<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
O'BRIEN ENVIRONMENTAL ENERGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4931 59-2076187
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
</TABLE>
------------------------
225 SOUTH EIGHTH STREET
PHILADELPHIA, PENNSYLVANIA 19106
(215) 627-5500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LARRY ZALKIN
PRESIDENT AND CHIEF OPERATING OFFICER
O'BRIEN ENVIRONMENTAL ENERGY, INC.
225 SOUTH EIGHTH STREET
PHILADELPHIA, PENNSYLVANIA 19106
(215) 627-5500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S AGENT FOR SERVICE)
------------------------
Copies to:
ROBERT CRANE, ESQ.
SILLS CUMMIS ZUCKERMAN RADIN
TISCHMAN EPSTEIN & GROSS, P.A.
ONE RIVERFRONT PLAZA
NEWARK, NEW JERSEY 07102-5400
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROPOSED
MAXIMUM PROPOSED
TITLE OF EACH CLASS AMOUNT TO OFFERING MAXIMUM AMOUNT OF
OF SECURITIES TO BE BE PRICE PER AGGREGATE REGISTRATION
REGISTERED REGISTERED SHARE OFFERING PRICE FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A Cumulative
Senior Preferred
Stock............... 1,966,960 N/A $21,916,195(1) $7,410.00
- --------------------------------------------------------------------------------
Warrants for Class A
Common Stock........ 5,900,880 -- -- --
- --------------------------------------------------------------------------------
Class A Common
Stock(2)............ 6,884,360 $2.50(3) $14,752,200(3) $5,087.00(3)
- --------------------------------------------------------------------------------
7 3/4% Convertible
Senior Subordinated
Debentures due
March 15, 2002, as
amended............. (4) -- -- --
- --------------------------------------------------------------------------------
11% Convertible Senior
Subordinated
Debentures due
March 15, 2010, as
amended............. (4) -- -- --
- --------------------------------------------------------------------------------
11% Convertible Senior
Subordinated
Debentures due
March 15, 2011, as
amended............. (4) -- -- --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) Pursuant to Rule 457 and solely for the purpose of calculating the
registration fee, the proposed maximum offering price is based upon the
average high and low sale prices of each of the 7 3/4% Convertible Senior
Subordinated Debentures due March 15, 2002, the 11% Convertible Senior
Subordinated Debentures due March 15, 2010 and the 11% Convertible Senior
Subordinated Debentures due March 15, 2011 on the American Stock Exchange on
May 6, 1994.
(2) Representing Class A Common Stock issuable immediately as well as upon
exercise of the Warrants.
(3) This amount only relates to the 5,900,880 shares of Class A Common Stock
issuable upon exercise of the Warrants. The registration fee for the 983,480
shares of Class A Common Stock to be issued together with the Preferred
Stock and the Warrants is included in the registration fee set forth above.
(4) This Registration Statement also relates to the Debentures, as amended by
the Indenture amendments described herein, outstanding after consummation of
the Exchange Offer described herein.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND HEADING CAPTION OR LOCATION IN PROSPECTUS
------------------------------------- --------------------------------------
<S> <C> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................. Facing Page of Registration Statement;
Cross Reference Sheet; Outside Front
Cover Page.
2. Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front Cover Page; Available
Information; Table of Contents;
Outside Back Cover Page.
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information........................ Prospectus Summary; Risk Factors;
Selected Consolidated Financial Data.
4. Terms of the Transaction............. Prospectus Summary; Summary
Comparison; Risk Factors; Background
and Purpose of the Exchange Offer and
Solicitation; Certain Federal Income
Tax Consequences; Market, Trading and
Ownership Information; Description of
New Securities; Comparison of
Indenture Provisions
5. Pro Forma Financial Information...... Pro Forma Financial Information.
6. Material Contacts with the Company
Being Acquired..................... Not applicable.
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters.......... Not applicable.
8. Interests of Named Experts and
Counsel............................ Not applicable.
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ Not applicable.
10. Interests of Named Experts and
Counsel............................ Not applicable.
11. Incorporation of Certain Information
by Reference....................... Not applicable.
12. Information With Respect to S-2 or
S-3 Registrants.................... Not applicable.
13. Incorporation of Certain Information
by Reference....................... Not applicable.
14. Information With Respect to
Registrants Other than S-3 or S-2
Registrants........................ Business; Properties; Legal
Proceedings; Market, Trading and
Ownership Information; Pro Forma
Financial Information; Selected
Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations.
15. Information With Respect to S-3
Companies.......................... Not applicable.
16. Information With Respect to S-2 or
S-3 Companies...................... Not applicable.
17. Information With Respect to Companies
other than S-2 or S-3 Companies.... Not applicable.
18. Information if Proxies, Consents or
Authorizations are to be
Solicited.......................... Prospectus Summary; Risk Factors; The
Exchange Offer.
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange Offer.. Prospectus Summary; Risk Factors; The
Exchange Offer.
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall
not constitute an offer to sell or the solicitation of an offer to buy
nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 13, 1994
PROSPECTUS AND CONSENT SOLICITATION
O'BRIEN ENVIRONMENTAL ENERGY, INC.
EXCHANGE OFFERS FOR
7 3/4% CONVERTIBLE SENIOR SUBORDINATED DEBENTURES
DUE MARCH 15, 2002
11% CONVERTIBLE SENIOR SUBORDINATED DEBENTURES
DUE MARCH 15, 2010
11% CONVERTIBLE SENIOR SUBORDINATED DEBENTURES
DUE MARCH 15, 2011
<TABLE>
<CAPTION>
FOR EACH $1,000 PRINCIPAL THE EXCHANGING HOLDER
AMOUNT OF DEBENTURES: WILL RECEIVE:
- ------------------------- ------------------------------------------------------
<S> <C>
1987 Debentures 40 shares of Series A Cumulative Senior Preferred
Stock with an aggregate liquidation preference of
$1,000 ($25 per share), 120 Warrants to purchase Class
A Common Stock and 20 shares of Class A Common Stock
1990 Debentures 40 shares of Series A Cumulative Senior Preferred
Stock with an aggregate liquidation preference of
$1,000 ($25 per share), 120 Warrants to purchase Class
A Common Stock and 20 shares of Class A Common Stock
1991 Debentures 40 shares of Series A Cumulative Senior Preferred
Stock with an aggregate liquidation preference of
$1,000 ($25 per share), 120 Warrants to purchase Class
A Common Stock and 20 shares of Class A Common Stock
</TABLE>
AND SOLICITATION OF CONSENTS
O'Brien Environmental Energy, Inc., a Delaware corporation (the 'Company'),
hereby offers, upon the terms of and subject to the conditions set forth herein
and in the accompanying Letter of Transmittal and Consent, to exchange (the
'Exchange Offer') its shares of Series A Cumulative Senior Preferred Stock and
Warrants to acquire shares of Class A Common Stock (the 'New Securities') and
shares of Class A Common Stock for any and all of its (a) 7 3/4% Convertible
Senior Subordinated Debentures due March 15, 2002 (the '1987 Debentures'); (b)
11% Convertible Senior Subordinated Debentures due March 15, 2010 (the '1990
Debentures'); and (c) 11% Convertible Senior Subordinated Debentures due March
15, 2011 (the '1991 Debentures' and collectively with the 1987 and 1990
Debentures, the 'Debentures') and hereby solicits (the 'Solicitation') consents
(individually, a 'Consent' and collectively, the 'Consents') of holders of the
Debentures (individually, a 'Holder' and together, the 'Holders') to (x) certain
proposed amendments (collectively, the 'Proposed Amendments') to the Indentures
(the '1987 Indenture', the '1990 Indenture' and the '1991 Indenture',
respectively and together, the 'Indentures') governing the 1987 Debentures, 1990
Debentures and 1991 Debentures, respectively, and (y) the waiver of (i) any and
all defaults and Events of Default (as such terms are defined in the Indentures)
and their consequences under the 1987 Debentures, 1990 Debentures and 1991
Debentures and the Indentures related thereto, whether such defaults or Events
of Default are known or unknown, arising out of any actions, omissions or events
occurring on or prior to the Exchange Offer Expiration Date (as defined below)
and if, on or prior to the Exchange Offer Expiration Date, there is an
acceleration of the 1987 Debentures, 1990 Debentures and/or 1991 Debentures
based upon any Event of Default, the rescission of such acceleration and its
consequences in each case upon the terms and subject to the conditions set forth
in this Prospectus and (ii) the March 15, 1994 interest payment (such waivers
and rescission, the 'Waivers'). HOLDERS OF DEBENTURES WHO DESIRE TO ACCEPT THE
EXCHANGE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS AND THE WAIVERS.
Exchanging Holders will receive New Securities (consisting of 40 shares of
Series A Cumulative Senior Preferred Stock and 120 Warrants) and 20 shares of
Class A Common Stock for each $1,000 principal amount of the Debentures.
The New Securities will be subordinate in right of payment with any
Debentures that are not tendered for exchange as well as other indebtedness of
the Company. See 'Risk Factors.'
- -------------------------------------------------------------------------
THE SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1994 UNLESS EXTENDED (AS SO EXTENDED, THE
'SOLICITATION EXPIRATION DATE'). THE COMPANY MAY EXTEND THE SOLICITATION ON A
DAILY BASIS UNTIL 5:00 P.M., NEW YORK CITY TIME, ON THE DATE ON WHICH THE
REQUISITE CONSENTS (AS DEFINED BELOW) HAVE BEEN RECEIVED. THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1994
UNLESS EXTENDED (AS SO EXTENDED, THE 'EXCHANGE OFFER EXPIRATION DATE').
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
SEE 'RISK FACTORS' AND 'CERTAIN FEDERAL INCOME TAX CONSIDERATIONS' FOR A
DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE
EXCHANGING HOLDERS OF DEBENTURES.
- -------------------------------------------------------------------------
<PAGE>
(continued from page 1)
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION NOR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
May 13, 1994
The Company announced on April 12, 1994 that it would not make its March
15, 1994 interest payments on the 1987 Debentures, 1990 Debentures and 1991
Debentures.
Holders of Debentures who desire to accept an Exchange Offer will be
required to consent to the Proposed Amendments and the Waivers. Holders who do
not tender their Debentures on or prior to the Exchange Offer Expiration Date
will not receive the New Securities and shares of Class A Common Stock. Consents
may be revoked at any time prior to the Solicitation Expiration Date. Tenders of
Debentures may be withdrawn at any time prior to the Exchange Offer Expiration
Date.
The Proposed Amendments will not become effective until the Exchange Offer
is consummated. Consummation of the Exchange Offer is subject to, among other
things, the approval of a majority of the outstanding aggregate principal amount
of each of the 1987 Debentures, the 1990 Debentures and the 1991 Debentures of
the Proposed Amendments and the Waivers (the 'Requisite Consents'). See 'The
Exchange Offer and Solicitation--Conditions'. If the Requisite Consents are
obtained, each non-exchanging holder of Debentures will be bound by the Proposed
Amendments and the Waivers (other than the waiver of the March 15, 1994 interest
payment), whether or not such holder consented to their adoption.
Holders of Debentures who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Debentures
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT HOLDERS OF DEBENTURES
CONSENT TO THE PROPOSED AMENDMENTS AND THE WAIVERS AND ACCEPT THE EXCHANGE
OFFER.
Application has been made to list the New Securities on the American Stock
Exchange (the 'AMEX'). The Debentures are currently listed on the AMEX but may
be delisted upon completion of the Exchange Offer.
------------------------
A Letter of Transmittal is not being included with this preliminary
Prospectus and Consent Solicitation. A Letter of Transmittal will be sent to all
holders of Debentures when the Exchange Offer is declared effective by the
Securities and Exchange Commission. Holders of Debentures should not tender
their Debentures until they receive a Letter of Transmittal.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 4
Exchange Agent and Assistance............................................. 4
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 19
Capitalization............................................................ 23
Selected Historical Consolidated Financial Data........................... 24
Pro Forma Financial Information........................................... 25
Background, Purposes and Effects of the Exchange Offer, Restructuring
and Consent and Waiver Solicitation....................................... 33
Business.................................................................. 34
Properties................................................................ 48
Legal Proceedings......................................................... 49
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 51
Management................................................................ 61
Compensation.............................................................. 62
Security Ownership of Certain Beneficial Owners and Management............ 65
Certain Relationships and Related Transactions............................ 66
Proposed Amendments and Waivers........................................... 67
The Exchange Offer and Solicitation....................................... 71
Market, Trading and Ownership Information................................. 79
Description of New Securities............................................. 82
Description of Debentures................................................. 84
Description of Capital Stock.............................................. 102
Certain Federal Income Tax Consequences................................... 106
Shares Eligible for Future Sale........................................... 112
Legal Opinions............................................................ 112
Experts................................................................... 112
</TABLE>
------------------------
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM,
HOLDERS IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE
THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH
JURISDICTION.
3
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the 'Commission'). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at Room 1100, 75
Park Place, New York, New York 10007, and Room 1204, Kluczynsky Federal
Building, 230 South Dearborn Street, Chicago, Illinois 60604. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Reports,
proxy statements and other information concerning the Company also may be
inspected at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006 and at the offices of the Philadelphia Stock Exchange, 1900
Market Street, Philadelphia, Pennsylvania 19103.
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act of 1933, as amended (the 'Securities Act'), with
respect to the New Securities and the additional shares of Class A Common Stock.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the Commission's rules and regulations. For further information with
respect to the Company, the New Securities and the Company's Class A Common
Stock, reference is made to the Registration Statement, including the exhibits
and schedules thereto. Statements contained in this Prospectus with respect to
the contents of any contract or other document referred to herein are not
necessarily complete and in each instance such statements are qualified in all
respects by reference to the copies of such contract or other document filed as
an exhibit to the Registration Statement. Copies of the Registration Statement,
including the exhibits and schedules, may be inspected without charge at the
offices of the Commission or obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
References in this Prospectus to the Company mean O'Brien Environmental
Energy, Inc. and, where relevant, its wholly-owned subsidiaries.
EXCHANGE AGENT AND ASSISTANCE
American Stock Transfer and Trust Company (the 'Exchange Agent') has agreed
to provide certain services as Exchange Agent. Holders of Debentures who require
assistance relating to effecting the exchange should contact the Exchange Agent
at 40 Wall Street, New York, New York 10005; (212) 936-5100 or Georgeson &
Company, Inc. (the 'Information Agent' and 'Proxy Solicitor') at Wall Street
Plaza, New York, New York 10005; (212) 440-9800.
RISK FACTORS
Holders should carefully consider the information presented in this
Prospectus, particularly the matters set forth under the caption 'Risk Factors.'
4
<PAGE>
PROSPECTUS SUMMARY
Certain capitalized terms used in this Summary are defined elsewhere
herein. Reference is made to, and this Summary is qualified in its entirety by,
the more detailed information contained elsewhere in this Prospectus, including
the appendices hereto.
GENERAL
This Prospectus is furnished in connection with the proposed Exchange Offer
and Solicitation relating to the Company's Debentures. The Company is in a
capital intensive business and, in order to develop new projects, a significant
amount of cash flow from operations and outside financing must be invested to
evaluate, design, develop and install power generation projects. In the event
that cash flow from operations is reduced and outside capital is unavailable,
the Company's asset base will decline and may become impaired.
As a result of (i) significant losses incurred by the Company for the
fiscal year ended June 30, 1993 and the six months ended December 31, 1993
relating, in part, to the fire at the Company's Newark cogeneration plant (the
'Newark fire') and continuing litigation, (ii) the Company's inability to
refinance certain project indebtedness and/or sell equity in certain projects,
and (iii) the lack of sufficient capital to develop and construct new projects,
the Company failed to pay the March 15, 1994 semi-annual interest payment on its
outstanding Debentures. Since that time, the Debentures and the Company's Class
A Common Stock have been trading at historically low levels.
RESTRUCTURING PLAN
Within the last year, the Company has attempted to refinance and/or sell
equity in certain projects. Furthermore, the Company retained an investment
banking firm to develop plans to enhance shareholder value including an
evaluation of the merits of selling or merging the Company or forming a
strategic alliance. Subsequently, the Company engaged Jefferies & Company, Inc.
('Jefferies') to complete the implementation of the Company's plans to maximize
shareholder value. Although the Company has received numerous indications of
interest, the Company's efforts to implement a restructuring plan
('Restructuring Plan') have been hampered by, among other things, the ongoing
litigation with the Company's previous principal project turnkey construction
contractor (the 'Hawker Siddeley litigation'), the Newark fire, the constraints
in the Debentures and the Company's liquidity problems.
To reduce debt, increase equity, alleviate the Company's short-term
liquidity problems, and improve long-term liquidity, the Company is pursuing a
Restructuring Plan that includes the following steps: (1) the recent settlement
of the Hawker Siddeley litigation, (2) appointment of a new President and Chief
Operating Officer, and Vice President/Finance and Chief Financial Officer, (3)
implementation of a cost reduction program, (4) refinancing and/or sale of all
or part of its ownership in its Newark and Parlin cogeneration plants, (5) a
strategic review of its other assets and business units and (6) completion of
the Exchange Offer and Solicitation.
An additional purpose of the Exchange Offer and the Consent Solicitation is
to eliminate the risk that the Company will be required to offer to purchase any
of the 1987 Debentures, 1990 Debentures and/or 1991 Debentures by reason of
certain covenants described herein. In addition, the purpose of the Waivers is
to seek to ensure that the 1987 Debentures, 1990 Debentures and/or 1991
Debentures could not be accelerated based upon any actions, omissions or events,
whether known or unknown, that may have occurred or that occur prior to the
Solicitation Expiration Date and that could be construed to be defaults or
Events of Default under the 1987 Debentures, 1990 Debentures and/or 1991
Debentures and the Indentures related thereto and to rescind any acceleration
that may occur on or prior to the Solicitation Expiration Date.
The Company has been burdened with numerous lawsuits principally involving
Hawker Siddeley. These lawsuits have had a severe negative impact on the
Company's financial results and liquidity and have consumed significant
management resources. The Company believes that the recent settlement of these
suits and the implementation of its cost reduction program will allow the
Company to reduce its general and administrative costs in the 1995 fiscal year.
To assist the implementation of its Restructuring Plan and the cost reduction
program, the Company's Board of Directors elected Larry Zalkin as its new
President and Chief Operating Officer and Ronald R. Rominiecki as Vice
President/Finance and Chief Financial Officer in March 1994.
The Company believes that the successful consummation of the Exchange Offer
and Solicitation should provide significant financial and operating benefits to
the Company. Although no assurances can be given, the Exchange Offer and
Solicitation should provide the Company with a capital structure that will allow
it to pursue, develop and finance future power generation projects. Also, the
Company believes that the Exchange Offer will enhance its ability to implement
its Restructuring Plan and provide a stronger foundation to support the growth
of the Company.
5
<PAGE>
IF THE EXCHANGE OFFER AND SOLICITATION ARE NOT CONSUMMATED, THE COMPANY
BELIEVES THAT IT IS LIKELY THAT THE COMPANY WILL BE SUBJECT TO REORGANIZATION
PROCEEDINGS UNDER CHAPTER 11 OF THE U.S. BANKRUPTCY LAWS. IN ADDITION, EVEN IF
THE EXCHANGE OFFER AND SOLICITATION ARE CONSUMMATED, NO ASSURANCE CAN BE GIVEN
THAT THE COMPANY WILL NOT BE SUBJECT TO REORGANIZATION PROCEEDINGS IN THE NEAR
FUTURE.
