UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from July 1, 1997 to December 31, 1997
Commission File Number: 033-69762
CHI ENERGY, INC.
----------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1138478
-------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
680 WASHINGTON BOULEVARD, STAMFORD, CONNECTICUT 06901
----------------------------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (203) 425-8850
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant is not available since there is no public market for the stock.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
---- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class A Outstanding as of March 16, 1998
----------------------------- --------------------------------
Common stock, $.01 par value 9,085,290
Class B Outstanding as of March 16, 1998
------------------------------ ----------------------------------
Common stock, $.01 par value 914,710
Page 1 of 91
Exhibit Index begins on page 80
CHI ENERGY, INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
------
Page
Item 1. Business........................................................3
Item 2. Properties.....................................................17
Item 3. Legal Proceedings..............................................17
Item 4. Submission of Matters to a Vote of Security Holders............17
PART II
-------
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters..........................................18
Item 6. Selected Financial Data........................................20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................23
Item 7a. Quantitative and Qualitative Disclosure About Market Risk......36
Item 8. Financial Statements...........................................37
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.........................................70
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.............70
Item 11. Executive Compensation.........................................74
Item 12. Security Ownership of Certain Beneficial Owners and Management.78
Item 13. Certain Relationships and Related Transactions.................79
PART IV
-------
Item 14. Exhibits, Financial Statements Schedules and Reports on
Form 8-K....................................................80
PART I
------
ITEM 1. BUSINESS
- -----------------
CHI Energy, Inc., formerly Consolidated Hydro, Inc. ("CHI", and together
with its consolidated subsidiaries, the "Company"), has been engaged in the
energy business since its founding in 1985. Its principal business is the
development, operation and management of industrial energy and other
infrastructure assets and of hydroelectric power plants. Currently, all of the
Company's revenue is derived from the ownership and operation of hydroelectric
facilities (the Company's "hydroelectric business"). The Company believes its
future growth will come primarily from its industrial infrastructure business.
Industrial infrastructure assets include power plants, steam boilers, air
compressors, water and wastewater treatment facilities, and other utility-type
facilities that support the manufacture of products in capital intensive process
industries such as pulp and paper, chemicals, textiles, food and beverage, etc.
Based on operating megawatts, the Company is the largest independent,
non-utility affiliated hydroelectric power producer in the United States. As of
December 31, 1997, the Company owned, operated or leased 86 projects in the
United States and Canada, with aggregate capacity of approximately 336
megawatts. In addition, the Company and a joint venture partner are constructing
a 15-megawatt hydroelectric project in Newfoundland, Canada that is expected to
commence commercial operation in the fall of 1998.
The Company believes that it is well positioned to take advantage of new
business opportunities occasioned by electric industry restructuring in the U.S.
and by other trends within its target customer group, which includes industrial
companies. The Company will seek to capitalize on these new opportunities in
energy-related products and services by taking advantage of its existing
technical and financial expertise and using its geographic presence in most U.S.
regions and Eastern Canada to realize economies of scale in development,
acquisition, administration, operation and maintenance of facilities.
On November 7, 1997, the Company completed a financial restructuring that
eliminated corporate level debt. In connection with its restructuring, the
Company's fiscal year-end was changed from June 30 to December 31. As a result
of the change in the Company's fiscal year-end, this report constitutes a
transition report for the six month period ended December 31, 1997.
CHI is a Delaware corporation. The Company's executive and administrative
offices are located at 680 Washington Boulevard, Stamford, Connecticut 06901 and
its telephone number is (203) 425-8850.
INDUSTRIAL INFRASTRUCTURE BUSINESS
A principal business focus of the Company is to develop, acquire, operate
and manage industrial energy facilities and related industrial infrastructure
assets in such sectors as pulp and paper, petroleum refining, chemicals,
textiles, and other energy-intensive industries (the Company's "industrial
infrastructure business"). Industrial infrastructure assets include assets such
as those used to produce electricity, steam, or chilled water, or facilities
used for chemical recovery, storage, and water and wastewater treatment. These
assets are typically assets that are necessary but ancillary to the customer's
primary manufacturing activities. By outsourcing its infrastructure assets to
the Company, the customer may derive a financial benefit and may also benefit
from the opportunity to focus its resources on its primary business, while CHI
may benefit from the long-term revenue stream resulting from such an
arrangement.
CHI's industrial infrastructure business is strongly related to energy
production but is not traditional cogeneration or independent power plant
development. In the traditional cogeneration model, a developer finances and
builds a power plant at an industrial facility, typically producing electricity
that is sold at wholesale to the local electric utility and steam that is sold
at retail to the industrial company. In contrast, CHI's industrial
infrastructure business can involve a wide range of capital-intensive
infrastructure assets, such as steam generators, air compressors, storage
facilities, water management systems, and chemical recovery boilers. The
transaction may or may not include electricity generation. The customer may seek
to receive cash for, or monetize, such assets if already existing, or to
construct such assets, either new or as an upgrade or expansion of existing
facilities. CHI will acquire or develop the assets, operate and manage them, and
sell back the resulting products (steam, chilled water, compressed air,
electricity, etc.) to the customers under a long-term contract, generally at
retail, although individual project circumstances may include the sale of
electricity to utilities or power marketers.
3
The Company terms its approach to industrial customers as "asset
partnering," due to the need and desirability of working closely with customers
to arrive at a mutually beneficial technical and financial outcome. CHI's
approach includes providing the required products and services on the basis of a
requirements contract, by which the customer pays only for products actually
purchased and used. This approach differs from more typical arrangements in
which industrial customers sign so-called "take-or-pay" contracts that, in
effect, guarantee payments to the provider regardless of actual use. In
addition, when properly structured, the use of requirements-based contracts
permits off-balance sheet, off-credit accounting treatment of the transaction
for the industrial customer.
The Company believes the potential market for its industrial
infrastructure business in North America is very large, represented by
approximately $40 billion in annual energy-related expenditures and $50 billion
in annual capital expenditures on the part of companies in energy-intensive
manufacturing sectors. While the Company believes it possesses the expertise to
successfully complete transactions in this market, the Company has not completed
any such transactions as of March 29, 1998. However, the Company has identified
and is working with certain customers toward completing development agreements
for infrastructure facilities.
The Company has integrated its industrial infrastructure business with its
hydroelectric business and has hired individuals with experience in industrial
energy project development, finance, management, and operations. The Company
believes it possesses expertise in certain areas applicable to both business
segments, including project development, operation, management, administration,
and financial structuring. In addition, the Company has offices in several U.S.
states as well as Canada, affording a geographic base from which to effectively
pursue both businesses.
HYDROELECTRIC BUSINESS
The Company's operating hydroelectric projects are located in 15 states
and one Canadian province. The U.S. projects are clustered in four regions: the
Northeast, Southeast, Northwest and West, with a concentration in the Northeast,
a region characterized by relatively consistent long-term water flow and power
purchase contract rates which are higher on average than in most other regions
of the country. Additionally, the Company operates three projects with an
aggregate capacity of 80 megawatts in Ontario, Canada pursuant to an operations
and maintenance ("O&M") contract and is constructing a 15-megawatt hydroelectric
project in Newfoundland, Canada. The Company currently derives all of its
revenues from the ownership and operation of hydroelectric facilities.
CHI has developed what it believes to be an efficient "hub" system of
project management designed to maximize the efficiency of each facility's
operations. The economies of scale created by this system include reduced costs
related to centralized administration, operations, maintenance, engineering,
insurance, finance and environmental and regulatory compliance. The Company's
hub system and operating expertise have enabled it to successfully integrate
acquisitions into its current portfolio and increase the efficiency and
productivity of its projects. The Company has found that the most efficient way
to operate its projects is to have several projects in a geographic area with
operators who can go to any of the projects as needed. Each of the Company's
regions is broken up into several smaller areas for purposes of assigning
project operators. To address more technical matters the Company bases
maintenance personnel and other technicians at its hubs, with more sophisticated
equipment and a more widely varied inventory of spare parts and supplies than
are kept at an individual project, all available for dispatch to each project.
As of December 31, 1997, the Company had a 100% ownership or long-term
lease interest in 51 projects (138 megawatts) , a partial ownership interest in
11 projects (82 megawatts) and O&M contracts with 24 projects (116 megawatts).
The Company sells substantially all of the output from these projects, excluding
the Canadian projects, to public utility companies pursuant to take or pay power
purchase agreements. These contracts vary in their terms, but typically provide
scheduled rates throughout the life of the contracts, which are generally for a
term of 15 to 40 years from inception. See "-- Power Purchase Agreements".
During the fiscal year ended June 30, 1996, the Company significantly reduced
the carrying value of certain of its assets. In addition, as of November 7, 1997
and after the implementation of fresh start reporting, the Company further
reduced the current carrying value of certain of its hydroelectric assets. See
Part II, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General".
4
CHI's initial strategy when it was established in 1985 was to consolidate
the ownership and operation of small, independently-owned hydroelectric plants
in the U.S. During the late 1970's, development of small hydroelectric power
facilities was stimulated by rising oil prices, the enactment by Congress of the
Public Utility Regulatory Policies Act of 1978 ("PURPA") and the adoption of the
regulations thereunder, and certain tax incentives, including the business
energy tax credit and the investment tax credit. PURPA reduced regulatory
procedures for small non-utility power production facilities (known as
"Qualifying Facilities" or "QFs") and required electric utilities to purchase
power from such facilities at a price based on the purchasing utility's full
avoided cost, which is equal to the incremental cost that would have been
incurred if the utility had generated the energy itself or purchased it from
another source. See "-- Energy and Environmental Regulation - Energy
Regulation".
Hydroelectric power is a reliable, cost-effective and non-polluting source
of energy that generally offers the following advantages: (i) it is a proven
technology that has existed essentially unchanged for many years; (ii) it uses
water as a renewable, non-depleting and non-polluting source of energy; (iii) it
has relatively low operating and labor costs, with no fuel costs; (iv)
hydroelectric power facilities typically have economic lives of 50 years or
more; and (v) hydroelectric power facilities can produce other beneficial
impacts such as recreational enhancements, flood control and water supply
management. The disadvantages of hydroelectric power include seasonality,
dependence on satisfactory levels of precipitation and water flow, a factor
which creates difficulty in predicting generating levels for discrete periods,
and, in some cases, environmental impact on both aquatic life and certain
recreational uses near facilities.
Starting in 1985 with an operating portfolio of 6 small projects totaling
5 megawatts of capacity, CHI grew rapidly in terms of numbers of projects and
megawatts owned and operated, as well as in terms of gross revenues. At that
time, the Company anticipated that the electric utility industry would remain
heavily regulated and noncompetitive, that purchased power rates for output from
QF projects such as the Company's would not decline, and that hydroelectric
power, as a renewable resource, would generally be viewed favorably by
regulators. Beginning in the early 1990s, however, the electric power industry
in the United States began to undergo significant structural changes, evolving
from a highly regulated industry dominated by monopoly utilities to what is
becoming a deregulated, competitive industry providing energy customers with an
increasing degree of choice among sources of electric power supply. Reductions
in prices for electricity, increased efficiency of combustion turbines and other
competing technologies and the deregulation and restructuring of the electric
power industry created a climate of uncertainty with respect to future power
prices and made it more difficult to obtain long-term power purchase contracts,
thereby severely limiting the Company's near-term opportunities to acquire or
develop additional hydroelectric capacity at acceptable rates of return. At the
same time, competition for the acquisition of available hydroelectric assets has
intensified, with the Company's competitors including a broad range of other
independent power producers and many well-capitalized domestic and foreign
industry participants such as utilities, equipment manufacturers and affiliates
of industrial companies, many of whom are aggressively pursuing power
development programs and have relatively low return-on-capital objectives.
CHI believes that future growth opportunities in its hydroelectric
business are limited and will primarily consist of: (i) potential acquisition of
additional hydroelectric projects of significant size, possibly as the result of
utility asset divestitures; (ii) contract operation, maintenance and management
of hydroelectric projects for others; and (iii) potential project development
opportunities, primarily in Canada and certain overseas markets. The Company
intends to pursue such opportunities on a selective basis, based on the
likelihood of success and expected return on investment.
Page 5
CONVENTIONAL HYDROELECTRIC PROJECTS
The following tables set forth the Company's projects as of December 31,
1997 with 100% ownership, with partial ownership and with O&M contracts:
PROJECTS WITH 100% OWNERSHIP AS OF DECEMBER 31, 1997
(INCLUDING SALE-LEASEBACKS)
POWER
PURCHASE FERC DATE OF CHI
AGREEMENT LICENSE APPROXIMATE ACQUISITION OR
EXPIRATION EXPIRATION CAPACITY IN COMMENCEMENT OF
PROJECT LOCATION POWER PURCHASING ENTITY DATE DATE MEGAWATTS OPERATIONS(1)
- ------- -------- ----------------------- ----------------- -------------- ------------ --------------
Apalache.......... Greer, SC Duke Power Co. Dec. 1998(2) Jul. 2024 0.40 May 1989
Aziscohos (3)..... Wilson Mill, ME Central Maine Power Co. Jul. 2008 Mar. 2025 5.31 Jun. 1988
Barber Dam........ Boise, ID Idaho Power Co. Jul. 2022 Nov. 2023 4.14 Dec. 1992
Bear Creek........ Shingletown, CA Pacific Gas & Electric Dec. 2015 Exempt 3.20 Feb. 1990
Beaver Valley..... Beaver Falls, PA Duquesne Power Open Ended(4) Exempt 1.30 Feb. 1995
Black Canyon...... Gooding, ID Idaho Power Co. May 2019 Exempt 0.10 May 1993
Boott(3).......... Lowell, MA Commonwealth Elec. Apr. 2023 Apr. 2023 24.82 Dec. 1986
Coneross.......... Seneca, SC City of Seneca Mar. 2000(5) Mar. 2015 0.90 May 1989
Crescent.......... Russell, MA Groton Electric Light Dept. Oct. 2009(6) May 2024 1.50 Feb. 1995
Dewey's Mill...... Hartland, VT Vermont Electric Power Jul. 2015 Dec. 2032 1.90 Aug. 1993
Producers, Inc.
Dexter............ Dexter, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 4.30 Feb. 1995
Diamond Island.... Watertown, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 1.20 Feb. 1995
Dietrich Drop..... Dietrich, ID Idaho Power Co. Jul. 2022 Apr. 2037 4.77 Dec. 1992
Eagle & Phenix(7). Columbus, GA Fieldcrest Cannon Jun. 2006 Feb. 2009 4.26 Jun. 1991
Fowler #7......... Fowler, NY Niag. Mohawk Power Corp. Dec. 1998(8) Oct. 2002 0.90 Feb. 1995
Fries............. Fries, VA Virginia Elec. Power Co. & Jan. 1999 May 2020 5.21 May. 1989
Apalachian Power Co.
Geo-Bon II........ Lincoln County, ID Idaho Power Co. Mar. 2020 Exempt 1.00 Jun. 1994
Glendale.......... Stockbridge, MA Groton Electric Light Dept. Oct. 2009(6) Oct. 2009 0.70 Feb. 1995
Goodyear Lake..... Milford, NY NY State Elec. & Gas Corp. Aug. 2010 Feb. 2019 1.30 Feb. 1995
Great Falls Lower. Somersworth, NH Public Serv. Co. of NH Dec. 2011 Apr. 2022 1.29 Jul. 1985
Hailesboro #3..... Fowler, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 0.90 Feb. 1995
Hailesboro #4..... Fowler, NY Niag. Mohawk Power Corp. Dec. 2023 Dec. 2002 1.80 Feb. 1995
Hailesboro #6..... Fowler, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 0.90 Feb. 1995
High Falls........ Franklin County, NY NY State Elec. & Gas Corp. Dec. 2002 Jan. 2026 1.75 Oct. 1993
High Shoals....... High Shoals, NC Duke Power Apr. 2012 Exempt 1.56 Jul. 1993
Kelley's Falls.... Manchester, NH Public Serv. Co. of NH Dec. 2005 Mar. 2024 0.45 Dec. 1985
Kings River....... Fresno, CA Pacific Gas & Electric Jan. 2021 Jul. 2037 1.35 Jun. 1994
Kinneytown........ Seymour, CT CT Light & Power Nov. 2016 Exempt 2.36 Nov. 1986
LaChute Lower(3).. Ticonderoga, NY Niag. Mohawk Power Corp. Dec. 2015 Exempt 3.60 Dec. 1987
LaChute Upper(3).. Ticonderoga, NY Niag. Mohawk Power Corp. Dec. 2015 Exempt 4.90 Dec. 1987
Lawrence.......... Lawrence, MA New England Power Co. Dec. 2011(9) Nov. 2028 16.80 Jul. 1986
Long Shoals....... Long Shoals, NC Duke Power Nov. 1999 Exempt 0.75 Jul. 1993
Low Line Rapids... Kimberly, ID Idaho Power Co. Jun. 2022 Exempt 2.80 Dec. 1992
Milstead.......... Milstead, GA Municipal Elec. Auth. of GA Apr. 2000 Exempt 1.00 Jul. 1993
Ottauquechee...... N. Hartland, VT Vermont Electric Power Sept. 2017 Exempt 1.89 Jun. 1994
Producers, Inc.
Pelzer Lower...... Williamston, SC Duke Power Co. Sept. 1998(10) Nov. 2017 3.30 Feb. 1990
Pelzer Upper...... Pelzer, SC Duke Power Co. Sept. 1998(10) Nov. 2017 2.00 Feb. 1990
Piedmont.......... Piedmont, SC Duke Power Co. Dec. 1998(2) Dec. 2018 1.00 May 1989
Rollinsford....... Rollinsford, NH Public Serv. Co. of NH Sept. 2013 Aug. 2021 1.49 Oct. 1986
Rock Creek II..... Twin Falls, ID Idaho Power Co. Jul. 2019 Aug. 2036 1.90 Dec. 1992
Salmon Falls...... South Berwick, ME Public Serv. Co. of NH Dec. 2006 Dec. 2037 1.20 Jul. 1986
Scotts Flat....... Nevada City, CA Pacific Gas & Electric Dec. 2004 Exempt 0.83 Feb. 1990
6
POWER
PURCHASE DATE OF CHI
AGREEMENT FERC LICENSE APPROXIMATE ACQUISITION OR
EXPIRATION EXPIRATION CAPACITY IN COMMENCEMENT OF
PROJECT LOCATION POWER PURCHASING ENTITY DATE DATE MEGAWATTS OPERATIONS(1)
- ------- -------- ----------------------- ---------- ------------- ----------- ----------------
Theresa.......... Theresa, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 1.30 Feb. 1995
Victory Mills.... Saratoga, NY Niag. Mohawk Power Corp. Dec. 2025 Apr. 2024 1.66 Dec. 1986
Walden........... Walden, NY NY State Elec. & Gas Corp. Nov. 1998 May 2022 2.82 Apr. 1986
Ware Shoals...... Ware Shoals, SC Duke Power Co. Dec. 1998(2) Sept. 2001 6.20 May 1989
West Hopkinton... West Hopkinton, NH Public Serv. Co. of NH Nov. 2012 Exempt 1.00 Jul. 1985
Willimantic I.... Willimantic, CT CT Light & Power Dec. 2018 Nov. 2025 0.77 Dec. 1991
Willimantic II... Willimantic, CT CT Light & Power Dec. 2018 Sept. 2025 0.77 Dec. 1991
Woodside I....... Norris, SC Duke Power Co. Dec. 1998(2) Non-Jurisdictional 0.40 May 1989
Woodside II...... Cateechee, SC Duke Power Co. Dec. 1998(2) Non-Jurisdictional 0.44 May 1989
--------------------------------
Megawatt Subtotal: 138.39
=======
Number of Projects: 51
- -------------------------
(1) Whichever is later.
(2) The original power purchase agreements for these projects expired in
December 1997 and were renewed for 1 year at negotiated rates.
(3) These projects are subject to sale-leaseback arrangements pursuant to
which the Company is the lessee.
(4) Agreement remains in effect as long as Duquesne Power's tariff with PA
Public Utility Commission remains valid and effective.
(5) Starting in March 1998, the municipality has the option to terminate the
power purchase agreement with 24 months notice.
(6) May be extended by mutual agreement.
(7) Revenue is derived pursuant to a lease arrangement.
(8) The term of the power purchase agreement for this project may be extended
for an additional 20 years at the option of the utility.
(9) The term of the power purchase agreement may be extended through 2028 at the
option of the utility.
(10)The terms of the power purchase agreements relating to these projects may be
extended for an additional five years at the option of the Company.
PROJECTS WITH PARTIAL OWNERSHIP AS OF DECEMBER 31, 1997(1)
POWER PURCHASE APPROXIMATE DATE OF CHI
AGREEMENT FERC LICENSE PROJECT ACQUISITION OR
EXPIRATION EXPIRATION CAPACITY IN COMMENCEMENT
PROJECT LOCATION POWER PURCHASING ENTITY DATE DATE MEGAWATTS OF OPERATIONS(2)
- ------- -------- ----------------------- ---------- ------------ ------------- ----------------
Copenhagen..... Copenhagen, NY Niag. Mohawk Power Corp. Dec. 2023 Exempt 3.30 Feb. 1995
Denley Dam..... Lyonsdale, NY Niag. Mohawk Power Corp. Dec. 2026 Exempt 1.50 Feb. 1995
Hillsborough... Hillsborough, NH Public Serv. Co. of NH Jul. 2004 Exempt 1.20 Nov. 1989
Lacomb......... Lacomb, OR PacifiCorp Dec. 2022 Exempt 0.96 Feb. 1990
Lower Saranac.. Saranac, NY NY State Elec. & Gas Oct. 2029 May 2027 9.30 Jun. 1992
Port Leyden.... Lyonsdale, NY Niag. Mohawk Power Corp. Dec. 2026 Exempt 2.00 Feb. 1995
Pyrites........ Canton, NY Niag. Mohawk Power Corp. Dec. 2023 Aug. 2023 8.20 Feb. 1995
Rock Island.... Lyonsdale, NY Niag. Mohawk Power Corp. Dec. 2026 Exempt 1.90 Feb. 1995
Sheldon Springs Sheldon, VT Vermont Electric Power Aug. 2016 Sept. 2024 24.97 Sept. 1993
Producers, Inc.
Slate Creek.... Lakehead, CA PacifiCorp Dec. 2018(3) Exempt 4.20 May 1990
Twin Falls..... North Bend, WA Puget Sound Power & Light Dec. 2025 Apr. 2035 24.00 Apr. 1989
Co.
---------------------------
Megawatt Subtotal: 81.53
==========
Number of Projects: 11
- -------------------------
(1) Projects with Partial Ownership are defined as those projects in which the
Company has an equity (or equivalent) investment of less than 100%.
(2) Whichever is later.
(3) The power purchase agreement for this project may be extended through 2023
at the option of the utility.
7
PROJECTS WITH OPERATION AND MAINTENANCE CONTRACTS AS OF DECEMBER 31, 1997(1)
APPROXIMATE PROJECT
CAPACITY IN MEGAWATTS DATE OF O&M CONTRACT
--------------------- --------------------
Barker Mill Lower Auburn, ME 1.50 Jul. 1996
Barker Mill Upper Auburn, ME 0.95 Jul. 1996
Brown's Mill Dover-Foxcroft, ME 0.59 Jul. 1996
Champlain Spinners Whitehall, NY 0.70 Aug. 1996
Combie North Grass Valley, CA 0.30 Feb. 1990
Combie South Grass Valley, CA 1.50 Feb. 1990
Damariscotta Damariscotta, ME 0.46 Jul. 1996
Eustis Eustis, ME 0.25 Jul. 1996
Gardiner Gardiner, ME 1.00 Jul. 1996
Great Works South Berwick, ME 0.53 Jul. 1996
Iroquois Falls Ontario, Canada 21.49 Apr. 1994
Island Falls Ontario, Canada 38.40 Apr. 1994
Lower Wilson Greenville, ME 0.57 Jul. 1996
Mechanic Falls Mechanic Falls, ME 1.30 Jul. 1996
Milo Milo, ME 0.60 Jul. 1996
New Dam Sanford/Alfred, ME 0.78 Jul. 1996
Norway Norway, ME 0.32 Jul. 1996
Old Falls West Kennebunk, ME 0.47 Jul. 1996
Pittsfield Pittsfield, ME 1.05 Jul. 1996
Pumpkin Hill Lowell, ME 0.95 Jul. 1996
Schaads San Andreas, CA 0.28 Feb. 1990
Terminus Tulare County, CA 17.00 Apr. 1995
Twin Falls Ontario, Canada 20.25 Apr. 1994
Weeks Falls North Bend, WA 4.34 Jun. 1990
Number of Projects: 24 Megawatt Subtotal: 115.58
========
(1) These are projects where the Company's only current significant interest
is through operation and maintenance contracts.
Total Number of Projects: 86
Total Megawatts Owned, Leased or Operated: 335.50
=========
Sale of Hydroelectric Facilities. On December 23, 1996, the Company sold
15 of its then 100% owned hydroelectric facilities in Maine, aggregating 11.32
megawatts. In connection with this sale, the Company executed a contract to
operate and maintain the facilities for an initial period of up to 15 years. See
Note 5 of the Notes to Consolidated Financial Statements.
Decommissioning of Conventional Hydroelectric Assets. On September 9,
1997, the Company terminated a Power Purchase Agreement (the "PPA") with
PacifiCorp, the purchasing utility, relating to three of its projects located in
Oregon, aggregating 7.01 megawatts. The Company received a cash payment to
terminate production, surrender the PPA and remove all facilities associated
with these projects in accordance with certain terms and conditions. See Note 6
of the Notes to Consolidated Financial Statements.
Power Purchase Agreements. As of December 31, 1997, substantially all
energy and capacity of the Company's existing majority-owned projects in the
United States was being sold to 18 public utilities pursuant to take or pay
long-term power purchase agreements with remaining terms ranging from
approximately 9 months to 28 years. The Company's power purchase agreements
generally require the utility to purchase all energy delivered by the relevant
facility. These power purchase agreements generally do not provide for
termination prior to expiration except in the case of either continuing
nonperformance by the Company or certain events of bankruptcy or insolvency of
the project subsidiary.
The Company's power purchase agreements have either fixed or fluctuating
rates or a combination thereof. Fluctuating rate and combination rate contracts
are generally based on avoided costs or a percentage thereof, and typically
incorporate minimum prices which enable the Company to benefit from increases in
energy prices but insulate it against significant decreases. The Company's fixed
rate contracts often contain: (i) blended rates typically based on projected
8
annual avoided costs averaged over a 15 to 30 year period; or (ii) an escalation
factor that reflects estimated increases in projected annual avoided cost over
the term of the contract. The escalation factor is often indexed to the Gross
Domestic Product ("GDP") deflator. The Company also has contracts that provide
for fixed rates or escalating fixed rates for up to 20 years (from inception),
followed by adjustable rates based on a fixed percentage of actual annual
avoided costs for the remaining term. Certain power purchase contracts provide
for different rates based on peak or off-peak generation of energy. As the
Company's existing contracts mature or change from fixed rates to rates based on
avoided cost, the Company will receive lower prices for its power to the extent
that the currently low market price for electricity continues. Prices for
electricity remain low as a result of reductions in the cost of power produced
from natural gas due to lower natural gas prices and technological improvements
which have lowered the capital cost and increased the efficiency of combustion
turbines and other competing technologies. Federal regulators and a number of
states, including some in which the Company operates, have opened access to the
transmission grid and are exploring ways to further increase competition in
electricity markets by such means as customer choice of generation suppliers at
the retail level. Although the character and extent of this deregulation are as
yet unclear, the Company expects that these efforts will increase uncertainty
with respect to future power prices and make it more difficult to obtain
additional long-term power purchase contracts.
All of the Company's existing hydroelectric facilities in the United
States are QFs under PURPA, which requires utilities to purchase power from QFs,
and exempts QFs from most utility regulatory requirements. Pursuant to PURPA,
electric utilities are required to purchase power from QFs at prices based on
the utilities' current avoided cost. Implementation of the regulations is
delegated to state public utility commissions which may, at their discretion,
establish long-term rates for a specified period higher than short-term avoided
costs or may provide other kinds of incentives to QFs. In recent years, a number
of utilities have begun to challenge certain provisions of PURPA as no longer
appropriate in the current U.S. energy market. See "-- Energy and Environmental
Regulation".
The following table sets forth the Company's power sales by customer, the
majority of which are utilities, for the six months ended December 31, 1997:
COMBINED
REVENUES OF
REVENUES OF PROJECTS 100%
PROJECTS IN REVENUES OF OWNED AND
CONSOLIDATED PROJECTS ONLY PARTIALLY
RESULTS OF PARTIALLY OWNED
OPERATIONS(1) % OWNED(1) % %
------------ ---- -------------- ---- -------------- -------
Niagara Mohawk Power Corp.................. $ 2,735,046 17.9 $ 1,603,216 20.2 $ 4,338,262 18.7
Vermont Electric Power Producers, Inc...... 271,735 1.8 2,995,890 37.8 3,267,625 14.1
Commonwealth Electric Co................... 3,013,769 19.8 -- -- 3,013,769 13.0
Puget Power................................ -- -- 2,205,360 27.9 2,205,360 9.5
Central Maine Power Co..................... 2,066,203 13.5 -- -- 2,066,203 8.9
New England Power Co....................... 1,803,794 11.8 -- -- 1,803,794 7.8
Idaho Power Co............................. 1,780,077 11.7 -- -- 1,780,077 7.7
N.Y. State Electric & Gas Corp............. 502,241 3.3 982,854 12.4 1,485,095 6.4
Duke Power Co.............................. 1,042,801 6.8 -- -- 1,042,801 4.5
Public Service Co. of NH................... 422,954 2.8 69,255 0.9 492,209 2.1
Virginia Power Co.......................... 386,165 2.5 -- -- 386,165 1.7
PacifiCorp................................. 299,531 2.0 64,592 0.8 364,123 1.6
Groton Electric Light Dept................. 298,671 2.0 -- -- 298,671 1.3
All other customers........................ 636,169 4.1 -- -- 636,169 2.7
Total $15,259,156 100.0% $7,921,167 100.0% $23,180,323 100.0%
=========== ====== ========== ====== =========== =======
(1) Comprised of results of the predecessor Company (prior to CHI's financial
restructuring) from July 1, 1997 through November 7, 1997 and the
reorganized Company (subsequent to CHI's financial restructuring) from
November 8, 1997 through December 31, 1997.
9
Substantially all of the Company's existing power purchase agreements
contain scheduled rates for delivered energy through 1998 or later, which
protects the Company from decreases in energy prices and avoided costs from
current levels until such time when the scheduled rate portion of the contract
expires. Thereafter, certain contracts expire and others provide for prices
based upon avoided cost. In general, the scheduled rates exceed the current
avoided cost for delivered energy. Lower avoided costs of energy could
significantly reduce the rates received by the Company under a particular
contract once the period of scheduled rates terminates and could make it more
difficult in the future for the Company to obtain contracts which can
economically support development of new projects.
The following table summarizes the actual or expected basis for
determining future rates which are anticipated to be in effect under current and
anticipated future power purchase agreements for the Company's existing
consolidated projects. To develop the information below, the Company first
computed the average annual revenue for each project included in consolidated
power sales revenues using actual revenues for each of the last three calendar
years ended December 31, 1997. This "revenue mix" was then applied to each of
the respective project's power purchase agreement terms on the assumption that
the Company's consolidated project portfolio and average revenue mix remains
unchanged for the ten-year period shown in the table. Power purchase agreements
which expire during the ten-year period shown are assumed to result in revenues
based upon avoided costs for the period subsequent to contract expiration. The
information shown below is not intended to represent actual future results, but
is believed to be indicative of the portion of existing revenue that will be
subject to avoided cost risk during the period shown. No assurance can be
provided as to what the actual avoided cost risk will be for the period shown.
% of CURRENT REVENUES % of CURRENT REVENUES
SUBJECT TO MINIMUM SUBJECT TO RATES
FIXED OR SCHEDULED DETERMINED PURSUANT TO
CALENDAR YEAR RATES(1) TO AVOIDED COST
------------- ------------------ ---------------------
1998 ........................... 90.9 9.1
1999 ........................... 86.3 13.7
2000 ........................... 85.5 14.5
2001 ........................... 66.1 33.9
2002 ........................... 66.1 33.9
2003 ........................... 63.5 36.5
2004 ........................... 63.5 36.5
2005 ........................... 62.5 37.5
2006 ........................... 61.0 39.0
2007 ........................... 60.3 39.7
(1) Includes contracts with GDP or other similar adjustment provisions
In recent years, several public utility companies have approached
independent power producers (each an "IPP"), including the Company, to
renegotiate specified rates in their power purchase agreements, alleging that
these agreements force the utilities to purchase power from IPPs at rates higher
than current avoided cost, resulting in higher rates to consumers. Niagara
Mohawk Power Corporation ("NIMO"), a customer of the Company which accounted for
approximately 13.4%, 18.4%, 20.3% and 17.9% of consolidated power sales revenues
in the fiscal years ended June 30, 1995, 1996 and 1997 and the six months ended
December 31, 1997, respectively, has in the recent past issued statements and
taken action, including legal action, indicating its desire to be relieved of
its obligations under contracts with IPPs that NIMO considers uneconomic. In
March 1997, NIMO announced that it reached preliminary agreements to restructure
power purchase agreements with 19 IPPs representing 44 IPP contracts. In July
1997, NIMO announced that it had signed a master restructuring agreement
(subject to certain conditions requiring third party approvals) to terminate or
restructure 29 IPP contracts with 15 of the 19 IPP's. However, neither the
Company nor any of its subsidiaries participated in these negotiations, and the
impact of the announced settlements on the Company, if any, is unknown. NIMO has
also unilaterally imposed a "generation cap" on three of the fifteen power
purchase agreements it has with the Company, and has paid claiming reduced rates
for power produced over a cap specified by the utility and has withheld
approximately $0.7 million of revenues to date. In response, the Company, in
conjunction with other IPPs, has sought redress in court and expects the case to
be decided during 1998.
10
Although the Company believes that its power purchase agreements are
valid, binding and enforceable contracts, and economically advantageous when
analyzed over the life of such contracts, and that the arguments raised by the
utilities fail to acknowledge that IPP power is still often less expensive than
alternative sources and less expensive than rates that might prevail had the
utilities built their own additional capacity, there can be no assurance
additional customers of the Company will not attempt to modify their contracts
with the Company and, if such attempts succeed, that any such modifications will
not have a material adverse effect on the Company's future revenues.
Additionally, increased competition in the electricity industry might cause
certain utilities to become higher credit risks. Although the ratings of the
debt securities of many of the utilities which purchase power from the Company
are currently investment grade, there can be no assurance of the long-term
creditworthiness of any of the Company's customers. Should any customer fail, it
would be difficult for the Company to replace an existing long-term contract
with such a customer with a new contract with another customer on similar
economic terms in the current environment. See Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources".
Precipitation, Water Flow and Seasonality. For hydroelectric facilities,
the amount of energy generated at any particular facility depends upon the
quantity of water flow at the site of the facility. Dry periods tend to reduce
water flow at particular sites below historical averages, particularly if the
facility has low storage capacity. Excessive water flow may result from
prolonged periods of higher than normal precipitation or sudden melting of snow
packs, possibly causing flooding of facilities and/or a reduction of generation
at such sites until water flows return to normal. In cases of reduced or excess
water flow, energy generation at such sites may be diminished. Pursuant to the
Company's power purchase agreements, any diminished energy generation will have
an adverse effect on revenues from that facility. While the Company does not
have business interruption insurance to cover lost revenues as a result of
drought or dry periods, the Company maintains business interruption insurance to
cover, among other things, the loss of revenues above certain deductible levels,
and subject to applicable insurance policy sub-limits and overall limits,
arising from interruption of electricity generation due to damage caused by
flooding and other catastrophic events. There can be no assurance that such
coverage will remain available on acceptable terms.
Production of electricity by the Company is typically greatest in its
first and second quarters (January through June), when water flow is at its
highest at most of the Company's projects, and lowest in the third quarter (July
through September). The Company normally shuts down selected operations for
periods during the relatively dry third quarter in order to perform routine
maintenance. The amount of water flow in any given period will have a direct
effect on the Company's production, revenues and cash flow.
ENERGY AND ENVIRONMENTAL REGULATION
Energy Regulation. The Company is subject to federal and state (or in
Canada, provincial) energy laws and regulations in connection with the
development and operation of its hydroelectric and industrial projects.
