POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION
OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of
the Securities Exchange Act of 1934
----------------
Besicorp Ltd.
(Name of Small Business Issuer in its charter)
New York 14-1809375
(State or other jurisdiction (I.R.S. Employer)
of incorporation or Identification No.)
organization
1151 Flatbush Road
Kingston, New York 12401
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(914) 336-7700
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Securities to be registered under Section 12(b) of the Act:
None
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
-------------- ---------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.01 par value
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EXPLANATORY NOTE
This Registration Statement has been prepared on a prospective basis on
the assumption that, among other things, the Spin-Off (as defined in the
Information Statement which is a part of this Registration Statement) and the
related transactions contemplated to occur prior to or contemporaneously with
the Spin-Off will be consummated as contemplated by the Information Statement.
There can be no assurance, however, that any or all of such transactions will
occur or will occur as so contemplated. Any significant modifications or
variations in the transactions contemplated will be reflected in an amendment or
supplement to this Registration Statement.
CROSS REFERENCE
BESICORP LTD.
INFORMATION INCLUDED IN INFORMATION STATEMENT AND INCORPORATED IN
FORM 10-SB BY REFERENCE
CROSS REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10-SB
Item
No. Item Caption Location in Information Statement
1. Business "SUMMARY;" "BUSINESS;" "RISK
FACTORS;" "THE CONTRIBUTION AND
THE SPIN-OFF;" "RELATIONSHIP
BETWEEN NEWCO AND OLDCO
AFTER THE SPIN-OFF;" "THE
MERGER;" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN
OF OPERATIONS."
2. Management's Discussion
and Analysis "BUSINESS;" "RISK FACTORS;"
"CAPITALIZATION;" "SELECTED
UNAUDITED COMBINED FINANCIAL
STATEMENTS;" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN
OF OPERATIONS."
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3. Properties "BUSINESS-Properties;"
and "RELATIONSHIP
BETWEEN NEWCO AND
OLDCO AFTER THE
SPIN-OFF-Additional
Matters."
4. Security Ownership of
Certain Beneficial Owners
and Management "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT;" and "RISK
FACTORS."
5. Directors and Executive
Officers "MANAGEMENT--Directors and
Executive Officers;"
"BUSINESS- Legal Proceedings;"
and "RISK FACTORS."
6. Executive Compensation "MANAGEMENT--Executive
Compensation;" and
"RISK FACTORS."
7. Certain Relationships and
Related Transactions "SUMMARY;" "RISK FACTORS;"
"THE CONTRIBUTION AND THE
SPIN-OFF;" "RELATIONSHIP
BETWEEN NEWCO AND OLDCO AFTER
THE SPIN-OFF;" "THE MERGER;"
and "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS."
8. Legal Proceedings "BUSINESS - Legal
Proceedings."
9. Market for Common
Equity and Related
Stockholder Matters "SUMMARY;" "RISK FACTORS;"
"DESCRIPTION OF THE CAPITAL
STOCK;" "LISTING AND TRADING
OF NEWCO COMMON STOCK" AND
"DIVIDEND POLICY."
11. Description of Registrant's
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Securities "RISK FACTORS;" "DESCRIPTION
OF THE CAPITAL STOCK;"
"DIVIDEND POLICY;" and
"DESCRIPTION OF CERTAIN
STATUTORY, CHARTER AND BY-LAW
PROVISIONS."
12. Indemnification of Directors
and Officers "LIABILITY AND
INDEMNIFICATION OF DIRECTORS
AND OFFICERS."
13. Financial
Statements
"CAPITALIZATION;" "SELECTED
HISTORICAL AND PRO FORMA
FINANCIAL DATA" and
Financial Statements
Beginning on Page F-1.
15. Financial Statements and
Exhibits.
(a) List of Financial
Statements "INDEX TO THE COMBINED
FINANCIAL STATEMENTS OF THE
DISTRIBUTED BUSINESSES OF
BESICORP GROUP INC."
INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
Item 10. Recent Sales of Unregistered Securities.
Following the organization of Newco on November 20, 1998, Oldco
contributed $500 to Newco for 500 shares of Newco Common Stock that Newco issued
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act") without registration under the Securities Act. As a result, Oldco became
the sole shareholder of Newco. Oldco remains the sole shareholder and it is
expected that it will remain the sole shareholder until the consummation of the
Spin-Off, at which time all of the shares of Newco issued to Oldco will be
distributed on a pro rata basis to the holders of Oldco Common Stock pursuant to
the Spin-Off.
Item 14. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(b) Exhibits The following documents are filed as exhibits hereto:
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Exhibit No. Description
2.1 Contribution and Distribution Agreement by and between
Besicorp Ltd. (the "Company") and Besicorp Group Inc.
("BGI")*.
3(i) Certificate of Incorporation of Besicorp Ltd.**
3(ii) By-Laws of Besicorp Ltd.**
10.1 Form of Indemnification Agreement by and among the
Company, BGI Acquisition LLC ("LLC") and BGI
Acquisition Corp.
("Acquisition")**
10.2 Form of Escrow Agreement by and among the Company, BGI,
LLC and Acquisition.**
10.3 Lease of Corporate Headquarters by and between the Company
and BGI*.
10.4 1999 Incentive Plan*.
21.1 List of Subsidiaries*.
27 Financial Data Schedule - 9 Months ended December 31, 1998
27.1 Financial Data Schedule - 9 Months ended December 31, 1997
27.2 Financial Data Schedule - Year ended March 31, 1998**
27.3 Financial Data Schedule - Year ended March 31, 1997**
*To be filed by amendment.
** Filed as an Exhibit to the Form 10-SB of Newco filed on
December 23, 1998 (File no. 000-25209).
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
BESICORP LTD.
By: /s/ Michael F. Zinn
Name: Michael F. Zinn
Title: Chairman of The Board,
Chief Executive Officer and
President
March 10, 1999
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT ON FORM 10-SB RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS INFORMATION STATEMENT SHALL
NOT CONSTITUTE AN OFFER TO SELL NOR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY INFORMATION STATEMENT
SUBJECT TO COMPLETION, DATED MARCH [ ], 1999
BESICORP LTD.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
This Information Statement is being furnished to shareholders
of Besicorp Group Inc., a New York corporation ("Oldco"), in connection with the
distribution by Oldco of all of the outstanding shares of common stock, par
value $.01 per share ("Newco Common Stock"), of Besicorp Ltd. ("Newco"), a New
York corporation and wholly owned subsidiary of Oldco, to the holders of record
of shares of common stock of Oldco ("Oldco Common Stock") as of the date (the
"Spin-Off Record Date") of, and immediately prior to, the consummation of the
Merger (as hereinafter defined), on the basis of one share of Newco Common Stock
for every 25 shares of Oldco Common Stock (the "Spin-Off"). No consideration
will be paid by the holders of Oldco Common Stock for the shares of Newco Common
Stock to be received by them in the Spin-Off. Fractional shares of Newco Common
Stock will not be issued and in lieu thereof, holders of Oldco Common Stock will
receive $[ ] in cash for each one twenty-fifth (1/25th) of a share of Newco
Common Stock.
Newco was formed in November 1998 for the purpose of effecting
the Spin-Off. The completion of the Spin-Off is a condition to the consummation
of the merger (the "Merger") provided for in the Agreement and Plan of Merger
dated November 23, 1998 (as amended, the "Plan of Merger"), by and among BGI
Acquisition LLC ("Acquisition"), BGI Acquisition Corp. a wholly owned subsidiary
of Acquisition ("Merger Sub"), and Oldco. The Spin-Off will be effected only if
all of the other conditions to the Merger, including approval of the Plan of
Merger by the shareholders of Oldco, have then been satisfied or waived. The
receipt of the shares of Newco Common Stock (and cash in lieu of fractional
shares) will be a taxable event to the recipients thereof. See "Material Federal
Income Tax Consequences."
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Prior to the Spin-Off Record Date, Oldco contributed to Newco
Oldco's assets pertaining to, among other things, Oldco's photovoltaic and
independent power plant development businesses and Newco assumed essentially all
of Oldco's liabilities and obligations, other than the Retained Liabilities (as
defined below). Newco also indemnified Acquisition, Merger Sub and Oldco, as the
entity surviving the Merger (the "Surviving Corporation"), against any damages
they suffer arising out of, among other things, Oldco's acts or omissions prior
to the Merger other than the Retained Liabilities (as defined below). This
Preliminary Information Statement uses the past tense to refer to certain events
such as the Contribution (as hereinafter defined) and the adoption of the Plan
of Merger by Oldco's shareholders, even though at the time of this Preliminary
Information Statement such events had not occurred, since they will have
occurred prior to the finalization and distribution of the Information
Statement. See "The Contribution and the Spin-Off" and "Relationship Between
Newco and Oldco after the Spin-Off."
There is currently no public trading market for the shares of
Newco Common Stock. Newco has not applied for listing of the Newco Common Stock
on the New York Stock Exchange, Inc., the American Stock Exchange or the Nasdaq
Stock Market, Inc. (each, an "Exchange") because it does not meet the stated
listing requirements of any Exchange. Accordingly, it is not anticipated that a
regular trading market will develop in the Newco Common Stock. See "Risk
Factors--Risk Related to the Distribution" and "Listing and Trading of Newco
Common Stock."
In reviewing this Information Statement, you should carefully
consider the matters described under the caption "RISK FACTORS" commencing on
page [ ].
----------------------
NO SHAREHOLDER APPROVAL IS REQUIRED OR SOUGHT IN CONNECTION
WITH THE SPIN-OFF. EACH SHAREHOLDER OF OLDCO WILL BE ENTITLED TO
RECEIVE, UPON COMPLETION OF APPROPRIATE DOCUMENTATION, A
CERTIFICATE EVIDENCING NEWCO COMMON STOCK (OR CASH IN LIEU OF
FRACTIONAL SHARES OF NEWCO COMMON STOCK) RECEIVED IN THE SPIN-
OFF. WE ARE NOT ASKING YOU FOR A PROXY, YOU ARE NOT TO SEND US A
PROXY AND YOU ARE NOT HEREBY REQUESTED TO TAKE ANY ACTION WITH
RESPECT TO YOUR SHARES.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES.
The date of this Information Statement is March [__], 1999.
THIS INFORMATION STATEMENT IS BEING FURNISHED SOLELY TO PROVIDE
INFORMATION TO SHAREHOLDERS OF OLDCO WHO WILL RECEIVE SHARES OF NEWCO COMMON
STOCK IN THE SPIN-OFF. IT IS NOT, AND IS NOT INTENDED TO BE CONSTRUED AS, AN
INDUCEMENT OR ENCOURAGEMENT TO BUY OR SELL ANY SECURITIES OF NEWCO OR OLDCO.
EXCEPT AS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS INFORMATION
STATEMENT IS BELIEVED TO BE ACCURATE AS OF MARCH [__], 1999. CHANGES MAY OCCUR
AFTER THAT DATE, AND NEITHER NEWCO NOR OLDCO WILL UPDATE THE INFORMATION
CONTAINED HEREIN EXCEPT IN THE NORMAL COURSE OF THEIR RESPECTIVE PUBLIC
DISCLOSURES.
ADDITIONAL INFORMATION
Newco has filed with the Securities and Exchange Commission
(the "SEC") a registration statement on Form 10-SB (such registration statement,
as it has been or may be amended or supplemented, the "Registration Statement")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
respect to the shares of Newco Common Stock to be received by the holders of
Oldco Common Stock in the Spin-Off. This Information Statement does not contain
all of the information which is set forth in the Registration Statement and the
exhibits and schedules thereto. Statements in this Information Statement as to
the contents of any contract, agreement or other document are summaries only and
are not necessarily complete. For complete information as to these matters,
refer to the applicable exhibit or schedule to the Registration Statement. The
Registration Statement and the exhibits and schedules thereto filed by Newco
with the SEC may be inspected and copied at the SEC's public reference
facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as at the Regional Offices of the SEC located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such information may be obtained by mail from the Public Reference
Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such material may also be obtained on line at the SEC's Web
site (http://www.sec.gov).
Newco is required to comply with the reporting requirements of
the Exchange Act and to file reports, proxy statements and other information
with the SEC. Additionally, Newco is required to provide annual reports
containing audited financial statements to its shareholders in connection with
its annual meetings of shareholders. Such reports, proxy statements and other
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information are available for inspection and copying at the public reference
facilities of the SEC and may be obtained by mail or over the Internet from the
SEC, as described above.
FORWARD-LOOKING STATEMENTS
This Information Statement includes or may include certain
forward-looking statements that involve risks and uncertainties that concern
Newco's financial position, business strategy, budgets, projected costs and
plans and objectives of management for future operations as well as other
statements including words such as "anticipate," "believe," "plan," "estimate,"
"expect," "intend," and other similar expressions. Although Newco believes its
expectations reflected in such forward-looking statements are based on
reasonable assumptions, shareholders are cautioned that no assurance can be
given that such expectations will prove correct and that actual results and
developments may differ materially from those conveyed in such forward- looking
statements. Important factors that could cause actual results to differ
materially from the expectations reflected in the forward-looking statements
herein include general economic, business and market conditions in the various
geographic regions and countries in which Newco engages in its business
activities, including fluctuations in the value of local currencies; costs or
difficulties related to the establishment of Newco as an independent entity
(including its ability to obtain financing and the costs thereof); and increased
competitive and/or customer pressures in the businesses in which it competes.
Such forward-looking statements speak only as of the date on which they are made
and Newco does not undertake any obligation to update any forward- looking
statement to reflect events or circumstances after the date of this Information
Statement. If Newco does update or correct one or more forward-looking
statements, shareholders and others should not conclude that Newco will make
additional updates or corrections with respect thereto or with respect to other
forward-looking statements.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND, IF
SO GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED.
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TABLE OF CONTENTS
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<S> <C> PAGE
SUMMARY..................................................................................................
Newco...........................................................................................
The Spin-Off and the Merger.....................................................................
RISK FACTORS.............................................................................................
CAPITALIZATION...........................................................................................
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.........................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS...............................................
Results of Operations for the Nine Months Ended
December 31, 1998 and 1997 and for the
Fiscal Years Ended March 31, 1998 and 1997.................................................
Inflation.......................................................................................
Liquidity and Capital Resources.................................................................
Year 2000.......................................................................................
BUSINESS.................................................................................................
Photovoltaic Activities.........................................................................
Power Development Activities....................................................................
Risks of International Operations; Risks of Operations in India.................................
Potential Non-Recurring Revenues................................................................
Research and Development........................................................................
Intellectual Property...........................................................................
Government Regulation and Environmental Matters.................................................
Employees.......................................................................................
Properties......................................................................................
Legal Proceedings ..............................................................................
THE CONTRIBUTION AND THE SPIN-OFF........................................................................
Introduction....................................................................................
The Contribution Agreement......................................................................
The Terms of the Spin-Off.......................................................................
Procedure for receiving certificates for shares of Newco Common Stock...........................
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................................................................
RELATIONSHIP BETWEEN NEWCO AND OLDCO AFTER THE SPIN-OFF..................................................
5
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The Indemnification Agreement...................................................................
The Escrow Agreement............................................................................
Additional Matters..............................................................................
MANAGEMENT...............................................................................................
Directors and Executive Officers................................................................
Executive Compensation..........................................................................
1999 Incentive Plan.............................................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................................................
THE MERGER...............................................................................................
DESCRIPTION OF THE CAPITAL STOCK.........................................................................
DESCRIPTION OF CERTAIN STATUTORY, CHARTER AND BY-LAW
PROVISIONS......................................................................................
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS..................................................
LISTING AND TRADING OF NEWCO COMMON STOCK................................................................
EXPENSES OF THE SPIN-OFF.................................................................................
INDEPENDENT ACCOUNTANTS..................................................................................
DIVIDEND POLICY..........................................................................................
INDEX TO THE COMBINED FINANCIAL STATEMENTS OF THE
DISTRIBUTED BUSINESSES OF BESICORP GROUP INC. ..................................................... F-1
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SUMMARY
The following is a summary of the information contained
elsewhere in this Information Statement. This summary does not purport to be
complete and is qualified in its entirety by, and is subject to, the more
detailed information and financial statements, including the notes thereto, set
forth elsewhere in this Information Statement. Unless otherwise defined herein,
capitalized terms used in this summary shall have the respective meanings
ascribed to them elsewhere in this Information Statement. SHAREHOLDERS ARE URGED
TO READ CAREFULLY THIS INFORMATION STATEMENT IN ITS ENTIRETY. Unless the context
indicates otherwise, all references to "Oldco," "Oldco's activities," the
"Company" or to the "Company's" activities, results of operations or financial
condition prior to the date of the Contribution (as defined below) refer to
Oldco and its subsidiaries and to the activities, results of operations or
financial condition of Oldco and its subsidiaries, and all references to
"Newco," "Newco's activities," the "Company" or to the "Company's" activities,
results of operations or financial condition subsequent to the date of the
Contribution refer to Newco and its subsidiaries and to the activities, results
of operations or financial condition of Newco and its subsidiaries.
NEWCO
Upon completion of the Spin-Off, the assets relating to
Oldco's photovoltaic and independent power plant development businesses and all
of Oldco's liabilities (other than the Retained Liabilities) will have been
transferred to Newco, which will then be an independent, publicly held company
engaged in the photovoltaic and independent power plant development businesses.
See "The Contribution and the Spin-Off." Newco's principal executive offices are
located at 1151 Flatbush Road, Kingston, New York, and its telephone number is
(914) 336- 7700.
THE SPIN-OFF AND THE MERGER
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DISTRIBUTING CORPORATION Besicorp Group Inc. ("Oldco"). References to
Oldco include its subsidiaries, except where the
context otherwise requires.
DISTRIBUTED CORPORATION Besicorp Ltd. ("Newco"), which, pursuant to the
Contribution and Distribution Agreement (the
"Contribution Agreement") by and between Oldco
and Newco holds the Contributed Assets (as defined
below), the Distributed Subsidiaries (as defined
below) and has assumed all of the liabilities of
Oldco, other than the Retained Liabilities (the
"Contribution"). See "The Contribution and the
Spin-Off--The Contribution Agreement." Newco is
engaged in the development, assembly, manufacture,
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marketing and resale of photovoltaic systems and
products and the development of independent power
plants. See "Business."
DISTRIBUTION RATIO One share of Newco Common Stock for every 25
shares of Oldco Common Stock owned as of the
Spin-Off Record Date. No fractional shares of
Newco Common Stock will be issued. Holders of
Oldco Common Stock entitled to receive Newco
Common Stock will in lieu of fractional shares (but
not in lieu of whole shares) of Newco Common
Stock receive [$______] in cash for each one
twenty-fifth (1/25th) of a share of Newco Common
Stock and will receive, in addition, such number of
whole shares of Newco Common Stock as to which
they are entitled. As a result, shareholders of Oldco
owning less than 25 shares of Oldco Common Stock
will receive cash but will not receive any Newco
Common Stock. See "The Contribution and the
Spin-Off--Terms of the Spin-Off."
SHARES TO BE DISTRIBUTED Assumed to be approximately 122,057 shares of
Newco Common Stock (based on the number of
shares of Oldco Common Stock outstanding on
March [ ], 1999, after giving effect to the exercise
of all outstanding options, warrants and other rights
to purchase Oldco Common Stock and assuming no
cancellation of shares as a result of fractional shares
being converted into cash). The number of shares of
Newco Common Stock to be canceled as a result of
the conversion of fractional shares into cash will be
less than 2,000. See "The Contribution and the
Spin-Off--Terms of the Spin-Off."
FEDERAL INCOME TAX
CONSEQUENCES The receipt of the shares of Newco Common Stock
(and cash in lieu of fractional shares) will be a
taxable event to the recipients thereof. The tax
consequences of such receipt may vary depending
upon, among other things, the particular
circumstances of the recipient. A recipient will
generally receive dividend income equal to the value
of the shares of Newco Common Stock (which is $[
--
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<CAPTION>
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] per share of Newco
Common Stock) or the amount
of cash or both received by
such recipient pursuant to
the Spin-Off.
Pursuant to the
New York Business
Corporation Law (the
"BCL"), claims of Oldco's
creditors, including claims
of such creditors as taxing
authorities, are not
extinguished by the Spin-
Off and the Merger and,
accordingly, the Surviving
Corporation will be liable
for the claims of both
Merger Sub and Oldco
immediately prior to the
Merger. Furthermore, as
former members of the Oldco
consolidated group, Newco
and the other members of
such group would be jointly
and severally responsible
for the U.S. federal income
tax liability of such group
for the years during which
they were members of such
group. Management is not
aware of any material
claims of Oldco's creditors
other than (i) the legal
proceedings described under
"Business -- Legal
Proceedings," (ii) the
accrued unpaid federal
income taxes for the
current fiscal year based
on the consolidated net
income of Oldco through the
effective date of the
Merger (the "Effective
Date"), (iii) the liability
of Oldco and/or its
Subsidiaries for New York
State income taxes for
Oldco's current fiscal
year, (iv) the indebtedness
of approximately $135,000
at December 31, 1998
incurred in connection with
the purchase of the
photovoltaic business (the
"SunWize Indebtedness") and
(v) accounts payable and
similar expenses incurred
in the ordinary course of
business. See "Business -
SunWize Indebtedness," the
Combined Financial
Statements of the
Distributed Businesses of
Besicorp Group Inc. and
Unaudited Pro Forma
Combined Financial
Information. Pursuant to
the Contribution Agreement,
Newco is assuming all of
Oldco's liabilities other
than the Retained
Liabilities (which include
the tax liabilities
referred to in (ii) and
(iii), above).
To the extent that as of
the Effective Date, the
Surviving Corporation is
not able to discharge all
claims of creditors
existing at the Effective
Date and
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the $6.5 million placed by
Oldco in escrow pursuant to
the escrow agreement (the
"Escrow Agreement") entered
into by Oldco, Newco,
Acquisition and Merger Sub
(the "Escrow Fund") is
insufficient to do so, it
is possible that the
creditors (including the
taxing authorities) may
seek to bring claims
against persons who were
shareholders of Oldco
immediately prior to the
Effective Date of the
Merger by asserting that
such shareholders are
subject to transferee
liability (i.e., that such
shareholders are liable for
the obligations of Oldco by
virtue of the fact that
they received the Merger
Consideration (as defined
below) or the Newco Common
Stock (or cash received in
lieu of fractional shares
of Newco Common Stock) or
both, although such
potential liability of any
shareholder would
presumably be limited to
the value of the Merger
Consideration or Newco
Common Stock (or cash
received in lieu of
fractional shares of Newco
Common Stock) or both
received by such
shareholder, plus any
allowable interest charge).
If any such claims were to
be made and be successful,
the net benefit received by
such shareholders from the
Merger Consideration and
the Spin-Off could be
materially reduced.
Newco's shareholders should
read carefully the
discussion under "Material
Federal Income Tax
Consequences" and are urged
to consult their own tax
advisors as to the tax
consequences of the Merger
to them under federal,
state, local or any other
applicable law. Newco has
not obtained an opinion of
counsel with respect to the
disclosure set forth above
and under "Material Federal
Income Tax Consequences."
TRADING MARKET Currently, there is no public trading market for
Newco Common Stock and it is not anticipated that
any such market will develop. Newco has not
applied and does not intend to apply for listing of the
Newco Common Stock on any Exchange because it
does not meet the stated listing requirements
thereof. Trading, if any, in Newco Common Stock
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will take place only in the over-the-counter market.
See "Listing and Trading of Newco Common
Stock."
OVERVIEW OF NEWCO Newco is engaged
in the photovoltaic and
independent power plant
development businesses.
See "Business."
OVERVIEW OF THE SPIN-OFF Under the
terms of the Plan of
Merger, Oldco is required
to effect the Spin-Off
prior to the consummation
of the Merger. As a result
of the Spin-Off, Newco will
generally consist of the
following:
Assets (i) all of Oldco's assets pertaining to the
photovoltaic and power plant development
businesses (including interests in power plant
projects and initiatives in the United States, India,
Brazil and Mexico and trade receivables, furniture,
fixtures and equipment related to these businesses
(See "Unaudited Pro Forma Combined Financial
Information")); (ii) $1.5 million in cash; (iii) the
interests in the Partnerships (as defined below); and
(iv) all other assets not retained by Oldco
(collectively, the assets described under (i), (ii), (iii)
and (iv) are the "Contributed Assets").
Subsidiaries all of Oldco's subsidiaries and affiliates other than
(i) the subsidiaries owning the interests in the
partnerships (the "Partnerships") that formerly
owned the five domestic power plants (the "Power
Plants") which provided capacity and electrical
power to Niagara Mohawk Power Corporation
("Niagara Mohawk")) and (ii) the subsidiary that
owns the Corporate Headquarters (as defined)
(collectively, the subsidiaries described under (i) and
(ii) are the "Retained Subsidiaries" and the other
subsidiaries and affiliates are the "Distributed
Subsidiaries").
Liabilities all of Oldco's liabilities
(the only material
liabilities that Newco is
aware of are the contingent
liabilities arising out of
legal proceedings to which
Oldco is a
</TABLE>
11
<PAGE>
party (see "Business -
Legal Proceedings"), the
SunWize Indebtedness and
accounts payable and
similar expenses incurred
in the ordinary course of
business (see "Business --
SunWize Indebtedness," the
Combined Financial
Statements of the
Distributed Businesses of
Besicorp Group Inc. and
Unaudited Pro Forma
Financial Information),
excluding (i) the actual or
accrued liabilities of
Oldco or any subsidiary
that is a Retained
Subsidiary for unpaid
federal income taxes for
the current fiscal year
based on the consolidated
net income of Oldco through
the Effective Date (the
"Specified Current
Liabilities"); (ii) the
liability of Oldco or its
subsidiaries for New York
State income Taxes for
Oldco's current fiscal year
(the "Excluded Liability");
and (iii) various
intercompany liabilities
between Oldco and the
Retained Subsidiaries
(collectively the
liabilities described under
(i), (ii) and (iii) are the
"Retained Liabilities" and
the other liabilities are
the "Assumed Liabilities").
The directors and officers
of Oldco will be the
directors and officers of
Newco at the time of the
Spin-Off. The Spin-Off will
not be completed unless all
of the other conditions to
the Merger have been
satisfied or waived. See
"The Contribution and the
Spin-Off--The Terms of the
Spin-Off."
OVERVIEW OF THE MERGER In the Merger, Merger Sub
will be merged with and
into Oldco (which only owns
the Retained Assets and the
Retained Liabilities), with
Oldco being the surviving
corporation (the "Surviving
Corporation") and becoming
a wholly owned subsidiary
of Acquisition. The Plan of
Merger provides that the
Surviving Corporation will
change its name within 30
days after the date (the
"Merger Closing Date") of
the consummation of the
transactions contemplated
by such plan (the "Merger
Closing") to a name which
does not include the word
"Besicorp." At the
Effective Date of the
Merger, each issued and
outstanding share of Oldco
Common Stock will be
converted into the right to
receive $34.50, subject to
upward (but not
12
<PAGE>
<TABLE>
<CAPTION>
<S>
<C>
downward) adjustment in
certain circumstances ("the
"Merger Consideration").