THE COMPANY
The Company develops cogeneration, waste heat recovery and biogas projects
that produce electricity and thermal energy for sale under long-term contracts
with industrial and commercial users and public utilities. As a project
developer, the Company is responsible for the evaluation, design, installation,
financing and operation of a project at a customer's plant site. The Company
also designs and assembles power generation systems for sale and rental,
electrical control and distribution subsystems, and high temperature heat
transfer equipment and subsystems. The Company has eight projects in operation
totaling approximately 217 megawatts of electrical generating capacity including
seven wholly-owned projects with 185 megawatts of capacity and one 32 megawatt
project owned substantially by a subsidiary of Chrysler Capital Corporation.
During 1993, the Company expanded into the area of standby/peak shaving
projects through the development of its Philadelphia Water Department project.
Standby/peak shaving projects utilize the Company's power generation equipment
as a back-up source of electricity for large customers. The availability of an
alternative energy source allows these customers to benefit from significantly
discounted interruptible energy tariffs. The Company believes that the Exchange
Offer and Solicitation will allow it to pursue additional standby/peak shaving
projects.
The Company's business address is 225 South Eighth Street, Philadelphia,
Pennsylvania 19106, and its telephone number is (215) 627-5500.
EXPLANATORY PARAGRAPH IN INDEPENDENT ACCOUNTANTS REPORT
The Independent Accountants report of Coopers & Lybrand on the financial
statements for the fiscal year ended June 30, 1993 contains the following
statement: '...[T]he Company has experienced certain setbacks which have
contributed to its recent losses and liquidity problems, which raise substantial
doubt about the Company's ability to continue as a going concern.' See 'Risk
Factors' and Financial Statements for the fiscal year ended June 30, 1993.
BACKGROUND AND PURPOSE OF THE EXCHANGE OFFER AND SOLICITATION
The principal purposes of the Exchange Offer (the 'Exchange Offer') are (a)
to reduce debt and to increase equity, thus improving the Company's debt to
equity ratio and reducing interest expenses and (b) to alleviate the Company's
short-term liquidity problems and improve long-term liquidity.
An additional purpose of the Exchange Offer and the Consent Solicitation
(the 'Solicitation') is to eliminate the risk that the Company will be required
to offer to purchase any of the 1987 Debentures, 1990 Debentures and/or 1991
Debentures by reason of certain covenants described herein. In addition, the
purpose of the Waivers (as hereinafter defined) is to seek to ensure that the
1987 Debentures, 1990 Debentures and/or 1991 Debentures could not be accelerated
based upon any actions, omissions or events, whether known or unknown, that may
have occurred or that occur prior to the Solicitation Expiration Date and that
could be construed to be defaults or Events of Default under the 1987
Debentures, 1990 Debentures and/or 1991 Debentures and the Indentures related
thereto and to rescind any acceleration that may occur on or prior to the
Solicitation Expiration Date giving the Company greater financial flexibility.
See 'Background, Purposes and Effects of the Exchange Offer, Restructuring and
Consent and Waiver Solicitation.'
Holders of Debentures who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees, or subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Debentures
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
'The Exchange Offer and Solicitation--Fees and Expenses.'
Other than federal and state securities law compliance, the Company is not
aware of any regulatory requirements to be complied with or regulatory approvals
necessary to complete the Exchange Offer and Solicitation.
No appraisal rights are available to Holders with respect to any aspect of
the Exchange Offer and Solicitation.
6
<PAGE>
THE EXCHANGE OFFER AND SOLICITATION
<TABLE>
<S> <C>
The Exchange Offer........... 40 shares of Series A Cumulative Senior Preferred
Stock with a liquidation preference of $25 per
share (the 'Exchange Value'), 120 Warrants to
acquire shares of Class A Common Stock and 20
shares of Class A Common Stock in exchange for
each $1,000 principal amount of Debentures. As of
April 29, 1994, $11,419,000 aggregate principal
amount of 1987 Debentures, $11,500,000 aggregate
principal amount of 1990 Debentures, and
$26,255,000 aggregate principal amount of 1991
Debentures, respectively, are outstanding.
Exchange Offer Expiration
Date....................... 5:00 p.m., New York City time, on
, 1994, unless the Exchange
Offer is extended, in which case the term
'Exchange Offer Expiration Date' means the latest
date and time to which the Exchange Offer is
extended.
The Solicitation............. Solicitation of Consents of Holders of the 1987
Debentures, 1990 Debentures and 1991 Debentures to
certain proposed amendments (the 'Proposed
Amendments') to the Indentures governing the 1987
Debentures, 1990 Debentures and 1991 Debentures,
respectively and of Waivers of defaults and Events
of Default as well as Waivers of the March 15,
1994 interest payment.
Solicitation Expiration
Date....................... 5:00 p.m., New York City time, on
, 1994, unless the Solicitation
is extended, in which case the term 'Solicitation
Expiration Date' means the latest date and time to
which the Solicitation is extended.
Proposed Amendments and
Waivers.................... The 1987 Debentures, 1990 Debentures and 1991
Debentures that are not tendered in the Exchange
Offer will continue to be governed by the 1987
Indenture, 1990 Indenture and 1991 Indenture,
respectively, each of which is proposed to be
amended as described below. With respect to the
1987 Indenture, the Proposed Amendments would (a)
delete the covenant that limits the Company's
Funded Indebtedness (as defined in the 1987
Indenture), which relates to debt incurrence; (b)
delete that covenant regarding the Maintenance of
Consolidated Stockholders' Equity (as defined in
the 1987 Indenture); (c) delete the covenant
regarding limitations on dividends, stock
purchases and certain loans and advances by the
Company and its subsidiaries; and (d) amend the
section regarding acceleration so that, upon an
Event of Default (as defined in the 1987
Indenture), the Trustee, acting alone, would not
be entitled to accelerate the 1987 Debentures.
With respect to the 1990 Indenture, the Proposed
Amendments would (a) delete the covenant regarding
the Maintenance of Consolidated Stockholders'
Equity (as defined in the 1990 Indenture); (b)
delete the covenant regarding limitations on
dividends and stock purchases by the Company and
its subsidiaries; and (c) amend the section
regarding acceleration so that, upon an Event of
Default (as defined in the 1990 Indenture), the
Trustee, acting alone, would not be entitled to
accelerate the 1990 Debentures. With respect to
the 1991 Indenture, the Proposed Amendments would
(a) delete the covenant regarding the maintenance
of Consolidated Stockholders' Equity (as defined
in the 1991 Indenture); (b) delete the covenant
regarding limitations on dividends and stock
purchases by the Company and its subsidiaries; and
(c) amend the section regarding acceleration so
that, upon an Event of Default (as defined in the
1991 Indenture), the Trustee,
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
acting alone, would not be entitled to accelerate
the 1991 Debentures.
The Waivers with respect to the 1987 Debentures,
1990 Debentures and 1991 Debentures would waive
any and all defaults and Events of Default and
their consequences under the 1987 Debentures and
Indenture, the 1990 Debentures and Indenture and
the 1991 Debentures and Indenture, respectively,
whether such defaults or Events of Default are
known or unknown, arising out of any actions,
omissions or events occurring on or prior to the
Exchange Offer Expiration Date that could be
construed as defaults or Events of Default under
the 1987 Debentures and Indenture, 1990 Debentures
and Indenture or 1991 Debentures and Indenture, as
applicable, including, but not limited to, any
defaults or Events of Default and their
consequences relating to certain actions,
omissions or events described under 'Proposed
Amendments and Waivers'. If, on or prior to the
Exchange Offer Expiration Date, there is an
acceleration of the 1987 Debentures, 1990
Debentures and/or 1991 Debentures based upon any
Event of Default, the Waiver with respect to such
series of Debentures would rescind such
acceleration and its consequences if such Event of
Default has been waived by the Waiver or has been
cured.
In addition to the Waivers of defaults and Events
of Default, the Waivers would waive the right to
the March 15, 1994 interest payment. With respect
to such Waiver of interest, the Waivers would only
affect those Holders tendering Consents and
Waivers. If any Holders do not tender their
Consents and Waivers, such Holders will retain the
right to receive the March 15, 1994 interest
payment.
Consents Required............ Holders of Debentures who desire to accept an
Exchange Offer will be required to consent to the
Proposed Amendments applicable to the Debentures
being tendered. The tender of Debentures by the
holder thereof pursuant to the Exchange Offer will
constitute the consent of such tendering Holder to
the Proposed Amendments applicable to the
Debentures being tendered. The Company is also
soliciting Consents to the Proposed Amendments
from Holders of Debentures who do not desire to
accept an Exchange Offer.
Conditions to Exchange
Offer...................... Consummation of the Exchange Offer is subject to
the approval of a majority in aggregate principal
amount of each of the 1987 Debentures, 1990
Debentures and 1991 Debentures outstanding of the
Proposed Amendments and the Waivers and certain
customary conditions, which may be waived by the
Company. The Exchange Offer may be consummated
even if less than a majority in aggregate
principal amount of each of the 1987 Debentures,
1990 Debentures and 1991 Debentures are tendered
in the Exchange Offer. See 'The Exchange Offer and
Solicitation--Conditions.'
Consequences for
Nonexchanging Holders...... Holders who do not tender Debentures on or prior
to the Exchange Offer Expiration Date will not
receive New Securities and shares of Class A
Common Stock. A Holder that does not tender in the
Exchange Offer will retain its Debentures which,
if the Requisite Consents are obtained and the
Exchange Offer is consummated, will be modified to
the extent provided by the Proposed Amendments.
Additionally, a Holder who does not tender will be
bound by the Waivers (other than the Waiver of the
March 15, 1994 interest payment). As a result of
the consummation of the Exchange Offer
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
and the reduction in the aggregate principal
amount of Debentures, the trading volume of the
Debentures may be significantly reduced, which may
limit the marketability and liquidity of the
Debentures. In addition, Debentures may cease to
be listed on the American Stock Exchange. See
'Risk Factors' and 'The Exchange Offer and
Solicitation--Procedure for Tendering Debentures
and Tendering Consents.'
Costs of Exchange............ Holders of Debentures who tender in the Exchange
Offer will not be required to pay brokerage
commissions or fees, or subject to the
instructions in the Letter of Transmittal,
transfer taxes with respect to the exchange of
Debentures pursuant to the Exchange Offer. The
Company will pay all charges and expenses, other
than certain applicable taxes, in connection with
the Exchange Offer. See 'The Exchange Offer and
Solicitation--Fees and Expenses.'
</TABLE>
PROCEDURE FOR TENDERING IN EXCHANGE OFFER:
<TABLE>
<S> <C>
Registered Holders........... A Holder electing to tender Debentures should
either complete and sign the Letter of
Transmittal, or a facsimile thereof, have the
signature thereon guaranteed if required by
Instruction 1 or 7 of the Letter of Transmittal
and mail or deliver the Letter of Transmittal, or
such facsimile, together with the Debentures and
any other required documents to the Exchange Agent
at its address set forth on the back cover page of
this Prospectus or effect a tender of Debentures
pursuant to the procedure for book-entry transfer
as set forth in 'The Exchange Offer and
Solicitation--Procedure for Tendering Debentures
and Delivering Consents'.
Owners other than Registered
Owners..................... Any beneficial owner whose Debentures are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
should contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf.
Procedure for Consenting..... The tender of Debentures by the Holder thereof
pursuant to the Exchange Offer will constitute the
consent of such tendering Holder to the Proposed
Amendments and Waivers applicable to the
Debentures being tendered. Holders of Debentures
may consent without tendering by completing the
relevant portion of the applicable Letter of
Transmittal and delivering it to the Proxy
Solicitor.
Guaranteed Delivery
Procedures................. Holders of Debentures desiring to tender such
Debentures and (i) whose Debentures are not
immediately available, (ii) who cannot deliver
their Debentures and Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Exchange Offer Expiration Date or (iii) who cannot
complete the procedure for book-entry transfer on
a timely basis, must tender their Debentures
according to the guaranteed delivery procedures
set forth in 'The Exchange Offer and
Solicitation--Procedure for Tendering Debentures
and Delivering Consents.'
Acceptance for Exchange...... Upon the terms and subject to the conditions of
the Exchange Offer, the acceptance for exchange of
all Debentures validly tendered under the Exchange
Offer and not withdrawn prior to 5 p.m. New York
City time on the Exchange Offer Expiration Date
and delivery of New Securities and shares of Class
A Common Stock will be made as promptly as
practicable after the Exchange Offer Expiration
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Date. The Company, however, expressly reserves the
right to delay acceptance of any of the Debentures
or to terminate an Exchange Offer and not accept
for exchange any Debentures not theretofore
accepted if any of the conditions set forth under
'The Exchange Offer and Solicitation Conditions'
shall not have been satisfied or shall not have
been validly waived by the Company.
New Securities and shares of Class A Common Stock
will be issued in exchange for Debentures accepted
pursuant to the Exchange Offer only if the
Exchange Agent has timely received certificates
for tendered Debentures (or, confirmation of
book-entry transfer thereof), a properly completed
and executed Letter of Transmittal and any other
documents required by the Letter of Transmittal.
Withdrawal Rights and
Revocation................. Tenders of Debentures may be withdrawn at any time
prior to the Exchange Offer Expiration Date. Any
Holder who withdraws a tender will not receive New
Securities and shares of Class A Common Stock
unless such Debentures are retendered within the
respective time periods specified herein.
Certain Tax
Considerations............. The Company intends to treat the exchange of New
Securities and shares of Class A Common Stock for
Debentures as a 'recapitalization' for federal
income tax purposes. If the exchange constitutes a
recapitalization, a Holder generally will
recognize gain on the exchange of a Debenture for
the New Securities only to the extent of the fair
market value of the Warrants received. All Holders
of Debentures should read carefully the discussion
under 'Certain Federal Income Tax Consequences'
and are urged to consult their own tax advisors.
Exchange Agent............... American Stock Transfer and Trust Company is
serving as Exchange Agent in connection with the
Exchange Offer.
Information Agent............ Georgeson & Company, Inc. is serving as the
Information Agent in connection with the Exchange
Offer and Solicitation.
Proxy Solicitor.............. Georgeson & Company, Inc. is serving as the Proxy
Solicitor in connection with the Solicitation.
Market Price and Trading..... The Debentures are listed and traded on the AMEX.
On April 29, 1994, the closing price on the AMEX
for each 1987 Debenture, 1990 Debenture and 1991
Debenture was $43, $44 and $44, respectively.
Information and Assistance... Request for information or assistance may be
directed to the Exchange Agent or the Information
Agent at their addresses and telephone numbers set
forth on the back cover of this Prospectus.
</TABLE>
10
<PAGE>
SUMMARY COMPARISON
The securities to be exchanged for tendered Debentures are comprised of
1,966,960 shares of Series A Cumulative Senior Preferred Stock (the 'Preferred
Stock'), 5,900,880 warrants to acquire shares of Class A Common Stock (the
'Warrants' and together with the Preferred Stock, the 'New Securities') and
983,480 shares of Class A Common Stock.
The following is a brief comparison of the principal features of the 1987
Debentures, 1990 Debentures and 1991 Debentures to the Preferred Stock, Warrants
and Class A Common Stock. For further details and definitions of capitalized
terms used in the following summary comparison see 'Description of Debentures',
'Description of New Securities' and 'Description of Capital Stock.'
<TABLE>
<CAPTION>
NEW SECURITIES AND
OTHER
DEBENTURES CONSIDERATIONS
---------- -----------------
<S> <C> <C> <C>
PRINCIPAL
AMOUNT
OUTSTANDING:
1987 Debentures $11,419,000 Preferred Stock 1,966,960 shares
1990 Debentures $11,500,000 assuming 100%
1991 Debentures $26,255,000 acceptance of the
Exchange Offer
Warrants 5,900,880 assuming
100% acceptance of
the Exchange Offer
Class A 14,039,077 shares
Common Stock (including those
shares outstanding
prior to the
Exchange Offer)
assuming 983,480
shares are issued
in connection with
a 100% acceptance
of the Exchange
Offer (excluding
shares issuable
upon exercise of
the Warrants)
INTEREST/DIVIDEND
RATE:
1987 Debentures 7 3/4% per annum Preferred Stock 12% per annum
1990 Debentures 11% per annum
1991 Debentures 11% per annum
Warrants None
Class A None
Common Stock
INTEREST/DIVIDEND
PAYMENT DATES:
1987 Debentures March 15 and September Preferred Stock July 15 and January
15 15
of each year of each year
1990 Debentures March 15 and September Warrants None
15
of each year
1991 Debentures March 15 and September Class A Common None
15 Stock
of each year
MATURITY DATE:
1987 Debentures March 15, 2002 Preferred Stock Perpetual unless
1990 Debentures March 15, 2010 redeemed
1991 Debentures March 15, 2011 Warrants
, 1997
Class A Perpetual
Common Stock
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NEW SECURITIES AND
OTHER
DEBENTURES CONSIDERATIONS
---------- --------------
<S> <C> <C> <C>
OPTIONAL
REDEMPTION:
1987 Debentures Redeemable at any time Preferred Stock Redeemable at any
at the following time at 100% of the
redemption prices Exchange Value
(expressed in Warrants
percentages of Redeemable at any
principal amount), plus time after , 1995,
accrued interest to the if certain
redemption date: conditions are met,
at $.50 per Warrant
Class A None
Common Stock
</TABLE>
<TABLE>
<CAPTION>
If Redeemed
During
the
Twelve-Month Percentage
Period of
Beginning Principal
March 15, Amount
------------ ----------
<S> <C>
1994........ 101.722%
1995........ 100.861%
1996 and
thereafter... 100.000%
1990 Debentures Redeemable at any time
at the following
redemption prices
(expressed in
percentages of
principal amount), plus
accrued interest to the
redemption date:
</TABLE>
<TABLE>
<CAPTION>
If Redeemed
During
the
Twelve-Month Percentage
Period of
Beginning Principal
March 15, Amount
------------ ----------
<S> <C>
1994........ 105.5%
1995........ 104.4%
1996........ 103.3%
1997........ 102.2%
1998........ 101.1%
1999 and
thereafter... 100.0%
1991 Debentures Redeemable at any time
at the following
redemption prices
(expressed in
percentages of
principal amount), plus
accrued interest to the
redemption date:
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NEW SECURITIES AND
OTHER
DEBENTURES CONSIDERATIONS
---------- --------------
If Redeemed
During the
Twelve-Month
Period Percentage
Beginning of Principal
March 15, Amount
- --------------- -----------------------
<S> <C> <C> <C>
1994........ 106.6%
1995........ 105.5%
1996........ 104.4%
1997........ 103.3%
1998........ 102.2%
1999........ 101.1%
2000 and
thereafter... 100.0%
MANDATORY
REDEMPTION:
1987 Debentures Obligation to redeem a Preferred Stock Obligation to
principal amount of redeem 15% of the
1987 Debentures equal outstanding shares
to 7.5% of the of Preferred Stock,
aggregate amount of on a pro rata basis
Debentures originally upon the later of
issued on each March 15 (a) one year after
through March 15, 2001 consummation of the
at a redemption price Exchange Offer; and
of 100% of principal (b) 45 days after
amount, plus accrued the sale of all or
interest to the part of the
redemption date. The Company's Newark
Company may reduce the and/or Parlin
principal amount to be cogeneration
redeemed by subtracting projects and (c) 45
100% of the principal days after the
amount of any refinancing of the
Debentures that have Company's Newark
been converted into and/or Parlin
Class A Common Stock of cogeneration
the Company or that the projects.
