<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996 Commission file number 0-9964
BESICORP GROUP INC.
(Name of small business issuer in its charter)
New York
(State or other jurisdiction of incorporation or organization)
14-1588329(Internal Revenue Service Employer Identification No.)
1151 Flatbush Road, Kingston, N.Y. 12401
(Address of principal executive offices) (Zip Code)
(914) 336-7700
(Issuer's Telephone Number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class: Common Stock, $.10 par value
Name of each exchange on which registered: AMEX Emerging Company Marketplace
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ____
The issuer's revenues for its most recent fiscal year: $4,412,072
The aggregate market value of voting stock held by nonaffiliates based upon the
closing AMEX sale price on June 30, 1996 was approximately $13,318,000.
The number of shares outstanding on June 30, 1996 was 2,914,648 Common Shares
DOCUMENTS INCORPORATED BY REFERENCE:
The information called for by Part III is incorporated by reference from the
definitive Proxy Statement for the Annual Meeting of Stockholders of the Company
to be held September 25, 1996, which will be filed on or before July 26, 1996.
<PAGE>
BESICORP GROUP INC.
Cross-Reference Sheet/Documents Incorporated by Reference
Securities and Exchange Commission Item Number and Description
Page No. in this
Form 10-KSB
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Company's Common Equity and
Related Stockholder Matters
Item 6. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Item 7. Financial Statements and Independent Auditors' Report
Item 8. Disagreements on Accounting and Financial Disclosure
PART III
Item 9. Directors and Executive Officers of the Company
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and
Management
Item 12. Certain Relationships and Related Transactions
PART IV
Item 13. Exhibits and Reports on Form 8-K
Signatures
Index to Exhibits
<PAGE>
PART I
ITEM 1. BUSINESS:
BESICORP GROUP INC. (the "Company" or "Besicorp") is a fabricator, manufacturer,
distributor and developer of solar and heat transfer technology products and
systems and solar electric products and systems ("Product Segment") as well as
an owner and developer of independent power production projects ("Project
Segment") primarily through its partnership interests as explained below. These
projects primarily involve gas fired cogeneration. Besicorp was organized as a
corporation under the laws of the State of New York in July 1976.
During the five years ended March 31, 1996, the revenues and income (loss) per
segment were as follows:
<TABLE>
<CAPTION>
Year ended Product Segment Project Segment
<S> <C> <C> <C> <C>
Revenues Income (loss) Revenues Income (loss)
3/31/96 $ 4,028,028 $ (1,575,597) $ 384,044 $ (902,722)
3/31/95 4,562,612 (1,692,603) 2,301,586 1,325,526
3/31/94 3,758,668 (1,257,699) 4,596,086 1,264,220
3/31/93 2,655,126 (280,283) 16,314,854 9,965,074
3/31/92 2,212,184 (362,779) 222,367 (2,915,267)
</TABLE>
See Note 16 of Notes to Consolidated Financial Statements for details of segment
information.
PRODUCT AND TECHNOLOGY ACTIVITIES:
The Company, through wholly-owned subsidiaries, fabricates, manufactures,
distributes and develops solar thermal, heat transfer and solar electric
(photovoltaics or "PV") products and systems.
The Company conducts its solar thermal and heat transfer businesses through
subsidiaries, Bio-Energy Systems, Inc. ("BIO") and Bio Thermal Unlimited, Inc.
("BTU"). The principal markets are solar pool heating systems and heating
systems for commercial greenhouses and buildings.
The Company conducts its PV business through several subsidiaries, including
SunWize Energy Systems, Inc. ("SunWize") and others as discussed below.
SunWize and Samsonite Corporation ("Samsonite") have entered into an agreement
to develop, manufacture and market solar electric-powered cases. These cases
are intended to be used to power and recharge laptop computers, cellular phones,
and other electronic products that ordinarily require batteries for portable
use. Under the agreement, SunWize will subassemble the PV power units, and
Samsonite has agreed to install them in cases. The Company is continuing the
development of this product line.
In September 1994 the New York State Energy Research and Development Authority
("NYSERDA") entered into a cost sharing agreement with SunWize to build ten
skid-mounted PV hybrid systems: nine for demonstration at certain remote
government and non-profit facilities across the state and one which is to be
delivered to an independent testing lab to verify performance under the National
Electric Code. Pursuant to this agreement, the Company will be reimbursed
$366,142 of its estimated costs of $420,622 by NYSERDA, to be repaid from
revenues on future sales of these systems to other parties. Due to a delay by
NYSERDA in the processing of site agreements, the construction of the systems is
expected to be completed for shipment on or about August 1996. In March of 1996
this agreement was expanded to include two additional initiatives. The first is
the development of a controller for the PV hybrid system designed to improve the
energy efficiency of the system. The second involves the development of a PV
ice-making system to be tested in Mexico pursuant to an agreement with Sandia
National Laboratories and the state government of Chihuahua. NYSERDA is
providing $140,130 of the estimated costs of $295,265 for these projects, to be
repaid from revenues on future customer sales of PV hybrid systems. The
estimated completion date for these new initiatives is April 1998.
In March of 1996 an agreement was signed by SunWize with NYSERDA to develop a
series of electronic controllers for small-scale PV systems of up to 175 watts.
NYSERDA is providing $23,154 of the estimated costs of $48,889 for this project,
to be repaid from revenues on future sales of these controllers. The estimated
completion date for this new project is January 1997.
Through a subsidiary, SunWize Specialty Products, Inc. ("SSP"), the Company
manufactures custom designed PV modules. These modules are integrated into other
products for consumers, commercial and industrial use. SSP has developed
proprietary polymer encapsulation technology for PV manufacturing of small
customized PV modules. Pilot production began in the second quarter of Fiscal
1996.
In March 1994, NYSERDA co-sponsored with SSP a research initiative aimed at
lowering the cost and widening the use of solar electric technology for consumer
products by encapsulating PV cells in urethane. NYSERDA provided $112,774 of
funding for this project, to be repaid from profits on future sales of any
products which have been developed as a result of this project. This initiative
was completed in March 1996. In March 1996 this agreement was modified to
include additional development activities designed to increase production
efficiency and lower the overall cost of PV modules. NYSERDA is providing the
$219,696 of the estimated costs of $491,266 for these activities, also to be
repaid from profits on future sales of products developed from this additional
initiative. The estimated completion date is September 1998.
SunWize Marine Technologies, Inc., a subsidiary, was formed to develop a line of
solar-powered all-electric recreational boats incorporating technology from SSP,
specifically urethane-encapsulated solar cells that are integrated into the boat
deck. The prototype built was technologically successful and the company is
currently seeking a partner to invest in further development of this product
line.
The Product Segment has been orginized into four strategic business units. These
include Ventures, responsible for development and worldwide marketing of
value-added technology products; Manufacturing, which involves PV cell
fabrication and polyurethane cell encapsulation, manufacturing and development;
Engineering, which provides technical services, interconnected PV projects, and
turnkey installations; and Distribution, which includes all of the Company's
sales and wholesale distribution activities.
The Company is continuing to work on developing a program for solar power-based
regional rural electrification projects in the international market.
<PAGE>
The Company markets and sells products through dealers and distributors
nationwide with solar thermal products primarily sold in sun belt areas and heat
transfer products primarily sold in areas with colder climates. In addition,
the company has distributors in Europe, the Pacific Rim, and other markets.
The current focus of the Company's solar electric business is commercialization
of its product lines as well as continuing product development. In addition to
utilizing the Company's own resources, products will be developed using
government grants, utility- funded projects, and technology demonstration
contracts wherever possible.
CUSTOMERS AND BACKLOG
The Company fills orders from inventory, and draws from its inventory to
fabricate and manufacture custom orders; therefore, backlog is generally filled
within the following quarter. Certain sales may be drop-shipped from
manufacturers' locations. Backlog of orders was $497,664, $286,892 and $378,053
as at March 31, 1996, March 31, 1995 and March 31, 1994, respectively.
COMPETITION
The Company competes with many businesses engaged in the sale of solar thermal
energy products. Of such companies, there are several in the industry with
significant market share. In the heat transfer business the Company competes
with several other businesses, three of which hold significant market share. The
Company competes with approximately ten businesses engaged in the distribution
of solar electric products, of which three have larger market share than the
Company. Concerning value-added solar electric products and systems, the Company
believes that the market is highly fragmented.
The Company competes primarily on the basis of service, technical merits and on
pricing.
RESEARCH AND DEVELOPMENT
Since Fiscal 1994 the Company has expanded its efforts in technology
development, particularly solar electric products. Expenditures for research and
development for the last three years were $426,239 in Fiscal 1996, $480,459 in
Fiscal 1995 and $119,144 in Fiscal 1994. Personnel expenses, comprising the
largest portion of these amounts, were $324,662 in Fiscal 1996, $431,002 in
Fiscal 1995 and $111,392 in Fiscal 1994. Of the total amounts, expenses
attributable to the Company's agreements with NYSERDA were $229,658 in Fiscal
1996 and $115,883 in Fiscal 1995. The Company anticipates similar significant
expenditures in the coming year to further its efforts in technology
development.
SUPPLY
The Company procures extruded materials for its proprietary solar thermal and
heat transfer products from producers of plastic and synthetic rubber extrusions
using dies made to order for the Company. The principal supplier of proprietary
extruded materials is The Johnson Rubber Company, a division of Duramax, Inc. of
Middlefield, Ohio. The Company purchases non-proprietary extruded materials from
several producers of plastic extrusions. The Company purchases solar electric
products from several large manufacturers, of which Siemens Solar Industries of
Camarillo, California is the principal supplier. There are no problems foreseen
in the Company's ability to purchase materials for any of its businesses.
The Company fabricates pre-assembled solar thermal and heat transfer modules for
use in applications of its products in both standard and customized sizes. The
Company may at times fabricate solar electric systems by combining solar
electric panels with other components.
PATENTS
The Company has a number of patents relating to installation and assembly of
solar thermal and
heat transfer products. These patents provide competitive advantages to the
Company by enabling exclusive use of certain assembly and installation methods.
The Company believes it will still be able to compete in its markets upon the
expiration of the patents.
The Company owns the following U.S. patents relative to its product sales:
4,176,654 (method and means for removably adhering SolaRoll to a base structure
- - expires December 4, 1996);
4,270,596 (method and apparatus by which tubes of SolaRoll are separated from
one another for connection to headers and to form crossovers remote from headers
- - expires June 2, 1998);
4,341,002 (tool for installation of tube mat - expires July 27, 1999);
4,349,070 (insert connections between tube ends of SolaRoll mat - expires
September 14, 1999);
4,353,352 (solar thermosyphon water heater - expires October 12, 1999);
4,354,546 (header pair and tube mat connection - expires October 19, 1999); and
4,399,319 (thermally insulated composite flexible hose - expires August 10,
2000).
EXPORT SALES
The Company's export sales, principally to Europe and the Pacific Rim, for the
Fiscal years ended March 31, 1996, March 31, 1995 and March 31, 1994 were
$455,114, $548,669 and $507,623, respectively. Generally, the Company's sales to
its foreign distributors are made based upon payment in U.S. dollars by
confirmed irrevocable letters of credit or by wire transfer.
PROJECT DEVELOPMENT AND OWNERSHIP ACTIVITIES:
The Company has developed and owns interests in gas fired cogeneration
facilities in New York State. These projects produce electricity and thermal
energy for sale to utilities and industrial customers pursuant to long-term
contracts. The Company developed these projects jointly with partners and holds
its ownership interests through special-purpose entities formed to be the legal
owners of the projects, as explained below under "Business Strategy."
The Company, has a partnership interest in six cogeneration projects in New York
State, with power purchase agreements ("PPA's") to sell approximately 378
megawatts of electrical capacity and energy, all of which have achieved
commercial operations. A PPA is a long-term contract pursuant to which the
electrical output of the cogeneration plant will be purchased by a utility. The
PPA is the most significant contract in the project development process. The
vast majority of project revenues are typically derived thereunder.
During Fiscal 1996 the Company, together with a partner as described below,
continued to develop the Krishnapatnam project, a planned 500MW coal fired power
plant to be located in the state of Andhra Pradesh, India.
<PAGE>
In addition to the efforts associated with these projects, during Fiscal 1996
the Company continued to pursue other project development opportunities, both
domestically and internationally, in particular, in India, Pakistan, Mexico and
Brazil. In regard to these efforts, there have been no awards of power contracts
to date, nor can there be any assurance that any will be forthcoming.
INDUSTRY INFORMATION
DOMESTIC
Federal legislation entitled the Public Utilities Regulatory Policy Act of 1978
("PURPA"), mandates that utilities purchase power generated by independent,
non-utility generators ("NUG'S"). PURPA gave rise to an industry where
independently-owned power plants, particularly cogeneration plants, which
jointly produce electricity and steam, both compete with and supply regulated
utilities. Most NUG projects are "project financed," where the PPA entered into
by a creditworthy utility serves as the primary credit support for the financing
of the power production facility.
The domestic independent power industry has recently
stagnated. Utilities have lower
"avoided costs" of power, due largely to a surplus of spot market short-term
energy. In addition, utilities have cited level or decreasing demand for power
as a basis for not signing PPA's with NUG's. Furthermore, certain regulatory
entities have created uncertainty as to their stance towards NUG's. As a result,
the independent power industry has begun to focus overseas, particularly in less
developed countries with large power and infrastructure requirements.
New York State, where the Company owns interests in six operating independent
power plants, has undergone particular turbulence with regard to the independent
production of power. Niagara Mohawk Power Corporation ("NIMO"), which has a
large number of contracts with independent power producers, including five of
the Company's projects, has declared that it may avail itself of a bankruptcy
proceeding in order to obtain relief from the high cost of independent power
contracts.
It is unclear whether NIMO will declare bankruptcy, just as it is unclear that
the NUG's have created a solvency issue for NIMO. Should NIMO declare
bankruptcy, it is unclear whether a bankruptcy court would require payment by
NIMO to NUG's, as it is anticipated that NIMO would continue to receive revenue
from the sale of electricity to consumers.
The threat of NIMO bankruptcy has introduced an
element of uncertainty into the Company's business. See note 5 to the notes to
Consolidated Financial Statements for further discussion of this matter.
During 1995, revised PPA's for the Company's five NIMO projects became
effective. These agreements had been renegotiated the previous year by the
Company and its partner, Kamine Development Corporation (together with its
affiliated companies, "Kamine"). Many NUG's in New York State have not
renegotiated their contracts, and the Company believes that this achievement
enhances the likelihood that the Company's contracts will remain free of
litigation aimed at changing the contracts. The contract restructuring
provided NIMO with more favorable terms and operating flexibility. In
addition, the restructurings removed accounting liabilities termed
"tracking accounts" from all the contracts and reduced the risk of
curtailment in running hours. The implementation of the revised
PPA's required the restructuring of financing arrangements and numerous other
underlying agreements for each project.
International
As the independent power industry has slowed in the United States, opportunity
has emerged internationally. Many of the less developed nations have the need
for increased electric power generating capacity and have limited access to
capital. Many of these countries have invited proposals from foreign developers
to meet their needs for development.
Numerous producers of independent power have shifted their focus overseas,
resulting in a competitive market. Projects overseas tend to be large, requiring
long development periods and considerable capital. The risks in less developed
markets are also considerable, encompassing political and expropriation
concerns, currency translation and the risks associated with operation. Few
large international projects have achieved financial closing, much less entered
construction or operation; thus, the market is both new and unproven, presenting
a variety of challenges to the developers of independent power.
BUSINESS STRATEGY
The Company's primary strategy is to provide specialized development and
financing expertise beginning with early stage development of large-scale
projects. The development of a typical project involves structuring long-term
relationships with participants in one or more projects. Project concepts and
technical options are reviewed, and necessary contracts and relationships are
established. Rights to projects may also be acquired in various stages of
development. Each transaction and relationship is unique in that the terms and
conditions are specifically negotiated based upon the requirements and
circumstances of the proposed project, in particular, location and the
capabilities of the participants.
The Company typically has earned development fees by taking an active role in
the early stage development of each project. Development fees are generally paid
from the proceeds of the project loans and are capitalized as part of the cost
of the project. The amounts and timing of such payments of development fees are
subject to negotiations with the parties to the transaction and represent the
Company's fees for services it provides. There can be no assurance that the
Company will earn development fees on new project opportunities. The Company
structures proposed projects from an economic and financial perspective,
negotiates power purchase agreements, host contracts, permitting arrangements,
engineering and construction contracts, fuel supply and transportation
agreements, and financial participation and risk sharing agreements. The Company
prepares financial models of the project taking into account operating
parameters and risk considerations, documents the project, and arranges and
negotiates appropriate development capital and construction and long-term
financing.
Other anticipated sources of revenues and cash flows from the projects are fees
for administrative and monitoring services, which are recorded as management
fees, and for coordinating and overseeing partnership activities, which are paid
during the construction and operating phases of the projects, as well as
partnership distributions from operations.
The Company historically has owned a substantial portion of each project.
Construction, operation, engineering, and design are contracted on a turn-key
basis to third parties which the Company believes to be financially and
technically capable. The Company conducts its business primarily through special
purpose entities for each project with transactions structured so that liability
to the Company is limited, since the financing obligations of these entities are
secured solely through their assets. This structure is further discussed in a
later section entitled "Project Financing".
Each of the Company's domestic projects discussed under "Project Descriptions"
is owned by a separate partnership entity of which a Besicorp subsidiary is a
general partner, and, in certain partnerships, a subsidiary of the Company holds
a limited partner interest. In order to achieve the most appropriate tax
standing and to conform to Indian guidelines, the Krishnapatnam project is owned
by a corporate entity. Partnership profits and losses will be allocated in
accordance with the applicable partnership agreements and cash distributions, if
any, in excess of debt service and operating expenses will be paid to the
Company and other partners. Upon commencement of operations of a power facility,
the Company, in its capacity as general partner monitors and manages its
ownership interests.
DEVELOPMENT FINANCING
A significant portion of the Company's selling, general and administrative
expenses is expended on project development activities with specific project
costs being recorded as deferred costs until project financing is arranged.
Prior to projects entering the con-
<PAGE>
struction phase, the Company's internal costs as well as certain third party
development costs are funded from its internal sources, borrowings, and
development funding agreements.
In June 1992 the Company and Kamine entered into a loan agreement with Stewart &
Stevenson Services, Inc. ("S&S") under which each company could borrow up to
$3,000,000 at the interest rate of prime plus 2%. The initial term of the loan
is approximately six years and may be extended for up to an additional six years
as long as S&S remains the operator of certain of the Company's cogeneration
facilities. The terms provide for interest only at the rate of prime plus 2%
during the initial term with principal due at the end of the initial term unless
extended, or upon the occurrence of certain material events, such as
the termination of S&S as the operator of certain of the facilities.
With respect to the development of the Krishnapatnam project in India, in June
1995 a Development Funding Agreement was entered into among BBI Power, Inc.
("BBIP"), Illinova Generating Company ("IGC"), an affiliate of Illinois Power
Company, and Continental Energy Services, Inc. ("CES"), an affiliate of Montana
Power Company. The Company is a 50% shareholder of BBIP. This agreement is
administered by an Executive Committee comprised of representatives of CES, IGC
and BBIP. The agreement commits each of CES and IGC to provide up to $2,000,000
of funding for project development and grants the right, but not the obligation,
for each of CES and IGC to provide $10,000,000 of equity funding.
Additionally, in August, 1995 a Development Funding Agreement for the
Krishnapatnam project was entered into between BBIP and Power Markets
Development Company ("PMDC") an affiliate of Pennsylvania Power and Light
Corporation. The Project Executive Committee was expanded to include
representatives of PMDC. The agreement commits PMDC to provide $2,500,000 of
funding for project development and grants the right, but not the obligation,
for PMDC to purchase 20% of the equity shares of the project and to invest
amounts in excess of $25,000,000 in the project in the form of subordinated debt
or preferred equity at market rates acceptable to BBIP, with the approval of the
Executive Committee, such that the total common equity investment and the
additional investment, if any, will not exceed the larger of $50,000,000 or 20%
of equity.
As a result of these agreements, through March 31, 1996, the Company has
received $776,896 for reimbursement of development costs. In fiscal 1997 BBIP
intends to seek additional development financing, either from IGC and CES or
from new participants. Such funding will be used to continue development of the
Krishnapatnam project. There can be no assurance that additional development
funds will be secured.
PROJECT FINANCING
When development is substantially complete, the projects typically enter into
construction financing and when construction is complete, the projects enter
into long-term debt and/or equity financing. To the maximum extent possible,
financing is arranged on a limited-recourse basis, with the sources of repayment
being limited to the revenues generated by the particular project(s) being
financed. Except to the extent that the Company provides bridge or other
financing to a project, the debt of the partnership is collateralized solely by
the assets of the project(s), without guarantees of repayment by the Company.
SIGNIFICANT JOINT DEVELOPMENT RELATIONSHIPS
In 1986 the Company entered into a Master Project Development Agreement ("MPDA")
with Kamine pursuant to which the companies agreed to jointly develop certain
cogeneration plants in North America excluding Mexico. In addition, the MPDA
provides for sharing of future project development opportunities of either of
the two companies which meet the criteria of the MPDA. All cogeneration projects
in operation, as discussed under the heading "Project Descriptions," have been
developed as part of the Kamine relationship. All projects
developed with Kamine are to have equal ownership and sharing of development
fees unless otherwise modified by agreement. Each party bears its own internal
costs of development. The MPDA extends through 2000.
In November 1994 the Company entered into a partnership agreement with
Chesapeake Power Investments Co., Inc. ("Chesapeake") and Chesapeake Power
Transport, Inc. In January 1996 the partners entered into a Second Amended and
Restated Limited Partnership Agreement for BBI Power L.P.. Under the terms of
the amended agreement, the geographical scope of the partnership's activities
includes India and Pakistan, and the term of the partnership is ten years.
Pursuant to the agreement, the Company has loaned $300,000 to the partnership
which reimbursed Chesapeake for development costs it had already incurred. The
Company has included the note receivable evidencing this loan in Deferred Costs.
It is anticipated that the Company's loan will be repaid from receipt of
development capital or from proceeds of project financings.
DOMESTIC REGULATORY COMPLIANCE
The Company's domestic power production project activities are governed by
certain federal and state laws and regulations. PURPA was enacted by Congress in
order to remove certain impediments to the development of cogeneration and small
power production facilities and to stimulate energy conservation. Among other
things, PURPA requires that (i) electric utilities purchase, at just and
reasonable rates, any energy made available to such utilities by cogeneration
facilities, such as the Company's domestic power projects, that meet certain
criteria ("Qualifying Facilities") and (ii) such utilities may not discriminate
against Qualifying Facilities. In addition, PURPA requires that utilities (x)
sell to Qualifying Facilities any energy and capacity requested by such
Qualifying Facilities, (y) make such interconnections with any Qualifying
Facility as to permit the sale and purchase of energy and capacity and (z)
transmit the energy or capacity of such Qualifying Facility to other electric
utilities. PURPA thus enables Qualifying Facilities to compete in ways in which
they were previously unable. All of the Company's existing domestic cogeneration
projects discussed under the heading "Project Descriptions" are Qualifying
Facilities.
PURPA also grants exemptions to Qualifying Facilities from certain federal and
state regulations. Specifically, Qualifying Facilities are exempt from
regulation under the Federal Power Act, the Public Utility Holding Company Act,
and state laws relating to (i) electric utility rates and (ii) the financial and
organizational regulation of electric utilities, other than state laws relating
to the implementation of the arrangements between electric utilities and
Qualifying Facilities and state environmental and siting requirements.
The Company's domestic projects are also subject to federal, state and local
laws and administrative regulations which govern the emissions and other
substances produced by a project and the geographical location, zoning, land use
and operation of a project. Applicable federal environmental laws and
regulations generally require that a wide variety of permits and other approvals
be obtained before the commencement of construction or operation of an
energy-producing facility and that the facility then operate in compliance with
such permits and approvals.
To the best of the Company's knowledge, all of its domestic cogeneration
projects have been developed and/or constructed in full compliance with
applicable federal, state, and local laws and regulations. It is the Company's
belief that neither existing regulations nor any pending legislation would
require material capital expenditures in future periods, nor would the Company's
earnings or competitive position be adversely affected.
FOREIGN REGULATORY COMPLIANCE AND OTHER RISKS OF INTERNATIONAL OPERATIONS
<PAGE>
The Company's present strategy is to focus on foreign project development. The
Company's business is subject to the risks of international operations,
including compliance with and unexpected changes in foreign regulatory
requirements, trade barriers, currency control regulations, fluctuations in
exchange rates, political instability, local economic conditions, and
difficulties in staffing and managing foreign operations. To date the Company's
success in the project development area has been in the United States; there can
be no assurance that the Company will be successful in international project
development.
PROJECT DESCRIPTIONS
The following is a list of projects in which Besicorp has a material interest.
Projects under development are listed only where there is a power purchase
agreement or other major contract in place, and, in the opinion of the Company,
there is a reasonable likelihood of completing development of that project. From
time to time, the Company may discontinue development of a project, or make
material modifications to the proposed scope of the project, including costs,
capacity, and estimated commercial operation dates.
The Company earned fees for developing its domestic projects that are recognized
as revenue when deemed payable under the agreements. The partnerships are
expected to generate income from the operation of the facilities; however, in
early years of operation, significant book losses may be incurred and the
Company will not recognize income until such time as the
operating income of the projects exceeds accumulated losses. During Fiscal 1995
the Carthage, South Glens Falls and Natural Dam partnerships generated income
from operations which exceeded the cumulative prior year losses, and
consequently the Company recognized income from these partnerships. The Carthage
and South Glens Falls partnerships continued to generate income during Fiscal
1996, and the Company recognized additional income from these partnerships.
There can be no assurance that income will be recorded from these or other
project partnerships in the near future as income is dependent upon the results
of operations which may vary. See Note 5 to the Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
Percentage
Actual or Equity Actual or
Estimated Ownership at Estimated
Facility Cost June 30, 1996 Commercial
Project Name (millions) (1) (2) Operation Date
- -------------- -------------- -------------- ---------------
<S> <C> <C> <C>
IN OPERATION:
Carthage
Cogeneration
Facility (58
megawatts) $67 50.0% November 1991
South Glens
Falls
Cogeneration
Facility(58
megawatts) 63 50.0 November 1991
Natural Dam
Cogeneration
Facility (49
megawatts) 86 50.0 July 1993
Syracuse
Cogeneration
Facility (79
megawatts) 183 35.715 February 1994
Beaver Falls
Cogeneration
Facility (79
megawatts) 199 50.2 June 1995
Allegany
Cogeneration
Facility (55
megawatts)
(3) 95 50.0 December 1994
UNDER
DEVELOPMENT:
Krishnapatnam
Project (500
megawatts) 800 50.0 2000
</TABLE>
(1) Represents the financing provided to the facility for physical plant,
contract costs and letter of credit and working capital needs.
(2) Indicates the Company's ownership in the project entities.
(3) Currently not operating. See Allegany Cogeneration Facility" and "Legal
Proceedings".
The following is an expanded discussion of the status of each of the projects
listed above.
PROJECTS IN OPERATION:
<PAGE>
CARTHAGE COGENERATION FACILITY
The Carthage Cogeneration Facility, located in Carthage, NY, at the site of a
paper mill owned by James River II, Inc. (together with its affiliated companies
"James River"), is a natural gas fired cogeneration plant which is leased from
General Electric Capital Corp. ("GECC") by a project partnership, of which the
Company is a 50% owner. A revised PPA is in place to sell approximately 58MW of
electricity. The facility was developed in partnership with Kamine. Capital
costs of this facility were approximately $67 Million.
The facility was constructed by Ansaldo North America, Inc. (together with its
affiliated companies "Ansaldo") on a completely turn-key basis. Commercial
operations commenced in November 1991. Electric power is supplied to NIMO under
terms of a 35-year PPA. Steam is provided to the host mill under terms of
an energy services agreement. Operations and maintenance of the facility are
provided by Stewart and Stevenson Operations, Inc. ("SSOI"). The primary
supplier of natural gas for the project is Renaissance Energy Ltd.
("Renaissance") of Alberta, Canada.
During Fiscal 1996 the Company received $39,083 of management fees from the
project and anticipates receiving additional management fees throughout the term
of the lease agreement. Ownership distributions of $1,353,470 were received by
the Company in Fiscal 1996. In addition, distributions of $111,986 were received
by the Company during Fiscal 1996 to fund gross receipt taxes.
SOUTH GLENS FALLS COGENERATION FACILITY
The South Glens Falls Cogeneration Facility, located in South Glens Falls, NY,
at the site of a paper mill owned by Encore Paper Company, Inc., is a natural
gas fired cogeneration plant which is leased from GECC by a project partnership,
of which the Company is a 50% owner. A revised PPA is in place to sell
approximately 58MW of electricity. The facility was developed in partnership
with Kamine. Capital costs of this facility were approximately $63 Million.
The facility was constructed by Ansaldo on a completely turn-key basis.
Commercial operations commenced in November 1991. Electric power is supplied to
NIMO under terms of a 35-year PPA. Steam is provided to the host mill under
terms of an energy services agreement. Operations and maintenance of the
facility are provided by SSOI. The primary supplier of natural gas for the
project is Renaissance.
During Fiscal 1996 the Company received $50,406 of management fees from the
project and anticipates receiving additional management fees throughout the term
of the lease agreement. Ownership distributions of $371,760 were received by the
Company in Fiscal 1996. In addition, distributions of $117,976 were received by
the Company during Fiscal 1996 to fund gross receipt taxes.
KAMINE/BESICORP GLEN CARTHAGE PARTNERSHIP
The company assigned a portion of its expected future development fees in the
Carthage and South Glens Falls projects to Nova Northwest, Inc. ("Nova") in
consideration of funding of $2,500,000 on November 9, 1990, which was paid to
Kamine/Besicorp Glen Carthage Partnership ("Glen Carthage") in which a
subsidiary of the Company is a 50% general partner. In conjunction with the
sale/leaseback transactions during fiscal 1995 with GECC, this partnership's
obligation to Nova was repaid in full by obtaining loans from the Carthage and
South Glens Falls projects. Distribution of development fees paid to Glen
Carthage by the two projects, which were in excess of the partnerships debt
service requirements in the aggregate amount of $1,514,235, were received by the
Company during fiscal 1996.
NATURAL DAM COGENERATION FACILITY
The Natural Dam Cogeneration Facility, located in Gouverneur, NY, at the site of
a paper mill owned by The Fonda Group ("Fonda") (see below), is a natural gas
fired cogeneration plant which is leased from GECC by a project partnership of
which the Company is a 50% owner. A revised PPA is in place to sell
approximately 49MW of electricity. The facility was developed in partnership
with Kamine. Capital costs of this facility were approximately $86 Million.
The facility was constructed by Century Contractors West, Inc., on a completely
turn-key basis. Commercial operations commenced in July 1993. Electric power is
supplied to NIMO under terms of a 35-year PPA. Steam is provided to the host
mill, which was purchased by Fonda from James River in May 1996, under
terms of an energy services agreement. Operations and maintenance are provided
by SSOI. The primary supplier of natural gas for the project is Norcen Energy
Resources Limited ("Norcen"),formally known as North Canadian Marketing Inc.
During Fiscal 1996 the Company received $46,872 of management fees from the
project and anticipates receiving additional management fees throughout the term
of the lease agreement. Ownership distributions of $999,894 were received by the
Company during Fiscal 1996. In addition, distributions of $92,097 were received
by the Company during Fiscal 1996 to fund gross receipt taxes.
CARTHAGE, SOUTH GLENS FALLS AND NATIONAL DAM COGENERATION FACILITIES FINANCINGS
During Fiscal 1995 the Company entered into long-term financing agreements in
the form of sales/lease back transactions with GECC for the Carthage, South
Glens Falls and Natural Dam projects. The lease agreement for the Carthage and
South Glens Falls projects have 25-year terms. The lease agreement for the
National Dam Project has a 20-year term. The financing for these 3 projects are
cross-collateralized. A default in payment on one project would result in an
encumbrance or otherwise distributable cash from either or both of the other
projects.
SYRACUSE COGENERATION FACILITY
The Syracuse Cogeneration Facility, located in Solvay, NY, on the site of a
chemical plant owned by the Hanlin Group, is a natural gas fired cogeneration
plant which is owned by a project partnership of which the Company is a 35.715%
owner. A revised PPA is in place to sell up to 79MW of electricity. The facility
was developed in partnership with Kamine. Capital costs of this facility were
approximately $183 Million. The facility was constructed by Ansaldo on a
completely turn-key basis. Ansaldo was granted a limited partnership interest in
consideration of the bridge financing it provided to the project, thereby
reducing the Company's ownership interest from 50% to 35.715%. Commercial
operations commenced in February 1994.
Electric power is supplied to NIMO under terms of a 35 year PPA. Steam is
provided to the New York State Fair, a division of the New York State Department
of Agriculture and Markets, under terms of an energy services agreement.
Operations and maintenance of the facility are provided by SSOI. The primary
supplier of natural gas for the project is Norcen.
During Fiscal 1996 the Company received $60,676 of management fees from the
project and anticipates receiving additional management fees throughout the term
of the financing agreement. To date no ownership distributions have been
received from the Syracuse project, and the Company can not predict when
material distributions, if any, will commence. However, distributions of $82,554
were received by the Company during Fiscal 1996 to fund gross receipt taxes.
Although development fees of approximately $1.5 Million were anticipated to be
paid to the Company over a three-year period beginning two years after
commercial operations, assuming
<PAGE>
permanent financing was in place and required cash reserves were satisfactorily
funded, the receipt of these moneys is uncertain at this time.
BEAVER FALLS COGENERATION FACILITY
The Beaver Falls Cogeneration Facility, located in Beaver Falls, NY, on the site
of a paper mill owned by Specialty Paperboard, Inc. ("SPI"), is a natural gas
fired cogeneration plant which is owned by a project partnership of which the
Company is a 50.2% owner. A revised PPA is in place to sell up to 79MW of
electricity. The facility was developed in partnership with Kamine. Capital
costs of this facility were approximately $199 Million.
The facility was constructed by Ansaldo on a completely turn-key basis.
Commercial operations commenced in June 1995. Electric power is supplied to NIMO
under terms of a 35-year PPA. Steam is provided to the host's mill as well as to
an adjacent mill owned by Armstrong Gasket Products Inc., which was purchased
from SPI. Operations and maintenance of the facility are provided
by SSOI. The primary supplier of natural gas for the project is Norcen.
During Fiscal 1996 the Company recorded $55,215 of management fees from the
project and anticipates receiving additional management fees throughout the term
of the financing agreement. To date no ownership distributions have been
received from the Beaver Falls project, and the Company can not predict when
material distributions, if any, will commence. However, distributions of $86,296
were received by the Company during Fiscal 1996 to fund gross receipt taxes.
The Company received $600,000 in development fees at the financial closing in
Fiscal 1994. The receipt of any additional development fees from this project is
uncertain at this time.
SYRACUSE AND BEAVER FALLS COGENERATION FACILITIES FINANCINGS
For both Syracuse and Beaver Falls, construction and permanent financing was
provided by bank groups led by Deutsche Bank AG, New York branch ("Deutsche")
(as agent), and subordinated loans were provided by Ansaldo and affiliates of
Siemens Corporation. In October 1994 the financing agreements for these projects
were restructured in order to accommodate the revised NIMO PPA's. The Company
intends to refinance these projects with longer-term permanent financing, but
was unable during Fiscal 1996, and is currently unable to do so primarily due to
NIMO's uncertain financial circumstances. Given the structure of the current
financing, it is unlikely that the company will receive cash distributions until
a refinancing can be effected.
ALLEGANY COGENERATION FACILITY
The Allegany Cogeneration Facility, located in Rossberg, NY, is a natural gas
fired cogeneration plant which is owned by a project partnership of which the
Company is a 50% owner. A PPA is in place to sell approximately 55MW of
electricity. The facility was developed in partnership with Kamine. Capital
costs of this facility were approximately $95 Million.
In August 1993 construction and permanent financing was provided by GECC. At the
closing the Company received development fees of $750,000 and expense
reimbursements of $71,696. Construction had commenced in March 1993 under bridge
financing provided by Besicorp and Kamine. At the closing Kamine/Besicorp
Allegany L.P. ("KBA"), the project partnership, paid S&S $300,000 on behalf of
the Company, thereby reducing the bridge financing from $2,800,000 to
$2,500,000. The bridge financing was converted to a subordinated term loan due
from the project partnership. It was anticipated that, in turn, these moneys
would be advanced to Allegany Greenhouse, Inc. ("AGI"), the owners of the
originally contemplated steam host, a greenhouse facility, to be repaid over a
term of approximately twelve years unless sooner refinanced. At March 31, 1996,
$1,944,624 of the $2,500,000 had been funded to AGI.
The facility was constructed by Ansaldo on a completely turn-key basis.
Commercial operations commenced in December 1994. However, as a result of a
dispute with Rochester Gas & Electric ("RG&E") concerning the project's 25-year
PPA, the plant is currently not operating (See "Item 3, Legal Proceedings").
Operations and maintenance of the facility are provided by SSOI. The primary
supplier of natural gas for the project is MidCon Gas Services Corp. of Houston,
Texas.
A distilled water facility owned by GECC is the steam host for this project. As
originally contemplated, AGI, under terms of a 25-year energy services
agreement, was to operate a greenhouse as a steam host. (See "Item 3, Legal
Proceedings".) During Fiscal 1996 the Company received $76,634 of management
fees from the project, and payments continue to be made as called for under the
financing agreement as approved by the Bankruptcy Court (See "Item 3, Legal
Proceedings"). To date no ownership distributions have been received from
Allegany, and the Company can not predict when material ownership distributions,
if any, will commence. No ownership distributions are expected during the
pendency of the ongoing litigation regarding this project. The Company received
$4,478 in distributions to partially fund gross receipt taxes during Fiscal
1996.
PROJECTS UNDER DEVELOPMENT:
KRISHNAPATNAM PROJECT
The Krishnapatnam project contemplates the development of a coal-burning power
plant to be located near the village of Krishnapatnam, 120 miles north of Madras
on India's Eastern coast. This project is 50% owned by the Company. However, it
is likely that, due to the size of the project and the amount of debt and equity
capital necessary to be raised, the Company's ownership interest will be reduced
by the participation of equity investors. A PPA was entered into in November
1994 with the Andhra Pradesh State Electricity Board of India to sell
approximately 500MW of electricity. A renegotiated PPA is
expected to be signed in the second or third quarter of 1997. The facility is
being developed in partnership with Chesapeake. Capital costs to construct this
project are currently anticipated to be approximately $800 Million.
Completion of the pre-construction phase of the project requires forming
strategic alliances and achieving contracts for engineering procurement, fuel,
and operations and maintenance and various permits and other local approvals, as
well as making arrangements for debt and equity for the project's total cost.
Assuming that the development of this project is successful, including obtaining
project financing, current plans are to begin construction in 1997 and commence
commercial operations in 2000.
EMPLOYEES
As of March 31, 1996, the Company had 78 full-time employees. None of these
employees are represented by a union. In the opinion of management, its
relationship with its employees is good.
WARRANTIES
Warranty expense for the Company's product sales is provided on the basis of
management's estimate of the future costs to be incurred under product
warranties presently in force. The Company has no warranty obligations with
respect to the cogeneration projects described above. Under the terms of the
Company's contracts for the design, construction, and operation of certain other
energy generating systems, the Company has warranted the energy output and the
operating and maintenance expenses of the projects. The terms of these
warranties vary according to the specifics on each project. Estimated costs are
reviewed while the systems are in operation and adjustments to revenue or
expense are reflected in the period in which revisions to such estimates are
deemed appropriate. Warranty expense (income) for Fiscal years 1996, 1995 and
1994 was $176,117, $178,943 and $(348,590) representing the net amount after
reversal of $451,324 of the prior years' reserves no longer required,
respectively.
<PAGE>
ITEM 2. PROPERTIES
The following is a description of the Company's principal properties:
1151 Flatbush Road, Kingston, New York: owned and subject to mortgages totaling
$679,780 at March 31, 1996. The property includes land, a building measuring
8,000 square feet housing the corporate, project development and technology
offices, and additional rental units.
48 Canal Street, Ellenville, New York: owned and subject to a mortgage totaling
$76,120 at March 31, 1996. A two-story, steel frame and concrete building
measuring 52,000 square feet. Approximately half this space is used for general
administration, sales offices, fabrication and distribution activities and for
inventory warehousing. The remaining space is not needed for operations and is
currently vacant.
9415-19 Enterprise Drive, Mokena, Illinois: leased for $2,250 per month
currently. The term of the lease is five years. A one-story, brick building
measuring 6,000 square feet, of which 1,800 square feet are office space, and
4,200 square feet are warehouse space.
90 Boices Lane, Kingston, New York: leased for $8,500 per month currently. The
term of the lease is six months and renews automatically for successive
six-month periods with either party having the right to terminate the lease upon
90 days written notice. The solar electric business occupies 17,000 square feet
in a one-story steel frame building of which 2,000 square feet are office space
and 15,000 square feet are for warehousing, manufacturing and assembly.
The Company believes its facilities, as specified above, are suitable and
adequate for its current operations. See Management's Discussion and
Analysis-Liguidity and Capital Resources.
ITEM 3. LEGAL PROCEEDINGS
On March 29, 1993, James Lichtenberg commenced a shareholder's derivative action
now pending in New York Supreme Court, Ulster County, entitled LICHTENBERG V.
MICHAEL F. ZINN, ET AL. The Company is named as nominal defendant in this
shareholder's derivative action, which also names as defendants Michael F. Zinn,
Steven I. Eisenberg, and Martin E. Enowitz, who were directors and officers at
the time the action was filed. The complaint alleges that the directors breached
their fiduciary duties to the Company by, among other things, the issuance of
stock to themselves in lieu of cash compensation, allegedly for inadequate
consideration, and by the accounting treatment given to the Company's interest
in various partnerships which own and operate cogeneration facilities, which
allegedly depressed the price of the Company's stock. The plaintiff is seeking
an award of damages to the Company, including punitive damages and interest, an
accounting, the appointment of independent members to the Board of Directors,
the cancellation of shares allegedly improperly granted, and the award to the
plaintiff of costs and expenses of the lawsuit including legal fees. The
defendants denied the material allegations of the complaint. The Company
believes that meritorious defenses have been asserted, and that the outcome of
the action will have no material adverse impact upon the Company. On May 6, 1994
the Board of Directors of the Company formed a Special Litigation Committee
("SLC") comprised of independent, outside directors to investigate the
allegations made in the action and determine if continued prosecution of the
action is in the best interest of the Company. On March 28, 1995, after an
extensive investigation of the allegations made in the complaint, the SLC issued
a resolution finding that the continued prosecution of the derivative action was
not in the best interest of the Company. By further resolution dated April 27,
1995, the SLC instructed the Company's outside counsel to take the necessary
steps in court to seek to have the action dismissed. Pursuant to resolution of
the SLC, on May 18, 1995, a motion to dismiss the action based on the
recommendation of the SLC was filed with the Court and is being held in
abeyance by the court pending the completion of limited discovery.
In April 1990 the Company commenced an action in United States District Court,
Northern District of New York, against Tecogen, Inc. ("Tecogen") and its parent
company Thermo Electron Corporation for breach of contract and breach of
warranty in connection with the Company's purchase of a cogeneration system
installed in St. Francis Hospital by Tecogen on a "turn key" basis. The Company
sought compensatory damages. Tecogen counterclaimed for the unpaid purchase
price and extras in the amount of approximately $187,000 plus interest. In
October 1992 St. Francis Hospital shut down the operation of the cogeneration
system. In April 1993 the court excluded consequential and incidental damages
and limited the Company's recoverable damages. The case was tried without jury
in March 1995 in the United States District Court in Syracuse, New York, and a
decision is pending. At the conclusion of trial, Plaintiffs sought actual
damages in excess of $1,100,000. In July 1993 the Company commenced a separate
action in United States District Court, District of New Jersey, against Tecogen,
a licensed engineer who was an employee of Tecogen, and Cortese Corporation for
negligence, indemnification, and professional malpractice. The New Jersey suit
has been stayed pending the decision of the New York Court. The Company believes
that the outcome of these lawsuits will be favorable.
As disclosed in previous filings, the Allegany Cogeneration Facility was
operating and supplying electrical power to RG&E in accordance with a temporary
restraining order issued by the U. S. District Court for the Western District of
New York. This suit, which was filed on January 27, 1995 by the project
partnership, KBA, was based upon RG&E's refusal to accept power from KBA. On
November 2, 1995 the Court denied KBA's motion for a preliminary injunction,
except to the extent that RG&E has agreed to purchase power from the Company at
the current Public Service Commissions Service Classification no. 5 (SC5) rate
of approximately 2 cents. As a result of the foregoing, on November 5, 1995,
GECC, the construction lender, exercised certain rights under a Pledge Agreement
dated as of June 20, 1993, through which it replaced the directors and
management of the general partners of KBA, including Beta Allegany Inc., a
wholly-owned subsidiary of the Company. On November 13, 1995, KBA filed a
voluntary petition to reorganize the business of KBA under Chapter 11 of the
Bankruptcy Code. KBA also filed an adversary proceeding against RG&E seeking
enforcement of the automatic stay, specific performance, breach of contract and
breach of the covenant of good faith and fair dealing. It also sought injunctive
relief seeking enforcement of the power purchase agreement during the
determination of the adversary proceeding. This injunctive relief was denied by
the Bankruptcy Court. RG&E has counterclaimed in the adversary proceeding
claiming commercial impracticability,
impossibility, mutual mistake, frustration, anticipatory breach and
reformation and recoupment of the agreement. It is also seeking damages against
KBA as well as GECC for breaches of contract and misrepresentations. The
Bankruptcy Court has approved debtor-in-possession interim financing of $10
million. The Court has set a discovery schedule and a trial date of August 20,
1996.
AGI was to operate a greenhouse which would utilize steam from the Allegany
project. However, as a result of various defaults by AGI, on October 26, 1994
KBA commenced an action in New York Supreme Court, New York County, against
AGI. The complaint alleges that AGI has multiple defaults, including but
not limited to failure to complete the greenhouse by no later than July 31,
1994, with respect to a term bond dated August 6, 1993, which evidenced
KBA's loan to AGI. To date KBA has advanced to AGI the principal sum of
approximately $4,050,000, including the Company's share of $1,944,624,
with accrued interest due thereon. KBA is seeking damages in an
amount not less than the principal and accrued interest due
under the term note in addition to other costs
and disbursements associated with this action, as well as possession of
the greenhouse and the real property upon which the greenhouse is located.
KBA's request for the appointment of a receiver was denied by the Court.
On December 24, 1994, AGI filed a counterclaim against KBA, asserting
claims for breach of contract, tortious interference with business
relations, fraud and damage to trade reputation. On September 19, 1995
KBA exercised certain rights pursuant to the greenhouse financing
agreements and replaced the directors and management of AGI. AGI's new
management is endeavoring to assume possession and control of the greenhouse
in order to preserve the facility. These efforts are in part the subject
of Ammerlaan Agro-Protecten B.V.'s ("Ammerlaan") motion for preliminary
injunction, as discussed below. Management believes that KBA has
meritorious claims against AGI and meritorious defenses against AGI's
counterclaims and expects the outcome of this lawsuit to be favorable.
