SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)of the Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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Besicorp Group Inc.
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $.10 per share
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2) Aggregate number of securities to which transaction applies:
3,051,435 shares of Common Stock
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<PAGE>
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
$34.50 per share
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4) Proposed maximum aggregate value of transaction:
$105,274,507.50
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5) Total fee paid:
$21,055.00
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[X] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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BESICORP GROUP INC.
1151 FLATBUSH ROAD
KINGSTON, NEW YORK 12401
February ___, 1999
To Our Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders of
Besicorp Group Inc. ("Besicorp") to be held at 9:00 a.m. local time on February
[ ], 1999 at
- ------------------------------------.
At this important meeting, you will be asked to consider and vote upon
an Agreement and Plan of Merger, as amended (the "Plan of Merger"), by and among
Besicorp, BGI Acquisition LLC ("Acquisition") and BGI Acquisition Corp., a
wholly owned subsidiary of Acquisition. If the merger contemplated by the Plan
of Merger is completed, Besicorp will be owned by Acquisition and you will
receive $34.50 in cash (subject to upward adjustment if the Base Amount (as
defined in the Plan of Merger) exceeds $105,275,000), without any interest
thereon, for each share of Besicorp Common Stock you own. The Plan of Merger is
attached as Annex A to the Proxy Statement. In addition, immediately before the
merger, Besicorp will distribute (the "Spin-Off") to its shareholders on a pro
rata basis all of the shares of common stock of Besicorp Ltd. ("Newco"), a
subsidiary of Besicorp, which will, among other things, own Besicorp's
photovoltaic and independent power plant development businesses and have assumed
essentially all of Besicorp's liabilities and obligations. An Information
Statement containing information regarding the Spin-Off and Newco will be sent
to Besicorp's shareholders immediately prior to the effectiveness of the
Spin-Off. The Spin-Off does not require your approval.
The Plan of Merger will be adopted only if the holders of at least 66
2/3% of the outstanding shares of Besicorp vote in its favor.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, BESICORP AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS HAS
UNANIMOUSLY ADOPTED THE TERMS OF THE PLAN OF MERGER AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR THE ADOPTION OF THE PLAN OF MERGER.
Josephthal & Co., Inc., the financial advisor to Besicorp, has
delivered a written opinion to the Board of Directors of the Company that as of
November 20, 1998, the last business day prior to the date of the initial plan
of merger, the consideration to be received by each shareholder of Besicorp in
connection with the merger is fair from a financial point of view to Besicorp's
shareholders. You should read a copy of this opinion which is attached as Annex
B to the Proxy Statement.
Important information regarding Besicorp and the proposed merger is
included in the enclosed Proxy Statement. You are urged to read the Proxy
Statement carefully.
<PAGE>
Your vote is important. Whether or not you plan to attend the Special
Meeting, please complete, sign and date your proxy card and return it in the
enclosed envelope. If you do attend, you will be entitled to vote in person, and
such vote will revoke your proxy.
Sincerely,
Michael F. Zinn
Chairman of the Board,
President and Chief Executive Officer
<PAGE>
BESICORP GROUP INC.
1151 FLATBUSH ROAD
KINGSTON, NEW YORK 12401
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders (the
"Special Meeting") of Besicorp Group Inc., a New York corporation (the "Company"
or "Besicorp"), will be held at ______________________________________________,
New York on February ____, 1999 at 9:00 a.m. (local time) to:
(i) consider and vote upon a proposal to adopt the Agreement
and Plan of Merger dated November 23, 1998, as amended by Amendment No. 1 to the
Agreement and Plan of Merger dated January 28, 1999 (as amended, the "Plan of
Merger")(a copy of which is attached as Annex A to the accompanying Proxy
Statement), by and among Besicorp, BGI Acquisition LLC ("Acquisition"), a
Wyoming limited liability company, and BGI Acquisition Corp. ("Merger Sub"), a
New York corporation and a wholly owned subsidiary of Acquisition, and
(ii) transact such other business as may properly be brought
before the Special Meeting or any adjournment or postponement thereof.
THE BOARD OF DIRECTORS OF BESICORP HAS UNANIMOUSLY DETERMINED THAT THE
PLAN OF MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, BESICORP AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS ADOPTION OF THE PLAN OF MERGER.
All shareholders are cordially invited to attend the Special Meeting.
Only shareholders of record at the close of business on February 3, 1999 are
entitled to notice of and to vote at the Special Meeting or any adjournment
thereof. The affirmative vote of at least 66 2/3% of the shares of the Besicorp
Common Stock outstanding on such record date is necessary to adopt the Plan of
Merger. PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT IN
THE ENCLOSED ENVELOPE WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
Michael F. Zinn, Chairman of the Board,
President and Chief Executive Officer
Dated: February ___, 1999
<PAGE>
BESICORP GROUP INC.
1151 FLATBUSH ROAD
KINGSTON, NEW YORK 12401
------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY ____, 1999
------------------
This Proxy Statement is furnished to the holders of common stock, par
value $.10 per share ("Besicorp Common Stock"), of Besicorp Group Inc.
("Besicorp" or the "Company"), in connection with the solicitation of proxies by
the Board of Directors (the "Board") of Besicorp for use at the special meeting
of the shareholders of Besicorp to be held at 9:00 a.m., local time, on February
____, 1999 at _____________________________________, New York, and at any
adjournment or postponement thereof (the "Special Meeting").
The purpose of the Special Meeting is to consider and vote upon an
Agreement and Plan of Merger dated November 23, 1998 (the "Initial Plan of
Merger"), as amended by Amendment No. 1 to the Agreement and Plan of Merger
dated January 28, 1999 ("Amendment No.1;" the Initial Plan of Merger as amended
by Amendment No. 1, the "Plan of Merger") by and among Besicorp, BGI Acquisition
LLC ("Acquisition"), a Wyoming limited liability company, and BGI Acquisition
Corp. ("Merger Sub" and together with Acquisition, the "Buyer"), a New York
corporation and a wholly owned subsidiary of Acquisition. The Plan of Merger
provides that Merger Sub will be merged with and into Besicorp, with Besicorp
being the surviving corporation (the "Surviving Corporation") and wholly owned
by Acquisition (the "Merger"). If the Merger is consummated, Besicorp's
shareholders will be entitled to receive $34.50 in cash (subject to upward
adjustment if the Base Amount (as defined in the Plan of Merger, a copy of which
is annexed hereto as Annex A) exceeds $105,275,000 (the "Merger
Consideration")), without any interest thereon, for each share of Besicorp
Common Stock. If the Closing had occurred on January 25, 1999, Besicorp
estimates the upward adjustment would have been $3.53 per share. It is
anticipated that if there is any upward adjustment, such adjustment will not
exceed approximately $4.00 per share. There will not be a downward adjustment to
the Merger Consideration; however, no assurance can be given that there will be
any upward adjustment to the Merger Consideration. See "Summary - The Merger
Consideration" and "Plan of Merger Merger Consideration" for a description of
the manner in which the amount to be paid to Besicorp's shareholders is subject
to upward adjustment. As a result of these adjustment provisions, the exact
amount to be received by Besicorp's shareholders in excess of $34.50 per share
is currently not precisely determinable, is subject to confirmation by the
parties to the Plan of Merger and may not be determined until after shareholders
have returned their proxies with respect to the Special Meeting. Shareholders
should base their decision on whether to approve the Plan of Merger on a price
of $34.50 per share. Prior to the consummation of the Merger,
<PAGE>
Besicorp will distribute to its shareholders on a pro rata basis all of the
shares of common stock ("Newco Common Stock") of Besicorp Ltd. ("Newco"), a
subsidiary of Besicorp, which at the time of the Spin-Off will (i) have assumed
essentially all of Besicorp's liabilities and obligations other than the
Permitted Liabilities (as defined below) for which the Surviving Corporation
remains liable and will (ii) own Besicorp's photovoltaic and independent power
plant development businesses and all of Besicorp's assets other than the
following assets (which assets will indirectly be acquired by Buyer in the
Merger): (a) Besicorp's cash (except for approximately $1 million to $2 million
which Besicorp will contribute to Newco); (b) securities owned by Besicorp
(including the shares of common stock of Niagara Mohawk Power Corporation); (c)
certain subsidiaries; (d) the Corporate Headquarters; and (e) certain other
assets (principally including claims and awards in the aggregate face amount of
approximately $1.1 million of which Besicorp is the beneficiary). See "Unaudited
Pro Forma Financial Information" and "The Spin-Off -- The Contribution."
Management currently estimates that Newco will have a value ranging from $1.5
million to $2.5 million. An Information Statement containing additional
information regarding the Spin-Off and Newco will be sent to Besicorp's
shareholders in conjunction with the Spin-Off. The Spin-Off does not require
approval of Besicorp's shareholders; however, the Spin-Off will not occur unless
all the conditions to the Merger (other than the Spin-Off) have been satisfied
or waived. See "The Spin-Off." The consummation of the Merger is subject to the
satisfaction (or waiver) of various conditions, including the shareholders'
adopting the Plan of Merger, the occurrence of the Spin- Off, agreement between
Besicorp and Buyer with respect to the calculation of the Base Amount, such Base
Amount not being less than $105,275,000 and Merger Sub's having received debt
financing (the "Financing"), which, together with the equity to be contributed
to Merger Sub will be in an amount necessary to pay the Merger Consideration and
consummate the Merger. See "Plan of Merger -- Conditions to the Merger."
The Besicorp Common Stock is listed on the American Stock Exchange
Emerging Company Marketplace ("AMEX ECM") under the symbol "BGI.EC". As of
January 22, 1999, the last reported sales price of the Besicorp Common Stock was
$29 5/16. See "Market Information Regarding Besicorp Common Stock."
This Proxy Statement is dated February ___, 1999 and is, along with the
accompanying form of proxy, first being distributed to the shareholders of
Besicorp on or about such date. Accompanying this Proxy Statement, but not part
of the proxy soliciting materials are the following documents (without
exhibits): (i) Annual Report on Form 10-KSB for the fiscal year ended March 31,
1998, as amended, (ii) the Quarterly Report on Form 10-QSB for the period ended
September 30, 1998, as amended, (iii) the Current Reports (as defined) and (iv)
the June Quarterly Report (as defined).
AVAILABLE INFORMATION
Besicorp is required by the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to file certain reports and documents with the Securities
and Exchange Commission (the "SEC"). These reports and documents may be
inspected and copied at the public reference
<PAGE>
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and are available for inspection and
copying at the public reference facilities maintained by the regional offices of
the SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such information can be obtained by mail from the Public
Reference Section of the SEC, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Besicorp Common Stock is listed on the
American Stock Exchange Emerging Company Marketplace under the symbol "BGI.EC".
Reports, proxy and information statements, and other information concerning
Besicorp can also be inspected at the American Stock Exchange at 86 Trinity
Place, New York, New York 10006.
The SEC maintains a World Wide Web site that contains reports and
documents regarding Besicorp. The address of the SEC's web site is
http:\\www.sec.gov.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
PAGE
SUMMARY..................................................................................................
The Parties.....................................................................................
The Special Meeting.............................................................................
The Merger Consideration .......................................................................
Record Date; Quorum; Vote Required..............................................................
Background of the Merger........................................................................
Recommendation of Besicorp's Board of Directors.................................................
Opinion of Financial Advisor....................................................................
Interests of Executive Officers and Directors in the Merger.....................................
Conditions of the Merger........................................................................
Termination.....................................................................................
Effective Date; Cancellation of Stock Certificates; and
Receipt of Merger Consideration ...........................................................
Dissenters' Rights..............................................................................
Material Federal Income Tax Consequences........................................................
Spin-Off........................................................................................
Trading Market for and Market Price of Besicorp Common Stock....................................
VOTING AT THE SPECIAL MEETING............................................................................
Introduction....................................................................................
Time, Date and Place of Meeting.................................................................
Record Date; Vote Required......................................................................
Quorum..........................................................................................
Solicitation, Revocation and Use of Proxies.....................................................
Dissenters' Rights..............................................................................
FACTORS TO BE CONSIDERED.................................................................................
Purposes and Effects of the Merger .............................................................
Background of the Merger .......................................................................
Recommendation of the Board of Directors; Fairness of the Merger ...............................
Opinion of Financial Advisor....................................................................
Partial Liquidation Alternative .......................................................
Reinvestment Alternative...............................................................
Price Volume Trading History...........................................................
Interests of Executive Officers and Directors in the Merger.....................................
Certain Effects of the Merger...................................................................
Material Federal Income Tax Consequences........................................................
Regulatory and Other Approvals..................................................................
<PAGE>
PLAN OF MERGER...........................................................................................
The Merger......................................................................................
Merger Consideration............................................................................
Representations and Warranties..................................................................
Certain Covenants...............................................................................
Conduct of Business Pending the Merger.................................................
Acquisition Proposals..................................................................
Indemnification .......................................................................
Conditions to the Merger........................................................................
Financing Condition ...................................................................
Other Conditions to the Merger ........................................................
Termination ....................................................................................
Right to Terminate ....................................................................
Remedies ..............................................................................
Damages ...............................................................................
INDEMNIFICATION AGREEMENT................................................................................
ESCROW AGREEMENT.........................................................................................
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS...................................................
EFFECT ON OPTIONS, WARRANTS AND RESTRICTED STOCK.........................................................
FEES AND EXPENSES........................................................................................
UNAUDITED PRO FORMA FINANCIAL INFORMATION................................................................
BUSINESS OF THE COMPANY..................................................................................
Background .....................................................................................
Power Plant Activities - Recent Developments ...................................................
Photovoltaic Activities ........................................................................
Employees ......................................................................................
Properties......................................................................................
Legal Proceedings...............................................................................
Security Ownership of Certain Beneficial Owners and Management..................................
MARKET INFORMATION REGARDING BESICORP COMMON STOCK.......................................................
<PAGE>
THE SPIN-OFF.............................................................................................
Background......................................................................................
The Contribution................................................................................
The Spin-Off....................................................................................
Conditions to the Spin-Off......................................................................
INFORMATION REGARDING ACQUISITION AND MERGER SUB.........................................................
OTHER MATTERS............................................................................................
ANNUAL MEETING OF STOCKHOLDERS...........................................................................
INDEPENDENT PUBLIC ACCOUNTANTS...........................................................................
INCORPORATION BY REFERENCE...............................................................................
Annex A-1 -- Initial Plan of Merger
Annex A-2 -- Amendment No. 1 to the Agreement and Plan of Merger
Annex B -- Fairness Opinion of Josephthal & Co., Ltd.
</TABLE>
<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Proxy Statement or incorporated herein by reference. Because this is a summary,
it does not contain all the information that may be important to you. You should
read the entire Proxy Statement and its annexes carefully before you decide
whether to vote your shares in favor of the Plan of Merger. Capitalized terms
used without being defined herein shall have the meanings ascribed to such terms
by the Plan of Merger.
THE PARTIES
Besicorp Group Inc., a New York corporation ("Besicorp" or the
"Company"), is engaged in the development of independent power plants and the
development, assembly, manufacture, marketing and resale of photovoltaic
products and systems. Besicorp's principal executive offices are located at 1151
Flatbush Road, Kingston, New York 12401, (914) 336- 7700. See "Business of the
Company."
BGI Acquisition LLC ("Acquisition") is a limited liability company
organized in Wyoming. BGI Acquisition Corp. ("Merger Sub") is a New York
corporation and a wholly owned subsidiary of Acquisition. Merger Sub and
Acquisition have not carried on any activities, other than in connection with
the Merger. Acquisition is wholly owned by Lion Gate, LLC, a limited liability
company organized under the laws of the British Virgin Islands. Lion Gate, LLC
is significantly engaged in the business of trading and investments. The sole
member of Lion Gate, LLC is Mr. Thamer Bin Saeed Al-Shanfari, a citizen of the
Sultanate of Oman. See "Information Regarding Acquisition and Merger Sub."
THE SPECIAL MEETING
The special meeting (the "Special Meeting") of the shareholders of
Besicorp will be held at 9:00 a.m. (local time) on February _____, 1999, at
_________________________________ New York.
The Special Meeting will be held to permit holders of shares of
Besicorp Common Stock to vote upon a proposal to adopt the Plan of Merger, a
copy of which is attached hereto as Annex A. The Plan of Merger provides for the
merger of Merger Sub with and into Besicorp and contemplates that prior to the
consummation of the Merger, Besicorp will distribute to its shareholders on a
pro rata basis all of the shares of Newco Common Stock. Newco at such time will,
among other things, own Besicorp's photovoltaic and independent power plant
development businesses and have assumed essentially all of Besicorp's
liabilities and obligations other than the Permitted Liabilities for which the
Surviving Corporation remains liable.
<PAGE>
THE MERGER CONSIDERATION
If the Plan of Merger is adopted and the Merger consummated, each share
of Besicorp Common Stock issued and outstanding immediately prior to the
Effective Date (as defined) will be converted into the right to receive $34.50
in cash (subject to upward adjustment if the Base Amount exceeds $105,275,000,
as described herein and in the Plan of Merger), without any interest thereon.
See "Plan of Merger -- Merger Consideration." It is anticipated that if there is
any upward adjustment, such adjustment will not exceed approximately $4.00 per
share. There will not be a downward adjustment to the Merger Consideration;
however, no assurance can be given that there will be any upward adjustment to
the Merger Consideration.
The Base Amount is determined pursuant to the following formula:
The Base Amount is basically:
(A) the sum of:
(i) $500,000,
(ii) the claimed tax refund for fiscal year 1998 (but only up
to $3,903), (iii) Besicorp's cash and cash equivalents as of
the Effective Date, (iv) .9975 multiplied by the price of a
share of Niagara Mohawk Common Stock as of the Closing Date
multiplied by the number of shares of Niagara Mohawk Common
Stock held by Besicorp as of the Effective Date (not to exceed
50,000 shares), and (v) the liabilities of Besicorp or any
Remaining Subsidiary for unpaid federal income taxes for the
current fiscal year through the Effective Date multiplied by
.8357, less
(B) the sum of:
(i) all liabilities of Besicorp or a Remaining Subsidiary
(excluding certain state income tax and certain intercompany
liabilities) determinable as of the Effective Date; (ii) an
estimate of all Damages, and certain other damages; and (iii)
transfer and similar taxes incurred in connection with the
Transactions, assuming the prior establishment of the Escrow
Fund.
As an example, on January 25, 1999, based on the most recent
ascertainable financial information, Besicorp estimates that the Base Amount
would have equaled $116,058,689. Since this exceeds $105,275,000 by $10,783,189,
there would be an upward adjustment of $10,783,189 divided by 3,051,435 (the
number of shares of Besicorp Common Stock on a fully diluted basis which is
assumed to be outstanding as of the Effective Date), or $3.53 per share of
Besicorp Common Stock so that the Merger Consideration would equal $38.03. The
aggregate amount of
<PAGE>
the payment to be made by Acquisition pursuant to the Plan of Merger equals the
Merger Consideration multiplied by the number of shares of Besicorp Common Stock
outstanding immediately prior to the Effective Date. This aggregate amount
cannot be determined at present. However, assuming that there are 3,051,435
shares outstanding, this amount shall be no less than $105,275,000 and in the
above example would amount to $116,058,689. The aggregate amount is not likely
to be much greater than $116,998,997.50.
In order to determine whether there will be an adjustment to the Merger
Consideration, Besicorp is required no later than twenty days prior to Closing
to deliver to Buyer a statement (the "Statement") setting forth the components
of the Base Amount. Buyer shall notify Besicorp of its acceptance or rejection
of the Statement within five days of receipt. In the event that Buyer rejects
the statement and Besicorp and Buyer are unable to reach an agreement on the
Statement within three days prior to the closing of the Merger (the "Closing"),
the Plan of Merger will be deemed terminated. It is the intent of the parties to
hold the Closing immediately following the Special Meeting; therefore, it is
anticipated that the Statement shall have been finalized prior to the Special
Meeting and the amount of the upward adjustment, if any, will have been
determined prior to such Special Meeting. See "Plan of Merger -- Merger
Consideration."
RECORD DATE; QUORUM; VOTE REQUIRED
Only holders of record of Besicorp Common Stock as of the close of
business on February 3, 1999 (the "Record Date") will be entitled to notice of
and to vote at the Special Meeting. On the Record Date, 3,038,935 shares of
Besicorp Common Stock were outstanding.
The presence, in person or by proxy, of the holders of a majority of
the shares of Besicorp Common Stock outstanding on the Record Date is required
to constitute a quorum at the Special Meeting. See "Voting at the Special
Meeting -- Quorum." Shareholders of record on the Record Date are entitled to
one vote per share on any matter which may properly come before the Special
Meeting. For the Plan of Merger to be adopted, holders of at least 66 2/3% of
the shares of Besicorp Common Stock outstanding as of the Record Date must vote
in its favor. Abstentions and broker-non-votes will have the effect of votes
against the Plan of Merger. Abstentions, but not broker non-votes, will be
counted in determining the presence of a quorum. If the shareholders do not
adopt the Plan of Merger, the Merger, in its current form, will not be
consummated. See "Plan of Merger -- Conditions to the Merger."
As of the Record Date, the executive officers and directors of Besicorp
owned an aggregate of 1,598,707 shares of Besicorp Common Stock, representing
52.6% of the outstanding shares of Besicorp Common Stock without giving effect
to shares (the "Conversion Shares") issuable upon exercise or conversion of
options, warrants or other outstanding rights to acquire Besicorp Common Stock
(the "Rights"). None of the Conversion Shares will be eligible to vote at the
Special Meeting. See "Factors to be Considered - Interests of Executive Officers
and Directors in the Merger." In addition, as of the Record Date, The Zinn
Family Charitable Trust (the "Trust") established by Michael F. Zinn, the
Chairman of the Board, President and
<PAGE>
Chief Executive Officer of Besicorp, owned 126,984 shares of Besicorp Common
(Mr. Zinn disclaims beneficial ownership of these shares). See "Business of the
Company--Security Ownership of Certain Beneficial Owners and Management."
Accordingly, the favorable vote of only 300,266 shares (in addition to the
shares owned by the executive officers and directors and the Trust, all of whom
intend to vote such shares in favor of adopting the Plan of Merger) of Besicorp
Common Stock is required for adoption of the Plan of Merger by Besicorp's
shareholders. See "Voting at the Special Meeting -- Record Date; Vote Required"
and "Plan of Merger -- Termination -- Damages."
BACKGROUND OF THE MERGER
Besicorp had, until recently, ownership interests (the "Partnership
Interests") in five domestic power plants (the "Power Plants") which, pursuant
to power purchase agreements (the "Power Purchase Agreements"), provided
capacity and electrical power to Niagara Mohawk Power Corporation ("Niagara
Mohawk"). On or about October 1995, Niagara Mohawk announced its intention to
renegotiate the Power Purchase Agreements and similar agreements it had with
other independent power producers. As a result of these negotiations, the
partnerships (the "Partnerships") which owned the Power Plants, Niagara Mohawk
and certain other independent power producers entered into a Master
Restructuring Agreement (the "MRA") in July 1997, which became effective on June
30, 1998, which provided for, among other things, the termination or
restructuring of the Power Purchase Agreements. In connection therewith,
Besicorp has received through September 30, 1998, among other things, common
stock of Niagara Mohawk (the "Niagara Mohawk Common Stock") with a value of
approximately $69 million at June 30, 1998 and net cash of approximately $59
million, $8 million of which is subject to certain reserves. Anticipating, among
other things, that (i) the proceeds to be received as a result of the MRA would
substantially exceed the operating and projected operating needs of Besicorp's
remaining businesses, and (ii) after the termination of these Power Purchase
Agreements, the power generated by the Power Plants could not be sold
profitably, Besicorp, in March, 1997, retained PaineWebber, and, after such
relationship was terminated as of November 1997 by PaineWebber (PaineWebber
having discontinued the department representing Besicorp), retained Josephthal &
Co., Inc. ("Josephthal") in December, 1997, to assist Besicorp in formulating
and consummating a strategy or transaction to maximize the value of the MRA to
Besicorp's shareholders and in February 1998, the Partnerships retained
Josephthal to sell the Power Plants. The Power Plants were sold in November and
December 1998 and Besicorp will receive net proceeds of approximately $10.7
million as a result of such sales.
The proceeds of the MRA and the sale of the Power Plants far exceed
Besicorp's requirements for its remaining businesses (i.e., the photovoltaic
business and its independent power plant development business (the "Continuing
Businesses")); moreover, in management's opinion, the risks associated with
reinvesting the after-tax proceeds (the "Proceeds") from the MRA and the Power
Plant sales in such businesses exceed the benefits that could potentially be
realized from such reinvestment.
<PAGE>
Since investing the Proceeds in the Continuing Businesses would
constitute a risky investment, Besicorp concluded it would be preferable, and
safer from the perspective of the shareholders of Besicorp, not to invest the
Proceeds (other than the approximately $1 million to $2 million Besicorp
currently anticipates contributing to Newco in connection with the Spin-Off) in
the Continuing Businesses. Therefore, Besicorp considered how best to go forward
with the Continuing Businesses that in management's estimate would not be likely
to generate significant profits, if any, for the next several years and with the
cash and shares of Niagara Mohawk Common Stock that Besicorp received as
proceeds of the MRA and the sale of the Power Plants.
Besicorp concluded that in light of the fact that its experience was
principally in developing and managing independent power plants and the solar
power business (the "Historical Company Businesses"), it would be inappropriate
to invest the remainder of the Proceeds in a business new to Besicorp (i.e.,
businesses unrelated to the Historical Company Businesses) in which Besicorp had
no experience. Besicorp concluded it would focus primarily on the continued
development and marketing of its photovoltaic products and systems and on the
development of independent power plants.
Besicorp concluded, after considering various alternatives, and
soliciting both cash and non-cash bids for Besicorp, that the sale of Besicorp
(other than the Continuing Businesses), for cash would be more beneficial to its
shareholders than any other viable alternative. This ultimately led Besicorp to
decide to effectuate the spin-off of these businesses to its shareholders
pursuant to the Spin-Off, and by entering into the Plan of Merger, to seek to
maximize the return to Besicorp's shareholders on the Proceeds.
On behalf of Besicorp, Josephthal contacted approximately 40 different
entities to discuss their interest in pursuing some type of transaction with
Besicorp such as purchasing substantially all of its assets or making a tender
offer for all of the Besicorp Common Stock. As a result of Josephthal's efforts
a transaction between Besicorp and Acquisition was proposed. From late August
through early September 1998, Besicorp and Acquisition exchanged proposed forms
of a letter of intent. During the months of September through November 1998,
representatives of Besicorp and Acquisition met numerous times and held
discussions by telephone to negotiate the terms and conditions of a plan of
merger, drafts of which were circulated from time to time. See "Factors to be
Considered -- Background of the Merger."
<PAGE>
RECOMMENDATION OF BESICORP'S BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF BESICORP HAS UNANIMOUSLY DETERMINED THAT THE
PLAN OF MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, BESICORP AND ITS
SHAREHOLDERS. THE BOARD OF DIRECTORS OF BESICORP UNANIMOUSLY RECOMMENDS ADOPTION
OF THE PLAN OF MERGER BY BESICORP'S SHAREHOLDERS. For a discussion of the
factors considered by Besicorp's Board of Directors in adopting the Plan of
Merger, see "Factors to be Considered."
OPINION OF FINANCIAL ADVISOR
Josephthal has delivered to the Board of Directors of Besicorp a
written opinion dated November 20, 1998, to the effect that, as of the date of
such opinion and based upon and subject to certain matters stated therein, the
Merger Consideration (assuming that the merger consideration is $34.50 per
share) was fair, from a financial point of view, to the holders of Besicorp
Common Stock. The full text of the written opinion of Josephthal which sets
forth the assumptions made, matters considered and limitations on the review
undertaken, is attached as Annex B to this Proxy Statement and should be read
carefully in its entirety. THE OPINION OF JOSEPHTHAL IS DIRECTED TO THE BOARD OF
DIRECTORS OF BESICORP AND RELATES ONLY TO THE FAIRNESS OF THE MERGER
CONSIDERATION FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT
OF THE MERGER (INCLUDING, WITHOUT LIMITATION, THE SPIN-OFF AND ITS EFFECT ON THE
MERGER CONSIDERATION) OR ANY RELATED TRANSACTIONS, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE HIS
SHARES AT THE SPECIAL MEETING. A PORTION OF JOSEPHTHAL'S COMPENSATION IS
CONTINGENT UPON THE CONSUMMATION OF THE MERGER. See "Factors to Be Considered --
Opinion of Financial Advisor."
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
Michael F. Zinn, Michael J. Daley and Frederic Zinn, executive officers
of Besicorp, will be paid bonuses of $1,000,000, $500,000 and $500,000,
respectively, by Besicorp immediately before the consummation of the Merger.
The Board and a committee thereof have as of November 1998 taken action
(1) allowing the executive officers and directors who hold unvested Rights to
acquire Besicorp Common Stock, to exercise such Rights currently, and to permit
such persons to participate in the Spin-Off and the Merger and (2) removing the
forfeiture provisions from directors' and executive officers'
<PAGE>
restricted shares of Besicorp Common Stock (e.g., Besicorp Common Stock that
would be forfeited if the holder thereof ceases to be employed (including
service as a director) by Besicorp upon the consummation of the Merger).
Immediately before the Closing, Besicorp is required to deposit $6
million (the "Escrow Fund") into an escrow account pursuant to the escrow
agreement provided for by the Plan of Merger and as more fully described herein
(the "Escrow Agreement"). See "Plan of Merger Escrow Agreement." A portion of
the Escrow Fund may be used, among other things, to satisfy or defend certain
claims made against officers and directors of Besicorp. The Surviving
Corporation's certificate of incorporation and by-laws following the Merger will
continue, subject to certain limitations, to provide for the indemnification of
Besicorp's officers and directors in a manner consistent with the provisions of
such charter documents as in effect at the Effective Date (as defined
hereafter). See "Plan of Merger - Certain Covenants: Indemnification." Besicorp
will, prior to the Effective Date, procure officers' and directors' liability
insurance covering certain persons including current officers and directors. The
consummation of the Merger may adversely affect certain shareholder derivative
law suits (which have previously been dismissed although such dismissals are
being appealed) pending against certain of Besicorp's officers and directors. It
is anticipated that the directors and executive officers of Besicorp will serve
Newco in capacities in which they currently serve Besicorp and that they will be
compensated for the services they render on behalf of Newco. Aside from the
foregoing, and the shares of Newco Common Stock that the executive officers and
directors will be entitled to receive in the Spin-Off as shareholders of
Besicorp Common Stock, the executive officers and directors will receive no
benefits as a result of the Spin-Off. See "Factors to be Considered - Interests
of Executive Officers and Directors in the Merger," "Plan of Merger - Escrow
Agreement" and "Business of the Company Legal Proceedings."
CONDITIONS TO THE MERGER
Besicorp and Buyer are only obligated to complete the Merger, if, among
other things, the Plan of Merger is adopted by the shareholders of Besicorp. The
Merger also is subject to certain other closing conditions, including the
occurrence of the Spin-Off and Merger Sub's having received the Financing, that
may be waived by the parties, subject to applicable law and certain limitations
imposed by the Plan of Merger. Besicorp does not presently intend to waive any
such conditions although it reserves the right to do so. If Besicorp were to
waive a material condition, either before or after the Special Meeting, Besicorp
intends to notify the holders of Besicorp Common Stock and seek the
shareholders' approval of such waiver before consummating the Merger. See "Plan
of Merger -- Conditions to the Merger."
<PAGE>
TERMINATION
The Plan of Merger may be terminated and the Merger abandoned at any
time prior to the Effective Date by mutual written consent of Besicorp and
Buyer, or by either Besicorp or Buyer in certain other circumstances, in
accordance with the termination provisions of the Plan of Merger. Upon
termination of the Plan of Merger, depending upon the circumstances surrounding
the termination, Besicorp may be obligated to reimburse Buyer for its
out-of-pocket costs and expenses reasonably incurred and due to third parties in
connection with the Plan of Merger and the Transactions (collectively, "Covered
Expenses"), up to $600,000, and, in certain circumstances, also pay to Merger
Sub $3.5 million (the "Termination Payment"). See "Plan of Merger --
Termination."
EFFECTIVE DATE; CANCELLATION OF STOCK CERTIFICATES; AND RECEIPT OF
MERGER CONSIDERATION
Under the Plan of Merger, the required filing of the Certificate of
Merger is expected to be made as soon as practicable after the satisfaction or
waiver of all conditions to the Merger, including the adoption of the Plan of
Merger by the shareholders of Besicorp at the Special Meeting. The Merger will
be effective as of the date of filing of the Certificate of Merger with the
Secretary of State of the State of New York in accordance with the New York
Business Corporation Law (the "BCL") or at such later time as provided in such
Certificate of Merger (the "Effective Date") and as a result thereof the shares
of Besicorp Common Stock will be converted into the right to receive the Merger
Consideration. Promptly thereafter, Continental Stock Transfer & Trust Co.,
Besicorp's transfer agent, or such other person designated by the parties prior
to the Effective Date as the paying agent (the "Paying Agent"), will notify
Besicorp's shareholders of the consummation of the Merger and will provide the
shareholders with, among other things, the forms of documents (the "Letter of
Transmittal") needed to exchange their shares of Besicorp Common Stock for the
Merger Consideration. DO NOT SURRENDER YOUR CERTIFICATES OF BESICORP COMMON
STOCK UNTIL YOU RECEIVE AND COMPLETE SUCH LETTER OF TRANSMITTAL. See "Plan of
Merger -- The Merger."
DISSENTERS' RIGHTS
Besicorp's shareholders will not have any right to dissent from the
Merger and demand appraisal rights in connection with the Merger because under
Section 910(1)(A)(iii) of the BCL, such rights are not available to the
shareholders of a New York corporation if the corporation's stock is listed on a
national securities exchange, as are the shares of Besicorp Common Stock. See
"Voting at the Special Meeting -- Dissenters' Rights."
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Each Besicorp shareholder will generally recognize gain or loss, for
federal income tax purposes, in an amount equal to the difference between the
amount of cash received by such shareholder for his or her shares of Besicorp
Common Stock pursuant to the Merger and the adjusted tax basis in such shares.
In addition, holders of Besicorp Common Stock at the record date for the
Spin-Off will generally receive dividend income equal to the value of the shares
of Newco Common Stock (which has not yet been determined, but will be determined
by the Board before the Spin-Off and is estimated to range from approximately
$.82 to $1.15 per share of Besicorp Common Stock) or the amount of cash or both
received by such holder pursuant to the Spin-Off. Additional information
concerning the tax consequences of the Spin-Off will be provided in the
Information Statement that will be sent to shareholders of Besicorp at or about
the Effective Date of the Merger.
Management is not aware of any material claims of Besicorp's creditors
other than (i) claims arising out of the legal proceedings described under
"Business of the Company -- Legal Proceedings" and (ii) accrued unpaid federal
income taxes for the current fiscal year of Besicorp through the Effective Date
and the liability of Besicorp and/or its Subsidiaries for New York State income
taxes for Besicorp's current fiscal year. If the Surviving Corporation is not
able to discharge any claims of creditors existing at the Effective Date, it is
possible that creditors (including the taxing authorities) may seek to bring
claims against persons who were shareholders of Besicorp immediately prior to
the Effective Date of the Merger by asserting that such shareholders are subject
to transferee liability. Though management believes that it is unlikely that
such claims would be successful, if any such claims were successful, the net
benefit received by such shareholders from the Merger Consideration and the
Spin-Off could be materially reduced. The law firm of Coudert Brothers has
rendered an opinion, subject to the qualifications and limitations set forth
therein, to the effect that, if any such claims were to be made by the Internal
Revenue Service, it is more likely than not that Besicorp's shareholders would
not be liable as transferees for Besicorp's U.S. federal income tax liability
for the current year solely as a result of the receipt of the Merger
Consideration.
Besicorp's shareholders should read carefully the discussion under
"Factors to Be Considered -- Material Federal Income Tax Consequences" and are
urged to consult their own tax advisors as to the tax consequences of the Merger
to them under federal, state, local or any other applicable law.
SPIN-OFF
Besicorp will authorize the distribution of the Newco Common Stock (or
cash in lieu of fractional shares of Newco Common Stock) to persons who are
shareholders of Besicorp as of the record date for the Spin-Off (the "Spin-Off
Record Date"), which is expected to be the same
<PAGE>
day as the Effective Date. At the time of the Spin-Off, Newco will own, among
other things, Besicorp's photovoltaic and independent power plant development
businesses and all of Besicorp's assets other than Besicorp's cash (except for
$1 million to $2 million which Besicorp will contribute to Newco), securities
owned by Besicorp (including the shares of Niagara Mohawk Stock), certain
subsidiaries, the Corporate Headquarters (which Newco will lease) and certain
other assets with a face value of approximately $1.1 million and will have
assumed essentially all of Besicorp's liabilities and obligations, other than
the Permitted Liabilities for which the Surviving Corporation remains liable.
The Information Statement that will be sent to Besicorp's shareholders in
conjunction with the Spin-Off will contain additional information regarding the
Spin-Off and Newco. See "The Spin-Off."
TRADING MARKET FOR AND MARKET PRICE OF BESICORP COMMON STOCK
Set forth below are the high and low sales prices as reported on the
AMEX ECM for the periods indicated.
Fiscal Year Ended March 31,
High Low
---------- ----------
1997 First Quarter $ 16 $ 11-3/4
Second Quarter 14-3/4 10
Third Quarter 15-1/8 11-1/4
Fourth Quarter 20-7/8 12-1/4
1998 First Quarter $ 21-1/2 $ 15-1/8
Second Quarter 40 19-7/8
Third Quarter 36-15/16 30-3/4
Fourth Quarter 35-1/2 23-5/8
1999 First Quarter $ 39-1/2 $ 26-1/16
Second Quarter 40 29-3/4
Third Quarter 36-3/4 29-7/8
Fourth Quarter 31-5/16 29-5/16
(through January
22, 1999)
On November 20, 1998, the business day immediately prior to the date of
public announcement of the Board's adoption of the Initial Plan of Merger, the
last reported sales price
<PAGE>
of the Besicorp Common Stock was $32-7/8. As of January 22, 1999, the last
reported sales price of the Besicorp Common Stock was $29-5/16. See "Market
Information Regarding Besicorp Common Stock."