Company has delivered
to the Trustee for IN NO EVENT WILL
cancellation or has THE COMPANY BE
redeemed other than OBLIGATED TO REDEEM
pursuant to this PURSUANT TO THE
mandatory redemption MANDATORY
obligation. REDEMPTION SECTION
PRIOR TO THE
OCCURRENCE OF EACH
OF THE EVENTS
If the Company's LISTED IN (A), (B)
Consolidated AND (C) ABOVE.
Stockholders' Equity at
the end of any two Warrants Warrants atached
consecutive fiscal to Preferred Stock
quarters is less than redeemed pursuant
$7,500,000, obligation to mandatory
to offer to purchase redemption
the lesser of 7.5% of provision will be
the aggregate principal subject to
amount of 1987 redemption for no
Debentures or the then additional
outstanding consideration.
principal amount of Class A
1987 Debentures at a Common Stock None
purchase price equal to
100% of the principal
amount plus accrued
interest to the date of
purchase. The Company
may reduce the amount
of 1987 Debentures to
be purchased by
subtracting the amount
of 1987 Debentures
otherwise acquired by
the Company and the
amount of 1987
Debentures redeemed
otherwise than through
operation of the
sinking fund. THIS
RESTRICTION WILL BE
REMOVED IF THE PROPOSED
AMENDMENTS ARE ADOPTED.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NEW SECURITIES AND
OTHER
DEBENTURES CONSIDERATIONS
---------- ------------------
<S> <C> <C> <C>
1990 Debentures Obligation to redeem a
principal amount of
1990 Debentures equal
to 5% of the aggregate
amount of 1990
Debentures originally
issued, on March 15,
2000 and on each March
15 thereafter through
March 15, 2009 at a
redemption price of
100% of principal
amount, plus accrued
interest to the
redemption date. The
Company may reduce the
principal amount to be
redeemed by subtracting
100% of the principal
amount of any 1990
Debentures which have
been redeemed other
than pursuant to this
mandatory redemption
obligation or converted
into Class A Common
Stock of the Company or
otherwise acquired by
the Company and
surrendered for
cancellation and not
previously credited.
If the Company's
Consolidated
Stockholders' Equity at
the end of any two
consecutive fiscal
quarters is less than
$10,000,000, obligation
to offer to purchase
the lesser of 7.5% of
the aggregate principal
amount of 1990
Debentures or the then
outstanding principal
amount of 1990
Debentures at a
purchase price equal to
100% of the principal
amount plus accrued
interest to the date of
purchase. The Company
may reduce the amount
of 1990 Debentures to
be purchased by
subtracting the amount
of 1990 Debentures
otherwise acquired by
the Company and the
amount of 1990
Debentures purchased or
redeemed. THIS
RESTRICTION WILL BE
REMOVED IF THE PROPOSED
AMENDMENTS ARE ADOPTED.
Obligation to redeem
100% of each Holder's
Debentures or a portion
thereof that is an
integral multiple of
$1,000 upon a Change of
Control at each such
Holders' option.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NEW SECURITIES AND
OTHER
DEBENTURES CONSIDERATIONS
---------- ------------------
<S> <C> <C>
1991 Debentures Obligation to redeem a
principal amount of
1991 Debentures equal
to 5% of the aggregate
amount of 1991
Debentures originally
issued, on March 15,
2001 and on each March
15 thereafter through
March 15, 2010 at a
redemption price of
100% of principal
amount, plus accrued
interest to the
redemption date. The
Company may reduce the
principal amount to be
redeemed by subtracting
100% of the principal
amount of any 1991
Debentures which have
been redeemed other
than pursuant to this
mandatory redemption
obligation or converted
into Class A Common
Stock of the Company or
otherwise acquired by
the Company
cancellation and not
previously credited.
Obligation to redeem
100% of each Holder's
Debentures or a portion
thereof that is an
integral multiple of
$1,000 upon a Change of
Control at each such
holders option.
If the Company's
Consolidated
Stockholders' Equity at
the end of any two
consecutive fiscal
quarters is less than
$10,000,000, obligation
to offer to purchase
the lesser of 7.5% of
the aggregate principal
amount of 1991
Debentures or the then
outstanding principal
amount of 1991
Debentures at a
purchase price equal to
100% of the principal
amount plus accrued
interest to the date of
purchase. The Company
may reduce the amount
of 1991 Debentures to
be purchased by
substracting the amount
of 1991 Debentures
otherwise acquired by
the Company and the
amount of 1991
Debentures purchased or
redeemed. THIS
RESTRICTION WILL BE
REMOVED IF THE PROPOSED
AMENDMENTS ARE ADOPTED.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NEW SECURITIES AND
OTHER
DEBENTURES CONSIDERATIONS
---------- -----------------
<S> <C> <C> <C>
FUNDED
INDEBTEDNESS
RESTRICTION:
1987 Debentures The Company may not and Preferred Stock None
may not permit any
consolidated subsidiary
to incur or create any
Funded Indebtedness if
after giving effect to None
the incurrence or Warrants
creation of such Funded
Indebtedness, the total
outstanding Funded
Indebtedness of the
Company on a Class A None
consolidated basis Common Stock
would exceed 75% of the
sum of Consolidated
Stockholders' Equity
and Funded
Indebtedness. THIS
RESTRICTION WILL BE
REMOVED IF THE PROPOSED
AMENDMENTS ARE ADOPTED.
1990 Debentures None
1991 Debentures None
</TABLE>
<TABLE>
<S> <C> <C> <C>
VOTING RIGHTS:
1987 Debentures None Preferred Stock One vote per share
(as a single class
with the holders of
Class A Common
Stock)
1990 Debentures None
1991 Debentures None Warrants None
Class A
Common Stock One vote per share
RIGHT TO ELECT
DIRECTORS:
1987 Debentures None Preferred Stock Upon the occurrence
of certain events,
the right to elect
two directors
1990 Debentures None
1991 Debentures None Warrants None
Class A
Common Stock The right to elect
25% of the total
number of directors
RANKING:
1987 Debentures Subordinated to all Preferred Stock Subordinated to all
Senior Indebtedness indebtedness of the
Company including
the Debentures;
Senior to any other
series of preferred
stock
1990 Debentures Subordinated to all Warrants None
Senior Indebtedness
1991 Debentures Subordinated to all Class A None
Senior Indebtedness Common Stock
LIQUIDATION
PREFERENCE:
1987 Debentures $11,419,000 Preferred Stock $49,174,000
assuming 100%
acceptance of
Exchange Offer
1990 Debentures $11,500,000 Warrants None
1991 Debentures $26,255,000 Class A
Common Stock None
</TABLE>
16
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth summary pro forma consolidated financial
data of the Company for the six months ended December 31, 1993 and the year
ended June 30, 1993 and as of December 31, 1993 (i) on a historical basis and
(ii) as adjusted to give effect to the Exchange Offer, assuming alternatively
(a) 51% acceptance of the Exchange Offer and (b) 100% acceptance of the Exchange
Offer. See 'Pro Forma Financial Information.'
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31, 1993 YEAR ENDED JUNE 30, 1993
--------------------------------- ----------------------------------
AS ADJUSTED FOR THE AS ADJUSTED FOR THE
EXCHANGE OFFER EXCHANGE OFFER
----------------------- -----------------------
51% 100% 51% 100%
ACTUAL ACCEPTANCE* ACCEPTANCE HISTORICAL ACCEPTANCE* ACCEPTANCE
------- ----------- ---------- -------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................. $52,141 $ 52,141 $ 52,141 $97,692 $ 97,692 $ 97,692
Cost of Sales............ 41,772 41,772 41,772 71,750 71,750 71,750
Selling, general and
administrative
expenses............... 8,872 8,872 8,872 21,872 21,872 21,872
Income from operations... 1,497 1,497 1,497 4,070 4,070 4,070
Interest and Debt
Expense................ (8,703) (7,330) (6,012) (15,696) (13,008) (10,426)
Net loss applicable to
common shareholders.... (7,955) (8,087) (8,214) (13,711) (14,032) (14,341)
Net loss per common
share.................. (.47) (.47) (.46) (.82) (.81) (.81)
Ratio of earnings to
combined fixed charges
and preferred stock
dividends (1).......... .19 .22 .27 .29 .34 .41
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------------
AS ADJUSTED FOR THE
EXCHANGE OFFER
-----------------------
51% 100%
HISTORICAL ACCEPTANCE* ACCEPTANCE
-------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)................ $(23,632) $ (27,999) $ (32,200)
Property, plant and equipment, net.......... 191,992 191,992 191,992
Total assets................................ 255,356 253,543 251,801
Recourse long-term debt, net of current
maturities................................ 21,991 21,991 21,991
Convertible Senior Subordinated
Debentures................................ 49,174 24,095 --
Nonrecourse project financing, net of
current maturities........................ 91,820 91,820 91,820
Stockholders' Equity........................ 8,989 27,879 46,031
</TABLE>
- ------------------
* Consummation of the Exchange Offer is conditioned upon, among other things,
the Consents and Waivers of a majority of each of the 1987 Holders, 1990
Holders and 1991 Holders being received. Therefore, the Exchange Offer may be
consummated with less than a 51% acceptance of the Exchange Offer.
(1) Earnings represent earnings before income taxes and fixed charges. Fixed
charges consist of interest expense and the portion of rental expense deemed
representative of the interest factor. For the six months ended December 31,
1993, earnings were not sufficient to cover fixed charges. Additional
earnings of $7,745,000, $6,372,000 and $5,054,000 would have been required
to achieve a ratio of 1.0 for the historical results, the 51% acceptance pro
forma and the 100% acceptance pro forma, respectively. For the year ended
June 30, 1993, additional earnings of $12,505,000, $9,818,000 and $7,236,000
would have been required to achieve a ratio of 1.0 for the historical
results, the 51% acceptance pro forma and the 100% acceptance pro forma,
respectively.
17
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth summary income statement data and balance
sheet data of the Company as of the dates and for the periods indicated. The
information set forth below should be read in conjunction with the financial
statements and notes thereto which are included elsewhere in this Prospectus.
The results of operations for the six months ended December 31, 1993 are not
necessarily indicative of operating results for the full year. Such data should
be read in conjunction with the consolidated condensed financial statements and
related data set forth elsewhere in this Prospectus. See 'Business--Recent
Developments,' 'Selected Historical Consolidated Financial Data,' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 31, YEAR ENDED JUNE 30,
------------------ ----------------------------------------------------
1993 1992 1993 1992(1) 1991(1) 1990(1) 1989(2)
------- ------- ------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................... $52,141 $56,469 $97,692 $100,115 $51,380 $37,511 $27,803
Cost of sales...................... 41,772 39,745 71,750 66,996 37,383 27,581 20,366
Selling, general and administrative
expenses......................... 8,872 7,026 21,872 13,133 13,311 9,184 6,932
Income from operations............. 1,497 9,698 4,070 19,986 686 746 505
Net income (loss).................. (7,955) 1,185 (13,711) 1,412 (8,585) (3,749) (2,983)
Net income (loss) per share........ (.47) .08 (.82) .09 (.67) (.30) (.29)
Ratio of earnings to combined fixed
charges and preferred stock
dividends (3).................... .19 1.18 .29 1.06 .12 .29 .29
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, YEAR ENDED JUNE 30,
------------ --------------------------------------------------------
1993 1993 1992 1991 1990 1989
------------ -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency).......... $(23,623) $(11,119) $ 816 $(14,629) $(10,126) $ 1,803
Property, plant and equipment, net.... 191,992 194,217 195,677 195,452 165,233 123,251
Total assets.......................... 255,356 262,529 259,054 249,207 216,494 173,399
Recourse long-term debt, net of
current maturities.................. 21,991 28,012 20,003 16,950 22,566 23,843
Convertible Senior Subordinated
Debentures.......................... 49,174 49,174 49,174 49,254 22,999 15,127
Nonrecourse project financing, net of
current maturities.................. 91,820 97,140 107,898 117,817 100,166 78,906
Stockholders' Equity.................. 8,989 15,675 29,405(1) 14,235(1) 22,302(1) 24,821
</TABLE>
- ------------------
(1) In 1993, the Company adopted Statement of Financial Accounting Standards No.
109, 'Accounting for Income Taxes' (SFAS109) and elected to apply the
provisions of SFAS109 retroactively to July 1, 1989. Accordingly, the
financial statements for the years ended June 30, 1992 and 1991 have been
restated to comply with the provisions of SFAS109. (See Note 3 to the
Consolidated Financial Statements.)
(2) In 1989, the Company changed its method of accounting thereby deferring to
future periods the recognition of development and other fee revenue. The
effect of this change in 1989 was to increase the Company's loss by
approximately $3,871,000. Proforma amounts, assuming the new revenue
recognition method was applied retroactively, are as follows:
<TABLE>
<CAPTION>
1989
-------
<S> <C>
Loss...................... $(1,628)
Loss per share............ $ (.16)
</TABLE>
(3) Earnings represent earnings before income taxes, extraordinary item and
cumulative effect of a change in accounting principle and fixed charges.
Fixed charges consist of interest expense and the portion of rental expense
deemed representative of the interest factor. For the six months ended
December 31, 1993 and the years ended June 30, 1993, 1991, 1990 and 1989
additional earnings of $7,745,000, $12,506,000, $11,143,000, $7,880,000 and
$5,455,000, respectively, would be required to achieve a ratio of 1.0.
18
<PAGE>
RISK FACTORS
Retention of Debentures and the exchange of Debentures for New Securities
and shares of Class A Common Stock are each subject to a number of risks,
including those discussed below. Prior to deciding whether to tender the
Debentures and consent to the Proposed Amendments and Waivers pursuant to the
Exchange Offer and Solicitation, each Holder should carefully consider the
following risk factors together with all other information set forth in this
Prospectus. Such risk factors have been listed in three sections: (i) risk
factors for all Holders; (ii) risk factors for Holders tendering Debentures; and
(iii) risk factors for Holders following consummation of the Exchange Offer and
Solicitation.
RISK FACTORS FOR ALL HOLDERS
(i) Liquidity; Bankruptcy Risk
The losses and Newark fire (each of which are discussed in this 'Risk
Factors' section) together with the management time and substantial legal
expenses relating to the Hawker Siddeley litigation (see 'Legal Proceedings')
have had a negative impact on the Company's cash flow, ability to finance
operations and ongoing development activities. If the Company is required to
purchase any of the 1987 Debentures, 1990 Debentures and/or 1991 Debentures
pursuant to the applicable covenants in the Indentures or the 1987 Debentures,
1990 Debentures and/or 1991 Debentures are successfully accelerated and such
acceleration is not rescinded, the Company would face severe liquidity problems
and does not expect to have sufficient cash to repay all outstanding Debentures.
Such liquidity problems, absent consummation of the Exchange Offer and
Solicitation, could force the Company to seek protection under Chapter 11 of the
Bankruptcy Code. Even if the Exchange Offer and Solicitation is consummated,
there can be no assurance that the Company, in the future, will have adequate
cash flow to finance operations and ongoing development activities and will not
be forced to seek protection under the Bankruptcy Code.
(ii) Losses
The Company has incurred losses in the amounts of $13,711,000 and
$7,955,000 for the fiscal year ended June 30, 1993, and the six months ended
December 31, 1993, respectively. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.' The Company expects to continue
to incur losses.
(iii) Capital Requirements
The Company's business is capital intensive. The long-term growth of the
Company, which involves the development and acquisition of additional projects,
will require the Company to seek substantial funds through various forms of
financing. There can be no assurance that the Company will be able to arrange
the financing needed for continued growth. If the Company is unable to secure
financing, its business will be materially adversely affected. See
'Business--Business Development and Restructuring Strategy' and 'Business--
Energy Segment.'
(iv) Energy Price Fluctuations and Fuel Supply
The Company's power purchase agreements with utilities typically contain
price provisions which in part are linked to the utility's cost of generating
electricity. In addition, the Company's fuel supply contracts contain price
provisions which may be fixed or may be linked to fluctuations in energy prices.
As a result, in the event of significant fluctuations in energy prices, the
operating margins of certain projects may be reduced or increased depending upon
the terms of the project agreements. In addition, in the event of a significant
continuing decline or increase in energy prices, there can be no assurance that
the Company's existing customers or suppliers will not attempt to renegotiate
existing power purchase or supply agreements on terms less favorable to the
Company. To date, renegotiation of the Company's agreements have had no material
adverse impact on its operations. In addition, the Company seeks to enter into
long-term gas supply arrangements for its cogeneration projects. To date, the
Company has not obtained such long-term supply arrangements other than for one
of its cogeneration projects in operation and therefore it is dependent upon
local 'tariffs'. This reliance may make the operation of the Company's projects
more vulnerable to interruption in times of fuel shortage. While it is
impossible to predict
19
<PAGE>
how such developments will affect the Company's overall business, the Company's
profit margins on certain of its projects may be reduced if the increased cost
of fuel used to operate those projects exceeds the adjustment to the amounts
received by the Company from the utilities pursuant to the related power
purchase agreements. Fuel risk can be significantly reduced by entering into a
long-term gas supply arrangement or hedge which the Company has explored from
time to time. However, there can be no assurance that any of the foregoing will
prevent a reduction in gross profit percentage for the year ending June 30, 1994
or the remaining interim periods within such year. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations--Results of
Operations for the Six Months ended December 31, 1993 and 1992--Costs and
Expenses.'
(v) Defaults Under Indentures
As a result of the losses experienced by the Company, the Company's
Consolidated Stockholders' Equity (as defined in the 1987 Indenture, 1990
Indenture and 1991 Indenture) was $8,989,000 at December 31, 1993. As a result
the Company could be required, pursuant to a covenant in each of the 1987
Indenture, 1990 Indenture and 1991 Indenture that is triggered if the Company's
Consolidated Stockholders' Equity is less than $7,500,000, $10,000,000 and
$10,000,000, respectively at the end of each of any two consecutive fiscal
quarters, to purchase 7.5% of the outstanding 1987 Debentures, 1990 Debentures
and 1991 Debentures, as applicable. Purchasing Debentures pursuant to these
Covenants could cause severe liquidity problems for the Company. The Company
does not presently expect to be in a position to comply with these covenants if
any or each of them becomes applicable.
The Board of Directors elected not to make the March 15, 1994 interest
payments on the Debentures. In the event that the 1987 Debentures, 1990
Debentures and/or 1991 Debentures are accelerated and such acceleration is not
rescinded, the Company does not expect to be in a position to comply with the
requirements of an acceleration.
(vi) Fire
In December 1992, a fire occurred at the Company's Newark cogeneration
plant. The damage to the plant caused by the fire has been repaired. The plant
returned to partial operation in August 1993 and resumed full operation in
October 1993. In full and final settlement of the Company's damage claim, the
Company received the sum of $36,000,000 which covered a substantial majority of
the Company's costs of repair and loss of net profits due to business
interruption. In addition, the Company has the right to receive up to an
additional $1,400,000 upon the recovery by the insurance carrier of its claims
against third parties. See 'Business--Energy Segment--Projects in Operation' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
(vii) Defaults Under Recourse Debt
As a result of defaults the Company has classified a total of $26,906,000
of its recourse debt as a current liability. The Company is having discussions
with its various lenders regarding the defaults. To date no lender has
accelerated its loans to the Company. The Company has developed a program to
restructure this debt to term loans as opposed to the bullet maturities which
currently exist along with a program to sell the secured equipment which is not
currently being utilized in an operating project or which has not been
designated for a project under development. There can be no assurance that the
program will be approved by the Company's lenders and be implemented. In the
event that the Company is unable to effect this program, the Company's
operations would be materially adversely affected.
