respect to a change in the consideration offered or a change in the percentage of securities sought, the Offer generally must remain open for a minimum of 10 Business Days following such change to allow for adequate disclosure to stockholders. Pursuant to Rule 14d-ll under the Exchange Act, we may, subject to certain conditions, provide a subsequent offering period of from 3 Business Days to 20 Business Days in length following the expiration of the Offer on the Expiration Date ("Subsequent Offering Period"). A Subsequent Offering Period would be an additional period of time, following the expiration of the Offer and the purchase of Shares in the Offer, during which stockholders may tender Shares not tendered in the Offer. A Subsequent Offering Period, if one is included, is not an extension of the Offer which already will have been completed. During a Subsequent Offering Period, tendering stockholders will not have withdrawal rights and we will promptly purchase and pay for any Shares tendered at the same price paid in the Offer. Rule 14d-ll provides that we may provide a Subsequent Offering Period so long as, among other things, (a) the initial 20 Business Day period of the Offer has expired, (b) we offer the same form and amount of consideration for Shares in the Subsequent Offering Period as in the initial Offer, (c) we accept and promptly pay for all securities tendered during the Offer prior to its expiration, (d) we announce the results of the Offer, including the approximate number and percentage of Shares deposited in the Offer, no later than 9:00 a.m., New York City time, on the next Business Day after the Expiration Date and immediately begin the Subsequent Offering Period and (e) we immediately accept and promptly pay for Shares as they are tendered during the Subsequent Offering Period. We will be able to include a Subsequent Offering Period, if we satisfy the conditions above. In a public release, the Commission has expressed the view that the inclusion of a Subsequent Offering Period would constitute a material change to the terms of the Offer requiring us to disseminate new information to stockholders in a manner reasonably calculated to inform them of such change sufficiently in advance of the Expiration Date (generally five Business Days). In the event we elect to include a Subsequent Offering Period, we will notify stockholders of KENETECH consistent with the requirements of the Commission. 26 WE DO NOT CURRENTLY INTEND TO INCLUDE A SUBSEQUENT OFFERING PERIOD IN THE OFFER, ALTHOUGH WE RESERVE THE RIGHT TO DO SO IN OUR SOLE DISCRETION. PURSUANT TO RULE 14d-7 UNDER THE EXCHANGE ACT, NO WITHDRAWAL RIGHTS APPLY TO SHARES TENDERED DURING A SUBSEQUENT OFFERING PERIOD AND NO WITHDRAWAL RIGHTS APPLY DURING THE SUBSEQUENT OFFERING PERIOD WITH RESPECT TO SHARES TENDERED IN THE OFFER AND ACCEPTED FOR PAYMENT. THE SAME CONSIDERATION, THE PER SHARE AMOUNT, WILL BE PAID TO STOCKHOLDERS TENDERING SHARES IN THE OFFER OR IN A SUBSEQUENT OFFERING PERIOD, IF ONE IS INCLUDED. KENETECH has provided us with their list of stockholders of record and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares whose names appear on KENETECH's stockholder list and will be furnished to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agencys security position listing, for subsequent transmittal to beneficial owners of Shares. 2. Acceptance for Payment and Payment for Shares Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), we will accept for payment, and will pay for, Shares validly tendered and not properly withdrawn as soon as practicable after the Expiration Date. In addition, we expressly reserve the right, subject to applicable rules of the Commission, to delay acceptance for payment of, or payment for, Shares in order to comply, in whole or in part, with any applicable law. See "Terms of the Offer" above and "Withdrawal Rights" below. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (a) certificates for such Shares or confirmation of the book-entry transfer of such Shares into the Depositarys account at The Depository Trust Company (the "Book-entry Transfer Facility") pursuant to the procedures set forth in Section 3, (b) a Letter of Transmittal (or facsimile thereof) properly completed and duly executed with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message (as defined in Section 3 below) in lieu of the Letter of Transmittal) and (c) any other documents required by the Letter of Transmittal. See "Procedure for Tendering Shares" below. For purposes of the Offer, we will be deemed to have accepted for payment Shares validly tendered and not properly withdrawn if and when we give oral or written notice to the Depositary of our acceptance for payment of such Shares pursuant to the Offer. Payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for the tendering stockholders for purposes of receiving payments from us and transmitting such payments to the tendering stockholders. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE FOR SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. Our reservation of the right to delay the acceptance or purchase of or payment for Shares is subject to the provisions of Rule l4e-l(c) under the Exchange Act, which requires us to pay the consideration offered or to return Shares deposited by or on behalf of tendering stockholders promptly after the termination or withdrawal of the Offer. If any tendered Shares are not accepted for payment pursuant to the terms and conditions of the Offer for any reason, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in "Procedure For Tendering Shares" below, such Shares will be credited to an account maintained with the Book-Entry Transfer Facility), as soon as practicable following expiration or termination of the Offer. 27 IF, PRIOR TO THE EXPIRATION DATE, WE INCREASE THE CONSIDERATION OFFERED TO HOLDERS OF SHARES PURSUANT TO THE OFFER, WE WILL PAY SUCH INCREASED CONSIDERATION TO ALL HOLDERS OF SHARES THAT ARE PURCHASED PURSUANT TO THE OFFER, WHETHER OR NOT SUCH SHARES WERE TENDERED PRIOR TO SUCH INCREASE IN CONSIDERATION. We reserve the right to transfer or assign, in whole or in part, from time to time, to one or more direct or indirect subsidiaries of Parent the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve us of our obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 3. Procedure for Tendering Shares Valid Tender. To tender Shares pursuant to the Offer, either (a) a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) in accordance with the instructions of the Letter of Transmittal, with any required signature guarantees, certificates for the Shares to be tendered and any other documents required by the Letter of Transmittal must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or before the Expiration Date, (b) such Shares must be properly delivered pursuant to the procedures for book-entry transfer described below and a confirmation of such delivery received by the Depositary which confirmation must include an Agent's Message (as defined below) if the tendering stockholder has not delivered a Letter of Transmittal on or before the Expiration Date, or (c) the tendering stockholder must comply with the guaranteed delivery procedures set forth below. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation (as defined below), which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares, which are the subject of such Book- Entry Confirmation, that such participant has received and will be bound by the terms of the Letter of Transmittal and that we may enforce such agreement against the participant. Book-Entry Transfer. The Depositary will establish an account with respect to the Shares at the Book-Entry Transfer Facility for purposes of the Offer within two Business Days after the date of this Offer to Purchase. Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make a book-entry transfer of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositarys account in accordance with the Book-Entry Transfer Facilitys procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer, either the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agents Message in lieu of the Letter of Transmittal, and any other required documents, must, in any case, be transmitted to and received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase on or before the Expiration Date, or the tendering stockholder must comply with the guaranteed delivery procedures described below. The confirmation of a book-entry transfer of Shares into the Depositary's account at the Book-Entry Transfer Facility as described above is referred to herein as a "Book-Entry Confirmation." The Letter of Transmittal, and any other documents required therein, must be transmitted to and received by the Depositary at one of the addresses set forth on the back cover of this Offer to Purchase. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. Signature Guarantees and Stock Powers. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a member of the Medallion Signature Guarantee Program or by any other "eligible guarantor institution", as such term is defined in Rule l7Ad-l5 under the Exchange Act (an "Eligible Institution"). Most commercial banks, savings and loans associations and brokerage houses are Eligible 28 Institutions. Signatures on a Letter of Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed by the registered holder (which term, for purposes of this section, includes any participant in any of the Book- Entry Transfer Facilitys systems whose name appears on a security position listing as the owner of the Shares) of Shares tendered therewith and such registered holder has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If the certificates for Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for Shares not tendered or not accepted for payment or are to be returned to a person other than the registered holder of the certificates surrendered, then the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as described above. See Instructions 1 and 5 of the Letter of Transmittal. If the Certificate for Shares are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal (or a facsimile copy thereof with original signature(s)) must accompany each delivery of certificates for such Shares. Guaranteed Delivery. A stockholder who desires to tender Shares pursuant to the Offer and whose certificates for Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, or who cannot deliver all required documents to the Depositary on or before the Expiration Date, may tender such Shares by following all of the procedures set forth below: (a) such tender is made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form which we have provided, is received by the Depositary (as provided below) on or before the Expiration Date; and (c) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to all such Shares), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal), and any other documents required by the Letter of Transmittal are received by the Depositary within three Trading Days after the date of execution of such Notice of Guaranteed Delivery. A "Trading Day" is any day on which the Nasdaq Stock Market is open for business. The Notice of Guaranteed Delivery may be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. DELIVERY OF ALL SUCH DOCUMENTS WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT ALL SUCH DOCUMENTS BE SENT BY PROPERLY INSURED REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. Other Requirements. Notwithstanding any provision hereof, payment for Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of (a) certificates for (or a timely Book-Entry Confirmation with respect to) such Shares, (b) a Letter of Transmittal (or facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal) and (c) any other documents required by 29 the Letter of Transmittal. Accordingly, tendering stockholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. UNDER NO CIRCUMSTANCES WILL WE PAY INTEREST ON THE PURCHASE PRICE OF THE SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. Tender Constitutes a Binding Agreement. Our acceptance for payment of Shares tendered pursuant to one of the procedures described above will constitute a binding agreement between the tendering stockholder and us upon the terms and subject to the conditions of the Offer. Appointment as Proxy. By executing and delivering a Letter of Transmittal as set forth above (or, in the case of a book-entry transfer, by delivery of an Agents Message, in lieu of a Letter of Transmittal), the tendering stockholder irrevocably appoints our designees, and each of them, as such stockholder's agents, attorneys-in-fact and proxies, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by us and with respect to any and all other Shares or other securities issued or issuable in respect of such Shares on or after the date of this Offer to Purchase. All such proxies and powers of attorney will be considered coupled with an interest in the tendered Shares. Such appointment is effective when, and only to the extent that, we deposit the payment for such Shares with the Depositary. Upon the effectiveness of such appointment, all prior powers of attorney, proxies and consents given by such stockholder will be revoked without further action, and no subsequent powers of attorney, proxies and consents may be given (and, if given, will not be deemed effective) . Our designees will, with respect to the Shares for which the appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they, in their sole discretion, may deem proper at any annual, postponed, special or adjourned meeting of the stockholders of KENETECH, by written consent in lieu of any such meeting or otherwise. We reserve the right to require that, in order for Shares to be deemed validly tendered, immediately upon the acceptance for payment for such Shares, we must be able to exercise full voting rights to the extent permitted under applicable law with respect to such Shares. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by us in our sole and absolute discretion, which determination will be final and binding on all parties. We reserve the absolute right to reject any and all tenders determined by us not to be in proper form or the acceptance for payment of or payment for which may, in our opinion, be unlawful. We also reserve the absolute right to waive any defect or irregularity in the tender of any Shares of any particular stockholder whether or not similar defects or irregularities are waived in the case of any other stockholder. No tender of Shares will be deemed to have been validly made until all defects and irregularities relating thereto have been cured or waived by us. None of Parent, Purchaser, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Our interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and Instructions and any other related documents thereto) will be final and binding. 4. Withdrawal Rights Except as otherwise provided in this Section 4, tenders of Shares made pursuant to the Offer are irrevocable, except that Shares tendered pursuant to the Offer may be withdrawn at any time on or before the Expiration Date and, unless theretofore accepted for payment by us pursuant to the Offer, may also be withdrawn at any time after January 8, 2001 or such later time if the Offer is extended. For a withdrawal of Shares to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any notice of withdrawal must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the recordholder of the Shares to be withdrawn, if different from that of the person who tendered such Shares. The signature(s) on the notice of withdrawal must be 30 guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of any Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry transfer as set forth in Section 3, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. If certificates have been delivered or otherwise identified to the Depositary, the name of the registered holder and the serial numbers shown on such certificates must also be furnished to the Depositary as aforesaid prior to the physical release of such certificates. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by us, in our sole discretion, which determination will be final and binding. No withdrawal of Shares will be deemed to have been properly made until all defects and irregularities have been cured or waived by us. None of Purchaser, Parent, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. Withdrawals of tenders of Shares may not be rescinded, and any Shares properly withdrawn will be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered by following one of the procedures described in Section 3 at any time on or before the Expiration Date. If we extend the Offer, are delayed in our acceptance for payment of Shares or are unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to our rights under this Offer, the Depositary may, nevertheless, on our behalf, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as set forth in this Section 4. Any such delay will be an extension of the Offer to the extent required by law. In the event we provide a Subsequent Offering Period following the Offer, no withdrawal rights will apply to Shares tendered during such Subsequent Offering Period or to Shares previously tendered in the Offer and accepted for payment. 5. Certain United States Federal Income Tax Consequences of the Transactions The following is a summary of the material United States federal income tax consequences to you of the sale of Shares pursuant to the Offer and the exchange of Shares for cash pursuant to the Merger. This summary does not purport to be a description of all tax consequences that may be relevant to you, and assumes an understanding of tax rules of general application. It does not address special rules which may apply to you based on your tax status, individual circumstances or other factors unrelated to the Offer or the Merger. You should consult your own tax advisor regarding the Offer and the Merger. The receipt of cash for Shares pursuant to the Offer or the Merger will be a taxable transaction for U.S. federal income tax purposes, and may also be taxable under applicable state, local, foreign and other tax laws. For U.S. federal income tax purposes, if your Shares are purchased pursuant to the Offer or you receive cash as a result of the Merger, you will realize gain or loss equal to the difference between the adjusted basis of the Shares sold or exchanged and the amount of cash received therefor. Such gain or loss will be capital gain or loss if you held the Shares as capital assets and will be long-term capital gain or loss if your holding period in such Shares for federal income tax purposes is more than one year at the time of the sale or exchange. In addition, your ability to use capital losses to offset ordinary income is limited. Backup Federal Income Tax Withholding. Under the backup federal income tax withholding laws applicable to certain stockholders (other than certain exempt stockholders, including, among others, all corporations and certain foreign individuals), the Depositary may be required to withhold 31% of the amount of any payments made to those stockholders pursuant to the Offer. To prevent backup federal income tax withholding, you must provide the Depositary with your correct taxpayer identification number and certify that you are not subject to backup federal income tax withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. See Instruction 11 of the Letter of Transmittal. 31 The foregoing discussion is included for general information purposes and may not apply if you acquired your Shares pursuant to the exercise of employee stock options or other compensation arrangements with KENETECH, or if you are not a citizen or resident of the U.S. or if you are otherwise subject to special tax treatment. The tax discussion above is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change, possibly retroactively. You are urged to consult your own tax advisor with respect to the tax consequences of the Offer and the Merger, including the application and effect of state, local, foreign or other tax laws. 6. Price Range of Shares; Dividends According to KENETECH's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, the Shares are traded on the OTC Bulletin Board under the symbol "KWND.OB." The following table sets forth, for the periods indicated, the range of high and low bid quotations for the Common Stock as reported by a stock quotation system. Such over-the-counter market quotations do not include retail mark-ups, markdowns, or commissions and may not represent actual transactions:
Year High Low - ---- ------ ------ 1998: First Quarter.................................................... $0.070 $0.050 Second Quarter................................................... 0.410 0.063 Third Quarter.................................................... 0.310 0.160 Fourth Quarter................................................... 0.280 0.125 1999: First Quarter.................................................... $0.280 $0.125 Second Quarter................................................... 0.375 0.125 Third Quarter.................................................... 0.450 0.260 Fourth Quarter................................................... 0.650 0.340 2000: First Quarter.................................................... $0.710 $0.510 Second Quarter................................................... 0.800 0.500 Third Quarter.................................................... 0.790 0.563 Fourth Quarter (through November 3, 2000)........................ 1.000 0.650
On October 25, 2000, the last full trading day prior to the public announcement of the terms of the Offer and the Merger, the reported closing price per Share on the over-the-counter market was $0.71 per Share. On November 3, 2000, the last full trading day prior to the printing of this Offer to Purchase, the reported closing price per Share on the over-the- counter market was $0.99 per Share. YOU ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES BEFORE TENDERING YOUR SHARES. Since its inception, KENETECH has not paid any dividends on its Common Stock. Under the Merger Agreement, KENETECH has agreed not to pay any dividends on the Common Stock prior to the Effective Time. 7. Possible Effects of the Offer on the Market for the Shares and Exchange Act Registration Possible Effects of the Offer on the Market for the Shares. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and reduce the number of holders which could adversely affect the liquidity and market value of the remaining Shares held by the public. Public Market. Depending upon the number of Shares purchased pursuant to the Offer, the Common Stock may no longer trade in the over-the-counter market after the completion of the Offer. The extent of the public market and the availability of quotations, would depend, however, upon such factors as the number of stockholders and/or the aggregate market value of such securities remaining at such time, the interest in 32 maintaining a market in the Common Stock on the part of the securities firms, the possible termination of registration under the Exchange Act as described below and other factors. We cannot predict whether the reduction in the number of shares of Common Stock that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the Common Stock or whether it would cause future market prices to be greater or less than the Per Share Amount. Exchange Act Registration. The Shares are currently registered under the Exchange Act. This registration may be terminated by KENETECH upon application to the Commission if there are fewer than 300 holders of record of Shares. Termination of registration of the Shares under the Exchange Act would reduce the information required to be furnished by KENETECH to its stockholders and to the Commission and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b) and the requirement of furnishing a proxy statement in connection with stockholders' meetings pursuant to Section 14(a) and the related requirement of furnishing an annual report to stockholders, no longer applicable with respect to the Shares. Furthermore, the ability of "affiliates" of KENETECH and persons holding "restricted securities" of KENETECH to dispose of such securities pursuant to Rule 144 under the Securities Act of 1933, as amended, may be impaired or eliminated. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be eligible for quotation on the over-the-counter market. WE INTEND TO SEEK TO CAUSE KENETECH TO APPLY FOR TERMINATION OF REGISTRATION OF THE SHARES AS SOON AS PRACTICABLE AFTER CONSUMMATION OF THE OFFER IF THE REQUIREMENTS FOR TERMINATION OF REGISTRATION ARE MET. 8. Certain Information Concerning KENETECH Except as otherwise set forth herein, the information concerning KENETECH has been taken from or based upon publicly available documents and records on file with the Commission and other public sources and is qualified in its entirety by reference thereto. Certain information set forth herein, including information about the background to the Merger, the Special Committee, the Special Committee's and the Board's consideration of the Offer and the Merger, and Houlihan Lokey's analysis of the fairness of the Offer and the Merger, was provided to the Purchaser by KENETECH. Although Purchaser and Parent have no knowledge that would indicate that any statements contained herein are untrue, neither Purchaser nor Parent assumes any responsibility for the accuracy or completeness of the information contained herein about KENETECH or any information provided to Purchaser by KENETECH, or for any failure by KENETECH to disclose events that may have occurred or may affect the significance or accuracy of any such information but which are unknown to Purchaser or Parent. KENETECH, headquartered at 500 Sansome Street, Suite 410, San Francisco, CA 94111, (415) 398-3825, is a Delaware corporation that has historically been involved in the development, construction, and management of independent power projects. KENETECH continues in project development activities; however it has ceased its construction and management activities. KENETECH is currently participating with other parties in developing two electric generating facilities and one oriented strand board facility. From 1995 through the end of 1998, KENETECH experienced severe liquidity constraints. In an effort to relieve such constraints, KENETECH undertook to sell its assets. By the end of March 1999, KENETECH had disposed of substantially all its operating assets and, by the end of April 1999, repaid substantially all of its indebtedness. KENETECH currently has substantial cash balances and net operating income tax losses and other tax attributes to carry forward to future years. While pursuing development projects, management continues to evaluate different businesses that KENETECH might pursue, through acquisition or otherwise. KENETECH completed its initial public offering of 6,000,000 shares of Common Stock on September 21, 1993. The price per share in the initial public offering was $16.50. The net proceeds to KENETECH from the offering were approximately $92 million, after deducting underwriting discounts and commissions of approximately $6.60 million. The name, citizenship, business address, principal occupation or employment, five-year employment history and information concerning beneficial ownership of the Shares for each of the directors and executive officers of KENETECH and certain other information, as of October 20, 2000, are set forth in Schedule B hereto. 33 Selected Publicly Available Financial Information. Set forth below is certain summary consolidated financial information for KENETECH's fiscal years ended December 31, 1998 and December 31, 1999, which are its last two fiscal years contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 1999, and for the six months ended June 30, 2000 (unaudited), as contained in KENETECH's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. More comprehensive financial information is included in such reports (including managements discussion and analysis of financial condition and results of operation) and other documents filed by KENETECH with the Commission which reports are incorporated by reference in this Offer to Purchase, and the following summary is qualified in its entirety by reference to such reports and other documents and all of the financial information and notes contained therein. Copies of such reports and other documents may be examined at or obtained from the Commission in the manner set forth below.
Six Months Year Year INCOME STATEMENT DATA: Ended Ended Ended (Dollars in thousands, except June 30, 2000 December 31, 1999 December 31, 1998 per share amounts) ------------- ----------------- ----------------- Revenues..................... $ 1,201 $ 5,431 $251,921 Total costs of revenues...... 0 56 39,015 Gross margin................. 1,201 5,375 212,906 Project development and marketing, engineering, general and administrative expenses. 1,399 5,700 4,178 Income (loss) from operations.................. (198) (325) 208,728 Income before taxes.......... 701 11,017 185,486 Net income................... 701 36,590 131,572 Income per share (basic and diluted).................... 0.02 0.87 3.20 Book value per share......... 0.80 0.79 (0.08) Ratio of earnings to fixed charges (1)................. -- -- 9.64x BALANCE SHEET DATA: Current assets............... $30,801 $47,567 $ 84,461 Total assets................. 42,005 50,097 84,485 Current liabilities.......... 4,555 5,679 53,072 Total liabilities............ 15,784 17,152 87,865 Stockholders' equity (deficiency)................ 26,221 32,945 (3,380)
(1) KENETECH did not incur any fixed charges in the six months ended June 30, 2000 and the year ended December 31, 1999. Available Information. KENETECH is subject to the information and reporting requirements of the Exchange Act and in accordance therewith is obligated to file reports and other information with the Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning KENETECH's directors and officers, their remuneration, stock options granted to them, the principal holders of KENETECH's securities, any material interests of such persons in transactions with KENETECH and other matters is required to be disclosed in proxy statements distributed to KENETECH's stockholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the public reference room at the Commission's office located at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C., and also should be available for inspection and copying at the following regional offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661- 2511. Copies may be obtained by mail, upon payment of the Commission's customary charges, by writing to its principal office at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549. Further information on the operation of the Commission's Public Reference Room in Washington, D.C. can be obtained by calling the Commission at l-800-SEC-0330. The Commission also maintains an Internet worldwide web site that contains reports, proxy statements and other information about issuers, such as KENETECH, who file electronically with the Commission. The address of that site is http://www.sec.gov. 34 Pursuant to Section 21(E)(b)(2)(C) of the Exchange Act, the safe harbor for forward-looking statements under the Private Securities Litigation Reform Act of 1995 is not applicable to a forward-looking statement made in connection with a tender offer. 9. Certain Information Concerning Purchaser and Parent Purchaser is a Delaware corporation and, to date, has engaged in no activities other than those incident to its formation and the Offer and the Merger. Purchaser is currently a wholly owned subsidiary of Parent. The principal executive offices of Purchaser are located at c/o ValueAct Capital Partners, L.P. One Maritime Plaza, Suite 1400, San Francisco, CA 94111 and Purchaser's telephone number is (415) 362-3706. Parent is a Delaware holding corporation and, to date, has engaged in no activities other than those incident to its formation and the Offer and the Merger. Parent is a wholly owned subsidiary of VAC. The principal executive offices of Parent are located at c/o ValueAct Capital Partners, L.P., One Maritime Plaza, Suite 1400, San Francisco, CA 94111, and Parents telephone number is (415) 362-3706. VAC, a limited partnership organized under the laws of Delaware, owns the voting equity securities of Parent. Parents equity securities will be owned after the Merger by VAC and Mr. Lerdal, who has agreed to contribute the Contribution Shares to Parent. The principal executive offices of VAC are located at One Maritime Plaza, Suite 1400, San Francisco, California 94111, and VAC's telephone number is (415) 362-3706. Except for 11,365,458 Shares which may be deemed to be beneficially owned by VAC by virtue of the Subscription Agreement and Voting Agreement, none of Parent or Purchaser nor, to the best of Parent's and Purchaser's knowledge, VAC or the persons listed in Schedule A hereto (except as indicated in such Schedule) or any associate or majority-owned subsidiary of Parent or Purchaser, beneficially owns or has a right to acquire any securities of KENETECH or has any contract, arrangement, understanding or relationship with any other person with respect to any securities of KENETECH, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities of KENETECH, joint venture, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss, or the giving or withholding of proxies, or has affected any transaction in the securities of KENETECH during the past 60 days. Except as set forth in this Offer to Purchase, since November 6, 1998, neither Parent or Purchaser nor, to the best of Parents and Purchasers knowledge, VAC or the persons listed on Schedule A hereto, has had any business transactions with KENETECH or any of its executive officers, directors or affiliates that is required to be reported under the rules and regulations of the Commission applicable to the Offer. Except as set forth in this Offer to Purchase, since November 6, 1998, there have been no material contacts, negotiations or transactions between Parent, Purchaser or any of their affiliates or, to the best of Parents and Purchasers knowledge, VAC or the persons listed in Schedule A to this Offer to Purchase, on the one hand, and KENETECH or its affiliates, on the other hand, concerning a merger, consolidation or acquisition; a tender offer for or other acquisition of securities of any class of KENETECH's securities; an election of directors of KENETECH; or a sale or other transfer of a material amount of assets of KENETECH. 10. The Transaction Agreements The Subscription Agreement. On October 24, 2000, Parent entered into the Subscription Agreement with VAC and Mr. Lerdal. The following summary of the Subscription Agreement is qualified in its entirety by reference to the Subscription Agreement, a copy of which is incorporated herein by reference and copies or forms of which have been filed with the Commission as exhibits to the Schedule TO to which this Offer to Purchase is an exhibit. The Subscription Agreement may be examined and copies may be obtained in the manner set forth in Section 8. 35 Pursuant to the Subscription Agreement, VAC has agreed to purchase an aggregate of 865,214 shares of Parent common stock for a purchase price of $25.00 per share in cash, or an aggregate purchase price of approximately $21.6 million on the terms set forth in the Subscription Agreement. Also pursuant to the Subscription Agreement, Mr. Lerdal has agreed to contribute the Contribution Shares to Parent for an aggregate of 472,803 shares of Parent common stock on the terms set forth in the Subscription Agreement. The Subscription Agreement valued the Contribution Shares at $1.04 per Share. Based on the 31,970,164 shares of Common Stock outstanding, the Contribution Shares represent approximately 36% of the outstanding Common Stock. The closing of the purchase by VAC of Parent common stock will take place one Business Day after the date on which Purchaser accepts for payment the Shares tendered in the Offer and the closing of the exchange by Mr. Lerdal of Shares for Parent common stock will take place at such time mutually agreed upon by Parent and Mr. Lerdal, but in no event later than December 28, 2000. The obligation of Mr. Lerdal to contribute the Contribution Shares is not conditioned upon or subject to the completion of the Offer. The Stockholders Agreement. The Subscription Agreement also contemplates that Mr. Lerdal will enter into the Stockholders Agreement with Parent and the persons listed in Schedule A thereto. The following summary of the Stockholders Agreement is qualified in its entirety by reference to the Stockholders Agreement, a copy of which is incorporated herein by reference and copies or forms of which have been filed with the Commission as exhibits to the Schedule TO to which this Offer to Purchase is an exhibit. The Stockholders Agreement may be examined and copies may be obtained in the manner set forth in Section 8. The Stockholders Agreement to be executed by each of the Parent, VAC, and Mr. Lerdal, will contain various rights and restrictions, including tag-along rights, buy/sell rights, rights of first refusal and other restrictions on transfer, in connection with such parties' ownership of equity securities of Parent following the Merger. In addition, the Stockholders Agreement will contain provisions regarding the constitution of the Parent Board of Directors, including provisions permitting VAC to designate two directors to Parent's three member Board of Directors and permitting Mr. Lerdal to designate one director. The Voting Agreement. On October 25, 2000, Mr. Lerdal entered into the Voting Agreement with Purchaser and Parent. The following summary of the Voting Agreement is qualified in its entirety by reference to the Voting Agreement, a copy of which is incorporated herein by reference and copies or forms of which have been filed with the Commission as exhibits to the Schedule TO. The Voting Agreement may be examined and copies may be obtained in the manner set forth in Section 8. Pursuant to the Voting Agreement, among other things, Mr. Lerdal agreed (i) to vote all shares beneficially owned by him (the "Subject Shares") in favor of the Merger Agreement and the Merger and against any Takeover Proposal (as defined below) and any other proposal for action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of KENETECH under the Merger Agreement, (ii) to waive any appraisal rights he may have in connection with the Merger, (iii) not to solicit or initiate, or encourage, directly or indirectly, any inquiries regarding the submission of any Takeover Proposal, (iv) not to participate in any discussions or negotiations regarding, or furnish to any person any information or data with respect to, or take any other action to knowingly facilitate the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal, (v) not to enter into any agreement with respect to any Takeover Proposal or approve or resolve to approve any Takeover Proposal, (vi) not to transfer the Subject Shares, (vii) to constitute and appoint Parent and Purchaser as his true and lawful 36 proxies in connection with the Merger and the Merger Agreement and (viii) not to tender the Subject Shares pursuant to the Offer. Based on 31,970,164 shares of Common Stock outstanding on October 20, 2000, the Subject Shares in the aggregate represent approximately 36% of the total outstanding Common Stock. The Voting Agreement will terminate and be of no further force and effect (i) by the written mutual consent of the parties to the Voting Agreement, (ii) automatically upon the Effective Time, or (iii) upon the termination of the Merger Agreement in accordance with the terms of the Merger Agreement. The Merger Agreement. The following is a summary of the material provisions of the Merger Agreement. This summary is qualified in its entirety by reference to the full text of the Merger Agreement which is incorporated herein by reference and a copy of which is attached to this Offer to Purchase as Schedule D. Defined terms used herein and not defined herein have the meanings assigned to those terms in the Merger Agreement. The Offer. The Merger Agreement provides that Purchaser will commence the Offer and that, upon the terms and subject to prior satisfaction or waiver of the conditions set forth in the Merger Agreement as described in Section 13 (including, if the Offer is extended or amended, the terms and conditions of any extension or amendment), Purchaser will accept for payment, and pay for, all Shares validly tendered pursuant to the Offer and not withdrawn on or prior to the Expiration Date. Directors. Pursuant to the Merger Agreement, promptly following Purchaser's purchase of the Shares pursuant to the Offer, Purchaser will be entitled, to the fullest extent permitted by law, to designate at its option up to that number of directors, rounded to the nearest whole number, of KENETECH's Board of Directors, subject to compliance with Section 14(f) of the Exchange Act, as will make the percentage of KENETECH's directors designated by Purchaser equal to the percentage of the aggregate voting power of the Shares held by Parent or any of its subsidiaries; provided, however, that if Purchaser's designees are elected to the Board of Directors of KENETECH, until the consummation of the Merger such Board of Directors will have at least three directors (excluding Mr. Lerdal) who were directors of KENETECH on the date of the execution of the Merger Agreement. Following the election or appointment of Purchaser's designees pursuant to the Merger Agreement and prior to the consummation of the Merger, Parent and Purchaser will not cause KENETECH to take any action with respect to any amendment, or waiver of any term or condition of the Merger Agreement, KENETECH's Restated Certificate of Incorporation, as amended (the "Restated Certificate"), or KENETECH's Restated Bylaws, as amended (the "Restated Bylaws"), or certain other actions, without the concurrence of a majority of the directors who are directors of KENETECH on the date of the execution of the Merger Agreement or their replacements (excluding Mr. Lerdal). The Merger. The Merger Agreement provides that, after the completion of the Offer and the satisfaction or waiver of certain conditions, Purchaser will be merged with and into KENETECH and KENETECH will be the Surviving Corporation. At the Effective Time, (i) each issued and outstanding share of common stock, par value $.01 per share, of Purchaser will be converted into one share of common stock of the Surviving Corporation, (ii) all Shares that are held in treasury of KENETECH or by any wholly owned subsidiary of KENETECH and any Shares owned by Parent or by any wholly-owned subsidiary of Parent will be canceled, (iii) each Share issued and outstanding immediately prior to the Effective Time (other than Shares described in (ii) above and Shares held by dissenting stockholders) will be converted into the right to receive the Merger Consideration, and (iv) Shares held by holders who properly exercise appraisal rights under applicable state law will not be converted, and holders of such Shares will be entitled to receive payment of the appraised value of such Shares in accordance with applicable state law unless and until such holders fail to perfect or effectively withdraw or lose their rights to appraisal under applicable state law. The Board, at a meeting duly called and held on October 25, 2000, at which all of the directors were present, and acting on the unanimous recommendation of the Special Committee, duly and unanimously (with Mr. Lerdal abstaining): (i) approved and declared the advisability of the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger; (ii) recommended that you accept the Offer, tender 37 your Shares pursuant to the Offer and, if applicable, approve and adopt the Merger Agreement and the transactions contemplated thereby, including the Merger; and (iii) determined that the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, are fair to you and in your best interests. Parent and Purchaser will use their reasonable best efforts to cause Mr. Lerdal to transfer to Parent all Shares owned by him in accordance with the Subscription Agreement. If, following such transfer by Mr. Lerdal and the purchase of Shares pursuant to the Offer, Parent, Purchaser, VAC, and any other entity controlled by VAC collectively own at least ninety percent of the outstanding Shares, Parent and Purchaser will take all necessary and appropriate action to cause the Merger to become effective as soon as is reasonably practicable after the expiration of the Offer without a meeting of stockholders of KENETECH, in accordance with applicable law. Charter, Bylaws, Directors and Officers. At the Effective Time, the Restated Certificate, as in effect immediately prior to the Effective Time, will be amended in accordance with the terms of the Merger Agreement. At the Effective Time, the Restated Bylaws, as in effect immediately prior to the Effective Time, will be amended in accordance with the terms of the Merger Agreement. The directors of Purchaser at the Effective Time will be the directors of the Surviving Corporation, and the officers of KENETECH at the Effective Time will be the officers of the Surviving Corporation. Conversion of Shares. At the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, KENETECH or the holder of any of the following securities: (a) Each issued and outstanding share of common stock, par value $.01 per share, of Purchaser will be converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. (b) All Shares that are held in the treasury of KENETECH or by any wholly-owned subsidiary of KENETECH and any Shares owned by Parent or by any wholly-owned subsidiary of Parent will be canceled and no consideration will be delivered in exchange therefor. (c) Each Share issued and outstanding immediately prior to the Effective Time (other than Shares to be canceled in accordance with (b) above and other than Shares which are issued and outstanding immediately prior to the Effective Time and which are held by holders who properly exercise appraisal rights with respect thereto) will be converted into the right to receive from the Surviving Corporation the Merger Consideration. (d) Each KENETECH stock option that is outstanding immediately prior to the Effective Time will be canceled. The holder of such stock option will receive the right to receive from KENETECH cash in an amount equal to (A) the product of (1) the number of Shares subject to such option and (2) the excess, if any, of the Merger Consideration over the exercise price per share for the Shares subject to such option, minus (B) all applicable federal, state, and local taxes required to be withheld in respect of such payment. (e) Each KENETECH warrant that is outstanding immediately prior to the Effective Time will be canceled. The holder of such warrant will receive the right to receive an amount equal to (A) the product of (1) the number of Shares subject to such warrant and (2) the excess, if any, of the Merger Consideration over the exercise price per share for the Shares subject to the warrant, minus (B) all applicable federal, state, and local taxes required to be withheld in respect of such payment. Representations And Warranties. In the Merger Agreement, KENETECH has made customary representations and warranties to Parent and Purchaser with respect to, among other matters, the absence of any event, occurrence, fact, circumstances, change or effect that is or would reasonably be expected (as far as can be foreseen at the time) to be materially adverse to its ability to perform its obligations under the Merger Agreement or to consummate the transactions contemplated thereby, or to its business, operations, properties or results of operations or condition (financial or otherwise), assets or liabilities (actual or contingent) or those of its subsidiaries, taken as a whole (a "Material Adverse Change" or "Material Adverse Effect"), its organization 38 and qualification, capitalization, authority, consents and approvals, public filings, financial statements, brokers, employee benefit matters, litigation, tax matters, compliance with law, environmental matters, intellectual property, real property, material contracts, and related party transactions. Each of Parent and Purchaser has made customary representations and warranties to KENETECH with respect to, among other matters, its organization, qualifications, authority, consents and approvals, operations of Parent and Purchaser, brokers, financial wherewithal and ownership of Shares. Conduct of Business Pending The Merger. With certain specific exceptions, the Merger Agreement obligates KENETECH and its subsidiaries, from the date of the Merger Agreement through the Effective Time, to conduct their operations only in the ordinary course of business as currently conducted, to use commercially reasonable efforts to preserve intact their business organizations, to keep available the services of their present officers and employees and to preserve the present relationships with those persons and entities having significant business relationships with KENETECH and its subsidiaries, and to maintain in full force and effect all authorizations necessary for such business, except to the extent such would not have a Material Adverse Effect on KENETECH or its subsidiaries. The Merger Agreement also contains specific restrictive covenants as to certain activities of KENETECH, which provide that KENETECH will not (and will not permit any of its subsidiaries to) take certain actions without the prior written consent of Parent, including, among other things and subject to certain exceptions, issuing or selling its securities, redeeming or repurchasing securities, changing its capital structure, making material acquisitions or dispositions, entering into or amending material contracts, incurring indebtedness, settling litigation or claims, increasing compensation or adopting new benefit plans, and permitting certain other material events or transactions. No Solicitation. In the Merger Agreement, KENETECH has agreed that it will not, and will not authorize any of its subsidiaries or any officer, director or employee of or any financial advisor, attorney or other advisor or representative of KENETECH or any of its subsidiaries to directly or indirectly: (a) solicit, initiate or encourage the submission of any Takeover Proposal, (b) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to KENETECH or any of its subsidiaries in connection with, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal, or (c) authorize, engage in, or enter into any agreement or understanding with respect to any Takeover Proposal; provided, that nothing contained in the Merger Agreement will prohibit KENETECH or its directors or any special committee of KENETECH's Board of Directors from complying with Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act or making such disclosure as required under applicable law. In addition, the Merger Agreement provides that, prior to the purchase of Shares pursuant to the Offer, KENETECH may engage in the activities described in (b) and (c) above with respect to any person who has submitted on an unsolicited basis to KENETECH (A) a Takeover Proposal believed by KENETECH to be bona fide or (B) an expression of interest believed by KENETECH to be bona fide indicating such person's desire to pursue the possibility of making a Takeover Proposal on terms believed by KENETECH to be financially superior to the Offer and the Merger (a "Superior Proposal") and, in either case, KENETECH's Board of Directors, or any committee thereof, determines that such action is appropriate for the Board to comply with its fiduciary duties under applicable law, the Board or any committee thereof concludes in good faith that such Takeover Proposal could lead to a Superior Proposal and, prior to disclosing any of the information referred to in (b) above, and KENETECH obtains from such person an executed confidentiality agreement. KENETECH will use reasonable best efforts to advise Parent, in writing, no later than one Business Day thereafter, of its receipt of any Takeover Proposal. In addition, under the Merger Agreement, KENETECH has agreed to refrain from entering into any agreement authorizing any Takeover Proposal until two Business Days following delivery by KENETECH of such notice, and to keep Parent reasonably informed of the status of any such Takeover Proposal. 