As part of the bankruptcy proceeding discussed above, the Supreme
Court action has been stayed. Ammerlaan, the contractor on the greenhouse,
initiated an action in New York
Supreme Court, County of Allegany, against, inter alia, KBA and the Company
seeking to foreclose on a lien in the amount of $4,352,976 which it filed
against KBA, AGI, Kamine Development Corp. ("KDC"), the Company, Industrial
Development Agency of Allegany County, GECC, Pooler Enterprises Inc., and
Fillmore Gas Company, Inc. On September 25, 1995, KBA filed counterclaims
against Ammerlaan, alleging that Ammerlaan failed to design and construct the
greenhouse in accordance with the contract specifications and applicable
building codes. On November 3, 1995, Ammerlaan filed a motion for preliminary
injunction seeking to enjoin KBA, KDC, AGI's new management, and the Company
from engaging in construction activities at the greenhouse site without
Ammerlaan's consent. On November 3, 1995, the court granted a temporary
restraining order prohibiting the foregoing parties from engaging in such
activities pending the
<PAGE>
hearing on the preliminary injunction. Management believes that KBA has
meritorious claims against Ammerlaan and meritorious defenses to
Ammerlaan's claims and believes the outcome of this lawsuit will be
favorable. As part of the bankruptcy proceeding discussed above, the
Supreme Court action has been stayed.
On November 8, 1990 SNC, Ltd. ("SNC") commenced an action in New York Supreme
Court, New York County, against Besicorp, Kamine and certain of their affiliates
("Kamine/Besicorp Defendants") and Ansaldo. The complaint alleges that SNC was
awarded the contracts to construct the Carthage and South Glens Falls
Cogeneration Facilities by the two project partnerships developing such
facilities and that the contracts were subsequently awarded to Ansaldo in breach
of SNC's contract. The plaintiff is seeking an award of damages (including
punitive damages) against the various defendants. On January 15, 1991, the
Kamine/Besicorp Defendants answered the complaint and denied all the material
allegations and asserted various affirmative defenses. On May 22, 1996, the
Court granted, in part, the defendants' motion finding that SNC and the
Kamine/Besicorp Defendants "neither entered into a contract for the construction
of the projects nor agreed to a mobilization payment." The Court denied the
motion insofar as it sought dismissal of plaintiff's other claims of: (1) breach
of preliminary agreement to negotiate in good faith; (2) unjust enrichment/
quantum meruit; (3) promissory estoppel; and (4) fraud and negligent
misrepresentation. The Company and the other Kamine/Besicorp Defendants are
considering an appeal of this decision. The Company believes that it and the
other Kamine/Besicorp Defendants have asserted meritorious defenses and that the
actions will not have a material adverse impact upon the Company.
On or about May 2, 1996, certain officers, directors, employees, former
employees of the Company and certain spouses and affiliates thereof,
were served subpoenas by
the U. S. Attorney's office for the production of documents and/or potential
testimony before a United State Grand Jury in White Plains, NY. Based upon the
content of the subpoenas and information contained in certain newspaper articles
relating to the investigation, the Company believes that the scope of the
investigation may include the circumstances surrounding contributions by certain
individuals associated with the Company to the 1992 and 1994 U. S. Congressional
campaigns of Maurice Hinchey and use of the companies assets in connection
therewith. The Company has complied with the document request contained in the
subpoena. At this time, based on the present status of the investigation, the
company does not know what effect, if any, the investigation and its outcome
will have on its business. However, the Company has incurred and expects to
continue to incur substantial legal fees and other expenses in connection with
the investigation.
Other than as discussed above, the Company is party to various legal matters in
the ordinary course of business, none of which is expected to materially affect
the Company's operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by the Company to a vote of the shareholders through
solicitation of proxies or otherwise, during the quarter ended March 31, 1996.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common stock has been traded publicly since March 6, 1981, and it
has been listed since November 22, 1993 on the American Stock Exchange Emerging
Company Marketplace ("AMEX ECM") under the symbol BGI.EC. Prior to that date,
the Company's stock was traded in the over-the-counter market, and its market
quotations were available on the NASD OTC Bulletin Board.
In May 1995 the Board of Governors of the American Stock Exchange voted to
discontinue the ECM. As a result, no new companies will be listed on the ECM.
However, the Exchange is allowing current ECM companies to remain listed.
Although it is the Exchange's stated intention to allow sufficient time for
companies to qualify for and graduate to the primary list as quickly as
possible, there can be no assurance that the Company will meet the criteria for
such listing in the future.
In the following table the prices represent the high and low
traded prices as reported on the AMEX ECM.
12
<PAGE>
Fiscal Year Ended March 31
<TABLE>
<CAPTION>
High Low
---------- ----------
<S> <C> <C> <C>
1995 First Quarter 6-3/4 6-3/8
Second Quarter 8 6-5/8
Third Quarter 7 5-3/4
Fourth Quarter 8-3/8 6-3/8
1996 First Quarter 14-1/8 7
Second Quarter 12 8-3/8
Third Quarter 11-1/2 8
Fourth Quarter 15-1/2 9-5/8
</TABLE>
There were 2,103 shareholders of record of the Company's common stock as of
March 31, 1996. The Company has never paid any cash dividends on its common
stock and does not plan to pay any cash dividends in the foreseeable future.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
STATEMENT OF
OPERATIONS: 1996 1995 1994 1993 1992
- --------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Revenues $ 4,412,072 $ 6,864,198 $ 8,354,754 $18,969,980 $ 2,434,551
Net Income (Loss) (2,478,319) (367,077) 6,521 9,684,791 (3,278,046)
Income (Loss) Per
Common Share (a) (.84) (.12) .00 3.29 (1.72)
BALANCE SHEETS:
- ---------------------
Working
Capital(Deficiency) $ 903,090 $ 2,872,506 $ 5,865,300 $ 4,543,937 $(3,813,875)
Total Assets 9,404,990 10,869,342 13,080,989 11,772,977 4,820,824
Long-Term Debt 3,137,912 3,485,082 3,559,786 1,654,790 1,997,522
Other Long-Term
Liabilities 2,775,180 1,653,175 2,510,945 1,400,826 640,384
Total Liabilities 8,144,015 6,886,323 7,872,066 5,970,865 7,516,244
Shareholders' Equity
(Deficiency) (b) 1,260,975 3,983,019 5,208,923 5,802,112 (2,695,420)
Dividends Per Common
Share NONE NONE NONE NONE NONE
Dividends Per
Preferred Share NONE NONE NONE 2.03 12.00
</TABLE>
(a) Income (loss) per common share is computed on income (loss) for each year
after deducting dividends on preferred stock divided by the weighted average
number of common shares and share equivalents outstanding during the year. Stock
options and warrants were not used in the computations, when the effect on
income per share was anti-dilutive or was not material. Conversion of preferred
stock was not assumed, since the effect on income per share would be
anti-dilutive.
(b) See Note 9 of the Notes to Consolidated Financial Statements regarding
Common Stock transactions.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company's net loss for Fiscal 1996 of $2,478,319 represents an increase in
net loss of $2,111,242 as compared to Fiscal 1995. The increase in Fiscal 1996
is due primarily to a $1,925,813 decrease in development and management fees, a
decrease of $346,876 in gross margins on the Company's product sales, an
increase in the provision for income taxes of $354,500 and a $151,591 decrease
in interest and other investment income, which were partially offset by a
decrease in selling, general and administrative expenses of $630,459.
The Company's net loss for Fiscal 1995 of $367,077 represents a decrease in net
income of $373,598 as compared to Fiscal 1994. This decrease in Fiscal 1995 is
due primarily to a $2,278,098 decrease in development and management fees, a
$910,696 increase in selling, general and administrative expenses, a $146,573
decrease in interest and other investment income, and a $151,249 increase in
interest expense, which were partially offset by a net increase in partnership
income of $3,123,446.
The Product Segment's net loss for Fiscal 1996 of $1,575,597 reflects a decrease
of $117,006 in net loss compared to Fiscal 1995. This decrease was due primarily
to reductions in selling, general and administrative expenses (as discussed
below). While committed to finding additional areas for cost reduction, the
Company is continuing its efforts in technology development, as evidenced by
significant spending in the research and development category. Continued losses,
reflecting the Company's ongoing investment,
are anticipated in the segment until such time as the commercialization of
newly-developed product lines is successfully achieved. The gross margins
for this segment for Fiscal 1996, 1995, and 1994 were 12%, 18% and 18%,
respectively.
The Product Segment's net loss for Fiscal 1995 of $1,692,603 reflected an
increase of $434,904 in net loss compared to Fiscal 1994. This increased loss in
Fiscal 1995 resulted from higher personnel costs associated with the segment's
increased technology development efforts and additional sales and marketing
efforts.
REVENUES
CONSOLIDATED
Consolidated revenues decreased by $2,452,126 from $6,864,198 to $4,412,072
during Fiscal 1996 as compared to Fiscal 1995, and consolidated revenues
decreased by $1,490,556 from $8,354,754 to $6,864,198 during Fiscal 1995 as
compared to Fiscal 1994.
PRODUCT SEGMENT
Revenues for the Company's product sales activities for the Fiscal Years 1996,
1995 and 1994 were $3,900,754, $4,551,631 and $3,758,668, respectively,
representing 88%, 66% and 45% of consolidated revenues.
Sales for Fiscal 1996 decreased by $650,877 compared to Fiscal 1995, due
primarily to lower sales of solar thermal products of $216,411, heat transfer
products of $258,369 and solar electric (photovoltaics or "PV") products of
$176,097. The decline in solar thermal product sales was the result of
significantly lower export shipments of domestic hot water heating products, as
well as a decline in sales of pool heating products. The solar pool heating line
was adversely affected by competitive pricing pressure in addition to warmer
than normal weather conditions during the first quarter of Fiscal 1996. The
decline in heat transfer product sales is primarily due to reductions in sales
and administrative personnel, and a concerted effort to reduce related expenses.
The solar electric sales decline is mainly the result of competitive activity
coupled with reduced revenue from a key solar electric customer.
Sales for Fiscal 1995 increased by $792,963 compared to Fiscal 1994, due
primarily to the Company's increased sales of solar electric products of
$655,136 and heat transfer products of $113,137.
Included in product sales are international sales for Fiscal 1996, 1995 and 1994
of $455,114, $548,669 and $507,623, respectively. Generally, international sales
are made based upon payment in U.S. dollars via confirmed irrevocable letters of
credit or by wire transfers.
Other revenues attributable to the Product Segment were $127,274, $25,795 and
$17,977 for Fiscal Years 1996, 1995 and 1994, respectively. The significant
increase for Fiscal 1996 in this category, which represents 3% of consolidated
revenues in the current year, is due to revenue received from New York State
Energy Research
<PAGE>
Development Authority ("NYSERDA") in accordance with agreements with the Company
which became effective in late Fiscal 1995.
PROJECT SEGMENT
Revenues for the Company's project development activities for the Fiscal Years
1996, 1995 and 1994 were $384,044, $2,301,586 and $4,596,086, respectively,
representing 9%, 34% and 55% of consolidated revenues.
During Fiscal 1996 the Company earned $328,887 in management fees in connection
with its projects. The Company received no development fees or reimbursements in
excess of deferred costs during Fiscal 1996.
During Fiscal 1995 the Company received $561,291 in development fees from the
Natural Dam project and recognized $400,000 of reimbursements in excess of
deferred costs from the Beaver Falls project. In conjunction with the
restructured financing of the Beaver Falls project,
the Company's $400,000 obligation to
Ansaldo North America, Inc. (together with its affiliated companies, "Ansaldo")
was repaid by the project partnership and was recorded as revenue. The Company
also earned $1,293,409 in management fees during Fiscal 1995 in connection with
its projects.
During Fiscal 1994 the Company received a $600,000 development fee and $352,048
of reimbursements in excess of deferred costs in conjunction with the closing of
the financing of the Beaver Falls project. The Company also received a $750,000
development fee from the closing of the financing of the Allegany project.
Development fees of $1,250,000 and an additional $250,000 in excess cost
reimbursements were received in connection with the Natural Dam project. During
Fiscal 1994 the Company earned $1,182,773 in management fees in connection with
its projects.
The capital costs for any particular project vary depending on its size and the
complexity of the system as well as specific contractual arrangements concerning
the development of the project. It has been the Company's experience, based upon
the cogeneration projects it has developed to date, that the capital costs of
any particular project do not necessarily correlate to the Company's direct
out-of-pocket development costs prior to obtaining construction financing nor to
the anticipated level of future revenues or cash flows achieved from such
projects.
Due to the nature of the Company's activities in the project development area,
results of operations from year to year may fluctuate significantly. As noted
above, the Company earned significant development fees during Fiscal 1995 and
1994, but none during Fiscal 1996. Development fees earned in connection with
project financings are subject to negotiations with lenders and co-participants.
Therefore, the Company does not recognize development fee revenue until deemed
earned and payable under the applicable contract due to the significant
contingencies associated with obtaining development fees from lenders to each
partnership in which the Company is a partner. Prior to Fiscal 1994 the Company
had received significant development fees in Fiscal 1988, 1990 and 1993 only.
Due to the contingent nature of the payment of these fees, the Company can not
accurately project on a year-to-year basis when such events will occur.
COSTS AND EXPENSES
COST OF PRODUCT SALES
As a percentage of revenues attributable to product sales, costs of sales in
Fiscal 1996, 1995 and 1994 were 88%, 82% and 82%, respectively. The increase in
the cost of sales percentage is due primarily to the plant overhead costs
(labor, factory expenses and housing) associated with the solar electric
manufacturing facility, which opened in December 1994. The costs associated with
this facility reflect the Company's ongoing investment in the development of
solar electric technology. Pricing pressures in the solar thermal market (pool
heating) were also a contributing factor to lower margins. The cost of sales
percentage was also impacted by the Segment's product sales mix. Solar electric
products, which generate a significantly lower margin than the Company's other
product lines, comprised a higher percentage of the sales of the total Segment
in Fiscal 1996 as compared to Fiscal 1995. The Company believes that its
continued presence in the solar electric distribution business is a platform to
marketing opportunities in the solar electric value-added business, where it is
anticipated that technology ventures, such as the ones with Samsonite
Corporation ("Samsonite") (solar electric-powered cases) and NYSERDA
(skid-mounted solar electric power systems) will generate increased sales and
higher margins for this Segment in the future.
COSTS OF DEVELOPMENT AND MANAGEMENT FEES
Other than settlement of deferred costs in conjunction with project closings,
there are no specific costs and expenses identified with the development and
management fee revenue. Costs and expenses associated with this
<PAGE>
segment are the normal selling, general and administrative expenses of the
Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
CONSOLIDATED
Consolidated selling, general and administrative expenses decreased by $630,459,
or 9%, in Fiscal 1996 as compared to Fiscal 1995 and increased by $910,696, or
15%, in Fiscal 1995 as compared to Fiscal 1994.
PRODUCT SEGMENT
Selling, general and administrative expenses for the Company's Product Segment
for Fiscal Years 1996, 1995 and 1994 were $2,145,820, $2,520,996 and $1,997,588,
respectively, representing 33%, 36% and 32% of the consolidated totals. The
decrease in Fiscal 1996 compared to Fiscal 1995 is mainly due to reductions in
sales personnel, as well as reduced spending for advertising and trade shows.
Administrative expenses also declined from Fiscal 1995, due primarily to
reductions in legal and professional fees. The increase in Fiscal 1995 compared
to Fiscal 1994 was primarily due to the costs of compensation and related
expenses associated with the utilization of the Company's technology personnel
in the development of solar electric products. Selling expenses in Fiscal 1995
were consistent with Fiscal 1994 expenditures.
PROJECT SEGMENT
Selling, general and administrative expenses for the Company's Project Segment
for the Fiscal Years 1996, 1995 and 1994 were $4,303,177, $4,558,460 and
$4,171,172, respectively, representing 67%, 64% and 68% of the consolidated
totals.
For Fiscal 1996, selling, general and administrative expenses decreased by
$255,283 from Fiscal 1995, primarily due to a net decrease of $432,883 in
compensation expenses as a result of deferral of costs, and a decrease of
$168,000 in legal fees and other litigation expenses. These decreases were
partially offset by an increase in project expenses of $236,274, including the
write-off of costs previously deferred of $124,318, an increase in gross
receipts taxes of $91,033, and an increase of $37,544 in depreciation expense,
the result of a full year's depreciation on computer and communication systems
and other capital improvements made in Fiscal 1995.
For Fiscal 1995 selling, general and administrative expenses increased by
$387,288 over Fiscal 1994, primarily due to increases of $219,590 in wages and
$503,265 in legal fees and other litigation expenses. Included in the $503,265
is approximately $330,000 attributable to a shareholder derivative lawsuit which
costs were allocated entirely to the Project Segment. These increases were
offset by a decrease in consulting fees of $113,937 and a decrease in the
write-off
of costs previously deferred of $281,109 from the prior year. Also recognized
in the prior year was a $400,000 expense upon the recording of a liability to
Ansaldo (see "Revenues - Project Segment"). Other factors contributing to the
Fiscal 1995 increase were the recording of recoveries of warranty expense
totaling $451,324 in Fiscal 1994.
The Company's policy concerning remuneration of its executive and development
staff is to pay base salaries plus discretionary bonuses upon the completion of
transactions that create revenue and/or equity interests that are expected to
benefit the Company.
NON-OPERATING REVENUES AND EXPENSES
CONSOLIDATED
INTEREST AND OTHER INVESTMENT INCOME
Interest and other investment income decreased by $151,591 in Fiscal 1996 to
$172,938. The decrease is due primarily to the Company's decision not to record,
due to ongoing litigation, interest income on the combined loan of $2,500,000 to
the Allegany project. Interest income of $172,672 was recorded in connection
with this loan during Fiscal 1995. This decrease was somewhat offset by gains
recognized on the sale of short-term investments during the current year.
Interest and other investment income decreased by $146,573 in Fiscal 1995 to
$324,529. The Company recorded $199,747 less in capital gains and dividend
income and $53,174 more in interest income. The decrease in investment income
was attributable primarily to the Company's lower average balances of available
investment funds. The increase in interest income was due to the movement of the
Company's investments from mutual
<PAGE>
funds to money market accounts during the year.
INTEREST EXPENSE
Interest expense for Fiscal 1996 was $455,392, an increase of $15,074 over
Fiscal 1995. The higher amount incurred in Fiscal 1996 was due primarily to
interest expense of $70,000 on additional federal income taxes for Fiscal 1993
and 1994 (see Note 8). Also contributing to the increase were higher average
interest rates incurred during the current year on both the Stewart & Stevenson,
Inc. ("S&S") loan and on the mortgage on the Company's corporate headquarters.
Offsetting these increases were decreases related to higher amounts incurred
during Fiscal 1995 due primarily to interest expense of $117,024 on the
$2,500,000 borrowed from General Electric Capital Corp. ("GECC") to repurchase
certain limited partnership interests during the second quarter of Fiscal 1995
as discussed under "Liquidity and Capital Resources".
Interest expense for Fiscal 1995 was $440,318, an increase of $151,249 over the
prior year. The increase was due primarily to the $2,500,000 borrowed from GECC
discussed above and the increased expense associated with the $2,500,000
borrowed from S&S. The additional expense associated with this loan can be
attributed to its being outstanding for the entire year and the increase in the
prime rate compared to the prior year.
INCOME (LOSS) FROM PARTNERSHIPS
The Company can not reliably estimate the future operations of the cogeneration
partnerships to determine the Company's share of future earnings. Cash flows to
the Company from the partnerships generally exceed reportable income during the
early years of operations of the cogeneration facilities.
During Fiscal 1996 the Company recorded income from partnerships of $3,445,058,
a decrease of $90,250 as compared to Fiscal 1995.
During Fiscal 1995 the Company recorded income from partnerships of $7,075,803
before deducting extraordinary charges of $3,540,495, resulting in net
partnership income of $3,535,308. This represents an increase of $3,123,446 as
compared to Fiscal 1994. This increase is primarily due to the implementation of
revised power purchase agreements and the refinancing of partnership debt, both
of which became effective in Fiscal 1995. The extraordinary charges represent
the write-off of the unamortized deferred financing costs of the refinanced
debt.
INFLATION
The Company's operations have not been, nor in the near term are expected to be,
materially affected by inflation. However, as the Company expands its operations
internationally, it may become subject to risks of inflation in the foreign
countries in which it operates.
LIQUIDITY AND CAPITAL RESOURCES
During Fiscal 1996 the Company's working capital decreased by $1,969,416 from
$2,872,506 to $903,090. During Fiscal 1995 the Company's working capital
decreased by $2,992,794 from $5,865,300 to $2,872,506.
Cash of $188,075 was provided by operations in Fiscal 1996, primarily from
distributions received from partnerships of $4,768,874 and proceeds from the
sale of short-term investments of $725,123, partially offset by the net loss of
$2,478,319 as adjusted for non-cash items, including the partnership income of
$3,445,058.
During Fiscal 1996 the Company's financing activities used cash of $540,856.
This decrease was due primarily to the Company's stock repurchase plan and the
net repayment of borrowings of $76,016 offset by $172,669 of proceeds from the
issuance of common stock.
The Company used cash of $252,271 in investing activities for the acquisition of
property, plant and equipment during Fiscal 1996.
Financing for the construction of development projects is generally provided by
loans to the particular partnerships which are secured by the project assets
only. Except for financing provided to the Allegany project, the Company
generally does not incur significant capital costs associated with construction
of these projects. The Company provided financing to the Allegany project in
Fiscal 1993 and 1994 utilizing a portion of its $3,000,000 line of credit under
the S&S loan agreement. At March 31, 1996 the Company had $2,500,000 outstanding
under this line of credit, with an additional $500,000 available (See Note 4a.,
Notes Receivable, and Note 7d., Long-Term Debt, of the Notes to Consolidated
Financial Statements). The Company expects that capital requirements for its
operations, for repayment of long-term debt and for project development
<PAGE>
expenses will be met by its current cash and short-term investment position as
well as by anticipated cash flows from ownership distributions from operations
of the projects and the anticipated cash flows from projects currently under
development, and by future borrowings against project interests and other
corporate financings, as available. However, there can be no assurance of
receipt of ownership distributions from certain operating projects or of the
ability to borrow in amounts and on terms acceptable to the Company,
particularly given Niagara Mohawk Power Corporation's ("NIMO") uncertain
financial circumstances (see Note 5, Investments in Partnerships, of the Notes
to Consolidated Financial Statements).
During the second quarter of Fiscal 1995 the Company borrowed $2,500,000 from
GECC to repurchase 7-1/2% interests in each of the Carthage and South Glens
Falls partnerships which had been sold to Ansaldo for $1,000,000 in November
1989. This loan was repaid in the third quarter of Fiscal 1995 via an assignment
of a distribution from the partnerships at the closing of the sale/leaseback
transactions.
At the Company's annual shareholders' meeting in September 1993, the
shareholders approved a stock repurchase plan. Under the plan the Company, at
the discretion of Management, could purchase up to 300,000 shares of the
Company's common stock. Since January 1994 the Company has purchased 182,500
shares of common stock for $1,288,071 under the repurchase plan and 198,616
shares for $995,709 through various private transactions and other agreements.
There were no additional shares acquired subsequent to March 31, 1996 in open
market transactions or under other agreements.
As disclosed under Item 3, Legal Proceedings, the Company and some of its
officers and employees have been issued subpoenas by the U. S. Attorney's
Office. At this time, based on the present status of the investigation, the
company does
not know what effect, if any, the investigation and its outcome will have
on its business. However, the Company has incurred and
expects to continue to incur substantial legal fees and other expenses in
connection with the investigation.
On May 5, 1995 the Company's Board of Directors approved a plan to purchase,
for investment purchases, certain properties adjacent to or near the
Company's corporate headquarters in Kingston for an aggregate amount not to
exceed $1,200,000. During Fiscal 1996 the Company purchased approximately 28
acres for approximately $98,000.
The Company is currently seeking financing for the construction of a 20,000 sq.
ft. facility at the site of the corporate headquarters in Kingston to house the
solar electric product development and manufacturing operations. This facility,
estimated to cost no more than $1 Million, would replace space currently
occupied under a cancelable lease.
The Company has no significant capital commitments for Fiscal 1997 other
than as disclosed above.
ITEM 7. FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
Certified Public Accountants
310 Madison Avenue
New York, New York 10017
212-808-4280
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
BESICORP GROUP INC.
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated balance sheet of Besicorp Group Inc. and
subsidiaries as at March 31, 1996 and 1995 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
years ended March 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
<PAGE>
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Besicorp Group Inc.
and subsidiaries as at March 31, 1996 and 1995 and the results of their
operations and their cash flows for the years ended March 31, 1996, 1995 and
1994 in conformity with generally accepted accounting principles.
The Company and an affiliated partnership are currently involved in certain
litigation involving notes receivable as described in Note 4. The ultimate
outcome of the litigation can not presently be determined. Accordingly, no
provision for any liability that may result has been recognized in the
accompanying consolidated financial statements.
/s/ Robbins, Greene, Horowitz, Lester & Co., LLP
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
June 26, 1996
New York, New York
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
ASSETS --------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 90,579 $ 695,631
Short-term investments 761,807 1,472,276
Trade accounts receivable (less allowance for doubtful accounts of $25,600
in 1996 and $22,600 in 1995) 540,967 724,639
Due from affiliates 89,734 118,715
Current portion of long-term notes receivable:
Others (includes interest of $13,854 in 1996 and $16,165 in 1995) 92,402 88,046
Inventories 1,259,190 1,344,942
Refundable income taxes 187,384 67,906
Other current assets 111,950 108,417
--------- ----------
Total Current Assets 3,134,013 4,620,572
--------- ----------
Property, Plant and Equipment:
Land and improvements 279,910 135,000
Buildings and improvements 1,878,781 1,842,915
Machinery and equipment 917,990 816,677
Furniture and fixtures 195,441 195,441
Construction in progress 14,908 0
--------- ----------
3,287,030 2,990,033
Less: accumulated depreciation and amortization 1,104,817 842,656
--------- ----------
Net Property, Plant and Equipment 2,182,213 2,147,377
--------- ----------
Other Assets:
Patents and trademarks, less accumulated amortization of $634,681 in 1996
and $611,051 in 1995 60,024 83,654
Long-term notes receivable:
Affiliate 555,376 560,151
Others 2,254,061 2,327,834
Deferred costs 1,039,421 932,705
Other assets 179,882 197,049
--------- ----------
Total Other Assets 4,088,764 4,101,393
--------- ----------
TOTAL ASSETS $9,404,990 $10,869,342
--------- ----------
--------- ----------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY ---------- ----------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 1,247,612 $ 1,359,027
Current portion of long-term debt 431,102 89,717
Current portion of accrued reserve and warranty expense 147,024 111,218
Taxes other than income taxes 64,753 141,474
Income taxes payable 340,432 46,630
---------- ----------
Total Current Liabilities 2,230,923 1,748,066
Investment in Partnerships 2,635,875 1,312,060
Deferred Income Taxes 0 181,000
Deferred Revenue 0 26,477
Long-Term Accrued Reserve and Warranty Expense 139,305 133,638
Long-Term Debt 3,137,912 3,485,082
---------- ----------
Total Liabilities 8,144,015 6,886,323
---------- ----------
Shareholders' Equity:
Common stock, $.10 par value: authorized 5,000,000 shares; issued 3,233,146
shares in 1996 and 3,223,396 shares in 1995 323,315 322,340
Additional paid-in capital 4,771,769 4,552,129
Retained earnings (deficit) (1,984,367) 493,952
---------- ----------
3,110,717 5,368,421
Less: treasury stock at cost (321,212 shares in 1996 and 210,091 shares in
1995) (1,849,742) (1,385,402)
---------- ----------
Total Shareholders' Equity 1,260,975 3,983,019
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,404,990 $10,869,342
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Revenues:
Product sales $ 3,900,754 $ 4,551,631 $3,758,668
Development and management fees 328,887 2,254,700 4,532,798
Other 182,431 57,867 63,288
---------- ---------- ---------
Total Revenues 4,412,072 6,864,198 8,354,754
---------- ---------- ---------
Costs and Expenses:
Cost of product sales 3,445,849 3,749,850 3,089,918
Selling, general and administrative expenses 6,448,997 7,079,456 6,168,760
---------- ---------- ---------
Total Costs and Expenses 9,894,846 10,829,306 9,258,678
---------- ---------- ---------
Operating Loss (5,482,774) (3,965,108) (903,924)
Interest and Other Investment Income 172,938 324,529 471,102
Interest Expense (455,392) (440,318) (289,069)
Income from Partnerships 3,445,058 7,075,803 411,862
Other Income 49,451 31,612 88,550
---------- ---------- ---------
Income (Loss) Before Income Taxes (2,270,719) 3,026,518 (221,479)
Provision (Credit) for Income Taxes 207,600 1,056,900 (228,000)
---------- ---------- ---------
Income (Loss) Before Extraordinary Item (2,478,319) 1,969,618 6,521
Extraordinary Item, Net of Income Taxes of $1,203,800 in
1995 0 (2,336,695) 0
---------- ---------- ---------
Net Income (Loss) $(2,478,319) $ (367,077) $ 6,521
---------- ---------- ---------
---------- ---------- ---------
Income (Loss) per Common Share:
Income (loss) before extraordinary item $ (.84) $ .64 $ .00
Extraordinary item .00 (.76) .00
---------- ---------- ---------
Net Income (Loss) per Common Share $ (.84) $ (.12) $ .00
---------- ---------- ---------
---------- ---------- ---------
Weighted Average Number of Shares Outstanding 2,938,144 3,081,742 3,192,239
---------- ---------- ---------
---------- ---------- ---------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Operating Activities:
Net income (loss) $(2,478,319) $ (367,077) $ 6,521
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Deferred taxes including taxes allocated to capital 22,300 (166,800) (28,000)
Extraordinary item 0 3,540,495 0
Amortization of discounts on notes (2,196) (2,196) (8,030)
Realized and unrealized (gains)/losses (14,653) 79,227 60,310
Depreciation and amortization 388,437 347,316 309,116
Partnership income recognized (3,445,058) (7,075,803) (411,862)
Distributions from partnerships 4,768,874 3,462,288 1,735,968
Stock issued for compensation 17,815 48,000 0
Debt incurred (repaid) for expenses 0 (400,000) 400,000
Changes in assets and liabilities:
Short-term investments 725,123 0 0
Accounts and notes receivable 289,041 27,101 2,825,802
Inventories 85,752 (226,037) (554,941)
Accounts payable and accrued expenses (111,415) 241,081 46,469
Taxes payable/refundable 97,603 441,243 (1,483,399)
Other assets and liabilities, net (155,229) (1,145,008) 201,258
---------- ---------- -----------
Net Cash Provided (Used) By Operating Activities 188,075 (1,196,170) 3,099,212
---------- ---------- -----------
Financing Activities:
Increase in borrowings 41,440 0 2,000,000
Repayment of borrowings (117,456) (98,849) (512,489)
Purchase of common stock (637,509) (1,039,840) (606,160)
Issuance of common stock 172,669 12,813 6,450
---------- ---------- -----------
Net Cash Provided (Used) By Financing Activities (540,856) (1,125,876) 887,801
---------- ---------- -----------
Investing Activities:
Investments in partnerships 0 (250,372) (3,500)
Release of pledged certificates of deposit 0 0 50,000
Purchases of short-term investments 0 (3,970,264) (21,840,158)
Proceeds from sales of short-term investments 0 7,315,321 17,922,726
Proceeds from sale/disposition of assets 0 0 41,638
Acquisition of property, plant and equipment (252,271) (430,099) (289,507)
---------- ------------ -----------
Net Cash Provided (Used) By Investing Activities (252,271) 2,664,586 (4,118,801)
---------- ---------- -----------
Increase (Decrease) in Cash and Cash Equivalents (605,052) 342,540 (131,788)
Cash and Cash Equivalents Beginning 695,631 353,091 484,879
---------- ---------- -----------
Cash and Cash Equivalents Ending $ 90,579 $ 695,631 $ 353,091
---------- ---------- -----------
---------- ---------- -----------
Supplemental Cash Flow Information:
Interest paid $ 387,143 $ 440,493 $ 258,845
Income taxes paid (received) 11,022 (351,232) 1,080,949
Additions to property, plant, and equipment which were
financed and not included above $ 70,230 $ 66,270 $ 61,018
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Treasury Stock
--------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Additional Retained
Paid-in Earnings
Shares Amount Capital (Deficit) Shares At Cost Total
--------- ------- ----------- ----------- ------- ---------- ---------------
Balance 3/31/
93 3,219,805 $321,980 $ 4,720,934 $ 854,508 18,381 $ (95,310) $ 5,802,112
Shares
purchased 85,000 (606,160) (606,160)
Shares issued
for
fractional
shares 4
Shares issued
to employees
under
Incentive
Stock Option
Plan 2,375 238 6,482 6,720
Shares
retired (40) (4) (266) (270)
Net income
for the year 6,521 6,521
--------- ------- ----------- ----------- ------- ---------- ----------
Balance 3/31/
94 3,222,144 322,214 4,727,150 861,029 103,381 (701,470) 5,208,923
Shares
purchased 160,710 (1,039,840) (1,039,840)
Shares issued
for
fractional
shares 2 1 (1)
Shares issued
to employees
under
Incentive
Stock Option
Plan 1,250 125 1,438 1,563
Treasury
shares issued
for Incentive
Stock Options
and
compensation (296,658) (54,000) 355,908 59,250
Tax benefit
on
compensatory
stock
transactions 120,200 120,200
Net loss for
the year (367,077) (367,077)
--------- ------- ----------- ----------- ------- ---------- ----------
Balance 3/31/
95 3,223,396 322,340 4,552,129 493,952 210,091 (1,385,402) 3,983,019
Shares
purchased 135,366 (637,509) (637,509)
Shares issued
to employees
under
Incentive
Stock Option
Plan 5,250 525 16,006 16,531
Shares issued
for warrants 4,500 450 7,988 8,438
Treasury
shares issued
for Incentive
Stock Options
and
compensation (7,654) (24,245) 173,169 165,515
Tax benefit
on
compensatory
stock
transactions 203,300 203,300
Net loss for
the year (2,478,319) (2,478,319)
--------- ------- ----------- ----------- ------- ---------- ----------
Balance 3/31/
96 3,233,146 $323,315 $ 4,771,769 ($1,984,367) 321,212 $(1,849,742) $ 1,260,975
--------- ------- ----------- ----------- ------- ---------- ----------
--------- ------- ----------- ----------- ------- ---------- ----------
</TABLE>
<PAGE>
See accompanying notes to consolidated financial statements.
<PAGE>
BESICORP GRUOP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Besicorp Group Inc. is a fabricator, manufacturer, distributor and developer of
solar and heat transfer technology products and systems and solar
electric products and systems as well as an owner and developer of independent
power production projects primarily through its partnership interests.
Principles of Consolidation
The consolidated financial statements include Besicorp Group Inc. and its
wholly-owned subsidiaries ("the Company"). Investments in partnerships are
recorded under the equity method of accounting. All significant intercompany
balances and transactions have been eliminated.
Use of Estimates
Management uses estimates in preparing the consolidated financial statements, in
conformity with generally accepted accounting principles. Significant estimates
include collectibility of accounts receivable, warranty costs, profitability on
long-term contracts, as well as recoverability of long-term assets and residual
values. The Company regularly assesses these estimates and, while actual results
may differ from these estimates, management believes that material changes will
not occur in the near term.
Reclassification
Certain items in the 1995 and 1994 financial statements have been reclassified
to conform with the 1996 presentation.
Inventories
Inventories are carried at the lower of cost (first-in, first-out method) or
market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation on such assets is
computed on a straight-line basis at rates adequate to allocate the cost over
their expected useful lives from 3 years to 39 years.
Patents and Trademarks
Costs of patents ($647,301 at March 31, 1996 and 1995) are capitalized and
amortized on a straight-line basis over the remaining useful life of the patent
of up to 17 years. Trademark costs ($47,405 at March 31, 1996 and 1995) are
capitalized and amortized on a straight-line basis over the estimated useful
life of 35 years.
Deferred Costs
Consists of engineering and legal fees, licenses and permits, site testing, bids
and other charges, including salaries and employee expenses, incurred by the
Company in developing projects. These costs are deferred until the date the
project construction financing is arranged and then expensed against development
fees received, or, in some cases, such costs are reimbursed periodically or at
the time of closing. When in the opinion of management it is determined that a
project will not be completed, the deferred costs are expensed.
Goodwill
The excess of the purchase price over the book value of a corporation acquired
at March 31, 1993 of $557,898 was added to the basis of the land and buildings
of such corporation based upon an independent appraisal of the property acquired
and is being amortized on a straight-line basis over the asset lives of 31.5
years. The remaining book value at March 31, 1996 and 1995 was $508,193 and
$524,761, respectively.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Product Warranties
Warranty expense for the Company's product sales is provided on the basis of
management's estimate of the future costs to be incurred under product
warranties presently in force. Under the terms of the Company's contracts for
the design, construction, and operation of certain energy generating systems,
the Company warrants the energy output and the operating and maintenance
expenses of the projects, except that it has no warranty obligations with
respect to the partnership cogeneration projects. The terms of these warranties
vary according to the specifics on each project. Estimated costs are reviewed
while the systems are in operation and adjustments to revenue or expense are
reflected in the period in which revisions to such estimates
<PAGE>
are deemed appropriate.
Revenue Recognition
Revenues on product sales are recognized at the time of shipment of goods.
Development and management fee revenues are recognized when deemed payable.
Deferred Income Taxes
Deferred income taxes are provided for the timing difference between reporting
for income tax purposes and financial statement purposes (See Note 8).
Income (Loss) Per Common Share
Income (loss) per common share is computed on income (loss) for each year
divided by the weighted average number of common shares and share equivalents
outstanding during the year. Stock options and warrants were not used in the
computations when the effect on income per share was anti-dilutive or was not
material.
Research and Development
Research and development costs are expensed when incurred.
Statement of Cash Flows
For purposes of the consolidated statement of cash flows, the Company considers
temporary investments with a maturity of three months or less when purchased to
be cash equivalents.
Short-Term Investments
In 1995 the Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which
requires that the Company's investments be designated as trading, available for
sale or held-to-maturity. The Company's investments qualify as trading
securities which are reported at fair value, with changes in fair value included
in earnings. The unrealized loss at March 31, 1996 was $6,553, and the
unrealized gain at March 31, 1995 was $6,792.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high credit
qualified financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base, and their dispersion across many
different industries and geographies.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Assembly parts $467,281 $281,545
Finished goods 791,909 1,063,397
---------- -----------
$1,259,190 $1,344,942
---------- -----------
---------- -----------
</TABLE>
NOTE 3 - DEFERRED COSTS
Deferred and reimbursable costs at March 31, 1996 and 1995 were as follows:
<PAGE>
<TABLE>
<CAPTION>
Internal Costs
--------------------
Third Party
Payroll Expenses Costs Total
--------- --------- ------------ ----------
<S> <C> <C> <C> <C>
Balance March 31, 1994 $104,092 $20,178 $67,716 $191,986
Additions 288,747 40,089 541,144 869,980
Expensed (42,237) (2,790) (9,365) (54,392)
Reimbursements 0 0 (74,869) (74,869)
--------- --------- ------------ ----------
Balance March 31, 1995 350,602 57,477 524,626 932,705
Additions 707,872 114,120 260,239 1,082,231
Expensed (72,872) (13,686) (37,760) (124,318)
Reimbursements (601,672) 0 (249,525) (851,197)
--------- --------- ------------ ----------
Balance March 31, 1996 $383,930 $157,911 $497,580 $1,039,421
--------- --------- ------------ ----------
--------- --------- ------------ ----------
</TABLE>
Pursuant to an agreement with a partnership for development of a project in
India, the Company has loaned $300,000 to the partnership during Fiscal
1995 which reimbursed one of the partners for development costs it had
already incurred. The note receivable evidencing this loan is included in
Deferred Costs at March 31, 1996 and 1995, and it is anticipated that it will be
repaid from receipt of development capital or from proceeds of project
financings.
NOTE 4 - NOTES RECEIVABLE
Long-term notes receivable consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Due from affiliate (a) $555,376 $560,151
---------- ----------
---------- ----------
Due from others:
- - Greenhouse (a) $1,944,624 $1,939,849
- - 9% notes receivable due from limited
partnerships, receivable in annual installments
through December, 2001 (b) 387,985 459,866
Less current portion - net of interest (78,548) (71,881)
---------- ----------
TOTAL $2,254,061 $2,327,834
---------- ----------
---------- ----------
</TABLE>
NOTE 4 - NOTES RECEIVABLE (CONTINUED)
(a) The Company advanced $2,500,000 of its working capital loan (see Note 7) to
one of its affiliated partnerships to partially finance project costs. This
advance was to be repaid by the partnership by in turn advancing funds to a
greenhouse facility, an unrelated company, which was to utilize steam
from the cogeneration facility. As moneys were advanced by the
partnership on behalf of the Company to the greenhouse, they became obligations
of the greenhouse to the Company. The loan to the greenhouse bears an interest
rate of prime plus 3% until the greenhouse commences commercial operation, which
was expected to occur in Fiscal 1995. Upon commencement of greenhouse
operations, the loan was to bear an interest rate of 13% over the approximate
12-year term of the loan. As of March 31, 1996 the partnership had advanced
$1,944,624 on behalf of the Company to the greenhouse. Accordingly, the balance
due to the Company from the project partnership has been reduced to $555,376 at
March 31, 1996. Interest income recorded from the partnership at an imputed
interest rate of 6.37% for the year ended March 31, 1995 was $50,928 and for the
<PAGE>
year ended March 31, 1994 was $130,238. The Company decided, due to the ongoing
litigation described below, not to record interest income from the partnership
for the year ended March 31, 1996 and for part of the year ended March 31, 1995.
The greenhouse facility was not completed as scheduled, and the partnership
initiated an action against the owner of the greenhouse facility to recover
possession of the greenhouse due to various defaults by the owner under its
contractual commitments, including its obligations to complete the greenhouse by
July 31, 1994. The greenhouse owner has counterclaimed against the partnership
asserting claims for breach of contract and other items. In addition, the
contractor hired by the greenhouse owner to construct the greenhouse filed legal
action against the greenhouse owner, the partnership and the Company relating to
nonpayment for construction of the greenhouse. The Company believes that it has
meritorious claims against the greenhouse owner and meritorious defenses against
its counterclaims and believes the outcome of this litigation will be favorable.
In addition, the partnership is involved in litigation with the primary
purchaser of the electricity generated by the partnership's facility. Management
of the Company believes that the litigation with the greenhouse contractor and
the purchaser of electricity have little or no merit. The ultimate outcome of
this litigation can not be presently determined. Accordingly, no provision for
any liability that may result has been recognized in the accompanying
consolidated financial statements.
(b) The Company contracted to design, build, and operate energy systems with
limited partnerships. Under the terms of the sales agreements, the purchase
price included cash down payments and long-term notes receivable. Additional
interest was imputed at the rate of 2% per annum to yield an effective rate of
11% per annum on substantially all of the long-term notes receivable.
NOTE 5 - INVESTMENTS IN PARTNERSHIPS
The Company, through separate wholly-owned subsidiaries, is a general and, in
certain cases also a limited partner in partnerships which were formed to
develop, own, and operate cogeneration facilities. The Company earns fees for
developing and monitoring these facilities, and the partnerships generate
revenues from the operation of the facilities. At March 31, 1996, five
facilities were being operated. Monitoring and administrative fees earned by the
Company from the partnerships were $328,887 for the year ended March 31, 1996,
$1,293,409 for the year ended March 31, 1995 and $1,182,773 for the year ended
March 31, 1994.
There were no development fees earned or income recognized from the excess of
reimbursements over related deferred costs during Fiscal 1996. Development fees
of approximately $561,000 were earned in Fiscal 1995 from one project and
$400,000 of income was recognized from the excess of reimbursements over the
related deferred costs in conjunction with project closings. Development fees of
approximately $2,600,000 were earned in Fiscal 1994 from three projects, and
$608,000 of income was recognized from the excess of reimbursements over the
related deferred costs in conjunction with project closings.
NOTE 5 - INVESTMENTS IN PARTNERSHIPS (CONTINUED)
Ownership interests in the partnerships range from 35.715% to 50.2% and are
accounted for under the equity method. The partnerships are highly leveraged,
with the operating assets of the partnership securing the debt. There is
generally little or no initial investment in the partnerships by the Company,
and the expected significant losses of the partnerships in the early years of
operation are funded by the partnership's debt. Since there is no obligation for
the Company to fund such losses, and since the Company is not generally
obligated to pay the partnership's debt, the Company's share of losses is not
generally recorded in the financial statements. Income is recognized when it
exceeds cumulative losses. For the year ended March 31, 1996, there were
unrealized losses of $544,499 on one of the partnerships for which income was
recorded that was not included in the 1996 results. Income from partnerships
recorded for the year ended March 31, 1995 exceeded prior unrecognized
accumulated losses of $790,306 and income recorded for the year ended March 31,
1994 exceeded prior unrecognized accumulated losses of $286,878.
Cash distributions to the Company from the partnerships to pay franchise taxes
and other cash distributions have been recorded as reductions of equity of these
partnerships. In addition, the Company has funded certain of the development
activities of one of the partnerships (see Note 4) and has made capital
contributions and investments in three partnerships.
The investment in partnerships was comprised of the following at March 31, 1996
and 1995:
<PAGE>
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Capital contributions and investments $2,971,813 $2,971,813
Partnership distributions (12,781,976) (8,013,103)
Recognized share of income (losses) 7,174,288 3,729,230
----------- -----------
$(2,635,875) $(1,312,060)
----------- -----------
----------- -----------
</TABLE>
The financial position and results of operations for the partnerships, based on
the audited financial statements, as at December 31, 1995 and 1994 and for the
years then ended were as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
TOTAL PARTNERSHIPS:
Assets $543,148,967 $528,449,747
Plant and equipment 413,475,414 402,125,654
Secured debt 526,879,647 491,539,590
Partners' equity (deficit) (22,610,152) (11,522,153)
Revenues 114,313,019 124,924,721
Income (loss) (1,212,069) 8,280,365
COMPANY'S SHARE:
Partners' equity (deficit) (10,488,957) (5,652,684)
Income (loss) 57,836 4,154,227
</TABLE>
The income (loss) from partnerships, which has been recorded on the consolidated
financial statements in Fiscal 1996 in the amount of $3,445,058, has been
recognized on projects where income has exceeded prior unrecognized accumulated
losses, but not on partnerships where current losses of $14,054,470 including
$10,667,248 attributable to the project in bankruptcy which is excluded from the
above numbers, are in excess of the net investment.
Cash flows and equity interests in several of the projects have been pledged to
secure debt agreements.