Depending on the project, these laws and regulations may govern the ownership
structure of the projects, the rates, terms and conditions under which the
Company may sell electric output from the projects to utilities or other
customers, and the procedures under which these projects are constructed and
operated. In the U.S., federal laws that affect the Company's business include:
(i) the Federal Power Act of 1935 ("FPA"); (ii) the Electric Consumer Protection
Act of 1986 ("ECPA"); (iii) the Public Utilities Holding Company Act of 1935
("PUHCA"); (iv) PURPA; and (v) the National Energy Policy Act of 1992
("NEPAct"). A brief discussion of the impact of these laws on the Company
follows.
Under the FPA, substantially all of the Company's existing hydroelectric
projects are subject to varying degrees of regulation by the Federal Energy
Regulatory Commission ("FERC"), either as projects licensed by FERC or
determined by FERC to be exempt from licensing requirements. FERC license
compliance requirements and other regulatory requirements under the FPA can be
complicated and expensive and can subject the Company to future regulatory
requirements the nature and costs of which are currently unknown.
The exemptions afforded by PURPA to QFs from extensive federal and state
regulation are important to the Company and its competitors. Each of the
operating conventional hydroelectric projects in the U.S. that the Company
currently owns, operates or in which it has an investment meets the requirements
under PURPA for being a QF. As an owner of QFs, the Company is exempt from many
of the provisions of the FPA and PUHCA. However, some larger hydroelectric
facilities (if acquired or developed by the Company) would not qualify as QFs.
In addition, the Company believes that certain industrial energy facilities that
it may acquire or develop in the future may not be QFs. The Company does not
intend for its industrial
11
energy facilities to be principally engaged in the sale of electric power to
electric utilities at wholesale rates. However, to the extent they may sell such
power, they may be subject to regulation by FERC or by the public service
commissions in the states in which they operate or sell power.
Electric Industry Restructuring. In recent years the federal government
and many state governments have begun consideration of proposed legislation or
regulations that would partially or wholly deregulate the electric power
industry and institute competition at the level of retail electricity customers.
The Company believes that such restructuring, including significant elements of
retail competition, is likely within the next few years with a variety of
potential impacts both positive and negative on the Company. In the area of
acquiring and developing industrial energy facilities, removing restrictions on
retail sales of energy to industrial customers is likely to enhance the
Company's prospects for completing transactions with such customers. In the area
of hydroelectric generation, it is uncertain to what extent the Company's
smaller hydroelectric facilities would be competitive in a fully deregulated
energy market without the current benefits of PURPA that require electric
utilities to purchase the output from these facilities. While the Company
believes that its existing long-term power purchase contracts with utilities are
legally binding for the duration of the contracts, there can be no assurance
that the provisions of these contracts will not be affected by future
legislation or regulation dealing with electric industry restructuring. See "--
Power Purchase Agreements".
Environmental Regulation. The Company is subject to extensive federal,
state (in Canada, provincial) and local environmental laws and regulations
applicable to the development and operation of its projects. Environmental laws
and regulations may affect the Company's operations by delaying construction of
a project or, although the Company has never experienced such an event, the
closing down of an operating project for a period of time. In addition,
environmental laws and regulations may affect the development time, site
selection and permitting of new projects. The development of a power generation
project typically requires numerous licenses, permits, approvals and
certificates from governmental agencies. Procedures followed by certain of these
permitting authorities may be affected by political factors.
The Company monitors applicable environmental laws and regulations and
evaluates its facilities for compliance with applicable standards. Based on
current trends, however, the Company expects that environmental and land use
regulation will become more stringent. Accordingly, the Company plans to
continue to place a strong emphasis on the development and use of its available
technology to minimize potentially harmful effects on the environment that may
result from the operation of its facilities. In addition, the Company has
developed expertise and experience in obtaining necessary licenses, permits and
regulatory approvals.
The Company's hydroelectric facilities are subject to environmental
regulatory requirements pursuant to their FERC licenses or exemptions or, in the
case of facilities not subject to FERC jurisdiction, applicable state
environmental requirements. The Company's prospective industrial infrastructure
facilities are likely to be subject to federal and state laws and regulations
governing atmospheric emissions and, in some cases, governing the discharge of
effluents into water bodies. Environmental regulatory requirements for such
facilities are often complex, and specific requirements are dependent upon the
nature of the individual project and site.
COMPETITION
In its industrial infrastructure business, the Company competes with a
large number of well-capitalized companies, including U.S. and foreign electric
utilities and their affiliates, which are also attempting to serve the energy
needs of industrial companies. However, the Company believes that there are
relatively few companies seeking to serve the industrial market in the same
manner as the Company, principally through requirements-based contracts and by
offering multiple products and services.
In its hydroelectric business, the Company competes with a number of
smaller and regional independent hydroelectric development companies and, on
occasion, with other independent energy producers, utilities and utility
subsidiaries for the rights to acquire, develop or operate additional
conventional hydroelectric projects, which may cause fewer projects to be
available at prices that will permit the level of return on investment which the
Company seeks. Recent years have seen an increase in competition for available
properties from large, well-capitalized companies, thereby driving down
competitive rates of return and making it more difficult for the Company to
successfully acquire additional projects.
12
PROPERTIES OWNED AND LEASED
The Company leases its administrative offices at 680 Washington Boulevard,
Stamford, Connecticut under a lease calling for annual payments of approximately
$170,000 per year. Additional administrative offices and maintenance facilities
are leased in Houston, Texas; Greenville, South Carolina; Anderson, California;
Boise and Twin Falls, Idaho; Andover, Massachusetts; North Bend, Washington; and
Montreal, Canada, with aggregate annual rental payments of approximately
$200,000. The Company owns administrative offices in Lawrence, Massachusetts and
Dexter, New York and a maintenance facility in Sanford, Maine.
In addition to the foregoing, the Company owns and leases real estate in
California, Connecticut, Georgia, Idaho, Massachusetts, Maine, New Hampshire,
New York, North Carolina, Oregon, Pennsylvania, South Carolina, Vermont,
Virginia and Washington. Except for certain small non-hydroelectric real estate
parcels, this additional real estate constitutes property used in the
hydroelectric generating projects operated by the Company. In the case of each
of the conventional hydroelectric projects owned or leased by the Company, the
project generally consists of a dam, water rights and interests and rights in
real estate sufficient for the purposes of operating the facility, a powerhouse
for the generation of electricity and other necessary equipment. Except as
listed in the table entitled "Projects with Partial Ownership as of December 31,
1997" under "Conventional Hydroelectric Projects" above, such property and the
federal and state permits and licenses are owned or leased by one or more
subsidiaries of the Company or various limited partnerships in which such
subsidiaries are the sole general and limited partners. The water rights held by
the Company are subject to various restrictions and limitations with respect to
environmental and other matters. In the opinion of management, none of such
restrictions will have a material adverse effect on the business or operations
of the Company.
EMPLOYEES
The Company employs approximately 154 full-time and 84 part-time and
temporary employees as of December 31, 1997. The Company's current employees are
not represented by a collective bargaining group, and management considers its
relations with employees to be good.
FINANCIAL RESTRUCTURING OF CHI; CHANGE OF FISCAL YEAR
Prior to November 7, 1997, CHI had a highly leveraged capital structure
and substantial future cash requirements related to corporate debt and
mandatorily redeemable preferred stock, specifically, to then-existing 12%
Senior Discount Notes, due 2003 (the "Senior Discount Notes") and the 13 1/2%
Cumulative Redeemable Preferred Stock (the "Series H Preferred"). The high
leverage and future cash requirements of the Company made it difficult to
establish the creditworthiness and credibility necessary to consummate
industrial infrastructure and other new business transactions. The Company
believed it would be unable to satisfy certain future corporate dividend and
interest payment obligations on a timely basis as well as meet other Company
obligations. In order to capitalize on the expertise, capabilities and
opportunities it believes it has in the industrial infrastructure and
hydroelectric business segments, the Company concluded that it was necessary to
deleverage its capital structure. To that end, the Company in the fall of 1996
entered into discussions with substantial holders of its Senior Discount Notes
and, Series H Preferred, as well as with holders of its 8% Senior Convertible
Voting Preferred Stock (the "Series F Preferred") and 9.85% Junior Convertible
Voting Preferred Stock (the "Series G Preferred", and together with the Series H
Preferred and Series F Preferred, the "Old Preferred Stock") in an effort to
restructure the Company's significant financial obligations.
In June 1997, CHI reached an agreement in principle with an informal
committee of institutions that owned, or represented beneficial holders that
owned, approximately 89.2% of CHI's then outstanding Senior Discount Notes on
the terms of a restructuring to be accomplished pursuant to a plan of
reorganization for CHI (the "Plan of Reorganization") under chapter 11, Title 11
of the United States Code (the "Bankruptcy Code"). On August 8, 1997, pursuant
to a disclosure statement, dated August 8, 1997 (the "Disclosure Statement"),
CHI commenced a prepetition solicitation of votes by the holders of Senior
Discount Notes and Old Preferred Stock to accept or reject the Plan of
Reorganization. Under the Plan of Reorganization, the holders of Senior Discount
Notes and Old Preferred Stock were the only holders of impaired claims and
impaired equity interests entitled to receive a distribution and, therefore,
pursuant to section 1126 of the Bankruptcy Code, were the only holders entitled
to vote on the Plan of Reorganization. At the conclusion of the 32-day
solicitation period, the Plan of Reorganization had been accepted by holders of
100% of the Senior Discount Notes and by holders of greater than 97% of the Old
Preferred Stock.
13
On September 15, 1997, CHI commenced a case under chapter 11 of the
Bankruptcy Code (the "Chapter 11 Case") in the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"), and filed the Plan of
Reorganization and the Disclosure Statement. None of CHI's subsidiaries
commenced a case under the Bankruptcy Code. On October 23, 1997, the Bankruptcy
Court entered an order confirming the Plan of Reorganization, which became
effective November 7, 1997 (the "Effective Date").
Through the implementation of the Plan of Reorganization on and after the
Effective Date, CHI's most significant financial obligations were restructured
as follows: $202 million in face amount of outstanding Senior Discount Notes
were converted into, among other things, $15 million in cash and 100% of the
shares of CHI's new common stock, consisting of shares of new class A common
stock (the "New Class A Common Stock") and shares of new class B common stock
(the "New Class B Common Stock", and together with the New Class A Common Stock,
the "New Common Stock"), subject to dilution from the New Warrants and the
Management Options (each as described below); the holders of the Old Preferred
Stock exchanged such stock for warrants to purchase up to 12.5% of the New
Common Stock, consisting of series B warrants (the "New Series B Warrants") and
series C warrants (the "New Series C Warrants, " and together with the New
Series B Warrants, the "New Warrants"), subject to dilution from the Management
Options; and CHI's old common stock (the "Old Common Stock") was canceled. CHI's
senior management received options to purchase up to an aggregate of 7.5% of the
New Class A Common Stock, (the "Management Options"), subject to dilution from
the New Warrants. See Part II, Item 5, "Market for the Registrant's Common
Equity and Related Stockholder Matters" for information with respect to the New
Common Stock, New Warrants and Management Options. As a result of the
restructuring, CHI does not have any significant parent company debt
obligations. However, CHI has received a commitment, subject to certain
conditions precedent, for a new, secured $15 million working capital and letter
of credit facility which the Company expects to close in the near future.
Pursuant to the Plan of Reorganization, CHI adopted, on the Effective
Date, the Amended CHI By-Laws and a Restated CHI Certificate of Incorporation.
Pursuant to CHI's Restated Certificate of Incorporation, as of the Effective
Date, CHI's name was changed from Consolidated Hydro, Inc. to CHI Energy, Inc.
In addition, its fiscal year-end was changed from June 30 to December 31..
CERTAIN RISK FACTORS
Certain statements contained in this Form 10-K that are not related to
historical facts may contain "forward looking" information, as that term is
defined in the Private Securities Litigation Reform Act of 1995. Such statements
are based on the Company's current beliefs as to the outcome and timing of
future events, and actual results may differ materially from those projected or
implied in the forward looking statements. Further, certain forward looking
statements are based upon assumptions of future events which may not prove to be
accurate. The forward looking statements involve risks and uncertainties
including, but not limited to, the uncertainties relating to industry trends;
risks related to hydroelectric, industrial energy and other acquisition and
development projects; risks related to the Company's power purchase contracts;
risks and uncertainties related to weather conditions; and other risk factors
detailed herein and in other of the Company's Securities and Exchange Commission
filings. Certain of these risks are discussed more fully below and should be
carefully considered along with the other matters described herein.
Leveraged Project Financing. The Company's existing hydroelectric projects
are and its future hydroelectric and industrial projects, if any, would likely
be financed using a variety of structures primarily consisting of limited
recourse or non-recourse debt. As of December 31, 1997, the Company had $88.0
million (exclusive of the Boott project operating lease) of direct project
financing obligations that are limited recourse or non-recourse to CHI. As
limited recourse or, except to the extent set forth below, non-recourse
obligations, each such obligation is structured to be fully serviced out of each
applicable project's cash flow, generally without any claim against CHI's
general corporate funds. In the event of a project default and assuming CHI is
unable or chooses not to cure such default within applicable cure periods (if
any), the lenders or lessor would generally have rights to the facility, related
contracts and all licenses and permits necessary to operate the facility and, in
the event of foreclosure after such a default, the Company might not retain any
interest in such project.
Certain project acquisitions have been financed by General Electric
Capital Corporation ("GECC"), which has required the guarantee of CHI
Acquisitions, Inc. ("CHI Acquisitions"), a subsidiary of CHI which is the parent
of each of the entities formed to acquire such projects. Thus, each such project
is vulnerable in the event of a default by any of the other projects owned
indirectly by CHI Acquisitions. Although all of this guaranteed financing has
been repaid, a tax indemnity and performance guarantee relating to one project
remains in effect. See Note 12 of the Notes to Consolidated Financial Statements
14
for additional information with respect to the tax indemnity. Certain other
projects acquired by CHI Acquisitions II, Inc. ("CHI Acquisitions II"), a
subsidiary of CHI, were financed by CHI Acquisitions II with two loans from
GECC. See Note 12 of the Notes to Consolidated Financial Statements for
additional information. One such loan has been secured by the projects acquired
and the other loan by the cash flows of certain other projects of which CHI
Acquisitions II is the parent.
Dependence on Precipitation and Effects of Variations in Water Flow and
Seasonality. The amount of hydroelectric energy generated at any particular
conventional hydroelectric facility depends upon the quantity of water flow at
the site of the facility. In cases of reduced or excessively high water flow,
energy generation at such site may be diminished, particularly if the facility
has low storage capacity. Pursuant to the Company's power purchase agreements,
any diminished energy generation will have an adverse effect on revenues from
that facility. In the fiscal year ended June 30, 1995, the Company experienced
low water flow relative to long-term indications at many of its facilities. The
effect on revenues of the lower than average water flows was most adverse in the
Northeast, a region in which a majority of the Company's projects are located
and where the Company's rates received for power sales are highest on average.
The Northeast region experienced below average water flows during the six months
ended December 31, 1997 and the fiscal year ended June 30, 1995, while
experiencing above average water flows in the fiscal years ended June 30, 1997
and 1996. While the Company does not have business interruption insurance to
cover lost revenues as a result of drought or dry periods, the Company carries
business interruption insurance to cover, among other things, the loss of
revenues above certain deductible levels and subject to applicable insurance
policy sub-limits and overall limits arising from interruption of electricity
generation due to damage caused by flooding. There can be no assurance that such
coverage will remain available on acceptable terms.
Production of electricity by the Company is typically greatest in its
first and second quarters (January through June), when water flow is at its
highest level at most of the Company's projects, and lowest in the third quarter
(July through September). The amount of water flow in any given period will have
a direct effect on the Company's production, revenues and cash flow.
Changes in Applicable Rates; Energy Price Declines. From calendar years
1998 through 2007, rates paid to the Company pursuant to power purchase
agreements representing approximately 39.7% of the Company's average power sales
revenues (calculated on a rolling three year basis) will be affected by changes
from scheduled rates to rates based on the applicable utilities' then current
avoided cost. Use of avoided cost is driven by either the specific terms of
certain power purchase agreements or the expiration of the remaining agreements
during the period presented and the assumed utility purchase of project
generation, in accordance with the requirements of PURPA and the regulations
adopted thereunder. A utility's avoided cost rate is equal to the incremental
cost that would have been incurred if the utility had generated the energy
itself or purchased it from another source. Consequently, the Company's revenue
at such time will be adversely affected if the then current utility avoided cost
is lower than the scheduled rate previously in effect.
The majority of the generating capacity of the Company's operating
projects is contracted through 2020. However, if energy prices remain at current
levels or decline, the rates negotiated by the Company for new contracts,
contract rates based upon utility avoided costs or extensions of existing
contracts could be adversely affected.
Dependence on Commonwealth Electric Company ("CEC"), Central Maine Power
Company ("CMP"), NIMO, New England Power Company ("NEPCO") and Idaho Power
Company ("Idaho"); Creditworthiness of the Company's Customers. A substantial
portion of the Company's power is sold to five customers pursuant to various
long-term power purchase agreements. Sales to CEC, CMP, NIMO, NEPCO and Idaho
represented approximately 20%, 14%, 18%, 12% and 12%, respectively, of the
consolidated revenues of the Company for the six months ended December 31, 1997.
In the recent past, NIMO has issued statements indicating its desire to be
relieved of its obligations under contracts with independent power producers
that NIMO considers uneconomic. While offering to renegotiate such contracts,
NIMO has in the past proposed that, should negotiations fail and NIMO be unable
to gain alternative economic relief, NIMO would seek to take possession of
associated projects through the power of eminent domain and has indicated that
it would consider the possibility of restructuring under chapter 11 of the
Bankruptcy Code should its proposal prove unachievable. In March 1997, NIMO
announced that it reached preliminary agreements to restructure power purchase
agreements with 19 IPP's representing 44 IPP contracts. In July 1997, NIMO
announced that it had signed a master restructuring agreement (subject to
certain conditions requiring third party approvals) to terminate or restructure
29 IPP contracts with 15 of the 19 IPP's. However, neither the Company nor any
of its subsidiaries participated in these negotiations, and the impact of the
announced statements on the Company, if any, is unknown.
15
Energy and Environmental Regulation. All of the Company's existing
operating hydroelectric projects, while exempt from public utility regulation,
are subject to varying degrees of regulation by FERC and state agencies.
Substantially all of the Company's generating capacity has either been licensed
or granted an exemption from licensing as required under the FPA. There is no
guarantee that a FERC license can be obtained or renewed. Although the Company
has not encountered significant difficulties in transferring, amending or
obtaining licenses, there can be no assurance that it will not encounter
significant difficulties in this regard in the future, nor can there be any
assurance that existing regulations will not be revised or that new regulations
will not be adopted or become applicable to the Company that could have an
adverse effect on its operations.
The Company's activities require numerous permits, approvals and
certificates from appropriate federal, state and local government agencies as
well as compliance with certain environmental protection legislation and the
FPA. While the Company believes it has obtained the requisite approvals for its
existing operations and that its business is operated in accordance with
applicable law, it remains subject to a varied and complex body of regulations
that both public officials and private individuals may seek to enforce. Such
laws and regulations may affect operations by delaying construction or forcing a
temporary or permanent closure of a project and may affect site selection or
permitting of new projects. Based on current trends, the Company expects that
environmental and land use regulation will become more stringent. There can be
no assurance that existing regulations will not be revised or that new
regulations that could have an adverse effect on its operations will not be
adopted or become applicable to the Company nor can there be any assurance that
the Company will be able to obtain all necessary licenses, permits, approvals
and certificates for proposed projects or that completed facilities will comply
with all applicable statutes or regulations.
Uncertainty as to Future Opportunities in Hydroelectric Business. The
Company believes that opportunities to continue to expand its conventional
hydroelectric business through the acquisition of additional facilities and the
securing of O&M contracts are likely to be limited. There can also be no
assurance that the Company will be able to take advantage of such opportunities
on terms acceptable to it, nor can there be any assurance that the Company will
be able to obtain financing with respect to such opportunities. In addition, a
number of industry issues, including issues related to the availability, term
and pricing of future power purchase agreements and higher acquisition prices
resulting from increased competition in certain segments are limiting and are
expected to continue to limit the Company's near-term opportunities to acquire
additional hydroelectric capacity at acceptable rates of return. See Part II,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources".
In addition, the Company believes that near-term prospects for successful
development of new hydroelectric facilities in North America are severely
limited due to regulatory restrictions that increase the cost of hydroelectric
development combined with the current energy market, in which low energy prices
do not make hydroelectric development economically attractive. The development
of new hydroelectric projects includes certain risks not associated with the
purchase of operating facilities, including licensing, environmental,
engineering, equipment, power sales, construction and distribution risks, as
well as implementation risks such as cost overruns, delays and performance
risks. There is no assurance that the Company will be able to raise development
capital and obtain satisfactory project development agreements, construction
contracts, power purchase agreements, licenses and permits or financing
commitments with respect to the projects currently under development or any
projects that the Company might wish to develop in the future. Further, there
can be no assurance that equity or non-recourse or limited recourse development
capital, similar to that which the Company has used generally to finance
development projects, is currently available or will be available on a similar
basis in the future. If the Company terminates a project, it would generally not
be able to recover its investment in such a project and would expense all
capitalized development costs incurred in connection therewith.
Uncertainty as to Future Opportunities in Industrial Infrastructure
Business. The Company is pursuing opportunities to develop, acquire, operate and
manage industrial energy facilities and related industrial assets in such
sectors as pulp and paper, petroleum refining, chemicals, textiles, and other
energy-intensive industries. Currently, all of the Company's revenue is derived
from the ownership and operation of hydroelectric facilities. The Company
believes that opportunities exist for industrial infrastructure transactions and
that it possesses the required technical and development expertise to complete
such transactions successfully. As of March 29, 1998, the Company had not
completed any such transaction, and there can be no assurance that any such
transaction will occur.
16
Significant Holders. Two holders hold approximately 74% of the outstanding
voting shares of the New Common Stock. For a list of such holders, see Part III,
Item 12, "Security Ownership of Certain Beneficial Owners and Management." If
holders of significant numbers of shares of the New Common Stock were to act
together, such holders would be in a position to control the outcome of most
actions requiring stockholder approval. This concentration of ownership could
also facilitate or hinder a negotiated change of control of CHI and,
consequently, have an impact upon the value of the New Common Stock. In that
regard, all holders of New Common Stock are subject to a new stockholders'
agreement (the "New Stockholders' Agreement"), which agreement includes, among
other things, certain "drag along" and "tag along" rights.
ITEM 2. PROPERTIES
- ------
The information concerning properties required by Item 2 is set forth in
Part I, Item 1, of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
- ------
As described above, CHI completed a financial restructuring, effective
November 7, 1997, including confirmation of its Plan of Reorganization filed in
a Chapter 11 reorganization case (no. 97-1924(SLR)) in the United States
Bankruptcy Court for the District of Delaware.
On September 2, 1997, a then-shareholder of CHI filed a civil action
against CHI, certain of its current and former officers and directors and Morgan
Stanley & Co., Incorporated in Connecticut Superior Court, Judicial District of
Stamford, entitled Charles J. Lindsay v. Consolidated Hydro, Inc., et al.,
alleging, among other things, that the officers and directors of CHI breached
their fiduciary duty to the holders of CHI's Old Common Stock by proposing a
Plan of Reorganization that eliminated CHI's Old Common Stock. On December 18,
1997, the Company and each of the other defendants filed a motion to strike the
complaint and dismiss the action on the grounds that, among other things, the
allegations raised in the complaint were barred as a matter of law. On March 16,
1998, prior to the scheduled hearing on the Company's and the other defendants'
motion to strike the complaint, and dismiss the action, the plaintiff agreed to
withdraw the complaint without prejudice to his right to amend and to replead
the complaint. As of March 29, 1998, no amended complaint has been served and
filed.
On August 20, 1997, a former employee of the Company filed a civil-action
against the Company in Connecticut Superior Court, District of New Haven
entitled Carol H. Cunningham v. Consolidated Hydro, Inc. alleging that the
Company breached its employment agreement with her. On or about October 13,
1997, the former employee filed a proof of claim in the Bankruptcy Court for
approximately $7.3 million plus unliquidated amounts based primarily on the
allegations in the civil-action (the "Claim"). On November 25, 1997, the Company
filed an objection to the Claim on the grounds that, among other things, the
former employee failed to satisfy her obligations under her employment contract
with the Company. The Company is vigorously defending the Claim and management
believes that the Company's liability with respect to the Claim, if any, will
not have a material adverse effect on the Company's financial position or
results of operations.
The Company is involved in various legal proceedings which are routine
litigation matters incidental to the conduct of its business. CHI's management
currently believes that none of this litigation, if determined adversely to the
Company, would have a material adverse effect on the financial condition or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------
There were no matters submitted to a vote of security holders during the
period from November 8, 1997 to December 31, 1997 through the solicitation of
proxies or otherwise.
17
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- ------ STOCKHOLDER MATTERS
As of March 16, 1998, the number of holders of record of the New Class A
Common Stock of CHI was 13, and the number of holders of record of the New Class
B Common Stock was one. There is no established public trading market for the
New Common Stock of the Company. No dividends were declared on either class of
CHI's New Common Stock during the period from November 8, 1997 to December 31,
1997. CHI presently intends to retain earnings to fund working capital and for
general corporate purposes and anticipates that pursuant to a new working
capital agreement, it will be prohibited from paying dividends and therefore
does not anticipate paying cash dividends on shares of the New Common Stock in
the foreseeable future.
Pursuant to the Plan of Reorganization, on the Effective Date, 20,000,000
shares of New Common Stock were authorized as follows: 9,085,290 shares of New
Class A Common Stock and 914,710 shares of New Class B Common Stock which were
issued on the Effective Date and 10,000,000 additional shares of New Common
Stock which may be issued as either New Class A Common Stock or New Class B
Common Stock, as applicable. Of the 10,000,000 shares of New Common Stock which
were authorized on the Effective Date but not issued, 1,337,127 shares are
reserved for issuance if, as and when the holders of the New Warrants exercise
such warrants and 810,811 shares of New Class A Common Stock are reserved for
issuance, if as and when, the holders of the Management Options exercise such
options. In addition, 10,000,000 shares of preferred stock were authorized, none
of which were issued.
The following is a description of the two classes of New Common Stock, the
two classes of New Warrants and the Management Options issued on the Effective
Date, as well as a summary of the principal provisions of the registration
rights agreement (the "Registration Rights Agreement") and the New Stockholders'
Agreement which became effective on the Effective Date (each such document is
being filed as an exhibit to this Form 10-K):
New Class A Common Stock. Pursuant to the Plan of Reorganization, on the
Effective Date, 9,085,290 shares of New Class A Common Stock were issued and
distributed to substantially all of the holders of Senior Discount Notes and
810,811 shares of New Class A Common Stock were reserved to satisfy the
obligation of CHI under the Management Options. For a discussion of the
Management Options, see Part I, Item 1, "--Financial Restructuring of CHI;
Change of Fiscal Year" and Part III, Item 11, "Executive Compensation". Each
share of New Class A Common Stock will entitle its holder to one vote. Holders
of New Class A Common Stock will have the right to participate proportionately
in dividends, if any, distributed by the Company.
New Class B Common Stock. Pursuant to the Plan of Reorganization, on the
Effective Date, 914,710 shares of New Class B Common Stock were issued and
distributed to a holder of Senior Discount Notes. Each share of New Class B
Common Stock will entitle its holder to one-hundredth (1/100) of one vote. The
holder of New Class B Common Stock will have the right to participate
proportionately in dividends, if any, distributed by the Company. The New Class
B Common Stock was issued to a holder of Senior Discount Notes, at such holder's
request, to provide to such holder reduced voting rights in CHI. Pursuant to the
Restated Certificate of Incorporation of CHI, upon any transfer of shares of New
Class B Common Stock, the shares of New Class B Common Stock will automatically
convert into an equal number of shares of New Class A Common Stock.
New Series B Warrants. The New Series B Warrants, which were issued to the
holders of the Old Preferred Stock on the Effective Date and expire on the sixth
anniversary thereof, entitle such holders to subscribe for the purchase of up to
an aggregate of 7.5% of the New Common Stock, subject to dilution due to the
issuance by the Company of shares of New Common Stock pursuant to the exercise
of the New Series C Warrants and the Management Options by the holders thereof.
The New Series B Warrants are exercisable for up to 1% of the New Common Stock
of CHI if, as and when the total capital (debt and equity) invested in
industrial infrastructure projects (as described in Part I, Item 1, "Business --
Industrial Infrastructure Business") that either (i) close within 3 years from
the Effective Date or (ii) are subject to a legally binding and enforceable
agreement between CHI or any of its subsidiaries and a party sponsoring a
development or acquisition of such industrial infrastructure projects within
such 3 year-period and thereafter close within the term of the New Series B
Warrants, equals or exceeds $60 million. The additional New Series B Warrants
exercisable for the remaining 6.5% of the New Common Stock vest incrementally
if, as and when the total capital invested in industrial infrastructure projects
increases from $60 million to $450 million within the parameters set forth
above. The exercise price per share of the New Common Stock subject to the New
Series B Warrants is $10. The New Series B Warrants will have customary
antidilution provisions and protections against certain extraordinary
distributions.
18
New Series C Warrants. The New Series C Warrants, which were issued to the
holders of the Old Preferred Stock on the Effective Date and expire on the
eighth anniversary thereof, entitle such holders to subscribe for the purchase
of up to an aggregate of 5.0% of the New Common Stock, subject to dilution due
to the issuance by CHI of shares of New Common Stock pursuant to the exercise of
the New Series B Warrants or the Management Options by the holders thereof. The
exercise price per share of the New Common Stock subject to the New Series C
Warrants was determined by reference to the accreted value of the Senior
Discount Notes as of September 15, 1997 (the date CHI commenced its Chapter 11
Case), which was approximately $183 million. The exercise price per share of the
New Common Stock subject to the New Series C Warrants is $18.36. The New Series
C Warrants will contain customary antidilution provisions and protections
against certain extraordinary distributions.
Management Options. The Management Options, which were issued to certain
members of CHI's management on the Effective Date pursuant to a 1997 stock
option plan and management option agreements (the "1997 Stock Option Plan and
Management Option Agreements") and expire on the seventh anniversary thereof,
are exercisable for the purchase of up to an aggregate of 7.5% of the New Class
A Common Stock, subject to dilution due to the issuance by CHI of shares of New
Common Stock pursuant to the exercise of the New Series B Warrants or the New
Series C Warrants by the holders thereof. The Management Options contain
customary antidilution provisions and protections against certain extraordinary
distributions. For a more detailed discussion of the Management Options, see
Part III, Item 11, "Executive Compensation -- 1997 Stock Option Plan and
Management Option Agreements."
Registration Rights Agreement. Each person or entity who received a
distribution of New Common Stock, New Warrants or New Common Stock issued upon
the exercise of the New Warrants or the Management Options pursuant to the Plan
of Reorganization is entitled to become a party to the Registration Rights
Agreement. Under the Registration Rights Agreement, holders of the New Common
Stock and New Warrants (including shares of New Common Stock issued upon the
exercise thereof) are entitled to certain demand and incidental (or "piggyback")
registration rights, and holders of the Management Options are entitled to
certain incidental (or "piggyback") registration rights with respect to shares
of New Class A Common Stock issued upon the exercise thereof. The Registration
Rights Agreement contains customary suspension, "hold back", indemnification
/contribution and priority provisions.
New Stockholders' Agreement. Under the terms of the Plan of
Reorganization, each holder (including each original recipient and transferee of
an original recipient or other transferee) of the New Common Stock and of the
New Common Stock issued upon exercise of the New Warrants or the Management
Options (collectively, the "New Securities") is bound by the New Stockholders'
Agreement. The New Stockholders' Agreement contains certain provisions relating
to the size and composition of the Board of Directors of CHI. See Part III, Item
10, "Directors and Executive Officers of the Registrant." In addition, the New
Stockholders' Agreement provides that each holder of New Common Stock is
entitled to participate on a pro-rata basis in any sale of 50% or more of the
outstanding New Common Stock and that each holder of New Securities (including,
in certain circumstances, holders of New Warrants and Management Options) may be
required to sell its New Securities in any sale of 66-2/3% or more of the New
Common Stock.
19
ITEM 6. SELECTED FINANCIAL DATA
- ------
As discussed in Item 1, the Company emerged from its chapter 11
proceedings on the Effective Date. In accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting By
Entities In Reorganization Under The Bankruptcy Code", the Company has applied
fresh start reporting as of the Effective Date which has resulted in significant
changes to the valuation of certain Company assets and liabilities, and to its
stockholders' equity. In connection with the adoption of fresh start reporting,
a new entity has been deemed created for financial reporting purposes. The
periods prior to and including the Effective Date have been designated
"Predecessor Company" and the period subsequent to the Effective Date has been
designated "Reorganized Company".
The following Statement of Operations and Balance Sheet Data has been
derived from financial statements audited by Price Waterhouse LLP, independent
accountants. The data set forth below should be read in conjunction with the
Consolidated Financial Statements for the November 8, 1997 - December 31, 1997
period, the July 1, 1997 - November 7, 1997 period and the fiscal years ended
June 30, 1997, 1996, 1995, 1994 and 1993, and the related Notes thereto, and
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations":
Reorganized Predecessor Company
Company -------------------------------------------------------------
Nov. 8 - July 1 - Fiscal Year Ended June 30,
Dec. 31, Nov. 7,
1997 1997
---- ----
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands, Except Per Share Amounts)
STATEMENT OF OPERATIONS
Operating Revenues:
Power generation revenue $ 6,598 $ 8,661 $50,665 $ 49,761 $39,387 $36,184 $32,776
Management fees
and operation & maintenance revenue 1,437 2,713 5,395 4,986 4,326 5,677 2,501
Equity income in partnership
interests and other partnership income 203 212 1,320 737 245 335 --
----- ----- ------- --------- ------- ------ -------
Total revenue 8,238 11,586 57,380 55,484 43,958 42,196 35,277
----- ----- ------- --------- ------- ------ -------
Costs and expenses
Operating 2,566 6,588 18,015 17,957 15,895 16,466 11,762
General and administrative 1,174 2,172 8,422 6,447 6,799 7,285 5,204
Charge for employee and director equity
participation programs (1) -- -- 100 259 339 670 1,075
Reorganization costs(2) -- 3,978 -- -- -- -- --
Fair value adjustments(2) -- 4,855 -- -- -- -- --
Depreciation and amortization 1,105 3,009 8,661 9,846 9,625 8,679 7,601
Lease expense 900 2,001 5,764 6,072 5,753 5,386 5,230
(Adjustment to)/charge for impairment of
long-lived assets -- (75) 83 87,202 1,272 -- --
----- ------ ------- --------- ------- ------ ------
Total costs and expenses 5,745 22,528 41,045 127,783 39,683 38,486 30,872
----- ------ ------- --------- ------- ------ ------
Income/(loss) from operations 2,493 (10,942) 16,335 (72,299 4,275 3,710 4,405
Interest income 242 739 1,661 1,032 1,416 1,052 987
Other income 6 57 434 368 185 107 186
Gain on adjustment to project development debt -- 8,568 -- -- -- -- --
Interest expense (1,260) (7,741) (29,591) (26,876) (21,778) (18,980) (13,868)
Minority interests in loss/(income) of consolidated
subsidiaries -- -- -- 2,063 3 (15) 100
------ ------- -------- --------- ------- -------- --------
Income/(loss) before income taxes, extraordinary
items and cumulative effect of accounting changes 1,481 (9,319) (11,161) (95,712) (15,899) (14,126) (8,190)
(Provision)/benefit for income taxes (776) 69 119 7,381 (377) (264) (319)
------ ------- -------- --------- ------- -------- --------
Income/(loss) before extraordinary items and
cumulative effect of accounting change 705 (9,250) (11,042) (88,331) (16,276) (14,390) (8,509)
Extraordinary items (3)
Gain/(loss) on extinguishment of debt
(net of income tax of $0 and $3,414 at November
7, 1997 and June 30, 1997, respectively) -- 87,218 5,658 -- -- -- (2,269)
Income/(loss) before cumulative effect of
accounting change 705 77,968 (5,384) (88,331) (16,276) (14,390) (10,778)
Cumulative effect of accounting change (4)
-- -- -- -- (19,204) -- --
Net income/(loss) $ 705 $ 77,968 $(5,384) $ (88,331) $(16,276) $(33,594) $(10,778)
========== ========= ======== ========== ========= ========= =========
Net income per common share,
basic(5) $ .07 -- -- -- -- -- --
Cash dividends per common share -- -- -- -- -- -- --
20
Reorganized Predecessor Company
Company
------------ --------------------------------------------------------------
Nov. 8 - July 1 - Fiscal Year Ended June 30,
Dec. 31, Nov. 7, ------------------------------------------------------
1997 1997
---- ---- 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
OPERATING DATA:
Megawatts operated 335.50 335.50 342.61 343.66 379.08 329.08 220.98
Capital expenditures
Cost of acquisitions and partnership interests $ -- $ -- $ -- $ -- $35,503 $15,230 $ 16
Cost of development expenditures -- -- 2,045 1,968 6,086(6) 8,319(6) 10,580 (6)
All other capital expenditures associated with operating
projects, including changes in other long-term assets,
net 375 2,430 9,226 3,460 2,288 (332) 4,244
Interest, net (7) 1,018 7,002 27,930 25,844 20,362 17,928 12,881
Cash interest, net (8) 1,190 2,876 6,962 7,725 4,702 4,009 11,514
Ratios and Other Data:
EBDIAT (9) 3,604 (3,096) 25,613 25,376 15,696 13,166 13,267
EBDIAT/Interest, net (10) 3.54 10,098 2,317 468 4,666 4,762 1.03
EBDIAT/Cash interest, net (10) 3.80 5,233 3.68 3.28 3.34 3.28 1.15
Ratio of earnings to fixed charges (10) (11) 2.18 9,387 11,350 97,417 18,850 16,429 8,743
Ratio of earnings to fixed charges
and Preferred Stock Dividends (10) (12) 2.18 15,447 37,241 121,149 40,958 37,117 26,972
Reorganized Company Predecessor Company
------------------- -----------------------------------------------------------
Dec. 31, June 30,
1997 -----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
-----------------------
BALANCE SHEET DATA:
Cash and cash equivalents 11,998 32,502 23,834 16,682 14,155 42,617
Current assets 21,361 41,003 33,041 25,454 24,649 49,467
Total assets 221,961 243,628 244,657 330,617 286,827 286,521
Current liabilities 13,345 13,924 16,061 13,602 9,990 22,465
Long-term debt 82,616 262,615 260,158 248,887 201,620 189,186
Mandatorily redeemable preferred stock -- 114,372 98,604 84,690 72,401 61,428
Stockholders' equity/(deficit) 85,805 (189,679) (168,627) (66,641) (38,414) 5,472
- ---------------
(1) This non-cash charge accounts for the equity entitlements granted to
certain key employees and certain directors pursuant to both the
arrangements surrounding the conversion of the old class B common stock to
old class A common stock and the vested entitlements under employment
equity programs which have been canceled.
