SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Rule 13e-3 Transaction Statement
(Under Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3
(ss.240.13e-3) thereunder)
[Amendment No. 1]
Besicorp Ltd.
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(Name of the Issuer)
Besicorp Ltd., Besicorp Holdings, Inc., Besi Acquisition Corp.,
Avalon Ventures, LLC, Avalon Funding, LLC, Michael F. Zinn
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(Name of Person(s) Filing Statement
Common Stock, par value $.01 per share
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(Title of Class of Securities)
204498111
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(CUSIP Number of Class of Securities)
Besicorp Ltd.
c/o Robinson Brog Leinwand Greene Genovese & Gluck P.C., 1345 Avenue
of the Americas, New York, New York 10105, Attn: A. Mitchell Greene, Esq.,
(212) 603-6399
Besicorp Holdings, Inc., Besi Acquisition Corp., Avalon Ventures, LLC,
Avalon Funding, LLC and Michael Zinn
c/o Zeichner Ellman & Krause, 757 Lexington Avenue, New York, New York
10022, Attn: William J. Poltarak, Esq., (212) 223-0400
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(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement subject
to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1]. Regulation 14C [17CFR
240.14c-1 to 240.14c-101] or Rule 13e-3(c) [ss.240.13e-3(c)] under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [ X ]
Calculation of Filing Fee
Transaction Amount of filing fee
valuation * $917.44
$4,587,215
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* Set forth the amount on which the filing fee is calculated and state
how it was determined. The value of the transaction is $4,587,215, calculated as
follows: the Cash Merger Consideration for the 77,915 shares of Besicorp Ltd.
Common Stock to be acquired by the Buyer (i.e., all of the shares of Besicorp's
common stock excluding the 57,967 shares of Common Stock owned as of the Record
Date (as defined in the Revised Preliminary Proxy Materials (the "Materials")
filed contemporaneously herewith by the Buyer)) equals the aggregate cash merger
consideration of $8,000,000 divided by 135,882 (the Total Shares (as defined in
the Materials)) multiplied by 77,915. No value is ascribed to the Combined
Deferred Payment Rights, as such term is defined in the Materials.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: $917.93
Form or Registration No.: SCHEDULE 14A - PRELIMINARY PROXY STATEMENT
Filing Party: Besicorp Ltd.
Date Filed: December 6, 1999
Instruction: Eight copies of this statement, including all exhibits, should be
filed with the Commission.
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CROSS REFERENCE SHEET
This Rule 13e-3 Transaction Statement is being filed by Besicorp Ltd.
("Besicorp"), Besicorp Holdings, Ltd., a New York corporation ("Parent"), Besi
Acquisition Corp. ("Acquisition Corp."), a New York corporation and a
wholly-owned subsidiary of Parent, Avalon Ventures, LLC, a Virginia limited
liability company ("Avalon"), which owns (as of the Record Date) 94.5% of the
outstanding capital stock of the Parent, Avalon Funding, LLC, a Delaware limited
liability company, and Michael F. Zinn, in connection with the Amended and
Restated Agreement and Plan of Merger dated as of November 24, 1999 (the "Plan
of Merger") by and between Parent, Acquisition Corp. and Besicorp pursuant to
which all outstanding shares of Common Stock, par value $.01 per share (the
"Common Stock"), of Besicorp (other than shares of Common Stock owned by Buyer
and Dissenters and shares for which Substitute Restricted Shares are issued),
will be acquired by virtue of the Merger for cash of at least $58.87 per share
and a Combined Deferred Payment Right upon the terms and subject to the
conditions set forth therein. Capitalized terms used without being defined
herein shall have the meanings ascribed by the Proxy Statement (as defined).
The following Cross Reference Sheet shows the location in the revised
preliminary proxy statement (the "Proxy Statement") filed with the Securities
and Exchange Commission concurrently herewith of items required by Schedule
13E-3. The information contained in the section of the Proxy Statement
identified below is incorporated herein by this reference.
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) Proxy Statement Cover Page and "Summary - The Parties"
(b) Proxy Statement Cover Page, "Summary - Record Date; Quorum; Vote
Required", "Voting at the Special Meeting - Record Date; Vote Required"
and "Market Information Regarding Besicorp Common Stock"
(c) Proxy Statement Cover Page, "Summary - Trading Market for and Market
Price of Besicorp Common Stock" and "Market Information Regarding
Besicorp Common Stock"
(d) " Plan of Merger - Certain Covenants" and "Market Information Regarding
Besicorp Common Stock"
(e) Not Applicable
(f) Not Applicable
<PAGE>
Item 2. Identity and Background.
(a) "Summary - The Parties", "Information Regarding Parent and Acquisition
Corp." and Appendix 1.
(b) "Summary - The Parties", "Information Regarding Parent and Acquisition
Corp." and Appendix 1.
(c) Proxy Statement Cover Page, "Summary - The Parties" "Summary -
Background of the Merger", "Information Regarding Parent and
Acquisition Corp." and Appendix 1.
(d) Proxy Statement Cover Page, "Summary - The Parties" "Summary -
Background of the Merger", "Information Regarding Parent and
Acquisition Corp." and Appendix 1.
(e) "Business of Besicorp - Legal Proceedings"
(f) "Business of Besicorp - Legal Proceedings"
(g) "Information Regarding Parent and Acquisition Corp."
Item 3. Past Contracts, Transactions or Negotiations.
(a)(1) "Business of Besicorp - Certain Related Party Transactions"
(a)(2) "Summary - Background of the Merger" and "Factors to be Considered -
Purposes, Effects and Background of the Merger"
(b) "Summary - Background of the Merger" and "Factors to be Considered -
Purposes, Effects and Background of the Merger"
Item 4. Terms of the Transaction.
(a) "Summary - The Merger Consideration" "Summary - Conditions to the
Merger", "Summary - Termination", "Summary - Effective Date;
Cancellation of Stock Certificates; and Receipt of Merger
Consideration"; "Summary - Dissenter's Rights"; "Voting at the Special
Meeting - Record Date; Vote Required"; "Voting at the Special Meeting -
Rights of Dissenting Shareholders"; "Factors to be Considered - Certain
Effects of the Merger",
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"Factors to be Considered - Regulatory and Other Approvals"; "Plan of
Merger", "Indemnification Agreement" and Escrow Agreement"
(b) "Summary - Interests of Executive Officers and Directors in the Merger"
, "Summary - The Merger Consideration", "Summary - Record Date; Vote
Required", "Summary - Dissenters' Rights", "Summary - Material Federal
Income Taxes", "Voting at the Special Meeting - Record Date; Vote
Required", "Voting at the Special Meeting - Rights of Dissenting
Shareholders", "Factors to be Considered - Purposes, Effects and
Background of the Merger", "Factors to be Considered - Interests of
Executive Officers and Directors in the Merger", "Factors to be
Considered - Certain Effects of the Merger", "Factors to be Considered
- Material Federal Income Taxes", "Plan of Merger -The Merger", "Plan
of Merger - Merger Consideration", "Escrow Agreement" and
"Indemnification Agreement"
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a)-(g) "Information Regarding Parent and Acquisition Corp."
Item 6. Source and Amounts of Funds or Other Consideration.
(a) "Summary - Merger Consideration", "Factors to be Considered - Certain
Effects of the Merger", "Plan of Merger - Merger Consideration -
Combined Deferred Payment Right" and "Information Regarding Parent and
Acquisition Corp."
(b) "Information Regarding Parent and Acquisition Corp. and "Sources and
Uses of Funds"
(c) "Information Regarding Parent and Acquisition Corp."
(d) Not Applicable
Item 7. Purposes(s), Alternatives, Reasons and Effects.
(a) "Summary - Background of the Merger", "Factors to be Considered -
Purposes, Effects and Background of the Merger", "Factors to be
Considered - Recommendation of the Special Committee and the Board of
Directors; Fairness of the Merger", "Factors to be Considered -
Recommendation of the Buyer; Fairness of the Merger" and "Information
Regarding Parent and Acquisition Corp."
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(b) "Summary - Background of the Merger", "Factors to be Considered -
Purposes, Effects and Background of the Merger", "Factors to be
Considered - Recommendation of the Special Committee and the Board of
Directors", "Factors to be Considered Recommendation of the Buyer;
Fairness of the Merger" and "Information Regarding Parent and
Acquisition Corp."
(c) "Summary - Background of the Merger", "Factors to be Considered -
Purposes, Effects and Background of the Merger", "Factors to be
Considered - Recommendation of the Special Committee and the Board of
Directors", "Factors to be Considered Recommendation of the Buyer;
Fairness of the Merger" and "Information Regarding Parent and
Acquisition Corp."
(d) Proxy Statement Cover Page, "Summary - The Merger Consideration",
"Summary - Interests of Executive Officers and Directors in the Merger"
, "Summary - Effective Date; Cancellation of Stock Certificates; and
Receipt of Merger Consideration", "Summary - Dissenters' Rights",
"Summary - Material Federal Income Tax Consequences", "Voting at
the Special Meeting - Rights of Dissenting Shareholders", "Factors
to be Considered - Interests of Executive Officers and Directors in the
Merger", "Factors to be Considered - Certain Effects of the Merger" and
"Factors to be Considered - Material Federal Income Tax Consequences",
"Plan of Merger" and "Selected Historical and Pro Forma Financial
Data"
Item 8. Fairness of the Transaction.
(a) "Summary - Recommendation of Besicorp's Board of Directors and the
Special Committee", "Factors to be Considered - Purposes, Effects and
Background of the Merger", "Factors to be Considered - Recommendation
of the Special Committee and the Board of Directors; Fairness of the
Merger", "Factors to be Considered Recommendation of the Buyer;
Fairness of the Merger" and "Information Regarding Parent and
Acquisition Corp."
(b) "Summary - Recommendation of Besicorp's Board of Directors and the
Special Committee", "Factors to be Considered - Purposes, Effects and
Background of the Merger", "Factors to be Considered - Recommendation
of the Special Committee and the Board of Directors; Fairness of the
Merger", "Factors to be Considered Recommendation of the Buyer;
Fairness of the Merger" and "Information Regarding Parent and
Acquisition Corp."
(c) "Summary - Record Date; Quorum; Vote Required", and "Voting at the
Special Meeting Record Date; Vote Required"
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(d) "Factors to be Considered - Purposes, Effects and Background of the
Merger" and "Factors to be Considered - Opinion of Financial Advisor"
(e) "Summary - Recommendation of Besicorp's Board of Directors and the
Special Committee", and "Factors to be Considered - Recommendation of
the Special Committee and the Board of Directors; Fairness of the
Merger"
(f) "Factors to be Considered - Purposes, Effects and Background of the
Merger" and "Factors to be Considered - Recommendation of the Special
Committee and the Board of Directors; Fairness of the Merger"
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a) "Summary - Opinion of Financial Advisor" and "Factors to be Considered
- Opinion of Financial Advisor" and "Factors to be Considered - Reports
of Commercial Associates"
(b) "Summary - Opinion of Financial Advisor" and "Factors to be Considered
- Opinion of Financial Advisor" and "Factors to be Considered - Reports
of Commercial Associates"
(c) "Additional Information". The Fairness Opinion is annexed to the Proxy
Statement as Annex B
Item 10. Interest in Securities of the Issuer.
(a) "Summary - Record Date; Quorum; Vote Required", "Voting at the Special
Meeting Record Date; Vote Required", "Business of the Company -
Security Ownership of Certain Beneficial Owners and Management" and
"Information Regarding the Parent and Acquisition Corp."
(b) Not applicable
Item 11. Contracts, Arrangements or Understandings with Respect to the Issuer's
Securities.
"Summary - Record Date; Quorum; Vote Required", "Summary - Interests of
Executive Officers and Directors in the Merger", "Voting at the Special Meeting
- - Record Date; Vote Required", "Factors to be Considered - Interests of
Executive Officers and Directors in the Merger", "Plan of
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Merger", "Business - Security Ownership of Certain Beneficial Owners and
Management" and "Information Regarding Parent and Acquisition Corp."
Item 12. Present Intention and Recommendation of Certain Persons with
Regard to the Transaction.
(a) "Summary - Record Date; Quorum; Vote Required", "Voting at the Special
Meeting Record Date; Vote Required", "Factors to be Considered -
Recommendation of the Buyer: Fairness of the Merger" and "Information
Regarding the Parent and Acquisition Corp."
(b) "Factors to be Considered - Recommendation of the Buyer: Fairness of
the Merger" and "Information Regarding the Parent and Acquisition
Corp."
Item 13. Other Provisions of the Transaction.
(a) "Summary - Dissenters' Rights," "Voting at the Special Meeting - Rights
of Dissenting Shareholders", "Additional Information" and Annex C to
the Proxy Statement.
(b) Not applicable
(c) Not applicable
Item 14. Financial Information.
(a)(1) Consolidated Financial Statements of Besicorp
(a)(2) Consolidated Financial Statements of Besicorp
(a)(3) Not Applicable
(a)(4) "Selected Historical and Pro Forma Financial Data"
(b)(1) "Selected Historical and Pro Forma Financial Data"
(b)(2) "Selected Historical and Pro Forma Financial Data"
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(b)(3) "Selected Historical and Pro Forma Financial Data"
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) Proxy statement cover page and "Sources and Uses of Funds"
(b) Not Applicable
Item 16. Additional Information.
Not Applicable
Item 17. Material to be filed as Exhibits.
(a) The HSBC Credit Facility is annexed hereto as Exhibit 17(a)(1)
(b) The Fairness Opinion is annexed as Annex B to the Proxy Statement. The
report of Josephthal is annexed hereto as Exhibit 17(b)(1). The reports
of Commercial Associates dated August 18, 1999 are annexed hereto as
Exhibit 17(b)(2).
(c) Not Applicable
(d) Not Applicable
(e) "Summary - Dissenters' Rights," "Voting at the Special Meeting - Rights
of Dissenting Shareholders" and Annex C to the Proxy Statement.