NOTE 5 - INVESTMENTS IN PARTNERSHIPS (CONTINUED)
One of the partnerships, as a result of the denial of a motion for a preliminary
injunction and as a result of the construction lender exercising certain rights
under a pledge agreement, filed a voluntary petition to reorganize under Chapter
11 of the Bankruptcy Code and is seeking enforcement of the power purchase
agreement (see Note 4). The amounts pertaining to this partnership were excluded
from the partnerships' financial position and results of operations presented
above.
In November 1993 one of the partnerships was in default under the terms of its
loan agreement. Such loan was not paid on the due date and the lender, General
Electric Capital Corporation ("GECC") foreclosed on the facility in August 1994.
The Company's ownership interest in the partnership was transferred to the
designee of the limited partner (an affiliate of GECC). There was no income or
loss recorded as a result of this transaction.
In December 1994 the partnerships concluded long-term financing agreements in
the form of sale/leaseback transactions with GECC for three of the partnership
facilities. These transactions involved assets with a book value of
approximately $164,600,000. The approximately $7,000,000 of gains on the
transactions were
<PAGE>
deferred on the books of the respective partnerships and will be taken into
income over the twenty- and twenty-five-year lives of the leases.
As a result of the refinancings of the facilities, the partnerships reported
extraordinary charges of $7,080,989 representing the write-off of unamortized
deferred financing costs of the refinanced debt. The Company's share of these
extraordinary charges recognized in Fiscal 1995 was $3,540,495.
In July 1994 the Company borrowed $2,500,000 from GECC to repurchase 7-1/2%
interests in each of two partnerships which had been sold to a third party for
$1,000,000 in November 1989. This loan was repaid in December 1994 via an
assignment of a distribution from the partnerships at the closing of the
aforementioned sale/leaseback transactions. Such distribution and repayment of
debt have been excluded from partnership distributions and debt repayment in the
Consolidated Statement of Cash Flows.
The five operating partnerships are principally engaged in a single line of
business - the production and sale of electric power to one customer, Niagara
Mohawk Power Corporation ("NIMO").
The regulated investor-owned utility industry is presently subject to
considerable market pressures and change in the federal and state regulatory
environment in which it operates. These pressures are resulting in industry
consolidation and pressure to disaggregate electric generation, transmission and
distribution assets and to adjust cost structures to meet market conditions.
NIMO made a filing on October 10, 1995 to the Public Service Commission of the
State of New York setting forth numerous restructuring proposals, including a
significant reduction on the price for power purchased from independent power
producers currently under contract with NIMO. The partnerships expect many of
NIMO's proposals to be strongly contested, including the significant reduction
on the price for power. NIMO has also stated in such filing that its financial
viability is threatened. In early 1996, NIMO suspended payments of dividends on
its common stock. The outcome of the industry trends, regulatory changes, the
NIMO filing and NIMO's financial viability can not presently be determined.
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as at March 31, 1996 and 1995 are
comprised of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Trade accounts payable $561,231 $828,167
Accrued interest expense 102,295 34,046
Accrued salaries 246,994 197,691
Due to affiliate 56,624 56,624
Deposits and other payables 280,468 242,499
---------- ----------
$1,247,612 $1,359,027
---------- ----------
---------- ----------
</TABLE>
NOTE 7 - LONG-TERM DEBT
<PAGE>
<TABLE>
<CAPTION>
Long-term debt consists of the following: 1996 1995
---------- -----------
<S> <C> <C>
- - Installment loans at 0% to 14.62% maturing
through April 1999 (a) $139,834 $97,959
- - Mortgage loan payable in 83 monthly installments
of $1,060 plus interest (prime plus 1.5% in 1996
and 11% in 1995) through March 2002 (b, c) 76,120 88,840
- - Mortgage loan payable in 84 monthly installments
of $4,180 including interest (prime plus 1.5% in
1996 and 11% in 1995), through April 1997, when the
unpaid balance is due. (b) 348,634 362,324
- - Second mortgage payable in 61 monthly
installments of $1,771 plus interest at prime plus
1.5% through November 1996, when the unpaid balance
is due (b, c, e). 331,146 352,396
- - Obligation on SunWize asset acquisition (f) 173,280 173,280
- - Working capital loan (d) 2,500,000 2,500,000
---------- -----------
Total 3,569,014 3,574,799
Less: Current maturities 431,102 89,717
---------- -----------
$3,137,912 $3,485,082
---------- -----------
---------- -----------
</TABLE>
Long-term debt maturities at March 31, 1996, including current maturities, are
as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $431,102
1998 407,508
1999 35,513
2000 20,371
2001 18,720
Thereafter 2,655,800
-----------
$3,569,014
-----------
-----------
</TABLE>
a. Collateral for the installment loans consists of automobiles, computer
equipment and furniture and fixtures with a net book value of $180,845 and
$130,772 at March 31, 1996 and 1995, respectively.
b. Collateralized by mortgages on land and/or buildings owned by the Company
with a net book value of $1,404,301 and $1,544,101 at March 31, 1996 and 1995,
respectively.
c. As a part of his guarantees of the Company's debts of $407,266 and $441,236
at March 31, 1996 and 1995, the President of the Company has a security interest
in various assets, patents, and personal property owned by the Company.
d. On June 1, 1992, the Company and Kamine entered into a loan agreement with
Stewart & Stevenson Services, Inc. to borrow up to $3,000,000 each for working
capital. Interest on advances under the agreement are payable quarterly in
arrears at the rate of 2% above prime. The loan requires payments of interest
only during the initial term. Principal is to be repaid based on termination
dates of operating and maintenance con-
<PAGE>
tracts on certain projects with an initial term of six years that may be
extended an additional six years. Loans are secured by cash flows of certain of
the partnerships in the event of default. The Company borrowed $2,500,000 under
the agreement to fund development activities of one of the partnerships (see
Note 4).
e. As additional collateral for the loan, the Company was required to maintain a
$50,000 certificate of deposit, which was released in 1994.
f. Obligation payable on the acquisition of SunWize assets, payable as a
percentage of future gross margins of the SunWize division (see Note 14). No
payments were made in 1996.
NOTE 8 - INCOME TAXES
In Fiscal 1994 the Company adopted Statement 109, "Accounting for Income Taxes,"
issued by the Financial Accounting Standards Board, which requires a change from
the deferred method to the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. The tax benefits of tax operating loss carryforwards are
recorded to the extent available, less a valuation allowance if it is more
likely than not that some portion of the deferred tax asset will not be
realized.
The provision (credit) for taxes is comprised of the following after combining
in 1995 the provision of $1,056,900 for income taxes and the $1,203,800 credit
for income taxes on the extraordinary item:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
State:
Current $20,033 $19,900 $28,360
Deferred (56,100) (35,400) (4,000)
---------- ---------- ----------
(36,067) (15,500) 24,360
---------- ---------- ----------
Federal:
Current 165,267 0 (228,360)
Deferred 78,400 (131,400) (24,000)
---------- ---------- ----------
243,667 (131,400) (252,360)
---------- ---------- ----------
TOTAL $207,600 $(146,900) $(228,000)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE 8 - INCOME TAXES (CONTINUED)
As a result of the prior years' operating losses of a subsidiary, the subsidiary
had a net operating loss carryforward of approximately $800,000 as at March 31,
1993, which expires between 1996 and 1999. The subsidiary was merged into the
Company in 1994 so that the loss is now available to the Company. For Fiscal
1995 $287,540 of such carryforward was utilized. Approximately $277,000 of the
loss carryforward will expire in Fiscal 1996. Taxable losses for Fiscal 1996 of
approximately $350,000 will be carried back resulting in a refund due of
approximately $120,000.
Deferred income taxes include the tax effects of timing differences between
pretax accounting income and taxable income. The principal components of
deferred income taxes are as follows:
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Tax depreciation in excess of book
depreciation $(500) $(26,000) $(28,000)
Equipment differences 115,600 0 0
Deferred compensation 0 0 73,600
Bad debt allowance 10,200 9,000 8,000
Inventory differences 48,200 43,200 75,000
Unrealized loss (gain) on investments 2,600 (2,800) 24,800
Warranties and reserves 114,700 98,000 83,000
Timing difference on interest 28,000 0 0
Timing difference in recognition of
partnership income 499,400 (321,400) (717,600)
Accrued vacation 16,600 19,000 13,200
Net operating loss carryforwards and credits 130,400 289,400 415,000
---------- ---------- ----------
965,200 108,400 (53,000)
Valuation allowance (965,200) (289,400) (415,000)
---------- ---------- ----------
Total $0 $(181,000) $(468,000)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The difference between the effective rate of the provision (credit) for income
taxes and the statutory rate for Federal income taxes is summarized as follows
(on a combined basis for taxes on the ordinary and extraordinary items):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Statutory rate (34.0)% (34.0)% (34.0)%
State income taxes .6 2.6 7.3
Net operating loss carryforwards 40.9
Allocation of tax benefit to additional paid-
in capital 9.0 23.4
Increase in valuation allowance 32.9
Tax assessments 6.9
AMT adjustment 51.3
Prior year overaccrual reversal (153.5)
Permanent timing differences (10.4) (20.6) (14.9)
Other 4.1
---------- ---------- ----------
Total 9.1% (28.6)% (102.9)%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The provision for taxes for Fiscal 1996 includes additional tax provisions of
$156,292 pertaining to Fiscal 1994 and 1993, the result of Internal Revenue
Service examinations covering these periods.
During Fiscal 1994 the Company recognized tax benefits of $340,000 from the
reversal of prior year accruals no longer considered necessary.
The Company recognized certain federal and state tax benefits resulting from the
sale of stock purchased via
<PAGE>
exercise of certain incentive stock options and the sale by employees of stock
issued pursuant to certain restrictions prior to the lapse of the restrictions.
The tax benefits received, amounting to $203,300 and $120,200 for the years
ended March 31, 1996 and 1995, respectively, have been credited to additional
paid-in capital. Benefits in prior years were not significant.
Permanent timing differences result mainly from non-taxable interest and
non-deductible goodwill amortization, meals and officers' life insurance.
The Company is using the equity method in recognizing partnership income and
losses for book purposes and, therefore, had not recognized losses when they
exceeded the investment in the partnership. Accumulated unrealized partnership
losses of approximately $14,600,600 had been incurred at March 31, 1996 for
financial statement purposes and approximately $19,888,000 for tax purposes.
NOTE 9 - COMMON STOCK
A. Outstanding warrants as of March 31, 1996, to purchase shares of common stock
are as follows:
<TABLE>
<CAPTION>
Number of Shares Price Expiration Date
- -----------------------------------------------------
<S> <C> <C>
25,000 1.875 November 6, 2000
20,000 1.00 March 3, 1997
- -----------------
45,000
- -----------------
- -----------------
</TABLE>
At March 31, 1996 all outstanding warrants are exercisable at any time before
the expiration date.
B. On January 16, 1981, the Board of Directors adopted a Restricted Stock Plan
(the "Restricted Plan"), whereby the Board could offer and sell up to 100,000
shares of the Company's common stock on a restricted basis to directors and
selected key employees, at any price determined by the Board which was not less
than the aggregate par value of the shares sold. Shares granted to directors and
selected key employees under the Restricted Plan were subject to substantial
restrictions and risks of forfeiture as set forth in purchase agreements entered
into pursuant to the Restricted Plan.
On March 12, 1982, the Board of Directors amended the Restricted Plan and
approved an Incentive Stock Option Plan ("Plan") to allow for the issuance of up
to 100,000 shares (less 27,750 shares that were issued to persons pursuant to
the Restricted Plan). During January, 1983, the Board of Directors amended the
Plan to allow for the issuance of up to 175,000 options for the purchase of its
common stock. On November 13, 1984, an additional amendment by the Board of
Directors allowed for the issuance of up to 205,000 options. As of January 4,
1988, the Board of Directors further amended the Plan increasing the number of
options to 245,000. On December 15, 1988, the Board of Directors again amended
the Plan to 295,000 shares. On January 25, 1991, the Board of Directors amended
the Plan to 345,000 shares. On April 5, 1984, the Company registered its Plan
with the Securities and Exchange Commission. The Plan expired on March 12, 1992.
Pursuant to the above, the Company has granted and has outstanding to its
employees and officers, the following options as at March 31, 1996:
<PAGE>
<TABLE>
<CAPTION>
Date of Grant Number of Shares Exercise Price
- --------------------------------------------------------
<S> <C> <C>
May 13, 1986 1,000 1.25
August 3, 1987 1,800 3.50
April 26, 1988 7,000 5.00
August 8, 1988 2,500 6.25
January 26, 1989 8,000 6.90
August 17, 1989 2,000 7.50
February 1, 1990 6,000 5.90
November 6, 1990 12,000 1.875
------------------
TOTAL STOCK OPTIONS 40,300
------------------
------------------
</TABLE>
C. During Fiscal 1996, 1995 and 1994, 6,450, 7,250 and 2,375 shares were
purchased and issued for $20,731, $12,813 and $6,720, respectively, under the
above Plan. Of the 6,450 and 7,250 shares purchased during Fiscal 1996 and 1995,
1,200 and 6,000, respectively, were issued from treasury shares and subsequently
repurchased by the Company. At March 31, 1996, options to purchase 40,300 shares
were exercisable.
D. In August 1992 the Company entered into restricted stock agreements with
certain employees to provide incentive to continue in the employ of the Company.
Shares granted under the agreement have transfer restrictions to the extent of
one-third of the award shares on the third anniversary, an additional one-third
on the fourth anniversary and the remaining one-third on the fifth anniversary
of the agreement. During the restriction period, the Company has the right to
purchase from the grantee all of the award shares at the original grant value,
which increases 10% a year, upon termination of employment of the grantee. In
addition, during the restriction period the award shares may not be sold,
assigned, pledged, or otherwise transferred. Pursuant to the agreements, 545,000
shares were granted during the year ended March 31, 1993. At March 31, 1996,
370,000 shares are still subject to the restrictions including 100,000 shares
which are the subject of ongoing litigation.
E. In December 1992 the Board of Directors approved the adoption of the 1993
Incentive Plan ("1993 Plan") to provide for up to 1,000,000 shares of common
stock to
be available for grant under options to employees. The options would be in the
form of statutory stock options, non-statutory stock options, stock appreciation
rights, or dividend payments at the discretion of the option committee. The
1993 Plan
was approved by the shareholders, effective on January 1, 1993 and expires on
December 31, 2002.
In December 1995 the Company gave certain employees the option to take
restricted stock grants in lieu of cash bonuses. The stock was valued at $7 per
share, has a five-year restriction against transfer and will be held in escrow
during the restriction period. Upon termination of employment during the
restriction period, all option shares would be forfeited and the Company
would purchase the shares at $7.00 per share plus a rate of return based
on the prime rate. The Company may wave the forfeiture provision within
30 days of termination. Treasury shares were issued to
cover the 2,545 restricted shares granted.
In January 1996 the Company granted non-statutory restricted options to two
officers under the 1993 Plan to purchase 20,500 shares of the
Company's common stock at $7 per share until December 31, 1996. The options were
subsequently exercised. Option shares are subject to transfer restrictions and
forfeiture provisions which lapse on the fifth anniversary of the grant. Upon
termination of employment during the restriction period, all option shares shall
be forfeited and the Company shall purchase the shares at $7 per share plus a
rate of return based on the prime rate. The Company may waive the forfeiture
provision within 30 days of termination.
In February 1996 the Company granted non-statutory options to officers and
employees under the 1993 Plan to purchase 61,500 shares of the
Company's common stock at $3 per share. The options vest as to 20% of the grant
shares in each of the sixth through the tenth years after the date of grant.
F. At the Company's annual shareholders' meeting in September 1993, the
shareholders approved a stock repurchase plan. Under the plan the Company, at
the discretion of Management, could purchase up to 300,000 shares
<PAGE>
of its common stock. Since January 1994 the Company has purchased 182,500 shares
of common stock for $1,288,071 under the repurchase plan and 198,616 shares for
$995,709 through various private transactions and other agreements.
G. The Company had an option to purchase 62,500 shares owned by its partnership
co-developer for $1 per share that was due to expire December 31, 1995. Such
option was exercised by the Company in May 1995 at which time the 62,500 shares
were purchased for cash and included in treasury stock.
NOTE 10 - PREFERRED STOCK
The Company has authorized 7,500,000 shares of $1 par value preferred stock. At
March 31, 1996 there were no shares issued and outstanding.
NOTE 11 - RELATED PARTIES
Amounts due from affiliates at March 31, 1996 and 1995 relate principally to
receivables from the project partnerships for management fees of $73,132 and
$108,499, respectively. Also included is $16,602 in 1996 and $10,217 in 1995
from companies owned by the President of the Company which provide certain
services to the Company for airport usage and plane services totaling $64,828,
$74,914 and $58,657 for the years ended March 31, 1996, 1995 and 1994,
respectively. During Fiscal 1994 the Company purchased an airplane from one of
these companies for $57,290.
NOTE 12 - SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Advertising costs $76,972 $129,111 $133,075
Research and development expenses(1) 426,239 480,459 119,144
Warranty expense (income) 176,117 178,943 (348,590) (2)
Amortization of patents and trademarks 23,630 43,955 44,475
Maintenance and repairs 71,684 110,786 *
Taxes other than payroll and income taxes 620,175 510,044 475,896
</TABLE>
(1) Since Fiscal 1994 the Company has expanded its efforts in technology
development, particularly solar electric products. Expenditures for research and
development for the last three years were $426,239 in Fiscal 1996, $480,459 in
Fiscal 1995 and $119,144 in Fiscal 1994. Personnel expenses comprising the
largest portion of these amounts, were $324,662 in Fiscal 1996, $431,002 in
Fiscal 1995 and $111,392 in Fiscal 1994. Of the total amounts, expenses
attributable to the Company's agreements with the New York State Energy Research
and Development Authority were $229,658 in Fiscal 1996 and $115,883 in Fiscal
1995.
(2) Represents net amount after reversal of $451,324 of prior year reserves no
longer required.
* Less than 1% of sales (revenues)
NOTE 13 - LEGAL PROCEEDINGS
The St. Francis Hospital cogeneration facility was shut
down by the management of the hospital. The Company had initiated a lawsuit
against the third-party turn-key operator, Tecogen, Inc., for failing to
complete its obligations under the contract prior to this action by the
hospital. The Company is currently seeking to recover its entire investment as
well as other damages and, based upon the opinion of counsel, management of the
Company believes that the outcome of the litigation should be favorable.
However, given the potentially protracted nature of the litigation, the Company
made provision for the write-off of the book value of the asset at March 31,
1992, resulting in "other expense" of $1,102,611 and in Fiscal 1993 provided an
additional $200,000 to cover the cost of removal of the system from the facility
pending the outcome of the litigation.
<PAGE>
In March 1993 a
shareholder derivative suit was filed against the Company and the Company's
directors which alleges, among other charges, that the directors acted
improperly in issuing Company shares to themselves for little or no
consideration. The plaintiff is seeking award of damages to the Company,
including punitive damages and interest, an accounting and
the return of assets to the Company,
the appointment of independent members to the Board of Directors, the
cancellation of
allegedley improperly granted shares, and the award to the plaintiff of
costs and expenses of the lawsuit including legal fees. The defendants denied
the allegations of the complaint. The Board of Directors of the Company
formed a Special Litigation Committee ("SLC") comprised of independent, outside
directors to investigate the allegations made in the action and determine if
continued prosecution of the action is in the best interest of the Company.
After an extensive investigation of the allegations made in the complaint, the
SLC issued a resolution dated March 28, 1995 finding that the continued
prosecution of the derivative action was not in the best interest of the
Company. By further resolution dated April 27, 1995, the SLC instructed the
Company's outside counsel to take the necessary steps in court to seek to have
the action dismissed. Pursuant to a resolution of the SLC, on May 18, 1995, a
motion to dismiss the action based on the recommendation of the SLC was filed
with the Court and is being held in abeyance by the court pending the
completion of limited discovery. Management is of the opinion that
meritorious defenses to the suit have been asserted and that the outcome of the
action will have no material adverse impact on the Company.
On or about May 2, 1996, certain officers, directors, employees, former
employees of the Company and certain spouses and affiliates thereof
were served subpoenas
by the U.S. Attorney's office for the production of documents and/or potential
testimony before a United States Grand Jury in White Plains, NY. Based upon
the content of the subpoenas and the information contained in certain newspaper
articles relating to the investigation, the Company believes that the scope of
the investigation may include the circumstances surrounding contributions by
certain individuals associated with the Company to the 1992 and 1994 U.S.
Congressional campaigns of Maurice Hinchey and use of the
Company's assets in connection therewith. The Company has complied with a
document request contained in the subpoena. At this time, based on the
present status of the investigation, the Company does not know what
effect, if any, the investigation and its outcome will have on its
business. However, the Company has incurred and expects to continue to incur
substantial legal fees and other expenses in connection with the investigation.
NOTE 14 - ACQUISITIONS
The Company had entered into an agreement to acquire an Illinois corporation,
SunWize Energy Systems, Inc. ("SW Illinois") which was to have been effective
October 1, 1992. The agreement was restructured as an asset purchase, effective
October 1, 1992, and finalized in 1995. The purchase price of the assets, which
include distribution rights and the employment agreement of the president of SW
Illinois, $315,000, represents $200,000 payable as a percentage of future gross
margins of the SunWize division and $115,000 of liabilities that were assumed,
of which $95,000 has been paid at March 31, 1995. Included in other assets at
March 31, 1996 and 1995 is $45,000 and $122,143, respectively, representing the
unamortized value of the acquired assets. Consideration under the new employment
agreement included the granting of 48,000 shares of the Company's common stock.
Such shares were issued from shares held in treasury upon completion of all the
negotiations and signing of the restructured SW Illinois agreement during 1995.
Transfer restrictions were in place on certain of these shares which were valued
at $1 per share, the value of the shares at the time of the original agreement.
In January 1995 all of the 48,000 shares were repurchased by the Company at the
then market value of $312,000 and returned to treasury shares.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
At March 31, 1996, the Company has no significant minimum annual rental
commitments under non-cancelable operating leases for equipment and office
space. The Company has two leases for office and warehouse space. One lease
calls for monthly rental of $2,250 for years 1 and 2, $2,375 for year 3, $2,500
for year 4, and $2,625 for year 5. The lease can be canceled on 30 days' notice
and extends through June 30, 1999. The second lease originally was for ten years
at $150,000 per year commencing December 15, 1994, with the Company having the
annual right to terminate the lease during the first seven years of the lease
term. Effective September 1, 1995 this lease was renegotiated based upon a
reduction of rented space from 25,000 square feet to 17,000 square feet. The
term of this lease was for an initial period of six months, commencing on
October 1, 1995 and ending on March 31, 1996. The term automatically renews for
successive periods of six months each. After December 31, 1996, either party may
terminate the lease at any time by giving the other party at least ninety days
notice in writing. The annual rent from September 1, 1995 forward is $102,000,
which will be adjusted in future periods based on the Consumer Price Index. Rent
expense on all operating leases for the years ended March 31, 1996, 1995 and
1994 was $177,161, $96,967 and $51,135, respectively.
The Company has a long-term deferred compensation plan, pursuant to which
incentive compensation was provided
<PAGE>
to certain key employees based on the future operating performance of certain
projects. Awards under the plan at March 31, 1993 aggregated $404,625. During
the year ended March 31, 1994 early payout was made to three of the five
individuals under the plan, whereby they received $141,075 in cash and released
the Company from $78,925 in payments for the prepayment of the future amounts
due. Payments of one award of $45,000 was pending settlement of a dispute with
the individual at March 31, 1994 and was settled in 1995 for $28,000. The
balance of the awards of $139,625 is to be paid contingent upon applicable
project cash flows, if any, payable over a four-year period commencing with
December 31 following the start of commercial operations of the respective
project. Payments of $16,602 were made in 1994, $41,207 in 1995 and $68,691 in
1996.
NOTE 16 - SEGMENTS OF BUSINESS
The Company is a fabricator, manufacturer, distributor and developer of
proprietary and non-proprietary solar and heat transfer technology
products and systems and solar electric products and systems ("Product Segment")
as well as an owner and developer of independent power production projects
("Project Segment") through its partnership interests. These projects primarily
involve gas-fired cogeneration. The Company's export product sales, principally
to Europe and the Pacific Rim, for the years ended March 31, 1996, 1995 and 1994
were $455,114, $548,669 and $507,623, respectively. A summary of industry
segment information for the years ended March 31, 1996, 1995, and 1994 is as
follows:
<TABLE>
<CAPTION>
1996 Project Segment Product Segment Eliminations Total
- --------------------------------------------- --------------- ------------ ----------
<S> <C> <C> <C> <C>
Net revenues $384,044 $4,028,028 $4,412,072
Net loss (902,722) (1,575,597) (2,478,319)
Identifiable assets 29,131,974 3,563,959 (23,290,943) 9,404,990
Capital expenditures 262,950 59,551 322,501
Depreciation and amortization 276,271 112,166 388,437
</TABLE>
<TABLE>
<CAPTION>
1995
- ------------------------------
<S> <C> <C> <C> <C>
Net revenues $2,301,586 $4,562,612 $6,864,198
Net income (loss) 1,325,526 (1,692,603) (367,077)
Identifiable assets 25,640,671 3,556,545 (18,327,874) 10,869,342
Capital expenditures 341,704 154,665 496,369
Depreciation and amortization 238,727 108,589 347,316
</TABLE>
<TABLE>
<CAPTION>
1994
- ------------------------------
<S> <C> <C> <C> <C>
Net revenues $4,596,086 $3,758,668 $8,354,754
Net income (loss) 1,264,220 (1,257,699) 6,521
Identifiable assets 23,265,358 2,343,361 (12,527,730) 13,080,989
Capital expenditures 296,836 53,689 350,525
Depreciation and amortization 222,879 86,237 309,116
</TABLE>
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
The Proxy Statement for the Annual Meeting of Shareholders to be held September
25, 1996 (other than the portions thereof not deemed to be "filed" for the
purposes of Section 18 of the Securities Exchange Act of 1934), which when filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934 will be
incorporated by reference in this Annual Report on Form 10-KSB pursuant to
General Instruction E(3) of Form 10-KSB, will provide the information required
under Part III (Items 9, 10, 11 and 12).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Item
(a.)(1.) Exhibit No.
3-A Restated Certificate of Incorporation of the Registrant (filed as Exhibit
20-A of the Company's Form 10-Q for the quarter ended November 30,
1982 and incorporated herein by reference), as amended by Certificate
of Amendment of the Certificate of Incorporation of the Registrant
dated August 29, 1988, Certificate of Change of the Certificate of
Incorporation of the Registrant dated March 8, 1991, Certificate of
Amendment of the Certificate of Incorporation of the Registrant
dated March 8, 1991, Certificate of Amendment of the Certificate of
Incorporation of the Registrant dated April 12, 1991, and Certificate
of Change of the Certificate of Incorporation of the Registrant
dated July 1, 1991 (filed as Exhibits 3(a)(2) through (6), respectively,
of the Company's Form 10-QSB for the quarter ended September 30,
1994 and also incorporated herein by reference).
10-A BBI Power L.P. Second Amended and Restated Limited Partnership
Agreement among Besicorp International Power Corp., Chesapeake
Power Investments Co. Inc., Beta International Power Corp., and
Chesapeake Power Transport, Inc. dated as of January 31, 1996
21-A Subsidiaries of the Company
23-B Consent of Robbins, Greene, Horowitz, Lester & Co., LLP
27 Financial Data Schedule
99-A* Audited financial statements of Kamine/Besicorp Carthage L.P. for
the years ended December 31, 1995 and 1994
99-B* Audited financial statements of Kamine/Besicorp South Glens Falls L.P. for
the years ended December 31, 1995 and 1994
99-C Audited financial statements of Kamine/Besicorp GlenCarthage Partnership
for the years ended December 31, 1995 and 1994
99-D* Audited financial statements of Kamine/Besicorp Natural Dam L.P. for the
years ended December 31, 1995 and 1994
99-E* Audited financial statements of Kamine/Besicorp Syracuse L.P. for the
years ended December 31, 1995 and 1994
99-F* Audited financial statements of Kamine/Besicorp Beaver Falls L.P. for the
years ended December 31, 1995 and 1994
(b.) There were no reports filed on Form 8-K for the quarter ended March 31,
1996.
<PAGE>
* Certain Confidential Material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Act of 1934, as amended. The space where information
has been omitted has been marked as follows:
(INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BESICORP GROUP INC., Registrant
By: /s/ Michael F. Zinn Date: July 12, 1996
name: Michael F. Zinn
title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signatures Title Date
/s/ Michael F. Zinn President, Chairman, Director July 12, 1996
Michael F. Zinn (principal executive officer)
_______________________ Director ___________
Steven I. Eisenberg
/s/ Gerald A. Habib Director July 12, 1996
Gerald A. Habib
________________________ Director ___________
Harold Harris
/s/ Richard E. Rosen Director July 12, 1996
Richard E. Rosen
/s/ Michael J. Daley Vice President, Chief Financial July 12, 1996
Michael J. Daley Officer (principal financial
and accounting officer)
SUPPLEMENTAL INFORMATION
Subsequent to the filing of the report on this form, the Registrant shall
provide annual report and proxy material to security holders and the Registrant
shall furnish copies of such material to the commission at that time.
EXHIBIT INDEX
Exhibit No. Page No.
3.-A. Restated Certificate of Incorporation of the Registrant (filed as Exhibit
20-A of the Company's Form 10-Q for the quarter ended November 30,
<PAGE>
1982 and incorporated herein by reference), as amended by Certificate
of Amendment of the Certificate of Incorporation of the Registrant
dated August 29, 1988, Certificate of Change of the Certificate of
Incorporation of the Registrant dated March 8, 1991, Certificate of
Amendment of the Certificate of Incorporation of the Registrant
dated March 8, 1991, Certificate of Amendment of the Certificate of
Incorporation of the Registrant dated April 12, 1991, and Certificate
of Change of the Certificate of Incorporation of the Registrant
dated July 1, 1991 (filed as Exhibits 3(a)(2) through (6), respectively,
of the Company's Form 10-QSB for the quarter ended September 30,
1994 and also incorporated herein by reference).
10-A BBI Power L.P. Second Amended and Restated Limited Partnership
Agreement among Besicorp International Power Corp., Chesapeake
Power Investments Co. Inc., Beta International Power Corp., and
Chesapeake Power Transport, Inc. dated as of January 31, 1996
21-A Subsidiaries of the Company
23-B Consent of Robbins, Greene, Horowitz, Lester & Co., LLP
27 Financial Data Schedule
99-A* Audited financial statements of Kamine/Besicorp Carthage L.P. for the
years ended December 31, 1995 and 1994
99-B* Audited financial statements of Kamine/Besicorp South Glens Falls L.P. for
the years ended December 31, 1995 and 1994
99-C Audited financial statements of Kamine/Besicorp GlenCarthage Partnership
for the years ended December 31, 1995 and 1994
99-D* Audited financial statements of Kamine/Besicorp Natural Dam L.P. for the
years ended December 31, 1995 and 1994
99-E* Audited financial statements of Kamine/Besicorp Syracuse L.P. for the
years ended December 31, 1995 and 1994
99-F* Audited financial statements of Kamine/Besicorp Beaver Falls L.P. for the
years ended December 31, 1995 and 1994
* Certain Confidential Material contained in this document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Act of 1934, as amended. The space where information
has been omitted has been marked as follows:
(INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST)
<PAGE>
EXHIBIT NO. 10-A
EXECUTION COPY
BBI POWER L.P.
SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
TABLE OF CONTENTS
PAGE
ARTICLE I
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.02. Statutory and Regulatory References. . . . . . . . . . . . . . . .8
1.03. Fair Market Value. . . . . . . . . . . . . . . . . . . . . . . . .8
ARTICLE II
Partnership. . . . . . . . . . . . . . . . . . . . . . . . . 8
2.01. Formation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.02. Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.03. Principal Offices. . . . . . . . . . . . . . . . . . . . . . . . .9
2.04. Purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.05. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.06. Property Ownership. . . . . . . . . . . . . . . . . . . . . . . . 9
2.07. Power of the Partnership. . . . . . . . . . . . . . . . . . . . . 9
2.08. Registered Office and Registered Agent for Service of Process. . .9
ARTICLE III
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Management of the Partnership and Development of Projects. .10
3.01. Management in General. . . . . . . . . . . . . . . . . . . . . . 10
3.02. Reports and Information. . . . . . . . . . . . . . . . . . . . . 10
3.03. Meetings of the Partnership. . . . . . . . . . . . . . . . . . . 11
3.04. Partnership Assets. . . . . . . . . . . . . . . . . . . . . . . .11
3.05. Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.06. Proposals for Partnership Developments. . . . . . . . . . . . . .12
3.07. Project Owners. . . . . . . . . . . . . . . . . . . . . . . . . .13
3.08. Responsibility of Besicorp. . . . . . . . . . . . . . . . . . . .14
3.09. Allocation of Interests in Project Owners. . . . . . . . . . . . 14
3.10. Financing of Partnership Developments. . . . . . . . . . . . . . 15
<PAGE>
3.11. Fuel Transport. . . . . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE IV
Contributions. . . . . . . . . . . . . . . . . . . . . . . .17
4.01. Initial Contributions of General Partners. . . . . . . . . . . . 17
4.02. Initial Contributions of Limited Partners. . . . . . . . . . . . 17
4.03. Percentage Interests. . . . . . . . . . . . . . . . . . . . . . .17
4.04. Return of Capital Contributions. . . . . . . . . . . . . . . . . 17
4.05. No Interest on Capital Contributions. . . . . . . . . . . . . . .17
ARTICLE V
Capital Accounts; Partnership Allocations and Distributions.17
5.01. Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . . .17
5.02. Allocation of Net Income and Net Loss for Book Purposes. . . . . 18
5.03 Tax Allocations. . . . . . . . . . . . . . . . . . . . . . . . . 20
5.04. Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.05. Allocation of Nonrecourse Liabilities. . . . . . . . . . . . . . 21
ARTICLE VI
Financial Matters. . . . . . . . . . . . . . . . . . . . . .21
6.01. Deposits and Investments. . . . . . . . . . . . . . . . . . . . .21
6.02. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.03. Books of Account. . . . . . . . . . . . . . . . . . . . . . . . .22
6.04. Financial Statements. . . . . . . . . . . . . . . . . . . . . . .22
6.05. Changes in Interests. . . . . . . . . . . . . . . . . . . . . . .23
6.06. Federal Tax Audits. . . . . . . . . . . . . . . . . . . . . . . .23
6.07. Section 754 Election. . . . . . . . . . . . . . . . . . . . . . .24
ARTICLE VII
Restrictions on Partners. . . . . . . . . . . . . . . . . . 24
7.01. Transfers by General Partners. . . . . . . . . . . . . . . . . . 24
7.02. Assignment by and Substitution of Limited Partners. . . . . . . .24
7.03. General Provisions. . . . . . . . . . . . . . . . . . . . . . . .25
7.04. Project Owners. . . . . . . . . . . . . . . . . . . . . . . . . .26
ARTICLE VIII
Relationship with Partnership. . . . . . . . . . . . . . . .27
8.01. General Partners' Activities. . . . . . . . . . . . . . . . . . .27
8.02. Promotion of Partnership. . . . . . . . . . . . . . . . . . . . .27
8.03. Other Business. . . . . . . . . . . . . . . . . . . . . . . . . .27
8.04. Liability of the General Partners. . . . . . . . . . . . . . . . 28
8.05. Indemnification of the General Partners. . . . . . . . . . . . . 28
8.06. Restrictions on Limited Partners. . . . . . . . . . . . . . . . .29
8.07. Liability of Limited Partners. . . . . . . . . . . . . . . . . . 29
8.08. Restrictions on the General Partner. . . . . . . . . . . . . . . 29
ARTICLE IX
Continuance. . . . . . . . . . . . . . . . . . . . . . . . .30
ARTICLE X
Default; Liquidation. . . . . . . . . . . . . . . . . . . . 30
<PAGE>
10.01. Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
10.02. Rights upon Default. . . . . . . . . . . . . . . . . . . . . . . 31
10.03. Nonexclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . 31
10.04. Events of Dissolution. . . . . . . . . . . . . . . . . . . . . . 32
10.05. Liquidation and Termination. . . . . . . . . . . . . . . . . . . 32
10.06. Liquidating Distributions. . . . . . . . . . . . . . . . . . . . 33
ARTICLE XI
Representations and Warranties. . . . . . . . . . . . . . . 33
11.01. General Partner Representations and Warranties. . . . . . . . . .33
ARTICLE XII
General Terms. . . . . . . . . . . . . . . . . . . . . . . .35
12.01. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . .35
12.02. Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . .35
12.03. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.04. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . .35
12.05. Amendment and Waiver. . . . . . . . . . . . . . . . . . . . . . .36
12.06. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . .36
12.07. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 36
12.08. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . .36
12.09. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . .36
12.10. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
12.11. Method of Payment. . . . . . . . . . . . . . . . . . . . . . . . 36
12.12. Parties in Interest; Limitation on Rights of Others. . . . . . . 37
12.13. Payment on Business Days. . . . . . . . . . . . . . . . . . . . .37
12.14. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
12.15. Compliance with Securities Act. . . . . . . . . . . . . . . . . .37
12.16. Confidential Information. . . . . . . . . . . . . . . . . . . . .37
SCHEDULE I - Percentage of Ownership
BESICORP INTERNATIONAL POWER CORP., a Delaware corporation, and CHESAPEAKE
POWER INVESTMENTS CO. INC., a British Virgin Islands corporation, formed a
Delaware limited partnership with BETA INTERNATIONAL POWER CORP. and CHESAPEAKE
POWER TRANSPORT, INC. as the limited partners pursuant to a Limited Partnership
Agreement, dated as of November 4, 1994 (the "Original Agreement"). The Partners
(as defined below) amended and restated the Original Agreement as of June __,
1995 (the "Amended and Restated Agreement"). The Partners (as defined below)
wish to amend and restate the Amended and Restated Agreement as of January 31,
1996. Accordingly, the Amended and Restated Agreement is amended and restated to
read in its entirety as follows:
LIMITED PARTNERSHIP AGREEMENT, dated as of November 4, 1994 (this
"Agreement"), by and among BESICORP INTERNATIONAL POWER CORP., a Delaware
corporation ("Besicorp") and CHESAPEAKE POWER INVESTMENTS CO. INC., a British
Virgin Islands corporation ("Chesapeake") each as a general partner and BETA
INTERNATIONAL POWER CORP., a Delaware corporation ("BIPC"), and CHESAPEAKE POWER
TRANSPORT, INC., a Delaware corporation ("CPT"), each as a limited partner.
<PAGE>
The parties hereto desire to form a limited partnership under Delaware law
to engage in the business hereinafter described and upon the terms and
conditions hereinafter set forth.
In consideration of the premises and mutual covenants contained herein, the
parties hereto agree as follows:
ARTICLE I
Definitions
1.01. Definitions. As used in this Agreement, the following terms will have
the meanings specified:
"Adjusted Capital Account Deficit" shall mean, with respect to any Partner,
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant fiscal year after giving effect to the following adjustments:
(i) such Capital Account shall be deemed to be increased by any
amounts which such Partner is obligated to restore to the Partnership (pursuant
to this Agreement or otherwise) or is deemed to be obligated to restore pursuant
to the penultimate sentence of Treasury Regulation Section 1.704-2(g) (relating
to allocations attributable to nonrecourse debt); and
(ii) such Capital Account shall be deemed to be decreased by the items
described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
"Affiliate" shall mean a Person who is a Subsidiary, the parent or a Person
who, directly or indirectly through one or more intermediaries, Controls, or is
Controlled by, or is under common Control with, the person specified.
"Agreement" shall mean this Partnership Agreement.
"Assign" means to sell, transfer, assign, pledge, hypothecate, encumber or
otherwise dispose of an interest in the Partnership, whether voluntarily or by
operation of law. "Assignor", "Assignee" and "Assignment" have meanings
corresponding to the foregoing.
"Available Cash" means, at the time of determination, cash (including
demand deposits and securities which are readily tradeable on an established
securities market) generated from the Partnership's operations, after provision
has been made for (i) all operating expenses of the Partnership and (ii) such
amounts as the General Partners shall deem reasonable in order to provide for
any anticipated, contingent or unforeseen expenditures or liabilities of the
Partnership. Available Cash shall be determined without regard to (i) Capital
Contributions or (ii) principal advanced on Partnership indebtedness.
<PAGE>
"Bankruptcy" means, with respect to any Person, the occurrence of any of
the following events: (a) the entry of a decree or order by a court having
jurisdiction in the premises for relief in respect of a Person under Title 11 of
the United States Code, as now constituted or hereafter amended, or any other
applicable Federal or state bankruptcy law or other similar law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator or similar official of
such Person or of any substantial part of its property, or ordering the
winding-up or liquidation of its affairs and the continuance of any such decree
or order unstayed and in effect for a period of 60 consecutive days, (b) the
filing by a Person of a petition or answer or consent seeking relief under Title
11 of the United States Code, as now constituted or hereafter amended, or any
applicable Federal or state bankruptcy law or similar law, or other consent by
such Person to the institution of proceedings thereunder or to the filing of any
such petition or to the appointment or taking possession of a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of such Person or any substantial part of its property, or (c) the failure of a
Person generally to pay its debts as such debts shall become due.
"Book Value" means, with respect to any asset of the Partnership, the
asset's adjusted basis as of the relevant date for federal income tax purposes,
except as follows:
(i) the initial Book Value of any asset contributed by a Partner to
the Partnership shall be the Fair Market Value of such asset, which shall be
equal to the amount credited to such Partner's Capital Account for such
contribution;
(ii) the Book Values of all Partnership assets (including intangible
assets such as goodwill) shall be adjusted to equal their respective Fair Market
Values as of the following times:
(A) the acquisition of an additional interest in the Partnership by
any new or existing Partner in exchange for more than a de minimis capital
contribution;
(B) the distribution by the Partnership to a Partner of more than a de
minimis amount of money or Partnership assets as consideration for an interest
in the Partnership; and
(C) the liquidation of the Partnership within the meaning of Treasury
Regulation Section 1.704-1(b)(2)(ii)(g);
(iii) if the Book Value of an asset has been determined or adjusted
pursuant to this paragraph, such Book Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset for purposes of
computing Net Income and Net Loss and other items allocated pursuant to Section
5.02.
The foregoing definition of Book Value is intended to comply with the provisions
of Treasury Regulation Section 1.704-1(b)(2)(iv) and shall be interpreted and
applied consistently therewith.
"Business Day" shall mean any day other than a day on which banks in New
York, New York or Stevensville, Maryland are authorized or obligated to be
closed.
"Capital Account" shall have the meaning specified in Section 5.01.
"Capital Contribution" shall mean, with respect to each Partner, the amount
of cash and the Fair Market Value of property which the Partner has actually
contributed to the Partnership as of the date in question. If an interest in the
Partnership is Assigned pursuant to Article VII, the Capital Contribution of the
Assignee shall include any Capital Contribution previously made by the Assignor.
<PAGE>
"Certificate" shall mean the Certificate of Limited Partnership of the
Partnership filed with the Delaware Secretary of State, as the same may be
amended.
"Client" shall mean a Person with whom a managing agency or managing
general agency relationship with CPT shall exist.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Co-Developers" shall have the meaning given in Section 3.10.
"Confidential Information" shall have the meaning given in Section 12.16.
"Control" shall mean, with respect to any Person, the power to direct the
management and policies of such Person, directly or indirectly, by or through
stock ownership, agency or otherwise, or pursuant to or in connection with an
agreement, arrangement or understanding (written or oral) with one or more other
Persons by or through stock ownership, agency or otherwise; and the terms
"Controlled" and "Controls" shall have a meaning correlative to the foregoing.
"Corporate Change" shall mean, with respect to any corporation (i) the
acquisition (whether by way of merger, tender offer, open market purchases or
otherwise) by any Person (or group of Persons acting in concert or as a group)
of capital stock of such corporation representing more than forty nine percent
(49%) of the Voting Power of the then outstanding capital stock of such
corporation, (ii) the election of directors representing a majority of the board
of directors of such corporation, if such election is opposed by such
corporation or by a majority of directors in office prior to such election
(except, in the case of a corporation controlled by Besicorp, if such directors
were proposed by the Person who is the Controlling shareholder of Besicorp on
the date hereof), (iii) the sale or transfer of in excess of sixty percent (60%)
by value of the assets of such corporation to any Person or Persons in one
transaction or a series of related transactions or (iv) a change in Control
shall have occurred.
"Defaulting Partner" shall have the meaning given in Section 10.01.
"Depreciation" shall mean for each fiscal year or part thereof an amount
equal to the depreciation, amortization, or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such
fiscal year or other period, except that if the Book Value of an asset differs
from its adjusted basis for federal income tax purposes at the beginning of such
fiscal year, Depreciation shall be an amount which bears the same ratio to such
Book Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such fiscal year bears to such adjusted tax basis.
"Development Cost Budget" shall mean a budget for a Partnership Development
prepared by the Managing Partner and accepted by a Co-Developer, an equity
participant or any financing party who shall actually provide financing for the
development expenses of that Partnership Development.
"Dollars" or "$" shall mean dollars of United States currency.
"GAAP" shall mean generally accepted accounting principles in the United
States of America, as in effect from time to time.
"General Partner" or "General Partners" shall mean Besicorp and Chesapeake
and any additional or substitute general partners of the Partnership admitted
pursuant to the terms of this Agreement and excluding any Persons thereafter
withdrawing as general partners.
"IRS" shall mean the Internal Revenue Service.
"Krishnapatnam Project" shall have the meaning given in Section 3.06.
<PAGE>
"Limited Partner" or "Limited Partners" shall mean BIPC and CPT, and all
Persons thereafter becoming limited partners of the Partnership admitted
pursuant to the terms of this Agreement and excluding any Persons thereafter
withdrawing as limited partners.
"LP Interest" shall mean an interest in the Partnership as a Limited
Partner.
"Managing General Partner" shall mean the General Partner appointed as such
in Section 3.01.
"Net Income" and "Net Loss" shall mean, for each fiscal year or part
thereof, the Partnership's taxable income or loss for such year determined in
accordance with Code Section 703(a) (for this purpose, all items of income,
gain, loss or deduction required to be stated separately pursuant to Code
Section 703(a)(1) shall be included in taxable income or loss) with the
following adjustments:
(i) any income of the Partnership that is exempt from federal income
tax shall be added to such taxable income or loss;
(ii) any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as such pursuant to Treasury Regulation Section 1.704-
1(b)(2)(iv)(i) shall be subtracted from such taxable income or loss;
(iii) Depreciation for such fiscal year shall be taken into account in
lieu of the depreciation, amortization and other cost recovery deductions taken
into account in computing such taxable income or loss;
(iv) gain or loss resulting from any disposition of Partnership assets
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed with reference to the Book Value of the assets disposed of,
rather than the adjusted tax basis of such assets;
(v) such taxable income or loss shall not be deemed to include (A)
items of Code Section 705(a)(2)(B) expenditures taken into account in computing
the Partners' shares of Partnership Nonrecourse Deductions or Partner
Nonrecourse Deductions, or (B) any income, gain, loss, deduction or other item
thereof allocated pursuant to Section 5.02(c) (relating to allocations caused by
the presence of nonrecourse debt);
(vi) if any asset is distributed in kind to any Partner, the
difference between its Fair Market Value and its Book Value at the time of
distribution shall be treated as Net Income or Net Loss, as the case may be,
recognized by the Partnership; and
(vii) if Partnership assets are adjusted pursuant to clause (ii) of
the definition of Book Value, the difference between their fair market value and
their Book Value at the time shall be treated as Net Income or Net Loss, as the
case may be, recognized by the Partnership.