VOTING AT THE SPECIAL MEETING
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Besicorp for the Special Meeting. At the
Special Meeting, the shareholders of Besicorp will consider and vote on a
proposal to adopt the Plan of Merger.
TIME, DATE AND PLACE OF MEETING
The Special Meeting will be held at 9:00 a.m. (local time) on February
_____, 1999 at ____________________________________, New York.
RECORD DATE; VOTE REQUIRED
The Record Date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting is February 3, 1999. Accordingly,
only shareholders of record of Besicorp at the close of business on the Record
Date have the right to receive notice of and to vote at the Special Meeting and
any postponement or adjournment thereof and each such shareholder will be
entitled to one vote for each share of Besicorp Common Stock held of record on
the Record Date. As of the Record Date, there were 3,038,935 shares of Besicorp
Common Stock outstanding.
Under the BCL, the affirmative vote of holders of at least 66 2/3% of
the shares of Besicorp Common Stock outstanding as of the Record Date is
required to adopt the Plan of Merger. Accordingly, abstentions and broker
non-votes will have the effect of votes against the Plan of Merger and
abstentions, but not broker non-votes, will be counted in determining the
presence of a quorum.
As of the Record Date, the executive officers and directors of Besicorp
owned an aggregate of 1,598,707 shares of Besicorp Common Stock, representing
52.6% of the outstanding shares of Besicorp Common Stock without giving effect
to the Conversion Shares issuable upon exercise or conversion of Rights. None of
the Conversion Shares will be eligible to vote at the Special Meeting. See
"Factors to be Considered - Interests of Executive Officers and Directors in the
Merger." In addition, as of the Record Date, The Zinn Family Charitable Trust
<PAGE>
(the "Trust") established by Michael F. Zinn, the Chairman of the Board,
President and Chief Executive Officer of Besicorp, owned 126,984 shares of
Besicorp Common (Mr.. Zinn disclaims beneficial ownership of these shares). See
"Business of the Company--Security Ownership of Certain Beneficial Owners and
Management." Accordingly, the favorable vote of only 300,266 shares (in addition
to the shares owned by the executive officers and directors and the Trust, all
of whom intend to vote such shares in favor of adopting the Plan of Merger) of
Besicorp Common Stock is required for adoption of the Plan of Merger by
Besicorp's shareholders. See "Plan of Merger -- Termination -- Damages."
The Board of Directors of Besicorp unanimously determined on November
20, 1998 and January 28, 1999, that the Plan of Merger is fair to, and in the
best interests of, Besicorp and its shareholders. The Board of Directors of
Besicorp unanimously adopted the Plan of Merger and recommends adoption of the
Plan of Merger by Besicorp's shareholders. The Board of Directors of Merger Sub
and the board of managers of Acquisition, as the sole shareholder of Merger Sub
and on behalf of Acquisition, have adopted the Merger and the Plan of Merger.
QUORUM
Under the BCL and Besicorp's by-laws, the presence in person or by
properly executed proxy of holders of a majority of the issued and outstanding
shares of Besicorp Common Stock is required to constitute a quorum at the
Special Meeting.
SOLICITATION, REVOCATION AND USE OF PROXIES
Shares of Besicorp Common Stock represented by a properly executed
proxy received by Besicorp will, unless such proxy is properly revoked prior to
the Special Meeting, be voted at the Special Meeting in accordance with the
instructions thereon. SHARES OF BESICORP COMMON STOCK REPRESENTED BY PROPERLY
EXECUTED PROXIES THAT DO NOT CONTAIN INSTRUCTIONS TO THE CONTRARY WILL BE VOTED
FOR ADOPTION OF THE PLAN OF MERGER AND IN THE DISCRETION OF THE PROXY HOLDER AS
TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF. However, shares of Besicorp Common Stock
represented by properly executed proxies which vote against the adoption of the
Plan of Merger shall not be voted for any adjournment or postponement in order
to continue to solicit proxies to adopt the Plan of Merger.
The Board knows of no business that will be presented for consideration
at the Special Meeting other than the proposal to adopt the Plan of Merger. If
other matters should properly come before the Special Meeting, the proxy holders
will vote on such matters in accordance with their best judgments. Proxies are
being solicited hereby on behalf of the Board.
<PAGE>
Any shareholder of record may revoke his or her proxy at any time
before it is voted by executing and delivering to the Secretary of Besicorp, at
Besicorp's principal executive offices as set forth under "Summary -- The
Parties", an instrument of revocation or a proxy bearing a later date, and by
delivering a written notice to the Secretary of Besicorp stating that the proxy
is revoked, or by voting in person at the Special Meeting.
The cost of soliciting proxies, including the cost of preparing,
assembling, printing and mailing this Proxy Statement, the Proxy and any
additional materials furnished to shareholders, will be borne by Besicorp.
Arrangements will be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxies and proxy materials to the beneficial owners of
stock, and such persons may be reimbursed for their expenses. Proxies may be
solicited by directors, officers or employees of Besicorp in person or by
telephone, telegram or other means. No additional compensation will be paid for
these services other than for their out-of-pocket expenses (which it is
anticipated will be nominal) incurred in connection therewith.
DISSENTERS' RIGHTS
Some states allow shareholders of corporations that are involved in a
merger to dissent from such merger, in which case, generally, a court determines
(i.e., appraises) the value of their shares which such shareholders are entitled
to receive in lieu of accepting the payment provided by the agreement or plan of
merger. Besicorp's shareholders will not have this appraisal right in connection
with the Merger because, under Section 910(1)(A)(iii) of the BCL, such rights
are not available to the shareholders of a New York corporation if the
corporation's stock is listed on a national securities exchange, as are the
shares of Besicorp Common Stock.
FACTORS TO BE CONSIDERED
PURPOSES AND EFFECTS OF THE MERGER
Besicorp had, until recently, Partnership Interests in five Power
Plants which, pursuant to the Power Purchase Agreements, provided capacity and
electrical power to Niagara Mohawk. The Partnerships which owned the Power
Plants, Niagara Mohawk and certain other independent power producers entered
into the MRA in July 1997, which became effective on June 30, 1998, and which
provided for, among other things, the termination or restructuring of the Power
Purchase Agreements. In connection therewith, Besicorp has received through
September 30, 1998, among other things, Niagara Mohawk Common Stock with a value
of approximately $69 million at June 30, 1998 and net cash of approximately $59
million, $8 million of which is subject to certain reserves. See "-- Background
of the Merger" and "Business of the Company." As a result of the MRA, the
Partnerships no longer had customers for the electric power and capacity
generated by the Power Plants and, accordingly, sold the Power Plants in
November and
<PAGE>
December 1998 which will result in Besicorp receiving net proceeds of
approximately $10.7 million from such sales. The proceeds of the MRA and the
sale of the Power Plants far exceed Besicorp's requirements for its remaining
businesses (i.e., the photovoltaic business and its independent power plant
development business (the "Continuing Businesses"); moreover, in management's
opinion, the risks associated with reinvesting the after-tax proceeds (the
"Proceeds") from the MRA and the Power Plant sales in such businesses exceed the
benefits that could potentially be realized from such reinvestment. This
conclusion was based upon the following considerations. First, since independent
power development businesses generally generate significant revenues and profits
only after plants become operational, but Besicorp's other power project
initiatives were in very early stages, it was, in management's estimate,
unlikely that Besicorp would be significantly profitable during the next several
years. Second, Besicorp's competitors would continue to have greater resources
than Besicorp. Third, the photovoltaic business had historically incurred losses
and there could be no assurance (because of the historical operating losses and
competitive nature of such business) that the application of the Proceeds would
lead to profitability. Fourth, the Proceeds far exceeded the amount that could
be prudently be reinvested in the Continuing Businesses over the next few years.
See "Opinion of Financial Advisor - Reinvestment Alternative." Since investing
the Proceeds in the Continuing Businesses would constitute a risky investment,
Besicorp concluded it would be preferable, and safer from the perspective of the
shareholders of Besicorp, not to invest the Proceeds (other than the
approximately $1 million to $2 million Besicorp currently anticipates
contributing to Newco in the Spin-Off) in the Continuing Businesses. Therefore,
Besicorp considered how best to go forward with the Continuing Businesses that
in management's estimate would not be likely to generate significant profits, if
any, for the next several years and with the cash and shares of Niagara Mohawk
Common Stock that Besicorp received as proceeds of the MRA and the sale of the
Power Plants.
Besicorp has, through December 31, 1998, used a portion of the Proceeds
to satisfy approximately $700,322 of its outstanding indebtedness which
constitutes most of its outstanding indebtedness; however, no consideration was
given to using the Proceeds to satisfy Newco's indebtedness inasmuch as Newco
had not assumed nor intended to assume any material indebtedness and only
contemplated assuming contingent liabilities. Besicorp concluded that in light
of the fact that its experience was limited to developing and managing
independent power plants and the solar power business (the "Historical Company
Businesses"), it would be inappropriate to invest the remainder of the Proceeds
in a business new to Besicorp (i.e., businesses unrelated to the Historical
Company Businesses) in which Besicorp had no experience. Besicorp concluded it
would focus primarily on the continued development and marketing of its
photovoltaic products and systems and on the development of independent power
plants.
Therefore, Besicorp decided to sell all of Besicorp except for the
Continuing Businesses or, if appropriate, to sell all of Besicorp including the
Continuing Businesses. Prospective purchasers of Besicorp were not interested in
acquiring the Continuing Businesses. Besicorp concluded, after considering
various alternatives, and soliciting both cash and non-cash bids for
<PAGE>
Besicorp, that the sale of Besicorp (other than the Continuing Businesses), for
cash would be more beneficial to its shareholders than any other viable
alternative. This ultimately led Besicorp to decide to effectuate the spin-off
of these businesses to its shareholders pursuant to the Spin- Off, and by
entering into the Plan of Merger, to seek to maximize the return to Besicorp's
shareholders on the Proceeds.
Accordingly, the Merger is intended to maximize the return to
Besicorp's shareholders by providing them with $34.50 in cash, subject to upward
adjustment if the Base Amount exceeds $105,275,000, for each share of Besicorp
Common Stock they hold. As a result, Acquisition, through Merger Sub, will
acquire all of the outstanding shares of Besicorp Common Stock. The factors
leading to the decision by Besicorp to adopt the Merger are set forth under the
caption "-- Background of the Merger."
If the Merger is consummated, holders of Besicorp Common Stock will no
longer have any equity interest in Besicorp. Instead, each such shareholder will
receive, upon surrender of the certificate or certificates evidencing Besicorp
Common Stock, the Merger Consideration in exchange for each share of Besicorp
Common Stock owned by such shareholder immediately prior to the Effective Date.
See "-- Certain Effects of the Merger."
BACKGROUND OF THE MERGER
Besicorp had, until recently, Partnership Interests in the Power Plants
which, pursuant to the Power Purchase Agreements, provided capacity and
electrical power to Niagara Mohawk. On or about October 1995, Niagara Mohawk
announced its intention to renegotiate the Power Purchase Agreements and similar
agreements it had with other independent power producers because of, among other
things, its deteriorating financial condition and competitive conditions in the
electrical power generation industry. As a result of these negotiations, in July
1997, certain independent power producers (including the Power Plants) entered
into the MRA with Niagara Mohawk. The MRA provided for the termination or
restructuring of these power purchase agreements, including the Power Purchase
Agreements, in consideration for which the independent power producers would
receive cash or Niagara Mohawk Common Stock or a combination of both.
Recognizing that, in the aggregate, for the fiscal years ended March 31, 1997
and 1996, all of Besicorp's net income and more than 59% of its total revenues
were derived from these Power Purchase Agreements and the Partnership Interests
and anticipating, among other things, that (i) the proceeds to be received as a
result of the MRA would substantially exceed the operating and projected
operating needs of Besicorp's remaining businesses, and (ii) after the
termination of these Power Purchase Agreements, the power generated by the Power
Plants could not be sold profitably, Besicorp, in March, 1997, retained
PaineWebber which contacted more than fifty different entities to discuss their
interest in pursuing a transaction with Besicorp. (Only one entity contacted by
PaineWebber, a non-regulated subsidiary of a public utility, entered into
negotiations with Besicorp with respect to a possible
<PAGE>
transaction which negotiations were mutually terminated.) After such
relationship was terminated by PaineWebber as of November 1997 (the PaineWebber
department representing Besicorp having been discontinued), Besicorp retained
Josephthal in December, 1997, to assist Besicorp in formulating and consummating
a strategy or transaction to maximize the value of the MRA to Besicorp's
shareholders and in February 1998, the Partnerships retained Josephthal to sell
the Power Plants.
On behalf of Besicorp, Josephthal contacted approximately forty
different entities (including Acquisition or its affiliates) to discuss their
interest in pursuing some type of transaction with Besicorp such as purchasing
substantially all of its assets or making a tender offer for all of the Besicorp
Common Stock. Ultimately only three entities other than Acquisition or its
affiliates expressed serious interest but no agreement on terms and conditions
was reached with any entity other than Acquisition. An entity engaged in the
merchant power business (the "First Potential Buyer"), which had previously been
introduced to Besicorp by PaineWebber, contacted Josephthal in the fall of 1997.
These discussions ended (without being formally terminated by either party) in
or about January 1998 due to differences over the indemnities to be afforded to
such buyer and the amount required to be held in escrow by the First Potential
Buyer to satisfy Besicorp's liabilities and obligations. A private investment
group (the "Second Potential Buyer") contacted Josephthal in or about June 1998;
discussions ceased on account of a lack of interest in continuing them in August
1998 without the purchase price, the structure of a transaction or the
disposition of the Continuing Businesses having been discussed. A private
investment group (the "Third Potential Buyer") contacted Josephthal in March
1998 contemplating a cash tender offer to be followed up by a cash-out merger to
acquire shares that were not tendered. This buyer did not desire to acquire the
Continuing Businesses. These discussions were terminated by Besicorp in
September 1998 because the purchase price the Third Potential Buyer contemplated
paying (determinable in a manner similar, but not identical, to the calculation
of the Base Amount) was not as favorable to Besicorp as Acquisition's proposal.
From late August through early September 1998, Besicorp and Acquisition
exchanged proposed forms of letter of intent.
On September 10, 1998, representatives of Besicorp, Josephthal and
Acquisition met. The representatives of Besicorp present at the meeting were
Michael J. Daley, Executive Vice President and Chief Financial Officer, Joyce
DePietro, Vice President/Administration, and Frederic M. Zinn, Esq., Senior Vice
President, Secretary and General Counsel, together with Besicorp's outside
counsel. Acquisition was represented by John Huber, a representative of
Acquisition's manager, together with counsel to Acquisition and its affiliates.
Josephthal was represented by Robert Wien. At the meeting, Acquisition and
Besicorp agreed to continue to proceed with negotiating a transaction and
executed an agreement to the effect that through October 10, 1998 Besicorp would
not initiate, solicit or engage in any discussion with respect to any proposals
by third parties to acquire Besicorp, and that it would pay certain of
Acquisition's expenses, up to $200,000, if, among other things, such proposals
were solicited prior to such
<PAGE>
date. The representatives also discussed the terms and conditions of the
proposed form of Initial Plan of Merger, drafts of which had previously been
circulated and Acquisition's representatives confirmed that Acquisition was not
interested in acquiring the Continuing Businesses. This draft was expressly in a
very preliminary form and was provided by Acquisition solely as a means to set
forth in general terms a proposed structure in which Acquisition would be merged
with and into Besicorp, with Besicorp as the surviving corporation and with the
shareholders of Besicorp receiving cash for their shares. This draft also
provided for an escrow fund of $4 million and contained indemnification
provisions to be further negotiated.
From the commencement of negotiations, the parties recognized that
because of the MRA, the now-completed (but then continuing) attempt to sell the
Power Plants and Acquisition's lack of interest in acquiring the Continuing
Businesses, the Merger Consideration could not be based on historic share
prices, a multiple of earnings or a combination of the two. Instead, the
negotiations with respect to Merger Consideration and the Merger Consideration
were based on the value of the assets and liabilities that would remain in
Besicorp following the Spin-Off. Since the Merger Consideration was to be based
on the value of such assets and liabilities, it was not necessary for purposes
of the merger negotiations to value the assets that were to be contributed to
Newco since instead of being sold they would, as a result of the Spin-Off,
continue to be owned by the current shareholders of Besicorp. Nor did the
parties focus on the trading price of the Besicorp Common stock. During the
period beginning shortly before the announcement of the MRA, the Besicorp Common
Stock had traded at unexpectedly high prices that did not reflect, in the
management's opinion, Besicorp's value. The high prices appeared to reflect
unrealistic expectations about the proceeds Besicorp was likely to realize as a
result of the sale of the Power Plants and did not fully recognize the impact on
Besicorp of the consequences of the MRA and sales of the Power. Management
realized that any potential purchaser would be aware of the value of Besicorp's
assets and did not expect potential purchasers' to make offers based solely on
the unexpectedly high share prices. In addition, management believed that high
share prices overvalued the Company's value because such share prices were based
on a small trading volume.
Although at the time there was no definitive agreement on the terms of
a potential transaction, Acquisition began to conduct its due diligence
investigation of Besicorp (including the entities in which Besicorp has
ownership interests) and various representatives of Acquisition visited
Besicorp's facilities on several occasions throughout September and October
1998.
On or about October 7, 1998, Acquisition's representatives delivered a
revised draft (the "October 7 Draft") of the Initial Plan of Merger to
representatives of Besicorp. This draft reflected a number of revisions to the
initial draft based on preliminary due diligence and further discussion as to
structure. This draft also included the financing contingency required by
Acquisition and included provisions with respect to termination on behalf of
either party, as well as provisions tailoring the representations, warranties
and certain covenants more precisely to the assets that will remain as assets of
Besicorp following the completion of the transaction. The
<PAGE>
amount of the merger consideration was not further refined in this draft, nor
were the provisions with respect to escrow and indemnification fully agreed
upon.
The Board met on October 16, 1998, after having received a copy of the
October 7 Draft and a very preliminary version of a report prepared by
Josephthal with respect to its review of the proposed Merger and Initial Plan of
Merger (which preliminary report, in all material respects, paralleled the
methodologies and analyses employed by and fairness determination reached by,
Josephthal in the report delivered to the Board on November 20, 1998). The Board
reviewed and discussed at length: (i) recent developments with respect to
Besicorp (including the proceeds received from the MRA and the terms and timing
of the contemplated power plant sales); (ii) the reasons for the Merger, the
proposed nature and amount of consideration estimated to be received by
Besicorp's shareholders in the Merger and the benefits to Besicorp's
shareholders of the Merger; (iii) the limited number of potential independent
domestic power plant development projects available to Besicorp; (iv) the
competitive nature of the unregulated domestic electrical generation industry
and, in particular, limitations on Besicorp's ability to compete in the
deregulated domestic merchant power industry due to its lack of size and
capital; (v) the inability of the Power Plants to generate electrical power
profitably following the termination of the Power Purchase Agreements and the
characteristics of such plants; (vi) the timing required to negotiate and effect
a merger; (vii) that the Merger would be structured as a cash merger whereby the
shareholders of Besicorp would have the right to receive cash for each
outstanding share of Besicorp Common Stock and would have no continuing interest
in Besicorp or the Surviving Corporation; and (viii) the businesses and assets
that Acquisition was not interested in acquiring and the possibility of
distributing such assets to Besicorp's shareholders by means of a spin-off.
Josephthal reviewed with the Board alternatives to the Merger including the
Partial Liquidation Alternative (as defined below) and the Reinvestment
Alternative (as defined below) and the Board discussed such alternatives. The
Partial Liquidation Alternative consists of liquidating the Power Plants,
distributing the cash proceeds of such liquidation and the MRA to Besicorp's
shareholders, and Besicorp's continuing to develop its photovoltaic and
independent power plant development businesses. The Reinvestment Alternative
generally consists of liquidating the Power Plants, reinvesting the proceeds of
the MRA and the proceeds of the liquidation of the Power Plants and continuing
to develop Besicorp's photovoltaic and independent power plant development
businesses. See "--Opinion of Financial Advisor." The Board did not consider
formally adopting the Plan of Merger at such time because it had been advised
that the negotiations with respect thereto were continuing.
Representatives of Besicorp and Buyer met on October 19, 1998 to
negotiate the Initial Plan of Merger. The same persons participated at this
meeting as had participated at the meeting held on September 10, 1998, except
that Michael F. Zinn, Chief Executive Officer of Besicorp, also participated on
behalf of Besicorp and James Haber, President of Acquisition's manager, also
participated on behalf of Acquisition. As a result of such meeting, a draft of
the Initial Plan of Merger was prepared dated October 23, 1998. This draft
introduced a formula determination for the purchase price, to consist of a base
amount consisting of cash and cash equivalents subject to
<PAGE>
adjustment for certain liabilities and for the escrow. The dollar amounts of
the foregoing components was not set forth and was to be negotiated further.
This draft dated October 23, 1998 was followed by a draft of the Plan
of Merger dated November 10, 1998 (the "November 10 Draft"), which reflected
further negotiations of the parties and proposed formulations of a fixed merger
price (which was not specified) and a $6 million escrow. The parties
subsequently determined that the determination of a fixed purchase price prior
to the closing of the transaction was not practicable. This draft also clarified
the Acquisition financing contingency to provide that Acquisition would deliver
a copy of a letter from its lender setting forth such lender's interest in
providing financing in an amount necessary to fund the merger consideration for
the proposed transaction.
The Board met on November 12, 1998; contemporaneously with such
meeting, the November 10 Draft (including the proposed forms of escrow and
indemnification agreements) was circulated to all of the members of the Board.
The Board reviewed its deliberations of October 16, 1998 and the proposed terms
of the Merger and various provisions of the Initial Plan of Merger to be
executed in connection therewith, including the Spin-Off of the Continuing
Businesses. Josephthal presented an oral report (which paralleled in all
material respects, the methodologies and analyses employed by and fairness
determination reached by Josephthal in the report delivered on November 20,
1998) to the Board with respect to the analyses it performed in connection with
its fairness opinion and advised the Board that, subject to, among other things,
its receipt of the final version of the Initial Plan of Merger and the
qualifications and the assumptions in its report, in its opinion the value of
the consideration to be received by Besicorp's shareholders in the Merger was
fair from a financial point of view. The Board then proceeded to discuss at
length whether the Merger and Initial Plan of Merger were in the best interest
of Besicorp and its shareholders and whether the consideration to be received by
the shareholders in the Merger was fair. In connection therewith, the Board
reviewed and discussed various aspects of, and factors pertaining to, the Merger
including those they discussed on October 16, 1998 and (i) the various
provisions contained in the Initial Plan of Merger, including the financing
contingency, provisions limiting Besicorp's ability to solicit a competitive
proposal, the obligations imposed by the indemnification agreement, conditions
to the consummation of the Merger and the termination provisions (including the
fees payable to Buyer upon termination); (ii) the interests in the transaction
of Besicorp's executive officers and directors including the bonuses payable to
such persons in connection with the Merger; (iii) the facts that Besicorp, at
Acquisition's insistence, would have to contribute funds to be held in escrow,
that a portion of the Escrow Fund may be used to satisfy Besicorp's
indemnification obligations to its current executive officers and directors,
that the balance of the Escrow Funds, if any, remaining after application of the
funds for the purposes set forth in the Escrow Agreement would not be
distributed to Besicorp's shareholders but to Newco and that the November 10
Draft (but not the Plan of Merger, as it has been amended) provided the Merger
Consideration receivable with respect to 100,000 shares of Besicorp Common Stock
(the "Disputed Shares") subject to a dispute between Besicorp and a former
executive officer, to the extent it is determined that such Disputed Shares
belong to
<PAGE>
Besicorp (see "Plan of the Merger -- The Merger Consideration"), would not be
distributed to Besicorp's shareholders but to Newco; (iv) the tax consequences
to Besicorp and its shareholders of the Merger and the other transactions
contemplated by the Initial Plan of Merger; (v) the potential exposure of
Besicorp's shareholders to claims of creditors (to the extent unpaid), including
tax authorities, of Besicorp if the Merger is consummated (e.g., if a taxing
authority were to contest the Surviving Corporation's tax treatment, in light of
the Merger, of the proceeds from the MRA and the sales of the Power Plants);
(vi) alternatives to the Merger, including the Reinvestment Alternative and the
Partial Liquidation Alternative; (vii) Josephthal's oral report; and (viii) the
reasons for the Merger and the benefits to Besicorp's shareholders of the
Merger. The Board did not consider formally adopting the Plan of Merger at such
time because it was advised that negotiations were continuing with respect to
technical issues involving the Initial Plan of Merger, the escrow agreement and
the indemnification agreement.
The Board held a meeting on November 17, 1998. Contemporaneously with
such meeting, members of the Board were provided with a draft of the preliminary
proxy statement. The Board reviewed and discussed its deliberations of October
16, 1998 and November 12, 1998. The Board discussed (i) the amount to be
contributed by Besicorp to the Escrow Account and the application of the
interest payable thereon; (ii) the interests in the transaction of Besicorp's
executive officers and directors; and (iii) various provisions contained in the
Initial Plan of Merger. The Board did not consider formally adopting the Plan of
Merger at such time because it was advised that negotiations were continuing
with respect to technical issues, the plan of merger and certain ancillary
documents.
The Board met on November 20, 1998. Prior to such meeting, members of
the Board were provided with a draft dated November 19, 1998 of the Initial Plan
of Merger (including the escrow agreement and the indemnification agreement), a
revised draft of the preliminary proxy statement and a letter from Rabobank, the
Buyer's lender, stating its interest, subject to the satisfaction of certain
conditions, in providing the financing required by the Buyer. The draft of the
Plan of Merger dated November 19, 1998 was reviewed, which provided for the
merger consideration to be payable pursuant to a formula consisting of a an
initial amount (including cash and cash equivalents, a certain tax refund and a
value for the shares of Niagara Mohawk Corporation. owned by Besicorp), less
certain liabilities and an escrow in the amount of $6 million. This draft was
substantially similar to the executed final agreement. The Board was also
provided with Josephthal's written report dated November 20, 1998 (the "Fairness
Opinion") with respect to the analyses it had performed. In the Fairness
Opinion, Josephthal advised the Board that, subject to the qualifications and
assumptions in its report, in its opinion, the value of the consideration to be
received by Besicorp's shareholders in the Merger was fair from a financial
point of view. The Board reviewed with Josephthal the Fairness Opinion and the
analyses it had performed. The Board reviewed and discussed its deliberations of
October 16, 1998, November 12, 1998 and November 17, 1998. The Board then
proceeded to discuss at length whether the Merger and Initial Plan of Merger
were in the best interest of Besicorp and its shareholders and whether the
consideration to be received by the shareholders in the Merger was fair. In
<PAGE>
connection therewith, the Board reviewed and discussed various aspects of, and
factors pertaining to the Merger and the Initial Plan of Merger and the
transactions contemplated thereby including the factors and conditions
previously discussed at the prior Board meetings and additional matters
including (i) changes to the Initial Plan of Merger (the changes included
replacing a fixed purchase price plus a payment to Newco if the base amount were
to exceed a specified amount, with a Base Amount plus additional payments to
Besicorp's shareholders if such Base Amount exceeded a specified amount, as well
as a number of technical corrections), escrow agreement and indemnification
agreement from the November 10 Draft; (ii) the compensation paid and payable to
Josephthal, including the fact that a significant portion of such compensation
was contingent upon the consummation of the Merger; (iii) that Josephthal would
not be updating its Fairness Opinion; and (iv) the general terms and conditions
of the Spin-Off.
Based upon its discussions, the Board determined that in light of the
current circumstances and future prospects of Besicorp, the Merger, the Initial
Plan of Merger and the Merger Consideration were fair to and in the best
interest of Besicorp and its shareholders. The Board unanimously adopted the
Initial Plan of Merger. The Initial Plan of Merger was executed on November 23,
1998.
In January 1999, representatives of Besicorp delivered a draft of
Amendment No. 1 to the Buyer and its representatives. The material provisions of
Amendment No. 1 provide for: (i) the distribution of the proceeds of the
Disputed Shares (as defined) to the Besicorp shareholders and not Newco to the
extent a determination with respect to the ownership of such shares is made in
Besicorp's favor; and (ii) extended the date that the Merger could be terminated
from February 15, 1999 to March 1, 1999 and, at the request of Besicorp, could
be extended from March 1, 1999 to March 15, 1999 (the "Extension"); provided
that if the Merger did not close during the Extension, Besicorp would be
obligated, unless the Plan of Merger was terminated by Besicorp on account of a
breach by Buyer of Buyer's obligations pursuant to the Plan of Merger, to pay
Buyer $1.4 million (the "Extension Fee") in addition to any other amounts, if
any, Besicorp would be obligated to pay on account of the termination of the
Plan of Merger.
The Board held a meeting on January 28, 1999. Prior to such meeting,
members of the Board were provided with Amendment No. 1 and a draft, dated
January 26, 1999, of the revised preliminary proxy statement. The Board reviewed
and discussed its deliberations of October 16, 1998, November 12, 1998, November
17, 1998 and November 20, 1998. The Board then proceeded to discuss whether
Amendment No. 1 was in the best interest of Besicorp and its shareholders. In
connection therewith, the Board reviewed and discussed various aspects of, and
factors pertaining to the Merger and the Plan of Merger and the transactions
contemplated thereby as well as Amendment No. 1 including (i) the effects of
Amendment No. 1 which would provide a benefit directly to Besicorp's
shareholders to the extent it was determined that the Disputed Shares belong to
Besicorp and (ii) the Extension and Extension Fee.
<PAGE>
Based upon its discussions, the Board determined that in light of the
current circumstances and future prospects of Besicorp, the Merger, the Plan of
Merger and the Merger Consideration were fair to and in the best interest of
Besicorp and its shareholders. The Board unanimously adopted Amendment No. 1
and the Plan of Merger. Amendment No. 1 was executed on January 28, 1999.
RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE MERGER
The proposed Merger and the Plan of Merger were negotiated by Besicorp
and its representatives on an arms-length basis with Acquisition, which is a
third party unaffiliated with Besicorp or any member of the Board of Directors
or management of Besicorp. The Board has unanimously determined that the Plan of
Merger is fair to, and in the best interests of, Besicorp and its shareholders,
and unanimously recommends adoption of the Plan of Merger by Besicorp's
shareholders. The Board reached this determination after considering all of the
material factors as described above in "-- Background of the Merger." The Board
based its recommendation on the following:
(i) The Board determined that the Merger Consideration is fair
to Besicorp's shareholders. This determination was based on the
directors' assessment of Besicorp's value considering the following
factors taken as a whole: Besicorp's current and anticipated operations
and performance, the current and anticipated opportunities in the
industries in which Besicorp competes, and the analyses and Fairness
Opinion. The Board compared Josephthal's estimates of the after-tax
proceeds of approximately $30.70 of the Merger Consideration (without
giving effect to the possibility of an upward adjustment) payable with
respect to each share of Besicorp Common Stock with the after-tax
proceeds of approximately $25.38 per share from liquidating the assets
and distributing the proceeds to the shareholders. The unusually high
trading prices did not factor into the Board's determinations for the
reasons indicated above in "Factors to be Considered--Background of the
Merger."
(ii) The Board determined that the Merger is in the best
interest of Besicorp and its shareholders. In reaching such
determination the Board reviewed and analyzed alternatives to the
Merger, including the Partial Liquidation Alternative and the
Reinvestment Alternative. The Board noted that Josephthal's analyses
indicated that the Merger would produce greater after-tax proceeds to
the shareholders than the Partial Liquidation Alternative. The Board
further noted that, given the risks associated with reinvesting the
Proceeds in the Continuing Businesses, Josephthal's analysis indicated
that the consummation of the Merger and the ensuing distribution of the
Merger Consideration would produce a greater after tax return to
Besicorp's shareholders than the Reinvestment Alternative
<PAGE>
(assuming equal rates of return, although Josephthal did not give any
opinion regarding the rates of return achievable either by shareholders
or Besicorp or whether Besicorp would be capable of finding investments
offering higher rates of returns than investments available to
shareholders). The Board noted that despite PaineWebber's seven month
effort and Josephthal's ten month effort to maximize the value of the
proceeds of the MRA and the related transactions to Besicorp's
shareholders, Besicorp had not received a combination or restructuring
alternative as favorable to Besicorp and its shareholders as the
Merger. The Board also considered some of the uncertainties and risks
associated with the Plan of Merger including the financing contingency,
the possibility of the imposition of transferee liability on Besicorp's
shareholders for unpaid creditor claims, including claims of taxing
authorities, the limitations imposed by the Plan of Merger on
Besicorp's ability to consider or engage in a business combination
other than the Merger and that Josephthal would not be issuing prior to
the consummation of the Merger any fairness opinion (other than the
Fairness Opinion dated November 20, 1998) with respect to the fairness
of the Merger Consideration to be received by Besicorp's shareholders.
(iii) The Board determined that the Merger and the other
Transactions are fair to Besicorp's shareholders, after taking into
account the Spin-Off. In reaching this determination, the Board
considered alternatives to the Spin-Off such as the sale of the
businesses and assets that are to be contributed to Newco pursuant to
the Contribution or the sale of all of Besicorp including the
businesses and assets to be contributed to Newco. In connection
therewith, the Board noted that Besicorp had received initial inquires
about purchasing the Continuing Businesses, but had not received any
actual offer to purchase the Continuing Businesses of Besicorp and that
none of the potential purchasers of Besicorp were interested in
acquiring the Contributed Businesses as part of their purchase of
Besicorp. The Board concluded that there was no reasonable alternative
to spinning-off Newco and selling the remainder of Besicorp for a
Merger Consideration which, for the reasons stated above, the Board had
determined was fair.
In view of the wide variety of factors considered in connection with
its evaluation of the Merger, the Board did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its decisions.
<PAGE>
OPINION OF FINANCIAL ADVISOR
Besicorp retained Josephthal to render an opinion regarding the
fairness, from a financial point of view, of the Merger Consideration. Neither
Besicorp's Board nor its management imposed any limits on Josephthal's
investigation or on the procedures followed by Josephthal in preparing and
rendering its opinion. Josephthal rendered the Fairness Opinion to the Board on
November 20, 1998 to the effect that, based upon and subject to the
considerations set forth in its opinion, as of November 20, 1998, the Merger
Consideration was fair to Besicorp's shareholders from a financial point of
view. Josephthal expressed no opinion on the Spin-Off or its effect on the
Merger Consideration since the shareholders of Besicorp would own approximately
the same proportionate interest in the Continuing Businesses as they did as
shareholders of Besicorp prior to the Spin-Off. Josephthal also expressed no
opinion on Besicorp's decision to form Newco or on the capital requirements of
or availability of capital for Newco. Josephthal is under no obligation to
update, revise or reaffirm the Fairness Opinion even if the value of the
Besicorp Common Stock materially changes after the date of the Fairness Opinion.
As of the date of this Proxy Statement, management has not asked Josephthal to
update its opinion since management does not believe that there has been a
material change to any of the information upon which Josephthal relied in
preparing the Fairness Opinion.
The full text of the Fairness Opinion, including the assumptions made
by Josephthal and the general procedures followed by Josephthal, is set forth in
Annex B to this Proxy Statement. Each shareholder is urged to read the Fairness
Opinion in its entirety. The Fairness Opinion addresses only the fairness of the
Merger Consideration (and assumes that the Merger Consideration is $34.50 per
share) and does not constitute a recommendation to any holder of Besicorp Common
Stock as to how the holder should vote on the proposal to adopt the Plan of
Merger.
In preparing the Fairness Opinion, Josephthal reviewed and considered
those financial and other materials that it deemed relevant, including, among
others, the following: (i) the Initial Plan of Merger; (ii) a draft of the
preliminary proxy statement dated November 13, 1998; (iii) certain historical
financial, operating and other data that are publicly available or were
furnished to Josephthal by Besicorp, including, but not limited to: (a)
financial analyses prepared by management of Besicorp; (b) Besicorp's Form
10-KSB as of and for the year ended March 31, 1998; (c) a draft of Besicorp's
Form 10-QSB as of and for the period ended September 30, 1998; and (d)
internally generated operating reports of Besicorp; (iv) publicly available
financial, operating and stock market data for companies engaged in businesses
Josephthal deemed comparable to Besicorp's; (v) publicly available financial,
operating and stock market data for companies in the power industry which had
been involved in mergers or acquisitions since May 1997; and (vi) such other
factors as Josephthal deemed appropriate. Josephthal also met with senior
officers of Besicorp to discuss the prospects for Besicorp's business and their
estimates of future financial performance. The Fairness Opinion is solely and
necessarily based on economic, financial and market conditions as they existed
as of the date of its opinion.
<PAGE>
As described in its opinion, Josephthal relied upon and assumed,
without any responsibility to independently verify, the accuracy and
completeness of the financial and other information provided or which was
publicly available, and did not attempt to verify independently any of this
information. Josephthal relied solely on the estimates provided to it by
Besicorp's management with respect to Besicorp's prospects and neither made nor
obtained any independent appraisals of Besicorp's properties, other assets or
facilities. With respect to certain financial information, including financial
analyses related to Besicorp's business and prospects provided to Josephthal by
Besicorp, Josephthal assumed that the financial information was reasonably
prepared based on management's best currently available estimates as to
Besicorp's future financial performance.