39 As used herein and in the Merger Agreement, "Takeover Proposal" means any proposal for (i) a merger, share exchange or other business combination involving KENETECH or any of its subsidiaries, (ii) any proposal or offer to acquire in any manner, directly or indirectly, an equity interest in or any voting securities of KENETECH representing 15% or more of the Shares outstanding, (iii) an offer to acquire in any manner, directly or indirectly, any assets of KENETECH or any of its subsidiaries in excess of $100,000, or (iv) any similar transaction or business combination involving KENETECH or its business or capital stock or assets, other than the transactions contemplated by the Merger Agreement. Indemnification; Directors' and Officers' Insurance. In the Merger Agreement, Parent agreed that, from and after the Effective Time, it will cause the Surviving Corporation to indemnify, defend and hold harmless (and make advances for expenses as incurred to) all past and present officers and directors of KENETECH and its subsidiaries to the same extent and in the same manner such persons are entitled to indemnification and advancement of expenses as of the date of the Merger Agreement (to the extent consistent with applicable law) by KENETECH pursuant to the DGCL, certain indemnification agreements to which KENETECH is a party, the Restated Certificate or the Restated Bylaws for acts or omissions occurring at or prior to the Effective Time. The Merger Agreement also provides that Parent will cause the Surviving Corporation to perform, as of the Effective Time, all of the obligations set forth in Article 9 of the Restated Certificate, Article V of the Restated Bylaws and the indemnification agreements identified in the Merger Agreement. In addition, for a period of not less than three years from the Effective Time, Parent will cause the Surviving Corporation to provide, to or for those persons covered as of the date of the Merger Agreement or as of the Effective Time by KENETECH's directors and officers' insurance and indemnification policy, insurance that is substantially similar to KENETECH's existing policy, provided that the Surviving Corporation will not be required to pay an annual premium in excess of 175% of the last annual premium paid prior to the date of the Merger Agreement. Conditions to The Consummation of The Merger. The respective obligations of each party to effect the Merger are subject to the satisfaction on or prior to the Effective Time of the following conditions: (i) Purchaser must have previously accepted for payment and paid for Shares pursuant to the Offer; (ii) the Merger Agreement must have been adopted by the affirmative vote of the stockholders of KENETECH entitled to vote thereon (subject to the provision of the Merger Agreement relating to the consummation of the Merger without the vote of KENETECH stockholders, pursuant to applicable law); and (iii) no court or other Governmental Entity having jurisdiction over KENETECH or Parent, or any of their subsidiaries, shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making illegal or directly or indirectly restraining, prohibiting or restricting the consummation of the Merger. Termination. The Merger Agreement provides that it may be terminated at any time prior to the Effective Time, whether before or after adoption of the Merger Agreement by KENETECH's or Purchaser's stockholders: (a) By the mutual written consent of Parent and KENETECH; (b) By either of Parent or KENETECH if: (i) as a result of the failure of the Offer Conditions, the Offer has been terminated or has expired without Purchaser having accepted for payment any Shares pursuant to the Offer, or Purchaser has not accepted for payment any Shares pursuant to the Offer prior to December 27, 2000; provided that, the right of either party to terminate as described in this sentence will not be available if such party's failure to perform any of its obligations under the Merger Agreement results in the failure of any such condition or if the failure of such condition results from facts or circumstances that constitute a breach of any representation or warranty under the Merger Agreement by such party; (ii) any Governmental Entity has issued a final and nonappealable order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the acceptance for payment of, or payment for, the Shares pursuant to the Offer or the Merger; or 40 (iii) prior to the purchase of Shares pursuant to the Offer, any of the derivative claims currently pending against KENETECH and certain of its present and former directors are resolved in favor of the plaintiffs in the derivative action; (c) By KENETECH: (i) if its Board of Directors or any committee thereof determines that a Takeover Proposal constitutes a Superior Proposal and the Board of Directors or any such committee determines, in its good faith judgment, after consultation with independent counsel, that failing to terminate the Merger Agreement would be inconsistent with such Board's fiduciary duties under applicable law, provided that KENETECH has, pursuant to the Merger Agreement, properly informed Parent of the existence and status of any of such Takeover Proposal; (ii) if, at any time prior to the purchase of Shares pursuant to the Offer, (x) any of the representations or warranties of Parent or Purchaser set forth in the Merger Agreement that are qualified as to materiality shall not be true and correct in any respect or any such representations or warranties that are not so qualified shall not be true and correct in any material respect, or (y) Parent or Purchaser have failed to perform in any material respect any material obligation or to comply in any material respect with any material agreement or covenant of Parent or Purchaser to be performed or complied with by it under the Merger Agreement and such untruth, incorrectness, or failure cannot be or has not been cured within twenty Business Days after the giving of written notice to Parent of Purchaser; or (iii) if the Offer has not been commenced by Parent or Purchaser on or prior to 15 Business Days following the date of the initial public announcement of the Offer; provided that KENETECH may not terminate the Merger Agreement pursuant to this provision if it is in material breach of the Merger Agreement; or (d) By Parent or Purchaser: (i) if prior to the purchase of the Shares pursuant to the Offer, KENETECH breaches any representation, warranty, covenant or other agreement contained in the Merger Agreement which would cause the representations and warranties made by KENETECH in the Merger Agreement to be untrue, unless such inaccuracies do not result in a Material Adverse Effect on KENETECH, or would cause KENETECH to fail to perform any obligation or to comply with any agreement or covenant to be performed or complied by it under the Merger Agreement, which breach continues for more than twenty Business Days after KENETECH's receipt of notice of such failure; or (ii) if the Board of Directors of KENETECH or any committee thereof has withdrawn or modified in a manner adverse to Parent or Purchaser its approval or recommendation of the Offer, the Merger or the Merger Agreement, or approved or recommended any Takeover Proposal, or resolved to take any of such actions. Effect of Termination. Except as described below, in the event that the Merger Agreement is terminated by any of KENETECH or Parent or Purchaser as provided above, the Merger Agreement will forthwith become void and there will be no liability on the part of Parent, Purchaser or KENETECH, or their respective officers or directors. However, the provisions of the Merger Agreement regarding confidentiality and termination fees will survive termination, and termination will not relieve any party from liability for breaches of its representations, warranties or covenants contained in the Merger Agreement, or for fraud. KENETECH will pay to Parent the following amounts, as applicable: (i) if Parent or Purchaser terminates the Merger Agreement under (d)(ii) above, KENETECH will pay $750,000 (the "Termination Fee"); (ii) if KENETECH terminates the Merger Agreement under (c)(i) above, KENETECH will pay the Termination Fee; or (iii) if Parent or Purchaser terminates the Merger Agreement under (d)(i) above as a result of the breach by KENETECH of any covenant or agreement contained in the Merger Agreement resulting in a failure of 41 KENETECH to perform any obligation or to comply with any agreement or covenant of KENETECH to be performed or complied with by it under the Merger Agreement and at the time of any such termination a Takeover Proposal shall have been made, and if concurrently therewith, or within twelve months thereafter, KENETECH enters into a definitive merger agreement, acquisition agreement or similar agreement with respect to a Takeover Proposal, or a Takeover Proposal is consummated, involving any party with which KENETECH was in contact prior to such termination, KENETECH will pay the Termination Fee. KENETECH also will pay the following amounts, if applicable: (A) if Parent or Purchaser terminates the Merger Agreement because the Offer has terminated or expired (without Purchaser accepting for payment any Shares) as a result of KENETECH incurring certain Material Adverse Changes or KENETECH's failure to perform its material obligations under the Merger Agreement, or (B) if KENETECH terminates the Merger Agreement prior to January 31, 2001, then KENETECH will pay to Purchaser all reasonably incurred out-of-pocket expenses incurred by or on behalf of Purchaser or its stockholders (including expenses incurred by or on behalf of Mr. Lerdal) in connection with the transactions contemplated by the Merger Agreement not to exceed $250,000. Amendment. Subject to certain restrictions, the Merger Agreement may be amended by the parties at any time before or after the approval of the matters presented in connection with the Merger by the stockholders of KENETECH, but after any such approval, no amendment may be made which by law requires further approval by such stockholders without such further approval. Amendments must be in writing signed by each of the parties. Appraisal Rights. No appraisal rights are available in connection with the Offer; however, stockholders not tendering in the Offer and who otherwise comply with the applicable requirements of applicable law, will have the right under such law to demand appraisal of, and to receive payment in cash of the fair value of, their Shares in connection with the Merger. The Executive Employment Agreement. Concurrent with execution of the Merger Agreement, Mr. Lerdal entered into the Employment Agreement with Purchaser pursuant to which Mr. Lerdal will serve as the President and Chief Executive Officer of the Surviving Corporation, effective upon the Effective Time. During his employment term, which term is to commence upon the Effective Time and terminate as of December 31, 2001 (with automatic one-year renewal, unless either party delivers written notice to the other of a desire to not renew at least ninety days prior to the commencement of any such renewal period), Mr. Lerdal is to receive a base salary equal to $250,000 per annum and will also be eligible for annual cash bonuses and employee benefit programs. The VAC Guaranty. In connection with the Merger Agreement, on October 25, 2000, KENETECH obtained a written guaranty from VAC (the "VAC Guaranty"). Pursuant to the VAC Guaranty, VAC guaranteed Purchaser's and Parent's performance of their respective covenants, duties and obligations under the Merger Agreement, including Purchaser's and Parent's payment obligations under the Merger Agreement. The VAC Guaranty terminates upon the earlier of the termination of the Merger Agreement and the payment by Parent and Purchaser of all payments pursuant to the Offer and the Merger. However, VAC's liability for payments with respect to a breach of a representation or warranty or other obligation of Parent or Purchaser under the Merger Agreement survives any termination of the VAC Guaranty. The above summary is qualified in its entirety by reference to the complete text of the VAC Guaranty, a copy of which is incorporated herein by reference and a copy of which has filed with the Commission as an exhibit to the Schedule TO to which this Offer to Purchase is an exhibit. The VAC Guaranty may be examined and copies may be obtained in the manner set forth in Section 8. 42 11. Source and Amount of Funds The Offer is not conditioned upon any financing arrangements. The amount of funds required to purchase Shares in the Offer and the Merger and to pay related fees and expenses is expected to be approximately $21.6 million. Purchaser will obtain the funds by means of a capital contribution from Parent. VAC has agreed pursuant to the terms of the Subscription Agreement to contribute to Parent an aggregate of $21.6 million for Parent common stock. 12. Certain Conditions of the Offer Notwithstanding any other term of the Offer or the Merger Agreement, Purchaser will not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1 under the Exchange Act (relating to Purchaser's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer, unless there shall have been validly tendered and not withdrawn prior to the expiration of the Offer such number of Shares as equals at least 85% of the outstanding Shares on a fully diluted basis, giving effect to all the currently exercisable KENETECH stock options and other securities exercisable or convertible into Shares (excluding those Shares held by Mr. Lerdal) (the "Minimum Condition"). Furthermore, notwithstanding any other term of the Offer or the Merger Agreement, Purchaser will not be required to accept for payment or, subject as aforesaid, to pay for any Shares not theretofore accepted for payment or paid for, and may terminate the Offer if, at any time on or after the date of the Merger Agreement and before the acceptance of such Shares for payment or the payment therefor, any of the following conditions exists (other than as a result of any action or inaction of Parent or any of its subsidiaries that constitutes a breach of the Merger Agreement): . there shall be instituted after the date of the Merger Agreement and pending before any court of competent jurisdiction or Governmental Entity any suit, action or proceeding (including new claims made in any pending proceedings) (i) challenging the acquisition by Parent or Purchaser of any Shares under the Offer, seeking to prohibit the making or consummation of the Offer or the Merger or the performance of any of the other transactions contemplated by the Merger Agreement, or seeking to obtain from KENETECH, Parent or Purchaser any damages (including damages against KENETECH's directors or officers for which they may seek indemnification from KENETECH) that, if awarded, would have a Material Adverse Effect on KENETECH, (ii) seeking to prohibit or materially limit the ownership or operation by KENETECH, Parent or any of their respective subsidiaries of the business or assets of KENETECH and its subsidiaries, taken as a whole, or to compel KENETECH or Parent to dispose of or hold separate any material portion of the business or assets of KENETECH and its subsidiaries, taken as a whole, in each case as a result of the Offer or any of the other transactions contemplated by the Merger Agreement, or (iii) seeking to impose material limitations on the ability of Parent, Purchaser or Mr. Lerdal to acquire or hold, or exercise full rights of ownership of, any Shares, including the right to vote Shares on all matters properly presented to the stockholders of KENETECH, provided, in the case of each of clauses (i), (ii) and (iii) above, that Parent and Purchaser shall have used its reasonable best efforts to oppose, contest and resolve any such pending or threatened suit, action or proceeding; . there shall be enacted, entered, enforced, promulgated or deemed applicable to the Offer or the Merger by any Governmental Entity any statute, rule, regulation, judgment, order or injunction that is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (iii) of the immediately preceding paragraph, provided, that Parent and Purchaser shall have used reasonable best efforts to oppose, contest and resolve any such judgment, order, injunction or enforcement; . there shall have occurred and be continuing any Material Adverse Change with respect to KENETECH; 43 . (i) the Board or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or Purchaser its approval or recommendation of the Offer, the Merger or the Merger Agreement, or approved recommended any Takeover Proposal, (ii) the Board or any committee thereof shall have resolved to take any of the foregoing actions, or (iii) upon the reasonable request of Purchaser, the Board of Directors of KENETECH, or any committee thereof, shall fail within a reasonable period of time to reaffirm its approval or recommendation of the Offer, the Merger Agreement or the Merger; . the representations and warranties of KENETECH set forth in the Merger Agreement shall not be true and correct in each case at the date of the Merger Agreement and at the scheduled or extended expiration of the Offer, unless the inaccuracies (without giving effect to any materiality or Material Adverse Effect qualifications or exceptions contained therein) under such representations and warranties, taking all the inaccuracies under all such representations and warranties together in their entirety, do not result in a Material Adverse Effect on KENETECH or unless such inaccuracies are as a result of actions expressly permitted by the Merger Agreement; . KENETECH shall have failed to perform any obligation or to comply with any agreement or covenant of KENETECH to be performed or complied with by it under the Merger Agreement (other than any failures which would not reasonably be expected to have a Material Adverse Effect on KENETECH), which failure to perform or comply, if capable of being cured, continues for more than twenty (20) Business Days after the giving of written notice to KENETECH; . there shall have occurred and be continuing (i) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (ii) a declaration of war by the United States or (iii) in the case of any of the foregoing existing at the time of the execution of the Merger Agreement, a material acceleration or worsening thereof; . KENETECH shall not have obtained the consents of certain third parties identified in the Merger Agreement (other than such consents, the failure of which to obtain would not either individually or in the aggregate be reasonably expected to have a Material Adverse Effect); or . the Merger Agreement shall have been terminated in accordance with its terms or the parties shall have agreed in writing to terminate the Offer. The foregoing conditions are for the sole benefit of Parent and Purchaser and may, subject to the terms of the Merger Agreement, and other than with respect to the Minimum Condition (the waiver of which also requires the consent of KENETECH), be waived by Parent and Purchaser in whole or in part at any time and from time to time in their sole discretion. The failure by Parent or Purchaser at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right. The waiver of any such right with respect to particular facts and circumstances will not be deemed a waiver with respect to any other facts and circumstances. Each such right will be deemed an ongoing right that may be asserted at any time and from time to time. 13. Certain Legal Matters and Regulatory Approvals General. Except as described in this Section 13, based on information provided by KENETECH, none of KENETECH, Parent, Purchaser, or VAC is aware of any license or regulatory permit that appears to be material to the business of KENETECH and its subsidiaries, taken as a whole, that might be adversely affected by the acquisition of Shares by Purchaser pursuant to the Offer, the Merger or otherwise, or, except as set forth above, of any approval or other action by any Governmental Entity that would be required prior to the acquisition of Shares by Purchaser pursuant to the Offer, the Merger or otherwise. Should any such approval or other action be required, Purchaser presently contemplates that such approval or other action will be sought, except as described under "State Takeover Laws." While, except as otherwise described in this Offer to Purchase, we do not presently intend to delay the acceptance for payment of, or payment for, Shares tendered pursuant to the Offer pending the outcome of any such matter, there can be no 44 assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that failure to obtain any such approval or other action might not result in consequences adverse to KENETECH's business or that certain parts of KENETECH's business might not have to be disposed of, or other substantial conditions complied with, in the event that such approvals were not obtained or such other actions were not taken or in order to obtain any such approval or other action. If certain types of adverse action are taken with respect to the matters discussed below, we could decline to accept for payment, or pay for, any Shares tendered. See Section 12 for certain conditions to the Offer, including conditions with respect to governmental actions. Antitrust Compliance. Under the Hart-Scott-Rodino Improvements Act of 1996, or "HSR Act," and the rules promulgated thereunder by the Federal Trade Commission, or "FTC," certain acquisition transactions may not be completed until notifications have been given and certain information has been furnished to the FTC and the Antitrust Division of the Department of Justice and specified waiting period requirements have been satisfied. KENETECH and Purchaser have concluded that the consummation of the transactions set forth in the Merger Agreement are not subject to the notification and reporting requirements of the HSR Act. Therefore, based on the information available to them, KENETECH and Purchaser believe that the Merger can be effected in compliance with federal and state antitrust laws. 14. State Takeover Laws A number of states have adopted takeover laws and regulations which purport, to varying degrees, to be applicable to attempts to acquire securities of corporations which are incorporated in such states or which have substantial assets, stockholders, principal executive offices or principal places of business therein. Except as set forth below, we have not attempted to comply with any state takeover statutes in connection with the Offer or the Merger. We reserve the right to challenge the validity or applicability of any state law allegedly applicable to the Offer or the Merger, and nothing in this Offer to Purchase nor any action taken in connection herewith is intended as a waiver of that right. In the event that it is asserted that one or more takeover statutes apply to the Offer or the Merger, and it is not determined by an appropriate court that such statute or statutes do not apply or are invalid as applied to the Offer or the Merger, as applicable, we may be required to file certain documents with, or receive approvals from, the relevant state authorities, and we might be unable to accept for payment or purchase Shares tendered pursuant to the Offer or be delayed in continuing or consummating the Offer. In such case, we may not be obligated to accept for purchase, or pay for, any Shares tendered. See "Certain Conditions of the Offer" above. KENETECH is incorporated under the laws of the State of Delaware. In general, Section 203 ("Section 203") of the DGCL prevents an "interested stockholder" (including a person who owns or has the right to acquire 15% or more of a corporation's outstanding voting stock) from engaging in a "business combination" (defined to include mergers and certain other actions) with a Delaware corporation for a period of three years following the time such person becomes an interested stockholder unless, among other exceptions, the "business combination" is approved by the Board of Directors of such corporation prior to such time. However, on March 10, 1988, the Board adopted an amendment to the Company's bylaws pursuant to which the Company has elected not to be governed by Section 203. Accordingly, Section 203 is inapplicable to the Offer and the Merger. 15. Appraisal Rights General. Holders of record of Shares who do not vote in favor of the adoption of the Merger Agreement may, under certain circumstances and by following the procedure prescribed by Section 262 of the DGCL, exercise appraisal rights and receive cash for their Shares. Additionally, although KENETECH is incorporated in the State of Delaware, due to the residence of some of its stockholders and KENETECH's other contacts with the State of California, the provisions of the General Corporation Law of the State of California (the "CGCL") relating to the rights of dissenting stockholders in a merger may apply to the Merger. If California law so applies, pursuant to Chapter 13 of the CGCL ("Chapter 13"), KENETECH stockholders of record who do not vote for 45 the adoption of the Merger Agreement and who comply with the requirements of Chapter 13 will have a right to demand payment for and appraisal of the "fair market value"of, their Shares. In either case, a dissenting stockholder must follow the appropriate procedures under the DGCL or the CGCL or suffer the termination or waiver of such rights. Any demand for appraisal or that KENETECH purchase your Shares or certificates for endorsement as dissenting Shares should be submitted, within the time periods described herein, to Secretary, KENETECH Corporation, 500 Sansome Street, Suite 410, San Francisco, CA 94111, (415) 398-3825. A copy of the relevant provisions of the DGCL and the CGCL is attached hereto as Schedule C to this Offer to Purchase. Any failure to comply strictly with the requirements of the Delaware of California provisions will result in termination of your appraisal or dissenters' rights. The summaries provided below do not purport to be complete and are qualified by reference to the applicable statutory provisions. Appraisal Rights under Delaware Law. If the Merger is completed, record holders of Shares who: . do not vote to adopt the Merger Agreement or consent to it in writing, and . do not tender their shares in the Offer and continuously hold their Shares through the Effective Time, and . make a timely demand for appraisal, and . otherwise comply with Section 262 of the DGCL, will have the right to be paid the fair value of their Shares, as determined by the Delaware Court of Chancery. "Fair value" excludes any value arising from the accomplishment or expectation of the Merger, and includes a fair rate of interest, if any, as determined by the Court of Chancery. If KENETECH stockholders wish to exercise appraisal rights, such persons must deliver to KENETECH a timely written demand for appraisal of their Shares. A demand for appraisal will be sufficient if it reasonably informs KENETECH of the stockholder's identity and that the stockholder intends to demand appraisal of the stockholder's Shares. Each stockholder demanding appraisal must be the record holder of the Shares on the date the written demand for appraisal is made and, if the demand is submitted prior to the Effective Time, must continue to hold such Shares through the Effective Time. Within 60 days after the Effective Time, a stockholder may withdraw the demand for appraisal and accept the Merger Consideration, provided that any such attempt to withdraw made more than 60 days after the Effective Time will require the written approval of KENETECH and, once a petition for appraisal is filed, the appraisal proceeding may not be dismissed as to any holder absent court approval. Within 120 days after the Effective Time, KENETECH, or any holder of Shares who complied with the requirements for perfecting appraisal rights, as summarized above, may file a petition with the Court of Chancery demanding a determination of the fair value of the Shares held by all dissenting stockholders who have perfected their appraisal rights. KENETECH is under no obligation to and has no present intention to file such a petition. Accordingly, it is the obligation of the holders of Common Stock to initiate all necessary action to perfect their appraisal rights in respect of such Shares within the time prescribed in Section 262 of the DGCL. Within 120 days after the Effective Time, any stockholder who has perfected appraisal rights may, by written request, require that KENETECH mail a statement setting forth the total number of holders of Shares that have perfected appraisal rights and the total number of Shares held by them. After determining which dissenting stockholders are entitled to appraisal, the Chancery Court will appraise the fair value of their Shares, exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. Holders of Common Stock considering seeking appraisal should be aware that the fair value of their 46 Shares determined by Section 262 of the DGCL could be more or less than or the same as the consideration they would have received pursuant to the Merger if they did not seek appraisal of their Shares and that investment banking opinions as to fairness from a financial point of view are not necessarily opinions as to fair value under Section 262 of the DGCL. Section 262 of the DGCL requires that stockholders entitled to exercise appraisal rights be notified that such rights are available. The foregoing does not constitute such notice; rather such notice will be delivered at the appropriate time to the holders of Shares entitled to receive such notice and will set forth, among other things, the timing and other requirements for the submission of a written demand for appraisal. Dissenters' Rights under California Law. If California law applies, Chapter 13 of the CGCL provides that stockholders of KENETECH who comply with the procedures prescribed in Chapter 13 will have the right to exercise dissenters' rights and receive cash for the "fair market value" of their Shares. Dissenters' rights cannot be validly exercised by persons other than the record holders of the Shares, regardless of the beneficial ownership thereof. Persons who are beneficial owners of the Shares but whose Shares are held of record by another person, such as a broker, a bank or a nominee, should instruct the record holder to follow the procedure outlined below if they wish to dissent from the Merger with respect to any or all of their Shares. Under the CGCL, the stockholders eligible to dissent will be notified of the Merger or, if applicable, the stockholder approval of the Merger Agreement, and KENETECH will offer all such stockholders a cash price for their Shares that KENETECH considers to be the fair market value of the Shares on the day before the terms of the Merger were first announced, excluding any appreciation or depreciation because of the proposed Merger. The notice will also contain a brief description of the procedures to exercise their rights to have KENETECH purchase their Shares and will attach a copy of Chapter 13. A dissenting stockholder must submit to KENETECH or its transfer agent, within thirty (30) days after KENETECH mails to him or her the notice described above, certificates representing the dissenting Shares which he or she demands that KENETECH purchase, to be stamped or endorsed with a statement that the Shares are dissenting Shares or to be exchanged for certificates of appropriate denomination so stamped or endorsed. Under the CGCL, a dissenting stockholder may not withdraw his or her demand for payment of the fair market value of the stockholder's dissenting Shares in cash unless KENETECH consents. Under Chapter 13, if KENETECH and a dissenting stockholder agree that the Shares are dissenting Shares and agree upon the price of such Shares, KENETECH, upon surrender of the certificates evidencing such Shares, will make payment of that amount (plus interest thereon from the date of such agreement) within thirty (30) days after such agreement or within thirty (30) days after the satisfaction of any statutory or contractual conditions, whichever is later. Any agreement fixing the fair market value of any dissenting Shares between a dissenting stockholder and KENETECH shall be filed with the Secretary of KENETECH. Under Chapter 13, if KENETECH denies that the Shares are dissenting Shares, or KENETECH and the dissenting stockholder fail to agree on the fair market value of the Shares, the dissenting stockholder may, within six (6) months after the date on which the notice described above was mailed to the stockholder, but not thereafter, file a complaint in the California Superior Court, requesting that such Court determine whether the Shares are dissenting Shares and the fair market value of such dissenting Shares. Under Chapter 13, the costs of the action will be assessed or apportioned as the Court considers equitable, but, if the appraised fair market value is determined to exceed the price offered to the stockholder by KENETECH, KENETECH will be required to pay the costs of the action and may be required to pay counsel fees. If any holder of Shares who demands appraisal under Chapter 13 fails to perfect, or effectively withdraws or loses his right to appraisal, as provided in Chapter 13, the Shares of such holder will be converted into the 47 Merger consideration in accordance with the Merger Agreement. Stockholders of KENETECH considering whether to seek appraisal should also bear in mind that the fair market value of their Shares determined under Chapter 13 could be more than, the same as or less than the Per Share Amount. KENETECH reserves its rights to challenge the validity or applicability of any dissenters' proceeding commenced under Chapter 13. 16. Fees and Expenses Estimated fees and expenses incurred or to be incurred by the Surviving Corporation are approximately as follows: Advisory Fees and Expenses.......................................... $ 400,000 Legal Fees and Expenses (1)......................................... $ 600,000 Accounting Fees and Expenses........................................ $ 50,000 Depositary and Paying Agent Fees and Expenses....................... $ 20,000 Information Agent Fees and Expenses................................. $ 10,000 Securities and Exchange Commission Filing Fee....................... $ 7,000 Printing and Mailing Costs.......................................... $ 300,000 Miscellaneous Expenses.............................................. $ 113,000 ---------- Total............................................................. $1,500,000
- -------- (1) Includes the estimated fees and expenses of counsel for KENETECH, the Special Committee, Parent, Purchaser and VAC. The Merger Agreement provides that KENETECH shall pay the filing, printing and mailing costs (but not any legal, advisory or other costs) directly incurred by Parent or Purchaser in connection with the preparation of the Offer Documents, whether or not the Offer and/or the Merger is consummated, provided, that KENETECH's aggregate obligation to pay such costs is limited to the lower of (i) fifty percent (50%) of such costs or (ii) $50,000. We have retained ChaseMellon Shareholder Services, L.L.C. as Depositary and MacKenzie Partners, Inc. as Information Agent in connection with the Offer. ChaseMellon Shareholder Services, L.L.C. and MacKenzie Partners, Inc. will receive customary compensation and reimbursement for reasonable out-of-pocket expenses, as well as indemnification against certain liabilities in connection with the Offer, including liabilities under applicable securities laws. Except as set forth above, we will not pay any fees or commissions to any broker or dealer or other person for soliciting tenders of Shares pursuant to the Offer. We will reimburse brokers, dealers, commercial banks and trust companies upon request for customary mailing and handling expenses incurred by them in forwarding the offering material to their customers. 17. Provisions For Unaffiliated Security Holders No provision has been made to grant unaffiliated stockholders of KENETECH access to the corporate files of KENETECH or any other party to the Merger Agreement or to obtain counsel or appraisal services at the expense of KENETECH or any such party. 18. Miscellaneous The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the 48 laws of such jurisdiction. However, we may, in our sole discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of Shares in such jurisdiction. We are not aware of any jurisdiction in which the making of the Offer or the acceptance of Shares in connection therewith would not be in compliance with the laws of such jurisdiction. Parent, Purchaser, VAC and Mr. Lerdal have filed with the Commission the Schedule TO (including exhibits) pursuant to Sections 13(e) and 14(d) (1) of the Exchange Act and Rules 13(e) and 14(d) (3) thereunder, furnishing certain additional information with respect to the Offer and may file amendments thereto. The Schedule TO and any amendments thereto, including exhibits, may be examined and copies may be obtained from the principal office of the Commission in Washington, D.C. in the manner set forth in Section 8 with respect to information concerning KENETECH. During the last five years, none of the Purchaser, Parent, VAC, or to the best of their knowledge, any of the persons listed in Schedule A to this Offer to Purchase, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or has been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. During the last five years, neither KENETECH nor, to the best of its knowledge, any of the persons listed in Schedule B to this Offer to Purchase, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or has been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. No person has been authorized to give any information or make any representation on our behalf not contained in this Offer to Purchase or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. KC MERGER CORP. November 6, 2000 49 ANNEX A October 25, 2000 Special Committee of the Board of Directors Kenetech Corporation 500 Sansome Street San Francisco, CA 94111 Dear Special Committee Members: We understand that KC Holding Corporation ("KCH" hereinafter) proposes to cause KC Merger Corp. ("KCM" hereinafter), a direct wholly-owned subsidiary of KCH, to make a tender offer (the "Offer") to purchase any and all of the shares of common stock of Kenetech Corporation (the "Company" or "Kenetech" hereinafter), together with its associated rights attached thereto issued pursuant to the Rights Agreement (collectively, the "Shares"), at a purchase price of $1.04 per Share, (the "Offer Price"), net to the seller in cash, without interest thereon. Pursuant to the draft Agreement and Plan of Merger dated October 25, 2000 (the "Merger Agreement" hereinafter) among KCH, KCM and Kenetech, KCM will merge with and into Kenetech. Following the merger, the separate corporate existence of KCM will cease and Kenetech shall continue as the surviving corporation. Mark Lerdal, the President, Chief Executive Officer and Director of Kenetech ("Nonvoting Director"), has entered into a subscription and contribution agreement with KCH and KCM pursuant to which the Nonvoting Director agreed to contribute his shares of the Company to KCH in exchange for capital stock of KCH. Such transaction and all related transactions are referred to collectively herein as the "Transaction". You have requested our opinion (the "Opinion") as to the matters set forth below. The Opinion does not address the Company's underlying business decision to effect the Transaction. We have not been requested to, and did not, solicit third party indications of interest in acquiring all or any part of the Company. In connection with this Opinion, we have made such reviews, analyses and inquiries as we have deemed necessary and appropriate under the circumstances. Among other things, we have: 1. reviewed the Company's annual reports to shareholders on Form 10-K for the fiscal years ended 1995 through 1999, the quarterly reports on Form 10-Q for the two quarters ended June 30, 2000 and the Company financial statements for the period ended September 30, 2000, which Company's management has identified as being the most current financial statements available; 2. met with certain members of the Company management, auditors and tax advisors, and Astoria Energy, LLC to discuss the operations, financial condition, future prospects and projected operations and performance of the Company; 3. discussed the operations, financial condition, future prospects and projected operations and performance of the companies in which Kenetech has invested ("Company Investments") with Company management and certain members of the senior management of the Company Investments; 4. reviewed the Merger Agreement and the letter from the Company dated October 25, 2000 ("Company Letter"); 5. reviewed financial statements and forecasts and projections for certain of the Company Investments; 6. reviewed the historical market prices and trading volume for the Company's publicly traded securities; 7. reviewed certain other publicly available financial data for certain companies that we deem comparable to the Company and the Company Investments; 8. reviewed various documents relating to the Company and the Company's Investments; 50 Special Committee of the Board of Directors Kenetech Corporation October 25, 2000 9. reviewed various documents provided by counsel to the Special Committee relating to the cause of action filed in the Delaware Court of Chancery styled Kohls v. Duthie et al. and relied on the views expressed by counsel to the Special Committee with respect to it; and 10. conducted such other studies, analyses and inquiries as we have deemed appropriate. We have relied upon and assumed, without independent verification, that the financial forecasts and projections provided to us have been reasonably prepared and reflect the best currently available estimates of the future financial results and condition of the Company and the Company Investments, where applicable, and that, except to the extent provided for in the Company Letter, there has been no material change in the assets, financial condition, business or prospects of the Company and Company Investments, where applicable, since the date of the most recent financial statements made available to us. We have not independently verified the accuracy and completeness of the information supplied to us with respect to the Company and the Company Investments and do not assume any responsibility with respect to it. We have not made any physical inspection or independent appraisal of any of the properties, assets or liabilities of the Company and the Company Investments. Our opinion is necessarily based on business, economic, market and other conditions as they exist and can be evaluated by us at the date of this letter. Houlihan Lokey's conclusions stated herein are directed to the Special Committee and the Board of Directors, address only the fairness of the consideration to be received by the stockholders (except Mr. Mark D. Lerdal) in the Transaction and do not address the relative merits of the Transaction, any other matter provided for or contemplated by the Merger Agreement or any other transaction that may have been available as an alternative to the Transaction whether or not any such alternative could be or could have been achieved, or the terms upon which any such alternative transaction could be or could have been achieved. Further, this opinion addresses only issues related to the fairness, from a financial point of view to the stockholders (except Mr. Mark D. Lerdal), of the price for the sale of common stock, and we do not express any views on any other terms of the Merger Agreement, or any other agreement. In addition, we have assumed that in the course of obtaining the necessary regulatory and third party consents for the Transaction, no delay or restrictions will be imposed that will have a material adverse effect on the contemplated benefits of the Transaction. Our conclusions stated herein do not constitute a recommendation to the Special Committee, the Board of Directors or stockholders as to whether the stockholders should tender their shares of common stock in the Offer or how the Special Committee, the Board of Directors or the stockholders should vote with respect to any matter relating to the Transaction, and do not address the underlying business decisions of the Board and the Special Committee to enter into the Transaction. We have not been requested to, and did not, solicit third party indications of interest in acquiring all or any part of the Company. All valuation methodologies that estimate the net worth of an enterprise on a going-concern basis are predicated on numerous assumptions pertaining to prospective economic and operating conditions. Unanticipated events and circumstances may occur and actual results may vary from those assumed. The variations may be material. We examined the valuation of the Company on a going-concern basis, meaning that the underlying assets of a business entity are presumed to attain their highest values in continued operation and that liquidation of said assets would likely diminish the value of the whole to the shareholders and creditors. Based upon the foregoing, and in reliance thereon, it is our opinion that the consideration to be received by the stockholders (except Mr. Mark D. Lerdal) of the Company in connection with the Transaction is fair to them from a financial point of view. 51 Special Committee of the Board of Directors Kenetech Corporation October 25, 2000 The Opinion is furnished solely to the Special Committee, the Board of Directors, and the Company. The Opinion may be relied upon only by the Special Committee and the Board of Directors and may not be relied upon by any other person, may not be quoted, referred to or reproduced at any time, in any matter or for any other purpose without our express, prior, written consent, which consent will not be unreasonably withheld (except that it may be filed in total by the Company as required under applicable federal securities laws). The Opinion is delivered to the Special Committee subject to the conditions, scope of engagement, limitations and understandings set forth in this Opinion and in our engagement letter dated August 24, 2000, and subject to the understanding that the obligations of Houlihan Lokey in the Transaction are solely corporate obligations, and no officer, director, employee, agent, shareholder or controlling person of Houlihan Lokey shall be subjected to any personal liability whatsoever to any person, nor will any such claim be asserted by or on behalf of you or your affiliates. Houlihan Lokey has been retained on behalf of the Special Committee, and has delivered the Opinion to the Special Committee and also to the other members of the Board of Directors. Houlihan Lokey's Opinion will not be used for any other purpose other than in connection with the Transaction. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 52 SCHEDULE A Certain Information Concerning Purchaser, Parent, and VAC Purchaser. Purchaser is a Delaware corporation incorporated on October 23, 2000 at the direction of VAC for the purpose of engaging in the transactions set forth in the Merger Agreement, and is not engaged in any other business activities. All of the outstanding capital stock of Purchaser is owned by Parent. Parent. Parent is a Delaware corporation incorporated on October 23, 2000 at the direction of VAC for the purpose of engaging in the transactions set forth in the Merger Agreement, and is not engaged in any other business activities. Set forth below are the names of each director and executive officer of Purchaser and Parent. The business address of each such person is c/o ValueAct Capital Partners, L.P., One Maritime Plaza, Suite 1400, San Francisco, CA 94111. Each such person is a citizen of the United States and, unless otherwise indicated, has held his present position as set forth below since or subsequent to Purchaser's and Parent's incorporation.
Name and Current Business Address Present Principal Position - ------------------------- -------------------------- Peter H. Kamin................ President and Director of Purchaser; President and Director of Parent Jeffrey W. Ubben.............. Secretary, Treasurer and Director of Purchaser; Secretary Treasurer and Director of Parent
ValueAct Capital Partners, L.P. VAC was formed by VA Partners, L.L.C., its sole general partner (the "General Partner"), in 2000 for the purpose of making active strategic-block value investments in a limited number of small- capitalization companies and then working with management to improve the value of those companies. The founding members of the General Partner are Jeffrey W. Ubben, Peter H. Kamin, and George F. Hamel, Jr., and the business address of each such person is c/o ValueAct Capital Partners, L.P., One Maritime Plaza, Suite 1400, San Francisco, CA 94111. Each founding member is a citizen of the United States. Set forth below is a brief description of each of the founding member's material employment history: Jeffrey W. Ubben, 39, Managing Member of the General Partner. Prior to founding the General Partner, Mr. Ubben was a Managing Partner at BLUM Capital Partners, L.P. for more than five years. Previously, Mr. Ubben spent eight years at Fidelity Management and Research. Mr. Ubben currently serves as a director of Playtex Products. Peter H. Kamin, 38, Member of the General Partner. Prior to founding the General Partner, Mr. Kamin founded and managed Peak Investment, L.P. for eight years. Previously, Mr. Kamin was a Partner with Morningside, N.A., Ltd. Mr. Kamin currently serves as a director of Insurance Auto Auctions, Inc. and TFC Enterprises, Inc. George F. Hamel, Jr., 43, Member of the General Partner. Prior to founding the General Partner, Mr. Hamel was a Partner at BLUM Capital Partners, L.P. for more than four years. Previously, Mr. Hamel was a partner in the investment management firm of Private Capital Management, Inc. A-1 SCHEDULE B Certain Information Concerning Members of the Board of Directors and the Executive Officers of KENETECH Set forth below are the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years of each director and executive officer of KENETECH. Each such person is a citizen of the United States. The business address of each is c/o KENETECH Corporation, 500 Sansome Street, Suite 410, San Francisco, CA 94111, (415) 398-3825. Mark D. Lerdal, 41, President, Chief Executive Officer and Director. Mr. Lerdal has served as a Director of KENETECH since March 1996 and as Chief Executive Officer and President since April 1996. He was elected as Chairman of the Board of Directors in August 1999. He served as Vice President and General Counsel of KENETECH from April 1992 through March 1996. Charles Christenson, 70, Director. Dr. Christenson has served as a Director of KENETECH since 1980. Dr. Christenson is the Royal Little Professor of Business Administration, Emeritus, at the Harvard University Graduate School of Business Administration. Gerald R. Morgan, Jr., 37, Director. Mr. Morgan has served as a Director of KENETECH since August 1999. He is the Chief Operating Officer of Francisco Partners, L.P. Previously, Mr. Morgan served in various capacities for Security Capital Group and affiliates, and as Chief Financial Officer for Security Capital European Realty. Michael D. Winn, 37, Director. Mr. Winn has served as a Director of KENETECH since November 1999. He is the President and Director of Terrasearch Inc. He is also a Director and Officer of Sanu Resources Inc., and a Manager of MDW Associates, LLC. Prior to forming Terrasearch Inc., Mr. Winn was a financial analyst for a Southern California based brokerage firm. Andrew M. Langtry, 38, Corporate Controller and Chief Accounting Officer. Mr. Langtry has served as Corporate Controller and Chief Accounting Officer of KENETECH since March 2000. Previously, he served in KENETECH's tax department since 1993. Dianne P. Urhausen, 42, Vice President, General Counsel and Corporate Secretary. Ms. 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. The following table sets forth information regarding the beneficial ownership of shares of Common Stock as of October 20, 2000 for the directors and executive officers of KENETECH. The percentages are calculated based on 31,970,164 Shares of Common Stock outstanding on October 20, 2000.