"Nondefaulting Partner" shall have the meaning given in Section 10.01.
"Non-Transferring Partner" shall have the meaning given in Section 7.04.
<PAGE>
"Operative Contracts" shall mean all agreements, contracts, promissory
notes, deeds, mortgages, assignments, pledges, security documents, instruments,
charters or other organizational documents which relate to the business of the
Partnership in the Territory, including, without limitation, financing
agreements, development capital agreements, construction contracts, operation
and maintenance contracts, fuel contracts, power purchase agreements, support
agreements, implementation agreements, foreign exchange agreements, leases, land
purchase agreements, consulting agreements, easement agreements, shareholders'
agreements, partnership agreements, equity participation agreements and any
material amendment, modification, waiver, consent or approval pursuant to any of
the foregoing.
"Partner" or "Partners" shall mean a partner or partners of the Partnership
and includes all General Partners and Limited Partners.
"Partner Group" shall consist of Besicorp and BIPC on the one hand and
Chesapeake and CPT, on the other.
"Partnership" shall mean the limited partnership formed hereunder.
"Partnership Assets" shall have the meaning given in Section 3.04.
"Partnership Development" shall mean any proposed project approved by the
General Partners in accordance with Section 3.06.
"Partnership Interest" shall mean all the right, title and interest of a
Partner in the assets, liabilities and obligations of the Partnership and its
rights and obligations under this Agreement.
"Partnership Law" shall have the meaning given in Section 2.01.
"Partner Nonrecourse Debt" shall have the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" shall mean an amount, with respect
to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that
would result if such Partner Nonrecourse Debt were treated as a nonrecourse
liability, determined in accordance with Treasury Regulation Section 1.704-2(i).
"Partner Nonrecourse Deductions" shall mean the excess, if any, of the net
increase, if any, in the amount of Partner Nonrecourse Debt Minimum Gain
attributable to a Partner Nonrecourse Debt during a fiscal year over the
aggregate amount of any distributions during that fiscal year to the Partner
that bears the economic risk of loss for such Partner Nonrecourse Debt to the
extent such distributions are from the proceeds of such Partner Nonrecourse Debt
and are allocable to an increase in Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Treasury Regulation Section 1.704-2(i).
"Partnership Minimum Gain" shall mean the aggregate amount of gain (of
whatever character), determined for each nonrecourse liability of the
Partnership, that would be realized by the Partnership if it disposed of the
Partnership asset subject to such liability in a taxable transaction in full
satisfaction thereof, determined in accordance with Treasury Regulation Section
1.704-2(d).
<PAGE>
"Partnership Nonrecourse Deductions" shall mean the excess, if any, of the
net increase, if any, in the amount of Partnership Minimum Gain during a fiscal
year over the aggregate amount of any distributions during that fiscal year of
proceeds of a nonrecourse liability as defined in Treasury Regulation Section
1.704-2(c).
"Percentage Interests" shall have the meaning given in Section 4.03.
"Person" shall mean an individual, corporation, partnership, association,
trust, joint stock company or unincorporated organization.
"Proceeding Partner" shall have the meaning given in Section 3.06.
"Project Financing" shall mean financing techniques under which lenders
agree to extend credit on the basis of the economic merit of the Partnership
Development to be developed and constructed or other existing Partnership
Developments and related contractual arrangements but without recourse to the
Partners or their Affiliates (or with limited recourse to the Partners, but not
their Affiliates, as may be agreed to by the Partners).
"Project Owner" shall mean any Person incorporated or organized as
contemplated by Section 3.07 to develop, construct, operate, finance, maintain
or sell a Partnership Development.
"Proposed Project" shall have the meaning given in Section 3.06.
"Prorata" shall mean the proportion the interest of Chesapeake, its
Affiliates, Clients and designees bears to the interest of Besicorp, its
Affiliates and designees of any kind in a Project Owner or for any cash flow
interest in a Partnership Development or for payment of expenses or fees or
representation on a committee, or for purposes of Section 3.11, which (a) with
reference to Partnership Developments in India, shall mean a ratio of 50-50 and
(b) with reference to Partnership Developments in Pakistan, shall mean in a
ratio of three to one.
"Subsidiary" shall mean any corporation in which a specified Person
directly or indirectly owns capital stock representing fifty percent (50%) or
more of the Voting Power of the capital stock of such corporation.
"Territory" shall mean the Islamic Republic of Pakistan and the Union of
India.
"TMP" shall have the meaning given in Section 6.09.
"Transferring Partner" shall have the meaning given in Section 7.04.
"Voting Power" when used with reference to the capital stock of any Person
shall mean the power under ordinary circumstances (and not merely upon the
happening of a contingency) to vote in the election of directors of such Person.
1.02. Statutory and Regulatory References. Any reference herein to any
statute, regulation or rule of law shall be deemed to refer to such statute,
regulation or rule from time to time in effect, or to any successor provisions.
If such provision is repealed, such references shall be deemed to mean the
statute, regulation or rule as in effect at the time of repeal.
1.03. Fair Market Value. Except as expressly provided herein, the "Fair
Market Value" of any asset shall be determined by the General Partners.
<PAGE>
ARTICLE II
Partnership
2.01. Formation. The Partners wish to form a limited partnership pursuant
to the provisions of the Delaware Revised Uniform Limited Partnership Act, as
amended (the "Partnership Law") for the purposes set forth in Section 2.04.
2.02. Name. (a) The Partnership shall do business under the name "BBI POWER
L.P.". The Managing General Partner shall cause to be filed on behalf of the
Partnership such Partnership or assumed or fictitious name certificates as from
time to time may be required by law.
2.03. Principal Offices. The principal offices of the Partnership shall be
at Stevensville, Maryland, or at such other place as the Managing General
Partner may from time to time determine.
2.04. Purposes. The purposes of the Partnership shall be (i) to identify
and evaluate proposals for the development, construction, financing, operation
and maintenance and sale of cogeneration facilities and other thermal power
generating facilities in the Territory, (ii) to incorporate or to organize
Persons to be Project Owners to develop, construct, operate, finance, maintain
or sell cogeneration facilities and other thermal power generating facilities in
the Territory and to provide services to such Project Owners, (iii) to engage in
related activities and (iv) to engage in such other activities as the General
Partners consider to be necessary or appropriate in connection with the purposes
set forth above or incidental thereto.
2.05. Term. The Partnership will commence upon the filing in the Office of
the Secretary of State of Delaware of its Certificate and will continue until
midnight on January 31, 2006, unless sooner terminated pursuant to the
provisions of this Agreement.
2.06. Property Ownership. All assets and property, whether real or
personal, tangible or intangible, owned by the Partnership, unless otherwise
determined by the Partnership or otherwise provided herein, shall be held in the
name of the Partnership.
2.07. Power of the Partnership. In connection with the business of the
Partnership, the Partnership may retain agents, employees and consultants,
engage in the acquiring in any manner, holding, selling, leasing, licensing and
otherwise disposing of all kinds and classes of real and personal property,
tangible and intangible, and managing, utilizing and operating the same. The
Partnership shall further have the power to do any and all things necessary or
desirable in the conduct of such business including, but not limited to, the
borrowing of funds (and securing the same by mortgage, deed of trust, or
otherwise) and the execution of such instruments as may be necessary or
appropriate to accomplish its business purposes.
2.08. Registered Office and Registered Agent for Service of Process. The
address of the Partnership's registered office in the State of Delaware is c/o
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801. The name and address of the Partnership's agent for
service is The Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware 19801.
<PAGE>
ARTICLE III
Management of the Partnership and Development of Projects
3.01. Management in General (a) The management and operation of the
Partnership shall be vested exclusively in Chesapeake as Managing General
Partner. The Managing General Partner shall have the power to carry out, on
behalf of and in the name of the Partnership, any and all of its objects and
purposes set forth in Section 2.04.
(b) Without limitation of the foregoing, the Managing General Partner shall
have the sole authority to negotiate, execute and deliver contracts including,
without limitation, Operative Contracts, in the name and on behalf of the
Partnership.
(c) The Managing General Partner shall have the sole authority to appoint
persons as officers of the Partnership and remove such persons with or without
cause.
(d) Without limitation of the foregoing, the Managing General Partner shall
manage the development of all Partnership Developments including (i) negotiating
and executing contracts with potential equity participants and potential
Co-Developers and (ii) engaging legal advisors, financial advisors, accountants,
bankers and investment bankers.
(e) Every instrument executed by the Managing General Partner shall be
conclusive evidence in favor of every Person relying thereon or claiming
thereunder that at the time of delivery thereof the execution and delivery of
such instruments had been duly authorized under this Agreement.
3.02. Reports and Information. The Managing General Partner shall provide
by telecopy or overnight delivery service to Besicorp as promptly as practical
after each becomes available:
(a) Copies of all reports and material correspondence provided to or
received from a Co-Developer or any equity or financing participant in any
Partnership Development;
(b) Copies of any notice of default or breach (i) by the Partnership, (ii)
under any contract or instrument to which the Partnership or a Project Owner may
be a party or (iii) relating to any Partnership Development;
(c) Notice of any litigation or legal proceeding relating to the
Partnership, a Project Owner or any Partnership Development;
(d) Notice of the opening of bank accounts of the Partnership or any
Project Owner and the name and location of the relevant bank;
(e) for the Partnership and each Project Owner, a quarterly memorandum
delivered at the time financial statements are delivered as required by Section
6.04, which sets forth the amount and source of cash receipts and the amount of
all disbursements and the payees hereof;
(f) Copies of all executed contracts, agreements and commitments; and
(g) Copies of all draw-down requests that have been submitted to
Co-Developers or requests for funding submitted to financing parties for Project
Owners or the Partnership and notice of the receipt of funds from such
Co-Developers or other financing parties.
<PAGE>
3.03. Meetings of the Partnership. Meetings of the Partnership shall be
held at such time and place as the Managing General Partner shall select, not
less frequently than once per year. The meetings may be held in person or by
means of conference telephone or similar communication equipment allowing all
persons participating in the meeting to hear each other at the same time. All
General Partners shall attend all meetings, and a Limited Partner, at its
option, may attend any meeting. Each General Partner may call a meeting on not
less than three (3) Business Days' prior written notice to all other Partners.
The Managing General Partner shall select a person who shall prepare appropriate
minutes of each meeting. The Chairman of the Partnership meetings shall be a
representative of the Managing General Partner.
3.04. Partnership Assets. Assets or rights contributed by each Partner
shall be the property of the Partnership as opposed to any Partner. In addition,
any property, tangible or intangible (including any tangible or intangible right
arising with regard to any Partnership Development) acquired or developed by the
Partnership shall also be the property of the Partnership except as otherwise
provided herein. Title thereto shall vest in the Partnership immediately and
without action by the Partners, and shall be free and clear of liens or
encumbrances except purchase money security interests under accounts payable for
which money has not yet been provided by the Partnership. Property belonging to
the Partnership in accordance with the foregoing is herein sometimes referred to
collectively as "Partnership Assets." Other than as set forth in Section 3.06,
the Partnership and Project Owners shall have the exclusive right to use the
name "BBI Power" within the Territory while Chesapeake and its Affiliates and
designees shall have the exclusive right to use such name elsewhere in the world
outside of the Territory.
3.05. Records. During the term of this Agreement, the Managing General
Partner shall maintain copies of all books, records and files of the
Partnership. Each Partner (as well as their respective designated
representatives) shall be afforded reasonable access, during normal business
hours after reasonable notice to the facilities, properties, book records and
files of the Partnership as may be reasonably required for purposes related to
this Agreement, including, but not limited to, bank statements.
<PAGE>
3.06. Proposals for Partnership Developments. (a) The Partnership is
currently developing thermal power generation projects in Krishnapatnam (the
"Krishnapatnam Project") and Bhavanapadu, Andhra Pradesh, India and in Lakhra,
Pakistan. The General Partners contemplate the development of other thermal
power generation projects in the Territory. Subject with respect to Besicorp to
the provisions of Section 3.08, the General Partners, under the direction of the
Managing General Partner, shall investigate prospective opportunities to develop
thermal power generation projects in the Territory ("Proposed Projects") and do
preliminary development work with respect thereof. At the time that the Managing
General Partner first directs Besicorp to do preliminary development work with
respect to a Proposed Project, Besicorp shall have the right by written notice
to the Managing General Partner to opt out of such Proposed Project, and, if it
opts out, will not be required to provide the services of its personnel pursuant
to Section 3.08 or incur any liability with respect to such Proposed Project. In
addition, if Besicorp shall have provided the services of its personnel for
preliminary development work with respect to a Proposed Project, it shall
nonetheless have the right to withdraw from any Proposed Project upon 60 days'
written notice to the Managing General Partner; provided however, that until the
expiration of such 60-day period, Besicorp shall continue to provide the efforts
toward the preliminary development of the Proposed Project required by Section
3.08(b). If Besicorp shall opt out or withdraw from a Proposed Development, it
shall not become a Partnership Development. If Besicorp shall not have opted out
or withdrawn from a Proposed Project, after a letter of intent, memorandum of
understanding or similar document is executed with respect to any Proposed
Project, the Managing General Partner shall prepare an information memorandum
(the "Information Memorandum") which summarizes all material information
available to the Managing General Partner with respect to such Proposed Project
for the consideration of Besicorp. Besicorp shall have 30 days from receipt of
the Information Memorandum to provide to the Managing General Partner written
notice that it approves or disapproves such Proposed Project. The Managing
General Partner shall make personnel reasonably available during such 30-day
period to meet with Besicorp and to discuss the Proposed Project. If Besicorp
does not provide written notice to the Managing General Partner within such
30-day period, Besicorp shall be deemed for all purposes to have rejected such
Proposed Project and it shall not be a Partnership Development. If both General
Partners shall approve such Proposed Project, it shall be a Partnership
Development.
(b) If Besicorp shall have either opted out of or withdrawn from a Proposed
Project or shall not approve such Proposed Project, the Managing General Partner
or its Affiliates or designees (the "Proceeding Partner") may undertake such
project independently of the Partnership and neither the Partnership nor
Besicorp shall have any rights with respect to or interest in such Proposed
Project. Except as set forth in Paragraph (a) Besicorp shall have no obligation
pursuant to Section 3.08 to provide any services with respect to any such
Proposed Project or to incur any other liability whatsoever with respect
thereto. Within a reasonable time the Proceeding Partner shall organize a
company or other entity to develop such Proposed Project. The entity so
organized may contain "BBI Power" in its name but shall include a geographical
description or other wording to distinguish it from the Partnership and any
Project Owner. If Besicorp shall have provided the services of personnel, as
contemplated by Section 3.08, to investigate and do preliminary development work
with respect to a Proposed Project which it rejects as a Partnership Development
or from which it withdraws, it shall be entitled to reimbursement for the man
hours of service that it provided with respect to such Proposed Project, subject
to the next sentence. The amount of such reimbursement shall be due and payable
only upon the financial closing of construction financing for such Proposed
Project.
<PAGE>
(c) Besicorp shall have the right to withdraw from any Partnership
Development upon 60 days' written notice to the Managing General Partner;
provided, however, that until the expiration of such 60-day period, Besicorp
shall continue to provide the efforts toward the development of the Partnership
Development required by Section 3.08. If the Project Owner has not yet been
organized, the Proceeding Partner shall organize a company or other entity to
develop the Partnership Development, which may contain "BBI Power" in its name
but shall include a geographical description or other wording to distinguish it
from the Partnership and Project Owners. If the Project Owner has been
organized, Besicorp shall cause its Affiliate or designee to transfer its
interest in such Project Owner to the Proceeding Partner for a nominal
consideration. In each case, the newly organized entity or the Project Owner, as
the case may be, shall reimburse Besicorp for the services of personnel provided
pursuant to Section 3.08 but only upon, and subject to the occurrence of, the
financial closing of construction financing for such Partnership Development. If
Besicorp shall exercise its rights under this Section 3.06(c), it shall treat
such fact as Confidential Information, as well as the other facts and
circumstances related to such Partnership Development.
3.07. Project Owners. (a) For each Partnership Development, as soon as the
Managing General Partner may deem it advisable, the Partners or their designees
shall organize a Project Owner for each Partnership Development. The terms and
conditions of this Agreement are intended to be binding on each Partnership
Development so that when the Partners or their designees shall either (x) form a
partnership or (y) form a corporation or appropriate entity to be the Project
Owner for such Partnership Development, there shall be a partnership agreement
or a shareholders agreement for such corporation or entity which incorporates
the provisions of this Agreement, with such conforming changes as may be
necessary. The Partnership may enter into such service agreements with Project
Owners as shall be approved by the Managing General Partner to provide
development, management and staff services to the Project Owners for which the
Partnership shall receive compensation and development fees consistent with the
provisions of Sections 3.08 and 3.10. Any such contract for the Managing General
Partner, its Affiliates or Clients to provide such services shall be no less
beneficial to the Partnership or such Project Owner as an arm's length, third
party contract.
(b) The Managing General Partner shall propose the organizational and
ownership structure for each Partnership Development; provided, however, that
such structure shall not be implemented without the consent of Besicorp, such
consent not to be unreasonably withheld.
<PAGE>
3.08. Responsibility of Besicorp. (a) In consideration for the allocation
to it of its interest in Project Owners, Besicorp shall use its absolute best
efforts to support the development of all Partnership Developments, as requested
by the Managing General Partner, subject to the provisions of Section 3.10(b).
In furtherance of the foregoing, Besicorp agrees that, if but only if requested
by the Managing General Partner, Besicorp shall provide the professional
services of Steven I. Eisenberg, Joseph Novarro, Richard Clark and William
Derby, or such other persons as the General Partners may agree. At the request
of the Managing General Partner, Besicorp shall provide for each Proposed
Project and Partnership Development the level of participation (in terms of man
hours devoted to the project) comparable to that it has provided to the
Krishnapatnam Project. The Managing General Partner shall provide reasonable
notice of the timing of the provision of requested professional services and the
specific tasks to be performed. Since the Partnership seeks to develop thermal
power generation projects in the Territory, Besicorp acknowledges that such
development efforts will entail significant efforts and travel outside of the
United States.
(b) During the period from the time of identifying a Proposed Project until
such time as a letter of intent or memorandum of understanding or similar
document is executed, Besicorp shall provide, at the request of the Managing
General Partner, the services of such men (i) to investigate the technical
feasibility of a Proposed Project, (ii) to provide input with respect to
financial, contractual and project structure issues, (iii) to provide support
services with respect to prospective investors in, and vendors to, a Proposed
Project, (iv) to provide services with respect to establishing and maintaining
relations with government instrumentalities and agencies outside of the United
States, (v) to assist in the preparation of solicitations and preparations of
bids or tenders, (vi) to provide general administrative and technical support,
and (vii) to perform such other tasks as may be mutually agreeable. With respect
to Partnership Developments, in addition to the foregoing and other support
services relating to the development of Partnership Developments, at the request
of the Managing General Partner, Besicorp shall provide the services of such men
to perform executive and managerial functions.
(c) Besicorp shall endeavor to provide the services of the men listed in
paragraph (a), or such substitutions as may be mutually agreeable, when and as
requested by the Managing General Partner to perform the endeavors contemplated
by this Agreement. The Managing General Partner shall be reasonable in its
requests to Besicorp for the services of its personnel, and it shall not request
that Besicorp provide any greater level of effort and involvement in any
Proposed Project or Partnership Development than that provided by its personnel.
Besicorp shall submit time sheets as requested by the Managing General Partner
with respect to the provision of services contemplated by this Section. When in
the course of performing the services contemplated by this Agreement Besicorp
personnel meet with Persons not affiliated with the Partnership or its Partners,
such Besicorp personnel shall use business cards in the name of the Partnership
or the relevant Project Owner, as provided by the Managing General Partner.
<PAGE>
3.09. Allocation of Interests in Project Owners. (a) Ownership Interests.
With respect to all Partnership Developments in India, Chesapeake and Besicorp
or their respective designees shall have equal equity, cash flow and partnership
interests in each Project Owner until financial closing of construction
financing of such Partnership Development. With respect to all Partnership
Developments located in Pakistan, Chesapeake and Besicorp shall have equity,
cash flow and partnership interests in each Project Owner in a ratio of three to
one, Chesapeake to Besicorp, until financial closing of construction financing
of the applicable Partnership Development. After financial closing of
construction financing of any Partnership Development, and subject to the
provisions of any Operative Contracts for such Partnership Development and the
provisions of Section 7.04, each of Besicorp and Chesapeake may Assign its
interests in such Project Owner without regard to whether, after the Assignment,
the interests of Chesapeake and Besicorp would remain Prorata.
(b) Dilution of Ownership Interests. If either through the sale of equity
or the granting of cash flow interests of an incorporated Project Owner or the
granting of a partnership or cash flow interest in an unincorporated Project
Owner, or otherwise, the ownership interests of Chesapeake and Besicorp, or
their respective designees, is diluted in a Project Owner, the resulting
dilution shall, nonetheless, preserve the Prorata interest in such Project Owner
by Chesapeake and Besicorp, or their respective designees, until financial
closing of construction financing with respect to that Partnership Development.
(c) Executive Committees. If a committee consisting of representatives of
Co-Developers or other financing parties or equity participants is constituted
for any Partnership Development, Besicorp and Chesapeake, or their respective
designees, shall have representation on such committee, Prorata.
3.10. Financing of Partnership Developments. (a) It is the intention of the
General Partners to finance the development and capital cost of Partnership
Developments to the maximum extent through the use of Project Financing. In
addition, it is the intention of the General Partners to seek financing of
development expenses of Partnership Developments from unaffiliated third parties
("Co-Developers"), at the discretion of the Managing General Partner.
(b) Expenses of Partnership Developments. Until the receipt of any
financing from Co-Developers, other equity participants or investors in any
Project Owner or Partnership Development, each of Chesapeake and Besicorp shall
finance their, or their designee's, internal development costs, including, with
respect to Besicorp, the cost of providing the professional services as required
by Section 3.08 and reasonable out-of-pocket expenses related thereto.
Notwithstanding the foregoing, Besicorp shall not be required to pay any third
party development expenses of the Partnership or any Project Owner except
expenses that would be characterized as internal development costs in a
Development Capital Budget.
(c) Allocation of Reimbursement of Project Expenses. (i) To the extent that
the Partnership or any Project Owner receives funding for a Partnership
Development from a Co-Developer, any equity participant, or from another
financing source to reimburse the line items in the Development Cost Budget
entitled Third Party Reimbursable Costs, Internal Timing Billings and
Out-of-Pocket Expenses, as between Besicorp and Chesapeake, such funding shall
be distributed as follows:
(x) For any Third Party Reimbursable Cost (to the extent specifically
set forth as such as a line item in the Development Capital Budget for such
Partnership Development) on a first-in first-out basis to the General Partner
which incurred such expense.
<PAGE>
(y) For Internal Time Billings and Out-of-Pocket Expenses, (x) with
respect to Partnership Developments in India, to Chesapeake and Besicorp in
equal amounts and (y) with respect to Partnership Developments in Pakistan, to
Chesapeake and Besicorp in a ratio of three to one, in each case without regard
to the actual ratio of such Internal Time Billings and Out-of-Pocket Expenses
incurred by such General Partners.
(ii) The Managing General Partner shall make reasonable efforts to ensure
that each Development Cost Budget shall contain line items for Internal Time
Billings and Out-of-Pocket Expenses.
(d) Payment of Development Fees. If the financing provided to any Project
Owner will permit the payment of development, administrative and/or management
fees, for a Partnership Development, such fees shall be paid to Chesapeake and
Besicorp as further payment for the provision of services of its personnel (i)
with respect to Partnership Developments in India, in equal shares and (ii) with
respect to Partnership Developments in Pakistan, in a ratio between Chesapeake
and Besicorp of three to one.
(e) Approval of Project Financing. For each Partnership Development, the
terms and conditions of the construction financing and any refinancing thereof
shall be approved by a majority in interest of the shareholders or general
partners, as the case may be, of the Project Owner.
3.11. Fuel Transport. Chesapeake and its Affiliates and Clients shall have
the exclusive right to transport the coal and lime requirements for the
Partnership Developments on commercially competitive terms acceptable to third
parties providing debt or equity to the Project Owner of such Partnership
Development and shall retain for itself and its Affiliates and Clients and
designees the benefit arising therefrom. If any Project Owner enters into a coal
or lime supply contract with Chesapeake, an Affiliate or Client, including a
contract in which such Person acts as the agent of the Project Owner in the
procurement of coal or lime, Chesapeake shall ensure that the benefit of such
contract (but not any fuel transportation contract) is shared with Besicorp on a
Prorata basis.
ARTICLE IV
Contributions
4.01. Initial Contributions of General Partners. As its initial
contribution to the capital of the Partnership each of the General Partners is
contributing $50.
4.02. Initial Contributions of Limited Partners. As its initial
contribution to the capital of the Partnership, each Limited Partner is
contributing $450.
4.03. Percentage Interests. Upon making the Capital Contribution set forth
in Section 4.01 and 4.02, the Partners shall have the Percentage Interests set
forth on Schedule 1. Upon the effectiveness of any Assignment of an interest in
the Partnership or substitution of a new Partner, the Partners' Percentage
Interests shall be adjusted accordingly.
4.04. Return of Capital Contributions. No Partner will have the right to
return of its capital contribution except in accordance with Article V or
Article X.
4.05. No Interest on Capital Contributions. No Partner shall be entitled to
receive interest on any portion of its Capital Contribution.
<PAGE>
ARTICLE V
Capital Accounts; Partnership Allocations and Distributions
5.01. Capital Accounts. The Partnership shall maintain a separate capital
account ("Capital Account") for each Partner in accordance with federal income
tax accounting principles and Treasury Regulation Section 1.704-1(b). A
Partner's Capital Account shall, as of any given date, reflect the Partner's
Capital Contributions to the extent actually paid to the Partnership and the
Book Value of property contributed by such Partner to the Partnership, (i)
increased to reflect the Partner's distributive share of Partnership Net Income
and gain (or item thereof) and (ii) decreased to reflect (a) its distributive
share of Partnership Net Loss and deduction (or item thereof), for each fiscal
year or fraction thereof, and (b) the amount of cash or the Book Value of
property distributed by the Partnership to such Partner.
The following additional rules shall apply in maintaining Capital Accounts:
(a) Amounts described in Section 709 of the Code (other than amounts
with respect to which an election is in effect under Section 709(b) of the Code)
shall be treated as described in Section 705(a)(2)(B) of the Code.
(b) In the case of a contribution to the Partnership of a promissory
note (other than a note that is readily tradeable on an established securities
market), the Capital Account of the Partner contributing such note shall not be
increased until (i) the Partnership makes a taxable disposition of such note, or
(ii) principal payments are made on such note, and then only to the extent of
such payments.
(c) If the Book Values of Partnership assets are adjusted, as provided
in the definition of Book Value, the Capital Accounts of all Partners shall be
adjusted simultaneously to reflect the aggregate net adjustment as if the
Partnership recognized gain or loss equal to the amount of such aggregate net
adjustment and such gain or loss were allocated to the Partners in the manner
required by Section 5.02.
(d) If, in any taxable year, the Partnership has in effect an election
under Section 754 of the Code, Capital Accounts shall be adjusted in accordance
with Treasury Regulation Section 1.704-1(b)(2)(iv)(m).
(e) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Treasury Regulation Section 1.704-1(b), and shall be interpreted and
applied in a manner consistent with such Regulations. To the extent such
provisions are inconsistent with such regulations or are incomplete with respect
thereto, the Capital Accounts of the Partners shall be maintained in accordance
with such Regulations.
(f) Except as may otherwise be provided in this Agreement, whenever it
is necessary to determine the Capital Account of a Partner, the Capital Account
of such Partner shall be determined after giving effect to all allocations and
distributions for transactions effected prior to the time as of which such
determination is to be made. Any Partner who shall acquire a percentage interest
in the Partnership or whose percentage interest shall be increased by means of a
transfer to him of all or part of the percentage interest of another Partner,
shall have a Capital Account which reflects such transfer.
<PAGE>
5.02. Allocation of Net Income and Net Loss for Book Purposes.
(a) Net Income from Operations. Subject to Section 5.02(c), Net Income
for each fiscal year of the Partnership shall be allocated among the Partners as
follows:
(i) First, to any Partners with negative balances in their Capital
Accounts, in proportion to such negative balances.
(ii) Thereafter, to the Partners in proportion to their respective
Percentage Interests.
(b) Net Loss. (1) In General. Subject to Section 5.02(b)(2), Net Loss for
each fiscal year of the Partnership shall be allocated in accordance with the
positive balances in the Partners' Capital Accounts provided, however, that to
the extent an allocation of Net Loss to any Partner would reduce his Capital
Account balance below zero, such portion of Net Loss shall instead be allocated
among the Partners with positive Capital Account balances, in proportion to such
balances, until all the Partners' Capital Accounts are reduced to zero,
following which any remaining Net Loss shall be allocated to the General
Partners in proportion to their Percentage Interests.
(2) Limitation on Loss Allocations. The Net Losses allocated to any
Partner pursuant to Section 5.02(b)(1) with respect to any fiscal year shall not
exceed the maximum amount of Net Losses that can be so allocated without causing
such Partner to have a Adjusted Capital Account Deficit at the end of such
fiscal year. All Net Losses in excess of the limitation set forth in this
Section 5.02(b)(2) shall be allocated to those Partners who will not be subject
to this limitation, in proportion to their respective Percentage Interests.
(c) Nonrecourse Debt Rules. Notwithstanding the general allocation rules
set forth in Section 5.02(a) and (b), the following special allocation rules
shall apply under the circumstances described therein:
(i) Qualified Income Offset. If in any fiscal year a Partner
unexpectedly receives an adjustment, allocation or distribution described in
Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), and such
adjustment, allocation or distribution causes or increases a Capital Account
Deficit for such Partner, then, before any other allocations are made under this
Agreement or otherwise, such Partner shall be allocated items of income and gain
(consisting of a pro rata portion of each item of Partnership income, including
gross income and gain) in an amount and manner sufficient to eliminate such
Capital Account Deficit as quickly as possible.
(ii) Partnership Minimum Gain Chargeback. If there is a net decrease
in Partnership Minimum Gain during any Partnership fiscal year, each Partner
shall be allocated items of income and gain for such fiscal year (and, if
necessary, for subsequent fiscal years) in proportion to and to the extent of,
an amount equal to such Partner's share of the net decrease in Partnership
Minimum Gain, in accordance with Treasury Regulation Sections 1.704-2(f) and
(g).
<PAGE>
(iii) Partner Nonrecourse Debt Minimum Gain Chargeback. If there is a
net decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner
Nonrecourse Debt during any Partnership fiscal year, each Partner who has a
share of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Treasury Regulation Section
1.704-2(i), shall be specially allocated items of Partnership income and gain
for such fiscal year (and, if necessary, subsequent fiscal years) in an amount
equal to such Partner's share of the net decrease in Partner Nonrecourse Debt
Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Treasury Regulation Section 1.704-2(i).
(iv) Partnership Nonrecourse Deductions. Subject to Section
5.03(c)(vi), Partnership Nonrecourse Deductions for any Partnership fiscal year
shall be specially allocated among the Partners in proportion to their
respective Percentage Interests.
(v) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deduction
for any Partnership fiscal year shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Treasury Regulation Section 1.704-2(i).
5.03 Tax Allocations.
(a) Generally, Except as set forth in Section 5.03(b), allocations for
tax purposes of items of income, gain, loss, deduction and credit shall be made
in the same manner as allocations for book purposes as set forth above.
(b) Special Rules. (1) In accordance with Code Section 704(c) and the
Treasury Regulations thereunder, income, gain, loss and deduction with respect
to any property contributed to the capital of the Partnership shall, solely for
tax purposes, be allocated among the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and its initial Book Value.
(2) In the event the Book Value of Partnership property is adjusted as
provided in Section 5.01(c) hereof, subsequent allocations of income, gain,
loss, and deduction with respect to such property shall take account of any
variation between the adjusted basis of such property for federal income tax
purposes and the Book Value thereof in the same manner as under Code Section
704(c) and the Treasury Regulations thereunder.
(c) Any elections or other decisions relating to any allocations for
tax purposes shall be made by the General Partner (with the reasonable consent
of the Limited Partners) in any manner that reasonably reflects the purposes and
intention of this Agreement.
(d) Allocations pursuant to this Section 5.03 are solely for purposes
of federal, state, and local taxes and shall not affect, or in any way be taken
into account in computing, any Partner's Capital Account or share of profits,
losses, other items, or distributions pursuant to any other provision of this
Agreement.
<PAGE>
5.04. Distributions. The Managing General Partner, in its sole discretion,
may at any time make distributions to the Partners, as follows:
(a) Available Cash. Discretionary distributions of Available Cash
shall be made to all the Partners in proportion to their respective Percentage
Interests.
(b) Distribution in Kind. The Managing General Partner, in its sole
discretion, may make distributions to the Partners in kind in lieu of or in
addition to making any distributions in cash. All distributions in kind shall be
made to all the Partners in proportion to their respective Percentage Interests.
(c) Limitation. Notwithstanding any other provision of this Section
5.04, discretionary distributions shall not be made to any Limited Partner to
the extent that such distribution would create or increase an Adjusted Capital
Account Deficit.
5.05. Allocation of Nonrecourse Liabilities. Pursuant to Treasury
Regulation Section 1.752-3(a), Partnership nonrecourse liabilities shall be
allocated in the following order:
(a) First, to each Partner to the extent of its respective share of
Partnership Minimum Gain;
(b) Then, to each Partner in the amount of any taxable gain that would
be allocated to that Partner under Code Section 704(c) or in connection with a
revaluation of Partnership property pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(f) or (r), if the Partnership disposed of (in a taxable
transaction) all Partnership property subject to one or more nonrecourse
liabilities of the Partnership in full satisfaction of such liabilities and for
no other consideration;
(c) Then, the excess nonrecourse liabilities will be allocated to the
Partners in proportion to their respective Percentage Interests.
In the event that Treasury Regulations are adopted which require a
different treatment from that described above, the Managing General Partner is
authorized to follow the treatment required by such Regulations.
ARTICLE VI
Financial Matters
6.01. Deposits and Investments. The funds of the Partnership shall be
deposited in the name of the Partnership in accounts designated by the Managing
General Partner in banks or banking institutions to be selected by the Managing
General Partner or invested in such manner as shall be authorized by the
Managing General Partner. The Managing General Partner shall prescribe such
procedures as it shall deem necessary with respect to making such investments.
The Partnership shall open and maintain separate bank accounts with respect to
each Partnership Development and shall exclusively use such accounts with
respect to such Partnership Development.
6.02. Fiscal Year. The fiscal year of the Partnership shall end on December
31 in each year.
<PAGE>
6.03. Books of Account. (a) The Partnership shall approve the opening
financial statements for the Partnership as of the date hereof.
(b) Accurate books of account of the Partnership shall be maintained by the
Managing General Partner on behalf of the Partnership in accordance with GAAP.
In those instances in which more than one generally accepted accounting
principle can be applied, the Managing General Partner shall determine which
principle will be adopted by the Partnership. Such books shall at any reasonable
time after reasonable notice be available for examination by each Partner (or
persons acting on their behalf) at the sole expense of such Partner. The
independent accountants for the Partnership shall be chosen by the Managing
General Partner. Audit levels and standards shall be set by the Managing General
Partner.
6.04. Financial Statements. (a) Within three months after the close of each
fiscal year of the Partnership, there shall be prepared by the Managing General
Partner and submitted to each Partner the audited annual financial statements of
the Partnership (including all footnotes with respect thereto and accompanied by
the report thereon of the independent accountants for the Partnership). The
financial statements shall include:
(i) a balance sheet of the Partnership as at the end of such fiscal
year;
(ii) a statement of profit and loss for such fiscal year; and
(iii) a statement of the Partners' Capital Accounts and changes
therein for such fiscal year.
Any financial statement submitted pursuant to this Section 6.04(a) shall be
deemed correct, binding and conclusive upon the Partners unless objection
thereto shall be made by any Partner within 45 days after such statement shall
have been received by such Partner.
(b) Within 45 business days after the close of the first three fiscal
quarter there shall be prepared and given to each Partner unaudited financial
statements comparable to those referred to in Section 6.04(a) signed by the
preparer or an executive of the Managing General Partner and, to the extent not
otherwise provided to the Partners, a report with respect to the operating
characteristics of any Partnership Development which has been completed and is
operating.
(c) The Partnership shall furnish to each Partner such other financial
information at such times and prepared in such form as shall reasonably be
required by such Partner to meet its needs including its requirements under
securities laws.
<PAGE>
6.05. Changes in Interests. If there is a change in any Partner's interest
in the Partnership during any year (including, without limitation, a change as a
result of a transfer of a Partner's interest or the admission of a new Partner),
the books of the Partnership shall be closed on the last day of the month
preceding the month in which the change is considered to have occurred in
accordance with the following sentence, and the Net Income or Net Loss of the
Partnership attributable to the periods preceding and succeeding such closing of
the books shall be allocated in accordance with Article V among the Partners who
were members of the Partnership during each such month. For the purposes of the
preceding sentence, changes in interests during any month shall be treated as
having occurred on the first day of that month. In the event that Treasury
Regulations are adopted which require a different treatment from that described
above, the Managing General Partner is authorized to follow the treatment
required by such Regulations.
6.06. Federal Tax Audits. (a) In the event that the IRS commences an
examination of the Partnership's tax return(s), the Managing General Partner is
hereby designated the tax matters partner ("TMP") which shall have primary
responsibility for conducting negotiations with the IRS in connection with any
administrative proceedings at the Partnership level with respect to Partnership
items, and, if necessary, for filing a petition for a readjustment of a final
partnership administrative adjustment by the IRS with the United States Tax
Court, the United States District Court for the District in which the
Partnership's principal place of business is located, or the United States Court
of Federal Claims.
(b) The TMP shall engage legal counsel to represent the Partnership in
any administrative proceedings at which the TMP deems it appropriate for such
legal counsel to be present and in any judicial proceedings in which the TMP is
involved on behalf of the Partnership.
(c) The TMP shall notify all Partners of the commencement of any
administrative proceedings by the IRS and shall keep all Partners currently
advised of developments in any such proceedings.
(d) Notwithstanding anything to the contrary contained in herein the
TMP shall have no authority to bind any Limited Partner by any settlement
agreement entered into by the TMP and the IRS, unless such Limited Partner has
expressly notified the TMP in writing that it is so authorized. Within thirty
(30) days after the TMP has received notice from the IRS of a final partnership
administrative adjustment, the TMP shall notify the Limited Partner(s) of such
final administrative adjustment. Such notification shall also include
information concerning the Limited Partners's right to request the same
settlement terms from the IRS.
(e) To the fullest extent permitted by law, the TMP shall be entitled
to indemnity from the Partnership for any act performed by it within the scope
of its duties as TMP, except for acts which are determined by a court of
competent jurisdiction, upon entry of a final judgment, to constitute gross
negligence or willful misconduct, fraud or breach of fiduciary duty as a TMP,
provided that any indemnity under this Section shall be provided out of and to
the extent of Partnership assets only and no Limited Partner shall have any
Personal liability on account thereof.
<PAGE>
(f) Any Partner other than the TMP who wishes to participate in the
administrative proceedings at the partnership level may do so, but any legal,
accounting or other expenses incurred by such Partner in connection therewith
shall not be deemed a Partnership expense but shall be the responsibility of and
paid by such Partner.
(g) If a TMP is required for the Project Owner of a Partnership
Development, an Affiliate or designee of the Managing General Partner shall be
designated the TMP with the powers, rights and responsibilities with respect to
such Project Owner set forth in paragraphs (a)-(f), mutatis mutandis.
6.07. Section 754 Election. Each General Partner may, in its discretion,
elect under Code Section 754 to adjust the basis of Partnership assets upon a
distribution of Partnership property as described in Code Section 734 or an
Assignment by a Partner of his interest in the Partnership as described in Code
Section 743, provided that any Partner who Assigns his interest shall bear all
accounting expenses incurred by the Partnership or the General Partners with
respect to such transfer which result from the Code Section 754 adjustment.
ARTICLE VII
Restrictions on Partners
7.01. Transfers by General Partners. No Assignment of Partnership Interests
by a General Partner or Corporate Change of a General Partner shall be permitted
without the prior written consent of the other General Partner and the Limited
Partners.
7.02. Assignment by and Substitution of Limited Partners.
(a) A Limited Partner may not Assign all or any part of its LP Interest or
cause any assignee to become a substituted Limited Partner unless each General
Partner consents in writing to such Assignment, the grant or denial of which
consent shall be in the General Partner's sole discretion. Unless an Assignee
becomes a substituted Limited Partner in accordance with the provisions of this
Section 7.02, it shall not be entitled to any of the rights granted to a Limited
Partner hereunder, other than the right to receive the allocation and
distributions under Article VI to which its Assignor would otherwise be
entitled. Any purported Assignment in violation of this Section 7.02 shall be
null, void and ineffectual and shall not bind or be recognized by the
Partnership.
(b) The Partnership and each General Partner shall be entitled to treat the
record owner of any LP Interest as the absolute owner thereof in all respects,
and shall incur no liability for distributions of cash or other property made in
good faith to such owner until such time as a written instrument conveying such
interest has been received and accepted by the Managing General Partner and
recorded on the books and records of the Partnership in accordance with this
Section 7.02. The Managing General Partner may refuse to accept an Assignment
until the end of the next succeeding quarterly accounting period.
7.03. General Provisions. (a) Each Partner agrees that any purported
transfer which is not in compliance with this Article VII shall be void.
(b) No person to whom any Partnership Interest is transferred shall make
any further disposition except in accordance with the terms and conditions
hereof.
<PAGE>
(c) No Partnership Interest shall be disposed of pursuant to this Article
VII unless the transferee shall execute a copy of this Agreement and such other
documents as shall be necessary to assume all the duties, liabilities and
obligations of the transferring Partner in respect of the Partnership under this
Agreement reasonably satisfactory to the General Partner in the other Partner
Group.
(d) The transferring Partner shall indemnify and hold harmless the
non-transferring Partners against all costs and obligations of any nature
whatsoever arising from the transfer, including obligations under the Code and
including the reasonable fees and disbursements of counsel.
(e) No Partner shall transfer all or any part of its Partnership Interest
to any person if such transfer (together with any previous transfers) would
result in a termination of the Partnership under Section 708 of the Code. At the
request of any non-transferring Partner, the transferring Partner shall
provide, at its own expense, an opinion of counsel (such opinion to be
satisfactory in form and scope to the non-transferring Partners) to the effect
that such transfer, taken together with any prior transfers, shall not result in
a termination of the Partnership under the Code. The transferring Partner shall
indemnify and hold harmless the non-transferring Partner from all losses
(including reasonable attorneys' fees) which the non-transferring Partner shall
incur, if such transfer, either alone or taken together with other prior
transfers, results in such termination.
(f) The transferring Partner shall not be relieved of any of its
obligations under this Agreement arising prior to such transfer to the extent
such obligations shall not be discharged by the transferee;
(g) The transferring Partner and the transferee shall accept such other
provisions as the non-transferring Partners shall reasonably request to reflect
the assumption and continuing obligations referred to in paragraph (a)-(f) of
this Section 7.03.
(h) Each Partner shall execute any and all amendments to this Agreement and
any and all other documents as shall be necessary to effectuate the provisions
of this Article VII.
7.04. Project Owners. It is the intention of the Partners that, when
Project Owners are organized, the following or comparable provisions be included
in its organizing documents:
(a) If any Partner (the "Transferring Partner") in either Partner Group
pursuant to a bona fide offer, shall desire to transfer some or all its
Partnership Interest to a party, then such Transferring Partner shall grant the
Partners in the other Partner Group both (i) a right of first refusal for itself
and its designees to acquire the Partnership Interest proposed to be transferred
on the terms set forth below; provided, however, that no Partner may transfer
its Partnership Interest pursuant to this Section unless the consideration for
any such proposed transfer to such other party shall consist solely of cash or
securities which are readily tradeable on an established securities market or
securities for which a value is readily ascertainable; provided, further,
however, that no Partner shall transfer its Partnership Interest to a party
(directly or indirectly including by a sale of its stock) without the consent of
the General Partner of the other Partner Group and (ii) the option to transfer
Partnership Interests pursuant to the bona fide offer it has received up to a
maximum of 50% of the amount of Partnership Interests that the offeror proposes
to acquire.
<PAGE>
(b) If the Partner receiving a bona fide offer shall desire to transfer its
Partnership Interest pursuant to such bona fide offer, it shall promptly give
notice to that effect to the Partners in the other Partner Group.
(c) If a Partner shall receive notice pursuant to paragraph (b), and if
such Partner shall desire to exercise either (i) its right of first refusal
pursuant to clause (a)(i) or (ii) its option to transfer some of its Partnership
Interests pursuant to clause (a)(ii), then such Partner shall give binding
notice thereof to the Transferring Partner within 30 days after the date that
notice is received pursuant to paragraph (b). The purchase of such Partnership
Interest pursuant to the right of first refusal shall be consummated within 50
days after the date of the notice given pursuant to this paragraph (c), by the
execution and delivery of such instruments of assignment as may reasonably be
requested by the Partner purchasing the Partnership Interest and by payment of
the consideration offered by such third party to the other Partner. The failure
of a Partner to give the notice required by paragraph (b) shall not preclude the
exercise by the Partners in the other Partner Group of the rights granted under
clause (a)(i) or (ii) but shall only relieve such Partners in the other Partner
Group of their obligation to give the notice prescribed by this paragraph (c)
within the period herein provided.
(d) If the Partners (the "Non-Transferring Partners") receiving notice
pursuant to paragraph (b) shall elect not to exercise their right of first
refusal pursuant to clause (a)[(i) or their option to participate in such
transfer pursuant to clause (a)(ii)] or if the applicable period as prescribed
in paragraph (c) shall have elapsed without such Partners having given notice as
prescribed in paragraph (c), then the Transferring Partner may transfer
Partnership Interests at any time during a period ending 90 days thereafter,
subject to the second proviso of paragraph (a); provided, however, that if such
transfer shall not have occurred within such 90-day period, the right of first
refusal and the option to join in the transfer set forth in paragraph (a) shall
be reinstated; and provided further, however, that the Transferring Partner and
the transferee shall comply with the provisions comparable to those of Section
7.03.
(e) If the Project Owner shall be a corporation, the foregoing provisions
shall be included in an agreement of the shareholders of such corporation with
such changes in terminology as may be appropriate to reflect the corporate form.