Partial Liquidation Alternative
Josephthal analyzed the after-tax value to the shareholders of
liquidating Besicorp's domestic power generation assets and distributing the
cash proceeds (including the after-tax proceeds of the MRA and Besicorp's share
of the estimated proceeds of the Power Plant sales which Josephthal estimated
would aggregate approximately $85.0 million)(i.e., the Partial Liquidation
Alternative) and compared the results to the Merger Consideration. Josephthal
noted that the Merger Consideration would be paid directly to the shareholders
and would not be subject to any corporate level tax and assumed that any taxes
associated with the Spin-Off paid by such shareholders would be minimal. The
analysis supported Josephthal's fairness determination since the estimated
after-tax proceeds from the Merger (approximately $30.70 per share, as explained
below) was greater than the estimated proceeds from liquidating the assets and
distributing the proceeds to the shareholders (approximately $25.38 per share,
as explained below). For purposes of evaluating the amount of cash available for
distribution after the Power Plant sales, Josephthal assumed that Besicorp would
pay federal and state corporate taxes at a combined rate of 35% with respect to
the MRA and the proceeds of the Power Plant sales. Josephthal also noted that in
the case of the Merger, Besicorp's shareholders would receive shares in Newco on
a pro rata basis according to their interests in Besicorp at the Spin-Off Record
Date; whereas in the Partial Liquidation Alternative, the shareholders would
continue to own shares in Besicorp and Besicorp would not effectuate the
Spin-Off. Josephthal assumed that in the case of the Partial Liquidation
Alternative, Besicorp would incur corporate level taxes of approximately $49.0
million resulting in cash available for distribution or reinvestment of
approximately $85.0 million (as compared to an aggregate Merger Consideration of
$105.3 million). Josephthal also assumed that each shareholder would pay capital
gains taxes on receipt of a liquidating distribution or the Merger
Consideration. For analytical purposes Josephthal estimated the amount of these
taxes by assuming that each shareholder had a basis of $15.50 per share which
represented the approximate average daily closing price of Besicorp's common
stock during the period from November 30, 1993 through September 30, 1998. Based
on the number of shares outstanding (on a fully diluted basis) as of November
20, 1998 (3,051,435), Josephthal estimated that the shareholders had an
aggregate tax basis of approximately $47.3 million. Adjusting for estimated
shareholder level taxes, Josephthal estimated that the Merger would produce
after-tax proceeds to the shareholders of approximately $93.7 million ($30.70
per share) compared to
<PAGE>
approximately $77.5 million ($25.38 per share) from liquidating the assets and
distributing the proceeds to the shareholders. Shareholders are cautioned that
the actual after-tax proceeds may differ from shareholder to shareholder since
shareholders' tax basis may differ from the basis estimated by Josephthal for
purposes of its analysis. Shareholders are urged to consult with their own tax
advisors to evaluate the tax effects of the Merger and the alternative
transactions described herein. See "--Material Federal Income Tax Consequences"
below.
Reinvestment Alternative
Josephthal also analyzed the after-tax benefits to the shareholders of
the Merger (i.e. their receiving the Merger Consideration) and the Reinvestment
Alternative (i.e. Besicorp's reinvesting the proceeds of the MRA and the
Partnerships' sales of the Power Plants). In its analysis, Josephthal assumed,
hypothetically that shareholders would reinvest the after-tax proceeds of the
Merger Consideration at rates of returns ranging from 5% to 10% per year.
Josephthal assumed further that shareholders would not receive any interim
return on the reinvested proceeds of the Merger Consideration or pay any taxes
from year to year during the five year period. Instead, Josephthal assumed that
shareholders would receive the return at the end of year five and pay tax at
capital gain rate of 20% on the appreciation. Josephthal made the same
assumptions regarding taxes and used the same hypothetical shareholder basis
that it made in its analysis of the Partial Liquidation Alternative. The
Reinvestment Alternative analysis supported Josephthal's fairness determination
in that it suggests that Besicorp would have to earn a greater rate of return on
the Proceeds to realize the same increase in value that shareholders would
achieve at a lower rate of return. In particular, based on the above
assumptions, Josephthal projected that the Merger Consideration would increase
in value to between approximately $114 million and $139 million. Josephthal then
compared the hypothetical return earned by shareholders with (i) a Reinvestment
Alternative in which Besicorp would not incur any corporate taxes and (ii) a
Reinvestment Alternative in which Besicorp would incur federal and state
corporate taxes (at a combined rate of 35%) on the return from its investment
during a five year investment period. Josephthal noted that since Besicorp would
have to pay corporate level taxes on the after-tax proceeds from the MRA and the
Partnerships' sales of the Power Plants, the aggregate after-tax proceeds of the
Merger Consideration would be greater than the amount Besicorp would have to
invest. Assuming that Besicorp would not incur a corporate level tax, Josephthal
projected that if Besicorp earned an annual rate of return of 15% to 20%, the
proceeds would increase in value to between approximately $146 million and $179
million. Assuming that Besicorp would incur a corporate level tax, Josephthal
projected that if Besicorp earned an annual rate of 15% to 20%, the proceeds
would increase in value to between approximately $118 million and $135 million.
In each case, Josephthal assumed as part of this analysis that Besicorp would
not receive any interim return from year to year during the five-year period and
that the shareholders would pay tax at capital gain rates on any distribution.
Josephthal noted in its analysis that reinvestment would be affected by economic
and financing factors beyond Besicorp's control, including: (i) the
<PAGE>
availability of investment opportunities within the confines of management
expertise and experience; (ii) general economic conditions and business risks;
and (iii) the demand for Besicorp's products and services. Josephthal also noted
management's opinion that the proceeds of the MRA and from the sale of the Power
Plants would be insufficient to guarantee that Besicorp will compete
successfully in the de-regulated merchant power business in the United States.
Price Volume Trading History
Josephthal also performed a price volume trading history analyzing the
trading pattern of Besicorp Common Stock over approximately the past five years.
Josephthal utilized this analysis primarily to estimate the shareholder basis as
described above and to check the reasonableness of its assumptions in
calculating the shareholder basis. The analysis did not otherwise bear
independently on its fairness determination. Josephthal calculated the
percentage of shares that traded below a specified price in a continuum of
prices and also calculated the percentage based on the same continuum of prices,
to the total number of shares outstanding during each period. Josephthal also
attempted to perform a comparable transaction analysis, but was unable to
identify a set of transactions that it believed was comparable to the Merger.
The summary above sets forth of all of the material assumptions,
factors and analyses considered by Josephthal but does not purport to be a
complete description of Josephthal's analyses. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Josephthal believes that the summary and its
analyses must be considered as a whole and that selecting portions thereof,
without all of its analyses, could create an incomplete view of the processes
underlying its analyses and opinion. Josephthal based its analyses on
assumptions that it deemed reasonable, including assumptions concerning general
business and economic conditions. Josephthal's analyses are not necessarily
indicative of actual values or actual future results that might be achieved.
These values may be higher or lower than those indicated. Moreover, Josephthal's
analyses are not, and do not purport to be, appraisals or otherwise reflective
of the prices at which businesses or securities actually could be bought or
sold.
Josephthal was engaged to provide financial advisory services on
December 17, 1997 and to provide a fairness opinion such as the Fairness Opinion
delivered on November 20, 1998. Under the terms of the December 17, 1997
engagement, Besicorp has paid Josephthal a total of $650,000 for services
rendered thereunder, including the rendering of a fairness opinion with respect
to the MRA. Besicorp also agreed to reimburse Josephthal for reasonable expenses
incurred by Josephthal under the December 17, 1997 engagement not to exceed
$7,500 without Besicorp's approval and to indemnify Josephthal against certain
liabilities, including liabilities under the federal securities laws. Besicorp
has also agreed to pay Josephthal a fee of $200,000 for rendering the Fairness
Opinion and, contingent upon completion of the Merger, $800,000 for
<PAGE>
services rendered in connection with the Merger. Josephthal was also engaged by
the various Partnerships on February 24, 1998 to provide advisory services in
connection with sale of the Power Plants. Pursuant to these agreements,
Josephthal received an aggregate of $315,000 from the Partnerships with respect
to the sale of the Power Plants.
Josephthal has consented to the use of the Fairness Opinion in this
Proxy but advised Besicorp that the Fairness Opinion is "solely for the benefit
and use of Besicorp and its Board of Directors" and, as such, may not be relied
upon by third parties, such as Besicorp's shareholders. Josephthal believes that
under the terms of its engagement letter with Besicorp, which is governed by New
York state law, Josephthal has no legal responsibility to any other persons,
including Besicorp's shareholders, as a result of the express disclaimers
described above. Josephthal has advised the Board that it intends to assert the
disclaimer as a defense to any claims that may be brought against it by
shareholders with respect to the Fairness Opinion. However, since no New York
state court or federal court applying New York law has definitively ruled on the
availability to a financial advisor, such as Josephthal, of an express
disclaimer as a defense to shareholder liability with respect to a fairness
opinion such as the Fairness Opinion, the issue necessarily would have to be
resolved by a court of competent jurisdiction. The availability or non-
availability of such a defense will have no effect on Josephthal's rights and
responsibilities under federal securities laws, or the rights and
responsibilities of the Board under governing state law or under federal
securities laws.
Josephthal was selected to provide a fairness opinion because it is a
nationally recognized investment banking firm and is familiar with Besicorp's
operations since it was retained to assist Besicorp in formulating and
consummating a strategy or transaction to maximize the value of the MRA to
Besicorp's shareholders and to sell the Power Plants. As part of its investment
banking practice, Josephthal regularly values businesses and securities in
connection with mergers and acquisitions. In the ordinary course of business,
Josephthal actively trades the securities of Besicorp for its own account and
for the accounts of its customers, and may at any time hold a long or short
position in Besicorp's securities.
INTERESTS OF EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendations of the Board with respect to the
Merger, shareholders should be aware that certain members of Besicorp's
management and the Board have certain interests in the Merger that are in
addition to or different from the interests of the public shareholders. The
Board was aware of these interests and considered them, among other things, in
adopting the Plan of Merger.
If the Merger is consummated, Besicorp will pay, from its general
corporate funds, Michael F. Zinn, Michael J. Daley and Frederic Zinn bonuses of
$1,000,000, $500,000 and $500,000, respectively. No officers or employees of
Besicorp are covered by employment
<PAGE>
contracts or severance arrangements. Consequently the consummation of the Merger
will not trigger any termination provisions or give rise to any termination
payments.
Besicorp has granted the options, including restricted stock options
pursuant to which restricted stock may be acquired, warrants and other rights
(collectively, "Rights") to acquire Besicorp Common Stock and issued restricted
shares of Besicorp Common Stock which were granted either pursuant to restricted
stock purchase agreements or restricted stock options that have been exercised
(collectively, the "Restricted Stock Grants") held by executive officers and
directors of Besicorp. (The Rights and Restricted Stock Grants are referred to
collectively herein as the "Entitlements"). Some of these Rights originally were
not exercisable until after the contemplated Effective Date and would have been
effectively forfeited as result of the consummation of the Merger since
originally they could only be exercised so long as the holder remained an
employee and/or director of Besicorp; originally, some of the Restricted Stock
Grants, and restricted stock issuable if restricted stock options were
exercised, would have been forfeited (e.g., because the restricted shares would
be forfeited if the holder ceased to be an employee and/or director of Besicorp)
or otherwise limited at the Effective Date; nor did the terms of all of such
Rights allow the holders to participate in the Spin-Off. The Board and a
committee thereof adjusted, as of November 1998, the provisions of the
instruments governing these Entitlements (the "Adjustment") so that (1) these
Entitlements now may, among other things, be exercised (or not forfeited or
otherwise limited) (which enables the holders to participate in the Merger) and
(2) holders of unexercised Rights who exercise their Rights after the Spin-Off
may participate in the Spin-Off as if they were holders of record of Besicorp
Common Stock as of the date of the Spin-Off (which permits holders of all
exercised Rights and all Entitlements to also participate in the Spin-Off).
52,240 Rights and 21,245 Restricted Stock Grants, including 37,000 Rights and
19,200 Restricted Stock Grants held by executive officers and directors, were so
adjusted. As a result all of the Rights became exercisable and vested, all of
the shares of Restricted Stock are no longer restricted and any shares issuable
upon the exercise of Restricted Stock Options will not be subject to any
restrictions other than the restrictions imposed by the securities laws. Set
forth below is a table (i) describing the Rights (including those that were
exercised following the Adjustment) and Restricted Stock Grants held by
executive officers and directors of Besicorp which were adjusted pursuant to the
Adjustment and (ii) and the dollar value of the adjusted Entitlements:
<PAGE>
<TABLE>
<S>
<C> <C> <C>
Dollar Value
Name of Executive Number of Shares Nature of of Adjusted
Officer or Director Subject to Entitlements Entitlements Entitlements*
Gerald Habib 2,500 (1) Rights $13,281
Richard Rosen 2,500 (2) Rights $13,281
Melanie Norden 5,000 (3) Rights $99,281
Michael F. Zinn 41,000 (4) Rights/Restricted $1,215,500
Stock
Michael Daley 3,000 (5) Rights $94,500
Joseph P. Novarro 2,200 (6) Rights/Restricted $68,500
Stock
</TABLE>
* The difference between the exercise price of the Rights and the Merger
Consideration applicable to the shares issuable upon the exercise of
such Rights and in the case of Restricted Stock outstanding at the time
of the Adjustment, the difference between the exercise price of the
options for such Restricted Stock and the Merger Consideration
applicable to such Restricted Stock, assuming in each case that the
Merger Consideration will be $34.50. See "Plan of Merger -- Merger
Consideration" for an explanation on how the actual Merger
Consideration will be calculated."
(1) As a result of the Adjustment, Warrants to purchase 2,500 shares of
Besicorp Common Stock that were not previously exercisable became
exercisable.
(2) As a result of the Adjustment, Warrants to purchase 2,500 shares of
Besicorp Common Stock that were not previously exercisable became
exercisable.
(3) As a result of the Adjustment, Warrants to purchase 2,500 shares of
Besicorp Common Stock that were not previously exercisable became
exercisable and exercisable Options to purchase 2,500 shares of
Restricted Stock became Options to purchase 2,500 shares of
unrestricted Besicorp Common Stock.
(4) As a result of the Adjustment, Options to purchase 20,000 shares of
Besicorp Common Stock that were not previously exercisable became
exercisable and 19,000 shares of Restricted Stock became vested and
ceased to be Restricted Stock. Also includes stock
<PAGE>
options held by Valerie Zinn, Mr.. Zinn's spouse, to purchase 2,000
shares of Besicorp Common Stock (which Options were not exercisable
prior to the Adjustment).
(5) As a result of the Adjustment, Options to purchase 3,000 shares of
Besicorp Common Stock that were not previously exercisable became
exercisable.
(6) As a result of the Adjustment, Options to purchase 2,000 shares of
Besicorp Common Stock that were not previously exercisable became
exercisable and 200 shares of Restricted Stock became vested and ceased
to be Restricted Stock.
In addition, Michael Zinn is the beneficial holder of 1,572,252 shares
of Besicorp Common Stock, including Entitlements (but excluding the shares owned
by the Trust). Therefore, as a result of such holdings and if he were to
exercise all of his Rights, Mr. Zinn would be entitled to receive, assuming the
Merger Consideration is not adjusted, approximately $54 million. Other members
of management beneficially hold smaller numbers of shares of Besicorp Common
Stock. See "Business of the Company -- Security Ownership of Certain Beneficial
Owners and Management."
The Plan of Merger contemplates that prior to the Effective Date,
Besicorp will procure and pay for officers' and directors' liability insurance
(the "D&O Insurance") covering certain persons, including present and former
directors, officers, employees and agents of Besicorp and its subsidiaries
(collectively, the "Covered Person"), who at the time of the execution of the
Initial Plan of Merger were covered by Besicorp's officers' and directors'
liability insurance or will be so covered on the day of the Closing (the
"Closing Date"), with respect to acts and omissions occurring on or prior to the
Closing Date. Additionally, the Plan of Merger provides that for the lesser of
six years after the Closing Date or the period the Surviving Corporation
maintains its existence, the provisions of the Certificate of Incorporation and
By-Laws of the Surviving Corporation shall provide indemnification to the
Covered Persons on terms, in a manner, and with respect to matters, which are no
less favorable than Besicorp's Certificate of Incorporation and By-Laws, as in
effect on the date of the execution of the Initial Plan of Merger; provided,
however, that the obligation of the Surviving Corporation to provide such
indemnification is limited to the D&O Insurance and that the provisions of the
Certificate of Incorporation and Bylaws of the Surviving Corporation may be
amended accordingly. See "Plan of Merger-- Indemnification." Finally, funds
deposited pursuant to the Escrow Agreement may be used to satisfy certain
obligations of Besicorp and/or the Surviving Corporation to the Covered Persons.
See "Plan of Merger -- Escrow Agreement."
Besicorp and certain of its executive officers and directors (including
former executives, officers and directors) are parties to two shareholder
derivative lawsuits. As a result of the consummation of the Merger, the
plaintiffs in such suits will cease to be shareholders which may adversely
affect their ability to maintain such suits and the only shareholder of the
Surviving Corporation following the Merger will be Acquisition which has
indicated it will not pursue such
<PAGE>
suits. If such suits are not maintained, certain of Besicorp's executive
officers and directors who are defendants in such suits, including Michael F.
Zinn, Besicorp's Chairman of the Board, President and Chief Executive Officer,
may benefit. These suits have previously been dismissed but such dismissals have
been appealed. See "Business of the Company -- Legal Proceedings."
It is not anticipated that the Surviving Corporation will, following
the Effective Date, enter into employment or similar agreements with Besicorp's
current management. It is anticipated that the directors and executive officers
of Besicorp will serve Newco in capacities in which they currently serve
Besicorp and that they will be compensated for the services they render on
behalf of Newco. As indicated above, no officers or employees of Besicorp are
covered by employment agreements, and no officers or employees of Newco are
expected to be covered by employment agreements. Further information regarding
the compensation payable to executive officers and directors of Newco will be
set forth in the Information Statement. Aside from the foregoing, and the shares
of Newco Common Stock that the executive officers and directors will be entitled
to receive in the Spin-Off as shareholders of Besicorp Common Stock, the
executive officers and directors will receive no benefits as a result of the
Spin-Off.
CERTAIN EFFECTS OF THE MERGER
Upon consummation of the Merger, Merger Sub will be merged with and
into Besicorp, the separate corporate existence of Merger Sub will cease, and
Besicorp will continue as the Surviving Corporation. Acquisition will own all of
the outstanding shares of common stock of the Surviving Corporation and will be
entitled to all of the benefits and detriments resulting from that interest.
After the Effective Date, the present Besicorp shareholders will no longer have
any equity interest in Besicorp or any right to vote on corporate matters;
instead, the outstanding shares of Besicorp Common Stock will automatically be
converted into the right to receive the Merger Consideration; in addition, as a
result of the Spin-Off, the Newco Common Stock will be distributed on a pro rata
basis to the holders of such shares. As a result of the Merger, the Surviving
Corporation will become a wholly-owned subsidiary of Acquisition and there will
cease to be any public market for the Besicorp Common Stock, and after the
Effective Date, the Besicorp Common Stock will be delisted from the AMEX ECM.
Upon such event, it is anticipated that the Surviving Corporation will apply to
the SEC for the deregistration of the Besicorp Common Stock under the Exchange
Act. As a result of this deregistration certain provisions of the Exchange Act
(including the proxy solicitation provisions of Section 14(a), and the short
swing trading provisions of Section 16(b)), no longer will be applicable to the
Surviving Corporation.
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences relating to the Merger based on the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and applicable regulations,
rulings and judicial authority as in effect on the date of this Proxy Statement.
Subsequent changes in the law could alter the federal income tax consequences of
the Merger. The Company did not rely upon any opinion of counsel with respect to
the matters discussed in this section other than as expressly indicated below.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE BASED UPON
PRESENT LAW. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH SHAREHOLDER IS
URGED TO CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR TO DETERMINE THE
APPLICABILITY OF THE RULES DISCUSSED BELOW TO SUCH SHAREHOLDER AND THE
PARTICULAR TAX EFFECTS OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND OTHER TAX LAWS.
The receipt by a shareholder of cash for shares of Besicorp Common
Stock pursuant to the Merger will be a taxable transaction for federal income
tax purposes under the Code and also may be a taxable transaction under
applicable state, local and other tax laws. The tax consequences of such receipt
may vary depending upon, among other things, the particular circumstances of the
shareholder. A shareholder will generally recognize gain or loss equal to the
difference between the amount of cash received by the shareholder pursuant to
the Merger in exchange for his or her shares and the shareholder's adjusted tax
basis in such shares. Such gain or loss generally will be capital gain or loss
if the shares are a capital asset in the hands of the shareholder and will be
long-term gain or loss if the shares have a holding period of more than one year
at the time of their conversion at the Effective Date. Long-term capital gain
recognized by an individual shareholder generally will be taxed at a maximum
federal income tax rate of 20%. Certain limitations apply with respect to the
deductibility of capital losses.
The receipt by a holder of Besicorp Common Stock at the record date for
the Spin-Off (an "Entitled Holder") of shares of Newco Common Stock and/or cash
in lieu of fractional shares of such stock pursuant to the Spin-Off will be a
taxable transaction for federal income tax purposes under the Code and also may
be a taxable transaction under applicable state, local and other tax laws. The
tax consequences of such receipt may vary depending upon, among other things,
the particular circumstances of the Entitled Holder. An Entitled Holder will
generally receive dividend income equal to the value of the shares of Newco
Common Stock (which has not yet been determined, but will be determined by the
Board before the Spin-Off and is estimated to range between approximately $.82
to $1.15 per share of Besicorp Common Stock) or the amount of cash or both
received by such Entitled Holder pursuant to the Spin-Off. Additional
information regarding the federal income tax consequences of the Spin Off will
be set forth in the Information Statement.
<PAGE>
The receipt of cash by a shareholder pursuant to the Merger and/or the
receipt of shares of Newco Common Stock and/or cash by an Entitled Holder
pursuant to the Spin-Off may be subject to backup withholding at the rate of 31%
unless the shareholder (i) is a corporation or comes within other exempt
categories, or (ii) provides a certified taxpayer identification number on Form
W-9 and otherwise complies with the backup withholding rules. Backup withholding
is not an additional tax; any amounts so withheld may be credited against the
federal income tax liability of the shareholder subject to the withholding.
Pursuant to the BCL, claims of Besicorp's creditors, including claims
of such creditors as taxing authorities, are not extinguished by the Merger and,
accordingly, the Surviving Corporation will be liable for the claims of both
Merger Sub and Besicorp immediately prior to the Merger. Management is not aware
of any material claims of Besicorp's creditors other than (i) the legal
proceedings described under "Business of the Company -- Legal Proceedings," (ii)
the accrued unpaid federal income taxes for the current fiscal year based on the
consolidated net income of Besicorp through the Effective Date, and (iii) the
liability of Besicorp and/or its Subsidiaries for New York State income taxes
for Besicorp's current fiscal year. Pursuant to the Contribution Agreement (as
defined below), Newco is assuming all of Besicorp's liabilities (including the
liabilities associated with the legal proceedings referred to in (i), above)
other than the tax liabilities for the current year referred to in (ii) and
(iii), above.
To the extent that the Surviving Corporation is not able to discharge
any claims of creditors existing at the Effective Date and the Escrow Fund is
insufficient to do so, it is possible that the creditors (including the taxing
authorities) may seek to bring claims against persons who were shareholders of
Besicorp immediately prior to the Effective Date of the Merger by asserting that
such shareholders are subject to transferee liability (i.e., that such
shareholders are liable for the obligations of Besicorp by virtue of the fact
that they received the Merger Consideration or the Newco Common Stock (or cash
received in lieu of fractional shares of Newco Common Stock) or both, although
such potential liability of any shareholder would presumably be limited to the
value of the Merger Consideration or Newco Common Stock (or cash received in
lieu of fractional shares of Newco Common Stock) or both received by such
shareholder, plus any allowable interest charge). Though management believes
that it is unlikely that such claims would be successful, if any such claims
were to be made and be successful, the net benefit received by such shareholders
from the Merger Consideration and the Spinoff could be materially reduced. The
law firm of Coudert Brothers has rendered an opinion, subject to the
qualifications and limitations set forth therein, to the effect that, if any
such claims were to be made by the Internal Revenue Service, it is more likely
than not that Besicorp's shareholders would not be liable as transferees for
Besicorp's U.S. federal income tax liability for the current year solely as a
result of the receipt of the Merger Consideration.
Furthermore, as former members of the Besicorp consolidated group,
Newco and the other members of such group would be jointly and severally
responsible for the U.S. federal income tax liability of such group for the
years during which they were members of such group.
<PAGE>
This discussion applies only to shareholders holding shares of Besicorp
Common Stock as capital assets, and to shareholders holding shares of Besicorp
Common Stock received pursuant to the exercise of employee stock options or
otherwise as compensation. This discussion does not apply to Besicorp's
shareholders who are not citizens or residents of the United States, to
Besicorp's shareholders who are tax-exempt or to other shareholders of Besicorp
of special status.
REGULATORY AND OTHER APPROVALS
Besicorp is not aware of any material governmental or regulatory
requirements to be complied with in connection with the Merger, other than
obtaining the shareholders' adoption of the Plan of Merger, and the filing of a
Certificate of Merger conforming to the requirements of the BCL with the
Secretary of State of the State of New York (and certain other governmental
authorities in the State of New York) and certain other requirements that must
be satisfied in connection with the Spin-Off.
PLAN OF MERGER
The following is a discussion of all material provisions of the Plan of
Merger, a copy of which is attached as Annex A to this Proxy Statement and is
incorporated herein by reference. The statements made herein concerning such
document are not necessarily complete, and reference is made to the full text of
the Plan of Merger attached hereto as Annex A. Each such statement is qualified
in its entirety by such reference. Capitalized terms that are not otherwise
defined in this discussion have the meanings set forth in the Plan of Merger.
THE MERGER
The Plan of Merger provides that, upon the terms and subject to the
satisfaction or waiver of certain conditions set forth therein, Merger Sub will
be merged with and into Besicorp, the separate corporate existence of Merger Sub
will cease and Besicorp will continue as the Surviving Corporation, provided
that it will change its name within 30 days after the Closing Date to a name
which does not include the word "Besicorp." The Merger will become effective
upon the filing of the Certificate of Merger with the Secretary of State of the
State of New York or, if later, the time specified in the Certificate of Merger
in accordance with the BCL (the "Effective Date").
Pursuant to the Plan of Merger, at the Effective Date (i) each share of
Besicorp Common Stock issued and outstanding immediately prior to the Effective
Date shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to
<PAGE>
receive in cash the Merger Consideration which is described below under
"--Merger Consideration," upon surrender of the certificate evidencing such
share (each, a "Certificate") in the manner provided below and (ii) each share
of Merger Sub Common Stock issued and outstanding immediately prior to the
Effective Date will be converted into and become one validly issued, fully paid
and nonassessable share of common stock of the Surviving Corporation.
Immediately prior to the Effective Date, Acquisition will deposit or
cause to be deposited with Continental Stock Transfer & Trust Co. or another
paying agent mutually acceptable to Besicorp and Acquisition (the "Payment
Agent"), in trust for the benefit of the holders of record of Besicorp Common
Stock immediately prior to the Effective Date, cash in an aggregate amount equal
to the Merger Consideration. As soon as practicable after the Effective Date,
the Payment Agent will mail to each holder of shares of Besicorp Common Stock as
of the Effective Date a letter of transmittal and instructions (the "Letter of
Transmittal") to effect the surrender of the Certificates in exchange for the
Merger Consideration. Each holder of Besicorp Common Stock, upon surrender to
the Payment Agent of such holder's Certificates with the Letter of Transmittal,
duly and properly executed, shall be entitled to receive the portion of the
Merger Consideration represented by the Certificate as payment of the Merger
Consideration. Until so surrendered, each Certificate shall at and after the
Effective Date be deemed to represent only the right to receive upon surrender
of such Certificate the Merger Consideration with respect to the shares of
Besicorp Common Stock represented thereby. No interest will be paid or will
accrue on the cash payable upon surrender of any Certificate. BESICORP
SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES OR INSTRUMENTS UNTIL THEY
RECEIVE A LETTER OF TRANSMITTAL OR OTHER FORM.
If the Plan of Merger is adopted by the requisite vote of the
shareholders of Besicorp and certain other conditions to the Merger are
satisfied or waived (as more fully described below), the Closing will be held on
February [ ], 1999.
MERGER CONSIDERATION
Each share of Besicorp Common Stock outstanding immediately prior to
the Effective Date shall be converted into the right to receive $34.50 in cash,
plus an additional amount, which is the amount equal to (1) the quotient equal
to (a) the Base Amount (as described below) divided by (b) the number of shares
of Besicorp Common Stock outstanding as of immediately prior to the Effective
Date less (2) $34.50. If the Base Amount is less than $105,275,000, Acquisition
and Merger Sub may terminate the Plan of Merger. See "-- Conditions to the
Merger." The Base Amount is determined pursuant to the following formula:
Base Amount = Initial Amount - Adjustment Amount + (Specified Current
Liabilities x .8357).
<PAGE>
The terms set forth in this formula have the following meanings (shareholders
are encouraged to review the Plan of Merger for the exact definition of these
terms):
Initial Amount is the sum of (a) (i) $500,000, (ii) to the extent not
received in cash, the amount of a claimed tax refund for fiscal year 1998 not to
exceed $3,903, (iii) cash and cash equivalents on hand or in accounts which are
solely owned by Besicorp or a Remaining Subsidiary (as defined in the Plan of
Merger), free of all Encumbrances as of the Effective Date, and (iv) the product
of .9975 of the closing price of a share of Niagara Mohawk Common Stock as of
the trading day immediately preceding the Closing Date multiplied by the number
of shares of Niagara Mohawk Common Stock held by Besicorp as of the Effective
Date (not to exceed 50,000 shares) less (b) to the extent not already
contributed pursuant to the Escrow Agreement, $6,000,000. As an example, on
January 25, 1999, based on the most recent ascertainable financial information,
Besicorp estimates that the Initial Amount would be the sum of (a) (i) $500,000,
(ii) a claimed refund of $3,909, (iii) $129,186,877 in cash and cash equivalents
and (iv) Niagara Mohawk Common Stock with a discounted value of $754,359 less
(b) $6,000,000, for a total of $124,445,145.
Adjustment Amount is the sum of: (i) all Liabilities of Besicorp or a
Remaining Subsidiary (including the Specified Current Liabilities (as defined
below) but excluding the Excluded Liability (as defined below) and certain
intercompany liabilities) as of the Effective Date which are, in the reasonable
judgment of Acquisition both fixed and quantifiable; (ii) all liabilities,
judgments, demands, claims, actions or causes of action, regulatory, legislative
or judicial proceedings or investigations, assessments, levies, losses, fines,
penalties, damages, costs and expenses ("Damages"), and other damages, if any,
that Besicorp and Acquisition, agree may be incurred (or reasonably likely to be
incurred) by any of the parties to the Plan of Merger and any Remaining
Subsidiary as a result of the breach by Besicorp of its representations and
warranties in the Plan of Merger; and (iii) transfer, use, stamp, real estate
and other similar taxes and fees incurred by Besicorp, its Subsidiaries,
Acquisition or Merger Sub in connection with the Transactions. As an example, on
January 25, 1999, based on the most recent ascertainable financial information,
Besicorp estimates that the Adjustment Amount would be the sum of (i)
Liabilities of $47,276,294 less an Excluded Liability of $11,500, (ii) $0 in
Damages and (iii) $0 in transfer taxes, for a total of $47,264,794.
Specified Current Liabilities are the Liabilities of Besicorp or any
Remaining Subsidiary (actual or accrued) for unpaid federal income taxes for the
current fiscal year based on the consolidated net income of Besicorp through the
Effective Date.
The Excluded Liability is the Liability of Besicorp or its Subsidiaries
for New York State income Taxes for Besicorp's current fiscal year.
As an example, on January 25, 1999, based on the most recent
ascertainable financial information, Besicorp estimates that the Initial Amount
would have been $124,445,145, the
<PAGE>
Adjustment Amount would have been $47,264,794 and the Specified Current
Liabilities would have been $38,878,338. Therefore, for example, on January 25,
1999, the Base Amount in Besicorp's judgment, would have equaled $116,058,689.
Since this exceeds $105,275,000 by $10,783,189, there would be an upward
adjustment of $10,783,189 divided by 3,051,435 (the number of shares of Besicorp
Common Stock on a fully diluted basis which is assumed to be outstanding on the
Closing Date), or $3.53 per share of Besicorp Common Stock so that the Merger
Consideration would equal $38.03. The aggregate amount of the payment to be made
by Acquisition pursuant to the Plan of Merger equals the Merger Consideration
multiplied by the number of shares of Besicorp Common Stock outstanding
immediately prior to the Effective Date. This aggregate amount cannot be
determined at present. However, assuming that there are 3,051,435 shares
outstanding, this amount shall be no less than $105,275,000 and in the above
example would amount to $116,058,689. The aggregate amount is not likely to be
much greater than $116,998,997.
Not later than twenty days prior to Closing, Besicorp is to prepare and
deliver to Acquisition and Merger Sub a statement (the "Statement") setting
forth in reasonable detail the components of the Base Amount. The Statement is
to be prepared in accordance with the generally accepted accounting principles
applied in preparation of Besicorp's financial statements, with items to be
reflected regardless of materiality and all accruals known or contemplated for
Liabilities of Besicorp or a Remaining Subsidiary as of the Effective Date to be
reflected. Besicorp is to permit and fully cooperate with Merger Sub in
obtaining full access to Besicorp's records and its accountant's work papers for
purposes of independently verifying the components of the Base Amount and the
Additional Amount. Acquisition and Merger Sub are to notify Besicorp of their
acceptance or rejection of the Statement within five days of receipt. In the
event that Acquisition and Merger Sub reject the Statement such notice shall set
forth a schedule detailing the disputed components of the Statement. Besicorp,
Acquisition and Merger Sub are to use their reasonable best efforts to reach
agreement on such disputed components of the Statement prior to the Closing. In
the event that Besicorp, Acquisition and Merger Sub are unable to reach an
agreement on the Statement within three days prior to Closing, the Plan of
Merger will be deemed terminated.
In calculating the Merger Consideration, the parties assumed that the
100,000 shares of Besicorp Common Stock held of record by Martin Enowitz (the
"Disputed Shares") were outstanding even though Besicorp maintains, and is a
party to a legal proceeding seeking a determination, that he is not entitled to
such shares. See "Business of the Company -- Legal Proceedings." Because of the
uncertainty with respect to the ownership of these shares, the Plan of Merger
provides that the Merger Consideration payable in respect of such shares is to
be held in escrow pending resolution of the dispute regarding the ownership of
these shares and the rights, if any, of Acquisition, Merger Sub or the Surviving
Corporation to such Merger Consideration will be assigned without recourse to
Besicorp's shareholders. The Merger Consideration for such shares amounts to
approximately $3,450,000, subject to upward (but not downward) adjustment as
provided in the Plan of Merger. If it is determined that Mr. Enowitz
<PAGE>
was not entitled to the Disputed Shares, Besicorp's shareholders will receive,
on a pro rata basis, such monies less Besicorp's costs (estimated to be less
than $100,000) to repurchase such shares. There can be no assurance as to when
this dispute will be resolved or whether it will be resolved to the satisfaction
of Besicorp.
REPRESENTATIONS AND WARRANTIES
The Plan of Merger contains various representations and warranties of
Besicorp as to, among other things: (i) the due organization, valid existence,
good standing and capitalization of Besicorp and/or certain subsidiaries; (ii)
the authorization of the execution and delivery of the Plan of Merger and
certain related agreements, the validity and enforceability thereof against
Besicorp, the noncontravention thereby of the organizational documents of
Besicorp or certain subsidiaries or of any material order or judgment of a
governmental entity or any agreement or obligation applicable to Besicorp or any
of its Subsidiaries and the absence of requirements for any consents, notices or
registrations ("Authorizations") to be obtained or filed by Besicorp or any of
its Affiliates in connection with consummation of the Merger; (iii) compliance
in all material respects of Besicorp's filings with the SEC under the Securities
Act of 1933, as amended, and the Exchange Act (the "SEC Documents"), and the
accuracy of certain information and financial statements of Besicorp included in
the SEC Documents; (iv) the absence of certain undisclosed liabilities; (v)
compliance with applicable laws; (vi) the absence of certain changes or events
since June 30, 1998; (vii) certain tax matters; (viii) certain intellectual
property matters; (ix) litigation involving Besicorp or certain subsidiaries;
(x) employee benefit matters; (xi) certain labor and employment matters; (xii)
certain environmental matters; and (xiii) title to property.
The Plan of Merger also contains representations and warranties of each
of Acquisition and Merger Sub as to, among other things: (i) their due
organization, valid existence, good standing and/or capitalization; (ii) due
authorization, execution and delivery of the Plan of Merger and related
agreements, the validity and enforceability thereof against such parties and the
noncontravention thereby of the organizational documents of Acquisition and
Merger Sub or other agreements to which such parties may be bound; (iii) the
absence of conflicts and defaults and the absence of the requirement for any
Authorization; (iv) the delivery to Besicorp of a true copy of a letter from the
Lender, stating Lender's interest, subject to the negotiation and execution of
definitive documents and the fulfillment of the conditions set forth in such
letter, in providing the Financing which, together with the equity to be
obtained by the Merger Sub, will be for an amount necessary to pay the Merger
Consideration and that the Financing will not be secured by a lien on the assets
of the Surviving Corporation; and (v) the accuracy of the information provided
in writing by Acquisition and Merger Sub for use in the Proxy Statement.
<PAGE>
CERTAIN COVENANTS
CONDUCT OF BUSINESS PENDING THE MERGER. Besicorp, Acquisition and
Merger Sub agreed that until the Effective Date, the parties would (a) not
intentionally perform or omit to perform any act which would prevent the
performance of the Plan of Merger or would result in any representation or
warranty being untrue in any material respect and (b) give the other parties
notice of the occurrence of any event which would make any representation or
warranty in the Plan of Merger untrue or that would otherwise prevent the
closing of the Merger. The parties further agreed to use their best efforts to
consummate expeditiously the Spin-Off, the Merger, the sale of the Power Plants
by the Partnerships and the other transactions contemplated by the Plan of
Merger (collectively, the "Transactions") provided that no party is required by
such agreement to expend funds not commercially reasonable in relation to such
transactions or to take any action that would result in a material adverse
effect with respect to such party.
Besicorp also agreed that prior to the Effective Date, it shall use its
best efforts to cause certain of its affiliates to dispose of the Power Plants
and it shall, and shall cause each Remaining Subsidiary to, carry on its
business with the objective of effecting the Spin-Off and the sales of the Power
Plants and, in all other respects with the objective of winding up the remaining
business of Besicorp and the Remaining Subsidiaries so that Besicorp and the
Remaining Subsidiaries will have no assets other than cash and cash equivalents
and the Retained Assets (as defined in the Plan of Merger) and no Liabilities
other than Permitted Liabilities (as defined in the Plan of Merger) and certain
other permissible liabilities.