The holders of Oldco Common
Stock immediately prior to
the Effective Date will
receive letters of
transmittal requesting that
they surrender their Oldco
share certificates. Upon
surrender, such holders
will receive the Merger
Consideration applicable to
the Oldco Common Stock
evidenced by such
certificates. The
consummation of the Merger
is subject to the
satisfaction or waiver of
various conditions. See
"The Merger" and
"Relationship Between Newco
And Oldco After The
Spin-Off."
RELATIONSHIP WITH OLDCO
AFTER THE MERGER After the Merger, Oldco and Newco will become
separately owned and managed companies. Oldco
will be owned by Acquisition and Newco will be
owned by the holders of Oldco Common Stock as of
the Spin-Off Record Date (the "Entitled Holders").
Immediately prior to the Merger Closing, one or
more of Oldco, Newco, Merger Sub, and
Acquisition will enter into the following agreements
governing various matters and ongoing relationships
between Acquisition, the Surviving Corporation and
Newco following the Spin-Off and the Merger: (i)
the Indemnification Agreement (the
"Indemnification Agreement"), which obligates
Newco to indemnify Merger Sub, Acquisition, the
Surviving Corporation, and certain other parties
from any damage they suffer arising out of, among
other things, Oldco's breach of representations and
warranties set forth in the Plan of Merger and
certain liabilities, taxes and litigation of Oldco other
than the Retained Liabilities, and (ii) the Escrow
Agreement, which governs the $6,500,000 placed by
Oldco in escrow to, among other things, (a) satisfy
Newco's obligations under the Indemnification
Agreement and (b) provide for the payment of,
among other things, certain litigation and related
costs. Following the fifth anniversary of the Merger
Closing Date and the satisfaction of certain
conditions, the remainder of the Escrow Fund, if
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S>
<C>
any, will be released to Newco. See "Relationship
Between Newco and Oldco After the Spin-Off."
DISTRIBUTION AGENT,
TRANSFER AGENT AND
REGISTRAR Continental Stock Transfer
& Trust Company
("Continental") will serve
as the distribution agent
(the "Distribution Agent")
for the Spin-Off and as the
transfer agent and
registrar for the Newco
Common Stock and is the
paying agent responsible
for disbursing the Merger
Consideration.
SPIN-OFF RECORD DATE The Spin-Off Record Date is expected to be the
same day as the Effective Date. The Spin-Off will
be effectuated at that time. Therefore, the holders
of Oldco Common Stock on the Spin-Off Record
Date (other than those Entitled Holders holding
fewer than 25 shares of Oldco Common Stock) will
become the shareholders of Newco. See "The
Contribution and the Spin-Off--Terms of the Spin-
Off."
DISTRIBUTION OF Oldco will deliver to Continental shares of Newco
SHARE CERTIFICATES Common Stock representing 100% of the
outstanding shares of Newco
Common Stock for
distribution to the
Entitled Holders.
Continental will distribute
to all Entitled Holders a
letter of transmittal
requesting the delivery of
their certificates
evidencing shares of Oldco
Common Stock in order to
receive the Merger
Consideration. The letter
of transmittal will be
accompanied by a letter
informing such Entitled
Holders about the
occurrence of the Spin-Off
and that certificates
evidencing their shares of
Newco Common Stock and/or
cash in lieu of fractional
shares (as well as the
Merger Consideration) will
be distributed upon
Continental's receipt of
their certificates
evidencing shares of Oldco
Common Stock. Upon receipt
of each such certificate,
Continental will distribute
to the Entitled Holder
delivering such certificate
both the Merger
Consideration and the
certificate evidencing
shares (and/or cash in lieu
of fractional shares) of
Newco Common Stock relating
thereto as
14
</TABLE>
<PAGE>
promptly as practicable.
PLEASE DO NOT SEND IN YOUR
OLDCO SHARE CERTIFICATES
AT THIS TIME. See "The
Contribution and the Spin-
Off--The Terms of the
Spin-Off."
RISK FACTORS
Any investment in our shares of common stock involves a high
degree of risk. You should consider carefully the following information about
these risks, together with the other information contained in this Information
Statement, before you decide to buy or sell our common stock. If any of the
following risks actually occur, our business, results of operations and
financial condition would likely suffer. In these circumstances, the market
price of our common stock could decline, and you may lose all or part of your
investment.
Risks Related to Our Operations
We have a history of losses and expect future losses.
For the nine months ended December 31, 1998, and the years
ended March 31, 1998 ("Fiscal 1998 ") and March 31, 1997 ("Fiscal 1997"), those
parts of Oldco being distributed to Newco pursuant to the Contribution (the
"Distributed Businesses") had losses on an historical basis of $(4.3 million),
$(7.4 million) and $(4.8 million), respectively, on total revenues of $3.3
million, $4.3 million and $5 million, respectively. On a pro-forma basis, the
Distributed Businesses had losses of $(4.4 million) and $(7.4 million) for the
nine months ended December 31, 1998 and the year ended March 31, 1998,
respectively. Gross margins with respect to Oldco's product sales (principally
photovoltaic products) were (2%) and 4% for the nine months ended December 31,
1998 and 1997, respectively, and (4)% and 7% for the years ended March 31, 1998
and 1997, respectively. The narrow gross profit margins are due, in part, to the
competitive nature of the photovoltaic business which results in part from the
fact that many of the Company's photovoltaic products are treated in the
marketplace as commodities. No assurance can be given that gross margins will
improve or that Newco will ever be profitable. See "Management's Discussion and
Analysis or Plan of Operations", "Selected Historical and Pro Forma Financial
Data," the Combined Financial Statements of the Distributed Businesses of
Besicorp Group Inc. and the Unaudited Pro Forma Combined Financial Information.
We have immediate cash needs since we only have sufficient cash to operate for a
few months and our auditor's report expresses concern about our ability to
continue in business.
At December 31, 1998 and March 31, 1998, the Distributed
Businesses had working capital on a historical basis of approximately $819,000
and $486,000, respectively, and on a pro-forma basis, had working capital of
approximately $2.18 million at December 31, 1998.
15
<PAGE>
Management estimates that after giving effect to the anticipated receipt in May
1999 of approximately $1 million to $1.5 million from the sale of pollution
control emission credits, as to which no assurance can be given, the funds
available to Newco are only sufficient to allow Newco to continue operations for
four to six months (two to four months, if the funds from the sale of these
credits are not received when contemplated) from the date of this Information
Statement. See "Business -- Potential Non-Recurring Revenues." Without
additional funds, Newco may not be able to pay its obligations as they become
due. The failure of Newco to obtain additional funds or otherwise reduce its
short term obligations would materially adversely affect Newco and could require
it to curtail operations. The report of Newco's independent auditors is
qualified with respect to Newco's ability to continue in existence. The
auditor's expression of concern in its report about Newco's ability to continue
as a going concern both indicate the seriousness of Newco's financial problems
and will make lenders and investors more hesitant about providing financing of
any kind should such financing be sought and is likely to allow potential
lenders or investors to obtain more favorable terms in connection with any
financing than if Newco were not subject to such concern. Newco intends to
retain a financial advisor following the Spin-Off to, among other things,
explore the options available to it which options may include a debt or equity
financing though no assurance can be given that a financing will be pursued or
available or that if pursued and available, that it will not be dilutive to
Newco's shareholders. See "Capitalization," "Management's Discussion and
Analysis or Plan of Operations," "Selected Historical and Pro Forma Financial
Data," the Combined Financial Statements of the Distributed Businesses of
Besicorp Group Inc. and the Unaudited Pro Forma Combined Financial Information.
We have agreed to accept liability for most of the legal proceedings against
Oldco, if it is determined that Oldco was at fault; if Oldco's creditors cannot
collect from Oldco, they may bring claims against Newco or Oldco's shareholders.
Newco has assumed all the liabilities and obligations arising
out of legal proceedings to which Oldco is party to the extent it arises out of
or relates to any action or inaction of, or the conduct of the business of Oldco
or any Subsidiary on or prior to the Merger Closing Date except for certain
litigation specified in the Indemnification Agreement (the "Existing
Litigation"). Therefore, Newco is liable for substantially all awards of
damages, if any, in any such actions brought against Oldco. See "Business --
Legal Proceedings." Pursuant to the BCL, claims of Oldco's creditors, including
claims of such creditors as taxing authorities, are not extinguished by the
Spin-Off and the Merger and, accordingly, the Surviving Corporation will be
liable for the claims of both Merger Sub and Oldco immediately prior to the
Merger. Furthermore, as former members of the Oldco consolidated group, Newco
and the other members of such group would be jointly and severally responsible
for the U.S. federal income tax liability of such group for the years during
which they were members of such group. Management is not aware of any material
claims of Oldco's creditors other than (i) the legal proceedings described under
"Business -- Legal Proceedings," (ii) the accrued unpaid federal income taxes
for the current fiscal year based on the consolidated net income of Oldco
through the Effective Date, (iii) the liability of Oldco and/or its Subsidiaries
for New York State income taxes for Oldco's current fiscal year and (iv) the
SunWize Indebtedness and accounts payable and similar indebtedness
16
<PAGE>
incurred in the ordinary course of business. See "Selected Historical and Pro
Forma Financial Data," the Combined Financial Statements of the Distributed
Businesses of Besicorp Group Inc. and the Unaudited Pro Forma Combined Financia
Information. Pursuant to the Contribution Agreement, Newco is assuming all of
Oldco's liabilities other than the Retained Liabilities.
To the extent that the Surviving Corporation is not able to
discharge all claims of creditors of Oldco existing at the Effective Date and
the Escrow Fund is insufficient to do so, it is possible that the creditors
(including the taxing authorities) may seek to bring claims against persons who
were shareholders of Oldco immediately prior to the Effective Date of the Merger
by asserting that such shareholders are subject to transferee liability (i.e.,
that such shareholders are liable for the obligations of Oldco by virtue of the
fact that they received the Merger Consideration or the Newco Common Stock (or
cash received in lieu of fractional shares of Newco Common Stock) or both,
although such potential liability of any shareholder would presumably be limited
to the value of the Merger Consideration or Newco Common Stock (or cash received
in lieu of fractional shares of Newco Common Stock) or both received by such
shareholder, plus any allowable interest charge). If any such claims were to be
made and be successful, the net benefit received by shareholders from the Merger
Consideration and the Spin- Off could be materially reduced. See "Material
Federal Income Tax Consequences" and "Relationship between Oldco and Newco After
the Spin-Off--The Indemnification Agreement."
Since our principal shareholder owns more than 50% of our shares, he can elect
and remove all of our directors and exercise significant control over us.
It is estimated that, after the Spin-Off, Michael F. Zinn, the
Chairman of the Board, President and Chief Executive Officer of Newco, will own,
after giving effect to the elimination of fractional shares of Newco Common
Stock, at least 51.5% and own not more than approximately 55% of the then
outstanding shares of Newco Common Stock. See "Security Ownership of Certain
Beneficial Owners and Management." Holders of Newco Common Stock will be
entitled to one vote per share on all matters voted on generally by the
shareholders, including the election of directors, and, initially, the holders
of such shares will possess all of Newco's voting power. The Certificate of
Incorporation of Newco (the "Newco Certificate") does not provide for cumulative
voting for the election of directors. Thus, the holders of more than 50% of the
outstanding shares of Newco Common Stock generally will be able to elect all the
directors of Newco then standing for election and holders of the remaining
shares will not be able to elect any director. Consequently, as Mr. Zinn will
hold more than 50% of the outstanding shares, he will be able to elect (and
remove) all of the members of Newco's Board of Directors (the "Newco Board") and
exercise substantial influence over the outcome of any issues which may be
subject to a vote of Newco's shareholders and the policies and direction of
Newco. See "Description of the Capital Stock--Common Stock"
Since our principal shareholder owns more than 50% of our shares, he can sell
Newco.
17
<PAGE>
It is estimated that Michael F. Zinn will own between 51.5%
and 55% of the outstanding Newco Common Stock after the Spin-Off. Consequently,
if a prospective purchaser were to reach an agreement with Mr. Zinn to purchase
his stock (the "Zinn Stock") and acquire Newco, the Zinn Stock would be
sufficient to guarantee shareholder approval of the transaction by which such
purchaser would acquire Newco.
We eliminated certain potential obstacles that may have hindered shareholders
with large holdings from engaging in certain business transactions with us.
Generally, New York corporations are subject to the provisions
of Section 912 of the BCL if they have a class of securities registered under
Section 12 of the Exchange Act. Section 912 provides, with certain exceptions,
that a New York corporation shall not engage in a "business combination" (e.g.,
merger, consolidation, recapitalization or disposition of stock or assets) with
any "interested shareholder" for a period of five years from the date that such
person first became an interested shareholder. After the end of such five year
period, generally the interested shareholder may engage in a business
combination only if (a) the business combination is approved by the holders of a
majority of the outstanding voting stock not beneficially owned by such
interested shareholder or (b) the business combination meets certain valuation
and consideration requirements for the stock of such corporation. An "interested
shareholder" is defined as any person that is the beneficial owner of 20% or
more of the then-outstanding voting stock. Therefore, ordinarily, Michael F.
Zinn, as the beneficial owner of more than 20% of the Newco Common Stock, may
not have been able to engage in a business combination with Newco for five years
after the Spin-Off Record Date. Moreover, after the end of such five year
period, ordinarily he may not have been able to engage in a business combination
unless the business combination were approved by the holders of a majority of
the outstanding voting stock not beneficially owned by Mr. Zinn. However, the
Newco Certificate provides that Section 912 does not apply to Newco. Therefore,
Mr. Zinn or any other person who qualifies as an "interested shareholder" would
be able to engage in a business combination with Newco at any time, subject, to
the extent required by the BCL, to the approval of such transaction by the Newco
Board and/or the shareholders of Newco. See "Description of Certain Statutory,
Charter and By-Law Provisions."
No take-over is likely to succeed without our principal shareholder's assistance
and as a result, it is unlikely that any one would commence a hostile takeover
that would drive up the price of the shares.
<PAGE>
Frequently prospective purchasers of companies offer
substantial premiums to shareholders who agree to tender their shares so that
the prospective purchaser may effectuate a change of control of a company. Mr.
Zinn will own between 51.5% and 54% of the outstanding Newco Common Stock after
the completion of the Spin-Off. Consequently no one will be able to acquire
control of Newco without Mr. Zinn's assent. In addition, even though neither the
Newco Certificate nor the By-Laws of Newco (the "Newco By-Laws") contain any
provisions intended to discourage non-negotiated takeover attempts, there will
be, after the completion of the Spin- Off, approximately 4.88 million unissued
and unreserved shares of Newco Common Stock and one million unissued and
unreserved shares of Newco's Preferred Stock, par value $.01 per share (the
"Newco Preferred Stock"). One of the effects of the existence of unissued and
unreserved shares of Newco Common Stock and Newco Preferred Stock may be to
enable the Newco Board to discourage an attempt to change control of Newco and
thereby to protect the continuity of Newco's management. If, in the due exercise
of its fiduciary duties, the Newco Board determined that an attempt to change
control of Newco was not in Newco's best interest, the Newco Board could
authorize, without having to obtain approval of the shareholders, the issuance
of such shares in one or more transactions that might prevent or render more
difficult the completion of such attempt. See "Description of the Capital
Stock--Certain Effects of Authorized and Unissued Stock."
Our business may be adversely affected by competition.
The photovoltaic and power plant markets in which Newco
operates are highly competitive. Many of Newco's competitors have greater
financial, marketing, manufacturing and distribution resources than those of
Newco. There can be no assurance that Newco will be able to compete successfully
in any of these businesses. See "Business."
We may not be successful in responding to technological change or in developing
new products.
New photovoltaic energy products are constantly developed.
Newco believes that its future success will depend on, among other things, its
ability to develop on a timely basis technologically advanced products that meet
the requirements of its customers. There can be no assurance that Newco will
have the resources necessary to make investments in technology, that Newco will
be able to make the technological advances necessary to remain competitive, that
Newco will be able to successfully market its new products, if any, or that a
new product, standard or technology will not emerge which could render its
existing products obsolete. See "Business."
We face risks inherent in foreign operations which could materially and
adversely affect our power plant development business.
Newco's independent power plant development project in India,
and its initiatives in Brazil and Mexico are subject to the risks generally
attendant to foreign operations (and in particular, risks attendant to foreign
operations in less developed countries), including compliance with and
unexpected changes in foreign regulatory requirements, trade barriers, currency
control regulations, fluctuations in exchange rates, political and economic
instability, the potential for expropriation, local economic conditions, and
difficulties in staffing and managing foreign operations. Further, commercial
and corporate laws in these markets are still significantly less developed than
comparable laws in industrialized countries and are subject to change, including
extensive revisions, preemption by local laws or administrative regulations or
new regimes. The
18
<PAGE>
uncertainties associated with the existing and future laws and regulations in
Newco's markets may have an adverse effect on Newco's ability to conduct its
business and to generate profits.
We develop power plants with partners, and we cannot control these partners and
could be materially and adversely affected as a result of disputes with these
partners.
Newco anticipates that all of its power plant development
initiatives will be conducted with one or more partners. At present, Newco and
Empire State Newsprint LLC ("Empire") have a memorandum of understanding to form
a joint development partnership (in which each party would have a 50% interest,
which interests may be diluted in connection with the financing of such project)
to develop a recycled newsprint manufacturing plant in Kingston, New York and a
power plant adjacent thereto (the "Kingston Project"). Newco also has a
development project in India that is being conducted with Chesapeake Power
Investments Co. (which owns 50% of the entity developing the initiative). In
addition, efforts to develop projects in Brazil are being made jointly with MPR
Associates Inc. See "Business - - Power Development Activities." Newco may not
be able to influence the management of the partnerships in which it has or may
acquire interests and may be limited with respect to its ability to obtain
information regarding such partnerships' activities or to control the
operations, strategies and financial decisions of the entity developing the
power plant or any partnership in which it acquires an ownership interest. Any
significant disagreements among the partners could have a material adverse
effect on such venture. Moreover, the equity interests of Newco in these
partnerships generally would not be freely transferable. Therefore, there can be
no assurance of Newco's ability to realize economic benefits through the sale of
its interests in these ventures.
Our photovoltaic business depends on one supplier and would be adversely
affected if we were to lose that supplier; our photovoltaic business might also
be adversely affected if we were to lose our biggest customer.
Newco relies principally on one supplier, Siemens Solar
Industries ("Siemens"), with which it does not have a supply agreement, for
solar electric modules (i.e., the device that converts light into electricity).
While management believes alternative sources of supply are available, no
assurance can be given that these supplies will continue to be available on
terms currently available and the inability to obtain such supplies from
alternative suppliers on similar terms could have an adverse effect on Newco's
operations. During the nine months ended December 31, 1998 and Fiscal 1998,
sales to one customer, Allmand Brothers Inc. ("Allmand"), with which it does not
have a purchase or similar agreement, accounted for 9% and 14%, respectively, of
sales of photovoltaic products. The loss of such customer could have an adverse
effect on Newco's operations. See "Business."
Our photovoltaic business depends on our dealers and distributors and would be
adversely affected if we were to lose a number of our dealers and distributors.
19
<PAGE>
Newco conducts much of its sales with respect to its
photovoltaic business through dealers and distributors. Such dealers and
distributors are not subject to minimum purchase requirements, may sell
competing products, and may discontinue marketing Newco's products without
notice. The loss of, or a significant reduction in sales volume through, Newco's
dealers or distributors could have a material adverse effect on Newco's
operations. Newco is not dependent on any particular dealer or distributor for
sales of its photovoltaic products. See "Business - - Sales and Distribution."
We have agreed to indemnify Oldco's buyer with respect to environmental claims
made against Oldco.
Newco has agreed to indemnify the Surviving Corporation and
Acquisition with respect to environmental claims made against Oldco. No such
claims against Oldco are outstanding and it is not anticipated that any claims,
material to Newco, will be asserted. Foreign, federal, state and local
environmental laws and regulations may under certain circumstances impose joint
and several liability for investigation and remediation of contamination at
locations owned or operated by Newco, Oldco or their predecessors, or at
locations at which wastes or other contamination attributable to Newco, Oldco or
their predecessors have come to be located. Newco can give no assurance that
such liability at facilities Newco currently owns or operates, or at other
locations, will not arise or be asserted against Newco or entities for which it
may be responsible. Such other locations could include, for example, facilities
formerly owned or operated by Newco or by Oldco, including the power plants
formerly owned by Oldco or its affiliates. See "Relationship Between Newco and
Oldco After the Spin-Off--The Indemnification Agreement" and "Business."
We are dependent on our senior management and employees for our future success.
Newco's future performance will depend, in part, upon the
efforts and abilities of Newco's senior management and employees. The loss of
service of one or more of these persons could have an adverse effect on Newco's
business and development. Newco has not entered and does not intend to enter
into employment agreements with any of these persons and does not maintain
key-man life insurance on the life of any person other than a $3 million policy
on the life of Michael F. Zinn, its Chairman of the Board, President and Chief
Executive Officer. Because of Newco's limited financial resources, Newco may be
unable to compensate management and employees at the levels prevailing at Oldco
and accordingly, may be unable to retain employees critical to its success. See
"Management."
Because we are a New York corporation, our ten largest shareholders are liable
for unpaid wages.
Under Section 630 of the BCL, unless the Newco Common Stock is
regularly quoted on an over-the-counter market, the ten largest shareholders of
Newco will be personally
20
<PAGE>
liable for unpaid wages and debts to Newco's employees.
See "Description of the Capital Stock--Common Stock."
We are a new company and our historical financial information may not be useful
in predicting future results.
The historical financial information included in this
Information Statement is that of the Distributed Business (i.e., those parts of
Oldco being distributed to Newco) and not of Newco and may not necessarily
reflect the results of operations, financial position and cash flows of Newco in
the future or Newco's results of operations, financial position and cash flows
had Newco operated as a separate stand-alone entity during the periods
presented. This historical financial information (i) includes operations
relating to solar thermal and heat transfer products which were discontinued in
Fiscal 1998 (and therefore will not be part of Newco's activities on a
going-forward basis); (ii) does not reflect the financial effects of the
Partnerships owning the Power Plants in which Oldco had interests; and (iii)
does not reflect any changes that may occur in the funding and operations of
Newco as a result of the Spin-Off. As a result of the MRA (as defined below) and
the sale of the Power Plants, Newco will not receive the revenues and income
that Oldco had historically received from the Partnerships. See "Summary -
Overview of the Spin-Off", "The Contribution and the Spin-Off", "Selected
Historical and Pro Forma Financial Data" and "Management's Discussion and
Analysis or Plan of Operations."
Risks Related to the Distribution
There has been no prior public market for our stock and it is possible that no
market will develop; our shares may experience extreme price and volume
fluctuations.
There is currently no existing trading market for Newco Common
Stock. Newco has not applied and currently does not intend to apply for listing
of Newco Common Stock on any Exchange because it does not meet the stated
listing requirements of any Exchange. Newco Common Stock may be traded on the
OTC Electronic Bulletin Board, a screen-based trading system operated by the
National Association of Securities Dealers, Inc. Securities traded on the OTC
Electronic Bulletin Board are, for the most part, thinly traded and subject to
special regulations not imposed on securities listed or traded on any Exchange.
Accordingly, no assurance can be given that a trading market (liquid or
illiquid) will develop for the Newco Common Stock. If a trading market does not
develop or is not maintained, holders of the Newco Common Stock may experience
difficulty in reselling shares of the Newco Common Stock or may be unable to
sell them at all. If a market for the Newco Common Stock develops, any such
market may be discontinued at any time. If a public trading market develops for
the Newco Common Stock, future trading prices of such securities will depend on
many factors including, among other things, prevailing interest rates, Newco's
results of operations and the market for similar securities. There can be no
assurance as to the price at which Newco Common Stock will trade. See "Listing
and Trading of Newco Common Stock."
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<PAGE>
We have the ability to issue shares of Preferred Stock which would have an
adverse impact on holders of Newco Common Stock.
The Newco Board is authorized to issue shares of Newco
Preferred Stock. The issuance of Newco Preferred Stock could decrease the assets
and amount of earnings, if any, available for distribution to the holders of the
Newco Common Stock or could adversely affect the rights and powers, including
voting rights, of the holders of Newco Common Stock. See "Description of the
Capital Stock--Preferred Stock."
We do not intend to pay cash dividends and, as a result, shareholders will need
to sell shares to realize a return on their investment.
Newco has never declared or paid any cash dividends on the
Newco Common Stock and does not anticipate paying any cash dividends in the
immediate future. See "Dividend Policy."
We can issue many more shares of our common stock and if we were to sell any
shares, those sales may negatively affect our stock price.
The Spin-Off will involve the distribution to holders of Oldco
Common Stock of an aggregate of approximately 122,057 shares of Newco Common
Stock (assuming no cancellation of shares as a result of fractional shares being
converted into cash), representing all of the outstanding shares of Newco Common
Stock. It is expected that substantially all of these shares (other than the
Zinn Stock) will be eligible for immediate resale in the public market. Sales of
substantial amounts of Newco Common Stock, or the perception that such sales
could occur, may adversely affect prevailing market prices, if any, for the
Newco Common Stock. Newco may, pursuant to the 1999 Incentive Plan, issue up to
40,000 shares of Newco Common Stock, which may depress the price for such stock.
CAPITALIZATION
The following table sets forth the unaudited capitalization of Newco as
at December 31, 1998 on a historical basis and on a pro forma basis. The
unaudited pro forma capitalization reflects the distribution to Newco from Oldco
of cash of $1,500,000 and the satisfaction of all debt except debt issued in
connection with Oldco's acquisition of a subsidiary, which subsidiary has been
distributed to Newco, and accounts payable and similar indebtedness incurred in
the ordinary course of business.
This table should be read in conjunction with the Combined Financial
Statements of the Distributed Businesses of Besicorp Group Inc. and notes
thereto, the Unaudited Pro Forma Combined Financial Information and "Selected
Historical and Pro Forma Financial Data" and
22
<PAGE>
notes thereto included elsewhere herein. The unaudited pro forma information set
forth below does not necessarily reflect the capitalization of Newco in the
future or as it would have been had the Spin-Off occurred on December 31, 1998.
<TABLE>
<CAPTION>
<S>
<C> <C> <C>
Historical Adjustments Pro Forma
Long-Term Debt:
Current Maturities of Long-Term Debt $ 11,700 $ - $ 11,700
Long-Term Debt 123,608 123,608
------- -------
Total Long-Term Debt $ 135,308 $ - $ 135,308
======== =======
Shareholders' Equity:
Common Stock-authorized 5,000,000
shares, $.01 par value, issued and
outstanding 122,057 shares $ - $ 1,221 $ 1,221
Preferred Stock-authorized and
unissued, 1,000,000 shares - - -
Paid-in Capital - 5,441,922 5,441,992
Total Combined Equity 1,617,996 (1,617,996)(a) -
Total Shareholders' Equity $ 1,617,996 $ 3,825,147 $ 5,443,143
--------- --------- ---------
Total Capitalization: $ 1,753,304 $ 3,825,147 $ 5,578,451
========= ========= =========
</TABLE>
- -----------------------
(a) Gives effect to (i) the issuance of 122,057 shares of Newco Common Stock
(assuming no cancellation of shares as a result of fractional shares being
converted into cash), (ii) the distribution by Oldco to Newco of $1.5
million in cash, (iii) the assignment by Oldco to Newco of Oldco's
interests in the Partnerships, and (iv) the reclassification of the
combined equity in excess of par value to paid in capital. See "Unaudited
Pro Forma Combined Financial Information."