(2) These amounts were the result of the implementation of fresh start
reporting. See Note 2 of the Notes to Consolidated Financial Statements.
(3) For the period from July 1, 1997 to November 7, 1997, as a result of the
Plan of Reorganization, a gain on extinguishment of debt of approximately
$87,218,000 was recorded. The fiscal year ended June 30, 1997 amount
results from the purchase of a non-recourse project term loan, $14,500,000
at June 30, 1996, for $5,000,000, including certain required reserves and
closing costs of approximately $500,000. The gain recorded is net of
certain transaction costs of approximately $187,000 and income tax of
$3,414,000.
(4) Represents the adoption of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. See Note 3 of the Notes to the
Consolidated Financial Statements.
(5) Share and per share data for the Predecessor Company are not meaningful on
or prior to November 7, 1997 due to the significant change in the capital
structure in connection with the Plan of Reorganization.
(6) These amounts were substantially funded with proceeds from outside lenders
on a non-recourse basis or sales of CHI equity securities.
(7) Interest, net is defined as interest expense less interest income.
(8) Cash interest, net is defined as cash interest expense less cash interest
income.
(9) EBDIAT is defined as income/(loss) from operations plus depreciation,
amortization, other non-cash charges to income and other income. EBDIAT
and EBDIAT ratios are not measures of performance or financial condition
under generally accepted accounting principles, but are presented to
provide additional information related to fixed charge service capability.
EBDIAT should not be considered in isolation or as a substitute for other
measures of financial performance or liquidity under generally accepted
accounting principles.
(10) Computations resulting in a ratio of less than one are disclosed as a
deficiency and represent the dollar amount of EBDIAT required to attain a
ratio of one-to-one.
21
(11) For the purpose of calculating the ratio of earnings to fixed charges,
earnings are determined by adding fixed charges (excluding capitalized
interest) to income/(loss) before provision for income taxes,
extraordinary items and cumulative effect of accounting change. Fixed
charges consist of interest expense, amortization of debt issuance costs
and the imputed interest on the Company's Boott facility lease, which is
accounted for as an operating lease. The resulting deficiencies primarily
reflect non-cash charges. An analysis of such non-cash charges and the
resulting ratio or deficiency adjusted for such charges follows.
Reorganized
Company Predecessor Company
------- -------------------------------------------------------------------------------
Nov. 8 - July 1 - Year Ended June 30,
Dec. 31, Nov. 7, ------------------------------------------------------------
1997 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
Non-cash interest $ 70 $ 4,865 $ 19,709 $ 18,629 $ 16,610 $ 14,629 $ 1,401
Depreciation and amortization 1,105 3,009 8,661 9,846 9,625 8,679 7,601
Other non-cash (gains)/charges, net -- (75) (5,475) 87,461 1,611 670 1,075
----------- ----------- ---------- ----------- ---------- ---------- ----------
Total non-cash charges $ 1, 175 $ 7,799 $ 22,895 $ 115,936 $ 27,846 $ 23,978 $10,077
=========== ============ ========== =========== ========== ========== ==========
Resulting ratio of earnings
to fixed charges 3.11 1.38 1.36 1.61 1.34 1.32 1.08
(12) For the purpose of calculating the ratio of earnings to fixed charges and
preferred stock dividends, earnings are determined by adding fixed charges
(excluding capitalized interest) and preferred stock dividends to
income/(loss) before provision for income taxes, extraordinary items and
cumulative effect of accounting change. Preferred stock dividends consist
of the cumulative undeclared dividends on Series F and Series G Preferred
Stock and dividends and accretion on the Series H Preferred Stock. The
resulting deficiencies primarily reflect non-cash charges. The analysis of
such non-cash charges is the same as that set forth in the preceding
footnote and the resulting ratio or deficiency adjusted for such charges
follows:
Reorganized
Company Predecessor Company
----------- -----------------------------------------------------------------------------
Nov. 8 - July 1 - Year Ended June 30,
Dec. 31, Nov. 7, -------------------------------------------------------------------
1997 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
Resulting ratio of earnings
to fixed charges and
preferred stock dividends 3.11 -- -- -- -- --
Resulting deficiency of earnings
to fixed charges and
preferred stock dividends -- $ 2,793 $14,346 $5,213 $13,112 $13,139 $16,895
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
GENERAL
CHI Energy, Inc., formerly Consolidated Hydro, Inc. ("CHI", and together
with its consolidated subsidiaries, the "Company"), has been engaged in the
energy business since its founding in 1985 and is currently principally engaged
in the development, operation and management of industrial energy and other
infrastructure assets and of hydroelectric power plants. Currently, all of the
Company's revenue is derived from the ownership and operation of hydroelectric
facilities (the Company's "hydroelectric business"). The Company's operating
hydroelectric projects are located in 15 states and one Canadian province. The
Company believes its future growth will come primarily from its industrial
infrastructure business.
As of November 7, 1997, (the "Effective Date"), CHI adopted fresh start
reporting in accordance with American Institute of Certified Public Accountants
Statement of Position 90-7 "Financial Reporting by Entities in Reorganization
Under The Bankruptcy Code," ("SOP 90-7") which resulted in the creation of a new
reporting entity. The accompanying financial information for the period November
8, 1997 to December 31, 1997 reflects the financial condition and results of
operations of the new reporting entity (the "Reorganized Company") while prior
period financial information relates to the former reporting entity (the
"Predecessor Company") .
The Company's existing U.S. hydroelectric projects are clustered in four
regions: the Northeast, Southeast, Northwest and West, with a concentration in
the Northeast. CHI has developed what it believes to be an efficient "hub"
system of project management designed to maximize the efficiency of each
facility's operations. The economies of scale created by this system include
reduced costs related to centralized administration, operations, maintenance,
engineering, insurance, finance and environmental and regulatory compliance. The
hub system and the Company's operating expertise have enabled the Company to
successfully integrate acquisitions into its current portfolio and increase the
efficiency and productivity of its projects.
The Company has expanded primarily by acquiring existing hydroelectric
facilities in the United States. As of December 31, 1997, the Company had a 100%
ownership or long-term lease interest in 51 projects (138 megawatts), a partial
ownership interest in 11 projects (82 megawatts), and operations and maintenance
("O&M") contracts with 24 projects (116 megawatts).
On December 23, 1996, the Company sold 15 of its then 100% owned
hydroelectric facilities ("CHI Maine"), located in the Northeast region. In
connection with the disposition, the Company executed a contract to operate and
maintain the facilities for an initial period of up to 15 years. See Note 5 to
the Notes to Consolidated Financial Statements included herewith.
On September 9, 1997, the Company terminated a power purchase agreement
with PacifiCorp, the purchasing utility, relating to three of its projects
located in Oregon. See Note 6 to the Notes to Consolidated Financial Statements
included herewith.
CHI sells substantially all of the electric energy and capacity from its
U.S. projects to public utility companies pursuant to take or pay power purchase
agreements. These contracts vary in their terms but typically provide scheduled
rates throughout the life of the contracts, which are generally for a term of 15
to 40 years from inception.
During the fiscal year ended June 30, 1996, the Company began to seek
opportunities to provide energy-related products and services to industrial and
utility customers in an effort to respond to changing market conditions. Such
opportunities, if available, would permit the Company to move away from relying
exclusively on hydroelectric power ownership and operation in a business climate
driven largely by legislation and regulation and the structural industry trends
described in Item I, "Hydroelectric Business", in which the Company currently
believes that acquisition and development opportunities, particularly with
regard to hydroelectric facilities, will be limited in the near-term. Currently,
all of the Company's revenue is derived from the ownership and operation of
hydroelectric facilities. See "--Liquidity and Capital Resources".
For purposes of the discussion of results of operations and liquidity and
capital resources for the six months ended December 31, 1997, the results of the
Predecessor Company and Reorganized Company have been combined.
23
Power Generation Revenue
The Company's revenues are derived principally from selling electrical
energy and capacity to utilities under long-term power purchase agreements which
require the contracting utilities to purchase energy generated by the Company.
The Company's present power purchase agreements have remaining terms of up to 28
years. After the expiration of such power purchase agreements, rates generally
change to the purchasing utility's avoided cost for delivered energy, which
avoided cost rates are likely to be lower than expiring power purchase agreement
rates. See Part I, Item I, "Business - Conventional Hydroelectric Projects" for
a discussion of the percentage of current revenues subject to minimum fixed or
scheduled rates and the percentage of current revenues subject to rates
determined pursuant to avoided cost. Fluctuations in revenues and related cash
flows are generally attributable to changes in projects in operation, coupled
with variations in water flows and the effect of escalating and declining
contract rates in the Company's power purchase agreements.
Management Fees and Operations & Maintenance Revenues
O&M contracts, from which management fees and operations and maintenance
revenues are derived, generally enable the Company to maximize the use of its
available resources and to generate additional income.
Equity Income In Partnership Interests and Other Partnership Income
In accordance with generally accepted accounting principles, certain of
the Company's partnership interests are accounted for under the equity and the
cost methods of accounting. Fluctuations in equity income and other partnership
income are generally attributable to variations in results of operations and
timing of cash distributions of certain partnerships.
Operating Expenses
Operating expenses consist primarily of project-related costs such as
labor, repairs and maintenance, supplies, insurance and real estate taxes.
Operating expenses include direct expenses related to the production of power
generation revenue as well as direct costs associated with O&M contracts which
are rebillable to applicable third party owners directly or not rebillable since
they are covered through an established management fee.
Lease Expense
Lease expense includes operating leases associated with some of the
hydroelectric projects as well as leases for the corporate and regional
administrative offices. Certain leases provide for payments that are based upon
power sales revenue or cash flow for specific projects. Hence, varying project
revenues will impact overall lease expense, year-to-year.
24
CERTAIN KEY OPERATING RESULTS AND TRENDS
The information provided in the tables below is included to provide an
overview of certain key operating results and trends which, when read in
conjunction with the narrative discussion that follows, is intended to provide
an enhanced understanding of the Company's results of operations. These tables
include information regarding the Company's ownership of projects by region as
well as information on regional precipitation. As presented, the Company's
project portfolio is concentrated in the Northeastern United States, a region
characterized by relatively consistent long-term water flow and power purchase
contract rates which are higher than in most other regions of the country.
This information should be read in conjunction with the December 31, 1997
Consolidated Financial Statements and the related Notes thereto, included
herein.
Power Producing Facilities
DECEMBER 31, JUNE 30, JUNE 30,
1997 1997 1996
---- ---- ----
MEGAWATTS #PROJECTS MEGAWATTS #PROJECTS MEGAWATTS #PROJECTS
--------- --------- --------- --------- --------- ----------
Northeast:
100% Ownership (1) 90.88 29 90.88(4) 29(4) 102.20 44
Partial Ownership (2) 52.37 52.37 8 52.37 8
8
O&M Contracts (3) 92.16 19 92.16(4) 19(4) 80.14 3
--------- ---- --------- ---- --------- ----
Total 235.41 56 235.41 56 234.71 55
====== === ====== === ====== ===
Southeast:
100% Ownership (1) 27.42 13 27.42 13 27.42 13
Partial Ownership (2) -- -- -- -- -- --
O&M Contracts (3) -- -- -- -- -- --
--------- ---- --------- ---- --------- ----
Total 27.42 13 27.42 13 27.42 13
====== === ====== === ====== ===
West:
100% Ownership (1) 5.38(6) 3(6) 5.48 4 1.35 1
Partial Ownership (2) 4.20 1 4.20 1 8.33 4
O&M Contracts (3) 19.08 4 19.08 4 19.08 4
--------- ---- --------- ---- --------- ----
Total 28.66 8 28.76 9 28.76 9
====== === ====== === ====== ===
Northwest:
100% Ownership (1) 14.71(5) 6(5) 21.72 9 21.72 9
Partial Ownership (2) 24.96 2 24.96 2 24.96 2
O&M Contracts (3) 4.34 1 4.34 1 6.09 2
--------- ---- --------- ---- --------- ----
Total 44.01 9 51.02 12 52.77 13
====== === ====== === ====== ===
Total:
100% Ownership (1) 138.39 (5)(6) 51(5)(6) 145.50(4) 55(4) 152.69 67
Partial Ownership (2) 81.53 11 81.53 11 85.66 14
O&M Contracts (3) 115.58 24 115.58(4) 24(4) 105.31 9
----------- ---- ----------- ---- ----------- ----
Total 335.50 86 342.61 90 343.66 90
====== === ====== === ====== ===
- ------------
(1) Defined as projects in which the Company has 100% of the economic interest.
(2) Defined as projects in which the Company's economic interest is less than
100%.
(3) Defined as projects in which the Company is an operator pursuant to O&M
contracts with the project's owner or owners. The Company does not have any
ownership interest in such projects.
(4) Reflects the sale of 15 projects (11.32 megawatts) on December 23, 1996, and
the addition of those same projects as O&M contracts.
(5) Reflects the decommissioning of 3 projects (7.01 megawatts) on September 9,
1997.
(6) Reflects the sale of one project (0.10 megawatts) on July 17, 1997.
25
Selected Operating Information
SIX MONTHS SIX MONTHS TWELVE MONTHS ENDED TWELVE MONTHS TWELVE MONTHS
ENDED ENDED JUNE 30, 1997 ENDED ENDED
DEC. 31, 1997(4) DEC. 31, 1996 JUNE 30, 1996 JUNE 30, 1995
---------------- ------------------------------------- --------------- ------------------
Power generation revenues (thousands) (1) $15,259 $ 22,126 $50,665 $49,761 $39,387
Kilowatt hours produced (thousands) (1) 209,453 291,520 663,920 647,664 532,063
Average rate per kilowatt hour (1) 7.3(cent) 7.6(cent)(2) 7.6(cent) 7.7(cent)(2)(3) 7.4(cent)(2)(3)
- ---------
(1) Limited to projects included in consolidated revenues.
(2) Excluding results of the CHI Maine projects, the average rates per kilowatt
hour were 7.9(cent), 7.6(cent)and 7.2(cent)for the six months ended December
31, 1996 and the twelve months ended June 30, 1996 and 1995.
(3) Excluding the results of the Hydro Development Group, Inc. ("HDG") projects,
the average rates per kilowatt hour were 7.9(cent)and 7.5(cent)for the
twelve months ended June 30, 1996 and 1995.
(4) Comprised of results of the Predecessor Company from July 1, 1997 through
November 7, 1997 and the Reorganized Company from November 8, 1997 through
December 31, 1997.
Precipitation, Water Flow and Seasonality
The amount of hydroelectric energy generated at any particular facility
depends upon the quantity of water flow at the site of the facility. Dry periods
tend to reduce water flow at particular sites below historical averages,
especially if the facility has low storage capacity. Excessive water flow may
result from prolonged periods of higher than normal precipitation, or sudden
melting of snow packs, possibly causing flooding of facilities and/or a
reduction of generation until water flows return to normal.
Water flow is generally consistent with precipitation. However, snow and
other forms of frozen precipitation will not necessarily increase water flow in
the same period of such precipitation if temperatures remain at or below
freezing. "Average", as it relates to water flow, refers to the actual long-term
average of historical water flows at the Company's facilities for any given
year. Typically, these averages are based upon hydrologic studies done by
qualified engineers for periods of 20 to 50 years or more, depending on the flow
data available with respect to a particular site. Over an extended period (e.g.,
10 to 15 years) water flows would be expected to be average, whereas for shorter
periods (e.g., three months to three years) variation from average is likely.
Each of the regions in which the Company operates has distinctive precipitation
and water flow characteristics, including the degree of deviation from average.
Geographic diversity helps to minimize short-term variations.
Water Flow by Region (1)
SIX MONTHS SIX MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED ENDED ENDED
DEC. 31, 1997(2) DEC. 31, 1996 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
-------------------- --------------- ------------------- ---------------- ----------------
Northeast Below Average Above Average Above Average Above Average Below Average
Southeast Below Average Average Average Average Above Average
West Below Average Below Average Below Average Above Average Above Average
Northwest Above Average Above Average Above Average Above Average Below Average
- ---------
(1) These determinations were made based upon water flow in areas where the
Company's projects are located and may not be applicable to the entire
region.
(2) Determination based on water flows of Predecessor Company from July 1, 1997
through November 7, 1997 and Reorganized Company from November 8, 1997
through December 31, 1997.
Production of energy by the Company is typically greatest in January
through June when water flow is at its highest at most of the Company's
projects, and lowest in July through September. The amount of water flow in any
given period will have a direct effect on the Company's production, revenues and
cash flow.
The following tables, which show revenues from power sales and kilowatt
hour production by quarter, respectively, highlight the seasonality of the
Company's revenue stream. These tables should be reviewed in conjunction with
the water flow information included above.
26
Power Generation Revenues (1)
SIX MONTHS SIX MONTHS TWELVE MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
ENDED ENDED JUNE 30, 1997(2) JUNE 30, 1996(2) JUNE 30, 1995(2)
DEC. 31, 1997(4) DEC. 31, 1996
----------------------- ------------------- --------------------- ---------------------- --------------------
$ % $ % $ % $ % $ %
First Quarter 6,422 42.1 8,855 40.0 8,855 17.5 5,363 10.8 7,471 19.0
Second Quarter 8,837 57.9 13,271 60.0 13,271 26.2 12,355 24.8 7,503 19.0
Third Quarter -- -- -- -- 15,078 29.8 15,744(3) 31.6 13,437(5) 34.1
Fourth Quarter -- -- -- -- 13,461 26.5 16,299(3) 32.8 10,976(5) 27.9
----------- ------- ----------- ------- ---------- -------- ---------- ------- ------ ----
Total 15,259 100.0 22,126 100.0 50,665 100.0 49,761(6) 100.0 39,387(3) 100.0
====== ==== ====== ===== ====== ===== ======== ===== ====== =====
- -----------
(1) Limited to projects included in consolidated revenues.
(2) Includes business interruption revenue of $88, $840 and $604 representing
claims for lost generation recoverable from an insurance company for the
twelve months ended June 30, 1995, 1996 and 1997, respectively.
(3) Includes $4,252, $1,763 and $1,744 of power generation revenues from the CHI
Maine projects, which were sold on December 23, 1996 for the twelve months
ended June 30, 1995 and the three months ended March 31, 1996 and June 30,
1996, respectively.
(4) Comprised of results of the Predecessor Company from July 1, 1997 through
November 7, 1997 and the Reorganized Company from November 8, 1997 through
December 31, 1997.
(5) Includes $789 and $1,164 resulting from the acquisition of HDG in the three
months ended March 31, 1995 and June 30, 1995, respectively.
(6) Includes $5,131 resulting from the acquisition of HDG for the twelve months
ended June 30, 1996.
Kilowatt Hours ("kWh") Produced (1)
SIX MONTHS SIX MONTHS TWELVE MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
ENDED ENDED JUNE 30, 1997(2) JUNE 30, 1996(2) JUNE 30, 1995(2)
DEC. 31, 1997(4) DEC. 31, 1996
------------------- ---------------------- -------------------- -------------------- - ----------------------
kWh % kWh % kWh % kWh % kWh %
--- - --- - --- - --- - --- -
First Quarter 95,852 45.8 125,197 42.9 125,197 18.9 80,596 12.4 105,456 19.8
Second Quarter 113,601 54.2 166,323 57.1 166,323 25.0 160,088 24.7 103,428 19.4
Third Quarter -- -- -- -- 193,576 29.2 195,540(3) 30.2 171,280(5) 32.2
Fourth Quarter -- -- -- -- 178,824 26.9 211,440(3) 32.7 151,899(5) 28.6
--------- ------- --------- ------ -------- ----- ---------- ----- ------------- -----
Total 209,453 100.0 291,520 100.0 663,920 100.0 647,664(6) 100.0 532,063(3) 100.0
========= ======= ========= ====== ======= ===== ========== ===== ============= =====
- -------------
(1) Limited to projects included in consolidated revenues.
(2) Includes the production equivalent of 600, 15,335 and 9,412 kWh of the
business interruption revenue recoverable as a result of insurance claims
for the twelve months ended June 30, 1995, 1996 and 1997, respectively.
(3) Includes 44,645, 19,310, and 19,106 kWh from the CHI Maine projects, which
were sold on December 23, 1996, for the twelve months ended June 30, 1995
and the three months ended March 31, 1996 and June 30, 1996, respectively.
(4) Comprised of kilowatt hours produced from July 1, 1997 through November 7,
1997 for the Predecessor Company and from November 8, 1997 through December
31, 1997 for the Reorganized Company.
(5) Includes 12,302 and 18,254 kWh resulting from the acquisition of HDG, in the
three months ended March 31, 1995 and June 30 1995, respectively.
(6) Includes 80,883 kWh resulting from the acquisition of HDG for the twelve
months ended June 30, 1996.
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1996
Operating Revenues
Power Generation Revenue. The Company's power generation revenue decreased
$6.8 million (30.8%) from $22.1 million to $15.3 million for the six months
ended December 31, 1996 and 1997, respectively. Excluding the effects of the
sale of CHI Maine on December 23, 1996, power generation revenue decreased by
$4.9 million (24.3%) from $20.2 million to $15.3 million for the six months
ended December 31, 1996 and 1997, respectively.
The Northeast region experienced decreased revenues of $4.0 million due to
below average water flows and precipitation for the six months ended December
31, 1997 as compared to above average water flows for the six months ended
December 31, 1996.
27
The Southeast region experienced decreased revenues of $0.4 million due to
below average water flows and precipitation for the six months ended December
31, 1997 as compared to average water flows and precipitation for the six months
ended December 31, 1996.
The West and the Northwest regions (combined) experienced decreased
revenues of $0.5 million due to the decommissioning of Joseph Hydro. See Note 6
of the Notes to Consolidated Financial Statements.
The average rate earned by the Company decreased by 0.3(cent) (3.9%) from
7.6(cent) to 7.3(cent) per kilowatt hour for the six months ended December 31,
1996 and 1997, respectively. Excluding the 1996 results of CHI Maine, revenue
per kilowatt hour decreased by 0.6(cent) (7.6%) from 7.9(cent) to 7.3(cent) for
the six months ended December 31, 1996 and 1997, respectively, primarily as a
result of variations in the production mix and contract rates among the various
projects. In addition, due to the decommissioning of Joseph Hydro, approximately
3.5 million kilowatt hours of production were sold at a rate of 0.8(cent) per
kilowatt hour during the six months ended December 31, 1997, while the average
rate for Joseph Hydro during the six months ended December 31, 1996 was
7.7(cent) per kilowatt hour.
Management Fees and Operations & Maintenance Revenues. Management fees and
O&M contract revenue increased by $1.4 million (51.9%), from $2.7 million to
$4.1 million for the six months ended December 31, 1996 and 1997, respectively.
Excluding the addition of the CHI Maine O&M contract, management fees and O&M
contract revenue increased $0.8 million (29.6%) from $2.7 million to $3.5
million for the six months ended December 31, 1996 and 1997, respectively. The
increase was primarily due to (i) an increase of O&M rebillable contract costs
and (ii) a generation incentive bonus.
Costs and Expenses
Operating Expenses. Operating expenses increased by $0.3 million (3.4%)
from $8.9 million to $9.2 million for the six months ended December 31, 1996 and
1997, respectively. Excluding the 1996 results of the CHI Maine projects and the
1997 addition of the CHI Maine O&M contract, operating expenses increased $0.6
million (7.4%) from $8.1 million to $8.7 million for the six months ended
December 31, 1996 and 1997, respectively. This increase was primarily due to (i)
an increase of O&M rebillable contract costs; (ii) an increase of non-recurring
maintenance and supplies, partially offset by (i) a decrease in travel expense
and (ii) a decrease in the provision for uncollectable accounts receivable.
General and Administrative Expense. General and administrative expenses
increased $0.2 million (6.5%) from $3.1 million to $3.3 million for the six
months ended December 31, 1996 and 1997, respectively.
Reorganization Costs. Reorganization costs amounted to $4.0 million for
the six months ended December 31, 1997. These costs represent (i) $1.5 million
of fees and expenses for the Company's financial, legal, and other professional
advisors associated with the Company's financial restructuring and the legal
counsel representing the holders of the Company's then-existing 12% Senior
Discount Notes, due 2003 (the "Senior Discount Notes") and (ii) a $2.5 million
non-cash write-off of loan acquisition costs related to the Senior Discount
Notes.
Fair Value Adjustments. As a result of the application of fresh start
reporting, in accordance with SOP 90-7, fair value adjustments of $4.9 million
were recorded on the Effective Date.
Depreciation and Amortization. Depreciation and amortization decreased
$0.2 million (4.7%) from $4.3 million to $4.1 million for the six months ended
December 31, 1996 and 1997, respectively. Depreciation and amortization for the
period from November 8, 1997 to December 31, 1997 was $1.1 million while the
depreciation and amortization for the period from July 1, 1997 to November 7,
1997 was $3.0 million. The decrease was primarily due to the revaluation of the
fixed assets as a result of the implementation of fresh start reporting.
Gain on Adjustment to Project Development Debt
During the period from July 1, 1997 to December 31, 1997, the Company
wrote off certain of its project development debt resulting in a gain of $8.6
million. This debt was contingent upon the successful development (including the
financing thereof) of pumped storage projects, which management believes will
not be successfully developed by the Company and the exercise of options on land
and a mine which was to be used as an underground reservoir for the projects.
28
Interest Expense
Interest expense decreased by $5.7 million (38.8%) from $14.7 million to
$9.0 million for the six months ended December 31, 1996 and 1997, respectively.
Excluding the 1996 results of the CHI Maine projects, interest expense decreased
by $5.6 million (38.4%) from $14.6 million to $9.0 million for the six months
ended December 31, 1996 and 1997, respectively. The decrease is primarily due to
the cessation of accruing interest on the Senior Discount Notes as of September
15, 1997, the date the Company commenced its case under chapter 11 of the
Bankruptcy Code. See Note 1 of the Notes to Consolidated Financial Statements.
Provision for Income Taxes
The Company's net tax provision for the six months ended December 31, 1997
of $707 principally relates to the Company's reorganization and fresh start
reporting for its assets. The result is a decrease in the amount of net
operating loss ("NOL") carryforwards expected to be utilized during the NOL
carryforward period. The Company's net tax benefit for the six months ended
December 31, 1996 of $1,460 is principally due to an increase in the amount of
NOL carryforwards expected to be utilized during the NOL carryforward period.
Extraordinary Gain.
As a result of the reorganization, a gain on extinguishment of debt of
$87.2 million was recorded on the Effective Date.
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
Operating Revenues
Power Generation Revenue. The Company's power generation revenue increased
by $0.9 million (1.8%), from $49.8 million to $50.7 million for the fiscal years
ended June 30, 1996 and 1997, respectively. Excluding the effects of the sale of
CHI Maine on December 23, 1996, power generation revenue increased by $4.4
million (9.5%), from $46.3 million to $50.7 million for the fiscal years ended
June 30, 1996 and 1997, respectively.
The Northeast region experienced increased revenues of $3.9 million due to
well above average water flows and precipitation for the fiscal year ended June
30, 1997 as compared to slightly above average water flows and precipitation for
the fiscal year ended June 30, 1996.
The Southeast region experienced a minimal increase of $0.1 million.
The West and Northwest regions (combined) experienced increased revenues
of $0.4 million primarily as a result of well above average water flows and
precipitation in the Northwest region for the fiscal year ended June 30, 1997,
as compared to slightly above average water flows and precipitation in the
Northwest region for the fiscal year ended June 30, 1996, coupled with the
addition of three newly-consolidated projects in the West region on January 1,
1997.
The average rate earned by the Company decreased by 0.1(cent) (1.3%) from
7.7(cent) to 7.6(cent) per kilowatt hour in the fiscal year ended June 30, 1996
versus the fiscal year ended June 30, 1997, respectively, primarily as a result
of variations in the production mix and contract rates among the various
projects. Excluding the fiscal year ended June 30, 1996 results of CHI Maine,
revenue per kilowatt hour remained constant at 7.6(cent) in the fiscal years
ended June 30, 1996 and 1997, respectively.
Management Fees and Operations & Maintenance Revenues. Management fees and
O&M contract revenue increased by $0.4 million (8.0%) from $5.0 million to $5.4
million for the fiscal years ended June 30, 1996 and 1997, respectively.
Excluding the addition of the CHI Maine O&M contract, management fees and O&M
contract revenue remained relatively constant, decreasing by $0.1 million (2.0%)
from $5.0 million to $4.9 million for the fiscal years ended June 30, 1996 and
1997, respectively.
Equity Income in Partnership Interests and Other Partnership Income.
Equity income in partnership interests and other partnership income increased
$0.6 million (85.7%) from $0.7 million to $1.3 million for the fiscal years
ended June 30, 1996 and 1997, respectively. The increase is primarily due to
increased revenues earned by partnership interests in the Northeast region as a
result of above average water flows and precipitation for the fiscal year ended
June 30, 1997 as compared to the fiscal year ended June 30, 1996.
29
Costs and Expenses
Operating Expenses. Operating expenses increased by $0.1 million (0.6%)
from $17.9 million to $18.0 million for the fiscal years ended June 30, 1996 and
1997, respectively. Excluding the effects of the sale of the CHI Maine projects
and the fiscal year ended June 30, 1997 addition of the CHI Maine O&M contract,
operating expenses increased by $0.4 million (2.3%), from $17.2 million to $17.6
million for the fiscal years ended June 30, 1996 and 1997, respectively. The
increase was primarily due to (i) an increase in revenue related expenses
resulting from increased power generation; (ii) an increase in insurance
premiums; (iii) an increase in the provision for uncollectable accounts
receivable and (iv) smaller increases in other operating costs, partially offset
by: (i) a decrease in salaries and benefits resulting from a decrease in
operating employees in the West region, coupled with an increase in the
allocation of company-wide operating labor charged to capitalized projects; (ii)
a decrease in expenses related to insurance deductibles during the current
fiscal year and (iii) a decrease in non-recurring environmental and regulatory
expenses.
General and Administrative Expenses. General and administrative expenses
increased $2.0 million (31.3%) from $6.4 million to $8.4 million for the fiscal
years ended June 30, 1996 and 1997, respectively. The increase was primarily due
to: (i) costs associated with the formulation of financial restructuring options
for the Company; (ii) the effect of expensing, rather than capitalizing, certain
pumped storage business development costs for the six months ended December 31,
1996 and (iii) an increase in other business development costs, partially offset
by (i) a decrease in administrative salaries and benefits resulting from a
reduction in severance accruals made for a former officer of the Company and
(ii) a decrease in industry related membership dues.
Depreciation and Amortization. Depreciation and amortization decreased
$1.1 million (11.2%) from $9.8 million to $8.7 million, for the fiscal years
ended June 30, 1996 and 1997, respectively. The decrease was primarily due to a
write-down of impaired assets in the fiscal year ended June 30, 1996 as a result
of the implementation of the Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121") and the cessation of depreciation expense taken on
assets to be disposed of for the fiscal year ended June 30, 1996 as compared to
the fiscal year ended June 30, 1997.
SFAS 121 - Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. Included in the impairment charge was an
amount related to certain assets to be disposed of. During the fiscal year ended
June 30, 1997, the carrying value of certain of those assets has been adjusted
upward by $0.7 million to reflect the actual sale price of the assets. In
addition, the Company wrote down the carrying values of certain development
costs and certain of its conventional hydroelectric assets held for disposal
resulting in a combined impairment charge of $0.8 million. Each of the above
described adjustments has been included in charge for impairment of long-lived
assets on the Statement of Operations for the fiscal year ended June 30, 1997.
Interest Expense
Interest expense increased by $2.7 million (10.0%), from $26.9 million to
$29.6 million for the fiscal years ended June 30, 1996 and 1997, respectively.
Excluding the fiscal year ended June 30, 1996 results of the CHI Maine projects,
interest expenses increased by $2.8 million (10.4%) from $26.8 million to $29.6
million for the fiscal years ended June 30, 1996 and 1997, respectively. The
increase is primarily due to the increasing principal balance of the Company's
Senior Discount Notes which resulted in a corresponding increase in interest
expense and the effect of expensing interest on loans related to pumped storage
development for the six months ended December 31, 1996, which had previously
been capitalized during the six months ended December 31, 1995.
Minority Interests in Loss of Consolidated Subsidiaries
The Company recognized a benefit of approximately $2.1 million for the
fiscal year ended June 30, 1996 resulting from the recognition of minority
shareholders' interest in the loss of certain consolidated subsidiaries related
to the write-down of pumped storage business development assets in accordance
with SFAS 121 which reduced the value of minority interests recorded by the
Company to zero.
30
Benefit for Income Taxes
The Company recognized deferred benefits for income taxes (excluding
current provisions) of $8.0 million and $1.0 million for the fiscal years ended
June 30, 1996 and 1997, respectively. For the fiscal year ended June 30, 1996,
the deferred tax benefit related to the write-down of certain long-lived assets
in accordance with SFAS 121. For the fiscal year ended June 30, 1997, the
deferred benefit for income tax relates to certain factors, principally due to
an increase in the amount of NOL expected to be utilized during the NOL
carryforward period.
Extraordinary Gain on Extinguishment of Debt
On October 30, 1996, the Company arranged to have a financial institution
purchase a $13,759 non-recourse project term loan (the "Old Loan") relating to
four of its existing hydroelectric projects for $5,000, including certain
required reserves and closing costs of $500 (the "New Loan"). An additional
$2,000 credit facility is also available under the New Loan for up to one year
to finance certain project enhancements. A subsidiary of CHI was assigned an
interest in the balance of the Old Loan on a basis fully subordinated to the New
Loan. As a result, the Company has recorded a $5,658 Extraordinary gain on
extinguishment of debt, net of certain transaction costs of approximately $187
and income tax of $3,414, on its Statement of Operations for the fiscal year
ended June 30, 1997.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
Operating Revenues
Power Generation Revenue. Power generation revenue increased by $10.4
million (26.4%) from $39.4 million to $49.8 million for the fiscal years ended
June 30, 1995 and 1996, respectively. Excluding the results of HDG, acquired on
February 16, 1995, power generation revenue increased $7.2 million (19.3%) from
$37.4 million to $44.6 million.
The Northeast region experienced increased revenues of $6.6 million due to
above average water flows and precipitation in the fiscal year ended June 30,
1996 as compared to below average water flows and precipitation in fiscal year
ended June 30, 1995.
The Southeast region experienced decreased revenues of $0.1 million due
primarily to flood damage and continued repairs at certain of its facilities.
The West and Northwest regions (combined) experienced increased revenues
of $0.7 million in the fiscal year ended June 30, 1996 as compared to the fiscal
year ended June 30, 1995 primarily as a result of above average water flow and
precipitation in the Northwest region, an area which contributes significantly
to total revenues of the combined regions.