Furthermore, Besicorp shall cause the Spin-Off to be effectuated
immediately prior to the Effective Date by causing, among other things, (a) the
transfer to, and assumption by Newco of all of the assets, personnel, employee
benefit plans and Liabilities of Besicorp (other than the Retained Assets and
Permitted Liabilities) and the Remaining Subsidiaries and the transfer to Newco
of all of the outstanding capital stock of the Distributed Subsidiaries (as such
terms are defined in the Plan of Merger); (b) the execution and delivery by
Besicorp and Newco of such agreements and arrangements which are customary in
connection with spinoffs and which provide for, among other matters, the
provision of transition and support services to Besicorp by Newco without cost
to Besicorp, the replacement of Contributed Assets with Retained Assets of equal
value in certain circumstances, and indemnification of Besicorp by Newco and its
subsidiaries for any failure of Newco to discharge and pay in full all of the
Liabilities so assumed or the failure of any Distributed Subsidiary to discharge
and pay in full its Liabilities when due; (c) the distribution to the
shareholders of Besicorp prior to the Effective Date of all of the outstanding
capital stock of Newco; and (d) Besicorp and Newco to enter into the
Indemnification Agreement and the Escrow Agreement.
Besicorp also agreed that prior to the Effective Date it shall not and
shall not permit any of the Remaining Subsidiaries to: (i) amend its Certificate
of Incorporation, By-Laws or other organizational documents; (ii) make any
change in its authorized capital stock; adjust, split,
<PAGE>
combine or reclassify its capital stock; or, with certain exceptions, issue any
shares of stock, or rights to acquire capital stock or other similar rights;
(iii) incur any indebtedness for borrowed money or assume or otherwise become
responsible for the obligations of any other person; (iv) subject to certain
exceptions, sell, transfer, encumber or otherwise dispose of any of its material
properties or assets to any person; (v) make any investments in, or
contributions to capital of, or purchases of, any property or assets from any
other person; (vi) subject to certain exceptions, enter into or terminate any
material contract or agreement, or make any change in any of its material leases
or contracts; (vii) change, with certain exceptions, its method of accounting as
in effect at December 31, 1997; (viii) subject to certain exceptions, increase
the compensation payable to any employee, or enter into any new employment
agreements with new or existing employees; (ix) subject to certain exceptions,
pay any dividend or make any distribution (other than the Spin-Off) on its
securities or purchase any of its securities; (x) make any tax election or
settle or compromise any tax liability; and (xi) enter into any business or
contract not related to the Spin-Off, Power Facility Sales or the Merger.
Besicorp also agreed that prior to the Effective Date, it shall cause
the Distributed Subsidiaries to carry on their respective businesses only in the
ordinary course consistent with past practice and shall not and shall cause the
Distributed Subsidiaries not to create any liabilities of Besicorp or any
Remaining Subsidiary for the Liabilities of the Distributed Subsidiaries.
Pursuant to the Plan of Merger, Besicorp agreed (i) to call a meeting
of its shareholders for the purpose of voting upon adoption of the Merger; (ii)
to hold such meeting as soon as practicable following the date of the Initial
Plan of Merger; (iii) subject to the provisions regarding Acquisition Proposals
(as defined below), recommend to its shareholders the adoption of the Merger
through its Board of Directors; and (iv) to use its best efforts to obtain the
adoption of the Plan of Merger by the shareholders of Besicorp.
Pursuant to the Plan of Merger, Besicorp agreed to prepare and file
with the SEC this Proxy Statement and a Form 10 Registration and use its
reasonable best efforts to respond to any comments of the SEC and to cause the
Form 10 Registration to be effective. Besicorp has also agreed to file all other
reports and schedules required to be filed by Besicorp with the SEC.
Pursuant to the Plan of Merger, Besicorp, Merger Sub and Acquisition
agreed to timely seek all consents, approvals, permits, authorizations or
waivers (collectively, "Consents") that are required to be obtained prior to the
Effective Date from governmental entities or other third parties in connection
with the execution and delivery of the Plan of Merger and the consummation of
the transactions contemplated thereby.
ACQUISITION PROPOSALS. Pursuant to the Plan of Merger, Besicorp agreed
to cease immediately any activities or negotiations with respect to an
Acquisition Proposal (as defined below), and to not, nor to permit any
Subsidiary to, authorize or permit any of its officers,
<PAGE>
directors, employees or representatives, to (i) solicit any Acquisition
Proposal; (ii) facilitate the making of an Acquisition Proposal; or (iii) enter
into any agreement with respect to any Acquisition Proposal; provided, however,
that neither Besicorp nor the Board is prohibited from furnishing non-public
information to, or entering into discussions with, any person with respect to
any unsolicited Acquisition Proposal if : (a) the Board determines reasonably
and in good faith, after due investigation and after consultation with and based
upon the advice of its outside financial advisor, that such Acquisition Proposal
is a Superior Proposal (as defined below); (b) the Board determines reasonably
and in good faith, after due investigation and after consultation with and based
upon the advice of outside counsel, that the failure to take such action would
cause the Board to violate its fiduciary duties to shareholders; and (c)
Besicorp (x) provides at least two business days' notice to Acquisition to the
effect that it is taking such action and (y) receives from such person or entity
an executed confidentiality agreement.
The term "Acquisition Proposal" means any bona fide offer or proposal
with respect to a merger or similar transaction involving Besicorp or any of its
Subsidiaries or the purchase of any significant portion of the assets or capital
stock of Besicorp or any significant Subsidiary or any other business
combination involving Besicorp; and "Superior Proposal" means an Acquisition
Proposal which the Board believes in good faith, after due investigation (taking
into account, among other things, the financing terms and the likelihood of
consummation) and based upon the advice of its outside legal and financial
advisors, is more favorable to Besicorp's shareholders from a financial point of
view than the Merger (taking into account the Spin-Off).
The Board shall not (i) withdraw or modify its approval or
recommendation of the Plan of Merger, the Merger or any of the Transactions,
(ii) approve, adopt or recommend or publicly propose to approve, adopt or
recommend an Acquisition Proposal, (iii) cause Besicorp to enter into any
agreement with respect to an Acquisition Proposal, or (iv) resolve to do any of
the foregoing unless Besicorp receives an unsolicited Acquisition Proposal in
accordance with the Plan of Merger and the Board determines reasonably and in
good faith, after due investigation (a) based upon the advice of its outside
financial advisor that a pending Acquisition Proposal is more favorable to
Besicorp's shareholders than the Merger and the Spin-Off, taken as a whole, (b)
such Acquisition Proposal is reasonably likely to be consummated, (c) there is a
substantial probability that the approval of the Merger and the Spin-Off will
not be obtained due to the pending Acquisition Proposal, and (d) based upon the
advice of outside counsel, that the failure of the Board to withdraw or modify
its approval or recommendation of the Plan of Merger or the Merger, or approve
or recommend such Acquisition Proposal would cause the Board to violate its
fiduciary duties to its shareholders.
INDEMNIFICATION. The Plan of Merger contemplates that prior to the
Effective Date, Besicorp will procure and pay for officers' and directors'
liability insurance (the "D&O Insurance") covering certain persons, including
present and former directors, officers, employees and agents of Besicorp and its
Subsidiaries (collectively, the "Covered Persons"), who at the time
<PAGE>
of the execution of the Initial Plan of Merger were covered by Besicorp's
officers' and directors' liability insurance or will be so covered on the
Closing Date, with respect to actions and omissions occurring on or prior to the
Closing Date. Additionally, the Plan of Merger provides that for the lesser of
six years after the Closing Date or the period the Surviving Corporation
maintains its existence, the provisions of the Certificate of Incorporation and
By-Laws of the Surviving Corporation shall provide indemnification to the
Covered Persons on terms, in a manner, and with respect to matters, which are no
less favorable than Besicorp's Certificate of Incorporation and By-Laws, as in
effect on the date of the execution of the Initial Plan of Merger; provided,
however, that the obligation of the Surviving Corporation to provide such
indemnification is limited to the D&O Insurance and the Surviving Corporation's
rights under the Escrow Agreement and that the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation may be amended
accordingly.
CONDITIONS TO THE MERGER
Financing Condition.
The obligation of Buyer to consummate the Merger is subject to Merger
Sub's having received the proceeds of the Financing at or prior to the Closing
Date. Buyer has received a letter from Lender, stating Lender's interest,
subject to the negotiation and execution of definitive documents and the
fulfillment of the conditions set forth in such letter, in providing the
Financing, and Buyer is aware of no development that will make obtaining the
proceeds less likely than it was at the time of such letter. However, Lender
will not provide the Financing until immediately prior to the Closing and
therefore there remains the risk that the Lender will not provide the Financing.
As the Closing is likely to occur immediately following the Special Meeting, it
is possible but unlikely that the Financing may be provided before the Special
Meeting.
Other Conditions to the Merger.
The obligations of each of Acquisition, Merger Sub and Besicorp to
consummate the Merger are subject to the satisfaction of certain conditions
prior to the Closing Date, including: (i) the adoption of the Plan of Merger by
the requisite vote of the shareholders of Besicorp; (ii) no governmental entity
or court shall have enacted any law or regulation or order which is then in
effect and has the effect of making the Merger or any of the Transactions
illegal; and (iii) the approval of the Plan of Merger, the Merger and to the
extent necessary the Transactions, by each governmental entity whose approval is
so required. The obligation of Besicorp to consummate the Merger is subject to
the satisfaction (or waiver by Besicorp) of certain additional conditions at or
prior to the Effective Date, including: (i) the accuracy of the representations
and warranties of Acquisition and Merger Sub when made and as of the Closing
Date; (ii) the performance by Acquisition and Merger Sub of all their
obligations required in the Plan of Merger to be performed by them on or prior
to the Closing Date; and (iii) immediately prior to the Merger,
<PAGE>
Merger Sub being, and, assuming that the representations and warranties made by
Besicorp are true and correct immediately following the effectiveness of the
Merger, the Surviving Corporation being, solvent. The obligation of Acquisition
and Merger Sub to consummate the Merger is subject to the fulfillment (or waiver
by such parties) of certain additional conditions at or prior to the Closing
Date, including: (i) the accuracy of the representations and warranties of
Besicorp when made and as of the Closing Date, except to the extent reflected in
the disclosure schedule annexed to the Initial Plan of Merger (the "Disclosure
Schedule"); (ii) the performance by Besicorp of all obligations required by the
Plan of Merger to be performed by it on or prior to the Closing Date; (iii) the
absence of any changes since June 30, 1998, after taking into account the
completion of the Transactions other than the Merger, in the condition, assets,
business, results of operations or prospects of Besicorp and its Subsidiaries,
taken as a whole, which has had or would reasonably be likely to have a Material
Adverse Effect on Besicorp or any Remaining Subsidiary; (iv) Merger Sub being
satisfied that the Spin-Off and the Power Facilities Sales have been completed
as provided in the Plan of Merger, and neither the Surviving Corporation nor any
of the Remaining Subsidiaries has any liability as a result of the Spin-Off or
Power Facilities Sales; (v) Newco shall have executed the Indemnification
Agreement and the Escrow Agreement and Besicorp shall have deposited $6,000,000
with the Escrow Agent; (vi) the Base Amount shall be no less than $105,275,000;
(vii) Besicorp shall have received all of the Consents (as defined in the Plan
of Merger) and obtained certain releases; (viii) neither Besicorp nor its
Remaining Subsidiaries have any Liabilities other than the Permitted Liabilities
and the Liabilities taken into account in determining the Adjustment Amount; and
(ix) the absence of any suit or investigation by any governmental entity seeking
to enjoin the transactions contemplated by the Plan of Merger or seeking
material damages on account of the consummation of the transactions contemplated
thereby or imposing any condition or restriction that would be commercially
unreasonable from a financial standpoint relative to the transactions
contemplated by the Plan of Merger.
If Besicorp were to waive a material condition, either before or after
the Special Meeting, Besicorp intends to notify the holders of Besicorp Common
Stock and seek the shareholders' approval of such waiver before consummating the
Merger.
TERMINATION
Right to Terminate
The Plan of Merger may be terminated and the Merger may be abandoned at
any time prior to the Effective Date, by the mutual consent of Buyer and
Besicorp.
In addition, the parties have agreed that the Plan of Merger may be
terminated and the Merger may be abandoned by action of either Buyer or Besicorp
if (a) the Merger shall not have been consummated by 11:59 P.M. on March 1, 1999
(the "Termination Date"); provided however that the Termination Date, at the
request of Besicorp (the "Extension Request"), may be
<PAGE>
extended from March 1, 1999 to March 15, 1999 (the "Extension") in which case if
the Merger does not close during the Extension, Besicorp would be obligated,
unless the Plan of Merger was terminated by Besicorp on account of a breach by
Buyer of Buyer's obligations pursuant to the Plan of Merger, to pay Buyer $1.4
million (the "Extension Fee") in addition to any other amounts, if any, Besicorp
would be obligated to pay on account of the termination of the Plan of Merger
(provided that this termination right shall not be available to the party whose
failure to fulfill its obligations under the Plan of Merger shall have been the
cause of the failure to consummate the Merger) or (b) upon a vote at the
Meeting, Besicorp's shareholders do not adopt the Plan of Merger.
The Plan of Merger may be terminated and the Merger may be abandoned at
any time prior to the Effective Date by Buyer, if: (a) there has been a material
breach of any material agreement on the part of Besicorp which has not been
cured or adequate assurance of cure given, within ten business days following
notice of such breach from Merger Sub or either of the Indemnification Agreement
or the Escrow Agreement shall not be a valid, legal and binding agreement or
enforceable against Newco; (b) there has been a breach of a representation or
warranty of Besicorp, the Damages from which Merger Sub reasonably determines
would cause the Base Amount to be less than $105,275,000; (c) the Board shall
have (i) withdrawn or modified its approval, adoption or recommendation of the
Plan of Merger, the Merger or any of the Transactions, (ii) approved, adopted or
recommended or publicly proposed to approve or recommend an Acquisition
Proposal, (iii) caused Besicorp to enter into any agreement with respect to an
Acquisition Proposal, or (iv) resolved to do any of the foregoing unless certain
conditions are met; (d) a tender offer or exchange offer for 15% or more of the
shares of Besicorp Common Stock is commenced, and the Board fails to recommend
against acceptance of such tender offer or exchange offer within the time period
required by Section 14e-2 of the Exchange Act or any person acquires by any
means 20% or more of the outstanding shares of Besicorp Common Stock; (e)
Besicorp shall have breached any of its covenants or agreements with respect to
Acquisition Proposals; (f) there shall be pending or threatened any proceeding
seeking material damages on account of the Plan of Merger or the consummation of
the Merger or any of the other Transactions which Merger Sub determines could
reasonably be expected to result in Besicorp incurring a material amount of
damages or expenses, after taking into account applicable insurance coverage; or
(g) the Base Amount is less than $105,275,000.
In addition, the Plan of Merger may be terminated and the Merger may be
abandoned at any time prior to the Effective Date, by Besicorp, if: (a) there
has been a material breach of any agreement therein on the part of Merger Sub
which has not been cured or adequate assurance of cure given, within ten
business days following notice of such breach from Besicorp; (b) generally,
there has been a breach of a representation or warranty of Acquisition or Merger
Sub therein which could reasonably be expected to prevent Acquisition or Merger
Sub from fulfilling its obligations under the Plan of Merger; or (c) the Board
determines to enter into and enters into a definitive agreement providing for a
Superior Proposal and, among other things, Besicorp
<PAGE>
simultaneously pays to Merger Sub the Termination Payment of $3.5 million and
Covered Expenses, up to a maximum of $600,000.
Remedies
Notwithstanding any termination right described under "--Right to
Terminate," in the event of the nonfulfillment of any condition to a party's
closing obligations, such party may elect to do one of the following: (a)
proceed to close despite the nonfulfillment of any closing condition without
waiving any claim for any breach and without waiving any right to proceed under
the Indemnification Agreement; (b) decline to close, terminate the Plan of
Merger as described under "--Right to Terminate" and thereafter seek damages to
the extent described under "--Damages"; or (c) seek specific performance of the
obligations of the other party.
Damages
If the Plan of Merger is terminated as described under "--Rights to
Terminate," no party will have any claim against the others, except as follows:
Generally, a party terminating the Plan of Merger will retain all of
such party's legal rights if the circumstances giving rise to such termination
were (i) caused by another party's willful failure to comply with a material
covenant set forth in the Plan of Merger or (ii) that a material representation
or warranty of such other party was materially false when made and that party
knew or should have reasonably known such representation or warranty was
materially false when made.
If (x) Besicorp terminates the Plan of Merger because the Board enters
into a definitive agreement providing for a Superior Proposal in accordance with
certain specified procedures or because the Board shall have breached its
agreements with respect to (i) the withdrawal or modification of its approval or
recommendation of the Plan of Merger, the Merger or any of the Transactions,
(ii) the approval or recommendation or public proposal to approve or recommend
an Acquisition Proposal, (iii) causing Besicorp to enter into any agreement
relating to an Acquisition Proposal, or (iv) resolving to do any of the
foregoing; or (y) Buyer terminates the Plan of Merger because (a) the Board
shall have (i) withdrawn or modified its approval or recommendation of the Plan
of Merger, the Merger or any of the Transactions, (ii) approved or recommended
or publicly proposed to approve or recommend an Acquisition Proposal, (iii)
caused Besicorp to enter into any such agreement with respect to an Acquisition
Proposal, or (iv) resolved to do any of the foregoing unless certain conditions
are met, (b) a tender offer or exchange offer for 15% or more of the shares of
Besicorp Common Stock is commenced, and the Board fails to recommend against
acceptance of such tender offer or exchange offer within the time period
required by Section 14e-2 of the Exchange Act or any person acquires by any
means 20% or more of the outstanding shares of Besicorp Common Stock or (c)
Besicorp shall have breached any of its covenants or agreements with respect to
Acquisition Proposals, and
<PAGE>
Acquisition and Merger Sub are ready, willing and able to execute definitive
documentation to effect the Financing or substantially similar financing
arrangements, Besicorp will pay Merger Sub the Termination Payment, reimburse
Buyer for their Covered Expenses (up to a maximum of $600,000) and, if Besicorp
has exercised its Extension Request, pay the Extension Fee.
If the Plan of Merger is terminated because upon a vote at the Meeting,
Besicorp's shareholders do not adopt the Plan of Merger, (x) Besicorp will pay
Merger Sub, Buyer's Covered Expenses up to $600,000 and (y) if Michael F. Zinn
or his direct or indirect transferees have failed to vote in person or by proxy
at least 1,600,000 shares in favor of the Merger and any other matter presented
to shareholders in connection with the Merger, Besicorp shall pay the
Termination Payment to Merger Sub and, if Besicorp has exercised its Extension
Request, the Extension Fee. For information regarding, Michael F. Zinn's
holdings of Common Stock see "Business of the Company--Security Ownership of
Certain Beneficial Owners and Management" If the Plan of Merger is terminated
(x) because, upon a vote at the Meeting, Besicorp's shareholders do not adopt
the Plan of Merger or (y) by Besicorp, or Acquisition and Merger Sub because the
Merger shall not have been consummated by 11:59 P.M. on March 1, 1999, or, if
Besicorp has exercised its Extension Request, on March 15 (provided that this
right shall not be available to the party whose failure to fulfill its
obligations under the Plan of Merger shall have been the cause of the failure to
consummate the Merger) and Besicorp, on or before March 31, 1999 enters into a
written agreement to effect an Acquisition Proposal with, or an Acquisition
Proposal is made by, a party other than Acquisition, Merger Sub or any of their
subsidiaries, and the Acquisition Proposal is thereafter consummated, Besicorp
will pay to Merger Sub the Termination Payment plus the amount of the Covered
Expenses to the extent not paid under the immediately preceding sentence and, if
Besicorp has exercised its Extension Request, the Extension Fee.
If the Plan of Merger is terminated by Buyer because (a) generally
either (i) there has been a material breach of any material agreement contained
therein (with certain exceptions) on the part of Besicorp which breach has not
been cured or adequate assurance of cure given, within ten business days
following notice of such breach from Merger Sub or (ii) either of the
Indemnification Agreement or the Escrow Agreement shall not be a valid, legal
and binding agreement or enforceable against Newco, (b) there has been a breach
of a representation or warranty of Besicorp therein, the Damages from which
Merger Sub reasonably determines would cause the Base Amount to be less than
$105,275,000, (c) there shall be pending or threatened any proceeding seeking
material damages on account of the consummation of any of the Transactions which
Merger Sub determines could reasonably be expected to result in Besicorp
incurring a material amount of damages or expenses, after taking into account
applicable insurance coverage, or (d) the Base Amount is less than $105,275,000,
Besicorp shall reimburse Acquisition and Merger Sub for their Covered Expenses
up to a maximum of $600,000 and, if Besicorp has exercised its Extension
Request, pay the Extension Fee.
<PAGE>
If Merger Sub and Acquisition terminate the Plan of Merger solely as a
result of their having not received the proceeds of the Financing, Buyer shall
reimburse Besicorp for its Covered Expenses up to $600,000.
INDEMNIFICATION AGREEMENT
The Indemnification Agreement between Acquisition, Merger Sub and Newco
will be entered into at the Closing; all terms capitalized in this section
without being defined shall have the meanings given to them in the Plan of
Merger. The Indemnification Agreement provides that Newco shall indemnify, save
and keep Acquisition, Merger Sub, the Surviving Corporation and the Remaining
Subsidiaries and their respective affiliates and agents (the "Purchaser
Indemnitees") harmless and defend against and from all Damages sustained or
incurred by any Purchaser Indemnitee as a result of, or arising out of, by
virtue of, or in connection with:
(a) any inaccuracy in or breach of any representation and
warranty made by Besicorp in the Plan of Merger or in any closing document
delivered in connection with the Plan of Merger; (b) any breach by Besicorp of,
or failure by Besicorp to comply with, any of its covenants or obligations under
the Plan of Merger or under the Indemnification Agreement; (c) the existence of
any Liability or other obligation of Besicorp or any Subsidiary as of the
Closing Date or arising out of or relating to the Merger or any claim against a
Purchaser Indemnitee with respect to any such Liability or obligation or alleged
Liability or obligation other than the Permitted Liabilities, including, without
limitation, Liability on account of Taxes payable by Besicorp or for which
Besicorp is liable; (d) the failure of Newco or any Subsidiary to pay and
discharge in full when due any of their respective Liabilities whenever or
however arising or existing, including liability on account of Taxes other than
the Permitted Liabilities; (e) any claims for indemnification by current or
former officers, directors, employees, agents or consultants of Besicorp or any
Subsidiary; (f) any third party claim (which includes certain litigation
specified in the Indemnification Agreement (the "Existing Litigation")) to the
extent it arises out of or relates to any action or inaction of, or the conduct
of the business of Besicorp or any Subsidiary on or prior to the Closing Date
other than the Permitted Liabilities; (g) any violation of, or delinquency with
respect to, any order or arbitration award or statute, or regulation in effect
on or prior to the Closing Date of or any agreement of Besicorp (or any
Subsidiary) with, or any license, Permit or Environmental Permit granted to
Besicorp (or any Subsidiary) by any federal, state or local governmental
authority to which the properties, assets, personnel or business activities of
Besicorp (or any Subsidiary) are subject (or to which Besicorp (or any
Subsidiary) is subject as it relates to the properties, assets, personnel or
business activities of Besicorp (or any Subsidiary)); (h) any generation,
transportation, storage, treatment, disposal, release or threatened release of
any Hazardous Materials occurring on or prior to the Closing Date regardless of
when liability is asserted, at any facility of Besicorp (or any Subsidiary); (i)
certain discharges or releases to or from storm, ground or surface waters or
wetlands, and any air emissions or pollution; (j) certain exposure of and
resulting consequences to any persons, including, without limitation, employees
<PAGE>
of Besicorp (or any Subsidiary or any agent of Besicorp or any Subsidiary), due
to any Hazardous Materials used at a facility or otherwise used by Besicorp (or
any Subsidiary); (k) certain violations or alleged violation of, or obligations
imposed by, any environmental law or environmental permit; (l) certain matters
relating to employee pension benefit plans of Besicorp or its affiliates; (m)
any federal or state taxes imposed upon Besicorp, or for which Besicorp is
liable, with respect to any taxable period or portion of a taxable period ending
on or prior to the Closing Date other than a Permitted Liability; (n) litigation
against Besicorp and/or the Subsidiaries pending or threatened as of the Closing
Date; and (o) any claims, investigations, proceedings, actions or lawsuits
asserted or initiated before or after the Closing arising out of or in
connection with pre-closing occurrences involving Besicorp and/or the
Subsidiaries.
With certain exceptions, the Purchaser Indemnitees shall not be
entitled to indemnification (i) unless a notice of a claim has been delivered to
Newco prior to the fifth anniversary of the Closing Date; (ii) to the extent the
aggregate claims actually paid by Newco or any of its Subsidiaries to the
Purchaser Indemnitees thereunder exceeds the aggregate Merger Consideration;
(iii) for Damages to the extent such Damages were expressly included in the
Adjustment Amount pursuant to the Plan of Merger; (iv) with respect to
consequential damages relating to lost profits or punitive damages (other than
consequential damages or punitive damages paid or payable to, or claimed by
third parties); and (v) with respect to Damages arising from time spent by
Acquisition or its affiliates and their respective officers and employees, for
amounts in excess of their actual out-of-pocket costs.
The payment of any Damages to which the Purchaser Indemnitees are
entitled pursuant to the Indemnification Agreement shall first be satisfied from
funds held in the Escrow Account, pursuant to the terms of the Escrow Agreement
to the extent available, until the Escrow Account has been reduced to zero and
thereafter shall be satisfied by Newco directly.
ESCROW AGREEMENT
The Escrow Agreement between Buyer, Besicorp and Newco will be entered
into at the Closing; all terms capitalized in this section without being defined
shall have the meanings given to them in the Plan of Merger. The Plan of Merger
provides that Besicorp will deposit at Closing with the Escrow Agent an
aggregate of $6,000,000 (the "Escrow Funds"), which $6,000,000 will be obtained
from Besicorp's general corporate funds, to be administered under the terms of
the Escrow Agreement. The Escrow Fund serves to fund claims for (A) indemnity
made by the Buyer pursuant to the Indemnification Agreement, including any
claims of Buyer with respect to the Existing Litigation and other matters to be
prosecuted or defended by Newco (the "Newco Assumed Matters") arising from the
failure of Newco to diligently prosecute or defend such Newco Assumed Matters,
Buyer's out-of-pocket expenses (not to exceed $40,000 per year) incurred if it
is represented by counsel with respect to the Newco Assumed Matters ("Buyer
Monitoring Costs") and any payment of fees and expenses of the Paying Agent
pursuant to the
<PAGE>
Plan of Merger (all such claims, "Buyer Indemnity Claims"); (B) certain claims
for tax refunds made by Besicorp if the refunds are not received prior to March
31, 1999 ("Tax Return Claims") and (C) costs and expenses relating to (i) Newco
Assumed Matters; (ii) litigation arising out of or relating to any such Newco
Assumed Matters; (iii) indemnification of claims against Besicorp's directors
and officers (prior to the Merger) for actions in their official capacity
preceding the date of the Merger; or (iv) in connection with matters arising out
of or relating to the Merger or the Spin-Off (collectively "Litigation Costs").
The Escrow Agent is to disburse Escrow Funds upon request to the Buyer,
with respect to Buyer Indemnity Claims, Buyer Monitoring Costs or Tax Return
Claims, and to Newco, with respect to Litigation Costs, unless the other party
objects to such disbursement. Newco may not object to the Tax Return Claims. If
a party objects, the Escrow Agent is not to disburse such funds until it
receives (i) the joint written direction of Newco and Buyer, (ii) a written
instrument representing a final and non-appealable order with respect to the
disposition of such amount issued by an arbitrator or (iii) a certified copy of
a final and non-appealable judgment of a court of competent jurisdiction
directing the disbursement of such funds (collectively, the "Escrow Fund
Determination Procedure"). Notwithstanding the foregoing, Newco is not to
unreasonably withhold its consent to a request by Buyer for payment of Buyer
Indemnity Claims and Acquisition is not to unreasonably withhold consent for
payment of Litigation Costs.
All remaining proceeds of the Escrow Fund, if any, will be released to
Newco at any time following the fifth anniversary of the date of the Escrow
Agreement provided that all of the following conditions have occurred and notice
has been provided by Newco to the Escrow Agent: (a) no claims are then subject
to the Escrow Fund Determination Procedure; (b) in the reasonable judgment of
Buyer, no future Buyer Indemnity Claims are foreseeable; and (c) all Newco
Assumed Matters have been finally settled through either (A) a final,
non-appealable judgment against the Surviving Corporation and all Purchaser
Indemnitees; or (B) a settlement or other conclusion to the Newco Assumed Matter
that (x) contains a release from all liability in favor of the Surviving
Corporation and Purchaser Indemnitees without any further obligation by the
Surviving Corporation or Purchaser Indemnitees to make any payment or incur any
other Liability or Obligation with respect to such matter, (y) does not
attribute by its terms liability to the Surviving Corporation or any Purchaser
Indemnitee and (z) if the scheduled matter is litigation or a proceeding,
includes as a term thereof a full dismissal of the litigation or proceeding with
prejudice. Newco and Buyer also agree they will meet no less than annually for
the purpose of examining the amounts set forth in the Escrow Fund and the
amounts of Buyer Indemnity Claims and Litigation Costs expended from the Escrow
Fund, for the purpose of determining whether the amount of the Escrow Fund is
more than sufficient to secure Buyer pursuant to the Indemnification Agreement.
The Escrow Agreement contains additional provisions including those
regarding investment of and taxation on the Escrow Fund, outlining the Escrow
Agent's duties and responsibilities, limiting the Escrow Agent's liability
except in the case of its bad faith, willful
<PAGE>
default or gross negligence, permitting the Escrow Agent to resign, allowing the
Escrow Agent to rely upon notices it believes genuine and duly authorized
without further verification and limiting its responsibilities with respect to
interest payable on the Escrow Funds.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
All representations, warranties and agreements set forth in the Plan of
Merger or in any document or certificate delivered pursuant thereto shall
survive the Merger for a period of five years following the Effective Date,
subject to the terms of the Indemnification Agreement.
EFFECT ON OPTIONS, WARRANTS AND RESTRICTED STOCK
Prior to the Effective Date, Besicorp will (a) cause each outstanding
option to purchase shares of Besicorp Common Stock (each, a "Stock Option")
granted under the Besicorp Group Inc. Amended and Restated 1993 Incentive Plan
(the "1993 Plan") or pursuant to any other Stock Option plan or agreement or any
restricted agreement entered into by Besicorp with any employee or director of
Besicorp or any of its affiliates, whether or not then vested or exercisable, to
become vested and exercisable, (b) cause each outstanding warrant (each, a
"Warrant") to purchase Besicorp Common Stock to become exercisable to the extent
not currently exercisable, and (c) take such action as is necessary to cause
each holder of a Stock Option or Warrant to exercise such Stock Option or
Warrant in full including paying in cash the exercise price (it being understood
that neither Besicorp nor any Remaining Subsidiary will directly or indirectly
provide or guarantee any financing or loan arrangements) so that there are not
outstanding Stock Options or Warrants at the Effective Date.
FEES AND EXPENSES
The Plan of Merger provides generally that whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Plan of
Merger and the transactions contemplated thereby shall be paid by the party
incurring such expenses, except as described under "Termination."
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Balance Sheet of
Besicorp Group Inc. as of September 30, 1998, and the Unaudited Pro Forma
Consolidated Statements of Operations for the year ended March 31, 1998, and the
six months ended September 30, 1998, have been prepared to reflect the effects
on the historical results of Besicorp Group Inc. of: (i) the transfer to Newco
of substantially all of the assets and liabilities of the Distributed Businesses
after the repayment of $97,135 of Newco debt by Besicorp prior to the Spin-Off,
distribution of the shares of Newco Common Stock to the Entitled Holders, and
the transfer to Newco of $1 million (though the amount of such contribution may
be increased to $2 million); (ii) the leasing of the Corporate Headquarters to
Newco; (iii) the payment of bonuses to executive officers of Besicorp of $2
million; (iv) the estimated proceeds from the sales of the Power Plants; (v)
receipt of cash reserves from the Partnerships; (vi) the contribution of $6
million by Besicorp to the Escrow Fund and (vii) the exercise of all outstanding
options and warrants as if they had been exercised and as if at the time they
were exercised the fair market value of a share of Besicorp Common Stock were
$30.375, the closing price of such stock on January 5, 1999, the date that
substantially all of such options and warrants were exercised and the removals
of restrictions from the shares of restricted stock.
The Unaudited Pro Forma Consolidated Balance Sheet has been prepared as
if the transactions occurred on September 30, 1998; the Unaudited Pro Forma
Consolidated Statements of Operations have been prepared as if the transactions
occurred on April 1, 1997. The pro forma financial information set forth below
is unaudited and not necessarily indicative of the results that would actually
have occurred if the transactions had been consummated as of September 30, 1998,
or April 1, 1997, or the results which may be obtained in the future.
The pro forma adjustments, as described in the Notes to the Unaudited
Pro Forma Consolidated Balance Sheet and Notes to the Unaudited Pro Forma
Consolidated Statements of Operations are based on available information and
upon certain assumptions that management believes are reasonable. The Unaudited
Pro Forma Consolidated Financial Information should be read in conjunction with
the historical financial statements of Besicorp Group Inc., including the
related notes thereto contained in the Annual Report and Quarterly Report.
<PAGE>
<TABLE>
<S>
BESICORP GROUP INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1998
------------------------------------------------------------------------------
<C> <C> <C> <C>
ASSETS Historical Adjustments Pro Forma
Current Assets:
Cash and securities $119,275,192 $(2,000,000) (6) $125,556,992
51,000 (1)
102,000 (1)
488,039 (2)
(1,059,239) (3)
(6,000,000) (4)
10,700,000 (5)
4,000,000 (7)
Trade accounts receivable 596,973 (591,407) (3) 5,566
Due from affiliates 61,035 (61,035) (3)
Current portion of long-term notes receivable:
Others 124,649 (124,649) (3)
Inventories 1,241,658 (1,241,658) (3)
Other current assets 387,334 (283,052) (2) 104,282
------------------------------------------- --------------------
Total current assets 121,686,841 3,977,999 125,666,840
Net Property, Plant and Equipment 2,002,136 (958,106) (3) 1,044,030
Other Assets 18,965,521 (10,700,000) (5) 4,108,506
(4,000,000) (7)
(157,015) (3)
--------------------- ---------------------- ---------------------
TOTAL ASSETS $ 142,654,498 $ (11,835,122) $ 130,819,376
==================== ====================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,262,636 $ (1,078,763) (3) $ 139,797
(44,076) (2)
Current portion of long-term debt 136,746 (20,000) (2) 116,746
Current portion of accrued reserve and warranty expense 144,769 (144,769) (3)
Taxes other than income 127,630 (113,212) (2) 14,418
<PAGE>
Income taxes payable 48,136,426 (1,695,689) (1) 46,440,737
------------ ------------ ------------
Total Current Liabilities 49,808,207 (3,096,509) 46,711,698
Long-Term Accrued Reserve and Warranty Expense 161,390 (161,390) (3)
Long-term Debt 691,618 (127,022) (3) 564,596
------------ ------------- ------------
Total Liabilities 50,661,215 (3,384,921) 47,276,294
------------ ------------- ------------
Shareholders' Equity
Common stock 323,495 323,495
Additional paid-in capital 5,445,530 1,631,616 (2) 7,077,146
Retained earnings 87,842,255 (2,842,150) (1) 77,188,942
(2,831,005) (1)
(6,000,000) (4)
61,200 (1)
958,642 (1)
-------------- --------------- ------------
93,611,280 (9,021,697) 84,589,583
Less: treasury stock at cost (1,617,997) 571,496 (2) (1,046,501)
--------------- ---------------- -------------
Total Shareholders' Equity 91,993,283 (8,450,201) 83,543,082
-------------- ---------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 142,654,498 $ (11,835,122) $ 130,819,376
==================== ===================== ====================
Notes:
(1) Represents the effects of pro forma income adjustments.
(2) Exercise of entitlements and warrants.
(3) To remove businesses spun off.
(4) To record escrow payment for businesses spun off.
(5) To record estimated proceeds from sale of partnership plants.
(6) To reflect bonus payments.
(7) To reflect release of reserves retained in partnerships.
<PAGE>
BESICORP GROUP INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended September 30, 1998 Year ended March 31, 1998
Historical Adjustment Pro Forma Historical Adjustments Pro Forma
Revenues:
Product sales: $ 2,085,690 $(2,085,690)(1) $ $ 3,838,351 $(3,838,351)(1) $
Development and management
fees 2,043,334 2,043,334 2,504,601 2,504,601
Other revenues 233,355 (227,321)(1) 6,034 436,689 (426,154)(1) 10,535
Income from partnerships 136,704,931 136,704,931 10,058,849 10,058,849
Interest and other investment
income 2,824,932 (13,204)(1) 2,811,728 175,766 (35,482)(1) 140,284
Other income
(5,566)(1)
51,000 (2) 51,000 102,000 (2) 96,434
----------- ----------- ----------- ---------- ------------- -------------
Total Revenues 143,892,242 (2,275,215) 141,617,027 17,014,256 (4,203,553) 12,810,703
----------- ----------- ----------- ---------- ------------- -------------
Cost and Expenses:
Cost of product sales 1,966,269 (1,981,867)(1) (15,598) 3,899,967 (3,932,301) (1) (32,334)
Selling, general and administrative
expense 5,830,355 2,000,000 (3) 9,560,590 2,000,000 (3)
1,190,180 (4) 1,190,180 (4)
(4,540,298)(1) 4,480,237 (8,638,780) (1) 4,111,990
Interest expense 120,098 (92,193)(1) 27,905 513,765 (451,178) (1) 62,587
Other expense 8,807 (8,807)(1) 2,513,548 (2,508,214) (1) 5,334
------------- -------------- ----------------- ------------ -------------- -----------------
Total Costs and Expenses 7,925,529 (3,432,985) 4,492,544 16,487,870 (12,340,293) 4,147,577
---------- ------------- ----------------- ------------ -------------- -----------------
Income Before Income Taxes 135,966,713 1,157,770 137,124,483 526,386 8,136,740 8,663,126
Provision for Income Taxes 47,509,199 199,128 (5) 47,708,327 331,000 2,565,328 (5) 2,896,328
--------------- ------------- ----------- --------- ----------- ------------
Net Income $88,457,514 $ 958,642 $89,416,156 $195,386 $5,571,4126 $ 5,766,798
=========== ============= =========== ============= ========== ============
Pro Forma Income Per Common Share $ 29.30 (6) $ 1.89 (6)
================ ================
</TABLE>
Notes:
(1) To remove businesses spun off.