(f) Not applicable
7
<PAGE>
EXHIBIT 17 (a)(1)
HSBC [LOGO]
January 3, 2000
Mr. Michael F. Zinn
Avalon Funding LLC
1151 Flatbush Road
Kingston, NY 12401-7011
Dear Michael:
We are prepared to make a credit facility available to you substantially
according to the terms and conditions outlined below:
Borrower Avalon Funding LLC ("Borrower")
Lender HSBC Bank USA ("Bank")
Amount Line of credit ("Line of Credit") in the maximum
principal amount of $10,000,000.00.
Secured Michael F. Zinn ("Guarantor")
Guarantor:
Purpose Funding for Borrower's various business
investments.
Interest Rate Each advance under the Line of Credit shall, at
the option of Borrower, bear interest at a rate
equal to LIBOR (based on a thirty to ninety day
period) plus 1.00% or the Prime Rate minus 1.00%.
As used herein, Prime Rate means the rate publicly
announced by the Bank from time to time as its
Prime Rate and is a base rate for calculating
interest on certain loans. Interest will be
payable monthly, and on the basis of a 360 day
year, for the actual number of days elapsed.
Availability Advances will be made at the sole discretion of
the Bank. LIBOR-based advances must be requested
at least two business days in advance. Each
advance request will be accompanied by a
certificate signed by Michael F. Zinn, certifying
that after such advance is made, Guarantor will be
in compliance with the financial covenants set
forth below under "Affirmative Covenants". Without
limiting the discretionary nature of the Line of
Credit,
<PAGE>
Avalon Funding LLC
January 3, 2000
Page 2
the Bank will be in a position to consider
requests for advances only if the following margin
requirements are met. Borrower shall maintain at
all times in the Pledged Accounts (as such term is
defined below under "Security and Supporting
Documents") sufficient collateral such that the
aggregate principal balance outstanding
("Principal Amount") under the Line of Credit does
not exceed 70% of the market value ("Collateral
Value") of the collateral. Notwithstanding the
foregoing, the above-referenced percentage may
exceed 70%, up to 100%, in the event of a decline
in Collateral Value due to changes in market
conditions, provided that, whenever the Principal
Amount first exceeds 80% of the Collateral Value,
any excess shall be payable within sixty (60) days
after the date that Principal Amount first
exceeded 80%.
Credit
Documentation The Line of Credit shall be evidenced by a Grid
Note substantially in the form attached hereto as
Exhibit A ("Grid Note").
Maturity Each LIBOR-based advance under the Line of Credit
shall be payable at the end of the interest period
selected by Borrower for such advance. No
LIBOR-based advance shall have a maturity date
later than December 31, 2000. All Prime Rate-based
advances shall be payable on the due date
inscribed for such advance on the Grid Note, which
due date shall not be not later than December 31,
2000.
Prepayments The Borrower may prepay at any time all or any
portion of principal advanced under the Line of
Credit provided, however, in the event of
prepayment of any LIBOR-based advance, Borrower
shall reimburse the Bank for any loss, cost or
expense which the Bank reasonably demonstrates has
resulted from such prepayment.
Security and The Pledgor will execute a Pledge Security
Supporting Agreement, an Account Control Agreement and other
Agreements documentation required by the Bank to grant the
Bank a first perfected security interest in five
investment accounts in the name of Michael F. Zinn
(account #670-21086-11, 670-21087-10,
670-21088-19, 670-21089-18 and 670-21305-16)
(collectively, "Pledged Accounts"), managed by
Salomon Smith Barney. The latter party shall be
required to execute an Account Control Agreement
in form and content acceptable to the Bank,
recognizing the Bank's security interest.
<PAGE>
Avalon Funding LLC
January 3, 2000
Page 3
Affirmative Covenants The Pledgor shall maintain at all times pledged
liquid assets ("Liquid Assets") in an amount equal
to or greater than 1.43 times the Principal Amount
and a combined net worth of at least 2 times the
maximum Principal Amount. As used herein, Liquid
Assets shall mean cash, cash equivalents and
marketable securities. At least once each calendar
quarter, and more often as required above under
"Availability", Borrower will furnish the Bank
with a certificate signed by Michael F. Zinn,
certifying compliance with the above financial
covenants. If, in connection with a request for an
advance, the amount requested would, based on the
most recent brokerage statements furnished to the
Bank, cause the Principal Amount to exceed 70% of
the Collateral Value, then Borrower will be
required to furnish updated brokerage statements
indicating availability. The Guarantor shall
furnish the Bank annual personal financial
statements in form acceptable to the Bank. The
Borrower shall furnish the Bank copies of all
federal tax returns filed with the Internal
Revenue Service within thirty (30) days of the
date such returns are filed. The Guarantor shall
cause the Bank to receive copies of all monthly
statements regarding the Pledged Accounts.
Negative Covenants The Borrower will not use any of the
funds advanced under the Line of Credit to
purchase or carry margin stock, as such term is
defined in Federal Reserve Bank Regulation U.
Indemnity Reimbursement The Pledgor agrees to reimburse the
Bank on demand with respect to any amount paid, or
cost or expense incurred, by the Bank pursuant to
any indemnity given by the Bank in any Account
Control Agreement.
The terms contained in this letter shall survive the closing of the Line of
Credit. This letter is not a commitment to lend and advances under the Line of
Credit are at the discretion of the Bank. Either the Bank or Avalon Funding LLC
may terminate this Line of Credit with respect to future advances, at any time,
upon notice to the other party. We review non-contractual Lines of Credit, such
as this, at least annually upon submission of appropriate financial information.
This Line of Credit is scheduled to be reviewed by December 31, 2000 and will
automatically expire as of that date unless renewed or extended by us in
writing.
<PAGE>
Avalon Funding LLC
January 3, 2000
Page 4
I look forward to a long and fruitful relationship between Avalon Funding LLC
(including all related parties) and HSBC Bank USA.
Sincerely,
/s/ Patrick M. Trask
Patrick M. Trask
Vice President
AGREED AND ACCEPTED
Borrower:
Avalon Funding LLC
By: /s/ Michael F. Zinn
---------------------------------------
Michael F. Zinn, Majority Member
Guarantor:
By: /s/ Michael F. Zinn
---------------------------------------
Michael F. Zinn
<PAGE>
OPTIONAL ADVANCE TIME OR DEMAND GRID NOTE
$10,000,000.00 Poughkeepsie, New York
January 3, 2000
FOR VALUE RECEIVED, Avalon Funding, LLC (the "Borrower"), promises to pay
to HSBC Bank USA ("Bank") or order, on demand or when due as provided herein at
its 347 Main Street Office in Poughkeepsie, New York, the aggregate unpaid
principal amount of all advances made by the Bank to the Borrower from time to
time (each and "Advance" and collectively the "Advances") as evidenced by the
inscriptions made on the Schedule attached hereto ("Schedule"), together with
interest thereon at a per annum rate as provided herein. The aggregate amount of
all advances outstanding hereunder shall not at any time exceed $10,000,000.00.
As used in this Note, the following terms shall have the meanings set forth
below:
Adjusted LIBOR Rate: The LIBOR Rate plus 1.00%
Adjusted Prime Rate: The Prime Rate minus 1.00%
Business Day: Any day other than a Saturday, Sunday or other day on which
commercial banks in London and/or Poughkeepsie are authorized or required by law
to close.
LIBOR PERIOD: A period, if available to the Bank, of not less than thirty
days or more than ninety days.
LIBOR Period Request: The written request by the Borrower to the Bank for
the LIBOR Rate Advance, and including a LIBOR Period, the date of the LIBOR Rate
Advance and amount.
LIBOR Rate: Means the per annum interest rate equal to the London
Interbank Offered Rate as shown on the Dow Jones & Company's Tolerate Screen, at
approximately 11:00 AM (London time) two business days prior to the proposed
borrowing date for deposits of United States Dollars in an amount and for a
period of time comparable to the principal amount of the proposed LIBOR Rate
Advance.
LIBOR Rate Advance: Any advance bearing interest at the Adjusted LIBOR
Rate.
Prime Rate: The rate of interest publicly announced by the Bank from time
to time as its prime rate and is a base rate for calculating interest on certain
loans.
Prime Rate Advance: Any advance bearing interest at the adjusted Prime
Rate.
Prime Rate Request: The written request by the Borrower to the Bank for a
Prime Rate Advance and including the term of borrowing, date of borrowing and
amount.
Regulatory Change: After time date hereof, the introduction of any new, or
any change in existing, applicable laws, rules or regulations or in the
interpretation or administration thereof by any court or governmental authority
charged with the interpretation or administration thereof, or compliance by Bank
with any new request or directive by any such court or authority (whether or not
having the force of law).
<PAGE>
All advances, the due date thereof, interest rates and all payments of
principal made on this Note may be inscribed by the Bank on the Schedule. Each
Advance shall be payable on the earlier of the due date thereof or On Demand.
Borrower may request a Prime Rate Advance by writing in a Prime Rate
Request to the Bank not later than 1:00 PM (Eastern time) on the date of the
proposed Prime Rate Advance.
Borrower may request a LIBOR Rate Advance and LIBOR Period by writing in a
LIBOR Period Request to the Bank not later than 1:00 PM (Eastern time) on the
date of the proposed LIBOR Rate Advance. Borrower may not select a LIBOR Period
having an expiration date later than 90 days. Notwithstanding any provision
herein to the contrary any LIBOR Rate Advance shall be made in a minimum amount
of $100,000.00.
The Bank may make advances to the Borrower upon written request. Each
written request shall be conclusively presumed to have been made by a person
authorized by the Borrower to do so, and any credit by the Bank of any advance
to or for the account of the Borrower shall conclusively establish the
Borrower's obligation to repay same. The Bank shall incur no liability of any
kind to any party by reason of making an advance upon a written request.
If Borrower fails to timely select an applicable LIBOR Period for
calculation of a LIBOR Rate Advance, then the Advance shall bear interest at the
Adjusted Prime Rate and shall be deemed to be a Prime Rate Advance.
If by reason of any Regulatory Change, the Bank determines that, by reason
of circumstances affecting the London interbank market generally, adequate and
fair means do not or will not exist for determining the LIBOR Rate, (ii) by
reason of any Regulatory Change, the Bank becomes restricted in the amount which
it may hold of a category of liabilities which includes deposits by reference to
the LIBOR Rate or a category of assets which includes loans which bear interest
at a rate determined in part by reference to the LIBOR Rate, (iii) by reason of
any Regulatory Change, it shall be unlawful for the Bank to maintain a LIBOR
Rate Advance, or any portion thereof, bearing interest at the Adjusted LIBOR
Rate, (iv) in the exclusive judgment of the Bank, deposits are not available to
the Bank in the international interbank market in the requisite amounts and for
the requisite durations, (v) in the exclusive judgment of the Bank, the Adjusted
LIBOR Rate does not adequately reflect the cost to the Bank of making or
maintaining a LIBOR Rate Advance then, in any such case, any LIBOR Rate Advance
shall bear interest at the Adjusted Prime Rate. If the Bank determines that
because of a change in circumstances the Adjusted LIBOR Rate is again available
to the Borrower hereunder, the Bank will so advise the Borrower, and the
Borrower may convert the rate of interest payable hereunder to the Adjusted
LIBOR Rate at any time (provided the Adjusted LIBOR Rate is otherwise available
hereunder) by making such election in accordance with, and subject to the
conditions of, this Note.
If, at any time, any Regulatory Change: (i) shall subject the Bank to any
tax, duty or other charge with respect to this Note, except an income tax, based
upon the charging and collecting of interest hereunder at the Adjusted LIBOR
Rate, shall change the basis of taxation or payments to the Bank of the
principal of or interest on this Note; (ii) shall result in the imposition,
modification or deemed applicability of any reserve, special deposit or similar
requirements against assets of, deposits with or for the account of, or credit
extended by, the Bank; (iii) shall, because of the existence of this Note,
affect the amount of capital required or expected to be maintained by the Bank,
or any corporation controlling the Bank; or (iv) shall impose on the Bank or the
London interbank market any other condition affecting this Note or the charging
and collecting of interest hereunder at the Adjusted LIBOR Rate and the result
of any of the foregoing is, in the Bank's reasonable judgment, (a) to increase
the cost to the Bank of charging and collecting interest hereunder at the
Adjusted LIBOR Rate, or (b) to reduce the return on the Bank's capital or the
amount of any sum received or
- 2 -
<PAGE>
receivable by the Bank under this Note by an amount deemed by the Bank to be
material, upon demand then, by the Bank, the Borrower agrees to pay to the Bank
such additional amount or amounts as will compensate the Bank for such increased
cost or reduction. Such payment shall be made on the first date for payment of
interest hereunder following the date of the demand by the Bank and on each such
payment date thereafter or shall be paid promptly on demand if the Borrower is
not advised of the amount of such payment prior to any such payment date.
Determinations by the Bank for purposes of this paragraph of the effect of any
Regulatory Change on its costs of make or maintaining Advances bearing interest
at the Adjusted LIBOR Rate and of the additional amounts required to compensate
the Bank in respect thereof, shall be conclusive absent manifest error in
calculation, provided that such determinations are made in good faith.
The Borrower understands and acknowledges that in connection with LIBOR
Rate Advances the Bank may enter into funding arrangements on terms and
conditions which could result in substantial losses, costs and expenses to the
Bank if LIBOR Rate Advances are prepaid on a date other than the expiration of
the selected LIBOR period. Therefore, if there is a prepayment of any LIBOR Rate
Advance on a date other than the expiration of the selected LIBOR Period for any
reasons whatsoever including, but not limited to, any payments made by the
Borrower because the holder of this Note has accelerated payment in accordance
with the terms hereof or any other document relating to the indebtedness
hereunder, then the Borrower shall pay to the Bank, as liquidated damages and
not as a penalty, a fee (the "Liquidation Fee") equal to the losses (including
but not limited to, lost profits of the Bank), costs and expenses of the Bank in
connection with such prepayment as determined by the Bank, which payment shall
be made by the Borrower to the Bank on the date on which such prepayment is
made. The calculations made by the Bank to ascertain such Liquidation Fee shall
be conclusive absent manifest error in calculation by the Bank, provided that
such calculations are made in good faith. The Bank, upon the written request of
the Borrower, shall advise the Borrower in writing of the amount of the
Liquidation Fee applicable to any such prepayment.