The Company as a whole experienced increased revenue per kilowatt hour of
0.3(cent) (4.1%) from 7.4(cent) to 7.7(cent) in the fiscal year ended June 30,
1996 versus the fiscal year ended June 30, 1995, respectively. Excluding the
results of HDG, revenue per kilowatt hour increased by 0.4(cent) (5.3%) from
7.5(cent) to 7.9(cent), primarily as a result of variations in the production
mix and contract rates among the various projects.
Management Fees and Operation & Maintenance Revenues. Management fees and
O&M contract revenue increased by $0.7 million (16.3%) from $4.3 million to $5.0
million for the fiscal years ended June 30, 1995 and 1996, respectively.
Excluding the results of HDG, management fees and O&M contract revenue increased
by $0.3 million (7.1%) from $4.2 million to $4.5 million. The increase was
primarily due to revenue generated from an increase in project management base
fees coupled with an increase in rebillable capital expenditures at a Northeast
O&M facility.
Equity Income in Partnership Interests and Other Partnership Interests.
Equity income in partnership interests and other partnership income increased by
$0.5 million (250.0%) from $0.2 million to $0.7 million for the fiscal years
ended June 30, 1995 and 1996, respectively. Excluding the results of HDG, equity
income in partnership interests and other partnership income remained relatively
constant at $0.1 million for the fiscal years ended June 30, 1995 and 1996.
31
Costs and Expenses
Operating Expenses. Operating expenses increased by $2.0 million (12.6%)
from $15.9 million to $17.9 million for the fiscal years ended June 30, 1995 and
1996, respectively. Excluding the results of HDG, operating expenses increased
$0.9 million (6.0%) from $14.9 million to $15.8 million. The increase was
primarily due to time spent by certain management personnel (who previously
charged their time to general and administrative and other activities) on
operating activities partially offset by (i) an overall decrease in insurance
premiums due to a change in carriers effective on July 1, 1995 and (ii) a
reduction in expenditures related to regulatory requirements in the Northeast
region.
General and Administrative Expenses. General and Administrative expenses
decreased by $0.4 million (5.9%) from $6.8 million to $6.4 million for the
fiscal years ended June 30, 1995 and 1996, respectively. Excluding the results
of HDG, general and administrative expenses decreased $0.6 million (8.8%) from
$6.8 million to $6.2 million. The decrease was primarily due to (i) a decrease
in third party acquisition costs related to a cessation or decline in
acquisitions prospects which were actively pursued during the prior year,
partially offset by acquisition related activity of the Company's newly formed
subsidiary (CHI Power, Inc.), coupled with the expensing of pumped storage
development costs which were previously capitalized; (ii) a decrease in travel,
meetings, and seminars as part of an overall cost reduction effort made by the
Company; and (iii) a reduction in time spent by certain management personnel on
general and administrative activities offset by an increase in administrative
salaries and benefits due to costs associated with CHI Power, Inc., coupled with
a severance accrual for the Company's former President.
Depreciation and Amortization. Depreciation and amortization increased by
$0.2 million (2.1%) from $9.6 million to $9.8 million for the fiscal years ended
June 30, 1995 and 1996, respectively. Excluding the results of HDG, depreciation
and amortization decreased $0.6 million (6.7%) from $9.0 million to $8.4
million. The decrease was primarily due to a write-down of impaired assets in
the fiscal year ended June 30, 1996 as a result of the implementation of SFAS
121. See Note 7 of the Notes to Consolidated Financial Statements.
SFAS 121 - Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The Company implemented SFAS 121 in the
second quarter of the fiscal year ended June 30, 1996. This statement
establishes accounting standards for determining impairment of long-lived assets
and long-lived assets to be disposed of. The Company periodically assesses the
realizability of its long-lived assets and evaluates such assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets (or group of assets) may not be recoverable. For assets in use or
under development, impairment is determined to exist if the estimated future
cash flow associated with the asset, undiscounted and without interest charges,
is less than the carrying amount of the asset. When the estimated future cash
flow indicates that the carrying amount of the asset will not be recovered, the
asset is written down to its fair value.
In light of the Company's planned sale of certain of its conventional
hydroelectric projects, recent industry trends (including the continued decline
in electricity prices and other factors stemming from the deregulation of the
electric power industry), the timing of the expiration of the fixed rate period
of some of its long-term power sales contracts and other indications of a
decline in the fair value of certain of its conventional hydroelectric projects,
the Company determined that certain of these projects (including properties
which are not included among those to be sold) were impaired pursuant to the
criteria established under SFAS 121.
As a result of the factors noted above, in the fiscal year ended June 30,
1996 the Company recorded an impairment charge of $87.2 million as a component
of its loss from operations. In addition, a deferred tax benefit and a benefit
for minority interests in loss of consolidated subsidiaries of $7.9 million and
$2.1 million, respectively, were recorded as of that date. Of the total charges,
$38.5 million was attributable to pumped storage development assets, resulting
in an aggregate remaining carrying value of such assets of $0.1 million, $44.9
million was attributable to certain conventional hydroelectric assets, resulting
in an aggregate remaining carrying value for such written down assets of $26.0
million, and $3.8 million was attributable to an other than temporary decline in
the value of certain investments in partnerships which own hydroelectric
facilities, resulting in an aggregate remaining carrying value of such assets of
$0.8 million. In accordance with SFAS 121, the carrying value of these written
down assets now reflects management's best estimate as to their fair value,
although there can be no assurance that future events or changes in
circumstances will not require that such assets, or other of the Company's
assets, be written down in the future.
32
In conjunction with the adoption of SFAS 121, during the third quarter of
the fiscal year ended June 30, 1996, the Company re-evaluated the useful lives
of certain property, plant and equipment and intangible assets. This resulted in
a reduction of the estimated useful lives of these fixed and intangible assets.
This change had the effect of increasing the loss from operations and the loss
net of tax benefit by approximately $0.5 million for the fiscal year ended June
30, 1996.
Interest Expense
Interest expense increased by $5.1 million (23.4%) from $21.8 million to
$26.9 million for the fiscal years ended June 30, 1995 and 1996, respectively.
Excluding the results of HDG, interest expense increased $2.9 million (14.2%)
from $20.4 million to $23.3 million. The increase was primarily due to the
increasing principal balance of the Senior Discount Notes which resulted in a
corresponding increase in interest expense and the effect of expensing interest
(for the second half of the fiscal year ended June 30, 1996) that had been
capitalized during the fiscal year ended June 30, 1995.
Minority Interests in Loss of Consolidated Subsidiaries
The Company recognized a benefit of approximately $2.1 million for the
fiscal year ended June 30, 1996 resulting from the minority shareholders'
interest in the loss of certain consolidated subsidiaries related to the
write-down of pumped storage development assets in accordance with SFAS 121
(discussed above).
Benefit for Income Taxes
The Company recognized a deferred tax benefit of approximately $8.0
million for the fiscal year ended June 30, 1996. The benefit relates to the
write-down of certain long-lived assets in accordance with SFAS 121 (discussed
above). The effective tax rate of the deferred benefit recognized from the
write-down differs from the federal statutory rate due to the reduction of
deferred tax liabilities offset by the increase in the valuation allowance
attributable to tax assets related to net operating loss carryforwards. The
valuation allowance increased due to the reduction of taxable temporary
differences for book depreciation and amortization previously projected to be
recognized during the net operating loss carryforward period.
LIQUIDITY AND CAPITAL RESOURCES
As more fully described in the Consolidated Financial Statements and
related Notes thereto, the cash flow of the Company was comprised of the
following:
REORGANIZED
COMPANY PREDECESSOR COMPANY
-----------------------------------------------------------------------------
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
NOV. 8 - JULY 1 - JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
DEC. 31, NOV. 7,
1997 1997
------------------------- ----------------- ----------------- ---------------
Net cash provided by/(used in)
Operating activities..................... $ 2,327 $ 1,457) $14,172 $ 16,750 $ 14,328
Investing activities..................... (876) (425) (5,720) (43,629)
731
Financing activities..................... (10,718) (9,355) (6,235) (3,878) 31,828
----------- -------- --------- -------- -------------
Net (decrease)/increase in cash and cash
equivalents................................. $ (9,267) $(11,237) $ 8,668 $ 7,152 $ 2,527
========== ========= ======== ======== =============
33
Management believes that cash provided from operations will be sufficient
to satisfy substantially all of the Company's planned capital expenditures and
working capital needs during 1998. In addition, the Company has received a
commitment, subject to certain conditions precedent, for a new, secured $15
million working capital and letter of credit facility which the Company expects
to close in the near future. The new facility will provide additional liquidity
to support the Company's existing operations as well as its future growth.
For the period from November 8, 1997 to December 31, 1997, the cash flow
provided by operating activities was principally the result of the $0.7 million
net income for such period, a $1.6 million increase in accounts payable and
accrued expenses, $1.1 million of depreciation and amortization, a $0.6 million
benefit relating to deferred tax liabilities and a $0.4 million decrease in
prepaid expenses, offset by $0.5 million of cash used for reorganization items
and a $1.7 million increase in accounts receivable. The cash flow used in
investing activities was primarily attributable to $0.2 million of capital
expenditures and a $0.6 million increase in investments and other long-term
assets. The cash flow used in financing activities was primarily due to the
payment of $10.0 million to holders of the Senior Discount Notes, the repayment
of $0.3 million of project debt (see -- "Summary of Indebtedness"), and a $0.4
million decrease in other long-term liabilities.
For the period from July 1 to November 7, 1997, the cash flow used in
operating activities was principally the result of the $78.0 million net income
for such period, adjusted for $4.6 million of non-cash interest and other
charges, $8.8 million of reorganization costs and fair value adjustments, $3.0
million of depreciation and amortization, $0.8 million of distributed earnings
of affiliates and a $0.5 decrease in accounts receivable, offset by a $87.2
million gain on extinguishment of debt, $8.6 million gain on adjustment to debt,
$0.7 million cash used for reorganization items and a $0.3 million decrease in
accounts payable and accrued expenses. The cash flow used in investing
activities was primarily attributable to $1.1 million of capital expenditures
and a $1.3 million increase in investments and other long-term assets, offset by
$2.0 million of net cash proceeds received from the disposition of assets. The
cash flow used in financing activities was primarily due to the payment of $5.0
million to holders of the Senior Discount Notes and the repayment of $4.5
million of project debt (see - "Summary of Indebtedness"), offset by a $0.2
million increase in other long-term liabilities.
Cash provided by operating activities decreased by $2.7 million for the
six months ended December 31, 1997 as compared to the six months ended December
31, 1996. The decrease resulted from a $4.8 decrease in income before
depreciation and amortization, non-cash interest and other charges,
reorganization costs and fair value adjustments, benefit relating to deferred
tax liabilities, extraordinary gain on extinguishment of debt, gain on
adjustment to project development debt, non-cash adjustment to impairment of
long-lived assets, gain on disposal of assets and distributed earnings of
affiliates and a $1.3 million decrease in cash used for reorganization items,
offset by a $3.4 million increase resulting from variations in other operating
items (accounts receivable, prepaid expenses, accounts payable and accrued
expenses).
For the fiscal year ended June 30, 1997, the cash flow provided by
operating activities was principally the result of the $5.4 million net loss for
such period, adjusted for $21.6 million of non-cash interest and other charges
and $8.7 million of depreciation and amortization , offset by a $5.7 million
gain on extinguishment of debt, a $1.0 million deferred tax benefit, a $2.9
million decrease in accounts payable and accrued expenses, $0.7 million of
undistributed earnings of affiliates and a $0.4 million increase in prepaid
expenses and other current assets. The cash flow provided by investing
activities was primarily attributable to $12.0 million of net cash proceeds
received from the sale of the CHI Maine assets, offset by $4.4 million of
investments in upgrading existing conventional projects, a $4.9 million increase
in investments and other long term assets and $2.0 million investment in
conventional development during the fiscal year ended June 30, 1997. The cash
flow used in financing activities was primarily due to the repayment of $6.3
million of project debt (see - "Summary of Indebtedness"), offset by a $0.2
million increase in other long-term liabilities.
Cash provided by operating activities decreased by $2.6 million for the
fiscal year ended June 30, 1997 as compared to the fiscal year ended June 30,
1996. The decrease resulted from a $0.5 million increase in income before
depreciation and amortization, non-cash interest and other charges, non-cash
charge for impairment of long-lived assets, benefit relating to deferred tax
liabilities, extraordinary gain on extinguishment of debt, minority interests in
loss of consolidated subsidiaries and undistributed earnings of affiliates,
offset by a $3.1 million decrease resulting from variations in other operating
items (accounts receivable, prepaid expenses, accounts payable and accrued
expenses).
For the fiscal year ended June 30, 1996, the cash flow provided by
operating activities was principally the result of the $88.3 million net loss
for such period, adjusted for an $87.2 million non-cash charge for impairment of
long-lived assets, and benefits of $8.0 million and $2.1 million for deferred
tax and minority interests in loss of consolidated subsidiaries, respectively,
34
resulting from such impairment charge, $0.3 million in undistributed earnings of
affiliates and a $1.6 million increase in accounts receivable, offset by $9.8
million of depreciation and amortization, $18.6 million for non-cash interest
and other charges and a $1.4 million increase in accounts payable and accrued
expenses. The cash flow used in investing activities was primarily attributable
to $2.2 million of capital expenditures, a $2.4 million investment in
conventional and pumped storage development and a $1.2 million increase in
investments and other long-term assets during the fiscal year ended June 30,
1996. Of the pumped storage and conventional development expenditures,
approximately $1.6 million was attributable to capitalized interest costs and
$1.0 million was attributable to the funding of committed development capital
for the Summit and other pumped storage projects. The cash flow used in
financing activities was due primarily to repayment of $4.3 million of project
debt (see "--Summary of Indebtedness"), offset by a $0.3 million increase in
other long-term liabilities.
Cash provided by operating activities increased by $2.4 million for the
fiscal year ended June 30, 1996 as compared to the fiscal year ended June 30,
1995. The increase resulted from a $6.4 million increase in income before
depreciation and amortization, non-cash interest and other charges, non-cash
charge for impairment of long-lived assets, benefit relating to deferred tax
liabilities, extraordinary gain on extinguishment of debt, minority interests in
loss of consolidated subsidiaries and undistributed earnings of affiliates,
offset by a $4.0 million decrease resulting from variations in other operating
items (account receivable, prepaid expenses, accounts payable and accrued
expenses).
For the fiscal year ended June 30, 1995, the cash flow provided by
operating activities was principally the result of the $16.3 million net loss
for the year offset by $16.0 million from a charge for non-cash interest, $9.6
million of depreciation and amortization, a $1.3 million non-cash charge for
impairment of long-lived assets, $2.4 million of a decrease in accounts
receivable and $1.4 million of an increase in amounts payable and accrued
expenses. The cash flow used in investing activities was primarily attributable
to $35.5 million utilized for the acquisitions of the HDG projects and the $6.1
million investment in pumped storage and conventional development and $2.9
million of capital expenditures during the fiscal year ended June 30, 1995. Of
the pumped storage and conventional development expenditures, approximately $1.7
million was attributable to capitalized interest costs, $0.6 million was
financed through non-recourse debt and approximately $2.9 million was
attributable to the funding of committed development capital for the Summit
project. The cash flow provided by financing activities was largely due to the
$35.9 million of additional debt incurred in connection with the HDG acquisition
offset by repayment of $4.9 million of project debt.
SUMMARY OF INDEBTEDNESS
REORGANIZED
COMPANY PREDECESSOR COMPANY
--------------- ---------------------------------------------------------
PRINCIPAL AMOUNT OUTSTANDING AS OF
DEC. 31, JUNE 30, JUNE 30, JUNE 30,
1997 1997 1996 1995
--------------- --------------------------------------------------------
Company debt, excluding non-recourse
debt of subsidiaries $ -- $ 169,813 $ 151,131 $ 134,506
Non-recourse debt of subsidiaries 87,971 100,268 115,489 119,372
Current portion of long-term debt (5,355) (7,466) (6,462) (4,991)
----------- ------------ ------------ -------------
Total long-term debt obligations $ 82,616 $ 262,615 $ 260,158 $ 248,887
=========== ============ ============ =============
In October 1993, Den norske Bank AS ("DnB"), provided the Company with a
$20.0 million unsecured working capital facility (the "DnB Facility"), which
originally had an expiration date of June 30, 1997. Under certain limited
circumstances, pursuant to the terms of the credit agreement, DnB had the right,
upon notice to the Company, to limit any further borrowings under the DnB
Facility and require the Company to repay any and all outstanding indebtedness
thereunder within one year from the date DnB provides such notice to the
Company.
35
On December 3, 1996, the Company amended the DnB Facility (the
"Amendment"), which, among other things, waived previous defaults by the
Company, changed the final expiration date of the DnB Facility to June 30, 1998,
reduced (in steps) the total commitment under the DnB Facility from
approximately $5.9 million at June 30, 1996 to zero at June 30, 1998, limited
the use of the DnB Facility solely to letters of credit and modified certain
financial covenants. Since the execution of the Amendment, the Company has
reduced the outstanding letters of credit under the DnB Facility to
approximately $1.9 million at December 31, 1997. As of December 31, 1997, the
DnB Facility is still in effect per the terms of the Amendment. The Company has
received a commitment, subject to certain conditions precedent, for a new,
secured $15 million working capital and letter of credit facility which the
Company expects to close by April 30, 1998. The new working capital facility
will replace the DnB Facility.
On March 20, 1997, the Company, at a meeting with certain holders of the
Senior Discount Notes (the "Bondholders"), announced an outline for its current
business strategy and made a proposal to restructure its outstanding debt and
equity. Subsequently, the Bondholders formed a committee to discuss a possible
restructuring with the Company (the "Unofficial Bondholders' Committee"). On
June 4, 1997, CHI reached an agreement in principle with the Unofficial
Bondholders' Committee on the terms of the Plan of Reorganization. On August 8,
1997, pursuant to a disclosure statement dated August 8, 1997, CHI commenced the
solicitation of votes from holders of Senior Discount Notes and holders of the
13 1/2% Cumulative Redeemable Preferred Stock ("Series H Preferred"), the Series
F Preferred and the Series G Preferred, (collectively the "Old Preferred Stock")
for the acceptance or rejection of the Plan of Reorganization. This solicitation
was conducted prior to the filing by CHI of a case under chapter 11 of the
Bankruptcy Code so as to significantly shorten the pendency of the case and to
simplify its administration. The solicitation was successfully completed on
September 9, 1997, and CHI commenced the chapter 11 case on September 15, 1997
in the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court"). None of CHI's subsidiaries commenced a case under the
Bankruptcy Code. The Bankruptcy Court confirmed the Plan of Reorganization on
October 23, 1997 and the Company emerged from bankruptcy effective November 7,
1997.
Under the Plan of Reorganization, CHI's Senior Discount Notes were
converted into, among other things, $15 million in cash and 100% of the shares
of CHI's new common stock issued on the Effective Date (the "New Common Stock"),
subject to dilution from the New Warrants and the Management Options (each as
described as follows); the holders of Old Preferred Stock exchanged such stock
for warrants to purchase up to 12.5% of the New Common Stock (the "New
Warrants"), subject to dilution from the Management Options; and CHI's Old
Common Stock was canceled. CHI's senior management received options to purchase
up to an aggregate of 7.5% of the New Class A Common Stock (the "Management
Options"), subject to dilution from the New Warrants. In addition, certain
members of CHI's senior management team entered into new employment agreements
in connection with the restructuring.
ITEM 7A. QUANTITIATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------
Not Applicable.
36
REPORT OF INDEPENDENT ACCOUNTANTS
(POST-EMERGENCE)
To the Board of Directors
and Stockholders of CHI Energy, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of CHI Energy,
Inc., (formerly Consolidated Hydro, Inc. (CHI) and its subsidiaries
(collectively, the "Company") at December 31, 1997 and the results of their
operations and their cash flows for the eight weeks then ended, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
As discussed in Notes 1 and 2 to the consolidated financial statements, on
October 23, 1997, the United States Bankruptcy Court for the District of
Delaware confirmed CHI Energy, Inc.'s plan of reorganization (the "plan").
Confirmation of the plan resulted in the discharge of certain claims against CHI
that arose before September 15, 1997 and substantially alters the rights and
interests of certain debt and equity securities holders as provided for in the
plan. The plan became effective on November 7, 1997 and the parent company
emerged from bankruptcy. In connection with its emergence from bankruptcy, CHI
adopted fresh-start reporting as of November 8, 1997.
New York, New York
March 27, 1998
37
REPORT OF INDEPENDENT ACCOUNTANTS
(PRE-EMERGENCE)
To the Board of Directors
and Stockholders of CHI Energy, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows present fairly, in all material respects, the financial position of CHI
Energy, Inc. (formerly Consolidated Hydro, Inc.) and its subsidiaries
(collectively, the "Company") at June 30, 1997 and 1996, and the results of
their operations, stockholders' equity (deficit) and their cash flows for the
eighteen weeks ended November 7, 1997 and for each of the three years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Notes 1 and 2 to the consolidated financial statements, on
September 15, 1997, CHI Energy, Inc., the parent company, filed a petition with
the United States Bankruptcy Court for the District of Delaware under the
provisions of Chapter 11 of the Bankruptcy Code. None of the Company's
subsidiaries were party to the case under the Bankruptcy Code. The Company's
plan of reorganization became effective on November 7, 1997 and the parent
company emerged from bankruptcy. In connection with its emergence from
bankruptcy, the company adopted fresh-start reporting as of November 8, 1997.
New York, New York
March 27, 1998
38
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in thousands except share and per share amounts)
REORGANIZED
COMPANY PREDECESSOR COMPANY
NOV. 8 TO JULY 1 TO
DEC. 31 NOV. 7 YEAR ENDED JUNE 30,
------------------------------
1 9 9 7 1 9 9 7 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- -------
OPERATING REVENUES:
Power generation revenue $ 6,598 $ 8,661 $ 50,665 $ 49,761 $ 39,387
Management fees and operations & maintenance revenues 1,437 2,713 5,395 4,986 4,326
Equity income in partnership interests and other
partnership income 203 212 1,320 737 245
--------- --------- --------- -------- ---------
8,238 11,586 57,380 55,484 43,958
--------- --------- --------- -------- ---------
COSTS AND EXPENSES:
Operating 2,566 6,588 18,015 17,957 15,895
General and administrative 1,174 2,172 8,422 6,447 6,799
Charge for employee and director equity participation
programs - - 100 259 339
Reorganization costs - 3,978 - - -
Fair value adjustments - 4,855 - - -
Depreciation and amortization 1,105 3,009 8,661 9,846 9,625
Lease expense to a related party - 1,274 3,549 3,532 3,495
Lease expense to unrelated parties 900 727 2,215 2,540 2,258
(Adjustment to)/charge for impairment of long-lived
assets - (75) 83 87,202 1,272
--------- --------- --------- -------- ---------
5,745 22,528 41,045 127,783 39,683
--------- --------- --------- -------- ---------
Income/(loss) from operations 2,493 (10,942) 16,335 (72,299) 4,275
INTEREST INCOME 242 739 1,661 1,032 1,416
OTHER INCOME 6 57 434 368 185
GAIN ON ADJUSTMENT TO PROJECT DEVELOPMENT DEBT - 8,568 - - -
INTEREST EXPENSE ON INDEBTEDNESS TO RELATED PARTIES - (2,752) (10,519) (9,927) (7,001)
INTEREST EXPENSE ON INDEBTEDNESS TO UNRELATED PARTIES (1,260) (4,989) (19,072) (16,949) (14,777)
MINORITY INTERESTS IN LOSS OF CONSOLIDATED SUBSIDIARIES - - - 2,063 3
--------- --------- --------- -------- ---------
Income/(loss) before (provision)/benefit for income
taxes and extraordinary item 1,481 (9,319) (11,161) (95,712) (15,899)
(PROVISION)/BENEFIT FOR INCOME TAXES (776) 69 119 7,381 (377)
--------- --------- --------- -------- ---------
Income/(loss) before extraordinary items 705 (9,250) (11,042) (88,331) (16,276)
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT (NET OF INCOME
TAX OF ZERO AND $3,414 AS OF NOVEMBER 7 AND JUNE 30,
1997, RESPECTIVELY) - 87,218 5,658 - -
--------- --------- --------- -------- ---------
NET INCOME/(LOSS) $ 705 $ 77,968 $ (5,384)$ (88,331) $ (16,276)
========= ========= ========= ======== =========
NET INCOME/(LOSS) APPLICABLE TO COMMON STOCK:
Net income/(loss) $ 705 $ 77,968 $ (5,384)$ (88,331) $ (16,276)
Dividends declared on preferred stock - (3,370) (14,911) (13,057) (11,433)
Accretion of preferred stock - (179) (857) (857) (857)
Undeclared dividends on cumulative preferred stock - (2,511) (10,123) (9,818) (9,818)
--------- --------- --------- -------- ---------
$ 705 $ 71,908 $ (31,275)$(112,063) $ (38,384)
========= ========= ========= ======== =========
BASIC NET INCOME PER COMMON SHARE (A) $ 0.07
===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES (A) 10,000,000
===========
(a) Share and per share data are not meaningful on or prior to November 7, 1997
due to the significant change in the capital structure in connection with the
Plan of Reorganization.
The accompanying notes are an integral part of the
consolidated financial statements.
39
CHI ENERGY, INC.
CONSOLIDATED BALANCE SHEET
(Amounts in thousands except share amounts)
REORGANIZED
COMPANY PREDECESSOR COMPANY
DEC. 31, JUNE 30,
1 9 9 7 1 9 9 7 1 9 9 6
-------- -------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents unrestricted $ 6,869 $ 24,247 $ 10,598
Cash and cash equivalents restricted 5,129 8,255 13,236
Accounts receivable, net 7,957 6,803 7,854
Prepaid expenses and other current assets 1,406 1,698 1,353
---------- --------- --------
Total current assets 21,361 41,003 33,041
PROPERTY, PLANT AND EQUIPMENT, NET 93,692 125,954 126,133
FACILITIES UNDER DEVELOPMENT - 100 1,217
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS, NET 17,300 - -
INTANGIBLE ASSETS, NET 47,800 47,785 50,746
ASSETS TO BE DISPOSED OF - 1,914 15,066
INVESTMENTS AND OTHER ASSETS 41,808 26,872 18,454
---------- --------- --------
$ 221,961 $ 243,628 $ 244,657
========== ========= ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 7,990 $ 6,458 $ 9,599
Current portion of long-term debt payable to a related party - 3,234 2,305
Current portion of long-term debt and obligations under capital leases payable to
unrelated parties 5,355 4,232 4,157
---------- --------- --------
Total current liabilities 13,345 13,924 16,061
LONG-TERM DEBT PAYABLE TO RELATED PARTIES - 90,918 87,406
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES PAYABLE TO UNRELATED PARTIES 82,616 171,697 172,752
DEFERRED CREDIT, STATE INCOME TAXES AND OTHER LONG-TERM LIABILITIES 40,195 42,396 38,461
COMMITMENTS AND CONTINGENCIES
MANDATORILY REDEEMABLE PREFERRED STOCK, $.01 PAR VALUE, AT REDEMPTION
VALUE OF $1,000 PER SHARE, JUNIOR IN LIQUIDATION PREFERENCE TO SERIES F PREFERRED STOCK:
Series H, 136,950 shares authorized, issued and outstanding ($119,923 and $105,012
liquidation preference at June 30, 1997 and 1996, respectively), canceled on
November 7, 1997 - 114,372 98,604
---------- --------- --------
Total liabilities and mandatorily redeemable preferred stock 136,156 433,307 413,284
---------- --------- --------
STOCKHOLDERS' EQUITY/(DEFICIT):
PREFERRED STOCK, $.01 PAR VALUE, AT REDEMPTION VALUE OF $1,000 PER SHARE:
Series F, 56,279 and 55,000 shares authorized issued and outstanding at June
30, 1997 and 1996, respectively ($56,279 and $55,000 liquidation
preference at June 30, 1997 and 1996, respectively), canceled -n Nov.
7,49,356 49,356
Series G, 56,279 and 55,000 shares authorized issued and outstanding at June
30, 1997 and 1996, respectively ($56,279 and $55,000 liquidation
preference at June 30, 1997 and 1996, respectively), canceled -n Nov.
7,49,356 49,356
PREFERRED STOCK, $.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED, NO SHARES ISSUED - - -
COMMON STOCK, $.001 PAR VALUE
Class A common stock, $.001 par value, 9,000,000 shares authorized,
3,831,683 and 4,576,925 unissued shares reserved, 1,834,235 and 1,834,235
shares issued and 1,285,762 and 1,285,762 shares outstanding at June 30,
1997 and 1996, respectively, canceled on Nov. 7, 1997 - 2 2
Class B common stock, $.001 par value, 1,000,000 shares authorized, 246,510 unissued shares
reserved, no shares issued and outstanding, canceled on Nov. 7, 1997 - - -
COMMON STOCK, $.01 PAR VALUE, 20,000,000 SHARES AUTHORIZED
Class A common stock, 9,085,290 shares issued and outstanding at December 31, 1997 91 - -
Class B common stock, 914,710 shares issued and outstanding at December 31, 1997 9 - -
ADDITIONAL PAID-IN CAPITAL, INCLUDING $2,064 RELATED TO WARRANTS AT DECEMBER 31, 1997
AND $5,966 RELATED TO WARRANTS AT JUNE 30, 1997 AND 1996 85,000 13,497 13,497
RETAINED EARNINGS/(ACCUMULATED DEFICIT) 705 (280,579) (259,427)
---------- --------- --------
85,805 (168,368) (147,216)
Less: Deferred compensation - (250) (350)
Treasury stock (common: 548,473 shares at June 30, 1997 and 1996), at
cost, canceled on November 7, 1997 - (21,061) (21,061)
---------- --------- --------
Total stockholders' equity/(deficit) 85,805 (189,679) (168,627)
---------- --------- --------
$ 221,961 $ 243,628 $ 244,657
========== ========= ========
The accompanying notes are an integral part of the
consolidated financial statements.
40
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(Amounts in thousands except share amounts)
PREFERRED STOCK COMMON STOCK
NUMBER NUMBER ADDITIONAL
OF SHARES REPORTED OF SHARES PAR PAID-IN
OUTSTANDING AMOUNT OUTSTANDING VALUE CAPITAL
----------- ------ ----------- ----- -------
PREDECESSOR COMPANY
BALANCE JUNE 30, 1994 110,000 $98,712 1,266,298 $ 2 $ 12,877
Annual dividend of $83.48 per share, mandatorily redeemable
Series H Preferred
Accretion of Series H Preferred
Issuance of common stock and related deferred compensation 12,400 620
Recognition of board of directors and employee compensation
expense related to the issuance of common stock
Compensation expense related to conversion of
Performance Unit Plan to Stock Option Plan in 1993
Net loss
---------- -------- ----------- ----- --------
BALANCE JUNE 30, 1995 110,000 98,712 1,278,698 2 13,497
Annual dividend of $95.34 per share, mandatorily redeemable
Series H Preferred
Accretion of Series H Preferred
Issuance of Class A common stock, $.001 par value 7,064
Recognition of board of directors and employee compensation
expense related to the issuance of common stock
Compensation expense related to conversion of
Performance Unit Plan to Stock Option Plan in 1993
Net loss
---------- -------- ----------- ----- --------
BALANCE JUNE 30, 1996 110,000 98,712 1,285,762 2 13,497
Annual dividend of $108.88 per share, mandatorily redeemable
Series H Preferred
Accretion of Series H Preferred
Recognition of employee compensation
expense related to the issuance of common stock
Issuance of preferred stock 2,558
Net loss
---------- -------- ----------- ----- --------
BALANCE JUNE 30, 1997 112,558 98,712 1,285,762 2 13,497
Dividend of $24.63 per share, mandatorily redeemable
Series H Preferred - July 1, 1997 to September 14, 1997
Accretion of Series H Preferred
Net income
Fair value adjustments (112,558) (98,712) 8,714,238 98 71,503
---------- -------- ----------- ----- --------
REORGANIZED COMPANY
BALANCE NOVEMBER 7, 1997 - - 10,000,000 100 85,000
Net income
---------- -------- ----------- ----- --------
BALANCE DECEMBER 31, 1997 - - 10,000,000 $ 100 $ 85,000
========== ======== =========== ===== ========
The accompanying notes are an integral part of the
consolidated financial statements.
[TABLE CONTINUED ON FOLLOWING PAGE 41-B]
41-A
[TABLE CONTINUED FROM PREVIOUS PAGE 41-A]
RETAINED TOTAL
EARNINGS STOCKHOLDERS'
(ACCUMULATED DEFERRED TREASURY EQUITY
DEFICIT) COMPENSATION STOCK (DEFICIT)
-------- ------------ ----- ---------
PREDECESSOR COMPANY
BALANCE JUNE 30, 1994 $ (128,616) $ (328) $ (21,061) $ (38,414)
Annual dividend of $83.48 per share, mandatorily redeemable -
Series H Preferred (11,433) (11,433)
Accretion of Series H Preferred (857) (857)
Issuance of common stock and related deferred compensation (620) -
Recognition of board of directors and employee compensation
expense related to the issuance of common stock 110 110
Compensation expense related to conversion of
Performance Unit Plan to Stock Option Plan in 1993 229 229
Net loss (16,276) (16,276)
----------- ------- --------- -----------
BALANCE JUNE 30, 1995 (157,182) (609) (21,061) (66,641)
Annual dividend of $95.34 per share, mandatorily redeemable
Series H Preferred (13,057) (13,057)
Accretion of Series H Preferred (857) (857)
Issuance of Class A common stock, $.001 par value
Recognition of board of directors and employee compensation
expense related to the issuance of common stock 160 160
Compensation expense related to conversion of
Performance Unit Plan to Stock Option Plan in 1993 99 99
Net loss (88,331) (88,331)
----------- ------- --------- -----------
BALANCE JUNE 30, 1996 (259,427) (350) (21,061) (168,627)
Annual dividend of $108.88 per share, mandatorily redeemable
Series H Preferred (14,911) (14,911)
Accretion of Series H Preferred (857) (857)
Recognition of employee compensation
expense related to the issuance of common stock 100 100
Issuance of preferred stock
Net loss (5,384) (5,384)
----------- ------- --------- -----------
BALANCE JUNE 30, 1997 (280,579) (250) (21,061) (189,679)
Dividend of $24.63 per share, mandatorily redeemable
Series H Preferred - July 1, 1997 to September 14, 1997 (3,370) (3,370)
Accretion of Series H Preferred (179) (179)
Net income 77,968 77,968
Fair value adjustments 206,160 250 21,061 200,360
----------- ------- --------- -----------
REORGANIZED COMPANY
BALANCE NOVEMBER 7, 1997 - - - 85,100
Net income 705 705
----------- ------- --------- -----------
BALANCE DECEMBER 31, 1997 $ 705 - - $ 85,805
=========== ======= ========= ===========
41-B
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands except share amounts)
REORGANIZED
COMPANY PREDECESSOR COMPANY
NOV. 8 TO JULY 1 TO
DEC. 31 NOV. 7 YEAR ENDED JUNE 30,
-------------------
1 9 9 7 1 9 9 7 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 705 $ 77,968 $ (5,384)$ (88,331) $ (16,276)
Adjustments to reconcile net income/(loss) to net cash provided
by/(used in) operating activities before reorganization items:
Non-cash interest and other charges 89 4,629 21,566 18,616 15,999
Reorganization costs - 3,978 - - -
Fair value adjustments - 4,855 - - -
Change in deferred tax liabilities 571 (213) (1,032) (7,951) -
Extraordinary gain on extinguishment of debt - (87,218) (5,658) - -
Gain on adjustment to project development debt - (8,568) - - -
Non-cash (adjustment to)/charge for impairment of long-lived
assets - (75) 83 87,202 1,272
Gain on disposal of assets - (17) - - -
Depreciation and amortization 1,105 3,009 8,661 9,846 9,625
Minority interests in loss of consolidated subsidiaries - - - (2,063) (3)
Distributed/(undistributed) earnings of affiliates 90 788 (696) (317) -
(Increase)/decrease in accounts receivable (1,700) 546 (47) (1,575) 2,366
Decrease/(increase) in prepaid expenses 415 (123) (375) (40) (5)
Increase/(decrease) in accounts payable and accrued expenses 1,598 (267) (2,946) 1,363 1,350
-------- --------- ------- ------- --------
Net cash provided by/(used in) operating activities before
reorganization items 2,873 (708) 14,172 16,750 14,328
-------- --------- ------- ------- --------
Operating cash flows used for reorganization items:
Professional fees (546) (749) - - -
-------- --------- ------- ------- --------
Net cash used for reorganization items (546) (749) - - -
-------- --------- ------- ------- --------
Net cash (used in)/provided by operating activities 2,327 (1,457) 14,172 16,750 14,328
-------- --------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of acquisitions - - - - (35,503)
Proceeds from disposition of assets - 2,006 12,002 - -
Cost of development expenditures - - (2,045) (2,381) (6,086)
Capital expenditures (230) (1,109) (4,358) (2,230) (2,905)
(Increase)/decrease in investments and other long-term assets (646) (1,322) (4,868) (1,109) 865
-------- --------- ------- ------- --------
Net cash (used in)/provided by investing activities (876) (425) 731 (5,720) (43,629)
-------- --------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of refinancing costs - - (310) - -
Long-term borrowings from related parties - - - - 35,900
Long-term borrowings from unrelated parties 4 9 149 120 1,168
Payments to a related party on long-term borrowings - (2,271) (2,304) (269) (488)
Payments to unrelated parties on long-term borrowings (296) (2,245) (3,999) (4,018) (4,402)
(Decrease)/increase in other long-term liabilities (426) 152 229 289 (350)
Payments to holders of Senior Discount Notes (10,000) (5,000)
-------- --------- ------- ------- --------
Net cash (used in)/provided by financing activities (10,718) (9,355) (6,235) (3,878) 31,828
-------- --------- ------- ------- --------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (9,267) (11,237) 8,668 7,152 2,527
CASH AND CASH EQUIVALENTS, AT BEGINNING OF THE PERIOD 21,265 32,502 23,834 16,682 14,155
-------- --------- ------- ------- --------
CASH AND CASH EQUIVALENTS, AT END OF THE PERIOD $ 11,998 $ 21,265 $ 32,502 $ 23,834 $ 16,682
======== ========= ======= ======= ========
The accompanying notes are an integral part of the
consolidated financial statements.