(2) Represents rental of corporate headquarters.
(3) To reflect bonuses.
(4) To reflect entitlements and warrants.
(5) To record tax effect of pro forma adjustments.
(6) Pro forma income per share based on 3,051,435 shares, fully diluted.
<PAGE>
BUSINESS OF THE COMPANY
Background
Historically, Besicorp has been engaged in two general lines of
business - the development of and participation in the operation and management
of independent domestic and foreign power plant projects (the "Power Plant
Activities") and the development, assembly, manufacture, marketing and resale of
photovoltaic products and systems ("Photovoltaic Activities"). The Power Plant
Activities generally have focused on the development, with the assistance of
partners, of power plants that generate electric power. The Photovoltaic
Activities historically focused on solar energy products and currently focuses
on the development, manufacture and installation of photovoltaic devices and
systems (i.e., products that convert light directly into electric power).
Power Plant Activities - Recent Developments
Besicorp has engaged in the development of independent power plants.
Besicorp has developed projects jointly with partners and held its ownership
interests, generally in the form of partnership interests, through
special-purpose entities. Financing for these entities has been secured solely
by their respective assets. Besicorp has an interest in a development project to
build a coal fired power plant near the village of Krishnapatnam located 120
miles north of Chennai (Madras) on India's eastern coast. BBI Power Inc.,
("BBI") the project company developing the power plant near Krishnapatnam, is
50% owned by a subsidiary of Besicorp and 50% owned by Chesapeake Power
Investments Co.
In addition, until recently Besicorp had interests in five completed
gas-fired, operational cogeneration plants (the "Power Plants"). Revenues and
income from the Power Plant Activities historically were generated through
development fees and the operations and management of the Power Plants,
including the sale of electrical power and capacity by the Power Plants to
Niagara Mohawk pursuant to the Power Purchase Agreements and the Partnership
Interests. During the fiscal years ended March 31, 1998 and 1997, in the
aggregate, all of Besicorp's net income and at least 70% of its total revenues
were derived from the Power Purchase Agreements and the operations and
management of five Power Plants which supplied power and capacity to Niagara
Mohawk pursuant to the Power Purchase Agreements.
Pursuant to the terms of the MRA, the Power Purchase Agreements were
terminated. A total of 323 megawatts of capacity and energy were provided to
Niagara Mohawk pursuant to the Power Purchase Agreements. As a result of the MRA
and related transactions, and the current operations of the project
partnerships, Besicorp received through September 30, 1998 (i) 4,615,770 shares
of Niagara Mohawk Common Stock and (ii) net cash of approximately $59 million,
of which approximately $8 million is reserved at the partnership level primarily
in regard to ongoing obligations of the projects. The closing price of the
Niagara Mohawk Common Stock on June 30, 1998 was $14.94 per share for an
aggregate value of approximately $69 million.
<PAGE>
During the second quarter of Fiscal 1999, Besicorp recorded income, which is
non-recurring, of approximately $133.2 million, predominantly as a result of the
MRA and, to a minimal extent, the second quarter operating results of the
Partnerships. This amount gives effect to a write-down taken to reflect the
impaired value of two Power Plants owned by Partnerships due to the termination
of the Power Purchase Agreements. With respect to the Partnerships holding
leasehold interests in the remaining three Power Plants which supplied power and
capacity to Niagara Mohawk pursuant to the Power Purchase Agreements, this
amount reflects costs associated with the termination of those long-term leases
reduced by the expected credit to be received at disposition of the facility
based on its net realized value.
As a result of the MRA, Niagara Mohawk ceased to purchase the
electrical capacity generated by the Power Plants. Consequently, the
Partnerships sold all five of these Power Plants in November and December 1998
for which Besicorp will receive net proceeds of approximately $10.7 million. In
addition, as a result of a bankruptcy settlement, Besicorp no longer has any
interest in a sixth gas-fired cogeneration plant that was not operational. As a
result of these sales, Besicorp is not currently involved, directly or
indirectly, in the operation and management of any operating power plants.
Photovoltaic Activities
Besicorp develops, assembles, markets and distributes photovoltaic
modules, power systems and related products for a variety of applications.
Besicorp has developed solar power supply products for the portable computer,
wireless electronics and telecommunications industries, solar power accessories
for motor vehicles, electric boats and telemetry, as well as a polymer
encapsulation production processes for photovoltaic modules that can be
integrated into other products for consumer, commercial and industrial use. In
addition, Besicorp markets and sells prepackaged solar electric power products
and systems, system components, and system accessories ranging from small
battery chargers, to water pumping kits, to outdoor lighting, to portable power
generators, to PV power stations. Information regarding the Photovoltaic
Activities will be contained in the Information Statement to be distributed to
Besicorp's shareholders in connection with the Spin-Off.
Employees
As of December 31, 1998, Besicorp had 74 employees of which 71 were
full time employees. None of these employees are represented by a union. In the
opinion of management, its relationship with its employees is satisfactory. It
is anticipated that most of such employees will be employed by Newco following
the Spin-Off.
<PAGE>
<TABLE>
<S>
<C> <C>
Properties
Location of Property Nature of Ownership Use of Property
Kingston, New York Owned Besicorp's corporate
(Includes land and the 8,000 headquarters (the "Corporate
square foot building thereon) Headquarters")
Ellenville, New York Owned Previously used by a
(Includes land and the 52,000 subsidiary of Besicorp.
square building thereon)
Stelle, Illinois Lease, expiring April 1999, Photovoltaic Activities uses
(Lease of 2,000 square feet) for $575 per month as sales office.
Kingston, New York Lease for $8,500 per month, Photovoltaic Activities uses
(Lease of 17,000 square feet) expiring March 1999, subject 2,000 square feet for
to automatic renewal for administrative purposes and
successive six month periods balance is used for
warehousing, manufacturing
and assembly
Ulster, New York Owned Investment purposes
(approximately 28 acres of
unimproved property)
</TABLE>
The Corporate Headquarters will not be distributed to Newco in the
Contribution. Instead it will be retained by Besicorp and therefore belong to
the Surviving Corporation following the Merger. However, the consummation of the
Merger is subject to Merger Sub's satisfaction with the results of their
environmental investigation of the Corporate Headquarters and, as part of the
Spin-Off (which also is a condition to the consummation of the Merger), Newco is
required to lease the Corporate Headquarters from the Surviving Corporation for
$8,500 per month for the first 18 months and thereafter for $12,500 per month
pursuant to a five year lease. Newco has the option to purchase the premises
after the twelfth month and before the eighteenth month for $450,000 and the
Surviving Corporation has the right commencing with the 37th month of the lease
to require Newco to purchase the premises for $400,000. The other properties
will be transferred to Newco pursuant to the Contribution Agreement. See "The
Spin-Off."
<PAGE>
Legal Proceedings
In January 1999, Alan Fenster ("Fenster") commenced an action in the
New York Supreme Court, New York County, against Besicorp, Merger Sub,
Acquisition, Josephthal and each of the members of the Board. In the complaint
Fenster indicates that he is seeking class certification. The complaint alleges
that the Merger Consideration is inadequate and less than Besicorp's intrinsic
value, that in adopting the Plan of Merger the Board has been unduly influenced
by Michael F. Zinn and the Board has breached its fiduciary duty to its
shareholders; the complaint also alleges that Mr. Zinn and the other members of
the Board will receive an unlawful additional consideration that the remaining
shareholders will not receive: the Escrow Fund, that, according to the
complaint, has been established primarily to benefit them, the acceleration of
certain of their Rights and bonuses for certain members of senior management.
Fenster is seeking, among other things, to enjoin the Merger, as well as
unspecified compensatory damages and an order that the defendants shall take
appropriate measures to maximize shareholder value. Besicorp has not yet
answered the complaint. Management believes that there are meritorious defenses
to this action. Management maintains that the Merger Consideration is adequate
for the reasons set forth under "Factors to be Considered-- Recommendation of
the Board of Directors; Fairness of the Merger" and that Fenster has
mischaracterized the Escrow Fund, which, according to Fenster, is a benefit that
the members of the Board will receive and that the other shareholders will not
receive. As discussed under "Plan of Merger--Escrow Agreement," the Escrow Fund
funds Besicorp's indemnification obligations and is required pursuant to the
Plan of Merger at the request of Buyer who wanted the Escrow Fund to protect it
from potential claims. Thus, the Escrow Fund primarily serves to protect the
Buyer; it only affords the members of the Board the protection to which they are
entitled by the BCL and Besicorp's by-laws, and only to the extent that they are
entitled to indemnification for actions taken by them in their official
capacities prior to the Merger. As they are already entitled to indemnification
for these matters, the establishment of the Escrow Fund only serves to ensure
their ability to collect the indemnification to which they are entitled. In
addition, the acceleration of the Rights is also mischaracterized in that many
of the Rights, including 46% of Mr. Zinn's Rights, consist of restricted shares
of Besicorp Common Stock which currently are outstanding and would ordinarily be
converted into merger consideration upon the effectiveness of a merger.
Moreover, the Buyer wanted to ensure that no Rights would survive the
effectiveness of the Merger and thus required Besicorp to take action to ensure
that no Rights would remain. See "Plan of Merger--Effect on Options, Warrants
and Restricted Stock." Management believes that the remaining benefits are
neither unusual nor inappropriate upon the consummation of an extraordinary
transaction such as the Merger for the chief executive officer who has served a
company for more than twenty years and other members of senior management.
In December 1998, Energy Investment Research, Inc. ("EIR") commenced an
action in the New York Supreme Court, Westchester County, against Besicorp. The
complaint alleges among other things, that Besicorp is obligated to pay EIR 1.5%
of all net cash and/or securities received by Besicorp from its general
partnership interests in the Carthage and South Glen Falls
<PAGE>
Partnerships (the "Projects"). EIR seeks, among other things, declaratory
judgment that it is entitled to 1.5% of the distributions from the MRA relating
to the Projects, and has asked for payments in excess of $750,000. Management
believes that there are meritorious defenses to this action.
In June 1997, Besicorp and Mr. Michael Zinn (then and currently the
Chairman of the Board, Chief Executive Officer and President of Besicorp), each
entered a guilty plea, in the United States District Court for the Southern
District of New York, to one count of causing a false statement to be made to
the Federal Election Commission and one count of filing a false tax return, all
in connection with contributions to the 1992 election campaign of Congressman
Maurice Hinchey (the "Proceeding"). As a result of such pleas, Besicorp was
fined $36,400, and Mr. Zinn was fined $36,673 and sentenced to a six-month term
of incarceration (which commenced November 1997 and has been completed), and a
two-year term (which commenced in May 1998) of supervised release thereafter. He
resigned as Chairman of the Board, Chief Executive Officer and President of
Besicorp in November 1997 and was reappointed to such positions in May 1998.
In August 1997, John Bansbach commenced a shareholder derivative action
in the New York Supreme Court, Ulster County, entitled John Bansbach v. Michael
F. Zinn, Michael J. Daley, Gerald A. Habib, Harold Harris, Richard E. Rosen, and
Besicorp Group Inc., Index No. 97-2573 (the "Bansbach Litigation"). Besicorp was
named as a nominal defendant in this matter and the other named defendants
either were officers and/or directors of Besicorp at the time of the alleged
acts or omissions for which relief is sought or became officers and/or directors
thereafter. The plaintiff sought to hold such persons liable to Besicorp: (a)
for all sums advanced to or on behalf of Mr. Michael F. Zinn in connection with
his defense of the Proceeding; (b) for all sums advanced to or on behalf of Mr.
Michael Daley, who was subpoenaed for information in connection with this
matter; (c) for all legal expenses, costs and fines incurred by Besicorp itself
in connection with the Proceedings; (d) for all harm to Besicorp's reputation
and goodwill resulting from the Proceedings; (e) for punitive damages; and (f)
for plaintiff's attorneys' fees, costs and expenses. The Court dismissed the
action, stating that the plaintiff had failed to make the requisite pre-suit
demand upon the Board and had failed to demonstrate that such a demand would be
futile. The plaintiff has appealed this decision.
On March 29, 1993 James Lichtenberg commenced a shareholder's
derivative action now pending in New York Supreme Court, Ulster County, entitled
Lichtenberg v. Michael F. Zinn, Steven I. Eisenberg, and Martin E. Enowitz, et
al. (the "Lichtenberg Litigation"). Besicorp is named as nominal defendant in
this shareholder's derivative action and the other defendants were Directors and
officers at the time the action was filed. The complaint alleges that the
Directors breached their fiduciary duties to Besicorp 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 Besicorp's
interest in various partnerships which own and operate cogeneration facilities,
which allegedly depressed the price of Besicorp's stock. The plaintiff is
<PAGE>
seeking an award of damages to Besicorp, including punitive damages and
interest, an accounting and the return of assets to Besicorp, the appointment of
independent members to the Board, the cancellation of shares allegedly
improperly granted, and the award to the plaintiff of costs and expenses of the
lawsuit including legal fees. The Court dismissed the action based on the
recommendation of the special litigation committee (comprised of independent
outside directors of Besicorp) that concluded that the continuation of such
litigation was not in the best interests of Besicorp. The plaintiff has appealed
this decision.
The plaintiffs in the Bansbach Litigation and Lichtenberg Litigation
may not able to maintain their actions as shareholder derivative suits if the
Merger is consummated. See "Factors to be Considered - Interests of Executive
Officers and Directors in the Merger."
Besicorp is a party to a legal proceeding in New York Supreme Court,
Ulster County, that was commenced on June 20, 1995, seeking a determination that
Martin Enowitz ("Enowitz"), a former director and executive officer of Besicorp,
is not entitled to the 100,000 Disputed Shares. Besicorp believes that such
shares were forfeited when he left the employ of Besicorp prior to the scheduled
vesting dates with respect to such shares and that, as a result, he was
obligated to resell the shares to Besicorp. (Enowitz asserts, among other
things, that such vesting schedule was not applicable to him because he was
disabled. Besicorp, among other things, disputes Enowitz's allegation that he
was disabled.) Because of the uncertainty with respect to the ownership of these
shares, the Plan of Merger provides that the Merger Consideration payable in
respect of such shares is to be held in escrow pending resolution of the dispute
regarding the ownership of these shares and the rights, if any, of Acquisition,
Merger Sub or the Surviving Corporation to such Merger Consideration will be
assigned without recourse to Besicorp's shareholders. The Merger Consideration
for such shares amounts to approximately $3,450,000, subject to upward (but not
downward) adjustment as provided in the Plan of Merger. If it is determined that
Mr. Enowitz was not entitled to the Disputed Shares, Besicorp's shareholders
will receive, on a pro rata basis, such monies less Besicorp's costs (estimated
to be less than $100,000) to repurchase such shares.
Besicorp is a party to a number of additional legal proceedings, the
details with respect to which, to the extent such proceedings are material to
Besicorp, may be found in the Annual Report and the Quarterly Report. Besicorp's
liabilities and rights with respect to the legal proceedings to which it is a
party are being assumed by and assigned to Newco pursuant to the Contribution
Agreement (as defined below). It is anticipated that the Escrow Fund will be
used to fund the legal and other costs of these proceedings. See "Plan of Merger
- - Escrow Agreement" and "--Indemnification Agreement."
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table shows the shares of Besicorp Common Stock owned as
of January 22, 1999 by each current director, the five persons currently serving
as executive officers and by all present directors and executive officers as a
group. Except as otherwise provided in the footnotes to the table, the
beneficial owners have sole voting and investment power as to all securities.
<TABLE>
<S>
<C> <C>
Number of Shares
Name of of Common Stock Percent of Common Stock
Beneficial Owner (1) Beneficially Owned (1)(2) Beneficially Owned (1)(2)
Michael F. Zinn 1,572,252 (3) 51.7% (3)
Gerald A. Habib 7,500 (4) *
Richard E. Rosen 7,500 (4) *
Michael J. Daley 16,755 (5) *
Joseph P. Novarro 2,200 (8) *
Melanie Norden 5,000 (6) *
James Curtin 0 (7) *
Frederic M. Zinn 0 (7) *
Current Directors and 1,611,207 (3), (4), (5), (6) 53.0% (3), (4), (5), (6), (8)
executive officers as
a group (8 persons)
* Less than 1 percent.
</TABLE>
(1) Except as described below, such persons have the sole power to vote and
direct the disposition of such shares. The address for each of the
individuals identified above is: 1151 Flatbush Road, Kingston, New York
12401.
(2) Assumes exercise of all options and warrants exercisable within 60 days
of the date hereof. Certain of these options and warrants would not be
so exercisable if the Adjustment had not occurred. See "Factors to be
Considered -- Interests of Executive Officers and Directors in the
Merger."
(3) Includes 79,456 shares held in the name of members of Mr. Zinn's
immediate family. Mr. Zinn disclaims beneficial ownership of these
shares. Does not include 126,984 shares owned by the Trust established
by Mr. Zinn as Mr. Zinn disclaims beneficial ownership of these shares.
Mr. Zinn is the Chairman of the Board, President and Chief Executive
Officer of Besicorp.
<PAGE>
(4) Includes 2,500 shares that Mr. Habib and 5,000 shares that Mr. Rosen
have the right to acquire pursuant to warrants which are currently
exercisable. Such persons are directors of Besicorp.
(5) Mr. Daley is the Executive Vice President, Chief Financial Officer and
a director of Besicorp.
(6) Represents 2,500 shares that Ms. Norden has the right to acquire
pursuant to warrants which are currently exercisable and 2,500 shares
that Ms. Norden has the right to acquire pursuant to options which are
currently exercisable. She is a director of Besicorp.
(7) Messrs. J. Curtin and F. Zinn are Vice President and Controller and
Senior Vice President and General Counsel, respectively, of Besicorp.
(8) Mr. Novarro is Vice President - Project Development of Besicorp.
MARKET INFORMATION REGARDING BESICORP COMMON STOCK
Besicorp's Common Stock has been listed since 1993 on the American
Stock Exchange Emerging Company Marketplace ("AMEX ECM") under the symbol
BGI.EC.
Set forth below are the high and low sales prices as reported on the
AMEX ECM for the period indicated.
<PAGE>
Fiscal Year Ended March 31,
High Low
---------- ----------
1997 First Quarter $ 16 $ 11-3/4
Second Quarter 14-3/4 10
Third Quarter 15-1/8 11-1/4
Fourth Quarter 20-7/8 12-1/4
1998 First Quarter $ 21-1/2 $ 15-1/8
Second Quarter 40 19-7/8
Third Quarter 36-15/16 30-3/4
Fourth Quarter 35-1/2 23-5/8
1999 First Quarter $ 39-1/2 $ 26-1/16
Second Quarter 40 29-3/4
Third Quarter 36-3/4 29-7/8
Fourth Quarter 31-5/16 29-5/16
(through January
22, 1999)
On November 20, 1998, the day prior to the date of public announcement
of the Board's adoption of the Initial Plan of Merger, the last reported sales
price of the Besicorp Common Stock was $32-7/8. As of January 22, 1999, the last
reported sales price of the Besicorp Common Stock was $29-5/16 as reported on
AMEX ECM.
There were approximately 1,730 shareholders of record of Besicorp
Common Stock as of the Record Date. Besicorp has never paid any cash dividends
on the Besicorp Common Stock.
THE SPIN-OFF
Background
Because Acquisition does not wish to (i) acquire Besicorp's assets
pertaining to, among other things, the photovoltaic and independent power plant
development businesses or (ii) assume, with certain limited exceptions, any of
Besicorp's liabilities, Besicorp and Acquisition determined to effect the
Spin-Off. The Contribution (as defined below) followed by the Spin-Off will
separate from Besicorp and all of the businesses and assets that Acquisition
does not wish to acquire. This will enable Acquisition to acquire only the
assets it desires to acquire and will leave Besicorp's photovoltaic and
independent power plant development businesses as a separate
<PAGE>
publicly held company, owned by the holders of Besicorp Common Stock as of the
record date for the Spin-Off (the "Spin-Off Record Date").
Although the Spin-Off will not be effected unless the Merger is adopted
by Besicorp's shareholders and all other conditions precedent to the Closing
(other than the Spin-Off) have been satisfied or waived, the Spin-Off is
separate from the Merger, and the shares of Newco Common Stock to be received by
holders of Besicorp Common Stock in the Spin-Off do not constitute a part of the
Merger Consideration.
The Contribution
Prior to the Spin-Off, Besicorp will transfer or cause to be
transferred to Newco the shares and other ownership interests of its
subsidiaries and affiliates (collectively, subsidiaries and affiliates are
referred to as "Subsidiaries") other than certain specified Subsidiaries (such
transferred Subsidiaries are referred to as the "Distributed Subsidiaries" and
the retained Subsidiaries are referred to as the "Retained Subsidiaries") and
all of Besicorp's assets pertaining to the photovoltaic and power plant
development businesses (the "Distributed Businesses") and all other businesses
not related to the Retained Assets (collectively, the "Contributed Assets").
Also pursuant to the Contribution Agreement, Newco will assume all of the
liabilities of Besicorp and its subsidiaries other than (i) the Specified
Current Liabilities, (ii) the Excluded Liability and (iii) certain intercompany
liabilities (collectively such assumed liabilities are referred to as the
"Assumed Liabilities" and the other liabilities are referred to as the
"Permitted Liabilities"). The transfer of the Distributed Subsidiaries and the
Contributed Assets and the assumption of the Assumed Liabilities is referred to
herein as the "Contribution." To effect the Contribution, Besicorp and Newco
will enter into a contribution agreement (the "Contribution Agreement"). As a
result of the Contribution, Besicorp will own the Retained Subsidiaries, its
cash (except for $1 million to $2 million which Besicorp will contribute to
Newco), its securities (including the shares of Niagara Mohawk Common Stock),
the Corporate Headquarters (which it will lease to Newco) and certain other
claims and/or awards of which Besicorp is a beneficiary including Besicorp's
rights under a creditor's claim in a bankruptcy proceeding of approximately
$280,000, an arbitration award of approximately $430,000, a judgment of
approximately $140,000 and a default judgment of approximately $175,000
(collectively, the "Retained Assets"), and remain liable for the Permitted
Liabilities. The Plan of Merger permits Besicorp and Newco to replace
Contributed Assets with Retained Assets of equal value in certain circumstances.
It is anticipated that the directors and executive officers of Besicorp
will serve Newco in capacities in which they currently serve Besicorp and that
they will be compensated for the services they render on behalf of Newco. See
"Factors to be Considered -- Interests of Executive Officers and Directors in
the Merger."
<PAGE>
The Spin-Off
After the completion of the Contribution, and assuming the other
conditions to the consummation of the Merger have been or will be waived or
satisfied the Spin-Off will be effected by the declaration of a distribution to
each holder of record of Besicorp Common Stock as of the Spin-Off Record Date of
one share of Newco Common Stock for every 25 shares of Besicorp Common Stock
held by such holder on such date. The Spin-Off Record Date is expected to be the
same day as the Effective Date. In lieu of fractional shares, cash will be
distributed. The Newco Common Stock will be deemed to be issued to such
shareholders as of the Spin-Off Record Date. Certificates representing shares of
Newco Common Stock will be distributed contemporaneously with the Merger
Consideration. Therefore, holders of Besicorp Common Stock will generally not
receive certificates for shares of Newco Common Stock until they deliver their
certificates evidencing their Besicorp Common Stock. As a result of the Spin-
Off, the shareholders of record of Besicorp at the close of business on the
Spin-Off Record Date who own 25 or more shares of Besicorp Common Stock will own
all of the outstanding shares of Newco Common Stock.
Conditions to the Spin-Off
Besicorp will not effect the Spin-Off unless Besicorp's shareholders
adopt the Plan of Merger and all other conditions to the closing of the Merger
have been waived or satisfied.
INFORMATION REGARDING ACQUISITION AND MERGER SUB
BGI Acquisition LLC is a Wyoming limited liability company. BGI
Acquisition Corp. is a New York corporation, wholly owned by Acquisition and
recently organized in connection with the Merger. Merger Sub and Acquisition
have not carried on any activities, other than in connection with the Merger.
The principal offices of the manager of Acquisition and the principal offices of
Merger Sub are located at 950 Third Avenue, New York, New York 10022, (212) 688-
2700. Acquisition is wholly owed by Lion Gate, LLC, a limited liability company
organized under the laws of the British Virgin Islands, with administrative
offices located at P.O. Box 158, BNP House, Anley Street, St. Helier, Jersey JE4
8RB. Lion Gate, LLC is significantly engaged in the business of trading and
investments. The sole member of Lion Gate, LLC is Mr. Thamer Bin Saeed
Al-Shanfari, a citizen of the Sultanate of Oman. His postal address is P.O. Box
18, Ruwi, Post Code 112, Oman.
Until immediately prior to the time Acquisition and Merger Sub will
participate in the Merger, it is not anticipated that such entities will have
any significant assets or liabilities other than those incident to their
formation and capitalization and the transactions contemplated by the Merger. As
of the Record Date, neither Acquisition, Merger Sub nor any of their affiliates
owned any shares of Besicorp Common Stock. Prior to the Closing, and subject to
the conditions set
<PAGE>
forth in the Plan of Merger and other customary conditions, Acquisition will be
funded by debt and/or equity from the Lion Gate LLC and/or committed lenders in
the entire amount of the Merger Consideration. Such amount will then be
contributed by the Acquisition to Merger Sub as an equity capital contribution
immediately prior to the Closing.
OTHER MATTERS
As of the time of preparation of this Proxy Statement, the Board of
Directors knows of no matters that will be acted on at the Special Meeting other
than the adoption of the Plan of Merger.
If any other matters are presented for action at the Special Meeting or at any
adjournment or postponement thereof, it is intended that the proxies will be
voted with respect thereto in accordance with the best judgment and in the
discretion of the persons named as proxies in the accompanying proxy card.
ANNUAL MEETING OF SHAREHOLDERS
If the shareholders adopt the Plan of Merger, and if all other
conditions to the Merger are satisfied or waived, it is expected that the Merger
will be consummated on or about February [__], 1999. Besicorp does not plan to
hold an annual meeting of shareholders following the Special Meeting unless the
Merger is not consummated. If the Merger is not consummated, shareholder
proposals received by the Secretary of Besicorp a reasonable time before
Besicorp begins to print and mail its proxy materials will be considered for
inclusion in the proxy materials for Besicorp's next Annual Meeting of
Shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
Besicorp's independent public accountants for the fiscal year ended
March 31, 1998 and for the current fiscal year are Citrin Cooperman & Company,
LLP. It is anticipated that representatives of such firm will be present at the
Special Meeting and that they will be available to respond to questions from
shareholders.
INCORPORATION BY REFERENCE
The following documents filed by Besicorp with the SEC pursuant to the
Exchange Act are incorporated by reference in this Proxy Statement: (a) Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1998; (b) Amendment
No. 1 to the Annual Report on Form 10- KSB/A for the fiscal year ended March 31,
1998; (c) Amendment No. 2 to the Annual Report on Form 10-KSB/A for the fiscal
year ended March 31, 1998; (d) Quarterly Report on Form 10-Q
<PAGE>
for the period ended June 30, 1998; (e) Amendment No. 1 to the Quarterly Report
on Form 10- Q/A for the period ended June 30, 1998; (f) Quarterly Report on Form
10-Q for the period ended September 30, 1998; (g) Amendment No. 1 to the
Quarterly Report on Form 10-Q/A for the period ended September 30, 1998; (h)
Current Report on Form 8-K filed on April 22, 1998; (i) Current Report on Form
8-K filed on May 11, 1998; (j) Current Report on Form 8-K filed on May 22, 1998;
(k) Current Report on Form 8-K filed on July 9, 1998 and (l) Current Report on
Form 8-K filed on or about January [ ], 1999. Item (d), as amended, is referred
to herein as the June Quarterly Report and Items (h), (i), (j), (k) and (l) are
referred to collectively herein as the Current Reports.
All documents subsequently filed by Besicorp with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement and prior to the date of the Special Meeting will be deemed
incorporated by reference into this Proxy Statement and to be a part hereof from
the date of filing of such documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement.
Besicorp hereby undertakes to provide by first class mail within one
business day upon receipt of a request without charge to each person to whom a
copy of this Proxy Statement has been delivered, upon the written or oral
request of such person to Besicorp Group Inc., 1151 Flatbush Road, Kingston, New
York 12401 (telephone 914-336-7700, ext. 104), Attention: Ms. Susan Whitaker, a
copy of any or all of the documents referred to above (other than exhibits to
such documents) which have been incorporated by reference in this Proxy
Statement.
ANNEX A-1
AGREEMENT AND PLAN OF MERGER
DATED NOVEMBER 23, 1998
BY AND AMONG
BESICORP GROUP INC.
BGI ACQUISITION CORP.
AND
BGI ACQUISITION LLC
<PAGE>
<TABLE>
<CAPTION>
<S>
Page
TABLE OF CONTENTS
Page
<C>
ARTICLE I
THE MERGER...............................................................................................1
1.1 The Merger...............................................................................1
1.2 Consummation of the Merger...............................................................1
1.3 Effects of the Merger....................................................................2
1.4 Certificate of Incorporation; Bylaws.....................................................2
1.5 Directors and Officers...................................................................2
1.6 Time and Place of Closing................................................................2
1.7 Further Assurances.......................................................................2
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES........................................................................2
2.1 Conversion of Shares.....................................................................2
2.2 The Additional Amount....................................................................3
2.3 Exchange Procedures......................................................................4
2.4 Adjustment of Merger Consideration.......................................................6
2.5 Options, Warrants and Restricted Shares..................................................6
2.6 Escrow Agreement.........................................................................6
ARTICLE III
PRECLOSING TRANSACTIONS..................................................................................7
3.1 General..................................................................................7
3.2 The Distribution.........................................................................7
3.3 The Power Facility Sales.................................................................8
3.4 Further Assurances.......................................................................8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES...........................................................................8
4.1 General Statement........................................................................9
4.2 Representations and Warranties of the Company............................................9
4.2.1 Organization and Authority....................................................9
4.2.2 Authority Relative to this Agreement and Related Matters......................9
4.2.3 Required Filings.............................................................10
4.2.4 No Conflicts.................................................................10
4.2.5 Capitalization...............................................................10
4.2.6 Subsidiaries.................................................................11
4.2.7 SEC Documents................................................................11
4.2.8 Financial Statements.........................................................11
4.2.9 Liabilities..................................................................12
4.2.10 Absence of Changes or Events.................................................12
i
<PAGE>
Page
4.2.11 Status of Distribution.......................................................13
4.2.12 Ownership of Properties......................................................13
4.2.13 Tax Matters Definitions......................................................13
4.2.14 Returns......................................................................14
4.2.15 Tax Liabilities..............................................................14
4.2.16 Issues with Taxing Authorities...............................................14
4.2.17 Miscellaneous Tax Matters....................................................14
4.2.18 Permits......................................................................14
4.2.19 Contracts....................................................................15
4.2.20 Partnership Contracts........................................................16
4.2.21 ERISA Matters................................................................16
4.2.22 Labor Relations..............................................................17
4.2.23 Absence of Litigation........................................................17
4.2.24 Injunctions; Judgments.......................................................17
4.2.25 Compliance with Law..........................................................18
4.2.26 Environmental Matters........................................................18
4.2.27 Owned Real Estate............................................................18
4.2.28 Leased Premises..............................................................19
4.2.29 Intellectual Property........................................................19
4.2.30 Brokers......................................................................19
4.2.31 Fairness Opinion.............................................................19
4.2.32 Form 10 Registration, Proxy Statement and Information Statement..............19
4.2.33 Full Disclosure..............................................................20
4.3 Representations and Warranties of Parent and Purchaser..................................20
4.3.1 Organization and Authority...................................................20
4.3.2 Authority Relative to this Agreement.........................................20
4.3.3 Required Filings.............................................................20
4.3.4 No Conflicts.................................................................20
4.3.5 Capitalization...............................................................21
4.3.6 Investment Intent............................................................21
4.3.7 Financing....................................................................21
4.3.8 Proxy Statement..............................................................21
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER..................................................................21
5.1 Obligations of Each of the Parties......................................................21
5.2 Access..................................................................................22
5.3 The Company's Obligations...............................................................22
5.4 Proxy Statement; Other Regulatory Matters...............................................24
5.5 Acquisition Proposals...................................................................25
5.6 Board Action............................................................................26
5.7 Indemnification and Insurance...........................................................27
5.8 Surviving Corporation...................................................................27
5.9 Parent's Financing......................................................................27
5.10 Liabilities.............................................................................27
ii
<PAGE>
5.11 Other Company Covenants.................................................................28
5.12 Parent Covenant.........................................................................28
ARTICLE VI
CONDITIONS TO CLOSING; CLOSING DELIVERIES; BASE AMOUNT..................................................28
6.1 Conditions to Each Party's Obligations..................................................28
6.2 Conditions to the Company's Obligations.................................................28
6.3 Conditions to Parent's and Purchaser's Obligations......................................29
6.4 Closing Deliveries......................................................................30
ARTICLE VII
TERMINATION/EFFECT OF TERMINATION.......................................................................31
7.1 Right to Terminate......................................................................31
7.2 Certain Effects of Termination..........................................................32
7.3 Remedies................................................................................33
7.4 Right to Damages; Expense Reimbursement.................................................33
ARTICLE VIII
MISCELLANEOUS...........................................................................................35
8.1 Survival of Representations, Warranties and Agreements..................................35
8.2 Amendment...............................................................................35
8.3 Publicity...............................................................................35
8.4 Notices.................................................................................35
8.5 Expenses; Transfer Taxes................................................................36
8.6 Entire Agreement........................................................................36
8.7 Non-Waiver..............................................................................36
8.8 Counterparts............................................................................37
8.9 Severability............................................................................37
8.10 Applicable Law..........................................................................37
8.11 Binding Effect; Benefit.................................................................37
8.12 Assignability...........................................................................37
8.13 Governmental Reporting..................................................................37
8.14 Defined Terms...........................................................................37
8.15 Headings................................................................................39
8.16 Interpretation..........................................................................39
Schedule 3.2.1 - Lease Terms
Schedule 3.2.2 - Schedule of Retained Assets and Permitted Liabilities
Exhibit A - Form of Indemnification Agreement
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of Legal Opinion of Purchaser's Counsel
Exhibit D - Form of Legal Opinion of Company's Counsel
</TABLE>
iii
<PAGE>
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into
this 23 day of November, 1998, by and among BGI Acquisition LLC, a Wyoming
limited liability company ("Parent"), BGI Acquisition Corp., a New York
corporation ("Purchaser"), and Besicorp Group Inc., a New York corporation
formed under the name Bio-Energy Systems Inc. (the "Company").
RECITALS:
A. The respective boards of directors of Purchaser and the Company and
the board of managers of Parent have each adopted a plan of merger as set forth
in this Agreement pursuant to which Purchaser will merge with and into the
Company on the terms and subject to the conditions set forth in this Agreement
(the "Merger") and the New York Business Corporation Law (the "NYBCL").
B. It is a condition to the consummation of the Merger by Purchaser
that, prior to the Merger, the Company distribute to its shareholders all of the
outstanding capital stock of Besicorp Ltd., a New York corporation ("BL") to
which the Company shall have transferred certain of its assets and liabilities,
and subsidiaries, as described herein.
C. Parent, Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
D. It is a condition to the willingness of Parent and Purchaser to
enter into this Agreement, and to Parent and Purchaser obligations hereunder
that BL enter into the Indemnification Agreement and the Escrow Agreement and
that the Escrow Agreement be funded as herein provided.
E. Capitalized terms used in this Agreement have the meaning identified
in Section 8.14 of this Agreement.
A G R E E M E N T S
Therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. On the terms and subject to the conditions set forth in
this Agreement, at the Effective Time (as defined herein, and a cross-reference
to defined terms is set forth at Section 8.14 to this Agreement), in accordance
with this Agreement and the NYBCL, Purchaser shall merge with and into the
Company, the separate existence of Purchaser shall cease and the Company shall
continue as the surviving corporation. The Company, in its capacity as the
corporation surviving the Merger, is sometimes referred to herein as the
"Surviving Corporation," and Purchaser and the Company are sometimes referred to
collectively herein as the "Constituent Corporations."
1.2 Consummation of the Merger. In order to effectuate the Merger, on
the Closing Date (as herein defined), the parties hereto will cause a
certificate of merger (the "Certificate of Merger") to be filed with the
Secretary of State of the State of New York and such counties within the state
of New York as required by Section 904 of the NYBCL, in such form as required
by, and executed in accordance with the NYBCL.
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The Merger shall be effective as of the time of filing of the Certificate
of Merger or if later, the time specified in the Certificate of Merger (the
"Effective Time") in accordance with Section 906 of the NYBCL.
1.3 Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects provided in this Agreement and as set forth in Section
906 of the NYBCL.
1.4 Certificate of Incorporation; Bylaws. At and after the Effective
Time, the Certificate of Incorporation and By-Laws of the Company, as in effect
immediately prior to the Effective Time, shall be adopted as the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and shall thereafter
continue in effect until amended as provided therein and in accordance with the
NYBCL.
1.5 Directors and Officers. At and after the Effective Time, the
directors and officers of Purchaser holding office immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation,
until their respective successors shall have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and By-Laws.
1.6 Time and Place of Closing. Subject to the provisions of Article VI
and Section 7.1, the transactions contemplated by this Agreement shall be
consummated (the "Closing") at 10:00 a.m., prevailing business time, at the
offices of Robinson Brog Leinwand Greene Genovese & Gluck P.C., 1345 Avenue of
the Americas, New York, NY on the day which is three (3) business days after the
first date on which each of the conditions to Closing set forth in Article VI
hereof shall have been satisfied or waived (and continue to be satisfied or
waived), or on such other date, or at such other place, as shall be agreed upon
by the parties hereto, subject to Section 7.1.2(a). The date on which the
Closing shall occur in accordance with the preceding sentence is referred to in
this Agreement as the "Closing Date."
1.7 Further Assurances. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title and interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Company or Purchaser, or (ii) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either the Company or Purchaser, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of such
corporations, all such other acts and things as may be necessary, desirable or
proper to vest, perfect or confirm the Surviving Corporation's right, title and
interest in, to and under any of the rights, privileges, powers, franchises,
properties or assets of such corporations and otherwise to carry out the
purposes of this Agreement.