The Bank may elect (but shall be under no obligation) to send to the
Borrower written confirmation of the due date of each Advance, but any failure
to do so shall not relieve the Borrower of the obligation to repay the Advance
when due. Unless the Borrower shall object to such confirmation in writing
within five (5) days after receipt thereof, such confirmation shall be prima
facie evidence of the facts stated therein.
Each entry set forth on the Schedule shall be prima facie evidence of the
facts so set forth, except for any such facts as to which the Bank has sent to
the Borrower a written confirmation and the Borrower has timely objected as
provided herein. No failure by the Bank to make, and no error by the Bank in
making any inscription on the Schedule shall affect the Borrower's obligation to
repay the full principal amount advanced by the Bank to or for the account of
the Borrower, or the Borrower's obligation to pay interest thereon at the agreed
upon rate.
Before maturity, Prime Rate Advance shall bear interest at the Adjusted
Prime Rate, LIBOR Rate Advances shall earn interest at the Adjusted LIBOR Rate.
Any principal amount not paid when due (at maturity, by acceleration or
otherwise) shall bear interest thereafter until paid in full, payable on demand,
at a rate per annum equal to:
(a) For each Prime Rate Advance at a Rate equal to Prime Rate plus 3%,
and
(b) For each LIBOR Rate Advance at the rate otherwise applicable
thereto plus 3% from the time of default in payment of principal
until the end of the then current LIBOR Period therefor, and
thereafter at a rate equal to the Prime Rate plus 3%.
If any payment to be made under this Note shall be stated to be due on a
Saturday, Sunday or banking holiday, the Borrower will pay interest thereon at
the applicable rate until the date of actual receipt of such payment by the
holder of this Note.
- 3 -
<PAGE>
In no event shall the interest rate on this Note exceed the maximum rate
authorized by applicable law. Any change of interest rate on this Note resulting
from a change in the Bank's Prime Rate shall be effective on the date of such
change. Interest on Advances will be calculated for each day at 1/360th of the
applicable per annum rate, which will result in a higher effective annual rate.
Accrued interest on Prime Rate Advances shall be payable monthly on the first
day of each month and on the date any Prime Rate Advance is paid in full.
Accrued interest on LIBOR Rate Advances shall likewise be payable on the first
day of each month and on the date any LIBOR Advance is paid in full.
Notwithstanding anything to the contrary contained herein, any holder of
this Note may declare all indebtedness evidenced by this Note, not payable on
demand, to be immediately due and payable whenever such holder has the right to
do so under any Security Agreement or other agreement, now or hereafter in
effect, pursuant to which payment of the indebtedness evidenced by this Note is
secured; or, irrespective of the terms or existence of any such Security
Agreement or other agreement, upon the happening of any of the following: (1)
nonpayment, when due, of the principal of, or interest on, any indebtedness
evidenced by this Note; (2) default by Borrower in the payment or performance of
any obligation, term or condition of this Note or any agreement between Borrower
and the holder hereof; (3) the filing by or against Borrower of a request or
petition for liquidation, reorganization, arrangement, adjustment of debts,
adjudication as a bankruptcy, relief as a debtor or other relief under the
bankruptcy, insolvency or similar laws of the United States or any state or
territory thereof or any foreign jurisdiction, now or hereafter in effect; (4)
the making by Borrower, of any general assignment for the benefit of creditors;
(5) the appointment of a receiver or trustee for Borrower or for any assets of
Borrower, including, without limitation the appointment of or taking possession
by a "custodian", as defined in the Federal Bankruptcy Code; (6) the occurrence
of any event described in clause (3), (4) or (5) of this paragraph with respect
to any endorser, guarantor or any other party liable for, or whose assets or any
interest thereon secures, payment of any indebtedness evidenced by this Note;
(7) nonpayment when due by Borrower of any indebtedness for borrowed money owing
to any party other than the Bank, or the occurrence of any event which could
result in acceleration of the time for payment of any such indebtedness; or (8)
if the holder hereof in good faith believes that the prospect of payment of all
or any part of the indebtedness evidenced by this Note is impaired.
NOTHING CONTAINED IN THIS NOTE OR OTHERWISE IS INTENDED, NOR SHALL
CONSTITUTE, ANY OBLIGATION OF THE BANK TO MAKE ANY ADVANCE.
No failure by the holder hereof to exercise, and no delay in exercising,
any right or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise by such holder of any right or remedy hereunder
preclude any other or further exercise thereof or the exercise of an other right
or remedy. The rights and remedies of the holder thereof as herein specified are
cumulative and not exclusive of any other rights or remedies which such holder
may otherwise have.
THE BORROWER AGREES TO PAY ALL COSTS AND EXPENSES INCURRED BY THE HOLDER
HEREOF IN ENFORCING THIS NOTE, INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEY'S FEES AND LEGAL EXPENSES. IF PAYMENT OF THIS NOTE IS SECURED BY
COLLATERAL, THE COLLATERAL IS SPECIFIED IN THE COLLATERAL RECORDS OF THE BANK.
THE BORROWER HEREBY WAIVES (I) DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF
DISHONOR, PROTEST AND NOTICE OF PROTEST OF THIS NOTE, AND (II) THE RIGHT OF A
JURY TRIAL. ANY NOTICE, DEMAND OR REQUEST RELATING TO ANY MATTER SET FORTH
HEREIN, OTHER THAN A REQUEST FOR BORROWING, SHALL BE IN WRITING AND SHALL E
DEEMED EFFECTIVE WHEN MAILED, POSTAGE PREPAID, BY REGISTERED OR CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, TO ANY PARTY HERETO AT ITS ADDRESS HEREIN OR AT SUCH
OTHER ADDRESS OF WHICH IT SHALL HAVE NOTIFIED THE PARTY GIVING SUCH NOTICE IN
WRITING AS AFORESAID. COPIES OF ALL SUCH NOTICES, DEMANDS AND REQUESTS TO BANK
SHALL BE SENT TO BANK, AT ITS ADDRESS ABOVE STATED. IN THE CASE OF THE BORROWER,
ALL SUCH COPIES SHALL BE SENT TO THE BORROWER AT THE ADDRESS OF THE BORROWER AS
STATED HEREIN.
- 4 -
<PAGE>
THIS NOTE, BEING DRAWN, EXECUTED AND DELIVERED IN THE STATE OF NEW YORK,
WHERE ALL ADVANCES AND REPAYMENTS SHALL BE MADE, SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE UNDERSIGNED AGREES
THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THIS NOTE MAY BE
COMMENCED IN THE SUPREME COURT OF NEW YORK IN DUTCHESS COUNTY, OR IN THE
DISTRICT COURT OF THE UNITED STATES IN THE 9TH DISTRICT OF NEW YORK. THE
UNDERSIGNED WAIVES PERSONAL SERVICE OF PROCESS AND AGREES THAT A SUMMONS AND
COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY
SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED BY REGISTERED MAIL TO
THE ADDRESS SPECIFIED ABOVE OR OTHERWISE PROVIDED BY THE LAWS OF THE STATE OF
NEW YORK OR THE UNITED STATES.
Avalon Funding, LLC
BY: /s/ Michael F. Zinn
---------------------------------------
Michael F. Zinn, Majority Member
- 5 -
<PAGE>
Exhibit 17 (b)(1)
Presentation to the Special Committee of the Board of Directors of
Besicorp, Ltd.
Regarding the Fairness of the Proposed Merger of Besicorp Holdings, Ltd., Besi
Acquisition Corp and Besicorp, Ltd.
September 22, 1999
JOSEPHTHAL & CO. INC.
<PAGE>
Presentation to the Special Committee of the Board of Directors of
Besicorp, Ltd.
Private & Confidential
- --------------------------------------------------------------------------------
We understand that Besi Acquisition Corp ("Acquisition Corp"), a wholly-owned
Subsidiary of Besicorp Holdings, Ltd. ("Parent"), a company owned by Michael F.
Zinn, currently the Chairman of the Board, President and Chief Executive Officer
of Besicorp, Ltd. (the "Company" or "Besicorp"), Parent and the Company are
considering a proposed transaction in which Acquisition Corp will merge with and
into the Company (the "Merger"), subject to all of its liabilities, on or before
an agreed upon date ("Effective Time") as set forth in the Agreement and Plan of
Merger by and between Besicorp, Acquisition Corp and Parent (the "Merger
Agreement")1. The consummation of the Merger is subject to the execution of a
certificate of merger ("Certificate of Merger") between Acquisition Corp and
Besicorp. As more specifically set forth in the Merger Agreement, and subject to
the terms and conditions thereof, each share of common stock of Besicorp, $0.01
par value (the "Common Shares"), issued and outstanding immediately prior to the
Effective Time of the Merger (other than shares of Common Shares held as
treasury shares by the Company or its Subsidiaries and shares of Common Stock
then owned of record by Acquisition Corp and Parent (the "Ineligible Holders")),
shall be converted into the right to receive in cash an aggregate of $8.0
million divided by the sum of (i) the number of shares of Common Stock issued
and outstanding immediately prior to the Effective Date (other than those shares
held as treasury shares by the Company) and (ii) the number of Management
Restricted Shares for which substitute securities have been issued, or $58.70
per share2("Cash Merger Consideration") and the right to receive on a pro-rata
basis in accordance with the provisions of the Merger Agreement (i) monies, if
any, that may be released from the approximately $6.5 million March 1999 Escrow
Fund established in connection with the merger involving the Company's former
parent, Besicorp Group Inc., (ii) amounts received with respect to litigation
claims by Besicorp from matters arising before the Effective Time, (iii) amounts
received by Beta Partnership, Inc. and distributions received from Kamine
Besicorp Natural Dam L.P. Inc. (other than an amount anticipated to be received
by Beta from Natural Dam in November, 1999) and any other funds that are
distributed as a result of remaining partnership interests in existence as of
the date of the Merger Agreement, (iv) any realized funds that may be
distributed to the Company as a result of outstanding hydro credits, and (v)
amounts received with respect to the sale of the Company's interests, directly
or indirectly (except for debt financing for development capital purposes which
might have an equity carried interest in a foreign development project), in each
of its non-U.S. development projects within twelve months following the
Effective Time, less expenses (other than SG&A) incurred and paid towards the
project within the twelve months following the Effective Time (in the aggregate,
the "Deferred Payments"), collectively, the "Merger Consideration". The Zinn
Family Trust (the "Trust") in which Michael F. Zinn disclaims beneficial
ownership may be offered an opportunity to participate with Parent in the
Merger. We have been advised that the Trust that the Trust will vote its Common
Shares in favor of the Merger irrespective of whether it is a participant with
Acquisition Corp in the Merger.
- --------
1 Capitalized terms used herein without definitions shall have the meaning
ascribed to them in the Merger Agreement.
2 Based upon 122,432 Common Shares issued and outstanding and 13,850 restricted
Common Shares owned by management. We were not involved in the issuance of the
restricted shares and do not opine on their value or participation in the
merger.
<PAGE>
Presentation to the Special Committee of the Board of Directors of
Besicorp, Ltd.
Private & Confidential
- --------------------------------------------------------------------------------
You have requested our opinion as to the fairness from a financial
point of view, to the Company and its stockholders, other than the Michael F.
Zinn, of the consideration to be paid by Acquisition Corp to the holders of
Common Shares in the Merger (the "Fairness Opinion"). We do not perform tax,
accounting, legal services or render such advice. In addition, we were not
involved in the issuance of the restricted shares and do not opine on their
value or participation in the merger.
In conducting our review and analyses, and arriving at the opinion
expressed herein, we have assumed and relied upon the accuracy and completeness
of all of the financial and other information provided to us by the Company or
publicly available and have neither attempted independently to verify nor
assumed responsibility for verifying any of this information. We have not
conducted a physical inspection of Besicorp's properties or facilities, nor have
we made or obtained or assumed any responsibility for making or obtaining any
independent evaluations or appraisals of any of the related properties,
facilities or business segments. We have assumed that management's financial
analyses have been prepared on a good faith reasonable basis reflecting the best
currently available estimates and judgments of Besicorp's management and/or
financial consultants or advisors to Besicorp. Further, the Company represents
and warrants the accuracy and completeness of the information it has provided.
In evaluating the Merger and Merger Consideration, we have taken into
account statements by Michael F. Zinn in his offer letter, dated June 17, 1999,
and revised offer dated August 10, 1999. We understand that Michael F. Zinn: (i)
will not agree to be employed by a Company in which he is not in control; (ii)
is unwilling to personally guarantee any debt or debt related financing in a
public company; (iii) in his capacity as a shareholder, will not approve the
sale of assets to a third party and will vote against such sale, and has been
advised by the Independent Special Trustee of the Zinn Family Trust that the
Zinn Family Trust also opposes any sale of assets and would similarly vote
against such sale to a third party; (iv) is unwilling to purchase some but less
than all of the business assets of Besicorp; (v) is unwilling to continue in the
employment of the Company under current conditions; and (vi) continues to hold
to the beliefs and conclusions contained in the offer letter dated June 17, 1999
under the heading "Certain Factors Influencing Offeror". The Company has given
the Special Committee and its advisors unrestricted access to information and
employees and Michael F. Zinn has removed himself from the diligence process and
has recused himself from the Special Committee process of analyzing the Merger.