42
CHI ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands except share amounts)
(continued)
REORGANIZED
COMPANY PREDECESSOR COMPANY
NOV. 8 TO JULY 1 TO
DEC. 31 NOV. 7 YEAR ENDED JUNE 30,
-------------------
1 9 9 7 1 9 9 7 1 9 9 7 1 9 9 6 1 9 9 5
------- ------- ------- ------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest paid to a related party $ - $ 819 $ 4,275 $ 2,720 $ 1,406
========= ========= ========= ======== =========
Interest paid to unrelated parties $ 290 $ 2,100 $ 5,047 $ 6,865 $ 6,309
========= ========= ========= ======== =========
Income taxes, net $ 112 $ 379 $ 288 $ 622 $ 349
========= ========= ========= ======== =========
SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
INVESTING:
The Company acquired the common stock or hydroelectric
assets of certain entities amounting to the following:
Fair value of assets acquired $ - $ - $ 28 $ - $ 49,165
Cash paid - - - 35,503
--------- --------- --------- -------- ---------
Liabilities assumed $ - $ - $ 28 $ - $ 13,662
========= ========= ========= ======== =========
FINANCING:
Series H mandatorily redeemable preferred stock increased $179 for the
period from July 1 to November 7, 1997, and $857 for each of the fiscal
years ended June 30, 1997, 1996 and 1995 as a result of the accretion of
the difference between the fair market value at issuance and the
redemption value.
Series H mandatorily redeemable preferred stock increased $3,370,
$14,911, $13,057 and $11,433 for the period from July 1 to November 7,
1997, and the fiscal years ended June 30, 1997, 1996 and 1995,
respectively, as a result of declared dividends which increased the
liquidation preference.
Long-term debt and obligations under capital leases increased by
$10,189, $20,066, $17,913 and $15,515 for the period from July 1 to
November 7, 1997, and the fiscal years ended June 30, 1997, 1996 and
1995, respectively, as a result of non-cash interest.
In accordance with the Plan of Reorganization, the Company exchanged New
Common Stock for Senior Discount Notes and New Warrants for Old
Preferred Stock. See Note 1.
The accompanying notes are an integral part of the
consolidated financial statements.
43
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 1 - ORGANIZATION
CHI Energy, Inc., formerly Consolidated Hydro, Inc. ("CHI", and together
with its consolidated subsidiaries, the "Company") has been engaged in the
energy business since its founding in 1985. Its principal business is the
development, operation and management of industrial energy and other
infrastructure assets and of hydroelectric power plants. Currently, all of the
Company's revenue is derived from the ownership and operation of hydroelectric
facilities. Industrial infrastructure assets include power plants, steam
boilers, air compressors, water and wastewater treatment facilities, and other
utility-type facilities that support the manufacture of products in capital
intensive process industries such as pulp and paper, chemicals, textile, food
and beverage, etc. As of December 31, 1997 and June 30, 1997, 1996 and 1995, the
Company had ownership interests in, leased and/or operated projects with a total
operating capacity of 336, 343, 344 and 379 megawatts ("MW"), respectively.
On June 4, 1997, CHI, the holders of a majority of the Company's 13 1/2%
Cumulative Redeemable Preferred Stock (the "Series H Preferred"), 8% Senior
Convertible Voting Preferred Stock (the "Series F Preferred") and 9 1/2% Junior
Convertible Voting Preferred Stock (the "Series G Preferred", and together with
the Series H Preferred and the Series F Preferred, the "Old Preferred Stock") as
well as an informal committee of institutions that owned, or represented
beneficial holders that owned, approximately 89.2% of CHI's outstanding 12%
Senior Discount Notes due 2003 (the "Senior Discount Notes") (the "Unofficial
Bondholders' Committee") reached an agreement in principle on the terms of a
restructuring to be accomplished pursuant to a plan of reorganization (the "Plan
of Reorganization") under chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On
August 8, 1997, pursuant to a disclosure statement (the "Disclosure Statement"),
CHI commenced a prepetition solicitation of votes by the holders of Senior
Discount Notes and Old Preferred Stock to accept or reject the Plan of
Reorganization. Under the Plan of Reorganization, the holders of Senior Discount
Notes and Old Preferred Stock were the only holders of impaired claims and
impaired equity interests entitled to receive a distribution, and therefore,
pursuant to section 1126 of the Bankruptcy Code, were the only holders entitled
to vote on the Plan of Reorganization. At the conclusion of the 32-day
solicitation period, the Plan of Reorganization had been accepted by holders of
100% of the Senior Discount Notes and by holders of greater than 97% of the Old
Preferred Stock.
On September 15, 1997, CHI commenced its case under chapter 11 of the
Bankruptcy Code and filed the Plan of Reorganization and the Disclosure
Statement. The Bankruptcy Court entered an order confirming the Plan of
Reorganization on October 23, 1997 and the Plan of Reorganization became
effective on November 7, 1997 (the "Effective Date").
Through the implementation of the Plan of Reorganization on and after the
Effective Date, CHI's most significant financial obligations were restructured
as follows: $202 million in face amount of outstanding Senior Discount Notes
were converted into, among other things, $15 million in cash and 100% of the
shares of CHI's new common stock, consisting of shares of new class A common
stock (the "New Class A Common Stock") and shares of new class B common stock
(the "New Class B Common Stock", and together with the New Class A Common Stock,
the "New Common Stock") subject to dilution from the New Warrants and the
Management Options (each as described below); the holders of the Old Preferred
Stock exchanged such stock for warrants to purchase up to 12.5% of the New
Common Stock, consisting of series B warrants (the "New Series B Warrants") and
series C warrants (the "New Series C Warrants", and together with the New Series
B Warrants, the "New Warrants") subject to dilution from the Management Options;
and CHI's old common stock (the "Old Common Stock") was canceled. CHI's senior
management received options to purchase up to an aggregate of 7.5% of the New
Class A Common Stock (the "Management Options"), subject to dilution from the
New Warrants. As a result of the restructuring, CHI did not have any significant
parent company debt obligations as of December 31, 1997.
44
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 2 - FRESH START REPORTING
As of the Effective Date, the Company adopted fresh start reporting in
accordance with American Institute of Certified Public Accountants Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"). The accompanying consolidated financial
statements reflect the use of fresh start reporting as required by SOP 90-7, in
which assets and certain liabilities were adjusted to their fair values and
resulted in the creation of a new reporting entity (the "Company", or the
"Reorganized Company") with no retained earnings or accumulated deficit as of
November 7, 1997. Accordingly, the consolidated financial statements for the
periods prior to and including November 7, 1997 (the "Predecessor Company") are
not comparable to the consolidated financial statements presented subsequent to
November 7, 1997. A black line has been drawn on the accompanying consolidated
financial statements to distinguish between the Reorganized Company and
Predecessor Company balances.
The Company adopted fresh start reporting since holders of existing voting
shares before filing and confirmation of the Plan of Reorganization received
less than 50% of the voting shares of the emerging entity and its reorganization
value was less than its post-petition liabilities and allowed claims. As a
result of the restructuring and the application of fresh start reporting as
required by SOP 90-7, a gain on extinguishment of debt of approximately $87.2
million, reorganization costs of approximately $4.0 million and fair value
adjustments of approximately $4.9 million were recorded in the Predecessor
Company Statement of Operations for the period ended November 7, 1997.
The total reorganization value assigned to the Company's net assets was
determined, by independent valuation, by calculating projected cash flows before
debt service requirements, for a fifteen year period, plus an estimated terminal
value. The discount rates used to value the Company ranged from 10% to 24%
depending on the risks associated with discrete cash flow components of the
Company. The above calculations resulted in an estimated reorganization value
attributable to equity of approximately $85.1 million of which the
reorganization value in excess of amounts allocable to identifiable assets was
approximately $17.5 million. The reorganization value in excess of amounts
allocable to identifiable assets will be amortized over fifteen years.
The effect of the Plan of Reorganization and the implementation of
fresh start reporting on the Company's consolidated balance sheet as of November
7, 1997 was as follows:
Pre Fresh-Start Reorganization Fair Value Fresh Start
Balance Sheet Adjustments (1) Adjustments (2) Balance Sheet
------------- --------------- --------------- -------------
Current assets $ 34,342 $ (5,000) $ 29,342
Property, plant and equipment, net 125,037 $ (30,971) 94,066
Reorganization value in excess of
amounts allocable to identifiable assets -- 17,453 17,453
Intangible assets, net 44,320 3,790 48,110
Other assets 27,763 13,590 41,353
---------------- --------------- --------------- ------------
Total $ 231,462 $ (5,000) $ 3,862 $ 230,324
================ =============== =============== ============
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 2 - FRESH START REPORTING (CONTINUED)
Pre Fresh-Start Reorganization Fair Value Fresh Start
Balance Sheet Adjustments (1) Adjustments (2) Balance Sheet
------------- --------------- --------------- -------------
Current liabilities $ 12,392 $ 10,000 $ 301 $ 22,693
Long-term debt 82,505 (71) 82,434
Deferred income taxes 31,111 (1,053) 2,360 32,418
Liabilities subject to compromise 183,603 (183,603) --
Mandatorily redeemable preferred
stock subject to compromise 117,921 (117,921) --
Other long-term liabilities 1,552 6,127 7,679
Preferred stock 98,713 (98,713) --
Common stock 2 98 100
Additional paid-in capital 13,497 71,503 85,000
Accumulated deficit (288,523) 293,378 (4,855) --
Deferred compensation (250) 250 --
Treasury stock (21,061) 21,061 --
-------------- -------------- ------------ ---------------
Total $ 231,462 $ (5,000) $ 3,862 $ 230,324
============== ============== ============ ===============
- -------------
(1) To record transactions associated with the Plan of Reorganization as
described in Note 1 and eliminate the accumulated deficit.
(2) To record adjustments to assets and liabilities to reflect their
estimated fair value, including the establishment of reorganization
value in excess of amounts allocable to identifiable assets.
CHANGE IN FISCAL YEAR-END
Effective November 7, 1997, the Company changed its fiscal year-end
from June 30 to December 31. The unaudited results of operations for the six
months ended December 31, 1996 are as follows:
Revenues $ 25,214
=========
Income from operations $ 6,406
=========
Loss before benefit for
income taxes and extraordinary item $ (7,582)
Benefit for income taxes 1,460
Loss before extraordinary item (6,122)
Extraordinary gain on
extinguishment of debt
(net of tax of $3,414) 5,622
----------------
Net loss $ (500)
================
Share and per share data are not meaningful on or prior to November 7,
1997, due to the significant change in the capital structure in connection with
the Plan of Reorganization.
46
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CHI Energy,
Inc., its subsidiaries, the majority of which are wholly owned, and partnership
interests. All significant intercompany accounts and transactions have been
eliminated in consolidation.
USE OF MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE
Emerging Issues Task Force ("EITF") Issue 91-6, "Revenue Recognition of
Long-Term Power Sales Contracts" addressed and reached consensus on certain
revenue recognition questions raised by the terms and pricing arrangements of
long-term power sales contracts between non-utility power generators and
rate-regulated utilities. EITF Issue 96-17, "Revenue Recognition Under Long-Term
Power Sales Contracts That Contain Both Fixed and Variable Pricing Terms" ("EITF
96-17") addressed and reached consensus on additional revenue recognition
questions raised by such contracts. EITF 96-17 requires the recognition of
income at the lower of actual amounts billed or the average rate to be billed
over the life of the contract for contracts which have both fixed and variable
pricing terms. The Company is in compliance with the accounting treatments
discussed and the consensus reached.
Management fees and operations and maintenance revenues are earned in
conjunction with operation and maintenance services provided to third parties
under contractual agreements. Costs associated with rendering these services are
included in operating expenses.
EQUITY INCOME FROM PARTNERSHIPS AND OTHER PARTNERSHIP INCOME
As a result of fresh start reporting as described in Note 2, the Company's
investments in partnership interests were adjusted to their estimated fair value
as of November 7, 1997. In accordance with generally accepted accounting
principles, these investments are accounted for under either the equity method
or the cost method of accounting. Investments accounted for under the equity
method of $8,494, $8,177 and $7,512 at December 31, 1997 and June 30, 1997 and
1996, respectively, are included as part of long-term investments.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with maturities
when purchased of three months or less to be cash equivalents. A portion of cash
is restricted by specific project-related agreements, which generally mandate
that cash must first be utilized solely for funding operations and/or the
payment of debt associated with the project. As a result, restricted cash is
generally not available for general corporate purposes.
PROPERTY, PLANT AND EQUIPMENT
As a result of fresh start reporting as described in Note 2, property,
plant, and equipment was adjusted to estimated fair value as of November 7, 1997
and historical accumulated depreciation was eliminated. Plant and equipment are
depreciated on the straight-line method over the remaining estimated useful
lives of the respective assets (originally 50 years for dam and appurtenant
structures and 30 years for mechanical and electrical equipment). Depreciation
expense was $603, $2,026, $5,654, $6,042 and $5,872 for the period from November
8, 1997 to December 31, 1997, the period from July 1, 1997 to November 7, 1997
and the fiscal years ended June 30, 1997, 1996 and 1995, respectively.
47
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment additions are recorded at cost (Note 9).
Renewals and betterments that increase the useful lives of the assets are
capitalized. Repair and maintenance expenditures that increase the efficiency of
the assets are expensed as incurred.
ASSETS TO BE DISPOSED OF
Assets to be disposed of are stated at the lower of their carrying amount
or fair value less estimated costs to sell.
FACILITIES UNDER DEVELOPMENT
Costs associated with facilities under development, including acquisition
costs of property, plant and equipment, intangible assets and investments are
transferred to construction in progress or investments as appropriate, upon the
commencement of construction. Facilities under development are those that have
not yet commenced the construction phase primarily because all the requisite
permits and contracts have not yet been obtained and generally represent a
higher level of risk than those projects under construction. As a result of
fresh start reporting as described in Note 2, the Company wrote off its
remaining investment in pumped storage projects previously classified as
facilities under development on the balance sheet.
INTEREST CAPITALIZATION
The Company capitalizes interest costs associated with the development and
construction of its facilities. Interest capitalized in the period from July 1,
1997 to November 7, 1997 and the years ended June 30, 1997, 1996 and 1995 is
disclosed in Note 12.
INTANGIBLE ASSETS
Intangible assets principally include costs incurred in connection with
power purchase agreements, Federal Energy Regulatory Commission ("FERC")
licenses and goodwill, all of which are capitalized and amortized on a
straight-line basis over the periods to be benefited by such costs, ranging from
3 to 40 years (Note 10). Amortization expense was $412, $983, $3,007, $3,804 and
$3,753 in the period from November 8, 1997 to December 31, 1997, the period from
July 1, 1997 to November 7, 1997 and the years ended June 30, 1997, 1996 and
1995, respectively. Legal, compliance and other related expenditures incurred in
connection with the maintenance of power purchase agreements and FERC licenses
are capitalized and amortized over the remaining term of the applicable contract
or license. As a result of fresh start reporting as described in Note 2,
intangible assets were adjusted to estimated fair value as of November 7, 1997
and historical accumulated amortization was eliminated. The Company also wrote
off any remaining balance of goodwill. Management periodically reviews
intangible assets for potential impairments.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS
Reorganization value in excess of amounts allocable to identifiable assets
results from the application of fresh start reporting as described in Note 2,
which requires the Predecessor Company's unidentified intangibles, net of
amortization, to be reduced to zero and a new amount to be recorded equaling the
excess of the fair value of the Company over the fair value allocated to its
identifiable assets. This excess is classified as reorganization value in excess
of amounts allocable to identifiable assets and is being amortized over a
fifteen-year period. Amortization was $152 in the period from November 8, 1997
to December 31, 1997.
48
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERSE CONTRACTS
As a result of fresh start reporting as described in Note 2, certain
projects with unfavorable power purchase contracts were determined to be
generating net cash outflows. This resulted in the recording of an adverse
contract liability. The Company amortizes adverse contracts over the life of the
project loan for which the applicable project assets have been pledged as
security. Amortization was $62 in the period from November 8, 1997 to December
31, 1997.
BUSINESS DEVELOPMENT COSTS
The Company expenses all business development related costs as incurred
until a viable purchase and sale agreement, or other material project
development document, is signed in respect of a prospective transaction. From
that date forward, all third party, project specific, business development
related costs are capitalized.
TREASURY STOCK
The Company accounts for treasury stock under the cost method. As a result
of fresh start reporting as described in Note 2, the Company canceled its Old
Common Stock and treasury stock as of the Effective Date.
INCOME TAXES
The Company provides for deferred income taxes based on differences in
reporting certain income and expense items for federal income tax and financial
reporting purposes. The Company accounts for energy and investment tax credits
using the flow-through method as a reduction of the provision for federal income
taxes in the year in which such credits are utilized. The Company accounts for
income taxes under the liability method required by Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109").
NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing the net income
for the period by the weighted average number of common shares outstanding in
accordance with Statement of Financial Accounting Standards No. 128 "Earnings
per Share" ("SFAS 128"). In the period from November 8, 1997 to December 31,
1997, the inclusion of additional shares assuming the exercise of stock options
and warrants under the treasury stock method was antidilutive.
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist principally of investments in short term
interest bearing instruments and because of the short-term maturity of these
items, the carrying amount approximates fair value.
49
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
LONG-TERM INVESTMENTS
The carrying value of investments held in escrow accounts approximates
fair value based on their near-term maturity. Such investments are classified as
long-term on the Balance Sheet due to restrictions imposed under certain
contractual agreements. Investments in affiliates of the Company which are
accounted for on the cost basis have no quoted market prices. An adjustment was
made to estimate fair market value as of November 7, 1997 as a result of fresh
start reporting as described in Note 2. However, prior to the Effective Date, a
reasonable estimate of fair value could not be made without incurring excessive
costs.
LONG-TERM DEBT AND REDEEMABLE PREFERRED STOCK
Market rate obligations consist of long-term debt obligations that
approximate their fair value because of interest rates which fluctuate with
market rates.
The fair value of fixed rate obligations is based on discounted future
cash flows using rates currently available to the Company for non-recourse
project-finance loans with similar terms and average maturities. In connection
with fresh start reporting as described in Note 2, fixed rate obligations were
adjusted to fair value as of the Effective Date. Loans related to the Company's
pumped storage development assets have a fair value based on the prospects of
the project development and fair value of such assets.
The fair value of the Senior Discount Notes and the Series H Preferred
could not be reasonably estimated at June 30, 1996 because there was no public
market for these securities. At June 30, 1997, the fair values of the Senior
Discount Notes and Series H Preferred were based on the midpoint of a range of
values prepared by a third party in connection with the Plan of Reorganization.
As of the Effective Date, the Senior Discount Notes and Series H Preferred were
converted into, among other things, New Common Stock, Series B Warrants and
Series C Warrants. Accordingly, as of December 31, 1997, the Senior Discount
Notes and Series H Preferred were no longer outstanding.
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------- ------------------------------------------------------------
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1996
----------------- ----------------------- -----------------------------
Carrying Amount Fair Carrying Amount Fair Carrying Amount Fair
Value Value Value
--------------------- ---------------------- -----------------------------
Cash and cash equivalents 11,998 11,998 32,502 32,502 23,834 23,834
Long-term investments:
Escrow deposits 9,787 9,787 8,184 8,184 2,973 2,973
Investments in affiliates 23,016 23,016 10,501 -- (1) 7,949 -- (1)
Long-term debt:
Market rate obligations 33,029 33,029 33,208 33,208 34,890 34,890
Fixed rate obligations 24,216 24,216 26,518 27,631 23,989 24,725
Pumped storage obligations 8,588 -- 15,905 100 14,420 100
Refinanced obligations -- -- -- -- 14,500 4,500
Senior Discount Notes -- -- 169,813 81,400 151,131 --
Series H Preferred -- -- 114,372 882 98,604 --
(1) An estimate of fair value could not be made because it is not practicable.
50
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 5 - SALE OF CONSOLIDATED HYDRO MAINE, INC.
On December 23, 1996, the Company through its wholly owned subsidiary, CHI
Universal, Inc., a Delaware corporation ("CHI Universal"), sold Consolidated
Hydro Maine, Inc., a Delaware corporation ("CHI Maine"), to Ridgewood Maine
Hydro Partners, L.P., a Delaware limited partnership (the "Partnership"). CHI
Maine owned and operated 15 hydroelectric projects located in the state of Maine
with an aggregate capacity of 11.32 megawatts (the "Projects"). The sale was
made pursuant to an Agreement of Merger dated as of July 1, 1996 (the "Merger
Agreement"), by and among CHI Maine, CHI Universal, Ridgewood Maine Hydro
Corporation and the Partnership. These assets were reported at their carrying
value of $11.3 million in Assets to be disposed of on the Balance Sheet as of
June 30, 1996.
On the Closing Date (as defined in the Merger Agreement), all of the
issued and outstanding capital stock of CHI Maine was sold to the Partnership
for cash. After final adjustments, the total sale price aggregated approximately
$12.9 million and the Partnership assumed a long-term lease obligation of
approximately $1.2 million related to one of the Projects. In the fiscal year
ended June 30, 1997, the carrying value was adjusted upward by $0.7 million as a
result of adjustments to the final sales price of the assets (Note 7).
The following unaudited pro forma financial information for the fiscal
years ended June 30, 1997 and 1996 has been prepared assuming the disposition
of CHI Maine occurred at the beginning of the periods presented.
Predecessor Company
-------------------------------------------------------
Fiscal Year Ended June 30,
-------------------------------------------------------
1997 1996
----- ----
(Pro forma) (As Reported) (Pro forma) (As Reported)
(unaudited) (unaudited)
Operating Revenues $ 56,350 $ 57,380 $ 51,967 $ 55,484
======= ======= ======= =======
Net loss $ (5,742) $ (5,384) $(71,486) $(88,331)
======= ======= ======= =======
Share and per share data are not meaningful on or prior to November 7, 1997,
due to the significant change in the capital structure in connection with the
Plan of Reorganization.
NOTE 6 - DECOMMISSIONING OF CONVENTIONAL HYDROELECTRIC ASSETS
On September 9, 1997, the Company through its wholly owned subsidiary,
Joseph Hydro Company, Inc., a Delaware corporation ("Joseph"), terminated the
Power Purchase Agreement ("PPA") with PacifiCorp, the purchasing utility,
relating to three of its projects located in Oregon, aggregating 7.01 MW of
capacity (the "Joseph Projects"). Joseph received a cash payment of $2,815,
pursuant to a termination agreement between Joseph and PacifiCorp, to terminate
production and delivery of power from the Joseph Projects, surrender the PPA and
remove all facilities associated with the Joseph Projects in accordance with
certain terms and conditions. After payment of certain fees, transaction and
removal costs totaling approximately $840, the Company applied the remaining,
approximately $1,975, as a pre-payment on the General Electric Capital
Corporation ("GECC") B Term Loan (the "GECC B Loan") as the assets of the Joseph
Projects secured the GECC B Loan. During the period from July 1, 1997 to
November 7, 1997, a credit adjustment to the impairment charge of $75 was
recorded (Note 7). The Company has substantially completed the removal of all
facilities of the Joseph Projects as of December 31, 1997.
51
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 7 -- ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121
"ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF" ("SFAS 121")
The Company implemented SFAS 121 in the second quarter of the fiscal year
ended June 30, 1996. This statement establishes accounting standards for
determining impairment of long-lived assets and long-lived assets to be disposed
of. The Company periodically assesses the realizability of its long-lived assets
and evaluates such assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets (or group of
assets) may not be recoverable. For assets in use or under development,
impairment is determined to exist if the estimated future cash flow associated
with the asset, undiscounted and without interest charges, is less than the
carrying amount of the asset. When the estimated future cash flow indicates that
the carrying amount of the asset will not be recovered, the asset is written
down to its fair value.
In the fiscal year ended June 30, 1996, in light of the Company's planned
sale of certain of its conventional hydroelectric projects, recent industry
trends (including the continued decline in electricity prices and other factors
stemming from the deregulation of the electric power industry), the timing of
the expiration of the fixed rate period of some of its long-term power sales
contracts and other indications of a decline in the fair value of certain of its
conventional hydroelectric projects, the Company determined pursuant to SFAS 121
that certain of these projects (including properties which were not included
among those to be sold) were impaired pursuant to the criteria established under
SFAS 121. The Company also determined that due to the factors noted above, it
was highly unlikely that the Company would successfully develop its pumped
storage projects.
In the fiscal year ended June 30, 1996, the Company recorded an impairment
charge of $87.2 million as a component of its loss from operations. In addition,
a deferred tax benefit and a benefit for minority interests in loss of
consolidated subsidiaries of $8.0 million and $2.1 million, respectively, were
recorded as of that date. Of the total charges, $38.5 million was attributable
to pumped storage development assets, resulting in an aggregate remaining
carrying value of such assets of $0.1 million, $44.9 million was attributable to
certain conventional hydroelectric assets, resulting in an aggregate remaining
carrying value for such written down assets of $26.0 million, and $3.8 million
was attributable to an other than temporary decline in the value of certain
investments in partnerships which own hydroelectric facilities, resulting in an
aggregate remaining carrying value of such assets of $0.8 million.
In the fiscal year ended June 30, 1997, the Company recorded an impairment
charge of $0.1 million as a component of income from operations. The total
charges include an upward adjustment of $0.7 million to the carrying value of
the CHI Maine assets as a result of adjustments to the final sales price of the
assets, a $0.4 million charge attributable to certain conventional hydroelectric
assets held for decommissioning resulting in a carrying value of such assets of
$1.9 million, and a $0.4 million charge attributable to the write-off of certain
development costs, resulting in a carrying value of zero.
In the period from July 1, 1997 to November 7, 1997, the Company
recorded an upward adjustment of $0.1 million to the carrying value of the
Joseph Projects as a result of adjustments to the final sales price of the
assets.
In the period from November 8, 1997 to December 31, 1997, no additional
impairment charge was recorded against income from operations.
In conjunction with the adoption of SFAS 121, during the third quarter of
the fiscal year ended June 30, 1996, the Company re-evaluated the useful lives
of certain property, plant and equipment and intangible assets. This resulted in
a reduction of the estimated useful lives of these fixed and intangible assets.
This change had the effect of increasing the income from operations and the net
income, net of tax provision, by approximately $0.4 million, decreasing the loss
from operations and the net loss, net of tax benefit, by approximately $1.0
million and increasing the income from operations and decreasing the net loss,
net of tax benefit, by $0.5 million for the period from July 1, to November 7,
1997 and the fiscal years ended June 30, 1997 and 1996, respectively.
52
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 8 - POWER GENERATION CONTRACTS
The Company operates facilities which qualify as small power production
facilities under the Public Utility Regulatory Policies Act ("PURPA"). PURPA
requires that each electric utility company, operating at the location of a
small power production facility, as defined, purchase the electricity generated
by such facility at a specified or negotiated price.
The Company sells substantially all of its electrical output to public
utility companies pursuant to long-term power purchase agreements, of which the
remaining terms range between 9 months and 28 years. Consolidated power
generation revenues, by major customer, for the period from November 8, 1997 to
December 31, 1997, the period from July 1, 1997 to November 7, 1997 and the
fiscal years ended June 30, 1997, 1996 and 1995 were as follows:
Reorganized Company Predecessor Company
--------------- --------------- ---------------------- ------------
Nov. 8 - July 1 -
Dec. 31, Nov. 7, June 30, June 30, June 30,
1997 1997 1997 1996 1995
-------------- -------------- ---------- ------------ ------------
-------------- --------------- ---------- ----------- ------------
Niagara Mohawk Power Corp. $ 1,554 $ 1,181 $ 10,285 $ 9,139 $ 4,865
Commonwealth Electric Co. 1,451 1,563 10,685 9,528 8,509
New England Power Co. 841 963 6,184 5,133 4,942
Central Maine Power Co. 732 1,334 4,615 8,341 6,312
Idaho Power Co. 123 1,657 3,258 2,983 2,193
All other customers 1,897 1,963 15,638 14,637 12,566
------------ --------- --------- --------- ------------
$ 6,598 $ 8,661 $ 50,665 $ 49,761 $39,387
============ ========= ========= ========= ============
During the fiscal years ended June 30, 1997, 1996 and 1995, the amount
shown for Commonwealth Electric Co. includes approximately $212, $72 and $290,
respectively, of business interruption revenue representing lost generation
recoverable from an insurance company as a result of an insurance claim.
On October 6, 1995, Niagara Mohawk Power Corporation ("NIMO"), a
significant customer of the Company, submitted a proposal to the New York State
Public Service Commission. NIMO proposed that it be relieved of its obligations
under contracts with independent power producers ("IPPs") that NIMO considers
uneconomic. In March 1997, NIMO announced that it reached preliminary agreements
to restructure power purchase agreements with 19 IPPs representing 44 IPP
contracts. In July 1997, NIMO announced that it had signed a master
restructuring agreement (subject to certain conditions requiring third party
approvals) to terminate or restructure 29 IPP contracts with 15 of the 19 IPP's.
However, neither the Company nor any of its subsidiaries participated in these
negotiations, and the impact of the remaining agreements on the Company, if any,
is unknown.
Increased competition in the electricity industry might cause certain
utilities to become higher credit risks. Although the ratings of the debt
securities of many of the utilities which purchase power from the Company are
currently investment grade, there can be no assurance of the long-term
creditworthiness of any of the Company's customers. Should any customer fail, it
would be difficult for the Company to replace the existing long-term contract
with a new contract on similar economic terms in the current environment.
53
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 9 - PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment includes assets acquired or refinanced
under capitalized lease obligations of $22,138, $24,455 and $27,525 at December
31, 1997 and June 30, 1997 and 1996, respectively (Note 12).
Property, plant and equipment comprise the following at December 31, 1997
and June 30, 1997 and 1996:
Reorganized Company Predecessor Company
--------------------------- -----------------------------------------------
December 31, 1997 June 30, 1997 June 30, 1996 Range of
Asset Lives
------------------------------ -------------------- ----------------------- -------------
Land $ 3,738 $ 3,738 $ 3,610
Dam and appurtenant structures 48,651 71,101 68,953 50 years
Mechanical and electrical equipment 38,173 70,738 69,785 30 years
Buildings and other 1,819 4,777 4,381 3-12 years
Construction in progress 1,914 1,851 534
---------------- -------------- --------------
94,295 152,205 147,263
Less - accumulated depreciation (603) (26,251) (21,130)
---------------- -------------- --------------
$ 93,692 $ 125,954 $ 126,133
================ ============= =============
NOTE 10 - INTANGIBLE ASSETS
Intangible assets comprise the following at December 31, 1997 and June 30,
1997 and 1996:
Reorganized Company Predecessor Company
----------------------- ---------------------------------------
Range of
December 31, 1997 June 30, 1997 June 30, 1996 Asset Lives
------------------------ -------------------- ------------------ -------------------
Power purchase contracts $ 39,264 $ 23,958 $ 24,243 3 - 32 years
FERC licenses 6,926 16,234 16,066 4 - 40 years
Goodwill -- 17,740 17,740 40 years
Other intangibles 2,022 7,881 7,933 3 - 40 years
-------------- ------------- ------------
48,212 65,813 65,982
Less - accumulated
amortization (412) (18,028) (15,236)
-------------- ------------- ------------
$ 47,800 $ 47,785 $ 50,746
============== ============= ============
The majority of the Company's projects have been issued FERC licenses
(extending through years ranging from 2001 to 2037) or have qualified for
exemption from FERC licensing.
54
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 11 - ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The Company reviews its accounts receivable for future collectability. As
of December 31, 1997 and June 30, 1997 and 1996, allowance for doubtful accounts
on certain receivables was approximately $439, $382 and $176, respectively. Net
accounts receivable comprise the following at December 31, 1997 and June 30,
1997 and 1996:
Reorganized Company Predecessor Company
December 31, June 30, June 30,
1997 1997 1996
------------------ ------------ ---------
Accounts receivable trade $ 3,745 $ 3,956 $ 6,512
Accounts receivable operations and
maintenance contracts, net 1,352 780 739
Accounts receivable insurance claim 1,564 1,335 198
Accounts receivable other, net 1,296 732 405
--------- ---------- ---------
$ 7,957 $ 6,803 $ 7,854
========= ========== =========
Accounts payable and accrued expenses, inclusive of related party
payments due to GECC, comprise the following at December 31, 1997 and June 30,
1997 and 1996:
Reorganized Company Predecessor Company
December 31, June 30, June 30,
1997 1997 1996
------------------ ----------- -------------
Accrued interest $ 1,121 $ 1,226 $ 2,320
Accounts payable 492 218 1,006
Accrued lease expense
payable to a related party -- 1,595 1,746
Accrued lease expense 1,486 -- --
Accrued compensation 1,539 945 1,027
Accrued severance 65 198 1,141
Other accrued expenses 3,287 2,276 2,359
------------ ------------ ------------
$ 7,990 $ 6,458 $ 9,599
============ ============ =============
55
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 12 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and capitalized lease obligations comprise the following at
December 31, 1997 and June 30, 1997 and 1996:
Reorganized Company Predecessor Company
-------------------- -------------------------------
December 31, June 30, June 30,
1997 1997 1996
------------- -------- ----------
Parent Company Debt:
Debt guaranteed or issued by the Parent Company directly -
12% Senior Discount Notes due 2003. -- $169,813 $151,131
------------ ------------ ------------
-- 169,813 151,131
------------ ------------ ------------
Non-Recourse Debt of Subsidiaries secured by project assets
unless otherwise noted:
Capitalized lease obligations maturing at various dates
through 2008. $ 22,138 24,455 27,525
Term loan agreement with an investor due in quarterly
payments through 2003, interest payable at the
Commercial Paper ("CP") Rate, as defined, plus a margin
of 4.0%, (9.65%, 9.62% and 9.42% at December 31, 1997
and June 30, 1997 and 1996, respectively).
27,584 27,584 28,522
Term loan agreement with an investor due in quarterly
payments through 2013, interest payable at a fixed rate of
11.59%.
3,188 5,254 6,621
Term loan agreement with a bank.
-- -- 14,500
Term loan agreement with a bank, principal due in quarterly
payments through 2008, beginning on September 30,
1997. Interest due quarterly at a fixed annual rate of
10.17% through October 29, 2003 and thereafter through
maturity, at the U.S. Treasury Note Rate, as defined, plus
a margin of 3.9%.
4,094 5,000 --
Note payable to an insurance company, due in monthly
payments through 2007, interest at 12.7%. 7,391 6,858 7,619
Note payable to an insurance company, due in quarterly
payments through 2003, interest at 11.25%. 6,400 6,538 6,795
Term loan agreement with a bank, due in quarterly payments
through 2006, interest at the London Interbank Offered
Rate ("LIBOR"), as defined, plus a margin of 2.0%
(interest at 7.81%, 7.78% and 7.47%, at December 31,
1997 and June 30, 1997 and 1996, respectively).