(viii) Audit Report--Uncertainty
During the year ended June 30, 1993, the Company suffered certain setbacks,
including continuing substantial legal expenses and other costs which have
contributed significantly to the Company's net loss in fiscal 1993. These
setbacks have also had a negative impact on the Company's cash flow and its
ability to finance operations and ongoing development activities. Therefore, the
Company's independent accountants have
20
<PAGE>
included an explanatory paragraph relative to a going concern uncertainty in
their audit report. See Note 1 of the Company's Consolidated Financial
Statements.
(ix) III Enterprises, Inc. Bankruptcy
In October 1993, III Enterprises, Inc., ('III Enterprises') which owns the
controlling voting interest in the Company, filed for bankruptcy protection
under Chapter 11 of the Federal Bankruptcy Code. III Enterprises is wholly owned
by Frank L. O'Brien III, Chairman of the Board and Chief Executive Officer of
the Company. In connection with any reorganization of III Enterprises, the stock
ownership of III Enterprises which owns the controlling shares of Class B Common
Stock of the Company may be sold to a third party. III Enterprises has advised
the Company that improper actions by one of III Enterprises' lenders forced III
Enterprises to seek protection under the Federal Bankruptcy Code.
(x) Stock Ownership and Certain Litigation
In August 1993, Pueblo Chemical, Inc. ('Pueblo'), a privately held
corporation, filed a Schedule 13D (the 'Schedule 13D') with the Securities and
Exchange Commission (the 'SEC'). In the Schedule 13D, Pueblo asserts that it
currently has the option to purchase three million shares of the Company's Class
B Common Stock from an affiliate of the Company's majority stockholder, III
Enterprises. The Company's Class B Common Stock is convertible into Class A
Common Stock. Any such purchase by Pueblo would result in a change in control of
the Company. Frank L. O'Brien III has advised the Company that he believes
Pueblo's assertions are without merit. In a decision rendered in a U.S.
Bankruptcy Court case involving the affiliate of III Enterprises, the judge
determined that no option contract existed between the parties. Pueblo has
appealed this decision.
Pueblo and its affiliates have also filed various lawsuits against the
Company. See 'Legal Proceedings.'
(xi) Stock Price
For the fiscal quarter ended March 31, 1994, the high and low sale prices
for the Company's Class A Common Stock as reported on the AMEX were $2 13/16 and
$ 15/16, respectively, as compared to $4 15/16 and $31 1/16, respectively, for
the fiscal quarter ended June 30, 1993. See 'Market, Trading and Ownership
Information.'
ADDITIONAL RISK FACTORS FOR HOLDERS TENDERING DEBENTURES
(i) Disadvantageous Treatment in Bankruptcy or Liquidation
In the event of the bankruptcy or liquidation of the Company, holders of
Preferred Stock would be entitled to a claim equal to the preference value of
their shares, plus accrued dividends thereon, compared to the claims of Holders
for the $1,000 principal amount of Debentures, plus accrued interest thereon.
Further, under federal bankruptcy law, the value of the claim of a holder of
Preferred Stock may be based on the fair market value of the Debentures
exchanged therefor less the fair market value of the Warrants also received in
the exchange, which may be less than the preference value of the Preferred
Stock. The claims of holders of Preferred Stock would rank junior to the claims
of all debtholders and other creditors of the Company (including claims of
Holders) but will rank senior to future series of preferred stock.
(ii) Liquidity and Trading Market for New Securities
No New Securities have previously been issued and no assurance can be given
that an active market will develop for the New Securities or, if such a market
develops, of the liquidity of such market. Application will be made to list the
New Securities on the AMEX. However, listing will depend upon the satisfaction
of the AMEX listing requirements with respect to the New Securities.
21
<PAGE>
ADDITIONAL RISK FACTORS FOR HOLDERS FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER
AND SOLICITATION
(i) Adverse Consequences of Proposed Amendments and Waivers
The Proposed Amendments would delete certain restrictive covenants and
amend the acceleration provision of each of the Indentures and would allow the
Company more flexibility in its operations. With respect to the 1987 Indenture,
the Proposed Amendments would (a) delete the covenant that limits the Company's
Funded Indebtedness (as defined in the 1987 Indenture), which relates to debt
incurrence; (b) delete that covenant regarding the Maintenance of Consolidated
Stockholders' Equity (as defined in the 1987 Indenture); (c) delete the covenant
regarding limitations on dividends, stock purchases and certain loans and
advances by the Company and its subsidiaries; and (d) amend the section
regarding acceleration so that, upon an Event of Default (as defined in the 1987
Indenture), the Trustee, acting alone, would not be entitled to accelerate the
1987 Debentures. With respect to the 1990 Indenture, the Proposed Amendments
would (a) delete the covenant regarding the Maintenance of Consolidated
Stockholders' Equity (as defined in the 1990 Indenture); (b) delete the covenant
regarding limitations on dividends and stock purchases by the Company and its
subsidiaries; and (c) amend the section regarding acceleration so that, upon an
Event of Default (as defined in the 1990 Indenture), the Trustee, acting alone,
would not be entitled to accelerate the 1990 Debentures. With respect to the
1991 Indenture, the Proposed Amendments would (a) delete the covenant regarding
the maintenance of Consolidated Stockholders' Equity (as defined in the 1991
Indenture); (b) delete the covenant regarding limitations on dividends and stock
purchases by the Company and its subsidiaries; and (c) amend the section
regarding acceleration so that, upon an Event of Default (as defined in the 1991
Indenture), the Trustee, acting alone, would not be entitled to accelerate the
1991 Debentures. See 'The Proposed Amendments.'
The Waivers, in addition to waiving the right to the March 15, 1994
interest payment for each Holder tendering its Waiver, would waive any and all
defaults and Events of Default and their consequences under each of the
Debentures and the Indentures related thereto, whether such defaults or Events
of Default are known or unknown, arising out of any actions, omissions or events
occurring on or prior to the Exchange Offer Expiration Date that could be
construed as defaults or Events of Default under the 1987 Debentures, 1990
Debentures and/or 1991 Debentures or the Indentures related thereto, including,
but not limited to, any defaults or Events of Default and their consequences
relating to certain actions, omissions or events described under 'Proposed
Amendments and the Waivers'. If, on or prior to the Exchange Offer Expiration
Date, there is an acceleration of the 1987 Debentures, 1990 Debentures and/or
1991 Debentures based upon any Event of Default, the Waivers would rescind such
acceleration and its consequences if such Event of Default has been waived by
the Waiver or has been cured. See 'Proposed Amendments and The Waivers.'
All Holders of Debentures, including non-tendering Holders, will be bound
by the applicable Proposed Amendments and Waivers (other than the Waivers of
past due interest payments), if adopted. Adoption of the Proposed Amendments and
the Waivers will eliminate certain protections in the Indentures and therefore
may have certain adverse consequences for nontendering Holders. See 'The
Proposed Amendments and Waivers.'
(ii) Liquidity, Trading Market and Market Price for Debentures
To the extent that Debentures are accepted for exchange pursuant to the
Exchange Offer, the number of outstanding Debentures will decrease and the
trading market for such remaining Debentures could be significantly limited,
which in turn could adversely affect the liquidity of the remaining Debentures.
A debt security with a smaller outstanding aggregate principal amount available
for trading (a smaller 'float') may command a lower price than would a
comparable debt security with a greater float. Therefore, prices for remaining
1987 Debentures, 1990 Debentures and 1991 Debentures may be affected adversely
to the extent that the acceptance of 1987 Debentures, 1990 Debentures and 1991
Debentures, respectively, for exchange pursuant to the Exchange Offer reduces
the float of such series. A reduced float may also tend to make the trading
price of the remaining Debentures more volatile. The reduction in covenant
protection for holders of remaining Debentures following adoption of the
Proposed Amendments may also adversely affect the liquidity and market price of
such remaining Debentures. Depending on the amount of Debentures tendered
pursuant to the Exchange Offer, there may no longer be a sufficient amount of
such Debentures outstanding to meet the minimum listing requirements of the
AMEX, in which event the listing on the AMEX of such Debentures is likely to be
terminated. Regardless of whether the outstanding Debentures continue to meet
the minimum listing requirements of the AMEX, following consummation of the
Exchange Offer the Company may delist the Debentures on the AMEX.
22
<PAGE>
CAPITALIZATION
The following table presents the capitalization of the Company at December
31, 1993 and the pro forma capitalization of the Company as adjusted to give
effect to the issuance of New Securities and shares of Class A Common Stock
pursuant to the Exchange Offer.
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------
AS ADJUSTED FOR THE
EXCHANGE OFFER
-------------------------
51% 100%
HISTORICAL ACCEPTANCE* ACCEPTANCE
---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Short-term borrowings..................................................... $ 2,992 $ 2,992 $ 2,992
Current maturities of recourse long-term debt............................. 15,387 15,387 15,387
Current maturities of nonrecourse project financing....................... 10,890 10,890 10,890
---------- ----------- ----------
Total short-term debt................................................ 29,269 29,269 29,269
---------- ----------- ----------
Long-term debt:
Recourse long-term debt less current maturities........................... 21,991 21,991 21,991
7 3/4% Convertible Senior Subordinated Debentures due March 15, 2002...... 11,419 5,595 --
11% Convertible Senior Subordinated Debentures due March 15, 2010......... 11,500 5,635 --
11% Convertible Senior Subordinated Debentures due March 15, 2011......... 26,255 12,865 --
Nonrecourse project financing less current maturities..................... 91,820 91,820 91,820
---------- ----------- ----------
Total long-term debt................................................. 162,985 137,906 113,811
---------- ----------- ----------
Stockholders' equity:
Preferred Stock, $.01 par value; 10,000,000 shares authorized, none
issued................................................................. -- 10 20
Class A Common Stock, $.01 par value; 40,000,000 shares authorized,
13,055,597 shares issued and outstanding............................... 130 135 140
Class B Common Stock, $.01 par value; 10,000,000 shares authorized,
4,070,770 shares issued and outstanding................................ 39 39 39
Additional paid-in capital................................................ 41,353 54,428 66,994
Accumulated deficit....................................................... (31,887) (26,087) (20,516)
Other..................................................................... (646) (646) (646)
---------- ----------- ----------
Total Stockholders' equity........................................... 8,989 27,879 46,031
---------- ----------- ----------
Total capitalization.............................................. $ 201,243 $ 195,054 $189,111
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
- ------------------
* Consummation of the Exchange Offer is conditioned upon, among other things,
the Consents and Waivers of a majority of each of the 1987 Holders, 1990
Holders and 1991 Holders being received. Therefore, the Exchange Offer may be
consummated with less than a 51% acceptance of the Exchange Offer.
23
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The consolidated selected financial data as of and for each of the five
years in the period ended June 30, 1993 have been derived from the audited
financial statements of the Company. The selected financial data as of December
31, 1993 and for the six months ended December 31, 1993 and 1992 are unaudited
but include, in the opinion of management, all adjustments necessary for a fair
presentation of such data. Results for the six months ended December 31, 1993
are not necessarily indicative of results to be expected for the entire fiscal
year. This data should be read in conjunction with, and is qualified in its
entirety by reference to, the related financial statements and notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
-------------------- -------------------------------
1993 1992 1993 1992(1) 1991(1)
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Energy............................................................... $ 29,778 $ 37,979 $ 65,136 $ 71,638 $ 19,881
Equipment sales and services......................................... 11,805 9,242 18,955 21,854 25,321
Rental................................................................. 3,189 2,020 3,636 3,191 3,663
Related parties........................................................ -- -- 515 378 899
Development fees and other............................................. 7,369 7,228 9,450 3,054 1,616
--------- --------- --------- --------- ---------
Total................................................................ 52,141 56,469 97,692 100,115 51,380
Cost of revenues......................................................... 41,772 39,745 71,750 66,996 37,383
Gross profit............................................................. 10,369 16,724 25,942 33,119 13,997
Selling, general and
administrative expenses................................................ 8,872 7,026 21,872 13,133 13,311
--------- --------- --------- --------- ---------
Income from operations................................................... 1,497 9,698 4,070 19,986 686
Interest and other income................................................ 330 808 993 1,204 1,377
Interest and debt expense................................................ (8,703) (7,781) (15,696) (17,340) (8,434)
Litigation settlement cost............................................... -- -- -- -- (538)
--------- --------- --------- --------- ---------
Income (loss) before income taxes, extraordinary item and cumulative
effect of a change in accounting principle....................... (6,876) 2,725 (10,633) 3,850 (6,909)
Provision for (benefit from) income taxes................................ 1,079 1,540 3,078 2,438 1,676
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item and cumulative effect of
change in accounting principles.................................. (7,955) 1,185 (13,711) 1,412 (8,585)
Utilization of income tax net operating loss carry forward............... -- -- -- -- --
Cumulative effect of change in accounting principle...................... -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss).................................................. $ (7,955) $ 1,185 $ (13,711) $ 1,412 $ (8,585)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share:
Income (loss) before extraordinary item and cumulative effect of change
in accounting principle............................................... $ (.47) $ .08 $ (.82) $ .09 $ (.67)
Extraordinary item...................................................... -- -- -- -- --
Cumulative effect of change in accounting principles.................... -- -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss).................................................. $ (.47) $ .08 $ (.82) $ .09 $ (.67)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding...................................... 16,871 16,847 16,821 14,911 12,756
Ratio of earnings to combined fixed charges and preferred stock
dividends(3)........................................................... .19 1.18 .29 1.06 .12
<CAPTION>
DECEMBER 31, AS OF JUNE 30,
-------------------- --------------------
1993 1993 1992 1991
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)............................................. $ (23,623) $ (11,119) $ 816 $ (14,629)
Property, plant and equipment, net....................................... 191,992 194,217 195,677 195,452
Total assets............................................................. 255,356 262,529 259,054 249,207
Recourse long-term debt, net............................................. 21,991 28,012 20,003 16,950
Convertible senior subordinated debentures............................... 49,174 49,174 49,174 49,254
Nonrecourse project financing, net....................................... 91,820 97,140 107,898 117,817
Stockholders' equity..................................................... 8,989 15,675 29,405(3) 14,235(3)
<CAPTION>
1990(1) 1989(2)
--------- ---------
<S> <C> <C>
Income Statement Data:
Revenues:
Energy................................................................... $ 4,931 $ 4,368
Equipment sales and services............................................. 24,634 15,207
Rental..................................................................... 4,005 4,170
Related parties............................................................ -- 1,048
Development fees and other................................................. 3,941 3,010
--------- ---------
Total.................................................................... 37,511 27,803
Cost of revenues............................................................. 27,581 20,366
Gross profit................................................................. 9,930 7,437
Selling, general and
administrative expenses.................................................... 9,184 6,932
--------- ---------
Income from operations....................................................... 746 505
Interest and other income.................................................... 2,409 1,732
Interest and debt expense.................................................... (4,855) (3,390)
Litigation settlement cost................................................... -- --
--------- ---------
Income (loss) before income taxes, extraordinary item and cumulative
effect of a change in accounting principle........................... (1,700) (1,153)
Provision for (benefit from) income taxes.................................... (280) 508
--------- ---------
Income (loss) before extraordinary item and cumulative effect of change
in accounting principles............................................. (1,420) (1,661)
Utilization of income tax net operating loss carry forward................... -- 33
Cumulative effect of change in accounting principle.......................... (2,329) (1,355)
--------- ---------
Net income (loss)...................................................... $ (3,749) $ (2,983)
--------- ---------
--------- ---------
Net income (loss) per share:
Income (loss) before extraordinary item and cumulative effect of change in
accounting principle..................................................... $ (.11) $ (.16)
Extraordinary item......................................................... -- --
Cumulative effect of change in accounting principles....................... (.19) (.13)
--------- ---------
Net income (loss)...................................................... $ (.30) $ (.29)
--------- ---------
--------- ---------
Weighted average shares outstanding.......................................... 12,427 10,212
Ratio of earnings to combined fixed charges and preferred stock
dividends(3)............................................................... .29 .29
1990 1989
--------- ---------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency)................................................. $ (10,126) $ 1,803
Property, plant and equipment, net........................................... 165,233 123,251
Total assets................................................................. 216,494 173,399
Recourse long-term debt, net................................................. 22,566 23,843
Convertible senior subordinated debentures................................... 22,999 15,127
Nonrecourse project financing, net........................................... 100,166 78,906
Stockholders' equity......................................................... 22,302(3) 24,821
</TABLE>
- ------------------
(1) In 1993, the Company adopted Statement of Financial Accounting Standards No.
109, 'Accounting for Income Taxes' (SFAS109) and elected to apply the
provisions of SFAS109 retroactively to July 1, 1989. Accordingly, the
financial statements for the years ended June 30, 1992 and 1991 have been
restated to comply with the provisions of SFAS109. (See Note 3 to the
Consolidated Financial Statements.)
(2) In 1989, the Company changed its method of accounting thereby deferring to
future periods the recognition of development and other fee revenue. The
effect of this change in 1989 was to increase the Company's loss by
approximately $3,871,000. Proforma amounts, assuming the new revenue
recognition method was applied retroactively, are as follows:
<TABLE>
<CAPTION>
1989
---------
<S> <C>
Loss...................................... $ (1,628)
Loss per share............................ $ (.16)
</TABLE>
(3) Earnings represent earnings before income taxes, extraordinary item and
cumulative effect of a change in accounting principle and fixed charges.
Fixed charges consist of interest expense and the portion of rental expense
deemed representative of the interest factor. For the six months ended
December 31, 1993 and the years ended June 30, 1993, 1991, 1990 and 1989
additional earnings of $7,745,000, $12,506,000, $11,143,000, $7,880,000 and
$5,455,000, respectively, would be required to achieve a ratio of 1.0.
24
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following tables set forth pro forma consolidated financial data of the
Company as of December 31, 1993 and for the six months ended December 31, 1993
and the year ended June 30, 1993 (i) on a historical basis and (ii) as adjusted
to give effect to the Exchange Offer, assuming alternatively (a) 51% acceptance
of the Exchange Offer and (b) 100% acceptance of the Exchange Offer.
The pro forma consolidated balance sheet of the Company has been prepared
as if the Exchange Offer had been consummated as of December 31, 1993. The pro
forma consolidated statements of operations present the consolidated results of
operations of the Company for the six months ended December 31, 1993 and the
year ended June 30, 1993 as if the Exchange Offer had occurred as of the
beginning of the periods presented.
25
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE
EXCHANGE OFFER
--------------------------
ASSUMING ASSUMING
51% 100%
HISTORICAL ACCEPTANCE* ACCEPTANCE
----------- ----------- -----------
<S> <C> <C> <C>
Energy revenues........................................................ $ 29,778 $ 29,778 $ 29,778
Equipment sales and services........................................... 11,805 11,805 11,805
Rental revenues........................................................ 3,189 3,189 3,189
Development and other fees............................................. 7,369 7,369 7,369
----------- ----------- -----------
52,141 52,141 52,141
----------- ----------- -----------
Cost of energy revenues................................................ 22,923 22,923 22,923
Cost of equipment sales and services................................... 10,223 10,223 10,223
Cost of rental revenues................................................ 1,227 1,227 1,227
Cost of development and other fees..................................... 7,399 7,399 7,399
----------- ----------- -----------
41,772 41,772 41,772
----------- ----------- -----------
Gross profit........................................................... 10,369 10,369 10,369
Selling, general and administrative expenses........................... 8,872 8,872 8,872
----------- ----------- -----------
Income from operations............................................... 1,497 1,497 1,497
Interest and other income.............................................. 330 330 330
Interest and debt expense.............................................. (8,703) (7,330)(1) (6,012)(5)
----------- ----------- -----------
Income (loss) before income taxes.................................... (6,876) (5,503) (4,185)
Provision for income taxes............................................. 1,079 1,079(2) 1,079(2)
----------- ----------- -----------
Net loss............................................................... $ (7,955) $ (6,582) $ (5,264)
----------- ----------- -----------
Preferred dividend requirements........................................ -- 1,505 2,950
----------- ----------- -----------
Net loss applicable to common shareholders............................. $ (7,955) $ (8,087) $ (8,214)
----------- ----------- -----------
Net loss per common share.............................................. $ (.47) $ (.47)(3) $ (.46)(6)
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding.................................... 16,871 17,373(4) 17,854(7)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------------
* Consummation of the Exchange Offer is conditioned upon, among other things,
the Consents and Waivers of a majority of each of the 1987 Holders, 1990
Holders and 1991 Holders being received. Therefore, the Exchange Offer may be
consummated with less than a 51% acceptance of the Exchange Offer.