In conducting our analyses and reviewing the information provided to us
by the Company, we understand and have considered the following asset categories
to be included in the Company: (i) the SunWize business ("SunWize"); (ii) all
outstanding projects and identified prospective projects of Besicorp Development
Inc. ("BDI") and other subsidiaries of the company and SunWize; (iii)
outstanding partnership interests and credits due to Besicorp which may result
in cash inflows to the Company; (iv) Besicorp real estate, including the
properties used in existing business operations and properties that are
exogenous to existing business operations; and (v) the March 1999 Escrow Fund,
established in connection with the merger involving Besicorp Group Inc. to fund
the litigation costs, judgements, and/or assist in the settlement of any
litigation pending against Besicorp Group Inc. and/or arising out of the
Besicorp Group Inc. merger transaction consummated March 22, 1999.
ii
<PAGE>
We understand the Deferred Payments are excluded from the Cash Merger
Consideration and any monies received will be segregated and distributed pro
rata to shareholders of record as of the Effective Time. In order to arrive at
our opinion, we have reviewed the following materials and considered such
financial and other factors as we deemed relevant under the circumstances,
including, among others, the following: (i) certain historical financial,
operating and other data that were publicly available or were furnished to us by
Besicorp regarding the Merger including, but not limited to: (a) projections and
cash flow analyses for SunWize prepared by management; (b) Form 10KSB and Form
10KSB/A for the period ending 3/31/99, Proxy Statement of Besicorp Group Inc.
dated 3/1/99 and Information Statement dated 3/19/99; (c) Form 10Q for the
period ending 6/30/99; (d) internally generated operating reports and
discussions from management concerning the various business segments of
Besicorp; (e) Empire Project financial model prepared by Morgan Stanley Dean
Witter and Besicorp; (f) real estate appraisal and partnership interests and
hydro credit valuations prepared by management with the assistance of identified
third parties; (ii) various press releases regarding the development and status
of the Empire Project and other projects; (iii) publicly available financial,
operating and stock market data for companies engaged in businesses deemed
comparable to those of the Company; (iv) merger and acquisition transactions by
companies in the same or similar businesses considered to have degrees of
comparability to the Merger; and (v) such other factors and information as we
deemed appropriate. We have met with senior officers of the Company to discuss
prospects for Besicorp's business and such matters as we believed relevant. In
addition, we have reviewed the Agreement and Plan of Merger dated as of
September 16, 1999.
In conducting our analyses and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of
Besicorp; (ii) the business prospects of Besicorp; (iii) the historical and
current market for the Common Shares and (iv) the nature and terms of other
acquisition transactions that we believe to be relevant. We have also taken into
account our assessment of general economic, market and financial conditions as
well as our experience in connection with similar transactions and securities
valuation generally. Our opinion necessarily is based upon conditions as they
exist and can be evaluated on the date hereof and we assume no responsibility to
update or revise this presentation based upon circumstances or events occurring
after the date hereof. In that regard, we have not considered any acquisition or
similar transaction to which Besicorp might become a party whether announced or
not, that has not closed prior to the date hereof. This presentation is limited
to the fairness, from a financial point of view, of the Merger Consideration to
be paid to the holders of Common Shares of Besicorp other than Michael F. Zinn
in the Merger. This presentation does not address in any way Besicorp's
underlying business decision to effect the Merger. We have not been involved in
forming Parent, Acquisition Corp or the Merger Consideration and have not
assumed any responsibility for making or obtaining an independent evaluation or
appraisal of Besicorp's properties or other assets, nor do we opine on the
capital requirements or availability of capital for Besicorp.
As you know, Josephthal & Co. Inc. ("Josephthal") has been retained by
Besicorp to render a Fairness Opinion and provide other financial advisory
services, and will receive fees for such services. In addition, in the ordinary
course of the business, Josephthal may actively trade the Common Shares for its
own account and for the accounts of customers, and, accordingly, may at any time
hold a long or short position in such securities.
iii
<PAGE>
The Fairness Opinion is solely for the use of the shareholders of
Besicorp (including its Board of Directors) and is not to be publicly-disclosed,
used, excerpted, reproduced or disseminated, quoted or referred to at any time,
in any manner or for any purpose, without the prior written consent of
Josephthal provided that Besicorp may include the Fairness Opinion, in whole but
not in part, as an annex to the Proxy Statement to be filed with the Securities
and Exchange Commission and delivered to the stockholders of Besicorp. This
presentation does not constitute a recommendation to any holder of Common Shares
as to how any such stockholder should vote on any aspect of the Merger including
the Merger Consideration, nor does the Fairness Opinion address the relative
merits of the Merger, the Merger Consideration, or the decision of the Board of
Directors of Besicorp to proceed with the Merger.
iv
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
I. The Merger Page 1
II. Asset Categories Page 7
A. SunWize Page 8
B. Besicorp Development Page 18
C. Real Estate Page 32
III. Carve Outs Page 35
IV. Summary Valuation Page 40
V. Opinion Page 42
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THE MERGER
- --------------------------------------------------------------------------------
1
<PAGE>
Introduction
At the request of the Special Committee of the Board of Directors of
Besicorp, Ltd., Josephthal prepared these materials for the sole and exclusive
use of both the Special Committee and the Board of Directors in connection with
issuing our opinion as to the fairness, from a financial point of view, of the
proposed offer by Besi Acquisition Corp. ("Acquisition Corp"), a wholly-owned
Subsidiary of Besicorp Holdings, Ltd. ("Parent"), a company controlled by
Michael F. Zinn, currently the Chairman of the Board, President and Chief
Executive Officer of Besicorp, Ltd. (the "Company"), Parent and the Company in
which Acquisition Corp will merge with and into the Company (the "Merger"),
subject to all of its liabilities, on or before an agreed upon date ("Effective
Time") as set forth in the Agreement and Plan of Merger by and between Besicorp,
Acquisition Corp. and Parent (the "Merger Agreement"). Specifically excluded
from the Merger are (i) monies, if any, that may be released from the
approximately $6.5 million March 1999 Escrow Fund established in connection with
the merger involving the Company's former parent, Besicorp Group Inc., (ii)
amounts received with respect to litigation claims by Besicorp from matters
arising before the Effective Time, (iii) amounts received by Beta Partnership,
Inc. and distributions received from Kamine Besicorp Natural Dam L.P. (other
than an amount anticipated to be received by Beta from Natural Dam in November,
1999) and any other funds that are distributed as a result of remaining
partnership interests in existence as of the date of the Merger Agreement., (iv)
any realized funds that may be distributed to the Company as a result of
outstanding hydro credits, and (v) amounts received with respect to the sale of
the Company's interests, directly or indirectly (except for debt financing for
development capital purposes which might have an equity carried interest in a
foreign development project), in each of its non-U.S. development projects
within twelve months following the Effective Time, less expenses (other than
SG&A) incurred and paid towards the project within the twelve months following
the Effective Time (in the aggregate, the "Deferred Payments").
The Fairness Opinion comprises financial and other information provided
to us by the Company or publicly available. We have relied solely on the
information and estimates provided to us by Besicorp's management and have
neither made nor obtained any independent appraisals of any properties, other
assets or facilities of Besicorp.
In determining the fairness of the Merger Consideration, we assessed
the various business segments and relevant assets of Besicorp which were
identified and provided to us by management. We have assumed that management's
financial analyses have been prepared on a good faith reasonable basis
reflecting the best currently available estimates and judgments of Besicorp's
management and/or financial consultants or advisors to Besicorp.
2
<PAGE>
Summary of Transaction
Besi Acquisition Corp, a wholly-owned Subsidiary of Besicorp Holdings,
Ltd., a company controlled by Michael F. Zinn, currently the Chairman of the
Board, President and Chief Executive Officer of Besicorp, Ltd., Parent and the
Company are considering a proposed transaction in which Acquisition Corp will
merge with and into the Company, subject to all of its liabilities, on or before
an agreed upon date as set forth in the Merger Agreement. As more specifically
set forth in the Merger Agreement, and subject to the terms and conditions
thereof, each share of common stock of Besicorp, $0.01 par value, issued and
outstanding immediately prior to the Effective Time of the Merger (other than
shares of Common Shares held as treasury shares by the Company or its
Subsidiaries and shares of Common Stock then owned of record by Acquisition Corp
and Parent), shall, by virtue of the Merger, be converted into the right to
receive in cash an aggregate of $8.0 million divided by the sum of (i) the
number of Common Shares outstanding immediately prior to the Effective Time and
(ii) the number of management restricted shares, or $58.70 per share1 and the
right to receive on a pro-rata basis (i) monies, if any, that may be released
from the approximately $6.5 million March 1999 Escrow Fund established in
connection with the merger involving the Company's former parent, Besicorp Group
Inc., (ii) amounts received with respect to litigation claims by Besicorp from
matters arising before the Effective Time, (iii) any realized funds that may be
distributed to the Company or a subsidiary as a result of remaining partnership
interests, (iv) any realized funds that may be distributed to the Company as a
result of outstanding hydro credits, and (v) amounts received with respect to
the sale of the Company's interests, directly or indirectly (except for debt
financing for development capital purposes which might have an equity carried
interest in a foreign development project), in each of its non-U.S. development
projects within twelve months following the Effective Time, less expenses (other
than SG&A) incurred and paid towards the project within the twelve months
following the Effective Time (in the aggregate, the "Deferred Payments",
collectively, the "Merger Consideration"). Monies, if any, received from the
Deferred Payments will be segregated and distributed pro rata to the
shareholders of record as of the Effective Time. Josephthal has been retained to
provide an opinion as to the fairness of the Merger Consideration.
No assurances are made or relied upon as to the amounts, if any, of any Deferred
Payments which will be available for subsequent distribution to Besicorp
shareholders. All shareholders of record as of the Effective Time will
participate pro-rata in those
- --------
1 Based upon 122,432 Common Shares issued and outstanding and 13,850
restricted Common Shares owned by management. We were not involved in the
issuance of the restricted shares and do not opine on their value or
participation in the merger.
3
<PAGE>
payments, if any. By virtue of the rights to
receive the Deferred Payments, pro-rata, the Deferred Payments have not been
analyzed from a valuation perspective in connection with our Fairness Opinion.
4
<PAGE>
Offer Consideration
We understand that:
o The Company will be unable to continue operations and that its prospects will
be extinguished without a significant reorganization.
o The Company's current businesses have a history of operating losses, and it is
anticipated that the Company will continue to experience operating losses in
the indeterminate future in sustaining operations and pursuing opportunities
for growth.
o The Company's current cash reserves are not sufficient to fund operations
after November 30, 1999 without an infusion of additional capital. Attempts to
reduce operating expenses further to preserve cash (other than by reducing
costs through a going-private type transaction) will impair the ability of the
Company to maintain operations at a viable level.
o The Company's access to the capital markets is severely limited.
o Michael F. Zinn has expressed unwillingness to continue in the employment of
the Company under current conditions.
o Michael F. Zinn will not work at any Company in which he is not in control.
o Michael F. Zinn, in his capacity as a shareholder, will not approve the sale
of assets to a third party and will vote against such sale and has been
advised by the Independent Special Trustee of the Zinn Family Trust that the
Zinn Family Trust also opposes any sale of assets and would similarly vote
against such sale to a third party.
o Michael F. Zinn is unwilling to purchase some but less than all of the
business assets of the Company.
o Michael F. Zinn will not personally guarantee any debt or debt-related
financings to any public company, including Besicorp.
o Michael F. Zinn maintains the beliefs and conclusions contained in the offer
letter dated June 17, 1999 under the heading "Certain Factors Influencing
Offer".
o The costs of remaining a public company outweigh the benefits in view of the
Company's inaccessibility to the public equity markets.
o The Company operates in a hostile litigation environment, which has resulted
and may continue to result in, significant expenses and diversion of
management attention.
o There has been no trading in Besicorp, Ltd. common shares.
5
<PAGE>
Asset Summary
Besicorp specializes in (i) the development, assembly, manufacture,
marketing and resale of photovoltaic products and systems 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.
In assessing the Merger, Josephthal considered, among other
things, values associated with each of Besicorp's existing businesses, assets,
liabilities and any other material items, including:
o SunWize business;
o Besicorp Development Inc. and related projects;
o Property, land and equipment owned by Besicorp;
o Expected cash inflows from partnership interests due from previous
power plant projects;
o Anticipated cash inflows from past due hydro credit allowances;
o The March 1999 Escrow Fund, established in connection with the merger
involving Besicorp Group Inc. to fund the litigation costs, judgements,
and/or assist in the settlement of any litigation pending against
Besicorp Group Inc. and/or arising out of the Besicorp Group Inc.
merger transaction consummated March 22, 1999; and
o Any claims or judgements by Besicorp in which monies may be collected
in the future.
In our review and analyses, we have assumed and relied upon the
accuracy and completeness of all of the financial and other information provided
to us by the Company or publicly available, and have neither attempted
independently to verify nor assumed responsibility for verifying any of this
information. We have assumed that management's financial analyses have been
prepared on a good faith reasonable basis reflecting the best currently
available estimates and judgments of Besicorp's management and/or financial
consultants or advisors to Besicorp. We also considered that any revenues
derived from the Partnership Interests, Hydro Credits, sale or partial sale of
development project interests and Escrow Fund will not be purchased by
Acquisition Corp on the Merger. Rather, rights to proceeds, if any, will be
retained by the shareholders and the purchase price does not reflect any value
component for these items as there is no transfer of rights.