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth certain historical combined financial
data for the Distributed Businesses for Fiscal 1997 and Fiscal 1998 and the nine
month periods ended December 31, 1997 and 1998. The historical combined
financial data for Fiscal 1997 and 1998 (audited), and the nine months ended
December 31, 1997 and 1998 (unaudited), were derived from the Combined Financial
Statements of the Distributed Businesses of Besicorp Group Inc. included
elsewhere
23
<PAGE>
herein. In the opinion of management, the historical combined financial data of
the Distributed Businesses for the nine months ended December 31, 1997 and 1998
include all adjusting entries (consisting only of normal recurring adjustments)
necessary to present fairly the information set forth therein. The historical
combined financial data are not necessarily indicative of the results of
operations for any future period. Furthermore, the results of operations for the
nine months ended December 31, 1997 and 1998 should not be regarded as
indicative of the results that may be expected for the full year.
The summary pro forma combined income statement data for Fiscal 1998
and the nine months ended December 31, 1998, and the summary pro forma balance
sheet at March 31, 1998, reflect the effects on the historical results of the
Distributed Businesses of: (i) the leasing of the Corporate Headquarters from
Oldco; (ii) the assignment to Newco of Oldco's interests in the Partnerships;
(iii) distribution of the shares of Newco Common Stock to the Entitled Holders;
and (iv) the transfer to Newco of $1,500,000. The accounting for this transfer
of assets and liabilities represents a reorganization of companies under common
control and, accordingly, all assets and liabilities will be reflected at their
historical cost basis.
The summary pro forma combined financial data set forth below is not
necessarily indicative of the results of the operations or financial position of
the Distributed Businesses had the transactions reflected therein actually been
consummated on the dates assumed and is not necessarily indicative of Newco's
future performance as an independent entity. The pro forma adjustments, as
described in the Notes to the Unaudited Pro Forma Combined Balance Sheet and
Notes to the Unaudited Pro Forma Combined Statements of Operations are based on
available information and upon certain assumptions that management believes are
reasonable. The summary pro forma combined financial data should be read in
conjunction with "Management's Discussion and Analysis or Plan of Operation,"
the Combined Financial Statements of the Distributed Businesses of Besicorp
Group Inc. and notes thereto and the Unaudited Pro Forma Combined Financial
Information and notes thereto included elsewhere herein.
24
<PAGE>
Income Statement Data
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(In Millions, Except Per Share Amounts)
Year Ended March 31, Nine Months Ended December 31,
-------------------- ------------------------------
1998 1997 Pro Forma 1998 1998 1997
---- ---- -------------- --------------------------------
(Unaudited) Historical Pro Forma (Unaudited)
(Unaudited)
Revenues $ 4.3 $ 5.0 $ 4.3 $ 3.7 $ 3.7 $ 3.3
Costs and Expenses 15.4 12.3 15.6 10.2 10.3 8.8
Net loss (7.4) (4.8) (7.4) (4.4) (4.4) (3.6)
Pro forma Per Share
Data (Unaudited)
Net loss ($60.94) ($29.86)
====== ======
</TABLE>
Balance Sheet Data
<TABLE>
<CAPTION>
<S>
<C> <C> <C>
Pro Forma
March 31, 1998 December 31, 1998 December 31, 1998
(Unaudited) (Unaudited)
Net working capital $ .5 $ 0.8 $ 2.2
Total Assets 4.4 3.4 7.3
Long-term debt 3.2 0.1 0.1
Combined Equity (.5) 1.6 5.4
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
This narrative discusses the financial results of the Distributed
Businesses. The financial results for Fiscal 1998 and 1997 include the results
obtained from the Company's operations relating to solar thermal and heat
transfer products which historically the Company combined with its photovoltaic
operations. The Company discontinued the sale of solar thermal and heat transfer
products effective March 31, 1998 and therefore Newco will not, on an on-going
basis, be in the business of selling solar thermal and heat transfer products.
The Company has not generated any revenue from its power plant development
activities. Through Fiscal 1998, costs with respect to such activities are
reflected as deferred costs. Subsequent to Fiscal 1998, such costs were written
off and are included in Selling, General and Administrative Expenses ("SG&A")
for the nine months ended December 31, 1998 and 1997. See Notes 1 and 3 of the
Notes to the Combined Financial Statements of the Distributed Businesses of
Besicorp Group Inc. Oldco had historically funded the operating losses incurred
by the Distributed Businesses. Following the Spin-Off and the Merger, the
operations of the Distributed Businesses will not receive any funding from
Oldco.
RESULTS OF OPERATIONS
Nine months ended December 31, 1998 compared with nine months ended December 31,
1997 and Fiscal 1998 compared with Fiscal 1997.
Product Sales. Revenues from product sales during the nine months ended December
31, 1998, increased $216,636 (or 7%) to $3,273,495 from $3,056,859 for the nine
months ended December 31, 1997. Fiscal 1998 revenues from product sales
decreased by $636,575 (or 14%) to $3,838,351 from $4,474,926 for Fiscal 1997.
The increase in the nine-month period is due primarily to an increase of
$1,128,539 in sales of photovoltaic products as a result of increased sales
volume, which was partially offset by the decrease of $911,903 in sales of solar
thermal and heat transfer products, a result of Oldco's decision to discontinue
those product lines. The decrease in Fiscal 1998 is due primarily to the
$836,372 decrease in sales of solar thermal and heat transfer products. Factors
contributing to the decrease in product sales during Fiscal 1998 include
increasingly competitive pricing activity for solar thermal and heat transfer
products and to the Company's discontinuance of the non-agricultural portion of
its heat transfer product line during the third quarter of Fiscal 1997. This
decrease was partially offset by a $199,797 (or 8%) increase during Fiscal 1998
in sales of photovoltaic products from the corresponding prior period. Sales of
photovoltaic products were $3,241,312 and $2,112,773, respectively, for the nine
months ended December 31, 1998 and 1997. For Fiscal Years 1998 and 1997, sales
of photovoltaic products were $2,730,545 and $2,530,748, respectively. Sales of
solar thermal and heat transfer products were $32,183 and $944,086,
respectively, for the nine months ended December 31, 1998 and 1997. For Fiscal
1998 and 1997, sales of solar thermal and heat transfer projects were $1,107,806
and $1,944,178, respectively. Sales of photovoltaic products constituted 99%,
71%,
26
<PAGE>
69% and 57% of product sales for the nine months ended December 31, 1998, Fiscal
1998, the nine months ended December 31, 1997 and Fiscal 1997, respectively.
Other Revenues. Other revenues for the nine months ended December 31, 1998
increased by $197,474 (or 94%) to $406,841 from $209,367 during the
corresponding period in the prior year. Other revenues for Fiscal 1998 increased
by $115,232 (or 37%) to $426,154 from $310,922 for Fiscal 1997. The increase in
both periods was due to revenue received from the New York State Energy Research
and Development Authority ("NYSERDA") and for the nine-month period from
Motorola, Inc. See Note 11 of the Notes to the Combined Financial Statements of
the Distributed Businesses of Besicorp Group Inc.
Interest and Other Investment Income. Interest and other investment income
during the nine months ended December 31, 1998 decreased by $9,281 (or 34%) to
$18,404 from $27,685 for the nine months ended December 31, 1997. Interest and
other investment income during Fiscal 1998 decreased by $7,194 (or 17%) to
$35,482 from $42,676 for Fiscal 1997. The decrease in both periods is due
primarily to the lower principal balances on notes receivable. See Note 4 of
Notes to the Combined Financial Statements of the Distributed Businesses of
Besicorp Group Inc.
Other Income. Other income for the Fiscal 1998 and Fiscal 1997 was $5,566 and
$158,568, respectively. The amount recorded in Fiscal 1997 reflects income of
$150,000 earned from the settlement of a complaint against a competitor.
Cost of Product Sales. The cost of product sales for the nine months ended
December 31, 1998 and 1997 was $3,144,571 and $2,850,416, respectively, or 96%
and 93% of the revenues attributable to product sales for the respective
periods. The cost of product sales for Fiscal 1998 and Fiscal 1997 was
$3,932,201 and $4,299,848, respectively, or 102% and 96% of the revenues
attributable to product sales for the relevant period. The increase in the cost
of sales percentage for the nine months ended December 31, 1998 from the
corresponding period in the prior year is due primarily to the discontinuance of
the solar thermal and heat transfer product lines which, historically, had lower
costs of sales than the photovoltaic products. The increase in Fiscal 1998 from
Fiscal 1997 is due primarily to increasingly competitive pricing of solar
thermal and heat transfer products and the discontinuance of the
non-agricultural and heat transfer product line discussed above. This increase
for both periods was partially offset by the improved efficiencies achieved in
the photovoltaic product manufacturing process. The cost of the sales of
photovoltaic products for the nine months ended December 31, 1998 and 1997 was
$3,044,248 and $2,045,668, respectively, or 94% and 97% of the revenues
attributable to photovoltaic product sales for the applicable period. The cost
of the sales of photovoltaic products for Fiscal 1998 and Fiscal 1997 was
$2,725,263 and $2,549,282, respectively, or 100% and 101% of the revenues
attributable to photovoltaic product sales for the relevant period.
Selling, General and Administrative Expenses. SG&A during the nine months ended
December 31, 1998, increased by $1,358,807 or 24% to $6,963,875 from $5,605,068
for the nine months ended December 31, 1997. SG&A during Fiscal 1998 increased
by $959,853 or 13% to
27
<PAGE>
$8,536,780 from $7,576,927 for Fiscal 1997. SG&A includes remuneration of
executives and sales, marketing and project development staff, but not employees
involved in the production of Newco's products.
The increase in the nine-month period is primarily due to the $1,402,085
write-off of project costs previously deferred due to the uncertain nature of
the development of the projects and due to the uncertain political and economic
conditions in the countries where the projects are located (principally India
and Brazil). Oldco determined, in accordance with its existing policy that, due
to the uncertain development of the projects, the carrying amounts may be
impaired. This increase was offset by the decrease in SG&A associated with
discontinuance of the Company's solar thermal and heat transfer product lines,
the reclassification of certain labor charges from SG&A to cost of product sales
and a decrease in professional fees. See - - "Liquidity and Capital Resources"
and "Business -- Power Development Activities" for information regarding the
status of the Company's power projects and initiatives.
The increase in Fiscal 1998 is primarily due to the write-off of project costs
previously deferred of $519,293, a judgment of $126,750 paid in connection with
the resolution of certain litigation, the write-down of property of $141,468 to
its net realizable value in connection with the discontinuance of the Company's
solar thermal and heat transfer technology product lines, increased Board of
Directors' compensation and related expenses of $241,529, increased compensation
expense of $535,652 resulting from the addition of management personnel, and
additional sales and marketing support staff in the photovoltaic business. This
increase was partially offset by decreased professional fees.
Interest Expense. Interest expense for the nine months ended December 31, 1998
decreased by $271,855 to $93,685 compared to $365,540 for the nine months ended
December 31, 1997. The decrease in interest expense is due primarily to the
Company's repayment of $3 million the Company borrowed from Stewart and
Stevenson Services, Inc. (the "S&S Loan").
Interest expense for Fiscal 1998 increased by $159,036 to $451,178 from $292,142
in Fiscal 1997. The increase is due primarily to interest expense of $115,585
incurred in connection with a judgment related to the resolution of certain
litigation and to higher interest payments resulting from increased borrowing
under the S&S Loan.
Other Expense. Other expense increased during Fiscal 1998 to $2,508,214 from
$92,316 for Fiscal 1997, due primarily to the Company's decision to reserve for
the possible uncollectibility of a loan of $2.5 million in connection with a
power project which was ultimately written off in Fiscal 1999. The reserve and
subsequent write-off were recorded as a result of certain litigation and the
subsequent settlement thereof which resulted in the impairment of the asset and
the determination that the loan was uncollectible (the "KBA Loan"). The KBA Loan
was written off during the quarter ended December 31, 1998. See Notes 4 and 10
of Notes to the Combined Financial Statements of the Distributed Businesses of
Besicorp Group Inc.
28
<PAGE>
Credit for Income Taxes. During the nine months ended December 31, 1998, the
credit for income taxes increased by $331,000 (or 18%) to $2,209,000 from
$1,878,000 for the corresponding period in the prior year. During Fiscal 1998,
the credit for income taxes increased by $1,307,200 (or 53%) to $3,765,900 from
$2,458,700 for Fiscal 1997. The credit for income taxes in all periods
represents the allocated benefits to Newco of the losses which Oldco was able to
use in filing its consolidated tax returns.
Net Loss. The Company's net loss for the nine months ended December 31, 1998
increased by $658,012 (or 18%) to $4,303,223 from the net loss of $3,645,211 for
the nine months ended December 31, 1997. The Company's net loss for Fiscal 1998
increased by $2,541,579 (or 53%) to $7,357,020 from the net loss of $4,815,441
for Fiscal 1997. The factors contributing to the increases in net loss are
discussed above.
INFLATION
The Company's operations have not been, nor in the near term are expected to be,
materially affected by inflation. However, if the Company develops business
opportunities internationally, it may become subject to risks of inflation in
the foreign countries in which it operates.
LIQUIDITY AND CAPITAL RESOURCES
During the nine month ended December 31, 1998, the Company's working capital on
a historical basis increased by $332,872 from $485,737 at March 31, 1998, to
$818,609. On a pro forma basis, the Company had working capital of $2,177,609 at
December 31, 1998, which was $1,359,000 greater than the historical working
capital at such date. The higher pro forma amount is due primarily to cash of
$1.5 million contributed by Oldco to Newco. See "Unaudited Pro Forma Financial
Information." The Company does not have any short term material capital
commitments associated with the development of its power plant initiatives and
projects other than the overhead and employee costs associated with monitoring
such projects and the development of new projects and approximately $750,000 in
connection with the Kingston Project. Management currently anticipates that of
the sum to be expended in connection with the Kingston Project, $250,000 (the
"Initial Commitment") will be expended in the next three months and the balance
will be expended during the twelve months thereafter. See "Business - Power
Development Activities." After giving effect to the Initial Commitment and
assuming the receipt of approximately $1 million to $1.5 million from the sale
of certain pollution control emission allowances which are expected to be
received in or about May 1999, Newco will have sufficient funds to continue
operations for approximately four to six months from the date of this
Information Statement. If the funds from the sale of these allowances are not
received, Newco would only be able to continue operations for approximately two
to four months from the date of this Information Statement. After the expiration
of the applicable period, Newco may, without additional funds or a significant
reduction of its operating expenses, not be able to pay its obligations as they
become due. This would materially and adversely effect Newco and require it to
curtail operations. Newco is in the preliminary stages of developing a business
plan to address
29
<PAGE>
its immediate cash and capital requirements. Newco contemplates that following
the Spin-Off and the Merger that it will retain a financial advisor to assist it
in continuing to formulate the plan and to examine the options available to
Newco.
During the nine months ended December 31, 1998, cash of $3,001,883 was used by
operating activities primarily as a result of to the net loss for the period of
$4,303,223, partially offset by non-cash items, primarily comprised of the
write-off of project costs previously deferred. During the fiscal year ended
March 31, 1998, cash of $4,430,005 was used by operating activities primarily as
a result of the net loss of $7,357,020 for the period, partially offset by
non-cash items, primarily comprised of the reserve of $2,500,000 for the
uncollectibility of the KBA Loan.
During the nine months ended December 31, 1998, cash of $3,321,840 was provided
by financing activities, due primarily cash transactions with Oldco, which were
partially offset by the repayment of borrowings. For Fiscal 1998, cash of
$4,739,878 was provided by financing activities, primarily due to cash
transactions with Oldco.
During the nine months ended December 31, 1998 and Fiscal 1998, the Company's
investing activities used cash of $328,209 and $264,552, respectively. The cash
in both periods was used to acquire property, plant and equipment.
Newco has no significant capital commitments for Fiscal 1999 other than those
which may arise in the ordinary course of business and the Kingston Project.
30
<PAGE>
YEAR 2000
The disclosure set forth below includes actions taken by Oldco (including
actions taken by Oldco's Year 2000 Management Committee) with respect to Year
2000 issues.
Many existing computer systems and software applications use two digits, rather
than four, to record years, i.e., "98" instead of "1998." Unless modified, such
systems will not properly record or interpret years after 1999, which could lead
to business disruptions, including, among other things, a temporary inability to
process transactions, send invoices, determine whether payments have been
received or engage in similar normal business activities. This is known as the
Year 2000 issue.
The Company relies on computer hardware, software, and related technology
primarily in its internal operations, such as billing and accounting. During
Fiscal 1998, the Company formed a Year 2000 Management Committee to address the
potential financial and business consequences of Year 2000 issues, such as the
disruptions mentioned above, the failure to receive essential supplies and
services or the loss of customers, with respect to both the Company's hardware,
software, applications and interfaces (collectively, "IT Systems") and
non-information technology systems such as telemetry, security, power and
transportation (collectively, the "Non-IT Systems"). In general, the Year 2000
Management Committee is dividing its efforts with respect to both the IT Systems
and the Non-IT Systems into three phases: (1) inventory and assessment ("Phase
One"), (2) strategy and contingency planning ("Phase Two") and (3) upgrades,
conversions and other solutions, at the end of which the systems are tested to
confirm Year 2000 compliance ("Phase Three").
With respect to the IT Systems, the Company has completed its evaluation of its
hardware, software and other IT Systems and decided to migrate from a 486 PC
environment to an Intel Pentium environment. Thus the efforts are now in Phase
Three. To date all workstations and financial software have been replaced.
Microsoft Office Suite software and back-up software has been upgraded, virus
protection software is now Year 2000 compliant, and Year 2000 compliant servers
have been installed. To complete Phase Three, the Company will upgrade
accounting software, e-mail exchange servers, internet proxy server, and all
other servers to NT 4.0, upgrade all workstations to Windows 98, send additional
notices to IT Systems vendors that have not responded to the Company's written
and oral requests to receive written certification and begin to seek replacement
vendors, if necessary. The Company expects to complete Phase Three (including
the testing of systems which is expected to be completed by January 2000.
With respect to the Non-IT Systems, the Company relies on outside providers for
its basic needs such as electricity, telephone service and other utilities. As
part of its evaluation of its Non-IT Systems, the Year 2000 Management Committee
generally contacted the utilities and other providers through written
correspondence. Phase One has been completed and the Year 2000 Management
Committee is studying the results in its efforts to determine what, if anything,
will be required to prepare the Non-IT Systems for the Year 2000 and to assure
itself that utility services
31
<PAGE>
will not be interrupted. If necessary, the Company will seek replacements or
backups for its utilities and other providers. The Year 2000 Management
Committee expects to complete Phase Two by April 1999 and Phase Three by July
1999.
The Company is also communicating with certain of its vendors, suppliers, and
customers to both monitor and encourage their respective remedial efforts
regarding Year 2000 issues. The Company is in the process of contacting by
letter or phone all of its significant vendors and suppliers and its largest
customers to determine the extent to which the Company's systems might be
vulnerable as a result of third parties' failure to resolve their own Year 2000
issues. The Company's photovoltaic business is dependent on components provided
by photovoltaic module suppliers. Since failure by vendors and suppliers to
successfully address their Year 2000 issues could result in delays in their
providing various products and services to the Company, the Company will seek
replacement vendors by July 1999 as is necessary to assure availability of
products and services. At present, the Company has no reason to believe it will
not be able to obtain all necessary products and services, either from the
present vendors and suppliers, or replacement vendors and suppliers. Failure by
customers could disrupt their ability to maximize their use of the Company's
products and services and lead to a reduction in revenues; therefore, the
Company will send a newsletter to its product customers to help develop each
customer's awareness of Year 2000 issues and their implications.
So long as the Company's efforts to become Year 2000 compliant continue on
schedule, the Year 2000 Management Committee believes that its internal
operations will not be affected by Year 2000 problems. The Company does not rely
solely on its IT Systems in order to produce products it sells or to develop
project opportunities. In fact, in July 1998, the Company's IT Systems
temporarily ceased to function due to a lightning strike that destroyed many
components of the system, and while inconvenienced, the business operated,
deadlines were met , and relationships were cultivated.
There can be no assurance that year 2000 problems of third parties upon which
the Company's systems and operations rely will not have a material adverse
effect on the Company's operating results or financial condition. However, the
Company does not anticipate any adverse impact on its business due to a lack of
availability of supplies or difficulties of customers. Therefore, short of any
third party disaster that the Company is unable to control and for which the
Company cannot develop contingency plans, such as the failure of a utility
providing power or telecommunications, the Company does not believe its business
will be detrimentally impacted by potential Year 2000 problems; the most
reasonably likely worst case Year 2000 scenario would be minor delays in
production and distribution (and for a brief period higher costs) which would
reduce revenues and income, and perhaps a reduction in sales..
The Company expects that its expenditures for Year 2000 related issues will not
exceed $50,000 in Fiscal 2000.
32
<PAGE>
BUSINESS
Newco specializes in (i) the development, assembly, manufacture,
marketing and resale of photovoltaic products and systems which are systems that
convert sunlight directly into electricity and products related to such systems
("Photovoltaic Activities") and (ii) the development of power plant projects of
various types, ranging from gas-fired cogeneration plants to coal-fired power
plants to the development of other non-nuclear power plants ("Power Development
Activities"). Newco was organized in New York in 1998 in order to satisfy a
condition to the consummation of the Merger that required the distribution of
the Distributed Businesses to Newco before the Merger, thereby permitting
Acquisition to acquire only the Retained Assets (as defined below) and the
Retained Subsidiaries and assume only the Retained Liabilities. Consequently,
even though Newco was only organized recently, it is the successor to businesses
that have been in operation for more than six years and the following
description contains historical information about the subsidiaries of Newco when
they were subsidiaries of Oldco.
Photovoltaic Activities
Photovoltaic systems are systems that convert sunlight directly into
electricity. The fundamental element of a photovoltaic system is the
semiconductor device, or cell, which generates a variable electric current that
is directly proportionate to the quantity of sunlight energy absorbed. Solar
cells are electrically interconnected to form a module unit in which the cell
groupings are formatted to achieve desired electrical power specifications, such
as voltage and current. The solar module is the power-generating component of a
complete photovoltaic system. Complete systems consist of one or more solar
modules; controllers to monitor, regulate and control the electric output; and,
in most systems, batteries to store the energy generated by the solar modules.
Occasionally, backup generators or invertors, which convert DC electric power to
AC power, are included as integral components of a system.
The market for photovoltaic products and systems is primarily directed
towards those electric power applications where access to utility power is
relatively expensive, inconvenient or not available. Electric power systems that
use photovoltaic technology include communications systems (e.g., satellite
earth stations, microwave relay stations, roadside emergency telephones and
cellular network repeater stations), power systems for remote areas (e.g.,
forests and parks and rural areas) and remote monitoring systems that are used
in production, consumption and the collection of scientific data (e.g., monitor
remote gas pipelines and weather stations).
The Company develops, assembles, markets and distributes photovoltaic
modules, power systems and related products for a variety of applications. The
Company has developed solar power supply products for the portable computer,
wireless electronics and telecommunications industries, solar power accessories
for motor vehicles, electric boats and telemetry, as well as a polymer
encapsulation production processes for photovoltaic modules that can be
integrated into
33
<PAGE>
other products for consumer, commercial and industrial use. In addition, the
Company markets and sells prepackaged solar electric power products and systems,
system components, and system accessories ranging from small battery chargers,
to water pumping kits, to outdoor lighting, to portable power generators, to PV
power stations.
In addition to utilizing the Company's resources, products are
developed using government grants, industry funded projects, and technology
demonstration contracts to the extent practicable. In connection therewith, the
Company has entered into various funding and development arrangements with
NYSERDA. NYSERDA is a public benefit corporation created by the New York State
Legislature; its principal goal is to help businesses, municipalities and
residents of New York State solve their energy and environmental problems while
developing innovative products and services that can be commercialized by New
York State businesses. The arrangements with NYSERDA generally require the
Company to develop, manufacture, test and deliver various types of photovoltaic
products (e.g., solar powered telephone power supply systems, skid mounted
photovoltaic systems, controllers and photovoltaic home systems) in
consideration for which NYSERDA reimburses the Company with respect to a
negotiated percentage of the development cost of such product. Funds advanced by
NYSERDA are recorded for financial statement purposes as "other revenues" at the
time of receipt and such advances are to be repaid, depending on the project,
from revenues or profits, if any, derived from the products developed under
these agreements. See Note 11 of the Notes to Combined Financial Statements of
the Distributed Businesses of Besicorp Group Inc.
Suppliers
The Company purchases solar electric modules and other photovoltaic
supplies from several large manufacturers, of which Siemens is the principal
supplier. Newco does not have any supply agreements with its suppliers but does
not anticipate that the absence of such agreements will limit its ability to
purchase materials for its business. Newco is not currently dependent on any
suppliers for its power plant initiatives.
Sales and Distribution
In addition to direct sales to original equipment manufacturers,
industrial companies and governmental agencies, the Company markets and sells
products through dealers and distributors nationwide. At December 31, 1998,
approximately 143 solar energy dealers and distributors, predominantly located
in North America, offered Newco's products. The Company also employs an in-house
sales and customer support staff responsible for generating sales and assuring
customer satisfaction. The distribution market is also supported by the Company
through a catalogue maintained by the Company to provide information about
sizing and installation of remote solar energy systems.
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Prices for Products and Systems
The Company's products and systems range from complete photovoltaic
systems that may cost as much as $50,000 to solar power supply products that
range in price from $50 to $5,000 to pre-packaged solar electric power products
that may cost as little as $50.
Customers and Backlog
The Company fills orders from inventory and draws from its inventory to
fabricate and manufacture customers' orders; therefore, backlog is generally
filled within the following quarter. Certain sales may be drop-shipped from
manufacturers' locations. Backlog of orders was $1,066,232, $274,260 and
$382,410 as at December 31, 1998, March 31, 1998 and March 31, 1997,
respectively. Customers for the Company's products include original equipment
manufacturers, industrial and telecommunications companies, dealers,
governmental agencies and consumers, such as inhabitants of rural areas,
individuals who engage in outdoors activities and environmentally concerned
consumers. During the nine months ended December 31, 1998 and Fiscal 1998, sales
to Allmand accounted for 9% and 14%, respectively, of sales of photovoltaic
products. Newco does not have a contract or agreement with this customer.
Competition
The Company competes with approximately ten businesses engaged in the
distribution of photovoltaic products, of which four have a larger market share
than the Company. The Company believes that the market for value-added solar
electric products and systems is highly fragmented. The major competitive
factors are product price, service, technical capability and delivery.
SunWize Indebtedness
The SunWize Indebtedness was incurred in 1993 when the Company acquired
certain assets that are now used by its photovoltaic business. A portion of the
purchase price was deferred and the Company is required to pay the deferred
portion (i.e., the SunWize Indebtedness) according to a formula based on
SunWize's gross margins. $6,381 was paid in Fiscal 1997, $19,878 was paid in
Fiscal 1998 and $11,700 has been paid in Fiscal 1999. The current amount of the
outstanding SunWize Indebtedness is approximately $135,000. As payments are
based on SunWize's gross margins, it is impossible to determine when, if at all,
the Company will be obligated to pay the balance of the SunWize Indebtedness.