Number of Shares of Common Percent of Common Stock Name Stock Beneficially Owned Beneficially Owned ---- -------------------------- ----------------------- Mark D. Lerdal............... 11,365,458 35.5% Charles Christenson(1)....... 67,000 * Gerald R. Morgan, Jr......... 170,000 * Michael D. Winn.............. 50,000 * Andrew M. Langtry............ 0 * Dianne P. Urhausen........... 35,000 *
- -------- * less than one percent (1) Includes 47,000 Shares issuable upon the exercise of options currently exercisable or exercisable within 60 days following October 20, 2000. B-1 Purchase of Shares The following table indicates with respect to any purchase of KENETECH stock made by KENETECH since January 1, 1998, the range of prices paid for such stock, the amount of shares purchased and the average purchase price for such shares for each quarterly period since January 1, 1998:
Amount of Average Shares Range of Purchase Quarterly Period Purchased Prices Price - ---------------- --------- ---------- -------- 9/30/99-12/31/99.................................. 401,200 $0.60-0.67 $0.66 1/1/00-3/31/00.................................... 1,657,800 0.56-0.70 0.65 3/31/00-6/30/00................................... 6,929,454 0.52-0.80 0.80 7/1/00-9/30/00.................................... 960,600 0.85 0.85
B-2 Schedule C DELAWARE CODE SECTION 262 APPRAISAL RIGHTS Section 262. (a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to Section 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository. (b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to Section 251 (other than a merger effected pursuant to Section 251(g) of this title), Section 252, Section 254, Section 257, Section 258, Section 263 or Section 264 of this title: (1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of Section 251 of this title. (2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to Section 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except: a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof; b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders; c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph. (3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under Section 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation. C-1 (c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable. (d) Appraisal rights shall be perfected as follows: (1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of such stockholder's shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder's shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or (2) If the merger or consolidation was approved pursuant to Section 228 or Section 253 of this title, each consitutent corporation, either before the effective date of the merger or consolidation or within ten days thereafter, shall notify each of the holders of any class or series of stock of such constitutent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section; provided that, if the notice is given on or after the effective date of the merger or consolidation, such notice shall be given by the surviving or resulting corporation to all such holders of any class or series of stock of a constituent corporation that are entitled to appraisal rights. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constitutent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constitutent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given. C-2 (e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw such stockholder's demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder's written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later. (f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation. (g) At the hearing on such petition, the court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. (h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder's certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section. (i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as C-3 the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state. (j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal. (k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder's demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just. (l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation. CALIFORNIA CORPORATIONS CODE SECTIONS 1300-1304 DISSENTERS RIGHTS Section 1300. (a) If the approval of the outstanding shares (Section 152) of a corporation is required for a reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of Section 1201, each shareholder of the corporation entitled to vote on the transaction and each shareholder of a subsidiary corporation in a short-form merger may, by complying with this chapter, require the corporation in which the shareholder holds shares to purchase for cash at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b). The fair market value shall be determined as of the day before the first announcement of the terms of the proposed reorganization or short-form merger, excluding any appreciation or depreciation in consequence of the proposed action, but adjusted for any stock split, reverse stock split, or share dividend which becomes effective thereafter. (b) As used in this chapter, "dissenting shares" means shares which come within all of the following descriptions: (1) Which were not immediately prior to the reorganization or short-form merger either (A) listed on any national securities exchange certified by the Commissioner of Corporations under subdivision (o) of Section 25100 or (B) listed on the National Market System of the NASDAQ Stock Market, and the notice of meeting of shareholders to act upon the reorganization summarizes this section and Sections 1301, 1302, 1303 and 1304; provided, however, that this provision does not apply to any shares with respect to which there exists any restriction on transfer imposed by the corporation or by any law or regulation; and provided, further, that this provision does not apply to any class of shares described in subparagraph (A) or (B) if demands for payment are filed with respect to 5 percent or more of the outstanding shares of that class. C-4 (2) Which were outstanding on the date for the determination of shareholders entitled to vote on the reorganization and (A) were not voted in favor of the reorganization or, (B) if described in subparagraph (A) or (B) of paragraph (1) (without regard to the provisos in that paragraph), were voted against the reorganization, or which were held of record on the effective date of a short-form merger; provided, however, that subparagraph (A) rather than subparagraph (B) of this paragraph applies in any case where the approval required by Section 1201 is sought by written consent rather than at a meeting. (3) Which the dissenting shareholder has demanded that the corporation purchase at their fair market value, in accordance with Section 1301. (4) Which the dissenting shareholder has submitted for endorsement, in accordance with Section 1302. (c) As used in this chapter, "dissenting shareholder" means the recordholder of dissenting shares and includes a transferee of record. Section 1301. (a) If, in the case of a reorganization, any shareholders of a corporation have a right under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to purchase their shares for cash, such corporation shall mail to each such shareholder a notice of the approval of the reorganization by its outstanding shares (Section 152) within 10 days after the date of such approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of the price determined by the corporation to represent the fair market value of the dissenting shares, and a brief description of the procedure to be followed if the shareholder desires to exercise the shareholder's right under such sections. The statement of price constitutes an offer by the corporation to purchase at the price stated any dissenting shares as defined in subdivision (b) of Section 1300, unless they lose their status as dissenting shares under Section 1309. (b) Any shareholder who has a right to require the corporation to purchase the shareholder's shares for cash under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the corporation to purchase such shares shall make written demand upon the corporation for the purchase of such shares and payment to the shareholder in cash of their fair market value. The demand is not effective for any purpose unless it is received by the corporation or any transfer agent thereof (1) in the case of shares described in clause (i) or (ii) of paragraph (1) of subdivision (b) of Section 1300 (without regard to the provisos in that paragraph), not later than the date of the shareholders' meeting to vote upon the reorganization, or (2) in any other case within 30 days after the date on which the notice of the approval by the outstanding shares pursuant to subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder. (c) The demand shall state the number and class of the shares held of record by the shareholder which the shareholder demands that the corporation purchase and shall contain a statement of what such shareholder claims to be the fair market value of those shares as of the day before the announcement of the proposed reorganization or short-form merger. The statement of fair market value constitutes an offer by the shareholder to sell the shares at such price. Section 1302. Within 30 days after the date on which notice of the approval by the outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the shareholder shall submit to the corporation at its principal office or at the office of any transfer agent thereof, (a) if the shares are certificated securities, the shareholder's certificates representing any shares which the shareholder demands that the corporation purchase, to be stamped or endorsed with a statement that the shares are dissenting shares or to be exchanged for certificates of appropriate denomination so stamped or endorsed or (b) if the shares are uncertificated securities, written notice of the number of shares which the shareholder demands that the corporation purchase. Upon subsequent transfers of the dissenting shares on the books of the corporation, the new certificates, initial transaction statement, and other written statements issued therefor shall bear a like statement, together with the name of the original dissenting holder of the shares. C-5 Section 1303. (a) If the corporation and the shareholder agree that the shares are dissenting shares and agree upon the price of the shares, the dissenting shareholder is entitled to the agreed price with interest thereon at the legal rate on judgments from the date of the agreement. Any agreements fixing the fair market value of any dissenting shares as between the corporation and the holders thereof shall be filed with the secretary of the corporation. (b) Subject to the provisions of Section 1306, payment of the fair market value of dissenting shares shall be made within 30 days after the amount thereof has been agreed or within 30 days after any statutory or contractual conditions to the reorganization are satisfied, whichever is later, and in the case of certificated securities, subject to surrender of the certificates therefor, unless provided otherwise by agreement. Section 1304. (a) If the corporation denies that the shares are dissenting shares, or the corporation and the shareholder fail to agree upon the fair market value of the shares, then the shareholder demanding purchase of such shares as dissenting shares or any interested corporation, within six months after the date on which notice of the approval by the outstanding shares (Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but not thereafter, may file a complaint in the superior court of the proper county praying the court to determine whether the shares are dissenting shares or the fair market value of the dissenting shares or both or may intervene in any action pending on such a complaint. (b) Two or more dissenting shareholders may join as plaintiffs or be joined as defendants in any such action and two or more such actions may be consolidated. (c) On the trial of the action, the court shall determine the issues. If the status of the shares as dissenting shares is in issue, the court shall first determine that issue. If the fair market value of the dissenting shares is in issue, the court shall determine, or shall appoint one or more impartial appraisers to determine, the fair market value of the shares. C-6 Schedule D Agreement and Plan of Merger among KC HOLDING CORPORATION, KC MERGER CORP., and KENETECH CORPORATION Dated as of October 25, 2000 TABLE OF CONTENTS
Page ---- ARTICLE I THE OFFER....................................................... D-2 Section 1.1 The Offer................................................ D-2 Section 1.2 Company Actions.......................................... D-3 ARTICLE II THE MERGER..................................................... D-4 Section 2.1 The Merger............................................... D-4 Section 2.2 Effective Time........................................... D-4 Section 2.3 Effects of the Merger.................................... D-4 Section 2.4 Charter and Bylaws; Directors and Officers............... D-5 Section 2.5 Conversion of Securities................................. D-5 Section 2.6 Exchange of Certificates................................. D-5 Section 2.7 Merger Without Meeting of Stockholders................... D-7 Section 2.8 Further Assurances....................................... D-7 Section 2.9 Closing.................................................. D-7 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.............. D-7 Section 3.1 Organization............................................. D-7 Section 3.2 Authority................................................ D-8 Section 3.3 Consents and Approvals; No Violations.................... D-8 Section 3.4 Information Supplied..................................... D-9 Section 3.5 Ownership of Shares...................................... D-9 Section 3.6 Interim Operations....................................... D-9 Section 3.7 Brokers.................................................. D-9 Section 3.8 Litigation............................................... D-9 Section 3.9 Financing................................................ D-9 Section 3.10 Assets and Revenues...................................... D-9 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. D-10 Section 4.1 Organization, Standing and Power......................... D-10 Section 4.2 Charter Documents and Bylaws............................. D-10 Section 4.3 Capital Structure........................................ D-10 Section 4.4 Authority................................................ D-11 Section 4.5 Consents and Approvals; No Violation..................... D-12 Section 4.6 SEC Documents and Other Reports; Financial Statements.... D-12 Section 4.7 Information Supplied..................................... D-13 Section 4.8 Absence of Certain Changes or Events..................... D-14 Section 4.9 Permits and Compliance................................... D-14 Section 4.10 Tax Matters.............................................. D-15 Section 4.11 Actions and Proceedings.................................. D-16 Section 4.12 Certain Agreements....................................... D-16 Section 4.13 ERISA; Employee Benefit Plans............................ D-17 Section 4.14 Intellectual Property.................................... D-18 Section 4.15 Material Contracts....................................... D-18 Section 4.16 Environmental Matters.................................... D-19 Section 4.17 Title to Assets.......................................... D-20 Section 4.18 State Takeover Statutes.................................. D-20 Section 4.19 Required Vote of Company Stockholders.................... D-20 Section 4.20 Brokers.................................................. D-20 Section 4.21 Fairness Opinion......................................... D-20 Section 4.22 Insurance Policies....................................... D-20 Section 4.23 Transactions With Affiliates............................. D-21 Section 4.24 Investment Company Status................................ D-21
i
Page ---- ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS...................... D-21 Section 5.1 Conduct of Business by the Company Pending the Merger... D-21 Section 5.2 No Solicitation......................................... D-22 ARTICLE VI ADDITIONAL AGREEMENTS......................................... D-24 Section 6.1 Stockholders Meeting.................................... D-24 Section 6.2 Access to Information................................... D-25 Section 6.3 Directors............................................... D-25 Section 6.4 Company Stock Options................................... D-26 Section 6.5 Warrants................................................ D-26 Section 6.6 Reasonable Best Efforts................................. D-27 Section 6.7 Public Announcements.................................... D-27 Section 6.8 State Takeover Laws..................................... D-27 Section 6.9 Indemnification; Directors and Officers Insurance....... D-27 Section 6.10 Notification of Certain Matters......................... D-28 Section 6.11 Retention and Incentive Plan; Certain Benefits.......... D-28 Section 6.12 Stockholder Litigation.................................. D-28 Section 6.13 Company SEC Documents................................... D-29 Section 6.14 Voting Agreement........................................ D-29 ARTICLE VII CONDITIONS PRECEDENT TO THE MERGER........................... D-29 Conditions to Each Party's Obligation to Effect the Section 7.1 Merger.................................................. D-29 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER........................... D-29 Section 8.1 Termination............................................. D-29 Section 8.2 Effect of Termination................................... D-30 Section 8.3 Fees and Expenses....................................... D-30 Section 8.4 Amendment............................................... D-31 Section 8.5 Waiver.................................................. D-31 ARTICLE IX GENERAL PROVISIONS............................................ D-32 Section 9.1 Non-Survival of Representations and Warranties.......... D-32 Section 9.2 Notices................................................. D-32 Section 9.3 Interpretation; Certain Definitions..................... D-32 Section 9.4 Counterparts............................................ D-33 Section 9.5 Entire Agreement; Third-Party Beneficiaries............. D-34 Section 9.6 Governing Law........................................... D-34 Section 9.7 Assignment.............................................. D-34 Section 9.8 Severability............................................ D-34 Section 9.9 Enforcement of this Agreement........................... D-34 Section 9.10 Construction............................................ D-34
EXHIBITS A Conditions of the Offer............................. D-36 B Form of Press Release............................... D-38 SCHEDULES 1 Form of Amended Company Charter..................... Intentionally Omitted 2 Form of Amended Company Bylaws...................... Intentionally Omitted
ii AGEEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of October 25, 2000 (this ("Agreement"), among KC Holding Corporation, a Delaware corporation ("Parent"), KC Merger Corp., a Delaware corporation and a direct wholly-owned subsidiary of Parent ("Sub"), and Kenetech Corporation, a Delaware corporation (the "Company") (Sub and the Company being hereinafter collectively referred to as the "Constituent Corporations"). WITNESSETH: WHEREAS, the respective Boards of Directors of Parent, Sub and the Company have approved the acquisition of the Company by Parent on the terms and subject to the conditions set forth herein; WHEREAS, in furtherance of such acquisition, Parent proposes to cause Sub to make a tender offer (as it may be amended from time to time to the extent permitted under this Agreement, the "Offer") to purchase any and all of the shares of Common Stock, par value $.0001 per share, of the Company, together with the associated rights attached thereto (the "Rights") issued pursuant to the Rights Agreement (as defined herein) (collectively, the "Shares"), at a purchase price of $1.04 per Share (the "Offer Price"), net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in this Agreement; WHEREAS, following the purchase of Shares pursuant to the Offer, upon the terms and subject to the conditions set forth herein, Sub will be merged with and into the Company (the "Merger"), whereby each issued and outstanding Share not owned directly or indirectly by Parent or the Company will be converted into the right to receive the price per Share paid in the Offer; WHEREAS, on October 24, 2000, Mark D. Lerdal, the President, Chief Executive Officer and a Director of the Company (the "Nonvoting Director"), entered into a subscription and contribution agreement (the "Contribution Agreement") with Parent and Sub, a copy of which has been delivered to the Company, pursuant to which the Nonvoting Director has, among other things, agreed to contribute his Shares to Parent in exchange for shares of the capital stock of Parent; WHEREAS, as an inducement and a condition to Parent and Sub entering into this Agreement, contemporaneously with the execution and delivery of this Agreement, the Nonvoting Director has entered into a Voting Agreement with Parent and Sub (the "Voting Agreement") pursuant to which the Nonvoting Director has, among other things, (x) agreed not to tender his Shares in the Offer and (y) granted to Parent a proxy with respect to the voting of such Shares, in each case upon the terms and subject to the conditions set forth in the Voting Agreement; WHEREAS, a special committee of the Board of Directors of the Company, comprised solely of directors unaffiliated with the Nonvoting Director (the "Special Committee"), has determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger, are fair to, and in the best interests of, the Company and its stockholders, and has recommended that the Board of Directors of the Company approve and declare advisable this Agreement and the transactions contemplated hereby, including the Offer and the Merger; and WHEREAS, the Board of Directors of the Company, based on the recommendation of the Special Committee, has (i) determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger, are fair to and in the best interests of the Company and its stockholders, (ii) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Offer and the Merger, and (iii) recommended that the holders of Shares tender their Shares in the Offer and, if applicable, approve and adopt this Agreement in all respects; NOW, THEREFORE, in consideration of the premises, representations, warranties and agreements herein contained, the parties agree as follows: D-1 ARTICLE I THE OFFER Section 1.1 The Offer. (a) Subject to the provisions of this Agreement, as promptly as practicable (but in no event later than ten (10) business days) following execution hereof, Sub shall, and Parent shall cause Sub to, commence, within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (together with the rules and regulations thereunder, the "Exchange Act"), the Offer. The obligation of Sub to, and of Parent to cause Sub to, commence the Offer and accept for payment, and pay for, any Shares tendered pursuant to the Offer shall be subject only to the conditions set forth in the attached Exhibit A (the "Offer Conditions"), any of which may be waived in whole or in part by Sub in its sole discretion, except that Sub shall not waive the Minimum Condition (as defined in Exhibit A) without the written consent of the Company (which shall not be unreasonably withheld). Sub expressly reserves the right to modify the terms of the Offer, except that, without the consent of the Company, Sub shall not (i) reduce the number of Shares subject to the Offer, (ii) reduce the Offer Price, (iii) impose any other conditions to the Offer other than the Offer Conditions or modify the Offer Conditions (other than to waive any Offer Conditions to the extent permitted by this Agreement), (iv) except as provided in Sections 1.1(b) and (c), extend the Offer, (v) change the form of consideration payable in the Offer, or (vi) amend any other term of the Offer in a manner adverse to the holders of Shares. (b) Subject to the terms and conditions hereof, the Offer shall expire at midnight, New York City time, on the date that is the later of (i) twenty (20) business days after the date the Offer is commenced, and (ii) thirty (30) business days after the date of the press release referenced in the proviso to Section 6.7; provided, that Sub may, without the consent of the Company, (y) extend the Offer, if at the scheduled or extended expiration date of the Offer any of the Offer Conditions shall not be satisfied or waived, until such time as such conditions are satisfied or waived, and (z) extend the Offer for any period reasonably determined by Sub after consultation with its legal advisors to be required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer, subject in each case to any right of the Company to terminate this Agreement pursuant to the terms hereof. (c) If, at any scheduled expiration date of the Offer, the Minimum Condition (as defined in Exhibit A) or any of the conditions set forth in paragraphs (a), (c), (e), (f), (g) or (h) of Exhibit A shall not have been satisfied, but at such scheduled expiration date all the conditions set forth in paragraphs (b), (d) and (i) of Exhibit A shall then be satisfied, or, if not then satisfied, are reasonably capable of being satisfied prior to December 27, 2000, at the request of the Company (confirmed in writing), Sub shall extend the Offer from time to time, subject to any right of Parent, Sub or the Company to terminate this Agreement pursuant to the terms hereof. (d) Subject only to the Offer Conditions and so long as this Agreement has not been terminated in accordance with its terms, Sub shall, and Parent shall cause Sub to, accept for payment, and pay for, all Shares validly tendered and not withdrawn pursuant to the Offer as soon as practicable (and in any event within five (5) business days) after the expiration of the Offer, and in any event in compliance with the obligations respecting prompt payment pursuant to Rule 14e-1(c) under the Exchange Act. (e) As soon as reasonably practicable on the date of commencement of the Offer, Parent and Sub shall file with the SEC (i) a Tender Offer Statement on Schedule TO (the "Schedule TO") with respect to the Offer, which shall contain as an exhibit or incorporate by reference an offer to purchase and a related letter of transmittal and, if required to commence the Offer, a summary advertisement (such Schedule TO and the documents included therein pursuant to which the Offer will be made, together with any supplements or amendments thereto, the "Offer Documents"), and (ii) jointly, with the Company, a Transaction Statement on Schedule 13E-3 (the "Rule 13E-3 Statement"). Parent and Sub shall cause the Offer Documents to be disseminated to holders of Shares as and to the extent required by applicable federal securities laws. Parent shall ensure that the Offer Documents and the Rule 13E-3 Statement comply in all D-2 material respects with the provisions of applicable federal securities laws and, on the date filed with the SEC and, if applicable, the date first published, sent or given to the holders of the Shares, do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation is made by Parent or Sub with respect to any information supplied by the Company in writing for inclusion in the Offer Documents or the Rule 13E-3 Statement. Parent, Sub and the Company each agrees promptly to correct any information provided by it for use in the Offer Documents or the Rule 13E-3 Statement if and to the extent that such information shall have become false or misleading in any material respect, and Parent and Sub further agree to take all steps necessary to cause the Offer Documents and the Rule 13E-3 Statement as so corrected to be filed with the SEC and the Offer Documents as so corrected to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. (f) The Company and its counsel shall be given reasonable opportunity to review and comment upon the Offer Documents and the Rule 13E-3 Statement prior to their filing with the SEC or, if applicable, dissemination to the stockholders of the Company. Parent and Sub shall provide the Company and its counsel any comments Parent, Sub or their counsel may receive from the SEC or its staff (orally or in writing) with respect to the Offer Documents and the Rule 13E-3 Statement promptly after the receipt of such comments. The Company shall cooperate with Parent and its counsel in responding to any such comments. Unless there is a reasonable basis for the Company to object, the Company agrees to execute the Rule 13E-3 Statement as prepared by Parent or Sub. (g) Parent shall provide or cause to be provided to Sub on a timely basis the funds necessary to accept for payment, and pay for, any Shares that Sub becomes obligated to accept for payment, and pay for, pursuant to the Offer. (h) Parent or Sub shall engage an information agent in connection with the Offer. Section 1.2 Company Actions. (a) The Company hereby approves of and consents to the Offer. The Company represents and warrants that the Board of Directors of the Company, at a meeting duly called and held, duly adopted, based on the recommendation of the Special Committee and by unanimous vote of all directors (with the exception of the Nonvoting Director, who abstained from such vote), resolutions (i) determining that this Agreement and the transactions contemplated hereby, including the Offer and the Merger, are fair to and in the best interests of the Company and its stockholders, (ii) approving and declaring the advisability of this Agreement and the transactions contemplated hereby, including the Offer and the Merger, and (iii) recommending that the holders of Shares tender their Shares in the Offer and, if applicable, approve and adopt this Agreement in all respects. The Company further represents and warrants that the Board of Directors has taken all action necessary to render the Rights Agreement inapplicable to the Offer, the Merger and the other transactions contemplated hereby. (b) On or as soon as practicable after the date the Offer Documents are filed with the SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to time, the "Schedule 14D-9") containing (unless the Special Committee or the Board of Directors of the Company, after consultation with its independent legal counsel, determines in good faith that such action would be inconsistent with its fiduciary duties to Company stockholders under applicable law) the recommendation described in Section 1.2(a) and a copy of the opinion referenced in Section 4.21, and the Company shall cause the Schedule 14D-9 to be disseminated to holders of Shares as and to the extent required by applicable federal securities laws. The Company shall ensure that the Schedule 14D-9 complies in all material respects with the provisions of applicable federal securities laws and, on the date filed with the SEC and the date first published, sent or given to the holders of Shares, does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of D-3 the circumstances under which they are made, not materially misleading, except that no representation is made by the Company with respect to any information supplied by Parent or Sub for inclusion in the Schedule 14D-9. Each of the Company, Parent and Sub agrees promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to amend or supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or supplemented to be filed with the SEC and disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. The Board of Directors shall not withdraw or modify its recommendation that holders of the Shares accept the Offer, except to the extent that the Special Committee or the Board of Directors, after consultation with its independent legal counsel, determines in good faith that failure to take such action is inconsistent with its fiduciary duties to the Company's stockholders under applicable law. (c) Parent and its counsel shall be given reasonable opportunity to review and comment upon the Schedule 14D-9 prior to its filing with the SEC or dissemination to stockholders of the Company. The Company shall provide Parent and its counsel any comments the Company or its counsel may receive from the SEC or its staff (orally or in writing) with respect to the Schedule 14D-9 promptly after the receipt of such comments. Parent and Sub shall cooperate with the Company and its counsel in responding to any such comments. (d) In connection with the Offer and the Merger, the Company shall instruct its transfer agent or agents to furnish Sub promptly upon request with mailing labels containing the names and addresses of the record holders of Shares as of a recent date and of those persons becoming record holders subsequent to such date, together with copies of any other information in the Company's possession or control, as Parent may reasonably request, and, to the extent reasonably available to the Company, regarding the beneficial owners of Shares and any securities convertible into Shares, and shall furnish to Sub such information and assistance as Parent may reasonably request in communicating the Offer to the Company's stockholders. Subject to the requirements of applicable law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Parent and Sub shall, and shall cause their agents to, hold in confidence the information contained in any such labels, listings and files, use such information only in connection with the Offer and the Merger and, if this Agreement shall be terminated, upon request, deliver to the Company all copies of such information then in their possession or control. ARTICLE II THE MERGER Section 2.1 The Merger. Upon the terms and subject to the conditions hereof, and in accordance with the General Corporation Law of the State of Delaware, as amended (the "DGCL"), Sub shall be merged with and into the Company at the Effective Time (as hereinafter defined). Following the Merger, the separate corporate existence of Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all the rights and obligations of Sub in accordance with the DGCL. Section 2.2 Effective Time. The Merger shall become effective when the certificate of merger or, if applicable, the certificate of ownership and merger (each, the "Certificate of Merger"), executed in accordance with the relevant provisions of the DGCL, is filed with the Secretary of State of the State of Delaware. When used in this Agreement, the term "Effective Time" shall mean the date and time at which the Certificate of Merger is so filed or such later date and time as may be agreed to by the parties hereto and specified therein. The filing of the Certificate of Merger shall be made on the date of the Closing (as defined in Section 2.9). Section 2.3 Effects of the Merger. The Merger shall have the effects set forth in Section 259 of the DGCL. D-4 Section 2.4 Charter and Bylaws; Directors and Officers. (a) At the Effective Time, the Restated Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time (the "Company Charter"), shall be amended in its entirety to be in the form as set forth in Schedule 1 hereto. At the Effective Time, the Restated Bylaws of the Company, as in effect immediately prior to the Effective Time (the "Company Bylaws"), shall be amended in their entirety to be in the form as set forth in Schedule 2 hereto. (b) The directors of Sub at the Effective Time shall be the directors of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. The officers of the Company at the Effective Time shall be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. Section 2.5 Conversion of Securities. (a) As of the Effective Time, by virtue of the Merger and without any action on the part of Sub, the Company or the holders of any securities of the Constituent Corporations: (i) Each issued and outstanding share of common stock, par value $.01 per share, of Sub shall be converted into one validly issued, fully paid and nonassessable share of common stock of the Surviving Corporation. (ii) All Shares that are held in the treasury of the Company or by any wholly-owned Subsidiary of the Company and any Shares owned by Parent or by any wholly-owned Subsidiary of Parent shall be canceled and no consideration shall be delivered in exchange therefor. (iii) Each Share issued and outstanding immediately prior to the Effective Time (other than Shares to be canceled in accordance with Section 2.5(a)(ii) and other than Dissenting Shares (as defined in Section 2.5(a)(iv)) shall be converted into the right to receive from the Surviving Corporation in cash, without interest, the per share price paid for Shares in the Offer (the "Merger Consideration"). All such Shares, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and each holder of a Share shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration. (iv) Notwithstanding any provision of this Agreement to the contrary, if required by the DGCL, Shares which are issued and outstanding immediately prior to the Effective Time and which are held by holders who properly exercise appraisal rights with respect thereto in accordance with Section 262 of the DGCL (the "Dissenting Shares") will not be converted into the right to receive the Merger Consideration, and holders of such Shares will be entitled to receive payment of the appraised value of such Shares in accordance with the provisions of such Section 262 unless and until such holders fail to perfect or effectively withdraw or lose their rights to appraisal and payment under the DGCL. If, after the Effective Time, any such holder fails to perfect or effectively withdraws or loses such right, such Shares will thereupon be treated as if they had been converted at the Effective Time into the right to receive the Merger Consideration, without any interest thereon. The Company will give Parent (i) prompt notice of any demands received by the Company for appraisal of Shares and (ii) the opportunity to participate in all negotiations and proceedings with respect to demand for payment for Dissenting Shares. The Company will not, except with the prior written consent of Parent, make any payment with respect to any demands for appraisal or offer to settle or settle any such demands. (b) Each Company Stock Option (as hereinafter defined) and each Warrant (as hereinafter defined) shall be treated in accordance with Section 6.4 and Section 6.5, respectively. Section 2.6 Exchange of Certificates. (a) Paying Agent. Prior to the Effective Time, Parent shall designate a bank or trust company reasonably acceptable to the Company to act as paying agent in the Merger (the "Paying Agent"). From time to time on, prior to or after the Effective Time, Parent shall make available, or cause the Surviving Corporation to make available, to the Paying Agent cash in amounts and at the times necessary for the D-5 payment of the Merger Consideration pursuant to Section 2.5. Any and all interest earned on funds made available to the Paying Agent pursuant to this Agreement shall be paid over to Parent. (b) Exchange Procedure. As soon as reasonably practicable (and in any event within five (5) business days) after the Effective Time, Parent shall cause the Paying Agent to mail to each holder of record of a certificate or certificates that immediately prior to the Effective Time represented Shares (the "Certificates"), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Paying Agent and shall be in a form and have such other provisions as Parent and the Company may reasonably agree prior to the purchase of Shares pursuant to the Offer) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the applicable Merger Consideration. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the Shares theretofore represented by such Certificate shall have been converted into the right to receive pursuant to Section 2.5, and the Certificate so surrendered shall forthwith be canceled. Until surrendered as contemplated by this Section 2.6, each Certificate (other than Certificates representing Dissenting Shares) shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the amount of cash, without interest, into which the Shares theretofore represented by such Certificate shall have been converted pursuant to Section 2.5. No interest or dividends will be paid or will accrue on the cash payable upon the surrender of any Certificate. (c) Transfers. In the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, payment may be made to a person other than the person in whose name the Certificate so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment shall pay any transfer or other taxes required by reason of the payment to a person other than the registered holder of such Certificate or establish to the satisfaction of the Surviving Corporation that such tax has been paid or is not applicable. (d) Withholding. Parent or the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts as Parent or the Paying Agent is required to deduct and withhold with respect to the making of such payment under the Code (as hereinafter defined) or under any provisions of state, local or foreign tax law. To the extent that amounts are so withheld by Parent or the Paying Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the person in respect of which such deduction or withholding was made by Parent or the Paying Agent. (e) No Further Ownership Rights in Shares. All cash paid upon the surrender of Certificates in accordance with the terms of this Article II shall be deemed to have been paid in full satisfaction of all rights pertaining to the Shares theretofore represented by such Certificates. At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be canceled and exchanged as provided in this Article II. (f) Termination of Payment Fund. Any portion of the funds made available to the Paying Agent to pay the Merger Consideration which remains undistributed to the holders of Certificates for six months after the Effective Time shall be delivered to Parent, upon demand, and any holders of Certificates who have not theretofore complied with this Article II and the instructions set forth in the letter of transmittal mailed to such holders after the Effective Time shall thereafter look only to Parent for payment of the Merger Consideration to which they are entitled. (g) No Liability. None of Parent, Sub, the Company or the Paying Agent shall be liable to any person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered prior to seven years after the Effective Time (or immediately prior to such earlier date on which any payment pursuant to this Article II would D-6 otherwise escheat to or become the property of any Governmental Entity (as hereinafter defined)), the cash payment in respect of such Certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interests of any person previously entitled thereto. (h) Lost Certificates. If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent or the Paying Agent, the posting by such person of a bond, in such reasonable amount as Parent or the Paying Agent may direct as indemnity against any claim that may be made against them with respect to such Certificate, the Paying Agent will pay such lost, stolen or destroyed Certificate the amount of cash to which the holders thereof are entitled pursuant to Section 2.5. Section 2.7 Merger Without Meeting of Stockholders. Parent and Sub shall use their reasonable best efforts to cause the Nonvoting Director to transfer to Parent all Shares owned by the Nonvoting Director in accordance with and subject to the terms of the Contribution Agreement. If, following such transfer by the Nonvoting Director and the purchase of Shares pursuant to the Offer, Sub, Parent, ValueAct Capital Partners, L.P., a Delaware limited partnership ("VAC"), or any other entity controlled by VAC collectively shall own at least ninety percent (90%) of the outstanding Shares, Parent and Sub shall promptly take all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after expiration of the Offer without a meeting of stockholders of the Company, in accordance with Section 253 of the DGCL. If the Merger is effected in accordance with Section 253 of the DGCL, then all effects and terms of Sections 2.1 through 2.6 of this Article II will be applied to such Merger, as applicable. Section 2.8 Further Assurances. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or assurances or any other acts or things are necessary, desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of either of the Constituent Corporations, or (b) otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its proper officers and directors or their designees shall be authorized to execute and deliver, in the name and on behalf of either of the Constituent Corporations, all such deeds, bills of sale, assignments and assurances and to do, in the name and on behalf of either Constituent Corporation, all such other acts and things as may be necessary, desirable or proper to vest, perfect or confirm the Surviving Corporation's right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of such Constituent Corporation and otherwise to carry out the purposes of this Agreement. Section 2.9 Closing. The closing of the Merger (the "Closing") and all actions specified in this Agreement to occur at the Closing shall take place at the offices of Morrison & Foerster LLP, 425 Market Street, San Francisco, California, 94105, at 10:00 a.m., local time, no later than the second business day following the day on which the last of the conditions set forth in Article VII shall have been fulfilled or waived (if permissible), or at such other time and place as Parent and the Company shall agree. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub jointly and severally represent and warrant to the Company as follows: Section 3.1 Organization. Parent and Sub are each a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Parent and Sub has the corporate power and authority to carry on its business as now being conducted. Each of Parent and Sub is duly qualified to do business, and in good standing, in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect on Parent or Sub. D-7 Section 3.2 Authority. (a) The respective Board of Directors of Parent and Sub have each approved this Agreement and declared its advisability in accordance with the DGCL. (b) Each of Parent and Sub has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by Parent and Sub of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action (including Board action) on the part of Parent and Sub, subject to the filing of the Certificate of Merger as required by the DGCL. This Agreement has been duly executed and delivered by Parent and Sub and (assuming the valid authorization, execution and delivery of this Agreement by the Company and the validity and binding effect of this Agreement on the Company) constitutes the valid and binding obligation of each of Parent and Sub, enforceable against them in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. Section 3.3 Consents and Approvals; No Violations. (a) Assuming that all consents, approvals, authorizations and other actions described in this Section 3.3 have been obtained and all filings and obligations described in this Section 3.3 have been made, the execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof will not, result in any violation of or default (with or without notice or lapse of time, or both) under, give to others a right of termination, cancellation or acceleration of any obligation under, result in the loss of a material benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Parent or any of its Subsidiaries under, any provision of: (i) the Certificate of Incorporation or Bylaws of Parent and Sub, each as amended to date, (ii) any provision of the comparable charter or organization documents of any of Parent's Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to Parent or any of its Subsidiaries, or (iv) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or any of its Subsidiaries or any of their respective properties or assets, other than, in the case of clauses (ii), (iii) or (iv), any such violations, defaults, rights, losses, liens, security interests, charges or encumbrances that would not reasonably be expected to have a Material Adverse Effect on Parent or Sub. (b) No filing or registration with, or authorization, consent or approval of, any United States (federal and state), foreign or supranational court, commission, governmental body, regulatory agency, authority or tribunal (a "Governmental Entity") is required by or with respect to Parent or any of its Subsidiaries in connection with the execution and delivery of this Agreement by Parent or Sub or is necessary for the consummation of the Offer, the Merger and the other transactions contemplated by this Agreement, except: (i) in connection, or in compliance, with the provisions of the Exchange Act, (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company or any of its Subsidiaries is qualified to do business, (iii) such filings, authorizations, orders and approvals as may be required by state takeover laws (the "State Takeover Approvals"), D-8 (iv) applicable requirements, if any, of state securities or "blue sky" laws ("Blue Sky Laws"), and (v) such other consents, orders, authorizations, registrations, approvals, declarations and filings the failure of which to be obtained or made would not reasonably be expected to have a Material Adverse Effect on Parent or Sub. Section 3.4 Information Supplied. None of the information supplied or to be supplied by VAC, Parent or Sub in writing specifically for inclusion or incorporation by reference in (i) the Offer Documents, (ii) the Rule 13E-3 Statement, (iii) the Schedule 14D-9, (iv) the information to be filed by the Company in connection with the Offer pursuant to Rule 14f-1 promulgated under the Exchange Act (the "Information Statement") or (v) the proxy statement (together with any amendments or supplements thereto, the "Proxy Statement") relating to the Stockholder Meeting (as defined in Section 6.1) will (a) in the case of the Offer Documents, the Rule 13E-3 Statement, the Schedule 14D-9 and the Information Statement, at the respective times the Offer Documents, the Rule 13E-3 Statement, the Schedule 14D-9 and the Information Statement are filed with the SEC or, if applicable, first published, sent or given to the Company's stockholders, or (b) in the case of the Proxy Statement, at the time the Proxy Statement is first mailed to the Company's stockholders or at the time of the Stockholder Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. Section 3.5 Ownership of Shares. Except as contemplated by this Agreement, VAC and its affiliates do not own any Shares. Section 3.6 Interim Operations. Parent and Sub were formed solely for the purpose of engaging in the transactions contemplated hereby, have not engaged in any other business activities and have conducted their operations only as contemplated hereby. All of the issued and outstanding capital stock of Sub is owned by Parent. All of the issued and outstanding capital stock of Parent is owned by VAC. Section 3.7 Brokers. No broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of VAC, Parent or Sub. Section 3.8 Litigation. There is no (i) claim, action, suit or proceeding pending or, to the best knowledge of Parent and Sub, threatened against Parent or Sub before any court, arbitrator or Governmental Authority, or (ii) outstanding judgment, order, writ, injunction or decree of any court, arbitrator or Governmental Authority in a proceeding to which Parent or Sub or any of their respective assets is subject, except such as would not materially impair the ability of Parent or Sub to perform their respective obligations hereunder. Section 3.9 Financing. Parent and Sub will have available to them all funds necessary to purchase and pay for all of the Shares tendered pursuant to the Offer by stockholders of the Company other than the Nonvoting Director and to consummate the Merger and the other transactions contemplated hereby. Section 3.10 Assets and Revenues. VAC is the "ultimate parent entity" of Parent and is its own "ultimate parent entity" as such term is defined in 16 C.F.R. Section 801.1(a)(3). VAC, and all entities controlled by VAC, do not (i) have assets having an aggregate book value of $100 million or more based on its most recent regularly prepared balance sheet or (ii) sales of $100 million or more in its most recent fiscal year, in each case as determined in accordance with 16 C.F.R. Section 801.11. The term "controlled by" as used in this section shall have the meaning set forth in 16 C.F.R. 801.1(b). This representation and warranty is made solely for the purpose of determining the applicability to the transactions contemplated by this Agreement of the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended. D-9 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth in the letter dated the date hereof and delivered on the date hereof by the Company to Parent, which relates to this Agreement and is designated therein as the Company Letter (the "Company Letter") (it being agreed that a reference to one section in the Company Letter shall be deemed to refer to other sections of Article IV but only if the fact or item expressly disclosed in one section of the Company Letter is reasonably relevant to another section), the Company represents and warrants to Parent and Sub as follows: Section 4.1 Organization, Standing and Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as now being conducted. Each Subsidiary of the Company is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate (in the case of a Subsidiary of the Company that is a corporation) or other power and authority to carry on its business as now being conducted, except where the failure to be so organized, existing or in good standing or to have such power or authority would not reasonably be expected to have a Material Adverse Effect on the Company. The Company and each of its Subsidiaries are duly qualified to do business, and are in good standing, in each jurisdiction where the character of their properties owned or held under lease or the nature of their activities makes such qualification necessary, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect on the Company. A true and complete list of all the Subsidiaries of the Company, together with the jurisdiction of incorporation or organization of each Subsidiary of the Company, the jurisdictions in which each Subsidiary of the Company is licensed or qualified to do business and the percentage of each Subsidiary's outstanding capital stock or other equity interests owned by the Company or another Subsidiary of the Company, is set forth in Section 4.1 to the Company Letter. Section 4.2 Charter Documents and Bylaws. The Company has heretofore furnished to VAC or Parent a complete and correct copy of the Company Charter and the Company Bylaws, each as amended to date. The Company Charter and the Company Bylaws are each in full force and effect. The Company is not in violation of any of the provisions of the Company Charter or the Company Bylaws. Section 4.3 Capital Structure. (a) As of the date hereof, the authorized capital stock of the Company consists of 110,000,000 Shares, par value $.0001 per share, and 10,000,000 shares of Preferred Stock, par value of $.01 per share, of which 84,000 shares have been designated Series A Junior Participating Preferred Stock. (b) At the close of business on October 20, 2000: (i) 31,970,164 Shares were issued and outstanding, all of which were validly issued, fully paid and nonassessable and free of preemptive rights; (ii) no Shares were held in the treasury of the Company or by Subsidiaries of the Company; (iii) 845,600 Shares were subject to issuance upon the exercise of outstanding stock options previously issued under the Company's 1984 Stock Option Plan and its 1993 Stock Option Plan, as amended (collectively, the "Company Stock Option Plans"); and (iv) 500,000 Shares were reserved for issuance upon the exercise of outstanding warrants (the "Warrants"). (c) The Company has delivered to VAC or Parent (i) a correct and complete list as of the date set forth in Section 4.3 of the Company Letter of each outstanding option (collectively, the "Company Stock Options") to purchase Shares issued under the Company Stock Option Plans, including the holder, exercise price and number of Shares subject thereto, and (ii) a correct and complete list as of the date set forth in Section 4.3 of the Company Letter of each outstanding Warrant, including the holder, the number of Shares subject thereto and the warrant exercise price. Except as set forth in Section 4.3 of the Company Letter, the D-10 Company has delivered to VAC or Parent a copy of each such outstanding option agreement or warrant agreement. (d) Except for the Rights Agreement, the Company Stock Options and the Warrants, and except as may be permitted to be issued, delivered or sold after the date hereof in accordance with this Agreement, there are no options, warrants, calls, rights or agreements to which the Company or any of its Subsidiaries is a party or by which any of them is bound obligating the Company or any of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of the Company or any of its Subsidiaries. (e) Each outstanding share of capital stock of each Subsidiary of the Company is duly authorized, validly issued, fully paid and nonassessable, except as set forth in Section 4.3 of the Company Letter. (f) The Company does not have any outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter. The Company does not have any outstanding contractual obligations to repurchase, redeem or otherwise acquire any shares of capital stock of, or other equity interests in, the Company or any Subsidiary of the Company. (g) The Company is not a party to any stockholder agreements, voting trusts or other agreements or understandings relating to voting or disposition of any shares of capital stock of the Company or granting to any person or group of persons the right to elect, or to designate or nominate for election, a director to the board of directors of the Company. (h) Except as set forth in Section 4.3 of the Company Letter, neither the Company nor any Subsidiary of the Company is under any current or prospective obligation to make a capital contribution or investment in or loan to, or to assume any liability or obligation of, any corporation, partnership, joint venture or business association or entity. Section 4.4 Authority. (a) The Special Committee, by unanimous vote of all Special Committee members, has determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger, are fair to, and in the best interests of, the Company and its stockholders, and has recommended that the Board of Directors of the Company approve and declare advisable this Agreement and the transactions contemplated hereby, including the Offer and the Merger. The Board of Directors of the Company, based on the recommendation of the Special Committee and by unanimous vote of all directors (with the exception of the Nonvoting Director, who abstained from such vote), has (i) determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger, are fair to and in the best interests of the Company and its stockholders, (ii) approved and declared advisable this Agreement and the transactions contemplated hereby, including the Offer and the Merger, and (iii) recommended that the holders of Shares tender their Shares in the Offer and, if applicable, approve and adopt this Agreement in all respects. The Company has adopted the necessary amendments to the Company Charter or the Company Bylaws, as applicable, electing not to be governed by Section 203 of the DGCL, and thereby has rendered Section 203 of the DGCL inapplicable to this Agreement and the transactions contemplated hereby. (b) The Company has all requisite corporate power and authority to enter into this Agreement and, subject to adoption by the stockholders of the Company of this Agreement, if applicable, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action (including Board action) on the part of the Company, subject to (i) adoption of this Agreement by the stockholders of the Company, if applicable, and (ii) the filing of the Certificate of Merger as required by the DGCL. This Agreement has been duly and validly executed and delivered by the Company and (assuming the valid authorization, execution and delivery of this Agreement by Parent and Sub and the validity and binding effect of this Agreement on Parent and Sub) constitutes the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject D-11 to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. Section 4.5 Consents and Approvals; No Violation. (a) Assuming that all consents, approvals, authorizations and other actions described in this Section 4.5 have been obtained and all filings and obligations described in this Section 4.5 have been made, the execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby and compliance with the provisions hereof will not, result in any violation of or default (with or without notice or lapse of time, or both) under, give to others a right of termination, cancellation or acceleration of any obligation under, result in the loss of a material benefit under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any of its Subsidiaries under, any provision of: (i) the Company Charter or the Company Bylaws, (ii) any provision of the comparable charter or organization documents of any of the Company's Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Company or any of its Subsidiaries, or (iv) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries or any of their respective properties or assets, other than, in the case of clauses (ii), (iii) or (iv), any such violations, defaults, rights, losses, liens, security interests, charges or encumbrances that would not reasonably be expected to have a Material Adverse Effect on the Company. (b) No filing or registration with, or authorization, consent or approval of, any Governmental Entity is required by or with respect to the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement by the Company or is necessary for the consummation of the Offer, the Merger and the other transactions contemplated by this Agreement, except for: (i) in connection, or in compliance, with the provisions of the Exchange Act, (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company or any of its Subsidiaries is qualified to do business, (iii) such filings, authorizations, orders and approvals as may be required to obtain the State Takeover Approvals, (iv) applicable requirements, if any, of Blue Sky Laws, and (v) such other consents, orders, authorizations, registrations, approvals, declarations and filings the failure of which to be obtained or made would not reasonably be expected to have a Material Adverse Effect on the Company. Section 4.6 SEC Documents and Other Reports; Financial Statements. (a) The Company has filed all required forms, reports and documents with the SEC since January 1, 1998 (all such forms, reports, and documents filed by the Company since such date with the SEC, the "Company SEC Documents"). As of their respective dates, the Company SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended (together with the rules and regulations thereunder, the "Securities Act"), or the Exchange Act, as the case may be, and, at the respective times they were filed (or, in the case of any Company SEC Document that has been amended or superseded, as of the date of such amending or superseding filing), none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated D-12 therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) The consolidated financial statements (including, in each case, any notes thereto) of the Company included in the Company SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, were prepared in accordance with United States generally accepted accounting principles ("GAAP") (except, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated therein or in the notes thereto) and fairly presented in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as at the respective dates thereof and the consolidated results of their operations and their consolidated cash flows for the periods then ended (subject, in the case of unaudited statements, to the absence of footnotes and to normal year-end audit adjustments and to any other adjustments described