ARTICLE II
CONVERSION AND EXCHANGE OF SHARES
2.1 Conversion of Shares. At the Effective Time, by virtue of the
Merger, and without any action on the part of the holders thereof:
2.1.1 Each share of common stock, $.10 par value, of the
Company (the "Common Stock") issued and outstanding immediately prior to the
Effective Time (other than Common Shares held as treasury shares by the Company
or its Subsidiaries) shall, by virtue of the Merger and without any action on
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the part of the holder thereof, be converted into the right to receive in cash
the sum of $34.50 plus the Additional Amount (as herein defined) without
interest (the "Merger Consideration"). Each such share of Common Stock
outstanding immediately prior to the Effective Time shall be deemed to be no
longer outstanding and shall represent solely the right to receive the Merger
Consideration upon surrender of the certificate formerly representing the Common
Stock in accordance with the provisions of this section.
2.1.2 Each share of Common Stock issued and outstanding
immediately prior to the Effective Time which is then held as a treasury share
by the Company or is held by any of the Company's Subsidiaries immediately prior
to the Effective Time shall, by virtue of the Merger and without any action on
the part of the Company, be canceled and retired and cease to exist, without any
conversion thereof.
2.1.3 Each share of common stock, par value $.01 per share
of Purchaser outstanding immediately prior to the Effective Time shall be
converted into and exchanged into one validly issued, fully-paid and
non-assessable share of common stock, $.10 par value, of the Surviving
Corporation.
2.2 The Additional Amount. In order to provide for the
determination of the Additional Amount as of the Effective Time, the parties
agree as follows:
2.2.1 Components of the Base Amount. As used herein:
(a) The "Additional Amount" is the amount by which (1) the
quotient of the Base Amount as of the Effective Time divided by the
number of shares of Common Stock outstanding as of immediately prior to
the Effective Time exceeds (2) $34.50.
(b) the "Base Amount" is the dollar amount determined by
[A less B plus C] where
A is equal to (i) $500,000 plus (ii) to the extent
not received in cash, the amount of a claimed
tax refund for fiscal year 1998 not to exceed
$82,387, (iii) the sum of the cash and cash
equivalents on hand or in accounts which are
solely owned by the Company or a Remaining
Subsidiary (free balances only) free of all
Encumbrances as of the Effective Time, plus (iv)
the product of .9975 of the closing price of a
share of Common Stock of Niagra Mohawk
Corporation ("NIMO Stock") on the New York Stock
Exchange as of the trading day immediately
preceding the Closing Date multiplied by the
number of shares of NIMO Stock held by the
Company as of the Effective Time (not to exceed
50,000 shares) less (v), to the extent not
already contributed pursuant to the Escrow
Agreement, $6,000,000.
B is the dollar amount of the Adjustment Amount
(as defined below).
C is the product of .8357 multiplied by the
Specified Current Liabilities (as defined
below).
(c) the "Adjustment Amount" is the sum of (i) all
Liabilities of the Company or a Remaining Subsidiary as of the
Effective Time (including the Specified Current Liabilities but
excluding the Excluded Liability (as defined below) and the
intercompany Liabilities described in Section 3.2.2) which are in the
reasonable judgment of Parent both fixed and quantifiable, (ii) without
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duplication of any item in the preceding clause (i), that amount which
Parent and the Company agree, each acting reasonably, represents the
Damages (as defined in the Indemnification Agreement) and other
damages, if any, incurred or reasonably likely to be incurred by the
Company, any Remaining Subsidiary, Purchaser or Parent, directly or
indirectly as a result of, or arising out of the breach by the Company
of any of its representations or warranties under this Agreement, and
(iii) all transfer, documentary, sales, use, stamp, real estate,
registration and other similar Taxes and similar fees (including
penalties and interest) incurred by the Company, any of its
Subsidiaries, Purchaser or Parent in connection with the Transactions.
(d) the "Specified Current Liabilities" are the
Liabilities of the Company or any Remaining Subsidiary (actual or
accrued) for unpaid federal income Taxes for the current fiscal year
based on the consolidated net income of the Company through the
Effective Time.
(e) the "Excluded Liability" is the Liability of the
Company or its Subsidiaries for New York State income Taxes for the
Company's current fiscal year.
2.2.2 Determination of Base Amount. The Base Amount will
be determined from a statement of the components of the Base Amount ( the
"Statement") as provided in this Section 2.2. Not later than twenty days prior
to Closing, the Company will prepare and deliver to Parent and Purchaser the
Statement setting forth in reasonable detail the components of the Base Amount
and the calculation of the Additional Amount. The Statement will be prepared in
accordance with generally accepted accounting principles applied in preparation
of the Financial Statements, it being understood that items will be reflected
regardless of materiality and all accruals known or contemplated for Liabilities
of the Company or a Remaining Subsidiary as of the Effective Time will be
reflected. The Company will provide appropriate evidence of the components of
the Base Amount and Additional Amount and will permit, and fully cooperate with
Purchaser in obtaining full access to the Company's records and its accountant's
work papers for purposes of independently verifying the components of the Base
Amount and Additional Amount. The Statement will be certified by the Chief
Executive Officer and Chief Financial Officer of the Company on behalf of the
Company, contain an unqualified representation and warranty of such officers
that the information set forth in the Statement is true and correct and be
reviewed by the Company's regular independent auditors. Within five days of the
receipt by Parent and Purchaser of the Statement, Parent and Purchaser shall
notify the Company in writing of their acceptance or rejection of the Statement.
In the event that Parent and Purchaser reject the Statement such notice shall
set forth a schedule detailing the disputed components of the Statement. The
Company, Parent and Purchaser shall use their reasonable best efforts to reach
agreement on such disputed components of the Statement prior to the Closing. In
the event that the Company, Parent and Purchaser are unable to reach an
agreement on the Statement within three days prior to Closing this Agreement
will be deemed terminated pursuant to Section 7.1.1 hereof.
2.3 Exchange Procedures.
2.3.1 Immediately prior to the Effective Time, Parent
will deposit or cause to be deposited with Continental Stock Transfer & Trust
Co., or another paying agent mutually acceptable to Parent and the Company (the
"Paying Agent"), in trust for the holders of record of Common Stock immediately
prior to the Effective Time (the "Company Shareholders") cash in an aggregate
amount equal to the Merger Consideration (such deposit with the Paying Agent
pursuant to this paragraph is referred to as the "Payment Fund"). The Payment
Fund shall not be used for any purpose except as provided in this Agreement.
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2.3.2 As soon as practicable after the Effective Time, the
Surviving Corporation shall cause the Paying Agent to mail to each Company
Shareholder a letter of transmittal and instructions for use (the "Letter of
Transmittal") in effecting the surrender of certificates representing Common
Stock outstanding immediately prior to the Effective Time ("Certificates") in
appropriate and customary form. The Letter of Transmittal shall be in customary
form, include provisions stating that delivery shall be effected, and risk of
loss and title to such Certificates shall pass, only upon delivery of the
Certificates to the Paying Agent, provide instructions for effecting the
surrender of such Certificates in exchange for the Merger Consideration and
provide such other provisions as Purchaser may reasonably specify (including
those provisions described in this Section 2.3). Upon surrender of a Certificate
for cancellation to the Paying Agent, together with such Letter of Transmittal,
duly and properly executed, the holder of such Certificate shall be entitled to
receive in exchange therefore the portion of the Merger Consideration
represented by the Certificate pursuant to Section 2.1.1 of this Agreement. If
the Merger Consideration (or any portion thereof) is to be delivered to any
person othe than the person in whose name the Certificate representing Common
Stock surrendered in exchange therefor is registered on the record books of the
Company, it shall be a condition to such exchange that the Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such exchange shall pay to the Paying
Agent any transfer or other taxes required by reason of the payment of such
consideration to a person other than the registered holder of the Certificate
surrendered, or shall establish to the satisfaction of the Paying Agent that
such tax has been paid or is not applicable. No interest will be paid or will
accrue on the cash payable upon surrender of any Certificate. Until surrendered
as contemplated by this Section 2.3, each Certificate shall, at and after the
Effective Time, be deemed to represent only the right to receive, upon surrender
of such Certificate, the Merger Consideration with respect to the shares of
Common Stock represented thereby.
2.3.3 At and after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation, they
shall be canceled and exchanged as provided in this Section 2.3. In the event of
a transfer of ownership of shares of Common Stock which is not registered in the
transfer records of the Company, payment may be made with respect to such Common
Stock to such a transferee only if the Certificate representing such shares of
Common Stock is presented to the Paying Agent, accompanied by all documents
required to evidence and effect such transfer and evidence that any applicable
stock transfer taxes have been paid.
2.3.4 In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, upon the posting by such person of a bond in such
amount as the Surviving Corporation may reasonably direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Paying Agent will issue in respect of such lost,stolen or destroyed Certificate,
the Merger Consideration with respect to the shares of Common Stock represented
thereby.
2.3.5 Any portion of the Payment Fund which remains
unclaimed by the Company Shareholders for nine (9) months after the Effective
Time shall be delivered to the Surviving Corporation upon demand of the
Surviving Corporation, and the holders of Common Stock shall thereafter look
only to the Surviving Corporation for payment of their claim for the Merger
Consideration in respect of their Common Stock. Neither Parent, Purchaser nor
the Surviving Corporation shall be liable to any holder of Common Stock for any
such Merger Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
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2.3.6 Purchaser or the Paying Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of a Certificate surrendered for the Merger
Consideration such amount as Purchaser or the Paying Agent is required to deduct
and withhold with respect to the making of such payment under the Internal
Revenue Code as of 1986, as amended (the "Code"), or any provision of any state
local or foreign tax law. To the extent that amounts are so deducted and
withheld, such amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of such Certificate.
2.3.7 In the case of 100,000 shares of Common Stock held
of record by Martin Enowitz or his assigns which the Company represents are the
subject of a dispute between the Company and Enowitz, appropriate provision will
be made in the Paying Agent agreement for the holding of the Merger
Consideration payable in respect of such shares in escrow pending resolution of
the dispute. Purchaser agrees that the rights of Purchaser, Parent or the
Surviving Corporation to such Merger Consideration, if any, will be assigned
without recourse to BL.
2.3.8 The fees and expenses of the Paying Agent will be
paid from earnings on the Payment Fund. To the extent earnings on the Payment
Fund are insufficient to pay such fees and expenses, such fees and expenses
shall be paid from the Escrow Fund (as defined in the Escrow Agreement) pursuant
to the Escrow Agreement. The Company and Parent and Purchaser agree that any
interest earned on the Payment Fund will be transferred to the Escrow Agent and
become part of the Escrow Fund.
2.4 Adjustment of Merger Consideration. In the event of any
reclassification, stock split, stock dividend or other general distribution of
securities, cash or other property with respect to Common Stock other than the
Distribution and related transaction (or if a record date with respect to any of
the foregoing should occur) on or after the date of this Agreement and on or
prior to the date of the Effective Time, appropriate and equitable adjustments,
if any, shall be made to the calculation of the Merger Consideration and all
references herein shall be deemed to be to the Merger Consideration as so
adjusted.
2.5 Options, Warrants and Restricted Shares. Prior to the Effective
Time, the Company will (a) cause each outstanding option to purchase Common
Stock (each, a "Stock Option") granted under the Besicorp Group, Inc. Amended
and Restated 1993 Incentive Plan (the "1993 Plan") or pursuant to any other
stock option plan or restricted agreement entered into by the Company with any
employee or director of the Company or any Subsidiary thereof, whether or not
then vested or exercisable, to become vested and exercisable, (b) cause each
outstanding warrant to purchase Common Stock (each, a "Warrant") to become
exercisable to the extent not currently exercisable, and (c) take such action as
is necessary to cause each holder of a Stock Option or Warrant to exercise such
Stock Option or Warrant in full including paying in cash the exercise price (it
being understood that neither the Company nor any Remaining Subsidiary will
directly or indirectly provide or guarantee any financing or loan arrangements
for the payment of the exercise price) so that there are no outstanding Stock
Options or Warrants at the Effective Time.
2.6 Escrow Agreement. At Closing, the Company will cause $6,000,000 in
cash to be delivered to the Escrow Agent under the Escrow Agreement.
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ARTICLE III
PRECLOSING TRANSACTIONS
3.1 General. The Company recognizes that the obligations of Parent and
Purchaser under this Agreement are subject to the completion by the Company of
each of the Distribution and the Power Facility Sales (each, as defined below).
The Company agrees to use its reasonable best efforts to effect the Distribution
and the Power Facility Sales in accordance with this Agreement.
3.2 The Distribution.
3.2.1 Actions. Promptly following the execution of this
Agreement, the Company will cause the following actions to be taken in
accordance with the requirements of applicable law, including the NYBCL, and the
Company's and its Subsidiaries' certificate of incorporation and bylaws with the
objective of effecting the spinoff to shareholders of the Company immediately
prior to the Effective Time of BL and the Distributed Subsidiaries and the
complete separation of BL and the Distributed Subsidiaries from the Company and
the Remaining Subsidiaries:
(a) the due and valid formation of BL;
(b) the transfer to, and assumption by BL of all of the
assets, personnel, employee benefit plans and Liabilities of the
Company (other than the Retained Assets and Permitted Liabilities) and
the Remaining Subsidiaries and the transfer to BL of all of the
outstanding capital stock of the Distributed Subsidiaries;
(c) the execution and delivery by the Company and BL of
such agreements and arrangements which are customary in connection with
spinoffs and which provide for, among other matters, the provision of
transition, support and administrative services (including access to,
and cooperation regarding historical financial and tax information and
knowledgeable personnel) to the Company by BL without cost to the
Company and indemnification of the Company by BL and its subsidiaries
for any failure of BL to discharge and pay in full all of the
Liabilities so assumed or the failure of any Distributed Subsidiaries
to discharge and pay in full its Liabilities when due including by
means of the Indemnification Agreement and Escrow Agreement, all on
terms reasonably acceptable to Purchaser and Parent;
(d) the withdrawal of the Remaining Subsidiaries as
general or limited partners of the Partnership or the assignment to,
and assumption by a Distributed Subsidiary of all of the general and
limited partnership interests of the Remaining Subsidiary;
(e) distribute to the shareholders of the Company
immediately prior to the Effective Time all of the outstanding capital
stock of BL with a record date to be established by the Board to be
coordinated with the Closing;
(f) the establishment of the fair market value of the
BL capital stock;
(g) provide for the assumption by BL of all Employee
Benefit Plans;
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(h) prior to consummation of the Distribution, Reina
Distributing, Inc. and BL to enter into a written lease providing for
the building and improvements located thereon at 1151 Flatbush Avenue,
Kingston, New York on the terms set forth in Schedule 3.2.1 to this
Agreement;
(i) prior to consummation of the Distribution, the Company
and BL to execute and deliver the Indemnification Agreement in the form
of Exhibit A hereto (the "Indemnification Agreement") and the Escrow
Agreement in the form of Exhibit B hereto (the "Escrow Agreement");
(j) the preparation and distribution to its stockholders
of record prior to the Effective Time of the Information Statement and
the filing and effectiveness of the Form 10 Registration all in
accordance with applicable law including the Securities Act of 1934, as
amended (the "Exchange Act"); and
(k) all other actions necessary or appropriate to effect
the distribution of BL to the shareholders of the Company.
The foregoing transactions are collectively referred to herein as the
"Distribution."
3.2.2 Defined Terms. The "Retained Assets" are those
assets listed on Schedule 3.2.2 hereto and the "Permitted Liabilities" are the
Specified Current Liabilities and Excluded Liability and the intercompany
Liabilities of the Company to a Remaining Subsidiary as identified in Schedule
3.2.2.
3.2.3 Agreements. The Company agrees to use its best
efforts to effect the Distribution in the manner contemplated hereby and to
take, or cause to be taken, all actions necessary or appropriate so that the
Distribution will be so accomplished no later than the Closing Date.
3.3 The Power Facility Sales. The Company agrees to use its best
efforts to cause the Partnerships to dispose of the Carthage Cogeneration
Facility, South Glens Falls Cogeneration Facility, Natural Dam Cogeneration
Facility, Syracuse Cogeneration Facility and Beaver Falls Cogeneration Facility
for cash and without any Liability of any Remaining Subsidiary (the "Power
Facility Sales"). The Company will consult with Purchaser on a regular basis and
keep Purchaser reasonably informed as to the status and terms of the Power
Facility Sales.
3.4 Further Assurances. If, at any time after the Effective Time, BL
shall consider or be advised that any deeds, bills of sale, assignments or
assurances or any other acts or things are necessary, desirable or proper (i) to
vest, perfect or confirm, of record or otherwise, in BL or its Subsidiaries its
right, title and interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets contributed to any of the Distributed
Subsidiaries in connection with the Distribution or (ii) otherwise carry out the
Distribution, the Surviving Corporation will upon reasonable request of BL
execute and deliver all such deeds, bills of sale, assignments and assurances
and do all such other acts and things as may be necessary, desirable or proper
to carry out the Distribution. Any expenses incurred by the Surviving
Corporation under this Section 3.4 shall be paid by BL.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
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4.1 General Statement. The parties make the representations and
warranties to each other which are set forth in this Article IV. All
representations and warranties of the Company are made subject to the exceptions
noted in the schedule delivered by the Company to Parent and Purchaser
concurrently herewith and identified by the parties as the "Company Disclosure
Schedule."
4.2 Representations and Warranties of the Company. The Company
represents and warrants to Parent and Purchaser that, except as set forth in the
Company Disclosure Schedule:
4.2.1 Organization and Authority. Each of the Company and
each Subsidiary: (i) is a corporation or partnership duly organized, validly
existing and in good standing under the laws of the State of its incorporation;
and (ii) has all necessary corporate or partnership power and authority to
conduct its business as now being conducted or as proposed to be conducted
through Closing. Each of the Company and each Remaining Subsidiary is duly
qualified as a foreign corporation and in good standing in each jurisdiction in
which the nature of its business or the nature or location of its assets require
such qualification. All of the Subsidiaries are listed in the Company Disclosure
Schedule.True and complete copies of the certificate of incorporation and bylaws
or agreement of limited partnership, as the case may be, of each of the Company
and each Subsidiary are set forth as exhibits to the Company SEC Documents or
have been made available to Purchaser. As used in this Agreement: "Subsidiary"
means any corporation, partnership, joint venture or other legal entity and of
which the Company or BL, as the case may be (either alone or through or together
with any other Subsidiary or Subsidiaries), either (A) owns, directly or
indirectly, 25% or more of the capital stock or other equity interests, the
holders of which are generally entitled to vote with respect to matters to be
voted on in such corporation, partnership, joint venture or other legal entity
or a 25% or more of the interest in the assets of the corporation, partnership,
joint venture or other legal entity upon its liquidation or (B) is otherwise a
Significant Subsidiary (as such term is defined in Section 1-02(w) of Regulation
S-X of the Securities Act of 1933, as amended (the "Securities Act"));
"Remaining Subsidiary" means each of Beta Carthage, Inc., a New York
corporation, Beta South Glen Falls, Inc., a New York corporation, Beta Natural
Dam, Inc., a New York corporation, Beta Syracuse Inc. a New York corporation,
Beta Beaver Falls Inc., a New York corporation, Beta Nova, Inc., a New York
corporation, Beta N Ltd., a New York corporation, Beta C&S Ltd., a New York
corporation, and Reina Distributing, Inc., a New Yor corporation, and the
"Distributed Subsidiaries" are BL and all other Subsidiaries of the Company now
or hereafter existing other than the Remaining Subsidiaries.
4.2.2 Authority Relative to this Agreement and Related
Matters. The Board of Directors of the Company (the "Board"), at a meeting duly
called and held has (A) determined that the Merger Agreement and Merger are fair
to, and in the best interests of, the Company and its shareholders, (B) adopted
and approved this Agreement and the Merger, and (C) resolved to submit to the
shareholders of the Company and recommend to the shareholders of the Company
that they adopt and authorize the Merger Agreement , the Merger and, if legally
required, the Distribution (collectively, the Merger, Distribution and Power
Facility Sales and with the other transactions contemplated hereby and thereby,
the "Transactions"). The Company has full corporate power and authority, subject
to shareholder adoption and authorization of with respect to the Merger
Agreement, to enter into and perform this Agreement and the other agreements to
be entered into in connection with this Agreement and the Transactions (the
"Transaction Agreements") to which it is a party. The execution and delivery of
this Agreement and each of the othe Transaction Agreements by the Company and
the performance by the Company of their respective obligations hereunder and
thereunder have been (or in the case of Transaction Agreements not yet entered
into, will be) duly authorized and approved by all requisite corporate action
other than the approval of the holders of at least two-thirds of the outstanding
shares of Common Stock voting at the Meeting with respect to the Merger and, if
legally required, the Distribution. This Agreement has been and, when executed,
each of the other Transaction Agreements will have been, duly executed and
delivered by duly authorized officers of the Company and constitutes, or will
constitute when
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so executed and delivered, a valid, legal and binding obligation of the Company
or relevant Subsidiary enforceable against it in accordance with its terms. The
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Common Stock voting at the Meeting with respect to the adoption and
authorization of the Merger Agreement are the only votes of the holders of any
class or series of the Company's capital stock necessary to approve the
Transactions. None of the holders of shares of capital stock of the Company have
the right to dissent or demand appraisal of their shares under the NYBCL or
otherwise as a result of any of the Transactions.
4.2.3 Required Filings. No consent, approval or
authorization of, expiration or termination of any waiting period requirement
of, or filing, registration, qualification, declaration or designation
("Authorization") with or by, any federal, state, local or foreign court,
administrative agency, commission or other governmental authority or
instrumentality ("Governmental Entity") is required for the execution and
delivery by the Company of this Agreement or any of the other Transaction
Agreements or the consummation by any of the Company or any Subsidiary of any of
the Transactions, except for (i) the filing and recordation by the Company of
the Merger as required by the NYBCL, (ii) the filing with the United States
Securities and Exchange Commission (the "SEC") of the Proxy Statement, the Form
10 Registration and the Information Statement with respect to the Merger and
Distribution, respectively, under the Exchange Act and (iii) filings pursuant to
applicable state securities laws.
4.2.4 No Conflicts. Neither the execution and delivery
of this Agreement or the other Transaction Agreements by the Company nor the
consummation by Company of any of the Transactions, will (i) conflict with or
result in a breach of any of the terms, conditions or provisions of the
certificate, articles or other instrument of incorporation or limited
partnership or by-laws or agreement of limited partnership or other similar
instrument or of any statute, law or administrative regulation, or of any order,
writ, injunction, judgment or decree of any Governmental Entity or of any
arbitration award to which any of the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound, or (ii) violate, conflict with,
breach, constitute a default (or give rise to an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in the
creation of any lien or other claims, equities, security interests, preemptive
rights, judgments and other encumbrances ("Encumbrance")upon any of the
properties or assets of the Company or any Subsidiary under, any written or oral
note, bond, mortgage, indenture, deed of trust, license, lease, contract,
agreement or other instrument or written or oral obligation to which Company is
a party or to which they or any of their respective properties or assets are
subject (each being an "Obligation"), except for such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens or other
Encumbrances that do not and could not, individually or in the aggregate (x)
have a Material Adverse Effect (as defined herein) on the Company, or (y)
materially impair the ability of the Company to perform its obligations under
any Transaction Agreement. Without limiting the generality of the foregoing, the
Company is not subject to any Obligation pursuant to which timely performance of
this Agreement or any of the Transactions may be prohibited, prevented or
materially delayed. As used in this Agreement, with respect to a Person,
"Material Adverse Effect" means an effect which involves $10,000 or more on the
business, operations (or results of operations), condition (financial or
otherwise), properties, assets, liabilities, or prospects of such Person or its
Subsidiaries, and "Person" means an individual, partnership, corporation,
limited liability company, business, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Entity or other entity
of whatever nature or a group, including any pension, profit sharing or other
benefit plan or trust.
4.2.5 Capitalization. The authorized capital stock of the
Company consists solely of 5,000,000 shares of Common Stock, $0.10 par value per
share, and 7,500,000 shares of Preferred Stock, par value $1.00 per share
("Preferred Stock"). As of November 16, 1998, (i) 2,969,195 shares of Common
Stock
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were outstanding, all of which are entitled to vote as a class, (ii) 265,763
shares of Common Stock were held in the treasury of the Company, (iii) Stock
Options or Warrants with respect to 82,240 shares of Common Stock had been
granted or issued and are outstanding under the 1993 Plan and (iv) no shares of
Preferred Stock were outstanding. There are no other shares of capital stock of
the Company authorized, issued or outstanding. The number of shares of Common
Stock outstanding is subject to increase to no more than 3,051,435 shares
outstanding upon the exercise or conversion of Stock Options and Warrants which
are set forth on Schedule 4.2.5 of the Company Disclosure Schedule. All of the
outstanding shares of Common Stock have been validly issued and are fully paid
and nonassessable. Except as set forth on Schedule 4.2.5 of the Company
Disclosure Schedule, there are no subscriptions, options, stock appreciation
rights, warrants, rights (including preemptive rights), calls, convertible
securities or other agreements or commitments of any character relating to the
issued or unissued capital stock or other securities of the Company obligating
the Company to issue, or register the sale of, any securities of any kind. There
are no agreements or obligations of any kind or character to which the Company
is a party, or as to which the Company has knowledge, with respect to the voting
of Common Stock or the election of Directors to its Board ("Directors").
Schedule 4.2.5 of the Company Disclosure Schedule sets forth the name of the
holder, number of shares underlying and exercise price of each Stock Option and
Warrant outstanding on the date hereof.
4.2.6 Subsidiaries. All of the outstanding shares of
capital stock or other equity interests of each Remaining Subsidiary (i) are
validly issued, fully paid and nonassessable and free of any preemptive rights,
and (ii) except as disclosed in Schedule 4.2.6 to the Company Disclosure
Schedule, are owned of record and beneficially by the Company free and clear of
all Encumbrances. There are no outstanding subscriptions, options, stock
appreciation rights, warrants, rights (including preemptive rights), calls,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of any
Remaining Subsidiary obligating such Remaining Subsidiary to issue any
securities of any kind or which would otherwise affect the Distribution. There
are no agreements or obligations of any kind or character with respect to the
voting of shares of capital stock or the election of directors of any Remaining
Subsidiary. Schedule 4.2.6 lists (iii) each Subsidiary and the Company's direct
or indirect ownership interest in such Subsidiary and (iv each Subsidiary of
which the Company or one of its Subsidiaries is a general or limited partner
(each such Subsidiary of the Company, a "Partnership") and the Company's direct
or indirect ownership interest in such Partnership. Except for the Subsidiaries,
the Company does not have, directly or indirectly, any equity or ownership
interest, or any investment, in any Person.
4.2.7 SEC Documents. The Company has timely filed (and
has delivered to Purchaser a true and complete copy of) each report, schedule,
registration statement and definitive proxy statement required to be filed or
filed by the Company with the SEC (including, without limitation, reports
required to be filed pursuant to Section 13(d) or 13(g) of the Exchange Act)
since January 1, 1995 (the "SEC Documents"). As of their respective dates, the
SEC Documents comply in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the applicable rules
and regulations of the SEC thereunder, and none of the SEC Documents, as of
their respective dates, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The Company has corrected and updated, prior to the date
hereof, all statements in the SEC Documents which have required correction or
updating, as the case may be, and have filed all necessary amendments to the
Company SEC Documents as required by applicable law.
4.2.8 Financial Statements. Each of the consolidated
financial statements (including the notes thereto) included in the SEC Documents
(the "Financial Statements") complies, as of their respective dates, with all
applicable accounting requirements and rules and regulations of the SEC with
respect thereto,
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has been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied (except as may be indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-QSB of the SEC)
and presents fairly the consolidated financial position of the Company at the
dates thereof and the consolidated results of its operations, cash flows and
changes in financial position for the periods indicated therein, subject, in the
case of interim Financial Statements, to normal, recurring year-end adjustments
which are not material individually or in the aggregate. The books, accounts and
records of the Company are, and have been, maintained in such Company's usual,
regular and ordinary manner, in accordance with generally accepted accounting
practices, and all transactions to which the Company is or has been a party are
properly reflected therein.
4.2.9 Liabilities. Neither the Company nor any Remaining
Subsidiary has any obligation or liability of any kind or nature whatsoever
(direct or indirect, matured or unmatured, absolute, accrued, contingent, known
or unknown or otherwise), whether or not required by GAAP to be provided or
reserved against on a balance sheet (all the foregoing herein collectively being
referred to as the "Liabilities"), except for:
(a) Liabilities specifically provided for or reserved
against in the balance sheet contained in the Financial Statements or
the balance sheet contained in the most recent interim financial
statement in a Company SEC Document filed prior to the date of this
Agreement (the "Interim Balance Sheet");
(b) as of the Effective Time, Permitted Liabilities and
Liabilities taken into account in determining the Adjustment Amount as
agreed to by Purchaser and Parent; and
(c) Liabilities of the Company or a Remaining Subsidiary
which have been incurred since the date of the Interim Balance Sheet,
in the ordinary course of business and consistent with past practice
which are not material.
Without limiting the generality of the foregoing, upon consummation of the
Distribution neither the Company nor any Remaining Subsidiary will have any
Liability with respect to the Liabilities of the Distributed Subsidiaries or the
business and operations of the Distributed Subsidiaries.
4.2.10 Absence of Changes or Events. Except as
specifically disclosed in the SEC Documents filed prior to the date of this
Agreement and furnished to Purchaser, since June 30, 1998: (x) neither the
Company nor any Subsidiary has suffered or been threatened with (and the Company
has no knowledge of any facts which may cause or result in) any material adverse
change in its assets, properties, liabilities, condition (financial or
otherwise) or prospects; and (y) the Company and each Subsidiary has operated
only in the usual and ordinary course of business consistent with past practice
except as contemplated by the Power Facility Sales or the Distribution. Without
limiting the generality of the foregoing, since such date, neither the Company
nor any Subsidiary has:
(a) sold, assigned, leased, exchanged, transferred or
otherwise disposed of any material portion of its assets or property,
except in the usual and ordinary course of business consistent with
past practice other than the sale of shares of common stock of Niagra
Mohawk Power Corporation ("NIMO") and the Power Facility Sales;
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(b) suffered any material casualty, damage or loss, or any
material interruption in use, of any material assets or property
(whether or not covered by insurance), on account of fire, flood, riot,
strike or other hazard or Act of God;
(c) paid, declared or set aside any dividends or other
distributions on its securities of any class or purchased or redeemed
any of its securities of any class;
(d) made any change in accounting methods or principles;
(e) with respect to the Remaining Subsidiaries, made or
committed to make capital expenditures;
(f) with respect to the Remaining Subsidiaries, increased
the compensation payable to any officer or employee except in the
ordinary course of business;
(g) with respect to the Remaining Subsidiaries, elected
any director or hired any officer or employee;
(h) borrowed any money or issued any bonds, notes,
debentures or other evidence of indebtedness;
(i) acquired by merger, consolidation or acquisition of
stock or assets any Person or business;
(j) adopted, amended or terminated any Employee Benefit
Plan (as defined herein) except as contemplated by Section 2.5; or
(k) agreed in writing or otherwise to take any of the
foregoing actions.
4.2.11 Status of Distribution. The Distribution will not
result in any federal or state income tax liability to the Company. In
connection with the Distribution, the Company (a) will have sufficient capital
so that upon completion of the Distribution, the fair market value of the assets
of the Company less the amount of its stated capital will exceed its Liabilities
and (b) is solvent and will be solvent prior to and immediately following the
consummation of the Distribution.
4.2.12 Ownership of Properties. The Company and each
Remaining Subsidiary has good and marketable title to its respective properties
and assets purported to be owned by them respectively (including all assets
reflected on the Financial Statements) free and clear of any Encumbrances,
except: (i) statutory liens for Taxes not yet due, (ii) statutory liens of
carriers, warehousemen, mechanics and materialmen incurred in the ordinary
course of business for sums not yet due; (iii) liens incurred or deposits made
in the ordinary course of business, in connection with workers' compensation and
unemployment insurance; and (iv) minor imperfections of title which do not in
the aggregate materially detract from the value or use of the asset in question.
The Company and its Subsidiaries have in effect insurance policies of the type
and with coverages which are customary for companies in the businesses in which
the Company and its Subsidiaries are engaged.
4.2.13 Tax Matters Definitions. As used in this Agreement
the following terms shall have the following meanings:
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(a) the term "Taxes" means all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service,
service use, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, windfall profits, customs, duties
or other taxes, fees, assessments or charges of any kind whatever,
together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, and the term "Tax" means any
one of the foregoing Taxes; and
(b) the term "Returns" means all returns, declarations,
reports, statements and other documents required to be filed in respect
of Taxes, and the term "Return" means any one of the foregoing Returns.
4.2.14 Returns. There have been properly completed and
filed on a timely basis and in correct form all Returns required to be filed by
the Company. As of the time of filing, the Returns correctly reflected the facts
regarding the income, business, assets, operations, activities, status or other
matters of such Company or any other information required to be shown thereon.
Except as disclosed in Section 4.2.14 to the Company Disclosure Schedule, an
extension of time within which to file any Return which has not been filed has
not been requested or granted.
4.2.15 Tax Liabilities. With respect to all amounts in
respect of Taxes imposed upon the Company, or for which the Company is or could
be liable, whether to taxing authorities (as, for example, under law) or to
other persons or entities (as, for example, under tax allocation agreements),
with respect to all taxable periods or portions of periods ending on or before
the Closing Date, all applicable tax laws and agreements have been fully
complied with, and all amounts required to be paid by any of the Company or any
of its Subsidiaries (other than the Permitted Liabilities), to taxing
authorities or others, on or before the date hereof have been paid. The unpaid
Taxes of the Company do not exceed the reserve for tax liability with respect to
the Company (excluding any reserve for deferred Taxes established to reflect
timing differences between book and tax income) set forth or included in the
Company Disclosure Schedule as adjusted for the passage of time through the
Closing Date, in accordance with the past practices of the Company.
4.2.16 Issues with Taxing Authorities. No issues have
been raised (and are currently pending) by any taxing authority in connection
with any of the Returns filed by the Company or any of its Subsidiaries. No
waivers of statutes of limitation with respect to such Returns have been given
by or requested from the Company or any of its Subsidiaries. The Company
Disclosure Schedule sets forth (i) the taxable years of each of the Company or
any of its Subsidiaries as to which the respective statutes of limitations with
respect to Taxes have not expired, and (ii) with respect to such taxable years
sets forth those years for which examinations have been completed, those years
for which examinations are presently being conducted, those years for which
examinations have not been initiated, and those years for which required Returns
have not yet been filed. No deficiencies have been asserted or assessments made
as a result of any such examinations.
4.2.17 Miscellaneous Tax Matters. Neither the Company
nor any Remaining Subsidiary (i) is a party to or bound by any tax indemnity,
tax sharing or tax allocation agreement; (ii) has agreed to make, or is required
to make, any adjustment under section 481(a) of the Code by reason of a change
in accounting method or otherwise. Neither the Company nor any Subsidiary is a
party to any agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of section 280G of the Code.
4.2.18 Permits. The Company and its Remaining
Subsidiaries hold or have received all consents, permits, authorizations,
approvals, licenses and certifications of Governmental Entities (collectively,
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the "Permits") required in connection with the ownership and operation of their
respective properties and the conduct of their respective businesses as now
being conducted, except for such consents, permits, authorizations, approvals,
licenses and certificates which if not held or received would not have a
Material Adverse Effect on the Company.
4.2.19 Contracts. Except as filed as an exhibit to the
SEC Documents, none of the Company or any Remaining Subsidiary is a party to, or
bound by, any undischarged written or oral:
(a) employment or consulting agreement which is not
terminable by the Company at will without premium or penalty or other payment;
(b) collective bargaining agreement;
(c) lease or sublease, either as lessee or sublessee,
lessor or sublessor, of real or personal property or intangibles;
(d) loan or credit agreement, pledge agreement, note,
security agreement, mortgage, debenture, indenture, factoring
agreement, credit card agreement, letter of credit or banker's
acceptance;
(e) governmental order or directive;
(f) agreement for the treatment or disposal of
hazardous materials;
(g) partnership or joint venture agreement;
(h) architect's agreement or construction contract;
(i) lease which is required by GAAP to be classified
as a capital lease;
(j) reciprocal easement or operating agreement with
respect to any parcel of the Real Estate or any of the Leased Premises;
(k) secrecy or confidentiality agreement;
(l) rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index
swap, equity or equity index option, bond option, interest rate option,
foreign exchange transaction, cap transaction, floor transaction,
collar transaction, currency swap transaction, cross- currency rate
swap transaction, currency option or any other similar transaction
(including any option with respect to any of these transactions), or
any combination of these transactions;
(m) supply or requirements contract;
(n) agreement or arrangement not specifically enumerated
above concerning or which provides for the receipt or expenditure of
any money;
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(o) agreement to indemnify or pay or advance expenses of
any Person including any officer, director, employee or agent of the
Company, any Subsidiary or any ERISA Affiliate; or
(p) agreement or arrangement by which the Company or any
Remaining Subsidiary has guaranteed or otherwise has any Liability for
any Liability of any Distributed Subsidiary.
Such agreements, leases, subleases and other instruments or arrangements
required to be disclosed in response to this Section 4.2.19, the "Contracts,"
and each a "Contract". Each Contract is in full force and binding upon the
Company and, to the Company's knowledge, the other parties thereto. None of the
Company on the one hand, nor any of the other parties thereto, on the other
hand, are in default under any Contract. No event, occurrence or condition
exists which, with the lapse of time, the giving of notice, or both, or the
happening of any further event or condition, would become a default under any
Contract by the Company, on the one hand, or the other contracting party, on the
other hand. None of the Company has released or waived any of its respective
rights under any Contract. The Company is not subject to any legal obligation to
renegotiate, nor does the Company have knowledge of a claim for a legal right to
renegotiate, any contract, loan, agreement, lease, sublease or instrument to
which it is now or has been a party.
4.2.20 Partnership Contracts. Each of the Partnerships
has settled pursuant to valid and enforceable settlement agreements all
Liabilities of each such Partnership on terms such that none of the Remaining
Subsidiaries has any Liability with respect to the Liabilities of the
Partnerships. Neither the Company nor any of the Remaining Subsidiaries has any
Liability for any of the Liabilities of any Partnership.