Power Development Activities
The Company, in conjunction with one or more partners, develops
independent power projects. The Company generally holds its ownership interests
in the form of partnership
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interests, through special-purpose entities. Usually, financing for these
entities is secured solely by their respective assets.
At present, the Company has an interest in a development project (the
"Krishnapatnam Project") to build a coal fired power plant near the village of
Krishnapatnam located 120 miles north of Chennai (Madras) on India's eastern
coast. BBI Power Inc. ("BBI"), the project company developing the power plant
near Krishnapatnam, is 50% owned by the Company and 50% owned by Chesapeake
Power Investments Co. However, it is likely that, due to the size of the project
and the amount of debt and equity required to finance the project, the Company's
ownership interest will be reduced substantially as the result of the
participation of equity investors. Capital construction costs are currently
estimated to be approximately $700 million. Approval of an agency of the Indian
government is also required before the project can proceed. The May 1998 nuclear
tests conducted by India resulted in the imposition of economic sanctions by the
United States, though such sanctions appear to have been waived by the United
States through October 1999. The ability to obtain project financing may be
adversely affected by these sanctions. Even if such sanctions are eliminated or
the waiver thereof is extended indefinitely, no assurance can be given that the
government approval will be granted, that financing will be obtained, that the
project will be completed, or, if it is completed, that the project will prove
profitable.
In February 1999, the Company and Empire State Newsprint LLC ("Empire")
entered into a memorandum of understanding (the "Empire Memorandum") to form a
joint development partnership (in which each party would have a 50% interest,
subject to dilution resulting from the financing required for this potential
project,) to develop a recycled newsprint manufacturing plant in Kingston, New
York and a 250-megawatt natural gas-fired cogeneration power plant adjacent to
the recycling plant which power plant would supply power to the recycling plant
and for resale (the "Kingston Project"). The Empire Memorandum contemplates that
the Company and Empire will enter into a definitive agreement delineating their
rights and responsibilities. No assurance can be given that the parties will
enter into a definitive agreement, that the Kingston Project will receive the
necessary approvals from the requisite governmental authorities, including the
New York State Department of Environmental Conservation and the New York State
Public Service Commission, that financing for the Kingston Project (estimated to
be approximately $650 million) will be obtained, that the Kingston Project will
be completed, or, if it is completed, that the Kingston Project will prove
profitable.
The Company is always considering new power projects, both domestically
and internationally, and with entities that have served as the Company's
partners in past development projects and with entities that have never been
partners of the Company in any of its projects. As of the date hereof, such
possible initiatives are being discussed with several companies and the Company
and prospective partners had entered into letters of intent with respect to
trying to develop initiatives in Brazil and Mexico. The Company entered into a
Master Project Agreement with MPR Associates Inc. which calls for equal sharing
in development fees and ownership interest in all projects developed in Brazil
by such parties. Two potential projects in Brazil have been identified
(involving natural gas and bagasse fueled bagasse co-generation
facilities)(bagasse
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is the waste product created by a sugar mill) though such projects are in the
early stages of development. Newco is in early stage marketing efforts in Mexico
as it is in the process of identifying project opportunities in that country. No
assurance can be given that any such letter of intent or the Master Project
Agreement will result in the development of any projects, or that if any
projects are developed, they will prove profitable.
The Company anticipates that projects would be developed with partners
and the Company would hold its ownership interests, primarily in the form of
partnership interests, through special-purpose entities formed to be the legal
owners of the projects. Partnerships may also issue additional interests in
projects during various stages of their development (e.g., in exchange for
providing capital to the partnership).
The developers prepare financial models of the project, document the
project and arrange appropriate development capital and construction and
long-term financing. In addition, developers negotiate power purchase
agreements, permitting arrangements, engineering and construction contracts and
financial participation and risk sharing agreements.
Construction, operation, engineering, and design of a project are
contracted to third parties. When development is substantially complete, the
projects typically obtain construction financing which is replaced with
long-term debt and/or equity financing when the construction is completed. To
the maximum extent possible, financing is arranged on a limited- recourse basis,
so that repayment is limited to the revenues generated by the particular
project(s) being financed. Except to the extent that a developer provides bridge
or other financing to a project, the debt of the partnership is collateralized
solely by the assets of the project(s), without guarantees of repayment by the
developer.
The Company would expect to earn development fees by taking an active
role in the early stage development of each project. Development fees are
generally paid from the proceeds of the project loans and are capitalized as
part of the cost of the project. The amounts and timing of such payments of
development fees are subject to negotiations with the parties to the transaction
and represent fees for services provided to the project. Other potential sources
of revenues and cash flows are (i) management fees for coordinating and
overseeing partnership activities during the construction and operating phases
of the projects and (ii) income and distributions from project operations.
Projects are expected to generate income from the operation of the facilities;
however, in early years of operation, the partnership may incur significant book
losses, and partners will not recognize income until such time as the operating
income of the projects exceeds accumulated losses. There can be no assurance
that the Company will develop any power projects or that it will earn
development fees on new project opportunities.
Risks of International Operations; Risks of Operations in India
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As a result of a decline in opportunity in the independent power
industry in the United States, the Company has devoted much of its efforts
towards developing foreign projects. The Krishnapatnam Project and any future
foreign projects or initiatives would be required to comply with the applicable
regulations of the jurisdictions where such projects and initiatives are
developed. At present, management believes its foreign operations are currently
in compliance with all material applicable regulations. However, the Company's
foreign operations are subject to the risks of international operations,
including compliance with and unexpected changes in, foreign regulatory
requirements and currency control regulations, trade barriers, fluctuations in
exchange rates, political instability, the potential for expropriation, local
economic conditions, and difficulties in staffing and managing foreign
operations.
Projects overseas require considerable capital. Funding for
international projects may be obtained from various sources, including the
private sector (both domestically and internationally), government sponsors
(e.g., United States Trade and Development Agency, United States Agency for
International Development, the Export-Import Bank of the United States and the
Overseas Private Investment Corporation) and commercial banks. Obtaining such
funding often is more time consuming than obtaining funding for domestic
projects. There can be no assurance that sufficient funding will be available in
connection with any international development project. Nor can there be any
assurance that Newco will be successful in international project development.
Neither Newco nor Oldco has ever consummated a financing for an international
project development.
Business activities conducted in India may be subject to a number of
risks. India has been engaged in armed conflicts with China and Pakistan in the
past, and there can be no assurance that future conflicts will not arise or
armed hostilities involving its neighbors, particularly if these hostilities
were protracted or involved the threat or use of nuclear weapons, would not
adversely effect the Krishnapatnam Project. India has also been subject to
strife between religious and other groups - strife that has led to terrorist
attacks. The continuation or increase in internal civil strife would adversely
effect the proposed project by, among other things, making it less attractive to
invest in or finance the Krishnapatnam Project.
The Company's ability to earn revenues and profits from the
Krishnapatnam Project, if any, are subject to risks resulting from currency
fluctuations. The entity developing this project or Newco may, at a later stage
in this project's development, engage in hedging transactions to mitigate risks
relating to exchange rate fluctuations. No assurance can be given such entity or
Newco will engage in such transaction or that it will be able to hedge its
currency risks.
The Indian government has exercised and continues to exercise
significant influence over many aspects of the Indian economy and Indian
government actions concerning, among other things, the economy could have a
material adverse effect on private sector entities such as Newco and the entity
developing the project.
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No assurance can be given that the project will not be adversely
affected by changes in inflation, interest rates, taxation, social stability or
other political, economic or international developments in or affecting India in
the future.
Potential Non-Recurring Revenues
In addition to the photovoltaic and power plant development businesses,
Newco acquired pursuant to the Spin-Off essentially all of Oldco's assets. See
"The Contribution and the Spin-Off -- The Contribution Agreement." As a result,
Newco may obtain occasional non-recurring revenues from these assets although no
assurance can be given that any such revenues will be obtained.
The acquired assets include the interests in the Partnerships which
formerly owned the Power Plants. Some of these Partnerships retain the rights to
the Power Plants' allowances (the "Allowances") to emit N0x. The Partnerships
have entered into an agreement to sell certain Allowances from which Newco would
receive approximately $1.0 million to $1.5 million. It is currently contemplated
that the closing of this sale will occur in May 1999. However, the closing is
subject to various conditions and no assurance can be given that this sale will
be consummated by May 1999 or at all and the failure to consummate such sale
would reduce the cash available to fund Newco's operations. See "Management's
Discussion and Analysis or Plan of Operations -- Liquidity and Capital
Resources."
In addition, the Partnerships which owned five of the Power Plants,
Niagara Mohawk and certain other independent power producers (the "IPPs")
entered into a Master Restructuring Agreement (the "MRA") in July 1997, which
became effective on June 30, 1998, and which provided for, among other things,
the termination or restructuring of the Power Purchase Agreements and power
purchase agreements with the other IPPs. It is possible that in certain
circumstances certain hydro-energy developers that withdrew from the MRA will
agree to restructure or terminate their power purchase agreements with Niagara
Mohawk. If any of such developers do reach such an agreement with Niagara Mohawk
before July 1, 2003, Niagara Mohawk will pay the Partnerships and the other IPPs
certain specified amounts. If all of the developers were to enter into such
agreements, the Company would be entitled to receive proceeds of approximately
$1 million. No agreement has been reached to date between any of such developers
and Niagara Mohawk. There can be no assurance that any of such developers will
enter into such an agreement before July 1, 2003 or that the Company will ever
receive any of such proceeds.
Oldco has agreed to place $6.5 million in an Escrow Fund prior to the
consummation of the Merger. Amounts, if any, not needed to provide
indemnification pursuant to the Indemnification Agreement or to make certain
payments will be released to Newco after the fifth anniversary of the Merger
Closing Date so long as certain conditions have been fulfilled. See
"Relationship Between Newco And Oldco After The Merger -- The Escrow Agreement."
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Research and Development
Expenditures for photovoltaic research and development were $499,436
for the nine months ended December 31, 1998, $697,182 in Fiscal 1998 and
$646,817 in Fiscal 1997. These expenses include personnel expenses of $176,192
for the nine months ended December 31, 1998, $330,428 in Fiscal 1998 and
$301,055 in Fiscal 1997. Of the total amounts, expenses attributable to the
Company's agreements with NYSERDA were $270,657 in the nine months ended
December 31, 1998, $520,950 in Fiscal 1998 and $414,307 in Fiscal 1997. No
assurance can be given that funds for research and development will be available
to the Company from internal or external sources and the failure to obtain such
funds may have an adverse effect on the Company's operations.
Intellectual Property
While Newco does own certain intellectual property rights (e.g.,
patents, trademarks and trade secrets), management does not believe that these
rights are essential to Newco's current operations.
Government Regulation and Environmental Matters
The development and manufacture of photovoltaic products are not
subject to U.S., state, foreign and local statutes and regulations (other than
statutes and regulations generally applicable to the development and manufacture
of products).
The operations of the Company are also subject to various U.S., state,
foreign and local laws and regulations with respect to environmental matters,
including air and water quality and underground fuel storage tanks, and other
regulations intended to protect public health and the environment. Compliance by
the Company with such laws and regulations has not had a material adverse effect
upon the Company, and the Company believes it is in material compliance with all
such applicable laws and regulations. Based upon current laws and regulations
and the interpretations thereof, the Company has no reason to believe that the
costs of future environmental compliance would be likely to materially adversely
impact its business, results of operations, cash flows or financial position.
Employees
As of the time of the Spin-Off, Newco had approximately 73 full-time
and four part-time employees. None of these employees are represented by a
union. In the opinion of management, its relationship with its employees is
satisfactory.
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Properties
Newco owns or leases the properties identified below. Management
believes that these facilities are suitable and adequate for its current
operations.
<TABLE>
<CAPTION>
<S>
<C> <C>
Location of Property Nature of Ownership Use of Property
Kingston, New York Leased from Oldco Newco's corporate
(Includes land and the 8,000 headquarters (the "Corporate
square foot building thereon) Headquarters")
Ellenville, New York Owned by Newco Previously used by a
(Includes land and the 52,000 subsidiary of the Company.
square foot building thereon)
Stelle, Illinois Lease, expiring April 1999, Photovoltaic Activities uses
(Lease of 2,000 square feet) for $575 per month as sales office.
Kingston, New York Lease for $8,500 per month, Photovoltaic Activities
(Lease of 17,000 square feet) expiring March 1999, subject utilizes 2,000 square feet for
to automatic renewal for administrative purposes and
successive six month periods balance is used for
warehousing, manufacturing
and assembly
Ulster, New York Owned by Newco Investment purposes
(approximately 28 acres of
unimproved property)
</TABLE>
The Corporate Headquarters was not distributed to Newco in the
Contribution. Instead, it was retained by Oldco and therefore will belong to the
Surviving Corporation following the Merger. Newco is leasing the Corporate
Headquarters from Oldco as contemplated by the Plan of Merger. See "The
Contribution and the Spin-Off -- The Contribution Agreement" and "Relationship
between Newco and Oldco after the Spin-Off." The other properties have been
transferred to Newco pursuant to the Contribution Agreement.
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While Newco is not in the business of investing in real estate, as a
result of the Contribution it owns 28 acres of unimproved property which it
holds primarily for the possibility of realizing a capital gain. Newco has no
policies regarding or restricting investments in real estate.
Legal Proceedings
In the Contribution Agreement, Newco agreed to assume certain
liabilities of Oldco, including those relating to litigation (other than the
Existing Litigation). See "The Contribution and the Spin-Off--The Contribution
Agreement." Consequently, Newco is liable for all damages, if any, and expenses
in connection with the following matters and is entitled to the benefits, if
any, of such matters.
In December 1998, Alan Fenster ("Fenster") commenced an action in the
New York Supreme Court, New York County, against Oldco, Merger Sub, Acquisition,
Josephthal and each of the members of the Oldco's Board of Directors (the "Oldco
Board"). In the complaint Fenster indicates that he is seeking class
certification. The complaint alleges that the Merger Consideration is inadequate
and less than Oldco's intrinsic value, that in adopting the Plan of Merger the
Oldco Board has been unduly influenced by Michael F. Zinn and the Oldco Board
has breached its fiduciary duty to its shareholders; the complaint also alleges
that Mr. Zinn and the other members of the Oldco Board will receive unlawful
additional consideration that the remaining shareholders will not receive: (i)
the Escrow Fund, that, according to the complaint, has been established
primarily to benefit them, (ii) the acceleration of certain of their options and
warrants to acquire Oldco Common Stock ("Rights") and (iii) bonuses for certain
members of senior management. Fenster is seeking, among other things, to enjoin
the Merger, as well as unspecified compensatory damages and an order that the
defendants shall take appropriate measures to maximize shareholder value. Oldco
has not yet answered the complaint. Management intends to vigorously defend this
action. Management maintains that the Merger Consideration is adequate and that
Fenster has mischaracterized the Escrow Fund, which, according to Fenster, is a
benefit that the members of the Oldco Board will receive and that the other
shareholders will not receive. The Escrow Fund funds Oldco's indemnification
obligations and is required pursuant to the Plan of Merger at the request of
Acquisition and Merger Sub (collectively, the "Buyer") who wanted the Escrow
Fund to protect them from potential claims. Thus, the Escrow Fund primarily
serves to protect the Buyer; it only affords the members of the Oldco Board the
protection to which they are entitled by the BCL and Oldco's by-laws, and only
to the extent that they are entitled to indemnification for actions taken by
them in their official capacities prior to the Merger. As they are already
entitled to indemnification for these matters, the establishment of the Escrow
Fund only serves to ensure their ability to collect the indemnification to which
they are entitled. In addition, the acceleration of the Rights is also
mischaracterized; the Buyer wanted to ensure that no Rights would survive the
effectiveness of the Merger and thus required Oldco to take action to ensure
that no Rights would remain. Management believes that the remaining benefits are
neither unusual nor inappropriate upon the consummation of an extraordinary
transaction such as the Merger for a chief executive officer
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who has served a company for more than twenty years and for other members of
senior management.
In December 1998, Energy Investment Research, Inc. ("EIR") commenced an
action in the New York Supreme Court, Westchester County, against Oldco. The
complaint alleges, among other things, that Oldco is obligated to pay EIR 1.5%
of all net cash and/or securities received by Oldco from its general partnership
interests in the Carthage and South Glen Falls Partnerships (the "Projects").
EIR seeks, among other things, a declaratory judgment that it is entitled to
1.5% of the distributions from the MRA relating to the Projects, and has asked
for payments in excess of $750,000. Oldco has answered this complaint and denied
all of the material allegations. In addition, Oldco asserted various affirmative
defenses, including unclean hands.
In June 1997, Oldco and Michael F. Zinn (then and currently the
Chairman of the Board, Chief Executive Officer and President of Oldco and
currently the Chairman of the Board, Chief Executive Officer and President of
Newco), each entered a guilty plea, in the United States District Court for the
Southern District of New York, to one count of causing a false statement to be
made to the Federal Election Commission and one count of filing a false tax
return, all in connection with contributions to the 1992 election campaign of
Congressman Maurice Hinchey (the "Proceeding"). As a result of such pleas, Oldco
was fined $36,400, and Mr. Zinn was fined $36,673 (the "Fine") and sentenced to
a six-month term of incarceration (which commenced in November 1997 and has been
completed), and a two-year term (which commenced in May 1998) of supervised
release thereafter. He resigned as Chairman of the Board, Chief Executive
Officer and President of Oldco in November 1997 and was reappointed to such
positions in May 1998.
In August 1997, John Bansbach commenced a shareholder derivative action
in the New York Supreme Court, Ulster County, entitled John Bansbach v. Michael
F. Zinn, Michael J. Daley, Gerald A. Habib, Harold Harris, Richard E. Rosen, and
Besicorp Group Inc., Index No. 97-2573 (the "Bansbach Litigation"). Oldco was
named as a nominal defendant in this matter and the other named defendants
either were officers and/or directors of Oldco at the time of the alleged acts
or omissions for which relief is sought or became officers and/or directors of
Oldco thereafter. The plaintiff sought to hold such persons liable to Oldco: (a)
for all sums advanced to or on behalf of Michael F. Zinn in connection with his
defense of the Proceeding; (b) for all sums advanced to or on behalf of Michael
Daley, who was subpoenaed for information in connection with this matter; (c)
for all legal expenses, costs and fines incurred by Oldco itself in connection
with the Proceeding; (d) for all harm to Oldco's reputation and goodwill
resulting from the Proceeding; (e) for punitive damages; and (f) for plaintiff's
attorneys' fees, costs and expenses. The trial court dismissed the action,
stating that the plaintiff had failed to make the requisite pre-suit demand upon
the Oldco Board and had failed to demonstrate that such a demand would be
futile. The plaintiff appealed this decision. On February 4, 1999, the Appellate
Division reversed the trial court's dismissal and reinstated the action finding
that the bare allegations of the complaint sufficiently alleged that a pre-suit
demand on the Oldco Board would have been futile.
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On March 29, 1993 James Lichtenberg commenced a shareholder's
derivative action now pending in New York Supreme Court, Ulster County, entitled
Lichtenberg v. Michael F. Zinn, Steven I. Eisenberg, and Martin E. Enowitz, et
al. (the "Lichtenberg Litigation"). Oldco is named as nominal defendant in this
shareholder's derivative action and the other defendants were directors and
officers of Oldco at the time the action was filed. The complaint alleges that
the directors breached their fiduciary duties to Oldco by, among other things,
the issuance of stock to themselves in lieu of cash compensation, allegedly for
inadequate consideration, and by the accounting treatment given to Oldco's
interest in various partnerships which owned and operated cogeneration
facilities, which allegedly depressed the price of Oldco's stock. The plaintiff
is seeking an award of damages to Oldco, including punitive damages and
interest, an accounting and the return of assets to Oldco, the appointment of
independent members to the Oldco Board, the cancellation of shares allegedly
improperly granted, and the award to the plaintiff of costs and expenses of the
lawsuit including legal fees. The Court dismissed this action based on the
recommendation of the Oldco's Board's special litigation committee (comprised of
independent outside directors of Oldco) that concluded that the continuation of
such litigation was not in the best interests of Oldco. The plaintiff has
appealed this decision.
The plaintiffs in the Bansbach Litigation and Lichtenberg Litigation
may not able to maintain their actions as shareholder derivative suits if the
Merger is consummated. As a result of the consummation of the Merger, the
plaintiffs in such suits will cease to be shareholders of Oldco which may
adversely affect their ability to maintain such suits. The only shareholder of
the Surviving Corporation following the Merger will be Acquisition which has
indicated it will not pursue such suits.
On November 8, 1990 SNC., Ltd. ("SNC") commenced an action in New York
Supreme Court, New York County, against Oldco, and certain of the Partnerships
and their affiliates and an unaffiliated contractor (the "Contractor"). The
complaint alleges that SNC was awarded the contracts to construct two power
plants and that the contracts were subsequently awarded to the Contractor in
breach of SNC's contract. SNC seeks an award of compensatory damages in an
undetermined amount in excess of $680,000 and punitive damages. The Court
granted the defendants' motion for summary judgment in part but denied the
motion insofar as it sought dismissal of plaintiff's claims for: (1) breach of
preliminary agreement to negotiate in good faith; (2) unjust enrichment/quantum
meruit; (3) promissory estoppel; and (4) fraud and negligent misrepresentation.
The Court's decision was upheld by the Appellate Court. The case is proceeding
through the litigation process in the Supreme Court, New York County.
Oldco is a party to a legal proceeding in New York Supreme Court,
Ulster County, that was commenced on June 20, 1995, seeking a determination that
Martin Enowitz ("Enowitz"), a former director and executive officer of Oldco, is
not entitled to 100,000 shares of Oldco Common Stock held of record by him (the
"Enowitz Shares"). The Company believes that such shares were forfeited when he
left the employ of the Company prior to the scheduled vesting dates with respect
to such shares and that, as a result, he was obligated to resell the shares to
the Company. (Enowitz asserts, among other things, that such vesting schedule
was not applicable to
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<PAGE>
him because he was disabled. Oldco, among other things, disputes Enowitz's
allegation that he was disabled.) Because of the uncertainty with respect to the
ownership of these shares, the Plan of Merger provides that the Merger
Consideration payable in respect of such shares is to be held in escrow pending
resolution of the dispute regarding the ownership of these shares and the
rights, if any, of Acquisition, Merger Sub and the Surviving Corporation to such
Merger Consideration will be assigned without recourse to Oldco's shareholders.
Therefore, the Merger Consideration for the Disputed Shares shall be paid by
Buyer and delivered to Continental (as the payment agent for the Merger
Consideration) along with the Merger Consideration to be paid to the other Oldco
shareholders. The payment agent, not the Escrow Agent for the Escrow Fund (which
is separate), shall hold the Merger Consideration for the Disputed Shares and
this escrow does not fund claims of Buyer. The Merger Consideration for such
shares amounts to approximately $3,450,000, subject to upward (but not downward)
adjustment as provided in the Plan of Merger. If it is determined that Mr.
Enowitz was not entitled to the Disputed Shares, Oldco's shareholders will
receive, on a pro rata basis, such monies less Oldco's costs (estimated to be
less than $100,000) to repurchase such shares.
Newco may incur substantial legal fees and other expenses in connection
with the matters described above. See "Relationship between Oldco and Newco
after the Spin-Off."
THE CONTRIBUTION AND THE SPIN-OFF
Introduction
Because Acquisition neither wishes to (i) acquire Oldco's assets
pertaining to, among other things, the photovoltaic and independent power plant
development businesses nor (ii) assume, with certain limited exceptions, any of
Oldco's liabilities, Oldco and Acquisition decided to effect the Spin-Off. The
Contribution followed by the Spin-Off will separate from Oldco liabilities
Acquisition does not want to assume and all of the businesses and assets that
Acquisition does not wish to acquire. This will enable Acquisition to acquire
only the assets it desires to acquire and will leave Oldco's photovoltaic and
independent power plant development businesses as a separate publicly held
company, owned by the holders of Oldco Common Stock as of the Spin-Off Record
Date.
Oldco formed Newco in November 1998 to effect the Spin-Off which, in
turn, is a condition to the consummation of the Merger. Following the Spin-Off,
Newco will focus on the Company's photovoltaic and independent power plant
development businesses and Oldco will merge with Merger Sub. The Contribution
followed by the Spin-Off will separate all of Oldco's businesses other than
those relating to the Retained Assets from Oldco and enable Acquisition to
acquire only the Retained Assets, the Related Subsidiaries and the Retained
Liabilities in the Merger; the Spin-Off will leave the Distributed Businesses as
a separate publicly held company (Newco), owned by the Entitled Holders. The
directors and officers of Oldco prior to the Merger will be the directors and
officers of Newco at the time of the Spin-Off. The Merger will not be
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<PAGE>
consummated unless the Spin-Off has been completed. The Spin-Off will not occur
unless all other conditions to the Merger have been waived or satisfied.
Therefore, on March [___], 1999, the Board declared the Spin-Off
payable to the holders of record of Oldco Common Stock at the close of business
on the Spin-Off Record Date of one share of Newco for every 25 shares of Oldco
Common Stock outstanding on the Spin-Off Record Date (with cash being paid in
lieu of fractional shares). No shares of Newco Common Stock will be issued with
respect to shares of Oldco Common Stock held in treasury. If all of the
conditions to the Merger Closing have been waived or satisfied, the Spin-Off
will occur at the Effective Date and therefore the Effective Date will be the
Spin-Off Record Date.
The Contribution Agreement
Prior to the Spin-Off, Oldco transferred or caused to be transferred to
Newco various subsidiaries and assets and caused Newco to assume certain
liabilities, as described in the chart set forth below. The transfer of the
Distributed Subsidiaries and the Contributed Assets and the assumption of the
Assumed Liabilities is referred to herein as the "Contribution." To effect the
Contribution, Oldco and Newco entered into the Contribution Agreement.
The following chart, subject to the provisions of the Plan of Merger
and Contribution Agreement that permit the substitution of contributed assets
for assets of equal value, provides a general description of the effect of the
Contribution on Oldco and Newco. See "Selected Historical and Pro Forma
Financial Data." Consequently all of Newco's material subsidiaries, assets and
liabilities, as of the date hereof, are described under the caption "Newco."
<TABLE>
<CAPTION>
<S>
<C> <C>
Oldco Newco
Subsidiaries (i) the subsidiaries owning the interests in the all other subsidiaries and
Partnerships and (ii) the subsidiary that owns affiliates (the "Distributed
the Corporate Headquarters (each, a Subsidiaries" and collectively
"Retained Subsidiary" and collectively, the with the Retained
"Retained Subsidiaries"). Subsidiaries, the
"Subsidiaries").