6
<PAGE>
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ASSET CATEGORIES
- --------------------------------------------------------------------------------
7
<PAGE>
SunWize
o SunWize develops, assembles, markets and distributes photovoltaic modules,
power systems and related products for a variety of applications
o SunWize develops 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
polymer encapsulation production processes for photovoltaic modules that can
be integrated into other products for consumer, commercial and industrial use.
o SunWize markets and sells prepackaged solar electric power products and
systems, system components, and system accessories ranging from small battery
chargers, to water pumping kits, outdoor lighting, portable power generators
and PV power stations.
o At March 31, 1999, approximately 143 solar energy dealers and distributors,
predominantly located in North America, offered SunWize products.
o Customers for the Company's products include original equipment manufacturers,
industrial and telecommunications companies, photovoltaic products dealers,
governmental agencies and consumers, such as inhabitants of rural areas,
individuals who engage in outdoors activities and environmentally concerned
consumers.
o SunWize is a master distributor for Siemens Solar Industries, the world's
leading PV manufacturer.
o Besicorp Development is in the very early stage of exploring a potential
project in Gabon, Africa, which could result in equipment sales by SunWize.
The Company is unable to assess the likelihood or to quantify the dollar
amounts of the sale or profit margins that would be realized, if any, or
project timing.
8
<PAGE>
o Based upon publicly available information and financial projections furnished
by management, SunWize's actual FY 1999 operating results and projected base
case operating results are as follows1:
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
YEAR ENDING MARCH 31,
--------------------------------------------------------------------------------------
(in thoudands)
FY 1999 FY 2000 FY 2001 FY 2002 FY 2003
Actual Projected Projected Projected Projected
------ --------- --------- --------- ---------
Revenues $ 5,071 $10,046 $14,550 $23,650 $33,850
Gross Margin 273 1,854 3,140 $ 6,414 $10,301
Operating Profit $(1,655) $ (413) 563 $ 3,025 $ 6,154
</TABLE>
o Management has assumed an annualized 60% growth rate over the next four years,
which is aggressive compared to the 20-25% projected industry growth rate by
BancBoston Robertson Stephens and the 32% growth rate for Golden Genesis for
the past two years.
- --------
1 Financial projections prepared by management.
9
<PAGE>
o Following is a breakdown of the projected free cash flows for SunWize assuming
an $8.5 million equity infusion in order to maintain desired operating
results1:
----------------------------------------------------
($'s in thousands) Year Ending March 31,
----------------------------------------------------
FY2000 FY2001 FY2002 FY2003
----------------------------------------------------
EBIT $ (413) $ 563 $ 3,025 $ 6,154
Provision for Taxes - (30) (1,000) (2,000)
Product Development (500) (500) (500) (500)
Depreciation 41 82 250 300
----------------------------------------------------
Cash from Operations (872) 115 1,775 3,954
Working Capital Changes (650) (950) (2,500) (3,500)
Net Cash from Operations (1,522) (835) (725) 454
Less: Capital Expenditures 300 1,000 1,000 500
Less: Acquis./Asset Purchase - 500 1,000 -
Less: Prov. For Relocation 1,000 500 - -
----------------------------------------------------
Free Cash Flow $(2,822) $ (2,835) $ (2,725) $ (46)
- --------
1 Projections provided by David Kulik, President of SunWize.
10
<PAGE>
Photovoltaic Market
o Industry analysts estimate that solar power is an approximately $2.0 billion
business today, growing at an estimated 20-25% per year1.
o The restructuring of the electric utility industry in the U.S. and Europe will
prove to be a powerful catalyst in creating new opportunities for solar
power1.
o 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.
o As a result of the extensive capital requirements, the manufacturing side of
the industry is dominated by large, multi-national oil and electronics
companies, primarily Siemens Solar Industries, Solarex Corporation and BP
Solar.
o The Company faces competition from a number of regional companies involved in
the distribution and system integration of photovoltaic products.
o According to the Company, the Company has only one direct publicly traded
competitor, Golden Genesis Company (formerly Photocomm). As of August 2, 1999,
Golden Genesis traded at 1.1x last twelve months (LTM) sales. Golden Genesis
is larger than the Company with LTM sales (as of March 31, 1999) of $45.1
million and net losses of $2.0 million. On August 3, 1999, Golden Genesis
Company was acquired by Kyocera International, Inc. for approximately $40.0
million in equity (or $2.33 per share), and assumed debt of approximately
$10.7 million, for a total transaction value of approximately $50.7 million
(1.1x LTM sales).
- --------
1 According to BancBoston Robertson Stephens Research, as of 6/16/99.
11
<PAGE>
Following is a comparable company analysis detailing the relative valuation
multiples of publicly traded comparable companies:
<TABLE>
<CAPTION>
<S>
<C>
Solar Power Industry Selected Measures of Relative Valuation
- ---------------------------------------------------------------------------------------------------------------
Selected Comparable Company Analysis
(thousands, except per share figures)
<C> <C> <C> <C> <C> <C> <C> <C> <C>
P/E Multiples
--------------------------
Name Tkr Stock 52 Week Shs Mkt Cap Ent Val(1) LTM(2) F99E F00E
Price High - Low
9/11/99
- ----------------------------- ------ ------------------------------------------------------------ ------ --------
$ $ $ x x x
Golden Genesis Company GGGO $ 2.31(5)2.31 - 0.78 17,153 39,666 49,007 NM NM NM
Astropower, Inc. APWR $14.13 18.50 - 5.88 8,731 123,323 121,173 48.7 56.5 28.3
Energy Conversion Devices, Inc. ENER $12.50 15.00 - 4.63 13,283 166,033 146,053 NM NM NM
Spire Corporation SPIR $ 3.50 5.69 - 2.25 3,245 11,358 12,398 NM NM NM
</TABLE>
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C>
Solar Power Industry Selected Measures of Relative Valuation
- ------------------------------------------------------------------------------------------------------------------------------------
Selected Comparable Company Analysis Ent Val Multiples of Growth and Margin Analysis
(thousands, except per share figures) -------------------------------------------------------------
REV EBITDA(3) EBIT(4) Rev. Gross Margin Operating Margin
Name LTM LTM LTM LFY LFY LTM LFY LTM
---------------------------------------------------------------------
x x x
Golden Genesis Company 1.1 NM NM 32.0% 16.6% 16.6% (2.6%) (3.2%)
Astropower, Inc. 4.3 44.0 72.8 39.5% 25.6% 26.1% 4.7% 5.9%
Energy Conversion Devices, Inc. 4.5 NM NM 6.7% 10.4% 8.9% (53.4%) (40.3%)
Spire Corporation 1.0 NM NM (38.5%) 20.7% 21.3% (24.4%) (18.4%)
</TABLE>
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ent Val Multiples of Growth and Margins Analysis
P/E Multiples REV EBITDA(3) EBIT(4) Rev. Gross Margin Operating Margin
--------------------- --- ------ ---- Growth ------------ ----------------
------
Mkt. Cap Ent Val(1) LTM(2) F99E F00E LTM LTM LTM LFY LFY LTM LFY LTM
- ------------------------------------------------------------------------------------------------------------------------------------
Median $ 8.00 81,494 85,090 48.7 56.5 28.3 2.7 44.0 72.8 19.4% 18.7% 18.9% (13.5%) (10.8%)
Average $ 8.11 85,095 82,158 48.7 56.5 28.3 2.7 44.0 72.8 9.9% 18.3% 18.2% (18.9%) (14.0%)
Minimum $ 2.31 11,358 12,398 48.7 56.5 28.3 1.0 44.0 72.8 (38.5%) 10.4% 8.9% (53.4%) (40.3%)
Maximum $14.13 166,033 146,053 48.7 56.5 28.3 4.5 44.0 72.8 39.5% 25.6% 26.1% 4.7% 5.9%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
- -----------------------------
1 Enterprise Value is equal to total market capitilization with debt added and
cash removed.
2 LTM means Last Twelve months of reported data.
3 EBITDA means earnings before interest, depreciation, amortization and tax
expense.
4 EBIT means earnings before interest and tax expense.
5 Golden Genesis stock price as of 8/99 (Acquired by Kyocera).
6 NM means not meaningful
7 Rev. means revenues
Source: Josephthal Research, company financial statements, First Call and Zacks.
12
<TABLE>
<CAPTION>
<S>
<C>
Summary Comparable Company Analysis
- ------------------------------------------------------------------------------------------------------------------------------------
Solar Power Industry
Company Name Ticker Description
- ----------------------------------- ------------ ---------------------------------------------------------------------------------
Astropower, Inc. APWR AstroPower, Inc. develops, manufactures, markets, and sells photovoltaic solar
cells, modules, and panels for generating solar electric power. The Company also
manufactures and markets conventional single-crystal silicon solar cells and
modules worldwide , as well as is devloping specialty photovoltaic devices and
detectors.
Energy Conversion Devices, Inc. ENER Energy Conversion Devices, Inc. synthesizes new materials and develops production
technology and products, mainly alternative energy and advanced information
technology. The Company holds a 93.5% interest in Ovonic Battery Company and
markets its products workdwide through alliances with companies such as General
Motors, Canon, Inc., Matsushita Electric Industries, and Sony.
Golden Genesis Company GGGO Golden Genesis Company is a distributor, reseller and marketer of solar electric
power systems and related products. The Company's products utilize renewable solar
electricity to deliver clean economical power to a broad range of diverse
applications around the world.
Spire Corporation SPIR Spire Corporation develops, manufactures, and markets photovoltaic module
manufacturing equipment and optoelectronic products, as well as provides biomedical
processing services. The Company develops optoelectronic products for
telecommunications, biomedical, and eletronics applications.
</TABLE>
13
<PAGE>
I. Comparable Company Analysis
In determining the enterprise value for SunWize, we considered certain
historical financial, operating and other data that was publicly available or
was furnished to us by the Company, including, but not limited to: (a)
projections and cash flow analyses for SunWize prepared by management; (b) a
list of comparable companies provided by the Company; and (c) monthly management
reports concerning the ongoing status of the SunWize operations. According to
this data, the assumptions we have used as are follows:
o We have used Golden Genesis' multiple of 1.1x LTM sales (which is the multiple
of Golden Genesis as of 8/3/99), a Golden Genesis is the only competitor that
primarily assembles, markets and distributes photovoltaic products.
o It is unclear that SunWize should enjoy public multiples as it is a private
company embedded in a public company.
o SunWize will not realize positive operating income until FY 2001.
o The Company will need approximately $8.5 million in equity or equity-related
financing to execute its business plan for the next three fiscal years.
Based upon comparable company multiples, the following valuation for SunWize can
be determined:
($'s in thousands)
FY 1999 Sales $ 5,071
Industry Multiple 1.1 x
Total Valuation $ 5,578
14
<PAGE>
II Discounted Cash Flow Valuation
In determining the present value (PV) of the discounted cash flows (DCFs) of
SunWize, we took into consideration the following:
|X| Financial projections provided to us by Besicorp, primarily free cash
flows for FY 2000 through FY 2003;
|X| The Terminal Value was calculated as 1.1x FY 2003 revenues based upon
the August 3, 1999 purchase price of Golden Genesis of 1.1x LTM
revenues.
|X| Discount rates ranging from 30-40%.
|X| According to Venture Economics Information Services, the 3-year and
5-year average annualized returns for early stage venture capital
investments ending 12/31/98 were 37.7% and 33.7%, respectively1.
1 Source: Venture Economics Information Services, May 18, 1999, "Private Equity
Returns Rebound....".
15
<PAGE>
SunWize Discounted Cash Flows
($'s in thousands)
According to a discounted cash flow analysis (assuming 35% discount rate), the
Enterprise Value for SunWize can be estimated at approximately $6.4 million.
FY2000 FY2001 FY2002 FY2003
---------------------------------------------------
Free Cash Flow $(2,822) $(2,835) $(2,725) $ (46)
Terminal Value - - - $ 37,235(1)
------- ------- ------- -------
Total Cash Flow $(2,822) $(2,835) $(2,725) $ 37,189
NPV of Cash Flows
30% $ 7,932
35% $ 6,443
40% $ 5,225
- -------------------------------------------
1 The Terminal Value was calculated as 1.1x FY 2003 revenues based upon the
8/3/99 purchase price of Golden Genesis of 1.1x LTM renveues.
16
<PAGE>
III Comparable Transaction Analysis
In order to identify comparable transactions (i.e. mergers, acquisitions,
sell-offs, etc.), we looked at comparable companies in the industry who had
engaged in transactions over the last two years. The following transactions were
identified:
o August 1999 - Kyocera International, Inc. (KII) acquired 100% of Golden
Genesis Company for approximately $40.0 million in equity (or $2.33 per
share) and assumed debt of approximately $10.7 million, for a total
transaction value of approximately $50.7 million. The transaction value
represents a multiple of 1.1x Golden Genesis' LTM sales (which were
approximately $45.0 million as of March 31, 1999).
o June 1999 - GPU Inc. (an electricity supplier) acquired approximately 5% of
AstroPower Inc. common stock for $14.50 per share GPU also received a
two-year warrant to purchase additional shares of common stock at $18.85 per
share.
o August 1998 - Golden Genesis acquired Solartec in Argentina and New World
Power do Brazil (financial data not available).
o July 1998 - Golden Genesis acquired Remote Power, Inc. (financial data not
available).
o January 1998 - Photocomm, Inc. acquired Utility Power Group. (financial data
not available).
Based upon the comparable transactions involving the purchase of Golden Genesis,
the following valuation for SunWize can be determined:
($'s in thousands)
FY 1999 Sales $ 5,071
Transaction Multiple 1.1 x
Valuation $ 5,578
17
<PAGE>
Besicorp Development Inc.
o 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 interests, through special-purpose entities. Usually,
financing for these entities is secured solely by their respective assets.
o The Company anticipates that projects are developed with partners and the
Company holds 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).
o 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.
o To determine the value assigned to BDI, we looked at the current pipeline of
projects supplied to us by the Company and analyzed the status and stage of
development of each project. In order to determine the viability of each
project, we relied upon the information assembled by management including,
but not limited to (a) monthly management reports regarding the status of
each project; (b) project summaries and assumptions; (c) numerous Memorandum
of Understandings, Letters of Indications and other contractual as well as
non-contractual agreements regarding various projects; and (d) other
financial and informative data relating to specific products, such as (i) a
financial model prepared by Morgan Stanley Dean Witter and Besicorp for the
Empire Project; (ii) an expenditure budget provided to us by the Company;
and (iii) other relative financial data.
o The Company has identified the following project opportunities to date and
has furnished us with any and all information dealing with such projects:
- - Empire Newsprint Project (ESN);
- - Krishnapatnum Project;
- - Brazilian development projects;
- - Mexico development projects; and
- - Gabon Project.