2,096 2,211 2,700
56
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 12 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
Reorganized Company Predecessor Company
------------------- -------------------
December 31, June 30, June 30,
1997 1997 1996
------------- --------- ---------
Unsecured notes payable to investors, interest payable
annually at various rates. 1,036 5,902 4,972
Term loan agreement with a bank, due in quarterly
payments through 2006, interest at LIBOR, as defined,
plus a margin of 2.0% (interest at 7.81%, 7.78% and
7.47% at December 31, 1997 and June 30, 1997 and
1996, respectively). 1,753 1,766 1,801
Unsecured notes payable to investors, interest payable
annually at the prime rate, as defined (8.50%, 8.50%
and 8.25% at December 31, 1997 and June 30, 1997 and
1996, respectively) for certain notes and 15% for other
notes. 2,792 4,299 3,968
Security deed held by the previous owners of a
hydroelectric facility, due June 18, 1999. Interest
payable monthly at a fixed rate of 11.5%. 1,000 1,000 1,000
Notes payable to an insurance company, due in quarterly
payments through 2005, interest rate at 8.5%. 680 787 850
Term loan agreement with a bank, due in quarterly
payments through 2006, interest at LIBOR, as defined,
plus a margin of 2.0% (interest at 7.81%, 7.78% and 7.47% at
December 31, 1997 and June 30, 1997 and 1996,
respectively). 1,244 1,283 1,470
Term loan agreement with a bank, due in quarterly
payments through 2006, interest at LIBOR, as defined,
plus a margin of 2.0% (7.81%, 7.78% and 7.47% at
December 31, 1997 and June 30, 1997 and 1996,
respectively). 352 364 396
Unsecured notes payable to private investors, due
December 31, 1999 and 2003, including accrued
interest. Interest accrues annually at 12%. A minimum
of 3.6% of such interest is due in cash each December
31 and if not paid, accrues interest at a penalty rate
equal to the stated rate plus 3.0%.
919 820 730
Other long-term liabilities with various rates and maturities. 5,304 6,147 6,020
------------ ----------- --------
87,971 100,268 115,489
------------ ----------- --------
Total debt and obligations under capital leases 87,971 270,081 266,620
Less current portion (5,355) (7,466) (6,462)
------------ ----------- --------
Total long-term debt and obligations under capital leases $82,616 $262,615 $260,158
============ =========== ========
57
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 12 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
Total interest charges associated with the above obligations were $1,260,
$7,809, $29,780, $28,581 and $24,729, of which zero, $68, $189, $1,705 and
$2,951 was capitalized in conjunction with the development and construction of
hydroelectric facilities in the period from November 8, 1997 to December 31,
1997, the period from July 1, 1997 to November 7, 1997 and the fiscal years
ended June 30, 1997, 1996 and 1995, respectively. The aggregate long-term debt
payments due each year ending December 31, including capitalized lease
obligations, net of amounts representing interest totaling $12,282, are as
follows:
1998 $ 5,355
1999 6,034
2000 5,518
2001 5,898
2002 6,295
Thereafter 58,871
-------------
$ 87,971
=============
The Senior Discount Notes were issued at a substantial discount from their
principal amount and provided for cash payment of interest commencing January
15, 1999. The issue price represented a yield to maturity of 12% computed on a
basis of semi-annual compounding until reaching face value in 1998, after which
interest became payable semi-annually at the stated 12% rate. The Senior
Discount Notes were due July 15, 2003 but could have been redeemed at any time
on or after July 15, 1998 at the Company's option, in whole or in part, at 100%
of their principal amount plus accrued interest. The Senior Discount Notes
contained restrictive covenants providing for limitations on indebtedness and
restrictions on payments of dividends or distributions of capital stock, among
other restrictions. Through the implementation of the Plan of Reorganization as
of the Effective Date, $202 million in face amount of outstanding Senior
Discount Notes were converted into, among other things, $15 million in cash and
100% of the shares of CHI's New Common Stock, subject to dilution from the New
Warrants and the Management Options (Note 1).
In October 1993, Den norske Bank AS ("DnB") provided the Company with a
$20.0 million unsecured working capital facility (the "DnB Facility"), which
originally had an expiration date of June 30, 1997. On December 3, 1996, the
Company amended the DnB Facility (the "Amendment"), which, among other things,
waived previous defaults by the Company, changed the final expiration date of
the DnB Facility to June 30, 1998, reduced (in steps) the total commitment under
the DnB Facility from approximately $5.9 million at June 30, 1996 to zero at
June 30, 1998 and limited the use of the DnB Facility solely to letters of
credit and modified certain financial covenants. Since the execution of the
Amendment, the Company has reduced the outstanding letters of credit under the
DnB Facility to approximately $1.9 million at December 31, 1997. As of December
31, 1997 the DnB Facility is still in effect pursuant to the terms of the
Amendment. The Company has received a commitment, subject to certain conditions
precedent, for a new, secured $15 million working capital and letter of credit
facility which the Company expects to close in the near future. The new working
capital facility will replace the DnB Facility. The new facility will provide
additional liquidity to support the Company's existing operations as well as its
future growth.
The DnB Facility contained certain affirmative and restrictive covenants
which were generally consistent with the terms of the Senior Discount Notes and
the Old Preferred Stock. As of June 30, 1997, the Company was in compliance with
its covenants, as amended, under the DnB Facility. The Company's September 15,
1997 chapter 11 filing with the Bankruptcy Court resulted in an event of default
under the DnB Facility. Subsequently, DnB notified the Company that it will take
no action to enforce its remedies for such default.
58
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 12 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
The outstanding letters of credit under the DnB Facility totaled $1,900 as
of December 31, 1997 and $3,091 and $5,941 as of June 30, 1997 and 1996,
respectively. Fees on each outstanding letter of credit are computed as follows:
(i) 2.0% per annum on the available amount of such letter of credit, payable
quarterly in arrears; (ii) standard charges in connection with the issuing,
administering, amending, processing or paying any letter of credit; and (iii)
costs of confirmation, requested by any beneficiary, in the amount not to exceed
1/2 of 1.0% per annum based upon the available amount of the letter of credit.
As of December 31, 1997, capitalized lease obligations consist primarily
of two lease financing transactions. The leases have initial terms that extend
through 2003 and 2008, with renewal options in minimum one and five year
increments. These leases require that lease payment reserves, with provisions
for escalations in the event certain power sales rates are not attained, be
maintained for the respective terms of the leases. Certain of these reserves
must be in cash with the balance in either cash or letters of credit from an
acceptable issuer. These leases had been initially recorded as $22,274 of dam
and appurtenant structures and $12,239 of mechanical and electrical equipment.
As a result of fresh start reporting, the recorded value of these leases has
been adjusted to reflect fair value due to market rate changes as of the
Effective Date.
To the extent that it is anticipated that the minimum cash components will
not be used to fund operation expenses or lease payments in the next fiscal
year, these minimum cash components have been included in Investments and other
assets in the accompanying Balance Sheet. Further, in connection with one of the
leases, the Company has provided a tax indemnity of an amount not to exceed
$2,750 to the extent certain specified tax benefits, as defined, are not
available to one of the owner participants, as defined. Minimum rental
commitments under these leases for the five years following December 31, 1997
and thereafter are included in the table above.
In conjunction with the acquisition of Hydro Development Group, Inc., a
New York Corporation, ("HDG"), the Company entered into a Credit and
Reimbursement Agreement dated February 15, 1995, with GECC. The agreement
provides for two term loans, the GECC A Term Loan ("GECC A Loan") and the GECC B
Loan, a revolving credit facility, and two letters of credit in support of HDG
project obligations. The GECC A Loan, with an outstanding principal balance at
December 31, 1997 of $27,584, is secured by the stock and assets of the HDG
projects. The GECC B Loan, with an outstanding principal balance at December 31,
1997 of $3,188, is secured by certain other projects owned by the Company (Note
6). Each of these loans is non-recourse to CHI. The agreement also provides for
a $3,000 revolving credit facility through 2013, to be drawn as necessary to pay
principal and interest due on the term loans in the case of insufficient funds
resulting from unusually low water flow. The $3,000 revolving credit facility
shall bear interest at a rate equal to the CP Rate, as defined, plus a margin of
5%. GECC has also provided two letters of credit totaling $350 in support of
certain HDG projects.
As of June 30, 1996, non-recourse project loans, aggregating $14,500, were
in default. The $14,500 term loan agreement with a bank was assumed in
conjunction with the acquisition of certain hydroelectric assets. On October 30,
1996, the Company arranged to have a financial institution purchase this
non-recourse project term loan, $13,759 at the date of purchase, (the "Old
Loan") for $5,000, including certain required reserves and closing costs of $500
(the "New Loan"). An additional $2,000 credit facility was also available under
the New Loan for up to one year to finance certain project enhancements. A
subsidiary of the Company was assigned an interest in the balance of the Old
Loan on a basis fully subordinated to the New Loan. As a result, the Company
recorded a $5,658 extraordinary gain on extinguishment of debt, net of certain
transaction costs of approximately $187 and income tax of $3,414, on its
Statement of Operations for the fiscal year ended June 30, 1997.
59
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 12 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
The New Loan, which matures in the year 2008, accrues interest at a fixed
rate of 10.17% per annum through October 29, 2003. Thereafter, through October
30, 2008, interest accrues on a quarterly basis, at a rate equal to the three
year U.S. Treasury Note Rate plus a margin of 3.9%. Principal and interest
payments are to be made quarterly in arrears and mandatory prepayments, if
required, are to be made annually. Costs associated with obtaining the New Loan
have been capitalized and are included in Intangible assets, net on the
Company's Balance Sheet as of December 31, 1997. As a result of fresh start
reporting, the recorded value of this loan has been adjusted to reflect fair
value due to market rate changes as of the Effective Date.
The $7,391 note payable to an insurance company was assumed in connection
with an acquisition by the Company. Pursuant to the terms of the note,
substantially all of the acquired hydroelectric assets (approximately $18,700,
$18,900 and $19,300 at December 31, 1997 and June 30, 1997 and 1996,
respectively) have been pledged as security. As a result of fresh start
reporting, the recorded value of this note has been adjusted to reflect fair
value due to market rate changes as of the effective date.
The $6,400 note payable to an insurance company was assumed in connection
with another acquisition by the Company. Pursuant to the terms of the note,
substantially all of the acquired hydroelectric assets (approximately $11,700,
$11,800 and $9,500 at December 31, 1997 and June 30, 1997 and 1996,
respectively) have been pledged as security. As a result of fresh start
reporting, the recorded value of this note has been adjusted to reflect fair
value due to market rate changes as of the Effective Date.
The $2,096 term loan agreement (the "Loan Agreement") with a bank was
entered in connection with the acquisition of certain hydroelectric facilities.
The Loan Agreement is secured by the stock of the Company's subsidiary which
acquired the hydroelectric facilities and the subsidiary's interest in certain
limited partnerships as well as certain notes payable, by these limited
partnerships, to the Company.
The $1,036 unsecured notes payable to investors relate to the
financing for the Company's majority-owned subsidiary, Summit Energy Storage
Inc. ("Summit"). Interest is payable annually at December 31 at 12%. Unpaid
interest balances are added to the outstanding principal at each December 31.
The $1,753 term loan agreement was originally assumed by the Company as an
interim loan in conjunction with the acquisition of a hydroelectric facility.
The $2,792 notes payable to investors relate to the financing for one of
the Company's pumped storage development projects, River Mountain. Interest is
payable annually on December 31, at the prime rate of interest, as defined, for
certain notes and 15% for other notes. Unpaid interest balances are added to the
outstanding principal at each December 31, and accrue interest at the applicable
interest rate.
The $1,000 security deed is secured by substantially all of the related
hydroelectric facility's assets (approximately $1,800, $1,800 and $1,400 at
December 31, 1997 and June 30, 1997 and 1996).
The $680 note payable to an insurance company was assumed in connection
with an acquisition by the Company. Pursuant to the terms of the note,
substantially all of the acquired hydroelectric assets (approximately $1,500,
$1,500 and $1,400 at December 31, 1997 and June 30, 1997 and 1996) have been
pledged as security.
The $1,244 term loan agreement was originally assumed by the Company as an
interim loan in conjunction with the acquisition of a hydroelectric facility.
Pursuant to the terms of the agreement, substantially all of the acquired
hydroelectric assets (approximately $4,600, $4,800 and $5,500 at December 31,
1997 and June 30, 1997 and 1996) have been pledged as security.
60
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 12 - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
The $352 term loan agreement was undertaken by the Company in connection
with the acquisition of a hydroelectric facility. Pursuant to the terms of the
note, substantially all of the acquired hydroelectric assets (approximately
$1,400, $1,400 and $1,100 at December 31, 1997 and June 30, 1997 and 1996) have
been pledged as security.
The $919 notes payable to private investors relate to the financing for
Consolidated Pumped Storage, Inc. ("CPS") for which warrants were also issued to
the holder for the purchase of 10% of CPS common stock. Interest accrues
annually at 12%. A minimum of 3.6% of such interest is due in cash each December
31 and if not paid, accrues interest at a penalty rate equal to the stated rate
plus 3.0%.
A $1,268 note payable to a utility is included in "Other long-term
liabilities with various rates and maturities". As a result of market rate
changes and fresh start reporting, the recorded value of this note has been
adjusted to reflect fair value as of the Effective Date.
During the period from July 1, 1997 to November 7, 1997, the Company wrote
off certain of its project development debt resulting in a gain of $8,568. This
debt was contingent upon the successful development (including the financing
thereof) of pumped storage projects which management believes will not be
successfully developed by the Company and the exercise of options on land and a
mine which was to be used as an underground reservoir for the projects.
NOTE 13 - MANDATORILY REDEEMABLE PREFERRED STOCK
Until the Effective Date, the Series H Preferred, issued for $70,299, was
recorded net of issuance costs of $3,083 and the value attributed to the
detached warrants of $5,916. The recorded value of the Series H Preferred at
November 7, 1997 and June 30, 1997 and 1996 was adjusted to reflect non-cash
dividends declared of $3,370, $14,911 and $13,057, respectively. In addition,
the recorded value was also adjusted by $179, $857 and $857, representing
accretion of the issuance costs and attached warrant value, in the period from
July 1 to November 7, 1997 and the fiscal years ended June 30, 1997 and 1996.
Through the implementation of the Plan of Reorganization as of the
Effective Date, the Series H Preferred and the other components of the Old
Preferred Stock were exchanged for the New Warrants (Note 1).
NOTE 14 - CAPITAL STOCK
CHANGE IN CAPITAL STRUCTURE
Through the implementation of the Plan of Reorganization as of the
Effective Date, CHI issued shares of New Class A Common Stock and New Class B
Common Stock and all shares of CHI's Old Common Stock were canceled.
NEW COMMON STOCK
Pursuant to the Plan of Reorganization, on the Effective Date, 20 million
shares of New Common Stock were authorized as follows: 9,085,290 shares of New
Class A Common Stock, 914,710 shares of New Class B Common Stock and 10,000,000
additional shares of New Common Stock which may be issued as either New Class A
Common Stock or New Class B Common Stock, as applicable. Of the 10,000,000
shares of New Common Stock which were authorized on the Effective Date but not
issued, 1,337,127 shares are reserved for issuance if, as and when the holders
of the New Warrants exercise such warrants and 810,811 shares of New Class A
Common Stock are reserved for issuance if, as and when the holders of the
Management Options exercise such options.
61
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 14 - CAPITAL STOCK (CONTINUED)
Pursuant to the Plan of Reorganization, on the Effective Date, 9,085,290
shares of New Class A Common Stock were issued and distributed to substantially
all of the holders of the Senior Discount Notes and 810,811 shares of New Class
A Common Stock were reserved to satisfy the obligation of CHI under the
Management Options (Note 15). Each share of New Class A Common Stock entitles
its holder to one vote. The holders of New Class A Common Stock have the right
to participate proportionately in dividends, if any, distributed by the Company.
Pursuant to the Plan of Reorganization, on the Effective Date, 914,710
shares of New Class B Common Stock were issued and distributed to a holder of
the Senior Discount Notes. Each share of New Class B Common Stock entitles its
holder to a one hundredth (1/100) of one vote. The holder of New Class B Common
Stock has the right to participate proportionately in dividends, if any,
distributed by the Company. The New Class B Common Stock was issued to a holder
of the Senior Discount Notes, at such holder's request, to provide to such
holder reduced voting rights in CHI. Pursuant to the Restated Certificate of
Incorporation of CHI, upon any transfer of shares of New Class B Common Stock,
the shares of New Class B Common Stock automatically convert into an equal
number of shares of New Class A Common Stock.
NEW SERIES B WARRANTS
The New Series B Warrants, which were issued to the holders of the Old
Preferred Stock on the Effective Date and expire on the sixth anniversary of the
Effective Date, entitle such holders to subscribe for the purchase of up to an
aggregate of 7.5% of the New Common Stock, subject to dilution due to the
issuance by the Company of shares of New Common Stock pursuant to the exercise
of the New Series C Warrants and the Management Options by the holders thereof.
The New Series B Warrants are exercisable for up to 1% of the New Common Stock
of CHI if, as and when the total capital (debt and equity) invested in
industrial infrastructure projects that either (i) close within 3 years from the
Effective Date or (ii) are subject to a legally binding and enforceable
agreement between CHI or any of its subsidiaries and a party sponsoring a
development or acquisition of such industrial infrastructure project within such
3 year period and thereafter close within the term of the warrants, equals or
exceeds $60 million. The additional New Series B Warrants exercisable for the
remaining 6.5% of the New Common Stock vest incrementally if, as and when the
total capital invested in industrial infrastructure projects increases from $60
million to $450 million within the parameters set forth above. The exercise
price per share of the New Common Stock subject to the New Series B Warrants
will be $10. The New Series B Warrants will have customary antidilution
provisions, and protections against extraordinary distributions.
NEW SERIES C WARRANTS
The New Series C Warrants, which were issued to the holders of the Old
Preferred Stock on the Effective Date and expire on the eighth anniversary
thereof, entitle such holders to subscribe for the purchase of up to an
aggregate of 5.0% of the New Common Stock, subject to dilution due to the
issuance by the Company of shares of New Common Stock pursuant to the exercise
of the New Series B Warrants and the Management Options by the holders thereof.
The exercise price per share of the New Common Stock subject to the New Series C
Warrants was determined by reference to the accreted value of the Senior
Discount Notes as of September 15, 1997 (the date CHI commenced its Chapter 11
case) which was approximately $183 million. The exercise price per share of the
New Common Stock subject to the New Series C Warrants is $18.36. The New Series
C Warrants will contain customary antidilution provisions, and protections
against certain extraordinary distributions.
62
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 14 - CAPITAL STOCK (CONTINUED)
REGISTRATION RIGHTS AGREEMENT
Each person or entity who received a distribution of New Common Stock, New
Warrants or New Common Stock issued upon the exercise of the New Warrants or the
Management Options pursuant to the Plan of Reorganization is entitled to become
a party to a registration rights agreement as of the Effective Date (the
"Registration Rights Agreement"). Under the Registration Rights Agreement,
holders of the New Common Stock and New Warrants (including shares of New Common
Stock issued upon the exercise thereof) are entitled to certain demand and
incidental (or "piggyback") registration rights, and holders of the Management
Options are entitled to certain incidental (or "piggyback") registration rights
with respect to shares of New Class A Common Stock issued upon the exercise
thereof. The Registration Rights Agreement contains customary suspension, "hold
back", indemnification/contribution and priority provisions.
NEW STOCKHOLDERS' AGREEMENT
Under the terms of the Plan of Reorganization, each holder (including each
original recipient and transferee of an original recipient or other transferee)
of the New Common Stock and of the New Common Stock issued upon exercise of the
New Warrants or the Management Options (collectively, the "New Securities") is
bound by a new stockholders' agreement as of the Effective Date (the "New
Stockholders' Agreement"). The New Stockholders' Agreement contains certain
provisions relating to the size and composition of the Board of Directors of
CHI. In addition, the New Stockholders' Agreement provides that each holder of
New Common Stock is entitled to participate on a pro-rata basis in any sale of
50% or more of the outstanding New Common Stock and that each holder of New
Securities (including, in certain circumstances, holders of New Warrants and
Management Options) may be required to sell its New Securities in any sale of 66
2/3% or more of the New Common Stock.
NEW PREFERRED STOCK
Under the terms of the Plan of Reorganization, 10,000,000 shares of
preferred stock with a par value of $0.01 per share (the "New Preferred Stock")
were authorized by CHI. There were no shares of New Preferred Stock issued and
outstanding on December 31, 1997.
SERIES F AND SERIES G PREFERRED STOCK
Through the implementation of the Plan of Reorganization as of the
Effective Date, the shares of Series F Preferred and Series G Preferred were
exchanged for the New Warrants, subject to dilution from Management Options
(Note 1).
In the fiscal year ended June 30, 1992, the Company issued 55,000 shares
of Series F Preferred, 55,000 shares of Series G Preferred and certain warrants,
which have since expired, for an aggregate purchase price of $110,000.
The allocated purchase price was $54,975 to the Series F Preferred,
$54,975 to the Series G Preferred and $50 to the warrants. The carrying value of
the stock was reduced by $11,242 representing costs associated with the
issuance, allocated evenly between the two series.
In February 1996, Ms. Carol H. Cunningham, the Company's then Executive
Vice-President and Chief Development Officer, exercised her option under an
existing agreement with the Company to have the Company issue 1,279 shares of
Series F Preferred and 1,279 shares of Series G Preferred in exchange for shares
of Summit stock (or vested options therefore) owned by Ms. Cunningham. The
Company recorded the issuance of such shares of Series F Preferred and Series G
Preferred with an effective date of February 28, 1996.
63
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 14 - CAPITAL STOCK (CONTINUED)
Dividends on the Series F Preferred and Series G Preferred were cumulative
(amounting to $53,540, $51,029 and $40,906 at November 7, 1997 and June 30, 1997
and 1996, respectively) and were payable annually in arrears upon declaration by
the Company's Board of Directors. The cumulative undeclared dividends in arrears
per share as of June 30, 1997 were $413.33 for the original 55,000 shares of
Series F Preferred and $107.11 for the 1,279 shares of Series F Preferred issued
subsequently, and $508.92 for the original 55,000 shares of Series G Preferred
and $131.88 for the 1,279 shares of Series G Preferred issued subsequently. The
cumulative undeclared dividends in arrears per share as of June 30, 1996 were
$333.33 and $410.42 for the Series F Preferred and Series G Preferred,
respectively.
SERIES H PREFERRED STOCK
Through the implementation of the Plan of Reorganization as of the
Effective Date, Series H Preferred was exchanged for the New Warrants, subject
to dilution from Management Options (Note 1).
In fiscal 1993, the Company issued 136,950 shares of Series H Preferred.
The Series H Preferred was senior to all classes of common stock and the Series
G Preferred and junior to the Series F Preferred.
The initial liquidation preference of the Series H Preferred was $513.32
per share at issuance on June 22, 1993 and $875.67 per share on June 30, 1997.
The liquidation preference was increased as a form of payment for declared
dividends required quarterly in arrears, computed based on the then current
liquidation preference, until increasing the liquidation preference to $1,000
per share on June 30, 1998, after such time the dividends were to become payable
in cash from legally available funds, when, and if declared by the Board of
Directors.
NOTE 15 - MANAGEMENT OPTIONS, DIRECTOR COMPENSATION AND 401(K) PLAN
MANAGEMENT OPTIONS
As of the Effective Date, the Company granted 810,811 Management Options
to acquire New Class A Common Stock at an exercise price of $10 per share
pursuant to the Management Option Plan to certain CHI employees. The Management
Options entitle such holders to purchase up to an aggregate of 7.5% of the New
Class A Common Stock, subject to dilution due to the issuance by CHI, of shares
of New Common Stock pursuant to the exercise of the New Series B Warrants and
the New Series C Warrants by the holders thereof. With the exception of 20,000
fully vested and exercisable options granted to Charles F. Goff, Jr. on the
Effective Date, the Management Options will vest and become exercisable as
follows:
Effective Date 33 1/3% of the Management Options
December 31, 1998 22 2/9% of the Management Options
December 31, 1999 22 2/9% of the Management Options
December 31, 2000 22 2/9% of the Management Options
The Management Options will also become vested and exercisable upon a
change in control of CHI. The Management Options granted as of the Effective
Date will terminate on the seventh (7th) anniversary of the Effective Date
unless terminated at an earlier date following termination of an optionee's
employment. No employee of CHI will be eligible under the Management Option Plan
to be granted Management Options to purchase more than 350,000 shares of New
Class A Common Stock.
64
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 15 - MANAGEMENT OPTIONS, DIRECTOR COMPENSATION AND 401(K) PLAN (CONTINUED)
A summary of the activity in the Company's stock options for the period
from the Effective Date to December 31, 1997 is presented below:
Number of Shares Exercise Price
----------------- --------------
Options granted on the Effective Date 810,811 $ 10.00
Options exercised -- --
Options canceled -- --
----------- ----------
Outstanding at December 31, 1997 810,811 $ 10.00
=========== ===========
Exercisable at December 31, 1997 283,604 $ 10.00
=========== ===========
Weighted average remaining
Contractual life (years) 7
===========
The Company applies the principles of Accounting Principles Board Opinion
25 in accounting for employee stock option plans. Compensation cost as
determined on the basis of SFAS No. 123 "Accounting for Stock-Based
Compensation," ("SFAS 123") would have been recorded based on the estimated fair
value of stock options granted on the Effective Date. The total fair value of
these options was $2,201 based upon the Black-Scholes option pricing model. The
following assumptions were used in the Black-Scholes option pricing model (i)
risk-free interest rate of approximately 6.2%, (ii) expected life of seven
years, (iii) 30% volatility, and (iv) no expected dividends. Had compensation
cost been determined based on the estimated fair value at the grant date
consistent with the method of SFAS 123, the Company's net income and net income
per share would have decreased by approximately $105 and $.01, respectively, for
the period from November 8, 1997 to December 31, 1997.
DIRECTOR COMPENSATION
Charles F. Goff, Jr., a non-employee Director of the Company, will be paid
an annual retainer of $40 for his services as a director, plus $2 for attendance
at each meeting of the Board of Directors as well as each committee meeting
which he attends. In addition, on the Effective Date, he received a grant of
stock options to purchase 20,000 shares of the New Class A Common Stock at an
exercise price of $10 per share. These options are part of the Management
Options, however, they were fully vested and exercisable as of the Effective
Date.
401(k) PLAN
The Company provides a defined contribution 401(k) plan which covers
substantially all of its domestic employees subject to certain prequalification
requirements. Costs of the plan were charged to operations as compensation
expense in the period from November 8, 1997 to December 31, 1997, the period
from July 1, 1997 to November 7, 1997 and the years ended June 30, 1997, 1996
and 1995.
65
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 16 - TAXES
The (provision)/benefit for income and franchise taxes consists of the
following:
Reorganized
Company Predecessor Company
------------------ -----------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Nov. 8 - July 1 - Ended Ended Ended
Dec. 31, 1997 Nov. 7, 1997 June 30, 1997 June 30, 1996 June 30, 1995
----------------- --------------- --------------- -------------- -------------
Federal income taxes $ (100) $ -- $ (408) $ (283) $ (220)
State income and franchise taxes (105) (144) (505) (287) (157)
Deferred tax (provision)/benefits (571) 213 (2,382) 7,951 --
------------- ------------ ----------- ----------- ---------
$ (776) $ 69 $ (3,295) $ 7,381 $ (377)
============= ============ =========== =========== =========
The (provision)/benefit for income and franchise taxes differs from an
amount computed by applying the statutory income tax rate to pre-tax income, as
follows:
Reorganized
Company Predecessor Company
---------------- ------------------------------------------------------------------------
Fiscal Year Fiscal Year Fiscal Year
Nov. 8- July 1- Ended Ended Ended
Dec. 31, 1997 Nov. 7, 1997 June 30, 1997 June 30, 1996 June 30, 1995
---------------- ------------------------------------------------------------------------
Tax (provision)/benefit at US
statutory rate $ (518) $ (27,265) $ 731 $ 32,542 $ 5,405
State income tax expense (80) (99) (352) (156) (57)
State franchise and net worth
tax expense (45) (153) (131) (100)
(25)
Losses without current tax benefit -- (383) (3,113) (24,591) (5,405)
Alternative minimum tax (100) -- (408) (283) (220)
Reorganization value in excess of
amounts allocable to
identifiable assets (53) -- -- --
--
Restructuring charges -- (1,392) -- -- --
Debt extinguishment -- 30,552 -- -- --
Corporate recapitalization -- 1,700 -- -- --
Project debt adjustment -- (2,999) -- -- --
------------- ------------ ------------- ------------ ------------
$ (776) $ 69 $ (3,295) $ 7,381 $ (377)
============= ============ ============ ============ ===========
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and June 30, 1997 and 1996 are as follows:
Reorganized Company Predecessor Company
------------------- -----------------------------
December 31, 1997 June 30, 1997 June 30, 1996
------------------- -------------- -------------
Deferred tax assets:
Net operating loss $19,604 $21,925 $22,865
Tax credits 5,652 4,237 5,851
Lease payment obligations 7,393 9,504 10,480
Original issue discount -- 22,235 15,598
Pumped storage development costs 6,750 8,624 15,785
Valuation reserve (35,227) (50,056) (49,266)
----------- ----------- -----------
Total deferred tax assets, net 4,172 16,469 21,313
----------- ----------- -----------
66
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 16 - TAXES (CONTINUED)
Deferred tax liabilities:
Depreciation and Amortization $37,161 $47,662 $49,960
---------- --------- ---------
Total deferred tax liabilities 37,161 47,662 49,960
---------- --------- ---------
Net deferred tax liability $32,989 $31,193 $28,647
========== ========= =========
The deferred tax benefit of approximately $8.0 million for the fiscal year
ended June 30, 1996 relates to the write-down of certain long-lived assets in
accordance with SFAS 121 (Note 7). The effective tax rate of the deferred
benefit recognized from the write-down differs from the federal statutory rate
due to the reduction of deferred tax liabilities offset by an increase in the
valuation allowance attributable to net operating loss ("NOL") carryforwards.
The valuation allowance decreased by $14,829 primarily due to a decrease
in the gross deferred tax assets relating to original issue discount and NOL
carryforwards, the future benefits of which were not more likely than not to be
realized, offset by reductions in taxable temporary differences resulting from
the Company's revaluation of its assets.
At December 31, 1997 and June 30, 1997, 1996 and 1995, the Company had tax
NOLs of approximately $56,013, $64,485, $67,300 and $72,900 respectively,
expiring through 2012. Of the amounts at December 31, 1997, the Company has
available acquired federal income tax net operating loss ("Acquisition NOL")
carryforwards in the amount of approximately $6,300 representing unused losses
accumulated by certain entities prior to their acquisition by the Company. These
NOLs, which expire in varying amounts beginning with 2000, are restricted in
terms of utilization.
At December 31, 1997, the Company has approximately $2,031 of investment,
energy and Alternative Minimum Tax ("AMT") credits available to reduce future
income taxes for federal income tax reporting purposes expiring during 2000
through 2002. Additionally, the Company has available investment, energy and AMT
credits in the amount of approximately $2,899, representing unused credits
accumulated by certain entities prior to their acquisition by the Company. These
credits, which are restricted in terms of utilization, will begin to expire in
1998.
On September 15, 1997, CHI commenced a case under chapter 11 of the
Bankruptcy Code and simultaneously filed the Plan of Reorganization. The Plan of
Reorganization was confirmed by the Bankruptcy Court and the Company's NOL
carryforwards for federal income tax purposes were reduced by approximately
$16,000, due to the discharge of indebtedness under the Plan of Reorganization
as described in Note 1. Under the internal revenue code, certain substantial
changes in the Company's ownership could result in an annual limitation on the
amount of the NOL and tax credit carryforwards which can be utilized in future
years.
67
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 17 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS
The Company has several non-cancelable operating leases expiring through
2080. The majority of these leases require annual lease payments based upon a
percentage of gross or net revenues, as defined in the respective lease
agreements, and provide for minimum annual payments to the lessor.
Minimum rental commitments under non-cancelable operating leases for
the five years following December 31, 1997 are approximately $4,900 per year and
approximately $26,000 thereafter.
LEGAL PROCEEDINGS
On August 20, 1997, a former employee of the Company filed a civil-action
against the Company in Connecticut Superior Court, District of New Haven
entitled Carol H. Cunningham v. Consolidated Hydro, Inc. alleging that the
Company breached its employment agreement with her. On or about October 13,
1997, the former employee filed a proof of claim in the Bankruptcy Court for
approximately $7.3 million plus unliquidated amounts based primarily on the
allegations in the civil-action (the "Claim"). On November 25, 1997, the Company
filed an objection to the Claim on the grounds that, among other things, the
former employee failed to satisfy her obligations under her employment contract
with the Company. The Company is vigorously defending the Claim and Management
believes that the Company's liability with respect to the Claim, if any, will
not have a material adverse effect on the Company's financial position or
results of operations.
PUMPED STORAGE DEVELOPMENT
Management believes that its pumped storage projects will not be
successfully developed by the Company. However, the Company maintains certain
debt obligations related to project commitments entered into during pumped
storage development.
INDEMNIFICATIONS
In connection with the financing of certain projects, it has been assumed
that certain tax benefits will be available. In the event that all or part of
certain tax benefits are subsequently determined to be unavailable, the related
project subsidiary and, in limited circumstances, the Company and/or
intermediate subsidiary thereof have agreed to indemnify for such lost tax
benefits. As of December 31, 1997, no claims have been made. It is management's
opinion that future material claims are unlikely.
NOTE 18 - INSURANCE CLAIM
In August 1995, the Company filed a property damage claim as a result of a
tropical storm. The claim, covered under the Company's umbrella property and
business interruption insurance policy, involves five projects located in South
Carolina, including Apalache, Lower Pelzer, Piedmont, Upper Pelzer and Ware
Shoals. The total claim as of December 31, 1997 was $3,691, of which
approximately $zero, $419 and $767 were related to business interruption and
$229, $1,607 and $669 were related to recoverable property damages at December
31, 1997 and June 30, 1997 and 1996, respectively. The Company has received two
partial payments of the claim, totaling $2,127 and of the total payment
received, $79 and $767 related to business interruption revenue earned and
$1,115 and $166 (net of the $100 self-insurance deductible) related to
recoverable property damages incurred in the fiscal years ended June 30, 1997
and 1996, respectively. As of December 31, 1997, the Company has recorded a
receivable of $1,564, of which $340 relates to business interruption revenue
earned and $1,224 relates to recoverable property damages incurred for the Lower
Pelzer project.
68
CHI ENERGY, INC.
NOTES TO CONSOIIDATED FINANCIAL STATEMENTS
(amounts in thousands except shares and per share amounts or as otherwise noted)
NOTE 19 - RELATED PARTY TRANSACTIONS
During fiscal year 1995, the Company engaged Morgan Stanley & Co.
Incorporated ("Morgan Stanley") to provide the Company with financial advice and
assistance. Prior to the Effective Date, Morgan Stanley held 45,000 shares of
the Series F Preferred and 45,000 shares of the Series G Preferred for its own
account. As of the Effective Date, Morgan Stanley is no longer a related party.
GECC is a former minority stockholder of and is currently a significant
lender and provider of partnership equity to the Company and/or its projects,
through project financing, including the HDG transaction. Transactions indicated
on the face of the financial statements as related party transactions include
those with GECC. As of the Effective Date, GECC is no longer a related party.
Michael B. Peisner and Stephen E. Champagne, assistant secretaries of the
Company and certain of its subsidiaries, are partners in the law firm of Curtis
Thaxter Stevens Broder & Micoleau ("Curtis Thaxter") which provides certain
legal services to the Company. Subsequent to the Effective Date, the Company has
no other related party transactions.
69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ----- AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------
The names of the executive officers ("Executive Officers") and the directors
("Directors") of CHI, their ages as of December 31, 1997, and positions with CHI
are as follows:
NAME AGE POSITION
- ---- --- --------
James T. Stewart 49 Chairman and Chief Executive Officer
Edward M. Stern 38 President, Chief Operating Officer, Secretary and Director
Michael I. Storch 45 Executive Vice President -- Strategy and Development
Mary V. Gilbert 36 Senior Vice President and Chief Financial Officer
Pascal J. Brun 48 Senior Vice President
Daniel S. Pease 43 Senior Vice President -- Operations
Rickey J. Cashatt 45 Senior Vice President
Frank T. Giacalone 46 Senior Vice President -- Development
J. Christopher Hocker 46 Vice President -- Corporate Affairs
Neil A. Manna 34 Vice President -- Finance, Controller and Treasurer
Michael J. Petrick 36 Director
James J. Duplessie 38 Director
Charles F. Goff, Jr. 56 Director
- ---------------
70
The Executive Officers of the Company are elected by the Board of
Directors and serve at their discretion with no fixed term of office, except for
Ms. Mary V. Gilbert, Mr. James T. Stewart, Mr. Michael I. Storch, and Mr. Edward
M. Stern who serve under certain employment contracts, the terms of which are
discussed in Item 11.