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S>
<C> <C>
Oldco Newco
Assets (i) its cash, cash equivalents and shares of (i) all of Oldco's assets
common stock of Niagara Mohawk (except pertaining to the photovoltaic
for $1.5 million which Oldco contributed to and power plant development
Newco, $6.5 million to fund the Escrow businesses (including interests
Fund, $2 million for bonuses and $2 million in the Kingston Project and
for the estimated expenses of the power plant projects and
transactions contemplated by the Plan of initiatives in India, Brazil and
Merger); Mexico and trade receivables,
(ii) the Corporate Headquarters (which it is furniture, fixtures and
leasing to Newco); and equipment related to these
(iii) other claims of Oldco and awards made businesses (See "Unaudited
to Oldco (i.e., Oldco's rights under a Pro Forma Combined
----
creditor's claim in a bankruptcy proceeding Financial Information"));
of approximately $280,000, an arbitration (ii) $1.5 million in cash;
award of approximately $430,000, a (iii) the interests in the
judgment of approximately $140,000 and a Partnerships; and (iv) all other
default judgment of approximately assets not retained by Oldco
$175,000) (collectively, the assets described (collectively, the assets
under (i), (ii) and (iii) are the "Retained described under (i), (ii), (iii)
Assets"). and (iv) are the "Contributed
Assets").
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S>
<C> <C>
Oldco Newco
Liabilities (i) the actual or accrued liabilities of Oldco all other liabilities (the only
or any subsidiary that is a Retained material liabilities that Newco
Subsidiary for unpaid federal income taxes is aware of are (i) the
for the current fiscal year based on the contingent liabilities arising
consolidated net income of Oldco through out of legal proceedings to
the Effective Date (the "Specified Current which Oldco is a party (see
Liabilities"); "Business - Legal
(ii) the liability of Oldco or its subsidiaries Proceedings"), the SunWize
for New York State income Taxes for Indebtedness (See "Business -
Oldco's current fiscal year (the "Excluded SunWize Indebtedness") and
Liability"); and accounts payable and similar
(iii) various intercompany liabilities between indebtedness incurred in the
Oldco and the Retained Subsidiaries ordinary course of business
(collectively with the Specified Current (see the Combined Financial
Liabilities and the Excluded Liability, the Statements of the Distributed
"Retained Liabilities"). Businesses of Besicorp Group
Inc. and Unaudited Pro
Forma Combined Financial
Information)).
</TABLE>
If, after the time of the Spin-Off, either Newco or Oldco holds assets which by
the terms of the Contribution Agreement or the Plan of Merger were intended to
be assigned and transferred to, or retained by, the other party, such party will
promptly assign and transfer or cause to be assigned and transferred such assets
to the other party.
Oldco has agreed to place $6,500,000 in an Escrow Fund prior to the
consummation of the Merger. Amounts, if any, not needed to provide
indemnification pursuant to the Indemnification Agreement or to make certain
payments will be released to Newco after the fifth anniversary of the Merger
Closing Date so long as certain conditions have been fulfilled. See
"Relationship Between Newco And Oldco After The Merger -- The Escrow Agreement."
The Terms of the Spin-Off
As a result of the Spin-Off, on the Spin-Off Record Date, Oldco shall
distribute all of the outstanding shares of Newco Common Stock (and/or cash in
lieu of the issuance of fractional shares of Newco Common Stock) to the Entitled
Holders, assuming that all of the conditions to the consummation of the Merger
have been waived or satisfied. The Spin-Off Record Date is expected to be the
same day as the Merger is consummated. The Spin-Off will be effectuated at this
time and each Entitled Holder will receive one (1) share of Newco Common Stock
for every twenty-five (25) shares of Oldco Common Stock held by such shareholder
on such date. No fractional shares of Newco Common Stock will be issued.
Entitled Holders will in lieu of
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fractional shares (but not whole shares) of Newco Common Stock receive [$______]
in cash for each one twenty-fifth (1/25th) of a share of Newco Common Stock and
will receive, in addition, such number of whole shares of Newco Common Stock as
to which they are entitled. As a result, shareholders of Oldco who own fewer
than 25 shares of Oldco Common Stock will receive cash but will not receive any
Newco Common Stock. Therefore, the holders of Oldco Common Stock on the Spin-Off
Record Date will become the shareholders of Newco and Oldco will cease to own
any shares of Newco.
Procedure for receiving certificates for shares of Newco Common Stock
On the Spin-Off Record Date, Oldco will deliver to Continental as the
Distribution Agent shares of Newco Common Stock representing 100% of the
outstanding shares of Newco Common Stock for distribution to the Entitled
Holders. The Spin-Off Record Date will also be the Effective Date (i.e. the date
when the Merger is consummated). Continental will distribute to all Entitled
Holders following the consummation of the Merger a letter of transmittal for the
delivery of their certificates representing shares of Oldco Common Stock in
order to receive the Merger Consideration. See "The Merger." The letter of
transmittal will be accompanied by a letter informing the Entitled Holders about
the occurrence of the Spin-Off, and telling them that certificates for their
shares of Newco Common Stock have been issued to them and will be distributed to
them upon Continental's receipt of their certificates evidencing shares of Oldco
Common Stock. Upon receipt of each such certificate for shares of Oldco Common
Stock, Continental will distribute to the Entitled Holders delivering such
certificate both the Merger Consideration and the certificate for shares of
Newco Common Stock relating to such delivered shares of Oldco Common Stock as
promptly as practicable. No fractional shares of Newco Common Stock will be
issued. Entitled Holders will in lieu of fractional shares (but not whole
shares) of Newco Common Stock receive [$______] in cash for each one
twenty-fifth (1/25th) of a share of Newco Common Stock and will receive, in
addition, such number of whole shares of Newco Common Stock as to which they are
entitled. As a result, shareholders of Oldco who own fewer than 25 shares of
Oldco Common Stock will receive cash but will not receive any Newco Common
Stock. No consideration will be paid by the holders of Oldco Common Stock for
the shares of Newco Common Stock to be received by them in the Spin-Off.
Shareholders of Oldco with questions concerning procedural issues
related to the Spin-Off may call the Distribution Agent, Continental Stock
Transfer and Trust Co., at [(212) 509-4000 (x [ ]) Attention: [ ].
After the Effective Date, shareholders of Newco with inquiries relating to the
Spin-Off or their investment in Newco should contact Besicorp Ltd., 1151
Flatbush Road, Kingston, New York, (telephone 914-336-7700 x 104),
Attention: Susan Whitaker).
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences relating to the Spin-Off based on the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and applicable regulations,
rulings and judicial authority as in effect on the date of this Information
Statement. Subsequent changes in the law could alter the federal income tax
consequences of the Spin-Off.
THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE BASED
UPON PRESENT LAW. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH SHAREHOLDER
IS URGED TO CONSULT WITH SUCH SHAREHOLDER'S OWN TAX ADVISOR TO DETERMINE THE
APPLICABILITY OF THE RULES DISCUSSED BELOW TO SUCH SHAREHOLDER AND THE
PARTICULAR TAX EFFECTS OF THE SPIN-OFF, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND OTHER TAX LAWS. NEWCO HAS NOT OBTAINED AN OPINION OF COUNSEL
WITH RESPECT TO THE DISCLOSURE SET FORTH UNDER THE CAPTION "MATERIAL FEDERAL
INCOME TAX CONSEQUENCES."
The receipt by an Entitled Holder of shares of Newco Common Stock
and/or cash in lieu of fractional shares of such stock pursuant to the Spin-Off
will be a taxable transaction for federal income tax purposes under the Code and
also may be a taxable transaction under applicable state, local and other tax
laws. The tax consequences of such receipt may vary depending upon, among other
things, the particular circumstances of the Entitled Holder. An Entitled Holder
will generally receive dividend income equal to the value of the shares of Newco
Common Stock (which is $[ ] per share of Newco Common Stock) or the amount of
cash or both received by such Entitled Holder pursuant to the Spin-Off.
The receipt of shares of Newco Common Stock and/or cash by an Entitled
Holder pursuant to the Spin-Off may be subject to backup withholding at the rate
of 31% unless the Entitled Holder (i) is a corporation or comes within other
exempt categories, or (ii) provides a certified taxpayer identification number
on Form W-9 and otherwise complies with the backup withholding rules. Backup
withholding is not an additional tax; any amounts so withheld may be credited
against the federal income tax liability of the shareholder subject to the
withholding.
Pursuant to the BCL, claims of Oldco's creditors, including claims of
such creditors as taxing authorities, are not extinguished by the Spin-Off and
the Merger and, accordingly, the Surviving Corporation will be liable for the
claims of Oldco immediately prior to the Merger. Furthermore, as former members
of the Oldco consolidated group, Newco and the other members of such group would
be jointly and severally responsible for the U.S. federal income tax liability
of such group for the years during which they were members of such group.
Management is not
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aware of any material claims of Oldco's creditors other than (i) the legal
proceedings described under "Business -- Legal Proceedings," (ii) the accrued
unpaid federal income taxes for the current fiscal year based on the
consolidated net income of Oldco through the Effective Date, (iii) the liability
of Oldco and/or its Subsidiaries for New York State income taxes for Oldco's
current fiscal year, (iv) the SunWize Indebtedness and (v) accounts payable and
similar indebtedness incurred in the ordinary course of business. Pursuant to
the Contribution Agreement, Newco is assuming all of Oldco's liabilities
(including the liabilities associated with the legal proceedings referred to in
(i), above) other than the tax liabilities for the current year referred to in
(ii) and (iii), above.
To the extent that the Surviving Corporation is not able on the
Effective Date to discharge all claims of creditors existing at the Effective
Date and the Escrow Fund is insufficient to do so, it is possible that the
creditors (including the taxing authorities) may seek to bring claims against
persons who were shareholders of Oldco immediately prior to the Effective Date
of the Merger by asserting that such shareholders are subject to transferee
liability (i.e., that such shareholders are liable for the obligations of Oldco
by virtue of the fact that they received the Merger Consideration or the Newco
Common Stock (or cash received in lieu of fractional shares of Newco Common
Stock) or both, although such potential liability of any shareholder would
presumably be limited to the value of the Merger Consideration or Newco Common
Stock (or cash received in lieu of fractional shares of Newco Common Stock) or
both received by such shareholder, plus any allowable interest charge). If any
such claims were to be made and be successful, the net benefit received by such
shareholders from the Merger Consideration and the Spin-Off could be materially
reduced.
This tax discussion does not apply to Entitled Holders who are not
citizens or residents of the United States, to Entitled Holders who are
tax-exempt or to other Entitled Holders of special status.
RELATIONSHIP BETWEEN NEWCO AND OLDCO AFTER THE SPIN-OFF
Pursuant to the Plan of Merger, Merger Sub will be merged with and into
Oldco, with Oldco being the Surviving Corporation and wholly owned by
Acquisition. Acquisition will be entitled to all the benefits and detriments
resulting from its ownership interest in the Surviving Corporation. If the
Merger is consummated, Oldco's shareholders will be entitled to receive $34.50
in cash for each share of Oldco Common Stock, subject to upward (but not
downward) adjustment. After the Effective Date, the holders of Oldco Common
Stock as of the Effective Date will no longer have any equity interest in Oldco
or any right to vote on corporate matters; instead, the outstanding shares of
Oldco Common Stock will automatically be converted into the right to receive the
Merger Consideration.
After the Spin-Off and the Merger, Oldco and Newco will become
separately owned and managed companies. Oldco will be owned by Acquisition and
Newco will be owned by the
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Entitled Holders (other than those Entitled Holders holding fewer than 25 shares
of Oldco Common Stock). Prior to the Spin-Off, various parties entered into the
Contribution Agreement (which is discussed above under "The Contribution and the
Spin-Off -- The Contribution Agreement"), the Indemnification Agreement and the
Escrow Agreement governing various matters and ongoing relationships between
Acquisition, the Surviving Corporation and Newco following the Spin-Off and the
Merger.
The Indemnification Agreement
The Indemnification Agreement was entered into by Acquisition, Merger
Sub and Newco. The Indemnification Agreement provides that Newco shall
indemnify, save and keep Buyer, the Surviving Corporation and the Retained
Subsidiaries and their respective affiliates and agents (the "Purchaser
Indemnitees") harmless and defend against and from all liabilities, judgments,
demands, claims, actions or causes of action, regulatory, legislative or
judicial proceedings or investigations, assessments, levies, losses, fines,
penalties, damages, costs and expenses ("Damages") sustained or incurred by any
Purchaser Indemnitee as a result of, or arising out of, by virtue of, or in
connection with:
(a) any inaccuracy in or breach of any representation and
warranty made by Oldco in the Plan of Merger or in any closing document
delivered in connection with the Plan of Merger; (b) any breach by Oldco of, or
failure by Oldco to comply with, any of its covenants or obligations under the
Plan of Merger or under the Indemnification Agreement; (c) the existence of any
liability or other obligation of Oldco or any Subsidiary as of the Merger
Closing Date or arising out of or relating to the Merger or any claim against a
Purchaser Indemnitee with respect to any such liability or obligation or alleged
liability or obligation other than the Retained Liabilities, including, without
limitation, liability on account of taxes payable by Oldco or for which Oldco is
liable; (d) the failure of Newco or any Subsidiary to pay and discharge in full
when due any of its respective liabilities whenever or however arising or
existing, including liability on account of taxes other than the Retained
Liabilities; (e) any claims for indemnification by current or former officers,
directors, employees, agents or consultants of Oldco or any Subsidiary; (f) any
third party claim (which excludes the Existing Litigation) to the extent it
arises out of or relates to any action or inaction of, or the conduct of the
business of Oldco or any Subsidiary on or prior to the Merger Closing Date other
than the Retained Liabilities; (g) any violation of, or delinquency with respect
to, any order or arbitration award or statute, or regulation in effect on or
prior to the Merger Closing Date of or any agreement of Oldco (or any
Subsidiary) with, or any license, permit or environmental permit granted to
Oldco (or any Subsidiary) by any federal, state or local governmental authority
to which the properties, assets, personnel or business activities of Oldco (or
any Subsidiary) are subject (or to which Oldco (or any Subsidiary) is subject as
it relates to the properties, assets, personnel or business activities of Oldco
(or any Subsidiary)); (h) any generation, transportation, storage, treatment,
disposal, release or threatened release of any hazardous materials occurring on
or prior to the Merger Closing Date regardless of when liability is asserted, at
any facility of Oldco (or any Subsidiary); (i) certain discharges or releases to
or from storm, ground or surface waters or wetlands, and any air emissions or
pollution; (j) certain
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exposure of and resulting consequences to any persons, including, without
limitation, employees of Oldco (or any Subsidiary or any agent of Oldco or any
Subsidiary), due to any hazardous materials used at a facility or otherwise used
by Oldco (or any Subsidiary); (k) certain violations or alleged violations of,
or obligations imposed by, any environmental law or environmental permit; (l)
certain matters relating to employee pension benefit plans of Oldco or its
affiliates; (m) any federal or state taxes imposed upon Oldco, or for which
Oldco is liable, with respect to any taxable period or portion of a taxable
period ending on or prior to the Merger Closing Date other than a Retained
Liability; (n) litigation against Oldco and/or the Subsidiaries pending or
threatened as of the Merger Closing Date; and (o) any claims, investigations,
proceedings, actions or lawsuits asserted or initiated before or after the
Merger Closing arising out of or in connection with pre-closing occurrences
involving Oldco and/or the Subsidiaries.
With certain exceptions, the Purchaser Indemnitees shall not be
entitled to indemnification (i) unless a notice of a claim has been delivered to
Newco prior to the fifth anniversary of the Merger Closing Date; (ii) to the
extent the aggregate claims actually paid by Newco or any of its Subsidiaries to
the Purchaser Indemnitees thereunder exceeds the aggregate Merger Consideration;
(iii) for Damages to the extent such Damages were expressly included in the
Adjustment Amount (as defined below) pursuant to the Plan of Merger; (iv) with
respect to consequential damages relating to lost profits or punitive damages
(other than consequential damages or punitive damages paid or payable to, or
claimed by third parties); and (v) with respect to Damages arising from time
spent by Acquisition or any of its affiliates and its respective officers and
employees, for amounts in excess of their actual out-of-pocket costs.
The Adjustment Amount is the sum of: (i) all liabilities of Oldco or a
Retained Subsidiary (including the Specified Current Liabilities but excluding
the Excluded Liability and certain intercompany liabilities) as of the Effective
Date which are both fixed and quantifiable; (ii) all Damages and other damages,
if any, that Oldco and Acquisition agree may be incurred (or are reasonably
likely to be incurred) by any of the parties to the Plan of Merger and any
Retained Subsidiary as a result of the breach by Oldco of its representations
and warranties in the Plan of Merger; and (iii) transfer, use, stamp, real
estate and other similar taxes and fees incurred by Oldco, its Subsidiaries,
Acquisition or Merger Sub in connection with the transactions contemplated by
the Plan of Merger.
The payment of any Damages to which the Purchaser Indemnitees are
entitled pursuant to the Indemnification Agreement shall first be satisfied from
funds held in the Escrow Account, pursuant to the terms of the Escrow Agreement
to the extent available, until the Escrow Account has been reduced to zero, and
thereafter shall be satisfied by Newco directly.
The Escrow Agreement
The Plan of Merger provides that Oldco will deposit at the Merger
Closing with the Escrow Agent an aggregate of $6,500,000 (the "Escrow Funds"),
which $6,500,000 will be obtained from Oldco's general corporate funds following
the Spin-Off, to be administered under
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the terms of the Escrow Agreement that was entered into by Oldco, Newco,
Acquisition and Merger Sub. The Escrow Fund does not include the Merger
Consideration for the Enowitz Shares, which shall be paid by Buyer and delivered
to Continental along with the Merger Consideration for the other Besicorp
shareholders. Continental, not the Escrow Agent, shall hold the Merger
Consideration for the Enowitz Shares and this escrow does not fund claims of
Buyer. See "Business--Legal Proceedings." The Escrow Fund serves to fund claims
for (A) indemnity made by the Buyer pursuant to the Indemnification Agreement,
including any claims of Buyer with respect to the Existing Litigation and other
matters to be prosecuted or defended by Newco (the "Newco Assumed Matters")
arising from the failure of Newco to diligently prosecute or defend such Newco
Assumed Matters, Buyer's out-of-pocket expenses (not to exceed $40,000 per year)
incurred if it is represented by counsel with respect to the Newco Assumed
Matters ("Buyer Monitoring Costs") and any payment of fees and expenses of
Continental, acting as the paying agent pursuant to the Plan of Merger (all such
claims, "Buyer Indemnity Claims"); (B) certain claims for tax refunds made by
Oldco if the refunds are not received prior to March 31, 1999 ("Tax Return
Claims") and (C) costs and expenses relating to (i) Newco Assumed Matters; (ii)
litigation arising out of or relating to any such Newco Assumed Matters; (iii)
indemnification of claims against Oldco's directors and officers (prior to the
Merger) for actions in their official capacity preceding the date of the Merger;
or (iv) in connection with certain matters arising out of or relating to the
Merger or the Spin-Off (collectively "Litigation Costs").
The Escrow Agent is to disburse Escrow Funds upon request to the Buyer,
with respect to Buyer Indemnity Claims, Buyer Monitoring Costs or Tax Return
Claims, and to Newco, with respect to Litigation Costs, unless the other party
objects to such disbursement. Newco may not object to the Tax Return Claims. If
a party objects, the Escrow Agent is not to disburse such funds until it
receives (i) the joint written direction of Newco and Buyer, (ii) a written
instrument representing a final and non-appealable order with respect to the
disposition of such amount issued by an arbitrator or (iii) a certified copy of
a final and non-appealable judgment of a court of competent jurisdiction
directing the disbursement of such funds (collectively, the "Escrow Fund
Determination Procedure"). Notwithstanding the foregoing, Newco is not to
unreasonably withhold its consent to a request by Buyer for payment of Buyer
Indemnity Claims and Acquisition is not to unreasonably withhold consent for
payment of Litigation Costs.
All remaining proceeds of the Escrow Fund, if any, will be released to
Newco at any time following the fifth anniversary of the date of the Escrow
Agreement provided that all of the following conditions have occurred and notice
has been provided by Newco to the Escrow Agent: (a) no claims are then subject
to the Escrow Fund Determination Procedure; (b) in the reasonable judgment of
Buyer, no future Buyer Indemnity Claims are foreseeable; and (c) all Newco
Assumed Matters have been finally settled through either (A) a final,
non-appealable judgment against the Surviving Corporation and all Purchaser
Indemnitees; or (B) a settlement or other conclusion to the Newco Assumed Matter
that (x) contains a release from all liability in favor of the Surviving
Corporation and Purchaser Indemnitees without any further obligation by the
Surviving Corporation or Purchaser Indemnitees to make any payment or incur any
other liability or obligation with respect to such matter, (y) does not
attribute by its terms liability to the
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Surviving Corporation or any Purchaser Indemnitee and (z) if the scheduled
matter is litigation or a proceeding, includes as a term thereof a full
dismissal of the litigation or proceeding with prejudice. Newco and Buyer also
agree they will meet no less than annually for the purpose of examining the
amounts set forth in the Escrow Fund and the amounts of Buyer Indemnity Claims
and Litigation Costs expended from the Escrow Fund, for the purpose of
determining whether the amount of the Escrow Fund is more than sufficient to
secure Buyer pursuant to the Indemnification Agreement.
The Escrow Agreement contains additional provisions including those
regarding investment of and taxation on the Escrow Fund, outlining the Escrow
Agent's duties and responsibilities, limiting the Escrow Agent's liability
except in the case of its bad faith, willful default or gross negligence,
permitting the Escrow Agent to resign, allowing the Escrow Agent to rely upon
notices it believes genuine and duly authorized without further verification and
limiting its responsibilities with respect to interest payable on the Escrow
Funds.
Additional Matters
Pursuant to the Plan of Merger, Newco is renting the Corporate
Headquarters from the Surviving Corporation pursuant to a five year lease for
$8,500 per month for the first 18 months and thereafter for $12,500 per month.
Newco has the option to purchase the premises after the twelfth month and before
the eighteenth month of the lease for $450,000 and the Surviving Corporation has
the right commencing with the 37th month of the lease to require Newco to
purchase the premises for $400,000.
MANAGEMENT
Directors and Executive Officers
Pursuant to the Newco Certificate and the Newco By-Laws, the Newco
Board will consist of the number of directors duly authorized from time to time
by the Newco Board. Following the Spin-Off , the Newco Board will consist
initially of the five individuals who currently comprise the Oldco Board.
Directors will initially serve until the next annual meeting of shareholders,
currently expected to be held in July 1999 and are expected to stand for
re-election at that time.
Set forth below is certain information as to the individuals who are
expected to serve as directors and executives of Newco and their terms as
members of the Newco Board.
Michael F. Zinn
Mr. Zinn, 45, has been the Chairman of the Board of Directors,
President and Chief Executive Officer of Newco since November, 1998, is the
President, Chief Executive Officer and Chairman of the Board of Directors of
Oldco and has guided Oldco since its founding in 1976.
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Prior to founding Oldco, Mr. Zinn was director of a federally funded
biomass-to-energy project. Prior to the above appointment, Mr. Zinn was employed
in energy engineering. He has been awarded six U.S. patents. In June 1997, Mr.
Zinn entered guilty pleas to two felony counts in the United States District
Court for the Southern District of New York in connection with the Proceeding.
Mr. Zinn was fined $36,673 and sentenced to a six month term of incarceration
(which commenced in November 1997 and has been completed) and a two year term
(which commenced in May 1998) of supervised release thereafter. He resigned as
Chairman of the Board, Chief Executive Officer and President of Oldco in
November 1997 and was reappointed to such positions in May 1998. He is a cousin
of Frederic M. Zinn, an executive officer of Newco.
Gerald A. Habib
Mr. Habib, 52, has been a director of Newco since November, 1998 and
has been a director of Oldco since May 1994. In 1993 Mr. Habib founded The
Berkshire Group, a Shokan, NY investment banking and consulting concern that
provides business development and merger and acquisition services to clients in
the chemical industry and has served as its president since that time. From 1986
to 1990 he served as director of planning and development for NL Chemicals, a
multinational specialty chemical company. Mr. Habib also served as a vice
president for Elitine Corporation, a technology licensing company, and as a
business manager and manager of planning for Olin Chemicals. Since May 1995, Mr.
Habib has also served as vice president of a specialty chemicals company. Mr.
Habib holds a B.S. in Chemical Engineering from City University of New York and
an MBA from New York University. Mr. Habib is a director of Polymer Solutions,
Inc., a Canadian-based manufacturer of advanced polymer-based products for the
coatings and adhesives industry.
Richard E. Rosen
Mr. Rosen, 51, has been a director of Newco since November, 1998 and
has been a director of Oldco since May 1994. Mr. Rosen is a District Manager
with Adaytum Software Corporation, a Minneapolis, Minnesota based developer and
marketer of strategic planning software. From 1993 to 1997, Mr. Rosen was the
founder and President of Plato Software, Inc. of Saugerties, New York, a
software development company engaged in marketing accounting software. From 1991
to 1993, Mr. Rosen owned and operated Rosebud Consulting Services, which
provided analysis, development, and implementation of computer software systems
to medium-sized businesses. Mr. Rosen holds a BA in Social Sciences from the
University of North Carolina.
Melanie Norden
Ms. Norden, 51, has been a director of Newco since November, 1998 and
has been a director of Oldco since February 1998. In 1988, Ms. Norden founded
BENCHMARKS, a full service consulting firm, providing consultation, management
and planning services in fundraising, organizational development, conference and
event planning and evaluation; volunteer, board and
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staff training; and public relations and marketing. Ms. Norden holds a BA from
the State University of New York at Binghamton and completed an MA Program at
Manhattanville College in Purchase, New York.
Michael J. Daley
Mr. Daley, 44, has been a director and the Executive Vice President and
Chief Financial Officer of Newco since November, 1998. He joined Oldco as
Financial Manager in August 1987 and was appointed Vice President, Finance &
Administration in May 1989, Corporate Secretary in April 1991, Chief Financial
Officer in September 1994, and Director, Chief Executive Officer and President
in November 1997. Concurrent with Mr. Zinn's reappointment as Chief Executive
Officer and President in May 1998, Mr. Daley was appointed Executive Vice
President and continues to serve as Chief Financial Officer. Mr. Daley holds a
B.S. in Accounting from St.
Francis College of Brooklyn, NY.
Joseph P. Novarro
Mr. Novarro, 56, has been Vice President, Project Development of Newco
since November, 1998. He joined Oldco in 1994 as Technical Manager and was
appointed Vice President, Project Development in February 1997. In November 1997
Mr. Novarro was appointed an executive officer of Oldco retaining the same
title. Prior to joining Oldco, Mr. Novarro was the Engineer/Project Manager at
Kamine Development Corp. Before that he held various management positions
during a 25-year career at Long Island Lighting Company. Mr. Novarro holds a
B.S. in Electrical Engineering from Manhattan College and completed his
postgraduate studies at the Oak Ridge School of Reactor Technology.
James E. Curtin
Mr. Curtin, 49, has been Vice President and Controller of Newco since
November, 1998. He joined Oldco as Corporate Controller in August 1995 and was
appointed an executive officer of Oldco with the title of Vice President and
Controller in November 1997. Prior to joining Oldco, Mr. Curtin was Director of
Financial Reporting for ENSERCH Engineers and Constructors from 1994 to 1995,
and held several financial management positions with Ebasco Services,
Incorporated, an engineering, construction and consulting firm, from 1981 to
1994. Mr.
Curtin holds a BBA in Accounting Practice from Pace University.