18
<PAGE>
Empire Newsprint Project
|X| The Company and Empire State Newsprint LLC ("Empire") have executed a
Memorandum of Understanding 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 project) to develop:
|X| a newsprint recycling manufacturing plant in Ulster County, New York;
|X| a 477- megawatt natural gas-fired cogeneration power plant adjacent to
the recycling plant, which power plant would supply power to the
recycling plant and would also supply power for sale to power marketers
for resale into the recently deregulated power market.
|X| The Memorandum of Understanding contemplates that the Company and Empire
will enter into a definitive agreement delineating their rights and
responsibilities.
|X| As of June 30, 1999, Besicorp has spent approximately $150,000 in out of
pocket expenses, not including internal costs which accrued to over $200,000
(which are being carried as deferred expenses). Facility start-up is
expected in the 4th quarter of 2002.
|X| According to the Company's projections, the project costs are as follows:
ESN Project Costs
($'s in the thousands)
Cogeneration
Paper Mill Plant Joint
---------- ------------ -----
EPC Cost $ 500,000 $ 179,946 $ 679,946
Other Costs 210,259 89,165 299,424
------- -------- -------
Total Costs $ 710,259 269,111 979,370
19
<PAGE>
According to the Company, the following steps have been taken towards developing
the project:
o Resource Data International (RDI) has assisted Besicorp in developing
wholesale power price forecasts in New York.
o The ESN joint venture signed an agreement with ENSR Corporation (ENSR) for
ENSR to provide environmental consulting services to Besicorp, such as
obtaining all necessary federal, state, and local environmental permits,
certificates, and approvals for the construction and operation of the
project. ENSR will be paid hourly fees and a transaction fee upon the
closing of the project financing, if and when the financing occurs.
o Besicorp/Empire officials have been provided with assurances that a $280
million New York State tax exempt bond allocation will be available to the
project over a two-to-three-year period. Additionally, the New York State
Office of Recycling Market Development has awarded the project a $400,000
technical assistance grant applicable toward 1999 development costs.
o Besicorp has chosen and has signed an agreement (July 15, 1999) with
Kellogg, Brown & Root, Inc. (KBR), in which KBR will be the engineering,
procurement and construction contractor for the project. KBR will receive a
fixed engineering services fee. In addition, KBR may invest $20 million in
the project and attempt to raise approximately $30 million additionally.
o Besicorp has signed Upstate Commercial Group, Inc. as the exclusive buyer
agent to acquire properties related to the project.
o Besicorp signed an agreement with Severn Trent Environmental Services (STES)
in which STES will conduct a feasibility study for the Company.
o The Company has spoken with Morgan Stanley, TD Securities, and various other
potential financial advisors to assist the Company in obtaining financing.
The Company believes that the following milestones still need to be achieved
before construction of the project begins:
o The partnership agreement between Besicorp and ESN must be finalized.
o An investment banker/advisor must be engaged.
o A legal counsel for the project must be engaged.
20
<PAGE>
o Environmental permitting must be completed (current timeline is
approximately 17 months to completion).
o A final site and size must be chosen for the project.
o Financing must be obtained.
o Contracts for sale of recycled newsprint and electricity must be
established.
o An operating and maintenance contractor must be selected.
Following is a summation of the projected cash flows for the Empire Project,
prepared by Morgan Stanley Dean Witter and Besicorp, incorporating the following
assumptions:
o Besicorp will contribute to the development of both the cogeneration
plant and the paper mill.
o Besicorp's initial investment occurred in FY 1999.
o Year 1 of operating results is assumed in 2003 (after 4-years of
development).
o Besicorp and Empire Newsprint will assume 20% ownership of both the
cogeneration plant & the paper mill (Besicorp's share will be 10%).
o A 41% tax rate is assumed.
o The financial model assumes 19% equity financing and 81% debt financing.
o The borrowing rate for debt, depending on type and maturity, has been
assumed at 7% to 9.5%.
21
<PAGE>
Empire Newsprint Project Projected Cash Flows
($'s in thousands) Total Project Cashflow
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year
D1 D2 D3 D4 1 2 3 4 5 6 7 8 9 10
---------------------------------------------------------------------------------------------------------
Power plant (after tax) - - - - 6,681 10,550 12,016 15,758 16,875 30,555 25,304 32,309 33,682 32,600
Paper Mill (after tax) - - - 30,020 19,387 21,041 20,991 14,518 13,399 12,352 11,388 4,517 11,893
TOTAL CASHFLOWS - - - - 36,701 29,936 33,057 36,749 31,393 43,954 37,656 43,697 38,200 44,493
NPV of Besicorp Ownership
-
D1 D2 D3 D4 1 2 3 4 5 6 7 8 9 10
---------------------------------------------------------------------------------------------------------
Power plant (after tax) 668 1,055 1,202 1,576 1,687 3,055 2,530 3,231 3,368 3,260
Paper Mill (after tax) 3,002 1,939 2,104 2,099 1,452 1,340 1,235 1,139 452 1,189
TOTAL CASHFLOWS (3,433) (2,574) 6,566 - 3,670 2,994 3,306 3,675 3,139 4,395 3,766 4,370 3,820 4,449
11 12 13 14 15 16 17 18 19 20
---------------------------------------------------------------------------------------------
Power plant (after tax) 23,846 40,847 36,107 47,661 47,081 46,601 46,444 67,815 46,341 44,772
Paper Mill (after tax) 35,574 33,089 32,918 33,147 33,142 32,699 32,749 32,574 32,577 32,470
TOTAL CASHFLOWS 59,420 73,936 69,025 80,809 80,223 79,300 79,193 100,389 78,919 77,242
NPV of Besicorp Ownership
11 12 13 14 15 16 17 18 19 20
--------------------------------------------------------------------------------------------
Power plant (after tax) 2,385 4,085 3,611 4,766 4,708 4,660 4,644 6,782 4,634 4,477
Paper Mill (after tax) 3,557 3,309 3,292 3,315 3,314 3,270 3,275 3,257 3,258 3,247
TOTAL CASHFLOWS 5,942 7,394 6,903 8,081 8,022 7,930 7,919 10,039 7,892 7,724
</TABLE>
Notes:
Assumes that Besicorp is responsible for raising development capital for the
project. Besicorp expenditures equal total expenditures for the project less ESN
costs.
Source: Morgan Stanley and Besicorp.
22
<PAGE>
Empire Newsprint Project Summary
|X| We have assumed that development capital coming in at the early stages of
the project will require 30-40% returns, which are based on the returns
required by early stage venture capitalists1.
|X| No terminal value has been included as the future value of a 20-year old
plant. According to the management, salvage value of the plant is small,
which discounted to the present value would be immaterial.
|X| Based upon the project assumptions provided by management and the projected
cash flows for the project, which were determined by Morgan Stanley along
w/Besicorp, the NPV as of July 1999 (using discount rates of 30-40%) is:
($'s in thousands)
DISCOUNT RATE NPV (after tax)
------------- --------------
30% 3,235
35% 1,889
40% 988
|X| Using 35-40% discount rates suggests a range of values between approximately
$1.0 million to $1.9 million.
- ----------------------------
1 Source: Venture Economics Information Services, May 18, 1999, "Private Equity
Returns Rebound....".
23
<PAGE>
Krishnapatnum Project
o 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.
o BBI Power Inc. ("BBI"), the project company developing the power plant
near Krishnapatnam, is 50% owned by Besicorp and 50% owned by Chesapeake
Power Investments Co. ("Chesapeake").
o Capital construction costs are currently estimated to be approximately $700
million. To date, Besicorp has contributed approximately $1,000,000 towards
the project, which has been written off.
o A power purchase agreement has been entered into with respect to this
project though management believes that such agreement will have to be
renegotiated. Management is attempting to obtain further information
regarding the status of this project from Chesapeake but Chesapeake has not
responded to such requests.
The Company believes that there is little chance for the construction of the
project, based on the following reasons:
o Final approval from the Indian government must be obtained. Besicorp has
been waiting two years for approval and has received no positive feedback.
o 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.
o There have been no steps towards initiating construction over the last two
years. Management is attempting to obtain further information regarding the
status of this project from Chesapeake but Chesapeake has not responded to
such requests.
o The Company's contact and co-developer in India has been unresponsive.
24
<PAGE>
Krishnapatnum Summary
Based upon the contingencies above identified by Besicorp and the limited steps
taken towards development over the past two years, management believes it is
unlikely that any monies will be realized on this project or that monies
previously invested will be recouped.
25
<PAGE>
Brazil Projects
o 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.
o Two potential projects in Brazil have been identified (involving natural gas
and bagasse fueled co-generation facilities) (bagasse is the waste product
created by a sugar mill) though such projects are in the early stages of
development (i.e., no power purchase agreements have been entered into or
are currently being negotiated with respect to these projects).
o Besicorp has established a local subsidiary, Beta Brasil Geracao de Energia
Limitada, to develop these projects, when development is necessary.
Univalem
The project calls for a bagasse-fired cogeneration plant to be developed at
Univalem sugar mill facility in Valparaiso, Sao Paulo. The plant will supply
electrical and thermal energy to the sugar mill, a nearby lysine factory
(Ajinomoto), and to local utilities in the surrounding region. Besicorp and MPR
have set up a special purpose company (CVE) to engineer, finance, construct and
operate the plant. Besicorp has contributed approximately $163,000 towards the
projects.
The Company believes that the following milestones still need to be achieved
before construction of the project begins:
o Execute Energy Services Agreement ("ESA") with Ajinomoto and modify ESA
with Univalem.
o Complete basic design of 45 MW bagasse plant and initiate permit
applications.
o Complete a power purchase agreement ("PPA") for sale of electricity.
o Select EPC contractor.
o Obtain financing.
26
<PAGE>
Equipav
Besicorp is seeking to develop a bagasse-fired cogeneration plant at Equipov
sugar mill, in Sao Paulo, similar to the Univalem project. Besicorp has
contributed approximately $219,000 towards the projects. To date, the Company
has taken minimal steps in initiating the project.
The Company believes that the following milestones still need to be achieved
before construction of the project begins:
o Complete ESA with sugar mill.
o Complete conceptual design of bagasse plant.
o PPA for sale of electricity must be completed.
o Obtain environmental permits and financing.
o The moratorium on development of projects pending a better-defined
energy market must be lifted.
o Resolution of uncertainties regarding local sugar market.
Brazil Projects Summary
Based upon the contingencies and circumstances, management believes the
likelihood of realizing any revenues from its initiatives in Brazil is less than
10%.
Management concerns include:
o Early stage nature of the project.
o Costs, timing and the site of the projects are unpredictable at this time.
o Due to the speculative nature of the Brazilian projects and significant
uncertainties, management has not updated projections since April 1997. The
real has been devalued significantly versus the US dollar which was assumed
at parity when the projections were prepared.
27
<PAGE>
o Besicorp is hopeful that the projects will have a successful outcome (if the
desired results are not achieved, Besicorp will stop incurring expenses for
the projects).
o According to management, the total costs which Besicorp has accrued to date
for both projects is approximately $382,000.
28
<PAGE>
Mexico Projects
|X| The Company is in early stage marketing efforts in Mexico and is
identifying project opportunities.
|X| The Company has formed a subsidiary, Beta Mexico Inc., and has entered into
relationships with Bufete and Ultra, Mexican engineering and construction
companies (based on proposals jointly submitted), to identify these
opportunities.
|X| Two potential plants have been identified, both of which are still in the
early design stages. They are as follows:
- Ponderosa - a 20-40 megawatt cogeneration plant.
- Centauro - a 20-40 megawatt cogeneration plant.
Mexico Projects Summary
Based upon the contingencies and circumstances, management believes the
likelihood of realizing any revenues from its initiatives in Mexico is minimal.
Management concerns include:
o Costs, timing and the nature of the project are still in initiation stages.
o Projections have not been formulated.
o Besicorp is hopeful that the projects will have a successful outcome (if the
desired results are not achieved, Besicorp will stop incurring expenses for
the projects).
o Besicorp has spent approximately $194,000 to date towards the two identified
projects and general business development activities.
29
<PAGE>
Gabon Project
We have been advised that there has been a recent change in government in Gabon.
West Africa Projects Ltd. (Wespro) hopes that its contacts in Gabon survive and
is trying to reach an agreement with the Government in Gabon. A feasibility
study for electrification will be required and the Government has not allocated
the requisite financing for such study or even authorized the commencement of
the study. Besicorp has no agreement with Gabon; rather it has signed a
Memorandum of Understanding with Wespro to jointly explore the possibility of
developing a project in Gabon. Depending upon future events, Besicorp would then
proceed to negotiate an agreement with Wespro.
o The total cost of the project is estimated at $35 million with 32% coming
from a grant source. The cost includes $12 million of equipment (mostly
SunWize photovoltaic-related products).
o Besicorp could receive a development fee and subcontract to SunWize the
supply and installation of equipment. SunWize will profit through equipment
sales and engineering fees.
o To date, the Company has spent a negligible amount on this project.
According to the Company, the following steps have been taken towards developing
the project:
o Besicorp has signed a Memorandum of Understanding with Wespro for SunWize to
be the EPC for the project, of which Wespro would be the lead contractor.
o In May 1997, Besicorp received a Letter of Interest from Ex-Im Bank to
finance the project (Ex-Im will provide a loan to Ministry, Mining, Energy
and Petroleum, Libreville, Gasbon). The terms call for:
- An initial cash payment of 15% of the project cost.