therein). (c) No Subsidiary of the Company is subject to the periodic reporting requirements of the Exchange Act. To the Knowledge of the Company as of the date hereof, there is no material unresolved violation of the Exchange Act asserted by the SEC in writing with respect to the Company SEC Documents. Neither the Company nor any of its Subsidiaries had, and since such date neither the Company nor any of its Subsidiaries has incurred, any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) which, individually or in the aggregate, would be required to be disclosed in a balance sheet (or the footnotes thereto) of the Company prepared in accordance with GAAP except liabilities incurred in the ordinary and usual course of business and consistent with past practice, liabilities incurred in connection with the transactions contemplated herein, and liabilities that have not had and would not reasonably be expected to have a Material Adverse Effect on the Company. (d) Except in each case as set forth in the Company SEC Documents or as set forth in the Company Letter, none of the Company or any of the Subsidiaries of the Company is indebted to any director or officer of the Company or any of the Subsidiaries of the Company (except for amounts due as normal salaries and bonuses, contractual payments, in reimbursement of ordinary business expenses and directors' fees) and no such person is indebted to the Company or any of the Subsidiaries of the Company in any material amount. (e) Set forth in Section 4.6 of the Company Letter is a true and correct copy of the unaudited consolidated financial statements of the Company and its consolidated Subsidiaries as at September 30, 2000 and for the nine months then ended (collectively, the "Interim Financial Statements"). The interim balance sheet included in the Interim Financial Statements was prepared in accordance with GAAP and fairly presents the consolidated financial position of the Company and its consolidated Subsidiaries as at the date thereof and the consolidated results of operations and changes in financial position of the Company and its consolidated Subsidiaries for the period indicated (subject to the absence of footnotes and to normal year- end audit adjustments and to any other adjustments described therein). Such Interim Financial Statements are in draft form, preliminary and subject to change prior to filing of the Company's report on Form 10-Q with the SEC, for the third fiscal quarter. Section 4.7 Information Supplied. None of the information supplied or to be supplied by the Company in writing specifically for inclusion or incorporation by reference in (i) the Offer Documents, (ii) the Rule 13E-3 Statement, (iii) the Schedule 14D-9, (iv) the Information Statement or (v) the Proxy Statement, will (a) in the case of the Offer Documents, the Rule 13E-3 Statement, the Schedule 14D-9 and the Information Statement, at the respective times the Offer Documents, the Schedule 14D-9 and the Information Statement are filed with the SEC or, if applicable, first published, sent or given to the Company's stockholders, or (b) in the case of the Proxy Statement, at the time the Proxy Statement is first mailed to the Company's stockholders or at the time of the Stockholder Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. D-13 Section 4.8 Absence of Certain Changes or Events. Except as set forth in Section 4.8 of the Company Letter, the Interim Financial Statements or the Company SEC Documents filed prior to the date hereof, since September 30, 2000 through the date of this Agreement: (a) there has been no change in the capital stock of the Company and no dividend or distribution of any kind declared, paid or made by the Company on any class of its stock; (b) there has not been (i) any adoption of a new Company Benefit Plan (as defined in Section 4.13), (ii) any amendment to a Company Benefit Plan materially increasing benefits thereunder, (iii) any granting by the Company or any of its Subsidiaries to any executive officer or other key employee of the Company or any of its Subsidiaries of any material increase in compensation, severance or termination benefits, except in the ordinary course of business consistent with prior practice or as was required under employment, severance or termination agreements or (iv) any entry by the Company or any of its Subsidiaries into any employment, severance, indemnification or termination agreement with any such executive officer or other key employee; (c) there have not been any material changes in the amount or terms of the indebtedness of the Company and its Subsidiaries from that described in the Company SEC Documents filed prior to the date hereof. Unless shown on the Interim Financial Statements or Company SEC Documents filed prior to the date hereof, neither the Company nor any of its Subsidiaries has incurred any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) which, individually or in the aggregate, would be required to be disclosed in a balance sheet (or the footnotes thereto) of the Company prepared in accordance with GAAP, except liabilities incurred in the ordinary and usual course of business and consistent with past practice, liabilities incurred in connection with the transactions contemplated herein, and liabilities that have not had and would not reasonably be expected to have a Material Adverse Effect on the Company; (d) there has not been any material change by the Company in (i) its accounting methods, principles or practices except as required by generally accepted accounting principles, (ii) any material revaluation by the Company of any material asset (including, without limitation, any writing down of the value of inventory or writing off of notes or accounts receivable), other than in the ordinary course of business consistent with past practice after the date of the most recent Company SEC Document filed prior to the date hereof, (iii) any entry by the Company or any Subsidiary of the Company into any commitment or transaction material to the Company and the Subsidiaries of the Company taken as a whole, except in the ordinary course of business and consistent with past practice, or (iv) any redemption, purchase or other acquisition of any of the Company's securities; (e) the Company has not made (or committed to make) capital expenditures in an amount which exceeds $50,000 for any item or $200,000 in the aggregate; (f) to the Knowledge of the Company, the Company has not suffered a Material Adverse Effect; (g) there has not been any (i) settlement or compromise by the Company or any Subsidiary of the Company of any claim, litigation or other legal proceeding, other than in the ordinary course of business consistent with past practice in an amount not involving more than $100,000 or (ii) any payment, discharge or satisfaction by the Company or any Subsidiary of the Company of any other claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than (A) in the ordinary course of business and consistent with past practice or (B) with respect to any other such claims, liabilities or obligations reflected or reserved against in, or contemplated by, the consolidated financial statements (or the notes thereto) of the Company; and (h) there has not been executed any agreement by the Company or any Subsidiary of the Company to take any of the actions described in this Section except as expressly contemplated by this Agreement. Section 4.9 Permits and Compliance. (a) Each of the Company and its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any D-14 Governmental Entity necessary for the Company or any of its Subsidiaries to own, lease and operate its properties or to carry on its business as it is now being conducted (the "Company Permits"), except where the failure to have any of the Company Permits would not reasonably be expected to have a Material Adverse Effect on the Company. No suspension or cancellation of any of the Company Permits is pending or, to the Knowledge of the Company, threatened, except where the suspension or cancellation of any of the Company Permits would not reasonably be expected to have a Material Adverse Effect on the Company. (b) Except as otherwise set forth in Section 4.9 of the Company Letter, neither the Company nor any of its Subsidiaries is in violation of (i) its charter, bylaws or other organizational documents, (ii) any law, ordinance, administrative or governmental rule or regulation, or (iii) any order, decree or judgment of any Governmental Entity having jurisdiction over the Company or any of its Subsidiaries, except, in the case of clauses (ii) and (iii), for any violations that would not reasonably be expected to have a Material Adverse Effect on the Company. (c) Except as otherwise set forth in Section 4.9 of the Company Letter, no event of default by the Company or any of its Subsidiaries or, to the Knowledge of the Company, any other party, or event that, but for the giving of notice or the lapse of time or both, would constitute an event of default by the Company or any of its Subsidiaries or, to the Knowledge of the Company, any other party exists or, upon the consummation by the Company of the transactions contemplated by this Agreement, will exist under any indenture, mortgage, loan agreement, note or other agreement or instrument for borrowed money, any guarantee of any agreement or instrument for borrowed money or any lease, contractual license or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any such Subsidiary is bound or to which any of the properties, assets or operations of the Company or any such Subsidiary is subject, other than any defaults that would not reasonably be expected to have a Material Adverse Effect on the Company. Section 4.10 Tax Matters. (a) Except as otherwise set forth in Section 4.10 of the Company Letter, and except in each case for acts or omissions which would not be expected to have a Material Adverse Effect on the Company, (i) the Company and each of its Subsidiaries have filed all Tax Returns (as hereinafter defined) required to have been filed, and such Tax Returns are correct and complete and disclose all Taxes (as hereinafter defined) required to be paid by the Company and its Subsidiaries for the periods covered thereby; (ii) all Taxes shown to be due on such Tax Returns have been timely paid or extensions for payment have been properly obtained or such Taxes are being contested; (iii) the Company and each of its Subsidiaries have complied with all rules and regulations relating to the withholding of Taxes and the remittance of withheld Taxes; (iv) neither the Company nor any of its Subsidiaries has waived any statute of limitations in respect of its Taxes, which waiver is currently effective; (v) any Tax Returns required to have been filed by or with respect to the Company and each of its Subsidiaries relating to federal and state income Taxes have been examined by the Internal Revenue Service ("IRS") or the appropriate foreign or state taxing authority or the period for assessment of the Taxes in respect of which such Tax Returns were required to be filed has expired; (vi) all deficiencies asserted or assessments made as a result of any examination of such Tax Returns by any taxing authority have been paid in full or properly reflected on the books of the Company; (vii) there is no action, suit, investigation, audit, claim or assessment pending or, to the Knowledge of the Company, threatened in writing with respect to Taxes of the Company or any Subsidiary of the Company; and (viii) there are no liens for Taxes upon the assets of the Company or any Subsidiary of the Company except liens relating to current Taxes not yet due. (b) Except as otherwise set forth in Section 4.10 of the Company Letter, and except in each case for acts and omissions which would not be expected to have a Material Adverse Effect on the Company, none of the Company or any of its Subsidiaries has consented to extend the time, in which any material Tax may be assessed or collected by any taxing authority. (c) Except as otherwise set forth in Section 4.10 of the Company Letter, and except in each case for acts and omissions which would not be expected to have a Material Adverse Effect on the Company, to the D-15 Knowledge of the Company, no written claim has been made by any taxing authority in a jurisdiction where the Company and its Subsidiaries do not file Tax Returns that the Company or each Subsidiary of the Company is or may be subject to taxation in that jurisdiction. (d) Except as otherwise set forth in Section 4.10 of the Company Letter, and except in each case for acts and omissions which would not be expected to have a Material Adverse Effect on the Company, there is no contract or arrangement, plan or agreement by or with the Company or any Subsidiary of the Company covering any person that, individually or collectively, could give rise to the payment of any amount by the Company or a Subsidiary of the Company that would not be deductible by the Company or such Subsidiary of the Company by reason of Section 280G of the Code. (e) Each of the Company and its Subsidiaries has made available to VAC or Parent true, correct and complete copies of all federal income Tax Returns, and all other material Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by any of the Company or its Subsidiaries that have been filed by any of the Company or the Subsidiaries of the Company for the taxable years ending December 31, 1997, 1998 and 1999. (f) None of the Company or the Subsidiaries of the Company (A) has, since January 1, 1996, been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company), (B) is a party to or bound by any Tax allocation or Tax sharing agreement with any person or entity other than the Company and its Subsidiaries, (C) has any liability for the Taxes of any Person (other than any of the Company or its Subsidiaries) under Treas. Reg. (S) 1. 1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise or (D) has any material liability for the Taxes of any Person other than the Company, one of its Subsidiaries or in connection with the acquisition, directly or indirectly, of any Person acquired by the Company or any Subsidiary of the Company. (g) The Company and each Subsidiary of the Company has established on its books and records adequate reserves for the payment of all material Taxes for which it is liable which are not yet due and payable, and with respect to any such material Taxes which have been proposed, assessed or asserted against them. Section 4.11 Actions and Proceedings. There are no outstanding orders, judgments, injunctions, awards or decrees of any Governmental Entity against the Company or any of its Subsidiaries or, to the Knowledge of the Company, any of the properties, assets or businesses of the Company or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect on the Company or materially impair the ability of the Company to perform its obligations hereunder. Except as set forth in Section 4.11 of the Company Letter or the Company SEC Documents filed prior to the date hereof, there are no actions, suits or claims or legal, administrative or arbitrative proceedings or investigations (including claims for workers' compensation) pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries, or any of the properties, assets or businesses of the Company or any of its Subsidiaries, that would reasonably be expected to have a Material Adverse Effect on the Company. Section 4.12 Certain Agreements. (a) Section 4.12 of the Company Letter contains a list of (i) all severance and all employment agreements with employees of the Company and each Subsidiary of the Company (other than standard offer letters providing for at will employment); and (ii) all plans, programs, agreements and other arrangements of the Company with or relating to its employees that contain change of control provisions, in each case, other than those involving amounts that are not material to the Company when considered in the aggregate. (b) Except as set forth in Section 4.12 of the Company Letter, neither the Company nor any of its Subsidiaries is a party to any oral or written plan, program, agreement, policy or other arrangement, any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting or exercisability of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of D-16 any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement, other than the agreement with the Company's financial advisor identified in Section 4.20. (c) To the Knowledge of the Company as of the date hereof, no executive officer or other key employee of the Company or any of its Subsidiaries is subject to any noncompete, nonsolicitation, nondisclosure, confidentiality, employment, consulting or similar agreement relating to, affecting or in conflict with the business activities of the Company and its Subsidiaries, except agreements between the Company or its Subsidiaries and its present and former officers or employees or agreements with VAC, Parent or Sub. Section 4.13 ERISA; Employee Benefit Plans. (a) Except for the Company Stock Option Plans and the plans and agreements listed in Section 4.13 of the Company Letter (collectively, the "Company Benefit Plans"), neither the Company nor any ERISA Affiliate (as defined below) maintains, is a party to, contributes to or is obligated to contribute to, and none of its employees or former employees, their dependents, or survivors receive benefits under, any of the following (whether or not set forth in a written document): (i) Any employee benefit plan, as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (ii) Any bonus, deferred compensation, incentive, restricted stock, stock purchase, stock option, stock appreciation right, phantom stock, supplemental pension, executive compensation, cafeteria benefit, dependent care, director or employee loan, fringe benefit, sabbatical, severance, termination pay or similar plan, program, policy, agreement or arrangement; or (iii) Any plan, program, agreement, policy, commitment or other arrangement relating to the provision of any benefit described in Section 3(1) of ERISA to former employees or directors or to their survivors, other than procedures intended to comply with the Consolidated Omnibus Budget Reconciliation Act of 1985. (b) Except as would not reasonably be expected to have a Material Adverse Effect on the Company: (i) the Company has complied with ERISA, the Code and all laws and regulations applicable to the Company Benefit Plans and each Company Benefit Plan has been maintained and administered in compliance with its terms; and (ii) each Company Benefit Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code is the subject of a favorable determination opinion, notification or advisory letter from the IRS issued after January 1, 1989, and nothing has occurred to the Knowledge of the Company which may reasonably be expected to adversely affect such determination. (c) Neither the Company nor any ERISA Affiliate has, since its inception, terminated, suspended, discontinued contributions to or withdrawn from any employee pension benefit plan, as defined in Section 3(2) of ERISA, including (without limitation) any multiemployer plan, as defined in Section 3(37) of ERISA. (d) The Company has provided or made available to VAC or Parent complete, accurate and current copies of each of the Company Benefit Plans, including the text (including amendments) of each of the Company Benefit Plans, to the extent reduced to writing and a summary of each of the Company Benefit Plans, to the extent not previously reduced to writing as well as the most recent annual report on Form 5500 filed with the Internal Revenue Service with respect to each Company Benefit Plan (if such report was required), and each trust agreement and group annuity contract relating to any Company Benefit Plan. (e) Neither the Company nor any ERISA Affiliate has incurred any accumulated funding deficiency under Section 412 of the Code or any termination or withdrawal liability under Title IV of ERISA. (f) All contributions, premiums or other payments due from the Company to (or under) any Company Benefit Plan have been fully paid or adequately provided for on the books and financial statements of the D-17 Company. All accruals (including, where appropriate, proportional accruals for partial periods) have been made in accordance with prior practices. (g) For all purposes under this Section 4.13, "ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) that, together with the Company, is treated as a single employer under Section 4001(b) of ERISA or Section 414 of the Code. (h) Except as disclosed in the Company Letter, all Pension Plans intended to be qualified plans have been the subject of determination letters from the Internal Revenue Service to the effect that such Pensions Plans are qualified and exempt from Federal income taxes under Section 401(a) and 501(a), respectively, of the Code, and no such determination letter has been revoked. To the Knowledge of the Company as of the date hereof, there is no reasonable basis for the revocation of any such determination letter. (i) Except as disclosed in the Company Letter, none of the Company or any of its Subsidiaries has any obligation to provide any material health benefits or other non-pension benefits to retired or other former employees, except as specifically required by Part 6 of Title I of ERISA ("COBRA"). Section 4.14 Intellectual Property. (a) The Company and its Subsidiaries own, or possess, free and clear of any material liens, adequate licenses or other valid rights to use (including the right to sublicense to customers, suppliers or others as needed), all of the material Company Intellectual Property (as defined below) that is necessary for the conduct of the Company's or Subsidiaries' businesses, except to the extent as such would not have a Material Adverse Effect on the Company. Section 4.14 of the Company Letter sets forth a complete list in all material respects of all registered Company Intellectual Property. (b) Neither the Company nor any of the Subsidiaries of the Company has received from a third party any written notice of infringement or misappropriation of or conflict with, in any material respects, Company Intellectual Property. To the Knowledge of the Company, the use of such Company Intellectual Property in connection with the business and operations of the Company and its Subsidiaries does not infringe, in any material respects, on the rights of any person or entity. To the Knowledge of the Company, no material claim by any third party contesting the validity, enforceability, use or ownership of any of the Company Intellectual Property owned by the Company or any of its Subsidiaries, is currently outstanding or is threatened. The Company has not received any written notices of any material infringement or misappropriation by any third party with respect to the Company Intellectual Property. The Company and each Subsidiary of the Company has taken reasonable actions to maintain and protect its Company Intellectual Property, except for those actions, which the failure to take, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company. (c) As used herein, "Company Intellectual Property" means all trademarks, trademark registrations, trademark rights and renewals thereof, trade names, trade name rights, patents, patent rights, patent applications, industrial models, inventions, invention disclosures, designs, utility models, inventor rights, software, computer programs, computer systems, copyrights, copyright registrations and renewals thereof, servicemarks, servicemark registrations and renewals thereof, servicemark rights, trade secrets, applications for trademark and servicemark registrations, know-how, confidential information and other proprietary rights, used or held for use in connection with the businesses of the Company and/or its Subsidiaries as currently conducted by the Company, together with all applications currently pending or in process for any of the foregoing. Section 4.15 Material Contracts. (a) Except as disclosed in the Section 4.15 of the Company Letter, neither the Company nor any of its Subsidiaries, nor, to the Company's Knowledge, is any other party, in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Material Contracts to which it is a party, except for such defaults which, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on the Company; and, to the Knowledge of the Company, there has not occurred any event that, with the lapse of time or giving of notice or both, would D-18 constitute such a default, other than such events which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on the Company. (b) The Company Letter sets forth a list as of the date of this Agreement of: (i) all credit agreements, indentures, and other agreements related to any indebtedness for borrowed money in excess of $100,000 of the Company or any of its Subsidiaries, (ii) all joint venture or other similar agreements to which the Company or any of its Subsidiaries are a party, (iii) all lease agreements to which the Company or any of its Subsidiaries are party with annual lease payments in excess of $50,000, (iv) contracts under which the Company or any of its Subsidiaries has advanced or loaned any other person or entity any material amounts, (v) guaranties of any obligations in excess of $100,000 (other than a guarantee by the Company of a Subsidiary's debts or a guarantee by a Subsidiary of the Company's debts or another Subsidiary of the Company's debts), (vi) contracts or groups of related contracts with the same party or group of parties the performance of which involves annual consideration in excess of $100,000 which are not cancelable by the Company on 30- days-or-less notice without premium or penalty, (vii) warranty agreements with respect to the Company's or the Subsidiaries' services rendered or products sold or leased, (viii) agreements under which the Company has granted any person or entity registration rights (including, without limitation, demand and piggy-back registration rights), and (ix) all other contracts and agreements which are material (as hereinafter defined) to the Company and its Subsidiaries taken as a whole (collectively, the "Material Contracts"). The Company has made available to VAC or Parent a correct and complete copy of each agreement listed in the Company Letter. For purposes of this Section 4.15, except as otherwise expressly set forth in this Section 4.15, an agreement shall be deemed "material" if the Company reasonably expects that the Company or any of its Subsidiaries would, pursuant to the terms thereof, (x) recognize during the current fiscal year of the Company net revenues after the payment of third party shares in excess of $100,000 or (y) incur during the current fiscal year of the Company liabilities or obligations in excess of $100,000. (c) Except as set forth in Section 4.15 of the Company Letter, no Material Contract will, by its terms, terminate as a result of the transactions contemplated herein, except for any Material Contracts which, if terminated, would not have a Material Adverse Effect on the Company. (d) Except as set forth in Section 4.15 of the Company Letter, the Company has not granted any right of first refusal or similar right in favor of any third party with respect to any material portion of its properties or assets or, except in the ordinary course of business, entered into any non-competition agreement or similar agreement restricting its ability to engage in any business. Section 4.16 Environmental Matters. (a) To the Knowledge of the Company, and except as set forth in the Company Letter or documents made available to the VAC or Parent, neither the Company nor any of its Subsidiaries (i) is in material violation of any law or regulation applicable to its business or property relating to the protection of human health and safety or the environment ("Environmental Laws"), (ii) lacks any material permits, licenses or other approvals required under applicable Environmental Laws ("Environmental Permits"), (iii) is in material violation of any term or condition of any such Environmental Permit, or (iv) has received any written notice or report regarding any allegation of material violation by the Company or any of the Subsidiaries, or of any material liability of the Company or any of the Subsidiaries for releases of hazardous substances, under any Environmental Laws, with respect to the operations, properties or facilities of the D-19 Company, other than in the case of each of the foregoing clauses, violations, Environmental Permits or liability that would not reasonably be expected to have a Material Adverse Effect on the Company. (b) To the Knowledge of the Company and except as set forth in the Company Letter, the Company and the Subsidiaries have made available to VAC or Parent copies of any material environmental assessment or audit report (including all material records maintained for required environmental compliance) or other similar studies or analyses in the possession of the Company or the Subsidiaries relating to any real property currently or formerly owned, leased, managed or occupied by the Company or the Subsidiaries, other than any such assessments, audit reports, records, studies or analyses which, if not provided, would not reasonably be expected to have a Material Adverse Effect on the Company. Section 4.17 Title to Assets. (a) The Company and its Subsidiaries own good and marketable title to all of their assets material to their business (excluding, for purposes of this sentence, assets held under leases or assets covered under Section 4.14 hereof), free and clear of any and all mortgages, liens, encumbrances, charges, claims, restrictions, pledges, or security interests, except as set forth in Section 4.17 of the Company Letter and except for such failures or imperfections of title and such mortgages, liens, encumbrance, charges, claims, restrictions, pledges or security interests as would not reasonably be expected to have a Material Adverse Effect on the Company. (b) The leases to all real estate occupied by the Company and its Subsidiaries that are material to the operation of the businesses of the Company and its Subsidiaries are in full force and effect and, to the Knowledge of the Company, no event has occurred that with the passage of time, the giving of notice, or both, would constitute an event of default thereunder or event of default by the Company or any of its Subsidiaries or, to the Knowledge of the Company, any other person who is a party signatory thereto, other than such events of default which would not reasonably be expected to have a Material Adverse Effect on the Company. Section 4.18 State Takeover Statutes. The Board of Directors of the Company has taken all action so as to render the provisions of the Rights Agreement inapplicable to the Offer, the Merger and the consummation of the transactions contemplated by this Agreement. To the Knowledge of the Company, as of the date hereof, no other state takeover statute or similar charter or bylaw provisions are applicable to the Offer, the Merger, this Agreement and the transactions contemplated hereby. Section 4.19 Required Vote of Company Stockholders. Subject to Section 2.7, the affirmative vote of the holders of at least a majority of the outstanding Shares is required to adopt this Agreement. No other vote of the security holders of the Company is required in order for the Company to consummate the Merger and the transactions contemplated hereby. Section 4.20 Brokers. No broker, investment banker or other person, other than Houlihan Lokey Howard & Zukin Financial Advisors, Inc., is entitled to any broker's, finder's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. A true and complete copy of the engagement letter for Houlihan Lokey Howard & Zukin Financial Advisors, Inc., has been provided to Parent or VAC. Section 4.21 Fairness Opinion. The Special Committee has received the opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc., to the effect that the proposed consideration to be received by holders of Shares pursuant to the Offer and the Merger is fair to such holders (other than the Nonvoting Director) from a financial point of view. Section 4.22 Insurance Policies. Section 4.22 of the Company Letter contains a list of all material insurance policies of the Company and its Subsidiaries, and each such policy is in full force and effect. No written notice of cancellation or termination has been received by the Company or its Subsidiaries with respect to any such policy. Except as disclosed in Section 4.22 of the Company Letter or the Company SEC Reports D-20 filed prior to the date hereof, to the Company's Knowledge, there are no pending claims against such insurance by the Company or its Subsidiaries as to which the insurers have denied coverage or otherwise reserved rights. Section 4.23 Transactions With Affiliates. Except as disclosed in the Company SEC Documents filed prior to the date of this Agreement, and except with respect to the transactions contemplated by this Agreement, no present or former affiliate of the Company has, or since December 31, 1999 has had, to the Knowledge of the Company, (i) any material interest in any property (whether real, personal or mixed and whether tangible or intangible) used in or pertaining to any of the businesses of the Company or any of its Subsidiaries, (ii) has had business dealings or a material financial interest in any transaction with the Company or any of its Subsidiaries (other than compensation and benefits received in the ordinary course of business as an employee or director of the Company or any of its Subsidiaries) or (iii) an equity interest or any other financial or profit interest in any Person that has had business dealings or a material financial interest in any transaction with the Company or any of its Subsidiaries. Section 4.24 Investment Company Status. The Company is not an "investment company" as such term is defined in Section 3 of the Investment Company Act of 1940, as amended, and therefore is not registered or required to be registered as such under the Investment Company Act of 1940. ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS Section 5.1 Conduct of Business by the Company Pending the Merger. (a) Except as expressly permitted below, during the period from the date of this Agreement through the Effective Time, the Company shall, and shall cause each of its Subsidiaries to, in all material respects carry on its business in the ordinary course of its business as currently conducted and, to the extent consistent therewith, use commercially reasonable efforts to preserve intact its current business organizations, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers and others having business dealings with it, and maintain in full force and effect all authorizations necessary for such business, except to the extent such would not have a Material Adverse Effect on the Company. (b) Without limiting the generality of the foregoing, and except as otherwise expressly contemplated by this Agreement or as set forth in Section 5.1 of the Company Letter, the Company shall not, and shall not permit any of its Subsidiaries to, without the prior written consent of Parent (which in any event shall not be unreasonably withheld): (i) (A) other than dividends paid by wholly-owned Subsidiaries of the Company, declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, or otherwise make any payments to its stockholders in their capacity as such, (B) other than in the case of any Subsidiary of the Company, split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or (C) purchase, redeem or otherwise acquire any shares of capital stock of the Company (other than repurchases of Shares required pursuant to existing agreements) or any other securities thereof; (ii) issue, deliver, sell, pledge, or otherwise dispose of any shares of its capital stock, any other voting securities or equity equivalent or any securities convertible into, or any rights, warrants or options (including options under the Company Stock Option Plans) to acquire any such shares, voting securities, equity equivalent or convertible securities, other than (A) the issuance of shares of Stock upon the exercise of Company Stock Options outstanding on the date of this Agreement in accordance with their current terms, and (B) the issuance of shares of Stock upon exercise of the Warrants; D-21 (iii) amend its charter or bylaws; (iv) acquire or agree to acquire, by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any business or any corporation, limited liability company, partnership, association or other business organization or division thereof, other than acquisitions in which the aggregate amount of consideration to be paid in connection with an individual acquisition does not exceed $100,000; (v) (i) incur or assume any indebtedness for borrowed money or make any loans, advances or capital contributions to, or other investments in, any other person, other than (A) in the ordinary course of business consistent with past practices, (B) indebtedness, loans, advances, capital contributions and investments between the Company and any of its wholly-owned Subsidiaries or between any of such wholly-owned Subsidiaries, in each case in the ordinary course of business consistent with past practices, or (C) investments in any other person which, if such investments were treated as an acquisition, would be permitted under clause (iv) of this Section 5.1, (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person, except in the ordinary course of business and consistent with past practice, (iii) settle any claim other than in the ordinary course of business, in accordance with past practice, and without admission of material liability, or (iv) enter into any material commitment or transaction, except in the ordinary course of such business; (vi) except as provided in Sections 6.4 or 6.5, enter into or adopt any, or amend any existing, severance plan, agreement or arrangement or enter into or amend any Company Benefit Plan, except as may be required to maintain such plan's compliance with ERISA or the Code, or employment or consulting agreement or hire or agree to hire any new or additional key employees or officers, except to replace existing employees as necessary in the ordinary course of business; (vii) except as provided in Sections 6.4 or 6.5, (A) adopt, enter into, terminate, amend or increase the amount or accelerate the payment or vesting of any benefit or award or amount payable under any Company Benefit Plan or other arrangement for the current or future benefit or welfare of any director, officer or current or former employee, (B) increase in any manner the compensation or fringe benefits of, or pay any bonus to, any director, officer or, other than in the ordinary of business consistent with past practice, employee, (C) pay any benefit not provided for under any Company Benefit Plan, other than in the ordinary course of business, (D) grant any awards under any bonus, incentive, performance or other compensation plan or arrangement or Company Benefit Plan (including the grant of stock options, stock appreciation rights, stock based or stock related awards, performance units or restricted stock, or the removal of existing restrictions in any Company Benefit Plans or agreements or awards made thereunder), other than in the ordinary course of business, or (E) take any action to fund or in any other way secure the payment of compensation or benefits under any employee plan, agreement, contract or arrangement or Company Benefit Plan; (viii) make any change to accounting policies or procedures (other than actions required to be taken by GAAP or applicable law); (ix) authorize or make any single capital expenditure in excess of $50,000 or capital expenditures in excess of $200,000 in the aggregate; (x) except in the ordinary course of business, amend or terminate any Material Contract or waive, release or assign any material rights or claims; (xi) transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber any material property or assets, other than in the ordinary course of business and consistent with past practice; (xii) except as required by law, make any material Tax election or settle or compromise any material Tax liability; (xiii) pay, discharge or satisfy any other claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), individually in amounts in excess of $100,000 or other than the payment, discharge or satisfaction of (A) any such other claims, liabilities or obligations, in D-22 the ordinary course of business and consistent with past practice, or (B) of any such other claims, liabilities or obligations reflected in the financial statements (or the notes thereto) of the Company; (xiv) except in the ordinary course of business consistent with past practice, waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which the Company or any Subsidiary of the Company is a party; (xv) cancel or terminate, or take any action designed to terminate, any material insurance policy of the Company, except in the ordinary course of business and consistent with past practice; (xvi) settle or compromise any claim, litigation or other legal proceeding, other than in the ordinary course of business consistent with past practice in an amount not involving more than $100,000; (xvii) liquidate, dissolve or effect a recapitalization or reorganization in any form of transaction; or (xviii) authorize, recommend, propose or announce an intention to do any of the foregoing, or enter into any contract, agreement, commitment or arrangement to do any of the foregoing. Section 5.2 No Solicitation. (a) The Company shall not, and shall not authorize any of its Subsidiaries or any officer, director or employee of or any financial advisor, attorney or other advisor or representative of, the Company or any of its Subsidiaries to, and the Company shall instruct its officers, directors, financial advisors and attorneys not to, directly or indirectly: (i) solicit, initiate or encourage the submission of any Takeover Proposal, (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to the Company or any Subsidiary of the Company in connection with, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal, or (iii) authorize, engage in, or enter into any agreement or understanding with respect to any Takeover Proposal; provided, that nothing contained in this Agreement shall prohibit the Company or its directors or any special committee of the Company's Board of Directors from (1) complying with Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act or making such disclosure to the Company's stockholders as, in the good faith judgment of any such special committee or the Board of Directors of the Company after consultation with its independent legal counsel, is required under applicable law or (2) referring a third party to this Section 5.2(a) or making a copy of this Section 5.2(a) available to any third party. The Company shall immediately cease any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. (b) Nothing in this Agreement shall prohibit the Company prior to the purchase of Shares pursuant to the Offer from engaging in the activities described in clauses (ii) and (iii) of subsection (a) above with respect to any person who has submitted on an unsolicited basis to the Company (A) a Takeover Proposal believed by the Company to in good faith to be bona fide or (B) an expression of interest believed by the Company in good faith to be bona fide indicating such person's desire to pursue the possibility of making a Takeover Proposal on terms believed by the Company to be financially superior to the Offer and the Merger (a "Superior Proposal") and, in either such case: (i) the Company's Board of Directors or any committee thereof, after consultation with its independent legal counsel, determines that taking such action is appropriate for such Board to comply with its fiduciary duties under applicable law, (ii) the Company's Board of Directors or any committee thereof, after consultation with its financial advisors, concludes in good faith that such Takeover Proposal, taking into account, among D-23 other things, all material legal, financial, regulatory and other aspects of such proposal and the person making such proposal, could lead to a Superior Proposal; and (iii) prior to providing any of the information described in clause (ii) of subsection (a) above, the Company obtains from such person an executed confidentiality agreement similar in form and scope to the Confidentiality Agreement. (c) The Company shall promptly advise Parent in writing of any Takeover Proposal received by any officer or director of the Company or, to the Knowledge of the Company, any financial advisor, attorney or other advisor or representative of the Company, including the identity of the person making such Takeover Proposal and the material terms of such Takeover Proposal. The Company shall: (i) use reasonable best efforts to so advise Parent no later than one business day following receipt of such Takeover Proposal, (ii) refrain from entering into any agreement authorizing any Takeover Proposal until two (2) business days following delivery by the Company of the notice described in the preceding clause (i), (iii) promptly provide Parent any non-public information concerning the Company provided to any other person making such Takeover Proposal which was not provided to VAC or Parent, and (iv) keep Parent reasonably informed of the status of any such Takeover Proposal. (d) The parties agree that the press release to be issued pursuant to Section 6.7 by the Company upon the execution of this Agreement shall not be deemed to be a solicitation of any Takeover Proposal or otherwise in violation of this Agreement, and that any inquiries or proposals made as a result of or in connection with such press release shall not be deemed to have been solicited by or on behalf of the Company. (e) Concurrently with entry into any agreement authorizing a Takeover Proposal, the Company shall terminate this Agreement pursuant to and in accordance with Section 8.1(e) hereof. ARTICLE VI ADDITIONAL AGREEMENTS Section 6.1 Stockholders Meeting. (a) Unless Parent and Sub are required to take action to effect the Merger pursuant to Section 2.7, following the purchase of Shares pursuant to the Offer, the Company will duly call, give notice of, convene and hold a meeting of stockholders (the "Stockholder Meeting") for the purpose of considering the adoption of this Agreement and at such meeting call for a vote and cause proxies to be voted in respect of the adoption of this Agreement. The Stockholder Meeting shall be held as soon as reasonably practicable following the purchase of Shares pursuant to the Offer, and (except to the extent that the Special Committee or Board of Directors of the Company, after consultation with its independent legal counsel, determines in good faith that such action is inconsistent with its fiduciary duties to the Company's stockholders under applicable law) the Company will, through its Board of Directors, recommend to its stockholders the adoption of this Agreement, and shall not withdraw or modify such recommendation. The record date for the Stockholder Meeting shall be a date subsequent to the date Parent or Sub becomes a record holder of Shares purchased pursuant to the Offer. (b) Unless Parent and Sub are required to take action to effect the Merger pursuant to Section 2.7, the Company shall, at Parent's request, as soon as reasonably practicable following the purchase of Shares pursuant to the Offer, prepare and file a preliminary Proxy Statement with the SEC and use its reasonable best efforts to respond to any comments of the SEC or its staff and to cause the Proxy Statement to be mailed to the Company's stockholders as promptly as practicable after responding to all such comments to the satisfaction of the staff of the SEC. Parent shall furnish to the Company such information concerning itself and Sub as may reasonably be requested by the Company in connection with the Proxy Statement. The Company shall notify Parent promptly of the receipt of any comments from the SEC or its staff and of D-24 any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and will supply Parent with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the Merger. If at any time prior to the Stockholder Meeting there shall occur any event that should be set forth in an amendment or supplement to the Proxy Statement, the Company shall promptly prepare and mail to its stockholders such an amendment or supplement. The Company shall not mail any Proxy Statement, or any amendment or supplement thereto, to which Parent reasonably objects. Parent shall cooperate with the Company in the preparation of the Proxy Statement or any amendment or supplement thereto, including the supply of any information required to be included in the Proxy Statement regarding Parent or Sub. (c) Parent agrees to cause all Shares purchased pursuant to the Offer and all other Shares beneficially owned by VAC, Parent or any Subsidiary of VAC to be voted in favor of adoption of the Merger Agreement. Section 6.2 Access to Information. (a) Subject to currently existing contractual and legal restrictions applicable to the Company or any of its Subsidiaries, and in each case below only to the extent as would not result in the loss of attorney-client privilege, the Company shall, and shall cause each of its Subsidiaries to, afford to the accountants, counsel, financial advisors and other representatives of Parent reasonable access to, and permit them to make such inspections as they may reasonably require of, during the period from the date of this Agreement through the Effective Time, all of their respective properties, books, contracts, commitments and records (including accounting records and Tax Returns and the work papers of independent accountants, if available and subject to the consent of such independent accountants) and, during such period, the Company shall, and shall cause each of its Subsidiaries to, (i) furnish promptly to Parent a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities laws, (ii) furnish promptly to Parent all other information within its possession concerning its business, properties and personnel as Parent may reasonably request and (iii) promptly make reasonably available to Parent all personnel of the Company and its Subsidiaries knowledgeable about matters relevant to such inspections. No investigation pursuant to this Section 6.2 shall affect any representation or warranty in this Agreement of any party hereto or any condition to the obligations of the parties hereto. (b) All information obtained by VAC, Parent or Sub pursuant to this Section 6.2 shall be kept confidential in accordance with the terms and conditions of the Confidentiality Agreement dated June 29, 2000 between VAC and the Company (the "Confidentiality Agreement"). Section 6.3 Directors. (a) Promptly after such time as Sub purchases Shares pursuant to the Offer, Sub shall be entitled, to the fullest extent permitted by law, to designate at its option up to that number of directors, rounded to the nearest whole number, of the Company's Board of Directors, subject to compliance with Section 14(f) of the Exchange Act, as will make the percentage of the Company's directors designated by Sub equal to the percentage of the aggregate voting power of the Shares held by Parent or any of its Subsidiaries; provided, however, that if Sub's designees are elected to the Board of Directors of the Company, until the Effective Time such Board of Directors shall have at least three (3) directors (excluding the Nonvoting Director) who are directors of the Company on the date of this Agreement (the "Continuing Directors"); and provided, further that, in such event, (i) if the number of Continuing Directors (excluding the Nonvoting Director) shall be reduced below three (3) for any reason whatsoever, the remaining Continuing Directors or Director shall designate a person or persons to fill such vacancy or vacancies, each of whom shall be deemed to be a Continuing Director for purposes of this Agreement or (ii) if no Continuing Directors then remain, the other directors shall designate three (3) persons (excluding the Nonvoting Director) to fill such vacancies who shall not be officers or affiliates of the Company or any of its subsidiaries, or officers or affiliates of Parent or any of its subsidiaries, and such persons shall be deemed to be Continuing Directors for purposes of this Agreement, and in the case of either clause (i) or (ii) Sub shall cause such person or persons to be elected to fill such vacancy or vacancies. D-25 (b) To the fullest extent permitted by applicable law, the Company shall take all action requested by Parent that is reasonably necessary to effect any such election, including mailing to its stockholders the Information Statement containing the information required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, and the Company agrees to make such mailing with the mailing of the Schedule 14D-9 (provided that Sub shall have provided to the Company on a timely basis all information required to be included in the Information Statement with respect to Sub's designees). In connection with the foregoing, the Company will promptly, at the option of Parent, to the fullest extent permitted by law, the Company Charter and the Company Bylaws, either increase the size of the Company's Board of Directors and/or obtain the resignation of such number of its current directors (subject to Section 6.3(a)) as is necessary to enable Sub's designees to be elected or appointed to the Company's Board of Directors as provided above. (c) Following the election or appointment of Sub's designees pursuant to this Section 6.3 and prior to the Effective Time, Parent and Sub shall not cause the Company to take any action with respect to any amendment, or waiver of any term or condition, of this Agreement or the Company Charter or the Company Bylaws, any termination of this Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Sub or Parent or waiver or assertion of any of the Company's rights hereunder, and any other consent or action by the Board of Directors of the Company with respect to this Agreement or the Offer, without the concurrence of a majority of the Continuing Directors. Section 6.4 Company Stock Options. (a) Prior to the acceptance for payment of any Shares by Sub pursuant to the Offer, the Board of Directors of the Company shall adopt such resolutions and take any and all other action necessary or appropriate to cause each Company Stock Option that is outstanding as of the consummation of the Merger to be canceled at the Effective Time of the Merger, in consideration for which the holder thereof (an "Option Holder") shall receive the right to receive from the Company cash in an amount (the "Option Consideration") equal to (A) the product of (1) the number of Shares subject to such option and (2) the excess, if any, of the Offer Price over the exercise price per share for the purchase of Shares subject to such option, minus (B) all applicable federal, state and local Taxes required to be withheld in respect of such payment. (b) The Option Consideration shall be paid as soon as reasonably practicable (and in any event within five (5) business days) following the acceptance for payment of Shares by Sub at the Effective Time of the Merger; provided, that such payment may be conditioned upon receipt by the Company of any documents the Company reasonably deems necessary to evidence the acceptance by the Option Holders of the Option Consideration. Section 6.5 Warrants. (a) Prior to the acceptance for payment of any Shares by Sub pursuant to the Offer, the Company will use commercially reasonable efforts to obtain written confirmation, in form and substance reasonably satisfactory to Parent, from the holder of the Warrants that after the Effective Time each such Warrant will represent the right to receive in cash an amount equal to (A) the product of (1) the number of Shares subject to such Warrant and (2) the excess, if any, of the Merger Consideration over the exercise price per share for the purchase of the Shares subject to such Warrant, minus (B) all applicable federal, state and local Taxes required to be withheld in respect of such payment. (b) The consideration for the Warrants shall be paid as soon as reasonably practicable (and in any event within five (5) business days) following the Effective Time; provided, that such payment may be conditioned upon receipt by the Company of any documents the Company reasonably deems necessary to evidence the acceptance by the holder of the Warrants of such consideration. D-26 Section 6.6 Reasonable Best Efforts. (a) Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Offer, the Merger and the other transactions contemplated by this Agreement, including: (i) the obtaining of all necessary actions or non-actions, waivers, consents and approvals from all Governmental Entities and the making of all necessary registrations and filings (including filings with Governmental Entities) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from, or to avoid an action or proceeding by, any Governmental Entity (including any pre-merger filings and State Takeover Approvals), (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed, and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by this Agreement. No party to this Agreement shall consent to any voluntary delay of the consummation of the Offer or the Merger at the behest of any Governmental Entity without the consent of the other parties to this Agreement, which consent shall not be unreasonably withheld. (b) Each party shall use reasonable best efforts to not take any action, or enter into any transaction, which would cause any of its representations or warranties contained in this Agreement to be untrue or result in a breach of any covenant made by it in this Agreement. Section 6.7 Public Announcements. Parent and the Company will not issue any press release with respect to the transactions contemplated by this Agreement or otherwise issue any written public statements with respect to such transactions without prior consultation with the other party, except as may be required by applicable law or the rules and regulations of the OTC Bulletin Board (including any obligations to report corporate actions to the OTC Bulletin Board Coordinator) applicable to the Company; provided, that the Company, Parent and Sub acknowledge that the Company, upon the execution of this Agreement, will issue a press release that will contain, among other things, the language set forth in Exhibit B. Section 6.8 State Takeover Laws. If any "fair price," "business combination" or "control share acquisition" statute or other similar statute or regulation shall become applicable to the transactions contemplated hereby, Parent and the Company and their respective Boards of Directors shall use their reasonable best efforts to obtain such approvals and take such actions as are necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to minimize the effects of any such statute or regulation on the transactions contemplated hereby. Section 6.9 Indemnification; Directors and Officers Insurance. (a) From and after the Effective Time, Parent shall cause the Surviving Corporation to indemnify, defend and hold harmless (and make advances for expenses as incurred to) all past and present officers and directors of the Company and of its Subsidiaries to the same extent and in the same manner such persons are entitled to indemnification and advancement of expenses as of the date of this Agreement (to the extent consistent with applicable law) by the Company pursuant to the DGCL, the indemnification agreements set forth in Section 6.9(b) of the Company Letter, the Company Charter or the Company Bylaws for acts or omissions occurring at or prior to the Effective Time. (b) From and after the Effective Time, Parent shall cause the Surviving Corporation to perform, as of the consummation of the Offer, all of the obligations set forth in Article 9 of the Company Charter, Article V of the Company Bylaws and the indemnification agreements set forth in Section 6.9(b) of the Company Letter. In addition, Parent shall cause the Surviving Corporation to pay all amounts that become due and payable under the Company Charter, the Restated Bylaws and such indemnification agreements. D-27 (c) Parent shall cause the Surviving Corporation to provide, for a period of not less than three years from the Effective Time, to or for those persons covered at the date hereof or at the Effective Time by the Company's directors and officers' insurance and indemnification policy (the "D&O Insurance"), insurance that is substantially similar to the Company's existing policy or, if substantially equivalent insurance coverage is unavailable, the best available coverage; provided, that the Surviving Corporation shall not be required to pay an annual premium for the D&O Insurance in excess of 175% of the last annual premiums paid prior to the date hereof, but in such case shall purchase as much coverage as possible for such amount. (d) Notwithstanding anything to the contrary in this Agreement, this Section 6.9 shall survive the consummation of the transactions contemplated by this Agreement and the provisions of this Section 6.9 are intended to be for the benefit of, and may be enforced by, each person entitled to indemnification pursuant to this Section 6.9. Section 6.10 Notification of Certain Matters. Parent and Sub shall use its reasonable best efforts to give prompt notice to the Company, and the Company shall use its reasonable best efforts to give prompt notice to Parent, of: (i) the occurrence, or non-occurrence, of any event the occurrence, or non- occurrence, of which it is aware and which would be reasonably likely to cause (x) any representation or warranty contained in this Agreement and made by it to be untrue or inaccurate in any material respect on the date hereof or (y) any covenant, condition or agreement contained in this Agreement and made by it not to be complied with or satisfied in all material respects, (ii) any failure of Parent or Sub or the Company, as the case may be, to comply in a timely manner with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder or (iii) any occurrence, change or event which would be reasonably likely to have a Material Adverse Effect on VAC, Parent or Sub or the Company, as the case may be; provided, that the delivery of any notice pursuant to this Section 6.10 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice. Section 6.11 Retention and Incentive Plan; Certain Benefits. (a) Parent shall cause Sub and the Surviving Corporation and their Subsidiaries to honor all enforceable employment, change in control, deferred compensation, pension, retirement and severance agreements, pay and personnel policies in effect on the date hereof between the Company or one of its Subsidiaries and any employee of the Company or any of its Subsidiaries, or maintained for the benefit of any employee of the Company or any of its Subsidiaries, and honor all annual bonus awards made by the Company or any of its Subsidiaries prior to the date hereof, subject to the power of the Company or its Subsidiaries to amend, modify, invoke or terminate any such policies and awards pursuant to their terms or applicable law or the mutual agreement by Sub and the Surviving Corporation and the current or former employee, officer or director covered by such agreement. (b) For one year after the Effective Time, Parent shall cause Sub and the Surviving Corporation to provide employees of the Company and its Subsidiaries with benefits (including welfare benefits) that are no less favorable taken as a whole, than the benefits provided under the Company's and such Subsidiary's benefits plans (other than equity-based plans) as in effect on the date hereof, unless such employees otherwise agree to such changes. To the extent that service is relevant for eligibility, vesting or benefit calculations or allowances (including entitlements to vacation, severance, and sick days) under any plan or arrangement of the Company or its Subsidiaries, Parent shall ensure that such plan or arrangement shall credit employees for service on or prior to the Effective Time with the Company or any of its Subsidiaries. Notwithstanding anything in this Section 6.11 to the contrary, nothing in this Section 6.11 shall be deemed to limit or otherwise affect the right of the Surviving Corporation to terminate employment or change the place of work, responsibilities, status or description of any employee or group of employees as the Surviving Corporation may determine in exercise of its business judgment. Section 6.12 Stockholder Litigation. In connection with any litigation which may be brought after the date hereof against the Company or its directors relating to the transactions contemplated hereby, the Company shall keep Parent, and any counsel which Parent may retain at its own expense, reasonably informed of the status of such litigation and will provide Parent's counsel the right to participate in the defense of such litigation to the D-28 extent Parent is not otherwise a party thereto, and the Company shall not enter into any settlement or compromise of any such stockholder litigation without Parent's prior written consent, which consent shall not be unreasonably withheld or delayed. Section 6.13 Company SEC Documents. From the date of this Agreement to the Effective Time, the Company shall file on a timely basis all Company SEC Documents required to be filed by it with the SEC under the Exchange Act, the Securities Act and the published rules and regulations of the SEC under either of the foregoing applicable to such Company SEC Documents, which Company SEC Documents shall comply in all material respects with the requirements of the Exchange Act, the Securities Act and the published rules and regulations of the SEC thereunder, each as applicable to such Company SEC Documents. Section 6.14 Voting Agreement. The Company agrees to notify the Company's transfer agent that there is a limitation on the transferability of the Shares owned by the Nonvoting Director. ARTICLE VII CONDITIONS PRECEDENT TO THE MERGER Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) Stockholder Approval. Subject to Section 2.7, this Agreement shall have been adopted by the affirmative vote of the stockholders of the Company entitled to vote thereon as required by the DGCL and the Company Charter. (b) Purchase of Shares. Sub shall have previously accepted for payment and paid for Shares pursuant to the Offer, except that neither Parent, Sub nor the Company shall be entitled to invoke this condition if it shall have been the cause of the failure of Sub to purchase Shares pursuant to the Offer in breach of its obligations under this Agreement. (c) No Order. No court or other Governmental Entity having jurisdiction over the Company or Parent, or any of their respective Subsidiaries, shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is then in effect and has the effect of making illegal or directly or indirectly restraining, prohibiting or restricting the consummation of the Merger. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER Section 8.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after adoption of this Agreement by the stockholders of the Company or Sub: (a) by mutual written consent of Parent and the Company; (b) by either Parent or the Company: (i) if (x) as a result of the failure of any of the Offer Conditions the Offer shall have terminated or expired in accordance with its terms without Sub having accepted for payment any Shares pursuant to the Offer or (y) Sub shall not have accepted for payment any Shares pursuant to the Offer prior to December 27, 2000; provided, that the right to terminate this Agreement pursuant to this Section 8.1(b)(i) shall not be available to any party whose failure to perform any of its obligations under this Agreement results in the failure of any such condition or if the failure of such condition results from facts or circumstances that constitute a breach of any representation or warranty under this Agreement by such party; or D-29 (ii) if any Governmental Entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the acceptance for payment of, or payment for, Shares pursuant to the Offer or the Merger and such order, decree or ruling or other action shall have become final and nonappealable; (c) by Parent or Sub, prior to the purchase of Shares pursuant to the Offer in the event of a breach by the Company of any representation, warranty, covenant or other agreement contained in this Agreement which (i) would give rise to the failure of a condition set forth in paragraph (e) or (f) of Exhibit A and (ii) cannot be or has not been cured within 20 business days after the giving of written notice to the Company; (d) by Parent or Sub, if either Parent or Sub is entitled to terminate the Offer as a result of the occurrence of any event set forth in paragraph (d) of Exhibit A; (e) by the Company, if the Company's Board of Directors or any committee thereof determines that a Takeover Proposal constitutes a Superior Proposal and the Company's Board of Directors or any such committee determines, in its good faith judgment, after consultation with independent counsel, that failing to terminate this Agreement would be inconsistent with such Board's fiduciary duties under applicable law; provided, that the Company has complied in all material respects with all provisions of Section 5.2, including the notice provisions therein; (f) by the Company, if at any time prior to the purchase of Shares pursuant to the Offer (i) any of the representations or warranties of Parent or Sub set forth in this Agreement that are qualified as to materiality shall not be true and correct in any respect or any such representations or warranties that are not so qualified shall not be true and correct in any material respect, or (ii) Parent or Sub shall have failed to perform in any material respect any material obligation or to comply in any material respect with any material agreement or covenant of Parent or Sub to be performed or complied with by it under this Agreement and such untruth, incorrectness or failure cannot be or has not been cured within 20 business days after the giving of written notice to Parent or Sub, as applicable; (g) by the Company, if the Offer has not been commenced by the Parent or Sub on or prior to 15 business days following the date of the initial public announcement of the Offer, provided that the Company may not terminate this Agreement pursuant to this Section 8.1(g) if the Company is in material breach of this Agreement; or (h) by Parent or the Company, if prior to the purchase of Shares pursuant to the Offer any of the derivative claims currently pending against the Company and its directors shall have been resolved in favor of the plaintiffs in such action. The right of any party hereto to terminate this Agreement pursuant to this Section 8.1 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any person controlling any such party or any of their respective officers or directors, whether prior to or after the execution of this Agreement. Section 8.2 Effect of Termination. In the event of termination of this Agreement by Parent, Sub or the Company, as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability hereunder on the part of the Company, Parent, Sub or their respective officers or directors (except for Section 6.2(b) and the entirety of Section 8.3, which shall survive the termination); provided, that nothing contained in this Section 8.2 shall relieve any party hereto from any liability for any breach of a representation or warranty contained in this Agreement, the breach of any covenant contained in this Agreement or for fraud. Section 8.3 Fees and Expenses. (a) Except as provided in this Section 8.3, whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby, including the fees and disbursements of counsel, financial advisors and accountants, shall be paid by the party incurring such costs and expenses; provided, that effective as of the Closing, the Company shall pay all of the expenses of Parent and Sub. In addition, the Company shall pay the filing, printing and mailing costs D-30 (but not any legal, advisory or other costs) directly incurred by Parent or Sub in connection with the preparation of the Offer Documents, whether or not the Offer and/or the Merger is consummated, provided, that the Company's aggregate obligation to pay such costs shall be limited to the lower of (i) fifty percent (50%) of such costs or (ii) $50,000. (b) The Company shall pay, or cause to be paid, in same day funds to Parent the following amounts, if applicable, under the circumstances and at the times set forth as follows: (i) if Parent or Sub terminates this Agreement under Section 8.1(d), the Company shall pay to Parent, within two (2) business days following receipt of written demand from Parent, $750,000 (the "Termination Fee"); (ii) if the Company terminates this Agreement under Section 8.1(e), the Company shall pay the Termination Fee upon such termination; or (iii) if Parent or Sub terminates this Agreement under Section 8.1(c) as a result of the breach by the Company of any covenant or agreement contained in this Agreement resulting in a failure of the condition set forth in paragraph (f) of Exhibit A and at the time of any such termination a Takeover Proposal shall have been made, and if concurrently therewith or within 12 months thereafter, the Company enters into a definitive merger agreement, acquisition agreement or similar agreement with respect to a Takeover Proposal, or a Takeover Proposal is consummated, involving any party (1) with whom the Company had any discussions with respect to a Takeover Proposal, (2) to whom the Company furnished information with respect to or with a view to a Takeover Proposal or (3) who had submitted a proposal or expressed any interest publicly in a Takeover Proposal, in the case of each of clauses (1), (2) and (3), prior to such termination, the Company shall pay the Termination Fee within two (2) business days of the earlier of the execution of such agreement or upon consummation of such Takeover Proposal. (c) If Parent or Sub terminates this Agreement under Section 8.1(b)(i)(x) as a result of the failure of the condition set forth in paragraphs (c) or (f) of Exhibit A, or if the Company terminates this Agreement pursuant to 8.1(b)(i)(y) prior to January 31, 2001, unless at the time of such termination Parent or Sub is in breach of this Agreement, then the Company shall pay to Sub, promptly upon receipt, but in no event later than two (2) business days following receipt, of reasonable supporting documentation, all actual and reasonably documented out-of-pocket expenses incurred by or on behalf of Sub or its stockholders (including expenses incurred by or on behalf of the Nonvoting Director) in connection with or in anticipation of the Offer, the Merger, this Agreement and the consummation of the transactions contemplated hereby in an amount not to exceed $250,000; provided, that no such expenses shall be payable in the event that Parent or Sub terminates this Agreement as a result of the occurrence of a Material Adverse Change resulting from any Company litigation pending as of the date hereof as set forth in Section 4.11(1) of the Company Letter, or any litigation instituted as a consequence of the Company entering into this Agreement or consummating any of the transactions contemplated hereby. Section 8.4 Amendment. This Agreement may be amended by the parties hereto, subject to Section 6.3, at any time before or after approval of the matters presented in connection with the Merger by the stockholders of the Company, but, after any such approval, no amendment shall be made which by law requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 8.5 Waiver. At any time prior to the Effective Time, subject to Section 6.3, the parties hereto may (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein which may legally be waived. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. D-31 ARTICLE IX GENERAL PROVISIONS Section 9.1 Non-Survival of Representations and Warranties. The representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall terminate at the Effective Time. Section 9.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally, one day after being delivered to an overnight courier or when telecopied (with a confirmatory copy sent by overnight courier) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): if to Parent or Sub, to: c/o ValueAct Capital Partners, L.P. One Maritime Plaza Suite 1400 San Francisco, CA 94111 Attention: Jeff Ubben Facsimile No.: 415-362-5727 with copies to: Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attention: Dennis M. Myers Facsimile No.: 312-861-2200 (b) if to the Company, to: Kenetech Corporation 500 Sansome Street San Francisco, CA 94111 Attention: Dianne P. Urhausen Facsimile No.: 415-984-8191 with a copy to: Morrison & Foerster LLP 425 Market Street San Francisco, California 94105-2482 Attention: Michael O'Bryan Facsimile No.: 415-268-7522 and a copy to: Potter Anderson & Corroon, LLP Hercules Plaza P.O. Box 951 Wilmington, DE 19899 Attention: Mark A. Morton Facsimile No.: 302-658-1192 Section 9.3 Interpretation; Certain Definitions. (a) When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this D-32 Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." (b) For purposes of this Agreement, the following terms have the meaning specified in this Section 9.3: "business day" means any day that is a business day for the purposes of the Exchange Act. "Code" means the Internal Revenue Code of 1986, as amended. "Knowledge of the Company" means the actual knowledge of the directors, officers and key employees of the Company. "Material Adverse Change" or "Material Adverse Effect" means, when used with respect to the Company or Parent, as the case may be, any event, occurrence, fact, circumstances, change or effect that is or would reasonably be expected (as far as can be foreseen at the time) to be materially adverse to (i) the ability of either the Company or Parent or Sub to perform their respective obligations under this Agreement or to consummate the transactions contemplated hereby or (ii) the business, operations, properties or results of operations or the condition (financial or otherwise), assets or liabilities (actual or contingent) of the Company and its Subsidiaries, taken as a whole, or VAC, Parent and its Subsidiaries, taken as a whole, as the case may be; provided, that none of the following shall be deemed, either alone or in combination, to have or constitute a Material Adverse Effect on or a Material Adverse Change with respect to the Company: (i) changes in the market price or trading volume of the Company's securities, (ii) conditions generally affecting the Company's industry or general economic and business conditions which do not have a materially disproportionate effect on the Company and its Subsidiaries taken as a whole, and (iii) any disruption of employee, customer, supplier or other similar relationships, which are directly attributable to the execution and announcement of this Agreement or the identity of Parent. "Rights Agreement" means the Rights Agreement, dated May 4, 1999 between the Company and ChaseMellon Shareholder Services, LLC. "Subsidiary" means any corporation, partnership, limited liability company, joint venture or other legal entity of which Parent or the Company, as the case may be (either alone or through or together with any other Subsidiary), owns, directly or indirectly, 50% or more of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation, partnership, limited liability company, joint venture or other legal entity. "Takeover Proposal" means any proposal for (i) a merger, share exchange or other business combination involving the Company or any of its Subsidiaries, (ii) any proposal or offer to acquire in any manner, directly or indirectly, an equity interest in or any voting securities of the Company representing 15% or more of the Shares outstanding, (iii) an offer to acquire in any manner, directly or indirectly, any assets of the Company or any of its Subsidiaries in excess of $100,000, or (iv) any similar transaction or business combination involving the Company or its business or capital stock or assets, other than the transactions contemplated by this Agreement. "Taxes" means any federal, state, local or foreign income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, value- added, transfer or excise tax, or other tax, custom, duty, governmental fee or any other like assessment or charge of any kind whatsoever, together with any interest or penalty imposed by any Governmental Entity. "Tax Return" means any return, report or similar statement (including the attached schedules) required to be filed with respect to any Tax, including any information return, claim for refund, amended return or declaration of estimated Tax. Section 9.4 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. D-33 Section 9.5 Entire Agreement; Third-Party Beneficiaries. This Agreement, except as provided in Section 6.2(b), constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement, except for the provisions of Section 6.9, is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. Section 9.6 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 9.7 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Section 9.8 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible. Section 9.9 Enforcement of this Agreement. Each party hereby irrevocably submits to the exclusive jurisdiction of the United States District Court for the District of Delaware in any action, suit or proceeding arising in connection with this Agreement, and agrees that any such action, suit or proceeding shall be brought only in such courts (and waives any objection based on forum non conveniens or any other objection to venue therein). Each party hereto waives any right to a trial by jury in connection with any such action, suit or proceeding. Section 9.10 Construction. This Agreement and any documents or instruments delivered pursuant hereto or in connection herewith shall be construed without regard to the identity of the person who drafted the various provisions of the same. Each and every provision of this Agreement and such other documents and instruments shall be construed as though all of the parties participated equally in the drafting of the same. Consequently, the parties acknowledge and agree that any rule of construction that a document is to be construed against the drafting party shall not be applicable either to this Agreement or such other documents and instruments. D-34 IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized all as of the date first written above. KC Holding Corporation /s/ Jeffrey W. Ubben By: _________________________________ Name: Jeffrey W. Ubben Its: Secretary and Treasurer KC Merger Corp. /s/ Jeffrey W. Ubben By: _________________________________ Name: Jeffrey W. Ubben Its: Secretary and Treasurer Kenetech Corporation /s/ Dianne P. Urhausen By: _________________________________ Name: Dianne P. Urhausen Its: Vice President and Secretary D-35 Exhibit A CONDITIONS OF THE OFFER Notwithstanding any other term of the Offer or this Agreement, Sub shall not be required to accept for payment or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1 under the Exchange Act (relating to Sub's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer, unless there shall have been validly tendered and not withdrawn prior to the expiration of the Offer such number of Shares as equals at least 85% of the outstanding Shares on a fully diluted basis, giving effect to all the currently exercisable Company Stock Options and other securities exercisable or convertible into Shares (excluding those Shares held by the Nonvoting Director) (the "Minimum Condition"). Furthermore, notwithstanding any other term of the Offer or this Agreement, Sub shall not be required to accept for payment or, subject as aforesaid, to pay for any Shares not theretofore accepted for payment or paid for, and may terminate the Offer if, at any time on or after the date of this Agreement and before the acceptance of such Shares for payment or the payment therefor, any of the following conditions exists (other than as a result of any action or inaction of Parent or any of its subsidiaries that constitutes a breach of this Agreement): (a) there shall be instituted after the date hereof and pending before any court of competent jurisdiction or Governmental Entity any suit, action or proceeding (including new claims made in any pending proceedings) (i) challenging the acquisition by Parent or Sub of any Shares under the Offer, seeking to prohibit the making or consummation of the Offer or the Merger or the performance of any of the other transactions contemplated by this Agreement, or seeking to obtain from the Company, Parent or Sub any damages (including damages against the Company's directors or officers for which they may seek indemnification from the Company) that, if awarded, would have a Material Adverse Effect on the Company, (ii) seeking to prohibit or materially limit the ownership or operation by the Company, Parent or any of their respective subsidiaries of the business or assets of the Company and its Subsidiaries, taken as a whole, or to compel the Company or Parent to dispose of or hold separate any material portion of the business or assets of the Company and its Subsidiaries, taken as a whole, in each case as a result of the Offer or any of the other transactions contemplated by this Agreement, or (iii) seeking to impose material limitations on the ability of Parent, Sub or the Nonvoting Director to acquire or hold, or exercise full rights of ownership of, any Shares, including the right to vote Shares on all matters properly presented to the stockholders of the Company, provided, in the case of each of clauses (i), (ii) and (iii) above, that Parent and Sub shall have used its reasonable best efforts to oppose, contest and resolve any such pending or threatened suit, action or proceeding; (b) there shall be enacted, entered, enforced, promulgated or deemed applicable to the Offer or the Merger by any Governmental Entity any statute, rule, regulation, judgment, order or injunction that is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (iii) of paragraph (a) above, provided, that Parent and Sub shall have used reasonable best efforts to oppose, contest and resolve any such judgment, order, injunction or enforcement; (c) there shall have occurred and be continuing any Material Adverse Change with respect to the Company; (d) (i) the Board of Directors of the Company or any committee thereof shall have withdrawn or modified in a manner adverse to Parent or Sub its approval or recommendation of the Offer, the Merger or this Agreement, or recommended any Takeover Proposal, (ii) the Board of Directors of the Company or any committee thereof shall have resolved to take any of the foregoing actions, or (iii) upon the reasonable request of Sub, the Board of Directors of the Company, or any committee thereof, shall fail within a reasonable period of time to reaffirm its approval or recommendation of the Offer, this Agreement or the Merger; (e) the representations and warranties of the Company set forth in this Agreement shall not be true and correct in each case at the date of this Agreement and at the scheduled or extended expiration of the D-36 Offer, unless the inaccuracies (without giving effect to any materiality or Material Adverse Effect qualifications or exceptions contained therein) under such representations and warranties, taking all the inaccuracies under all such representations and warranties together in their entirety, do not result in a Material Adverse Effect on the Company or unless such inaccuracies are as a result of actions expressly permitted by Section 5.1; (f) the Company shall have failed to perform any obligation or to comply with any agreement or covenant of the Company to be performed or complied with by it under this Agreement (other than any failures which would not reasonably be expected to have a Material Adverse Effect on the Company), which failure to perform or comply, if capable of being cured, continues for more than twenty (20) business days after the giving of written notice to the Company; (g) there shall have occurred and be continuing (i) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (ii) a declaration of war by the United States or (iii) in the case of any of the foregoing existing at the time of the execution of this Agreement, a material acceleration or worsening thereof; or (h) the Company shall not have obtained consents of third parties listed in Section 4.5 of the Company Letter (other than such consents, the failure of which to obtain would not either individually or in the aggregate be reasonably expected to have a Material Adverse Effect); or (i) this Agreement shall have been terminated in accordance with its terms or the parties shall have agreed in writing to terminate the Offer. The foregoing conditions are for the sole benefit of Parent and Sub and may, subject to the terms of this Agreement, be waived by Parent and Sub in whole or in part at any time and from time to time in their sole discretion. The failure by Parent or Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right. The waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances. Each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. Terms used but not defined herein shall have the meanings assigned to such terms in the Agreement to which this Exhibit A is a part. D-37 Exhibit B FORM OF PRESS RELEASE The press release shall include the following: "Notwithstanding its recommendation and consistent with the terms of the Agreement and Plan of Merger, the Special Committee of the Company's Board of Directors requested that the Special Committee's financial advisor, Houlihan Lokey Howard & Zukin Financial Advisors, Inc., be available to receive unsolicited inquiries from any other parties interested in the possible acquisition of the Company. If the Special Committee or the Company's Board of Directors, after consultation with its independent legal counsel, determines that taking such actions is appropriate in light of its fiduciary duties to Company stockholders under applicable law, the Company may provide information to and engage in discussions and negotiations with such parties and take other appropriate actions in connection with any such indicated interest." D-38 Facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, certificates for the Shares and any other required documents should be sent by each stockholder of KENETECH or such stockholder's broker- dealer, commercial bank, trust company or other nominee to the Depositary as follows: The Depositary for the Offer Is: ChaseMellon Shareholder Services, L.L.C. By Facsimile Transmission (For Eligible Institutions Only) (201) 296-4293 Attention: Reorganization Department Confirm by Telephone: (201) 296-4860 By Overnight Courier: By Mail: By Hand: Reorganization Department Reorganization Department Reorganization Department P.O. Box 3301 120 Broadway 85 Challenger Road South Hackensack, NJ 13th Floor Mail Stop-Reorg. 07606 New York, NY 10271 Ridgefield Park, NJ 07660 Other Information: Questions or requests for assistance or additional copies of the Offer to Purchase and the Letter of Transmittal may be directed to the Information Agent at its telephone number and location listed below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: MacKenzie Partners, Inc. 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) E-Mail: Proxy @mackenziepartners.com or Call Toll Free (800) 322-2885 EX-99.(A)(1)(II) 3 0003.txt FORM OF LETTER OF TRANSMITTAL Letter of Transmittal To Tender Shares of Common Stock, Together with the Associated Rights Attached Thereto of KENETECH Corporation at $1.04 Net Per Share by KC Merger Corp. a wholly owned subsidiary of KC Holding Corporation a wholly owned subsidiary of ValueAct Capital Partners, L.P. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORKCITY TIME, ON DECEMBER 7, 2000, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer Is: ChaseMellon Shareholder Services, L.L.C. By Facsimile Transmission (For Eligible Institutions Only) (201) 296-4293 Attention: Reorganization Department Confirm by Telephone: (201) 296-4860 By Overnight Courier: By Mail: By Hand: Reorganization Department Reorganization Department Reorganization Department 85 Challenger Road P.O. Box 3301 120 Broadway Mail Stop--Reorg. South Hackensack, NJ 07606 13th Floor Ridgefield Park, NJ 07660 New York, NY 10271
DESCRIPTION OF SHARES TENDERED - ------------------------------------------------------------------------------ Names and Address(es) of Share Registered Holder(s) Certificate(s) (Please fill in, if and Shares blank, exactly as Tendered name(s) (Attach appear(s) on Share additional list, Certificate(s)) if necessary) - ------------------------------------------------------------------------------ Total Number of Share Shares Evidenced Certificate by Share Number of Shares Number(s)* Certificate(s)* Tendered** -------------------------------------- -------------------------------------- -------------------------------------- -------------------------------------- Total Shares - ------------------------------------------------------------------------------
* Need not be completed by stockholders delivering Shares by Book-Entry Transfer. ** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to the Depositary are being tendered hereby. See Instruction 4. This Letter of Transmittal is to be completed by stockholders of KENETECH Corporation either if certificates ("Share Certificates") representing shares of its Common Stock, par value $.000l per share (the "Shares"), are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if delivery of Shares is to be made by Book-Entry Transfer to an account maintained by ChaseMellon Shareholder Services, L.L.C. (the "Depositary") at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in Section 3 of "The Tender Offer" of the Offer to Purchase, dated November 6, 2000 (the "Offer to Purchase"). DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. Stockholders whose Share Certificates are not immediately available or who cannot deliver their Share Certificates and all other required documents to the Depositary on or prior to the Expiration Date of the Offer or who are unable to complete the procedure for Book-Entry Transfer prior to the Expiration Date of the Offer may nevertheless tender their Shares pursuant to the guaranteed delivery procedures set forth in Section 3 of "The Tender Offer" of the Offer to Purchase. See Instruction 2 below. NOTE: SIGNATURE(S) MUST BE PROVIDED BELOW. PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY. [_]CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: _____________________________________________ Provide Account Number and Transaction Code Number: Account Number: ____________________________________________________________ Transaction Code Number: ___________________________________________________ [_]CHECK HERE IF SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING. PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY. Name(s) of Registered Holder(s): ___________________________________________ Window Ticket Number (if any): _____________________________________________ Date of Execution of Notice of Guaranteed Delivery: ________________________ Name of Institution which Guaranteed Delivery: _____________________________ IF DELIVERED BY BOOK-ENTRY TRANSFER TO THE BOOK-ENTRY TRANSFER FACILITY, CHECK BOX: [_] Account Number: ____________________________________________________________ Transaction Code Number: ___________________________________________________ DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER THAN AS LISTED ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED BELOW. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. 2 Ladies and Gentlemen: The undersigned hereby tenders to KC Merger Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of KC Holding Corporation, a Delaware corporation ("Parent"), the above-described shares (the "Shares") of common stock, par value $.0001 per share (the "Common Stock") of KENETECH Corporation, a Delaware corporation (the "Company") pursuant to the Offer to Purchase, dated November 6, 2000 (the "Offer to Purchase"), at a price of $1.04 per Share, net to the seller in cash, on the terms and subject to the conditions set forth in the Offer to Purchase, receipt of which is hereby acknowledged, and this Letter of Transmittal (which, together with the Offer to Purchase, constitute the "Offer"). The undersigned understands that Purchaser reserves the right to transfer or assign, from time to time, in whole or in part, to one or more of its affiliates, the right to purchase the Shares tendered herewith. On the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment) and subject to, and effective upon, acceptance for payment of, and payment for, the Shares tendered herewith in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser, all right, title and interest in and to all of the Shares being tendered hereby and any and all cash dividends, distributions, rights, other Shares or other securities issued or issuable in respect of such Shares on or after October 25, 2000 (collectively, "Distributions"), and appoints ChaseMellon Shareholder Services, L.L.C. (the "Depositary") the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and any Distributions) with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to the fullest extent of such stockholder's rights with respect to such Shares (and any Distributions) (a) to deliver such Share Certificates (as defined below) (and any Distributions) or transfer ownership of such Shares (and any Distributions) on the account books maintained by the Book-Entry Transfer Facility, together, in either such case, with all accompanying evidence of transfer and authenticity, to or upon the order of, Purchaser, (b) to present such Shares (and any Distributions) for transfer on the books of the Company and (c) to receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and any Distributions), all in accordance with the terms and the conditions of the Offer. The undersigned hereby irrevocably appoints the designees of Purchaser, and each of them, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered hereby which have been accepted for payment and with respect to any Distributions. The designees of Purchaser will, with respect to the Shares (and any associated Distributions) for which the appointment is effective, be empowered to exercise all voting and any other rights of such stockholder, as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of the Company's stockholders, by written consent in lieu of any such meeting or otherwise. This proxy and power of attorney shall be irrevocable and coupled with an interest in the tendered Shares. Such appointment is effective when, and only to the extent that, Purchaser deposits the payment for such Shares with the Depositary. Upon the effectiveness of such appointment, without further action, all prior powers of attorney, proxies and consents given by the undersigned with respect to such Shares (and any associated Distributions) will be revoked and no subsequent powers of attorney, proxies, consents or revocations may be given (and, if given, will not be deemed effective). Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's acceptance for payment of such Shares, Purchaser must be able to exercise full voting rights, to the extent permitted under applicable law, with respect to such Shares (and any associated Distributions), including voting at any meeting of stockholders. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares (and any Distributions) tendered hereby and, when the same are accepted for payment by Purchaser, Purchaser will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and the same will not be subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares (and any Distributions) tendered hereby. In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of Purchaser any and all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer and, pending such remittance or appropriate assurance thereof, Purchaser shall be entitled to all rights and privileges as owner of any such Distributions and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by Purchaser in its sole discretion. 3 All authority conferred or agreed to be conferred pursuant to this Letter of Transmittal shall not be affected by, and shall survive, the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. The undersigned understands that the valid tender of Shares pursuant to one of the procedures described in Section 3 of "The Tender Offer" of the Offer to Purchase will constitute a binding agreement between the undersigned and Purchaser upon the terms and subject to the conditions of the Offer. Unless otherwise indicated herein under "Special Payment Instructions," please issue the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment in the name(s) of the registered owner(s) appearing under "Description of Shares Tendered." Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail the check for the purchase price and/or return any certificates for Shares not tendered or accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered owner(s) appearing under "Description of Shares Tendered." In the event that both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or issue any certificates for Shares not tendered or accepted for payment (and any accompanying documents, as appropriate) in the name of, and deliver such check and/or return such certificates (and any accompanying documents, as appropriate) to, the person or persons so indicated. The undersigned recognizes that Purchaser has no obligation pursuant to the Special Payment Instructions to transfer any Shares from the name of the registered owner thereof if Purchaser does not accept for payment any of the Shares so tendered. SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 5, 6 and 7) (See Instructions 1, 5, 6 and 7) To be completed ONLY if the To be completed ONLY if the check for the purchase price of check for the purchase price of Shares purchased and Share Shares purchased and Share Certificates evidencing Shares Certificates evidencing Shares not tendered or not purchased are not tendered or not purchased are to be issued in the name of to be mailed to someone other someone other than the than the undersigned, or the undersigned. undersigned at an address other than that shown under Issue Check and Share "Description of Shares Tendered." Certificate(s) to: Mail Check and Share Certificate(s) to: Name: ____________________________ Name: ___________________________ (Please Print) (Please Print) Address: ________________________ Address: ________________________ ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- (Zip Code) (Zip Code) ---------------------------------- ---------------------------------- (Tax Identification or Social (Tax Identification or Social Security Number) (See Substitute Security Number) (See Substitute Form W-9 on reverse side) Form W-9 on reverse side) Account Number: __________________ 4 IMPORTANT STOCKHOLDERS: SIGN HERE (Please Complete Substitute Form W-9 Below) --------------------------------------------------------------------------- --------------------------------------------------------------------------- Signature(s) of Holder(s) Dated: ________________________ , 2000 (Must be signed by registered holder(s) exactly as name(s) appear(s) on Share Certificates or on a security position listing by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s): ___________________________________________________________________ Please Print Capacity (full title): _____________________________________________________ Address: ___________________________________________________________________ --------------------------------------------------------------------------- Include Zip Code Daytime Area Code and Telephone No: ________________________________________ Taxpayer Identification or Social Security No.: ____________________________ (See Substitute Form W-9 on reverse side) GUARANTEE OF SIGNATURE(S) (See Instructions 1 and 5) FOR USE BY FINANCIAL INSTITUTIONS ONLY FINANCIAL INSTITUTIONS: PLACE MEDALLION GUARANTEE IN SPACE BELOW 5 INSTRUCTIONS 1. Guarantee of Signatures. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a member of the Medallion Signature Guarantee Program, or by any other "eligible guarantor institution", as such term is defined in Rule l7Ad-l5 under the Securities Exchange Act of 1934, as amended ("Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered owner(s) (which term, for purposes of this document, includes any participant in any of the Book-Entry Transfer Facility's systems whose name appears on a security position listing as the owner of the Shares) of Shares tendered herewith and such registered owner has not completed the box titled "Special Payment Instructions" or the box titled "Special Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. Delivery of Letter of Transmittal and Share Certificates. This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if tenders are to be made pursuant to the procedures for tender by Book-Entry Transfer set forth in Section 3 of "The Tender Offer" of the Offer to Purchase. Certificates for all physically tendered Shares ("Share Certificates"), or confirmation of any Book-Entry Transfer into the Depositary's account at the Book-Entry Transfer Facility of Shares tendered by Book-Entry Transfer ("Book Entry Confirmation"), as well as this Letter of Transmittal properly completed and duly executed with any required signature guarantees, unless an Agent's Message in the case of a Book-Entry Transfer is utilized, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein on or prior to the Expiration Date (as defined in the Offer to Purchase). Stockholders whose certificates for Shares are not immediately available or who cannot deliver all other required documents to the Depositary on or prior to the Expiration Date or who cannot comply with the procedures for Book-Entry Transfer on a timely basis, may nevertheless tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 3 of "The Tender Offer" of the Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by Purchaser must be received by the Depositary prior to the Expiration Date; and (c) Share Certificates for all tendered Shares, in proper form for transfer (or a Book Entry Confirmation with respect to such Shares), as well as a Letter of Transmittal (or facsimile thereof), properly completed and duly executed with any required signature guarantees (unless, in the case of a Book-Entry Transfer, an Agent's Message is utilized), and all other documents required by this Letter of Transmittal, must be received by the Depositary within three Nasdaq trading days after the date of execution of such Notice of Guaranteed Delivery. A properly completed and duly executed Letter of Transmittal (or a facsimile copy thereof with original signature(s)) must accompany each such delivery of Share Certificates to the Depositary. THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. DELIVERY OF ALL SUCH DOCUMENTS WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION) IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT ALL SUCH DOCUMENTS BE SENT BY PROPERLY INSURED REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering stockholders, by execution of this Letter of Transmittal (or a facsimile copy thereof with original signature(s)), waive any right to receive any notice of the acceptance of their Shares for payment. 3. Inadequate Space. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto and separately signed on each page thereof in the same manner as this Letter of Transmittal is signed. 6 4. Partial Tenders (Not Applicable to Stockholders Who Tender by Book-Entry Transfer). If fewer than all the Shares evidenced by any certificate submitted are to be tendered, fill in the number of Shares which are to be tendered in the box titled "Number of Shares Tendered." In such cases, new certificate(s) for the remainder of the Shares that were evidenced by the old certificate(s) but not tendered will be sent to the registered owner, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered owner(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any other change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal (or facsimile copies thereof containing original signatures) as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to Purchaser of their authority so to act must be submitted. If this Letter of Transmittal is signed by the registered owner(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to, or certificates for Shares not tendered or accepted for payment are to be issued in the name of, a person other than the registered Owner(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered owner(s) of the certificate(s) listed, the certificate(s) must be endorsed or accompanied by the appropriate stock powers, in either case, signed exactly as the name or names of the registered owner(s) or holder(s) appear(s) on the certificate(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. Stock Transfer Taxes. Purchaser will pay any stock transfer taxes with respect to the transfer and sale of Shares to it or to its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or (in the circumstances permitted hereby) if certificates for Shares not tendered or accepted for payment are to be registered in the name of, any person other than the registered Owner(s), or if tendered certificates are registered in the name of any person other than the person signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered owner(s) or such person) payable on account of the transfer to such person will be deducted from the purchase price if satisfactory evidence of the payment of such taxes, or exemption therefrom, is not submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE SHARE CERTIFICATES REPRESENTING SHARES TENDERED HEREBY. 7. Special Payment and Delivery Instructions. If a check is to be issued in the name of, and/or certificates for Shares not tendered or accepted for payment are to be issued or returned to, a person other than the signer(s) of this Letter of Transmittal or if a check and/or such certificates are to be mailed to a person other than the signer(s) of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 8. Waiver of Conditions. The conditions of the Offer may be waived, in whole or in part, by Purchaser, in its sole discretion, at any time and from time to time, in the case of any Shares tendered. See the Offer to Purchase, Section 12 of "The Tender Offer." 7 9. Lost, Destroyed or Stolen Certificates. If any Share Certificate(s) have been lost, destroyed or stolen, the stockholder should promptly notify the Depositary by checking the box immediately preceding the special payment/special delivery instructions, indicating the number of Shares lost and delivering the Letter of Transmittal. The stockholder should also contact the Company's transfer agent, ChaseMellon Shareholder Services, L.L.C. (telephone (201) 296-4860, contact Reorganization Department) for instructions as to the procedures for replacing the Share Certificate(s). This Letter of Transmittal and related documents cannot be processed until the lost, destroyed or stolen certificates have been replaced and the replacement Share Certificates have been delivered to the Depositary in accordance with the Procedures set forth in Section 3 of the Offer to Purchase and the instructions contained in this Letter of Transmittal. 10. Questions and Requests for Assistance or Additional Copies. Questions and requests for assistance may be directed to the Information Agent at its address or telephone number set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. 11. Substitute Form W-9. Each tendering stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN") on the Substitute Form W-9 which is provided under "Important Tax Information" below, and to certify, under penalties of perjury, that such number is correct and that such stockholder is not subject to backup withholding of Federal income tax. If a tendering stockholder has been notified by the Internal Revenue Service that such stockholder is subject to backup withholding, such stockholder must cross out item (2) of the Certification box of the Substitute Form W-9, unless such stockholder has since been notified by the Internal Revenue Service that such stockholder is no longer subject to backup withholding. Failure to provide the information on the Substitute Form W-9 may subject the tendering stockholder to a $50 penalty imposed by the Internal Revenue Service and to 31% Federal income tax withholding on the payment of the purchase price of all Shares purchased from such stockholder. If the tendering stockholder has not been issued a TIN and has applied for one or intends to apply for one in the near future, such stockholder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, and sign and date the Substitute Form W-9 and the Certificate of Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% on all payments of the purchase price to such stockholder until a TIN is provided to the Depositary. Each foreign stockholder must complete and submit Form W-8 in order to be exempt from the 31% Federal income tax backup withholding due on payments with respect to the Shares. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY THEREOF CONTAINING ORIGINAL SIGNATURE(S)), TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION OF THE OFFER, AND EITHER SHARE CERTIFICATES FOR TENDERED SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SHARES MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE EXPIRATION DATE OF THE OFFER, OR THE TENDERING STOCKHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY THEREOF CONTAINING ORIGINAL SIGNATURE(S)) OR AN AGENT'S MESSAGE, TOGETHER WITH SHARE CERTIFICATES OR BOOK-ENTRY CONFIRMATION OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE. IMPORTANT TAX INFORMATION Under the federal income tax law, a stockholder whose tendered Shares are accepted for purchase is required by law to provide the Depositary with such stockholder's correct TIN on Substitute Form W-9 below and to certify that such TIN is correct (or that such stockholder is awaiting a TIN) or otherwise establish a basis for exemption from backup withholding. If 8 such stockholder is an individual, the TIN is his or her social security number. If a stockholder fails to provide a correct TIN to the Depositary, such stockholder may be subject to a $50.00 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding of 31%. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, that stockholder must generally submit a Form W-8BEN, signed under penalties of perjury, attesting to that individual's exempt status. A Form W- 8BEN can be obtained from the Depositary. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder or payee. Backup withholding is not an additional tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. If backup withholding applies and "Applied for" is written in Part I of the Substitute Form W-9 and the Stockholder has completed the Certificate of Awaiting Taxpayer Identification Number, the Depositary will retain 31% of any payment of the purchase price for tendered Shares during the 60-day period following the date of the Substitute Form W-9. If a stockholder's TIN is provided to the Depositary within 60 days of the date of the Substitute Form W-9, payment of such retained amounts will be made to such stockholder. If a stockholder's TIN is not provided to the Depositary within such 60-day period, the Depositary will remit such retained amounts to the Internal Revenue Service as backup withholding and shall withhold 31% of any payment of the purchase price for the tendered Shares made to such stockholder thereafter unless such stockholder furnishes a TIN to the Depositary prior to such payment. Purpose of Substitute Form W-9 To prevent backup withholding on payments made to a stockholder whose tendered Shares are accepted for purchase for stockholders other than foreign persons who provide an appropriate Form W-8BEN, the stockholder should complete and sign the Substitute Form W-9 included in this Letter of Transmittal and provide the stockholder's correct TIN and certify, under penalties of perjury, that the TIN provided on such Form is correct (or that such stockholder is awaiting a TIN) and that (i) such stockholder is exempt from backup withholding; (ii) such stockholder has not been notified by the Internal Revenue Service that such stockholder is subject to backup withholding as a result of failure to report all interest or dividends; or (iii) the Internal Revenue Service has notified the stockholder that the stockholder is no longer subject to backup withholding. The stockholder must sign and date the Substitute Form W-9 where indicated, certifying that the information on such Form is correct. What Number to Give the Depositary The stockholder is required to give the Depositary the social security number or employer identification number of the record owner of the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. 9 TO BE COMPLETED BY ALL TENDERING HOLDERS PAYER'S NAME: ChaseMellon Shareholder Services, L.L.C. - ------------------------------------------------------------------------------- SUBSTITUTE Form W-9 Part 1--Taxpayer Social Security Number or Department of the Identification Employer Identification Treasury Number-- For all Number Internal Revenue accounts, enter your ------------------------------ Service taxpayer identification number in the box at right. (For most individuals, this is your social security number. If you do not have a number, see "Obtaining a Number" in the enclosed Guidelines.) Certify by signing and dating below. Note: If the account is in more than one name, see the chart in the enclosed Guidelines to determine which number to give the payer. Certification--Under penalties of perjury, I certify that: (If awaiting TIN write Payer's Request (1) The number shown on this form is my correct for Taxpayer Identification Number (or I am waiting for a number to be issued to me), and "Applied For") Taxpayer Certification Instructions--You must cross out item Identification (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed Guidelines). --------------------------------------------------------- (2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Number ("TIN") Part 2--For Payees Exempt from Backup Withholding, see the enclosed Guidelines and complete as instructed therein. --------------------------------------------------------- SIGNATURE ___________________________________________ DATE __________________________________________, 2000 NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THIS OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. NOTE: YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TAXPAYER IDENTIFICATION NUMBER. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable cash payments made to me thereafter will be withheld until I provide a taxpayer identification number. Signature: ___________________________ Date: ___________________________ 10 Questions and requests for assistance or additional copies of the Offer to Purchase, Letter of Transmittal and other tender offer materials may be directed to the Information Agent as set forth below: The Information Agent for the Offer is: MacKenzie Partners, Inc. 156 Fifth Avenue New York, New York 10010 (212) 929-5500 (Call Collect) E-mail: proxy@mackenziepartners.com or Call Toll Free (800) 322-2885 November 6, 2000 11 EX-99.(A)(1)(III) 4 0004.txt FORM OF NOTICE OF GUARANTEED DELIVERY Notice of Guaranteed Delivery for Tender of Shares of Common Stock of KENETECH Corporation to KC Merger Corp. a wholly owned subsidiary of KC Holding Corporation a wholly owned subsidiary of ValueAct Capital Partners, L.P. (Not to be used for Signature Guarantees) This Notice of Guaranteed Delivery (or one substantially in the form hereof) must be used to accept the Offer (as defined below) if (a) certificates representing shares of Common Stock, par value $.0001 per share (the "Shares"), of KENETECH Corporation, a Delaware corporation ("Share Certificates") are not immediately available; (b) time will not permit all required documents to reach ChaseMellon Shareholder Services, L.L.C. (the "Depositary") on or prior to the Expiration Date (as defined in Section 1 of "The Tender Offer" of the Offer to Purchase (as defined below)); or (c) the procedure for book-entry transfer, as set forth in the Offer to Purchase, cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or mail or transmitted by facsimile transmission to the Depositary. See Section 3 of "The Tender Offer" of the Offer to Purchase. The Depositary for the Offer Is: ChaseMellon Shareholder Services, L.L.C. By Facsimile Transmission (For Eligible Institutions Only) (201) 296-4293 Attention: Reorganization Department Confirm by Telephone: (201) 296-4860 By Overnight Courier: By Mail: By Hand: Reorganization Department Reorganization Department Reorganization Department 85 Challenger Road P.O. Box 3301 120 Broadway Mail Stop--Reorg. South Hackensack, NJ 07606 13th Floor Ridgefield Park, NJ 07660 New York, NY 10271