Frederic M. Zinn
Mr. Zinn, 41, has been Senior Vice President, General Counsel and
Secretary of Newco since November, 1998. He joined Oldco as a temporary
executive with the title of Vice President in November 1997. He was appointed
an executive officer of Oldco holding the title of Senior Vice President and
General Counsel in May 1998. Prior to joining Oldco, Mr. Zinn was the President
of Zinn & LeBovic, a Professional Law Corporation, from 1992 to 1997.
Before that,
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Mr. Zinn was General Counsel at JTE Real Estate Group, Inc. from 1989 to 1992;
Associate Attorney at Palmieri, Tyler, Weiner, Wilhelm & Waldron from 1986 to
1988; and Associate Attorney at Hart, King & Coldren from 1982 to 1986. Mr.
Zinn received a BA in Economics from the University of California at Davis and a
JD from the UCLA School of Law. He is a cousin of Michael F. Zinn, the Chairman
of the Board, Chief Executive Officer and President of Newco.
Executive Compensation
Prior to the Spin-Off, Newco's businesses were operated by Oldco. The
following table and narrative describe the compensation paid by Oldco in fiscal
years ended March 31, 1998, 1997 and 1996, to Oldco's two Chief Executive
Officers (one of whom will serve Newco as Chief Executive Officer and the other
as an executive officer) and one other individual whose Oldco salary and bonus
in Fiscal 1998 exceeded $100,000 (referred to collectively with the Chief
Executive Officers as the "Named Executive Officers") who are the only executive
officers of Newco whose salary and bonus from Oldco in Fiscal 1998 exceeded
$100,000. Such amounts do not necessarily reflect the compensation such Named
Executive Officers will receive following the Spin-Off. The compensation to be
paid to the executives of Newco has not been determined, though it is
anticipated that such compensation will be less than that paid to executives of
Oldco and that individuals serving Newco in the same capacity in which they
served Oldco will not receive the same compensation as they received in the
past. Accordingly, Newco may be unable to retain employees critical to its
success. Newco does not intend to enter into any written employment agreement
with any of its employees.
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Summary Compensation Table
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
Long-Term
Compensation
Name and Securities
Principal Annual Compensation Underlying All Other
-------------------------
Position (1) Year Salary ($) Bonus ($) Options Compensation ($)
----------- ---- ---------- ----------- --------------- ------------
Michael F. Zinn (2) 1998 229,249 586,250 (3) 3,400 (4)
CEO and President 1997 350,794 293,792 14,750 (4)(5)
1996 350,000 250,000 39,000 (6) 14,620 (4)(5)
Michael J. Daley (2) 1998 148,459 111,033 4,900 (4)
Executive Vice 1997 91,462 21,000 1,300 (4)
President & CFO 1996 85,000 15,000 3,000 1,000 (4)
Joseph P. Novarro 1998 98,654 35,000 2,445 (4)
Vice President, 1997 78,152 25,000 1,782 (4)
Project 1996 69,500 21,500 520 (4)
Development
</TABLE>
- ----------------
(1) Information regarding two former executive officers of Oldco who are
not executive officers or otherwise employed by Newco is omitted.
(2) During Fiscal 1998, Mr. Zinn served Oldco as CEO for the period April 1
through November 11, 1997; Mr. Daley served as CEO of Oldco from
November 11, 1997 through March 31, 1998.
(3) Includes bonus of $280,000 which was earned by Mr. Zinn in Fiscal 1997
and paid in Fiscal 1998.
(4) Includes Oldco's matching contribution to its qualified 401(k) Plan to
the named individuals as follows: for Fiscal 1998: Mr. Zinn, $3,400;
Mr. Daley, $4,900; and Mr. Novarro, $2,445; for Fiscal 1997: Mr. Zinn,
$4,750; Mr. Daley, $1,300; and Mr. Novarro, $1,782; for Fiscal 1996:
Mr. Zinn, $4,620; Mr. Daley, $1,000; and Mr. Novarro, $520.
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(5) Includes premiums of $10,000 paid by Oldco on life insurance policies
for Mr. Zinn in each of Fiscal 1997 and 1996.
(6) In January 1996 Mr. Zinn was granted options under Oldco's Amended and
Restated 1993 Incentive Plan (the "1993 Plan") to purchase 19,000
restricted shares of Oldco Common Stock at $7.00 per share. All options
were exercised by Mr. Zinn, and the restrictions on the shares, which
were scheduled to lapse in January 2001, lapsed in connection with the
Merger. At March 31, 1998, the 19,000 shares of Oldco Common Stock held
by Mr. Zinn as a result of the exercise of these options had a net
value of $418,000 based upon a market value of $551,000, less the
purchase price of $133,000.
Director's Compensation
The compensation to be paid to the members of the Board of Directors of
Newco has not been determined, though it is anticipated that such compensation
will be less than that paid to the Oldco directors. Directors of Oldco who were
also employees of Oldco were not paid any fees or compensation for their
services as members of Oldco's Board of Directors or any committee thereof.
Directors who were not employees of Oldco ("Outside Directors") received an
annual retainer of $20,000 and received per diem fees for each board or
committee meeting attended at the rate of $1,000 for each full-day meeting and
$500 for each half-day meeting. Each committee chairman received an additional
$3,000 annual stipend. Outside Directors were also reimbursed for reasonable
expenses relating to their duties.
Stock Options
Under the 1993 Plan up to 1,000,000 shares of Oldco Common Stock could
have been issued to officers, directors, employees and consultants of Oldco.
Awards under this plan may be in the form of stock options, stock appreciation
rights ("SARs"), dividend payment rights and options to purchase restricted
stock. During Fiscal 1998, options to acquire 7,500 shares were granted to the
Outside Directors under this Plan. No options were awarded during Fiscal 1998 to
the Named Executive Officers.
The following table provides information related to options and
warrants to acquire shares of Oldco Common Stock exercised by the Named
Executive Officers during Fiscal 1998 and the number and value of options and
warrants held by them at fiscal year end. All of such options and warrants have
been exercised. Oldco during Fiscal 1998 did not have any outstanding SARs.
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<TABLE>
<CAPTION>
<S>
<C> <C> <C>
Aggregated Option/Warrant Exercises in Last fiscal Year
and fiscal Year-end Option/Warrant Values
Value of
Number of Unexercised
Number of Unexercised In-the-Money
Shares of Oldco Options and Options and
Common Stock Warrants Warrants
Acquired at FY-End at FY-End
Name on Exercise Value Realized Exercisable/ Exercisable/
Unexercisable Unexercisable
Michael F. Zinn 0 $0 25,000/0 $ 678,125/$0
Michael J. Daley 0 0 9,500/3,000 224,875/78,000
Joseph P. 0 0 0/2,000 0/52,000
Novarro
</TABLE>
1999 Stock Option Plan
Newco's 1999 Incentive Plan (the "Newco Plan") is intended to
serve as an equity incentive program. 40,000 shares of Newco Common Stock are
reserved for issuance under the 1999 Plan.
The Newco Plan is intended as an incentive, to retain in the
employ of and as consultants and advisors to Newco, persons of training,
experience and ability, to attract new employees, officers, directors, advisors
and consultants whose services are considered valuable, to encourage the sense
of proprietorship and to stimulate the active interest of such persons in
Newco's development and financial success. It is intended that this incentive
will be effected through (a) the granting of shares of Newco Common Stock
("Newco Restricted Stock"), pursuant to restricted stock grant agreements and
(b) the granting of stock options, including options for restricted shares of
Newco Common Stock (collectively, "such options and grants of shares are
referred to as "Awards").
The Newco Plan is administered by the Newco Board or a
committee of the Newco Board (the "Committee"), which shall consist of two or
more members of the Newco Board who are "non-employee directors" within the
meaning of Rule 16b-3 of the Exchange Act. The Newco Board or the Committee
administering the Plan (the "Administrator") shall have full
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authority, subject to the provisions of the Newco Plan, among other things, to
determine the persons to whom Awards will be granted, to determine the exercise
price of the stock options, to determine terms and conditions of Awards and to
prescribe, amend and rescind rules and regulations relating to the Newco Plan.
Grants of Awards may be made to employees, officers and
directors of, and consultants and advisors to, Newco or any subsidiary. Stock
options may be either "incentive stock options," as such term is defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonqualified stock options. The exercise price of an incentive stock option may
not be less than the fair market value per share of Newco Common Stock on the
date of grant. Stock options shall be exercisable at the times and upon the
conditions that the Administrator may determine, as reflected in the applicable
Award agreement. The exercise period shall be determined by the Administrator;
provided, however, that such exercise period shall not exceed ten years from the
date of grant of such stock option.
In the event that the employment or service of a grantee shall
terminate (other than by reason of death), all stock options that are not
exercisable at the time of such termination shall terminate (unless the
Administrator determines to accelerate any of such options) and all stock
options that are exercisable at the time of such termination (or as a result of
such acceleration) may be exercised for a period of thirty (30) days immediately
following such termination (but in no case after the stock options expire in
accordance with their terms). In the event that the employment or service of a
grantee shall terminate by reason of death, all stock options that are not
exercisable at the time of such termination shall terminate (unless the
Administrator determines to accelerate any of such options) and all stock
options that are exercisable at the time of such termination may be exercised
for a period of one year immediately following such termination (but in no case
after the stock options expire in accordance with their terms).
Incentive stock options will be designed to comply with the
provisions of the Code, and will be subject to restrictions contained in the
Code. Incentive stock options will be granted at not less than fair market value
of the stock subject to the option on the date of grant and will extend for a
term of up to ten (10) years. Incentive stock options granted to any person who
owns more than 10% of the combined voting power of Newco's outstanding
securities must be granted at prices that are not less than 110% of fair market
value and may not extend for more than five (5) years.
The purchase price of Newco Common Stock purchased upon the
exercise of a stock option may be paid in cash or, in the discretion of the
Administrator, by delivery of Newco Common Stock owned by the grantee or, in the
case of nonqualified stock options, by withholding of shares of Newco Common
Stock otherwise issuable upon exercise of such stock option, or a combination of
cash and Newco Common Stock.
Restricted stock may be granted to participants. The
Administrator may provide that a restricted stock award will vest upon the
satisfaction of certain restrictions, including
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restrictions based on service. In general, restricted shares may not be sold,
transferred or hypothecated, and the stock will be place in escrow, until
restrictions are removed or expire. Grantees of restricted stock shall have
voting rights and receive dividends prior to the time when restrictions lapse.
Nonqualified stock options shall be transferable. All other
Awards granted under the Newco Plan shall not be transferable otherwise than by
will or by the laws of descent and distribution. The Newco Plan may, at any time
and from time to time, be altered, amended, suspended, or terminated by the
Newco Board, in whole or in part; except (i) to the extent otherwise required by
law, and (ii) that no amendment may be made which adversely affects any of the
rights of a grantee under any Award theretofore granted, without such grantee's
consent. Unless terminated earlier by the Newco Board, the Newco Plan will
expire on February 1, 2009.
Defined Contribution Plan
At the time of the Contribution, Date, Newco assumed sponsorship of
Oldco's 401(k) plan (the "401(k) Plan"), which is designed to comply with the
requirements of Sections 401(a) and 401(k) of the Code, which govern tax
qualification and cash or deferred arrangements. All employees of Newco who work
in the United States or are U.S. citizens, including the Named Executive
Officers, are, subject to the terms thereof, eligible to participate in the
401(k) Plan.
An eligible employee may elect to make before tax contributions to the
401(k) Plan of up to 15% of total compensation up to a maximum of $10,000.
Special rules imposed by the Code may require lower limitations for the Named
Executive Officers and other highly compensated employees. Newco will make
matching contributions on the employees' before-tax contributions equal to 50%
of an employee's total before-tax contributions up to 5% of such employee's base
salary, bonus and overtime.
Amounts contributed to the 401(k) Plan will be invested by the trustee
(pursuant to participant direction) in one or more investment funds. It is
contemplated that initially there will be six funds offering a variety of
investment options.
All of an employee's before-tax contributions will be 100% vested from
the time they are made. Each contribution made by Newco will be fully vested
once an employee has had five years of service at the rate of 20% per year of
service, including service with Oldco. Upon termination of employment,
retirement, disability or death, the employee will be entitled to a distribution
of his or her entire vested plan account.
The individual accounts of Oldco's employees held under the 401(k) Plan
were transferred to the Newco 401(k) Plan as of the date of the Contribution.
See " The Contribution and The Spin-Off -- The Contribution Agreement."
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Other Benefit Plans
Newco expects to maintain employee group health, life, long term
disability and other plans in which the Executive Officers will be eligible to
participate on the same terms as other salaried employees.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table shows the shares of Newco Common Stock expected to
be owned as of the Spin-Off by each beneficial owner of more than 5% of the
Newco Common Stock upon completion of the Spin-Off, each current director, the
Named Executive Officers and by all present directors and executive officers as
a group. Except as otherwise provided in the footnotes to the table, the
beneficial owners have sole voting and investment power as to all securities.
<TABLE>
<CAPTION>
<S>
<C> <C>
Number of Shares
Name of of Common Stock Percent of Common Stock
Beneficial Owner Beneficially Owned (1)(2) Beneficially Owned (1)(2)
Michael F. Zinn 67,969 (3) 51.5% (3)(4)
Gerald A. Habib 300 *
Richard E. Rosen 300 *
Michael J. Daley 670 *
Joseph P. Novarro 88 *
Melanie Norden 200 *
Current Directors and
executive officers as
a group (8 persons) 69,527 57.0% (3)(4)
</TABLE>
* Less than 1 percent.
(1) Except as described below, such persons have the sole power to vote and
direct the disposition of such shares.
(2) The exact number of shares of Newco Common Stock to be issued to each
of the Current Directors and executive officers and the percentage of
outstanding shares that such number represent cannot be determined
precisely because cash will be paid in lieu of fractional shares.
(3) Includes 3,178 shares to be held in the name of members of his
immediate family. Mr. Zinn disclaims beneficial ownership of these
shares. Does not include 5,079 shares to be owned
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<PAGE>
by The Zinn Family Charitable Trust established by Mr. Zinn; Mr. Zinn
also disclaims beneficial ownership of these shares. It is estimated
that after giving effect to the elimination of fractional shares of
Newco Common Stock, Mr. Zinn will beneficially own between 51.5% and
55% of the Newco Common Stock. Mr. Zinn is the Chairman of the Board,
President and Chief Executive Officer of Newco.
(4) The exact number of shares of Newco Common Stock outstanding cannot be
determined because no fractional shares will be issued. However, if
fractional shares were issued, 122,057.4 shares would be outstanding.
It is estimated that after giving effect to the elimination of
fractional shares, the current directors and executive officers as a
group would own between 57% and 60% of the Newco Common Stock.
The address for each of the individuals identified above is: 1151
Flatbush Road, Kingston, New York 12401.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of March 31, 1998 and 1997, entities owned by Michael F. Zinn, owed
Oldco $47,662 and $37,005, respectively, net of airport usage and plane services
(the "Services") performed by such entities on behalf of Oldco. The cost of
these Services were recorded for Fiscal 1998 and Fiscal 1997 as $31,939 and
$90,621, respectively. These entities satisfied their obligations to Oldco prior
to the Spin-Off. Mr. Zinn is the Chairman of the Board, President and Chief
Executive Officer of Newco and served in an identical capacity at Oldco.
Oldco, pursuant to applicable law and governing documents, had advanced
certain legal expenses on behalf of certain officers and directors in connection
with the Proceeding, the Lichtenberg Litigation and the Bansbach Litigation.
As of March 31, 1998 and 1997, such advances on behalf of Michael F.
Zinn in connection with the Proceeding were an aggregate of $338,517 and
$208,250, respectively. Of such sum, Mr. Zinn agreed to reimburse Oldco
$186,000, subject to a determination as to whether such reimbursement is
required by the BCL, and as of December 31, 1998, had reimbursed Oldco $45,000.
In January 1999, after the receipt of a report from independent legal counsel
addressing the propriety under the BCL and Oldco's by-laws of indemnifying Mr.
Zinn, a committee of the Oldco Board (composed of independent directors)
determined that Mr. Zinn was entitled to full indemnification with respect to
the Proceeding and (i) authorized the repayment to Mr. Zinn of the Fine and the
refund of $45,000 he had previously reimbursed Oldco; (ii) acknowledged that Mr.
Zinn had no further obligations with respect to the $141,000 Mr. Zinn had,
subject to a determination as the propriety of indemnification, agreed to
reimburse Oldco; and (iii) authorized the reimbursement of Mr. Zinn for the
legal fees and expenses (approximately $39,180) incurred by third parties in
connection with the Proceeding and which had been paid by him. In addition,
Oldco had advanced legal fees and disbursements of approximately $217,663
incurred in
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connection with such proceeding on behalf of certain directors, officers, and
current and former employees and their spouses who were actual or potential
witnesses in this matter. Oldco assigned its right to reimbursement, if any, to
Newco pursuant to the Contribution Agreement.
In connection with the Lichtenberg Litigation, Oldco had advanced as of
March 31, 1998 an aggregate of $731,579 in legal fees and disbursements on
behalf of Oldco and Messrs. Zinn, Eisenberg and Enowitz (directors and officers
or former directors and/or officers of Oldco).
In connection with the Bansbach Litigation, Oldco had advanced as of
March 31, 1998 an aggregate of $136,994 in legal fees and disbursements on
behalf of Oldco and Messrs. Zinn, Daley, Habib, Harris and Rosen (director and
officers or former directors of Oldco).
With regard to the legal actions described above, Oldco, in accordance
with applicable law and to the extent required, has received undertakings from
each indemnified party for whom legal costs have been advanced to reimburse
Oldco to the extent reimbursement is required by the BCL. Oldco assigned its
right to reimbursement to Newco pursuant to the Contribution Agreement.
THE MERGER
The Plan of Merger provides that, upon the terms and subject to the
satisfaction or waiver of numerous conditions set forth therein, including the
effectuation of the Spin-Off, Merger Sub will be merged with and into Oldco
which, as a result of the Spin-Off, will then be comprised principally of cash,
Niagara Mohawk Stock, the Corporate Headquarters and the other Retained Assets,
the Retained Subsidiaries and the Retained Liabilities, the separate corporate
existence of Merger Sub will cease and Oldco will continue as the Surviving
Corporation, provided that it will change its name within 30 days after the
Merger Closing Date to a name which does not include the word "Besicorp." The
Merger will become effective upon the filing of the Certificate of Merger with
the Secretary of State of the State of New York or, if later, the time specified
in the Certificate of Merger in accordance with the BCL (the "Effective Date").
The Spin-Off Record Date is expected to be the same day as the Effective Date.
Pursuant to the Plan of Merger, at the Effective Date (i) each share of
Merger Sub's Common Stock issued and outstanding immediately prior to the
Effective Date will be converted into and become one validly issued, fully paid
and nonassessable share of common stock of the Surviving Corporation (with the
result that Acquisition will own all of the stock of the Surviving Corporation)
and (ii) each share of Oldco Common Stock issued and outstanding on the
Effective Date shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive in cash $34.50,
subject to upward (but not downward) adjustment in certain circumstances (the
"Merger Consideration") upon surrender of the certificate evidencing such share
(each, an "Oldco Certificate") in the manner provided below. If the closing of
the Merger had occurred on February 25, 1999, the upward adjustment would have
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been $2.59 per share of Oldco Common Stock so that the Merger Consideration
would equal $37.09 per share of Oldco Common Stock. It is estimated that the
aggregate amount Acquisition will pay in the Merger will range from $105.3
million to $117 million. Because the Spin-Off Record Date is expected to be the
Effective Date, the holders of Oldco Certificates on the Effective Date shall be
entitled to both Merger Consideration (pursuant to the Merger) and shares of
Newco Common Stock (pursuant to the Spin-Off).
Immediately prior to the Effective Date, Acquisition will deposit or
cause to be deposited with Continental, in trust for the benefit of the holders
of record of Oldco Common Stock immediately prior to the Effective Date, cash in
an aggregate amount equal to the Merger Consideration. As soon as practicable
after the Effective Date, Continental will mail to each holder of shares of
Oldco Common Stock as of the Effective Date a letter of transmittal and
instructions (the "Letter of Transmittal") to effect the surrender of the Oldco
Certificates in exchange for the Merger Consideration. The Letter of Transmittal
will be accompanied by a letter informing the holders about the occurrence of
the Spin-Off and telling them that certificates evidencing their shares of Newco
Common Stock (as well as the Merger Consideration) will be distributed upon
Continental's receipt of their Oldco Certificates.
Each holder of Oldco Common Stock, upon surrender to Continental of
such holder's Oldco Certificates with the Letter of Transmittal, duly and
properly executed, shall be entitled to receive the Merger Consideration with
respect to the shares of Oldco Common Stock represented by the Oldco Certificate
as payment of the Merger Consideration. Continental will then distribute to such
holder both the Merger Consideration and the certificate evidencing such shares
(and/or cash in lieu of fractional shares) of Newco Common Stock relating
thereto as promptly as possible. Until so surrendered, each Oldco Certificate
shall at and after the Effective Date be deemed to represent only the right to
receive upon surrender of such Oldco Certificate the Merger Consideration with
respect to the shares of Oldco Common Stock represented thereby. See "The
Contribution and the Spin-Off -- Procedure for Receiving Certificates for Shares
of Newco Common Stock."
DESCRIPTION OF THE CAPITAL STOCK
The summary of the terms of the stock of Newco set forth below does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Newco Certificate and the Newco By-Laws.
Authorized Capital Stock
Under the Newco Certificate, the total number of shares of all classes
of stock that Newco has authority to issue is 6,000,000 shares, of which
5,000,000 are shares of Newco Common Stock and 1,000,000 are shares of Newco
Preferred Stock. After giving effect to the distribution of the shares of Newco
Common Stock pursuant to the Spin-Off, there will be approximately
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122,057 shares of Newco Common Stock outstanding and no shares of Preferred
Stock outstanding.
Common Stock
Holders of Newco Common Stock will be entitled to one vote per share on
all matters voted on generally by the shareholders, including the election of
directors, and, except as otherwise required by law or except as provided with
respect to any series of Newco Preferred Stock, the holders of such shares will
possess all voting power. The Newco Certificate does not provide for cumulative
voting for the election of directors. Thus, under the BCL, the holders of more
than one-half of the outstanding shares of Newco Common Stock generally will be
able to elect all the directors of Newco then standing for election and holders
of the remaining shares will not be able to elect any director. Subsequent to
the completion of the Spin-Off, Michael F. Zinn will own approximately 51.5 to
54% of the then outstanding shares of Newco Common Stock and will be able to
elect all of the members of the Newco Board and exercise substantial influence
over the outcome of any issues which may be subject to a vote of Newco's
shareholders. See "Risk Factors--Risks Related to Our Operations."
Subject to any preferential rights of any series of Newco Preferred
Stock, holders of shares of Newco Common Stock will be entitled to receive
dividends on such stock out of assets legally available for distribution when,
as and if authorized and declared by the Newco Board and to share ratably in the
assets of Newco legally available for distribution to its shareholders in the
event of its liquidation, dissolution or winding up. Newco does not presently
anticipate paying cash dividends in the foreseeable future. See "Dividend
Policy."
Holders of Newco Common Stock will have no preferences, preemptive,
conversion or exchange rights.
The outstanding shares of Newco Common Stock are, and the shares of
Newco Common Stock being distributed pursuant to the Spin-Off will be, when
issued, fully paid for and (subject to any liability imposed by Section 630 of
the BCL) nonassessable. Under Section 630 of the BCL, the ten largest
shareholders of Newco are personally liable for unpaid wages and debts to
Newco's employees unless Newco's capital stock is listed on a national
securities exchange or regularly quoted in an over-the-counter market by one or
more members of a national or an affiliated securities association. Newco does
not currently intend to have its capital stock so listed or quoted. See "Risk
Factors--Risks Related to Our Operations."
Preferred Stock
The Newco Board is authorized to issue shares of Newco Preferred Stock,
in one or more series or classes, and to fix for each such series voting powers
and such preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions as are permitted by
the BCL and the Newco Certificate. The issuance of Newco Preferred Stock
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<PAGE>
could decrease the amount of earnings and assets available for distribution to
the holders of the Newco Common Stock or could adversely affect the rights and
powers, including voting rights, of the holders of the Newco Common Stock. See
"Risk Factors--Risks Related to the Distribution."
Certain Effects of Authorized and Unissued Stock
There will be, after the completion of the Spin-Off, approximately
4,877,943 unissued and unreserved shares of Newco Common Stock and 1,000,000
unissued and unreserved shares of Newco Preferred Stock. These additional shares
may be issued for a variety of corporate purposes, including future public or
private offerings to raise additional capital or facilitate acquisitions. One of
the effects of the existence of unissued and unreserved shares of Newco Common
Stock and Newco Preferred Stock may be to enable the Newco Board to discourage
an attempt to change control of Newco and thereby to protect the continuity of
Newco's management. If , in the due exercise of its fiduciary duties, the Newco
Board determined that an attempt to change control of Newco was not in Newco's
best interest, the Newco Board could authorize, without having to obtain
approval of the shareholders, the issuance of such shares in one or more
transactions that might prevent or render more difficult the completion of such
attempt. In certain circumstances, such issuance could have the effect of
decreasing the market price of the Newco Common Stock. In addition, the issuance
of shares of Preferred Stock, whether or not related to any attempt to effect
such a change, may adversely affect the rights of the holders of shares of Newco
Common Stock. The Company does not presently intend to issue additional shares
of Newco Common Stock or Newco Preferred Stock. See "Risk Factors."
DESCRIPTION OF CERTAIN STATUTORY, CHARTER AND BY-LAW PROVISIONS
New York Anti-Takeover Law
New York corporations are subject to the provisions of Section 912 of
the BCL for so long as they have a class of securities registered under Section
12 of the Exchange Act and continue to be organized as a corporation under the
laws of the State of New York. Section 912 provides, with certain exceptions,
that a New York corporation shall not engage in a "business combination" (e.g.,
merger, consolidation, recapitalization or disposition of stock or assets) with
any "interested shareholder" for a period of five years from the date that such
person first became an interested shareholder unless the transaction resulting
in a person becoming an interested shareholder or the business combination was
approved by the Board of Directors of such corporation prior to that person
becoming an interested shareholder. After the end of such five year period,
generally the interested shareholder may engage in a business combination only
if (a) the business combination is approved by the holders of a majority of the
outstanding voting stock not beneficially owned by such interested shareholder
or (b) the business combination meets certain valuation and consideration
requirements for the stock of such corporation. An "interested shareholder" is
defined as any person that is the beneficial owner of 20% or more of the
then-outstanding voting stock. Newco, as permitted by the BCL, has elected in
the Newco
69
<PAGE>
Certificate, to opt out of this section of the BCL with the result that the
restrictions on business combinations do not apply to Newco. See Risk Factors--
Risks Related to Our Operations."
Number of Directors; Removal; Vacancies
The Newco By-Laws provides that the number of Directors shall be
determined from time to time by majority of the Newco Board. The Newco By-Laws
provide that the Newco Board shall have the right to fill vacancies, including
vacancies created by expansion of the Newco Board, except for vacancies
resulting from the removal of a Newco Director by the shareholders.
The Newco Certificate provides that Newco Directors may be removed with
or without cause by the shareholders by the affirmative vote of the holders of
at least a majority of the voting stock. In addition, Newco Directors may be
removed with cause by the Newco Board.