- The Ministry of Finance being the project guarantor.
o In August 1999, Ex-Im Bank advised Besicorp that any evaluation for projects
in Gabon have been indefinitely placed on hold due to Gabon being delinquent
on prior loans.
The Company believes that the following milestones still need to be achieved
before construction of the project begins:
30
<PAGE>
o Negotiate final contract with Wespro.
o Conduct the feasibility study.
o Negotiate contract with the Government of Gabon.
o Need "Final Commitment" from Ex-Im.
o Select project manager.
Gabon Project Summary
The project is highly speculative and uncertain as to the timing, costs and
likelihood of success.
31
<PAGE>
Real Estate
Following is a list of properties owned by Besicorp and their latest
appraisals according to the Company as of August 18, 1999 and information
provided within the Information Statement dated 3/19/99 and Form 10KSB and
amended 10KSB for the period ending 3/31/99.
o 1151 Flatbush Road: This property in Kingston, NY serves as headquarters for
Besicorp, Ltd. It includes land and the 8,000 square foot headquarters,
which was valued at $1,032,802 (including multiple storage facilities on the
property) in March 1, 1999 (Proxy, p. 46, footnote 10). According to a
professional opinion issued to Besicorp on August 18, 1999, the value of the
property using an income capitalization method (including multiple storage
facilities on the property) is approximately $975,000. The analysis includes
the following:
- The present configuration of the main facility is best suited for a
single user and conversion to a multi-tenant space is probably not
feasible in the present market.
- Using an income capitalization method and assuming a Net Operating
Income of $78,500 and a cost of capital of 12%, the market value of the
main facility is approximately $650,000.
- Included in the property is an 80 unit self-storage facility, which is
assumed to be available for rental (currently, Besicorp uses 25 of the
units for its own storage). However, the storage units are not used in
the core operations of Besicorp.
- Based on a Net Operating Income of $40,000 and a cost of capital of 11%
(lower rate reflects less risk), the market value for the storage
units, adjusted for reproduction competition, is approximately
$325,000.
o To the extent that the property is arguably too large for existing and near
term operations and needs, the ability to sell the property and move to
smaller facilities may suggest excess value in the real estate which has not
been accounted for in the valuation of other businesses. After carrying
costs, transaction costs and moving expenses, management does not believe a
move is warranted. However, we understand from the Company the following:
- The Company believes that they only need approximately 6,000 square
foot to run operations (which is currently accounted for within the
valuation of the Company's photovoltaic and power project operations).
- Assuming 15% transaction, moving and carrying costs, the Company would
have to pay approximately $97,500 to move its corporate headquarters
into a smaller 6,000 square foot location, assuming the property is
sold at the full value of $650,000.
32
<PAGE>
- Based on the $650,000 value of the property using 8,000 square feet as
the size of the headquarters, the imputed value of the headquarters
assuming 6,000 square feet is approximately $487,500.
- The incremental value to Besicorp to move from its current headquarters
to a smaller location is as follows:
Current value of 8,000 ft2 property: $ 650,000
Less: Transaction, carrying and moving costs: 97,500
Less: Imputed value of 6,000 ft2 property: 487,500
- -----------------------------------------------------------------------
Potential Excess Value assigned to Besicorp $ 65,000
o Cascade Drive: The Company purchased Cascade Drive Property in January 1996
for $101,106. The property, which is located in Ulster, New York, consists
of 28 acres of vacant land. According to the Company, the market for real
estate in this area since 1996 has not changed.
o 48 Canal Street: The Company purchased the property and building at 48 Canal
Street, Ellenville, New York. The land and 52,000 square foot building were
previously used to support the Company's solar thermal and photovoltaic
operations. In April 1990, Jon Hoyt Realty conducted an appraisal. The value
of the appraisal was $675,000. Operations of the facility have since been
terminated. According to a professional opinion issued to Besicorp by
Commercial Associates Realty, Inc. on August 18,1999, the value of the
property has diminished since the appraisal in 1990, and is now valued at
approximately $225,000. Reasons include:
- - The property is located in an extremely depressed economic market.
- - Numerous similar and/or superior warehouse/industrial properties in the
surrounding area have on the market for extended periods of time.
- - Similar properties in the surrounding areas have sold in the $4 to $6
per square foot range.
33
<PAGE>
Real Estate Summary
The Cascade Drive and 48 Canal Street properties are not used for, or in the
operation of, any of the Company's current businesses, specifically SunWize and
Besicorp Development. The Company believes that some future value can be
obtained from the sale or donation of either of the properties. In addition, the
ability to move from the 1151 Flatbush property into a smaller facility and the
sell-off the storage units could generate excess value in the real estate. In
sum, the values relating to these properties are as follows:
Cascade Drive
- -------------
Last Appraisal $ 101,106
48 Canal Street
- ---------------
Last Appraisal $ 225,000
1151 Flatbush Road
- ------------------
Excess Realizable Value $ 65,000
Storage Facilities $ 325,000
-------
Total $ 390,000
Total Real Estate Valuation $ 716,106
34
<PAGE>
- --------------------------------------------------------------------------------
CARVE OUTS
- --------------------------------------------------------------------------------
35
<PAGE>
Partnerships Interests
Besicorp has developed and owned interest in operating,
large-scale cogeneration facilities in the northeastern United States.
Electricity generated by these plants was sold to local utilities under
long-term power purchase agreements, and dependable, economical thermal energy
was supplied to local industries. By July 1998, due to deregulation in the
industry, all power purchase agreements were terminated, and most of the plants
were sold. As a result, Besicorp is still owed partnership interests from the
selling of the plants, although much of the partnership interests have been paid
to date. The components of the partnership interests currently reside in Beta
Partnerships Inc. (BP). The outstanding investments and related escrows
according to the Company are as follows:
o Natural Dam: The partnership interests for Natural Dam are being held in an
account at Summit Bank in New Jersey. The amount as of July 21, 1999 is
$774,000. The Natural Dam partnership will be liquidated in fall/winter 1999
(October 1), after the site is restored to the satisfaction of the owner.
After the cost associated with restoration, the amount to be distributed to
Besicorp is estimated at $100,000-300,000.
o Reserve Fund: Funds were placed in an escrow in May 1999 as a reserve for
potential liabilities relating to the partnership interests which have or
are being liquidated. Of the current $1,028,141 in the bank, approximately
$518,000 will be distributed to Besicorp, to the extent that the funds have
not been disbursed to satisfy potential liabilities on or prior to May 15,
2002.
o Funds Escrow Agreement: In 1996, St. Lawrence constructed a natural gas
pipeline to transport gas to Kamine/Besicorp Beaver Falls cogeneration
plant. An escrow was set up to indemnify St. Lawrence against tax liability,
which will be determined at the conclusion of any 1995 and 1996 audits. The
current balance in escrow due to Besicorp is approximately $920,000, which
will be distributed to the Company upon settlement of the audits, or June
15, 2000.
Partnership Interests Amount Due
--------------------- ----------
Natural Dam Valuation $ 200,000 (mean of $100,000 to $300,000)
Reserve Escrow Agreement $ 518,000
Funds Escrow Agreement $ 920,000
----------
Total $1,638,000
36
<PAGE>
Hydro Credits
|X| Besicorp is owed approximately $1.0 million from contract settlements
resulting from the Master Restructuring Agreement.
|X| If settlement is reached with any of the hydro companies on or before June
30, 2004, the appropriate amount will be distributed to Besicorp.
|X| The current status of the Hydro Credits is as follows:
<TABLE>
<CAPTION>
<S>
<C> <C>
Hydro Credit Amount Due Status
- ------------ ---------- -------
Glen Park Associates $ 224,000 Expected to be resolved by September 1999(1)
Curtis/Palmer Hydroelectric $ 400,000 Currently in negotiations.
Northern Electric Power Co. $ 216,000 Currently in negotiations.
Fourth Branch Associates $ 14,758 Currently in negotiations.
Kings Falls Power Association $ 5,300 Currently in negotiations.
Other $ 139,942 Currently in negotiations.
- ------------------------------------------- ---------------------- -----------------------------------------------------------------
TOTAL $1,000,000
</TABLE>
- ----------------------------------
1 According to Besicorp and third parties associated with the settlements.
37
<PAGE>
Escrow Residual
|X| In conjunction with the spin-off in March 1999, $6.5 million was placed in
an escrow account to fund certain litigation and contingent liabilities
relating to Besicorp Group Inc.
|X| Management is of the opinion that there are meritorious defenses in the
various legal proceedings and that the balance in the escrow will cover any
legal costs and settlements that might result from these actions.
|X| After five years, any amounts remaining in the escrow account are to be
distributed to Besicorp Ltd. By virtue of the Merger, these amounts, if
any, will be included in the Deferred Payments and remitted to the
shareholders of Besicorp as of the Effective Time.
38
<PAGE>
Future Cashflows from Development Projects
o If the Company decides to sell interests in its development projects,
directly or indirectly, except for the sale of equity interests to obtain
capital for the development of a non-U.S. development project, within twelve
months following the Effective Date, the amount received for each project,
less the expenses (other than SG&A) incurred and paid within the twelve
months, will be included in the Deferred Payments and remitted to the
shareholders of Besicorp as of the Effective Time.
39
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY VALUATION
- --------------------------------------------------------------------------------
40
<PAGE>
Summary Valuation
In our review and analyses, we have assumed and relied upon the
accuracy and completeness of all of the financial and other information provided
to us by the Company or publicly available and have neither attempted
independently to verify nor assumed responsibility for verifying any of this
information. Based upon the identified assets of Besicorp and information
provided to us by the Company, either through materials sent to Josephthal or
publicly available information, we have derived the following valuation range:
- --------------
BESICORP LTD.
- --------------------------------------
Asset Categories
Valuation
---------
Base Case High Case
--------- ---------
SunWise Business $ 5,578 $ 6,443
Besicorp Development(1) 988 1,889
Partnership Interests - -
Real Estate 716 716
Hydro Credits - -
Lease Expense Adjustment(2) (288) (288)
----- ----
Total Valuation of Assets $ 6,994 $ 8,760
===== =====
Additional Carve Outs
- ---------------------
(To be ditributed to Besicorp
Ltd. shareholders upon
settlements)
Escrow Residual(3) $ 6,500 $ 6,500
Partnership Interest Escrow 1,638 1,638
Hydro Credits Escrow 1,000 1,000
----- -----
Total Escrow $ 9,138 $ 9,138
range: ____________
1 Krishnapatnum, Gabon, Mexico and Brazilian projects are not believed by
management to have a material value due to speculative nature and
unpredictability of timing, costs and nature of projects.
2 SunWize portion of spun-off equipment lease is $8,000 per month, of which
$5,000 per month has already been included in historicals and projections as
depreciation expense. The remaining $3,000 per month, or $36,000 per year has
been capitalized using an 8x lease expense formula, for a total value of
$288,000. The lease includes manufacturing equipment, soldering machines and
dispensing machines used for SunWize.
3 Opening balance of $6,500 has been reduced by costs incurred to date. The
residual balance if any at the end of the escrow period cannot be determined.
41
<PAGE>
- --------------------------------------------------------------------------------
OPINION
- --------------------------------------------------------------------------------
42
<PAGE>
PRIVATE AND CONFIDENTIAL
September 22, 1999
The Board of Directors
Besicorp, Ltd.
1151 Flatbush Road
Kingston, New York 12401
Dear Board Member:
We understand that Besi Acquisition Corp ("Acquisition Corp"), a
wholly-owned Subsidiary of Besicorp Holdings, Ltd. ("Parent"), a company
controlled by Michael F. Zinn, currently the Chairman of the Board, President
and Chief Executive Officer of Besicorp, Ltd. (the "Company" or "Besicorp"),
Parent and the Company are considering a proposed transaction in which
Acquisition Corp will merge with and into the Company (the "Merger"), subject to
all of its liabilities, on or before an agreed upon date ("Effective Time") as
set forth in the Agreement and Plan of Merger by and between Besi Acquisition
Corp and Parent (the "Merger Agreement")1. The consummation of the Merger is
subject to the execution of a certificate of merger ("Certificate of Merger")
between Acquisition Corp and Besicorp. As more specifically set forth in the
Agreement, and subject to the terms and conditions thereof, each share of common
stock of Besicorp, $0.01 par value, (the "Common Shares") issued and outstanding
immediately prior to the Effective Time of the Merger (other than shares of
Common Shares held as treasury shares by the Company or its Subsidiaries and
shares of Common Stock then owned of record by Acquisition Corp and Parent (the
"Ineligible Holders")), shall be converted into the right to receive in cash an
aggregate of $8.0 million divided by the sum of (i) the number of shares of
Common Stock issued and outstanding immediately prior to the Effective Date
(other than those shares held as treasury shares by the Company) and (ii) the
number of Management Restricted Shares for which substitute securities have been
issued, or $58.70 per share2 ("Cash Merger Consideration") and the right to
receive on a pro-rata basis in accordance with the provisions of the Merger
Agreement (i) monies, if any, that may be released from the approximately $6.5
million March 1999 Escrow Fund established in connection with the merger
involving the Company's former parent, Besicorp Group Inc., (ii) amounts
received with respect to litigation claims by Besicorp from matters arising
before the Effective Time, (iii) amounts received by Beta Partnership, Inc. and
distributions received from Kamine Besicorp Natural Dam L.P. Inc. (other than an
amount anticipated to be received by Beta from Natural Dam in November, 1999)
and any other funds that are distributed as a result of remaining partnership
interests in existence as of the date of the Merger Agreement, (iv) any realized
funds that may be distributed to the Company as a result of outstanding hydro
credits, and (v) amounts received with respect to the sale of the Company's
interests, directly or indirectly (except for debt financing for development
capital purposes which might have an equity carried interest in a foreign
development project) in each of its non-U.S. development projects within twelve
months following the Effective Time, less expenses (other than SG&A) incurred
and paid towards the project within the twelve months following the Effective
Time (in the aggregate, the "Deferred Payments"), collectively, the "Merger
Consideration". The Zinn Family Trust (the "Trust") in which Michael F. Zinn
disclaims beneficial ownership may be offered an opportunity to participate with
Parent in the Merger. We have been advised that the Trust will vote its Common
Shares in favor of the Merger irrespective of whether it is a participant with
Parent in the Merger.