ARTICLE VIII
Relationship with Partnership
8.01. General Partners' Activities. (a) Each General Partner shall devote
such time and attention to the business of the Partnership as is necessary or
appropriate, consistent with the provisions of this Agreement.
(b) The General Partners shall have the fiduciary duty to conduct the
affairs of the Partnership to the best of their ability for the benefit of the
Partnership and in accordance with the provisions of applicable law and to use
all Partnership funds and assets in the best interests of the Partnership.
8.02. Promotion of Partnership. Each General Partner shall use all
reasonable efforts to promote the activities of the Partnership and to ensure
its success, consistent with the provisions of this Agreement.
<PAGE>
8.03. Other Business. (a) Neither any Partner nor any of its Affiliates or
any Clients shall undertake any business activity involving thermal power
generation (including the development, construction, operation and maintenance
of cogeneration or power generating facilities or the financing of any such
development or construction) in the Territory regardless of whether such
business activity competes (directly or indirectly) with any facility developed
by the Partnership or any activity undertaken by the other Partner Group or the
Partnership unless (i) any Partner in the other Partner Group is a Defaulting
Partner or (ii) such project was first offered to the Partnership as a Proposed
Development and was not approved by the Partnership.
(b) Nothing herein shall limit the right of either General Partner to use
information about any country or the business of the Partnership or communicate
with Persons in any country with respect to any business other than that
referred to in paragraph so long as such communications are not competitive with
or interfere with the business of the Partnership.
8.04. Liability of the General Partners.
(a) Except as otherwise specifically provided herein or under the
Partnership Law, the General Partners shall not be liable, responsible, or
accountable in damages or otherwise to the Partnership or to any Limited Partner
for any act or omission performed or omitted by the General Partners on behalf
of the Partnership in good faith and in a manner reasonably believed by it to be
within the scope of the authority granted to it by this Agreement and in the
best interests of the Partnership, unless a court of competent jurisdiction,
upon entry of a final judgment, shall find that such act or omission was due to
willful misconduct, gross negligence, fraud or breach of fiduciary duty as
described herein.
(b) The General Partners shall have personal liability for the
obligations and debts of the Partnership, except for any debts or obligations
incurred on a nonrecourse basis, to the extent that the Partnership assets
(after payment of any amounts the Limited Partners are required to pay pursuant
to Section 4.02), are insufficient to pay such debts and obligations.
(c) Subject to Section 10.06, the General Partners shall not be
personally liable for the return or payment of all or any portion of the Capital
Contribution of or distributions to any Partner (or any successor, assignee or
transferee thereof), it being expressly agreed that any such return of Capital
Contribution or distributions pursuant to this Agreement shall be made solely
from the assets of the Partnership (which assets shall not include any right of
contribution from the General Partners).
<PAGE>
8.05. Indemnification of the General Partners. (a) The Partnership shall
indemnify and hold harmless to the fullest extent permitted by law (subject to
the limitations of this Section) the General Partners against any losses,
claims, damages or liabilities (including legal or other expenses reasonably
incurred in investigating or defending against any such loss, claim, damages or
liability), joint or several ("Liabilities"), arising out of its activities or
involvement with the Partnership for or on behalf of the Partnership performed
in good faith and in a manner reasonably believed by it to be within the scope
of the authority granted to it by this Agreement and in the best interests of
the Partnership except for acts which are determined by a court of competent
jurisdiction, upon entry of a final judgment, to constitute gross negligence,
willful misconduct, fraud or breach of fiduciary duty. The Partnership shall
advance and pay the expenses incurred by a Person indemnified hereunder in
settling a claim or in defending a civil action prior to its final disposition
if such action relates to duties and services performed by the indemnified
Person on behalf of the Partnership, upon receipt of an undertaking of the
indemnified Person to repay such expenses if it is adjudicated not to be
entitled to indemnification. Limited Partners shall not be personally obligated
with respect to indemnification pursuant to this Section 8.05.
(b) Each Partner shall indemnify and hold harmless to the fullest
extent permitted by law each other Partner against any Liabilities arising out
of any act taken by such Partner without due authority as provided herein or
arising out of any act or omission to act committed by such Partner or any of
its Affiliates or Client which is in violation of any law of any jurisdiction
whether federal, state, local or foreign. The indemnifying Partner shall advance
and pay the expenses incurred by a Person indemnified hereunder in settling a
claim or in defending a civil action prior to its final disposition upon receipt
of an undertaking of the indemnified person to repay such expenses if it is
adjudicated not to be entitled to indemnification.
8.06. Restrictions on Limited Partners. No Limited Partner shall, in his or
its capacity as Limited Partner: (i) be permitted to take part in the
management, control or conduct of the business or affairs of the Partnership;
(ii) have the right to vote on any matters other than the matters specifically
set forth in this Agreement or as otherwise expressly provided by law; (iii)
have the authority or power in his or its capacity as a Limited Partner to act
as agent for or on behalf of the Partnership or any other Partner, to do any act
which would be binding on the Partnership or any other Partner, or to incur any
expenditures or indebtedness on behalf of or with respect to the Partnership.
8.07. Liability of Limited Partners. So long as he or it complies with the
provisions of Section 8.06 and is not also a General Partner, and except as
otherwise provided by law, the liability of each Limited Partner for the losses,
debts and obligations of the Partnership shall be limited to such Limited
Partner's Capital Contribution and his or its share of any undistributed net
profits.
8.08. Restrictions on the General Partner. Without the approval of all the
Limited Partners, no General Partner shall have authority on behalf of the
Partnership to:
(a) change the nature of the business or the purposes of the
Partnership;
(b) amend this Agreement, any exhibit hereto;
(c) admit a Person as a General Partner or a Limited Partner, except
as provided in this Agreement;
(d) perform any act that would subject the Limited Partners to
liability as a general partner in any jurisdiction;
<PAGE>
(e) take any action which would cause a Bankruptcy of the Partnership;
(f) merge or consolidate the Partnership;
(g) dissolve the Partnership except pursuant to Section 10.02; or
(h) dispose of all or substantially all of the Partnership's assets.
ARTICLE IX
Continuance
The Partnership shall continue until dissolved (a) by the mutual consent of
all the Partners in writing, (b) in accordance with the provisions of Section
2.05 or (c) in accordance with the provisions of Section 10.04. Except as
described in the preceding sentence, no Partner shall have the right to
terminate this Agreement, dissolve the Partnership or cause the liquidation or
winding up of the Partnership by its express will, by application to a court of
law or equity or by withdrawal without the agreement of all the Partners. If any
act, omission or condition of any Partner causes the dissolution of the
Partnership other than in the manner contemplated in the second preceding
sentence, the Partner whose act, omission or condition caused the dissolution
shall be liable for all damages caused thereby, including but not limited to the
fees and expenses of counsel, any adverse tax consequences and any adverse
financial or cash flow consequences resulting from acceleration of any debt
resulting therefrom.
ARTICLE X
Default; Liquidation
10.01. Defaults. An Event of Default hereunder shall occur when:
(a) a General Partner Assigns its Partnership Interest other than as
permitted by Articles VII hereof (regardless of the fact that such transfer may
be rendered void and of no effect pursuant to Section 7.03 hereof) and does not
remedy the same within five (5) Business Days of receiving notice thereof from
the other General Partner;
(b) a General Partner takes action not permitted by the terms of this
Agreement that results in the legal dissolution of the Partnership during the
term hereof without the written consent of the other General Partner and does
not within five (5) Business Days of receiving notice thereof from the other
General Partner remedy the same with the same effect as though such dissolution
had not occurred;
(c) a General Partner fails to make any mandatory capital contribution when
due or any other capital contribution that the General Partners have determined
shall be made within the time specified by the General Partners for the making
thereof and does not remedy the same within ten (10) Business Days of receiving
notice thereof from the other General Partner;
<PAGE>
(d) a Partner shall commit a breach of any of the other provisions
contained in this Agreement and such breach (i) materially and substantially
affects the business, assets or earnings of the Partnership and (ii) continues
without being remedied until thirty (30) days after such Partner receives
written notice from the other Partner of such breach.
A Partner who has committed or provided the basis for an Event of Default is
herein referred to as a "Defaulting Partner," and the General Partner in the
other Partner Group and the Limited Partner in the Partner Group not having done
so is herein collectively referred to as the "Nondefaulting Partner."
10.02. Rights upon Default. Subject to Section 10.05, from and after the
occurrence of any Event of Default, cash distributions due the Defaulting
Partner shall be first applied toward any deficiency in the capital
contributions of such Defaulting Partner and the remainder, to the extent of the
amount the Nondefaulting Partner shall from time to time determine in good faith
that it, its Affiliates or the Partnership shall have been damaged or shall
likely be damaged by the relevant Event of Default, shall be deposited in an
escrow account and invested for the account of the Defaulting Partner in an
interest-bearing account, certificates of deposit, or short-term Government
securities. Amounts held in such escrow account shall be released and the escrow
account terminated upon final settlement of all claims that the Partnership or
the Nondefaulting Partner shall have against the Defaulting Partner which relate
to or arise in connection with the Partnership. In addition to the foregoing,
but subject to Section 10.05, from and after any Event of Default, the
Nondefaulting Partner shall be entitled to, at its option and following written
notice to the Defaulting Partner, terminate the provisions of this Agreement
with respect to evaluating and approving Partnership Developments and the
restrictions set forth in Section 8.03, but Partnership Developments shall
continue to be Partnership Assets and developed according to the provisions
hereunder. If a Partner assigns its Partnership Interest or undergoes a
Corporate Change other than as permitted by Article VII, the Nondefaulting
Partner may terminate the provisions of this Agreement. The Partnership shall be
dissolved as of delivery of notice by the Nondefaulting Partner to the Partners
of the other Partner Group.
10.03. Nonexclusive Remedy. A Defaulting Partner shall be liable to the
Nondefaulting Partner for any and all damages, losses or expenses (including,
without limitation, counsel's fees and expenses) suffered or incurred by the
Partnership and the Nondefaulting Partners as a result of any Event of Default
or dissolution as a result thereof. The exercise by the Nondefaulting Partner of
the options provided in Section 10.02 shall not constitute a waiver by it or by
the Partnership of any right or remedy against the Defaulting Partner arising
from such an Event of Default or dissolution, or otherwise, including the right
to set off any damages suffered against any amount owed to the Defaulting
Partner pursuant to this Article X.
10.04. Events of Dissolution. (a) The Partnership shall be dissolved and
its business and affairs wound up upon the earliest of:
(i) The withdrawal or removal of a General Partner, the Assignment by
a General Partner of its entire interest in the Partnership, or any other event
that causes a General Partner to cease to be a general partner under the
Partnership Law, unless there is at least one remaining General Partner that
carries on the business of the Partnership or within ninety (90) days after such
event all remaining Partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of such event, of
one or more additional General Partners;
<PAGE>
(ii) upon the written approval of the Partners;
(iii) upon the disposition of all or substantially all of the
Partnership's Assets;
(iv) at the end of the term as set forth in Section 2.05; or
(v) delivery of the notice referred to in the last sentence of Section
10.02.
(b) Neither the death, disability or incapacity of a Limited Partner nor
the Bankruptcy of a Limited Partner will in and of itself dissolve the
Partnership or terminate the Partnership's business, but the rights of such
Limited Partner to receive Partnership distributions and allocations will, on
the happening of such an event, devolve upon such Limited Partner's legal
representative or successors in interest, as the case may be, subject to the
terms and conditions of this Agreement and any other agreement entered into by
such Limited Partner with respect thereto, and the Partnership shall continue as
a limited partnership. Such Limited Partner's legal representative or successors
in interest shall be liable for all of the obligations of such Limited Partner.
10.05. Liquidation and Termination.
(a) Liquidation, winding up and termination of the Partnership will be
conducted and supervised by the General Partners, unless dissolution is brought
about (i) by an event referred to in Section 10.04(a)(i), in which case
liquidation, winding up and termination shall be conducted and supervised by the
remaining General Partner, or if none, a liquidating trustee approved of by the
Limited Partners, which liquidating trustee will have all rights and powers with
respect to the business, affairs, assets and liabilities of the Partnership,
including the right to transfer such assets and liabilities, and who will
proceed with reasonable promptness to liquidate the Partnership or (ii) by an
event referred to in Section 10.04(a)(ii), in which case liquidation, winding up
and termination will be supervised by the General Partner which is part of the
Nondefaulting Partner.
(b) Dissolution of the Partnership shall be effective on the day on which
the event occurs giving rise to the dissolution, but the Partnership shall not
terminate until the Partnership's Certificate of Limited Partnership shall have
been cancelled and the assets of the Partnership shall have been distributed as
provided herein. Notwithstanding the dissolution of the Partnership prior to the
termination of the Partnership, as aforesaid, the business of the Partnership
and the affairs of the Partners, as such, shall continue to be governed by this
Agreement. Upon dissolution, the General Partner or, if there be none, the
liquidating trustee approved of by the Limited Partners, shall liquidate the
assets of the Partnership, apply and distribute the proceeds thereof as provided
in Section 10.06, and cause the cancellation of the Partnership's Certificate.
<PAGE>
10.06. Liquidating Distributions. To the extent permitted by law, the
proceeds of liquidation of the Partnership shall be distributed as follows:
(a) the expenses of liquidation (including the expenses of the General
Partners after the date of dissolution, and legal and accounting fees and
expenses incurred in connection with the liquidation) and the debts of the
Partnership other than debts to Partners shall first be paid;
(b) such debts, if any, as are owing to the Partners shall next be paid;
and
(c) the balance, if any, shall be distributed to the Partners in accordance
with their respective Capital Account balances (as determined following all
allocations for the period prior to liquidation pursuant to Article VI). Any
Partner with a deficit in its Capital Account following the liquidation of its
interest in the Partnership shall restore the amount of such deficit to the
Partnership by the end of the taxable year of the liquidation (or, if later,
within ninety (90) days after the date of liquidation), and the amount so
restored shall be paid to creditors of the Partnership or distributed to the
Partners as specified in the immediately preceding sentence.
ARTICLE XI
Representations and Warranties
11.01. General Partner Representations and Warranties. Each General Partner
represents and warrants to the other and to the Partnership as follows:
(a) Organization.
It is a corporation duly organized and validly existing under the laws of
its jurisdiction of incorporation and has the full power and authority to
carry on its business as now conducted, to own or hold under lease its
properties and to enter into and perform its obligations under this Agreement.
(b) Governmental Regulation. It is not an "electric utility company,"
"public utility company," or a "holding company" under the Public Utility
Holding Company Act of 1935, as amended ("PUHCA"), a "public utility" under the
Federal Power Act, as amended ("FPA") or an "electric corporation" as defined by
Art. 2 of the Public Service Law of New York, that is subject to regulation
under either the PUHCA, the FPA or the New York Public Service Law. It is not
subject to regulation under the PUHCA, the FPA, or state laws and regulations
respecting rates or financial or organizational regulation of electric
utilities.
(c) Litigation. Except as disclosed to the other General Partner, there are
no pending or threatened actions or proceedings of any kind, including actions
or proceedings of or before any governmental authority, to which it or any of
its Affiliates or Clients is a party or is subject, or by which it is bound
that, if adversely determined to or against such Person would have a material
adverse effect on the development of Partnership Developments, the financial
condition, business prospects or operation of the Partnership or it, the
Partnership's or its ability to carry on its business or the ability of the
Partnership or it to perform its obligations hereunder, nor, to its best
knowledge after due inquiry, is there any basis for any such action or
proceeding.
<PAGE>
(d) No Breach; No Default. The execution, delivery and performance by it of
this Agreement does not and will not (a) require any consent or approval of its
board of directors or shareholders that has not been obtained; (b) violate any
provision of its charter, by-laws or other instrument of organization; (c)
violate any provision of any law, regulation or order of any governmental or
regulatory authority applicable to it or Partnership Developments (as in effect
on each date on which this representation and warranty shall be made or deemed
made), which violation could reasonably be expected to have a material adverse
effect on its financial condition, assets or operations or its ability to carry
out the transactions contemplated by this Agreement; (d) result in a breach of
or constitute a default under this Agreement or any indenture or loan or credit
agreement or any other material agreement, lease or instrument to which it is a
party or by which it or its properties are bound or affected; or (e) result in
or create any lien upon or with respect to any of the properties now owned or
hereafter acquired by it. It is not in default under any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award, which default
could reasonably be expected to have a material adverse effect on its financial
condition, assets or operations or its ability to carry out the transactions
contemplated by this Agreement.
(e) Governmental Consent. To the best of its knowledge, no consent,
approval, order or authorization of, or registration, declaration or filing
with, or notice to, or obtaining of any license or permit from, or taking of any
other action with respect to, any federal, state or local government or public
body, authority or agency is required in connection with the valid
authorization, execution, delivery and performance by it of this Agreement.
(f) Taxes. It has filed all federal, state and local tax returns that it is
required to file, has paid all taxes it is required to pay to the extent due
(other than those taxes that it is contesting in good faith and by appropriate
proceedings, with adequate, segregated reserves established for such taxes) and,
to the extent such taxes are not due, has established reserves that are adequate
for the payment thereof and are required by GAAP.
(g) ERISA. As of the date hereof:
(i) it is not an employee benefit plan (as defined in Section 3(3) of
the Employee Retirement Income Security Act, as amended),
(ii) it is not acquiring its Partnership Interest with assets of an
employee benefit plan (as defined in said Section), and
(iii) its acquisition of Partnership Interest pursuant to this
Agreement will not result in or create a "prohibited transaction" as defined in
Section 4975(c) of the Code.
ARTICLE XII
General Terms
12.01. Compliance with Laws. The Partners acting individually shall, and
shall each cause their Affiliates and Clients and the Partnership to, comply in
all material respects with all applicable laws and regulations, now or hereafter
in effect, of all jurisdictions, whether local, state, Federal or foreign
jurisdictions including, without limitation, the U.S. Foreign Corrupt Practices
Act and United States laws and regulations relative to export and re-export.
<PAGE>
12.02. Affiliates. Each Partner agrees that each Affiliate and Client over
which it exercises Control shall not do any action in contravention of the
provisions of this Agreement.
12.03. Notices. All notices which are required to be given hereunder shall
be in writing and shall be sent to the address of the recipient given on
Schedule 1. Any such notice may be delivered personally or by registered or
certified mail, postage prepaid, telex or facsimile transmission and shall be
deemed to have been served if by personal delivery when delivered; if by
registered or certified mail, seven (7) days after posting, and if by telex or
facsimile transmission when received.
12.04. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters dealt with herein and
supersedes any previous agreement among the parties hereto, whether oral or
written, in relation to such matters.
12.05. Amendment and Waiver. No amendment, modification or waiver of any
provision of this Agreement shall be valid or effective unless made by one or
more instruments in writing and signed by such of the parties hereto which would
be affected by such amendment, modification or waiver.
12.06. Litigation. The Partners and the Partnership agree that any legal
action or proceeding by or against any Partners or the Partnership or with
respect to or arising out of this Agreement shall be brought in the courts of
the State of New York in and for the City and County of New York or of the
United States of America for the Southern District of New York. By execution and
delivery of the Agreement, each Partner and the Partnership accept, generally
and unconditionally, the jurisdiction of the aforesaid courts. Each Partner and
the Partnership irrevocably consent to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to the Partners and
the Partnership, as the case may be, at their respective addresses for notices
as specified herein and that such service shall be effective five (5) Business
Days after such mailing. Each Partner and the Partnership further agree that the
aforesaid courts of the State of New York and of the United States of America
shall have exclusive jurisdiction with respect to any claim or counterclaim of
any Partner or the Partnership under this Agreement. Each Partner and the
Partnership hereby waive any right to stay or dismiss any action or proceeding
under or in connection with this Agreement brought before the foregoing courts
on the basis of forum non conveniens.
12.07. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (without reference to
principles of conflicts of laws).
12.08. Counterparts. This Agreement may be executed in one or more
counterparts each of which when taken together with all original counterparts
will constitute one and the same instrument.
12.09. Severability. Any provision of this Agreement that shall be
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto waive any provision of law that renders
any provision hereof prohibited or unenforceable in any respect.
<PAGE>
12.10. Headings. The headings, if any, of the various articles, sections
and other subdivisions of this Agreement are for convenience of reference only
and shall not modify, define or limit any of the terms or provisions of this
Agreement.
12.11. Method of Payment. All amounts required to be paid hereunder
(including distributions to the Partners) by any Partner to any other Partner
shall be paid in such freely transferable coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts, by wire transfer or other mutually acceptable means of
immediately available funds, to such account as such Partner may specify.
12.12. Parties in Interest; Limitation on Rights of Others. The terms of
this Agreement shall be binding upon, and inure to the benefit of, the parties
hereto and their executors, administrators, successors and assigns. Nothing in
this Agreement, whether express or implied, shall be construed to give any
person (other than the parties hereto and their executors, administrators,
successors and assigns and as expressly provided herein) any legal or equitable
right, remedy or claim under or in respect of this Agreement or any covenants,
conditions or provisions contained herein.
12.13. Payment on Business Days. If any payment under this Agreement is
required to be made on a day other than a Business Day, such payment shall be
due on the next succeeding Business Day.
12.14. Exhibits. Each of the attachments hereto is hereby incorporated
herein and made a part hereof for all purposes, and references thereto contained
herein shall be deemed to include this reference and incorporation.
12.15. Compliance with Securities Act. Notwithstanding any other provision
of this Agreement, no action may be taken under this Agreement unless such
action is taken in compliance with the provisions of the Securities Act of 1933,
as amended.
12.16. Confidential Information. (a) The Partnership and each Partner
shall, and shall cause its respective directors, officers, agents, Affiliates,
Clients and representatives to, treat as confidential all proprietary and
confidential information and materials made available to it under this Agreement
or which becomes known to it through its connection with the Partnership and the
Partners and which is identified by the disclosing party as "confidential", on
the face thereof ("Confidential Information"), and shall not disclose
Confidential Information to a third party or use Confidential Information
without the written consent of the disclosing party.
(b) Confidential Information shall not include any information that
(i) becomes known to the general public without the fault or breach (including
simple negligence) of the receiving party; or (ii) was already known to the
recipient as evidenced by prior written documents in its possession; or (iii) is
disclosed to the recipient by a third party who is not in default of any
confidentiality obligation to the disclosing party hereunder; or (iv) is
developed by or on behalf of the receiving party, without reliance on
confidential information received hereunder. The Partnership and each Partner
shall be entitled, in addition to any other right or remedy it may have, at law
or in equity, to an injunction enjoining or restraining the disclosing party
from any violation or threatened violation of the Section.
(c) The foregoing restriction on use and disclosure shall be
maintained by the recipient until the Confidential Information either becomes
public knowledge through no fault on the recipient's part or comes into the
recipient's possession free from any restriction from a third party (other than
the originally disclosing party or its Affiliate) who has the lawful right to
make such disclosure.
<PAGE>
(d) Notwithstanding the foregoing restriction on use and disclosure, a
Partner and the Partnership may disclose Confidential Information to any of its
Affiliates or Clients which prior to such disclosure has agreed in writing to
accept restrictions on use and disclosure substantially similar in scope and
substance to those contained in this Section 12.16. A Partner and the
Partnership may also disclose Confidential Information to legal counsel,
accountants, lenders and consultants to the extent necessary, with the
obligation of the parties receiving such information to maintain
confidentiality, and to governmental agencies having authority to require such
disclosure but informing such governmental agencies of the confidential nature
of such information. A Partner and the Partnership may disclose Confidential
Information required to be disclosed under the Securities Exchange Act of 1934,
as amended, the regulations promulgated thereunder or required by the Securities
and Exchange Commission.
(e) Survival. The obligations contained in this Article shall continue
to be binding on any party hereto even after such Partner ceases to be a Partner
for any reason.
IN WITNESS WHEREOF, the parties hereto have set their hands the day and
year first above written.
BESICORP INTERNATIONAL
POWER CORP.
By:
Name: Michael F. Zinn
Title: President
BETA INTERNATIONAL POWER CORP.
By:
Name: Michael F. Zinn
Title: President
CHESAPEAKE POWER INVESTMENTS
CO. INC.
By Chesapeake Power Transport, Inc.,
its Agent
By:
Name: Paul B. Prager
Title: President
CHESAPEAKE POWER TRANSPORT, INC.
By:
Name: Paul B. Prager
Title: President
<PAGE>
SCHEDULE 1
Percentage of Ownership
General Partners
Name and Address Percentage
Partnership
Interest
Besicorp International Power Corp. 1%
1151 Flatbush Road
Kingston, New York 12401
Attention: Michael F. Zinn, President
Tel: (914) 336-7700
Fax: (914) 336-7172
Chesapeake Power Investments Co. Inc. 1%
The Manor House
208 Pier One Road
Stevensville, Maryland 21666
Attention: Paul Prager, President
Tel: (410) 643-9500
Fax: (410) 643-9802
Limited Partners
Beta International Power Corp. 49%
1151 Flatbush Road
Kingston, New York 12401
Attention: Michael F. Zinn, President
Tel: (914) 336-7700
Fax: (914) 336-7172
Chesapeake Power Transport, Inc. 49%
The Manor House
208 Pier One Road
Stevensville, Maryland 21666
Attention: Paul Prager, President
Tel: (410) 634-9500
Fax: (410) 643-9802
<PAGE>
LIST OF SUBSIDIARIES
Exhibit No. 21-A
_____________
Bio-Energy Services Corp. is a subsidiary of the Company and is incorporated
under the laws of the State of New York. The aforesaid subsidiary does business
under the name of Bio-Energy Services Corp.
Bio-Energy Systems, Inc. is a subsidiary of the Company and is incorporated
under the laws of the State of New York. The aforesaid subsidiary does business
under the name of Bio-Energy Systems, Inc.
Beta Carthage Inc. is a subsidiary of the Company and is incorporated under the
laws of the State of New York. The aforesaid subsidiary does business under the
name of Beta Carthage Inc.
Beta South Glens Falls Inc. is a subsidiary of the Company and is incorporated
under the laws of the State of New York. The aforesaid subsidiary does business
under the name of Beta South Glens Falls Inc.
Beta Syracuse Inc. is a subsidiary of the Company and is incorporated under the
laws of the State of New York. The aforesaid subsidiary does business under the
name of Beta Syracuse Inc.
Beta Beaver Falls Inc. is a subsidiary of the Company and is incorporated under
the laws of the State of New York. The aforesaid subsidiary does business under
the name of Beta Beaver Falls Inc.
Beta Natural Dam Inc. is a subsidiary of the Company and is incorporated under
the laws of the State of New York. The aforesaid subsidiary does business under
the name of Beta Natural Dam Inc.
Beta Allegany Inc. is a subsidiary of the Company and is incorporated under the
laws of the State of New York. The aforesaid subsidiary does business under the
name of Beta Allegany Inc.
Beta Nova Inc. is a subsidiary of the Company and is incorporated under the laws
of the State of New York. The aforesaid subsidiary does business under the name
of Beta Nova Inc.
Beta N Limited is a subsidiary of the Company and is incorporated under the laws
of the State of New York. The aforesaid subsidiary does business under the name
of Beta N Limited.
Beta Hydroponics Allegany Inc. is a subsidiary of the Company and is
incorporated under the laws of the State of New York. The aforesaid subsidiary
does business under the name of Beta Hydroponics Allegany Inc.
Reina Distributing, Inc. is a subsidiary of the Company and is incorporated
under the laws of the State of New York. The aforesaid subsidiary does business
under the name of Reina Distributing, Inc.
SunWize Energy Systems, Inc. is a subsidiary of the Company and is incorporated
under the laws of the State of New York. The aforesaid subsidiary does business
under the name of SunWize Energy Systems, Inc.
Bio Thermal Unlimited, Inc. is a subsidiary of the Company and is incorporated
under the laws of the State of New York. The aforesaid subsidiary does business
under the name of Bio Thermal Unlimited, Inc.
SunWize Specialty Products, Inc. is a subsidiary of the Company and is
incorporated under the laws of the State of New York. The aforesaid subsidiary
does business under the name of SunWize Specialty Products, Inc.
Bio-Hydroponics Inc. (formerly Nanocrystalline Technologies Inc.) is a
subsidiary of the Company and is incorporated under the laws of the State of New
York. The aforesaid subsidiary does business under the name of Bio-Hydroponics
Inc.
SunWize Marine Technologies Inc. is a subsidiary of the Company and is
incorporated under the laws of the State of New York. The aforesaid subsidiary
does business under the name of SunWize Marine Technologies Inc.
Beta C&S Limited is a subsidiary of the Company and is incorporated under the
laws of the State of New York. The aforesaid subsidiary does business under the
name of Beta C&S Limited.
Besicorp International Power Corp. is a subsidiary of the Company and is
incorporated under the laws of the State of Delaware. The aforesaid subsidiary
does business under the name of Besicorp International Power
<PAGE>
Corp.
Beta International Power Corp. is a subsidiary of the Company and is
incorporated under the laws of the State of Delaware. The aforesaid subsidiary
does business under the name of Beta International Power Corp.
Beta Mexico Inc. is a subsidiary of the Company and is incorporated under the
laws of the State of Delaware. The aforesaid subsidiary does business under the
name of Beta Mexico Inc.
Beta BBI Krishnapatnam Inc. is a subsidiary of the Company and is incorporated
under the laws of the State of Delaware. The aforesaid subsidiary does business
under the name of Beta BBI Krishnapatnam Inc.
Beta Krishnapatnam BVI Inc. is a subsidiary of Beta BBI Krishnapatnam Inc. and
is incorporated under the laws of the British Virgin Islands. The aforesaid
subsidiary does business under the name of Beta Krishnapatnam BVI Inc.
Beta Krishnapatnam BVI II Inc. is a subsidiary of Beta BBI Krishnapatnam Inc.
and is incorporated under the laws of the British Virgin Islands. The aforesaid
subsidiary does business under the name of Beta Krishnapatnam BVI II Inc.
Exhibit 23-B
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
Certified Public Accountants
310 Madison Avenue
New York, New York 10017
- ----
212-808-4280
ACCOUNTANTS' CONSENT
To the Board of Directors and Shareholders
Besicorp Group Inc.
We consent to the incorporation by reference in the registration statement of
Besicorp Group Inc. (No. 0- 9964) on Form S-8 of Besicorp Group Inc. of our
report dated June 26, 1996, relating to the consolidated balance sheets of
Besicorp Group Inc. and subsidiaries as at March 31, 1996 and March 31, 1995,
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the years in the three-year period ended March
31, 1996, which report appears in the March 31, 1996 Annual Report of Besicorp
Group Inc.
/s/ Robbins, Greene, Horowitz, Lester & Co., LLP
ROBBINS, GREENE, HOROWITZ, LESTER & CO., LLP
<PAGE>
July 12, 1996
New York, New York
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY FOR THE YEAR ENDED MARCH 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FORM 10-KSB FOR FISCAL
1996.
<MULTIPLIER>1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-1-1995
<PERIOD-END> MAR-31-1996
<CASH> 90,579
<SECURITIES> 761,807
<RECEIVABLES> 566,567
<ALLOWANCES> 25,600
<INVENTORY> 1,259,190
<CURRENT-ASSETS> 3,134,013
<PP&E> 3,287,030
<DEPRECIATION> 1,104,817
<TOTAL-ASSETS> 9,404,990
<CURRENT-LIABILITIES> 2,230,923
<BONDS> 3,137,912
0
0
<COMMON> 323,315
<OTHER-SE> 2,787,402
<TOTAL-LIABILITY-AND-EQUITY> 9,404,990
<SALES> 3,900,754
<TOTAL-REVENUES> 4,412,072
<CGS> 3,445,849
<TOTAL-COSTS> 3,445,849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 455,392
<INCOME-PRETAX> (2,270,719)
<INCOME-TAX> 207,600
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,478,319)
<EPS-PRIMARY> (.84)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT NO. 99-A KAMINE/BESICORP CARTHAGE L.P.
Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Partners Kamine/Besicorp Carthage L.P.:
We have audited the accompanying balance sheets of Kamine/Besicorp Carthage L.P.
as of December 31, 1995 and 1994, and the related statements of operations,
partners' deficiency, and cash flows for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the general partners. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kamine/Besicorp Carthage L.P.
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
March 15, 1996
<PAGE>
KAMINE/BESICORP CARTHAGE L.P.
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
<S> <C> <C>
Current assets:
Cash $ 1,116,392 1,449,050
Cash held in escrow 271,021 42,356
Accounts receivable (note 5) 2,479,972 2,237,724
Other receivables 165,669 345,442
Prepaid expenses and other current assets 435,038 799,050
Current portion of loans receivable from affiliate (note 8) 111,243 74,813
---------- ----------
Total current assets 4,579,335 4,948,435
---------- ----------
Facility under capital lease (note 4) 52,706,409 53,150,000
Less accumulated amortization 2,182,564 58,183
---------- ----------
Facility under capital lease, net 50,523,845 53,091,817
---------- ----------
Other assets:
Deferred organization and start-up costs, less accumulated
amortization of $204,832 and $155,678 at December 31, 1995 and
1994, respectively 40,940 90,094
Cash held in escrow 1,000,000 --
Loans receivable from affiliate (note 8) 2,451,917 2,563,160
---------- ----------
Total other assets 3,492,857 2,653,254
---------- ----------
Total assets $58,596,037 60,693,506
---------- ----------
---------- ----------
Liabilities and Partners' Deficiency
Current liabilities:
Current installments of long-term debt (note 5) 200,738 346,381
Accounts payable 1,628,016 1,935,702
Amounts due to related parties (notes 2 and 8) 1,151,129 1,213,526
Accrued expenses and other current liabilities 14,838 1,649
Obligations under capital lease - current (note 4) 1,166,276 1,062,241
---------- ----------
Total current liabilities 4,160,997 4,559,499
Long-term debt, excluding current installments (note 5) 3,446,943 3,545,869
Obligations under capital lease (note 4) 50,563,774 52,271,705
Deferred gain on sale of Facility (note 3) 1,128,615 1,175,643
---------- ----------
Total liabilities 59,300,329 61,552,716
---------- ----------
Partners' deficiency (note 2):
General partners (376,567) (724,841)
Limited partners (327,725) (134,369)
---------- ----------
Total partners' deficiency (704,292) (859,210)
Commitments and contingencies (notes 4, 5, 6 and 7) ---------- ----------
Total liabilities and partners' deficiency $58,596,037 60,693,506
---------- ----------
---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP CARTHAGE L.P.
Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues (note 7) $26,556,893 33,037,045 30,781,734
---------- ---------- ----------
Operating expenses:
Depreciation -- 2,698,705 2,974,991
Amortization of asset under capital lease 2,124,381 58,183 --
Fuel (note 1) 9,766,448 13,480,237 16,001,313
Operations and maintenance (note 7) 1,516,093 1,734,239 1,707,657
Overhaul expense (note 7) 466,520 630,360 666,868
Administrative fee (notes 2 and 8) 318,278 307,448 310,663
Insurance 369,731 360,919 284,429
Amortization of organization costs (note 1) 49,154 49,155 49,153
Amortization of financing costs (note 1) -- 139,655 143,557
Utilities 284,937 97,031 78,455
Property taxes 238,666 197,972 197,919
Other 249,772 191,626 249,131
---------- ---------- ----------
Total operating expenses 15,383,980 19,945,530 22,664,136
---------- ---------- ----------
Income from operations 11,172,913 13,091,515 8,117,598
---------- ---------- ----------
Other income (expense):
Interest expense (7,111,999) (5,982,152) (6,440,269)
Contract rights (note 8) (1,091,540) (1,097,274) (1,519,620)
Cash flow fees (note 8) (251,464) (74,552) (162,178)
Interest income 334,355 43,219 24,463
Gain on sale of Facility (note 3) 47,028 1,288 --
Other expenses (36,660) (73,749) --
---------- ---------- ----------
Total other expense (8,110,280) (7,183,220) (8,097,604)
---------- ---------- ----------
Income before extraordinary item 3,062,633 5,908,295 19,994
Extraordinary item (note 1) -- (1,702,582) --
---------- ---------- ----------
Net income $ 3,062,633 4,205,713 19,994
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP CARTHAGE L.P.
Statements of Partners' Deficiency
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
General Limited Total
partners partners
<S> <C> <C> <C>
Partners' deficiency at December 31, 1992 $ (780,511) (137,755) (918,266)
Partners' distributions (note 2) (564,940) (105,471) (670,411)
Net income (note 2) 16,995 2,999 19,994
---------- ---------- ----------
Partners' deficiency at December 31, 1993 (1,328,456) (240,227) (1,568,683)
Partners' distributions (note 2) (846,241) (2,649,999) (3,496,240)
Net income (note 2) 1,449,856 2,755,857 4,205,713
---------- ---------- ----------
Partners' deficiency at December 31, 1994 (724,841) (134,369) (859,210)
Partners' distributions (note 2) (1,538,926) (1,368,789) (2,907,715)
Partnership restructuring (note 2) 276,255 (276,255) --
Net income (note 2) 1,610,945 1,451,688 3,062,633
---------- ---------- ----------
Partners' deficiency at December 31, 1995 $ (376,567) (327,725) (704,292)
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP CARTHAGE L.P.
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,062,633 4,205,713 19,994
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation -- 2,698,705 2,974,991
Amortization of Facility under capital lease 2,124,381 58,183 --
Amortization of deferred financing costs and deferred
organization and start-up costs (including write-off of
balance of deferred financing costs) 49,154 1,891,392 192,710
Amortization of deferred gain (47,028) (1,288) --
Changes in operating assets and liabilities:
(Increase) decrease in escrow accounts (1,228,665) 463,399 (389,225)
(Increase) Decrease in receivables (62,475) 1,050,014 (86,808)
Decrease (increase) in prepaid expenses and other
current assets 364,012 (397,176) (2,919)
Decrease (increase) in other assets -- 157,500 (157,500)
(Decrease) increase in accounts payable (307,686) (360,456) 76,093
(Decrease) increase in due to related parties (62,397) 92,191 858,891
Increase (decrease) in accrued expenses and other
current liabilities 13,189 (403,761) 98,158
(Decrease) increase in deferred revenue -- (3,200,498) 2,280,857
Increase in accrued interest under capital lease -- 183,946 --
Increase in deferred gain on sale of Facility -- 1,176,931 --
---------- ----------- ----------
Net cash provided by operating activities 3,905,118 7,614,795 5,865,242
---------- ----------- ----------
Cash flows from investing activities:
Proceeds from sale of Facility, net -- 51,544,936 --
Deferred gain on sale of Facility -- (1,176,931) --
---------- ----------- ----------
Net cash provided by investing activities -- 50,368,005 --
---------- ----------- ----------
Cash flows from financing activities:
Payments on capital lease obligation (1,160,305) -- --
Proceeds from permanent financing -- -- 325,600
Payments on permanent financing -- (5,083,336) (4,927,871)
Repayment of permanent financing -- (48,884,838) --
Proceeds from long-term debt 101,812 3,892,250 --
Payments on long-term debt (148,880) -- --
Payments on note payable to bank, net (197,501) (350,000) (700,000)
Decrease (increase) in loans receivable from affiliate 74,813 (2,637,973) --
Partners' distributions (2,907,715) (3,496,240) (670,411)
---------- ----------- ----------
Net cash used in financing activities (4,237,776) (56,560,137) (5,972,682)
---------- ----------- ----------
Net (decrease) increase in cash (332,658) 1,422,663 (107,440)
Cash at beginning of year 1,449,050 26,387 133,827
---------- ----------- ----------
Cash at end of year $ 1,116,392 1,449,050 26,387
---------- ----------- ----------
---------- ----------- ----------
Supplemental disclosure of cash flow information - cash
paid during the year for interest $ 7,275,471 5,787,192 6,440,269
---------- ----------- ----------
---------- ----------- ----------
Noncash investing and financing activities:
Capital lease $ -- 53,150,000 --
---------- ----------- ----------
---------- ----------- ----------
Capital lease repricing adjustment $ 443,591 -- --
---------- ----------- ----------
---------- ----------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP CARTHAGE L.P.
Notes to Financial Statements
December 31, 1995 and 1994
(1) Organization and Summary of Significant Accounting Policies
Organization
Kamine/Besicorp Carthage L.P. (the Partnership) is a Delaware limited
partnership formed on February 27, 1989. The Partnership was organized for the
purpose of constructing, owning and operating a 59-megawatt cogeneration
facility (the Facility or the Project) on the premises of James River II, Inc.
(James River) in Carthage, New York. The Facility is operated as a PURPA
qualifying cogeneration facility using natural gas as the primary source of
energy.
The general partners of the Partnership are Kamine Carthage Cogen Co.,
Inc. (KCCCI) and Beta Carthage Inc. (a subsidiary of Besicorp Group Inc.
(Besicorp)), each of which retains a 42.5% interest in the Partnership. Ansaldo
North America Inc. (Ansaldo) was a limited partner with a 15% interest and was
the construction contractor. On July 8, 1994, affiliates of the general
partners, Kamine Development Corp. (KDC) and Beta C&S Limited, each acquired 50%
of the Ansaldo limited partner interest. On May 3, 1995, KCCCI restructured its
42.5% general partner interest in the Project to a 32.4% limited partner
interest and a 10.1% general partner interest. KDC and KCCCI assigned the
economic rights of their limited partner interests to a trust, with Chemical
Bank as trustee, on May 3, 1995.
The Facility began commercial operations on November 1, 1991.
Substantially all revenues from the Facility are generated by selling power to
one customer, Niagara Mohawk Power Corporation (NIMO). Sales to NIMO
approximated 99%, 94% and 91% of total revenues in 1995, 1994 and 1993,
respectively.
The Partnership conveyed ownership of the Facility to the Jefferson County
Industrial Development Agency (IDA). The tax-exempt status of the IDA exempts
the Project from property taxes during IDA ownership. Payments in lieu of real
property taxes are made to the IDA and payments for special assessments are made
to Jefferson County under agreements dated June 1, 1991. The IDA has appointed
the Partnership as its agent and was to convey the Facility to the Partnership
in accordance with an installment sale agreement.
The Partnership's interest in the Facility was sold to General Electric
Capital Corporation (GECC) on December 22, 1994 and leased back by the
Partnership. GECC entered into a Trust Agreement with Manufacturers and Traders
Trust Company (M&T) as of December 9, 1994 to engage M&T as Owner Trustee. In
connection with the sale of the Partnership's interest in the Facility, the
installment sale agreement was assigned to M&T.
Summary of Significant Accounting Policies
Plant and Equipment
Prior to the sale of the Partnership's interest in the Facility, plant and
equipment was stated at cost, less accumulated depreciation. Maintenance and
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies, cont.
Plant and Equipment, cont.
repairs which did not enhance the value or increase the basic productive
capacity of the asset were charged to operations as incurred. Depreciation of
assets was computed on a straight-line basis over their useful lives of 20
years, commencing on the date the Facility was placed into service.
Effective November 5, 1994, the Partnership extended the estimated useful
life of the Facility to 35 years as a result of the amended and restated Power
Purchase Agreement (PPA) (see note 7). The effect of this change in estimate was
immaterial to the 1994 statement of operations.
<PAGE>
At the sale date, the Facility's net book value of $50,368,005 was
recorded as a cost of the sale.
Amortization of Capital Lease
Amortization of the Facility under capital lease is computed using the
straight-line method over the lease term.
Deferred Financing Costs
The deferred financing costs were being amortized on a straight-line basis
over the life of the permanent financing, which was 15 years (see note 5).
Amortization charged to operations for the years ended December 31, 1994 and
1993 was $139,655 and $143,557, respectively, commencing on the date the
Facility was placed into service.
On the date of sale of the Facility to GECC, the term loans were repaid
and the unamortized deferred financing costs of $1,702,582 were expensed and
recorded as an extraordinary item in connection with the early retirement of
debt.
Deferred Organization and Start-up Costs
The deferred organization and start-up costs are being amortized on a
straight-line basis over a 60-month period. Amortization charged to operations
for the years ended December 31, 1995, 1994 and 1993 was $49,154, $49,155 and
$49,153, respectively, commencing on the date the Facility was placed into
service.
Revenue Recognition
Electric and thermal energy revenues are recognized as earned.
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies, cont.
Gain on Sale
The gain from the sale of the Facility has been deferred and is being
recognized on a straight-line basis over the lease term.
Income Taxes
Income taxes have not been provided, since the Partnership is not a
taxable entity. The partners report their respective share of the Partnership's
taxable income or loss on their respective income tax returns.
Fuel Sales
Sales of fuel and transportation associated with excess natural gas
pipeline capacity purchased by the Partnership to support peak fuel requirements
have been treated as a reduction to fuel expense. Total sales related to
disposition of such excess capacity in 1995, 1994 and 1993 totaled $1,849,286,
$1,849,908 and $3,629,076, respectively.
Escrow Accounts
An escrow arrangement has been established for receipt of all revenues and
payment of all obligations of the Partnership. The security agent is United
Jersey Bank. Amounts in the collection account, which represent general funds,
are classified as cash on the balance sheets. Funds in other accounts, which are
set aside for specific purposes, are classified as escrow accounts. The escrow
accounts' balance at December 31, 1995 consists of a current account principally
for payment of taxes and a long-term escrow reserve for lease payments.
Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. The carrying amounts of accounts receivable,
accounts payable and accrued liabilities approximate fair value due to the
short-term maturity of such instruments. The carrying amounts of loans
receivable and long-term debt approximate fair value based on a recent amendment
governing those agreements in December 1995, which fixed the interest rate at
10.21%.
<PAGE>
Use of Estimates
In conformity with generally accepted accounting principles, management of
the Partnership has made a number of estimates and assumptions relating to the
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies, cont.
Use of Estimates, cont.
reporting of assets and liabilities and the disclosure of contingent
liabilities in preparing the accompanying financial statements. Actual results
could differ from those estimates.
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount can be reasonably
estimated.
Risks and Uncertainties
The Partnership is principally engaged in a single line of business, the
production and sale of electric power to one customer, NIMO.
The regulated investor-owned utility industry is presently subject to
considerable market pressures and changes in the Federal and state regulatory
environment in which it operates. These pressures are resulting in industry
consolidation and pressure to disaggregate electric generation, transmission and
distribution assets and to adjust cost structures to meet market conditions. The
utility to which the Partnership sells its power, NIMO, made a filing on October
10, 1995 to the Public Service Commission of the State of New York setting forth
numerous restructuring proposals, including a significant reduction on the price
for power purchased from independent power producers currently under contract
with NIMO. The Partnership expects many of NIMO's proposals to be strongly
contested including the significant reduction on the price for power. NIMO has
also stated in such filing that its financial viability is threatened. In early
1996, NIMO suspended payment of dividends on its common stock. The outcome of
the industry trends, regulatory changes, the NIMO filing and NIMO's financial
viability cannot presently be determined.
(2) Allocation of Income, Losses and Cash Distributions
A separate capital account has been established and maintained for each
partner. Each such account is (a) increased by the amount of such partner's
capital contributions, any profits and items of income and gain allocated to
such partner, any increase in such partner's share of the liabilities of the
Partnership and the amount of partnership liabilities assumed by the partner;
and (b) decreased by the amount of cash and the fair market value of any
partnership assets distributed to such partner, the amount of losses allocated
to such partner, any decrease in such partner's share of liabilities of the
Partnership and the amount of any partner liabilities assumed by the Partnership
(subject to certain provisions).