4.2.21 ERISA Matters.
(a) The Company, its Subsidiaries, any affiliate of the
Company or its Subsidiaries, as determined under Code Section 414(b),
(c), (m) or (o) (the "ERISA Affiliate"), severally or jointly,
maintains, administers or contributes to, and have any liability with
respect to, only those employee benefit plans (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not excluded from coverage under specific Titles
or Subtitles of ERISA), bonus, deferred compensation, stock purchase,
stock option, stock appreciation, severance, salary continuation,
vacation, holiday, sick leave, fringe benefit, employee discount,
personnel policy, allowances, incentives, insurance, welfare or similar
plan, program, policy or arrangement which are described in the Company
Disclosure Schedule (the "Employee Benefit Plans").
(b) None of the Company, its Subsidiaries or any ERISA
Affiliate has incurred any liability to the Pension Benefit Guaranty
Corporation ("PBGC") as a result of the voluntary or involuntary
termination of any pension plan subject to Title IV of ERISA; neither
the Company nor any ERISA Affiliate has made a complete or partial
withdrawal from a multiemployer plan, as such term is defined in
Section 3(37) of ERISA, resulting in withdrawal liability, as such term
is defined in Section 4201 of ERISA (without regard to subsequent
reduction or waiver of such liability under either Section 4207 or 4208
or ERISA); neither the Company nor any ERISA Affiliate would incur any
withdrawal liability on a complete withdrawal from any Employee Benefit
Plan as of the Closing Date, under applicable law and conditions of
each such Employee Benefit Plan without regard to any limitation,
reduction or adjustment of liability under Title IV of ERISA or any
Employee Benefit Plan provision; and neither the Company nor any ERISA
Affiliate has any contingent liability under Section 4024 of ERISA.
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(c) The aggregate present value of all accrued benefits
pursuant to each Employee Benefit Plan subject to Title IV of ERISA,
determined on the basis of current participation and projected
compensation for active participants, and including the maximum value
of all subsidized benefits, and earnings, mortality and other actuarial
assumptions set forth in the 1994 actuarial report for the Employee
Benefit Plan does not exceed the current fair market value of such
Employee Benefit Plan's assets, and except as required by Section 4980B
of the Code, neither the Company nor any ERISA Affiliate has any
obligation to provide benefits to any individual not employed by the
Company or any ERISA Affiliate.
(d) Each Employee Benefit Plan complies with and is and
has been operated in accordance with its terms and each applicable
provision of ERISA, the Code, other federal statutes, state law and the
regulations and rules thereunder. With respect to each Employee Benefit
Plan intended to qualify under Section 401(a) of the Code, a favorable
determination as to such qualification of such Employee Benefit Plan
and each amendment thereto has been made by the Internal Revenue
Service and each such Employee Benefit Plan remains qualified under the
Code and each trust funding any Employee Benefit Plan is and has been
tax-exempt. Neither the Company nor any ERISA Affiliate has failed to
make any contributions or pay any amounts required on or before the
Closing Date by the terms of any Employee Benefit Plan, collective
bargaining agreement, ERISA or any other applicable law.
4.2.22 Labor Relations. Neither the Company nor any
Remaining Subsidiary is a party to any collective bargaining agreement or other
labor union contract applicable to persons employed by the Company and there are
no known organizational campaigns, petitions or other unionization activities
seeking recognition of a collective bargaining unit. There are no strikes,
slowdowns, work stoppages or material labor relations controversies pending or,
to the knowledge of the Company, threatened between the Company or any of its
Subsidiaries, and any of their employees, and neither the Company nor any
Subsidiary has experienced any such strike, slowdown, work stoppage or material
controversy within the past three years.
4.2.23 Absence of Litigation. Except as set forth in the
SEC Documents filed prior to the date hereof, there is no litigation or
proceeding, in law or in equity, and there are no proceedings or governmental
investigations before or by any Governmental Entity, pending or, to the
Company's knowledge, threatened against the Company or any Remaining Subsidiary
or any of the officers, directors or employees of the Company or any Remaining
Subsidiary, which, if decided adversely to the Company or any Remaining
Subsidiary, officer, director or employee could have a Material Adverse Effect
on the Company or any Subsidiary or would materially impair the consummation of
any of the Transactions. There are no facts which, if known by a potential
claimant or governmental authority, would give rise to a claim or proceeding
which, if asserted or conducted with results unfavorable to the Company, would
have a Material Adverse Effect on the Company or any Remaining Subsidiary or
would materially impair the consummation of any of the Transactions. The Company
has not made any material oral or written warranties with respect to the quality
or absence of defects of its products or services which it has sold or performed
which are in force as of the date hereof, excep for those warranties which are
described in the Company Disclosure Schedule.
4.2.24 Injunctions; Judgments. Neither the Company nor
any Remaining Subsidiary is a party to, or bound by, any judgment, writ,
injunction, decree, order or arbitration award (or agreement entered into with
any Governmental Entity in connection with any administrative, judicial or
arbitration proceeding) with respect to or affecting the properties, assets,
personnel or business activities of the Company.
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4.2.25 Compliance with Law. Neither the Company nor any
Subsidiary is in violation of, in noncompliance with, or delinquent with respect
to, any judgment, writ, injunction, decree, order or arbitration award or law,
statute, or regulation of or agreement with, or any permit from, any
Governmental Entity to which the property, assets, personnel or business
activities of the Company or any of its Subsidiaries are subject, which
violation, noncompliance or delinquency could have a Material Adverse Effect on
the Company or any Remaining Subsidiary or materially impair the ability of the
Company to carry out or realize the intended benefits of the Transactions.
4.2.26 Environmental Matters. The Company and each
Subsidiary are and at all times have been, and all real property currently or
previously owned, leased, occupied, used by or under the control of the Company
or such Subsidiary, and all operations or activities of the Company or its
Subsidiaries (including those conducted on or taking place at any of such real
property) are and at all times have been, in compliance with and not subject to
any material liability or obligation under any Environmental Law or
Environmental Permit (and any monitoring agreement thereunder). The Company and
its Subsidiaries have every Environmental Permit required under Environmental
Laws for the operation of their respective businesses. As used in this
Agreement: "Environmental Laws" means all applicable federal, state or local
laws, rules, regulations, ordinances or principles of common law relating to the
generation of electricity or to the protection of health and safety, pollution,
or to environmental matters of any kind whatsoever, including with respect to
the storage, treatment, generation, transportation, spillage, use for the
generation of electricity or thermal energy, discharge, emission, leakage,
disposal or other release or threatened release of any hazardous (or otherwise
regulated under Environmental Law) material, substance or waste of any kind
whatsoever ("Hazardous Materials") and "Environmental Permits" means any
permits, licenses, notifications, certifications, consents or approvals required
under any Environmental Law from a Governmental Entity or third party. There are
no underground storage tanks on any such real property. There is no condition or
circumstance regarding the Company, any Subsidiary or their respective
businesses or any such real property or the operations or activities thereon,
which, with the passing of time or upon notice to any other party, is possible
of giving rise to a material violation of, or material liability or obligation
under, any Environmental Law or Environmental Permit. Neither the Company nor
its Subsidiaries nor any Person, the acts or omissions of which may be
attributable to, or the responsibility of, or liability to, the Company or its
Subsidiaries has, or has arranged to have, any Hazardous Materials, treated,
stored or disposed of at, or transported to, any facility or property the
remediation or cleanup of which, or the response costs related thereto, could be
attributed in any manner to, or otherwise become responsibilities of or
liabilities to, the Company or its Subsidiaries. There are no allegations,
claims, demands, citations, notices of violation, or orders of noncompliance
made against, issued to or received by the Company or its Subsidiaries within
the past (5) years relating or pursuant to any Environmental Law or
Environmental Permit except those which have been corrected or complied with to
the satisfaction of the Governmental Entity or other claimant, and no such
allegation, claim, demand, citation, notice of violation or order of
noncompliance is threatened, imminent, likely or contemplated. The Company and
its Subsidiaries have not contractually created or assumed any liabilities or
obligations or indemnifications related to Environmental Law at or related to
any real property currently or formerly owned, operated or leased by the Company
or its Subsidiaries.
4.2.27 Owned Real Estate. All of the real estate and any
interest in real estate held by the Company or any Subsidiary is identified
(including by street address and Subsidiary owner) in the Company Disclosure
Schedule as being so owned (the "Real Estate"). Each Remaining Subsidiary so
indicated as owning Real Estate has insurable title to its Real Estate, subject
only to general real estate taxes not delinquent and to Encumbrances, covenants,
conditions, restrictions and easements of record, none of which makes title to
any of such Real Estate uninsurable and none of which are violated by the
Remaining Subsidiary or interfere with such Remaining Subsidiary's use or
occupancy thereof. None of the Real Estate held by a
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Remaining Subsidiary is subject to any leases or tenancies. None of the
improvements comprising the Real Estate or the businesses conducted by any of
the Company thereon, are in violation of any use or occupancy restriction,
limitation, condition or covenant of record or any zoning or building law, code
or ordinance or public utility easement. No material expenditures are required
to be made for the repair or maintenance of any improvements on any of the Real
Estate for or with respect to any period ending on or including the Closing
Date. All taxes on any Real Estate owned by the Company or any Remaining
Subsidiaries for or with respect to any period ending on or including the
Closing Date have been paid or accrued in full.
4.2.28 Leased Premises. Neither the Company nor any
Remaining Subsidiary leases (or has any commitment to lease) any real estate.
The Distributed Subsidiaries lease (or have a commitment to lease) the premises
identified in the Company Disclosure Schedule as being so leased (the "Leased
Premises"). The Leased Premises are leased to the indicated Subsidiary pursuant
to written leases, true, correct and complete copies of which have been
delivered to Purchaser prior to the date hereof or are contained in the SEC
Documents. The improvements comprising the Leased Premises, and the businesses
conducted by the Company thereon, are not in violation of any use or occupancy
restriction, limitation, condition or covenant of record or any zoning or
building law, code or ordinance or public utility or other easements.
4.2.29 Intellectual Property. No Intellectual Property
has infringed, infringes or in any material way has damaged or damages any of
the rights, title or interests of any third party (nor has any third party given
the Company notice of any claimed infringement or damage). "Intellectual
Property" means all of the following, whether owned, used or licensed by the
Company or any Remaining Subsidiary: (i) all common law, federally registered,
state registered and foreign trademarks and service marks and all applications
for federal, state or foreign registration of trademarks or service marks, (ii)
all slogans, trade dress and trade names, (iii) all proprietary know-how and
methods, (iv) all trade secrets, (v) all federal and foreign patents and patent
applications, (vi) all copyright registrations and material unregistered
copyrights, and (vii) all computer software.
4.2.30 Brokers. No broker, finder, investment banker or
other Person (other than Josephthal & Co., whose compensation arrangement is set
forth in the Company Disclosure Schedule) is entitled to a broker's commission,
finder's fee, investment banker's fee or similar payment from the Company in
connection with the Merger.
4.2.31 Fairness Opinion. The Company has received the
written opinion of Josephthal & Co. (the "Fairness Opinion") on the date of this
Agreement to the effect that, as of the date of this Agreement, the Merger
Consideration to be received by stockholders of the Company is fair from a
financial point of view. The Company has provided a true and correct copy of the
Fairness Opinion to Purchaser. The Company is authorized by Josephthal & Co. to
include a copy of such opinion in the Proxy and Information Statement.
4.2.32 Form 10 Registration, Proxy Statement and
Information Statement. None of the information (other than information provided
by Parent and Purchaser) included or incorporated by reference in the (i) Form
10 registration statement relating to the registration under the Exchange Act of
shares of common stock of BL to be distributed to shareholders of the Company in
the Distribution (as supplemented or amended, the "Form 10 Registration"), (ii)
the proxy statement relating to the Transactions to be approved at the Meeting
(as amended or supplemented, the "Proxy Statement") and the information
statement relating to the Distribution (as supplemented or amended, the
"Information Statement") will (x) in the case of the Form 10 Registration, at
the time it becomes effective, ontain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading or (iii) in the case of the
Proxy Statement and the Information Statement, at the time of the mailing
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thereof, at the time of the Meeting and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Form
10 Registration and the Proxy Statement and the Information Statement will each
comply as to form in all material respects with the provisions of the Exchange
Act and applicable law.
4.2.33 Full Disclosure. The representations, warranties
and statements of the Company in this Agreement or contained in any schedule,
list or document delivered pursuant to this Agreement do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein, in light of the circumstances under
which such representations, warranties and statements are made, not misleading.
The copies of all documents furnished by the Company pursuant to or in
connection with this Agreement are true, complete and correct. True, complete
and accurate copies of each document referred to in the Company Disclosure
Schedule are contained therein or have been furnished to Purchaser prior to the
date hereof.
4.3 Representations and Warranties of Parent and Purchaser. Parent and
Purchaser jointly and severally represent and warrant to the Company that:
4.3.1 Organization and Authority. Parent is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Wyoming. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York.
Each of Parent and Purchaser has all necessary corporate power and authority to
conduct its business as now being conducted.
4.3.2 Authority Relative to this Agreement. Each of
Parent and Purchaser has full corporate power and authority to enter into and
perform this Agreement and each of the other Transaction Agreements to which it
is a party. The execution and delivery of this Agreement and each of the other
Transaction Agreements by Purchaser and Parent and the performance by Purchaser
and Parent of their respective obligations hereunder or thereunder have been
duly authorized by all requisite corporate action. This Agreement has been, and
each of the other Transaction Agreements to which it is a party will be, duly
executed and delivered by duly authorized officers of Purchaser and Parent and
constitutes, or will constitute when so executed and delivered, a valid and
binding obligation of Purchaser and Parent enforceable against it in accordance
with its terms.
4.3.3 Required Filings. No Authorization is required by
or with respect to Purchaser in connection with the execution and delivery of
this Agreement or the other Transaction Agreements by Purchaser or the
consummation by Purchaser of the Transactions.
4.3.4 No Conflicts. Neither the execution and delivery
of this Agreement or any of the other Transaction Agreements by Parent or
Purchaser, nor the consummation by Parent or Purchaser of the Transactions, will
(i) conflict with or result in a breach of any of the terms or provision of the
Certificate of Incorporation or By-Laws of Purchaser, or Articles of
Organization of Parent or of any statute or administrative regulation, or of any
order, writ, injunction, judgment or decree of any court or governmental
authority or of any arbitration award to which Purchaser is a party or by which
Parent or Purchaser is bound; or (ii) violate, conflict with, breach, constitute
a default (or give rise to an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any lien or
other Encumbrance upon any of the properties or assets of Parent or Purchaser
under, any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Parent or Purchaser is a
party or to which Parent or Purchaser or any of its
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properties or assets are subject (the "Purchaser Obligations"), except for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens or other Encumbrances that do not and will not, individually
or in the aggregate, (x) have a Material Adverse Effect on Parent or Purchaser
or (y) materially impair Parent or Purchaser's ability to perform its
obligations under this Agreement or any of the other Transaction Agreements.
Without limiting the generality of the foregoing, Purchaser is not subject to
any Purchaser Obligation pursuant to which timely performance of this Agreement
or any of the Transactions may be prohibited, prevented or materially delayed.
4.3.5 Capitalization. The authorized capital stock of
Purchaser consists of 10,000 shares of common stock, $.01 par value, of which
1,000 shares are outstanding. All of the outstanding shares of common stock of
Purchaser are entitled to vote as a class and are owned of record by Parent.
4.3.6 Investment Intent. Each of Parent and Purchaser is
an "accredited investor" within the meaning of Rule 501(a) of Regulation D under
the Securities Act, and is acquiring the Common Stock for its own account for
investment and with no present intention of distributing or reselling such
Common Stock or any part thereof in any transaction which would constitute a
"distribution" within the meaning of the Securities Act.
4.3.7 Financing. Purchaser has delivered to the Company
a true and correct copy of a letter from a bank (the "Lender"), stating Lender's
interest in providing debt financing ("Financing") to Parent, which, together
with equity to be contributed to Purchaser will be in an amount necessary to pay
the Merger Consideration and consummate the Merger, subject to the negotiation,
preparation and execution of binding documents with respect to the Financing,
and to the fulfillment of the conditions precedent contained in such letter.
None of the Financing will be an obligation of or secured by a lien on the
assets of the Surviving Corporation. Parent and Purchaser have no present
intention to liquidate the Surviving Corporation.
4.3.8 Proxy Statement. None of the information included
in the Proxy Statement and provided by the Parent and Purchaser in writing for
use in the Proxy Statement will, at the time of the mailing thereof, at the time
of the Meeting and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
5.1 Obligations of Each of the Parties. From and after the date hereof
and until and including the Effective Time, the following shall apply with equal
force to the Company, on the one hand, and Parent and Purchaser, on the other
hand:
5.1.1 Each party shall promptly give the other party
written notice of the existence or occurrence of any event or condition which
would make any representation or warranty herein contained of either party
untrue or which might reasonably be expected to prevent the consummation of the
transactions contemplated hereby. In the case of the Company, such notice
shall include a reasonably detailed description of such event or condition,
the representation or warranty to which it relates and an estimate of the
damages, if any, associated therewith.
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5.1.2 No party shall intentionally perform any act which,
if performed, or omit to perform any act which, if omitted to be performed,
would prevent or excuse the performance of this Agreement by any party or which
would result in any representation or warranty herein of that party being untrue
in any material respect at any time after the date hereof through and including
the Closing Date as if then originally made.
5.1.3 Subject to the terms and conditions of this
Agreement, each of the parties agrees to use their best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the Transactions
and the other transactions contemplated by this Agreement as expeditiously as
reasonably practicable; provided, however, that nothing in this Section 5.1.3
shall in any event require any party to (i) expend funds which are not
commercially reasonable in relation to the transactions contemplated hereby or
(ii) take or cause to be taken, any action which would have a Material Adverse
Effect with respect to it.
5.2 Access. Subject to any restrictions under applicable law, the
Company shall continue to give to Purchaser's and Parent's respective officers,
employees, agents, attorneys, consultants and accountants reasonable access for
reasonable purposes in light of the transactions contemplated by this Agreement
during normal business hours to all of the properties, books, contracts,
documents, present and expired insurance policies, records and personnel of or
with respect to the Company or any Subsidiary and shall furnish to Parent and
Purchaser and such persons as Parent or Purchaser shall designate to the Company
such information as Purchaser or such persons may at any time and from time to
time reasonably request. It is expressly understood and agreed that all
information obtained pursuant to this Section 5.2 is subject to the terms and
conditions of the Confidentiality Letter dated September 2, 1998, executed by
Parent and Parent expressly reaffirms its obligations thereunder. Without
limiting the generality of the foregoing, the Company will permit Parent and
Purchaser to conduct a Phase I and Phase II environmental investigation with an
environmental consultant selected by Purchaser of the Real Estate held by Reina
Distributing, Inc. The Company will pay the costs of such investigation promptly
upon receipt of such consultant's billing statement.
5.3 The Company's Obligations. From and after the date hereof
and until and including the Effective Time:
5.3.1 The Company shall, and shall cause each Remaining
Subsidiary to, carry on its business with the objective of effecting
the Distribution and Power Facility Sales and, in all other respects
with the objective of winding up the remaining business of the Company
and the Remaining Subsidiaries so that the Company and the Remaining
Subsidiaries will have no assets other than cash and cash equivalents
and the Retained Assets and no Liabilities other than the Permitted
Liabilities and at Closing, Liabilities taken into account in the
calculation of the Adjustment Amount as reflected in the Statement as
finally agreed to by Purchaser. Without the prior written consent of
Purchaser, and without limiting the generality of any other provision
of this Agreement including the foregoing, the Company shall not, and
shall not permit any Remaining Subsidiary to:
(a) amend its Certificate of Incorporation,
By-Laws or other organizational documents;
(b) make any change in its authorized capital
stock; adjust, split, combine or reclassify any capital
stock; or, other than issuances of shares of Common Stock
pursuant to the valid exercise of Stock Options or
Warrants outstanding on the date hereof in accordance with
Section 2.4 of this Agreement, issue any shares of stock
of any class, or
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issue or become a party to any subscription, warrant,
rights, options, convertible securities or other
agreements or commitments of any character relating to its
issued or unissued capital stock, or other equity
securities, or grant any stock appreciation or similar
rights, or amend the terms of any Stock Option or Warrant
except as contemplated by Section 2.5;
(c) incur any indebtedness for borrowed money or
assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of
any other individual, corporation or other entity,
including the Distributed Subsidiaries;
(d) other than in connection with the Distribution
or Power Facility Sales, sell, transfer, mortgage,
encumber or otherwise dispose of any of its material
properties or assets to any individual, corporation or
other entity other than a Subsidiary, except pursuant to
contracts or agreements in force at the date of this
Agreement, the sale of the NIMO stock, or as specifically
set forth in this Agreement with respect to the
Transactions;
(e) other than in connection with the Distribution
make any (x) investments, either by purchase of stock or
securities, in (y) contributions to capital of, or (z)
purchases of any property or assets from, any other
individual, corporation or other entity;
(f) except as necessary to effect the Distribution
or eliminate a Liability of the Company or Remaining
Subsidiary (with respect to which the Company shall notify
Purchaser promptly in writing), and except for
transactions in the ordinary course of business consistent
with past practice and those transactions contemplated by
the provisions of this Agreement, enter into or terminate
any material contract or agreement, or make any change in
any of its material leases or contracts;
(g) change its method of accounting in effect at
December 31, 1997, except as may be required by changes in
GAAP upon the advice of its independent accountants;
(h) increase the compensation payable to any
employee, or enter into any new employment agreements with
new or existing employees which create other than an at
will relationship, in each case, except in the ordinary
course of business consistent with past practices other
than bonuses to officers and employees which are paid
prior to the Effective Time;
(i) pay or declare any dividend or make any
distribution (other than the Distribution) on its
securities of any class or purchase or redeem any of its
securities of any class;
(j) make any Tax election or settle or
compromise any Tax liability;
(k) fail to maintain in full force and effect
insurance coverage substantially similar to that in effect
on the date hereof; or
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(l) enter into any business or contract not
related to the Distribution, Power Facility Sales or the
Merger other than contracts which are not material and
which will be fully performed prior to the Effective Time.
5.3.2 The Company shall cause the Distributed Subsidiaries
to carry on their respective businesses only in the ordinary course
consistent with past practice and shall not and shall cause the
Distributed Subsidiaries not to create any Liabilities of the Company
or any Remaining Subsidiary for the Liabilities of the Distributed
Subsidiaries following the Effective Time.
5.3.3 The Company shall furnish to Purchaser the Company's
internal unaudited statement of condition and statement of income for
each month ending after the date of this Agreement. Such monthly
statements shall be prepared in accordance with existing practice and
shall fairly present in all material respects the consolidated
financial position and results of operation for the Company as of and
for the periods indicated therein in accordance with past practice. The
Company will advise Purchaser upon request as to the status of the
components of the Base Amount and Additional Amount and provide
reasonable evidence supporting the determination of the amount of such
components.
5.4 Proxy Statement; Other Regulatory Matters.
5.4.1 The Company will (i) call a meeting of its
shareholders (the "Meeting") for the purpose of voting upon adoption and
authorization of the Merger, (ii) hold the Meeting as soon as practicable
following the date of this Agreement, (iii) subject to Section 5.6 recommend to
its shareholders the approval of the Merger through its Board of Directors and
(iv) use its best efforts to obtain the necessary adoption and authorization of
this Agreement by the shareholders of the Company.
5.4.2 The Company will (i) as soon as practicable
following the date of this Agreement, prepare in correct and appropriate form
and file with the SEC the Form 10 Registration and a preliminary Proxy Statement
and Information Statement and (ii) use its reasonable best efforts to respond to
any comments of the SEC or its staff and to cause the Form 10 Registration to be
effective and each of the Proxy and the Information Statement to be cleared by
the SEC. The Company will notify Purchaser of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Form 10 Registration, the Proxy or the Information
Statement or for additional information and will supply Purchaser with copies of
all correspondence between the Company or any of its representatives, on the one
hand, and the SEC or its staff, on the other hand, with respect to the Form 10
Registration or the Proxy Statement and Information Statement or any of the
Transactions. The Company shall give Purchaser and its counsel (who shall
provide any comments thereon as soon as practicable) the opportunity to review
the Form 10 Registration, the Proxy Statement and the Information Statement
prior to being filed with the SEC and shall give Purchaser and its counsel (who
shall provide any comments thereon as soon as practicable) the opportunity to
review all amendments and supplements to the Form 10 Registration, the Proxy and
the Information Statement and all responses to requests for additional
information and replies to comments prior to their being filed with, or sent to,
the SEC. Each of the Company and Purchaser agrees to use its reasonable best
efforts, after consultation with the other parties hereto, to respond promptly
to all such comments of and requests by the SEC. As promptly as practicable
after the Proxy Statement and the Information Statement have been cleared by the
SEC, the Company shall mail the Proxy Statement and the Information Statement,
respectively, to the stockholders of the Company. The Purchaser and the Parent
shall supply to the Company on a timely basis in connection with the preparation
of the Proxy Statement and the Information Statement all information necessary
to be included therein with respect to the Purchaser and the Parent.
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5.4.3 Each party agrees to notify the other of, and to
correct, any information contained in the Form 10 Registration, the Proxy
Statement and Information Statement furnished by such party to the other for
inclusion therein, which information shall be, at the time of furnishing, or
become, prior to the Meeting, false or misleading in any material respect. If at
any time prior to the Meeting or any adjournment thereof there shall occur any
event that should be set forth in an amendment to the Form 10 Registration Proxy
Statement or the Information Statement, the Company will prepare and mail to its
stockholders such an amendment or supplement.
5.4.4 The Company will file all reports, schedules and
definitive proxy statements (including the Proxy Statement and the Information
Statement) (the "Company Filings") required to be filed by the Company with the
SEC (including reports required by Section 13(d) or 13(g) of the Exchange Act
and will provide copies thereof to the Company promptly upon the filing thereof.
As of its respective date, the Company represents, warrants and covenants that
each the Company Filing will comply in all material respects with the
requirements of the Exchange Act and the applicable rules and regulations of the
SEC thereunder and none of the Company Filings will contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading. Upon learning of any
such false or misleading information, the Company will cause all required the
Company Filings (including the Proxy Statement and the Information Statement) to
be corrected, filed with the SEC and disseminated to holders of the Common
Stock, in each case as and to the extent required by applicable law.
5.4.5 Subject to the terms and conditions herein
provided, the Company and Parent and Purchaser will cooperate and consult with
one another in (a) determining which consents, approvals, Permits,
authorizations or waivers (collectively, "Consents") are required to be obtained
prior to the Effective Time from Governmental Entities or other third parties in
connection with the execution and delivery of this Agreement (including those
Consents with respect to those matters disclosed as a result of Section 4.2.4 of
this Agreement or with respect to any of the Transactions or the Transaction
Agreements and the consummation of the transactions contemplated hereby or
thereby, (b) preparing all Consents and all other filings, submissions and
presentations required or prudent to obtain all Consents, including by providing
to the other party drafts of such material reasonably in advance of the
anticipated filing or submission dates, and (c) timely seeking all such Consents
(it being understood that the parties will make or seek to Consents, whether
mandatory or voluntary and that each party will be responsible and pay for the
costs, penalties and expenses associated with the Consents required with respect
to it). The Company will obtain and deliver to Purchaser at or prior to Closing
originals of full and complete releases of the Company and each Remaining
Subsidiary from any and all Liabilities of the Company or such Remaining
Subsidiary (x) fo Liabilities (other than Permitted Liabilities) of any
Distributed Subsidiary (the "Third Party Releases") (y) to provide
indemnification by contract, law or otherwise to any current director, officer,
employee agent or affiliates except to the extent of the Surviving Corporation
rights under the Escrow Agreement or the D&O Insurance, the form and substance
of which shall be reasonably acceptable to Purchaser and Parent ("D&O
Releases").
5.5 Acquisition Proposals.
----------------------
5.5.1 From and after the date hereof and until and
including the Effective Time (or earlier termination of this Agreement), the
Company shall immediately cease and cause to be terminated any activities,
discussions or negotiations with respect to an Acquisition Proposal (as defined
herein), and the Company shall not, nor shall it permit any Subsidiary, or
authorize or permit any of its officers, directors or employees or holders of
more than five percent of its outstanding shares of Common Stock or any
investment banker, financial advisor, attorney, accountant or other
representative or agent of the Company or any
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Subsidiary, to, directly or indirectly, (i) solicit, initiate, or encourage
(including by way of furnishing or otherwise providing, or providing access to
nonpublic information) any Acquisition Proposal; (ii) participate in any
discussions or negotiations relating to any Acquisition Proposal (or any inquiry
relating to an Acquisition Proposal) or take any other action to facilitate any
inquiries or the making of any proposal that constitutes an Acquisition
Proposal; or (iii) enter into any letter of intent, agreement in principle or
definitive agreement with respect to any Acquisition Proposal; provided,
however, that nothing contained in this Section 5.5 shall prohibit the Company
or the Board from furnishing nonpublic information to, or entering into
discussions or negotiations with, any person or entity with respect to any
unsolicited Acquisition Proposal if (but only if): (a) the Board determines
reasonably and in good faith, after due investigation and after consultation
with and based upon the advice of its outside financial advisor, that such
Acquisition Proposal is a Superior Proposal (as defined below); (b) the Board
determines reasonably and in good faith, after due investigation and after
consultation with and based upon the advice of outside counsel, that the failure
to take such action would cause the Board to violate its fiduciary duties to
stockholders under applicable law in the context of the Transactions; and (c)
the Company (x) provides at least two business days' notice to Acquiror to the
effect that it is taking such action and (y) receives from such person or entity
an executed confidentiality agreement substantially similar to the
Confidentiality Agreement. Notwithstanding the foregoing, nothing in this
Section 5.5 will restrict the Company from effecting the Power Facility Sales as
contemplated hereby.
5.5.2 Notwithstanding anything in this Agreement to the
contrary, the Company shall promptly advise Parent orally and in writing of the
receipt by it (or by any of the other entities or persons referred to above)
after the date hereof of any Acquisition Proposal or any inquiry which could
reasonably lead to an Acquisition Proposal, the material terms and conditions of
such Acquisition Proposal or inquiry, and the identity of the person or entity
making any such Acquisition Proposal. The Company agrees that it will fully
enforce (including by way of obtaining an injunction), and not waive any
provision of, any confidentiality agreement to which it is a party.
5.5.3 For purposes of this Agreement: "Acquisition
Proposal" means any bona fide offe or proposal with respect to a merger,
consolidation, share exchange or similar transaction involving the Company or
any Subsidiary or any purchase of all or any significant portion of the assets
or capital stock of the Company or any significant Subsidiary or any other
business combination (including the acquisition of any equity interest therein)
involving the Company excluding, however, any proposal or transaction with
respect to the Power Facilities; and "Superior Proposal" means an Acquisition
Proposal which the Board believes in good faith, after due investigation (taking
into account, among other things, the financing terms and the likelihood of
consummation) and based upon the advice of its outside legal and financial
advisors, is more favorable to the Company's stockholders from a financial point
of view than the Merger (taking into account the Distribution).
5.6 Board Action. The Board shall not (i) withdraw or modify its
approval, adoption or recommendation of this Agreement, the Merger or any of the
Transactions , (ii) approve, adopt or recommend or publicly propose to approve,
adopt or recommend an Acquisition Proposal, (iii) cause the Company to enter
into any letter agreement, agreement in principle or definitive agreement with
respect to an Acquisition Proposal, or (iv) resolve to do any of the foregoing
unless the Company receives an unsolicited Acquisition Proposal in accordance
with Section 5.5 and the Board determines reasonably and in good faith, after
due investigation (a) based upon the advice of its outside financial advisor
that a pending Acquisition Proposal is more favorable to the Company
Stockholders than the Merger and the Distribution, taken as a whole, (b) such
Acquisition Proposal is reasonably likely to be consummated, (c) there is a
substantial probability that the approval of the Merger and the Distribution
will not be obtained due to the pending Acquisition Proposal, and (d) based upon
the advice of outside counsel, that the failure of the Board to withdraw or
modify its approval,
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adoption or recommendation of this Agreement or the Merger, or approve or
recommend such Acquisition Proposal would cause the Board to violate its
fiduciary duties to stockholders under applicable law in the context of the
Transactions. In such case, the Board may withdraw or modify its recommendation,
and approve and recommend such Acquisition Proposal, provided the Board provides
to Parent and Purchaser written notice of the Company's intention to accept the
Superior Proposal at least two business days prior to taking such action and, at
the end of such two business day period (x) simultaneously terminates this
Agreement, (y) concurrently causes the Company to enter into a definitive
acquisition agreement with respect to such Superior Proposal and (z)
concurrently pays to Purchaser the Termination Payment and Covered Expenses
pursuant to Section 7.4.2. Nothing contained in this Section 5.6 shall prohibit
the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act; provided that
the Company does not withdraw or modify its position with respect to the Merger
or approve or recommend an Acquisition Proposal, except under the circumstances
described in the immediately preceding sentence and on two business days' notice
to Purchaser to the effect that it is taking such action.
5.7 Indemnification and Insurance.
-----------------------------
5.7.1 Purchaser and the Company agree that prior to the
Effective Time, the Company will procure and pay for officers' and directors'
liability insurance ("D&O Insurance") covering each present and former director,
officer, employee and agent of the Company and each Subsidiary and each present
and former director, officer, employee, agent or trustee of any employee benefit
plan for employees of the Company (individually, an "Indemnified Person", and
collectively, the "Indemnified Persons"), who is currently covered by the
Company's officers' and directors' liability insurance or will be so covered on
the Closing Date with respect to actions and omissions occurring on or prior to
the Closing Date (including, without limitation, any which arise out of or
relate to the transaction contemplated by this Agreement). Purchaser shall not
be required to provide or cause the Surviving Corporation to provide any such
insurance for the Indemnified Persons.
5.7.2 Purchaser and the Surviving Corporation hereby
jointly and severally agree that, for the lesser of (a) six (6) years after the
Closing Date, or (b) the period during which the Surviving Corporation maintains
its existence, the provisions of the Certificate of Incorporation and By-Laws of
the Surviving Corporation shall provide indemnification to the Indemnified
Persons on terms, in a manner, and with respect to matters, which are no less
favorable (in favor of persons indemnified) than the Company Certificate of
Incorporation and By-Laws, as in effect on the date hereof, and further agree
that such indemnification provisions shall not be modified or amended except as
required by law, unless such modification or amendment expands the rights of the
Indemnified Persons to indemnification. Notwithstanding the foregoing, it is
expressly understood and agreed that the obligation of the Surviving Corporation
to provide such indemnification is limited to the D&O Insurance and the
Surviving Corporation's rights under the Escrow Agreement and that the
provisions of the Certificate of Incorporation and By-laws of the Surviving
Corporation may be amended accordingly.
5.8 Surviving Corporation. The Surviving Corporation or its successors
will maintain its or their existence until at least March 31, 2003.
5.9 Parent's Financing. Parent will use its reasonable best
efforts to obtain the proceeds of the Financing.
5.10 Liabilities. The Company agrees to use its best efforts so that
neither the Company nor any Remaining Subsidiary will have as of the Effective
Time any Liability other than the Permitted Liabilities and Liabilities, if any,
included in the calculation of the Adjustment Amount as agreed to by Parent and
Purchaser.
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5.11 Other Company Covenants. Prior to the Effective Time, the Company
will (a) as soon as practicable, obtain from General Electric Capital
Corporation ("GECC") a release from pledge of all of the outstanding shares of
any Remaining Subsidiary which have been pledged to GECC, and (b) cause to be
paid in full at or prior to the Closing all expenses associated with the
transactions contemplated hereby including fees and expenses of investment
bankers, counsel, accountants, consultants and other advisors to the Company,
all severance, bonus and other compensation payable in connection with or as a
result of the Merger and all other expenses of the Company and each of the
Remaining Subsidiaries.
5.12 Parent Covenants. Parent agrees to cause the Surviving Corporation
to amend its Certificate of Incorporation within thirty (30) days after the
Closing Date to change the name of the Surviving Corporation to a name which
does not include the word "Besicorp". The Surviving Corporation agrees to (a)
quitclaim without recourse to BL the net proceeds of any recovery under a
derivative claim against its officers or directors and (b) file all income Tax
Returns for the current fiscal year and pay all Taxes shown to be due thereon.
ARTICLE VI
CONDITIONS TO CLOSING; CLOSING DELIVERIES; BASE AMOUNT
6.1 Conditions to Each Party's Obligations. The respective obligations
of each party to effect the transactions contemplated hereby shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
6.1.1 The Merger Agreement and, to the extent required
under the NYBCL, the Distribution shall have been adopted and authorized by th
requisite vote of the stockholders of the Company.
6.1.2 This Agreement, the Merger and (to the extent
approval thereof is necessary to consummate the Transactions) the Transactions
shall have been approved by each Governmental Entity whose approval is required
for the consummation of the Merger or such Transactions, such approvals shall
remain in full force and effect and all waiting periods relating to such
approvals shall have expired.
6.1.3 No Governmental Entity or court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent)which is then in effect and
has the effect of making the Merger or any of the Transactions illegal.
6.2 Conditions to the Company's Obligations. The obligation of the
Company to consummate the transactions contemplated hereby is subject to the
fulfillment (or waiver) of all of the following conditions prior to the
Effective Time, upon the non-fulfillment (and non-waiver) of any of which this
Agreement may, at the Company's option, be terminated pursuant to and with the
effect set forth in Article VII:
6.2.1 Each and every representation and warranty made by
Parent and Purchaser shall be true and correct when made and as if originally
made on and as of the Closing Date.
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6.2.2 All obligations of Parent and Purchaser to be
performed hereunder through, and including on, the Closing Date (including,
without limitation, all obligations which Purchaser would be required to perform
at the Closing if the transaction contemplated hereby was consummated shall have
been fully performed.
6.2.3 Purchaser shall have delivered to the Company the
written opinion of Altheimer & Gray, counsel for Purchaser, dated as of the
Closing Date, in substantially the form of Exhibit C attached hereto.
6.2.4 Immediately prior to the Merger Purchaser is, and
assuming that the condition set forth in Section 6.3.1 is satisfied, immediately
following the effectiveness of the Merger the Surviving Corporation shall be,
solvent.