James T. Stewart, Chairman and Chief Executive Officer -- Mr. Stewart
joined CHI in November 1995 as President and Chief Executive Officer of CHI
Power, Inc., a newly-formed CHI subsidiary. He was elected Chairman and Chief
Executive Officer of the Company effective July 1, 1996. Prior to joining CHI,
Mr. Stewart had more than 25 years of experience in the energy industry. He
joined the engineering and construction firm of CRS Sirrine in 1985 as senior
Vice President, responsible for creating its power division. In 1988 he became
President and Chief Executive Officer of CRSS Capital, its independent power
subsidiary, and was responsible for developing more than $800 million in energy
assets at seven sites, with more than 1,300 equivalent megawatts. He became
President of CRSS, Inc., the parent company, in 1994. Mr. Stewart holds a
Bachelors degree in chemical engineering from Penn State University, a Masters
degree in chemical engineering from the University of Pittsburgh, and is a
registered Professional Engineer.
Edward M. Stern, President, Chief Operating Officer, Secretary and
Director-- Mr. Stern was elected President and COO of the Company in September
1996 and a Director in November 1997. He previously served as Executive Vice
President, Secretary and General Counsel of CHI with primary responsibility for
the company's legal, human resources, communications, financial, acquisitions,
risk management and environmental and regulatory compliance functions. Prior to
joining CHI in April 1991, Mr. Stern was a Vice President with BayBank, Inc., a
northeastern financial services organization, where for six years he specialized
in energy project finance, foreclosures, debt restructurings and asset
management. He received JD and MBA degrees from Boston University. Mr.
Stern is a member of the Massachusetts Bar and the Federal Energy Bar.
Michael I. Storch, Executive Vice President -- Strategy and Development --
Mr. Storch began his employment with CHI in June 1987. He is responsible for
strategic planning relative to the future development and growth of the Company.
Previously, he was responsible for operations of hydroelectric facilities owned
by CHI and its affiliates, and for financial matters related to the Company,
including its existing operations, acquisitions, and development. Before joining
CHI he served as Vice President -- Corporate Development for G.O. Holdings
Management, Inc., a management company controlled by Anglo-French financier Sir
James Goldsmith. For the preceding ten years, he was employed by the accounting
firm of Price Waterhouse in various capacities, last serving as Senior Audit
Manager. Mr. Storch holds a Bachelor of Business Administration degree from
Baruch College. He is a member of the American Institute of Certified Public
Accountants and the New York State Society of Certified Public Accountants.
Mary V. Gilbert, Senior Vice President and Chief Financial Officer -- Ms.
Gilbert joined CHI in July 1996 as Senior Vice President of Finance for CHI
Power, Inc. She was named to her current position in January 1997 and is
presently responsible for the Company's accounting, tax, financial reporting,
treasury, human resource and information systems functions. Prior to joining
CHI, she served in several capacities with CRSS, Inc., most recently as Vice
President, Controller of the parent company. Previously she had served as Chief
Financial Officer of CRSS Capital, its independent power subsidiary. Prior to
joining CRSS, Ms. Gilbert was employed by Ernst and Young for six years, last
holding the position of audit manager. Ms. Gilbert received a Bachelor of
Science degree in accounting from the University of Colorado at Boulder. She is
a Certified Public Accountant and is a member of the American Institute of
Certified Public Accountants and the Texas Society of Certified Public
Accountants.
Pascal J. Brun, Senior Vice President of CHI; President, CHI Canada Inc.
- -- Mr. Brun joined CHI in June 1988. He is currently responsible for
acquisition, development and operation of hydroelectric facilities in Canada.
Previously, he served as CHI's Vice President for Corporate Development,
responsible for acquisition of operating projects in the United States and
Canada. Prior to joining CHI, he was a Vice President for the SNC Group, Ltd., a
large Canadian engineering and construction company, and a Project Manager for
T. Pringer & Sons, Engineers. He holds Bachelors and Masters degrees in Applied
Sciences from Laval University and an MBA degree from the University of
Montreal.
71
Daniel S. Pease, Senior Vice President -- Operations -- Mr. Pease joined
CHI as a Construction Manager in 1986, and was made Vice President of
Construction in 1988 before advancing to his current position in 1992. In his
previous capacity, he was responsible for planning and managing construction
related to Company-owned facilities, and for advising on engineering and
construction aspects of development and acquisition opportunities. Currently, he
is responsible for management of all of the Company's operating hydroelectric
facilities, as well as for engineering and construction activities of the
Company. Prior to joining CHI, he was a construction supervisor for Walsh
Construction Company of Connecticut, serving on several major hydroelectric and
nuclear construction projects. He holds a BS degree from the University of
Connecticut.
Rickey J. Cashatt, Senior Vice President -- Mr. Cashatt joined CHI in
January 1996. He is currently responsible for the construction and operation of
industrial energy facilities of the Company, as well as providing development
support. Before joining CHI Power, Mr. Cashatt was a senior project manager for
Destec Engineering, Inc., responsible for directing the development and
construction of simple cycle and combined cycle plants in the United States and
internationally. Mr. Cashatt also served as a project manager with similar
responsibilities for CRS Sirrine Engineers, Inc. prior to his employment at
Destec Engineering, Inc. He began his career with International Paper Company,
responsible for hydroelectric and combustion power plant installation and
upgrades. Mr. Cashatt holds a degree in electrical engineering from North
Carolina State and is a registered professional engineer.
Frank T. Giacalone, Senior Vice President -- Development -- Mr. Giacalone
began his employment with CHI in November 1995. He is responsible for the
marketing and business development functions of the Company that include
domestic and international opportunities of both hydroelectric and industrial
energy projects. Prior to joining CHI, Mr. Giacalone most recently served as a
senior business developer for CRSS, Inc. where he was responsible for the
development and negotiation of energy and industrial transactions. Prior to
that, he held numerous senior development positions with other energy companies,
beginning his career with General Electric Company. Mr. Giacalone holds a degree
in mechanical engineering from Widener University and is a registered
professional engineer.
J. Christopher Hocker, Vice President -- Corporate Affairs -- Mr. Hocker
joined CHI in November 1990 as Director of Communications. Currently, he
coordinates CHI's business development efforts and also is responsible for
internal and external communications relating to the Company and its major
projects in development and for public affairs related to the Company's
involvement in national industry associations. He is currently a Director of the
National Hydropower Association. Prior to joining CHI, he was an independent
consultant specializing in communications related to the energy and
environmental industries. His previous experience also includes serving as
Marketing Manager for Morrison-Knudsen Engineers, Inc., specifically related to
hydroelectric, environmental and transportation projects. Mr. Hocker received a
BA degree from Stanford University in 1973.
Neil A. Manna, Vice President --Finance, Controller and Treasurer -- Mr.
Manna joined CHI in 1990 as Assistant Controller. He is currently responsible
for day to day financial control of the Company, including accounting, treasury
and tax, as well as the Company's budgeting and risk management functions. Prior
to joining CHI, he served as Controller for the sales promotion division of
Marketing Corporation of America, and also served as an audit senior for the
accounting firm of Price Waterhouse. Mr. Manna received a Bachelors degree in
accounting from the University of Connecticut in 1985 and an MBA degree with a
concentration in finance from Fairfield University in 1996. He is a Certified
Public Accountant and a member of the American Institute of Certified Public
Accountants.
72
Michael J. Petrick, Director -- Mr. Petrick is currently a Managing
Director in the fixed income division of Morgan Stanley & Co. Incorporated, and
has been with Morgan Stanley since 1989. Prior to joining Morgan Stanley, Mr.
Petrick was a Vice President and Portfolio Manager for First Interstate Bancorp
in Los Angeles. Mr. Petrick received a BA in Economics and Chemistry from
Grinnell College in 1984 and an MBA degree from the University of Chicago in
1987.
James J. Duplessie, Director -- Mr. Duplessie is currently an
Executive Director of Swiss Bank Corporation. He has been with Swiss Bank
Corporation since January 1995. Previously, Mr. Duplessie was an Executive
Director of O'Connor & Associates. He received a B.A. in Economics from
Washington and Lee University in 1981, an MBA from Tulane University in 1984 and
a JD from Wake Forest University in 1987.
Charles F. Goff, Jr., Director -- Mr. Goff is the retired Chairman and
Chief Executive Officer of Destec Energy, Inc., a major worldwide independent
power developer, producer and marketer that owns power generation and
gasification facilities which produce, sell and market electricity, steam and
synthetic fuel gas. Prior to its sale in 1997, Destec had interests in 24
operating projects with a total rated equivalent capacity of approximately 5,136
megawatts and over three million pounds per hour of steam. In addition, Mr. Goff
has served as a member of Boards of Directors of APD Partnership (a joint
venture between The Dow Chemical Company and Apache Corporation), Magma Power
Company, Dow Pipeline Company and Boride Products, Inc. Prior to forming Destec,
Mr. Goff served 25 years with Dow in various energy and business management
executive positions. Mr. Goff graduated from the University of Texas, where he
earned a bachelor's degree in business administration.
There are no family relationships among the Directors and officers.
The Board of Directors has established an Executive Compensation
Committee comprised of Messrs. Goff, Petrick and Duplessie and an Audit
Committee comprised of Messrs. Goff, Petrick and Duplessie.
73
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth information concerning
compensation of the named Executive Officers for services rendered during the
twelve months ended December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
--------------------------
Long-Term
Compensation
Annual Other Annual All Other
Name and Compensation ($) Compensation Stock Option Compensation
Principal Position Year Salary Bonus ($) Grants (#) ($)(5)
- ------------------ ----- ------------------- ------------ --------------- ---------------
James T. Stewart(1)........................ 1997 311,538 325,000 4,800 250,000 1,772
Chairman and Chief Executive Officer 1996 238,380 58,750 -- -- --
1995 54,827(2) -- -- -- 50,000(2)
Edward M. Stern(3)......................... 1997 247,991 149,700 4,800 115,000 285
President, Chief Operating Officer, 1996 210,331 75,000 6,150 -- 120
Secretary and Director 1995 171,692 -- 8,900(4) -- 20,221(4)
Michael I. Storch.......................... 1997 259,512 39,990 4,800 55,000 --
Executive Vice President 1996 238,000 45,000 5,525 -- 8,000
1995 211,862 -- 12,150(4) -- 17,500(4)
Mary V. Gilbert(6)......................... 1997 153,077 62,500 982 55,000 276
Senior Vice President and 1996 46,274(7) 27,500 -- -- --
Chief Financial Officer 1995 -- -- -- -- --
Pascal J. Brun............................. 1997 130,809 52,000 5,283 45,000 437
Senior Vice President 1996 123,723 17,822 3,578 -- 221
1995 112,753 -- 2,464 -- 401
- --------------------------
(1) Mr. Stewart was elected Chief Executive Officer and a Director of the
Company as of July 1, 1996.
(2) Annual Compensation represents salary from November 1, 1995, the
commencement of Mr. Stewart's employment with the Company. Further, All
Other Compensation represents a sign-on bonus paid to Mr. Stewart upon
joining the Company.
(3) Mr. Stern was elected President and Chief Operating Officer of the Company
in September 1996 and a Director of the Company in November 1997.
(4) Through December 31, 1995, the value of all perquisites, except for 401(k)
matching contributions and life insurance premium payments covered under
the senior management benefits policy, were either excluded by definition
from this table, or included in Other Annual Compensation or All Other
Compensation. As of January 1, 1996, the Company has added the value of
these perquisites into each executive's base salary.
(5) Comprised of life insurance premiums paid by the Company on behalf of each
Executive Officer, unless otherwise noted.
(6) Ms. Gilbert was elected Senior Vice President and Chief Financial Officer
of the Company in January 1997.
(7) Compensation represents salary from July 15, 1996, the commencement of Ms.
Gilbert's employment with the Company.
74
The following table contains information about stock options granted in
1997 to the named Executive Officers pursuant to the Company's Management Option
Plan.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term(1)
- ------------------------------------------------------------------------------------------------- --------------------------------
Number of
Securities % of Total Exercise
Underlying Options Granted or Base
Options to Employees in Price Expiration
Name Granted (#)(2) Fiscal Year ($/Sh)(3) Date(4) 5% ($) 10% ($)
---- -------------- ----------- --------- ------- ------------ ----------------
James T. Stewart..................... 250,000 30.83% $10.00 11/7/05 $ 492,500 $ 1,645,000
Edward M. Stern(5).................. 115,000 14.18% $10.00 11/7/05 $ 226,550 $ 756,700
Michael I. Storch.................... 55,000 6.78% $10.00 11/7/05 $ 108,350 $ 361,900
Mary V. Gilbert...................... 55,000 6.78% $10.00 11/7/05 $ 108,350 $ 361,900
Pascal J. Brun....................... 45,000 5.55% $10.00 11/7/05 $ 88,650 $ 296,100
- --------------------------
(1) The potential realizable value shown for the Executive Officers is net of
the option exercise price. The dollar gains under these columns result
from calculations, as prescribed by the Securities and Exchange
Commission, assuming 5% and 10% growth rates in stock price and are not
intended to forecast future price appreciation of CHI Energy, Inc. common
stock.
(2) All options shown were granted on November 7, 1997 pursuant to the
Management Option Plan. For a more detailed description of the plan,
see "--1997 Stock Option Plan and Management Option Agreements".
(3) The exercise price (the price that the optionee, or the person or persons
having the right to exercise the option, must pay to purchase each share
of common stock that is subject to option) is greater than the fair market
value of the stock on the date of grant of the option.
(4) One-third of options granted are exercisable on the date of grant. An
additional 22 2/9% of the options will vest and become exercisable on each
of 12/31/98, 12/31/99 and 12/31/00. All options will terminate on the
seventh anniversary of the date of grant, unless terminated at an earlier
date following termination of an optionee's employment.
(5) The options granted to Mr. Stern are owned by a trust for the benefit
of Mr. Stern's family (for which Mr. Stern does not act as trustee) and
as such, Mr. Stern disclaims beneficial ownership of these options.
75
The following table sets forth information with respect to the named
Executive Officers concerning the exercise of options during the fiscal year
ended December 31, 1997 of the Company and unexercised options held as of
December 31, 1997.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------
AND FY-END OPTION VALUES(1)
--------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)(2)
------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ------------ -------------
James T. Stewart............ 83,333 166,667 -- --
Edward M. Stern............ 38,333 76,667 -- --
Michael I. Storch........... 18,333 36,667 -- --
Mary V. Gilbert............. 18,333 36,667 -- --
Pascal J. Brun.............. 15,000 30,000 -- --
- --------------------------
(1) No options were exercised by any of the named Executive Officers in
the fiscal year ended December 31, 1997.
(2) Calculated using the difference between the fair market value of the
securities underlying the options and the exercise price of the options.
Based on information available to the Company, the fair market value of
the options did not exceed the exercise price of the options at December
31, 1997.
Employment Contracts. On the Effective Date, CHI entered into
substantially similar employment agreements with James T. Stewart, Edward M.
Stern, Michael I. Storch and Mary V. Gilbert. The agreements provide that each
of the aforementioned officers serve in the position set forth opposite such
officer's name listed on the table entitled "Summary Compensation Table" above.
The employment agreements of each of Messrs. Stewart and Stern provide for an
initial three year term, and those of each of Mr. Storch and Ms. Gilbert provide
for an initial two year term. The term of each employment agreement is subject
to automatic extension for successive 12 month periods (unless CHI notifies the
executive officer of its intent not to renew the employment agreement prior to
January 1 in any year, commencing with January 1, 2000 in the case of Messrs.
Stewart and Stern and January 1, 1999 in the case of Mr. Storch and Ms.
Gilbert).
Calendar year 1998 base compensation for each of the foregoing is as
follows: (1) James T. Stewart - $325,000; (2) Edward M. Stern - $250,000; (3)
Michael I. Storch - $250,000; and (4) Mary V. Gilbert - $180,000. In addition to
base compensation, the executive officers of CHI are eligible (i) to receive an
annual bonus equal up to 150% of their respective base salaries, in the case of
Messrs. Stewart and Stern, and up to 100% of their respective base salaries, in
the case of Mr. Storch and Ms. Gilbert, (ii) to participate in benefits plans,
(iii) to receive Management Options, and (iv) to receive disability and death
benefits. For a discussion of the Management Options, see "1997 Stock Option
Plan and Management Option Agreement" below.
76
Pursuant to the employment contracts, if an executive officer's employment
is terminated by CHI or the executive officer resigns during the term of the
employment agreement (other than in certain specified circumstances), such
executive will receive, among other benefits, monthly severance payments equal
to such officer's base compensation (excluding bonuses) for a period equal to
the shorter of (i) 24 months from the date of termination in the case of Messrs.
Stewart and Stern, and 18 months from the date of termination in the case of Mr.
Storch and Ms. Gilbert or (ii) nine months following the date on which the term
of the employment agreement expires in the case of Messrs. Stewart and Stern and
six months following the date on which the term of the employment agreement
expires in the case of Mr. Storch and Ms. Gilbert.
Director Compensation. Charles F. Goff, Jr., a non-employee director of
the company, will be paid an annual retainer of $40,000 for his services as a
director, plus $2,000 for attendance at each meeting of the Board of Directors
as well as each committee meeting which he attends. In addition, on the
Effective Date, he received a grant of stock options to purchase 20,000 shares
of the New Class A Common Stock at an exercise price of $10 per share. These
options became fully vested and exercisable on the Effective Date.
Senior Management Benefits Policy. In 1992, CHI's Board of Directors
adopted a Senior Management Benefits Policy covering certain of the Company's
executive officers listed herein in Part III, Item 10, "Directors and Officers
of the Registrant" (the "Participants") which offers severance, supplemental
life insurance and supplemental disability insurance benefits subject to
entering into a non-competition agreement. In 1996, the Company expanded the
eligibility under the policy to include officers of certain of its subsidiaries.
Each Participant is entitled to, under certain circumstances, between 12 and 26
weeks of severance pay. In addition, each Participant shall be provided with
$150,000 of supplemental term life insurance, or such other amount or type of
insurance as determined by the Board of Directors, and supplemental disability
benefits of up to one year subject to a maximum aggregate benefit of $200,000.
To the extent that benefits under the Senior Management Benefits Policy
duplicate benefits which a Participant is entitled to receive under any other
arrangement with the Company, such benefits will not be additive.
1997 Stock Option Plan and Management Option Agreements. Pursuant to the
Plan of Reorganization, as of the Effective Date, Management Options to acquire
New Class A Common Stock at an exercise price of $10 per share of New Class A
Common Stock were granted pursuant to the Management Option Plan to certain CHI
employees (including each of the executive officers mentioned above). The
Management Options entitle such holders to purchase up to an aggregate of 7.5%
of the New Class A Common Stock, subject to dilution due to the issuance by CHI
of shares of New Common Stock pursuant to the exercise of the New Warrants. With
the exception of 20,000 fully vested and exercisable options granted to Charles
F. Goff, Jr. on the Effective date, the Management Options will vest and become
exercisable as follows:
Effective Date - 33 1/3% of the Management Options
December 31, 1998 - 22 2/9% of the Management Options
December 31, 1999 - 22 2/9% of the Management Options
December 31, 2000 - 22 2/9% of the Management Options
The Management Options will also become vested and exercisable upon a
change in control of CHI. The Management Options granted as of the Effective
Date will terminate on the seventh anniversary of the Effective Date unless
terminated at an earlier date following termination of an optionee's employment.
No employee of CHI will be eligible under the 1997 Stock Option Plan and
Management Option Agreements to be granted Management Options to purchase more
than 350,000 shares of New Class A Common Stock.
77
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------
The following table sets forth certain information regarding the
beneficial ownership of the Company's New Class A Common Stock and New Class B
Common Stock as of March 16, 1998 by (i) each stockholder, who, to the best of
the Company's knowledge, owns beneficially more than 5% of either the
outstanding shares of New Class A Common Stock or New Class B Common Stock, (ii)
each of the Company's Directors , (iii) each of the Executive Officers whose
names appear in the "Summary Compensation Table" and (iv) all Directors and
Executive Officers as a group. Except as otherwise indicated, each named person
has voting and investment power over the listed shares, and such voting and
investment power is exercised solely by the named person or shared with a
spouse.
New Class A New Class B Voting
Common Stock Common Stock Power
------------------------ ------------------- ----------
Directors, Executive Officer
and 5% Stockholders Number %(1) Number %(1) %
------------------------------------- ------ ---- ------ ---- --
Morgan Stanley & Co., Incorporated 3,610,630 39.74% -- -- 39.70%
Swiss Bank Corporation and Affiliates 3,137,206 34.53% -- -- 34.50%
Merrill Lynch Asset Management 454,883 5.01% 914,710 100% 5.10%
Gem Capital 494,437 5.44% -- -- 5.44%
Charles F. Goff, Jr.(2) 20,000 0.22% -- -- 0.22%
James T. Stewart(2) 83,333 0.91% -- -- 0.91%
Edward M. Stern(2)(3) 38,333 0.42% -- -- 0.42%
Michael I. Storch(2) 18,333 0.20% -- -- 0.20%
Mary V. Gilbert(2) 18,333 0.20% -- -- 0.20%
Pascal J. Brun(2) 15,000 0.16% -- -- 0.16%
All Directors and Executive Officers
as a group(2) 250,000 2.68% -- -- 2.68%
- ---------------
(1) Ownership percentages are calculated in accordance with SEC Rule 13d -
3(d)(1) and, therefore, exclude the dilutive effects of outstanding
warrants and stock options. Consequently, these percentages do not
represent ownership on a fully diluted basis as disclosed in Part I,
Item 1, "Business".
(2) All shares are represented by vested, exercisable stock options.
(3) The options granted to Mr. Stern are owned by a trust for the benefit
of Mr. Stern's family (for which Mr. Stern does not act as trustee)
and as such, Mr. Stern disclaims beneficial ownership of these options.
78
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------
During fiscal year 1995, the Company engaged Morgan Stanley & Co.
Incorporated ("Morgan Stanley") to provide the Company with financial advice and
assistance. Prior to the Effective Date, Morgan Stanley held 45,000 shares of
the Series F Preferred and 45,000 shares of Series G Preferred stock for its own
account. As of the Effective Date, Morgan Stanley is no longer a related party.
GECC is a former minority stockholder of and is currently a significant
lender and provider of partnership equity to the Company and/or its projects,
through project financing, including the HDG transaction. As of the Effective
Date, GECC is no longer a related party.
Michael B. Peisner and Stephen E. Champagne, assistant secretaries of the
Company and certain of its subsidiaries, are partners in the law firm of Curtis
Thaxter Stevens Broder & Micoleau ("Curtis Thaxter") which provides certain
legal services to the Company. Subsequent to the Effective Date, the Company has
no other related party transactions.
79
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K PAGE
- ------- ----
(a) 1. Financial Statements
Report of Independent Accountants 37
Consolidated Statements of Operations for the period
from November 8, 1997 to December 31, 1997,
the period from Juy 1, 1997 to November 7, 1997, and the
three fiscal years ended June 30, 1997, 1996 and 1995 39
Consolidated Balance Sheet at December 31, 1997 and June 30, 1997 and 1996 40
Consolidated Statement of Stockholders' Equity for the for the period
from November 8, 1997 to December 31, 1997,
the period from Juy 1, 1997 to November 7, 1997, and the
three fiscal years ended June 30, 1997, 1996 and 1995 41
Consolidated Statement of Cash Flows for the period
from November 8, 1997 to December 31, 1997,
the period from Juy 1, 1997 to November 7, 1997, and the
three fiscal years ended June 30, 1997, 1996 and 1995 42
Notes to Consolidated Financial Statements 44
(a) 2. Financial Statement Schedules
All financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
Individual financial statements of the Registrant have been omitted
because consolidated financial statements of the Registrant and all its
subsidiaries are furnished.
(a) 3. Exhibits
Exhibit No. Description
---------- -----------
++++++2.1 Disclosure Statement dated August 8, 1997
++++++2.2 Plan of Reorganization under Chapter 11 of the Bankruptcy Code
of Consolidated Hydro, Inc.
3.1 Restated Certificate of Incorporation of Consolidated Hydro,
Inc.
3.2 By-Laws of CHI Energy, Inc.
+3.5 Certificate of Incorporation and Bylaws of Summit Energy
Storage Inc.
10.1 Stockholders Agreement
10.2 Registration Rights Agreement
10.3 Employment Agreement dated as of October 31, 1997 by and
between Consolidated Hydro, Inc. and James T. Stewart
10.4 CHI Energy, Inc. 1997 Stock Option Plan
10.5 Series B Warrant
10.6 Series C Warrant
80
+10.7 Power Purchase Agreement between Boott Hydropower, Inc. and
Commonwealth Electric Company, dated January 10, 1983 and
amendment dated March 6, 1985
+10.8 Participation Agreement dated as of December 1, 1985 among
Boott Hydropower, Inc., General Electric Credit Corporation,
Corporation Investments, Inc. and United States Trust Company
of New York, as Owner Trustee and amendment thereto dated as of
February 26, 1988
+10.9 Lease Agreement dated as of December 1, 1985 between United
States Trust Company of New York, as Owner Trustee, and Boott
Hydropower, Inc. and amendments thereto dated as of December
12, 1986 and February 26, 1988
+10.10 Power Purchase Agreement between Lawrence Hydroelectric
Associates, Essex Company and New England Power Company
(Lawrence Project), dated January 1, 1985
+10.11 Mortgage and Security Agreement from Lawrence Hydroelectric
Associates to New England Power Company, dated January 1, 1985
+10.12 Indenture of Mortgage, dated as of September 8, 1981, between
Lawrence Hydroelectric Associates and State Street Bank and
Trust Company, Trustee, and Supplemental Indentures dated as of
January 1, 1985, October 1, 1987 and July 1, 1988
+10.13 Agreement between International Paper Company and Niagara
Mohawk Power Corporation (LaChute Lower Project), dated March
7, 1986
+10.14 Agreement between International Paper Company and Niagara
Mohawk Power Corporation (LaChute Upper Project), dated March
7, 1986
+10.15 Participation Agreement dated as of December 31, 1987 among
LaChute Hydro Company, Inc., Philip Morris Credit Corporation,
the Financial Institutions listed on Schedule II thereto, The
Connecticut Bank and Trust Company, National Association, as
Indenture Trustee, and The Connecticut National Bank, as Owner
Trustee
+10.16 Lease Agreement dated as of December 31, 1987 between LaChute
Hydro Company, Inc. and The Connecticut National Bank, as Owner
Trustee
+10.17 Indenture and Amended and Restated Building Loan Mortgage and
Security Agreement dated as of December 31, 1987 between The
Connecticut National Bank, as Owner Trustee and The Connecticut
Bank and Trust Company, National Association, as Indenture
Trustee
+10.18 Tax Indemnification Agreement dated as of December 31, 1987
between LaChute Hydro Company, Inc. and Philip Morris Credit
Corporation
+10.19 Tax Indemnification Agreement dated as of December 31, 1987
between LaChute Hydro Company, Inc. and General Electric
Capital Corporation
+10.20 Power Purchase Agreement between Androscoggin Reservoir Company
and Central Maine Power Company (Aziscohos Project), dated
October 23, 1984
+10.21 Participation Agreement dated as of September 1, 1988 among
Aziscohos Hydro Company, Inc., NYNEX Credit Company, The CIT
Group/Equipment Financing, Inc., The Connecticut National Bank,
as Indenture Trustee, and Meridian Trust Company, as Owner
Trustee
81
+10.22 Lease Agreement dated as of September 1, 1988 between Meridian
Trust Company, as Owner Trustee, and Aziscohos Hydro Company,
Inc.
+10.23 Indenture, Mortgage and Security Agreement dated as of
September 1, 1988 between Meridian Trust Company, as Owner
Trustee and The Connecticut National Bank, as Indenture Trustee
+10.24 Indenture of Lease dated as of January 15, 1986 between
Aziscohos Hydro Company, Inc. and Androscoggin Reservoir
Company, and amendments thereto dated March 13, 1986 and as of
September 1, 1988
+10.25 Collateral Assignment of Lease dated September 1, 1988 between
Aziscohos Hydro Company, Inc. and Central Maine Power Company
+10.26 Tax Indemnification Agreement dated as of September 6, 1988
between Aziscohos Hydro Company, Inc., Consolidated Hydro, Inc.
and NYNEX Credit Company
+10.27 Purchase Power Agreement dated December 29, 1987, between Duke
Power Company and Riegel Power Corporation as assigned to
Aquenergy Systems, Inc. by Assignment dated July 27, 1988
+10.28 Note Purchase Agreement between UNUM Life Insurance Company of
America and Aquenergy Systems, Inc. dated as of November 1,
1988
+10.29A Mortgage and Security Agreement dated as of November 1, 1988
from Aquenergy Systems, Inc. to The Connecticut Bank and Trust
Company, National Association, as Trustee (Ware Shoals Project)
+10.30 Loan Agreement dated June 18, 1991, between Fieldcrest Cannon,
Inc. as lender and Eagle & Phenix Hydro Company, Inc. as
borrower setting forth terms and conditions for the loan
evidenced by the Promissory Note described in item A above
+10.31 Security Deed dated June 18, 1991 from Eagle & Phenix Hydro
Company, Inc. to Fieldcrest Cannon, Inc. as security for the
Promissory Note described item A above
+10.32 Security Agreement dated June 18, 1991, between Eagle & Phenix
Hydro Company, Inc. as grantor and Fieldcrest Cannon Inc. as
secured party as security for the Promissory Note described in
item A above
+10.33 Lease agreement dated January 18, 1991, between Eagle & Phenix
Hydro Company, Inc. as lessor and Fieldcrest Cannon, Inc. as
lessee
+10.34 Agreement for the sale of electricity to Virginia Electric &
Power Company dated July 29, 1988, between Virginia Electric &
Power Company and Aquenergy Systems, Inc.
+10.35 Deed of Trust and Security Agreement dated as of November 1,
1988 from Aquenergy Systems, Inc. to The Connecticut Bank and
Trust Company, National Association, as Trustee (Fries Project)
+10.36A Purchase Power Agreement between Duke Power Company and Pelzer
Hydro Company, Inc. dated February 15, 1991 (Upper Pelzer)
82
+10.36B Purchase Power Agreement between Duke Power Company and Pelzer
Hydro Company, Inc. dated February 15, 1991 (Lower Pelzer)
+10.37 Second Amended and Restated Certificate and Agreement of
Limited Partnership of Catalyst Slate Creek Hydroelectric
Partnership, dated as of July 18, 1989 and Amendment No. 1.
dated as of May 9, 1990 thereto
+10.38 Restated and Amended Power Purchase Agreement between Catalyst
Slate Creek Hydroelectric Partnership and PacifiCorp, dba
Pacific Power & Light Company and Utah Power & Light Company,
dated May 8, 1990
+10.39 Lease Agreement dated September 9, 1986, between Wallowa Hydro
Associates, Ltd. as lessee and Roy & Wilfred Daggett as lessors
as amended on April 13, 1988, as assigned to Joseph Hydro
Company, Inc. by Assignment and Assumption of Leases dated July
31, 1991
+10.40 Lease Agreement dated September 9, 1986, between Wallowa Hydro
Associates, Ltd. as lessee and Rex W. and Zela G. Ziegler as
lessors as amended on April 13, 1988, as assigned to Joseph
Hydro Company, Inc. by Assignment and Assumption of Leases
dated July 31, 1991
+10.41 Lease Agreement dated August 8, 1986 between Wallow Hydro
Associates, Ltd. as lessee and Dale L. Potter as lessor, as
assigned to Joseph Hydro Company, Inc. by Assignment and
Assumption of Leases dated July 31, 1991
+10.42 Amended and Restated Power Purchase Agreement dated July 31,
1991, between Joseph Hydro Company, Inc. and PacifiCorp
Electric Operations
+10.43 Agreement between Wallowa Valley Improvement District No. 1 and
Cook Electric, Inc. dated January 6, 1981, as amended on
February 2, 1982, December 13, 1982, December 27, 1982,
September 13, 1983, and July 31, 1991, as assigned to Joseph
Hydro Company, Inc. by Assignment and Consent Agreement dated
July 31, 1991
+10.44 Agreement between Joseph Hydro Associates, Ltd. and the Little
Sheep Creek Property Owners Association as assigned to Joseph
Hydro Company Inc. by Assignment and Assumption of Contracts
dated July 31, 1991
+10.45 American Arbitration Association Order No. 75 110 0110 85 dated
September 16, 1983, as assigned to Joseph Hydro Company, Inc.
by Assignment and Assumption of Contracts dated July 31, 1991
+10.46 Contract between the Connecticut Light and Power Company and
Kinneytown Hydro Company, Inc. (Kinneytown Project) dated
December 2, 1986
+10.47 Open-End Electricity Purchase Agreement Mortgage and Security
Agreement between Kinneytown Hydro Company, Inc. and the
Connecticut Light and Power Company dated April 29, 1988
+10.48 Amended and Restated Agreement of Limited Partnership, dated as
of December 22, 1989, of Twin Falls Hydro Associates, L.P.
83
+10.49 Tax Indemnification Agreement, dated as of December 22, 1989,
between The Connecticut National Bank, as LP Trustee, and CHI
Acquisitions, Inc. (Exhibit G to item 10.48)
+10.50 Agreement between New York State Electric & Gas Corporation and
Walden Power Corporation dated as of August 2, 1982
+10.51 Lease between Barbara Gurman Lewis and Walden Power Corporation
dated as of August 24, 1982
+10.52 Lease between the Village of Walden and Walden Power
Corporation dated as of August 5, 1982
+10.53 Stock Subscription Agreement dated as of March 30, 1988 among
Consolidated Hydro, Inc., Summit Energy Storage Inc., Acres
International Corporation, Commonwealth Securities and
Investments, Inc. and seven individuals
+10.54 Memorandum of Understanding between Kvaerner Brug A/S, Boving &
Co., Limited, EB Kraftgenerering a.s. (Powergeneration), and
Consolidated Hydro, Inc., dated April 12, 1988
+10.55 Agreement between Kvaerner Brug A/S, Boving & Co., Limited, EB
Kraftgenerering a.s. (Power generation), Summit Energy Storage
Inc., dated April 12, 1988
+10.56 Agreement between Kvaerner Brug A/S, Boving & Co., Limited, EB
Kraftgenerering a.s. (Power generation), Consolidated Hydro
Inc., Summit Energy Storage Inc., dated April 12, 1988
+10.57 Agreement for Energy Services for Summit Energy Storage Project
between Summit Energy Storage Inc. and Acres International
Corporation dated March 30, 1988
+10.58 Letter Agreement dated March 30, 1988 between Summit Energy
Storage Inc. and Acres International Corporation
+10.59 Mitigation Agreement between Summit Energy Storage Inc. and the
City of Norton, Ohio dated May 14, 1990
+10.60 Memorandum of Understanding concerning commitment to lease
between Summit Energy Storage Inc. and Ohio Edison Company,
dated October 8, 1991
+10.61 Agreement concerning specified facility transmission and
dispatching service between Summit Energy Storage Inc. and Ohio
Edison Company, dated October 8, 1991
+10.62A Technical Services Agreement dated June 5, 1992 between Summit
Energy Storage Inc. and Morrison Knudsen Corporation
84
+10.62B Promissory notes dated March 19, 1990 (a) in the principal
amount of $658,500 from Summit Energy Storage Inc. to EB
Kraftgenerering a.s. and (b) in the principal amount of
$341,500 from Summit Energy Storage Inc. to Kvaerner Hydro
Power A/S
+10.63 Promissory note dated May 30, 1991 in the principal amount of
$110,000 from Summit Energy Storage Inc. EB Kraftgenerering
a.s. (Powergeneration)
+10.64 Promissory note dated November 26, 1991 in the principal amount
$500,000 from Summit Energy Storage Inc. to Witoco Venture
Corporation
+10.65 Promissory note dated October 31, 1991 in the principal amount
of $277,778 from Summit Energy Storage Inc. to Andrea Rich, in
her capacity as Trustee of the Howard Rich Trust for the
benefit of Daniel Rich
+10.66 Promissory note dated October 31, 1991 in the principal amount
of $222,222 from Summit Energy Storage Inc. to Andrea Rich, in
her capacity as Trustee of the Howard Rich Trust for the
benefit of Joseph Rich
+10.67A Letter agreements between Summit Energy Storage Inc. and Curtis
Thaxter Stevens Broder & Micoleau dated June 15, 1988, August
29, 1990 and June 21, 1991
+10.67B Kidder, Peabody & Co., Incorporated Fee Letter, dated September
5, 1989
+10.68 Letter Agreement dated September 26, 1989 between Consolidated
Pumped Storage, Inc. and JDJ Energy Company, Inc.