(2) Allocation of Income, Losses and Cash Distributions, cont.
In accordance with the Amended and Restated Partnership Agreement, a
special allocation was made in 1994 to the new limited partners, KDC and Beta
C&S Limited. Each limited partner received a priority distribution of $1,250,000
from proceeds of the sale of the Facility.
Profits and losses for any calendar year or portion of such year are
allocated among the partners in proportion to their percentage ownership
interests, the exception being that, to the extent any allocation of losses
would reduce any limited partner's adjusted capital account balance, as defined
and agreed by the partners, below zero, such portion of losses shall be
specially allocated to the general partners in equal shares and, in turn, any
subsequent profits shall be allocated so as to reverse the effect of such
special allocation of losses.
<PAGE>
The partners' accounts were restructured in 1995 to reflect KCCCI's change
in its general partner interest from 42.5% to 10.1% in exchange for a 32.4%
limited partner interest. The net effect of this change is a $276,255 decrease
in the general partners' deficiency account balance and a similar increase in
the limited partners' deficiency account balance.
Net cash flow, as defined, for each calendar quarter is distributed to the
partners in accordance with their percentage ownership interests. In addition,
amounts required for payment of New York State franchise taxes by the partners,
based upon a .81% (.75% plus 7.5% surcharge thereon) rate of each partner's pro
rata share of partnership revenues pursuant to Article 9, Section 186 of the New
York State Tax Code, are distributed to the partners when tax payments are due.
All partners' distributions in 1995, 1994 and 1993 were for payment of such
taxes as well as net cash flow distributions. Partners' distributions in 1994
also included the special distribution from the sale of the Partnership's
interest in the Facility.
The limited partners have a deficiency in their partners' capital account
balance as a result of distributions over their proportionate share of net
income. Management anticipates that the deficiencies in the limited partners'
capital account balance will reverse in subsequent years.
In addition to their respective shares of the partnership cash flow, the
general partners and/or their affiliates receive an administrative fee of
$300,000 per annum (escalated for changes in the Employment Cost Index),
contractual rights to cash flow development fees, and certain other project
management cost reimbursements under various contractual agreements.
(3) Sale of Facility
The Facility was sold on December 22, 1994 to GECC for $53,150,000.
Proceeds from the sale were used to repay the outstanding loans, pay a fee to
GECC and partially fund transaction costs. A gain on sale of $1,176,931 was
deferred and is being recognized over the term of the lease. In 1995 and 1994,
$47,028 and $1,288, respectively, of the gain was recognized.
(4) Lease of Facility
The Partnership entered into a Lease Agreement with M&T on December 22,
1994 to lease the Facility for 25 years with an option to renew for up to three
years at a fair market rental value. The lease is recorded as a capital lease.
The lease was subject to repricing to account for changes in assumptions and
estimated costs related to certain transaction expenses and the construction
costs of other equipment.
On December 20, 1995 (the repricing date), construction of other equipment
was completed and all rights, title and interest in such equipment was
transferred to M&T. In addition, the rental payments were revised on the
repricing date to account for the changes in assumptions and estimated costs. As
a result of the change in rental payments, the Facility under capital lease and
related lease obligation were decreased by $443,591 on December 20, 1995.
At December 31, 1995, the future minimum annual lease payments for the
capital lease obligation are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 7,651,542
1997 7,651,542
1998 7,651,542
1999 7,651,542
2000 7,651,542
Thereafter 90,124,452
-----------
128,382,162
Less interest 76,652,112
-----------
Future minimum annual lease payments $ 51,730,050
-----------
-----------
</TABLE>
Included in obligations under capital leases - current at December 31,
1994 is accrued interest of $183,946 representing a partial month's interest
under the lease.
<PAGE>
(5) Financing
On July 9, 1992, the Partnership and GECC executed permanent financing
arrangements that were effective as of June 29, 1992. GECC provided term debt
with quarterly repayments over a term of 15 years commencing on June 30, 1992 in
an initial amount of $44,500,000 at an interest rate of 11.226%.
GECC also provided additional term debt with repayments over five years in
the amount of $17,400,000 at an interest rate of 9.891%.
Upon the permanent financing closing, GECC, in addition to the commitment
to provide the term debt, committed to provide the Project with a working
capital
(5) Financing, cont.
facility in a maximum amount of $2,000,000 with a floating interest rate
of the prime rate, as defined, plus 2%. GECC also committed to the issuance of
letters of credit in an aggregate maximum amount of $6,000,000. This agreement
was terminated on the date of the sale of the Facility.
On December 22, 1994, the term debt was repaid from the proceeds of the
sale of the Facility.
On December 9, 1994, a Term Loan, a Working Capital and Letter of Credit
Financing Agreement was entered into with GECC. It provided for a Tranche A Term
Loan for up to $1,750,000 to fund construction for certain alterations to the
Facility, which were purchased by GECC. In connection therewith, the Tranche A
Term Loan was repaid in December 1995 ($197,501 was outstanding at December 31,
1994). In addition, a Tranche B Term Loan for up to $4,250,000 was provided
($3,647,681 and $3,694,749 outstanding at December 31, 1995 and 1994,
respectively) to fund transaction costs not funded by the sale proceeds and a
loan to a related party which will be repaid over 12 years (see note 8). An
amendment to the Tranche B Term Loan was entered into on December 20, 1995 which
fixed the interest rate at 10.21% effective December 1, 1995. In addition, the
Working Capital Commitment of $2,000,000 is available to the Partnership, as
well as up to $6,000,000 for letters of credit related to fuel obligations. At
December 31, 1995 and 1994, there were no borrowings outstanding under the
Working Capital Commitment. At December 31, 1995, the Partnership had open
letters of credit of $1,796,948.
The total amounts of long-term debt due under the Tranche B Term Loan
during each of the next five years are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1996 $ 200,738
1997 207,679
1998 230,228
1999 255,224
2000 282,090
---------
---------
</TABLE>
The Partnership also entered into an Alternate Working Capital Agreement
with United Jersey Bank (UJB) as of June 29, 1992. UJB provides a $2,000,000
line of credit secured by receivables and inventory of the Project. UJB receives
an annual facility fee of .50% of the committed facility and receives interest
at the rate of 1% above its Floating Base Rate (prime) on amounts borrowed.
There were no outstanding borrowings at December 31, 1995 and 1994.
(6) Lease of Land
The Facility is on a parcel of land owned by James River adjacent to its
paper mill. The land is leased to the Partnership for a nominal amount. In 1994,
the lease was amended to extend the term to 40 years from November 5, 1994. The
lease has been assigned to M&T in connection with the sale of the Facility.
(7) Commitments and Contingencies
Commitments
<PAGE>
Affiliates of the Partnership entered into a PPA with NIMO dated as of
June 5, 1987 with approval by the New York Public Service Commission (the
Commission) on September 1, 1987. The PPA was assigned to the Partnership. NIMO
agreed to purchase electricity generated by the Facility for a term of 20 years
from the date of commercial operation at the higher of $.06 per kilowatt-hour or
actual avoided cost, as defined.
As of May 27, 1992, the Partnership entered into an amendment to the PPA
whereby the amount of electricity to be sold was increased from approximately 49
megawatts (original capacity) to 56 megawatts in the summer period and 59
megawatts in the winter period (subject to adjustment based on performance).
Revenues for the original capacity continued to be earned based on the higher of
$.06 per kilowatt-hour or actual avoided cost, as defined, for the amount of
electricity generated. For the additional capacity NIMO was to make payments at
$.06 per kilowatt-hour for five years from the date of the amendment, with the
difference between $.06 and actual energy-only tariff rates to be accumulated in
an adjustment account and recorded as an asset or liability (deferred revenue).
After the five-year period, the additional capacity was to be sold to NIMO at
statutorily required minimum rates less the amount required to liquidate the
adjustment account over the remaining life of the PPA. The adjustment account
balance was secured by a lien on the Facility that was subordinate to GECC's
security.
An amendment to the PPA was entered into as of January 4, 1994 and became
effective on November 5, 1994. The amendment requires NIMO to purchase
electricity generated by the Facility for 35 years from November 5, 1994. In
addition, the NIMO adjustment account of $5,323,534 at November 5, 1994 was
eliminated and was included in 1994 revenues as a result of the amended and
restated PPA.
The Partnership entered into an Energy Services Agreement (ESA) with James
River dated as of October 31, 1989 and amended and restated as of October 21,
1994. James River will purchase mill requirements for steam from the Facility
according to pricing set forth in the amended and restated ESA for a term of 35
years from November 5, 1994.
(7) Commitments and Contingencies, cont.
Commitments, cont.
The Partnership entered into an Operations and Maintenance Agreement (O&M
Agreement) with Stewart & Stevenson Operations, Inc. (the Operator) as of
January 31, 1991. The O&M Agreement was amended and restated as of October 21,
1994 to conform with the plan for operations associated with the amended and
restated PPA. Under the amended agreement, the Operator will operate and
maintain the Facility for a period of 12 years and one successive six-year term,
unless 12 months' prior notice is given by the Partnership to the Operator.
Compensation will include a fee of (INFORMATION DELETED - SUBJECT OF A
CONFIDENTIALITY REQUEST) per year plus (INFORMATION DELETED - SUBJECT OF A
CONFIDENTIALITY REQUEST) per Operating Hour, both amounts subject to annual
escalation beginning January 1, 1995 based upon changes in the Producer Price
Index (PPI). The Operator will also be paid a fee for major facility overhauls
at a rate that ranges from (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY
REQUEST) to (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) per
Equivalent Operating Hour, as defined. This fee is also subject to annual
escalations based upon changes in the PPI. The agreement provides for the
Partnership to pay the Operator a mobilization fee of (INFORMATION DELETED -
SUBJECT OF A CONFIDENTIALITY REQUEST) prior to the acceptance date, as defined.
The agreement also provides for the Operator to receive a bonus or be obligated
to pay a penalty based on a performance factor, as defined. The Partnership will
reimburse the Operator for letter of credit fees and insurance premiums based
upon evidence by the Operator that such expenses have been paid.
The Partnership has entered into various contracts for the supply and
transportation of natural gas to the Project. Natural gas is being supplied by
Renaissance Energy Ltd. (a Canadian corporation) from dedicated reserves.
Transportation of natural gas by pipelines is provided by TransCanada Pipelines
Limited from Bristol, Saskatchewan, Canada to Grand Island, New York; by Empire
State Pipeline Company to Oneida, New York; and by NIMO to the Facility.
The aforementioned agreements have been assigned to M&T in connection with
the sale of the Facility.
<PAGE>
In addition, the Facility has the capacity to utilize kerosene as an
alternative fuel. The Partnership maintains an open account with Sprague Energy
Corporation to purchase such fuel.
Contingencies
The Partnership and certain related parties, including the general and
limited partners, have been named as defendants in a lawsuit. The plaintiff
alleges that on or about October 11, 1988, the plaintiff was awarded the
contracts for the construction of the Facility and a separate cogeneration
facility located in South Glens Falls, New York. The complaint alleges breach of
contract, unjust enrichment, promissory estoppel, and fraud and/or negligent
misrepresentation. The plaintiff is seeking $7,446,000 in damages under its
causes of action, plus unspecified punitive damages from all parties named in
the lawsuit.
(7) Commitments and Contingencies, cont.
Contingencies, cont.
On January 15, 1991 the defendants answered the complaint and denied all
the material allegations and asserted various affirmative defenses. On February
28, 1995, the defendants filed a motion for summary judgment dismissing
plaintiff's claims. The motion was argued in court in October 1995 and a
decision is pending. Management and legal counsel believe that the lawsuit has
little or no merit. The ultimate outcome of this litigation cannot currently be
determined.
(8) Related-party Transactions
Affiliates of the general partners receive an administrative fee for
managing the operations of the Partnership. Administrative fees were $318,278,
$307,448 and $310,663 in 1995, 1994 and 1993, respectively.
As of December 9, 1994, the Partnership entered into an interfacility loan
agreement with Kamine/Besicorp South Glens Falls L.P. (KBSGF) and
Kamine/Besicorp Natural Dam L.P. (KBND). The agreement allows KBSGF and KBND to
borrow funds or advance funds to the extent of available cash, as defined in the
loan agreement. Such loans to or from either KBSGF or KBND are required when
there are insufficient funds available to pay certain current obligations. At
December 31, 1995 and 1994, there were no outstanding amounts due to or from
KBSGF and KBND.
On December 22, 1994, the Partnership advanced $2,637,973 to
Kamine/Besicorp GlenCarthage Partnership. The loan receivable is payable in
quarterly installments over 12 years and carries an interest rate based on
either the Commercial Paper Rate or the annual yield on ten year U.S. Treasury
obligations, as defined, plus 4.5%. The interest rate was fixed on December 1,
1995 at 10.21%, based on the ten-year U.S. Treasury at that time, plus 4.5%.
Contract Rights and Cash Flow Fees
The Partnership has an agreement with the two developers for additional
fees for development work, management and administrative services. These fees
(cash flow fees and contract rights) have been assigned by the developers to
Kamine/Besicorp GlenCarthage Partnership in which the developers are partners.
This partnership has the right to receive these fees when the Partnership has
sufficient funds available in accordance with payment priority, provided that
the developers deliver the management and administrative services. The contract
rights, as defined, are payable through March 31, 2007. The Partnership has
recorded as expense contract rights of $1,091,540, $1,097,274 and $1,519,620 in
1995, 1994 and 1993, respectively. Cash flow fees are payable over the life of
the Project based on 8.5% of cash flows from operations, as defined. Cash flow
fees paid to related parties in 1995, 1994 and 1993 were $251,464, $74,552 and
$162,178, respectively.
<PAGE>
EXHIBIT NO. 99-B
KAMINE/BESICORP SOUTH GLENS FALLS L.P.
Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Partners
Kamine/Besicorp South Glens Falls L.P.:
We have audited the accompanying balance sheets of Kamine/Besicorp South Glens
Falls L.P. as of December 31, 1995 and 1994, and the related statements of
income, partners' equity (deficiency), and cash flows for each of the years in
the three-year period ended December 31, 1995. These financial statements are
the responsibility of the general partners. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kamine/Besicorp South Glens
Falls L.P. as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1995 in conformity with generally accepted accounting principles.
March 15, 1996
<PAGE>
KAMINE/BESICORP SOUTH GLENS FALLS L.P.
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
<S> <C> <C>
Current assets:
Cash $ 814,312 1,478,627
Cash held in escrow 568,317 29,528
Accounts receivable, net (note 5) 2,403,354 2,101,112
Other receivables 604,469 1,131,609
Prepaid expenses and other current assets 427,760 700,446
Current portion of loans receivable from affiliate (note 8) 111,243 74,813
---------- ----------
Total current assets 4,929,455 5,516,135
---------- ----------
Facility under capital lease (note 4) 51,002,261 51,550,000
Less accumulated amortization 2,116,694 56,431
---------- ----------
Facility under capital lease, net 48,885,567 51,493,569
---------- ----------
Other assets:
Deferred organization and start-up costs, less accumulated
amortization of $203,352 and $154,199 at December 31, 1995
and 1994, respectively 42,420 91,574
Cash held in escrow 1,500,000 500,000
Loans receivable from affiliate (note 8) 2,451,917 2,563,160
---------- ----------
Total other assets 3,994,337 3,154,734
---------- ----------
Total assets $57,809,359 60,164,438
---------- ----------
---------- ----------
Liabilities and Partners' Equity (Deficiency)
Current liabilities:
Current installments of long-term debt (note 5) 197,060 244,111
Accounts payable 1,880,343 2,845,880
Amounts due to related parties (notes 2 and 8) 792,619 575,241
Accrued expenses and other current liabilities 251,878 314,406
Obligations under capital leases (note 4) 1,116,154 1,027,292
---------- ----------
Total current liabilities 4,238,054 5,006,930
Long-term debt, excluding current installments (note 5) 3,378,909 3,484,750
Obligations under capital leases (note 4) 48,995,943 50,698,497
Deferred gain on sale of Facility (note 3) 1,085,154 1,130,370
---------- ----------
Total liabilities 57,698,060 60,320,547
---------- ----------
Partners' equity (deficiency) (note 2):
General partners 49,773 (132,671)
Limited partners 61,526 (23,438)
---------- ----------
Total partners' equity (deficiency) 111,299 (156,109)
Commitments and contingencies (notes 4, 5, 6 and 7) ---------- ----------
Total liabilities and partners' equity (deficiency) $57,809,359 60,164,438
---------- ----------
---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP SOUTH GLENS FALLS L.P.
Statements of INCOME
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues (note 7) $26,024,574 31,846,354 29,438,237
---------- ---------- ----------
Operating expenses:
Depreciation -- 2,616,096 2,883,633
Amortization of asset under capital lease 2,060,263 56,431 --
Fuel (note 1) 9,893,914 13,949,704 15,684,473
Operations and maintenance (note 7) 1,556,634 1,706,525 1,843,936
Overhaul expense (note 7) 475,205 617,975 674,229
Administrative fee (notes 2 and 8) 318,278 307,488 310,663
Insurance 367,484 355,884 279,986
Amortization of organization costs (note 1) 49,155 49,155 49,155
Amortization of financing costs (note 1) -- 134,962 138,728
Utilities 216,257 157,971 121,717
Property taxes 319,889 232,403 189,114
Other 267,590 278,852 237,810
---------- ---------- ----------
Total operating expenses 15,524,669 20,463,446 22,413,444
---------- ---------- ----------
Income from operations 10,499,905 11,382,908 7,024,793
---------- ---------- ----------
Other income (expense):
Interest expense (6,805,384) (5,754,722) (6,191,194)
Contract rights (note 8) (2,703,132) (814,556) (563,945)
Interest and other income 363,335 41,616 31,124
Other expenses (111,691) (89,836) --
Gain on sale of Facility (note 3) 45,216 1,238 --
Cash flow fees (69,070) -- --
---------- ---------- ----------
Total other expense (9,280,726) (6,616,260) (6,724,015)
---------- ---------- ----------
Income before extraordinary item 1,219,179 4,766,648 300,778
Extraordinary item (note 1) -- (1,649,500) --
---------- ---------- ----------
Net income $ 1,219,179 3,117,148 300,778
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP SOUTH GLENS FALLS L.P.
Statements of Partners' Equity (Deficiency)
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
General Limited Total
partners partners
<S> <C> <C> <C>
Partners' deficiency at December 31, 1992 $ (846,229) (149,353) (995,582)
Partners' distributions (note 2) (245,877) (43,394) (289,271)
Net income (note 2) 255,661 45,117 300,778
--------- ---------- ----------
Partners' deficiency at December 31, 1993 (836,445) (147,630) (984,075)
Partners' contributions 425,000 75,000 500,000
Partners' distributions (note 2) (245,802) (2,543,380) (2,789,182)
Net income (note 2) 524,576 2,592,572 3,117,148
--------- ---------- ----------
Partners' deficiency at December 31, 1994 (132,671) (23,438) (156,109)
Partners' distributions (note 2) (509,378) (442,393) (951,771)
Partnership restructuring (note 2) 50,534 (50,534) --
Net income (note 2) 641,288 577,891 1,219,179
--------- ---------- ----------
Partners' equity at December 31, 1995 $ 49,773 61,526 111,299
--------- ---------- ----------
--------- ---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP SOUTH GLENS FALLS L.P.
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,219,179 3,117,148 300,778
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation -- 2,616,096 2,883,633
Amortization of deferred financing costs and
deferred organization and start-up costs
(including write-off of balance of deferred
financing costs) 49,155 1,833,617 187,883
Amortization of Facility under capital lease 2,060,263 56,431 --
Amortization of deferred gain (45,216) (1,238) --
Changes in operating assets and liabilities:
(Increase) decrease in escrow accounts (1,538,789) 174,784 (504,787)
Decrease in receivables 224,898 460,323 63,208
Decrease (increase) in prepaid expenses and other
current assets 272,686 (331,090) (26,342)
Decrease (increase) in other assets -- 125,000 (125,000)
(Increase) decrease in accounts payable (965,537) 714,820 (177,313)
Increase (decrease) in due to related parties 217,378 (98,883) 250,629
Decrease in accrued expenses and other current
liabilities (62,528) (206,606) (214,021)
(Decrease) increase in deferred revenue -- (2,947,589) 2,089,729
(Decrease) increase in accrued interest under
capital lease (175,789) 175,789 --
Increase in deferred gain on sale of Facility -- 1,131,608 --
---------- ----------- ----------
Net cash provided by operating activities 1,255,700 6,820,210 4,728,397
---------- ----------- ----------
Cash flows from investing activities:
Proceeds from sale of Facility, net -- 50,030,275 --
Deferred gain on sale of Facility -- (1,131,608) --
---------- ----------- ----------
Net cash provided by investing activities -- 48,898,667 --
---------- ----------- ----------
Cash flows from financing activities:
Payments on capital lease obligation (890,164) -- --
Proceeds from permanent financing -- -- 613,807
Payments on permanent financing -- (4,950,574) (4,800,350)
Repayment of permanent financing -- (47,323,864) --
Payments on note payable to bank -- (1,000,000) (50,000)
Proceeds from long-term debt 424,092 3,728,861 --
Payments on long-term debt (576,985) -- --
Decrease (increase) in loans receivable from affiliate 74,813 (2,637,973) --
Partners' contributions -- 500,000 --
Partners' distributions (951,771) (2,789,182) (289,271)
---------- ----------- ----------
Net cash used in financing activities (1,920,015) (54,472,732) (4,525,814)
---------- ----------- ----------
Net (decrease) increase in cash (664,315) 1,246,145 202,583
Cash at beginning of year 1,478,627 232,482 29,899
---------- ----------- ----------
Cash at end of year $ 814,312 1,478,627 232,482
---------- ----------- ----------
---------- ----------- ----------
Supplemental disclosure of cash flow information - cash
paid during the year for interest $ 6,960,374 5,568,292 6,191,194
---------- ----------- ----------
---------- ----------- ----------
Noncash investing and financing activities:
Capital lease $ -- 51,550,000 --
---------- ----------- ----------
---------- ----------- ----------
Capital lease repricing adjustment $ 547,739 -- --
---------- ----------- ----------
---------- ----------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP SOUTH GLENS FALLS L.P.
Notes to Financial Statements
December 31, 1995 and 1994
(1) Organization and Summary of Significant Accounting Policies
Organization
Kamine/Besicorp South Glens Falls L.P. (the Partnership) is a Delaware
limited partnership formed on February 27, 1989. The Partnership was organized
for the purpose of constructing, owning and operating a 59-megawatt cogeneration
facility (the Facility or the Project) on the premises of James River II, Inc.
(James River) in South Glens Falls, New York (premises sold to Encore Paper
Company (Encore) in March 1992). The Facility is operated as a PURPA qualifying
cogeneration facility using natural gas as the primary source of energy.
The general partners of the Partnership are Kamine South Glens Falls Cogen
Co., Inc. (KSGFCCI) and Beta South Glens Falls Inc. (a subsidiary of Besicorp
Group Inc. (Besicorp)), each of which retains a 42.5% interest in the
Partnership. Ansaldo North America Inc. (Ansaldo) was a limited partner with a
15% interest and was the construction contractor. On July 8, 1994, affiliates of
the general partners, Kamine Development Corp. (KDC) and Beta C&S Limited, each
acquired 50% of the Ansaldo limited partner interest. On May 3, 1995, KSGFCCI
restructured its 42.5% general partner interest in the Project to a 32.4%
limited partner interest and a 10.1% general partner interest. KDC and KSGFCCI
assigned the economic rights of their limited partner interests to a trust, with
Chemical Bank as trustee, on May 3, 1995.
The Facility began commercial operations on November 12, 1991.
Substantially all revenues from the Facility are generated by selling power to
one customer, Niagara Mohawk Power Corporation (NIMO). Sales to NIMO
approximated 98%, 96% and 93% of total revenues in 1995, 1994 and 1993,
respectively.
The Partnership conveyed ownership of the Facility to the County of
Saratoga Industrial Development Agency (IDA). The tax-exempt status of the IDA
exempts the Project from property taxes during IDA ownership. Payments in lieu
of real property taxes are made to the IDA under an agreement dated January 1,
1991. The IDA has appointed the Partnership as its agent and was to convey the
Facility to the Partnership in accordance with an installment sale agreement.
The Partnership's interest in the Facility was sold to General Electric
Capital Corporation (GECC) on December 22, 1994 and leased back by the
Partnership. GECC entered into a Trust Agreement with Manufacturers and Traders
Trust Company (M&T) as of December 9, 1994 to engage M&T as Owner Trustee. In
connection with the sale of the Partnership's interest in the Facility, the
installment sale agreement was assigned to M&T.
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies
Plant and Equipment
Prior to the sale of the Partnership's interest in the Facility, plant and
equipment was stated at cost, less accumulated depreciation. Maintenance and
repairs which did not enhance the value or increase the basic productive
capacity of the asset were charged to operations as incurred. Depreciation of
assets was computed using the straight-line method over their useful lives of 20
years, commencing on the date the Facility was placed into service.
Effective November 5, 1994, the Partnership extended the estimated useful
life of the Facility to 35 years as a result of the amended and restated Power
Purchase Agreement (PPA) (see note 7). The effect of this change in estimate was
immaterial to the 1994 statement of operations.
<PAGE>
At the sale date, the net book value of $48,898,667 was recorded as a cost
of the sale.
Amortization of Capital Lease
Amortization of the Facility under capital lease is computed using the
straight-line method over the lease term.
Deferred Financing Costs
The deferred financing costs were being amortized on a straight-line basis
over the life of the permanent financing, which was 15 years (see note 5).
Amortization charged to operations for the years ended December 31, 1994 and
1993 was $134,962 and $138,728, respectively, commencing on the date the
Facility was placed in service.
On the date of sale of the Facility to GECC, the term loans were repaid
and the unamortized deferred financing costs of $1,649,500 were expensed and
recorded as an extraordinary item in connection with the early retirement of
debt.
Deferred Organization and Start-up Costs
The deferred organization and start-up costs are being amortized on a
straight-line basis over a 60-month period. Amortization expense charged to
operations for each of the years ended December 31, 1995, 1994 and 1993 was
$49,155, commencing on the date the Facility was placed in service.
Revenue Recognition
Electric and thermal energy revenues are recognized as earned.
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies, cont.
Gain on Sale
The gain from the sale of the Facility has been deferred and is being
recognized on a straight-line basis over the lease term.
Income Taxes
Income taxes have not been provided, since the Partnership is not a
taxable entity. The partners report their respective share of the Partnership's
taxable income or loss on their respective income tax returns.
Fuel Sales
Sales of fuel and transportation associated with excess natural gas
pipeline capacity purchased by the Partnership to support peak fuel requirements
have been treated as a reduction to fuel expense. Total sales related to
disposition of such excess capacity in 1995, 1994 and 1993 totaled $3,317,199,
$1,363,637 and $1,974,312, respectively.
Escrow Accounts
An escrow arrangement has been established for receipt of all revenues and
payment of all obligations of the Partnership. The security agent is United
Jersey Bank. Amounts in the collection account, which represent general funds,
are classified as cash on the balance sheets. Funds in other accounts, which are
set aside for specific purposes, are classified as escrow accounts. The escrow
accounts at December 31, 1995 consist of a current account principally for the
payment of taxes and two long-term accounts - a reserve for lease payments and
an alternate steam host reserve.
Financial Instruments
<PAGE>
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. The carrying amounts of accounts receivable,
accounts payable and accrued liabilities approximate fair value due to the
short-term maturity of such instruments. The carrying amount of loans receivable
and long-term debt approximates fair value based on a recent amendment governing
those agreements in December 1995, which fixed the interest rate at 10.21%.
Use of Estimates
In conformity with generally accepted accounting principles, management of
the Partnership has made a number of estimates and assumptions relating to the
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies, cont.
Use of Estimates, cont.
reporting of assets and liabilities and the disclosure of contingent
liabilities in preparing the accompanying financial statements. Actual results
could differ from those estimates.
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount can be reasonably
estimated.
Risks and Uncertainties
The Partnership is principally engaged in a single line of business, the
production and sale of electric power to one customer, NIMO.
The regulated investor-owned utility industry is presently subject to
considerable market pressures and changes in the Federal and state regulatory
environment in which it operates. These pressures are resulting in industry
consolidation and pressure to disaggregate electric generation, transmission and
distribution assets and to adjust cost structures to meet market conditions. The
utility to which the Partnership sells its power, NIMO, made a filing on October
10, 1995 to the Public Service Commission of the State of New York setting forth
numerous restructuring proposals, including a significant reduction on the price
for power purchased from independent power producers currently under contract
with NIMO. The Partnership expects many of NIMO's proposals to be strongly
contested, including the significant reduction on the price for power. NIMO has
also stated in such filing that its financial viability is threatened. In early
1996, NIMO suspended payment of dividends on its common stock. The outcome of
the industry trends, regulatory changes, the NIMO filing and NIMO's financial
viability cannot presently be determined.
(2) Allocation of Income, Losses and Cash Distributions
A separate capital account has been established and maintained for each
partner. Each such account is (a) increased by the amount of such partner's
capital contributions, any profits and items of income and gain allocated to
such partner, any increase in such partner's share of the liabilities of the
Partnership and the amount of partnership liabilities assumed by the partner;
and (b) decreased by the amount of cash and the fair market value of any
partnership assets distributed to such partner, the amount of losses allocated
to such partner, any decrease in such partner's share of the liabilities of the
Partnership and the amount of any partner liabilities assumed by the Partnership
(subject to certain provisions).
(2) Allocation of Income, Losses and Cash Distributions, cont.
In accordance with the Amended and Restated Partnership Agreement, a
special allocation was made in 1994 to the new limited partners, KDC and Beta
C&S Limited. Each limited partner received a priority distribution of $1,250,000
from proceeds of the sale of the Facility.
<PAGE>
Profits and losses for any calendar year or portion of such year are
allocated among the partners in proportion to their percentage ownership
interests, the exception being that, to the extent any allocation of losses
would reduce any limited partner's adjusted capital account balance, as defined
and agreed by the partners, below zero, such portion of losses shall be
specially allocated to the general partners in equal shares and, in turn, any
subsequent profits shall be allocated so as to reverse the effect of such
special allocation of losses.
The partners' capital accounts were restructured in 1995 to reflect
KSGFCCI's change in its general partner interest from 42.5% to 10.1% in exchange
for a 32.4% limited partner interest. The net effect of this change is a $50,534
decrease in the general partners' deficiency account balance and a similar
increase in the limited partners' deficiency account balance.
Net cash flow, as defined, for each calendar quarter is distributed to the
partners in accordance with their percentage ownership interests. In addition,
amounts required for payment of New York State franchise taxes by the partners,
based upon a .81% (.75% plus 7.5% surcharge thereon) rate of each partner's pro
rata share of partnership revenues pursuant to Article 9, Section 186 of the New
York State Tax Code, are distributed to the partners when tax payments are due.
All partners' distributions in 1995, 1994 and 1993 were for payment of such
taxes, as well as net cash flow distributions. Partners' distributions in 1994
also included the special distribution from the sale of the Partnership's
interest in the Facility.
In addition to their respective shares of partnership cash flow, the
general partners and/or their affiliates receive an administrative fee of
$300,000 per annum (escalated for changes in the Employment Cost Index),
contractual rights to cash flow development fees, and certain other project
management cost reimbursements under various contractual agreements.
(3) Sale of Facility
The Partnership's interest in the Facility was sold on December 22, 1994
to GECC for $51,550,000. Proceeds from the sale were used to repay the
outstanding loans, pay a fee to GECC and to partially fund transaction costs. A
gain on sale of $1,131,608 was deferred and is being recognized over the term of
the lease. In 1995 and 1994, $45,216 and $1,238, respectively, of the gain was
recognized.
(4) Lease of Facility
The Partnership entered into a Lease Agreement with M&T on December 22,
1994 to lease the Facility for 25 years with an option to renew for up to three
years at a fair market rental value. The lease is recorded as a capital lease.
The lease was subject to repricing to account for changes in assumptions and
estimated costs related to certain transaction expenses and the construction
costs of other equipment.
On December 20, 1995 (the repricing date), construction of other equipment
was completed and all rights, title and interest in such equipment was
transferred to M&T. In addition, the rental payments were revised on the
repricing date to account for the changes in assumptions and estimated costs. As
a result of the change in rental payments, the Facility under capital lease and
related lease obligation were decreased by $547,739 on December 20, 1995.
At December 31, 1995, the future minimum annual lease payments for the capital
lease obligation are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 7,315,460
1997 7,315,460
1998 7,315,460
1999 7,315,460
2000 7,315,460
Thereafter 87,519,809
-----------
124,097,109
Less interest 73,985,012
-----------
Future minimum annual lease payments $ 50,112,097
-----------
-----------
</TABLE>
<PAGE>
Included in obligations under capital leases - current at December 31,
1994 is accrued interest of $175,789 representing a partial month's interest
under the lease.
(5) Financing
On July 9, 1992, the Partnership and GECC executed permanent financing
arrangements that were effective as of June 29, 1992. GECC provided term debt
with quarterly repayments over a term of 15 years commencing on June 30, 1992 in
an initial amount of $43,000,000 at an interest rate of 11.226%.
GECC also provided additional term debt with repayments over five years in
the amount of $17,000,000 at an interest rate of 9.891%.
(5) Financing, cont.
Upon the permanent financing closing, GECC, in addition to the commitments
to provide the term debt, committed to provide the Project with a working
capital facility in a maximum amount of $2,000,000 with a floating interest rate
of the prime rate, as defined, plus 2%. GECC also committed to the issuance of
letters of credit in an aggregate maximum amount of $4,000,000. This agreement
was terminated on the date of the sale of the Facility. On December 22, 1994,
the term debt was repaid from the proceeds of the sale of the Facility.
On December 9, 1994 a Term Loan, Working Capital and Letter of Credit
Financing Agreement was entered into with GECC. It provided for a Tranche A Term
Loan for up to $750,000 to fund construction for certain alterations to the
Facility, which were purchased by GECC. In connection therewith, the Tranche A
Term Loan was repaid in December 1995 ($95,231 was outstanding at December 31,
1994). In addition, a Tranche B Term Loan for up to $4,250,000 was provided
($3,575,969 and $3,633,630 outstanding at December 31, 1995 and 1994,
respectively) to fund transaction costs not funded by the sale proceeds and a
loan to a related party which will be repaid over 12 years (see note 8). An
amendment to the Tranche B Term Loan was entered into on December 20, 1995 which
fixed the interest rate at 10.21% effective December 1, 1995. In addition, a
Working Capital Commitment of $2,000,000 is available to the Partnership, as
well as up to $4,000,000 for Letters of Credit related to fuel obligations. At
December 31, 1995 and 1994, there were no borrowings outstanding under the
Working Capital Commitment. At December 31, 1995, the Partnership had open
letters of credit of $1,338,176.
The total amounts of long-term debt due under the Tranche B Term Loan
during each of the next five years are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1996 $ 197,060
1997 203,580
1998 225,684
1999 250,187
2000 276,522
---------
---------
</TABLE>
The Partnership also entered into an Alternate Working Capital Agreement
with United Jersey Bank (UJB) as of June 29, 1992. UJB provides a $2,000,000
line of credit secured by receivables and inventory of the Project. UJB will
receive an annual facility fee of 1/2% of the committed facility and will
receive interest at the rate of 1% above its Floating Base Rate (prime) on
amounts borrowed. There were no outstanding borrowings at December 31, 1995 and
1994.
(6) Lease of Land
<PAGE>
The Facility is on a parcel of land formerly owned by James River adjacent to
its paper mill. The land is leased to the Partnership for a nominal amount. In
March 1992, James River sold the land and paper mill to Encore, which assumed
all responsibilities. In 1994, the lease was amended to extend the term to 40
years from December 22, 1994. The lease has been assigned to M&T in connection
with the sale of the Facility.
(7) Commitments and Contingencies
Commitments
Affiliates of the Partnership entered into a PPA with NIMO dated as of
June 5, 1987 with approval by the New York Public Service Commission (the
Commission) on September 1, 1987. The PPA was assigned to the Partnership. NIMO
agreed to purchase electricity generated by the Facility for a term of 20 years
from the date of commercial operation at the higher of $.06 per kilowatt-hour or
actual avoided cost, as defined.
As of May 22, 1992, the Partnership entered into an amendment to the PPA
whereby the amount of electricity to be sold was increased from approximately 49
megawatts (original capacity) to 55 megawatts in the summer period and 59
megawatts in the winter period (subject to adjustment based on performance).
Revenues for the original capacity continued to be earned based on the higher of
$.06 per kilowatt-hour or actual avoided cost, as defined, for the amount of
electricity generated. For the additional capacity, NIMO was to make payments at
$.06 per kilowatt-hour for five years from the date of the amendment, with the
difference between $.06 and actual energy-only tariff rates to be accumulated in
an adjustment account and recorded as an asset or liability (deferred revenue).
After the five-year period, the additional capacity was to be sold to NIMO at
statutorily required minimum rates less the amount required to liquidate the
adjustment account over the remaining life of the PPA. The adjustment account
balance was secured by a lien on the Facility that was subordinate to GECC's
security.
An amendment to the PPA was entered into as of January 4, 1994 and became
effective on November 5, 1994. The amendment requires NIMO to purchase
electricity generated by the Facility for 35 years from November 5, 1994. In
addition, the NIMO adjustment account of $4,939,571 at November 5, 1994 was
eliminated and was included in 1994 revenues as a result of the amended and
restated PPA.
The Partnership entered into an Energy Service Agreement (ESA) with James
River dated as of October 31, 1989. James River was to purchase mill
requirements for steam from the Facility at the mill's energy cost according to
formulas and methodology set forth in the ESA for a term of 20 years from the
(7) Commitments and Contingencies, cont.
Commitments, cont.
date of commercial operation. The ESA provided for a share of the
Facility's revenues to be paid to James River. As of March 12, 1992, all of
James River's rights, title, and interest in and to the ESA, except its right to
receive a share of the Facility's revenues, were transferred to Encore. This ESA
was terminated on August 15, 1994. As of October 21, 1994, the Partnership
entered into a new ESA with Encore for a term of 35 years with pricing terms as
defined in the ESA.
<PAGE>
The Partnership entered into an Operations and Maintenance Agreement (O&M
Agreement) with Stewart & Stevenson Operations, Inc. (the Operator) as of
January 31, 1991. The O&M Agreement was amended and restated as of October 21,
1994 to conform with the plan for operations associated with the amended and
restated PPA. Under the amended agreement, the Operator will operate and
maintain the Facility for a period of 12 years and one successive six-year term,
unless 12 months' prior notice is given by the Partnership to the Operator.
Compensation will include a fee of (INFORMATION DELETED - SUBJECT OF A
CONFIDENTIALITY REQUEST) per year plus (INFORMATION DELETED - SUBJECT OF A
CONFIDENTIALITY REQUEST) per Operating Hour, both amounts subject to annual
escalation beginning January 1, 1995 based upon changes in the Producer Price
Index (PPI). The Operator will also be paid a fee for major facility overhauls
at a rate that ranges from (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY
REQUEST) to (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) per
Equivalent Operating Hour, as defined. This fee is also subject to annual
escalations based upon changes in the PPI. The agreement provides for the
Partnership to pay the Operator a mobilization fee of (INFORMATION DELETED -
SUBJECT OF A CONFIDENTIALITY REQUEST) prior to the acceptance date, as defined.
The agreement also provides for the Operator to receive a bonus or be obligated
to pay a penalty based on a performance factor, as defined. The Partnership will
reimburse the Operator for letter of credit fees and insurance premiums based
upon evidence by the Operator that such expenses have been paid.
The Partnership has entered into various contracts for the supply and
transportation of natural gas to the Project. Natural gas is being supplied by
Renaissance Energy Ltd. (a Canadian corporation) from dedicated reserves.
Transportation of natural gas by pipelines is by TransCanada Pipelines Limited
from Burstall, Saskatchewan, Canada to Emerson, Manitoba, Canada; by Great Lakes
Gas Transmission Company to Crystal Falls, Michigan; by ANR Pipeline Company to
Lebanon, Ohio; by CNG Transmission Corporation to West Schenectady, New York;
and by NIMO to the Facility.
The aforementioned agreements have been assigned to M&T in connection with
the sale of the Facility.
In addition, the Facility has the capacity to utilize Number 2 fuel oil as
an alternative fuel. The Partnership maintains an open account with Sprague
Energy Corporation to purchase such fuel.
(7) Commitments and Contingencies, cont.
Contingencies
The Partnership and certain related parties, including the general and
limited partners, have been named as defendants in a lawsuit. The plaintiff
alleges that on or about October 11, 1988, the plaintiff was awarded the
contracts for the construction of the Facility and a separate cogeneration
facility located in Carthage, New York. The complaint alleges breach of
contract, unjust enrichment, promissory estoppel, fraud and/or negligent
misrepresentation. The plaintiff is seeking $7,446,000 in damages under its
causes of action, plus unspecified punitive damages from all parties named in
the lawsuit.
On January 15, 1991, the defendants answered the complaint and denied all
the material allegations and asserted various affirmative defenses. On February
28, 1995, the defendants filed a motion for summary judgment dismissing
plaintiff's claims. The motion was argued in court in October 1995, and a
decision is pending. Management and legal counsel believe that the lawsuit has
little or no merit. The ultimate outcome of this litigation cannot be presently
determined.
(8) Related-party Transactions
Affiliates of the general partners receive an administrative fee for
managing the operations of the Partnership. Administrative fee amounts in 1995,
1994 and 1993 were $318,278, $307,488 and $310,663, respectively.
<PAGE>
As of December 9, 1994, the Partnership entered into an interfacility loan
agreement with Kamine/Besicorp Carthage L.P. (KBC) and Kamine/Besicorp Natural
Dam L.P. (KBND). The agreement allows the Partnership to borrow funds or advance
funds to the extent of available cash, as defined in the loan agreement. Such
loans to or from either KBC or KBND are required when there are insufficient
funds available to pay certain current obligations. At December 31, 1995 and
1994, there were no outstanding amounts due to or from KBC and KBND.
On December 22, 1994, the Partnership advanced $2,637,973 to
Kamine/Besicorp GlenCarthage Partnership. The loan receivable is payable in
quarterly installments over 12 years and carries an interest rate based on
either the Commercial Paper Rate or the annual yield on ten-year U.S. Treasury
obligations, as defined, plus 4.5%. The interest rate was fixed on December 1,
1995 at 10.21%, based on the ten-year U.S. Treasury at that time, plus 4.5%.
Contract Rights and Cash Flow Fees
The Partnership has an agreement with the two developers for additional
fees for development work, management and administrative services. These fees
(cash flow fees and contract rights) have been assigned by the developers to
(8) Related-party Transactions, cont.
Contract Rights and Cash Flow Fees, cont.
Kamine/Besicorp GlenCarthage Partnership in which the developers are
partners. This partnership has the right to receive these fees when the
Partnership has sufficient funds available in accordance with payment priority,
provided that the developers provide management and administrative services. The
contract rights, as defined, are payable through March 31, 2007. For 1995, 1994
and 1993, the Partnership recorded contract rights expense of $2,703,132,
$814,556 and $563,945, respectively. Cash flow fees are payable over the life of
the Project based on 8.5% of cash flows from operations, as defined. Cash flow
fees paid to related parties in 1995 were $69,070. There were no cash flow fees
paid in 1994 and 1993.
<PAGE>
EXHIBIT NO. 99-C
KAMINE/BESICORP GLENCARTHAGE PARTNERSHIP
Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Partners Kamine/Besicorp GlenCarthage Partnership:
We have audited the accompanying balance sheets of Kamine/Besicorp GlenCarthage
Partnership as of December 31, 1995 and 1994, and the related statements of
operations, partners' deficiency, and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the general partners. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kamine/Besicorp GlenCarthage
Partnership as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1995 in conformity with generally accepted accounting principles.
March 15, 1996
<PAGE>
KAMINE/BESICORP GLENCARTHAGE PARTNERSHIP
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets
1995 1994
<S> <C> <C>
Current assets:
Cash $ 3,376 5,569
Accounts receivable - Cogeneration Projects (notes 5 and 7) 661,863 847,808
--------- ---------
Total current assets 665,239 853,377
Cash held in escrow (note 4) -- 115,810
--------- ---------
Total assets $ 665,239 969,187
--------- ---------
--------- ---------
Liabilities and Partners' Deficiency
Current liabilities:
Current portion of loans payable - Cogeneration Projects (note
3) 222,487 149,625
Amounts due to related parties (note 8) 134,110 177,489
Accrued expenses 111,857 88,540
--------- ---------
Total current liabilities 468,454 415,654
Loans payable - Cogeneration Projects, net of current portion 4,903,834 5,126,321
(note 3) --------- ---------
Total liabilities 5,372,288 5,541,975
Partners' deficiency (note 2) (4,707,049) (4,572,788)
--------- ---------
Total liabilities and partners' deficiency $ 665,239 969,187
--------- ---------
--------- ---------
See accompanying notes to financial statements
</TABLE>
<PAGE>
KAMINE/BESICORP GLENCARTHAGE PARTNERSHIP
Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenue:
Contract rights (note 5) $3,794,672 1,911,830 2,083,565
Developers' cash flow fees (note 7) 320,534 63,256 32,727
--------- --------- ---------
4,115,206 1,975,086 2,116,292
--------- --------- ---------
Operating expenses:
Interest expense 545,691 588,820 629,849
Amortization of financing costs -- 43,665 44,898
Cash flow fees (note 7) 320,534 63,256 32,727
Other 5,700 7,570 9,010
--------- --------- ---------
Total operating expenses 871,925 703,311 716,484
--------- --------- ---------
Income from operations 3,243,281 1,271,775 1,399,808
--------- --------- ---------
Other income (expense):
Interest income 673 9,063 4,674
Other expense (note 9) -- (425,000) --
--------- --------- ---------
673 (415,937) 4,674
--------- --------- ---------
Income before extraordinary item 3,243,954 855,838 1,404,482
Extraordinary item (note 3) -- (968,745) --
--------- --------- ---------
Net income (loss) $3,243,954 (112,907) 1,404,482
--------- --------- ---------
--------- --------- ---------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP GLENCARTHAGE PARTNERSHIP
Statements of Partners' Deficiency
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Partners' deficiency at beginning of year $(4,572,788) (2,764,835) (4,358,763)
Add partners' contributions -- -- 189,446
Less partners' distributions (note 2) 3,378,215 1,695,046 --
Net income (loss) (note 2) 3,243,954 (112,907) 1,404,482
---------- ---------- ----------
Partners' deficiency at end of year $(4,707,049) (4,572,788) (2,764,835)
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP GLENCARTHAGE PARTNERSHIP
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,243,954 (112,907) 1,404,482
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization and write-off of deferred
financing costs -- 352,410 44,898
Changes in operating assets and liabilities:
(Decrease) increase in accounts receivable 185,945 358,655 (1,161,555)
Decrease in prepaid expenses -- -- 1,249
Decrease (increase) in escrow funds 115,810 117,554 (232,355)
(Decrease) increase in amounts due to related
parties (43,379) 177,489 --
Increase (decrease) in accrued expenses 23,317 (26,560) 28,117
---------- ---------- ----------
Net cash provided by operating activities 3,525,647 866,641 84,836
---------- ---------- ----------
Cash flows from financing activities:
Payments on long-term loan payable (149,625) (4,448,044) (276,456)
Proceeds from loans payable - Cogeneration Projects -- 5,275,946 --
Distribution (to) from partners, net of contributions (3,378,215) (1,695,046) 189,446
---------- ---------- ----------
Net cash (used in) financing activities (3,527,840) (867,144) (87,010)
---------- ---------- ----------
Decrease in cash (2,193) (503) (2,174)
Cash at beginning of year 5,569 6,072 8,246
---------- ---------- ----------
Cash at end of year $ 3,376 5,569 6,072
---------- ---------- ----------
---------- ---------- ----------
Cash paid during year for interest $ 411,581 667,443 632,959
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP GLENCARTHAGE PARTNERSHIP
Notes to Financial Statements
December 31, 1995 and 1994
(1) Organization and Summary of Significant Accounting Policies
Organization
Kamine/Besicorp GlenCarthage Partnership (the Partnership) is a New York
general partnership formed on October 30, 1990. The Partnership was organized to
enter into a loan agreement (the Loan Agreement) between the Partnership and
NNW, Inc. (formerly Nova Northwest, Inc.).