Shareholder Action by Written Consent; Special Meetings
The Newco Certificate provides that any action required or permitted to
be taken by the shareholders of Newco at a duly called meeting of shareholders
of Newco may be effected by any consent in writing of such shareholders, signed
by the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
Special meetings of shareholders of Newco may be called by the Newco
Board or the president of Newco and shall be called by the president or
secretary of Newco after receipt of the written request of a majority of the
Newco Board or shareholders owning a majority of the shares issued and
outstanding.
Amendment of By-Law Provisions
The Newco By-Laws provides that either the shareholders or, with
certain limitations, the Newco Board may adopt, amend, or repeal any provision
of the Newco By-Laws.
Transfer Agent and Registrar
The transfer agent and registrar for Newco Common Stock will be
Continental Stock Transfer & Trust Company, which also is the Distribution Agent
for the Spin-Off and the paying agent with respect to the Merger Consideration.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the BCL, the Newco Certificate provides (the "Newco
Certificate Provision") that no director shall be personally liable to Newco or
any of its shareholders for
70
<PAGE>
damages for any breach of duty as a director unless a judgment or other final
adjudication adverse to him or her establishes that his or her acts or omissions
were in bad faith or involved intentional misconduct or a knowing violation of
law or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled or that his or her acts
violated Section 719 of the BCL. No amendment to or repeal of the Newco
Certificate Provision shall apply to or have any effect on the liability or
alleged liability of any director of Newco for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
This provision is intended to afford directors protection, and limit
their potential liability, from suits alleging a breach of the duty of care by a
director. Newco believes this provision will assist it in maintaining and
securing the services of directors who are not employees of Newco. As a result
of the inclusion of such provision, shareholders may be unable to recover
monetary damages against directors for actions taken by them that constitute
negligence or gross negligence or that are in violation of their fiduciary
duties, although it may be possible to obtain injunctive or other equitable
relief with respect to such actions. If equitable remedies are found not to be
available to shareholders for any particular case, shareholders may not have any
effective remedy against the challenged conduct.
The Newco By-laws also provide that directors and officers shall be
indemnified against liabilities arising from their service as directors or
officers to the fullest extent permitted by law, which generally requires that
the individual have acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to Newco's best interests, provided that no
indemnification may be made to or on behalf of any director or officer if a
judgment or other final adjudication adverse to him or her established that his
or her acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled.
Newco maintains officer's and director's liability insurance with
policy limits of $2 million (and an additional $2 million in excess coverage)
insuring its officers and directors against certain liabilities and expenses
incurred by them in their capacities as such, and insuring Newco under certain
circumstances, in the event that indemnification payments are made by Newco to
such officers and directors.
LISTING AND TRADING OF NEWCO COMMON STOCK
There is currently no existing trading market for Newco Common Stock.
Newco has not applied and currently does not intend to apply for listing of the
Newco Common Stock on an Exchange because it does not meet the stated listing
requirements of any Exchange. Newco Common Stock may be traded on the OTC
Electronic Bulletin Board, a screen-based trading system operated by the
National Association of Securities Dealers, Inc. Securities traded on the
71
<PAGE>
OTC Electronic Bulletin Board are, for the most part, thinly traded. Newco can
make no predictions as to the effect, if any, that sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of significant amounts of Newco Common Stock
in the public market, or the perception that such sales may occur, may adversely
affect prevailing market prices and could impair Newco's future ability to raise
capital through the sale of its equity securities.
The shares of Newco Common Stock to be received by holders of Oldco
Common Stock in the Spin-Off will be freely transferable, unless (i) a holder is
deemed to be an "affiliate" of Newco under the Securities Act of 1933, as
amended (the "Securities Act") or (ii) the holder's shares of Oldco Common Stock
were "restricted stock" (i.e. contained a legend indicated that they were
restricted under the Securities Act), in which case the same restrictions would
apply to shares of Newco Common Stock issued in the Spin-Off. Persons who may be
deemed affiliates of Newco after the Spin-Off generally include individuals or
entities that control, are controlled by, or are under common control with Newco
and may include certain of Newco's officers and directors. Persons who are
affiliates of Newco and holders of "restricted stock" will be permitted to sell
their shares of Newco Common Stock only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act, such as exemptions afforded by Section 4(2)
of the Securities Act or Rule 144 thereunder.
Upon completion of the Spin-Off, Newco will have approximately 122,057
shares of Newco Common Stock outstanding (assuming the exercise of all
outstanding options and warrants to purchase Oldco Common Stock prior to the
Spin-Off Record Date and assuming no cancellation of shares as a result of
fractional shares being converted into cash). Newco estimates that it will
initially have approximately [ ] shareholders of record, based on the number of
shareholders of record of Newco as of March [___], 1999. Of these shares,
approximately [ ] will be freely tradable without restriction or further
registration under the Securities Act, except that any shares held by affiliates
of Newco, may generally only be sold in compliance with the limitations of Rule
144. The remaining shares of Newco Common Stock will be restricted shares within
the meaning of Rule 144 under the Securities Act. Newco has not agreed to
register any of these shares under the Securities Act for sale by the holders
thereof.
EXPENSES OF THE SPIN-OFF
Oldco shall pay all of the costs and expenses of the Spin-Off incurred
on or prior to the Spin-Off Record Date, including the cost of providing the
cash to be paid to Entitled Holders in lieu of fractional shares of Newco Common
Stock, the preparation of the Registration Statement and the distribution of
this Information Statement. Except as otherwise provided in the Contribution
Agreement or in any other agreement entered into in connection with the
Spin-Off, Newco shall bear all of the other costs and expenses of the Spin-Off.
72
<PAGE>
INDEPENDENT ACCOUNTANTS
The Newco Board has appointed Citrin Cooperman & Company, LLP ("CC&C")
as Newco's independent accountants to audit Newco's financial statements for its
1999 fiscal year. CC&C has audited the financial statements that appear in this
Information Statement and has served as Oldco's auditors throughout the periods
covered by the financial statements included in this Information Statement.
DIVIDEND POLICY
Newco has never declared or paid any cash dividends on the Newco Common
Stock and does not anticipate cash dividends in the foreseeable future. The
declaration and payment of dividends is at the discretion of the Newco Board and
will be subject to Newco's financial results and the availability of surplus
funds to pay dividends. The BCL prohibits Newco from paying dividends or
otherwise distributing funds to its shareholders, except out of legally
available funds. The declaration of dividends and the amount thereof will depend
on a number of factors, including Newco's financial condition, capital
requirements, funds from operations, future business prospects and such other
factors as the Newco Board may deem relevant, as well as contractual and
statutory restrictions on Newco's ability to pay dividends. Newco may in the
future enter into loan or other agreements or issue debt securities or preferred
stock that restrict the payment of dividends.
73
<PAGE>
INDEX TO THE COMBINED FINANCIAL STATEMENTS OF THE
DISTRIBUTED BUSINESSES OF BESICORP GROUP INC.
<TABLE>
<CAPTION>
<S>
<C>
Index to the Combined Financial Statements of the
Distributed Businesses of Besicorp Group Inc. ................................................. F-1
Independent Auditors' Report............................................................................ F-2
Combined Balance Sheet as of December 31, 1998 (Unaudited),
and March 31, 1998............................................................................. F-3
Combined Statement of Operations and Combined Equity
for the Nine Months Ended December 31, 1998 and 1997
(Unaudited) and the Years Ended March 31, 1998 and 1997........................................ F-5
Combined Statement of Cash Flows for the Nine Months
Ended December 31, 1998 and 1997 (Unaudited)
and the Years Ended 1998 and 1997.............................................................. F-6
Notes to Combined Financial Statements.................................................................. F-7
Unaudited Pro Forma Combined Financial Information....................................................... F-17
</TABLE>
F-1
CITRIN COOPERMAN & COMPANY, LLP
Certified Public Accountants
529 Fifth Avenue, Tenth Floor
New York, NY 10017
212-697-1000
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
BESICORP GROUP INC.
Independent Auditors' Report
____________________________
We have audited the accompanying combined balance sheet of the Distributed
Businesses of Besicorp Group Inc. as at March 31, 1998 and the related combined
statements of operations and combined equity and cash flows for the two years
then ended. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned combined financial statements present fairly,
in all material respects, the financial position of the Distributed Businesses
of Besicorp Group Inc. as at March 31, 1998 and the results of their operations
and their cash flows for the two years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Distributed Businesses of Besicorp Group Inc. will continue as a going concern.
As discussed in Note 13 to the financial statements, the Distributed Businesses
of Besicorp Group Inc. have suffered recurring losses from operations and have
had substantial financial support from the former parent company that raise
substantial doubt about its ability to continue as a going concern without such
support. Management=s plans in regard to these matters are also described in
Note 13. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Citrin Cooperman & Company, LLP
CITRIN COOPERMAN & COMPANY, LLP
June 23, 1998
New York, New York
<PAGE>
F-2
<TABLE>
<CAPTION>
<S>
DISTRIBUTED BUSINESSES OF BESICORP GROUP INC.
<C> <C>
COMBINED BALANCE SHEET
ASSETS December 31, March 31,
1998 1998
------------ ------------
(Unaudited)
Current Assets:
Cash $ 96,133 $ 104,385
Trade accounts receivable (less allowance for doubtful
accounts of $21,000 at March 31, 1998, and
$66,929 at December 31, 1998) 599,850 366,079
Due from affiliates 64,223 47,662
Current portion of long-term notes receivable:
Others (includes interest of $8,316 at March 31, 1998,
and $16,950 at December 31, 1998) 127,919 102,054
Inventories 1,166,673 944,013
Other current assets 287,859 477,918
--------- ---------
Total Current Assets 2,342,657 2,042,111
--------- ---------
Property, Plant and Equipment:
Land and improvements 151,356 151,356
Buildings and improvements 557,736 550,659
Machinery and equipment 1,546,586 1,226,115
Furniture and fixtures 247,363 246,702
--------- ---------
2,503,041 2,174,832
Less: accumulated depreciation and amortization 1,570,965 1,393,685
--------- ---------
Net Property, Plant and Equipment 932,076 781,147
--------- ---------
Other Assets:
Patents and trademarks, less accumulated
amortization of $1,691 at March 30, 1998
and $2,131 at December 31, 1998 9,011 7,823
Long-term notes receivable:
Affiliate - net of allowance of $555,376 in March, 0 in December 0 0
Others - net of allowance of $1,944,624 in March, 0 in December 94,112 129,886
Deferred costs 0 1,316,693
Other assets 55,731 95,063
--------- ---------
Total Other Assets 158,854 1,549,465
--------- ---------
TOTAL ASSETS $ 3,433,587 $ 4,372,723
========= =========
See accompanying notes to combined financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>
DISTRIBUTED BUSINESSES OF BESICORP GROUP INC.
<C> <C>
COMBINED BALANCE SHEET
LIABILITIES AND COMBINED EQUITY
December 31, March 31,
1998 1998
------------ ------------
(Unaudited)
Current Liabilities:
Accounts payable and accrued expenses $ 1,271,921 $ 1,232,050
Current portion of long-term debt 11,700 70,740
Current portion of accrued reserve and warranty expense 140,305 152,891
Taxes other than income taxes 100,122 100,693
--------- ---------
Total Current Liabilities 1,524,048 1,556,374
Long-Term Accrued Reserve and Warranty Expense 167,935 152,402
Long-Term Debt 123,608 3,202,600
--------- ---------
Total Liabilities 1,815,591 4,911,376
Combined Equity 1,617,996 (538,653)
--------- ---------
TOTAL LIABILITIES AND COMBINED EQUITY $ 3,433,587 $ 4,372,723
========= =========
See accompanying notes to combined financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>
DISTRIBUTED BUSINESSES OF BESICORP GROUP INC.
COMBINED STATEMENT OF OPERATIONS AND COMBINED EQUITY
<C> <C> <C> <C>
Years Ended March 31, Nine Months Ended December 31,
--------------------- ------------------------------
1998 1997 1998 1997
(Unaudited) (Unaudited)
Revenues:
Product sales $ 3,838,351 $ 4,474,926 $ 3,273,495 $ 3,056,859
Other revenues 426,154 310,922 406,841 209,367
Interest and other investment income 35,482 42,676 18,404 27,685
Other income 5,566 158,568 0 4,179
--------- --------- --------- ---------
Total Revenues 4,305,553 4,987,092 3,698,740 3,298,090
--------- --------- --------- ---------
Costs and Expenses:
Cost of product sales 3,932,301 4,299,848 3,144,571 2,850,416
Selling, general and
administrative expenses 8,536,780 7,576,927 6,963,875 5,605,068
Interest expense 451,178 292,142 93,685 365,540
Other expense 2,508,214 92,316 8,832 277
---------- ---------- ---------- ---------
Total Costs and Expenses 15,428,473 12,261,233 10,210,963 8,821,301
---------- ---------- ---------- ---------
Loss Before Income Taxes (11,122,920) (7,274,141) (6,512,223) (5,523,211)
Credit for Income Taxes 3,765,900 2,458,700 2,209,000 1,878,000
---------- --------- --------- ---------
Net Loss (7,357,020) (4,815,441) (4,303,223) (3,645,211)
Combined Equity - Beginning 1,978,778 2,670,711 (538,653) 1,978,778
Net Transactions with Oldco 4,839,589 4,123,508 6,459,872 4,166,914
--------- --------- --------- ---------
Combined Equity - Ending $ (538,653) $ 1,978,778 $ 1,617,996 $ 2,500,481
========= ========= ========= =========
See accompanying notes to combined financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>
DISTRIBUTED BUSINESSES OF BESICORP GROUP INC.
COMBINED STATEMENT OF CASH FLOWS
<C> <C> <C> <C>
Years Ended March 31, Nine Months Ended December 31,
--------------------- ------------------------------
1998 1997 1998 1997
(Unaudited) (Unaudited)
Operating Activities:
Net loss $ (7,357,020) $ (4,815,441) $ (4,303,223) $ (3,645,211)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization of discounts on notes (2,196) (2,196) (1,647) (1,647)
Provision for uncollectibles 2,481,654 0 45,929 0
Realized and unrealized (gains)/losses 52,618 0 0 0
Depreciation and amortization 393,456 351,180 177,720 179,491
Changes in assets and liabilities:
Accounts and notes receivable 315,277 (15,113) (284,705) 193,632
Inventories 236,252 78,925 (222,660) 40,101
Accounts payable and accrued expenses (507,272) 495,555 39,871 (342,649)
Taxes payable (1,393) 37,083 (571) (99,148)
Other assets and liabilities, net (41,381) (486,213) 1,547,403 (490,346)
Net Cash Used --------- --------- --------- ---------
By Operating Activities (4,430,005) (4,356,220) (3,001,883) (4,165,777)
--------- --------- --------- ---------
Financing Activities:
Increase in borrowings 0 500,000 0 500,000
Repayment of borrowings (99,711) (82,559) (3,138,032) (116,155)
Net transactions with Oldco 4,839,589 4,123,508 6,459,872 4,166,914
--------- --------- --------- ---------
Net Cash Provided
By Financing Activities 4,739,878 4,540,949 3,321,840 4,550,759
-------- --------- --------- ---------
Investing Activities:
Acquisition of property, plant and equipment (264,552) (136,493) (328,209) (232,399)
Net Cash Used By Investing --------- --------- --------- ----------
Activities (264,552) (136,493) (328,209) (232,399)
--------- --------- --------- ----------
Increase (Decrease) in Cash 45,321 48,236 (8,252) 152,583
Cash Beginning 59,064 10,828 104,385 59,064
--------- --------- ---------- ---------
Cash Ending $ 104,385 $ 59,064 $ 96,133 $ 211,647
Supplemental Cash Flow Information: ========= ========= ========== =========
Interest paid $ 445,601 $ 358,325 $ 93,685 $ 365,540
Additions to property, plant, and
equipment which were financed
and not included above $ 66,375 $ 0 $ 0 $ 66,375
See accompanying notes to combined financial statements.
</TABLE>
F-6
<PAGE>
DISTRIBUTED BUSINESSES OF BESICORP GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
__________________________________________
Basis of Presentation
Besicorp Group Inc. ("Oldco") is party to an Agreement and Plan of Merger dated
November 23, 1998, as amended, (the "Plan of Merger") among Oldco, BGI
Acquisition LLC ("Acquisition") and BGI Acquisition Corp. ("Merger Sub"), a
wholly owned subsidiary of Acquisition. Pursuant to the Plan of Merger, Merger
Sub will be merged into Oldco which will thereafter be a wholly owned subsidiary
of Acquisition (the "Merger"). Since Acquisition does not want to acquire
certain assets or assume certain liabilities of Oldco, it is a condition
precedent to the Merger that Oldco, prior to the Merger, spin-off its
photovoltaic and independent power development businesses (the "Distributed
Businesses") to its shareholders. Therefore, Oldco formed Besicorp Ltd.
("Newco") to assume the operations of the Distributed Businesses by having Oldco
assign to Newco all of its assets relating to the Distributed Businesses and
substantially all of Oldco's other assets (other than Oldco's cash, securities,
the subsidiaries which held Oldco's interests in partnerships which owned or
leased six cogeneration natural gas power plants (the "Retained Subsidiaries")
and the corporate headquarters and certain other assets (including in
particular, other claims of Besicorp and awards made to Besicorp in the
aggregate stated amount of approximately $1 million)), and by having Newco
assume substantially all of Oldco's liabilities other than the following
liabilities (collectively, the "Permitted Liabilities"): (i) the liabilities of
Oldco and any Retained Subsidiary (actual or accrued) for unpaid federal income
taxes for Oldco's 1999 fiscal year based on the consolidated net income of Oldco
through the effective date of the Merger, (ii) the liabilities of Oldco or its
subsidiaries for New York State income taxes for the 1999 fiscal year, and (iii)
certain intercompany liabilities. The aggregate amount of the Permitted
Liabilities is estimated as approximately $201,599,926 at December 31, 1998 and
the aggregate amount of the assets to be retained by Oldco pursuant to the
Merger and calculated in the manner provided for by the Plan of Merger is
approximately $132,016,278 at February 25, 1999. The Plan of Merger contemplates
that Oldco will effect such a contribution and distribute all of Newco's stock.
Therefore, following the contribution, which it is expected will take place
shortly prior to the Merger which is currently scheduled to be consummated on
March 22, 1999, Oldco will distribute 100% of Newco's common stock (the
"Distribution"), and Newco will become a separate, publicly held company.
Assets and liabilities will be transferred to Newco at Oldco's historical cost.
The historical actions of Oldco's Distributed Businesses, including Newco's
accounting policies, are attributable to Newco. The financial results in these
financial statements are not necessarily indicative of the results that would
have occurred if Newco had been an independent public company during the periods
presented or of future results of Newco. The financial results in these
financial statements include all the normal recurring expenses of the
Distributed Businesses on a historical basis with the exception of additional
rent and interest expense that would be charged on a stand alone basis. Interest
expense was not incurred on net transactions with Oldco, although the interest
expense represented in these financial statements includes interest on debt used
to finance Oldco's working capital and, therefore, approximates the interest
that would have been allocated had Oldco made such allocation. Adjustment for
interest in the pro forma financial statements was not made, as the terms of
financing of any additional debt can not be predicted at this time. Rental
expense will be incurred by Newco on the corporate headquarters which the Plan
of Merger contemplates will be retained by Oldco. (See Note 11.) Such rental
charges approximate the rental charges currently being incurred by Oldco and are
not included in the historical results of the Distributed Businesses. There are
no additional charges that were incurred by Oldco that would be allocated to the
Distributed Businesses. See unaudited Pro Forma Combined Financial Statements
found at page F-16 of this Information Statement for discussion of the effect of
the Distribution on Newco.
<PAGE>
Amounts shown as net transactions with Oldco represent the net effect of cash
generated or used by the Distributed Businesses and transferred to or from
Oldco.
The unaudited Combined Balance Sheet at December 31, 1998, the unaudited
Combined Statement of Operations and Combined Equity for the nine months ended
December 31, 1998 and December 31, 1997, and the unaudited Combined Statement of
Cash Flows for the nine months ended December 31, 1998 and December 31, 1997
have not been audited, but have been prepared in conformity with generally
accepted accounting principles as applied in Newco's audited consolidated
financial statements for the year ended March 31, 1998. In the opinion of
management, this information includes all material adjustments, of a normal and
recurring nature, necessary for a fair presentation. The results for the nine
months periods are not necessarily indicative of the results expected for the
full year.
F-7
Business
Newco specializes in the development, assembly, manufacture, marketing and
resale of photovoltaic products and systems ("Product Segment") and the
development of power plant projects ("Project Segment").
Use of Estimates
Management uses estimates in preparing the consolidated financial statements, in
conformity with generally accepted accounting principles. Significant estimates
include collectibility of accounts receivable, warranty costs, profitability on
long-term contracts, as well as recoverability of long-term assets and residual
values. Newco regularly assesses these estimates and, while actual results may
differ from these estimates, management does not anticipate a material
difference in its actual results versus estimates in the near term.
Inventories
Inventories are carried at the lower of cost (first-in, first-out method) or
market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation on such assets is
computed on a straight-line basis at rates adequate to allocate the cost over
their expected useful lives as follows: (i) land improvements - 15 years, (ii)
buildings and improvements - 20 years to 39 years; (iii) furniture and fixtures
- - three years to 35 years; and (iv) machinery and equipment - three years to 35
years.
Patents and Trademarks
Costs of patents ($10,657 at December 31, 1998 and $9,029 at March 31, 1998) are
capitalized and amortized on a straight-line basis over the remaining useful
life of the patent of up to 17 years. Trademark costs ($485 at March 31, 1998
and $485 at December 31, 1998) are capitalized and amortized on a straight-line
basis over the estimated useful life of 35 years. During the year ended March
31, 1998, $690,467 of patent and trademark costs were written off upon the
discontinuance of the related product lines as a result of management's decision
to focus the Company's alternative energy business on photovoltaic products and
systems. The write-off of these costs is reflected in selling, general and
administrative expenses.
Deferred Costs
Consists of engineering and legal fees, licenses and permits, site testing, bids
and other charges, including salaries and employee expenses, incurred by Newco
in developing projects. These costs are deferred until the date the project
construction financing is arranged and then expensed against development fees
received, or, in some cases, such costs are reimbursed periodically or at the
time of closing. When in the opinion of management it is determined that a
project will not be completed, the deferred costs are expensed.
<PAGE>
Impairment of Long-Lived Assets
Newco adopted the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," as of April 1, 1996. The Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairments whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Adoption of this Statement
did not have an impact on Newco's financial position or results of operations.
F-8
Product Warranties
Warranty expense for Newco's product sales is provided on the basis of
management's estimate of the future costs to be incurred under product
warranties presently in force. Adjustments to revenue or expense are reflected
in the period in which revisions to such estimates are deemed appropriate.
Revenue Recognition
Revenues on product sales are recognized at the time of shipment of goods. Other
revenues, primarily cost reimbursement billings, are recognized when deemed
payable under the applicable agreement.
Research and Development
Research and development costs are expensed when incurred.
Statement of Cash Flows
For purposes of the combined statement of cash flows, Newco considers temporary
investments with a maturity of three months or less when purchased to be cash
equivalents. There were no cash equivalents in any of the periods presented.
Concentration of Credit Risk
Financial instruments which potentially subject Newco to concentrations of
credit risk consist principally of cash and trade receivables. Newco places its
cash and investments with high credit qualified financial institutions and, by
policy, limits the amount of credit exposure to any one financial institution.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising Newco's customer base, and their
dispersion across many different industries and regions. During the year ended
March 31, 1998, one customer accounted for approximately 14% of product sales.
During the year ended March 31, 1997, sales to one customer accounted for
approximately 23% of product sales.
NOTE 2 - INVENTORIES
Inventories consist of the following:
March 31, 1998 December 31, 1998
-------------- ------------------
(Unaudited)
Assembly parts $298,239 $373,336
Finished goods 645,774 793,337
--------- -----------
$944,013 $1,166,673
========= ===========
NOTE 3 - DEFERRED COSTS
Deferred and reimbursable costs at December 31, 1998 (unaudited) and March 31,
1998 were as follows:
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C>
Internal Costs Third
Payroll Expenses Party Costs Total
------- -------- ----------- -----
Balance March 31, 1997 $917,671 $267,947 $295,110 $1,480,728
Additions 259,335 34,706 388,238 682,279
Expensed (634,631) (85,142) (64,335) (784,108)
Reimbursements (58,825) - (3,381) (62,206)
-------- -------- -------- ---------
Balance March 31, 1998 483,550 217,511 615,632 1,316,693
Additions 75,504 11,851 43,716 131,071
Write-offs (513,375) (229,362) (659,348) (1,402,085)
Reimbursements (45,679) (45,679)
-------- ------- -------- ---------
Balance December 31, 1998
(Unaudited) $0 $0 $0 $0
======== ======= ======== =========
</TABLE>
F-9
<PAGE>
Oldco wrote off all deferred costs during the second quarter of Fiscal 1999 due
to the uncertain nature of the development of the projects and due to the
uncertain political and economic conditions in the countries where the projects
are located (principally India and Brazil). Oldco determined, in accordance with
its existing policy, that due to the uncertain development of the projects the
carrying amounts may be impaired.
NOTE 4 - NOTES RECEIVABLE
<TABLE>
<CAPTION>
<S>
<C> <C>
Long-term notes receivable consist of the following:
March 31, 1998 December 31, 1998
-------------- -----------------
Due from affiliate (net of allowance of
$555,376 at March 31, 1998 and 0 at
December 31, 1998 (a) $0 $0
======== ========
Due from others:
- Greenhouse (net of allowance of
$1,944,624 at March 31, 1998
and 0 at December 31, 1998 (a) $0 $0
- 9% notes receivable due from limited
partnerships, receivable in annual
installments through December, 2001 (b) 223,623 205,081
Less current portion - net of interest (93,737) (110,969)
-------- -------
TOTAL $129,886 $94,112
======== =======
</TABLE>
(a) In connection with a project (the "Project"), Oldco advanced an aggregate of
$2,500,000 (see Note 6(d)) of which, at March 31, 1998, $1,944,624 and $555,376
was owed to Oldco by, respectively, an affiliated partnership and an unrelated
company ("Allegany"). During Fiscal 1998, Oldco reserved the full amount of such
loan due to its impairment and wrote off the combined loan during the quarter
ended December 31, 1998 due to the settlement of certain litigation involving
the project partnerships. Oldco did not in Fiscal 1998 and the nine months ended
December 31, 1998 record any interest income with respect to such advances. See
Note 10.
(b) Oldco contracted to design, build, and operate energy systems with limited
partnerships. Under the terms of the agreements with these partnerships, the
partnerships provided Oldco with cash initial payments and issued long-term
notes. Additional interest on these notes were imputed at the rate of 2% per
annum to yield an effective rate of 11% per annum on substantially all of the
long-term notes.