See the accompanying notes to the pro forma consolidated financial statements.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED DECEMBER 31, 1993
(1) Reflects reduction of interest and debt expense related to Debentures
assuming 51% exchange at July 1, 1993.
(2) No impact has been reflected on the provision for income taxes since it is
assumed that the reduction in interest expense would reduce the available
net operating loss carryforwards and the valuation allowance.
(3) Reflects loss per share computed by dividing the net loss after reduction
for preferred dividends (assuming 51% exchange), by the weighted average
number of shares outstanding.
(4) Reflects adjustment for additional Class A Common Stock issued assuming 51%
exchange of Debentures.
(5) Reflects reduction of interest and debt expense related to Debentures
assuming 100% exchange at July 1, 1993.
(6) Reflects loss per share computed by dividing the net loss after reduction
for preferred dividends (assuming 100% exchange), by the weighted average
number of shares outstanding.
(7) Reflects adjustment for additional Class A Common Stock issued assuming 100%
exchange of Debentures.
27
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE
EXCHANGE OFFER
--------------------------
ASSUMING ASSUMING
51% 100%
HISTORICAL ACCEPTANCE* ACCEPTANCE
--------- ----------- -----------
<S> <C> <C> <C>
Energy revenues....................................................... $ 65,136 $ 65,136 $ 65,136
Equipment sales and services.......................................... 18,955 18,955 18,955
Rental revenues....................................................... 3,636 3,636 3,636
Revenues from related parties......................................... 515 515 515
Development fees and other............................................ 9,450 9,450 9,450
--------- ----------- -----------
97,692 97,692 97,692
--------- ----------- -----------
Cost of energy revenues............................................... 44,889 44,889 44,889
Cost of equipment sales and services.................................. 16,431 16,431 16,431
Cost of rental revenues............................................... 2,458 2,458 2,458
Cost of revenues from related parties................................. 452 452 452
Cost of development fees and other.................................... 7,520 7,520 7,520
--------- ----------- -----------
71,750 71,750 71,750
--------- ----------- -----------
Gross profit........................................................ 25,942 25,942 25,942
Selling, general and administrative expenses.......................... 21,872 21,872 21,872
--------- ----------- -----------
Income from operations.............................................. 4,070 4,070 4,070
Interest and other income............................................. 993 993 993
Interest and debt expense............................................. (15,696) (13,008)(1) (10,426)(5)
--------- ----------- -----------
Loss before income taxes.............................................. (10,633) (7,945) (5,363)
Provision for income taxes............................................ 3,078 3,078(2) 3,078(2)
--------- ----------- -----------
Net loss.............................................................. $ (13,711) $ (11,023) $ (8,441)
--------- ----------- -----------
Preferred dividend requirements....................................... -- 3,009 5,900
--------- ----------- -----------
Net loss applicable to common shareholders............................ $ (13,711) $ (14,032) $ (14,341)
--------- ----------- -----------
--------- ----------- -----------
Net loss per common share............................................. $ (.82) $ (.81)(3) $ (.81)(6)
--------- ----------- -----------
--------- ----------- -----------
Weighted average shares outstanding................................... 16,821 17,323(4) 17,804(7)
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------
* Consummation of the Exchange Offer is conditioned upon, among other things,
the Consents and Waivers of a majority of each of the 1987 Holders, 1990
Holders and 1991 Holders being received. Therefore, the Exchange Offer may be
consummated with less than a 51% acceptance of the Exchange Offer.
See the accompanying notes to the pro forma consolidated financial statements.
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED JUNE 30, 1993
(1) Reflects reduction of interest and debt expense related to Debentures
assuming 51% exchange at July 1, 1992.
(2) No impact has been reflected on the provision for income taxes since it is
assumed that the reduction in interest expense would reduce the available
net operating loss carryforwards and the valuation allowance.
(3) Reflects loss per share computed by dividing the net loss after reduction
for preferred dividends (assuming 51% exchange), by the weighted average
number of shares outstanding.
(4) Reflects adjustment for additional Class A Common Stock issued assuming 51%
exchange of Debentures.
(5) Reflects reduction of interest and debt expense related to Debentures
assuming 100% exchange at July 1, 1992.
(6) Reflects loss per share computed by dividing the net loss after reduction
for preferred dividends (assuming 100% exchange), by the weighted average
number of shares outstanding.
(7) Reflects adjustment for additional Class A Common Stock issued assuming 100%
exchange of Debentures.
29
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE
EXCHANGE OFFER
------------------------
ASSUMING ASSUMING
51% 100%
HISTORICAL ACCEPTANCE* ACCEPTANCE
---------- ----------- -----------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents........................................... $ 2,548 $ 2,548 $ 2,548
Restricted cash and cash equivalents................................ 2,115 2,115 2,115
Accounts receivable, net............................................ 16,004 16,004 16,004
Receivable from related parties..................................... 612 612 612
Notes receivable, current........................................... 2,361 2,361 2,361
Inventories......................................................... 6,010 6,010 6,010
Insurance claims receivable......................................... 2,769 2,769 2,769
Other current assets................................................ 2,242 2,242 2,242
Assets held under contractual arrangement........................... 98 98 98
---------- ----------- -----------
Total current assets................................................ 34,759 34,759 34,759
Property, plant and equipment, net.................................... 191,992 191,992 191,992
Project development costs............................................. 5,674 5,674 5,674
Notes receivable, noncurrent.......................................... 11,533 11,533 11,533
Notes receivable from officers........................................ 237 237 237
Investments in equity affiliates...................................... 2,734 2,734 2,734
Excess of cost of investment in subsidiaries over net assets at date
of acquisition, net................................................. 2,036 2,036 2,036
Deferred financing costs, net......................................... 5,489 3,676(1) 1,934(8)
Other assets.......................................................... 902 902 902
---------- ----------- -----------
Total assets........................................................ $ 255,356 $ 253,543 $ 251,801
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------
* Consummation of the Exchange Offer is conditioned upon, among other things,
the Consents and Waivers of a majority of each of the 1987 Holders, 1990
Holders and 1991 Holders being received. Therefore, the Exchange Offer may be
consummated with less than a 51% acceptance of the Exchange Offer.
See the accompanying notes to the pro forma consolidated financial statements.
30
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
(DOLLARS IN THOUSANDS)
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE
EXCHANGE OFFER
------------------------
ASSUMING ASSUMING
51% 100%
HISTORICAL ACCEPTANCE* ACCEPTANCE
---------- ----------- -----------
<S> <C> <C> <C>
Current liabilities:
Accounts payable.................................................... $ 18,842 $ 18,842 $ 18,842
Current maturities of recourse long-term debt....................... 15,387 15,387 15,387
Current maturities of nonrecourse project financing................. 10,890 10,890 10,890
Short-term borrowings............................................... 2,992 2,992 2,992
Other current liabilities........................................... 6,246 10,622(2) 14,823(9)
Deferred credits.................................................... 4,025 4,025 4,025
---------- ----------- -----------
Total current liabilities........................................ 58,382 62,758 66,959
Recourse long-term debt, net of current maturities.................... 21,991 21,991 21,991
Convertible senior subordinated debentures............................ 49,174 24,095(3) --(10)
Nonrecourse project financing, net of current maturities.............. 91,820 91,820 91,820
Construction costs payable............................................ 5,100 5,100 5,100
Deferred income taxes................................................. 12,008 12,008 12,008
Other liabilities..................................................... 7,892 7,892 7,892
---------- ----------- -----------
246,367 225,664 205,770
---------- ----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01; one vote per share; shares
authorized 10,000,000; none issued............................... -- 10(4) 20(11)
Class A common stock, par value $.01; one vote per share; 40,000,000
shares authorized; issued 13,055,597 at December 31, 1993 and
June 30, 1993.................................................... 130 135(5) 140(12)
Class B common stock, par value $.01; ten votes per share;
10,000,000 shares authorized; issued 4,070,770 at December 31,
1993 and June 30, 1993........................................... 39 39 39
Additional paid-in capital............................................ 41,353 54,428(6) 66,994(13)
Accumulated deficit................................................... (31,887) (26,087)(7) (20,516)(14)
Other................................................................. (646) (646) (646)
---------- ----------- -----------
Total stockholders' equity.......................................... 8,989 27,879 46,031
---------- ----------- -----------
Total liabilities and stockholders' equity....................... $ 255,356 $ 253,543 $ 251,801
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ------------------
* Consummation of the Exchange Offer is conditioned upon, among other things,
the Consents and Waivers of a majority of each of the 1987 Holders, 1990
Holders and 1991 Holders being received. Therefore, the Exchange Offer may be
consummated with less than a 51% acceptance of the Exchange Offer.
See the accompanying notes to the pro forma consolidated financial statements.
31
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Reflects adjustment to write-off 51% of deferred financing costs associated
with Debentures.
(2) Reflects an adjustment for Federal and State income taxes (calculated at an
effective rate of 43%) resulting from the gain recognized.
(3) Reflects adjustment assuming the exchange of 51% of each of the Debentures.
(4) Reflects adjustment for par value of preferred stock issued assuming 51%
exchange of Debentures.
(5) Reflects adjustment for par value of Class A Common Stock issued assuming
51% exchange of Debentures.
(6) Reflects adjustment for fair value of common and preferred stock issued
less related par values, assuming 51% exchange of Debentures.
(7) Reflects adjustment for gain on exchange, net of tax (at 43%), of $5,800
assuming 51% exchange of debentures. This gain will be included in the
historical financial statements upon consummation of the exchange but is
not included in the pro forma income statements for the six months ended
December 31, 1993 or for the year ended June 30, 1993.
(8) Reflects adjustment to write-off 51% of deferred financing costs associated
with Debentures.
(9) Reflects an adjustment for Federal and State income taxes (calculated at an
effective rate of 43%) resulting from the gain recognized.
(10) Reflects adjustment assuming the exchange of 100% of each of the
Debentures.
(11) Reflects adjustment for par value of preferred stock issued assuming 100%
exchange of Debentures.
(12) Reflects adjustment for par value of Class A Common Stock issued assuming
100% exchange of Debentures.
(13) Reflects adjustment for fair value of common and preferred stock issued
less related par values, assuming 100% exchange of Debentures.
(14) Reflects adjustment for gain on exchange, net of tax (at 43%), of $11,371
assuming 100% exchange of Debentures. This gain will be included in the
historical financial statements upon consummation of the exchange but is
not included in the pro forma income statements for the six months ended
December 31, 1993 or for the year ended June 30, 1993.
32
<PAGE>
BACKGROUND, PURPOSES AND EFFECTS OF THE EXCHANGE OFFER, RESTRUCTURING AND
CONSENT AND WAIVER SOLICITATION
As a result of (i) significant losses incurred by the Company for the
fiscal year ended June 30, 1993 and the six months ended December 31, 1993
relating, in part, to the Newark fire and continuing litigation, (ii) the
Company's inability to refinance certain project indebtedness and/or sell equity
in certain projects, and (iii) the lack of sufficient capital to develop and
construct new projects, the Company failed to pay the March 15, 1994 semi-annual
interest payment on its outstanding Debentures. Since that time, the Debentures
and the Company's Class A Common Stock have been trading at historically low
levels.
The Company has attempted to refinance and/or sell equity in certain
projects. Furthermore, the Company retained an investment banking firm to
develop plans to enhance shareholder value including an evaluation of the merits
of selling or merging the Company or forming a strategic alliance. Although the
Company has received numerous indications of interest, the Company's efforts to
implement a Restructuring Plan have been hampered by, among other things, the
Hawker Siddeley litigation, the Newark fire, the constraints in the Debentures
and the Company's liquidity problems.
The principal purposes of the Exchange Offer are (a) to reduce debt and to
increase equity, thus improving the Company's debt to equity ratio and reducing
interest expense and (b) to alleviate the Company's short-term liquidity
problems and improve long-term liquidity. The Company believes that the
improvement in its debt to equity ratio will assist in future financing efforts,
while the reduced interest expense will improve profitability. Accordingly, the
Company believes that the Exchange Offer will afford it enhanced operating
flexibility.
An additional purpose of the Exchange Offer and the Consent Solicitation is
to eliminate the risk that the Company will be required to offer to purchase any
of the 1987 Debentures, 1990 Debentures and/or 1991 Debentures by reason of
certain covenants described herein. In addition, the purpose of the Waivers is
to seek to ensure that the 1987 Debentures, 1990 Debentures and/or 1991
Debentures could not be accelerated based upon any actions, omissions or events,
whether known or unknown, that may have occurred or that occur prior to the
Solicitation Expiration Date and that could be construed to be defaults or
Events of Default under the 1987 Debentures, 1990 Debentures and/or 1991
Debentures and the Indentures related thereto and to rescind any acceleration
that may occur on or prior to the Solicitation Expiration Date.
In addition to the completion of the Exchange Offer and Solicitation, the
Company's Restructuring Plan includes the following steps: (1) the recent
settlement of the Hawker Siddeley litigation, (2) appointment of a new President
and Chief Operating Officer, and Vice President/Finance and Chief Financial
Officer, (3) implementation of a cost reduction program, (4) refinancing and/or
sale of all or part of its ownership in its Newark and Parlin cogeneration
plants and (5) a strategic review of its other assets and business units.
The Company has been burdened with numerous lawsuits principally involving
Hawker Siddeley. These lawsuits have had a severe negative impact on the
Company's financial results and liquidity and have consumed significant
management resources. The Company believes that the settlement of these suits
and the implementation of its cost reduction program will allow the Company to
reduce its general and administrative costs in the 1995 fiscal year. To assist
the implementation of its Restructuring Plan and the cost reduction program, the
Company's Board of Directors elected Larry Zalkin as its new President and Chief
Operating Officer and Ronald R. Rominiecki as Vice President/Finance and Chief
Financial Officer in March 1994.
If the Exchange Offer and Solicitation are not consummated and (a) the
Company is required to continue to make interest payments on the Debentures
and/or (b) the Debentures are accelerated based upon any actions, omissions or
events and such accelerations is not rescinded, the Company would face severe
liquidity problems and, in the case of acceleration, does not expect to have
sufficient cash to repay all outstanding Debentures. While the Company would
examine all of its options at the time, such liquidity problems could force the
Company to seek protection under Chapter 11 of the Bankruptcy Code. Moreover,
interest almost certainly would not be paid on the Debentures during the
pendency of a bankruptcy proceeding.
Even if the Exchange Offer and Solicitation are consummated, there can be
no assurance that the Company will not suffer severe liquidity problems. As a
result, the Company could be forced in the future to seek protection under the
Bankruptcy Code regardless of whether the Exchange Offer and Solicitation are
consummated.
33
<PAGE>
BUSINESS
BACKGROUND.
The Company was originally formed in Florida in 1981 and subsequently
merged with a Delaware corporation in 1984. Prior to the merger, the Company was
part of a group of several other companies owned by members of the family of
Frank L. O'Brien III, Chairman of the Board, Chief Executive Officer and
controlling shareholder of the Company, which had served the power generation
market since 1915. On July 1, 1991, the Company changed its name from O'Brien
Energy Systems, Inc. to O'Brien Environmental Energy, Inc.
The Company expanded its equipment sales, rentals and services business by
acquiring Puma Power Plant Limited ('Puma'), a United Kingdom company, in 1988
and Mobile Power Rental Company (now operating under the name O'Brien Energy
Services Company) ('O'Brien Energy Services') in 1990.
In 1989, the Company acquired American Hydrotherm Corporation ('American
Hydrotherm') and a related company to engineer, manufacture, install and service
heat recovery systems based upon patented technology for industrial processing
applications.
References in this Report to the 'Company' mean O'Brien Environmental
Energy, Inc. and, where relevant, its wholly-owned subsidiaries.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
During the fiscal year ended June 30, 1993, the Company operated
principally in two industry segments: (i) energy--the development, ownership and
operation of biogas projects and the development and ownership of cogeneration
and waste heat recovery projects through wholly-owned subsidiaries and limited
partnership; and (ii) equipment sales, rentals and service--the selling and
renting of power generating, cogenerating and standby/peak shaving equipment and
services. Fees recognized in connection with the development and construction of
cogeneration projects formed as limited partnerships are related to energy
projects.
See Note 25 of the Consolidated Financial Statements of the Company for
financial information with respect to industry segments.
DESCRIPTION OF BUSINESS.
GENERAL
O'Brien Environmental Energy, Inc. develops cogeneration, waste heat
recovery and biogas projects which produce electricity and thermal energy for
sale under long-term contracts with industrial and commercial users and public
utilities. Cogeneration involves the sequential production of two or more forms
of usable energy (i.e. electricity and thermal energy) using a single fuel
source, thereby substantially increasing fuel efficiency. A waste heat recovery
project utilizes heat resulting from industrial processes as the energy source
for the simultaneous production of steam and electricity in a manner similar to
cogeneration. Biogas projects such as the Company's landfill and sewage digester
gas projects collect otherwise wasted and unproductive methane gas and convert
it into usable energy. These projects offer an industrial user potential cost
savings and, where electricity is sold to the user, increased reliability and
added security against power failures.
As a project developer, the Company serves as a single source responsible
for the evaluation, design, installation and operation of a project at a
customer's site. The Company also assumes the responsibility for evaluating
project alternatives; obtaining financing, insurance, all necessary licenses,
permits and certifications; conducting contract negotiations with local
utilities and arranging turnkey construction. In connection with obtaining
financing, the Company may negotiate for credit support facilities with
equipment suppliers, large turnkey construction firms and financial
institutions. Potential project structures include sole ownership, general
partnerships, limited partnerships, sale leaseback arrangements and other forms
of joint ventures or debt arrangements. To date, other than the limited
partnership substantially owned by a subsidiary of Chrysler Capital Corporation,
the Company's projects in operation have been structured as wholly-owned
subsidiaries.
The Company sells the electricity produced by its projects pursuant to
long-term contracts either on a 'wholesale' basis to local public utilities or
on a 'retail' basis directly to specific industrial and commercial users.
Presently, substantially all of the electricity produced by the Company's
projects in operation is sold on a
34
<PAGE>
wholesale basis. The mix of future energy sales may differ based upon future
economic conditions and other circumstances.
A large portion of the Company's business relates to design and assembly of
power generation systems for sale and rental, electrical control and
distribution subsystems, and high temperature heat transfer equipment and
subsystems.
During 1993, the Company expanded into the area of standby/peak shaving
projects which utilize the Company's power generation equipment as a back-up
source of electricity for large customers. These projects are intended to fill a
need between large electrical users and the requirements of local utilities. The
availability of an alternative energy source allows these customers to benefit
from significantly discounted interruptible energy tariffs. The standby/peak
shaving generators typically will be required to provide a limited amount of
electricity during peak periods.