The partners of the Partnership are Kamine Development Corp. (KDC) and
Beta Nova Inc. (a subsidiary of Besicorp Group Inc.), each of which holds a 50%
interest in the Partnership. On May 3, 1995, KDC assigned the economic rights of
its interest in the Partnership to a trust with Chemical Bank as trustee.
Summary of Significant Accounting Policies
Deferred Financing Costs
All costs associated with the Loan Agreement were deferred over the life
of the loan and amortized on a straight-line basis. The remaining balance of
these deferred costs at December 22, 1994 was charged to operations (see note
3).
Income Taxes
Income taxes have not been provided since the Partnership is not a taxable
entity. The partners report their respective share of the Partnership's income
or loss on their individual income tax returns.
Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. The carrying amounts of accounts receivable,
amounts due to related parties and accrued expenses approximate fair value due
to the short-term maturity of such instruments. The carrying amount of loans
payable approximates fair value based on a recent amendment governing such
agreement in December 1995, which fixed the interest rate at 10.21%.
Use of Estimates
In conformity with generally accepted accounting principles, management of
the Partnership makes estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent liabilities in preparing
the accompanying financial statements. Actual results could differ from those
estimates.
(1) Organization and Summary of Significant Accounting Policies, cont.
Use of Estimates, cont.
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount can be reasonably
estimated.
(2) Allocation of Income, Losses and Cash Distributions
A separate capital account has been established for each partner. Each
such account is (a) increased by the amount of such partner's capital
contributions, any profits and items of income and gain allocated to such
partner, any increase in such partner's share of the liabilities of the
Partnership and the amount of partnership liabilities assumed by the partners;
and (b) decreased by the amount of cash and the fair market value of any
partnership assets distributed to such partner, the amount of losses allocated
to such partner, any decrease in such partner's share of the liabilities of the
Partnership and the amount of any partner liabilities assumed by the
Partnership.
<PAGE>
Profits and losses for any fiscal year or portion of such year are
allocated among the partners in proportion to their percentage ownership
interests.
Excess cash received by the Partnership is distributed to the partners in
accordance with their percentage ownership interests.
(3) Loans Payable
On October 1, 1990, the partners, doing business as the Partnership,
entered into a loan agreement with NNW, Inc. for the amount of $8,500,000. The
loan was structured so that the funds were to be distributed in two installments
of $5,000,000 and $3,500,000. On November 7, 1990 the initial loan installment
was made for $5,000,000.
The final loan installment of $3,500,000 was to be made to the Partnership
on the permanent financing closing date for the Carthage and South Glens Falls
cogeneration projects (the Cogeneration Projects). The Cogeneration Projects
entered into permanent financing on July 9, 1992; however, the final loan
installment had economic criteria that related to the Cogeneration Projects
which were not met, and funding of the final installment did not take place.
The terms of the initial installment loan of $5,000,000 provided for a
maturity date of the earlier of the 11th anniversary of its funding or the tenth
anniversary of the permanent financing closing date. The initial installment
loan bore an interest rate of 13.39% on the first $4,250,000 and 14.39% on the
remaining $750,000. The initial installment of the loan called for interest
payments only, payable quarterly commencing three months after the initial
funding, with principal amortization commencing on a quarterly basis on the
earlier of 17 months after the funding of the initial installment or the second
distribution date following the permanent financing date.
(3) Loans Payable, cont.
The proceeds of this loan payable were used to establish escrow funds (see
note 4), pay for financing costs and other operating expenses, and make
distributions to the partners.
The general partners of the Cogeneration Projects guaranteed the Loan
Agreement by pledging their ownership interests in the Cogeneration Projects, to
the extent permitted under the respective limited partnerships' participation
agreements, as well as pledging their cash flow from such ownership in the event
that the cash flow development fees were insufficient to cover the loan
requirements.
In addition, 8.5% of the operating cash flows from each of the
Cogeneration Projects has been contributed to the Partnership and is to be paid
to NNW, Inc. over the life of the Cogeneration Projects as partial consideration
for the loan, regardless of the timing of final payment of the loan.
On December 22, 1994, the Partnership obtained loans aggregating
$5,275,946 from the Cogeneration Projects. These loans are payable in quarterly
installments over 12 years and carried an interest rate based on either the
Commercial Paper Rate or the annual yield on ten-year U.S. Treasury obligations,
as defined, plus 4.5%. The interest rate was fixed on December 1, 1995 at 10.21%
based on the ten-year U.S. Treasury rate plus 4.5% at that time. The loan
proceeds were used to repay the outstanding loan with NNW, Inc. In connection
with the repayment of the debt to NNW, Inc., the unamortized deferred financing
costs and a prepayment penalty related to the early retirement of debt were
expensed and recorded as an extraordinary item in the December 31, 1994
statement of operations.
The total amounts of loans payable - Cogeneration Projects due during each
of the next five years are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1996 $ 222,487
1997 252,085
1998 285,270
1999 323,099
2000 365,992
---------
---------
</TABLE>
<PAGE>
(4) Cash Held in Escrow
An escrow agreement was entered into on October 1, 1990 by NNW, Inc., the
Partnership and First Fidelity Bank, N.A., New Jersey (as Escrow Agent). The
escrow account was established to receive all contract rights payments and the
(4) Cash Held in Escrow, cont.
8.5% operating cash flow payments directly from the Cogeneration Projects
and to use these proceeds to make payments due to NNW, Inc., with residual
amounts to be distributed to the partners. The escrow account was closed in
February 1995.
(5) Contract Rights
The general partners have pledged their cash flow development fee rights
(contract rights) from the Cogeneration Projects to repay the loan. The contract
rights are earned by the partners when the Cogeneration Projects have generated
sufficient cash to make the required payment. The revenues earned from the
Cogeneration Projects for the years ended December 31, 1995, 1994 and 1993
amounted to $3,794,672, $1,911,830 and $2,083,565, respectively. As of December
31, 1995 and 1994, the Partnership has a receivable with respect to contract
rights of $542,781 and $788,391, respectively, from the Cogeneration Projects.
(6) Business and Operating Matters
The Partnership was organized to enter into a loan agreement with NNW,
Inc. that was to be repaid from cash flows of the Cogeneration Projects. The
loan was repaid in advance of its maturity and replaced by loans from the
Cogeneration Projects. The continued operations of the Partnership are dependent
upon the Cogeneration Projects generating sufficient cash flows in order to be
able to pay its obligations. At December 31, 1995, the Partnership had a
substantial excess of liabilities over assets. Management anticipates that
sufficient cash flows will be available from the Cogeneration Projects to pay
their obligations.
(7) Developers' Cash Flow
The general partners have acquired an 8.5% cash flow fee from operations
in addition to their cash flow development fee rights in the Cogeneration
Projects. The general partners have contributed these fees to the Partnership,
which are being paid to NNW, Inc. as additional consideration for the loan.
These cash flow fees will be received over the life of the projects. The
revenues earned from the Cogeneration Projects and fees paid to NNW, Inc. for
the years ended December 31, 1995, 1994 and 1993 were $320,534, $63,256 and
$32,727, respectively. At December 31, 1995 and 1994, the Partnership had
outstanding receivables with respect to cash flow fees of $119,082, and $59,417,
respectively, from the Cogeneration Projects.
(8) Amounts Due to Related Parties
Amounts due to related parties at December 31, 1995 consist of accrued
interest on loans from the Cogeneration Projects.
(8) Amounts Due to Related Parties, cont.
In 1994, the Partnership received an advance from Kamine/Besicorp Natural
Dam L.P. that was repaid in January 1995.
(9) Other Expense
In 1994, the Partnership paid NNW, Inc. $425,000. This payment represents
8.5% of a special distribution made to the limited partners of the Cogeneration
Projects in connection with the sale of the Cogeneration Projects' facilities.
<PAGE>
EXHIBIT NO. 99-D
KAMINE/BESICORP NATURAL DAM L.P.
Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Partners
Kamine/Besicorp Natural Dam L.P.:
We have audited the accompanying balance sheets of Kamine/Besicorp Natural Dam
L.P. as of December 31, 1995 and 1994, and the related statements of operations,
partners' deficiency, and cash flows for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the general partners. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kamine/Besicorp Natural Dam
L.P. as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1995 in conformity with generally accepted accounting principles.
March 15, 1996
<PAGE>
KAMINE/BESICORP NATURAL DAM L.P.
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
<S> <C> <C>
Current assets:
Cash $ 829,755 2,310,001
Cash held in escrow 451,145 690,628
Accounts receivable 1,284,559 1,162,670
Other receivables -- 52,614
Prepaid expenses and other current assets
(note 8) 253,911 528,199
---------- ----------
Total current assets 2,819,370 4,744,112
---------- ----------
Facility under capital lease (note 4) 71,272,406 72,000,000
Less accumulated amortization 3,694,538 98,495
---------- ----------
Facility under capital lease, net 67,577,868 71,901,505
---------- ----------
Other assets:
Cash held in escrow 3,085,292 3,000,000
Deferred fuel costs, less accumulated amortization of $331,081
and $47,297 at December 31, 1995 and 1994, respectively (note 7) 1,418,919 1,702,703
---------- ----------
Total other assets 4,504,211 4,702,703
---------- ----------
Total assets $74,901,449 81,348,320
---------- ----------
---------- ----------
Liabilities and Partners' Deficiency
Current liabilities:
Current installments of long-term debt (note 5) 452,790 413,293
Accounts payable 587,784 805,821
Amounts due to related parties (notes 2 and 8) 737,936 2,300,423
Accrued expenses and other current liabilities 657,570 860,472
Obligations under capital lease (note 4) 1,109,419 --
---------- ----------
Total current liabilities 3,545,499 4,380,009
Long-term debt, excluding current installments (note 5) 4,704,331 5,030,267
Obligations under capital lease (note 4) 71,138,989 72,234,238
Deferred gain on sale of Facility (note 3) 4,463,861 4,698,797
---------- ----------
Total liabilities 83,852,680 86,343,311
---------- ----------
Partners' deficiency (note 2):
General partners (2,783,924) (1,848,236)
Limited partners (6,167,307) (3,146,755)
---------- ----------
Total partners' deficiency (8,951,231) (4,994,991)
Commitments (notes 4, 5, 6 and 7) ---------- ----------
Total liabilities and partners' deficiency $74,901,449 81,348,320
---------- ----------
---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP NATURAL DAM L.P.
Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues (note 7) $15,014,402 29,843,836 11,457,795
---------- ---------- ----------
Operating expenses:
Depreciation -- 2,576,899 1,385,897
Amortization of asset under capital lease 3,596,043 98,495 --
Fuel (note 1) 1,613,462 10,662,692 5,696,084
ESA payments (note 7) 537,293 140,213 --
Operations and maintenance (note 7) 802,311 1,691,118 844,452
Overhaul (note 7) -- 629,200 372,336
Administrative fee (notes 2 and 8) 318,786 307,980 101,425
Insurance 304,614 327,428 117,223
Amortization of financing costs (note 1) -- 228,537 117,204
Amortization of fuel costs 283,784 47,297 --
Utilities 290,519 370,692 199,851
Property taxes 247,482 260,157 121,596
Late fees (note 7) -- 210,000 --
Other 163,177 51,185 35,833
---------- ---------- ----------
Total operating expenses 8,157,471 17,601,893 8,991,901
---------- ---------- ----------
Income from operations 6,856,931 12,241,943 2,465,894
---------- ---------- ----------
Other income (expense):
Interest expense (9,239,248) (8,455,465) (3,206,341)
Interest income 201,657 87,033 13,446
Gain on sale of Facility (note 3) 234,936 6,437 --
Other income 234,635 229,307 --
---------- ---------- ----------
Total other expense (8,568,020) (8,132,688) (3,192,895)
---------- ---------- ----------
(Loss) income before extraordinary item (1,711,089) 4,109,255 (727,001)
Extraordinary item (note 1) -- (2,760,162) --
---------- ---------- ----------
Net (loss) income $(1,711,089) 1,349,093 (727,001)
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP NATURAL DAM L.P.
Statements of Partners' Deficiency
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
General Limited Total
partners partners
<S> <C> <C> <C>
Partners' equity at December 31, 1992 $ -- 250 250
Partners' distributions (note 2) (789,953) (1,345,058) (2,135,011)
Net loss (note 2) (268,990) (458,011) (727,001)
---------- ---------- ----------
Partners' deficiency at December 31, 1993 (1,058,943) (1,802,819) (2,861,762)
Partners' distributions (note 2) (1,288,457) (2,193,865) (3,482,322)
Net income (note 2) 499,164 849,929 1,349,093
---------- ---------- ----------
Partners' deficiency at December 31, 1994 (1,848,236) (3,146,755) (4,994,991)
Partners' distributions (note 2) (698,244) (1,546,907) (2,245,151)
Partnership restructuring (note 2) 294,704 (294,704) --
Net loss (note 2) (532,148) (1,178,941) (1,711,089)
---------- ---------- ----------
Partners' deficiency at December 31, 1995 $(2,783,924) (6,167,307) (8,951,231)
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP NATURAL DAM L.P.
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(1,711,089) 1,349,093 (727,001)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation -- 2,576,899 1,385,897
Amortization of Facility under capital lease 3,596,043 98,495 --
Amortization of deferred financing costs (including
write-off of balance of deferred financing cost) -- 2,988,699 117,204
Amortization of fuel costs 283,784 47,297 --
Amortization of deferred gain (234,936) (6,437) --
Changes in operating assets and liabilities:
Decrease (increase) in escrow accounts 154,191 (3,514,361) (176,267)
(Increase) decrease in receivables (69,275) 1,711,913 (2,927,197)
Decrease (increase) in prepaid expenses and other
current assets 274,288 (192,148) (336,051)
Increase in deferred fuel costs -- (1,750,000) --
Decrease (increase) in other assets -- 132,885 (132,885)
Decrease in accounts payable (218,037) (2,462,613) (1,948,083)
(Decrease) increase in due to related parties (1,562,487) 88,987 2,205,136
(Decrease) increase in accrued expenses and other
current liabilities (202,902) (1,581,385) 436,218
(Decrease) increase in deferred revenue -- (2,254,686) 2,254,686
Increase in accrued interest under capital lease 741,764 234,238 --
Increase in deferred gain on sale of Facility -- 4,705,234 --
---------- ----------- -----------
Net cash provided by operating activities 1,051,344 2,172,110 151,657
---------- ----------- -----------
Cash flows from investing activities:
Purchase and construction of plant and equipment -- -- (21,478,064)
Proceeds from sale of Facility, net -- 70,037,297 --
Deferred gain on sale of Facility -- (4,705,234) --
---------- ----------- -----------
Net cash provided by (used in) investing
activities -- 65,332,063 (21,478,064)
---------- ----------- -----------
Cash flows from financing activities:
Proceeds from construction loan -- -- 25,320,385
Payments on construction loan -- (68,596,205) (155,173)
Proceeds from long-term debt 1,306,590 5,443,560 --
Payments on long-term debt (1,593,029) -- --
Partners' distributions (2,245,151) (3,482,322) (2,135,011)
Increase in deferred financing cost -- -- (263,249)
---------- ----------- -----------
Net cash (used in) provided by financing
activities (2,531,590) (66,634,967) 22,766,952
---------- ----------- -----------
(Decrease) increase in cash (1,480,246) 869,206 1,440,545
Cash at beginning of year 2,310,001 1,440,795 250
---------- ----------- -----------
Cash at end of year $ 829,755 2,310,001 1,440,795
---------- ----------- -----------
---------- ----------- -----------
Supplemental disclosure of cash flow information - cash
paid during the year for interest, net of amount
capitalized ($2,054,134 capitalized in 1993) $ 7,842,604 8,204,611 3,146,198
---------- ----------- -----------
---------- ----------- -----------
Noncash investing and financing activities:
Capital lease $ -- 72,000,000 --
---------- ----------- -----------
---------- ----------- -----------
Capital lease repricing adjustment $ 727,594 -- --
---------- ----------- -----------
---------- ----------- -----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP NATURAL DAM L.P.
Notes to Financial Statements
December 31, 1995 and 1994
(1) Organization and Summary of Significant Accounting Policies
Organization
Kamine/Besicorp Natural Dam L.P. (the Partnership) is a Delaware limited
partnership formed on August 1, 1991. The Partnership was organized for the
purpose of constructing, owning and operating a 49-megawatt cogeneration
facility (the Facility) on premises leased from James River Paper Company, Inc.
(James River) in Gouverneur, New York. The Facility is operated as a PURPA
qualifying cogeneration facility using natural gas as the primary source of
fuel.
The general partners of the Partnership are Kamine Natural Dam Cogen Co.,
Inc. (KNDCCI) and Beta Natural Dam, Inc. (a subsidiary of Besicorp Group, Inc.
(Besicorp)), which retain a 16% and 21% interest in the Partnership,
respectively. The limited partners are Kamine Development Corp. (KDC) and Beta N
Limited (a subsidiary of Besicorp), which retain a 34% and 29% interest in the
Partnership, respectively. On May 3, 1995, KNDCCI restructured its 16% general
partner interest in the project to a 5.9% limited partner interest and a 10.1%
general partner interest. KDC and KNDCCI assigned the economic rights of their
limited partner interests in the Partnership to a trust, with Chemical Bank as
trustee, on May 3, 1995.
The Facility began commercial operations on July 6, 1993. Prior to July 6,
1993, the Facility was under construction, with its only activities consisting
of expenditures for construction, financing and other related costs. Sales to
Niagara Mohawk Power Corporation (NIMO) approximated 98% of total revenues in
1995, 1994 and 1993.
The Partnership conveyed ownership of the Facility to the St. Lawrence
County Industrial Development Agency (IDA). The tax-exempt status of the IDA
exempts the project from property taxes during IDA ownership. Payments in lieu
of real property taxes (PILOT) are made to the IDA under a PILOT Agreement. The
IDA has appointed the Partnership as its agent and was to convey the Facility to
the Partnership in accordance with an installment sale agreement.
The Partnership's interest in the Facility was sold to General Electric
Capital Corporation (GECC) on December 22, 1994 and leased back by the
Partnership. GECC entered into a Trust Agreement with Manufacturers and Traders
Trust Company (M&T) as of December 9, 1994 to engage M&T as Owner Trustee. In
connection with the sale of the Partnership's interest in the Facility, the
installment sale agreement was assigned to M&T.
Summary of Significant Accounting Policies
Plant and Equipment
Prior to the sale of the Partnership's interest in the Facility, plant and
equipment was stated at cost, less accumulated depreciation. Maintenance and
repairs which did not enhance the value or increase the basic productive
capacity of the asset were charged to operations as incurred. Depreciation of
assets is computed on a straight-line basis over their useful lives of 25 years,
commencing on the date the Facility was placed into service.
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies, cont.
Plant and Equipment, cont.
<PAGE>
Effective November 3, 1994, the Partnership extended the estimated useful
life of the Facility to 35 years as a result of the amended and restated Power
Purchase Agreement (PPA) (see note 7). The effect of this change in estimate was
immaterial to the 1994 statement of operations.
At the sale date, the net book value of $65,332,063 was recorded as a cost
of the sale.
Amortization of Capital Lease
Amortization of the Facility under capital lease is computed using the
straight-line method over the lease term.
Deferred Financing Costs
The deferred financing costs were being amortized on a straight-line basis
over the life of the expected permanent financing, which was 13 years.
Amortization charged to operations for the years ended December 31, 1994 and
1993 was $228,537 and $117,204, respectively, commencing on the date the
Facility was placed into service.
On the date of sale of the Facility to GECC, the term loans were repaid
and the unamortized deferred financing costs of $2,760,162 were expensed and
recorded as an extraordinary item in connection with the early retirement of
debt.
Deferred Fuel Cost
The cost associated with modifying the fuel arrangements until January 1,
2001 to accommodate revised PPA terms (see note 7) is deferred and amortized
during the period from November 1, 1994 (the date the modifications became
effective) through December 31, 2000.
Revenue Recognition
Electric and thermal energy revenues are recognized as earned. Revenues
from the operation of the Facility began on July 6, 1993.
Gain on Sale
The gain from the sale of the Facility has been deferred and is being
recognized on a straight-line basis over the lease term.
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies, cont.
Income Taxes
Income taxes will not be provided for since the Partnership is not a
taxable entity. The partners report their respective share of the Partnership's
taxable income or loss on their respective income tax returns.
Fuel Sales
Sales of fuel and transportation associated with excess natural gas
pipeline capacity purchased by the Partnership to support peak fuel requirements
have been treated as a reduction to fuel expense. Total sales related to
disposition of such excess capacity in 1995, 1994 and 1993 totaled $34,292,
$436,583 and $74,984, respectively.
Escrow Accounts
An escrow arrangement has been established for receipt of all revenues and
payment of all obligations of the Partnership. The security agent is United
Jersey Bank. Amounts in the collection account, which represent general funds,
are classified as cash on the balance sheets. Funds in other accounts, which are
set aside for specific purposes, are classified as escrow accounts. The escrow
accounts at December 31, 1995 consist of a current account principally for the
payment of taxes and two long-term accounts - a reserve for lease payments and
an escrow account for restart costs of the Facility (expected to be incurred in
late 2000).
<PAGE>
Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. The carrying amounts of accounts receivable,
accounts payable and accrued liabilities approximate fair value due to the
short-term maturity of such instruments. The carrying amount of the Tranche B
Term Loans approximates fair value based on a recent amendment to such agreement
in December 1995, which fixed the interest rate at 10.21%. Management believes
that the carrying amount of other long-term debt approximates fair value based
on rates that would be offered to the Partnership for debt with similar
maturities and characteristics.
Use of Estimates
In conformity with generally accepted accounting principles, management of
the Partnership has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent liabilities
in preparing the accompanying financial statements. Actual results could differ
from those estimates.
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies, cont.
Use of Estimates, cont.
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount can be reasonably
estimated.
Risks and Uncertainties
The Partnership is principally engaged in a single line of business, the
production and sale of electric power to one customer, NIMO.
The regulated investor-owned utility industry is presently subject to
considerable market pressures and changes in the Federal and state regulatory
environment in which it operates. These pressures are resulting in industry
consolidation and pressure to disaggregate electric generation, transmission and
distribution assets and to adjust cost structures to meet market conditions. The
utility to which the Partnership sell its power, NIMO, made a filing on October
10, 1995 to the Public Service Commission of the State of New York setting forth
numerous restructuring proposals, including a significant reduction on the price
for power purchased from independent power producers currently under contract
with NIMO. The Partnership expects many of NIMO's proposals to be strongly
contested, including the significant reduction on the price for power. NIMO has
also stated in such filing that its financial viability is threatened. In early
1996, NIMO suspended payment of dividends on its common stock. The outcome of
the industry trends, regulatory changes, the NIMO filing and NIMO's financial
viability cannot presently be determined.
(2) Allocation of Income, Losses and Cash Distributions
A separate capital account is established and maintained for each partner.
Each account shall be (a) increased by the amount of such partner's capital
contributions, any profits and items of income and gain allocated to such
partner, and any increase in such partner's share of the liabilities of the
Partnership and the amount of the Partnership's liabilities assumed by the
partner; and (b) decreased by the amount of cash and the fair market value of
any of the Partnership's assets distributed to such partner, the amount of
losses allocated to such partner, and any decrease in such partner's share of
the liabilities of the Partnership and the amount of any partner liabilities
assumed by the Partnership (subject to certain provisions).
Profits and losses for any calendar year or portion of such year are
allocated among the partners in proportion to their percentage ownership
interests, the exception being that any net losses of the Partnership will be
allocated among the partners in accordance with the positive balances in their
capital accounts, and thereafter any remaining losses will be allocated
according to the percentages of ownership.
<PAGE>
(2) Allocation of Income, Losses and Cash Distributions, cont.
The partners' capital accounts were restructured in 1995 to reflect
KNDCCI's change in its general partner interest from a 16.0% general partner
interest to 10.1%, in exchange for a 5.9% limited partner interest. The net
effect of this change is a $294,704 decrease in the general partners' deficiency
account balance and a similar increase in the limited partners' deficiency
account balance.
Net cash flow, as defined, for each calendar quarter is distributed to the
partners in accordance with their percentage ownership interests. In addition,
amounts required for payment of New York State franchise taxes by the partners,
based upon a .81% (.75% plus 7.5% surcharge thereon) rate of each partner's pro
rata share of partnership revenues pursuant to Article 9, Section 186 of the New
York State Tax Code, are distributed to the partners when tax payments are due.
Partners' distributions in 1995, 1994 and 1993 were for payment of such taxes,
as well as net cash flow distributions.
The limited partners have a deficiency in their partners' capital account
balance as a result of distributions over their proportionate share of net
income. Management anticipates that the deficiencies in the limited partners'
capital account balance will reverse in subsequent years.
In addition to their respective shares of partnership cash flow, the
general partners and/or their affiliates receive an administrative fee of
$300,000 per annum (escalated for changes in an Employment Cost Index),
development fees and certain other project management cost reimbursements under
various contractual agreements.
(3) Sale of Facility
The Partnership's interest in the Facility was sold on December 22, 1994
to GECC for $72,000,000. Proceeds from the sale were used to repay the
outstanding loans, pay a fee to GECC and to partially fund transaction costs. A
gain on sale of $4,705,234 was deferred and is being recognized over the term of
the lease. In 1995 and 1994, $234,936 and $6,437, respectively, of the gain was
recognized.
(4) Lease of Facility
The Partnership entered into a Lease Agreement with M&T on December 22,
1994 to lease the Facility for 20 years with an option to renew for up to eight
years at a fair market rental value. The lease is recorded as a capital lease.
The lease was subject to repricing to account for changes in assumptions and
estimated costs related to certain transaction expenses and the construction
costs of other equipment.
On December 20, 1995 (the repricing date), construction of other equipment
was completed and all rights, title and interest in such equipment was
transferred to M&T. In addition, the rental payments were revised on the
repricing date
(4) Lease of Facility, cont.
to account for the changes in assumptions and estimated costs. As a result
of the change in rental payments, the Facility under capital lease and related
lease obligation were decreased by $727,594 on December 20, 1995.
<PAGE>
At December 31, 1995, the future minimum annual lease payments for the
capital lease obligation are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 9,700,570
1997 9,700,570
1998 9,700,570
1999 9,700,570
2000 9,700,570
Thereafter 129,407,414
-----------
177,910,264
Less interest 106,403,620
-----------
Future minimum annual lease payments $ 71,506,644
-----------
-----------
</TABLE>
The lease payments made in 1995 were interest only as the payments under
the lease were less than the imputed interest under the lease capitalization.
Included in obligations under capital leases at December 31, 1995 and 1994
is accrued interest of $741,764 and $234,238, respectively.
(5) Financing
Construction financing was provided by GECC, with the Facility serving as
collateral. Under the Construction Loan Agreement, GECC made cost-of-improvement
building loans, as defined, up to an aggregate principal amount of $57,146,000.
In addition, GECC made related project loans, as defined, up to an aggregate
principal amount of $21,254,000. The maturity date of all borrowings under the
Construction Loan Agreement was the earlier of (a) October 1, 1993; or (b) the
date of final acceptance, as defined. A 1% commitment fee was required to secure
the loan facility. Interest was charged at the greater of the Bankers Trust
Company prime rate plus 1.5% or an average 30-day LIBOR rate plus 0.5%. An
interest rate protection instrument was arranged with The Chase Manhattan Bank
(National Association) which would have reimbursed interest paid if the Bankers
Trust Company prime rate exceeded 8.0% based on an agreed-upon estimated
construction loan drawdown schedule which covered the expected construction
period. This interest rate protection instrument expired on July 31, 1993.
(5) Financing, cont.
The Construction Loan Agreement was subsequently amended to extend its
maturity date to December 31, 1994 and to implement terms on an interim basis
consistent with permanent financing as provided for in the project documents as
of October 1, 1993. These terms provided for a 13-year loan with quarterly
payments commencing on December 31, 1994 with a fixed interest rate of 11.38%.
In addition, GECC received supplemental payments to enable achievement of target
yields. GECC also was to receive 10% of the net cash flow, as defined, of the
project after the permanent term loan was repaid.
The Partnership and GECC entered into a Working Capital Agreement on
August 16, 1993 which provided a working capital facility in a maximum amount of
$3,000,000. GECC received a commitment fee paid quarterly in arrears equal to
3/8% per annum of the average daily amount of the undrawn portion of the working
capital line of credit during such quarter. Borrowings incurred interest daily
at a rate per annum equal to GECC's 30-day Commercial Paper Rate plus 4.5%. This
agreement was terminated on the date of the sale of the Facility.
On December 22, 1994, the construction loans were repaid from the proceeds
of the sale of the Facility.
<PAGE>
On December 9, 1994 a Term Loan, a Working Capital and Letter of Credit
Financing Agreement was entered into with GECC. It provided for a Tranche A Term
Loan for up to $1,500,000 to fund construction for certain alterations to the
Facility, which were purchased by GECC. In connection therewith, the Tranche A
Term Loan was repaid in December 1995 ($65,094 was outstanding at December 31,
1994). In addition, a Tranche B Term Loan for up to $4,500,000 ($3,597,685 and
$3,628,466 outstanding at December 31, 1995 and 1994, respectively) was provided
to fund transaction costs not funded by the sale proceeds, operator
demobilization costs and an initial lease reserve amount which will be repaid
over 12 years. A loan was provided for $1,750,000 ($1,559,436 and $1,750,000
outstanding at December 31, 1995 and 1994, respectively) to fund the payment
made to Norcen Energy Resources Limited (NORCEN), formerly North Canadian
Marketing Inc. (see note 7) pursuant to the Second Amendment to the Gas Purchase
Agreement which will be repaid over six years. The Tranche A and B Term Loans
carry an interest rate based on either the Commercial Paper Rate or the annual
yield on ten-year U.S. Treasury obligations, as defined in the agreement, plus
4.5%. The interest rate on the $1,750,000 loan is at 12.49%. An amendment to the
Tranche B Term Loans was entered into on December 20, 1995, which fixed the
interest rate at 10.21% effective December 1, 1995. A Working Capital Commitment
of $3,000,000 is available to the Partnership as well as up to $5,000,000 for
letters of credit related to fuel obligations. At December 31, 1995 and 1994,
there were no borrowings outstanding under the Working Capital Commitment. At
December 31, 1995, the Partnership had open letters of credit of $1,450,000.
(5) Financing, cont.
The total amounts of long-term debt due during each of the next five years
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1996 $ 452,790
1997 472,347
1998 530,502
1999 595,892
2000 668,457
---------
---------
</TABLE>
(6) Lease of Land
The Facility is on a parcel of land owned by James River adjacent to its
paper mill. The land is leased to the Partnership. In 1994, the lease was
amended to extend the term to 45 years from the start of commercial operation.
The rental payment is nominal for the first five years, then $200,000 per year
for years six through 25 and nominal thereafter. The lease has been assigned to
M&T in connection with the sale of the Facility.
(7) Commitments
An affiliate of the Partnership entered into a PPA with NIMO dated as of
December 4, 1987, with amendments dated August 28, 1989, October 19, 1990 and
September 26, 1991. The PPA was assigned to the Partnership on November 1, 1991.
NIMO agreed to purchase all electricity generated by the Facility for the term
of 25 years from the date of commercial operation.
<PAGE>
In 1993, the Partnership entered into an amendment to the PPA which
required payments on different bases during defined periods. During Period 1, as
defined, NIMO was to pay $60.00 per megawatt-hour for the first 400,000
megawatt-hours per year, with the difference between $60.00 and the contract
schedule avoided cost rates to be accumulated in an adjustment account and
recorded as an asset or liability (deferred revenue). Period 1 was to continue
until the adjustment account equaled zero. During Period 2, as defined, NIMO was
to purchase electricity at 95% of the contract schedule avoided cost rates for
the first 400,000 megawatt-hours per year with the difference between those
amounts and 95% of the actual avoided cost tariff rates to be accumulated in an
adjustment account and recorded as an asset or liability (deferred revenue).
Period 2 was to continue until the 15th anniversary of commercial operation.
During Period 3, as defined, NIMO was to
(7) Commitments, cont.
purchase the electricity at 90% of the actual avoided cost tariff rates
plus or minus an adjustment defined in the agreement to reduce the adjustment
account to zero by the end of the term of the PPA. During all periods, amounts
in excess of 400,000 megawatt-hours per year were to be purchased by NIMO at the
actual energy-only avoided cost tariff rate. The adjustment account balance was
secured by a lien on the Facility that was subordinate to GECC's security.
An amendment to the PPA was entered into as of January 4, 1994 and became
effective on November 3, 1994. The amendment requires NIMO to purchase
electricity generated by the Facility for 35 years from November 3, 1994. In
addition, during the period through January 1, 2001, the Facility is expected to
be on standby availability and will not generate electricity except in the case
of certain requirements or if NIMO elects to restart the Facility at an earlier
date. Also, the NIMO adjustment account of $3,442,209 at November 3, 1994 was
eliminated and was included in 1994 revenues as a result of the amended and
restated PPA. In addition, the Partnership became obligated to pay NIMO $210,000
for commencing the PPA after August 4, 1994.
The Partnership is to receive annual capacity payments from NIMO which it
expects to be more than sufficient to cover debt service and fixed costs during
the standby availability period.
The Partnership entered into an Energy Service Agreement (ESA) with James
River dated as of November 29, 1991 and amended and restated as of October 21,
1994. James River will purchase mill requirements for steam from the Facility
for the term of 45 years from the start of commercial operation, at a price set
forth in and adjusted pursuant to the amended and restated ESA, which will be
multiplied by .5 for the first five years of operation and none thereafter.
The Partnership entered into an Operation and Maintenance Agreement (O&M
Agreement) with Stewart & Stevenson Operations, Inc. (the Operator) dated as of
November 1, 1991. The O&M Agreement was amended and restated as of October 21,
1994 to conform with the plan for operations associated with the amended and
restated PPA. Under the amended agreement, the Operator will operate and
maintain the Facility for a period of 12 years and one successive six-year term,
unless 12 months' prior notice is given by the Partnership to the Operator.
While the Facility is on standby, compensation will include a fee of
(INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) plus (INFORMATION
DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) to (INFORMATION DELETED -
SUBJECT OF A CONFIDENTIALITY REQUEST) per equivalent operating hour, as defined,
per year escalated by producer price index (PPI) plus letter of credit fees and
insurance premium less interruption payments. When the Facility is operating,
the fee will change to (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY
REQUEST) per year plus (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY
REQUEST) to (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) per
year for major facility overhauls, both amounts subject to escalation for PPI.
In addition, the Operator will be reimbursed for demobilization costs of up to
(INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST). This agreement
also provided for the
<PAGE>
(7) Commitments, cont.
Partnership to pay the Operator a mobilization fee, as defined, of
(INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) prior to the
acceptance date, as defined. In addition, this agreement provided for the
Operator to receive a bonus or be obligated to pay a penalty based on a
performance factor, as defined.
The Partnership has entered into various contracts for the supply and
transportation of natural gas to the project. Natural gas will be supplied by
NORCEN. Transportation of natural gas by pipelines will be by TransCanada
Pipelines Limited (TCPL) from a point near the Alberta/Saskatchewan border to
the Province of Quebec near the Canada/U.S. border; by the Iroquois Gas
Transmission System, L.P. to the Route 58 gate station connection with St.
Lawrence Gas Company, Inc. in upstate New York; and by St. Lawrence Gas Company,
Inc. to the Facility. In 1994, the gas supply agreement with NORCEN was amended
to suspend the Partnership's obligation to purchase gas until January 1, 2001
and to assign the Partnership's contracted pipeline space on TCPL to NORCEN. In
connection with the amended and restated agreement, the Partnership paid NORCEN
$1,750,000. The unamortized cost is included in deferred fuel cost at December
31, 1995 and 1994. In addition, the Facility has the capacity to utilize Number
2 heating oil as an alternative fuel. The Partnership maintains an open account
with Sprague Energy to purchase such fuel.
The aforementioned agreements have been assigned to M&T in connection with
the sale of the Facility.
On July 19, 1995 the Partnership entered into a Guarantee Agreement with
GECC to induce, execute and deliver a $4,000,000 Pipeline Loan Agreement with
St. Lawrence Gas Company, Inc. Under the Guarantee Agreement, the Partnership
has unconditionally guaranteed the payment of principal and interest ($3,906,805
outstanding at December 31, 1995) on the Pipeline Loan Agreement and all other
amounts due GECC under such agreement.
(8) Related-party Transactions
Developers' reimbursables, as defined, of $1,000,000 were paid to
affiliated companies of the general partners during the construction of the
Facility. The developers were paid $750,000 of development fees related to
achievement of the gas transportation lock-up date and $1,750,000 at
implementation of permanent financing terms.
The general partners were paid a construction monitoring fee of $500,000
during the construction of the Facility. Additional development fees of $610,473
were paid to the developers in 1994.
Affiliates of the general partners receive an administrative fee for
managing the operations of the Partnership. The administrative fee for 1995,
1994 and 1993 was $318,786, $307,980 and $101,425, respectively.
(8) Related-party Transactions, cont.
On December 9, 1994, the Partnership entered into an interfacility loan
agreement with Kamine/Besicorp South Glens Falls L.P. (KBSGF) and
Kamine/Besicorp Carthage L.P. (KBC). The agreement allows the Partnership to
borrow funds or advance funds to the extent of available cash, as defined in the
loan agreement. Such loans to or from either KBSGF or KBC are required when
there are insufficient funds available to pay certain current obligations. At
December 31, 1995 and 1994, there were no outstanding amounts due to or from
KBSGF or KBC.
The Partnership advanced $177,489 to Kamine/Besicorp GlenCarthage
Partnership which is included in prepaid expenses and other current assets at
December 31, 1994. Such amount was received in January 1995.
<PAGE>
EXHIBIT NO. 99-E
KAMINE/BESICORP SYRACUSE L.P.
Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Partners Kamine/Besicorp Syracuse L.P.:
We have audited the accompanying balance sheets of Kamine/Besicorp Syracuse L.P.
as of December 31, 1995 and 1994, and the related statements of operations,
partners' deficiency, and cash flows for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the general partners. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kamine/Besicorp Syracuse L.P.
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Kamine/Besicorp Syracuse L.P. will continue as a going concern. As discussed in
note 4 to the financial statements, the Partnership was not in compliance with
certain covenants in its senior and subordinated financing agreements. As a
result, all borrowings of loans payable and related deferred financing costs
have been classified as current. At December 31, 1995, total current liabilities
substantially exceed current assets, which raises substantial doubt about the
entity's ability to continue as a going concern. Managements' plans with regard
to these matters are described in note 4. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
March 22, 1996
<PAGE>
KAMINE/BESICORP SYRACUSE L.P.
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
<S> <C> <C>
Current assets:
Cash $ 6,479,478 6,939,200
Accounts receivable 2,135,663 2,455,975
Other receivables (note 8) 123,911 3,356,395
Prepaid expenses and other current assets 1,831,954 3,191,285
Deferred financing costs, less accumulated amortization of
$1,295,944 at December 31, 1995 (note 4) 9,384,051 --
----------- -----------
Total current assets 19,955,057 15,942,855
----------- -----------
Plant and equipment - cogeneration facility (notes 3 and 4) 127,685,218 127,634,480
Less accumulated depreciation 7,393,330 3,832,434
----------- -----------
Plant and equipment, net 120,291,888 123,802,046
----------- -----------
Other assets:
Deferred financing costs, less accumulated amortization of
$561,891 at December 31, 1994 (note 4) -- 10,060,090
Deferred fuel costs, less accumulated amortization of
$4,993,658 and $854,977 at December 31, 1995 and 1994,
respectively (note 6) 21,985,387 26,124,068
Cash held in escrow (note 1) 5,827,320 1,049,615
----------- -----------
Total other assets 27,812,707 37,233,773
----------- -----------
Total assets $168,059,652 176,978,674
----------- -----------
----------- -----------
Liabilities and Partners' Deficiency
Current liabilities:
Accounts payable and accrued expenses 4,352,888 15,255,808
Retainage payable - construction (note 6) 420,750 5,041,000
Loan payable - bank (note 4) -- 24,500,000
Loans payable - current (note 4) 148,982,000 1,323,000
Subordinated loans - current (note 4) 20,000,000 --
Amounts due to related parties (note 7) 53,663 338,143
----------- -----------
Total current liabilities 173,809,301 46,457,951
Loans payable, excluding current installments (note 4) -- 111,282,000
Subordinated loans (note 4) -- 20,000,000
----------- -----------
Total liabilities 173,809,301 177,739,951
----------- -----------
Partners' deficiency (note 2):
General partners (2,973,848) (394,110)
Limited partners (2,775,801) (367,167)
----------- -----------
Total partners' deficiency (5,749,649) (761,277)
Commitments (notes 4, 5, 6 and 9) ----------- -----------
Total liabilities and partners' deficiency $168,059,652 176,978,674
----------- -----------
----------- -----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP SYRACUSE L.P.
Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues (note 6) $ 26,151,260 28,222,400 --
----------- ----------- ---------
Operating expenses:
Fuel 2,447,715 12,350,318 --
Operations and maintenance (note 6) 1,014,448 1,286,787 --
Rent (note 5) 47,023 42,344 --
Management fee (note 7) 337,992 351,503 --
Insurance 600,983 508,462 --
Depreciation 3,560,896 3,832,434 --
Amortization of financing costs 734,053 561,891 --
Amortization of fuel costs 4,138,681 827,432 --
Utilities 107,639 189,030 --
Commitment fees 741,886 287,805 --
Property tax 95,933 2,164 --
Bank charges 127,633 105,423 --
Late fees (note 6) -- 336,000 --
Professional fees 398,166 23,100 --
Miscellaneous expenses 27,890 8,441 --
----------- ----------- ---------
Total operating expenses 14,380,938 20,713,134 --
----------- ----------- ---------
Income from operations 11,770,322 7,509,266 --
----------- ----------- ---------
Other income (expense):
Other income (note 8) 21,159 3,407,530 --
Interest expense (note 9) (17,200,112) (11,143,469) --
Fuel demand costs, net (note 6) -- -- (305,405)
Interest income 728,454 125,869 1,974
Amortization of deferred fuel costs -- -- (27,545)
----------- ----------- ---------
(16,450,499) (7,610,070) (330,976)
----------- ----------- ---------
Net loss $ (4,680,177) (100,804) (330,976)
----------- ----------- ---------
----------- ----------- ---------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP SYRACUSE L.P.
Statements of Partners' Deficiency
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
General Limited Total
partners partners
<S> <C> <C> <C>
Partners' equity at December 31, 1992 $ -- 250 250
Net loss (note 2) (171,164) (159,812) (330,976)
Partners' distributions (note 2) (11,146) (10,407) (21,553)
---------- ---------- ----------
Partners' deficiency at December 31, 1993 (182,310) (169,969) (352,279)
Net loss (note 2) (52,418) (48,386) (100,804)
Partners' distributions (note 2) (159,382) (148,812) (308,194)
---------- ---------- ----------
Partners' deficiency at December 31, 1994 (394,110) (367,167) (761,277)
Net loss (note 2) (2,420,354) (2,259,823) (4,680,177)
Partners' distributions (note 2) (159,384) (148,811) (308,195)
---------- ---------- ----------
Partners' deficiency at December 31, 1995 $(2,973,848) (2,775,801) (5,749,649)
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP SYRACUSE L.P.
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,680,177) (100,804) (330,976)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred fuel costs 4,138,681 827,432 27,545
Depreciation 3,560,896 3,832,434 --
Amortization of financing costs 734,053 561,891 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 320,312 (2,455,975) --
Decrease (increase) in other receivables 3,232,484 (3,356,395) 225,335
Decrease (increase) in prepaid expenses and other
current assets 1,359,331 (2,418,856) (772,429)
Increase in deferred fuel costs -- (24,500,000) --
Increase in escrow accounts (4,777,705) (1,049,615) --
(Decrease) increase in accounts payable and accrued
expenses (10,902,920) 5,479,875 --
(Decrease) increase in due to related parties (284,480) 316,590 21,553
----------- ----------- -----------
Net cash used in operating activities (7,299,525) (22,863,423) (828,972)
----------- ------------- -----------
Cash flows from investing activities - construction in
progress, net of amounts payable (4,670,988) (9,614,150) (47,783,876)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from loans payable 37,700,000 16,400,000 52,300,000
Payments on loans payable (1,323,000) (30,000) (15,000)
Proceeds from loan payable - bank -- 24,500,000 --
Payments on loan payable - bank (24,500,000) -- --
Partners' distributions (308,195) (308,194) (21,553)
Increase in deferred financing costs (58,014) (1,545,022) (3,291,229)
----------- ----------- -----------
Net cash provided by financing activities 11,510,791 39,016,784 48,972,218
----------- ----------- -----------
Net (decrease) increase in cash (459,722) 6,539,211 359,370
Cash at beginning of year 6,939,200 399,989 40,619
----------- ----------- -----------
Cash at end of year $ 6,479,478 6,939,200 399,989
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information - cash
paid during the year for interest, net of interest
capitalized. The amount of interest that was capitalized
was $3,687,300 in 1994 and $4,598,172 in 1993. $ 16,397,809 6,609,484 --
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP SYRACUSE L.P.
Notes to Financial Statements
December 31, 1995 and 1994
(1) Organization and Summary of Significant Accounting Policies
Organization
Kamine/Besicorp Syracuse L.P. (the Partnership) is a Delaware limited
partnership formed on August 4, 1989. The Partnership was organized for the
purpose of constructing, owning and operating a 79.9-megawatt cogeneration
facility (the Facility) on premises leased from Hanlin Group, Inc. (Hanlin) near
Syracuse, New York. The Facility will be operated as a PURPA qualifying
cogeneration facility using natural gas as the primary source of fuel.