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses were comprised of the following:
March 31, 1998
Trade accounts payable $465,584
Accrued interest expense 39,421
Accrued legal fees 308,281
Accrued salaries 134,640
Due to affiliate 56,624
Deposits and other payables 227,500
-------------
$1,232,050
=========
NOTE 6 - LONG-TERM DEBT
F-10
<PAGE>
<TABLE>
<CAPTION>
<S>
<C> <C>
Long-term debt consists of the following: March 31, 1998 December 31,
-------------- ----------------
1998
(Unaudited)
- Installment loans at 0% to 10.54% maturing through
September 2000 (a) $75,639 $0
- Mortgage loan payable in monthly installments of
$1,060 plus interest at prime plus 1.5% to March 1998
and prime plus .5% thereafter through March 2001 (b, c) 50,680 0
- Obligation on SunWize asset acquisition (e) 147,021 135,308
- Working capital loan (d) 3,000,000 0
--------- --------
Total 3,273,340 135,308
Less: Current maturities 70,740 11,700
--------- ---------
$3,202,600 $123,608
========= ========
</TABLE>
Long-term debt maturities at March 31, 1998, including current maturities, are
as follows:
March 31, 1998
1999 $70,740
2000 58,302
2001 44,758
2002 32,520
2003 20,000
Thereafter 3,047,020
$3,273,340
=========
With the exception of the SunWize acquisition obligation, which will be the only
debt remaining subsequent to the Spin-Off, all debt was repaid during the nine
months ended December 31, 1998.
a. Collateral for the installment loans consists of automobiles, machinery and
equipment, computer equipment and furniture and fixtures with a net book value
of $60,468 at March 31, 1998. It is expected that all these loans were repaid
prior to December 31, 1998.
b. Collateralized by mortgages on land and/or buildings owned by Oldco with a
net book value of $232,968 at March 31, 1998. These mortgages were repaid prior
to December 31, 1998.
c. As a part of his guarantees of the Newco's debts of $50,680 at March 31,
1998, the majority shareholder has a security interest in various assets,
patents and personal property owned by Newco. This mortgage was repaid prior to
December 31, 1998.
d. On June 1, 1992, Oldco and its partnership co-developer entered into a loan
agreement with Stewart & Stevenson Services, Inc. to borrow up to $3,000,000
each for working capital. Interest on advances under the agreement are payable
quarterly in arrears at the rate of 2% above prime. The loan requires payments
of interest only during the initial term. Principal is to be repaid based on
termination dates of operating and maintenance contracts on certain projects
with an initial term of six years that may be extended an additional six years.
Loans are secured by cash flows of certain of the partnerships in the event of
default. During Fiscal 1993 and 1994 Oldco borrowed $2,500,000 under the
agreement to fund development activities of one of the partnerships (see Note
4), and, in February 1997, borrowed the remaining $500,000 available under the
loan agreement. The loan was repaid in full in July 1998.
F-11
<PAGE>
e. Obligation payable on the acquisition of SunWize assets, payable on an annual
basis as a percentage of gross margins of the SunWize division. $19,878 was paid
in Fiscal 1998. $6,381 was paid in Fiscal 1997.
NOTE 7 - INCOME TAXES
The credit for income taxes for all periods presented represents the allocated
benefits of the respective losses which Oldco was able to use in filing its
consolidated tax returns. The asset and liability method of accounting for
income taxes is used, whereby deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.
Tax benefits are allocated based on the taxable loss of the companies and
deferred taxes are provided on temporary differences in recognition of income
between book and tax. Such tax benefits and deferred taxes are charged or
credited to the amount due to or from Oldco and included in the net transactions
with Oldco.
Deferred tax assets of approximately $360,000 primarily from equipment and
depreciation differences are offset by valuation allowances since it is more
likely than not that some portion of the deferred tax asset will not be
realized.
Upon conclusion of the Merger and Spin-Off, Newco will be a separate entity and
will no longer have its results included with the consolidated tax return of
Oldco. Newco will have no operating loss carryforwards and items of income and
expense with respect to Newco's operations will be reported from the date of the
Spin-Off.
NOTE 8 - RELATED PARTIES
Amounts due from affiliates at December 31, 1998 and March 31, 1998 relate to
receivables from companies owned by the majority shareholder which provide
certain services to Newco for airport usage, plane services and engineering
consulting services totaling $31,939 for the years ended March 31, 1998.
Included in other current assets at March 31, 1998 is a receivable of $164,211
($141,000 at December 31, 1998) from the President of Newco representing
primarily the balance due on $186,000 of legal fees incurred in connection with
a certain legal proceeding (the "Proceeding") which the President has agreed,
subject to a determination that such repayment is not required, to reimburse to
Newco. In January 1999, after the receipt of a report from independent legal
counsel addressing the propriety under the BCL and Oldco's by-laws of
indemnifying the President, a committee of the Oldco Board (composed of
independent directors) determined that the President was entitled to full
indemnification with respect to the Proceeding and (i) authorized the repayment
to the President of the fine of $36,673 he had paid in connection with the
Proceeding and the refund of $45,000 he had previously reimbursed Oldco; (ii)
acknowledged that the President had no further obligations with respect to the
$141,000 he had, subject to a determination as the propriety of indemnification,
agreed to reimburse Oldco; and (iii) authorized the reimbursement of the
President for the legal fees and expenses (approximately $39,180) incurred by
third parties in connection with the Proceeding and which were paid by him.
See "Certain Relationships and Related Transactions."
F-12
<PAGE>
NOTE 9 - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Year Ended
1998 1997
Advertising costs $142,154 $68,413
Research and development expenses(1) 697,182 646,817
Warranty expense 53,701 295,333
Amortization of patents and trademarks 40,632 16,845
Maintenance and repairs 84,903 73,169
Taxes other than payroll and income taxes 57,721 666,249
(1) Since Fiscal 1994 Newco has expanded its efforts in technology development,
particularly solar electric products. Expenditures for research and development
were $499,436 for the nine months ended December 31, 1998, $697,182, in Fiscal
1998 and $648,817 in Fiscal 1997. Personnel expenses, comprising the largest
portion of these amounts, were $176,192 for the nine months ended December 31,
1998, $330,428 in Fiscal 1998, and $301,055 in Fiscal 1997. Of the total
amounts, expenses attributable to Newco's agreements with the New York State
Energy Research and Development Authority were $270,657 for the nine months
ended December 31, 1998, $520,950 in Fiscal 1998, and $414,307 in Fiscal 1997.
NOTE 10 - LEGAL PROCEEDINGS
In June 1997, Oldco and its Chairman, Chief Executive Officer and President,
Michael F. Zinn, each entered guilty pleas to two felony counts in United States
District Court for the Southern District of New York, White Plains, New York.
Each entered a guilty plea to one count of causing a false statement to be made
to the Federal Election Commission ("FEC") and one count of filing a false tax
return, both in connection with contributions to the 1992 election campaign of
Congressman Maurice Hinchey. Both Oldco and Mr. Zinn were fined approximately
$36,000 and Mr. Zinn was sentenced to a six-month term of incarceration, which
was completed on May 8, 1998.
The St. Francis Hospital cogeneration facility was shut down by the management
of the hospital, and Newco initiated a lawsuit against the third-party turn-key
operator, Tecogen, Inc., for failing to complete its obligations under the
contract prior to this action by the hospital. During Fiscal 1998 the court
ruled that Newco was liable to Tecogen, Inc. for final payment of the purchase
price, and Newco paid a judgment in the net amount of $126,750 plus interest of
$115,585.
In March 1993 a shareholder derivative suit was filed against the Company and
the Company's directors which alleges, among other charges, that the directors
acted improperly in issuing Company shares to themselves for little or no
consideration. The plaintiff is seeking award of damages to the Company,
including punitive damages and interest, an accounting and the return of assets
to the Company, the appointment of independent members to the Board of
Directors, the cancellation of allegedly improperly granted shares, and the
award to the plaintiff of costs and expenses of the lawsuit including legal
fees. The defendants have denied the allegations of the complaint. The Board of
Directors of the Company formed a Special Litigation Committee ("SLC") comprised
of independent, outside directors to investigate the allegations made in the
action and determine if continued prosecution of the action is in the best
interest of the Company. After an extensive investigation of the allegations
made in the complaint, the SLC issued a resolution dated March 28, 1995 finding
that the continued prosecution of the derivative action was not in the best
interest of the Company. In a decision issued December 19, 1997, the Court
granted the Company's motion for summary judgment based upon the recommendation
of the SLC, and dismissed the derivative action in all respects. The plaintiff
has filed a notice of appeal. Management is of the opinion that meritorious
defenses to the suit have been asserted and that the outcome of the action will
have no material adverse impact on the Company.
F-13
<PAGE>
Newco, through partnership interests, was involved in the construction of a
cogeneration facility and an associated greenhouse. Various legal proceedings
have arisen from these facilities due to construction problems, breaches of
contract and bankruptcies so that neither facility is presently being operated.
The Company entered into a settlement with respect to such proceedings in which
it relinquished its interest in such facilities and its claim against the other
parties except for one administrative claim and in which it was released from
all claims against it (except for a claim that may be made by Allegany, which
claim is not currently pending).
See "Business - Legal Proceedings" for further discussion of litigation for
which Newco may be responsible.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
At March 31, 1998, Newco has no significant minimum annual rental commitments
under non-cancelable operating leases for equipment and office space. Newco has
two leases for office and warehouse space. One lease calls for monthly rental of
$575 for a period of 12 months ending April 1998. The second lease originally
was for ten years at $150,000 per year commencing December 15, 1994, with Newco
having the annual right to terminate the lease during the first seven years of
the lease term. Effective September 1, 1995 this lease was renegotiated based
upon a reduction of rented space from 25,000 square feet to 17,000 square feet.
The term of this lease was for an initial period of six months, commencing on
October 1, 1995 and ending on March 31, 1996. The term automatically renews for
successive periods of six months each. After December 31, 1996, either party may
terminate the lease at any time by giving the other party at least ninety days
notice in writing. The annual rent from September 1, 1995 forward is $102,000,
which will be adjusted in future periods based on the Consumer Price Index. Rent
expense on all operating leases for the years ended March 31, 1998 and 1997 was
$155,197 and $173,903, respectively.
Since March 1994 Newco has been entering into cost-sharing agreements with the
New York State Energy Research and Development Authority ("NYSERDA") with
completion dates extending through April 2001. The agreements provide for
payment to Newco by NYSERDA of $1,442,237 (approximately $800,000 has been
earned through March 31, 1998) for funding and development of photovoltaic
projects with estimated costs of $2,963,235. Funds advanced by NYSERDA are to be
repaid from revenues on sales of products developed under the agreements, if
any.
Newco has a 401(k) plan covering substantially all full-time employees for which
the Company makes matching contributions as defined. The Company's expenses
under the plan for the year ended March 31, 1998 were $72,692.
As part of the Plan of Merger , the corporate headquarters will be retained by
Oldco and be leased to Newco. Rentals under the five year lease will be $8,500
per month for the first 18 months and, thereafter, $12,500 per month. Newco will
have the option to purchase the premises at any time after the twelfth month of
the lease term and prior to the eighteenth month of the lease term at a cash
purchase price equal to $450,000. Besicorp will have the option to require Newco
to purchase the premises at any time after the thirty-sixth month of the lease
term at a cash purchase price equal to $400,000. The lease will be accounted for
as an operating lease on Newco's books as it does not meet any of the criteria
for a capital lease.
In addition, as a part of the Plan of Merger, there is (i) an indemnification
agreement which obligates Newco to indemnify the purchaser from any damages they
suffer arising out of, among other things, Oldco's breach of representations and
warranties set forth in the Plan of Merger and certain liabilities, taxes and
litigation of Oldco and (ii) an escrow agreement governing the $6.5 million to
be placed in escrow to satisfy Newco's obligations under the indemnification
agreement and provides for payment of, among other things, certain litigation
and related costs.
In connection with the Merger and Spin-Off, approximately 122,057 shares of
Newco common stock will be issued to the holders of Besicorp common stock on a
one share of Newco for 25 shares of Besicorp basis, subject to adjustment based
upon the payment of cash in lieu of the issuance of fractional shares.
In February 1999, Newco adopted the 1999 Incentive Plan to provide for the
issuance of up to 40,000 shares of Newco common stock as an equity incentive
program. No grants have been made under the plan.
F-14
<PAGE>
NOTE 12 - SEGMENTS OF BUSINESS
Newco specializes in the development, assembly, manufacture, marketing and
resale of photovoltaic products and systems ("Product Segment") and the
development of power plant projects ("Project Segment"). Newco's export product
sales, principally to Europe and the Pacific Rim, for the nine months ended
December 31, 1998 and for the years ended March 31, 1998 and 1997 were $119,694,
$299,293 and $297,761, respectively. A summary of industry segment information
for the nine months ended December 31, 1998 and 1997 and for the years ended
March 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C>
Nine Months Ended Project Product
December 31, 1998 Segment Segment Eliminations Total
- ----------------- ------- ------- ------------ -----
Net revenues $52,516 $3,646,224 $3,698,740
Net income (loss) (2,905,440) (1,397,823) (4,303,223)
Identifiable assets 14,004,656 2,532,375 $(13,103,444) 3,433,587
Capital expenditures 154,013 174,196 328,209
Depreciation and amortization 110,682 67,038 177,720
Nine Months Ended Project Product
December 31, 1997 Segment Segment Eliminations Total
- ----------------- ------- ------- ------------ -----
Net revenues $43,114 $3,254,976 $3,298,090
Net income (loss) (1,885,188) (1,760,023) (3,645,211)
Identifiable assets 20,144,854 3,574,248 $(15,666,460) 8,052,642
Capital expenditures 24,463 274,311 298,774
Depreciation and amortization 128,638 49,082 177,720
For the Year Ended Project Product
March 31, 1998 Segment Segment Eliminations Total
- -------------- ------- ------- ------------ -----
Net revenues $88,382 $4,217,171 $4,305,553
Net income (loss) (4,705,931) (2,651,089) (7,357,020)
Identifiable assets 17,967,952 2,166,286 $(15,761,515) 4,372,723
Capital expenditures 39,478 291,449 330,927
Depreciation and amortization 284,632 108,824 393,456
For the Year Ended Project Product
March 31, 1997 Segment Segment Eliminations Total
- -------------- ------- ------- ------------ -----
Net revenues $57,935 $4,929,157 $4,987,092
Net income (loss) (3,100,596) (1,714,845)
(4,815,441)
Identifiable assets 18,457,930 3,692,166 $(14,641,551) 7,508,545
Capital expenditures 110,812 25,681 136,493
Depreciation and amortization 268,291 82,889 351,180
</TABLE>
NOTE 13 - GOING CONCERN
The Distributed Businesses have suffered recurring losses from operations and
have had substantial financial support from Oldco, which raises substantial
doubt about Newco's ability to continue as a going concern without such support.
Newco is in the process of developing a business plan (and contemplates, after
the consummation of the Merger, retaining a financial advisor to assist in (i)
the preparation of such plan and (ii) exploring the financial and strategic
options available to Newco) to improve Newco's operations and financial
condition. No assurance can be given that such a plan will have such effects or
that such financing will be available.
F-15
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Balance Sheet of the Distributed
Businesses as of December 31, 1998, and the Unaudited Pro Forma Combined
Statements of Operations for the year ended March 31, 1998, and the nine months
ended December 31, 1998, have been prepared to reflect the effects on the
historical results of the Distributed Businesses of: (i) the leasing of the
corporate headquarters from Oldco; (ii) the assignment to Newco of Oldco's
interests in the Partnership; (iii) distribution of the shares of Newco Common
Stock to the Oldco shareholders as of the record date for the Spin-Off; and (v)
the transfer to Newco of $1.5 million. The accounting for this transfer of
assets and liabilities represents a reorganization of companies under common
control and, accordingly, all assets and liabilities will be reflected at their
historical cost basis. As a result of the contribution contemplated, the assets
to be owned by Newco will consist, of (i) all of Oldco's assets pertaining to
the photovoltaic and power plant development businesses (including interests in
power plant projects and initiatives in India and Brazil and trade receivables,
furniture, fixtures and equipment related to these businesses (subject to the
provisions of the Plan of Merger and Contribution Agreement that permit Oldco
and Newco to replace contributed assets with assets of equal value); (ii) $1.5
million in cash; (iii) the interests in the Partnerships; (iv) all other assets
not retained by Oldco (including all of Oldco's subsidiaries other than the
subsidiaries owning the interests in the partnerships that formerly owned the
five domestic power plants which provided capacity and electrical power to
Niagara Mohawk Power Corporation; and (v) the subsidiary that owns the corporate
headquarters. The liabilities to be assumed by Newco include all of Oldco's
liabilities (the only material liabilities that Newco is aware of are the
contingent liabilities arising out of legal proceedings to which Oldco is a
party (see "Business - Legal Proceedings"), liabilities of approximately $1.8
million (principally representing accounts payable and accrued expenses), except
for (i) the actual or accrued liabilities of Oldco or any subsidiary that is a
Retained Subsidiary for unpaid federal income taxes for the current fiscal year
based on the consolidated net income of Oldco through the Effective Date; (ii)
the liability of Oldco or its subsidiaries for New York State Income Taxes for
Oldco's current fiscal year; and (iii) various intercompany liabilities between
Oldco and the subsidiaries that held the interests in the Partnerships that
owned the power plants.
The Unaudited Pro Forma Combined Balance Sheet has been prepared as if the
transactions occurred on December 31, 1998; the Unaudited Pro Forma Combined
Statements of Operations have been prepared as if the transactions occurred on
April 1, 1997. The pro forma financial information set forth below is unaudited
and not necessarily indicative of the results that would actually have occurred
if the transactions had been consummated as of December 31, 1998, or April 1,
1997, or the results which may be obtained in the future.
The pro forma adjustments, as described in the Notes to the Unaudited Pro Forma
Combined Balance Sheet and Notes to the Unaudited Pro Forma Combined Statements
of Operations are based on available information and upon certain assumptions
that management believes are reasonable. The Unaudited Pro Forma Combined
Financial Information should be read in conjunction with the Distributed
Businesses historical financial statements, including the related notes thereto.
F-16
<PAGE>
DISTRIBUTED BUSINESSES OF BESICORP GROUP INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
<S>
<C> <C> <C>
December 31, 1998
ASSETS Historical Adjustments Pro Forma
--------- ----------- ---------
Current Assets:
Cash and securities $ 96,133 $ 1,500,000 (1) $ 1,596,133
Trade accounts receivable 599,850 599,850
Due from affiliates 64,223 64,223
Current portion of long-term notes receivable:
Others 127,919 127,919
Inventories 1,166,673 1,166,673
Other current assets 287,859 (141,000) (3) 146,859
-------- --------- -------
Total current assets 2,342,657 1,359,000 3,701,657
Net Property, Plant and Equipment 932,076 - 932,076
Other Assets 158,854 2,466,147 (2) 2,625,001
-------- --------- ---------
TOTAL ASSETS $ 3,433,587 $ 3,825,147 $ 7,258,734
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,271,921 $ - $ 1,271,921
Current portion of long-term debt 11,700 - 11,700
Current portion of accrued reserve and warranty expense 140,305 - 140,305
Taxes other than income 100,122 - 100,122
--------- -------- ---------
Total Current Liabilities 1,524,048 - 1,524,048
Long-term Accrued Reserve and Warranty Expense 167,935 - 167,935
Long-term Debt 123,608 - 123,608
-------- -------- -------
Total Liabilities 1,815,591 - 1,815,591
--------- -- ---------
Shareholders' Equity:
Common stock - 1,221 (4) 1,221
Additional paid-in capital - 5,441,922 (4) 5,441,922
Combined Equity 1,617,996 (5,443,143) (4) -
- (141,000) (3) -
- 2,466,147 (2) -
- 1,500,000 (1) -
------- ---------- -
Total Shareholders' Equity 1,617,996 3,825,147 5,443,143
--------- ---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,433,587 $ 3,825,147 $ 7,258,734
========= ========= =========
</TABLE>
F-17
<PAGE>
DISTRIBUTED BUSINESSES OF BESICORP GROUP INC.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S>
<C> <C> <C>
Nine Months Ended December 31, 1998
Historical Adjustments Pro Forma
Revenues:
Product sales $3,273,495 $ - $ 3,273,495
Other revenues 406,841 - 406,841
Interest and other investment income 18,404 - 18,404
Other income - - -
--------- -------- ---------
Total Revenues 3,698,740 - 3,698,740
--------- -------- ---------
Costs and Expenses:
Cost of product sales 3,144,571 - 3,144,571
Selling, general and administrative expenses 6,963,875 101,700 (5) 7,065,575
Interest expense 93,685 - 93,685
Other expense 8,832 - 8,832
---------- -------- ----------
Total Costs and Expenses 10,210,963 101,700 10,312,663
---------- -------- ----------
Loss Before Income Taxes (6,512,223) (101,700) (6,613,923)
Credit for Income Taxes (2,209,000) (40,680) (5) (2,249,680)
--------- -------- -----------
Net Loss $ (4,303,223) $ (61,020) $(4,364,243)
========= ======== ===========
Loss Per Common Share $ (35.26) (6) $ (35.76) (6)
========= =========
</TABLE>
DISTRIBUTED BUSINESSES OF BESICORP GROUP INC.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S>
<C> <C> <C>
Year ended March 31, 1998
Historical Adjustments Pro Forma
Revenues:
Product sales $ 3,838,351 $ - $3,838,351
Other revenues 426,154 - 426,154
Interest and other investment income 35,482 - 35,482
Other income 5,566 - 5,566
-------- ------ ---------
Total Revenues 4,305,553 - 4,305,553
--------- ------ ---------
Costs and Expenses:
Cost of product sales 3,932,301 - 3,932,301
Selling, general and administrative expenses 8,536,780 135,600 (5) 8,672,380
Interest expense 451,178 - 451,178
Other expense 2,508,214 - 2,508,214
---------- ------ ---------
Total Costs and Expenses 15,428,473 135,600 15,564,073
---------- -------- ----------
Loss Before Income Taxes (11,122,920) (135,600) (11,258,520)
Credit for Income Taxes (3,765,900) (54,240) (5) (3,820,140)
--------- -------- -----------
Net Loss $(7,357,020) $ (81,360) $ (7,438,380)
=========== ============ ==========
Loss Per Common Share $ (60.28) (6) $ (60.94) (6)
========== =========
</TABLE>
F-18
<PAGE>
DISTRIBUTED BUSINESSES OF BESICORP GROUP INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Besicorp intends to contribute $1.5 million to Newco pursuant to the
Spin-Off.
(2) Partnership interests, representing the remaining equity after
distributions to Besicorp through the date of Merger, being assigned to
Newco.
(3) Reduction of other assets, receivable from the Company's president,
since the balance will be settled by Besicorp prior to the Spin-Off.
This adjustment was not reflected on the pro forma statement of
operations because it is non-recurring and does not have an on-going
effect on operations.
(4) Issuance of approximately 122,057 shares to the holders of Besicorp
common stock, on a one share for Newco for 25 shares of Besicorp basis,
subject to adjustment based upon the payment of cash in lieu of the
issuance of fractional shares and reclassification of the combined
equity in excess of par value to paid in capital.
(5) Pro forma adjustments on the pro forma statement of operations reflect
the straight-line rental income of $101,700 and $135,600 for the nine
months ended December 31, 1998 and the year ended March 31, 1998,
respectively, net of income taxes at 40%. The Plan of Merger
contemplates that the Surviving Corporation is to retain the Corporate
Headquarters which it will lease to Newco, which is represented by the
$1,032,802 of net property, plant and equipment in the pro forma balance
sheets. Rentals under the five year lease will be $8,500 per month for
the first 18 months and, thereafter, $12,500 per month. Newco will have
the option to purchase the premises at any time after the twelfth month
of the lease term and prior to the eighteenth month of the lease term at
a cash purchase price equal to $450,000. The Surviving Corporation will
have the option to require Newco to purchase the premises at any time
after the thirty-sixth month of the lease term at a cash purchase price
equal to $400,000. The lease will be accounted for as an operating lease
on Newco's books.
(6) Loss per common share is computed based on the 122,057 shares being
issued on the Spin-Off as noted in Note 4 above.
(7) Assets and liabilities will be transferred to Newco at Oldco's
historical cost. The historical actions of Oldco's Distributed
Businesses, including Newco's accounting policies, are attributable to
Newco. The financial results in these financial statements are not
necessarily indicative of the results that would have occurred if Newco
had been an independent public company during the periods presented or
of future results of Newco. The financial results in these financial
statements include all the normal recurring expenses of the Distributed
Businesses on a historical basis with the exception of additional rent
and interest expense that would be charged on a stand alone basis.
Interest expense was not incurred on net transactions with Oldco,
although the interest expense represented in these financial statements
includes interest on debt used to finance Oldco's working capital and,
therefore, approximates the interest that would have been allocated had
Oldco made such allocation. Adjustment for interest in the pro forma
financial statements was not made, as the terms of financing of any
additional debt can not be predicted at this time. Rental expense will
be incurred by Newco on the corporate headquarters which the Plan of
Merger contemplates will be retained by Oldco. (See note 5.) Such rental
charges approximate the rental charges currently being incurred by Oldco
and are not included in the historical results of the Distributed
Businesses. There are no additional charges that were incurred by Oldco
that would be allocated to the Distributed Businesses.
F-19
<PAGE>
EXHIBITS
TO
POST EFFECTIVE AMENDMENT NO. 1
TO
FORM 10-SB
General Form for Registration
Of Securities of Small Business Issuers
Under Section 12(b) or 12(g) of
the Securities Exchange Act of 1934
----------------
BESICORP LTD.
<PAGE>
INDEX OF EXHIBITS
2.1 Contribution and Distribution Agreement by and
between Besicorp Ltd. (The "Company") and Besicorp
Group Inc. ("BGI")*.
3(i) Certificate of Incorporation of Besicorp Ltd.**
3(ii) By-Laws of Besicorp Ltd.**
10.1 Form of Indemnification Agreement by and among the
Company, BGI Acquisition LLC ("LLC") and BGI
Acquisition Corp.
("Acquisition")**
10.2 Form of Escrow Agreement by and among the Company,
BGI, LLC and Acquisition.**
10.3 Lease of Corporate Headquarters by and between the
Company and BGI*.
10.4 1999 Incentive Plan*.
21.1 List of Subsidiaries*.
27 Financial Data Schedule - 9 Months ended December
31, 1998
27.1 Financial Data Schedule - 9 Months ended December
31, 1997
27.2 Financial Data Schedule - Year ended March 31, 1998**
27.3 Financial Data Schedule - Year ended March 31, 1997**
*To be filed by amendment.
** Filed as an Exhibit to the Form 10-SB of Newco filed on December
23, 1998 (File no.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 0
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<CGS> 2,850,416
<TOTAL-COSTS> 2,850,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 365,540
<INCOME-PRETAX> (5,523,211)
<INCOME-TAX> (1,878,000)
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 96,133
<SECURITIES> 0
<RECEIVABLES> 666,779
<ALLOWANCES> 66,929
<INVENTORY> 1,166,673
<CURRENT-ASSETS> 2,342,657
<PP&E> 2,503,041
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0
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<TOTAL-LIABILITY-AND-EQUITY> 3,433,587
<SALES> 3,273,495
<TOTAL-REVENUES> 3,698,740
<CGS> 3,144,571
<TOTAL-COSTS> 3,144,571
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,685
<INCOME-PRETAX> (6,512,223)
<INCOME-TAX> (2,209,000)
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