At present, the Company has eight projects in operation totalling
approximately 217 megawatts of electric generating capacity including seven
wholly-owned projects developed by the Company totalling approximately 185
megawatts and one approximately 32 megawatt project which was developed by the
Company and is presently owned substantially by a subsidiary of Chrysler Capital
Corporation.
RECENT DEVELOPMENTS
The following are certain of the Company's recent developments:
(i) Retention of Investment Bankers
In October 1993, the Company retained an investment banking firm to
assist the Company in developing plans to maximize shareholder value.
Subsequently, the Company engaged Jefferies & Company, Inc. to complete the
implementation of the Company's plans to maximize shareholder value.
(ii) Hackensack Meadowlands Project
In September 1993, the Company was awarded (pursuant to a competitive
bidding process) gas recovery rights by the Hackensack Meadowlands
Development Commission for two landfill sites located in New Jersey.
Although it is uncertain at this time, the Company may use the landfill gas
developed and produced from this project to supply fuel for the Newark
Boxboard project. Development of this project is not expected to be
completed until 1996, at the earliest. See 'Business--Energy
Segment--Projects in Development.'
(iii) Philadelphia Water Department Project
In November 1993, the Company entered into a transaction under which
it sold its interest in its Philadelphia Water Department project to
entities controlled by an unrelated private investor for a price of
$5,000,000. In connection with the transaction, the Company retained the
right to repurchase its interest from the current owner in May 1994 in
exchange for $5,000,000 plus a 17% minority interest in the project. The
Company may extend the period of time within which it may exercise this
repurchase option through August 1994 upon the payment of certain
consideration. The Company recently extended its repurchase option until
June 1994. In connection with this transaction, the Company issued a total
of 5.5 million warrants to purchase the Company's Class A Common Stock. 2.5
million of such warrants have an exercise price of $4.00 per share and are
exercisable through November 10, 1995. 2 million of such warrants have an
exercise price of $5.00 per share and are exercisable through November 10,
1996. The balance of such warrants (1 million) have an exercise price of
$6.00 per share and are exercisable through November 10, 1997. Following
the issuance of the warrants, the private investor filed a Schedule 13D
with the SEC disclosing the acquisition of the warrants. See
'Business--Energy Segment--Sale of Projects in Operation.' See Note 31 of
the Company's Consolidated Financial Statements for a discussion of this
transaction.
(iv) Stewart & Stevenson Credit Facility
In November 1993, the Company entered into a letter of intent with
Stewart & Stevenson, a major equipment supplier and operation and
maintenance company for a $7 million credit facility to be disbursed upon
the completion of certain milestones, including, among other things, the
appointment of Stewart & Stevenson as operation and maintenance contractor
for the Company's Newark Boxboard and du Pont Parlin
35
<PAGE>
cogeneration projects. The first disbursement of $1 million was funded on
January 13, 1994. The second disbursement of $3.5 million was funded on
March 16, 1994. A third disbursement of $2.5 million is expected to be
available to the Company in the near future based upon approval of loan
documentation and the obtaining of necessary consents. This disbursement is
intended to be utilized for prepayment of debt at the Newark Boxboard
project level. It is expected that the proceeds of the Stewart & Stevenson
credit facility will be repaid upon the refinancing of the Newark Boxboard
term loan. See 'Management's Discussion and Analysis of Financial Condition
and Results of Operations--Capital Resources--Working Capital
Requirements.'
(v) Tinicum Project
In December 1993, the Company executed an energy service agreement
with the City of Philadelphia for a 14 megawatt standby electric facility
project at the Philadelphia International Airport. See 'Business-- Energy
Segment--Projects in Development.'
(vi) Option Agreement--Biogas Projects
In December 1993, the Company executed an Exclusive Option Agreement
with Zahren Financial Corporation ('Zahren') (which was amended in January
1994 by a Memorandum of Understanding between the parties) pursuant to
which, in consideration of cash payments aggregating $300,000 made by
Zahren to O'Brien, (i) the Company granted Zahren an option, which was
extended by Zahren until June 15, 1994 upon payment of certain
consideration, to purchase the Company's Edgeboro biogas project, which is
in development, and (ii) the Company granted Zahren a right of first
refusal until December 31, 1994, to purchase the Company's other biogas
projects (other than the SmithKline Beecham and Hackensack Meadowlands
projects). See 'Business--Energy Segment--Projects in Development.'
(vii) O'Brien Newark--Repurchase Agreement
In January 1994, the Company and Bradley Resources Company ('Bradley')
entered into a Repurchase Agreement pursuant to which the Company
reacquired the rights to 12.5% of all proceeds which the Company receives
from O'Brien (Newark) Cogeneration, Inc. These rights had been sold to
Bradley in March 1993. See Note 5 of the Consolidated Financial Statements
and 'Business--Energy Segment-- Projects in Operation.'
(viii) SmithKline Project
In February 1994, the Company executed an energy service agreement
with SmithKline Beecham Corporation for a standby/peak shaving electric
facility project in excess of 21 megawatts in Montgomery County,
Pennsylvania. See 'Business--Energy Segment--Projects in Development.'
(ix) FASB 109 Tax Provision
The Company has elected to retroactively adopt the required FASB 109
allowance for deferred income tax. The Company's loss for fiscal 1993 is
less than that which was expected because of such retroactive adoption. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and Notes 2 and 3 of the Consolidated Financial Statements of
the Company.
INDEPENDENT POWER MARKET
The independent power market (the market for power generated by companies
other than traditional utilities) has evolved and is expected by the Company to
continue to expand as a result of the growing need for new and replacement power
capacity by electric utilities and industrial customers. Historically, regulated
utilities in the United States have been the only producers of electric power
intended primarily for sale to third parties. The increase in oil prices during
the late 1970s and the increasing cost of constructing and financing large coal-
fired or nuclear generating facilities along with the enactment in 1978 of the
Public Utilities Regulatory Policies Act ('PURPA'), created a favorable
regulatory environment and favorable market conditions for the development of
energy projects by companies other than electric utilities. The basic policy
judgment behind the encouragement of the development of biogas and cogeneration
facilities is that the United States' dependence on oil and natural gas
resources should be reduced and that the very high incremental costs of large
centralized power production facilities should be avoided. However, economic
considerations remain the central issue affecting a decision to install a
cogeneration project.
36
<PAGE>
PURPA provided significant incentives to developers of qualifying
facilities. It designated certain small power production (those utilizing
renewable fuels and having a capacity of less than 80 megawatts) and
cogeneration facilities as qualifying facilities exempt from many of the
regulatory requirements applicable to electric utilities and eligible for
various benefits under federal law. In accordance with PURPA, the Company's
projects are exempt, and its proposed projects are intended to be exempt, from
rate, financial and similar regulation as a utility. These projects also benefit
from regulations that require public utilities to purchase power generated by
qualifying projects either at the utilities' 'avoided cost' (determined in
accordance with a formula which varies from state to state but which is
generally calculated based upon what the cost to the utility would be to
generate the power itself or to purchase it from another source). Power purchase
contracts generally must be approved by state public utility commissions. Since
the Company benefits from PURPA, the Company's business could be adversely
affected by a significant change in PURPA and could otherwise be materially
impacted by decisions of federal, state and local legislative, judicial and
regulatory bodies. See 'Business--Regulation.'
The Company believes that independent power producers will become
increasingly more important to electric utilities as alternative long-term
sources of electric power. According to the North American Electric Reliability
Council's 1991-2000 Electricity Supply and Demand Report, electric utilities
have forecasted that they will need an additional 87,700 megawatts of new
generating capacity between 1991 and the year 2000 to meet peak demand. The U.S.
Department of Energy's Spring 1991 'National Energy Strategy' projects this need
at up to 200,000 megawatts between 1991 and the year 2010. According to this
report, $100 billion to $200 billion in new capital investment will be needed to
meet the nation's growing electricity needs during the period from 1991 to 2001.
Since the independent development and ownership of cogeneration projects
requires little, if any, capital investment by those public utilities utilizing
this power, and requires these public utilities to pay only for capacity and
energy actually produced and delivered, utilities may avoid the cost and risk of
building new plants as demand grows by purchasing needed power from independent
power producers.
Many organizations, including equipment manufacturers and subsidiaries of
utilities and contractors, as well as other organizations similar to the
Company, have entered the market of the ownership and operation of cogeneration
and biogas projects. Many of these companies have substantially greater
resources than the Company. In addition, obtaining power contracts with
utilities has become more competitive with the increased use of competitive
bidding procedures. This increased competition may make it more difficult for
the Company to secure future projects, may increase project development costs
and may reduce the Company's operating margins on any future projects.
PRODUCTS AND MARKETS
Cogeneration. Cogeneration involves the sequential production of two or
more forms of usable energy (i.e. electricity and thermal energy) using a single
fuel source, thereby substantially increasing fuel efficiency. The key elements
of a cogeneration project are permit applications, contracts for sales of
electricity and thermal energy, contracts or arrangements for fuel supply, and
project financing and construction. The Company attempts to design and develop
its projects so that they qualify for the benefits of PURPA, which exempts
qualifying projects from rate, financial and similar utility regulation and
requires public utilities to purchase power generated by these projects.
Electricity may be sold to utilities and end users of electrical power,
including large industrial facilities. Thermal energy from cogeneration plants
may be sold to commercial enterprises and other institutions. Large industrial
users of thermal energy include plants in the chemical processing, food
processing, pharmaceuticals and paper industries.
Standby/Peak Shaving. Standby/Peak Shaving projects utilize the Company's
power generation equipment as a back-up source of electricity for large
electrical demand customers. The availability of an alternative energy source
allows these customers to benefit from significantly discounted interruptible
energy tariffs. The standby/peak shaving generators typically will be required
to provide a limited amount of electricity during peak periods.
Waste Heat Recovery. A waste heat recovery project utilizes heat resulting
from industrial processes as the energy source for the simultaneous production
of steam and electricity in a manner similar to cogeneration. The Company
believes that waste heat recovery projects, which do not rely on a traditional
fuel source, will allow the Company to reduce or eliminate the cost of fuel to
the project. While the recovery of continuously released waste heat is not a new
process, the Company's patented heat storage technology developed by its
subsidiary, American
37
<PAGE>
Hydrotherm, enables it to capture waste heat released intermittently and convert
it into continuous usable energy. These projects are well suited to steel,
glass, paper, cement and other industries which generate high quantities of
intermittent waste heat from their industrial processes.
Biogas. Biogas projects use a renewable non-fossil fuel as their fuel
source. The Company's biogas projects retrieve otherwise unproductive and
environmentally harmful methane gas generated by landfills or sewage digester
processes and convert it into usable energy. Landfill gas production will
generally continue as long as suitable anaerobic (oxygen-deficient) conditions
exist or until the organic components of the refuse placed at the site are
entirely decomposed. This process may continue for approximately 20 years after
the closing of a landfill site. Sewage digester gas is produced continuously
during the sewage treatment process. The key elements of biogas projects are
permit applications, contracts for gas rights, sales of gas and electricity, and
thermal energy if appropriate, and project financing and construction.
Equipment Sales, Rentals and Services. The Company sells and rents power
generation and cogeneration equipment. The Company provides related services,
including the design, assembly, repair and maintenance of permanent or standby
power generation equipment. In addition, the Company sells equipment
manufactured by others to turnkey contractors in connection with the
construction of the Company's projects. The Company also sells equipment
purchased by it for projects unrelated to those being developed by the Company.
From time to time, it purchases equipment for reconditioning and sale. In its
rental business the Company serves the construction, industrial, military,
transportation, mining, utility and entertainment markets.
The Company also designs and manufactures custom electrical control and
distribution subsystems. These include medium voltage cubicle switchboards, main
distribution systems, control instrumentation panels and packaged substations.
This equipment receives and distributes power through a building, ship or other
self-contained structure.
The Company, through its American Hydrotherm subsidiary, is also in the
business of custom designing, engineering, constructing, installing and
servicing high temperature liquid heat transfer systems for industrial
processing applications. Each system is designed by American Hydrotherm to meet
precise temperature and other specifications for processing equipment. These
systems are used in various industries such as steel, plastics, wood, rubber,
paper, chemical, petrochemical and electronics.
38
<PAGE>
ENERGY SEGMENT
Projects in Operation. Set forth below are descriptions of the Company's
eight projects currently in operation. Each of these projects is currently
producing revenues through the sale of energy under long-term contracts. In
connection with the obtaining of financing for its three cogeneration projects
in operation, the Company has obtained business interruption insurance and
performance guarantees by the operators of its cogeneration projects. These
arrangements are negotiated and secured prior to commencement of operations of a
project. Taken as a whole, these arrangements reduce the risks associated with
any past and future equipment problems or unscheduled plant shutdowns. For
example in the event of an unscheduled breakdown, the Company is entitled,
pursuant to its business interruption policy, to the net profit which it is
prevented from earning from the particular project, including all charges and
expenses which continue during the period of interruption, less the applicable
deductible amounts. A discussion of performance guarantees for certain of the
Company's projects is set forth below. There can be no assurance that such
insurance or guarantees will sufficiently mitigate the risk of unforeseen
contingencies.
<TABLE>
<CAPTION>
NAME AND LOCATION DATE OF POWER
OF PROJECT(1) OPERATION PURCHASER LENDER
- ------------------------- RATED APPROXIMATE -------------- ------------------------- -----------------------
CAPACITY(2) CAPITAL COST
-------------- --------------
(IN MEGAWATTS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
COGENERATION
E.I. du Pont Parlin (NJ) 122.0 $103,350 June 1991 Jersey Central Power & National Westminster
Light Company Bank P.L.C.(3)
Newark Boxboard (NJ)(4) 52.0 51,000 November 1990 Jersey Central Power & National Westminster
Light Company Bank P.L.C.(3)
California Milk Producers 32.0 40,000 February 1990 Southern California Mitsui Bank Limited(3)
(CA) Edison
BIOGAS
Mazzaro (PA) 2.4 2,000 February 1990 Duquesne Light Company (6)
FR&S (PA) .5 4,500 December 1988 Metropolitan Edison (6)
Duarte (CA) 1.1 2,000 October 1987 Southern California (6)
Edison
SmithKline Beecham (PA) 3.0 5,000 March 1986 SmithKline Beecham (6)
Corona (CA) 4.0 5,000 March 1986 Southern California (6)
Edison
------ --------------
217.0 $212,850
<CAPTION>
NAME AND LOCATION COMPANY'S
OF PROJECT(1) INTEREST
- ------------------------- ---------
<S> <C>
COGENERATION
E.I. du Pont Parlin (NJ) 100%
Newark Boxboard (NJ)(4) 100%
California Milk Producers 3%(5)
(CA)
BIOGAS
Mazzaro (PA) 100%
FR&S (PA) 100%
Duarte (CA) 100%
SmithKline Beecham (PA) 100%
Corona (CA) 100%
</TABLE>
- ------------------
(1) On November 12, 1993, the Company sold its Philadelphia Water Department
project. The Company has the right to repurchase this project in May 1994.
See 'Business--Energy Segment--Sale of Projects in Operation.'
(2) See discussion of each particular project which follows for current contract
production, which may be less than the stated rated capacity.
(3) This loan is nonrecourse to the Company.
(4) On December 25, 1992, a fire occurred at the plant. The plant returned to
partial operation in August 1993 and resumed full operation in October 1993.
(5) Owned in partnership as more fully described in the project descriptions in
'Business--Energy Segment--Projects in Operation.'
(6) These projects are financed by various lenders through equipment credit
facilities.
39
<PAGE>
COGENERATION
E.I. du Pont--Parlin. This 122 megawatt project, which commenced operation
in June 1991, is 100%-owned by a subsidiary of the Company. This project is
designed to operate continuously and to provide up to 120,000 lbs./hr. of steam
to a photochemical manufacturing plant in Parlin, New Jersey owned by E.I. du
Pont de Nemours and Company ('E.I. du Pont') under a 30-year agreement, and 92
megawatts of electricity to Jersey Central Power & Light ('JCP&L'), under a
20-year agreement. In addition to providing up to 9 megawatts of electricity to
E.I. du Pont under a 20-year agreement, the Company sells additional electricity
to JCP&L on an 'as requested' basis under the contract's dispatch agreement. See
Note 17 of the Company's Consolidated Financial Statements for a discussion of
this project's nonrecourse financing.
For the fiscal year ended June 30, 1993, this project accounted for
approximately $44 million in gross revenues, representing approximately 45% of
the Company's consolidated gross revenues.
For approximately two and a half months ending in December 1993, one of the
project's two gas turbines was out of operation for unscheduled repairs. This
shutdown negatively impacted the three month period ended December 31, 1993. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
Natural gas is provided under Public Service Electric & Gas Company's
('PSE&G') standard cogeneration tariff. Additionally, although no commitments or
agreements have been obtained to date, the project may obtain fuel through
direct purchase from other suppliers. The project is operated and maintained
under agreement with a third party. In January 1994, the Company and Stewart &
Stevenson Services, Inc. ('Stewart & Stevenson') executed an Operation and
Maintenance Contract.
In May 1994, the Company and the turnkey construction contractor settled
certain litigation regarding delays in project completion. See 'Legal
Proceedings.'
Newark Boxboard. This 52 megawatt project, which commenced operation in
November 1990, is 100%-owned by a subsidiary of the Company. This project is
designed to operate continuously and to provide up to 75,000 lbs./hr. of steam
to a recycled paper boxboard manufacturing plant owned by Newark Boxboard
Company, a subsidiary of the Newark Group, Inc., and 52 megawatts of electricity
to JCP&L, each under 25-year agreements. See Note 17 of the Company's
Consolidated Financial Statements for a discussion of this project's nonrecourse
financing.
For the fiscal year ended June 30, 1993, this project accounted for
approximately $20 million in gross revenues, representing approximately 20% of
the Company's consolidated gross revenues.
On December 25, 1992, a fire occurred at this project's facility in Newark,
New Jersey. The fire resulted in the death of three workers employed by the
operator of the project and in damage to the plant. The facility returned to
partial operation in August 1993 and resumed full operation in October 1993. The
fire has been classified by the local fire commissioner as accidental. As a
result of lost profits, the Company's 1993 operations have been adversely
affected. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.' The Company carries both property damage and business
interruption insurance. In full and final settlement of the Company's damage
claim, the Company received the sum of $36,000,000 which covered a substantial
majority of the Company's costs of repair and loss of net profits due to
business interruption. In addition, the Company has the right to receive up to
an additional $1,400,000 upon the recovery by the insurance carrier of its
claims against third parties. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations--Capital Resources--Working
Capital Requirements.'
Natural gas is provided under PSE&G's standard cogeneration tariff.
Additionally, although no commitments or agreements have been obtained to date,
the project may obtain fuel through direct purchase from other suppliers.
Although it is uncertain at this time, the Company may use the landfill gas
obtained in connection with its Hackensack Meadowlands project, which is
currently in development, to supply fuel for this project in the future. See
'Business--Energy Segment--Projects in Development.'
The project is operated and maintained under agreement with a third party.
In January 1994, the Company and a subsidiary of Stewart & Stevenson executed an
Operation and Maintenance Contract, replacing the current operator of the
project.
40
<PAGE>
The Company and Bradley Resources Company ('Bradley') entered into, as of
March 31, 1993, a Rights Assignment Agreement (the 'Rights Assignment
Agreement') pursuant to which the Company agreed to pay to Bradley 12.5% of all
proceeds which the Company receives from O'Brien (Newark) Cogeneration, Inc.