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. The Guarantee on the Reverse Side Must Be Completed. Ladies and Gentlemen: The undersigned hereby tender(s) to KC Merger Corp., a Delaware corporation and a wholly owned subsidiary of KC Holding Corporation, a Delaware corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated November 6, 2000 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended or supplemented from time to time, together constitute the "Offer"), receipt of which is hereby acknowledged, the number of Shares indicated below pursuant to the guaranteed delivery procedure set forth in Section 3 of "The Tender Offer" of the Offer to Purchase. Name(s) of Holders: __________________________________ Number of Shares: __________________________________ __________________________________ (Please Type or Print) Address(es): _____________________ Certificate No.(s) (If Available): __________________________________ __________________________________ (Zip Code) __________________________________ Daytime Area Code and Telephone Check this box if Shares will be Number: delivered by book-entry transfer: [_] __________________________________ Signature(s) of Holders: _________ Account No.: _____________________ __________________________________ Date: ______________________, 2000 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a bank, broker, dealer, credit union, savings association or other entity that is a member in good standing of the Securities Transfer Agents Medallion Program (an "Eligible Institution"), hereby guarantees delivery to the Depositary, at one of its addresses set forth above, of either the Share Certificates evidencing all Depositary's account at The Depository Trust Company, in either case together with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile copy thereof with original signature(s)) with any required signature guarantee, or an Agent's Message (as defined in the Offer to Purchase) in connection with a book-entry delivery, and any other documents required by the Letter of Transmittal, within three Nasdaq trading days after the date of execution of this Notice of Guaranteed Delivery. The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and Share Certificates to the Depositary within the time period indicated herein. Failure to do so could result in a financial loss to such Eligible Institution. Name of Firm: ______________________________________________________________ ____________________________________________________________________________ Authorized Signature Address: ___________________________________________________________________ ____________________________________________________________________________ Zip Code Title: _____________________________________________________________________ Name: ______________________________________________________________________ Please Type or Print Area Code and Telephone No.: _______________________________________________ Date: __________________________, 2000 NOTE: DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE. SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 2 EX-99.(A)(1)(IV) 5 0005.txt FORM OF LETTER TO BROKERS, DEALERS Offer to Purchase for Cash All Outstanding Shares of Common Stock, Together With the Associated Rights Attached Thereto of KENETECH Corporation at $1.04 Net Per Share by KC Merger Corp. a wholly owned subsidiary of KC Holding Corporation a wholly owned subsidiary of ValueAct Capital Partners, L.P. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 7, 2000, UNLESS THE OFFER IS EXTENDED. November 6, 2000 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been engaged by KC Merger Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of KC Holding Corporation, a Delaware corporation ("Parent"), to act as Information Agent in connection with the Purchaser's offer to purchase all of the shares of common stock, par value $0.0001 per share ("Common Stock"), of KENETECH Corporation, a Delaware corporation (the "Company"), that are issued and outstanding, together with the associated rights attached thereto (the "Rights" and, together with the Common Stock, the "Shares") issued pursuant to the Rights Agreement, dated as of May 4, 1999, as amended, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, for $1.04 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in Purchaser's Offer to Purchase, dated November 6, 2000 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with the Offer to Purchase and any amendments or supplements thereto, collectively constitute the "Offer") enclosed herewith. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee. The Offer is conditioned upon, among other things, there having been validly tendered and not withdrawn prior to the expiration of the Offer at least the number of Shares that shall constitute 85% of the then outstanding Shares on a fully diluted basis (excluding those Shares held by Mr. Mark D. Lerdal, President and Chief Executive Officer of the Company, who has agreed not to tender his Shares in the Offer). For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. Offer to Purchase, dated November 6, 2000; 2. Letter of Transmittal for your use in accepting the Offer and tendering Shares and for the information of your clients; 3. Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents are not immediately available or cannot be delivered to ChaseMellon Shareholder Services, L.L.C. (the "Depositary") prior to the Expiration Date (as defined in the Offer to Purchase) or if the procedure for book-entry transfer cannot be completed prior to the Expiration Date; 4. A letter to stockholders of the Company from Dianne P. Urhausen, Vice President and Corporate Secretary, together with a Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by the Company; 5. A letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 7. Return envelope addressed to the Depositary. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON DECEMBER 7, 2000, UNLESS THE OFFER IS EXTENDED. The Board of Directors of the Company (with Mark D. Lerdal abstaining), based on the recommendation of a special committee of independent directors, has (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, are fair to and in the best interests of the Company and its stockholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger and (iii) recommended that the stockholders tender their Shares in the Offer and, if applicable, approve and adopt the Merger Agreement in all respects. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates evidencing such Shares (or a confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (as defined in the Offer to Purchase)), (ii) a Letter of Transmittal (or manually signed facsimile thereof) properly completed and duly executed with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) and (iii) any other required documents. If holders of Shares wish to tender, but it is impracticable for them to forward their certificates or other required documents prior to the expiration of the Offer, a tender may be effected by following the guaranteed delivery procedure described in Section 3 of the Offer to Purchase. Purchaser will not pay any fees or commissions to any broker, dealer or other person (other than the Depositary and the Information Agent (as described in the Offer to Purchase)) in connection with the solicitation of tenders of Shares pursuant to the Offer. However, Purchaser will reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. Purchaser will pay or cause to be paid any stock transfer taxes payable with respect to the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to the Information Agent at the address and telephone number set forth on the back cover page of the Offer to Purchase. Additional copies of the enclosed material may be obtained from the Information Agent, at the address and telephone number set forth on the back cover page of the Offer to Purchase. Very truly yours, MacKenzie Partners, Inc. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF PARENT, PURCHASER, THE COMPANY, THE INFORMATION AGENT OR THE DEPOSITARY, OR OF ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF ANY OF THE FOREGOING IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 2 EX-99.(A)(1)(V) 6 0006.txt FORM OF LETTER TO CLIENTS Offer to Purchase for Cash All Outstanding Shares of Common Stock, Together With the Associated Rights Attached Thereto of KENETECH Corporation at $1.04 Net Per Share by KC Merger Corp. a wholly owned subsidiary of KC Holding Corporation a wholly owned subsidiary of ValueAct Capital Partners, L.P. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORKCITY TIME, ON DECEMBER 7, 2000, UNLESS THE OFFER IS EXTENDED. November 6, 2000 To Our Clients: Enclosed for your consideration is an Offer to Purchase, dated November 6, 2000 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with the Offer to Purchase and any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by KC Merger Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of KC Holding Corporation, a Delaware corporation ("Parent"), to purchase all of the shares of common stock, par value $0.0001 per share ("Common Stock") of KENETECH Corporation, a Delaware corporation (the "Company"), that are issued and outstanding, together with the associated rights attached thereto (the "Rights" and, together with the Common Stock, the "Shares") issued pursuant to the Rights Agreement dated as of May 4, 1999, as amended, between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent, for $1.04 per share (such amount being the "Per Share Amount"), net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase. We are (or our nominee is) the holder of record of Shares held for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. We request instructions as to whether you wish to have us tender on your behalf any or all Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is directed to the following: 1. The offer price is $1.04 per Share, net to you in cash, without interest thereon. 2. The Offer is being made for all of the outstanding Shares. 3. The Board of Directors of the Company (with Mark D. Lerdal abstaining), based on the recommendation of a special committee of independent directors, has (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, are fair to and in the best interests of the Company and its stockholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger and (iii) recommended that the stockholders tender their Shares in the Offer and, if applicable, approve and adopt the Merger Agreement in all respects. 4. The Offer and withdrawal rights will expire at 12:00 Midnight, New York City time, on December 7, 2000, unless the Offer is extended. 5. The Offer is conditioned upon, among other things, there having been validly tendered and not withdrawn prior to the expiration of the Offer at least the number of Shares that shall constitute 85% of the then outstanding Shares on a fully diluted basis (excluding shares held by Mr. Mark D. Lerdal, President and Chief Executive Officer of the Company, who has agreed not to tender his Shares in the Offer). 6. Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer. The Offer is being made solely by the Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. Purchaser is not aware of any jurisdiction where the making of the Offer is prohibited by any administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction. If you wish to have us tender any or all of your Shares held by us for your account, please so instruct us by completing, executing and returning to us the instruction form contained in this letter. An envelope in which to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified in your instructions. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer. 2 Instructions with Respect to the Offer to Purchase for Cash All Outstanding Shares of Common Stock, Together With the Associated Rights Attached Thereto of KENETECH Corporation by KC Merger Corp. a wholly owned subsidiary of KC Holding Corporation a wholly owned subsidiary of ValueAct Capital Partners, L.P. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated November 6, 2000, and the related Letter of Transmittal (which, together with the Offer to Purchase and any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by KC Merger Corp., a Delaware corporation and a wholly owned subsidiary of KC Holding Corporation, a Delaware corporation, to purchase all the shares of common stock, par value $0.0001 per share ("Shares"), of KENETECH Corporation, a Delaware corporation, that are issued and outstanding. This will instruct you to tender the number of Shares indicated below (or, if no number is indicated below, all Shares) that are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Shares To Be Tendered*: ___________________________________ Shares Dated: _____________________________, 2000 SIGN HERE ___________________________________________________________________________ Signature(s) ___________________________________________________________________________ Please type or print name(s) ___________________________________________________________________________ Please type or print address ___________________________________________________________________________ Area Code and Telephone Number ___________________________________________________________________________ Taxpayer Identification or Social Security Number - -------- * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. 3 EX-99.(A)(1)(VI) 7 0007.txt GUIDELINES FOR CERTIFICATION - FORM W-9 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Obtaining a Number If you do not have a taxpayer identification number ("TIN") or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card or Form SS-4, Application for Employer Identification Number, at the local of- fice of the Social Security Administration or the Internal Revenue Service and apply for a number. Payees Exempt from Backup Withholding Payees specifically exempted from backup withholding on all dividend and in- terest payments and on broker transactions include the following: . A corporation. . A financial institution. . An organization exempt from tax under Section 501(a), or an individual re- tirement plan, or a custodial account under Section 403(b)(7). . The United States or any agency or instrumentality thereof. . A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. . An international organization or any agency or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . A registered dealer in securities or commodities registered in the United States or a possession of the United States. . A real estate investment trust. . A common trust fund operated by a bank under Section 584(a) . An entity registered at all times during the tax year under the Investment Company Act of 1940. . A foreign central bank of issue. . An exempt charitable remainder trust, or a non-exempt trust described in Section 6967(a)(1). Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under Section 1441. . Payments to partnerships not engaged in a trade or business in the United States and which have at least one nonresident partner. . Payments of patronage dividends where the amounts received are not paid in money. . Payments made by certain foreign organizations. . Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not pro- vided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under Section 852). . Payments described in Section 6049(b)(5) to non-resident aliens. . Payments on tax-free covenant bonds under Section 1451. . Payments made by certain foreign organizations. . Payments made to a nominee. Exempt payees described above should file the substitute Form W-9 to avoid possible erroneous backup withholding. Complete the substitute Form W-9 as follows: ENTER YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ACROSS THE FACE OF THE FORM, AND RETURN THE FORM TO THE PAYER. Certain payments, other than payments of interest, dividends, and patronage dividends, that are subject to information reporting are also not subject to backup withholding. For details, see Sections 6041, 6041A(a), 6042, 6044, 6045, 6050A and 6050N and the regulations thereunder. Privacy Act Notice.--Section 6109 requires you to provide your correct tax- payer identification number to payers, who must report the payments to the IRS. The IRS uses the number for identification purposes and may also provide this information to various government agencies for tax enforcement or litiga- tion purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number--If you fail to furnish your correct taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Civil Penalty for False Information with Respect to Withholding--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) Criminal Penalty for Falsifying Information--Willfully falsifying certifi- cations or affirmations may subject you to criminal penalties including fines and/or imprisonment. (4) Misuse of Taxpayer Identification Numbers--If the payer discloses or uses taxpayer identification numbers in violation of Federal law, the payer may be subject to civil and criminal penalties. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number for the Payee (You) to Give the Payer--Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. - --------------------------------------- ---------------------------------------
Give the For this type of account: SOCIAL SECURITY number of-- - ----------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner (joint account) of the account or, if combined funds, the first individual on the account(1) 3. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 4. a. The usual revocable The grantor- savings trustee(1) trust (grantor is also trustee) b. So-called trust account The actual that owner(1) is not a legal or valid trust under State law 5. Sole proprietorship The owner(3) account
Give the EMPLOYER For this type of account: IDENTIFICATION number of-- -------- 6. A valid trust, estate, or The legal pension entity(4) trust 7. Corporate account The corporation 8. Partnership account held The partnership in the name of the business 9. Association, club, or The organization other tax-exempt organization account 10. A broker or registered The broker or nominee nominee 11. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- --------------------------------------- --------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Show the name of the owner. The name of the business or the "doing business as" name may also be entered. Either the social security number or the employer identification number may be used. (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the taxpayer identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. EX-99.(A)(5)(I) 8 0008.txt KENETECH CORPORATION PRESS RELEASE EXHIBIT (a)(5)(i) For Immediate Release - --------------------- KENETECH CORPORATION SIGNS MERGER AGREEMENT San Francisco, Calif., October 25, 2000 -- KENETECH CORPORATION (OTCBB: KWND.OB) announced today that it has entered into an agreement and plan of merger with KC Holding Corporation and KC Merger Corp. Under the terms of the merger agreement, KC Merger Corp. will commence a cash tender offer for all of the issued and outstanding shares of common stock, $.0001 par value, of KENETECH at a price of $1.04 per share. Following the purchase of shares pursuant to the tender offer, KC Merger Corp. will merge with and into KENETECH and KENETECH will become a wholly-owned subsidiary of KC Holding Corporation. In the merger, the remaining stockholders of KENETECH will become entitled to receive the per share consideration paid in the tender offer. KC Holding Corporation is a subsidiary of ValueAct Capital Partners, L.P., and KC Merger Corp. is a subsidiary of KC Holding Corporation. Mark D. Lerdal, Chairman of the Board, Chief Executive Officer and President of KENETECH, has agreed with KC Holding Corporation and KC Merger Corp. not to tender any of the shares of KENETECH common stock held by him. Mr. Lerdal has agreed with KC Holding Corporation to contribute his shares to KC Holding Corporation in exchange for shares of capital stock in KC Holding Corporation. The Board of Directors of KENETECH, based on the recommendation of a Special Committee consisting of independent members of the Board of Directors, has approved the tender offer and the merger and recommended that stockholders accept the offer. The tender offer is subject to customary terms and conditions, including the tender of 85% of the outstanding shares of common stock (excluding those shares held by Mr. Lerdal), determined on a fully diluted basis. It is anticipated that the transaction will be completed by the end of 2000. Notwithstanding its recommendation and consistent with the terms of the merger agreement, the Special Committee of the Board of Directors requested that the Special Committee's financial advisor, Houlihan Lokey Howard & Zukin Financial Advisors, Inc., be available to receive unsolicited inquiries from any other parties interested in the possible acquisition of KENETECH. If the Special Committee or KENETECH's Board of Directors, after consultation with its independent legal counsel, determines that taking such actions is appropriate in light of its fiduciary duties to KENETECH stockholders under applicable law, KENETECH may provide information to and engage in discussions and negotiations with such other parties and take other appropriate actions in connection with any such indicated interest. -1- KENETECH has historically been involved in the development and management of independent power projects. KENETECH is currently participating with other parties in developing two electric generating facilities and one oriented strand-board facility. ValueAct Capital Partners, L.P., is a San Francisco-based investment partnership formed to make minority investments, and a select number of control investments, in small-capitalization public companies. For further information contact: Dianne P. Urhausen Telephone: (415) 398-3825 ext. 8565 This announcement is neither an offer to purchase nor a solicitation of an offer to sell shares of KENETECH. At the time KC Merger Corp. commences its offer, it will file a Tender Offer Statement with the U.S. Securities and Exchange Commission and KENETECH will file a Solicitation/Recommendation Statement with respect to the offer. THE TENDER OFFER STATEMENT (INCLUDING AN OFFER TO PURCHASE, A RELATED LETTER OF TRANSMITTAL AND OTHER OFFER DOCUMENTS) AND THE SOLICITATION/RECOMMENDATION STATEMENT WILL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. The Offer to Purchase, the related Letter of Transmittal and certain other offer documents, as well as the Solicitation/Recommendation Statement will be made available to all stockholders of KENETECH, at no expense to them. The Tender Offer Statement (including the Offer to Purchase, the related Letter of Transmittal and all other offer documents filed with the Commission) and the Solicitation/Recommendation Statement will also be available for free at the Securities and Exchange Commission's Web site at www.sec.gov. Investors and security holders are strongly advised to read both the tender offer statement and the solicitation/recommendation statement regarding the tender offer referred to in this press release when they become available because they will contain important information. Except for the historical information contained herein, certain matters set forth in this press release concerning KENETECH are forward-looking statements within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks and uncertainties which may cause KENETECH's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward- looking statements. -2- EX-99.(A)(5)(II) 9 0009.txt KC HOLDINGS CORPORATION PRESS RELEASE Exhibit (a)(5)(ii) FOR IMMEDIATE RELEASE: Contact: Jeffrey Ubben ValueAct Capital Partners, L.P. (415) 362-3700 Contact: Jeanne Carr MacKenzie Partners, Inc. (212) 929-5500 (800) 322-2885 KC HOLDING CORPORATION AND KC MERGER CORP. COMMENCE TENDER OFFER FOR SHARES OF KENETECH CORPORATION San Francisco, California - November 7, 2000 - KC Merger Corp. today announced that it is commencing its previously announced tender offer for all of the common stock, par value $0.0001 per share, of KENETECH Corporation (OTCBB: KWND.OB), at a purchase price of $1.04 per share, net to the seller, in cash. The tender offer is being made pursuant to an agreement and plan of merger, dated October 25, 2000, among KENETECH, KC Holding Corporation and its wholly owned subsidiary, KC Merger Corp. The tender offer is scheduled to expire at 12:00 midnight, New York City time on December 7, 2000, unless extended. MacKenzie Partners, Inc. is the Information Agent for the tender offer. ChaseMellon Shareholder Services, L.L.C. is the Depositary for the tender offer. For further information, please contact MacKenzie Partners, Inc. at (800) 322-2885. KC Holding Corporation is a wholly owned subsidiary of ValueAct Capital Partners, L.P., which is a San Francisco-based investment partnership formed to make minority investments, and a select number of control investments, in small- capitalization public companies. ### This announcement is neither an offer to purchase nor a solicitation of an offer to sell shares of KENETECH. KC Holding Corporation is filing today a Tender Offer Statement with the U.S. Securities and Exchange Commission and KENETECH is filing today a Solicitation/Recommendation Statement with respect to the offer. THE TENDER OFFER STATEMENT (INCLUDING AN OFFER TO PURCHASE, A RELATED LETTER OF TRANSMITTAL AND OTHER OFFER DOCUMENTS) AND THE SOLICITATION/RECOMMENDATION STATEMENT CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. The Offer to Purchase, and related Letter of Transmittal and certain other offer documents, as well as the Solicitation/Recommendation Statement is being mailed to all stockholders of KENETECH, at no expense to them. The Tender Offer Statement (including the Offer to Purchase, the related Letter of Transmittal and all other offer documents filed with the Commission) and the Solicitation/Recommendation Statement will also be available for free at the Securities and Exchange Commission's Web site at www.sec.gov. Investors and security holders are strongly advised to read both the tender offer statement and the solicitation/recommendation statement regarding the tender offer referred to in this press release because they contain important information. EX-99.(C)(2) 10 0010.txt PRESENTATION TO KENETECH'S BOARD OF DIRECTORS Exhibit (c)(2) [LOGO] Presentation to the Special Committee of the Board of Directors of Kenetech Corporation - -------------------------------------------------- Strictly Confidential October 25, 2000 [LETTERHEAD OF HOULIHAN LOKEY HOWARD & ZUKIN] STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Table of Contents --------------------------------------------------------------------------
Section Executive Summary................................................ A Company Overview................................................. B Overview of KCH Transaction...................................... C Independent Valuation Assessment of Kenetech Corp................ D Consideration of Strategic Alternatives.......................... E
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. Executive Summary STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Executive Summary --------------------------------------------------------------------------- Background We understand that KC Holding Corporation ("KCH" hereinafter) proposes to cause KC Merger Corp. ("KCM" hereinafter), a direct wholly-owned subsidiary of KCH, to make a tender offer (the "Offer") to purchase any and all of the shares of common stock of Kenetech Corporation (the "Company" or "Kenetech" hereinafter), together with its associated rights attached thereto issued pursuant to the Rights Agreement (collectively, the "Shares"), at a purchase price of $1.04 per Share, (the "Offer Price"), net to the seller in cash, without interest thereon. Pursuant to the draft Agreement and Plan of Merger dated October 25, 2000 (the "Merger Agreement" hereinafter) among KCH, KCM and Kenetech, KCM will merge with and into Kenetech. Following the merger, the separate corporate existence of KCM will cease and Kenetech shall continue as the surviving corporation. Mark D. Lerdal, the President, Chief Executive Officer and Director of Kenetech has entered into a subscription and contribution agreement with KCH and KCM pursuant to which he agreed to contribute his shares of the Company to KCH in exchange for capital stock of KCH. Such transaction and all related transactions are referred to collectively herein as the "Transaction". Scope of Engagement Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey") has been retained by Kenetech to assist the Special Committee of the Board of Directors of the Company (the "Special Committee") in evaluating the terms of the Transaction and render an opinion (the "Opinion") as to the fairness, from a financial point of view, to the stockholders of the Company (except Mr. Mark D. Lerdal) of the consideration offered to them in connection with the Transaction. Additionally, Houlihan Lokey will assist the Special Committee in reviewing and negotiating terms of the proposed financial structure and Transaction and providing assistance in connection with defining, from a financial point of view, strategic and financial objectives. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 1 STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Executive Summary --------------------------------------------------------------------------- Summary of Recent Trading Activity The following table highlights the recent trading activity for the Company's common stock. ------------------------------------------------------ Current Stock Price/[a]/ $0.71 52 Week High $0.79 52 Week Low $0.49 Thirty Day Average/[a]/ $0.73 Three Month Average/[a]/ $0.72 Six Month Average/[a]/ $0.70 One Year Average/[a]/ $0.65 ------------------------------------------------------ /(a)/ Stock price as of October 24, 2000 ------------------------------------------------------ Summary of Analysis Completed In assessing the financial fairness of the Transaction to the Company's stockholders (except Mr. Mark D. Lerdal) we have: (i) analyzed the terms and conditions of the Transaction; (ii) performed certain valuation analyses of the Company; and (iii) considered the possibility and implications of completing certain alternatives to the Transaction. Summary of Due Diligence Performed In connection with this Opinion, we have made such reviews, analyses and inquiries, as we have deemed necessary and appropriate under the circumstances. Among other things, we have: 1. reviewed the Company's annual reports to shareholders on Form 10-K for the fiscal years ended 1995 through 1999, the quarterly report on Form 10-Q for the two quarters ended June 30, 2000 and the internal Company financial statements for the period ending September 30, 2000, which Company's management has identified as being the most recent current financial statements available; Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 2 STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Executive Summary --------------------------------------------------------------------------- 2. met with certain members of the Company management, auditors and tax advisors, and Astoria Energy, LLC to discuss the operations, financial condition, future prospects and projected operations and performance of the Company; 3. discussed the operations, financial condition, future prospects and projected operations and performance of the companies in which Kenetech has invested ("Company Investments") with Company management and certain members of the senior management of the Company Investments; 4. reviewed the Merger Agreement and the letter from the Company dated October 25, 2000 ("Company Letter"); 5. reviewed financial statements and forecasts and projections for certain of the Company Investments; 6. reviewed the historical market prices and trading volume for the Company's publicly traded securities; 7. reviewed certain other publicly available financial data for certain companies that we deem comparable to the Company and the Company Investments; 8. reviewed various documents relating to the Company and Company Investments; 9. reviewed various documents provided by counsel to the Special Committee relating to the cause of action filed in the Delaware Court of Chancery styled Kohls v. Duthie et al. and relied on the views --------------------- expressed by counsel to the Special Committee with respect to it; and 10. conducted such other studies, analyses and inquiries as we have deemed appropriate. Assumptions and Limiting Conditions We have relied upon and assumed, without independent verification, that the financial forecasts and projections provided to us have been reasonably prepared and reflect the best currently available estimates of the future financial results and condition of the Company and the Company Investments, where applicable, and that, except to the extent Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 3 STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Executive Summary --------------------------------------------------------------------------- provided for in the Company Letter, there has been no material change in the assets, financial condition, business or prospects of the Company and Company Investments, where applicable, since the date of the most recent financial statements made available to us. We have not independently verified the accuracy and completeness of the information supplied to us with respect to the Company and the Company Investments and do not assume any responsibility with respect to it. We have not made any physical inspection or independent appraisal of any of the properties, assets or liabilities of the Company and the Company Investments. Our opinion is necessarily based on business, economic, market and other conditions as they exist and can be evaluated by us at the date of this letter. Houlihan Lokey's conclusions stated herein are directed to the Special Committee and the Board of Directors, address only the fairness of the consideration to be received by the stockholders (except Mr. Mark D. Lerdal) in the Transaction and do not address the relative merits of the Transaction, any other matter provided for or contemplated by the Merger Agreement or any other transaction that may have been available as an alternative to the Transaction whether or not any such alternative could be or could have been achieved, or the terms upon which any such alternative transaction could be or could have been achieved. Further, this presentation addresses only issues related to the fairness, from a financial point of view to the stockholders (except Mr. Mark D. Lerdal), of the price for the sale of common stock, and we do not express any views on any other terms of the Merger Agreement, or any other agreement. In addition, we have assumed that in the course of obtaining the necessary regulatory and third party consents for the Transaction, no delay or restrictions will be imposed that will have a material adverse effect on the contemplated benefits of the Transaction. Our conclusions stated herein do not constitute a recommendation to the Special Committee, the Board of Directors or stockholders as to whether the stockholders should tender their shares of common stock in the Offer or how the Special Committee, the Board of Directors or the stockholders should vote with respect to any matter relating to the Transaction, and do not address the underlying business decisions of the Board and the Special Committee to enter into the Transaction. We have not been requested to, and did not, solicit third party indications of interest in acquiring all or any part of the Company. All valuation methodologies that estimate the net worth of an enterprise on a going-concern basis are predicated on numerous assumptions pertaining to prospective economic and operating conditions. Unanticipated events and circumstances may occur and actual results may vary from those assumed. The variations may be material. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 4 STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Executive Summary --------------------------------------------------------------------------- This presentation is furnished solely to the Special Committee, the Board of Directors and the Company. This presentation may be relied upon only by the Special Committee and the Board of Directors and may not be relied upon by any other person, may not be quoted, referred to or reproduced at any time, in any matter or for any other purpose without our express, prior, written consent, which consent will not be unreasonably withheld (except that it may be filed in total by the Company as required under applicable federal securities laws). This presentation is delivered to the Special Committee subject to the conditions, scope of engagement, limitations and understandings set forth in this presentation and in our engagement letter dated August 24, 2000, and subject to the understanding that the obligations of Houlihan Lokey in the Transaction are solely corporate obligations, and no officer, director, employee, agent, shareholder or controlling person of Houlihan Lokey shall be subjected to any personal liability whatsoever to any person, nor will any such claim be asserted by or on behalf of you or your affiliates. Houlihan Lokey has been retained on behalf of the Special Committee, and has delivered this presentation to the Special Committee and also to the other members of the Board of Directors. Houlihan Lokey's presentation will not be used for any other purpose other than in connection with the Transaction. Conclusions In summary, it is our opinion that the consideration to be received by the stockholders of the Company (except Mr. Mark D. Lerdal), pursuant to the Transaction, is fair from a financial point of view. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 5 Company Overview STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Company Overview --------------------------------------------------------------------------- Company Profile Kenetech is a Delaware corporation that has historically been involved in the development, construction and management of independent power projects. During 1995 and 1996 the Company experienced significant liquidity constraints and in an effort to relieve itself from such constraints the Company initiated the sale of a significant amount of its assets. Today, Kenetech continues in project development activities at this time; however, it has ceased its construction and management activities and now has privately held minority interest investments in the power generation, Internet, technology and biotechnology sectors. . Kenetech went public in September 1993 at $16.50 per share. The Company's stock is currently traded at $0.71. . Company's stock is thinly traded without meaningful equity analyst coverage. Current Ownership Profile The largest holders of Kenetech's common stock as of September 2000 are summarized in the table below: Holder Shares Held % Percent Mark Lerdal 11,365,458 35.6% James E. Kreuger Trust 1,500,000 4.7% Stephen Massocca 447,000 1.4% Taube Family Foundation 168,500 0.5% --------------------------------------------------------------------------- Total Shares Held by Large Shareholders & Insiders 41.6% Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 6 STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Company Overview -------------------------------------------------------------------------- Summary Financial Information
Kenetech Summary Financial Information Balance Sheet as of 9/30/2000 (In 000's) ASSETS Cash and Cash Equivalents $ 3,514 Funds in Escrow 125 Accounts Receivable 10 Traded Debt Securities 18,831 Other Current Assets 2,075 ------- Total Current Assets 24,555 Project Development Advances: OSB Chateaugay LLC 844 Astoria Energy LLC 4,974 Whinash 350 Held-to-maturity Debt Securities: Indosuez Capital Fuding VI, Ltd. 2,500 ServiSense.com, Inc. 1,000 Other Investments: Astoria Energy LLC 6,000 7 Other Investments 2,233 Other Assets 138 ------- Total Assets $42,594 ======= LIABILITIES & STOCKHOLDERS' EQUITY Accounts Payable $ 1,499 Accrued Liabilities & Reserves 2,370 Other Current Liabilities 122 ------- Total Current Liabilities 3,990 Accrued Liabilities 905 Deferred Benefit for Deconsolidated Subsidiary Losses 10,305 ------- Total Liabilities 15,201 Total Stockholders Equity 27,393 ------- Total Liabilities and Stockholders' Equity $42,594 =======
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 7 STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Company Overview --------------------------------------------------------------------------
Kenetech Historical Summary Financial Information - Balance Sheet Fiscal Year Ending Dec 31: As of --------------------------------------- (In 000's) 1997 1998 1999 9/30/2000 ------------- ASSETS Cash and Cash Equivalents/Funds in Escrow $ 8,491 $ 67,902 $ 15,605 $ 3,639 Traded Debt Securities 0 0 31,388 18,831 Total Current Assets 86,634 84,461 47,567 24,555 Total Assets 90,586 84,485 50,097 42,594 LIABILITIES & STOCKHOLDERS' EQUITY Total Current Liabilities 203,179 $ 53,072 $5,679 $ 3,990 Total Long-term Liabilities 19,112 34,793 11,473 11,211 Total Stockholders Equity (131,705) (3,380) 32,945 27,393
Kenetech Historical Summary Financial Information - Income Statement Fiscal Year Ending Dec 31: YTD ------------------------------------ (In 000's) 1997 1998 1999 9/30/2000 ------------ Revenues $ 40,993 $ 251,921 $ 5,431 $ 1,551 Operating Income (20,041) 208,728 (325) (541) Operating Income Margin -48.9% 82.9% -6.0% -34.9% EBITDA 8,406 214,020 (294) (517) EBITDA Income Margin 20.5% 85.0% -5.4% -33.4%
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 8 Overview of KCH Transaction STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Overview of KCH Transaction ----------------------------------------------------------------- Background/Description of Proposal Over the last several years, the Company has received no meaningful expressions of interest concerning the acquisition of the Company, and no discussions have ever resulted in a definitive offer or proposal. At a meeting of the Board of Directors held on June 21, 2000, Mr. Lerdal advised the Board of Directors that he had been contacted by a potential acquisition group and that the acquisition group had expressed interest in potentially acquiring the Company. For that reason, on July 5, 2000 the Board of Directors established the Special Committee to review and evaluate the terms and conditions and determine the advisability of a proposed transaction, communicate with the acquisition group with respect to terms and conditions of a proposed transaction, determine whether the transaction is fair to and in the best interest of the Company and its stockholders, and recommend to the full Board what action, if any, should be taken by the Company with respect to the proposed transaction. In August 2000, the Company received an unsolicited expression of interest from ValueAct Capital Partners ("VAC") to purchase Kenetech for $0.95 per share. The August 2000 proposal of $0.95 was rejected as inadequate. After further negotiations by the Special Committee, the Kenetech Board of Directors authorized the Special Committee to execute and deliver a letter of intent ("LOI") on September 27, 2000. Among other things, the LOI provided that the Company would negotiate exclusively with VAC for 30 days in an attempt to arrive at final terms for VAC's purchase of Kenetech's stock (through KCH and KCM), excluding the shares of Mr. Mark D. Lerdal, for $1.04 per share. VAC proposes to structure the Transaction as a recapitalization of the Company, in which Mr. Lerdal would "rollover" all of his existing equity in the Company. The purchase of all of the other outstanding shares of common stock of the Company would be effected through an all cash tender offer by KCM. Any shares remaining after the tender offer would be cashed out at the same price in a merger of KCM into the Company. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 9 STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Overview of KCH Transaction ----------------------------------------------------------------- Following the merger of KCM with and into the Company, the separate corporate existence of KCM will cease and Kenetech shall continue as the surviving corporation. The consideration to be paid in the merger would be identical to that paid in the tender offer. The tender offer will be conditioned on KCH receiving at least 85% of the outstanding shares (excluding the shares held by Mr. Lerdal). Mr. Lerdal has entered into a subscription and contribution agreement with KCH and KCM pursuant to which Mr. Lerdal agreed to contribute his shares of Kenetech to KCH in exchange for shares of KCH. In addition, Mr. Lerdal would enter into a Voting Agreement with KCH and KCM pursuant to which he would agree to (i) not tender his shares of Kenetech in the Transaction and (ii) grant to KCH a proxy with respect to voting of such shares. DEAL OBSERVATIONS
Adjusted Net Asset Value Range -------------------------------- Low High -------------------------------- Concluded Range of Adjusted Net Asset Value Per Share $0.96 $1.13 Book Value Per Share As of September 30, 2000 ----------------------------------------------- Stated Book Value Per Share as of September 30, 2000 $0.86
. Price is at a substantial premium to the Company's stock price prior to disclosure of discussions (a premium of 46.5% over the current stock price of $0.71). Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 10 STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Overview of KCH Transaction --------------------------------------------------------------------------- OTHER COMMENTS . Transaction is a going private acquisition with Mr. Mark D. Lerdal, Chairman, President and Chief Executive Officer of the Company, contributing his shares of Kenetech to KCH in exchange for shares of capital stock of KCH. . VAC will finance the Transaction with equity capital. . The Merger Agreement contains a modest termination fee (up to $750,000) payable by Kenetech if a superior proposal is accepted. . The tender offer is conditioned on KCH receiving at least 85% of the outstanding shares (excluding the shares held by Mr. Mark D. Lerdal). . The Merger Agreement contains a "fiduciary out" clause regarding superior proposals which may arise prior to closing. The Merger Agreement also contains a "fiduciary out" clause permitting the Company to withdraw its recommendation of the Offer and/or the merger. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 11 Independent Valuation Assessment of Kenetech Corp. STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Independent Valuation Assessment of Kenetech Corp. --------------------------------------------------------------------------- MARKET CAPITALIZATION APPROACH This approach is based on the premise that the value of a company can be estimated by analyzing the prices paid by investors for shares of publicly traded companies with similar characteristics. Value multiples are determined based on the ratios of current market valuations to operating performance measurement such as Earnings. The operating performance measures are adjusted to reflect representative levels and market multiples are selected on a risk-adjusted basis. By utilizing a variety of derived multiples, one is able to assess value based on various measures of a company's operating performance. Another common method of obtaining such multiples is to examine companies that have recently been sold in the public marketplace. Where subject company earnings and cash flows or the prospects thereof are material enough to evaluate, this approach is highly useful. However, the Company's Investments are predominantly development stage or start-up companies. These characteristics render the market capitalization approach virtually impossible to apply in arriving at reasonable valuation indications for the Company Investments. In such instances the prior transaction and discounted cash flow approaches provide more meaningful valuation indications. PRIOR STOCK TRANSACTION APPROACH This approach utilizes value indications arrived at in examining prior stock transactions. This approach is highly relevant to the Company Investments as most of Kenetech's investments have occurred in the last nine months. DISCOUNTED FREE CASH FLOW APPROACH The discounted free cash flow ("FCF") approach is based on the premise that the value of an investment is equal to the present value of the future cash flows. This approach typically utilizes projected financial statements prepared by management, including estimates of working and long-term capital needs, to estimate free cash flows. The free cash flows on a leveraged basis are discounted, at the subject company's equity rate of return. A terminal value is calculated assuming a sale of the company in the final year of the forecast and this amount is discounted to the present at the subject company's equity rate of return. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 12 STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Independent Valuation Assessment of Kenetech Corp. --------------------------------------------------------------------------- ADJUSTED NET ASSET APPROACH The adjusted net asset approach differs from the market capitalization, prior transactions and FCF approaches in that it focuses on individual asset and liability values from the company's balance sheet, which are adjusted to fair market value, in contrast to the market capitalization and FCF approaches which focus on the aggregate returns generated by all the company's assets. This going-concern approach is appropriate in instances where the subject company has a heavy investment in tangible assets or where operating earnings are insignificant relative to the value of the underlying assets, such as in holding companies. Kenetech's stock was valued using the adjusted net asset approach. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 13 STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Independent Valuation Assessment of Kenetech Corp. ---------------------------------------------------------------------------
(In 000's) Actual As of Adjusted 9/30/00 Net Assets Value ---------- ------------------------------------ ASSETS Current Assets: Cash and Cash Equivalents $ 3,514 $ 3,514 - $ 3,514 Funds in Escrow 125 125 - 125 Accounts Receivable 10 10 - 10 Traded Debt Securities 18,831 16,537 - 16,537 Prepaid 228 178 - 178 Interest Receivable 347 347 - 347 Insurance Proceeds Receivable 1,500 1,500 - 1,500 ---------- ------------ ------------ Total Current Assets 24,555 22,211 - 22,211 Project Development Advances: OSB Chateaugay LLC 844 1,300 - 2,000 Astoria Energy LLC 4,974 8,500 - 9,000 Whinash 350 99 - 123 ---------- ------------ ------------ Project Development Advances: 6,168 9,899 - 11,123 Held-to-maturity Debt Securities: Indosuez Capital Fuding VI, Ltd. 2,500 2,500 - 2,500 ServiSense.com, Inc. 1,000 900 - 900 ---------- ------------ ------------ Total Held-to-maturity Debt Securities 3,500 3,400 - 3,400 Other Investments: Astoria Energy LLC 6,000 6,500 - 10,000 Francisco Partn er, L.P. 840 840 - 840 Draper Atlantic Venture Fund II, L.P. 250 250 - 250 Sage Systems, Inc. 500 500 - 800 Odin Millenium Partnership, Ltd. 250 1,050 - 1,200 GenPhar, Inc. 250 250 - 250 Interactive International Commerce, Ltd 100 150 - 250 BreightBurn Energy Company, LLC 43 43 - 43 ---------- ------------ ------------ Total Other Investments 8,233 9,583 - 13,633 Property, Plant and Equipment, net 34 0 - 34 Other Assets 60 60 - 60 Capitalized Expenses 44 0 - 0 ---------- ------------ ------------ Total Assets $ 42,594 $ 45,152 - $ 50,461 ========== ============ ============ LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilties: Accounts Payable $ 1,499 $ 4 - $ 4 Accrued Liabilities & Reserves 2,370 1,425 - 1,425 Current Taxes Payable 122 122 - 122 Other Notes Payable 0 0 - 0 Accrued Stock Repurchase Obligation 0 0 - 0 ---------- ------------ ------------ Total Current Liabilities 3,990 1,551 - 1,551 Accrued Liabilities 905 887 - 887 Deferred Benefit for Deconsolidated Subsidiary Losses 10,305 4,741 - 4,073 ---------- ------------ ------------ Total Liabilities 15,201 7,179 - 6,511 Stockholders' Equity: Common Stock 3 N/A - N/A Additional Paid-in Capital 216,318 N/A - N/A Accumulated Deficit (188,928) N/A - N/A ---------- ------------ ------------ Total Stockholders' Equity 27,393 37,973 - 43,949 Total Liabilities and Stockholders' Equity $ 42,594 $ 45,152 - $ 50,461 Indicated Range of Adjusted Net Asset Value $ 37,973 $ 43,949 Present Value of Overhead Costs ($5,514) ($4,154) Trapped in Capital Gains (2,006) - (4,130) Concluded Range of Adjusted Net Asset Value - 30,452 - 35,666 Shares 31,970.164 - 31,970.164 Indicated Range of Adjusted Net Asset Value Per Share $ 0.95 - $ 1.12 Plus: Derivative Action Value Increment $ 0.01 - $ 0.01 ------------ ------------ Concluded Range of Adjusted Net Asset Value Per Share $ 0.96 - $ 1.13 ============ ============
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 14 STRICTLY CONFIDENTIAL Special Committee of Board the of Directors Independent Valuation Assessment of Kenetech Corp. ----------------------------------------------------
KWND% Kenetech Value Indication Range Ownership $ Ownership Range ----------------------------- ----------- ------------------------ ADVANCES: Astoria Energy LLC Prior Transaction #1 - Kenetech N/A - N/A N/A $4,974,000 - $ 4,974,000 Free Cash Flow Approach N/A - N/A N/A $8,568,347 - $ 9,151,527 ---------- ----------- OSB Chateaugay LLC Prior Transaction #1 - Kenetech N/A - N/A N/A $ 844,107 - $ 844,107 Prior Transaction #2 - Willamette $ 3,500,000 $ 4,000,000 N/A $1,542,733 - $ 1,676,067 Free Cash Flow Approach #1 $ 3,500,000 - $ 4,000,000 N/A $ 983,438 - $ 1,086,563 Free Cash Flow Approach #2 $43,275,852 - $48,374,207 10.0% $4,327,585 - $ 4,837,421 ----------- ----------- ---------- ----------- Indicated Value Whinash Prior Transaction #1 - Kenetech N/A - N/A N/A $ 99,020 - $ 123,611 ----------- ----------- ---------- ----------- Indicated Value DEBT SECURITIES: Indosuez Capital Funding VI, Ltd. Prior Transaction - Kenetech N/A - N/A N/A $2,500,000 - $ 2,500,000 ----------- ----------- ---------- ----------- Indicated Value ServiSense.com, Inc. Prior Transaction #1 - Kenetech N/A - N/A NA $1,000,000 - $ 1,000,000 ----------- ----------- ---------- ----------- Indicated Value INVESTMENTS: Astoria Energy LLC Prior Transaction #1 - Kenetech $30,000,000 - $30,000,000 20.0% $6,000,000 - $ 6,000,000 Free Cash Flow Approach $38,293,022 - $58,755,113 18.8% $7,199,088 - $11,045,961 ----------- ----------- ---------- ----------- Indicated Value Francisco Partners L.P Prior Transaction #1 - Kenetech N/A - N/A N/A $ 840,000 - $ 840,000 ----------- ----------- ---------- ----------- Indicated Value Draper Altantic Venture Fund II, L.P. Prior Transaction #1- Kenetech N/A - N/A N/A $ 250,000 - $ 250,000 ----------- ----------- ---------- ----------- Indicated Value Sage Systems, Inc. Prior Transaction #1 - Kenetech $ 7,142,857 - $ 7,142,857 7.0% $ 500,000 - $ 500,000 Prior Transaction #2 $14,457,153 - $14,457,153 4.2% $ 607,200 - $ 607,200 Discounted Cash Flow $33,745,034 - $57,699,794 4.2% $1,417,291 - $ 2,423,391 ----------- ----------- ---------- ----------- Indicated Value Odin Millenium Partnership, Ltd. Prior Transaction #1 - Kenetech $80,000,000 - $90,000,000 1.5% $1,200,000 - $ 1,350,000 Prior Transaction #2 $28,500,000 - $28,500,000 1.5% $ 427,500 - $ 427,500 ----------- ----------- Indicated Value 1.5% $1,050,000 - $ 1,200,000 GenPhar, Inc. Prior Transaction #1- Kenetech $35,714,286 - $35,714,286 0.7% $ 250,000 - $ 250,000 ----------- ----------- Indicated Value Interactive International Commerce, Ltd. Prior Transaction #1 N/A N/A N/A $ 33,333 - $ 33,333 Prior Transaction #2 - Kenetech $33,333,333 - $33,333,333 N/A $ 100,000 - $ 100,000 Prior Transaction #3 N/A N/A N/A $ 299,997 - $ 299,997 ----------- ----------- ---------- ----------- Indicated Value BreightBurn Energy Company, LLC Prior Transaction #1- Kenetech N/A - N/A N/A $ 42,500 - $ 42,500 ----------- ----------- ---------- ----------- Indicated MVE Range -------------------- Low High ------ -------- ADVANCES: Astoria Energy LLC Prior Transaction #1 - Kenetech Free Cash Flow Approach $8,500,000 - $ 9,000,000 OSB Chateaugay LLC Prior Transaction #1 - Kenetech Prior Transaction #2 - Willamette Free Cash Flow Approach #1 Free Cash Flow Approach #2 Indicated Value $1,300,000 - $ 2,000,000 Whinash Prior Transaction #1 - Kenetech Indicated Value $ 99,000 - $ 123,000 DEBT SECURITIES: Indosuez Capital Funding VI, Ltd. Prior Transaction - Kenetech Indicated Value $2,500,000 - $ 2,500,000 ServiSense.com, Inc. Prior Transaction #1 - Kenetech Indicated Value $ 900,000 - $ 900,000 INVESTMENTS: Astoria Energy LLC Prior Transaction #1 - Kenetech Free Cash Flow Approach Indicated Value $6,500,000 - $10,000,000 Francisco Partners L.P Prior Transaction #1 - Kenetech Indicated Value $ 840,000 - $ 840,000 Draper Altantic Venture Fund II, L.P. Prior Transaction #1- Kenetech Indicated Value $ 250,000 - $ 250,000 Sage Systems, Inc. Prior Transaction #1 - Kenetech Prior Transaction #2 Discounted Cash Flow Indicated Value $ 500,000 - $ 800,000 Odin Millenium Partnership, Ltd. Prior Transaction #1 - Kenetech Prior Transaction #2 Indicated Value $1,050,000 - $ 1,200,000 GenPhar, Inc. Prior Transaction #1- Kenetech Indicated Value $ 250,000 - $ 250,000 Interactive International Commerce, Ltd. Prior Transaction #1 Prior Transaction #2 - Kenetech Prior Transaction #3 Indicated Value $ 150,000 - $ 250,000 BreightBurn Energy Company, LLC Prior Transaction #1- Kenetech $ 42,500 $ 42,500
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 15 - -------------------------------------------------------------------------------- STRICTLY CONFIDENTIAL Special Committee of the Board of Directors - -------------------------------------------------------------------------------- Independent Valuation Assessment of Kenetech Corp. ----------------------------------------------------------------------- Orderly Liquidation Approach This approach implies that the firm is no longer a going concern and the value lies not within the expected future earnings of the assets, but in the expected fair market value of the assets less (i) any discount for the orderly sale and (ii) the liabilities of the firm.
------------------------------------------------------------------------------------------------------------------- Proceeds from Liquidation of Salable Assets (000's) Adjusted Net Asset Value % on Sale Proceeds ------------------------------ ------------------ ------------------------- Assets Low High Low High Low High ------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents 3,514 - 3,514 100% - 100% $ 3,514 - $ 3,514 Fund in Escrow 125 - 125 80% - 100% 100 - 125 Accounts Receivable 10 - 10 70% - 80% 7 - 8 Traded Debt Securities 16,537 - 16,537 100% - 100% 16,537 - 16,537 Prepaid 178 - 178 0% - 0% 0 - 0 Interest Receivable 347 - 347 100% - 100% 347 - 347 Insurance Proceeds 1,500 - 1,500 100% - 100% 1,500 - 1,500 Project Development Advances: OSB Chateaugay LLC 1,300 - 2,000 50% - 70% 650 - 1,400 Astoria Energy LLC 8,500 - 9,000 50% - 70% 4,250 - 6,300 Whinash 99 - 123 10% - 50% 10 - 62 Held-to-maturity Debt Securities: Indosuez Capital Fuding VI, Ltd. 2,500 - 2,500 70% - 90% 1,750 - 2,250 ServiSense.com, Inc. 900 - 900 60% - 80% 540 - 720 Other Investments: Astoria Energy LLC 6,500 - 10,000 50% - 70% 3,250 - 7,000 Francisco Partner, L.P. 840 - 840 70% - 90% 588 - 756 Draper Atlantic Venture Fund II, L.P. 250 - 250 70% - 90% 175 - 225 Sage Systems, Inc. 500 - 800 10% - 50% 50 - 400 Odin Millenium Partnership, Ltd. 1,050 - 1,200 40% - 60% 420 - 720 GenPhar, Inc. 250 - 250 10% - 50% 25 - 125 Interactive International Commerce, Ltd. 150 - 250 10% - 50% 15 - 125 BreightBurn Energy Company, LLC 43 - 43 10% - 50% 4 - 21 Property, Plant and Equipment, net 0 - 34 0% - 50% 0 - 17 Other Assets 60 - 60 40% - 60% 24 - 36 ---------------- ----------- ---------- ------------ ------------------------------------------------------------------------------------------------------------------- Total $45,152 $50,461 $33,756 - $42,188 ------------------------------------------------------------------------------------------------------------------- Less: Administrative and Operating Costs in Liquidation, 5% of Total Assets 5.0% 1,688 - 2,109 ---------- ------------ =================================================================================================================== Total Proceeds Available to Claims $32,068 $40,078 =================================================================================================================== Claims to Proceeds from Liquidation (000s') Revised Market Value % Recovery Recovery ------------------------------ ------------------ ------------------------- Claims Low High Low High Low High ------------------------------------------------------------------------------------------------------------------- Account Payable 4 - 4 100% 100% $ 4 - $ 4 Accrued Liabilities 1,425 - 1,425 100% 100% 1,425 - 1,425 Current Taxes Payable 122 - 122 100% 100% 122 - 122 Accrued Liabilities 887 887 100% 100% 887 - 887 Deferred Benefit for Deconsolidated Subsidiary Losses 4,741 4,073 100% 100% 4,741 - 4,073 ---------- ------------ ------------------------------------------------------------------------------------------------------------------- Total Proceeds Before Equity Claim $7,179 $6,511 $ 7,179 - $ 6,511 ------------------------------------------------------------------------------------------------------------------- =================================================================================================================== Total Proceeds Available to Common Equity $24,889 - $33,567 =================================================================================================================== Common Shares Outstanding 31,970.164 31,970.164 ---------- ------------ =================================================================================================================== Indicated Total Liquidation Value per Share $0.78 - $1.05 =================================================================================================================== Plus: Derivative Action Value Increment $0.01 - $0.01 ---------- ------------ =================================================================================================================== Concluded Total Liquidation Value per Share $0.79 - $1.06 ===================================================================================================================
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. 16 STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Independent Valuation Assessment of Kenetech Corp. ------------------------------------------------------------------------- Acquisition Premium Analysis We analyzed the acquisition premiums (the difference between the acquisition price and unaffected trading price) paid in acquisitions of a 100% interest of energy services, electric, gas and sanitary services companies that occurred between 1994 and June 2000. See chart below. Control Premium Analysis [GRAPH] [_] Electrical, Gas, Water & Sanitary Services [_] Energy Services [_] All Industry Source: Mergerstat Houlihan Lokey Howard & Zukin Financial Advisors, Inc. STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Independent Valuation Assessment of Kenetech Corp. ----------------------------------------------------------------------
------------------------------------------------------------------------------------------------- KWND LTM ending Implied Control Industry 10/18/00 10/18/2000 Premium Stock Price/[a]/ Premium/*/ KWND Price/[b]/ ------------------------------------------------------------------------------------------------- All Industry $0.71 40.5% $1.00 Energy Services $0.71 23.0% $0.87 Electrical, Gas, Water & Sanitary Supplies $0.71 33.3% $0.95 ------------------------------------------------------------------------------------------------- Implied Range $0.87-$1.00 ------------------------------------------------------------------------------------------------- /[a]/ Stock price 5-days prior to announcement of transaction /[b]/ Implied control premium price based on Kenetechs stock price as of October 18, 2000 multiplied by the given premia. /*/ Source: Mergerstat =================================================================================================
The acquisition premiums implied by the value of the Transaction consideration being received by the shareholders of the Company is shown in the following table:
------------------------------------------------------------------- Kenetech Implied Acquisition Date Stock Price Premium/[a]/ ------------------------------------------------------------------- 1-day prior $0.71 46.5% 5-days prior $0.71 46.5% 20-days prior $0.73 42.5% 60-days prior $0.72 44.4% 90-days prior $0.53 96.2% 180-days prior $0.65 60.0% ------------------------------------------------------------------- /[a]/ Based upon a per share Transaction price of $1.04. ===================================================================
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Independent Valuation Assessment of Kenetech Corp. -------------------------------------------------------------------- Valuation Summary
--------------------------------------------------------------------------------------------------------- Adjusted Net Asset Value Range --------------------------------------------- Low High --------------------------------------------- Concluded Range of Adjusted Net Asset Value Per Share $0.96 $1.13 Book Value Per Share As of September 30, 2000 --------------------------------------------- Stated Book Value Per Share as of September 30, 2000 $0.86