The general partners of the Partnership are Kamine Syracuse Cogen Co.,
Inc. (KS Cogen) and Beta Syracuse, Inc. (Beta) (a subsidiary of Besicorp Group,
Inc.), which retained an initial 16% and 50% interest in the Partnership,
respectively. Kamine Development Corp. (KDC) is a limited partner with an
initial 34% interest in the Partnership. On November 9, 1992, the partnership
agreement was amended whereby KS Cogen, Beta, KDC and Ansaldo North America,
Inc. (Ansaldo), a limited partner, retain interests of 16%, 35.715%, 19.715% and
28.57%, respectively.
The Partnership commenced commercial operations as of February 26, 1994.
Sales to Niagara Mohawk Power Corporation (NIMO) approximated 99% of total
revenues in 1995 and 1994.
Summary of Significant Accounting Policies
Plant and Equipment
Plant and equipment are stated at cost, less accumulated depreciation.
Maintenance and repairs which do not enhance the value or increase the basic
productive capacity of the asset are charged to operations as incurred.
Depreciation of assets is computed on a straight-line basis over their useful
lives of 25 years, commencing on the date the Facility was placed into service.
Effective November 3, 1994, the Partnership extended the estimated useful
life of the Facility to 35 years as a result of the amended and restated Power
Purchase Agreement (PPA) (see note 6). The effect of this change in estimate was
immaterial to the 1994 statement of operations.
All costs of the Partnership during the construction period were
capitalized to the Facility unless they specifically related to organization and
start-up costs, the costs of obtaining financing, the costs of obtaining fuel
commitments, or general operating expenses. Construction costs included direct
materials and labor costs, purchase of equipment and those indirect costs
related thereto. Interest costs during construction were capitalized.
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies, cont.
Deferred Financing Costs
All costs associated with the financing of the Facility are deferred and
amortized over the life of the permanent financing.
Deferred Fuel Costs
Costs associated with obtaining the commitment of natural gas supplies for
the Facility are deferred and amortized over the life of the gas supply
contract.
The cost associated with modifying the fuel arrangements through January
1, 2001 (see note 6) to accommodate the revised PPA terms is deferred and
amortized during the period from November 1, 1994 (the date the modifications
became effective) through December 31, 2000.
Accounts Payable
<PAGE>
Construction costs incurred but not yet paid are classified as either
accounts payable, accrued expenses or construction retainage payable.
Revenue Recognition
Electric and thermal energy revenues are recognized as earned.
Income Taxes
Income taxes have not been provided since the Partnership is not a taxable
entity. The partners report their share of the Partnership's taxable income or
loss on their respective income tax returns.
Financial Instruments
The carrying values of the Partnership's financial instruments at December
31, 1995 approximate their estimated fair value. The carrying amounts of
accounts receivable, accounts payable, accrued expenses and other current
liabilities approximate fair value due to the short-term maturity of such
instruments. Management believes that the carrying amount of loans payable
approximates fair value based on rates that would be offered to the Partnership
for loans with similar maturities and characteristics.
The Partnership has entered into interest rate swap and interest rate cap
agreements to manage its interest rate risk. These transactions are entered into
with notional amounts scheduled to be consistent with expected outstanding
balances associated with loan agreements. The net interest differential,
including premiums paid or received, if any, on interest rate swaps and interest
rate caps, is recognized on an accrual basis and is recorded as a part of
interest expense.
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies, cont.
Financial Instruments, cont.
Counterparties to the interest rate swap and interest rate cap agreements
are major financial institutions. Credit loss from counterparty nonperformance
is not anticipated.
Use of Estimates
In conformity with generally accepted accounting principles, management of
the Partnership has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent liabilities
in preparing the accompanying financial statements. Actual results could differ
from those estimates.
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount can be reasonably
estimated.
Risk and Uncertainties
The Partnership is principally engaged in a single line of business, the
production and sale of electric power to one customer, NIMO.
<PAGE>
The regulated investor-owned utility industry is presently subject to
considerable market pressures and changes in the Federal and state regulatory
environment in which it operates. These pressures are resulting in industry
consolidation and pressure to disaggregate electric generation, transmission and
distribution assets and to adjust cost structures to meet market conditions. The
utility to which the Partnership sells its power, NIMO, made a filing on October
10, 1995 to the Public Service Commission of the State of New York setting forth
numerous restructuring proposals, including a significant reduction on the price
for power purchased from independent power producers currently under contract
with NIMO. The Partnership expects many of NIMO's proposals to be strongly
contested, including the significant reduction on the price for power. NIMO has
also stated in such filing that its financial viability is threatened. In early
1996, NIMO suspended payment of dividends on its common stock. The outcome of
the industry trends, regulatory changes, the NIMO filing and NIMO's financial
viability cannot presently be determined.
Cash Held in Escrow
The Partnership has established two long-term escrow accounts. These
accounts are principally for major maintenance payments and debt payment
reserves. The security agent is Deutsche Bank AG, New York Branch (Deutsche Bank
AG).
(2) Allocation of Income, Losses and Cash Distributions
A separate capital account has been established and maintained for each
partner. Each such account is (a) increased by the amount of such partner's
capital contributions, any profits and items of income and gain allocated to
such partner, and any increase in such partner's share of the liabilities of the
Partnership and the amount of partnership liabilities assumed by the partner;
and (b) decreased by the amount of cash and the fair market value of any
partnership assets distributed to such partner, the amount of losses allocated
to such partner, and any decrease in such partner's share of the liabilities of
the Partnership and the amount of any partner liabilities assumed by the
Partnership (subject to certain provisions).
Profits and losses for any calendar year or portion of such year shall be
allocated among the partners in proportion to their percentage ownership
interests. Net cash flow for each quarter shall be distributed to the partners
in accordance with their percentage ownership interests.
Net cash flow, as defined, for each calendar quarter is distributed to the
partners in accordance with their percentage ownership interests. In addition,
amounts required for payment of New York State franchise taxes by the partners,
based upon a .81% (.75% plus 7.5% surcharge thereon) rate of each partner's pro
rata share of partnership revenues pursuant to Article 9, Section 186, of the
New York State Tax Code, are distributed to the partners when tax payments are
due. All partners' distributions in 1995, 1994 and 1993 were for payment of such
taxes.
(3) Plant and Equipment
The Facility was constructed under the terms of a turnkey fixed price
Engineering, Procurement and Construction (EPC) Contract by Ansaldo.
Plant and equipment at December 31, 1995 and 1994 includes $10,958,087 of
capitalized interest.
(4) Financing
The Partnership entered into agreements with SV Syracuse, Inc. (SVS) and
Ansaldo on January 22, 1992 whereby SVS and Ansaldo agreed to provide interim
financing of up to $15,000,000 and $5,000,000, respectively, for the development
and construction of the Facility until other financing for the construction and
completion of the Facility could be obtained.
On November 9, 1992, the Partnership converted the interim loans to term
loans and entered into subordinated financing agreements with SVS and Ansaldo in
the amounts of $15,000,000 and $5,000,000, respectively, as contemplated in the
interim loan agreements. Each of the subordinated financing agreements provides
for interest to be charged at the LIBOR rate, as defined, plus a range of 5.4%
to 7.875%, payable quarterly (13.8125% at December 31, 1995). Principal payments
are not required to begin until 2003, at which time
<PAGE>
(4) Financing, cont.
quarterly payments will begin and continue until October 31, 2008, each
agreement's maturity date. SVS was awarded a 12.5% share of the net cash flow
generated, as defined, by the Facility, and Ansaldo was awarded its 28.57%
limited partner interest as additional compensation for providing financial
support for the Facility.
As of November 9, 1992, the Partnership entered into a financing agreement
with Deutsche Bank AG, as agent, and four other banks (the Banks) whereby the
Banks agreed to provide construction financing not to exceed $111,800,000. The
construction financing bore interest at the base rate, as defined, plus 1.1%, or
at the LIBOR rate, as defined, plus 1.9%, as determined at the option of the
Partnership, with a maturity date of no later than April 20, 1994. Subject to
conditions set forth in the financing agreement, the Banks, at the request of
the Partnership, will convert the construction financing into a term loan not to
exceed $114,300,000. The term loan will bear interest at the base rate, as
defined, plus a range of 1.5% to 1.625%, or at the LIBOR rate, as defined, plus
a range of 2.25% to 2.375%, as determined at the option of the Partnership
(8.3125% at December 31, 1995), with a maturity date of no later than December
31, 2008. Principal payments will be made quarterly, over a 15-year period. The
Banks have been granted a first priority security interest in the Facility and
other collateral.
As of October 20, 1994, the financing agreement was amended and restated
to increase the construction financing and term loan commitment by $15,000,000
in conjunction with conversion to the revised PPA terms (see note 6). Loan terms
are the same as for the original financing.
Subsequent to December 31, 1994, the Partnership did not pay interest on
its subordinated debt which was due on January 31, 1995 and April 28, 1995. Such
payments were not made because of a shortage of funds at the relevant payment
priority level related to delays in completing a settlement arrangement with the
construction contractor and failure to achieve conversion of the construction
financing into a term loan, which would make funds available for the payment.
Notices of default related to this nonpayment were received from Ansaldo on
February 3, 1995 and SVS on February 7, 1995. In addition, a Notice of Default
was received from Deutsche Bank AG on March 16, 1995 related to cross default
associated with the aforementioned Notices of Default from Ansaldo and SVS, as
well as the failure to achieve completion and final completion of the Facility
by the required dates, as defined in the financing agreement with Deutsche Bank
AG. On June 27, 1995, amendments to the financing agreements with Deutsche Bank
AG, Ansaldo and SVS were entered into in connection with the approval of an EPC
Contract Settlement Agreement with Ansaldo. Sufficient funds were made available
to pay all interest in arrears on its subordinated loans, and management expects
to make all the required interest payments in the future. In addition, the
required dates for completion, final completion and conversion of the
construction financing into a term loan were extended and all defaults were
cured or waived.
(4) Financing, cont.
As of December 31, 1995, the PSD Permit Test, as defined in the
Construction Contract, had not been satisfactorily completed and final
completion was delayed beyond December 31, 1995, both of which are Events of
Default under the financing agreements. As a result of the aforementioned Events
of Default, all borrowings of loans payable and related deferred financing costs
have been classified as current. At December 31, 1995, total current liabilities
substantially exceed total current assets, which raises substantial doubt about
the Partnership's ability to continue as a going concern. Management anticipates
that amendments will be made to the Financing Agreements to resolve the existing
Events of Default. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
In addition to the above-mentioned financing arrangements, the Banks
agreed to provide a working capital loan, not to exceed $2,500,000, until the
term loan maturity date. The working capital loan will bear interest at the base
rate, as defined, plus a range of 1.5% to 1.625%. There were no outstanding
borrowings under this agreement as of December 31, 1995 and 1994. The
Partnership shall also repay the aggregate unpaid principal amount at least once
each fiscal quarter. The Banks also agreed to provide letters of credit not to
exceed $6,800,000 prior to term loan conversion and $5,800,000 subsequent to
term loan conversion. At December 31, 1995 letters of credit totaling $442,642
were outstanding.
<PAGE>
On November 3, 1994, Key Bank of New York loaned $24,500,000 to the
Partnership for use in making the payment to NORCEN Energy Resources Limited
(NORCEN), formerly North Canadian Marketing (see note 6), pursuant to the Second
Amendment to the Gas Purchase Agreement. The loan was repaid on December 29,
1995 with the proceeds received from a $24,500,000 LC Loan Facility (LC Loan)
from Deutsche Bank AG. Interest on the LC Loan is equal to LIBOR plus 2.75%
(8.5% at December 31, 1995). Commencing on December 31, 1996 and each successive
year thereafter, the interest rate increases by .25% per annum. Until the LC
Loan is repaid in full, 80% of the monies otherwise available to equity and cash
flow holders will be utilized for repayment of the LC Loan. In addition, when
the LC Loan is paid in full and the LC Loan of the Partnership's affiliate,
Kamine/Besicorp Beaver Falls L.P. (KBF), remains unpaid, 80% of the monies that
would be available to the Partnership equity and cash flow holders will be
loaned to KBF to repay its obligation.
On November 30 1992, the Partnership entered into agreements with the
Onondaga County Industrial Development Agency (IDA) for loans in the amounts of
$150,000 and $300,000. These notes represent a deferral of IDA fees that were
due at construction loan closing. The loans were made to assist the Facility in
making payment of property taxes due. The $150,000 loan is non-interest bearing
and is payable in annual installments of $15,000 commencing December 1, 1993
through December 1, 2002. The $300,000 loan bears an interest rate of 6% through
November 30, 1997, and thereafter, at the option of the IDA, either the prime
rate or five-year treasury rate until maturity, with principal payments
commencing on April 1, 1994 through January 1, 2003.
(4) Financing, cont.
The total scheduled amounts of loans payable due during each of the next
five years are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $30,995,000
1997 6,506,250
1998 7,814,250
1999 7,818,000
2000 9,111,000
----------
----------
</TABLE>
As of November 9, 1992, the Partnership conveyed ownership of the Facility
to the IDA. The tax-exempt status of the IDA has caused payment of a fee to the
IDA upon its issuance of a mortgage bond in lieu of mortgage recording taxes and
exempts the Facility from all sales taxes during the construction of the
Facility and from property taxes during IDA ownership. Payments in lieu of real
property taxes have been made to the IDA beginning on June 30, 1995. Payments
are calculated based on a specified annual payment and percentage of gross steam
and net electric revenues, as defined. The IDA has appointed the Partnership as
its agent and will convey the Facility to the Partnership in accordance with an
installment sale agreement, with the conveyance expected to be on December 31,
2014.
(5) Lease of Land
The Facility is on a parcel of land leased to the Partnership for a term
of 48 years starting February 15, 1991 through February 14, 2039. The
Partnership paid rent of $600 per annum for the period February 15, 1991 to
February 15, 1993, after which the Partnership pays rent of $45,000 per annum.
The lease provides for adjustments related to the consumer price index after
December 31, 1991.
(6) Commitments
An affiliate of the Partnership entered into a PPA with NIMO dated as of
December 4, 1987 with amendments dated August 25, 1989 and October 19, 1990 with
approval by the New York Public Service Commission (the Commission) on various
dates through November 21, 1990. There was a subsequent amendment on September
26, 1991 which did not require the approval of the Commission. The PPA was
assigned to the Partnership on November 1, 1991. NIMO agreed to purchase all
electricity generated by the Facility for a term of 25 years from the date of
commercial operation.
<PAGE>
An amendment to the PPA was entered into as of January 4, 1994 and became
effective on November 3, 1994 (Commencement Date). The amendment requires NIMO
to purchase electricity generated by the Facility for 35 years from the
Commencement Date. In addition, during the period through January 1, 2001, the
Facility is expected to be on standby availability and will not generate
(6) Commitments, cont.
electricity except in the case of certain requirements or if NIMO elects
to restart the Facility at an earlier date. Also, the Partnership became
obligated to pay NIMO $336,000 for commencing the PPA after August 4, 1994.
The Partnership is to receive annual capacity payments from NIMO which
will be more than sufficient to cover debt service and fixed costs during the
standby availability period.
The Partnership entered into an Energy Service Agreement (ESA) with the
New York State Fair and the Industrial Exhibit Authority dated as of August 6,
1991. The New York State Fair and the Industrial Exhibit Authority will purchase
thermal energy from the Facility at a price set forth in and adjusted pursuant
to the ESA which shall be 8.5% of the rental revenues for each building that
benefits from the delivery of thermal energy during those periods of time that
energy services are taken (excluding any revenues derived from the New York
State Fair).
The Partnership entered into an Operation and Maintenance Agreement (O&M)
with Stewart and Stevenson Operations, Inc. (Operator) dated as of June 17,
1992. Under the O&M, the Operator will operate and maintain the Facility for two
successive six-year terms unless six months' prior notice is given by the
Partnership to the Operator. The O&M was amended and restated to conform with
the plan for operations associated with the amended and restated PPA. While the
Facility is on standby availability, compensation will include a fee of
(INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) per year plus
(INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) for the Operator's
labor fee; both amounts are subject to escalation by the Employment Cost Index
(ECI). When the Facility is operating, the fee will change to (INFORMATION
DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) per year subject to escalation
for ECI plus reimbursable costs. In addition, the Operator will be reimbursed
for demobilization costs not to exceed (INFORMATION DELETED - SUBJECT OF A
CONFIDENTIALITY REQUEST). Major facility overhauls, as defined, will be
performed under the direction of the Operator, with costs of the overhaul to be
borne by the Partnership. The Partnership is required to establish and fund a
reserve account for major facility overhaul costs.
The Partnership has entered into various contracts for the supply and
transportation of natural gas to the project. Natural gas will be supplied by
NORCEN. Transportation of natural gas by pipelines will be by TransCanada
Pipelines Limited (TCPL) from a point near the border between Saskatchewan and
Alberta, Canada to Chippewa, Ontario; by Empire State Pipeline Company to
Syracuse; and by NIMO to the Facility.
The natural gas supply and transportation contracts became effective on
November 1, 1993 based on the estimated completion date for the Facility and the
gas industry standard of contract years beginning on November 1. This caused the
Partnership to become responsible for fixed costs associated with these
contracts, which the Partnership attempted to minimize through sales of natural
gas to third parties utilizing the Partnership's contractual arrangements. Sales
of $2,496,890 were made to reduce the Partnership's net realized costs to
$305,405 in 1993.
(6) Commitments, cont.
In 1994, the gas supply agreement with NORCEN was amended to suspend the
Partnership's obligation to purchase gas until January 1, 2001 and to assign the
Partnership's contracted pipeline space on TCPL to NORCEN. In connection with
the amended agreement, the Partnership paid NORCEN $24,500,000. The cost is
included in deferred fuel cost at December 31, 1995.
<PAGE>
The Partnership entered into an EPC Contract Settlement Agreement with
Ansaldo as of May 22, 1995. It fixed the net payment obligation to Ansaldo with
respect to all remaining work, claims, amounts due under the Commercial
Operations Agreement and any other amounts associated with the EPC Contract. A
total of $4,620,250 was paid to Ansaldo during the year ended December 31, 1995,
and $420,750 is due at defined milestones, the last of which is Final Acceptance
of the Facility.
(7) Related-party Transactions
The general partners are entitled to monies in the form of fees for
monitoring construction, and affiliates of the general partners, as developers,
will receive monies in the form of development fees during the third through the
fifth year of operations.
In addition to their respective shares of partnership cash flow, the
general partners and/or their affiliates will receive a management fee per
annum, as defined, and an operation and maintenance management fee per annum, as
defined (both adjusted for inflation). The management fees for 1995 and 1994
were $337,992 and $351,503, respectively, of which a portion thereof is unpaid
and included in amounts due to related parties at December 31, 1995 and 1994.
(8) Other Income
The Partnership entered into a Commercial Operations Agreement (the
Agreement) as of March 8, 1994 with Ansaldo. The Agreement requires Ansaldo to
pay the Partnership a penalty for the aggregate amount of the difference between
actual electric revenues and fuel costs (gross margin) and projected gross
margin, as defined in the Agreement, and certain other payments during the
period from commencement of commercial operations to the date of operational
acceptance under the construction contract. Included in other income for the
years ended December 31, 1995 and 1994 are penalties of $21,159 and $3,407,530,
respectively. At December 31, 1994, $3,281,530 was due from Ansaldo for such
penalties and was included in other receivables; such amount has been
subsequently paid in 1995.
(9) Derivative Financial Instruments Held - Other Than Trading
On December 31, 1992, the Partnership entered into an interest rate swap
agreement effective from November 1, 1993 through October 31, 2008 whereby
floating rate debt (senior debt) based on LIBOR plus a range of 2.25% to 2.375%
over the scheduled life of the debt has been effectively converted to
(9) Derivative Financial Instruments Held - Other Than Trading, cont.
fixed rate debt of 7.745% plus a range of 2.25% to 2.375%. In 1995 and
1994, this contract resulted in interest charges of $1,970,529 and $4,277,980,
respectively, for the excess of the fixed rate over the variable rate. The
notional principal amount at December 31, 1995 and 1994 is $111,800,000. The
fair value of the Partnership's future payment obligation over the remaining
life of the agreement is estimated to be approximately $12,100,000, based on
discounted cash flows using current interest rates.
On December 1, 1992, the Partnership also entered into an interest rate
cap agreement effective from October 29, 1993 through October 31, 2008 whereby
floating rate debt (subordinated loans) based on LIBOR plus a range of 7.75% to
7.875% was limited to a rate of no higher than 8.7% plus a range of 7.75% to
7.875%. No costs resulted from this contract in 1995 and 1994. The cost of this
agreement will be realized as a .35% premium on the previously described
interest rate swap agreement from November 1, 1995 through October 31, 2008. The
notional principal amount is $20,000,000 for the years ended December 31, 1995
and 1994. The fair value of the Partnership's future payment obligation over the
remaining life of the agreement is estimated to be approximately $2,200,000,
based on discounted cash flows using current interest rates.
On November 3, 1994, the Partnership entered into an additional interest
rate cap agreement effective from November 3, 1994 through December 26, 1995
whereby floating rate debt (Key Bank of New York) based on LIBOR plus .55% was
limited to 7.00%. The Partnership paid $139,650 for this interest rate
protection, of which $121,435 and $18,215 was charged to interest expense in
1995 and 1994, respectively.
<PAGE>
EXHIBIT NO. 99-F
KAMINE/BESICORP BEAVER FALLS L.P.
Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Partners
Kamine/Besicorp Beaver Falls L.P.:
We have audited the accompanying balance sheets of Kamine/Besicorp Beaver Falls
L.P. as of December 31, 1995 and 1994, and the related statements of operations,
partners' (deficiency) equity, and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the general partners. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kamine/Besicorp Beaver Falls
L.P. as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Kamine/Besicorp Beaver Falls L.P. will continue as a going concern. As discussed
in note 4 to the financial statements, the Partnership was not in compliance
with certain covenants in its senior and subordinated financing agreements. As a
result, all borrowings of long-term debt have been classified as current
liabilities. At December 31, 1995, total current liabilities substantially
exceed current assets, which raises substantial doubt about the entity's ability
to continue as a going concern. Management's plans with regard to these matters
are described in note 4. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
March 22, 1996
<PAGE>
KAMINE/BESICORP BEAVER FALLS L.P.
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
<S> <C> <C>
Cash $ 4,064,389 267,136
Accounts receivable 2,079,797 --
Prepaid expenses and other assets (notes 4, 5, and 7) 1,042,515 1,723,008
Total current assets 7,186,701 1,990,144
----------- -----------
Plant and equipment - cogeneration facility (notes 3 and 4) 128,612,117 101,836,717
Less accumulated depreciation 2,415,871 --
----------- -----------
Plant and equipment, net 126,196,246 101,836,717
----------- -----------
Other assets:
Deferred fuel costs, less accumulated amortization of
$2,419,520 in 1995 (note 6) 20,739,713 23,159,233
Deferred financing costs, less accumulated amortization of
$964,549 in 1995 17,329,304 16,809,528
Deferred rent (note 5) 7,078,992 4,500,000
Cash held in escrow 4,586,275 --
----------- -----------
Total assets $183,117,231 148,295,622
----------- -----------
----------- -----------
Liabilities and Partners' Deficiency
Liabilities:
Current liabilities:
Current installments of loans payable (note 4) 166,300,000 20,160,000
Accounts payable 3,603,041 2,528,877
Accrued expenses and other current liabilities 8,866,479 --
Construction retainage payable (note 3) 6,845,226 7,144,523
Due to related parties (note 7) 111,715 --
----------- -----------
Total current liabilities 185,726,461 29,833,400
Loans payable, excluding current installments (note 4) -- 118,640,000
----------- -----------
Total liabilities 185,726,461 148,473,400
----------- -----------
Partners' deficiency (note 2):
General partners (1,727,377) (117,755)
Limited partner (881,853) (60,023)
----------- -----------
Total partners' deficiency (2,609,230) (177,778)
Commitments (notes 4, 5, 6 and 8) ----------- -----------
Total liabilities and partners' deficiency $183,117,231 148,295,622
----------- -----------
----------- -----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP BEAVER FALLS L.P.
Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues (note 6) $ 16,450,684 -- --
----------- --------- ---------
Operating expenses:
Fuel 708,926 -- --
Depreciation 2,415,871 -- --
Amortization of deferred fuel costs 2,419,520 -- --
Management fee (note 7) 133,885 -- --
Rent (note 5) 165,452 -- --
Property tax 164,746 -- --
Operations and maintenance (note 6) 499,440 -- --
Amortization of financing costs 964,549 -- --
Commitment fees 596,064 -- --
Other 672,054 -- --
----------- --------- ---------
Total operating expenses 8,740,507 -- --
----------- --------- ---------
Income from operations 7,710,177 -- --
----------- --------- ---------
Other income (expense):
Interest expense (note 8) (10,233,286) (197,218) --
Interest income 176,540 19,340 --
----------- --------- ---------
Net loss $ (2,346,569) (177,878) --
----------- --------- ---------
----------- --------- ---------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP BEAVER FALLS L.P.
Statements of Partners' (Deficiency) Equity
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
General Limited Total
partners partner
<S> <C> <C> <C>
Partners' equity at January 1, 1993 $ -- -- --
Partners' contributions -- 100 100
---------- --------- ----------
Partners' equity at December 31, 1993 -- 100 100
Net loss (note 2) (117,755) (60,123) (177,878)
---------- --------- ----------
Partners' deficiency at December 31, 1994 (117,755) (60,023) (177,778)
Net loss (note 2) (1,553,429) (793,140) (2,346,569)
Partners' distributions (note 2) (56,193) (28,690) (84,883)
---------- --------- ----------
Partners' deficiency at December 31, 1995 $(1,727,377) (881,853) (2,609,230)
---------- --------- ----------
---------- --------- ----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP BEAVER FALLS L.P.
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,346,569) (177,878) --
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 2,415,871 -- --
Amortization of deferred fuel costs 2,419,520 -- --
Amortization of financing costs 964,549 -- --
Increase in accounts receivable (2,079,797) -- --
Decrease (increase) in prepaid expenses and other
assets 680,493 (128,284) (6,080,685)
Increase in deferred fuel costs -- (19,500,000) (3,659,233)
Increase in prepaid rent (2,578,992) -- --
Increase in cash held in escrow (4,586,275) -- --
Increase in accounts payable 3,603,041 -- --
Increase in due to related parties 111,715 -- --
----------- ----------- -----------
Net cash used in operating activities (1,396,444) (19,806,162) (9,739,918)
----------- ------------- -----------
Cash flows from investing activities - construction in
progress, net of amounts payable (20,737,095) (68,640,005) (23,537,784)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from loan payable 42,400,000 67,400,000 36,500,000
Proceeds from subordinated loans 4,600,000 6,800,000 8,600,000
Proceeds from loans payable - bank -- 19,500,000 --
Payments on loans payable - bank (19,500,000) -- --
Partners' contributions -- -- 100
Partners' distributions (84,883) -- --
Increase in deferred financing costs (1,484,325) (5,727,580) (11,081,515)
----------- ----------- -----------
Net cash provided by financing activities 25,930,792 87,972,420 34,018,585
----------- ----------- -----------
Net increase (decrease) in cash 3,797,253 (473,747) 740,883
Cash at beginning of year 267,136 740,883 --
----------- ----------- -----------
Cash at end of year $ 4,064,389 267,136 740,883
----------- ----------- -----------
----------- ----------- -----------
Supplemental disclosure of cash flow information - cash
paid during the year for interest, net of amounts
capitalized of $3,881,090, $5,148,074 and $1,157,281 in
1995, 1994 and 1993, respectively (note 3) $ 10,164,303 197,218 --
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
KAMINE/BESICORP BEAVER FALLS L.P.
Notes to Financial Statements
December 31, 1995 and 1994
(1) Organization and Summary of Significant Accounting Policies
Organization
Kamine/Besicorp Beaver Falls L.P. (the Partnership) is a Delaware limited
partnership formed on August 4, 1989. The Partnership was organized for the
purpose of constructing, owning and operating a 79-megawatt cogeneration
facility (the Facility) on the premises of Specialty Paperboard, Inc. (SPI) in
Beaver Falls, New York. The Facility operates as a PURPA qualifying cogeneration
facility using natural gas as the primary source of fuel.
The general partners of the Partnership are Kamine Beaver Falls Cogen Co.,
Inc. (a New York corporation) and Beta Beaver Falls, Inc. (a New York
corporation), which retain a 16% and 50.2% interest in the Partnership,
respectively. The limited partner is Kamine Development Corp. (KDC) with a 33.8%
interest in the Partnership.
The Partnership commenced commercial operations as of May 7, 1995. Sales
to Niagara Mohawk Power Corporation (NIMO) approximated 99% of total revenues in
1995. In prior years, the Partnership had been in the development stage.
Summary of Significant Accounting Policies
Plant and Equipment
Plant and equipment are stated at cost, less accumulated depreciation.
Maintenance and repairs which do not enhance the value or increase the basic
productive capacity of the asset are charged to operations as incurred.
Depreciation of assets is computed on a straight-line basis over their useful
lives, commencing on the date the Facility was placed into service.
Effective November 3, 1994, the Partnership extended the estimated useful
life of the Facility to 35 years as a result of the amended and restated Power
Purchase Agreement (PPA) (see note 6).
All costs of the Partnership during the construction period were
capitalized to the project unless they specifically related to organization and
start-up costs, the costs of obtaining financing, the costs of obtaining fuel
commitments, or general operating expenses. Costs included were direct materials
and labor costs, purchase of equipment, and those indirect costs related
thereto. Interest costs pursuant to construction financing were capitalized.
Deferred Financing Costs
All costs associated with the permanent financing of the Facility are
deferred and amortized over the life of the permanent financing.
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies, cont.
Deferred Fuel Costs
Costs associated with obtaining the commitment of natural gas supplies for
the Facility are deferred and amortized over the life of the gas supply
contract.
The cost associated with modifying the fuel arrangements until January 1,
2001 to accommodate revised PPA terms (see note 6) is deferred and amortized
during the period from March 1, 1995 (the scheduled commencement of deliveries
under the gas purchase agreement) through December 31, 2000.
Accounts Payable
<PAGE>
Construction costs incurred but not yet paid are classified as either
accounts payable, accrued expenses or construction retainage payable dependent
upon their payment terms.
Revenue Recognition
Electric and thermal energy revenues are recognized as earned.
Income Taxes
Income taxes will not be provided for since the Partnership is not a
taxable entity. The partners report their respective share of the Partnership's
taxable income or loss on their respective income tax returns.
Financial Instruments
The carrying values of the Partnership's financial instruments at December
31, 1995 approximate their estimated fair value. The carrying amounts of
accounts receivable, accounts payable, accrued expenses and other current
liabilities approximate fair value due to the short-term maturity of such
instruments. The carrying amount of loans payable approximates fair value since
interest rates on such loans fluctuate with changes in the base rate of the
lending institution.
The Partnership has entered into interest rate swap and interest rate cap
agreements to manage its interest rate risk. These transactions are entered into
with notional amounts scheduled to be consistent with expected outstanding debt
balances associated with long-term loan agreements. The net interest
differential, including premiums paid or received, if any, on interest rate
swaps and interest rate caps, is recognized on an accrual basis and is recorded
as a part of interest expense.
(1) Organization and Summary of Significant Accounting Policies, cont.
Summary of Significant Accounting Policies, cont.
Financial Instruments, cont.
Counterparties to the interest rate swap and interest rate cap agreements
are major financial institutions. Credit loss from counterparty nonperformance
is not anticipated.
Use of Estimates
In conformity with generally accepted accounting principles, management of
the Partnership has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent liabilities
in preparing the accompanying financial statements. Actual results could differ
from those estimates.
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties and other sources are recorded when it is
probable that a liability has been incurred and the amount can be reasonably
estimated.
Risks and Uncertainties
The Partnership is principally engaged in a single line of business, the
production and sale of electric power to one customer, NIMO.
<PAGE>
The regulated investor-owned utility industry is presently subject to
considerable market pressures and changes in the Federal and state regulatory
environment in which it operates. These pressures are resulting in industry
consolidation and pressure to disaggregate electric generation, transmission and
distribution assets and to adjust cost structures to meet market conditions. The
utility to which the Partnership sells its power, NIMO, made a filing on October
10, 1995 to the Public Service Commission of the State of New York setting forth
numerous restructuring proposals, including a significant reduction on the price
for power purchased from independent power producers currently under contract
with NIMO. The Partnership expects many of NIMO's proposals to be strongly
contested, including the significant reduction on the price for power. NIMO has
also stated in such filing that its financial viability is threatened. In early
1996, NIMO suspended payment of dividends on its common stock. The outcome of
the industry trends, regulatory changes, the NIMO filing and NIMO's financial
viability cannot presently be determined.
(2) Allocation of Income, Losses and Cash Distributions
A separate capital account shall be established and maintained for each
partner. Each account shall be (a) increased by the amount of such partner's
capital contributions, any profits and items of income and gain allocated to
such
(2) Allocation of Income, Losses and Cash Distributions, cont.
partner, any increase in such partner's share of the liabilities of the
Partnership and the amount of partnership liabilities assumed by the partner,
and (b) decreased by the amount of cash and the fair market value of any
partnership assets distributed to such partner, the amount of losses allocated
to such partner, any decrease in such partner's share of liabilities of the
Partnership and the amount of any partner liabilities assumed by the Partnership
(subject to certain provisions).
Profits and losses for any calendar year or portion of such year shall be
allocated among the partners in proportion to their percentage ownership
interests. Net cash flow for each quarter shall be distributed to the partners
in accordance with their percentage ownership interests.
The limited partner has a deficiency in its partner's capital account
balance. However, it is an affiliate of one of the general partners, and
management anticipates that such deficiency in the limited partner capital
account balance will reverse in subsequent years.
(3) Plant and Equipment
The Facility was constructed under the terms of a turnkey fixed-price
Engineering, Procurement and Construction Contract by Ansaldo North America,
Inc. (Ansaldo).
Plant and equipment at December 31, 1995 amounts to $128,612,117, which
includes $10,186,445 of capitalized interest. At December 31, 1994, the Facility
was shown as construction in progress and the components were as follows:
<TABLE>
<CAPTION>
<S> <C>
Cost of the general contractors responsible for
constructing the Facility, including $6,845,226
which has been retained to date until completion
of the Facility $ 71,445,228
Developer's reimbursable costs, monitoring fees
and development fees to Kamine Development Corp.
and Besicorp Group, Inc. and/or their
affiliates 7,587,500
Various consulting, engineering, legal and other
costs 16,498,634
Capitalized interest on construction loan 6,305,355
-----------
$101,836,717
-----------
-----------
</TABLE>
(4) Financing
<PAGE>
As of May 7, 1993, the Partnership entered into a financing agreement with
Deutsche Bank AG, New York branch, as administrative agent, and seven other
banks (the Banks) whereby the Banks agreed to provide construction financing not
to exceed $140,000,000. The construction financing bore interest at the base
rate, as defined, plus 1.0%, or at the LIBOR rate, as defined, plus 1.9%, as
determined at the option of the Partnership, with a maturity date not later than
November 29, 1995. Subject to conditions set forth in the financing agreement,
the Banks, at the request of the Partnership, converted the construction
financing into a term loan not to exceed $140,000,000. The term loan bears
interest at the base rate, as defined, plus a range of 1.25% to 1.50%, or at the
LIBOR rate, as defined, plus a range of 2.25% to 2.50%, as determined at the
option of the Partnership, with a maturity date of September 30, 2007 (7.75% at
December 31, 1995). Principal payments are due quarterly over a 12-year period.
The Banks have been granted a first priority security interest in the Facility
and other collateral.
As of October 20, 1994, the financing agreement was amended and restated
to increase the construction financing and term loan commitment by $10,000,000
in conjunction with conversion to the revised PPA terms (see note 6). Loan terms
are the same as for the original financing.
In addition to the above-mentioned financing arrangement, the Banks agreed
to provide a working capital loan, not to exceed $3,000,000, until the term loan
maturity date. The working capital loan will bear interest at the base rate, as
defined, plus a range of 1.25% to 1.50%. The Partnership shall repay all
precompletion working capital loans on or prior to the construction loan
maturity; thereafter, any aggregate unpaid principal amount must be paid at
least once each fiscal quarter. There were no outstanding borrowings as of
December 31, 1995 and 1994. The Banks also agreed to provide letters of credit
not to exceed $6,500,000 prior to term loan conversion and $5,400,000 subsequent
to term loan conversion. At December 31, 1995, $200,000 of letters of credit
were outstanding.
On November 3, 1994, Key Bank of New York loaned $19,500,000 to the
Partnership, which was secured by a letter of credit issued by Deutsche Bank AG,
New York branch for use in making the payment to Norcen Energy Resources Limited
(NORCEN), formerly North Canadian Marketing (see note 6) pursuant to the Second
Amendment to the Gas Purchase Agreement. Interest on the loan was at the LIBOR
rate plus .55%. The loan was repaid on December 29, 1995 with the proceeds
received from a $19,500,000 LC Loan Facility (LC Loan) from Deutsche Bank AG,
New York branch. Interest on the LC Loan is equal to LIBOR plus 2.75% at
December 31, 1995 (8.4375%). Commencing on December 31, 1996 and each successive
year thereafter, the interest rate will increase by .25% per annum. Until the LC
Loan is repaid in full, all of the monies otherwise available to equity and cash
flow holders will be utilized for repayment of the LC Loan. In addition, when
the LC Loan is paid in full and the Partnerships affiliate, Kamine/Besicorp
Syracuse L.P. (KBS), LC Loan remains unpaid, all monies that would be available
to the Partnerships equity and cash flow holders will be loaned to KBS to repay
their obligation.
(4) Financing, cont.
As of May 7, 1993, the Partnership entered into subordinated financing
agreements with SV Beaver Falls, Inc. (SVBF) and Ansaldo whereby SVBF and
Ansaldo agreed to provide financing ($10,000,000 each) to be funded during the
construction of the Facility. Each of the subordinated financing agreements
provides for interest to be paid quarterly at the LIBOR rate, as defined, plus a
spread of 5.4%, or at the base rate, as defined, plus a spread of 6.5% during
construction, and LIBOR plus a range of 7.75% to 8.0% or base rate plus range of
6.75% to 7.0% thereafter (13.625% at December 31, 1995). Principal payments are
required to begin by December 31, 1995, at which time quarterly payments will
continue for 14 years. SVBF and Ansaldo will each receive a 2.5% share of the
net cash flow generated, as defined, by the Facility as additional compensation
for providing the subordinated financing.
<PAGE>
The Partnership entered into four interest rate protection agreements with
Deutsche Bank Capital Corporation. The first provided that the Partnership would
be reimbursed for interest paid if LIBOR exceeded 7.0% based on an agreed-upon
estimated construction loan drawdown schedule which covered the expected
construction period. This instrument expired on June 30, 1995. The second
agreement fixes the term loan interest rate from July 1, 1995 through the entire
scheduled term of the loan at a range of 8.95% to 10.77%. The third and fourth
agreements provide that the Partnership will be reimbursed for interest paid on
subordinated debt to the extent LIBOR exceeds 8.0% during the scheduled term of
the subordinated debt. Compensation for this arrangement is included in the
above-stated rates for the term loan.
As of December 31, 1995, the Partnership was not in compliance with the
following covenants in its senior and subordinated financing agreements
(Financing Agreements): (a) the PSD Permit Test referred to in the Construction
Contract has not been satisfactorily completed within four months following the
date of commencement of commercial operations: (b) Completion, as defined in the
Financing Agreements, has been delayed beyond September 30, 1995: (c) Final
Completion, as defined in the Financing Agreements, has been delayed beyond
November 29, 1995: (d) principal payments due to the subordinated lenders on
December 29, 1995 have not been made; and (e) an endorsement canceling insurance
coverage related to the steam turbine generator effective April 17, 1996 has
been received from the insurer, each of which is an Event of Default under the
Financing Agreements. As a result of the aforementioned Events of Default, all
borrowings of long-term debt have been classified as current. At December 31,
1995, total current liabilities substantially exceed total current assets, which
raises substantial doubt about the Partnership's ability to continue as a going
concern. Management anticipates that a completion agreement will be entered into
with the construction contractor which will provide for resolution of Completion
and Final Completion dates and insurance issues. This will enable amendments to
be made to the Financing Agreements to resolve the existing Events of Default.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
(4) Financing, cont.
The total scheduled amounts of loans payable due during each of the next
five years, if the Events of Default are resolved, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 $ 25,077,500
1997 7,612,500
1998 10,350,000
1999 11,862,500
2000 12,012,500
-----------
-----------
</TABLE>
As of May 7, 1993, the Partnership conveyed ownership of the Facility to
the Lewis County Industrial Development Agency (the IDA). The tax-exempt status
of the IDA has caused payment of a fee to the IDA upon its issuance of a
mortgage bond in lieu of mortgage recording taxes and exempts the Facility from
all sales taxes during the construction of the project and from property taxes
during IDA ownership of the Facility. Payments in lieu of real property taxes
(PILOT) will be made to the IDA, as defined in the PILOT Agreement. The IDA has
appointed the Partnership as its agent and will convey the Facility to the
Partnership in accordance with an installment sale agreement, with the expected
conveyance to be 20 years after the start of commercial operation.
(5) Lease of Land
The Partnership leases land for the Facility from SPI. The Partnership
pays rent of $1 per year through May 2041, plus cash payments totaling
$11,500,000 on various milestone dates, of which $7,500,000 has been paid
through December 31, 1995. Future payments by year are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 $ 2,000,000
1997 2,000,000
----------
$ 4,000,000
----------
----------
</TABLE>
(6) Commitments
<PAGE>
An affiliate of the Partnership entered into a PPA with NIMO dated as of
September 19, 1989 with amendments dated April 9, 1991 and September 26, 1991,
all approved by the New York Public Service Commission. NIMO agreed to purchase
all electricity generated by the Facility for a term of 25 years from the date
of commercial operation.
An amendment to the PPA was entered into as of January 4, 1994 and became
effective on May 7, 1995 (Commencement Date). The amendment requires NIMO to
purchase electricity generated by the Facility for 35 years from the
(6) Commitments, cont.
Commencement Date. In addition, during the period from the Commencement
Date through January 1, 2001, the Facility is expected to be on standby
availability and will not generate electricity except in the case of certain
requirements or if NIMO elects to restart the Facility at an earlier date. The
Partnership is to receive annual capacity payments from NIMO, which management
expects to be more than sufficient to cover debt service and fixed costs during
the standby availability period.
The Partnership has entered into an Energy Service Agreement (ESA) with
SPI for two of SPI's mills. The term of the ESA shall be 25 years from
Commercial Operation, as defined by the PPA.
The Partnership entered into an Operation and Maintenance Agreement (O&M)
with Stewart and Stevenson Operations, Inc. (Operator) dated as of April 25,
1993. Under the O&M, the Operator will operate and maintain the Facility for two
successive six-year terms unless six months' prior notice is given by the
Partnership to the Operator. The O&M was amended and restated as of October 9,
1994 to conform with the plan for operations associated with the amended and
restated PPA. While the Facility is on standby availability, compensation will
include a fee of (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST)
per year plus (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) for
the Operator's labor fee; both amounts are subject to escalation by the
Employment Cost Index (ECI). When the Facility is operating, the fee will change
to (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) per year subject
to escalation for ECI plus reimbursable costs. Major facility overhauls, as
defined, will be performed under the direction of the Operator, with costs of
the overhaul to be borne by the Partnership. The Partnership is required to
establish and fund a reserve account for major facility overhaul costs. The
agreement also provides for the Partnership to pay the Operator a mobilization
fee of (INFORMATION DELETED - SUBJECT OF A CONFIDENTIALITY REQUEST) prior to the
acceptance date.
The Partnership has entered into various contracts for the supply and
transportation of natural gas to the project. Natural gas will be supplied by
NORCEN. Transportation of natural gas by pipelines will be by TransCanada
Pipeline Limited (TCPL) from a point near the Alberta/Saskatchewan, Canada
border to Waddington, New York; by Iroquois Gas Transmission System, L.P. to a
gate station near New Bremen, New York; and by St. Lawrence Gas Company, Inc. to
the Facility.
In 1994, the gas supply agreement with NORCEN was amended to suspend the
Partnership's obligation to purchase gas until January 1, 2001 and to assign the
Partnership's contracted pipeline space on TCPL to NORCEN. In connection with
the amended agreement, the Partnership paid NORCEN $19,500,000. The cost is
included in deferred fuel costs at December 31, 1995.
(7) Related-party Transactions
Developers' reimbursables, as defined, of $1,200,000 were paid to
affiliated companies of the general partners during the year ended December 31,
1994.
(7) Related-party Transactions, cont.
Additional development fee amounts may be earned by the developers on the
permanent financing closing date based on the unspent amount of the construction
loan commitment after payment of all project costs. In addition, the general
partners are paid a construction monitoring fee during the construction of the
Facility. Through December 31, 1995, payments to the general partners for
monitoring fees amounted to $5,407,802.
<PAGE>
In addition to their respective shares of partnership cash flow, the
general partners and/or their affiliates will receive a management fee per
annum, as defined, and an operation and maintenance management fee per annum, as
defined, (both adjusted for inflation). The management fees for 1995 were
$133,885.
(8) Derivative Financial Instruments Held - Other Than Trading
On May 28, 1993, the Partnership entered into an interest rate swap
agreement effective from July 1, 1995 through June 30, 2007 whereby floating
rate debt (senior debt) based on LIBOR plus a range of 2.25% to 2.50% over the
scheduled life of the debt has been effectively converted to fixed rate debt
with a range of 7.30% to 8.27% plus a range of 2.25% to 2.50%. For the year
ended December 31, 1995, $754,686 of costs resulted from this contract. The
notional principal amount of this agreement at December 31, 1995 was
$132,734,000. The fair value of the Partnership's future payment obligation over
the remaining life of the agreement is estimated to be approximately $10,100,000
based on discounted cash flows using current interest rates.
On May 28, 1993, the Partnership entered into two interest rate cap
agreements, both effective from May 28, 1993 through June 30, 2008, whereby
floating rate debt (subordinated debt) based on LIBOR plus a range of 7.75% to
8.00% was limited to a rate of no higher than a range of 8.00% to 11.00%, plus a
range of 7.75% to 8.00%. For the year ended December 31, 1995, $134,713 of costs
resulted from this contract. The cost of this agreement will be realized as a
.20% premium on the previously described interest rate swap agreement. The
notional principal amount of each agreement at December 31, 1995 was
$10,000,000. The fair value of the Partnership's future payment obligations over
the remaining life of the agreement is estimated to be approximately $1,500,000
based on discounted cash flows using current interest rates.
On November 3, 1994, the Partnership entered into an interest rate cap
agreement effective from November 3, 1994 through December 26, 1995 whereby
floating rate debt (Key Bank of New York) based on LIBOR plus .55% was limited
to 7.00%. The Partnership paid $111,150 for this interest rate protection, of
which $96,652 was charged to interest expense in 1995.