('O'Brien Newark') in consideration of a promissory note in the amount of $6.25
million (the 'Note'). In January 1994, the Company and Bradley entered into a
Repurchase Agreement pursuant to which the Company reacquired the rights
previously sold to Bradley pursuant to the Rights Assignment Agreement in
exchange for the Note.
In November 1993, the Company entered into a letter of intent with Stewart
& Stevenson for a $7 million credit facility to be disbursed upon the completion
of certain milestones, including, among other things, the appointment of Stewart
& Stevenson as operation and maintenance contractor for this project and the du
Pont Parlin Cogeneration project. The first disbursement of $1 million was
funded on January 13, 1994 and has a maturity date of December 28, 1994. The
second disbursement of $3.5 million was funded on March 16, 1994. A third
disbursement of $2.5 million is expected to be available to the Company in the
near future based upon approval of loan documentation and the obtaining of
necessary consents. This disbursement is intended to be utilized for prepayment
of debt at the Newark Boxboard project level. All outstanding principal and
interest on the credit facility is to be satisfied by a percentage of all
distributions made by O'Brien Newark. It is expected that the proceeds of the
Stewart & Stevenson credit facility will be repaid upon the refinancing of the
Newark Boxboard term loan.
In January 1994, the Company and NatWest Markets ('NatWest') executed an
engagement letter pursuant to which NatWest was engaged as financial advisor to
the Company and O'Brien Newark in connection with identifying and assisting the
Company and O'Brien Newark in negotiating and entering into agreements to
refinance this project.
In May 1993, the Company and the turnkey construction contractor settled
certain litigation regarding delays in project completion. See 'Legal
Proceedings.'
California Milk Producers. This 32 megawatt project, which commenced
operation in February 1990, was developed and structured by the Company as a
limited partnership in which a subsidiary of the Company is the general partner.
This project is designed to operate principally during peak demand periods and
to provide up to 60,000 lbs./hr. of steam to California Milk Producers, Artesia,
California and 32 megawatts of electricity to Southern California Edison
('SCE'), each under 30-year agreements. The Company has an initial partnership
interest of 3% (subject to adjustment to 50% based upon future investment
returns of the limited partner). A wholly-owned subsidiary of Chrysler is the
limited partner of the partnership and has an initial interest in partnership
distributions of 97%. It is not anticipated that there will be any increase in
the percentage interest in partnership distributions of the general partner for
the foreseeable future.
For the fiscal year ended June 30, 1993, the Company received a management
fee as a general partner of approximately $100,000. No partnership distributions
were received. Until the occurrence of a major increase in the percentage
interest in partnership distributions of the general partner, the Company does
not expect its share of profits or losses of the partnership to be significant.
Natural gas is provided by the Company and is purchased from independent
brokers. Through a fuel management agreement with Chrysler, the Company is
entitled to receive a percentage of any price savings between certain mandated
gas price rates and the prices obtained by the Company. Under the agreement, the
Company's earnings during the fiscal year ended June 30, 1993 were nominal. The
project is operated and maintained under agreement with Stewart & Stevenson,
which agreement provides for certain performance guarantees.
BIOGAS
Mazzaro. This landfill methane gas project produces approximately 1.8
megawatts of electricity which the Company sells to Duquesne Light Company under
a 20-year contract expiring in 2009.
FR&S. This landfill methane gas project produces .15 megawatts of
electricity which the Company sells to Metropolitan Edison.
41
<PAGE>
Duarte. This landfill methane gas project generates .8 megawatts of
electricity for sale to SCE under an agreement which expires in 1997. An extra
generator is fueled with natural gas to produce up to 0.54 megawatts during the
summer months to take advantage of the special peak demand rates.
SmithKline Beecham. The Company uses landfill methane gas to fuel a
cogeneration plant which provides up to 2 megawatts of electricity and 3,600
lbs./hr. of steam for sale to SmithKline Beecham Corporation under an agreement
which expires in 2004.
Corona. The Company uses landfill methane gas to fuel one generator which
currently provides approximately 0.5 megawatts of electricity to the SCE under a
20-year contract. An additional generator fueled with natural gas produces
approximately 2.0 megawatts during summer months to take advantage of special
peak demand rates.
PROJECTS IN DEVELOPMENT
Development of cogeneration, biogas, standby/peak shaving and waste heat
recovery projects often require many months or years to complete and involve a
high degree of risk that any given single project will not be completed. To
reduce this risk, the Company has since its inception sought to simultaneously
develop multiple projects in anticipation that some projects added to its
development portfolio will inevitably not be completed.
Among the principal items involved in developing projects are the selecting
of a site, the obtaining of commitments from others to purchase electrical power
and steam, negotiating fuel supply arrangements, obtaining environmental and
other governmental permits and approvals, arranging project financing and
turnkey construction. These items are often obtained independently of one
another and success in obtaining one item does not necessarily result in success
in obtaining any others. There is no assurance that the Company will be able to
obtain satisfactory project agreements, construction contracts, necessary
licenses and permits or satisfactory financing commitments and, therefore, that
any of the projects discussed below will ultimately be completed. If a project
is not completed the Company may neither generate revenue from the project nor
be able to recover its investment in the project.
The Company has secured some project agreements for certain projects as
discussed below. Unless otherwise indicated, no definitive agreements have been
executed in connection with these projects.
Schuylkill (cogeneration). The Company has executed a partnership
agreement with an affiliate of the Philadelphia Electric Company (the
'Affiliate') to jointly develop and own this proposed 118 megawatt project. The
partnership intends to develop this project in two phases, Phase 1 of which will
consist of approximately 40 megawatts. In January 1994, the partnership, the
Company and the Affiliate executed a term sheet with Canadian Imperial Bank of
Commerce and National Westminster Bank Plc regarding the financing of Phase 1 of
this project. The partnership executed a 25-year agreement with Philadelphia
Thermal Energy Corporation for the sale of steam and a 20-year agreement for the
sale of electric output with the Philadelphia Electric Company.
ILR--Edison (biogas). In February 1988 the Company executed a gas rights
agreement with the owners of the site. In April 1992, the Company entered into a
15-year power purchase agreement with PSE&G for the purchase of up to 5
megawatts of electricity. The Company and PSE&G are currently in the process of
modifying such agreement so that it provides for the purchase of up to 3
megawatts of electricity.
Edgeboro (biogas). In February 1989 the Company executed a gas rights
agreement with the owners of the landfill. The landfill is capable of fueling a
15 megawatt generating facility. In April 1992, the Company entered into a
15-year power purchase agreement with PSE&G for the purchase of 9.5 megawatts of
electricity. In December 1993, the Company executed an Exclusive Option
Agreement with Zahren Financial Corporation ('Zahren') (which was amended in
January 1994 by a Memorandum of Understanding between the parties) pursuant to
which, in consideration of cash payments aggregating $300,000 made by Zahren to
the Company (the 'Option Payments'), the Company granted Zahren an option to
purchase this project. If the option is exercised by Zahren, the purchase price
(the 'Purchase Price') shall be $3,400,000 plus (i) eighty percent of the first
$3,750,000 of the net syndication proceeds received by Zahren or an affiliate of
Zahren generated by the sale of interests in the entity owning the gas assets of
this project ('Net Syndication Proceeds') and (ii) sixty percent of Net
Syndication Proceeds in excess of $3,750,000. The Option Payments shall be
credited toward the Purchase Price. The option was extended by Zahren until June
15, 1994 upon payment of certain consideration. In addition,
42
<PAGE>
the Company granted Zahren a right of first refusal, until December 31, 1994, to
purchase the Company's other Biogas projects (other than the SmithKline Beecham
and Hackensack Meadowlands projects).
Tinicum (Standby/Peak Shaving). In December 1993 the Company executed an
energy service agreement with the City of Philadelphia for a 14 megawatt standby
electric facility project at the Philadelphia International Airport. The term of
the agreement is one year with a three year automatic renewal, subject to
appropriation of funds by the City of Philadelphia for the Philadelphia
International Airport in each such succeeding year.
Hackensack Meadowlands (Biogas). In September 1993 the Company was awarded
(pursuant to a competitive bidding process) gas recovery rights by the
Hackensack Meadowlands Development Commission (the 'Development Commission') for
two landfill sites located in North Arlington and Lyndhurst, New Jersey,
respectively. The Company and the Development Commission are currently in the
process of negotiating a Gas Rights Agreement. The Company may utilize the gas
recovered from these sites to supply natural gas at its Newark Boxboard project.
SmithKline (Standby/Peak Saving). In February 1994 the Company executed an
energy service agreement with SmithKline Beecham Corporation for a standby/peak
shaving electric facility project in excess of 21 megawatts in Montgomery
County, Pennsylvania. The term of the agreement is 15 years.
Other potential projects. The Company has identified and is considering
potential opportunities to develop additional projects as well as to acquire
projects in operation or under development and owned by third parties. If these
projects are not completed the Company may neither generate revenue from the
projects nor be able to recover its investment in the projects.
SALE OF PROJECTS IN OPERATION
In June 1992, the Company sold its Hamms and Amity biogas projects,
exclusive of certain equipment, for an aggregate of $2,048,000. See Note 21 of
the Consolidated Financial Statements. In addition, the Company is entitled to
receive $.01 for each kilowatt hour of electricity sold in excess of the
respective projects' target production as long as the projects remain in
commercial operation. Pursuant to the contracts of sale, the Company has a right
of first refusal for the operation and maintenance of each project on the
buyers' behalf if the buyers' present contracts concerning the operation and
maintenance of the project are terminated. The Company also entered into
equipment rental agreements that provide for removal of power generation
equipment if gas from the landfill decreases. The annual rent is $75,000 and
$110,000, respectively, for initial terms extending through December 31, 2002
but may be reduced if power generation equipment is removed from the site.
On November 12, 1993, the Company sold its Philadelphia Water Department
project for $5,000,000. The Company has the right to repurchase the project in
May 1994 in exchange for $5,000,000 plus a 17% minority interest in the project.
The Company has the right to extend the period of time within which it may
exercise this repurchase option through August 1994 upon the payment of certain
consideration. The Company continues to rent facilities and all related
generation and associated equipment to the project. The annual rent is
approximately $2,350,000. The Company will continue to operate and maintain the
project for an annual fee of approximately $250,000, subject to adjustment. If
the Company does not exercise its repurchase option, the purchaser has the right
to (i) purchase the facilities and all related equipment and (ii) terminate the
operation and maintenance contract upon payment of certain consideration. The
Philadelphia Water Department project commenced operation in May 1993. Pursuant
to a 20-year energy service agreement, the Philadelphia Municipal Authority (the
'Authority') has the right to be supplied with 20 megawatts of electricity at
any time on one hour's notice. In addition, the project owner is required to
purchase digester gas collected at the Authority's northeast and southwest
Philadelphia plants which generate up to an approximate 2 megawatts of
electricity, based upon available digester gas, which is sold to the Authority
pursuant to 10-year gas supply agreements and subleases.
SALE OF PROJECTS IN DEVELOPMENT
In December 1992, the Company sold its Rowley biogas project for $821,000,
of which $331,000 was being paid pursuant to a promissory note. The promissory
note was paid in full in October 1993, subject to a discount for early payment
offered by the Company. See Note 21 of the Consolidated Financial Statements.
43
<PAGE>
In September 1992, the Company sold a 50% interest in its SPSA biogas
project pursuant to a stock purchase agreement. The remaining 50% interest was
sold on June 30, 1993. The aggregate purchase price was $625,000, of which
$555,000 is being paid pursuant to a promissory note. See Note 21 of the
Consolidated Financial Statements.
In December 1992, the Company and a utility entered into an agreement
pursuant to which the electric contract previously entered into by the parties
was terminated in consideration of the payment by the utility of $4,000,000
payable over five years (commencing on June 29, 1993) and secured by a standby
letter of credit. See Note 21 of the Consolidated Financial Statements.
In August 1993, the Company sold its rights to develop coal-bed methane
reserves at a 15,000 acre site in Indiana County, Pennsylvania together with
other assets relating to the site for $6,500,000. See Note 8 of the Consolidated
Financial Statements.
EQUIPMENT SALES, RENTALS AND SERVICES SEGMENT
In addition to the energy business, the Company sells and rents power
generation and cogeneration equipment. A significant portion of the Company's
equipment rental business is attributable to the operations of its subsidiary,
O'Brien Energy Services. The Company provides related services, including the
design, assembly, repair and maintenance of permanent or standby power
generation equipment. In addition, the Company sells equipment manufactured by
others to turnkey contractors in connection with the construction of the
Company's projects. The Company also sells equipment purchased by it for
projects unrelated to those being developed by the Company. From time to time,
it purchases equipment for reconditioning and sale.
In its rental business the Company serves the construction, industrial,
military, transportation, mining, utility and entertainment markets.
On a national level the Company competes principally with one other
company. In addition there are numerous local competitors in each of the
geographic areas in which the Company operates. The Company competes on the
basis of experience, service, price and depth of its rental fleet.
Puma, a wholly-owned United Kingdom subsidiary, designs and assembles
diesel and gas fueled power generation systems ranging in size from 5 kilowatts
to 5 megawatts. These products are engineered and sold for use in prime power
base load applications as well as for standby or main failure emergency
situations. Major markets for these products include commercial buildings,
governmental institutions such as schools, hospitals and public facilities,
industrial manufacturing or production plants, shipyards, the entertainment
industry and offshore drilling operations. The Company exports many of its
products primarily through established distributors and dealers in local areas
for delivery to markets such as the Far East, including Hong Kong and mainland
China, together with the Middle East and South America.
The Company also designs and manufactures custom electrical control and
distribution subsystems. These include medium voltage cubicle switchboards, main
distribution systems, control instrumentation panels and packaged substations.
This equipment receives and distributes power through a building, ship or other
self-contained structure.
The Company, through its American Hydrotherm subsidiary, is also in the
business of custom designing, engineering, constructing, installing and
servicing high temperature liquid heat transfer systems for industrial
processing applications. Each system is designed by American Hydrotherm to meet
precise temperature and other specifications for processing equipment. These
systems are used in various industries such as steel, plastics, wood, rubber,
paper, chemical, petrochemical and electronics.
REGULATION
In connection with the development and operation of its projects, the
Company is substantially affected by federal, state and local energy and
environmental laws and regulations.
The enactment in 1978 of PURPA and the adoption of regulations thereunder
by Federal Energy Regulatory Commission ('FERC') provided incentives for the
development of small power production facilities (those utilizing renewable
fuels and having a capacity of less than 80 megawatts) and cogeneration
facilities
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(collectively referred to as 'Qualifying Facilities'). Electric utilities are
required to purchase power from such facilities at rates based on the
incremental cost of electrical energy (so-called 'avoided cost'). Under
regulations adopted by FERC and upheld by the United States Supreme Court, such
rates are based upon 'the incremental cost to an electric utility of electrical
energy or capacity or both which, but for the purchase from the qualifying
facility or qualifying facilities, such utility would generate itself or
purchase from another source.' Avoided cost is generally a function of the cost
of fuel required to generate electricity and of the cost of capital required to
construct a power plant to supply such capacity.
All of the Company's existing electric generating facilities are designed
to be qualifying small power production facilities or qualifying cogeneration
facilities, as these terms are defined in PURPA. Pursuant to authority granted
to FERC under PURPA, FERC has promulgated regulations which at present exempt
most of these facilities from the Federal Power Act, the Public Utility Holding
Company Act of 1935 and, except under certain circumstances, state laws
respecting the rates charged by electric utilities.
In order to qualify for the benefits provided by PURPA, the Company's
facilities must meet certain size, efficiency, fuel and ownership requirements.
For its major cogeneration projects, it is the Company's practice to obtain an
order from FERC confirming the qualification of its facilities. For its biogas
projects, the Company's practice is to utilize the self-certification procedure
authorized by PURPA and FERC regulation. However, the standards for
qualification and the regulations described above are subject to amendment. If
the regulations were to be amended, the Company cannot predict the effect of any
such amendment on the extent of regulation to which the Company may thereby
become subject. The Company is not currently aware of any proposed amendments to
PURPA or regulations promulgated by FERC thereunder to materially alter the
standards for qualification.
The Company is also subject to the Powerplant and Industrial Fuel Use Act
of 1978 ('FUA'), which limits the ability of power producers to burn natural gas
in new generation facilities unless such facilities also have the capability to
use coal or any other alternate fuel as a primary energy source. All of the
Company's existing cogeneration projects are designed to qualify for permanent
exemption from the FUA.
In addition to the regulations described above, the Company's projects must
comply with applicable federal, state and local environmental regulations,
including those related to water and air quality. These laws and regulations in
many cases require a lengthy and complex process of obtaining licenses, permits
and approvals from federal, state and local agencies. The environmental
regulations under which the Company's projects operate are subject to amendment.
The Company cannot predict what effect compliance with such amendments may have
on the Company's business or operations. Compliance could require modification
of a project and thereby increase its costs, extend its completion date or
otherwise adversely affect a project.
All projects in operation and under development are believed to be
operating in substantial compliance with or designed to meet currently
applicable environmental requirements. To date, compliance with these
environmental regulations has not had a material effect on the Company's
earnings nor has it required the Company to expend significant capital
expenditures.
EMPLOYEES
As of May 10, 1994, the Company had approximately 120 full-time employees,
including executive officers of the Company. Of these, approximately 66 are
involved with the Company's overseas equipment sales, rental and service
operations. The Company has reduced and is continuing to reduce its staff of
employees for the purpose of reducing overhead expenses. None of the Company's
employees are members of a union or are subject to a collective bargaining
agreement. The Company considers its employee relations to be satisfactory.
The Company expects that as each of its projects is constructed and becomes
operational, it will either have to hire additional employees to staff these
projects or enter into operation and maintenance agreements with unrelated third
parties. The Company believes that these project personnel will be readily
available.
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COMPETITION
The ownership and operation of cogeneration and biogas projects is a
rapidly growing business. Many organizations, including equipment manufacturers
and subsidiaries of utilities and contractors, as well as other organizations
similar to the Company, have entered the market. Many of these organizations
have substantially greater resources than the Company. In addition, obtaining
power contracts with utilities has become more competitive with the increased
use of competitive bidding procedures. This increased competition may make it
more difficult for the Company to secure future projects, may increase project
development costs and may reduce the Company's operating margins. Even though
many of its potential competitors have substantially greater resources than the
Company, the Company believes that its experience, particularly if combined with
a strategic alliance with a third party with regard to larger projects, will
enable it to compete effectively.
SIGNIFICANT CUSTOMERS
The Company derived 65%, 67% and 31% of its revenues in fiscal 1993, 1992
and 1991, respectively, from JCP&L as a result of the operation of the Newark,
Parlin and Hamms projects. (The Hamms project was sold on June 30, 1992.)
PATENTS
The Company owns patents and trademarks relating to its waste heat storage
technology which are expected to contribute to the business activities of the
Company.
BACKLOG
The order backlog of Puma as of December 31, 1993 was approximately
$1,800,000, compared with approximately $3,800,000 as of December 31, 1992. The
order backlog for American Hydrotherm at March 31, 1994 and 1993 was $1,200,000
and $1,100,000, respectively. Management expects that the backlog amounts will
be delivered during each of Puma's and American Hydrotherm's current fiscal
years, as applicable. There is no significant seasonal influence to the order
backlog. See 'Business--Energy Segment--Projects in Development.'
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FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES.