Houlihan Lokey Howard & Zukin Financial Advisors, Inc. Consideration of Strategic Alternatives STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Consideration of Strategic Alternatives ---------------------------------------------------------------------- In evaluating the fairness of the consideration to be received by the common stockholders (except Mr. Mark D. Lerdal), from a financial point of view, we considered the expected value to the Kenetech common stock shareholders of completing the Transaction and certain alternatives to the Transaction. With regard to each alternative we qualitatively considered the valuation implications to the Company's common stock, the probability of successfully completing the alternative, and the cost and time to implement. The current situation overview and summaries of strategic alternatives considered are described below. Current Situation Overview . Kenetech's operations consist of managing cash and traded securities investments, various development stage company investments and private equity fund investments. The Company's primary assets currently consist of cash and traded securities. The Company also has a significant investment in Steinway LLC, which owns approximately 20% ownership position in Astoria Energy LLC. . Kenetech's competitive advantage rests in the ability of Mr. Lerdal to source attractive deals. Mr. Lerdal's expertise is in energy project development. . Of the $22.4 million of cash and traded debt securities as of September 30, 2000, approximately $13.0 million is uncommitted for future investments. . Astoria Energy, LLC is in development stage; state approval processes are continuing as are financing discussions. . OSB Chateaugay operates in a cyclical industry that is largely dependent on new home construction. . The Company's investment commitments in the Francisco and Draper funds were recently made. The Company has future capital calls and the cash invested will be inaccessible for an extended period of time. . In 1999, the Company declared a dividend of one preferred share purchase right ("Rights") for each outstanding share of Common Stock. The Rights are not exercisable until public announcement of a tender offer or exchange or an investor has acquired 15% or more ownership. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Consideration of Strategic Alternatives ---------------------------------------------------------------------- Status Quo . The Company's stockholders retain the upside, and the risk, of the Company's operations. . Kenetech would continue operating and would likely have entree into future power development projects and other investments. With regard to non-power related investments the Company has little historical experience. . The Astoria investment is subject to significant milestone risks. Astoria could be sold at any time through construction financing or the Company could maintain ownership going forward, depending on future negotiations. . The Company could utilize its existing NOL carryforwards, however the business generates nominal profitability and the utilization of NOLs would largely occur only in the context of asset sales. . The Company has a long-term contingent liability provided in its financial statements of $10.3 million relating to the Deferred Benefit of Deconsolidated Subsidiary Losses. The $10.3 million reserve is based upon the judgment of the Company and its advisors regarding the appropriate amount to be provided under US GAAP. In determining the value of this liability we have relied on Company advisors. . The likelihood, timing and magnitude of the financial impact of Kohls v. Duthie et al. is uncertain. . The Company's shares are thinly traded. Sale To Vac . VAC provides liquidity at a substantial premium to the currently traded price. VAC would assume the risk of all liabilities and upside return of the Company Investments. . Offer is an all cash offer funded with equity capital, significantly reducing financing risk. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Consideration of Strategic Alternatives ---------------------------------------------------------------------- Sale To Another Strategic Buyer . There are relatively few strategic buyers for a group of assets as diverse in nature as Kenetech's. . The Company's most significant strategic asset is Astoria Energy, LLC ("Astoria"). Power generation related companies, of which there are many, present the most likely universe of strategic acquirors for this asset. Kenetech has held informal discussions with likely strategic acquirors for Astoria (including Dynagee and Florida Power & Light). Discussions, with respect to Astoria, have been only preliminary with no indications of value or ownership. . The time required to find an alternative buyer and secure a better offer is uncertain. . Although the Kenetech's Board is continuously considering various strategic alternatives, the Company has received no indications of interest either orally or in written form prior to the VAC offer. The Company has disclosed in its 10-Q filing that it is "evaluating all strategic alternatives available to it. The Company has retained professionals to assist it in such evaluations." . Kenetech has a substantial contingent liability, which may make Kenetech unattractive to certain buyers. . All of Kenetech's investments are privately held minority interest investments. The nature of these investments may make Kenetech unattractive to certain buyers. STRATEGIC ACQUISITIONS . As size is becoming an increasingly more important factor in a company's ability to compete in the independent power industry, Kenetech does not have resources to be able to effect sufficient strategic acquisitions to reach critical mass. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. STRICTLY CONFIDENTIAL Special Committee of the Board of Directors Consideration of Strategic Alternatives ---------------------------------------------------------------------- Sale To A Financial Buyer . Kenetech has diverse minority investments in privately held entities, which may make Kenetech unattractive to certain buyers. . There may be interest in the speculative nature of the Astoria investment. . Kenetech has a substantial contingent liability which may make Kenetech unattractive to certain buyers. . Although Kenetech's Board of Directors is continuously considering various strategic alternatives, the Company has received no indications of interest either orally or in written form prior to the VAC offer. The Company has had very preliminary discussions with two financial buyer groups with no verbal or written indications. . The time required to find an alternative buyer and secure a better offer is uncertain. Liquidation . A liquidation of Kenetech's assets does not appear to maximize shareholder value. Houlihan Lokey Howard & Zukin Financial Advisors, Inc. EX-99.(D)(2) 11 0011.txt CONFIDENTIALITY AGREEMENT BTWN VAC AND THE COMPANY Exhibit (d)(2) [LETTERHEAD OF KENETECH] June 29, 2000 ValueAct Capital Partners One Maritime Plaza, Suite 1400 San Francisco, CA 94111 Ladies and Gentlemen: In connection with your possible interest in a merger or other transaction (the "Transaction") involving KENETECH Corporation (the "Company"), you have requested that the Company furnish you or your representative with certain information relating to the Company or the Transaction. All such information (whether written or oral) furnished (whether before or after the date hereof) by the Company or its directors, officers, employees, representatives (including, without limitation, financial advisors, attorneys and accountants) or agents to you or your directors, officers, employees, representatives (including without limitation, financial advisors, attorneys and accountants) agents or your potential sources of financing for the Transaction (collectively, "your Representatives"), and all analyses, compilations, forecasts, studies or other documents prepared by you or your Representatives in connection with your or their review of, or your interest in, the Transaction which contain or reflect any such information, is hereinafter referred to as the "Information". The term Information will not, however, include information which (i) is or becomes publicly available other than as a result of a disclosure by you or your Representatives in contravention of this letter agreement (the "Agreement"), or (ii) is or becomes available to you on a nonconfidential basis from a source (other than the Company or its representatives) which, to the best of your knowledge, is not prohibited from disclosing such information to you by a legal contractual or fiduciary obligation to the Company. Accordingly, you hereby agree that: 1. You and your Representatives (i) will keep the Information confidential and will not (except as required by applicable law, regulation or legal process, and only after compliance with paragraph 4 below), without the Company's prior written consent disclose any Information in any manner whatsoever, and (ii) will not use any Information other than in connection with the Transaction; provided, however, that you may reveal the Information to your Representatives (a) who need to know the Information for the purpose of evaluating the Transaction (b) who are informed by you of the confidential nature of the Information and (c) who agree to act in accordance with the terms of this Agreement. You will cause your Representatives to observe the terms of this Agreement, and you will be responsible for any breach of the Agreement by any of your Representatives. 2. You hereby acknowledge and agree that all of the Information is being disclosed solely for the purpose of enabling the parties to conduct the discussions relating to the June 29, 2000 Page 2 Transaction, and is to be used by you and your Representatives only in such limited manner as is permitted by the provisions of this Agreement. 3. You and your representatives will not (except as required by applicable law, regulation or legal process, and only after compliance with paragraph 4 below), without the Company's prior written consent, disclose to any person the fact that the Information exists or has been made available, that you are considering the Transaction or any other transaction involving the Company, or that discussions or negotiations are taking or have taken place concerning the Transaction. 4. In the event that you or any of your Representatives are requested pursuant to, or required by, applicable law, regulation or legal process or securities exchange rule to disclose any of the Information, you will notify the Company promptly so that the Company may seek a protective order or other appropriate remedy or, in our sole discretion, waive compliance with the terms of this Agreement. In the event that no such protective order or other remedy is obtained, or that the Company does not waive compliance with the terms of this Agreement, you will furnish only that portion of the Information which you are advised by counsel is legally required and will exercise commercially reasonable efforts to obtain reliable assurance that confidential treatment will be accorded the Information. 5. If you determine not to proceed with the Transaction, you will promptly inform the Company of that decision and, in that case, and at any time upon the request of the Company or any of our Representatives, you and your Representatives will (a) destroy or return to the Company all materials which contain Information, and agree that you and your Representatives will not retain any copies thereof except that each of you and your Representatives shall be entitled to retain and need not deliver to the Company any models, compilations, studies, forecasts or other documents prepared by you, subject to the continuing obligation to maintain the confidentiality thereof, and (b) deliver a certificate of an appropriate executive officer certifying that all such Information within your possession or control or the possession or control of your Representatives has been destroyed or returned and that no such Information has been retained. Any oral Information will continue to be subject to the terms of this Agreement. 6. You understand and agree that none of the Company, its affiliates or representatives make any representations or warranties, express or implied, with respect to any of the Information. You also agree that none of the Company, its affiliates or representatives shall assume any responsibility or have any liability to you or your Representatives resulting from the selection or use of the Information by you or your Representatives. 7. You agree that no contract or agreement providing for any Transaction shall be deemed to exist between you and the Company unless and until you and the Company execute and deliver a final definitive agreement relating thereto (a "Transaction Agreement"). You also agree that unless and until you and the Company shall have executed and delivered a Transaction Agreement, neither you nor the Company will be under any obligation of any kind June 29, 2000 Page 3 whatsoever with respect to a Transaction by virtue of this Agreement except for the matters specifically agreed to herein. You further acknowledge and agree that the Company reserves the right, in its sole discretion, to reject any and all proposals made by you or your Representatives with regard to a Transaction, and to terminate discussions and negotiations with you at any time. 8. You agree that, for a period of three years from the date of this Agreement, you, your Representatives, affiliates, associates, and all other persons acting in concert with you or under your control or direction shall not, without the prior written consent of the Company: (a) acquire, enter into any option to acquire, offer to acquire, agree to acquire, become the record, legal or beneficial owner of or obtain any right in respect to any securities of the Company, by purchase, exchange or otherwise or take any action in furtherance thereof, or (b) participate in any proxy solicitation or become a member of any "group," within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act") or the rules and regulations of the Securities Exchange Commission promulgated thereunder, with respect to the Company or any Company securities. As used herein, the terms "affiliate" and "associate" shall have the meanings given such terms in Rule 12b-2 of the Exchange Act, and the term "person" shall mean any individual, partnership, corporation, group (as defined above), syndicate, trust or any other association or entity. 9. You acknowledge that remedies at law may be inadequate to protect the Company against any actual or threatened breach of this Agreement by you or by your Representatives, and, without prejudice to any other rights and remedies otherwise available to us, you agree to the granting of injunctive relief in our favor without proof of actual damages. In the event of litigation relating to this Agreement, if a court of competent jurisdiction determines in a final nonappealable order that this Agreement has been breached by you or by your Representatives, then you will reimburse the Company for its costs and expenses (including, without limitation, legal fees and expenses) incurred in connection with all such litigation. 10. You agree that no failure or delay by us in exercising any right, power or privilege hereunder will operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder. 11. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts between residents of the State and executed in and to be performed in that State. Any action, suit or proceeding in respect of or arising from or out of this Agreement must be prosecuted in the Delaware Court of Chancery, and the parties hereto consent to the exercise of jurisdiction over its person by the Delaware Court of Chancery and consent to service of process by registered mail in connection with any such action, suit or proceeding. 12. This Agreement contains the entire agreement between the parties concerning the confidentiality of the Information, and no modifications of this Agreement or waiver of the terms June 29, 2000 Page 4 and conditions hereof will be binding upon the parties, unless approved in writing by each of the parties. Please confirm your agreement with the foregoing by signing and returning to the undersigned the duplicate copy of this letter enclosed herewith. Very truly yours, KENETECH CORPORATION By: /s/ Mark Lerdal ------------------- Mark D. Lerdal President and Chief Executive Officer Accepted and Agreed as of the 29th day of June, 2000 ValueAct Capital Partners By: /s/ Jeffrey W. Ubben ----------------------- Name: Jeffrey W. Ubben --------------------- Title: Managing Partner -------------------- EX-99.(D)(3) 12 0012.txt EMPLOYMENT AGREEMENT, BTWN PURCHASER AND LERDAL Exhibit (d)(3) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of October 25, 2000, between KC Merger Corp., a Delaware corporation ("KC Merger") and Mark D. Lerdal ("Executive"). This Agreement shall become effective (the "Effective Date") only upon the consummation of the Merger of the KC Merger and KENETECH Corporation, a Delaware corporation (the "Company") as contemplated by that certain Agreement and Plan of Merger dated as of the date hereof (the "Merger Agreement"), by and among KC Holding Corporation, a Delaware corporation ("Parent"), the Company and KC Merger. In addition, on the date hereof, (i) Parent and Executive shall become parties to a contribution and subscription agreement pursuant to which, among other matters, the Executive shall contribute an aggregate of 11,365,458 shares of common stock of Kenetech in exchange for an aggregate of 472,803 shares of common stock of Parent and (ii) Parent, the Executive and all of the other stockholders of Parent shall become parties to a stockholders agreement (the "Stockholders Agreement") providing for, among other things, establishing the composition of Parent's board of directors. In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Employment. The Company shall employ Executive, and Executive hereby accepts employment with the Company, upon the terms and conditions set forth in this Agreement for the period beginning and ending as provided in paragraph 4 hereof (the "Employment Period"). 2. Position and Duties. (a) During the Employment Period, Executive shall serve as the President and Chief Executive Officer of the Company and shall have the normal duties, responsibilities and authority of the President and Chief Executive Officer, subject to the overall direction and authority of the Company's board of directors (the "Board") and to any constraints that may be contained in yearly operating budgets approved by the Board. (b) The Executive's duties are not intended to be a full time position and the Executive shall devote such time as he, in consultation with the Board, deems necessary. Executive shall report only to the Board, and Executive shall devote reasonable commercial efforts to the business and affairs of the Company and its Subsidiaries. (c) For purposes of this Agreement, "Subsidiaries" shall mean any corporation of which the securities having a majority of the voting power in electing directors are, at the time of determination, owned directly or indirectly by the Company or its successors. 1 3. Base Salary and Benefits. (a) During the Employment Period, Executive's base salary shall be $250,000 per annum and shall be subject to review by the Board regarding an annual increase (the "Base Salary"), which salary shall be payable in regular installments in accordance with the Company's general payroll practices and shall be subject to customary withholding. In addition, during the Employment Period, Executive shall be entitled to participate in all of the Company's current employee benefit programs, and in no event shall receive benefits less than those for which senior executive employees of the Company and its Subsidiaries are generally eligible. (b) Executive shall be entitled to four weeks of paid vacation per calendar year during the Employment Period. (c) The Company shall reimburse Executive for all reasonable expenses incurred by him in the course of performing his duties under this Agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses. (d) In addition to the Base Salary, Executive will be eligible for an annual bonus as determined by and in the sole discretion of the Board. 4. Term. (a) The Employment Period shall commence as of the Effective Date and shall terminate as of December 31, 2001; provided, that the Employment Period (including, without limitation, any extensions of the Employment Period pursuant to the provisions below or otherwise) (i) shall terminate upon Executive's resignation without Good Reason (as defined below), death or Disability (as defined below), or (ii) may be terminated by the Company at any time for Cause (as defined below); provided further, that the Employment Period shall automatically renew for successive periods of one (1) year each, unless either party delivers written notice to the other of its intention not to renew the Employment Period for such successive one (1) year period at least 90 days prior to the commencement of any such renewal period. (b) Subject to the other terms and conditions of this Section 4(b), if the Employment Period is terminated by the Company without Cause or if Executive shall terminate the Employment Period for Good Reason during the term of this Agreement, Executive shall be entitled to receive one year's Base Salary and a bonus based on the average of the bonus and benefits paid to the Executive by the Company in the three years preceding such termination. Any such amounts payable under this Section 4(b) will be payable at such times as such amounts would have been payable had Executive not been terminated. Notwithstanding anything in this Agreement to the contrary, the Company shall have no obligation to pay any amounts payable under this Section 4(b) during such times as Executive is in breach of paragraph 5 or 6 hereof. As a condition to the 2 Company's obligations (if any) to make payments pursuant to this paragraph 4(b), Executive will execute and deliver a general release in form and substance reasonably satisfactory to the Company. (c) If the Employment Period is terminated by the Company for Cause or is terminated pursuant to clause (a)(i) above, Executive shall be entitled to receive his Base Salary through the date of termination. (d) Except as otherwise provided in Section 4(b), Section 4(c) or in this Section 4(d), all of Executive's rights to fringe benefits and bonuses hereunder (if any) which accrue or become payable after the termination of the Employment Period shall cease upon such termination. (e) For purposes of this Agreement, "Disability" (i) shall mean any physical or mental incapacitation which results in Executive's inability to perform his duties and responsibilities for the Company for a total of 90 consecutive days, as determined by the Board in its good faith judgment and (ii) shall be deemed to have occurred on the 90th day of such inability to perform. (f) For purposes of this Agreement, "Cause" shall mean the conviction of a felony, or any willful act or omission involving dishonesty or fraud with respect to the Company or any of its Subsidiaries or any of their customers or suppliers. (g) For purposes of this Agreement, "Good Reason" shall mean the occurrence, without Executive's consent, of any of the following: (i) unless corrected within 10 days after delivery by Executive of written notice to the Board of Executive's objection thereto, the assignment to Executive of any significant duties materially inconsistent with Executive's status as a chief executive officer of the Company or a substantial adverse alteration in the nature or status of Executive's responsibilities for the Company, (ii) a reduction by the Company without the amount of Executive in Executive's Base Salary in effect from time to time pursuant to this Agreement, (iii) the Board requires Executive to relocate from the San Francisco area or (iv) any other material breach of this Agreement by the Company, after delivery of written notice by Executive to the Board and a 10 day period to effect a cure. 5. Confidential Information. Each party acknowledges that in connection with the performance of this Agreement, such party may have access to or become aware of or otherwise obtain information, observations and data concerning the other party's business or affairs ("Confidential Information"). Therefore, each party agrees that, during the Employment Period and for a period of two years thereafter, it shall not disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the other party. The confidentiality and non-disclosure obligations of this Section 5 shall not apply if, and to the extent that: (i) the Confidential Information was known to the receiving party prior to its receipt from disclosing party, other than by the fault of disclosing party, (ii) the Confidential Information is or becomes part of the public domain, other than by the fault of disclosing party, (iii) the Confidential Information is rightfully disclosed to the receiving party by a third party that is legally free to disclose such Confidential Information or (iv) the Confidential Information is disclosed pursuant to 3 subpoena or other compulsory legal process, or in connection with proceedings to enforce any rights under this Agreement. 6. Noncompete. (a) Each of the parties hereto acknowledges and agrees that Kenetech is, among other things, engaged in the business of development of independent power projects throughout the United States. Executive possesses extensive knowledge and proprietary information with respect to Kenetech and its Subsidiaries, which, if disclosed or made available to Kenetech's or its successors' competitors, would have a material adverse effect on Kenetech and its successors, and Executive has been responsible for the creation of goodwill inherent in Kenetech and its Subsidiaries. In connection with the transactions contemplated by the Merger Agreement, Executive will sell or otherwise dispose of all of his shares of capital stock of Kenetech within the meaning of Section 16601 of the California Business and Professions Code. (b) In order to protect the value of the capital stock of Kenetech acquired by the Company's stockholders pursuant to the Merger Agreement (including the goodwill, Confidential Information of Kenetech, its successors and their respective Subsidiaries), Executive agrees that during the Employment Period and for any additional period Executive is receiving payments under Section 4(b) (the "Noncompete Period"), he shall not, directly or indirectly, either for himself or for any other person, partnership, corporation, company or other entity, own, manage, control, participate in, consult with, render services for, or in any other manner engage in any business or enterprise which designs, produces, renders or sells services anywhere in the United States which compete with the services of Kenetech, its successors or any of their respective Subsidiaries (or any services Kenetech, its successors or any of their respective Subsidiaries are then currently actively in process of developing or planning for). Executive agrees that the aforementioned covenant is reasonable with respect to its duration, geographical area and scope. Neither the provision of employment services to the Company, its successors or their respective Subsidiaries pursuant to this Agreement nor the ownership of any securities of the Surviving Corporation, its successors or their respective Subsidiaries shall be deemed a violation of this Section 7(b). For purposes of this paragraph (b), "participate" includes any direct or indirect interest in any enterprise, whether as an officer, director, employee, partner, sole proprietor, agent, representative, independent contractor, executive, franchisor, franchisee, creditor, owner or otherwise; provided that the foregoing activities shall not include the passive ownership (i.e., Executive does not directly or indirectly participate in the business or management of the applicable entity) of less than 5% of the stock of a publicly-held corporation. Notwithstanding the foregoing, this paragraph 7(b) shall not apply to any investments made in accordance with the provisions of Section 8 of this Agreement. 7. Enforcement. If, at the time of enforcement of paragraph 5 or 6 of this Agreement, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area. Because Executive's services are unique and because Executive has access to Confidential Information, the parties hereto agree that monetary damages would not be an adequate remedy for any breach of this Agreement. Therefore, in the event a breach or threatened breach of this 4 Agreement, the Company or its successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions hereof. In addition, in the event of an alleged breach or violation by Executive of paragraph 6, the Noncompete Period shall be tolled until such breach or violation has been duly cured. Executive agrees that the restrictions contained in paragraph 6 are reasonable. 8. Other Investment Opportunities. As long as Executive is employed by the Company or any of its Subsidiaries, each of the Executive and the Company and/or ValueAct Capital Partners, L.P. and its related investors (collectively, "VACP") (the "Discovering Party") agree that they will offer to the other party the opportunity to participate in any investment opportunity developed by or made available to the Discovering Party relating to the development of independent power projects on terms identical to those available to the Discovering Party up to their pro rata equity ownership in the Company. The Discovering Party shall use best efforts to obtain the agreement of the prospective investee to the participation of the other party in any contemplated investment and the Discovering Party shall not make any investment subject to the terms of this Section if such prospective investee declines to allow the participation of the other party. 9. Executive's Representations. Executive hereby represents and warrants to the Company that (i) the execution, delivery and performance of this Agreement by Executive do not and will not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Executive is a party or by which he is bound, (ii) Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other person or entity (other than the employment agreement described in the recitals to this agreement) and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of Executive, enforceable in accordance with its terms. Executive hereby acknowledges and represents that he has consulted with independent legal counsel regarding his rights and obligations under this Agreement and that he fully understands the terms and conditions contained herein. 10. Survival. Paragraphs 5 and 6 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period. 11. Notices. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed by first class mail, return receipt requested, to the recipient at the address below indicated: 5 Notices to Executive: Notices to the Company: -------------------- ---------------------- Mark D. Lerdal KC Merger Corp c/o KENETECH Corporation c/o ValueAct Capital Partners L.P. 500 Sansome Street, #410 One Maritime Plaza, Suite 1400 San Francisco, CA 94111 San Francisco, CA 94112 Attn: Jeffrey Ubben With copies to: With copies to: --------------- --------------- Gibson, Dunn & Crutcher Kirkland & Ellis One Montgomery Street, 31/st/ Floor 200 East Randolph Drive San Francisco, CA 94114 Chicago, Illinois 60601 Attn: Douglas D. Smith Attn: Jeffrey C. Hammes, P.C. Dennis M. Myers or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered or mailed. 12. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. In the event that any ruling of any court or governmental authority calls into question the validity of any portion of this Agreement, the parties hereto shall consult with each other concerning such matters and shall negotiate in good faith a modification to this Agreement which would obviate any such questions as to validity while preserving, to the extent possible, the intent of the parties and the economic and other benefits of this Agreement and the portion thereof whose validity is called into question. 13. Complete Agreement. This Agreement, those documents expressly referred to herein and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 14. No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party. 6 15. Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. 16. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive, the Company and their respective heirs, successors and assigns, except that Executive may not assign his rights or delegate his obligations hereunder without the prior written consent of the Company. 17. CHOICE OF LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF CALIFORNIA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. EACH OF THE PARTIES HERETO MAINTAINS SUBSTANTIAL CONTACTS WITH THE STATE OF CALIFORNIA, AND A SIGNIFICANT PORTION OF THE PARTIES' EMPLOYMENT RELATIONSHIP SHALL BE CARRIED OUT IN THE STATE OF CALIFORNIA. EACH PARTY AGREES THAT THE COVENANT PROVIDING FOR CALIFORNIA LAW TO GOVERN THIS AGREEMENT IS A MATERIAL INDUCEMENT TO EACH PARTY TO ENTER INTO THIS AGREEMENT, AND EACH PARTY RELIED ON SUCH COVENANT TO ENTER INTO THIS AGREEMENT. 18. Amendment and Waiver. The provisions of this Agreement may be amended or waived only with the prior written consent of the Company and Executive, and no course of conduct or failure or delay in enforcing the provisions of this Agreement shall affect the validity, binding effect or enforceability of this Agreement. 19. References to the Company. From and after the effectiveness of the transactions contemplated by the Merger Agreement, all references to the Company shall be deemed to be references to the Surviving Corporation. 20. Expenses. As of the Effective Date, the Company agrees to pay all reasonable attorneys fees incurred by Executive in connection with the creation, execution and delivery of this Agreement and the Stockholders Agreement; provided, that the Company's obligations pursuant to this Section 20 shall not exceed $35,000 in the aggregate. 21. Dispute Resolution. (a) Notwithstanding any provision to the contrary in this Agreement, the provisions of this Section 21 shall not apply to any dispute, claim or controversy involving any of the covenants set forth in Section 5 or 6 of this Agreement. Any dispute, claim or controversy arising out of any of the covenants set forth in Section 5 or 6 of this Agreement shall be adjudicated in any court of competent jurisdiction. 7 (b) Each of the parties hereto agrees that they will attempt to settle any dispute, claim or controversy arising out of this Agreement through good faith negotiations in the spirit of mutual cooperation. (c) Any dispute, claim or controversy that cannot be resolved by the parties through good faith negotiations within 30 days of the notification to the other party of the commencement of the dispute resolution procedures of this Section 21 will then, upon the written request of any party hereto, be resolved by binding arbitration conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association by a sole arbitrator. Such arbitrator shall be mutually agreeable to the parties. If the parties cannot mutually agree upon the selection of an arbitrator, the arbitrator shall be selected in accordance with the then effective Commercial Arbitration Rules of the American Arbitration Association. To the extent not governed by such rules, such arbitrator shall be directed by the parties to set a schedule for determination of such dispute, claim or controversy that is reasonable under the circumstances. Such arbitrator shall be directed by the parties to determine the dispute in accordance with this Agreement and the substantive rules of law (but not the rules of procedure or evidence) that would be applied by a federal court required to apply the internal law (and not the law of conflicts) of the State of California. The arbitration will be conducted in San Francisco, California. Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction. (d) Nothing contained in this Section 21 shall prevent any party hereto from resorting to judicial process if injunctive or other equitable relief from a court is necessary to prevent injury to such party or its affiliates. The use of arbitration procedures will not be construed under the doctrine of laches, waiver or estoppel to affect adversely the rights of any party to assert any claim or defense. 22. Attorneys' Fees. In the event that any action or proceeding, including without limitation arbitration, is commenced by any party hereto for the purpose of enforcing any provision of this Agreement, the parties to such action, proceeding or arbitration shall receive as part of any award, judgment, decision or other resolution of such action, proceeding or arbitration their costs and reasonable attorneys' fees as determined by the person or body making such award, judgment, decision or resolution. Should any claim hereunder be settled short of the commencement of any such action or proceeding, including arbitration, the parties in such settlement shall be entitled to include as part of the damages alleged to have been incurred reasonable costs of attorneys or other professionals in investigation or counseling on such claim. * * * * * 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. KC MERGER CORP. By: /s/ Jeffrey W. Ubben -------------------------- Its: Secretary/Treasurer -------------------------- /s/ Mark D. Lerdal _____________________________ MARK D. LERDAL VALUEACT CAPITAL PARTNERS, L.P. By: VA Partners, L.L.C. Its: General Partner By: /s/ Jeffrey W. Ubben -------------------------- Its: Managing Member ------------------------- 9 EX-99.(D)(4) 13 0013.txt VOTING AGREEMENT AMONG PURCHASER, PARENT & LERDAL EXHIBIT (d)(4) VOTING AGREEMENT VOTING AGREEMENT, dated as of October 25, 2000 (the "Agreement"), among KC Holding Corporation, a Delaware corporation ("Parent"), KC Merger Corp., a Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser"), and Mark D. Lerdal (the "Stockholder"), a stockholder in KENETECH Corporation (the "Company"). W I T N E S S E T H: WHEREAS, contemporaneously with the execution and delivery of this Agreement, Parent, Purchaser and the Company are entering into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which provides for, upon the terms and subject to the conditions set forth therein, (i) the commencement by Purchaser of a tender offer (the "Offer") for all of the issued and outstanding shares of common stock, par value $.0001 per share, of the Company, together with the associated rights attached thereto (the "Rights") issued pursuant to that certain Rights Agreement (as defined in the Merger Agreement) (collectively, the "Company Common Stock"), at a purchase price of $1.04 per Company Common Stock and (ii) the subsequent merger of Purchaser with and into the Company (the "Merger"); WHEREAS, as of the date hereof, the Stockholder owns beneficially 11,365,458 shares of Company Common Stock (all such shares so owned and which may hereafter be acquired by such Stockholder prior to the termination of this Agreement, whether upon the exercise of options or by means of purchase, dividend, distribution or otherwise, being referred to herein as such Stockholder's "Shares"); WHEREAS, on October 24, 2000, Stockholder entered into a Subscription and Contribution Agreement (the "Subscription Agreement") with Parent pursuant to which, on the terms set forth therein, Stockholder will contribute all of such Stockholder's Shares to Parent in exchange for shares of common stock, par value $.01 per share, of Parent; WHEREAS, as a condition to their willingness to enter into the Merger Agreement, Parent and Purchaser have requested that the Stockholder enter into this Agreement; and WHEREAS, in order to induce Parent and Purchaser to enter into the Merger Agreement, the Stockholder is willing to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Purchaser and the Stockholder hereby agree as follows: Article 1. Transfer and Voting of Shares; and Other Covenants of the Stockholders Section 1.1. Voting Of Shares. From the date hereof until the termination of this Agreement pursuant to Section 5.2 hereof (the "Term"), at any meeting of the stockholders of the Company, however called, and in any action by consent of the stockholders of the Company, Stockholder shall vote his Shares (i) in favor of the Merger and the Merger Agreement (as amended from time to time; provided that Stockholder shall not be required to vote in favor of the Merger Agreement or the Merger if the Merger Agreement has been amended in any manner that is material and adverse to the Stockholder without such Stockholder's written consent), (ii) against any Takeover Proposal and against any proposal for action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement or which is reasonably likely to result in any of the conditions of the Company's obligations under the Merger Agreement not being fulfilled, any change in the directors of the Company, any change in the present capitalization of the Company or any amendment to the Company's Articles of Incorporation or By-Laws, any other material change in the Company's corporate structure or business, or any other action, which in the case of each of the matters referred to in this clause (ii) could reasonably be expected to impede, interfere with, delay, postpone or materially adversely affect the transactions contemplated by the Merger Agreement or the likelihood of such transactions being consummated and (iii) in favor of any other matter necessary for consummation of the transactions contemplated by the Merger Agreement which is considered at any such meeting of stockholders or in such consent, and in connection therewith to execute any documents which are necessary or appropriate in order to effectuate the foregoing, including the ability for Purchaser or its nominees to vote such Shares directly. Section 1.2. No Inconsistent Arrangements. Except as contemplated by this Agreement and the Subscription Agreement, Stockholder shall not during the Term (i) transfer (which term shall include, without limitation, any sale, assignment, gift, pledge, hypothecation or other disposition), or consent to any transfer of, any or all of Stockholder's Shares or any interest therein, or create or, permit to exist any lien or other encumbrance on such Shares, (ii) enter into any contract, option or other agreement or understanding with respect to any transfer of any or all of such Shares or any interest therein, (iii) grant any proxy, power-of-attorney or other authorization in or with respect to such Shares, (iv) deposit such Shares into a voting trust or enter into a voting agreement or arrangement with respect to such Shares, or (v) take any other action that would in any way restrict, limit or interfere with the performance of his obligations hereunder or the transactions contemplated hereby or by the Merger Agreement. Section 1.3. Proxy. Stockholder hereby revokes any and all prior proxies or powers of attorney in respect of his Shares and constitutes and appoints Purchaser and Parent, or any nominee of Purchaser and Parent, with full power of substitution and resubstitution, at any time during the Term, as his true and lawful attorney and proxy (his "Proxy"), for and in his name, place and stead, to demand that the Secretary of the Company call a special meeting of the stockholders of the Company for the purpose of considering any matter referred to in Section 1.1 and to vote each 2 of such Shares as his Proxy, at every annual, special, adjourned or postponed meeting of the stockholders of the Company, including the right to sign his name (as stockholder) to any consent, certificate or other document relating to the Company that the General Corporate Law of the State of Delaware may permit or require as provided in Section 1.1. THE FOREGOING PROXY AND POWER OF ATTORNEY ARE IRREVOCABLE AND COUPLED WITH AN INTEREST THROUGHOUT THE TERM. Section 1.4. Waiver Of Appraisal Rights. Stockholder hereby waives any rights of appraisal or rights to dissent from the Merger. Section 1.5. Stop Transfer. Stockholder shall not request that the Company register the transfer (book-entry or otherwise) of any certificate or uncertificated interest representing any of his Shares, unless such transfer is made in compliance with this Agreement (including the provisions of Article III hereof) Section 1.6. No Solicitation. During the Term, Stockholder shall not, nor shall it permit or authorize any of his agents or representatives (collectively, the "Representatives") to, (i) solicit or initiate, or encourage, directly or indirectly, any inquiries regarding or the submission of, any Takeover Proposal, (ii) participate in any discussions or negotiations regarding, or furnish to any Person any information or data with respect to, or take any other action to knowingly facilitate the making of any proposal that constitutes, or may reasonably be expected to lead to, any Takeover Proposal or (iii) enter into any agreement with respect to any Takeover Proposal or approve or resolve to approve any Takeover Proposal. Upon execution of this Agreement, Stockholder shall, and he shall cause his Representatives to, immediately cease any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. Stockholder will promptly notify Parent of the existence of any proposal, discussion, negotiation or inquiry received by Stockholder, and Stockholder will immediately communicate to Parent the terms of any proposal, discussion, negotiation or inquiry which he may receive (and will promptly provide to Parent copies of any written materials received by him in connection with such proposal, discussion, negotiation or inquiry) and the identity of the Person making such proposal or inquiry or engaging in such discussion or negotiation. Nothing in this Agreement shall be construed to prohibit the Stockholder from taking an action solely in his capacity as an officer of the Company or a member of the Company's Board of Directors or from exercising his fiduciary duties as a member of such Board of Directors. Article 2. No Tender of Shares Section 2.1. No Tender. Stockholder shall not tender his Shares pursuant to the Offer. 3 Section 2.2. Disclosure. Stockholder hereby authorizes Parent and Purchaser to publish and disclose in the Offer Documents and, if approval of the Company's stockholders is required under applicable law, the Proxy Statement (including all documents and schedules filed with the SEC), his identity and ownership of the Company Common Stock and the nature of his commitments, arrangements and understandings under this Agreement (provided that Stockholder and its counsel shall be afforded reasonable opportunity to review and comment thereon with respect to such disclosure, and Parent and Purchaser shall consult in good faith with Stockholder with respect to such comments). Article 3. Representations and Warranties of the Stockholder Except as stated in a disclosure letter dated this same date Stockholder hereby represents and warrants to Parent and Purchaser as follows: Section 3.1. Due Authorization, Etc. Stockholder has all requisite power and authority to execute, deliver and perform this Agreement, to appoint Purchaser and Parent as his Proxy and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by or on behalf of Stockholder and constitutes a legal, valid and binding obligation of Stockholder, enforceable against Stockholder in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding for such remedy may be brought. There is no beneficiary or holder of a voting trust certificate or other interest of any trust of which Stockholder is trustee whose consent is required for the execution and delivery of this Agreement or the consummation by Stockholder of the transactions contemplated hereby. Section 3.2. No Conflicts; Required Filings and Consents. (1) The execution and delivery of this Agreement by Stockholder does not, and the performance of this Agreement by Stockholder will not, (i) conflict with or violate any trust agreement or other similar documents relating to any trust of which Stockholder is trustee, (ii) conflict with or violate any law applicable to Stockholder or by which Stockholder or any of Stockholder's properties is bound or affected or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any assets of Stockholder, including, without limitation, Stockholder's Shares, pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Stockholder is a party or by which Stockholder or any of Stockholder's assets is bound or affected, except, in the case of clauses (ii) and (iii), for any such breaches, defaults or other occurrences that would not prevent or delay the performance by Stockholder of Stockholder's obligations under this Agreement. 4 (2) The execution and delivery of this Agreement by Stockholder does not, and the performance of this Agreement by Stockholder will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority (other than any necessary filing under the HSR Act or the Exchange Act), domestic or foreign, except where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or delay the performance by Stockholder of his obligations under this Agreement. Section 3.3. No Finder's Fees. No broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Stockholder. Stockholder, on behalf of itself and its affiliates, hereby acknowledges that it is not entitled to receive any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated hereby or by the Merger Agreement. Article 4. Representations and Warranties of Parent and Purchaser Parent and Purchaser hereby, jointly and severally, represent and warrant to the Stockholder as follows: Section 4.1. Due Organization, Authorization, Etc. Purchaser and Parent are duly organized, validly existing and in good standing under the laws of their jurisdiction of incorporation. Purchaser and Parent have all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by each of Purchaser and Parent have been duly authorized by all necessary corporate action on the part of Purchaser and Parent, respectively. This Agreement has been duly executed and delivered by each of Purchaser and Parent and constitutes a legal, valid and binding obligation of each of Purchaser and Parent, enforceable against Purchaser and Parent in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding for such remedy may be brought. Article 5. Miscellaneous Section 5.1. Definitions. Terms used but not otherwise defined in this Agreement have the meanings ascribed to such terms in the Merger Agreement. 5 Section 5.2. Termination. This Agreement shall terminate and be of no further force and effect (i) by the written mutual consent of the parties hereto, (ii) automatically and without any required action of the parties hereto upon the Effective Time or (iii) upon termination of the Merger Agreement in accordance with its terms. No such termination of this Agreement shall relieve any party hereto from any liability for any breach of this Agreement prior to termination. Section 5.3. Further Assurance. From time to time, at another party's request and without consideration, each party hereto shall execute and deliver such additional documents and take all such further action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. Section 5.4. Certain Events. Stockholder agrees that this Agreement and Stockholder's obligations hereunder shall attach to Stockholder's Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including, without limitation, Stockholder's heirs, guardians, administrators, or successors. Notwithstanding any transfer of Shares, the transferor shall remain liable for the performance of all its obligations under this Agreement. Section 5.5. No Waiver. The failure of any party hereto to exercise any right, power, or remedy provided under this agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, or any custom or practice of the parties at variance with the terms hereof shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. Section 5.6. Specific Performance. Stockholder acknowledges that if he fails to perform any of his obligations under this Agreement immediate and irreparable harm or injury would be caused to Parent and Purchaser for which money damages would not be an adequate remedy. In such event, Stockholder agrees that each of Parent and Purchaser shall have the right, in addition to any other rights it may have, to specific performance of this Agreement. Accordingly, if Parent or Purchaser should institute an action or proceeding seeking specific enforcement of the provisions hereof, Stockholder hereby waives the claim or defense that Parent or Purchaser, as the case may be, has an adequate remedy at law and hereby agrees not to assert in any such action or proceeding the claim or defense that such a remedy at law exists. Stockholder further agrees to waive any requirements for the securing or posting of any bond in connection with obtaining any such equitable relief. Section 5.7. Notice. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made (i) as of the date delivered or sent by facsimile if delivered personally or by facsimile, and (ii) on the third business day after deposit in the U.S. mail, if mailed by registered or certified mail (postage prepaid, return receipt requested), in each case to the parties at the following addresses (or at such other address for 6 a party as shall be specified by like notice, except that notices of changes of address shall be effective upon receipt) (a) If to Parent or Purchaser: c/o ValueAct Capital Partners, L.P. One Maritime Plaza Suite 1400 San Francisco, California 94111 Attention: Jeff Ubben Facsimile: (415) 362-5727 With copies to: Kirkland & Ellis 200 E. Randolph Drive Chicago, Illinois 60601 Attention: Dennis M. Myers Facsimile: (312) 861-2200 (b) If to a Stockholder: Mark D. Lerdal c/o KENETECH Corporation 500 Sansome Street, #410 San Francisco, California 94111 Facsimile: (415) 984-8102 With copies to: Gibson, Dunn & Crutcher One Montgomery St., 31/st/ Floor San Francisco, CA 94114 Attention: Doug Smith Facsimile No.: (415) 986-5309 Section 5.8. Expenses. Except as otherwise expressly set forth herein, all fees, costs and expenses incurred in connection with this Agreement or the Merger Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees, costs and expenses. Section 5.9. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 7 Section 5.10. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the maximum extent possible. Section 5.11. Attorneys' Fees. In the event that any action or proceeding, including without limitation arbitration, is commenced by any party hereto for the purpose of enforcing any provision of this Agreement, the parties to such action, proceeding or arbitration shall receive as part of any award, judgment, decision or other resolution of such action, proceeding or arbitration their costs and reasonable attorneys' fees as determined by the person or body making such award, judgment, decision or resolution. Should any claim hereunder be settled short of the commencement of any such action or proceeding, including arbitration, the parties in such settlement shall be entitled to include as part of the damages alleged to have been incurred reasonable costs of attorneys or other professionals in investigation or counseling on such claim. Section 5.12. Entire Agreement; No Third-Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes any and all other prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof, and this Agreement is not intended to confer upon any other person any rights or remedies hereunder. Section 5.13. Assignment. This Agreement shall not be assigned by operation of law or otherwise. Section 5.14. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware applicable to contracts executed in and to be performed entirely within that State. Section 5.15. Amendment. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. Section 5.16. Waiver. Any party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties of the other parties hereto contained herein or in any document delivered pursuant hereto and (c) waive compliance by the other parties hereto with any of their agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only as against such party and only if set forth in an 8 instrument in writing signed by such party. The failure of any party hereto to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of those rights. Section 5.17. Counterparts. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement. 9 IN WITNESS WHEREOF, Parent, Purchaser and the Stockholder have caused this Agreement to be executed as of the date first written above. KC HOLDING CORPORATION By: /s/ Jeffrey W. Ubben ---------------------------------- Name: Jeffrey W. Ubben ---------------------------------- Title: Secretary/Treasurer ---------------------------------- KC MERGER CORP. By: /s/ Jeffrey W. Ubben ---------------------------------- Name: Jeffrey W. Ubben ---------------------------------- Title: Secretary/Treasurer ---------------------------------- STOCKHOLDER: /s/ Mark D. Lerdal __________________________________ Mark D. Lerdal EX-99.(D)(5) 14 0014.txt SUBSCRIPTION AND CONTRIBUTION AGREEMENT EXHIBIT (d)(5) SUBSCRIPTION AND CONTRIBUTION AGREEMENT THIS SUBSCRIPTION AND CONTRIBUTION AGREEMENT (this "Agreement") is entered into as of October 24, 2000, by and among KC Holding Corporation, a Delaware corporation (the "Company"), ValueAct Capital Partners, L.P. ("VAC" or the "Cash Investor"), and Mark D. Lerdal (the "Exchange Investor" and together with the Cash Investor, the "Investors"). Each capitalized term used and not otherwise defined herein has the meaning given to such term in Section 9 below. Subject to the terms and conditions set forth herein, the parties hereto desire to consummate the following integrated plan of corporate structuring: (i) the Company desires to receive from the Cash Investor, and the Cash Investor desires to deliver to the Company, the amount of cash consideration described herein in exchange for the Company's issuance to the Cash Investor of that certain number of Common Shares (as defined herein) described herein and (ii) the Company desires to receive from the Exchange Investor, and the Exchange Investor desires to contribute to the Company, that number of shares of Target Common Stock (as defined herein) described herein in exchange for the Company's issuance to the Exchange Investor of that certain number of Common Shares described herein. NOW, THEREFORE, in consideration of the mutual covenants, agreements, and understandings herein contained, the parties hereto agree as follows: 1. Authorization of Capital Stock. The Company's authorized capital stock consists of (i) 5,000,000 shares of common stock, par value $0.01 per share (the "Common Shares"), and (ii) 5,000 shares of undesignated preferred stock (the "Preferred Shares"). 2. Purchase And Sale of Common Shares. (a) Subject to the terms and conditions hereof, on the Sale Closing Date (as defined herein) the Company shall issue to the Cash Investor, and the Cash Investor shall purchase from the Company, 865,214 Common Shares for the aggregate cash consideration of $21,630,350. The per share purchase price of such Common Shares is $25.00. (b) Subject to the terms and conditions hereof, on the Exchange Closing Date (as defined herein) the Company shall issue to the Exchange Investor, and the Exchange Investor shall purchase from the Company, 472,803 Common Shares (the "Exchange Shares") in exchange for an aggregate of 11,365,458 shares of common stock, par value $.000l per share ("Target Common Stock"), of KENETECH Corporation, a Delaware corporation ("Target"). The value per share of such shares of Target Common Stock transferred by the Exchange Investor to the Company is $1.04. (c) Against the delivery by each Investor of the consideration set forth herein or opposite such Investor's name on Schedule I, as the case may be, the Company shall effect the issuances and sales referred to in Sections 2(a) and 2(b) above by executing and delivering to each Investor duly executed certificates evidencing the Common Shares subscribed to by each such Investor, each certificate duly registered in such Investor's name. Any cash payment to be made by the Cash Investor shall be made by wire transfer. (d) The closing of the sale of the Common Shares to the Cash Investor (the "Closing") shall take place one business day after the date on which KC Merger Corp., a Delaware corporation ("Merger Sub"), a wholly owned subsidiary of the Company, shall have accepted for payment the shares of Target Common Stock tendered in the Offer (as defined in that certain Agreement and Plan of Merger, entered into as of the date hereof, by and among the Company, Merger Sub and Target (the "Merger Agreement")). The closing of the exchange by the Exchange Investor of Target Common Stock for Exchange Shares (the "Exchange Closing") shall take place at such time on date mutually agreed upon by the Company and the Exchange Investor but in no event later than December 28, 2000. The Company will immediately contribute to Merger Sub: (i) the proceeds from the sale of the Common Shares to the Cash Investor, who shall immediately deposit such funds with the depository in order to fund the purchase of the shares of Target Common Stock pursuant to the Offer and (ii) the shares of Target Common Stock contributed to the Company by the Exchange Investor. The date of the Sale Closing is herein referred to as the "Sale Closing Date," the date of the Exchange Closing is herein referred to as the "Exchange Closing Date" and each are collectively referred to as the "Closing Dates." (e) On the applicable Closing Dates, the Company shall deliver to each Investor such officers' certificates, good standing certificates and instruments as shall be reasonably requested relating to the transactions contemplated hereby. (f) In order to facilitate the contribution of the Exchange Shares by the Exchange Investor, the Exchange Investor shall deliver within ten business days of the date hereof one or more certificates representing all of the Exchange Shares to be contributed by the Exchange Investor to the Company, together with stock powers or other instruments duly endorsed or otherwise sufficient for transfer (the "Exchange Instruments"). The Company shall hold the Exchange Instruments in escrow pending the Exchange Closing. On the Exchange Closing Date, the Company is authorized to present the Exchange Instruments to the transfer agent for Target and instruct the transfer agent to register the Exchange Shares in the name of the Company or its designee. (g) The Exchange Investor agrees for U.S. federal income tax purposes to treat its exchange of Target Common Stock for Common Shares as described herein as a transaction described in Section 351(a) of the Internal Revenue Code of 1986, as amended. 3. Restrictions on Stock. None of the Common Shares (including any securities received as a result of dividends, splits or any other forms of recapitalization in respect of such Common Shares) shall be Transferred (as hereinafter defined), either voluntarily or involuntarily, directly or indirectly, except (i) pursuant to an effective registration under the Securities Act (as hereinafter defined), or in a transaction which, in the opinion of counsel reasonably satisfactory to 2 the Company, qualifies as an exempt transaction under the Securities Act and the rules and regulations promulgated thereunder and (ii) in accordance with the terms of the Stockholders Agreement, dated as of the Closing Date, by and among the Company and the Investors (as the same may be amended from time to time, the "Stockholders Agreement"), such agreement to be substantially in the form attached hereto as Exhibit A. 4. Representations and Warranties of the Company. The Company represents and warrants that: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Attached hereto as Exhibits B and C, respectively, are true and complete copies of the Certificate of Incorporation and the Bylaws of the Company as in effect on the date hereof. (b) The Company has been recently formed to enter into the Merger Agreement and to consummate the transactions contemplated thereby and has not conducted any business other than in connection therewith and certain start-up activities. Prior to the Exchange Closing Date, the Company will have no assets or liabilities other than those incurred in connection with the Company's incorporation and the Company's start-up activities, and those acquired or assumed pursuant to the Merger Agreement and those acquired or incurred in connection with the transactions contemplated thereby. (c) The execution, delivery and performance by the Company of this Agreement and the Merger Agreement and the consummation of the transactions contemplated hereby and thereby are within the corporate powers of the Company. The Board of Directors of the Company (the "Board") has authorized the execution, delivery, and performance of this Agreement and the Merger Agreement, and each of the transactions contemplated hereby and thereby. No other corporate action is necessary to authorize such execution, delivery and performance, and upon such execution and delivery, each of this Agreement and the Merger Agreement shall constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The Board has authorized the issuance and delivery of the Common Shares in accordance with this Agreement. (d) The Common Shares to be issued and sold by the Company pursuant to this Agreement, when issued in accordance with the provisions hereof, will be validly issued, fully paid and nonassessable, and each Investor will acquire good title to such Common Shares, free and clear of any lien or claim of any kind, other than as contemplated by this Agreement and the Stockholders Agreement or any liens incurred by the Investors, and no stockholder of the Company has any preemptive rights to subscribe for any of such Common Shares. (e) Except for filings by the Investors, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the creation, authorization, issuance, offer and sale of the Common Shares do not require any consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of the Company or the vote, consent or 3 approval in any manner of the holders of any security of the Company as a condition to the execution and delivery of this Agreement or the creation, authorization, issuance, offer and sale of the Common Shares. The execution and delivery by the Company of this Agreement and the Merger Agreement and the performance by the Company of its obligations hereunder and thereunder will not violate (i) the terms and conditions of the Certificate of Incorporation or the Bylaws of the Company, or any agreement or instrument to which the Company is a party or by which it is bound or (ii) subject to the accuracy of the Investors' representations and warranties contained in Section 5 hereof, any federal or state law. (f) Immediately prior to the Sale Closing, the Company will have one outstanding Common Share. Immediately after the Exchange Closing, the outstanding capital stock of the Company will consist of 1,338,017 Common Shares and no Preferred Shares. There are, and immediately after the Closing there will be, no outstanding (i) securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, (ii) options or other rights to acquire from the Company, or other obligations of the Company to issue any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company or (iii) obligations of the Company to repurchase or otherwise acquire or retire any shares of capital stock or any convertible securities, rights or options of the type described in clause (i) or (ii). (g) Other than this Agreement, the Merger Agreement, and the Stockholders Agreement, no agreement or other arrangement regarding any class of capital stock of the Company exists between the Company, or any of its affiliates and any Person. The Company is not a party to, has not agreed to be a party to, and does not plan to become a party to any agreement or arrangement with any affiliate, stockholder or other person or entity who will become a stockholder of the Company in connection with the transactions contemplated by the Merger Agreement and this Agreement, which has not been disclosed to each Investor. (h) There is no investment banker, broker or finder which has been retained by, will be retained by or is authorized to act on behalf of the Company who will be entitled to any fee or commission from the Target or the Company upon consummation of the transactions contemplated by this Agreement. (i) Neither Company, Merger Sub nor any executive officer or director of Company or Merger Sub owns any shares of Target Common Stock (or any security exchangeable for or convertible into such shares). 5. Investor Representations. Each Investor and with respect to Section 5(h), solely the Exchange Investor, represents and warrants that: (a) Offering Exemption. The Investor understands that the Common Shares have not been registered under the Securities Act, nor qualified under any state securities laws, and that 4 they are being offered and sold pursuant to an exemption from such registration and qualification based in part upon such Investor's representations contained herein. (b) Knowledge of Offer. The Investor is familiar with the business and operations of the Company and has been given the opportunity to obtain from the Company all information that such Investor has requested regarding its business plans and prospects. (c) Knowledge and Experience; Ability to Bear Economic Risks. The Investor has such knowledge and experience in financial and business matters that the Investor is capable of evaluating the merits and risks of the investment contemplated by this Agreement; and the Investor is able to bear the economic risk of this investment in the Company (including a complete loss of this investment). (d) Limitations on Disposition. The Investor recognizes that no public market exists for the Common Shares, and none will exist in the future. The Investor understands that the Investor must bear the economic risk of this investment indefinitely unless the Common Shares are registered pursuant to the Securities Act or an exemption from such registration is available, and unless the disposition of such Common Shares is qualified under applicable state securities laws or an exemption from such qualification is available, and that the Company has no obligation or present intention of so registering the Common Shares. The Investor further understands that there is no assurance that any exemption from the Securities Act will be available, or, if available, that such exemption will allow the Investor to Transfer any or all of the Common Shares, in the amounts, or at the times the Investor might propose. The Investor understands at the present time Rule 144 promulgated under the Securities Act by the SEC ("Rule 144") is not applicable to sales of the Common Shares because they are not registered under Section 12 of the Exchange Act (as defined herein) and there is not publicly available the information concerning the Company specified in Rule 144. The Investor further acknowledges that the Company is not presently under any obligation to register under Section 12 of the Exchange Act or to make publicly available the information specified in Rule 144 and that it may never be required to do so. The Investor further acknowledges the restrictions on disposition and other terms set forth in the Stockholders Agreement. (e) Investment Purpose. The Investor is acquiring the Common Shares solely for its own account for investment and not with a view toward the resale, Transfer, or distribution thereof, nor with any present intention of distributing the Common Shares. No other Person (as hereinafter defined) has any right with respect to or interest in the Common Shares to be purchased by the Investor, nor has the Investor agreed to give any Person any such interest or right in the future. (f) Capacity. The Investor has full power and legal right to execute and deliver this Agreement and to perform its obligations hereunder. (g) Previous Acquisitions of Target Common Stock. The Cash Investor does not own any shares of Target Common Stock. The Exchange Investor has not acquired any shares of Target Common Stock (or any security exchangeable for or convertible into such shares) at a price in excess of the Offer Price (as defined in the Merger Agreement). 