1 Capitalized terms used herein without definitions shall have the meaning
ascribed to them in the Merger Agreement.
2 Based upon 122,432 Common Shares issued and outstanding and 13,850
restricted Common Shares owned by management. We were not involved in the
issuance of the restricted shares and do not opine on their value or
participation in the merger.
43
<PAGE>
You have requested our opinion as to the fairness from a financial
point of view, to the Company and its stockholders, other than the Michael F.
Zinn, of the consideration to be paid by Acquisition Corp to the holders of
Common Shares in the Merger (the "Fairness Opinion"). We do not perform tax,
accounting, legal services or render such advice. In addition, we were not
involved in the issuance of the restricted shares and do not opine on their
value or participation in the merger.
In conducting our review and analyses, and arriving at the opinion
expressed herein, we have assumed and relied upon the accuracy and completeness
of all of the financial and other information provided to us by the Company or
publicly available and have neither attempted independently to verify nor
assumed responsibility for verifying any of this information. We have not
conducted a physical inspection of Besicorp's properties or facilities, nor have
we made or obtained or assumed any responsibility for making or obtaining any
independent evaluations or appraisals of any of the related properties,
facilities or business segments. We have assumed that management's financial
analyses have been prepared on a good faith reasonable basis reflecting the best
currently available estimates and judgments of Besicorp's management and/or
financial consultants or advisors to Besicorp. Further, the Company represents
and warrants the accuracy and completeness of the information it has provided.
In evaluating the Merger and Merger Consideration, we have taken into
account statements by Michael F. Zinn in his offer letter, dated June 17, 1999,
and revised offer dated August 10, 1999. We understand that Michael F. Zinn: (i)
will not agree to be employed by a Company in which he is not in control; (ii)
is unwilling to personally guarantee any debt or debt related financing in a
public company; (iii) in his capacity as a shareholder, will not approve the
sale of assets to a third party and will vote against such sale, and has been
advised by the Independent Special Trustee of the Zinn Family Trust that the
Zinn Family Trust also opposes any sale of assets and would similarly vote
against such sale to a third party; (iv) is unwilling to purchase some but less
than all of the business assets of Besicorp; (v) is unwilling to continue in the
employment of the Company under current conditions; and (vi) continues to hold
to the beliefs and conclusions contained in the offer letter dated June 17, 1999
under the heading "Certain Factors Influencing Offeror." The Company has given
the Special Committee and its advisors unrestricted access to information and
employees and the Purchaser has removed himself from the diligence process and
has recused himself from the Special Committee process of analyzing the Merger.
In conducting our analyses and reviewing the information provided to us
by the Company, we understand and have considered the following asset categories
to be included in the Company: (i) the SunWize business ("SunWize"); (ii) all
outstanding projects and identified prospective projects of Besicorp Development
Inc. ("BDI") and other subsidiaries of the Company and SunWize; (iii)
outstanding partnership interests and credits due to Besicorp which may result
in cash inflows to the Company; (iv) Besicorp real estate, including the
properties used in existing business operations and properties that are
exogenous to existing business operations; and (v) the March 1999 Escrow Fund,
established in connection with the merger involving Besicorp Group Inc. to fund
the litigation costs, judgements, and/or assist in the settlement of any
litigation pending against Besicorp Group Inc. and/or arising out of the
Besicorp Group Inc. merger transaction consummated March 22, 1999. We understand
the Deferred Payments are excluded from the Cash Merger Consideration and any
monies received will be segregated and distributed pro rata to shareholders of
record as of the Effective Time.
44
<PAGE>
In order to arrive at our opinion, we have reviewed the following
materials and considered such financial and other factors as we deemed relevant
under the circumstances, including, among others, the following: (i) certain
historical financial, operating and other data that were publicly available or
were furnished to us by Besicorp regarding the Merger including, but not limited
to: (a) projections and cash flow analyses for SunWize prepared by management;
(b) Form 10KSB and Form 10KSB/A for the period ending 3/31/99, Proxy Statement
of Besicorp Group Inc. dated 3/1/99 and Information Statement dated 3/19/99; (c)
Form 10Q for the period ending 6/30/99; (d) internally generated operating
reports and discussions from management concerning the various business segments
of Besicorp; (e) Empire Project financial model prepared by Morgan Stanley Dean
Witter and Besicorp; (f) real estate appraisal and partnership interests and
hydro credit valuations prepared by management with the assistance of identified
third parties; (ii) various press releases regarding the development and status
of the Empire Project and other projects; (iii) publicly available financial,
operating and stock market data for companies engaged in businesses deemed
comparable to those of the Company; (iv) merger and acquisition transactions by
companies in the same or similar businesses considered to have degrees of
comparability to the Merger; and (v) such other factors and information as we
deemed appropriate. We have met with senior officers of the Company to discuss
prospects for Besicorp's business and such matters as we believed relevant. In
addiiton, we have reviewed the Agreement and Plan of Merger dated as of
September 16, 1999.
In conducting our analyses and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of
Besicorp; (ii) the business prospects of Besicorp; (iii) the historical and
current market for the Common Shares and (iv) the nature and terms of other
acquisition transactions that we believe to be relevant. We have also taken into
account our assessment of general economic, market and financial conditions as
well as our experience in connection with similar transactions and securities
valuation generally. Our opinion necessarily is based upon conditions as they
exist and can be evaluated on the date hereof and we assume no responsibility to
update or revise this presentation based upon circumstances or events occurring
after the date hereof. In that regard, we have not considered any acquisition or
similar transaction to which Besicorp might become a party whether announced or
not, that has not closed prior to the date hereof. This presentation is limited
to the fairness, from a financial point of view, of the Merger Consideration to
be paid to the holders of Common Shares of Besicorp other than Michael F. Zinn
in the Merger. This presentation does not address in any way Besicorp's
underlying business decision to effect the Merger. We have not been involved in
forming Parent, Acquisition Corp or the Merger Consideration and have not
assumed any responsibility for making or obtaining an independent evaluation or
appraisal of Besicorp's properties or other assets, nor do we opine on the
capital requirements or availability of capital for Besicorp.
45
<PAGE>
As you know, Josephthal & Co. Inc. ("Josephthal") has been retained by
Besicorp to render this opinion and provide other financial advisory services,
and will receive fees for such services. In addition, in the ordinary course of
the business, Josephthal may actively trade the Common Shares for its own
account and for the accounts of customers, and, accordingly, may at any time
hold a long or short position in such securities.
This Fairness Opinion is solely for the use of Besicorp (including its
Board of Directors) and is not to be publicly-disclosed, used, excerpted,
reproduced or disseminated, quoted or referred to at any time, in any manner or
for any purpose, without the prior written consent of Josephthal; provided,
however, that Besicorp may include the Fairness Opinion in whole but not in part
as an annex to the Proxy Statement to be filed with the Securities and Exchange
Commission and delivered to the stockholders of Besicorp. This opinion does not
constitute a recommendation to any holder of Common Shares as to how any such
stockholder should vote on any aspect of the Merger, including the Merger
Consideration, nor does this opinion address the relative merits of the Merger
or any other transactions or business strategies discussed by the Board of
Directors of Besicorp as alternatives to the Merger or the decision of the Board
of Directors of Besicorp to proceed with the Merger.
Based upon and subject to the foregoing it is our opinion as investment
bankers that, as of the date hereof, the Merger Consideration to be received by
the holders of Common Shares of Besicorp (other than Michael F. Zinn) in the
Merger is fair from a financial point of view.
Very truly yours,
JOSEPHTHAL & CO. INC.
46
<PAGE>
Exhibit 17(b)(2)
[Letterhead of Commercial Associates Realty, Inc.]
(914)339-9100
fax (914) 339-9526
August 18, 1999
Ms. Joyce DePietro
Besicorp Services, Inc.
1151 Flatbush Road
Kingston, NY 12401
Re: Besicorp Headquarters Building, Flatbush Rd., Town of Ulster, New
York.
Dear Ms. DePietro;
Pursuant your request, this report contains my opinion of value for the above
referenced property. The following opinion is based on my professional
experience as an active commercial real estate broker in the Mid-Hudson region
of New York and is provided for the sole use of Besicorp Services, Inc. for its
internal purposes. The opinion is not intended to be an appraisal of the subject
property and should not be used to secure financing or for other purposes that
require licensed appraisal evaluations.
The subject is located in the Town of Ulster, Ulster County, (Kingston Zip
Code), New York at 1151 Flatbush Rd., (State Route 32), just off State Route
209/199. It is within one mile of the Hudson River crossing at the
Kingston/Rhinecliff Bridge and approximately 4 miles from the NY State Thruway
exit 19.
The greater Kingston area has a population of approximately 50,000 and is
located in the Mid-Hudson region, which as a market has a population of about
500,000. The major regional shopping area, which contains over 3 million square
feet, including most of the major national brands, is less than one mile from
the subject.
The neighborhood is primarily residential with some highway business. The
Kingston Airport, a general aviation airport contiguous with the subject, has
been recently upgraded and is well utilized.
The subject site is three acres with 200 feet of frontage on State Route 32. It
is mostly flat and it provides access to the Kingston Airport. It is improved
with paved driveways and parking for 48 cars. The site is served by municipal
sewer and has on-site wells for water supply. Central Hudson provides Gas and
Electric service to the property.
The property is improved with a +/- 15,500 square foot one and one half story
masonry office building. The foot print is 70' x 150', (10,500 square feet),
with a second floor of approximately 5,000 square feet of useable space.
The interior is nicely finished with a good mix of open floor space and private
office. The present configuration is best suited for a single user. Conversion
to a multi-tenant space is probably not feasible in the present market.
Also included on the property is an 80 unit self storage facility. All units are
10' x 20' and for the purposes of this opinion, it will be assumed all are
available for rental. (Currently, Besicorp uses 25 of the units for its own
storage.)
I have used an income capitalization method as the primary determining factor in
this opinion. Comparable sales of office buildings and self storage in the
market are too old to be applicable, however, there is plenty of rental data to
determine an income value for the property.
For the office building, a market analysis shows a Net Operating Income of
$78,500. Capitalized at 12%, which is typical in this market, gives a value
(rounded) of $650,000. (See Chart #1).
The self storage facility is valued on an income approach, however, it must be
tempered by comparing reproduction cost. These facilities are relatively easy to
get municipal approvals for and the cost to build is around $15.00 per square
foot plus land costs. That would translate in the subject property to:
Units: 16,000 SqFt @ $12.00 = $192,000
Site Improvements: 16,000 SqFt @ $ 3.00 = $ 48,000
----------------------
Improvement Total: 16,000 SqFt @ $15.00 = $240,000
Land Cost: 1 Acre @$35,000 = $ 35,000
-------
Total Reproduction Cost: $275,000
<PAGE>
Based on the income, (See Chart #2, I have used market expenses to augment the
actual operating numbers for the subject, assuming an investor owns and operates
the facility), the Net Operating Income of $40,000 capitalized at 11%, (lower
rate reflects less risk than the office building), gives a value of $364,000,
rounded. Discounting this value to adjust for the reproduction competition, my
opinion of value for the self storage units is $325,000.
Sold as a whole, the fact that these two income entities are significantly
different in nature must be seen as a detriment to marketing. Certainly, an
investor might be interested in the self storage and not the office building or
vice versa. Further, a user might want the office building and not be interested
in owning and operating an investment property.
My opinion of value for the two buildings sold together is discounted to
$900,000.
Please call me if you require additional information or have any questions.
Very truly yours,
/S/ Thomas A. Collins
Thomas A. Collins, CCIM
President
TAC/wen
(Without enclosures)
<PAGE>
[Letterhead of Commercial Associates Realty, Inc.]
August 18, 1999
Ms. Joyce DePietro
Besicorp Services, Inc.
1151 Flatbush Road
Kingston, NY 12401
Re: Besicorp warehouse/manufacturing building, 48 Canal Street, Ellenville
, New York
Dear Ms. DePietro;
Pursuant your request, this report contains my opinion of value for the above
referenced property. The following opinion is based on my professional
experience as an active commercial real estate broker in the Mid-Hudson region
of New York and is provided for the sole use of Besicorp Services, Inc. for its
internal purposes. The opinion is not intended to be an appraisal of the subject
property and should not be used to secure financing or for other purposes that
require licensed appraisal evaluations.
The subject is located in an extremely depressed economic market. I am aware of
a number of similar and/or superior warehouse/industrial properties that have
been on the market for extended periods of time. Similar properties have sold in
the 4 to $6 dollar per square foot range.
Based on the information provided to me by you, and my knowledge of the subject
market, my opinion of value for the property is $225,000.
Please call if you have any questions
Very truly yours,
/S/ Thomas A. Collins
Thomas A. Collins, CCIM
President
TAC/wen
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete and
correct.
Besicorp Ltd.
February 7, 2000 By:/s/ Frederic M. Zinn
----------------
Frederic M. Zinn, Executive Vice President
Besicorp Holdings, Inc.
February 7, 2000 By:/s/ Michael F. Zinn
---------------
Michael F. Zinn, President
Besi Acquisition Corp.
February 7, 2000 By:/s/ Michael F. Zinn
---------------
Michael F. Zinn, President
Avalon Ventures, LLC
February 7, 2000 By:/s/ Michael F. Zinn
---------------
Michael F. Zinn, President
Avalon Funding, LLC
February 7, 2000 By:/s/ Michael F. Zinn
---------------
Michael F. Zinn, President
Micahel F. Zinn
--------------------------
February 7, 2000 Michael F. Zin