+10.69 Conveyance, Pledge, Security and Shareholders Agreement dated
as of September 15, 1990 among Consolidated Pumped Storage
Arkansas, Inc., Consolidated Pumped Storage, Inc. and JDJ
Energy Company, Inc.
+10.70 Loan Agreement and Supply Commitment dated as of September 28,
1990 among Consolidated Pumped Storage Arkansas, Inc.,
Consolidated Pumped Storage, Inc. and Voith Hydro, Inc.
+10.71 Loan Agreement and Supply Commitment dated as of December 18,
1991 among Consolidated Pumped Storage Arkansas, Inc.,
Consolidated Pumped Storage, Inc. and Siemens Power Ventures,
Inc.
+10.72A Warrant to purchase up to 10 shares of common stock of
Consolidated Pumped Storage, Inc. issued to Andrea Rich
+10.72B Securities Purchase Agreement between Consolidated Hydro, Inc.,
and BCC Brown Finance (Curacao) N.V., dated June 29, 1992
+10.73 Employment Agreement between Consolidated Hydro, Inc. and Olof
S. Nelson dated March 25, 1992
10.74 Employment Agreement between Consolidated Hydro, Inc. and
Michael I. Storch dated March 25, 1992
85
+10.75 Employment Agreement between Consolidated Hydro, Inc. and Carol
H. Cunningham dated March 25, 1992
+10.76A Side letter with Carol H. Cunningham dated March 25, 1992
+10.76B Incentive Compensation and Transition Employment Agreement for
the Eagle and Phenix projects, dated December 18, 1992
+10.77 Stockholders, Optionholders and Warrantholders Agreement among
Consolidated Hydro, Inc. and its stockholders, optionholders
and warrantholders dated March 25, 1992
+10.78 Purchase Agreement dated March 25, 1992 among Consolidated
Hydro, Inc., Madison Group, L.P., and The Morgan Stanley
Leveraged Equity Fund II, L.P.
+10.79 Amended and Restated Acquisition Facility Agreement between
Consolidated Hydro, Inc. and General Electric Capital
Corporation dated March 25, 1992
+10.80 Note Pledge and Security Agreement between General Electric
Capital Corporation and CHI Acquisitions, Inc., dated June 22,
1993
+10.81 Amendment and Agreement among General Electric Capital
Corporation, and its subsidiaries, dated June 22, 1993
+10.82 Reimbursement Agreement between CHI Acquisitions, Inc.,
Consolidated Hydro Southeast, Inc., Joseph Hydro Company, Inc.,
and General Electric Capital Corporation, dated June 22, 1993
+10.83 Kidder, Peabody & Co. Letter Agreement, dated July 19, 1991
+10.84 Participation Agreement dated September 9, 1993 among CHI
Acquisitions, Inc., Sheldon Springs Power Company, Sheldon
Vermont Hydro Company, Inc., GECC and Aircraft Services
Corporation
+10.85 Agreement of Limited Partnership of Sheldon Springs Hydro
Associates, L.P. dated September 9, 1993
+10.86 Loan Agreement dated September 10, 1993 among Missisquoi
Associates, Sheldon Springs Hydro Associates, L.P. and GECC
+10.87 Long-Term, Firm Levelized and Non-Levelized Purchase Agreement,
executed on July 23, 1986, between Vermont Power Exchange, Inc.
and Missisquoi Associates
+10.88 Revolving Credit Agreement among Consolidated Hydro, Inc., as
the Borrower, the Banks Listed in Schedule I and Den norske
Bank AS, as Agent, dated as of October 14, 1993
+10.89 Warrant Agreement dated as of November 1, 1993, between
Consolidated Hydro, Inc. and SES Partners II, L.P.
+10.90 Stock Option Plan
86
+10.91 Form of Stock Option Agreement
+10.92 Form of Indemnifications Agreement
+10.93 Form of Amended and Restated Indenture for the Notes between
Consolidated Hydro, Inc. and Shawmut Bank Connecticut, National
Association, as trustee
+10.94 Form of Exchange Debenture Indenture (including form of
debenture)
+10.95 Registration Rights Agreement, dated June 15, 1993, between
Consolidated Hydro, Inc. and Morgan Stanley
++10.96 Credit and Reimbursement Agreement dated as of February 15,
1995 among CHI Acquisitions II, Inc., Hydro Development Group
Inc., Beaver Valley Power Company, Littleville Power Company,
Inc., Consolidated Hydro Southeast, Inc., Pelzer Hydro Company,
Inc., Joseph Hydro Company, Inc., Slate Creek Hydro Company,
Inc., CHI Acquisitions, Inc., the Lenders from time to time
party thereto, and General Electric Capital Corporation, as
Agent for the Lenders.
+++10.97 Deed of Trust, Assignment of rents and Fixture Filing dated as
of May 10, 1990 between Slate Creek Hydro Associates, L.P.
(f/k/a Catalyst Slate Creek Hydroelectric Partnership), in
favor of First American Title Insurance Company, trustee, f/b/o
General Electric Capital Corp. ("GECC"), recorded in Book 2595,
Page 805, as assigned by GECC to CHI Acquisitions, Inc. by
Assignment of Beneficial Interest Under Deed of Trust, dated
February 15, 1995, recorded in Book 3260, Page 629, as amended
by Modification of Deed of Trust, dated February 15, 1995,
recorded in Book 3260, Page 635, as further assigned by CHI
Acquisitions, Inc. to Slate Creek Hydro Company, Inc., by
Assignment of Deed of Trust dated February 15, 1995, recorded
in book 3260, Page 647, and as further assigned by CHI
Acquisitions, Inc. to GECC by Assignment of Beneficial Interest
Under Deed of Trust dated February 15, 1995 and recorded in
Book 3260, Page 651.
+++10.98 Mortgage from Pelzer Hydro Company, Inc. to General Electric
Capital Corporation, dated as of February 15, 1995.
+++10.99 Power Purchase Agreement by and between Niagara Mohawk Power
Corporation and Pyrites Associates, dated as of April 22, 1985,
as amended by First Amendment dated as of March 22, 1993.
+++10.100 Lease Agreement between Pyrites Associates (lessee) and St.
Lawrence County Industrial Development Agency, dated June 1,
1985 and recorded in Book 992, Page 742, as amended by First
Amendment dated June 3, 1993 and recorded in book 1072, Page
921.
+++10.101 Pyrites Project Agreement dated November 18, 1982 between Hydro
Development Group Inc. and Hydra-Co Enterprises, Inc.
+++10.102 Cataldo Hydro Power Associates Partnership Agreement dated
October 12, 1983.
87
+++10.103 Agreement of Limited Partnership of Black River Hydro
Associates, dated as of November 23, 1983, as amended by First
Amendment dated as of October 14, 1984 and undated, unexecuted
Second Amendment.
+++10.104 Amended and Restated Power Purchase Agreement - Port Leyden
Plant by and between Black River Hydro Associates and Niagara
Mohawk Power Corporation, dated as of October 15, 1984, as
amended by amendments dated October 15, 1984 and June 18, 1993,
respectively.
+++10.105 Lease by and between Lewis County Industrial Development Agency
(Lessor) and Black River Hydro Associates (Lessee), dated
02/01/85 and recorded in Liber 454 of Deeds, Page 191, as
amended by amendments dated 04/01/86, 05/26/88 and 07/07/93,
respectively, the latter being recorded in Liber 565 of Deeds,
Page 51.
+++10.106 Indenture of Trust, Mortgage and Assignment given by Lewis
County Industrial Development Agency to Chase Manhattan Bank,
N.A., dated 02/01/85, as supplemented by instruments dated
04/01/86, 10/31/91 and 07/07/93, the latter being recorded in
Liber 393 of Mortgages, Page 165.
+++10.107 Power Purchase Agreement by and between Hydro Development Group
Inc. and Niagara Mohawk Power Corporation, dated December 16,
1993 (Dexter, Copenhagen and other Projects).
+++10.108 Mortgage Restatement Agreement between Hydro Development Group
Inc. and General Electric Capital Corporation dated February
15, 1995 and recorded in the Jefferson County Clerk's Office in
Liber 1362, Page 033.
+++10.109 Project Agreement by and between Hydro Development Group, Inc.
and Hydra-Co Enterprises, Inc., dated November 18, 1982.
+++10.110 Agreement by and between Hydro Development Group, Inc., and
Hydra-Co Enterprises, Inc. dated as of May 23, 1994.
+++10.111 Employment Agreement between Consolidated Hydro, Inc. and
Edward M. Stern dated November 1, 1994.
+++10.112 Termination Agreement between Consolidated Hydro, Inc. and Olof
S. Nelson dated June 27, 1996.
+++10.113 Employment Agreement between Consolidated Hydro, Inc. and James
T. Stewart dated July 1, 1996.
10.114 Employment Agreement dated as of October 31, 1997, by and
between Consolidated Hydro, Inc. and Michael I. Storch.
10.115 Employment Agreement dated as of October 31, 1997 by and
between Consolidated Hydro, Inc. and Edward M. Stern.
10.116 Employment Agreement dated as of October 31, 1997, by and
between Consolidated Hydro, Inc. and Mary V. Gilbert.
88
++++++10.117 Amendment dated as of July 1, 1996 to the Revolving Credit
Agreement between Consolidated Hydro, Inc. and Den norske Bank
ASA
++++++10.118 First Amended and Restated Credit Agreement dated as of October
15, 1996 between Lyon Credit Corporation and BP Hydro Finance
Partnership.
++++10.119 Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Consolidated Hydro Maine, Inc., CHI Universal,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
++++10.120 Letter of Agreement, dated November 15, 1996, amending
Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Hydro Maine, Inc., CHI Universal, Inc.,
Consolidated Hydro, Inc., Ridgewood Maine Hydro Corporation and
Ridgewood Maine Hydro Partners, L.P.
++++10.121 Letter Agreement, dated December 3, 1996, amending Agreement of
Merger, dated as of July 1, 1996, by and among Consolidated
Hydro Maine, Inc., CHI Universal, Inc., Consolidated Hydro,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
+++++10.122 Amended Engagement Letter, dated as of May 30, 1997, between
Consolidated Hydro, Inc. and Houlihan Lokey Howard and Zukin,
Inc.
++++++10.123 Bill of Sale dated June 13, 1997, between TKO Power, Inc. and
Ralphs Ranches, Inc.
++++++10.124 Termination Agreement dated September 9, 1997, between Joseph
Hydro Company, Inc. and PacifiCorp.
++++++10.125 Purchased Power Agreement between Duke Power and Mill Shoals
Hydro Company, Inc., dated August 12,1997.
12.1 Statements regarding computation of ratios
++++++21.1 List of Subsidiaries of Registrant
27.1 Financial Data Schedule
+ Incorporated by reference to the respective exhibit to the
Company's Registration Statement on Form S-1 (File No.
33-69762).
++ Incorporated by reference to the Company's Current Report on
Form 8- K dated May 2, 1995.
+++ Incorporated by reference to the Company's Report on Form 10-K
for the fiscal year ended June 30, 1996.
++++ Incorporated by reference to the Company's Report on Form 8-K
dated December 23, 1996, as amended by Form 8-K/A dated March
7, 1997.
+++++ Incorporated by reference to the Company's Current Report on
Form 8- K dated June 4, 1997.
++++++ Incorporated by reference to the Company's Report on Form 10-K
for the fiscal year ended June 30, 1997.
89
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on
November 7, 1997, reporting the date the Plan of
Reorganization became effective.
90
SIGNATURES
------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CHI ENERGY, INC.
Date: March 30, 1998 (Registrant)
By: /s/ James T. Stewart
----------------------
James T. Stewart
Signature Title Date
--------- ----- -----
by:
/s/James T. Stewart
- --------------------------------------------
James T. Stewart Chairman and Chief Executive Officer March 30, 1998
by:
/s/ Edward M. Stern
- --------------------------------------------
Edward M. Stern President, Chief Operating Officer, March 30, 1998
Secretary, and Director
by:
/s/ Mary V. Gilbert
- --------------------------------------------
Mary V. Gilbert Senior Vice President, Chief Financial Officer March 30, 1998
(principal financial officer)
by:
/s/ Neil A. Manna
- --------------------------------------------
Neil A. Manna Vice President --Finance, Controller March 30, 1998
and Treasurer (principal accounting officer)
by:
/s/ Michael J. Petrick
- -------------------------------------------- March 30, 1998
Michael J. Petrick Director
by:
/s/ James J. Duplessie March 30, 1998
- --------------------------------------------
James J. Duplessie Director
by:
/s/ Charles F. Goff, Jr. March 30, 1998
- --------------------------------------------
Charles F. Goff, Jr. Director
91
EXHIBIT INDEX
Exhibit No. Description
---------- -----------
++++++2.1 Disclosure Statement dated August 8, 1997
++++++2.2 Plan of Reorganization under Chapter 11 of the Bankruptcy Code
of Consolidated Hydro, Inc.
3.1 Restated Certificate of Incorporation of Consolidated Hydro,
Inc.
3.2 By-Laws of CHI Energy, Inc.
+3.5 Certificate of Incorporation and Bylaws of Summit Energy
Storage Inc.
10.1 Stockholders Agreement
10.2 Registration Rights Agreement
10.3 Employment Agreement dated as of October 31, 1997 by and
between Consolidated Hydro, Inc. and James T. Stewart
10.4 CHI Energy, Inc. 1997 Stock Option Plan
10.5 Series B Warrant
10.6 Series C Warrant
+10.7 Power Purchase Agreement between Boott Hydropower, Inc. and
Commonwealth Electric Company, dated January 10, 1983 and
amendment dated March 6, 1985
+10.8 Participation Agreement dated as of December 1, 1985 among
Boott Hydropower, Inc., General Electric Credit Corporation,
Corporation Investments, Inc. and United States Trust Company
of New York, as Owner Trustee and amendment thereto dated as of
February 26, 1988
+10.9 Lease Agreement dated as of December 1, 1985 between United
States Trust Company of New York, as Owner Trustee, and Boott
Hydropower, Inc. and amendments thereto dated as of December
12, 1986 and February 26, 1988
+10.10 Power Purchase Agreement between Lawrence Hydroelectric
Associates, Essex Company and New England Power Company
(Lawrence Project), dated January 1, 1985
+10.11 Mortgage and Security Agreement from Lawrence Hydroelectric
Associates to New England Power Company, dated January 1, 1985
+10.12 Indenture of Mortgage, dated as of September 8, 1981, between
Lawrence Hydroelectric Associates and State Street Bank and
Trust Company, Trustee, and Supplemental Indentures dated as of
January 1, 1985, October 1, 1987 and July 1, 1988
+10.13 Agreement between International Paper Company and Niagara
Mohawk Power Corporation (LaChute Lower Project), dated March
7, 1986
+10.14 Agreement between International Paper Company and Niagara
Mohawk Power Corporation (LaChute Upper Project), dated March
7, 1986
+10.15 Participation Agreement dated as of December 31, 1987 among
LaChute Hydro Company, Inc., Philip Morris Credit Corporation,
the Financial Institutions listed on Schedule II thereto, The
Connecticut Bank and Trust Company, National Association, as
Indenture Trustee, and The Connecticut National Bank, as Owner
Trustee
+10.16 Lease Agreement dated as of December 31, 1987 between LaChute
Hydro Company, Inc. and The Connecticut National Bank, as Owner
Trustee
+10.17 Indenture and Amended and Restated Building Loan Mortgage and
Security Agreement dated as of December 31, 1987 between The
Connecticut National Bank, as Owner Trustee and The Connecticut
Bank and Trust Company, National Association, as Indenture
Trustee
+10.18 Tax Indemnification Agreement dated as of December 31, 1987
between LaChute Hydro Company, Inc. and Philip Morris Credit
Corporation
+10.19 Tax Indemnification Agreement dated as of December 31, 1987
between LaChute Hydro Company, Inc. and General Electric
Capital Corporation
+10.20 Power Purchase Agreement between Androscoggin Reservoir Company
and Central Maine Power Company (Aziscohos Project), dated
October 23, 1984
+10.21 Participation Agreement dated as of September 1, 1988 among
Aziscohos Hydro Company, Inc., NYNEX Credit Company, The CIT
Group/Equipment Financing, Inc., The Connecticut National Bank,
as Indenture Trustee, and Meridian Trust Company, as Owner
Trustee
+10.22 Lease Agreement dated as of September 1, 1988 between Meridian
Trust Company, as Owner Trustee, and Aziscohos Hydro Company,
Inc.
+10.23 Indenture, Mortgage and Security Agreement dated as of
September 1, 1988 between Meridian Trust Company, as Owner
Trustee and The Connecticut National Bank, as Indenture Trustee
+10.24 Indenture of Lease dated as of January 15, 1986 between
Aziscohos Hydro Company, Inc. and Androscoggin Reservoir
Company, and amendments thereto dated March 13, 1986 and as of
September 1, 1988
+10.25 Collateral Assignment of Lease dated September 1, 1988 between
Aziscohos Hydro Company, Inc. and Central Maine Power Company
+10.26 Tax Indemnification Agreement dated as of September 6, 1988
between Aziscohos Hydro Company, Inc., Consolidated Hydro, Inc.
and NYNEX Credit Company
+10.27 Purchase Power Agreement dated December 29, 1987, between Duke
Power Company and Riegel Power Corporation as assigned to
Aquenergy Systems, Inc. by Assignment dated July 27, 1988
+10.28 Note Purchase Agreement between UNUM Life Insurance Company of
America and Aquenergy Systems, Inc. dated as of November 1,
1988
+10.29A Mortgage and Security Agreement dated as of November 1, 1988
from Aquenergy Systems, Inc. to The Connecticut Bank and Trust
Company, National Association, as Trustee (Ware Shoals Project)
+10.30 Loan Agreement dated June 18, 1991, between Fieldcrest Cannon,
Inc. as lender and Eagle & Phenix Hydro Company, Inc. as
borrower setting forth terms and conditions for the loan
evidenced by the Promissory Note described in item A above
+10.31 Security Deed dated June 18, 1991 from Eagle & Phenix Hydro
Company, Inc. to Fieldcrest Cannon, Inc. as security for the
Promissory Note described item A above
+10.32 Security Agreement dated June 18, 1991, between Eagle & Phenix
Hydro Company, Inc. as grantor and Fieldcrest Cannon Inc. as
secured party as security for the Promissory Note described in
item A above
+10.33 Lease agreement dated January 18, 1991, between Eagle & Phenix
Hydro Company, Inc. as lessor and Fieldcrest Cannon, Inc. as
lessee
+10.34 Agreement for the sale of electricity to Virginia Electric &
Power Company dated July 29, 1988, between Virginia Electric &
Power Company and Aquenergy Systems, Inc.
+10.35 Deed of Trust and Security Agreement dated as of November 1,
1988 from Aquenergy Systems, Inc. to The Connecticut Bank and
Trust Company, National Association, as Trustee (Fries Project)
+10.36A Purchase Power Agreement between Duke Power Company and Pelzer
Hydro Company, Inc. dated February 15, 1991 (Upper Pelzer)
+10.36B Purchase Power Agreement between Duke Power Company and Pelzer
Hydro Company, Inc. dated February 15, 1991 (Lower Pelzer)
+10.37 Second Amended and Restated Certificate and Agreement of
Limited Partnership of Catalyst Slate Creek Hydroelectric
Partnership, dated as of July 18, 1989 and Amendment No. 1.
dated as of May 9, 1990 thereto
+10.38 Restated and Amended Power Purchase Agreement between Catalyst
Slate Creek Hydroelectric Partnership and PacifiCorp, dba
Pacific Power & Light Company and Utah Power & Light Company,
dated May 8, 1990
+10.39 Lease Agreement dated September 9, 1986, between Wallowa Hydro
Associates, Ltd. as lessee and Roy & Wilfred Daggett as lessors
as amended on April 13, 1988, as assigned to Joseph Hydro
Company, Inc. by Assignment and Assumption of Leases dated July
31, 1991
+10.40 Lease Agreement dated September 9, 1986, between Wallowa Hydro
Associates, Ltd. as lessee and Rex W. and Zela G. Ziegler as
lessors as amended on April 13, 1988, as assigned to Joseph
Hydro Company, Inc. by Assignment and Assumption of Leases
dated July 31, 1991
+10.41 Lease Agreement dated August 8, 1986 between Wallow Hydro
Associates, Ltd. as lessee and Dale L. Potter as lessor, as
assigned to Joseph Hydro Company, Inc. by Assignment and
Assumption of Leases dated July 31, 1991
+10.42 Amended and Restated Power Purchase Agreement dated July 31,
1991, between Joseph Hydro Company, Inc. and PacifiCorp
Electric Operations
+10.43 Agreement between Wallowa Valley Improvement District No. 1 and
Cook Electric, Inc. dated January 6, 1981, as amended on
February 2, 1982, December 13, 1982, December 27, 1982,
September 13, 1983, and July 31, 1991, as assigned to Joseph
Hydro Company, Inc. by Assignment and Consent Agreement dated
July 31, 1991
+10.44 Agreement between Joseph Hydro Associates, Ltd. and the Little
Sheep Creek Property Owners Association as assigned to Joseph
Hydro Company Inc. by Assignment and Assumption of Contracts
dated July 31, 1991
+10.45 American Arbitration Association Order No. 75 110 0110 85 dated
September 16, 1983, as assigned to Joseph Hydro Company, Inc.
by Assignment and Assumption of Contracts dated July 31, 1991
+10.46 Contract between the Connecticut Light and Power Company and
Kinneytown Hydro Company, Inc. (Kinneytown Project) dated
December 2, 1986
+10.47 Open-End Electricity Purchase Agreement Mortgage and Security
Agreement between Kinneytown Hydro Company, Inc. and the
Connecticut Light and Power Company dated April 29, 1988
+10.48 Amended and Restated Agreement of Limited Partnership, dated as
of December 22, 1989, of Twin Falls Hydro Associates, L.P.
+10.49 Tax Indemnification Agreement, dated as of December 22, 1989,
between The Connecticut National Bank, as LP Trustee, and CHI
Acquisitions, Inc. (Exhibit G to item 10.48)
+10.50 Agreement between New York State Electric & Gas Corporation and
Walden Power Corporation dated as of August 2, 1982
+10.51 Lease between Barbara Gurman Lewis and Walden Power Corporation
dated as of August 24, 1982
+10.52 Lease between the Village of Walden and Walden Power
Corporation dated as of August 5, 1982
+10.53 Stock Subscription Agreement dated as of March 30, 1988 among
Consolidated Hydro, Inc., Summit Energy Storage Inc., Acres
International Corporation, Commonwealth Securities and
Investments, Inc. and seven individuals
+10.54 Memorandum of Understanding between Kvaerner Brug A/S, Boving &
Co., Limited, EB Kraftgenerering a.s. (Powergeneration), and
Consolidated Hydro, Inc., dated April 12, 1988
+10.55 Agreement between Kvaerner Brug A/S, Boving & Co., Limited, EB
Kraftgenerering a.s. (Power generation), Summit Energy Storage
Inc., dated April 12, 1988
+10.56 Agreement between Kvaerner Brug A/S, Boving & Co., Limited, EB
Kraftgenerering a.s. (Power generation), Consolidated Hydro
Inc., Summit Energy Storage Inc., dated April 12, 1988
+10.57 Agreement for Energy Services for Summit Energy Storage Project
between Summit Energy Storage Inc. and Acres International
Corporation dated March 30, 1988
+10.58 Letter Agreement dated March 30, 1988 between Summit Energy
Storage Inc. and Acres International Corporation
+10.59 Mitigation Agreement between Summit Energy Storage Inc. and the
City of Norton, Ohio dated May 14, 1990
+10.60 Memorandum of Understanding concerning commitment to lease
between Summit Energy Storage Inc. and Ohio Edison Company,
dated October 8, 1991
+10.61 Agreement concerning specified facility transmission and
dispatching service between Summit Energy Storage Inc. and Ohio
Edison Company, dated October 8, 1991
+10.62A Technical Services Agreement dated June 5, 1992 between Summit
Energy Storage Inc. and Morrison Knudsen Corporation
+10.62B Promissory notes dated March 19, 1990 (a) in the principal
amount of $658,500 from Summit Energy Storage Inc. to EB
Kraftgenerering a.s. and (b) in the principal amount of
$341,500 from Summit Energy Storage Inc. to Kvaerner Hydro
Power A/S
+10.63 Promissory note dated May 30, 1991 in the principal amount of
$110,000 from Summit Energy Storage Inc. EB Kraftgenerering
a.s. (Powergeneration)
+10.64 Promissory note dated November 26, 1991 in the principal amount
$500,000 from Summit Energy Storage Inc. to Witoco Venture
Corporation
+10.65 Promissory note dated October 31, 1991 in the principal amount
of $277,778 from Summit Energy Storage Inc. to Andrea Rich, in
her capacity as Trustee of the Howard Rich Trust for the
benefit of Daniel Rich
+10.66 Promissory note dated October 31, 1991 in the principal amount
of $222,222 from Summit Energy Storage Inc. to Andrea Rich, in
her capacity as Trustee of the Howard Rich Trust for the
benefit of Joseph Rich
+10.67A Letter agreements between Summit Energy Storage Inc. and Curtis
Thaxter Stevens Broder & Micoleau dated June 15, 1988, August
29, 1990 and June 21, 1991
+10.67B Kidder, Peabody & Co., Incorporated Fee Letter, dated September
5, 1989
+10.68 Letter Agreement dated September 26, 1989 between Consolidated
Pumped Storage, Inc. and JDJ Energy Company, Inc.
+10.69 Conveyance, Pledge, Security and Shareholders Agreement dated
as of September 15, 1990 among Consolidated Pumped Storage
Arkansas, Inc., Consolidated Pumped Storage, Inc. and JDJ
Energy Company, Inc.
+10.70 Loan Agreement and Supply Commitment dated as of September 28,
1990 among Consolidated Pumped Storage Arkansas, Inc.,
Consolidated Pumped Storage, Inc. and Voith Hydro, Inc.
+10.71 Loan Agreement and Supply Commitment dated as of December 18,
1991 among Consolidated Pumped Storage Arkansas, Inc.,
Consolidated Pumped Storage, Inc. and Siemens Power Ventures,
Inc.
+10.72A Warrant to purchase up to 10 shares of common stock of
Consolidated Pumped Storage, Inc. issued to Andrea Rich
+10.72B Securities Purchase Agreement between Consolidated Hydro, Inc.,
and BCC Brown Finance (Curacao) N.V., dated June 29, 1992
+10.73 Employment Agreement between Consolidated Hydro, Inc. and Olof
S. Nelson dated March 25, 1992
10.74 Employment Agreement between Consolidated Hydro, Inc. and
Michael I. Storch dated March 25, 1992
+10.75 Employment Agreement between Consolidated Hydro, Inc. and Carol
H. Cunningham dated March 25, 1992
+10.76A Side letter with Carol H. Cunningham dated March 25, 1992
+10.76B Incentive Compensation and Transition Employment Agreement for
the Eagle and Phenix projects, dated December 18, 1992
+10.77 Stockholders, Optionholders and Warrantholders Agreement among
Consolidated Hydro, Inc. and its stockholders, optionholders
and warrantholders dated March 25, 1992
+10.78 Purchase Agreement dated March 25, 1992 among Consolidated
Hydro, Inc., Madison Group, L.P., and The Morgan Stanley
Leveraged Equity Fund II, L.P.
+10.79 Amended and Restated Acquisition Facility Agreement between
Consolidated Hydro, Inc. and General Electric Capital
Corporation dated March 25, 1992
+10.80 Note Pledge and Security Agreement between General Electric
Capital Corporation and CHI Acquisitions, Inc., dated June 22,
1993
+10.81 Amendment and Agreement among General Electric Capital
Corporation, and its subsidiaries, dated June 22, 1993
+10.82 Reimbursement Agreement between CHI Acquisitions, Inc.,
Consolidated Hydro Southeast, Inc., Joseph Hydro Company, Inc.,
and General Electric Capital Corporation, dated June 22, 1993
+10.83 Kidder, Peabody & Co. Letter Agreement, dated July 19, 1991
+10.84 Participation Agreement dated September 9, 1993 among CHI
Acquisitions, Inc., Sheldon Springs Power Company, Sheldon
Vermont Hydro Company, Inc., GECC and Aircraft Services
Corporation
+10.85 Agreement of Limited Partnership of Sheldon Springs Hydro
Associates, L.P. dated September 9, 1993
+10.86 Loan Agreement dated September 10, 1993 among Missisquoi
Associates, Sheldon Springs Hydro Associates, L.P. and GECC
+10.87 Long-Term, Firm Levelized and Non-Levelized Purchase Agreement,
executed on July 23, 1986, between Vermont Power Exchange, Inc.
and Missisquoi Associates
+10.88 Revolving Credit Agreement among Consolidated Hydro, Inc., as
the Borrower, the Banks Listed in Schedule I and Den norske
Bank AS, as Agent, dated as of October 14, 1993
+10.89 Warrant Agreement dated as of November 1, 1993, between
Consolidated Hydro, Inc. and SES Partners II, L.P.
+10.90 Stock Option Plan
+10.91 Form of Stock Option Agreement
+10.92 Form of Indemnifications Agreement
+10.93 Form of Amended and Restated Indenture for the Notes between
Consolidated Hydro, Inc. and Shawmut Bank Connecticut, National
Association, as trustee
+10.94 Form of Exchange Debenture Indenture (including form of
debenture)
+10.95 Registration Rights Agreement, dated June 15, 1993, between
Consolidated Hydro, Inc. and Morgan Stanley
++10.96 Credit and Reimbursement Agreement dated as of February 15,
1995 among CHI Acquisitions II, Inc., Hydro Development Group
Inc., Beaver Valley Power Company, Littleville Power Company,
Inc., Consolidated Hydro Southeast, Inc., Pelzer Hydro Company,
Inc., Joseph Hydro Company, Inc., Slate Creek Hydro Company,
Inc., CHI Acquisitions, Inc., the Lenders from time to time
party thereto, and General Electric Capital Corporation, as
Agent for the Lenders.
+++10.97 Deed of Trust, Assignment of rents and Fixture Filing dated as
of May 10, 1990 between Slate Creek Hydro Associates, L.P.
(f/k/a Catalyst Slate Creek Hydroelectric Partnership), in
favor of First American Title Insurance Company, trustee, f/b/o
General Electric Capital Corp. ("GECC"), recorded in Book 2595,
Page 805, as assigned by GECC to CHI Acquisitions, Inc. by
Assignment of Beneficial Interest Under Deed of Trust, dated
February 15, 1995, recorded in Book 3260, Page 629, as amended
by Modification of Deed of Trust, dated February 15, 1995,
recorded in Book 3260, Page 635, as further assigned by CHI
Acquisitions, Inc. to Slate Creek Hydro Company, Inc., by
Assignment of Deed of Trust dated February 15, 1995, recorded
in book 3260, Page 647, and as further assigned by CHI
Acquisitions, Inc. to GECC by Assignment of Beneficial Interest
Under Deed of Trust dated February 15, 1995 and recorded in
Book 3260, Page 651.
+++10.98 Mortgage from Pelzer Hydro Company, Inc. to General Electric
Capital Corporation, dated as of February 15, 1995.
+++10.99 Power Purchase Agreement by and between Niagara Mohawk Power
Corporation and Pyrites Associates, dated as of April 22, 1985,
as amended by First Amendment dated as of March 22, 1993.
+++10.100 Lease Agreement between Pyrites Associates (lessee) and St.
Lawrence County Industrial Development Agency, dated June 1,
1985 and recorded in Book 992, Page 742, as amended by First
Amendment dated June 3, 1993 and recorded in book 1072, Page
921.
+++10.101 Pyrites Project Agreement dated November 18, 1982 between Hydro
Development Group Inc. and Hydra-Co Enterprises, Inc.
+++10.102 Cataldo Hydro Power Associates Partnership Agreement dated
October 12, 1983.
+++10.103 Agreement of Limited Partnership of Black River Hydro
Associates, dated as of November 23, 1983, as amended by First
Amendment dated as of October 14, 1984 and undated, unexecuted
Second Amendment.
+++10.104 Amended and Restated Power Purchase Agreement - Port Leyden
Plant by and between Black River Hydro Associates and Niagara
Mohawk Power Corporation, dated as of October 15, 1984, as
amended by amendments dated October 15, 1984 and June 18, 1993,
respectively.
+++10.105 Lease by and between Lewis County Industrial Development Agency
(Lessor) and Black River Hydro Associates (Lessee), dated
02/01/85 and recorded in Liber 454 of Deeds, Page 191, as
amended by amendments dated 04/01/86, 05/26/88 and 07/07/93,
respectively, the latter being recorded in Liber 565 of Deeds,
Page 51.
+++10.106 Indenture of Trust, Mortgage and Assignment given by Lewis
County Industrial Development Agency to Chase Manhattan Bank,
N.A., dated 02/01/85, as supplemented by instruments dated
04/01/86, 10/31/91 and 07/07/93, the latter being recorded in
Liber 393 of Mortgages, Page 165.
+++10.107 Power Purchase Agreement by and between Hydro Development Group
Inc. and Niagara Mohawk Power Corporation, dated December 16,
1993 (Dexter, Copenhagen and other Projects).
+++10.108 Mortgage Restatement Agreement between Hydro Development Group
Inc. and General Electric Capital Corporation dated February
15, 1995 and recorded in the Jefferson County Clerk's Office in
Liber 1362, Page 033.
+++10.109 Project Agreement by and between Hydro Development Group, Inc.
and Hydra-Co Enterprises, Inc., dated November 18, 1982.
+++10.110 Agreement by and between Hydro Development Group, Inc., and
Hydra-Co Enterprises, Inc. dated as of May 23, 1994.
+++10.111 Employment Agreement between Consolidated Hydro, Inc. and
Edward M. Stern dated November 1, 1994.
+++10.112 Termination Agreement between Consolidated Hydro, Inc. and Olof
S. Nelson dated June 27, 1996.
+++10.113 Employment Agreement between Consolidated Hydro, Inc. and James
T. Stewart dated July 1, 1996.
10.114 Employment Agreement dated as of October 31, 1997, by and
between Consolidated Hydro, Inc. and Michael I. Storch.
10.115 Employment Agreement dated as of October 31, 1997 by and
between Consolidated Hydro, Inc. and Edward M. Stern.
10.116 Employment Agreement dated as of October 31, 1997, by and
between Consolidated Hydro, Inc. and Mary V. Gilbert.
++++++10.117 Amendment dated as of July 1, 1996 to the Revolving Credit
Agreement between Consolidated Hydro, Inc. and Den norske Bank
ASA
++++++10.118 First Amended and Restated Credit Agreement dated as of October
15, 1996 between Lyon Credit Corporation and BP Hydro Finance
Partnership.
++++10.119 Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Consolidated Hydro Maine, Inc., CHI Universal,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
++++10.120 Letter of Agreement, dated November 15, 1996, amending
Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Hydro Maine, Inc., CHI Universal, Inc.,
Consolidated Hydro, Inc., Ridgewood Maine Hydro Corporation and
Ridgewood Maine Hydro Partners, L.P.
++++10.121 Letter Agreement, dated December 3, 1996, amending Agreement of
Merger, dated as of July 1, 1996, by and among Consolidated
Hydro Maine, Inc., CHI Universal, Inc., Consolidated Hydro,
Inc., Ridgewood Maine Hydro Corporation and Ridgewood Maine
Hydro Partners, L.P.
+++++10.122 Amended Engagement Letter, dated as of May 30, 1997, between
Consolidated Hydro, Inc. and Houlihan Lokey Howard and Zukin,
Inc.
++++++10.123 Bill of Sale dated June 13, 1997, between TKO Power, Inc. and
Ralphs Ranches, Inc.
++++++10.124 Termination Agreement dated September 9, 1997, between Joseph
Hydro Company, Inc. and PacifiCorp.
++++++10.125 Purchased Power Agreement between Duke Power and Mill Shoals
Hydro Company, Inc., dated August 12,1997.
12.1 Statements regarding computation of ratios
++++++21.1 List of Subsidiaries of Registrant
27.1 Financial Data Schedule
- ------------------------
+ Incorporated by reference to the respective exhibit to the
Company's Registration Statement on Form S-1 (File No.
33-69762).
++ Incorporated by reference to the Company's Current Report on
Form 8- K dated May 2, 1995.
+++ Incorporated by reference to the Company's Report on Form 10-K
for the fiscal year ended June 30, 1996.
++++ Incorporated by reference to the Company's Report on Form 8-K
dated December 23, 1996, as amended by Form 8-K/A dated March
7, 1997.
+++++ Incorporated by reference to the Company's Current Report on
Form 8- K dated June 4, 1997.
++++++ Incorporated by reference to the Company's Report on Form 10-K
for the fiscal year ended June 30, 1997.