5 (h) Exchange Shares. Except as stated in a disclosure letter dated this same date, the Exchange Investor represents that he is the sole beneficial owner of his Exchange Shares, free and clear of any pledge, lien, security interest, mortgage, charge, claim, equity, option, proxy, voting restriction, voting trust or agreement, understanding, arrangement, right of first refusal, limitation on disposition, adverse claim of ownership or use or encumbrance of any kind, other than restrictions imposed by the securities laws or pursuant to this Agreement, that certain Voting Agreement, dated on or about October 24, 2000, by and between Target and the Exchange Investor, and the Merger Agreement. 6. Covenants. (a) Confidentiality. As to so much of the information and other material furnished under or in connection with this Agreement (whether furnished before, on or after the date hereof), as constitutes or contains confidential business, financial or other information of the Company or any subsidiary, each of the Investors covenants for itself, its directors, officers and partners and in its role as a director or officer of the Company or its Subsidiaries, if applicable, that it will use due care to prevent its officers, directors, partners, employees, counsel, accountants and other representatives, as the case may be, from disclosing such information to Persons other than their respective authorized employees, counsel, accountants, shareholders, partners, limited partners and other authorized representatives; provided, however, that each Investor may disclose or deliver any information or other material disclosed to or received by it should such Investor be advised by its counsel that such disclosure or delivery is required by law, regulation or judicial or administrative order. In the event of any termination of this Agreement prior to the Closing Date, each Investor shall return to the Company all confidential material previously furnished to such Investor or its officers, directors, partners, employees, counsel, accountants and other representatives in connection with this transaction. For purposes of this Section 6(a), "due care" means at least the same level of care that such Investor would use to protect the confidentiality of its sensitive or proprietary information, and this obligation shall survive termination of this Agreement. (b) Keeping of Books. The Company will keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and its subsidiaries in accordance with GAAP. (c) Lost, Etc. Certificates Evidencing Common Shares; Exchange. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any certificate evidencing any Common Shares owned by any Investor, and (in the case of loss, theft or destruction) of an unsecured indemnity satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of such certificate, if mutilated, the Company will make and deliver in lieu of such certificate a new certificate of like tenor and for the number of Common Shares evidenced by such certificate which remain outstanding. An Investor's agreement of indemnity shall constitute an indemnity satisfactory to the Company for purposes of this Section 6. Upon surrender of any certificate representing any Common Shares for exchange at the office of the Company, the Company at its expense will cause to be issued in exchange therefor new certificates in such denomination or denominations as may be requested for the same aggregate number of Common Shares represented by the certificate so 6 surrendered and registered as such holder may request. The Company will also pay the cost of all deliveries of certificates for such Common Shares to any Investor (including the cost of insurance against loss or theft in an amount satisfactory to the holders) upon any exchange provided for in this Section 6. 7. Securities Act Restrictions. In addition to the legend required by Section 1(a) of the Stockholders Agreement, the certificates evidencing the Common Shares will bear the following legend reflecting the restrictions on the transfer of such securities contained in this Agreement: "The securities evidenced hereby have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be transferred except pursuant to an effective registration under the Act or in a transaction which, in the opinion of counsel reasonably satisfactory to the Company, qualifies as an exempt transaction under the Act and the rules and regulations promulgated thereunder." 8. Other Agreements. On the Exchange Closing Date, the Company and each of the Investors shall execute and mutually deliver a counterpart of the Stockholders Agreement. The obligation of the Exchange Investor to contribute the Target Common Stock to the Company and the obligation of the Company to issue the Exchange Shares to the Exchange Investor in exchange for such shares of Target Common Stock are each expressly conditional upon, and subject to, the Board of Directors of Target taking all action necessary to render the Rights Agreement inapplicable to such transactions and any and all other transactions contemplated by this Agreement. 9. Interpretation of this Agreement. (a) Terms Defined. As used in this Agreement, the following terms have the respective meaning set forth below: Exchange Act: the Securities Exchange Act of 1934, as amended. GAAP: generally accepted accounting principles, consistently applied. Person: an individual, partnership, joint-stock company, corporation, limited liability company, trust or unincorporated organization, and a government or agency or political subdivision thereof. Rights Agreement: the Rights Agreement, dated May 4, 1999 between the Target and ChaseMellon Shareholder Services L.L.C. SEC: the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. Securities Act: the Securities Act of 1933, as amended. 7 Transfer: any sale, assignment, pledge, hypothecation, or other disposition or encumbrance. (b) Directly or Indirectly. Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. (c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed entirely within such State. (d) Section Headings. The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof. 10. Termination. (a) This Agreement may be terminated at any time upon mutual agreement of the Company, VAC and the Exchange Investor. This Agreement shall automatically terminate if the Merger Agreement is not executed and delivered by the parties thereto within five business days of the date hereof. (b) Upon a termination of this Agreement pursuant to Section 10(a), the Company shall promptly return any Exchange Instruments delivered to it pursuant to Section 2(f) to the Exchange Investor. 11. Miscellaneous. (a) Notices. All communications under this Agreement shall be in writing and shall be delivered by hand or facsimile or mailed by overnight courier or by registered mail or certified mail, postage prepaid: (i) if to the Company: ValueAct Capital Partners, L.P. One Maritime Plaza, Suite 1400 San Francisco, CA 94111 Attention: Jeff Ubben Facsimile No.: (415) 362-5727 8 With a copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attention: Dennis M. Myers Facsimile No.: (312) 861-2200 or at such other address or facsimile number as the Company may have furnished the other parties hereto in writing; (ii) if to any Cash Investor, at the address or facsimile number set forth below such Cash Investor's name on Schedule I hereto, or at such other address or facsimile number as such Cash Investor may have furnished the other parties hereto in writing. (iii) if to the Exchange Investor: Mark D. Lerdal c/o KENETECH Corporation 500 Sansome Street, #410 San Francisco, CA 94111 Facsimile No.: (415) 984-8102 With a copy to: Gibson, Dunn & Crutcher One Montgomery St., 31/st/ Floor San Francisco, CA 94114 Attention: Doug Smith Facsimile No.: (415) 986-5309 Any notice so addressed shall be deemed to be given: if delivered by hand or facsimile, on the date of such delivery, if a business day, otherwise the first business day thereafter; if mailed by courier, on the first business day following the date of such mailing; and if mailed by registered or certified mail, on the third business day after the date of such mailing. (b) Reproduction of Documents. This Agreement and all documents relating thereto, including, without limitation, (i) consents, waivers and modifications relating hereto which may hereafter be executed, (ii) documents received by the Investors on the Closing Date (except for certificates evidencing the Common Shares themselves), and (iii) financial statements, certificates and other information previously or hereafter furnished to the Investors, may be reproduced by the Investors by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process and the Investors may destroy any original document so reproduced. All parties hereto agree and stipulate that any such reproduction shall be admissible in evidence as the original 9 itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by the Investors in the regular course of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. (c) Survival. All warranties, representations, and covenants made by the Investors and the Company herein or in any certificate or other instrument delivered by any Investor or the Company under this Agreement shall be considered to have been relied upon by the Company or the Investors, as the case may be, and shall survive all deliveries to the Investors of the Common Shares, or payment to the Company for such Common Shares, regardless of any investigation made by the Company or any of the Investors, as the case may be, or on the Company's or the Investor's behalf. All statements in any such certificate or other instrument shall constitute representations and warranties by the Company hereunder. (d) Attorneys' Fees. In the event that any action or proceeding, including without limitation arbitration, is commenced by any party hereto for the purpose of enforcing any provision of this Agreement, the parties to such action, proceeding or arbitration shall receive as part of any award, judgment, decision or other resolution of such action, proceeding or arbitration their costs and reasonable attorneys' fees as determined by the person or body making such award, judgment, decision or resolution. Should any claim hereunder be settled short of the commencement of any such action or proceeding, including arbitration, the parties in such settlement shall be entitled to include as part of the damages alleged to have been incurred reasonable costs of attorneys or other professionals in investigation or counseling on such claim. (e) Successors and Assigns; Third Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. Each of the parties hereto agree and acknowledge that VAC shall be entitled to assign its rights and obligations under this agreement to one or more co-investors provided that each such co-investor agrees in writing to be bound by terms of this agreement with respect to such assignment. Notwithstanding the foregoing, no such assignment shall release VAC from its obligations hereunder. All references herein to "Cash Investor" shall be deemed to include all such co-investors in the event of any such assignment by VAC. Each of the parties hereto agree and acknowledge that the Target is a third party beneficiary of this Agreement with respect to the value being assigned to the Target Common Stock. Except for the foregoing, this Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. (f) Entire Agreement; Amendment and Waiver. This Agreement, the Stockholders Agreement and the Certificate of Incorporation of the Company constitute the entire understandings of the parties hereto and supersede all prior agreements or understandings with respect to the subject matter hereof among such parties. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with (and only with) the written consent of the Company and each of the Investors and, with respect to any change in the value being assigned to the Target Common Stock, the Target. 10 (g) Severability. In the event that any part or parts of this Agreement shall be held illegal or unenforceable by any court or administrative body of competent jurisdiction, such determination shall not affect the remaining provisions of this Agreement which shall remain in full force and effect. (h) Limitation on Enforcement of Remedies. The Company hereby agrees that it will not assert against the partners of any of the Investors any claim it may have under this Agreement by reason of any failure or alleged failure by any of the Investors to meet its obligations hereunder. (i) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. 11 IN WITNESS WHEREOF, the parties hereto have executed this SUBSCRIPTION AND CONTRIBUTION AGREEMENT on the date first written above. THE COMPANY: KC HOLDING CORPORATION By: /s/ Jeffrey W. Ubben ----------------------------------- Name: Jeffrey W. Ubben ------------------------------- Title: Secretary/Treasurer ------------------------------ THE CASH INVESTOR: VALUEACT CAPITAL PARTNERS, L.P. By: VA Partners, L.L.C. Its: General Partner By: /s/ Jeffrey W. Ubben -------------------------- Its: Managing Member ------------------------- THE EXCHANGE INVESTOR: /s/ Mark D. Lerdal ----------------------------- Mark D. Lerdal SCHEDULE I: CASH INVESTORS Name and Address ---------------- ValueAct Capital Partners, L.P. One Maritime Plaza, Suite 1400 San Francisco, CA 94111 Attention: Jeff Ubben EX-99.(D)(6) 15 0015.txt GUARANTY, EXECUTED BY VAC FOR BENEFIT OF KENETECH Exhibit (d)(6) GUARANTY THIS GUARANTY, dated as of October 25, 2000, is made and entered into by ValueAct Capital Partners, L.P., a Delaware limited partnership ("Guarantor"), and is delivered to and is for the benefit of KENETECH Corporation., a Delaware corporation (the "Company"). RECITALS WHEREAS, Guarantor desires to acquire, directly or indirectly, all of the outstanding equity interests of the Company; WHEREAS, in connection with the acquisition of the Company's equity interests, Guarantor has established KC Holding corporation, a Delaware corporation ("KC"), and KC Merger Corp., a Delaware corporation and a direct wholly-owned subsidiary of KC ("Sub"), as direct or indirect subsidiaries of Guarantor; and WHEREAS, in order to induce the Company to enter into that certain Agreement and Plan of Merger, dated as of the date hereof, among KC, Sub and the Company (such Agreement and Plan of Merger, as the same may be amended from time to time, the "Merger Agreement"), pursuant to which, and subject to the terms and conditions of which, the Company has agreed to be merged with Sub, and in consideration thereof, Guarantor is delivering this Guaranty to the Company; AGREEMENT NOW, THEREFOR, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor agrees as follows: 1. Guaranty. a. Guaranty. Guarantor hereby guarantees, as a primary obligor, to the Company and the successors, transferees and assigns of the Company, the performance by each of KC and Sub, in accordance with, and subject to the conditions set forth in the Merger Agreement, of its covenants, duties and obligations under the Merger Agreement, including without limitation, the payment of any and all payment obligations of KC and Sub under the Merger Agreement (collectively, the "Obligations"); b. Waivers. To the fullest extent permitted by applicable law, the Guarantor waives: (i) any defense based upon any legal disability of KC or Sub or any discharge or limitation on the liability of KC or Sub to the Company, whether consensual or arising by operation of law or bankruptcy, reorganization, receivership, insolvency or debtor- relief proceeding, or from any other cause; 1 (ii) presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notices of protest, notices of dishonor and notices of acceptance; and (iii) any right to require the Company to proceed against KC or Sub or any other party or to pursue any other remedy in the Company's power whatsoever. 2. Representations and Warranties. Guarantor hereby represents and warrants to the Company as follows: a. Organization; Authority. Guarantor is a limited partnership duly formed, validly existing and in good standing under the laws of Delaware. Guarantor has the requisite partnership power and authority to execute and deliver this Guaranty and to perform its obligations hereunder. The execution, delivery and performance by Guarantor of this Guaranty have been duly authorized by all necessary action on the part of Guarantor. This Guaranty has been duly executed and delivered by Guarantor and constitutes the valid and binding obligation of Guarantor, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors' rights generally and to general principles of equity. b. Litigation. There is no (i) claim, action, suit or proceeding pending or, to the best knowledge of Guarantor, threatened against Guarantor before any court, arbitrator or governmental authority, or (ii) outstanding judgment, order, writ, injunction or decree of any court, arbitrator or governmental authority in a proceeding to which Guarantor or any of its assets is subject, except such as would not materially impair the ability of Guarantor to perform its obligations hereunder. 3. Termination. This Guaranty shall terminate and be of no further force and effect upon the earlier of (i) the termination of the Merger Agreement in accordance with its terms or (ii) the payment by KC and Sub of all amounts payable pursuant to Sections 1.1(d) and 2.6(b) of the Merger Agreement; provided, that nothing in this Section 3 shall relieve the Guarantor from any liability for any payments with respect to a breach of a representation or warranty by KC or Sub contained in the Merger Agreement, or the breach by KC or Sub, which liability shall survive any termination of this Guaranty, of any covenant contained in the Merger Agreement or for fraud on the part of KC or Sub. 4. Certain Authorizations. To the fullest extent permitted by applicable law, the Company may at any time and from time to time, without the consent of or notice to Guarantor, without incurring responsibility to 2 Guarantor, and without impairing or releasing the obligations of Guarantor hereunder, upon or without any terms or conditions and in whole or in part: (i) exercise or refrain from exercising any rights against KC and Sub; (ii) subordinate, release, settle or compromise any of the Obligations; and (iii) consent to or waive any breach of, or any act, omission or default under, the Merger Agreement, or otherwise agree with KC and Sub to amend, modify or supplement the Merger Agreement. 5. Miscellaneous. a. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally, one day after being delivered to an overnight courier or when telecopied (with a confirmatory copy sent by overnight courier) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): if to Guarantor, to: ValueAct Capital Partners, L.P. One Maritime Plaza Suite 1400 San Francisco, CA 94111 Attention: Jeff Ubben Facsimile No.: 415-362-5727 with copies to: Kirkland & Ellis 200 East Randolph Drive Chicago, IL 60601 Attention: Dennis M. Myers Facsimile No.: 312-861-2200 (b) if to the Company, to: KENETECH Corporation 500 Sansome Street San Francisco, CA 94111 Attention: Dianne P. Urhausen Facsimile No.: 415-984-8191 3 with a copy to: Morrison & Foerster LLP 425 Market Street San Francisco, California 94105-2482 Attention: Michael O'Bryan Facsimile No.: 415-268-7522 and a copy to: Potter Anderson & Corroon, LLP Hercules Plaza P.O. Box 951 Wilmington, DE 19899 Attention: Mark A. Morton Facsimile No.: 302-658-1192 b. Assignment; Successors and Assigns. Guarantor shall not assign, transfer, delegate or otherwise dispose of, whether voluntarily or involuntarily, or by operation of law, any right or obligation under this Guaranty. Any purported assignment, transfer, or delegation in violation of this Section shall be null and void. Subject to the foregoing limits on assignment and delegation, this Guaranty shall be binding upon Guarantor and its successors and assigns. The Company shall not assign or transfer this Guaranty without the written consent of the Guarantor. c. Governing Law. The validity, interpretation, enforceability, and performance of this Guaranty shall be governed by and construed in accordance with the law of the State of Delaware. d. Severability. If any provision of this Guaranty, or the application thereof to any person, place or circumstances, shall be held by a court of competent jurisdiction to be invalid, unenforceable, or void, the remainder of this Guaranty and such provision as applied to other persons, places, and circumstances shall remain in full force and effect. e. Entire Agreement. The parties intend that the terms of this Guaranty, and the other documents referred to herein, shall be the final expression of their agreement with respect to the subject matter hereof and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Guaranty shall supersede all oral discussions and prior writings between the parties in respect of the subject matter hereof. f. Waiver and Compliance. Any failure of Guarantor to comply with any provision of this Guaranty may be expressly waived in writing by the Company, but such waiver or failure to insist upon strict compliance with such provision shall not operate as a waiver of, or an estoppel with respect to, any subsequent or other failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, or power hereunder preclude any other or 4 further exercise thereof or the exercise of any other right, remedy, or power provided herein or by law or in equity. The waiver by any party of the time for performance of any act or condition hereunder does not constitute a waiver of the act or condition itself. 5 IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be duly executed on its behalf as of the date first above written. VALUEACT CAPITAL PARTNERS, L.P. By: VA Partners, L.L.C. Its: General Partner By: /s/ Jeffrey W. Ubben ------------------------- Title: Managing Member ---------------------- Accepted and Agreed to: KENETECH CORPORATION By: /s/ Diane P. Urhausen ------------------------------- Title: Vice President and Secretary ---------------------------- 6 EX-99.(D)(7) 16 0016.txt FORM OF STOCKHOLDERS AGREEMENT Exhibit (d)(7) STOCKHOLDERS AGREEMENT THIS AGREEMENT is made as of ____________ __, 2000, by and among KC Holding Corporation, a Delaware corporation (the "Company"), the Persons listed on Schedule A attached hereto (the "Investing Stockholders"), and Mark D. Lerdal (the "Executive Stockholder"). The Investing Stockholders and the Executive Stockholder are collectively referred to as the "Stockholders" and individually as a "Stockholder." Except as otherwise specified herein, capitalized terms used herein are defined in paragraph 11 hereof. The Investing Stockholders shall purchase shares of Common Stock of the Company and the Executive Stockholder shall receive shares of Common Stock of the Company in exchange for his existing shares of common stock of KENETECH Corporation, a Delaware corporation, pursuant to a subscription and contribution agreement between the Company and the Stockholders dated as of October 24, 2000 (the "Subscription Agreement"). The Company and the Stockholders desire to enter into this Agreement for the purposes, among others, of (i) establishing the composition of the Company's Board of Directors (the "Board"), (ii) providing the Executive Stockholder certain veto rights with respect to certain corporate transactions, (iii) assuring continuity in the management and ownership of the Company and (iv) limiting the manner and terms by which the Stockholder Shares may be transferred. The execution and delivery of this Agreement is a condition to the Stockholders' purchase of the Company's Common Stock pursuant to the Subscription Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. Board of Directors. (a) From and after the Closing (as defined in the Subscription Agreement) and until the provisions of this paragraph 1 cease to be effective, each holder of Stockholder Shares shall vote all of his Stockholder Shares which are voting shares and any other voting securities of the Company over which such holder has voting control and shall take all other necessary or desirable actions within his control (whether in his capacity as a stockholder, director, member of a board committee or officer of the Company or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary or desirable actions within its control (including, without limitation, calling special board and stockholder meetings), so that: (i) the authorized number of directors on the Board shall be established at three directors; (ii) the following individuals shall be elected to the Board: 1 (A) one representative designated by the Executive Stockholder (the "Management Director"), which shall be Mr. Mark Lerdal; (B) two representatives elected by the Investing Stockholders, determined by the holders of a majority of the Stockholder Shares held by the Investing Stockholders (the "Investor Directors"), provided that until the first annual meeting of the Company's stockholders, Jeffrey Ubben and Peter Kamin shall serve as the Investor Directors. (iii) the composition of the board of directors of each of the Company's Subsidiaries (a "Sub Board") shall be the same as that of the Board; (iv) there shall be no executive committee of the Board or any other committee of the Board with general authority to act as the Board; (v) the removal without cause from the Board or a Sub Board of any director designated hereunder by either the Investing Stockholders or the Executive Stockholder shall be only at the written request of the Stockholder who designated such director (determined on the basis of a vote of the holders of a majority of the Stockholder Shares held by such Persons); and (vi) in the event that any director designated hereunder by the Investing Stockholders or the Executive Stockholder ceases to serve as a member of the Board or a Sub Board during his term of office, the resulting vacancy on the Board or the Sub Board shall be filled by a director selected by the Stockholder who designated such representative, as provided in this paragraph 1(a). (b) The Company shall pay the reasonable out-of-pocket expenses incurred by each director in connection with attending the meetings of the Board, any Sub Board and any committee thereof. So long as any director appointed pursuant to Section 1(a) serves on the Board and for three years thereafter, the Company shall maintain directors and officers indemnity insurance coverage reasonably satisfactory to both the Investing Stockholder and the Executive Stockholder, and the Company's certificate of incorporation and bylaws shall provide for indemnification and exculpation of directors to the fullest extent permitted under applicable law. (c) The rights of the Executive Stockholder under subparagraph 1(a)(ii)(A) shall terminate at such time as the Executive Stockholder and its Permitted Transferees (as defined in subparagraph 6(d) hereof) hold in the aggregate less than 50% of the Stockholder Shares held by the Executive Stockholder on the date hereof. (d) The rights of the Investing Stockholders under subparagraph 1(a)(ii)(B) shall terminate at such time as the Investing Stockholders and their Permitted Transferees (as defined in subparagraph 6(d) hereof) hold in the aggregate less than 50% of the aggregate number of Stockholder Shares held by the Investing Stockholders on the date hereof. 2 (e) If any Stockholder or group of Stockholders fails to designate a director pursuant to the terms of this paragraph 1 within a reasonable time or any Stockholder or group of Stockholders ceases to have such right hereunder, the election of an individual to such directorship shall be accom plished in accordance with the Company's bylaws and applicable law. 2. Extraordinary Transactions. So long as the Executive Stockholder is entitled to designate a representative to the Board in accordance with paragraph 1, the unanimous consent of the Board shall be required in order for the Company to take any of the following actions (each an "Extraordinary Transaction"): (a) acquire any interest in any company or business (whether by purchase of assets, purchase of stock, merger or otherwise), enter into any joint venture or initiate the funding of any start-up enterprise, or permit any Subsidiary to acquire any interest in any company or business (whether by a purchase of assets, purchase of stock, merger or otherwise), enter into any joint venture or initiate the funding of any start-up enterprise, in each case involving aggregate consideration in excess of $250,000; (b) sell, lease, transfer, assign, convey or otherwise transfer any assets of the Company or a Subsidiary (including the capital stock of the Company or any Subsidiary) in a transaction or series of related transactions for which the Company or any Subsidiary receives aggregate consideration in excess of $250,000; (c) liquidate or dissolve the Company or any Subsidiary; (d) enter into an agreement to merge or consolidate into or with any other Person; (e) make any investment in any company or business greater than $250,000 (whether in a single transaction or a series of related transactions); (f) declare or pay any dividend or make any distribution on or in respect of shares of the Company's capital stock to holders of such capital stock (other than dividends or distributions payable in kind); (g) create, incur, assume or suffer to exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any indebtedness exceeding an aggregate principal amount of $100,000 outstanding at any time on a consolidated basis; or (h) amend, alter or modify the Confidentiality Agreement entered into between the controlling stockholder of the Company and KENETECH Corporation on June 29, 2000. (i) issue any new capital stock or other equity securities in the Company, (including, without limitation warrants, options and other rights to capital stock or equity securities) or file a registration statement preparatory to listing the Company's securities on a public market; or 3 (j) except as otherwise contemplated by this Agreement, directly or indirectly redeem, purchase or otherwise acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire, any of the Company's or any Subsidiary's capital stock or other equity securities (including, without limitation, warrants, options and other rights to acquire such capital stock or other equity securities) owned by the Executive Stockholder or the Investing Stockholders or their Permitted Transferees. 3. Buy/Sell Rights. (a) At any time during the 10-day period (the "Election Period") immediately following the vote by the Board on a proposed Extraordinary Transaction that was not approved by the Board by the requisite vote required by paragraph 2 of this Agreement, either Stockholder (the "Offering Stockholder") (but not both at the same time) shall have the right (but not the obligation) to effect the provisions of this Section 3 as hereinafter provided, by delivering written notice (the "Offer Notice") to the other Stockholder(s) (the "Receiving Stockholder") (i) invoking the provisions of this Section 3, and (ii) designating an amount (the "Gross Value Amount") that shall be Offering Stockholders' determination of the gross value of the Company. The Investing Stockholders shall have the exclusive right (but not the obligation) to effect the provisions of this Section 3 during the first 5-day period of the Election Period and the Executive Stockholder shall have the exclusive right (but not the obligation) to effect the provisions of this Section 3 during the second 5-day period of the Election Period. For the purposes hereof, the "Applicable Purchase Price" payable to any Stockholder that sells its Stockholder Shares pursuant to this Section 3 shall be the amount that such Selling Stockholder would receive if, as of the date of the Offer Notice, the Gross Value Amount, after payment of all debts and liabilities of the Company, was distributed among the Stockholders in accordance with their equity ownership of the Company. (b) Upon receipt of the Offer Notice given pursuant to Section 3 hereof, the Receiving Stockholder shall then be obligated either to: (i) purchase all of the Stockholder Shares of the Offering Stockholders and its Permitted Transferees at a price equal to the Applicable Purchase Price; or (ii sell to and use its best efforts to cause its Permitted Transferees to sell to the Offering Stockholders all of its Stockholder Shares for cash at a price equal to the Applicable Purchase Price. The Receiving Stockholder shall give written notice of his election to the Offering Stockholders within thirty (30) days after receipt of the Offer Notice. Failure of the Receiving Stockholder to give the Offering Stockholders notice within such time shall be a conclusive election under subsection (b)(ii) above. In the event the Executive Stockholder elects to purchase all of the Stockholder Shares of the Investing Stockholders and its Permitted Transferees under subsection (b) above, the Executive Stockholder shall be entitled to pay up to 50% of the Applicable Purchase Price through the issuance of promissory notes in the form and substance satisfactory to the Investing Stockholders acting reasonably with the principal amount payable in three equal annual installments 4 beginning on the first anniversary of issuance, bearing interest (payable semiannually) at a rate per annum equal to 15% and secured by a first priority lien on all or substantially all of the assets of the Company. (c) Within ten (10) Business Days after the Receiving Stockholder's election under subsection 3(b), the purchasing Stockholder shall deposit in cash an amount equal to two and one-half percent (2.5%) of the Applicable Purchase Price ("Buy/Sell Deposit") with an escrow agent to be selected upon the mutual agreement of the parties (the "Escrow Agent"). The charges of the Escrow Agent shall be payable by the Company. The Escrow Agent shall hold the Buy/Sell Deposit in an interest bearing account pursuant to a written agreement among the Executive Stockholder, the Investing Stockholders, and the Escrow Agent, which agreement shall be satisfactory to such parties in the exercise of their respective reasonable discretion and shall provide, among other things, that the Escrow Agent shall not commingle the Buy/Sell Deposit with any other funds. If the purchasing Stockholder shall fail to deposit the Buy/Sell Deposit within the period required hereby, the selling Stockholder shall have the right of specific performance or the right, exercisable by delivery of written notice to the purchasing Stockholder within ten (10) days of the expiration of such ten (10) Business Day period, to purchase (pursuant to the terms of this Section 3) all of the Stockholder Shares of the purchasing Stockholder for cash at a price equal to 95% of the Applicable Purchase Price. In the event of a closing pursuant to the terms of this subsection 3(c), the Buy/Sell Deposit, together with any interest earned thereon, shall be credited against the Applicable Purchase Price and paid to the selling Stockholder. In the event of a default by the purchasing Stockholder in its obligation to purchase the Stockholder Shares of the selling Stockholder pursuant to, and in accordance with, the terms of this subsection 3(c), the Parties shall instruct the Escrow Agent to pay the Buy/Sell Deposit, and any interest thereon, to the selling Stockholder promptly and the selling Stockholder shall have the right, exercisable by delivery of written notice to the purchasing Stockholder within ten (10) days of the default, to purchase (pursuant to the terms of this Section 3) all of the Stockholder Shares of the purchasing Stockholder for cash at a price equal to 97.5% of the Applicable Purchase Price. If the selling Stockholder shall default in any of its obligations under this subsection 3(c), the Parties shall instruct the Escrow Agent to pay the Buy/Sell Deposit, and any interest earned thereon, shall be returned to the purchasing Stockholder promptly and the purchasing Stockholder shall have all other remedies available to it at law or in equity (including, without limitation, an action for specific performance at a deemed purchase price equal to 97.5% of the Applicable Purchase Price). Upon deposit by the purchasing Stockholder of the Buy/Sell Deposit with the Escrow Agent as aforesaid, (i) a binding contract shall be deemed to exist between the Executive Stockholder and the Investing Stockholders with respect to the sale and purchase of the Stockholder Shares of the selling Stockholder, and (ii) the closing shall be held at a location in San Francisco, California as designated by the purchasing Stockholder by written notice to the selling Stockholder (or, at either Stockholder's election, pursuant to an escrow arrangement acceptable to each Stockholder in the exercise of their reasonable judgment) on a Business Day selected by the purchasing Stockholder not less than thirty (30) days and not more than ninety (90) days from the Investing Stockholder's receipt of the Executive Stockholder's election pursuant to Section 3(b). Except as otherwise provided herein, the purchasing Stockholder shall pay the Applicable Purchase Price (less the Buy/Sell Deposit and any interest earned thereon) by wire transfer of immediately 5 available federal funds to an account designated in writing by the selling Stockholder. At the closing (A) the selling Stockholder shall deliver to the purchasing Stockholder or its designee an assignment of all of the selling Stockholder's shares, which such assignment shall be free and clear of all legal and equitable claims (other than the legal and equitable claims, if any, of the purchasing Stockholder pursuant to this Agreement) and all liens and encumbrances (other than liens and encumbrances under this Agreement that shall remain in full force and effect following the closing) and (B) the purchasing Stockholder shall deliver to the selling Stockholder an assumption of the selling Stockholder's obligations under this Agreement arising from and after the date of such assignment. At the closing, the selling Stockholder and the purchasing Stockholder shall execute an agreement acceptable to the selling Stockholder and the purchasing Stockholder in the exercise of their reasonable judgment whereby (X) each Stockholder shall represent and warrant to the other that each has the necessary power and authority to consummate the subject transactions and requires no consents which have not been obtained and (Y) the selling Stockholder shall represent to the purchasing Stockholder that the selling Stockholder is the owner of its Stockholder Shares free and clear of all liens and encumbrances (other than liens and encumbrances under this Agreement that shall remain in full force and effect following the closing) and that the Transfer is being made free and clear of all legal and equitable claims (other than the legal and equitable claims of the purchasing Stockholder pursuant to this Agreement). Each party shall pay their own costs and expenses in connection with the conveyance of the Stockholders Shares of the selling Stockholder to the purchasing Stockholder. Any transfer, deed, documentary stamp or other tax due in connection with a Transfer of the Stockholder Shares of the selling Stockholder pursuant to this Section 3(c) shall be paid by the selling Stockholder. (d) Notwithstanding anything to the contrary set forth herein, in the event that prior in time to the delivery of a Notice under Section 6(b), any Offer Notice shall be delivered or the purchasing Stockholder shall have instituted an action for specific performance pursuant to Section 3(c), the delivery of such Offer Notice or the institution of such action for specific performance shall supersede the delivery of any Transfer Notice and the rights under this Section 3 shall supersede the rights under Section 6(b) of this Agreement. (e) The purchasing Stockholder may, at its option, cause the selling Stockholder's Shares to be acquired by one or more of the purchasing Stockholder's Affiliates; provided, however, that any assignment of the purchasing Stockholder's rights hereunder for purposes of accomplishing such purchase by any such Affiliate shall not relieve the purchasing Stockholder of any obligation or liability with respect thereto. (f) Each Stockholder agrees that it shall be reasonable and cooperate with the other Stockholder, including, without limitation, executing any documents which may be reasonably required, in order to consummate the transactions contemplated by this Section 3. (g) If within six months following the consummation of any sale under this Section 3 a Sale of the Company (other than a Sale of the Company that was subject to the Board vote that resulted in Section 3 being invoked occurs) and the valuation of the entire Company for such 6 transaction (based upon the purchase price or liquidation proceeds per share of Common Stock, including the fair market value of all dividends and distributions declared or paid by the Company to the holders of its Common Stock after the closing of the sale to and including the date of such transaction) exceeds the Gross Value Amount, the selling Stockholder shall be entitled to receive from the purchasing Stockholder the excess of (x) the amount which the selling Stockholder would have received in such Sale of the Company over (y) the amount which the selling Stockholder received from the sale of the Stockholder Shares under this Section 3. This amount shall be paid by certified or cashier's check or wire transfer of funds to the selling Stockholder upon consummation of any such transaction. 4. Reserved. 5. Representations, Warranties and Covenants. Except as stated in a disclosure letter dated this same date, each Stockholder represents and warrants that (i) such Stockholder is the record owner of the number of Stockholder Shares set forth opposite its name on Schedule A or Schedule B attached hereto, (ii) this Agreement has been duly authorized, executed and delivered by such Stockholder and constitutes the valid and binding obligation of such Stockholder, enforceable in accordance with its terms, and (iii) such Stockholder has not granted and is not a party to any proxy, voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement. No holder of Stockholder Shares shall grant any proxy or become party to any voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement or prohibits performance by such holder of this Agreement. 6. Restrictions on Transfer of Stockholder Shares. (a) Transfer of Stockholder Shares. No holder of Stockholder Shares shall sell, transfer, assign, pledge or otherwise dispose of (whether with or without consideration and whether voluntarily or involuntarily or by operation of law) any interest in such holder's Stockholder Shares (a "Transfer"), except pursuant to the provisions of this paragraph 6, pursuant to the provisions of paragraph 3, or pursuant to a Public Sale; provided that in no event shall any Transfer of Stockholder Shares pursuant to this paragraph 6 be made for any consideration other than cash payable upon consummation of such Transfer or in installments over time and no Stockholder Shares may be pledged (except for a pledge of Stockholder Shares (i) by a transferee to secure indebtedness to the transferor thereof hereunder or (ii) to the Company or it Subsidiaries to secure payment of any notes made by any Stockholder to the Company or its Subsidiaries; provided that, in each case, any such pledge is made expressly subject to the terms, restrictions and conditions contained in this Agreement). No Stockholder shall consummate any Transfer (other than a Public Sale) until 30 days after the later of the delivery to the Company and the other Stockholders of such Stockholder's Transfer Notice (as hereinafter defined), unless the parties to the Transfer have been finally determined pursuant to this paragraph 6 prior to the expiration of such 30-day period (the "Election Period"). 7 (b) First Offer Right. At least 30 days prior to making any Transfer of any Stockholder Shares (other than a Public Sale), the holder of Stockholder Shares making such transfer (the "Transferring Stockholder") shall deliver a written notice (a "Transfer Notice") to the Company and the other Stockholders (the "Other Stockholders"), which shall specify in reasonable detail the proposed number of Stockholder Shares to be transferred, the proposed terms and conditions of the Transfer and the identity of the transferee(s) (if known). First, the Company may elect to purchase all (but not less than all) of the Stockholder Shares specified in the Transfer Notice at the price and on the terms specified therein by delivering written notice of such election to the Transferring Stockholder and the Other Stockholders as soon as practical but in any event within ten days after the delivery of the Transfer Notice. If the Company has not elected to purchase all of the Stockholder Shares specified in the Transfer Notice within such ten-day period, each Other Stockholder (together with the Company if the Other Stockholders electing to purchase Stockholder Shares consent to the Company's participation in such purchase) may elect to purchase all (but not less than all) of such holder's Pro Rata Share (as defined below) of the Stockholder Shares specified in the Transfer Notice at the price and on the terms specified therein by delivering written notice of such election to the Transferring Stockholder as soon as practical but in any event within 20 days after delivery of the Transfer Notice. Any Stockholder Shares not elected to be purchased by the end of such 20-day period shall be reoffered for the ten- day period prior to the expiration of the Election Period by the Transferring Stockholder on a pro rata basis to the Other Stockholders who have elected to purchase their Pro Rata Share and, if there are any such Stockholder Shares remaining after such allocation, the Company shall have the right to purchase such remaining Stockholder Shares; provided that neither the Company nor any Other Stockholder shall have the right to purchase any Stockholder Shares subject to a Transfer Notice hereunder unless all of the Stockholder Shares subject to such Transfer Notice are purchased pursuant to the provisions hereof. If the Company or any Other Stockholders have elected to purchase Stockholder Shares from the Transferring Stockholder, the transfer of such shares shall be consummated as soon as practical after the delivery of the election notice(s) to the Transferring Stockholder, but in any event within 20 days after the expiration of the Election Period. If prior to the expiration of the Election Period the Company and the Other Stockholders have not elected to purchase all of the Stockholder Shares being offered, the Transferring Stockholder may, within 90 days after the expiration of the Election Period and subject to the provisions of subparagraph (c) below, transfer such Stockholder Shares to one or more third parties at a price no less than the price per share specified in the Transfer Notice and on other terms no more favorable to the transferees thereof than offered to the Company and the Other Stockholders in the Transfer Notice. Any Stockholder Shares not transferred within such 90-day period shall be reoffered to the Company and the Other Stockholders under this paragraph 6(b) prior to any subsequent Transfer. Each Stockholder's "Pro Rata Share" shall be based upon such Stockholder's proportionate ownership of all Stockholder Shares owned by Stockholders other than the Transferring Stockholder. (c) Participation Rights. The Other Stockholders may elect to participate in a contemplated Transfer at the same price per share and on the same terms by delivering written notice to the Transferring Stockholder within 30 days after delivery of the Transfer Notice. If any Other Stockholders have elected to participate in such Transfer, the Transferring Stockholder and such 8 Other Stockholders shall be entitled to sell in the Transfer, at the same price and on the same terms contemplated in the Transfer, a number of Stockholder Shares equal to the product of (i) the quotient determined by dividing the percentage of Stockholder Shares owned by such Person by the aggregate percentage of Stockholder Shares owned by the Transferring Stockholder and the Other Stockholders participating in such sale and (ii) the number of Stockholder Shares to be sold in the contemplated Transfer. For example, if the Sale Notice contemplated a sale of 100 Stockholder Shares by the Transferring Stockholder, and if the Transferring Stockholder at such time owns 30% of all Stockholder Shares and if one Other Stockholder elects to participate and owns 20% of all Stockholder Shares, the Transferring Stockholder would be entitled to sell 60 shares (30% / 50% x 100 shares) and the Other Stockholder would be entitled to sell 40 shares (20% / 50% x 100 shares). Each Transferring Stockholder shall use best efforts to obtain the agreement of the prospective transferee(s) to the participation of the Other Stockholders in any contemplated Transfer, and no Transferring Stockholder shall transfer any of its Stockholder Shares to any prospective transferee if such prospective transferee(s) declines to allow the participation of the Other Stockholders. Each Stockholder transferring Stockholder Shares pursuant to this paragraph 6(c) shall pay such holder's pro rata share (based on the number of Stockholder Shares to be sold) of the expenses incurred by the Stockholders in connection with such transfer and shall be obligated to join on a pro rata basis (based on the number of Stockholder Shares to be sold) in any indemnification or other obligations that the Transferring Stockholder agrees to provide in connection with such transfer (other than any such obligations that relate specifically to a particular Stockholder such as indemnification with respect to representations and warranties given by a Stockholder regarding such Stockholder's title to and ownership of Stockholder Shares; provided that no holder shall be obligated in connection with such Transfer to agree to indemnify or hold harmless the transferees with respect to an amount in excess of the net cash proceeds paid to such holder in connection with such Transfer). (d) Permitted Transfers. The restrictions set forth in this paragraph 6 shall not apply with respect to any Transfer of Stockholder Shares by any Stockholder (i) in the case of an individual, pursuant to applicable laws of descent and distribution or by will or among such individual's Family Group (as hereinafter defined) or (ii) in the case of an entity, among its Affiliates (collectively referred to herein as "Permitted Transferees"); provided that the restrictions contained in this paragraph 6 shall continue to be applicable to the Stockholder Shares after any such Transfer and provided further that the Permitted Transferees of such Stockholder Shares shall have agreed in writing to be bound by the provisions of this Agreement affecting the Stockholder Shares so transferred. Notwithstanding the foregoing, no party hereto shall avoid the provisions of this Agreement by making one or more transfers to one or more Permitted Transferees and then disposing of all or any portion of such party's interest in any such Permitted Transferee. "Family Group" means an individual's spouse and descendants (whether natural or adopted) and any trust solely for the benefit of the individual and/or the individual's spouse and/or descendants. 9 (e) Termination of Restrictions. The restrictions set forth in this paragraph 6 shall continue with respect to each Stockholder Share until the earlier of (i) the date on which such Stockholder Share has been transferred in a Public Sale or (ii) the consummation of a Sale of the Company. 7. Holdback Agreement. No Stockholder shall effect any public sale or distribution of any Stockholder Shares or of any other capital stock or equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such stock or securities, during the seven days prior to and the 180-day period beginning on the effective date of the Company's initial underwritten registered public offering of Common Stock (except for sales of securities as part of such underwritten registered offering and as permitted under Rule 144(k)), unless the underwriters managing the registration otherwise agree. The restrictions on the transfer of Stockholder Shares set forth in this paragraph 7 shall continue with respect to each Stockholder Share until the earlier of (i) the date on which such Stockholder Share has been transferred in a Public Sale or (ii) the consummation of a Sale of the Company. 8. Legend. Each certificate evidencing Stockholder Shares and each certificate issued in exchange for or upon the transfer of any Stockholder Shares (if such shares remain Stockholder Shares after such transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT DATED AS OF ___________ ___, 2000, AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND CERTAIN OF THE COMPANY'S STOCKHOLDERS, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH STOCKHOLDERS AGREEMENT SHALL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST." "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER." The Company shall imprint such legend on certificates evidencing Stockholder Shares outstanding as of the date hereof, and the Stockholders shall cooperate with the Company in connection therewith. The legend set forth above shall be removed from the certificates evidencing any shares which cease to be Stockholder Shares in accordance with the definition thereof in paragraph 8 hereof. 9. Transfer. Prior to transferring any Stockholder Shares (other than in a Public Sale) to any Person, the transferring holders of Stockholder Shares shall cause the prospective transferee 10 to be bound by this Agreement and to execute and deliver to the Company and the other holders of Stockholder Shares a counterpart of this Agreement. 10. Company Issuances. (a) In connection with any issuance or sale of securities, the Company shall first offer to sell to each holder of Stockholder Shares a portion of such stock or securities equal to the quotient determined by dividing (1) the number of Stockholder Shares held by such holder by (2) the total number of Stockholder Shares then existing. Each holder of Stockholder Shares shall be entitled to purchase such stock or securities at the most favorable price and on the most favorable terms as such stock or securities are to be offered; provided that if all Persons entitled to purchase or receive such stock or securities are required to also purchase other securities of the Company, the holders of Stockholder Shares exercising their rights pursuant to this paragraph shall also be required to pur chase the same strip of securities (on the same terms and conditions) that such other Persons are required to purchase. The purchase price for all stock and securities offered to the holders of the Stockholder Shares shall be payable in cash or, to the extent otherwise required hereunder, notes issued by such holders. (b) In order to exercise its purchase rights hereunder, a holder of Stockholder Shares must within ten days after receipt of written notice from the Company describing in reasonable detail the securities being offered, the purchase price thereof, the payment terms and such holder's percentage allotment deliver a written notice to the Company describing its election hereunder. If all of the securities offered to the holders of Stockholder Shares is not fully subscribed by such holders, the remaining securities shall be reoffered by the Company to the holders purchasing their full allotment upon the terms set forth in this paragraph, except that such holders must exercise their purchase rights within five days after receipt of such reoffer. (c) Upon the expiration of the offering periods described above, the Company shall be entitled to sell such securities which the holders of Stockholder Shares have not elected to purchase during the 90 days following such expiration on terms and conditions no more favorable to the purchasers thereof than those offered to such holders. Any securities offered or sold by the Company after such 90-day period must be reoffered to the holders of Stockholder Shares pursuant to the terms of this paragraph. (d) The rights of the holders of Stockholder Shares under this paragraph 10 shall terminate upon the consummation of a Sale of the Company. 11. Definitions. "Affiliate" means any other Person, directly or indirectly controlling, controlled by or under common control with such Person and any partner of a Person which is a partnership. 11 "Business Day" any day other than Saturday and Sunday or any such other day on which banks and savings and loan associations in San Francisco, California are generally not open for business. "Common Stock" means the Company's Common Stock, par value $.01 per share. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Preferred Stock" means any preferred stock issued or which may be issued by the Company. "Public Sale" means any sale of Stockholder Shares to the public pursuant to an offering registered under the Securities Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 adopted under the Securities Act. "Sale of the Company" means the sale of all or substantially all of the assets or a controlling interest in the outstanding capital stock of the Company, including any such sale accomplished by merger, consolidation or recapitalization, and including any letter of intent or agreement regarding such sale. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Stockholder Shares" means any Common Stock or Preferred Stock purchased or otherwise acquired by any Stockholder and any Common Stock or Preferred Stock issued or issuable with respect to such securities by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Stockholder Shares, such shares shall cease to be Stockholder Shares when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (y) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or any similar provision then in force). "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the limited liability company, partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, 12 partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such limited liability company, partnership, association or other business entity. 12. Transfers in Violation of Agreement. Any Transfer or attempted Transfer of any Stockholder Shares in violation of any provision of this Agreement shall be void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Stockholder Shares as the owner of such shares for any purpose. 13. Amendment and Waiver. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be effective against the Company or the Stockholders unless such modification, amendment or waiver is approved in writing by the Company and the Executive Stockholder and the holders of at least 50% of the then outstanding Stockholder Shares held by the Investing Stockholders; provided that if such modification, amendment or waiver would adversely affect a holder or group of holders of Stockholder Shares in a manner different than any other holder or group of holders of Stockholder Shares, then such modification, amendment or waiver will require the consent of such holder of Stockholder Shares or a majority of the Stockholder Shares held by such group of holders adversely affected. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. 14. Attorneys' Fees. In the event that any action or proceeding, including without limitation arbitration, is commenced by any party hereto for the purpose of enforcing any provision of this Agreement, the parties to such action, proceeding or arbitration shall receive as part of any award, judgment, decision or other resolution of such action, proceeding or arbitration their costs and reasonable attorneys' fees as determined by the person or body making such award, judgment, decision or resolution. Should any claim hereunder be settled short of the commencement of any such action or proceeding, including arbitration, the parties in such settlement shall be entitled to include as part of the damages alleged to have been incurred reasonable costs of attorneys or other professionals in investigation or counseling on such claim. 15. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement in such jurisdiction or affect the validity, legality or enforceability of any provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 16. Entire Agreement. Except as otherwise expressly set forth herein, this Agreement embodies the complete agreement and understanding among the parties hereto with respect to the 13 subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 17. Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Stockholders and any subsequent holders of Stockholder Shares and the respective successors and assigns of each of them, so long as they hold Stockholder Shares; provided that any Stockholder may assign any of its rights to purchase securities from the Company under paragraph 7 hereof to such Stockholder's Permitted Transferees. 18. Counterparts. This Agreement may be executed in multiple counterparts (any one of which may be by facsimile), each of which shall be an original and all of which taken together shall constitute one and the same agreement. 19. Remedies. The Company and the Stockholders shall be entitled to enforce their rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that the Company and any Stockholder may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement. 20. Notices. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, sent by reputable overnight courier service (charges prepaid) or sent by facsimile transmission (confirmed by the facsimile operator) to the Company at the address set forth below and to any other recipient at the address indicated on the schedules hereto and to any subsequent holder of Stockholder Shares subject to this Agreement at such address as indicated by the Company's records, or at such address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices shall be deemed to have been given hereunder when delivered personally, one day after deposit with a reputable overnight courier service and when sent by facsimile transmission (confirmed by the facsimile operator). The Company's address is: KC Holding Corporation c/o ValueAct Capital Partners, L.P. One Maritime Plaza, Suite 14000 San Francisco, California 94111 Fax: (415) 362-5727 21. GOVERNING LAW. THE CORPORATE LAW OF THE COMPANY'S SHALL GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS AND 14 OBLIGATIONS OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF ILLINOIS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION OTHER THAN THE STATE OF ILLINOIS. 22. Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief-executive office is located, the time period shall automatically be extended to the business day immediately following such Saturday, Sunday or legal holiday. 23. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 24. Delivery by Facsimile. This Agreement and any signed agreement or instrument entered into in connection with this Agreement or contemplated hereby, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine, shall be treated in all manner and respects as an original agreement or instrument and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto shall re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument shall raise the use of a facsimile machine to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine as a defense to the formation of a contract and each such party forever waives any such defense. 25. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. * * * * 15 IN WITNESS WHEREOF, the parties hereto have executed this Stockholders Agreement on the day and year first above written. KC HOLDING CORPORATION Name: Title: INVESTING STOCKHOLDERS: Name: Title: EXECUTIVE STOCKHOLDER: Name: Mark D. Lerdal 16 -----END PRIVACY-ENHANCED MESSAGE-----