6.3 Conditions to Parent's and Purchaser's Obligations. The obligations
of Parent and Purchaser to consummate the transactions contemplated hereby is
subject to the fulfillment (or waiver) of all of the following conditions on or
prior to the Closing Date, upon the non-fulfillment (and non-waiver) of any of
which this Agreement may, at Purchaser's option, be terminated pursuant to and
with the effect set forth in Article VII:
6.3.1 The representations and warranties made by the
Company shall be true and correct when made and as if originally made on and as
of the Closing Date, except to the extent reflected in the Statement as finally
agreed to by Parent and Purchaser.
6.3.2 All obligations of the Company to be performed
hereunder through, and including on, the Closing Date (including, without
limitation, all obligations which the Company would be required to perform at
the Closing if the transaction contemplated hereby was consummated)shall have
been fully performed.
6.3.3 No suit, proceeding or investigation shall have been
commenced (to Purchaser's knowledge) by any Governmental Entity on any grounds
to restrain, enjoin or hinder, or seek material damages on account of, the
consummation of any of the Transactions or the other transactions contemplated
hereby.
6.3.4 The Company shall have delivered to Purchaser the
written opinion of Robinson Brog Leinwand Greene Genovese & Gluck P.C., counsel
to the Company, dated as of the Closing Date, in substantially the form of
Exhibit D attached hereto.
6.3.5 Since June 30, 1998 there shall have been no
changes, either individually or in the aggregate, taking into account the
completion of the Transactions other than the Merger, in the results of
operations, condition (financial or otherwise), properties, assets, business or
prospects of the Company or any Subsidiary which has had or would be reasonably
likely to have a Material Adverse Effect on the Company or any Remaining
Subsidiary.
6.3.6 There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, by any Governmental Entity which imposes any condition
or restriction upon Purchaser, the Surviving Corporation or its Subsidiaries
which would in Purchaser's opinion be commercially unreasonable from a financial
standpoint relative to the transactions contemplated by this Agreement.
6.3.7 Purchaser shall be satisfied in its reasonable
discretion that each of the Distribution and the Power Facility Sales shall have
been completed as provided in this Agreement and that neither the
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Surviving Corporation nor any of the Remaining Subsidiaries has any Liability as
a result of or arising out of the Distribution or Power Facility Sales.
6.3.8 The Indemnification Agreement and the Escrow
Agreement shall have been executed and delivered by BL and shall each be valid,
legal, binding and enforceable obligations of BL, and the Company shall have
deposited $6,000,000 in cash with the Escrow Agent under the Escrow Agreement.
6.3.9 The Base Amount shall be no less than $ 105,275,000.
6.3.10 Purchaser shall have received the proceeds of the
Financing.
6.3.11 Neither the Company nor any Remaining Subsidiary
shall have any Liabilities other than the Permitted Liabilities and the
Liabilities taken into account in determining the Adjustment Amount as agreed to
by Purchaser and Parent.
6.3.12 The Company shall have received all of the Consents
and obtained the Third Party Releases and DB&O Releases (it being understood
that this condition with respect to the Third Party Releases will be satisfied
if Third Party Releases with respect to Liabilities aggregating no more than
$50,000 are not obtained).
6.3.13 The number of shares of Common Stock outstanding
immediately prior to the Effective Time does not exceed 3,051,435.
6.3.14 Purchaser shall have received the results of a
Phase I and, if reasonably requested by Purchaser, Phase II environmental
investigation of the Real Estate held by Reina Distributing, Inc. with results
satisfactory to Parent and Purchaser in their sole discretion.
6.4 Closing Deliveries.
------------------
6.4.1 At the Closing, the Company shall cause to be
executed and delivered to Parent and Purchaser all of the following:
(a) a closing certificate dated the Closing Date and
executed on behalf of the Company by a duly authorized officer of the
Company to the effect set forth in Sections 6.3.1, 6.3.2, 6.3.5, 6.3.6,
6.3.10(g), 6.3.11, 6.3.12 and 6.3.13;
(b) certified copies of such corporate records of the
Company and the Subsidiaries and copies of such other documents as
Purchaser or its counsel may reasonably have requested in connection
with the consummation of the transactions contemplated hereby;
(c) D&O Releases and resignations of all of the officers
and directors of each of the Remaining Subsidiaries and the Company in
form satisfactory to Purchaser and Parent;
(d) the Indemnification Agreement and Escrow Agreement;
and
(e) the minute books and corporate records of the Company
and the Remaining Subsidiaries and originals of the stock certificates
evidencing all of the outstanding capital stock of each of the
Remaining Subsidiaries free of all Encumbrances.
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6.4.2 At the Closing, Parent and Purchaser shall cause
to be delivered to the Company all of the following:
(a) a closing certificate dated the Closing Date and
executed on behalf of Parent and Purchaser by a duly authorized officer
of Parent and Purchaser to the effect set forth in Sections 6.2.1,
6.2.2 and 6.2.4; and
(b) certified copies of such corporate records of Parent
and Purchaser and copies of such other documents as the Company or its
counsel may reasonably have requested in connection with the
consummation of the transactions contemplated hereby.
ARTICLE VII
TERMINATION/EFFECT OF TERMINATION
7.1 Right to Terminate. Anything to the contrary herein
notwithstanding, this Agreement and the transaction contemplated hereby may be
terminated at any time prior to the Effective Time by prompt notice given in
accordance with Section 8.4:
7.1.1 by the mutual written consent of Parent and
Purchaser and the Company (with the approval of their respective Boards of
Directors);
7.1.2 by Purchaser and Parent, or the Company (with the
approval of the Board) if:
(a) the Effective Time shall not have
occurred at or before 11:59 p.m. on February 15, 1999 (the "Termination
Date"); provided, however, that the right to terminate this Agreement
under this Section 7.1.2 shall not be available to any party whose
failure to fulfill any of its obligations under this Agreement has been
the cause of the failure of the Effective Time to have occurred as of
such time; or
(b) upon a vote at the Meeting any of this Agreement
or any of the Transactions required to be adopted or authorized by the
shareholders of the Company shall fail to be adopted and authorized.
7.1.3 by Parent and Purchaser, by giving written notice
of such termination to the Company, if:
(a) there has been a material breach of any
material agreement or covenant on the part of the Company which has not
been cured or adequate assurance of cure given, in either case within
ten (10) business days following notice of such breach from Purchaser
or either of the Indemnification Agreement or the Escrow Agreement
shall not be a valid, legal and binding agreement or enforceable
against BL;
(b) there has been a breach of a
representation or warranty of the Company the Damages from which Purchaser
reasonably determines would cause the Base Amount to be less than $105,275,000;
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(c) the Board shall have taken any action
contemplated by clause (i), (ii), (iii) or (iv) of Section 5.6;
(d) a tender offer or exchange offer for 15%
or more of the shares of Common Stock of the Company is commenced, and
the Board fails to recommend against acceptance of such tender offer or
exchange offer by its stockholder within the time period required by
Section 14e-2 of the Exchange Act (the taking of no position by the
expiration of such period with respect to the acceptance of such tender
offer or exchange offer by its shareholders constituting such a
failure) or any Person acquires by any means 20% or more of the
outstanding shares of Common Stock;
(e) the Company shall have breached any of
its covenants or agreements in Section 5.5;
(f) there shall be pending or threatened any
proceeding seeking material damages on account of this Agreement or the
consummation of the Merger or any of the other Transactions which
Purchaser determines in good faith, after due investigation and
consultation with counsel representing the Company in such proceeding,
could reasonably be expected to result in the Company incurring a
material amount of damages or expenses relative to the protections to
Parent afforded by the Escrow Agreement, after taking into account
applicable insurance coverage; or
(g) the Base Amount is less than $105,275,000.
7.1.4 by the Company (with the approval of the Board ), by
giving written notice of such termination to Parent and Purchaser, if:
(a) there has been a material breach of any
agreement herein on the part of Purchaser which has not been cured or
adequate assurance of cure given, in either case within ten (10)
business days following notice of such breach from the Company;
(b) there has been a breach of a
representation or warranty of Parent or Purchaser herein which could
reasonably be expected to prevent Parent or Purchaser from fulfilling
their obligations under this Agreement and which, in the reasonable
opinion of the Company, by its nature cannot be cured within twenty
(20) days (or, if sooner, the Closing Date);
(c) if the Board determines to enter into and
enters into a definitive agreement providing for a Superior Proposal
which was obtained consistent with Section 5.5; provided, however, that
the Company shall have no right to terminate this Agreement under this
Section 7.1.4(c) unless (i) the Company has provided Purchaser with
written notice of the material terms of the Superior Proposal at least
two business days prior to such termination, and (ii) the Company
simultaneously pays to Purchaser the Termination Payment and Covered
Expenses required under Section 7.4.2.
7.2 Certain Effects of Termination. In the event of the
termination of this Agreement as provided in Section 7.1:
7.2.1 each party, if so requested by the other party, will
return promptly every document furnished to it by or on behalf of the other
party in connection with the transaction contemplated hereby, whether so
obtained before or after the execution of this Agreement, and any copies thereof
(except for copies of documents publicly available) which may have been made,
and will use reasonable efforts to cause its
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representatives and any representatives of financial institutions and investors
and others to whom such documents were furnished promptly to return such
documents and any copies thereof any of them may have made; and
7.2.2 the obligation of Purchaser under the
Confidentiality Letter referred to in Section 5.2 shall continue indefinitely
(subject to its terms) notwithstanding any termination of this Agreement.
This Section 7.2 shall survive any termination of this Agreement.
7.3 Remedies. Notwithstanding any termination right granted in Section
7.1, in the event of the nonfulfillment of any condition to a party's closing
obligations, in the alternative, such party may elect to do one of the
following:
(a) proceed to close despite the nonfulfillment of any
closing condition without waiving any claim for any breach and
specifically in the case of Parent and Purchaser without waiving any
right to proceed under the Indemnification Agreement;
(b) decline to close, terminate this Agreement as provided
in Section 7.1, and thereafter exercise the remedies provided, or seek
damages to the extent permitted in Section 7.4; or
(c) seek specific performance of the obligations of the
other party. Each party hereby agrees that, in the event of any breach
of this Agreement by such party, the remedies available to the other
party at law would be inadequate and that such party's obligations
under this Agreement may be specifically enforced.
7.4 Right to Damages; Expense Reimbursement.
---------------------------------------
7.4.1 If this Agreement is terminated in accordance with
Section 7.1, neither party will have any claim against the other, subject to the
following sentence and, if applicable, the remaining provisions of this Section
7.4. A party terminating this Agreement in accordance with Section 7.1 (other
than Section 7.1.1) will retain any and all of such party's legal and equitable
rights and remedies if, but only if, the circumstances giving rise to such
termination were (i) caused by the other party's willful failure to comply with
a material covenant set forth herein or (ii) that a material representation or
warranty of the other party was materially false when made and that party knew
or should have reasonably known such representation or warranty was materially
false when made. In either of such events, termination shall not be deemed or
construed as limiting or denying any legal or equitable right or remedy of said
party, and said party shall also be entitled to recover its costs and expenses
which are incurred in pursuing its rights and remedies (including reasonable
attorneys' fees).
7.4.2 If (x) the Company terminates this Agreement
pursuant to Section 7.1.4(c) or 5.6 or (y) Purchaser and Parent terminate this
Agreement pursuant to 7.1.3(c), (d)or (e), and Parent and Purchaser are ready,
willing and able to execute or have executed definitive documentation to effect
the Financing or substantially similar financing arrangements, with an able
financing source, the Company will (a) pay Purchaser $3,500,000 in cash
immediately upon such termination (the "Termination Payment"), by wire transfer
of same-day funds to an account designated by Purchaser and (b) reimburse Parent
and Purchaser for their out-of-pocket costs and expenses reasonably incurred and
due to third parties in connection with this Agreement and the Transactions
(including fees and disbursements of counsel, accountants, financial advisors
and consultants, commitment fees, due diligence expenses, travel costs, filing
fees, and similar fees and
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expenses, all of which shall be conclusively established by Purchaser's good
faith statement therefor) (collectively, "Covered Expenses"), up to a maximum of
$600,000, by wire transfer of same-day funds to an account designated by
Purchaser, immediately following receipt of Purchaser's statement evidencing the
Covered Expenses.
7.4.3 If this Agreement is terminated pursuant to Section
7.1.2(b), (x) the Company will pay to Purchaser immediately upon such
termination Parent and Purchaser's Covered Expenses up to a maximum of $600,000
by wire transfer of same day funds to an account designated by Purchaser and (y)
if Michael Zinn or his direct or indirect transferees have failed to vote in
person or by proxy at least 1,600,000 shares in favor of the Merger and any
other matter presented to stockholders in connection with the Merger, the
Company shall pay the Termination Payment to Purchaser immediately upon such
termination by wire transfer of same day funds to an account designated by
Purchaser. If this Agreement is terminated pursuant to (x) Section 7.1.2(b) or
(y) by the Company, or Parent and Purchaser pursuant t Section 7.1.2(a) and the
Company, on or before March 31, 1999, enters into a written agreement to effect
an Acquisition Proposal with, or an Acquisition Proposal is or has been made by,
a party other than Parent, Purchaser or any of their Subsidiaries, and the
Acquisition Proposal is thereafter consummated the Company will pay to Purchaser
the Termination Payment plus the amount of Parent's and Purchaser's Covered
Expenses (to the extent not paid under the first sentence of this Section
7.4.3). The Termination Payment contemplated by the prior sentence shall be paid
in same-day funds by wire transfer to an account designated by Purchaser
immediately prior to consummation of such Acquisition Proposal.
7.4.4 If this Agreement is terminated by Parent and
Purchaser pursuant to Section 7.1.3(a) (other than by virtue of a breach of
Sections 5.5 or 5.6), (b), (f), or (g) the Company shall reimburse Parent and
Purchaser for their Covered Expenses up to a maximum of $600,000, by wire
transfer of same-day funds to an account designated by Parent and Purchaser,
immediately following receipt of Purchaser's statement evidencing such expenses.
If this Agreement is terminated as provided in the immediately preceding
sentence and the Company, on or before March 31, 1999, enters into a written
agreement to effect an Acquisition Proposal with, or an Acquisition Proposal is
or has been made by, a party other than Parent, Purchaser or any of their
Subsidiaries, and the Acquisition Proposal is thereafter consummated the Company
will pay to Purchaser the Termination Payment plus the amount of Parent's and
Purchaser's Covered Expenses (to the extent not paid under the first sentence of
this Section 7.4.4). The Termination Payment contemplated by the prior sentence
shall be paid in same-day funds by wire transfer to an account designated by
Purchaser immediately prior to consummation of such Acquisition Proposal.
7.4.5 If Purchaser and Parent terminate this Agreement
solely as a result of the failure of the conditions set forth in to Section
6.3.10, Parent and Purchaser shall reimburse the Company for its Covered
Expenses up to $600,000 by wire transfer of same day funds to an account
designated by the Company, immediately following receipt of the Company's
statement evidencing such expenses.
7.4.6 If the Company or Parent and Purchaser fail to
promptly pay any amounts owing pursuant to this Section 7.4. when due, the
Company or Parent and Purchaser, as the case may be, shall in addition to paying
such amounts pay all costs andexpenses (including, fees and disbursements of
counsel) incurred in collecting such amounts, together with interest on such
amounts (or any unpaid portion thereof) from the date such payment was required
to be made until the date such payment is received by the Company or Parent and
Purchaser, as the case may be, at the rate of 9% per annum as in effect from
time to time during such period. This Section 7.4 shall survive the termination
of this Agreement.
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ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations, Warranties and Agreements. All of the
representations, warranties, and agreements contained in this Agreement or in
any certificate or other document delivered pursuant to this Agreement shall
survive the Merger for a period of five years following the Effective Time,
subject to the terms of the Indemnification Agreement.
8.2 Amendment. This Agreement may be amended by the parties hereto,
with the approval of their respective Boards of Directors, at any time prior to
the Effective Time, whether before or after approval hereof by the stockholders
of the Company, but, after such approval by the stockholders of the Company, no
amendment shall be made without the further approval of such stockholders if
such amendment would violate Section 903 of the NYBCL. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
8.3 Publicity. Except as otherwise required by law or applicable stock
exchange rules, press releases and other publicity concerning the transactions
contemplated by this Agreement shall be made only with the prior agreement of
the Company and Purchaser.
8.4 Notices. All notices required or otherwise given hereunder shall be
in writing and may be delivered by hand, by facsimile, by nationally recognized
private courier, or by United States mail. Notices delivered by mail shall be
deemed given three (3) business days after being deposited in the United States
mail, postage prepaid, registered or certified mail, return receipt requested.
Notices delivered by hand by facsimile, or by nationally recognized private
courier shall be deemed given on the day of receipt (if such day is a business
day or, if such day is not a business day, the next succeeding business day);
provided, however, that a notice delivered by facsimile shall only be effective
if and when confirmation is received of receipt of the facsimile at the number
provided in this Section 8.4. All notices shall be addressed as follows:
If to the Company:
Besicorp Group Inc.
1151 Flatbush Road
Kingston, New York 12401
Attention: Frederic M. Zinn, Esq., General Counsel
Fax: 914-336-7172
with a copy to:
Robinson Brog Leinwand Greene Genovese & Gluck P.C.
1345 Avenue of the Americas
New York, New York 10105
Attention: A. Mitchell Greene, Esq.
Fax: (212) 956-2164
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If to Purchaser or the Surviving Corporation:
BGI Acquisition LLC
950 Third Avenue, 23rd Floor
New York, New York 10022
Attention: President
Fax: 212-688-7908
with a copy to:
Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Attention: Paul M. Daugerdas, Esq.
Fax: (312) 715-4800
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 8.4.
8.5 Expenses; Transfer Taxes. Except as set forth in Section 7.4
herein, each party hereto shall bear all fees and expenses incurred by such
party in connection with, relating to or arising out of the negotiation,
preparation, execution, delivery and performance of this Agreement and the
consummation of the transaction contemplated hereby, including, without
limitation, financial advisors', attorneys', accountants' and other professional
fees and expenses.
8.6 Entire Agreement. This Agreement, the Confidentiality Agreement
referred to in Section 5.2 and the instruments to be delivered by the parties
pursuant to the provisions hereof constitute the entire agreement between the
parties and shall be binding upon and inure to the benefit of the parties hereto
and their respective legal representatives, successors and permitted assigns.
Each Exhibit and schedule (including the Company Disclosure Schedule) shall be
considered incorporated into this Agreement.
8.7 Non-Waiver. The failure in any one or more instances of a party to
insist upon performance of any of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement conferred, or
the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent waiver of
any such terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party.
8.8 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
8.9 Severability. The invalidity of any provision of this Agreement or
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
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8.10 Applicable Law. This Agreement shall be governed and controlled as
to validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of New York applicable to contracts
made in that State.
8.11 Binding Effect; Benefit. This Agreement shall inure to the benefit
of and be binding upon the parties hereto, and their successors and permitted
assigns. Except as expressly provided herein, nothing in this Agreement, express
or implied, shall confer on any person other than the parties hereto, and their
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, including, without
limitation, third party beneficiary rights.
8.12 Assignability. This Agreement shall not be assignable by either
party without the prior written consent of the other party.
8.13 Governmental Reporting. Anything to the contrary in this Agreement
notwithstanding, nothing in this Agreement shall be construed to mean that a
party hereto or other person must make or file, or cooperate in the making or
filing of, any return or report to any Governmental Entity in any manner that
such person or such party reasonably believes or reasonably is advised is not in
accordance with law.
8.14 Defined Terms. The following terms are defined in the
following sections of this Agreement:
Defined Term Where Found
Acquisition Proposal 5.5.3
Additional Amount 2.2.2(a)
Adjustment Amount 6.5.2
Agreement Preamble
Authorization 4.2.3
BL Preamble
Base Amount 2.2.1(a)
Board 4.2.2
Certificate of Merger 1.2
Certificates 2.3.2
Closing 1.6
Closing Date 1.6
Code 2.3.6
Common Stock 2.1.1
Company Preamble
Company Disclosure Schedule 4.1
Company Filings 5.4.3
Company Shareholders 2.3.1
Consents 5.4.4
Constituent Corporation 1.1
Contract 4.2.19
Contracts 4.2.19
Covered Expenses 7.4.2
D&O Insurance 5.7.1
D&O Releases 5.4.5
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Defined Term Where Found
efined Term Where Found
Directors 4.2.5
Distributed Subsidiaries 4.2.1
Distribution 3.2.1
Effective Time 1.2
Employee Benefit Plans 4.2.21(a)
Encumbrance 4.2.4
Environmental Laws 4.2.26
Environmental Permits 4.2.26
ERISA 4.2.21(a)
ERISA Affiliate 4.2.21(b)
Escrow Agreement 3.2.1((i)
Exchange Act 3.2.1(j)
Excluded Liability 2.2.1(e)
Fairness Opinion 4.2.31
Financial Statements 4.2.8
Financing 4.3.7
Form 10 Registration 4.2.32
GAAP 4.2.8
GECC 5.11
Governmental Entity 4.2.3
Hazardous Material 4.2.26
Indemnification Agreement 3.2.1(i)
Indemnified Person 5.7.1
Indemnified Persons 5.7.1
Information Statement 4.2.32
Intellectual Property 4.2.29
Interim Balance Sheet 4.2.9(a)
Leased Premises 4.2.28
Lender 4.3.7
Letter of Transmittal 2.3.2
Liabilities 4.2.9
Material Adverse Effect 4.2.4
Meeting 5.4.1
Merger Preamble
Merger Consideration 2.1.1
1993 Plan 2.5
NIMO 4.2.10(a)
NYBCL Preamble
NYSERDA 5.4.4
Obligation 4.2.4
Parent Preamble
Partnership 4.2.6
Paying Agent 2.3.1
Payment Fund 2.3.1
PBGC 4.2.21(b)
Permits 4.2.18
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Defined Term Where Found
efined Term Where Found
Permitted Liabilities 3.2.2(b)
Person 4.2.4
Plans 2.5
Power Facility Sales 3.3
Preferred Stock 4.2.5
Proxy Statement 4.2.32
Purchaser Preamble
Purchaser Obligations 4.3.4
Real Estate 4.2.27
Remaining Subsidiary 4.2.1
Retained Assets 3.2.1(a)
Return 4.2.13(b)
Returns 4.2.13(b)
SEC 4.2.3
SEC Documents 4.2.7
Securities Act 4.2.1
Special Account 6.5.1
Specified Current Liabilities 6.5.1(b)
Statement 3.2.2
Stock Option 2.4
Subsidiary 4.2.1
Superior Proposal 5.5.3
Surviving Corporation 1.1
Tax 4.2.13(a)
Taxes 4.2.13(a)
Termination Date 7.1.2(a)
Termination Payment 7.4.2
Third Party Releases 5.4.5
Transaction Agreements 4.2.2
Transactions 4.2.2
Warrants 2.5
8.15 Headings. The headings contained in this Agreement and the
Agreement's Table of Contents are for convenience of reference only and shall
not affect the meaning or interpretation of this Agreement.
8.16 Interpretation. Whenever the term "including" is used in this
Agreement it shall mean "including, without limitation," (whether or not such
language is specifically set forth) and shall not be deemed to limit the range
of possibilities to those items specifically enumerated. All joint obligations
herein shall be deemed to be joint and several whether or not specifically so
specified.
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IN WITNESS WHEREOF, the parties have executed this Agreement and Plan
of Merger on the date first above written.
PARENT:
BGI ACQUISITION LLC
By: /s/ James Haber
-----------------------------------
James Haber, President of the
Sole Manager of BGI Acquisition LLC
PURCHASER:
BGI ACQUISITION CORP.
By: /s/ James Haber
-----------------------------------
James Haber
Its: President
THE COMPANY:
BESICORP GROUP, INC.
By: /s/ Michael F. Zinn
-----------------------------------
Name: Michael F. Zinn
Its: President and Chief Executive
Officer
40
Annex A-2
This AMENDMENT NO. 1 TO THE AGREEMENT AND PLAN OF MERGER (this
"Amendment") is entered into this 28th day of January, 1999, by and among BGI
Acquisition LLC, a Wyoming limited liability company ("Parent"), BGI Acquisition
Corp., a New York corporation ("Purchaser"), and Besicorp Group Inc., a New York
corporation formed under the name Bio-Energy Systems Inc. (the "Company").
RECITALS:
A. Parent, Purchaser and the Company are parties to an Agreement and
Plan of Merger (the "Initial Plan") dated November 23, 1998.
B. Capitalized terms used in this Amendment have the meanings ascribed
to them by the Initial Plan.
A G R E EM E N T S
Therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Base Amount Clause (ii) of Section 2.2.1(b)(A) of the Initial Plan
is hereby amended to read in its entirety as follows:
to the extent not received in cash, the amount of a claimed tax
refund for fiscal year 1998 not to exceed $3,909,
2. Enowitz Shares. Section 2.3.7 of the Initial Plan is hereby amended
to read in its entirety as follows:
In the case of 100,000 shares of Common Stock held of record
by Martin Enowitz or his assigns which the Company represents are the
subject of a dispute between the Company and Mr. Enowitz (the "Disputed
Shares") , appropriate provision will be made in the Paying Agent
Agreement, or another agreement with the Paying Agent, for the holding
in escrow pending resolution of the dispute of (1) the Disputed Shares,
(2) the Merger Consideration payable in respect of such Disputed Shares
and (3) any shares of capital stock of BL distributable with respect to
such Disputed Shares. Purchaser agrees that the rights, if any, of
Purchaser, Parent and the Surviving Corporation to the Disputed Shares,
the Merger Consideration payable in respect of such Disputed Shares and
any shares of capital stock of BL distributable with respect to such
Disputed Shares, if any, will be assigned without recourse to the
Paying Agent for the benefit of the holders of Common Stock issued and
outstanding immediately prior to the Effective Time on a pro rata
basis.
3. Further Assurances and Related Matters Section 3.4 of the Initial
Plan is hereby amended to read in its entirety as follows:
Further Assurances and Related Matters. If, at any time after
the Effective Time, BL shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things
are necessary, desirable or proper (i) to vest, perfect or confirm, of
record or otherwise, in BL or its Subsidiaries its right, title and
interest in, to or under any of the rights, privileges, powers,
<PAGE>
franchises, properties or assets contributed to any of the Distributed
Subsidiaries in connection with the Distribution or (ii) otherwise
carry out the Distribution, the Surviving Corporation will upon
reasonable request of BL execute and deliver all such deeds, bills of
sale, assignments and assurances and do all such other acts and things
as may be necessary, desirable or proper to carry out the Distribution.
If, at any time prior to the Distribution, Purchaser or the Company
shall consider or be advised that the composition of the Retained
Assets would be unduly expensive or impractical to, the Surviving
Corporation, assets of equal value that were to be distributed to BL
pursuant to the Distribution may be substituted for such of the
Retained Assets as may be necessary in order to prevent the composition
of the Retained Assets from having such an effect on the Surviving
Corporation, subject to the approval of Parent and the Company, which
approval will not be reasonably refused, in which case the Retained
Assets shall be deemed to include the assets so excluded from the
Distribution and the Retained Assets shall be deemed to exclude the
assets so substituted and the parties hereto shall execute any
agreements, instruments, waivers or assurances or any take any other
actions as are necessary, desirable or proper in connection with such
substitution. Any expenses incurred by the Surviving Corporation under
this Section 3.4 shall be paid by BL.
4. Right to Terminate. Section 7.1.2 (a) of the Initial Plan is hereby
amended to read in its entirety as follows:
subject to Section 7.5 hereof, the Effective Time shall not
have occurred at or before 11:59 p.m. on March 1, 1999 (the
"Termination Date"); provided, however, that the right to terminate
this Agreement under this Section 7.1.2 shall not be available to any
party whose failure to fulfill any of its obligations under this
Agreement has been the cause of the failure of the Effective Time to
have occurred as of such time; or
5. Right to Change Termination Date. The Plan of Merger is hereby
amended inserting Section 7.5 as follows:
7.5 Right to Change Termination Date. The Company has the
right (the "Extended Right"), in its sole discretion, exercisable at
any time prior to 11:59 pm on February 26, 1999, by written notice to
Parent, to extend the Termination Date to 11:59 pm on March 15, 1999,
in which case for all purposes pursuant to the Agreement the
Termination Date shall be deemed to mean March 15, 1999; provided,
however, that if the Company exercises the Extended Right and the
Agreement is terminated thereafter prior to the Effective Time pursuant
to Section 7.1.1, Section 7.1.2 (unless the failure of Parent or
Purchaser to fulfill any of their obligations under this Agreement has
been the cause of the failure of the Effective Time to have occurred as
of such time), Section 7.1.3 or Section 7.1.4(c), the Company shall be
obligated to pay to Parent immediately, in addition to any amounts, if
any, owing pursuant to Section 7.4 hereof, a sum of $1,400,000 in cash
by wire transfer of same-day funds to an account designated by Parent.
6. Effect of Amendment. Except as amended by this Amendment, the
Initial Plan shall remain in full force and effect. This Amendment shall not
constitute a waiver or amendment of any provision of the Initial Plan not
referred to herein.
7. Entire Agreement. This Amendment, the Initial Plan, the
Confidentiality Agreement referred to in Section 5.2 to the Initial Plan and the
instruments to be delivered by the parties pursuant to the provisions of the
Initial Plan constitute the entire Initial Plan between the parties and shall be
binding upon
<PAGE>
and inure to the benefit of the parties hereto and their respective legal
representatives, successors and permitted assigns.
8. Counterparts. This Amendment may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
9. Applicable Law. This Amendment shall be governed and controlled as
to validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of New York applicable to contracts
made in that State.
10. Assignability. This Amendment shall not be assignable by either
party without the prior written consent of the other party.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date first above written.
PARENT:
BGI ACQUISITION LLC
By: /S/ James Haber
James Haber, President of the
Sole Manager of BGI Acquisition LLC
PURCHASER:
BGI ACQUISITION CORP.
By: /s/ James Haber
James Haber
Its: President
THE COMPANY:
BESICORP GROUP, INC.
By: /s/ Michael F. Daley
Michael F. Daley
Its: Executive Vice President
ANNEX B
November 20, 1998
PRIVATE AND CONFIDENTIAL
The Board of Directors
Besicorp Group Inc.
1151 Flatbush Road
Kingston, New York 12401
Dear Board Member:
Josephthal & Co. Inc. ("Josephthal") understands that BGI Acquisition
LLC ("Parent"), its wholly owned subsidiary, BGI Acquisition Corp. ("Purchaser")
and Besicorp Group, Inc. ("Besicorp") are considering a proposed transaction in
which Purchaser will merge with and into Besicorp (the "Merger") pursuant to the
Agreement and Plan of Merger presented to Besicorp's Board of Directors on
November 20, 1998 (the "Agreement") by and among Besicorp, Parent and Purchaser.
As more specifically set forth in the Agreement, and subject to the terms and
conditions thereof, each share of common stock, $0.10 par value, of Besicorp
(the "Common Shares") issued and outstanding immediately prior to the Effective
Time of the Merger (other than Common Shares held as treasury shares by Besicorp
or its subsidiaries) shall, by virtue of the Merger be converted into the right
to receive the Merger Consideration. Unless otherwise defined herein,
capitalized terms used herein shall have the meaning ascribed to such terms in
the Agreement.
Josephthal further understands that prior to the Effective Time: (i)
Besicorp will form BL for the purpose of holding substantially all of the
operating assets and all Liabilities of Besicorp and the Remaining Subsidiaries
and all the outstanding capital stock of the Subsidiaries other than the
Remaining Subsidiaries; and (ii) Besicorp will distribute to each of its
stockholders all of the outstanding capital stock of BL ("the Distribution").
Josephthal has not been involved in forming BL or the Distribution and has
not assumed any responsibility for making or obtaining an independent
evaluation or appraisal of BL's properties or other assets nor does Josephthal
opine on the capital requirements or availability of capital for BL.
You have requested our opinion as to the fairness from a financial point of
view to Besicorp and its stockholders of the consideration to be paid by
the Purchaser to the holders of Common Shares in the Merger.
In conducting our analyses and arriving at the opinion expressed
herein, we have reviewed those materials and considered those financial and
other factors that we deemed relevant under the circumstances, including, among
others, the following: (i) the Agreement; (ii) a draft of the Proxy Statement
dated November 13, 1998; (iii) certain historical financial, operating and other
data that are publicly available or were furnished to us by Besicorp including,
but not limited to: (a) financial analyses prepared by management of Besicorp;
(b) Besicorp's Form 10-KSB for the period ended and as of March 31, 1998; (c)
Besicorp's Form 10-QSB for the period ended and as of June 30, 1998; (d)
Besicorp's Draft Form 10-QSB for the period ended and as of September 30, 1998
and e) Besicorp's internally generated operating reports; (iv) publicly
available financial, operating and stock market data for companies engaged in
businesses we deemed comparable to Besicorp; (v) publicly available financial,
operating and stock market data for companies in the power industry which had
been involved in a merger or acquisition since May 1997; and (vi) such other
factors as we deemed appropriate. We have met with senior officers of Besicorp
to discuss the prospects for Besicorp's business and their estimates of future
financial performance, and such other matters as we believed relevant. Our
opinion is solely and necessarily based on economic, financial and market
conditions as they exist and can be evaluated as of the date hereof.
We assume no responsibility to update or revise our opinion upon circumstances
or events occurring after the date hereof.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided us or publicly available and have neither
attempted independently to verify nor assumed responsibility for verifying any
of this information. We have not conducted a physical inspection of Besicorp's
properties or facilities, nor have we made or obtained or assumed any
responsibility for making or obtaining any independent evaluations or appraisals
of any of these properties or facilities. We have assumed that management's
financial analyses have been prepared on a good faith reasonable basis
reflecting the best currently available estimates and judgments of Besicorp's
management. We have also assumed that the Pre closing Transactions described in
Article III of the Agreement as well as the Conditions to Closing in Article VI
of the Agreement will be completed or satisfied as the case may be. We do not
perform legal services or render legal advice.
<PAGE>
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of
Besicorp; (ii) the business prospects of Besicorp; (iii) the historical and
current market for the Common Shares and (iv) the nature and terms of other
acquisition transactions that we believe to be relevant. We have also taken into
account our assessment of general economic, market and financial conditions as
well as our experience in connection with similar transactions and securities
valuation generally. Our opinion necessarily is based upon conditions as they
exist and can be evaluated on the date hereof and we assume no responsibility to
update or revise our opinion based upon circumstances or events occurring after
the date hereof. In that regard, we have not considered any acquisition or
similar transaction to which Besicorp might become a party whether announced or
not, that has not closed prior to the date hereof. Our opinion is limited to the
fairness, from a financial point of view, of the Merger Consideration to be paid
to the holders of Common Shares of Besicorp in the Merger. Our opinion does not
address the Distribution or the potential trading value or trading volume of BL
nor does it address in any way Besicorp's underlying business decision to
effect the Merger, the Distribution or to form BL.
Josephthal has been retained by Besicorp to render this opinion and
provide other financial advisory services, and will receive fees for these
services. In addition, Besicorp has agreed to indemnify Josephthal for certain
liabilities arising out of our engagement. In the ordinary course of our
business, Josephthal may actively trade the Common Shares for its own account
and for the accounts of customers, and, accordingly, may at any time hold a long
or short position in these securities.
This opinion is solely for the use of the Besicorp (including its Board
of Directors) and is not to be publicly-disclosed, used, excerpted, reproduced
or disseminated, quoted or referred to at any time, in any manner or for any
purpose, without the prior written consent of Josephthal provided that Besicorp
may include this opinion as an annex to the Proxy Statement to be filed with the
Securities and Exchange Commission and delivered to the stockholders of
Besicorp. This opinion does not constitute a recommendation to any holder of
Besicorp Common Shares as to how any such stockholder should vote on any aspect
of the Merger including the Distribution, nor does this opinion address the
relative merits of the Merger, the Distribution or any other transactions or
business strategies discussed by the Board of Directors of Besicorp as
alternatives to the Merger or the decision of the Board of Directors of Besicorp
to proceed with the Merger.
Based upon and subject to the foregoing it is our opinion as investment bankers
that, as of the date hereof, the Merger Consideration to be received by the
holders of Common Shares of Besicorp in the Merger is fair from a financial
point of view.
Very truly yours,
/s/ JOSEPHTHAL & CO. INC.
-------------------------
JOSEPHTHAL & CO. INC.
APPENDIX
Besicorp Group Inc.
1151 Flatbush Road
Kingston, New York 12401
-----------------------------
PROXY
For Special Meeting of Shareholders of Besicorp Group Inc. to be held on
February ___, 1999
--------------------------------
This Proxy is solicited on behalf of the Board of Directors.
The undersigned hereby appoints Frederic Zinn and Michael J. Daley as
Proxies, each with the power of substitution, and hereby authorizes each of them
to represent and to vote, as designated below, all the shares of common stock of
Besicorp Group Inc. held of record by the undersigned on February 3, 1999 at the
Special Meeting of Shareholders to be held on February ____, 1999, or any
adjournment or postponement thereof.
1. TO ADOPT THE AGREEMENT AND PLAN OF MERGER DATED NOVEMBER 23,
1998, AS AMENDED BY AMENDMENT NO. 1, BY AND AMONG BESICORP GROUP
INC., BGI ACQUISITION LLC AND BGI ACQUISITION CORP. AND THE MERGER
PROVIDED FOR THEREIN.
{ } FOR { } AGAINST { } ABSTAIN
2. TO CONSIDER AND ACT UPON ANY OTHER BUSINESS AS MAY COME BEFORE THE
SPECIAL MEETING OF SHAREHOLDERS OR ANY ADJOURNMENT OR POSTPONEMENT
THEREOF.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY TO
CONTINENTAL STOCK TRANSFER & TRUST COMPANY, THE COMPANY'S TRANSFER
AGENT.
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. (IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED
<PAGE>
FOR PROPOSAL 1 and in the discretion of the named proxies with respect to any
other matter that may properly come before the meeting or any adjournment or
postponement thereof.)
--------------------------------------------
Signature
--------------------------------------------
Signature, if held jointly
Dated _____________________, 1999
Please date and sign exactly as name appears
on your stock certificate. Joint owners
should each sign personally. Trustees,
custodians, executors and others signing in
a representative capacity should indicate
the capacity in which they sign.