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States........................................................... $ 83,797 $ 84,560 $ 31,358
United Kingdom.......................................................... 13,895 15,555 20,022
-------- -------- --------
$ 97,692 $100,115 $ 51,380
-------- -------- --------
-------- -------- --------
Net Income (Loss):
United States........................................................... $(13,350) $ 1,535 $ (8,570)
United Kingdom.......................................................... (361) (123) (15)
-------- -------- --------
$(13,711) $ 1,412 $ (8,585)
-------- -------- --------
-------- -------- --------
Identifiable Assets:
United States........................................................... $252,863 $249,544 $238,723
United Kingdom.......................................................... 9,666 9,510 10,484
-------- -------- --------
$262,529 $259,054 $249,207
-------- -------- --------
-------- -------- --------
</TABLE>
The revenues and operations of the Company's foreign operations in the
United Kingdom disclosed above are attributable solely to the equipment sales,
rental and services segment of the Company's business. The revenues from such
operations accounted for in excess of 50% of that particular segment's revenue
in 1993.
The Company's foreign operations are subject to the additional risks
inherent in doing business in foreign countries, including changes in currency
exchange rates, currency restrictions, political changes and expropriation.
Although it is impossible to predict the likelihood of such occurrences or their
effect on the Company, management believes these risks to be acceptable and, in
view of the fact that the Company's foreign sales activities historically have
been largely concentrated in Europe and not in any single country and the fact
that the Company attempts to secure payment for export sales with commercial
letters of credit or other secured means, does not consider them a factor
materially adverse to its operations as a whole.
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PROPERTIES
The Company's offices located at 225 and 231 South Eighth Street,
Philadelphia, which cover approximately 16,000 square feet, are leased from
Pennsport Partnership, a Pennsylvania partnership in which Frank L. O'Brien III
has a 50% ownership interest. The lease term expires in November 1999 with an
option to renew for a five-year term at the option of the Company. The rental
expense for the premises was approximately $293,000 (plus real estate taxes) in
1993. The Company also leases office space from Christiana River Holdings, Ltd.,
an entity owned by Frank L. O'Brien III. Rental expense for 1993 was $75,000,
plus real estate taxes (based on an annual rental expense of $150,000).
In September 1993, Puma purchased its executive offices and its principal
manufacturing facility located in Ash, Canterbury, Kent, United Kingdom from III
Enterprises, Limited, an entity controlled by Frank L. O'Brien III for
approximately $800,000.
The executive and engineering offices of American Hydrotherm are located in
New York City. American Hydrotherm leases this 8,000 square foot facility under
the terms of a ten-year lease executed in 1990. Burr Controls, Inc., a
wholly-owned subsidiary of American Hydrotherm, leases approximately 10,000
square feet for its assembly and manufacturing operations on Long Island, New
York.
The headquarters of O'Brien Energy Services are located on approximately 4
acres in Wilmington, Delaware. The premises are owned, subject to a mortgage, in
fee simple and include an approximately 55,000 square foot building. The Company
also leases an approximately 46,000 square foot warehouse and operations
facility in Wilmington, Delaware. In addition, O'Brien Energy Services owns,
subject to a mortgage, office and warehouse space in Houston, Texas, on
approximately two acres of land. O'Brien Energy Services leases space for
similar purposes in each of El Cajon, Bakersfield and Benecia, California. The
office and warehouse space in Texas and in the California locations range from
approximately 5,000 to 10,000 square feet.
The Company leases, typically for a nominal fee, property on the site of
its proposed cogeneration facilities from the proposed commercial user of
thermal energy. The term of the lease equals or exceeds that of each respective
thermal supply agreement. The Company believes that the leased premises are
suitable and adequate for the Company's projects.
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LEGAL PROCEEDINGS
Although the Company cannot give definitive assurance regarding the
ultimate resolution of the various remaining claims described below, the Company
does not presently believe the resolution will have a material adverse impact on
the Company's financial statements. However, attorney costs of defending against
these litigations has impacted the Company's financial statements for 1993 [and
the (nine) months ended March 31, 1994] and is expected to impact the Company's
financial statements for 1994 and the remaining interim period(s) within such
year.
HAWKER SIDDELEY PROCEEDINGS
In May 1994, actions entitled Hawker Siddeley Power Engineering Inc. v.
O'Brien (Parlin) Cogeneration, Inc. and Hawker Siddeley Power Engineering Inc.
v. O'Brien California Cogen Limited, a California Limited Partnership, O'Brien
Cogeneration, Inc. II, and O'Brien Energy System Inc. were settled pursuant to
an agreement entered into by the parties (the 'Hawker Settlement Agreement').
Pursuant to the Hawker Settlement Agreement, other than the Company issuing a
promissory note for $1,500,000 to Hawker Siddeley, no money was exchanged,
O'Brien (Parlin) Cogeneration, Inc. was not required to pay the approximately
$5,100,000 contract price withheld and all parties dismissed their claims.
In May 1993, actions entitled (i) O'Brien (Newark) Cogeneration, Inc. v.
Hawker Siddeley Power Engineering Inc. and Hawker Siddeley Group, P.L.C. and
(ii) Hawker Siddeley Power Engineering Inc. v. O'Brien (Newark) Cogeneration,
Inc. and O'Brien Newark Supply Corporation were settled pursuant to an agreement
entered into by the parties (the 'Newark Settlement Agreement'). Pursuant to the
Newark Settlement Agreement, no money was exchanged, O'Brien (Newark)
Cogeneration, Inc. was not required to pay the $3.8 million contract price
withheld until completion of the project and all parties dismissed their claims.
As of September 1993, actions entitled (i) Hawker Siddeley Power
Engineering Inc. v. O'Brien Cogeneration (Hartford), Inc., (ii) O'Brien
Cogeneration (Hartford), Inc. and O'Brien (Hartford) Cogeneration Limited
Partnership v. Hawker Siddeley Power Engineering Inc. and Hawker Siddeley Group,
P.L.C. and (iii) Hawker Siddeley Power Engineering, Inc. v. Energy Networks,
Inc., O'Brien (Hartford) Cogeneration Limited Partnership and Connecticut
National Bank were settled pursuant to an agreement entered into by the parties
(the 'Hartford Settlement Agreement'). Pursuant to the Hartford Settlement
Agreement, the Company relinquished its interest in the project and its general
partner responsibilities, paid Hawker Siddeley $250,000 and issued a promissory
note for $250,000 to the succeeding general partner, which resulted in a total
charge of $1,121,000 for fiscal 1993. See Note 22 of the Consolidated Financial
Statements.
OTHER PROCEEDINGS
In September 1993, an action entitled Gulfgen Limited and TransAndean
International, S.A. v. O'Brien Environmental Energy, Inc. was commenced in the
United States District Court, District of Delaware. The complaint alleges the
Company repudiated its obligation to close a proposed transaction which, among
other things, involved a proposed transfer by Gulfgen Limited ('Gulfgen') and
TransAndean International, S.A. ('TransAndean') of an interest in a pipeline
project to the Company (and an agreement to contract for project development
services from the Company in connection therewith) in exchange for certain stock
of the Company and an option to purchase additional stock of the Company. No
closing documents were negotiated or executed. Gulfgen and TransAndean, however,
claim that an officer of the Company with authority to bind the Company sent the
agreement with a transmittal letter dated July 30, 1993 containing a statement
that constituted agreement by the Company. The complaint also alleges that the
Company is now obligated to pay a break-up fee of $200,000 and that the Company
has repudiated its alleged contractual obligation to pay such $200,000 break-up
fee. Gulfgen and TransAndean are asking for damages of $200,000, together with
prejudgment interest, costs and other relief. The Company has filed an answer to
the complaint and a counterclaim. The Company believes that this claim is
without merit and has vigorously denied that it has any obligation to pay the
$200,000 break-up fee.
In December 1993, an action entitled Pueblo Chemical, Inc. v. O'Brien
Environmental Energy, Inc. was commenced in the Court of Chancery of the State
of Delaware--New Castle County. The Complaint alleges that Pueblo (allegedly,
the owner of record of 100 shares of the Class A Common Stock of the Company)
has the
49
<PAGE>
right to inspect the Company's stock ledger, list of stockholders and certain
books and records. In its answer, the Company has denied that Pueblo has the
right to certain of the information which it has requested.
In January 1994, an action entitled Pueblo Chemical, Inc. v. O'Brien
Environmental Energy, Inc., Frank L. O'Brien, III, Joel D. Cooperman, William
Forman and Charles L. Andes was commenced in the Court of Chancery of the State
of Delaware--New Castle County. The Complaint alleges, among other things, fraud
and breach of fiduciary duties in connection with a certain agreement allegedly
entered into by Pueblo and an affiliate of Frank L. O'Brien III. The Company
believes that these allegations are without merit and intends to vigorously
contest them. In a decision rendered in U.S. Bankruptcy Court on February 4,
1994, in a companion case involving the aforementioned affiliate of Frank L.
O'Brien III, the Judge has determined that these claims are without merit and no
contract existed between the parties. Pueblo has appealed the decision to the
United States District Court.
By letter dated September 20, 1993, the Securities and Exchange Commission
(the 'SEC') commenced an informal inquiry into trading in the securities of the
Company. The SEC requested information from the Company for the period of March
1, 1993 to September 20, 1993. The SEC has indicated that this inquiry should
not be construed as an indication by the SEC or its staff that any violations
have occurred, or as an adverse reflection upon any person, entity or security.
The Company sent an initial written response to the SEC on October 21, 1993, and
a subsequent response on November 12, 1993. Since such time, the SEC has not
contacted the Company for any additional information with respect to the
inquiry.
In June 1993, the Company received a Citation and Notification of Penalty
(the 'Citations') under the Occupational Safety and Health Act of 1970 from the
United States Department of Labor for each of its Newark and Parlin Cogeneration
plants. The penalties listed for the Newark and Parlin plants are $44,650 and
$10,000, respectively. The Company is in the process of contesting the
Citations. With regard to the Newark and Parlin Cogeneration plants, a hearing
date has been set for June 1994.
In September 1993, October 1993 and November 1993, respectively, actions
entitled (i) BRIDGET E. McLOUGHLIN, Individually and as Administrator of the
estate of MICHAEL A. McLOUGHLIN, deceased, et al., v. O'BRIEN COGENERATION INC.,
HAWKER SIDDELEY CONSTRUCTION CO., et al.; (ii) GEORGIE ANN ELEY, Individually
and as Administratrix on behalf of the Estate of JOSEPH ELEY, JR., deceased, et
al. v. O'BRIEN COGENERATION INC., HAWKER SIDDELEY, JOHN BROWN INC. (for
discovery purposes only), et al.; and (iii) KELLY ANN MOTICHKA, Individually and
as Administrator on behalf of the Estate of Andrew Motichka, deceased, et al. v.
O'BRIEN COGENERATION INC., HAWKER SIDDELEY, JOHN BROWN INC., (for discovery
purposes only) et al. were commenced in the Superior Court of New Jersey Law
Division--Essex County. These actions were filed by the survivors of three
employees of John Brown Power Limited, the operator of the Company's Newark
cogeneration facility, who were killed as the result of a fire which occurred at
the facility in December 1992. The actions seek the recovery of damages in an
unspecified amount. Insurance counsel estimates that each of the pending claims
has a value in excess of $1 million. The Company believes that these claims will
not have a material adverse financial effect on the Company because (i) the
Company has sufficient liability insurance coverage and (ii) the operator of the
facility has agreed to indemnify the Company for any liability arising out of
the operator's operation and maintenance of the facility. The Company's insurer
has recently disputed the maximum amounts of coverage under the Company's
policies. If a satisfactory resolution of this dispute cannot be amicably
reached, the Company may be required to file an action in court to obtain an
adjudication of its rights under its insurance policies.
In January 1993, an action entitled Resolution Trust Corporation as
receiver for Atlantic Financial Savings, F.A. v. Clarence J. O'Brien, II, Frank
L. O'Brien III, O'Brien Energy Systems, Inc., O'Brien Mobile Power Rental
Company, III Enterprises, Inc., III Enterprises, Inc.-I, Puma Manufacturing,
Ltd., Puma Power Plant, Ltd., O'Brien Power Equipment, Inc. and Powerhouse
Contractors, Inc. was commenced in the District Court for the Eastern District
of Pennsylvania. The Complaint alleges that certain transactions between the
Company and a separate group of individuals and companies jeopardized and harmed
the ability of the second group of companies to repay loans to their creditor,
Atlantic Financial Savings, F.A., an entity which had fallen into Resolution
Trust Corporation receivership. The plaintiffs sought damages in excess of
$75,000. In May 1993, the case was dismissed without prejudice and the parties
entered into a tolling agreement. This agreement was extended, most recently,
until June 30, 1994.
See Note 29 of the Company's Consolidated Financial Statements.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company develops cogeneration, waste heat recovery and biogas projects
('Energy business'). In addition, the Company sells and rents power generation
equipment ('Equipment sales, rental and services business'). Included in the
Equipment sales, rentals and services business is the Company's demand-side
management business, through which the Company provides standby power equipment
to a customer for a fee.
At present, the Company has eight projects in operation totalling
approximately 217 megawatts of electric generating capacity, including seven
wholly-owned projects developed by the Company totalling approximately 185
megawatts and one 32 megawatt project developed by the Company but presently
owned substantially by a subsidiary of Chrysler Capital Corporation.
The Company's energy revenues and gross profits are subject to seasonal
variations as a result of power sales agreements which contain peak and off-peak
energy pricing provisions and fuel costs which fluctuate based upon seasonal
demand and other factors.
In December 1992, a fire disabled the Company's Newark Boxboard
cogeneration plant. The plant returned to partial operation in August 1993 and
full operation in October 1993. In February 1994, the Company reached an
agreement with its insurance carrier concerning the property damage and business
interruption insurance claims submitted. See ' Results of Operations for the
Years ended June 30, 1993, 1992 and 1991', '--Results of Operations for the Six
Months ended December 31, 1993 and 1992' and '--Liquidity and Capital Resources'
for further discussion and analysis of the impact of the fire.
During May 1993, operations commenced at the Company's initial standby/peak
shaving project (the 'Philadelphia Water Department project'). The Philadelphia
Water Department project consists of two ten megawatt standby power generating
plants. In November 1993, the Company entered into a transaction under which it
sold its interest in the Philadelphia Water Department project to entities
controlled by an unrelated private investor. See 'Business--Recent
Developments', '--Results of Operations for the Years ended June 30, 1993, 1992
and 1991', '--Results of Operations for the Six Months ended December 31, 1993
and 1992', '--Liquidity and Capital Resources' and Note 5 to the Consolidated
Financial Statements.
In September 1993, the Company reached an agreement to settle the Hartford
Steam project litigation with the project's turnkey contractor, Hawker Siddeley
Power Engineering, Inc. Under the terms of the settlement, the Company
relinquished its interest in the project and its general partner
responsibilities. As the Company's interest in the project was only 5%,
management does not believe the settlement will have a significant impact on the
Company's future results of operations. See '--Results of Operations for the
Years ended June 30, 1993, 1992 and 1991'.
During the year ended June 30, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes' through
restatement of prior years. See '--Results of Operations for the Years ended
June 30, 1993, 1992 and 1991' and '--Results of Operations for the Six Months
ended December 31, 1993 and 1992'.
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1993, 1992 AND 1991
REVENUES
Energy revenues for the years ended June 30, 1993, 1992 and 1991 were
$65,136,000, $71,638,000 and $19,881,000, respectively. Energy revenues
primarily reflect billings associated with the Company's Newark Boxboard and du
Pont Parlin cogeneration projects and the Company's biogas facilities. The
decrease in energy revenues from 1992 to 1993 was primarily attributable to
reduced revenues as a result of the fire at the Company's Newark Boxboard
project. Pursuant to the terms of the project's business interruption insurance
coverage, insurance proceeds are net of costs not incurred as a result of the
interruption. As a result, the Newark Boxboard project recognized approximately
$6,000,000 of energy revenues based upon insurance coverage during the period
December 25, 1992 to June 30, 1993. During the period December 25, 1991 to June
30, 1992, the Newark Boxboard project recognized approximately $15,000,000 of
energy revenues.
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The reduced revenues at the Newark Boxboard project were partially offset
by enhanced operations at the du Pont Parlin project ($2,184,000 of incremental
revenues). During this project's initial months of operation in fiscal 1992, the
steam turbine generators were shut down for repairs. No unexpected shutdowns
occurred in fiscal 1993. However, in late September 1993, a gas turbine
generator at this project was shut down for repairs until the middle of December
1993. This shutdown negatively impacted the three month period ended December
31, 1993.
In addition to improved steam turbine generator performance, the du Pont
Parlin project also benefited from an amendment to the project's power purchase
agreement (effective November 1991) allowing for capacity payments during the
summer and winter months.
The increase in energy revenues from 1991 to 1992 was primarily
attributable to a full year of operations of the Newark Boxboard cogeneration
project ($12,079,000 of incremental revenues) and the du Pont Parlin
cogeneration project ($40,472,000 of incremental revenues).
As a result of the Newark Boxboard project not resuming full operation
until October 1993, the Company's energy revenues for the fiscal year ending
June 30, 1994 and interim periods within such year will again be impacted by the
project's business interruption insurance coverage. In full and final settlement
of the Company's damage claim, the Company received the sum of $36,000,000 which
covered a substantial majority of the Company's costs of repair and loss of net
profits due to business interruption. In addition, the Company has the right to
receive up to an additional $1,400,000 upon the recovery by the insurance
carrier of its claims against third parties. Insurance proceeds are subject to a
deductible and other non-reimbursable costs. These charges aggregated
approximately $481,000 for the year ended June 30, 1993.
In addition to the Newark Boxboard project's insurance claim, the Company
also anticipates filing a business interruption insurance claim for the shutdown
necessitated by repairs to the du Pont Parlin project's gas turbine generator
during the period of September to December 1993.
Energy revenues from the Company's biogas projects for the years ended June
30, 1993, 1992 and 1991 were $1,679,000, $2,825,000 and $3,850,000,
respectively. Revenue decreases resulted primarily from the cessation of energy
sales at the Quincy Project in 1991 and the Orange County, Amity and Hamms
biogas projects in 1992 due to either sales of projects or termination of
contracts.
Energy revenues for the years ended June 30, 1992 and 1991 also include
$366,000 and $135,000, respectively, from the Republic boiler project. In June
1992, pursuant to contract provisions, Republic Steel ended their participation
in this project.
Equipment sales and services for the years ended June 30, 1993, 1992 and
1991 were $18,955,000, $21,854,000 and $25,321,000, respectively. Equipment
sales and services principally reflect the operations of Puma and American
Hydrotherm. Equipment sales of Puma in the years ended June 30, 1993, 1992 and
1991 were $12,971,000, $15,119,000 and $19,936,000, respectively. Revenues in
1993 decreased primarily as a result of the substantial utilization of Puma's
production facilities for internal projects such as the design and assembly of
the standby power systems used in the Philadelphia Water Department project.
Dollar-denominated revenues also declined as a result of a strengthening of the
dollar versus the pound sterling. Revenue in 1992 decreased primarily as a
result of the recession in Puma's European market.
Domestic equipment sales and services for the years ended June 30, 1993,
1992 and 1991 were $5,984,000, $6,443,000 and $5,367,000, respectively. Included
in such amounts are sales by American Hydrotherm of $2,912,000, $5,742,000 and
$5,204,000 for the years ended June 30, 1993, 1992 and 1991, respectively. As
discussed below, American Hydrotherm's equipment sales and services in 1993 did
not include $480,000 of revenues recognized for equipment sales to the Hartford
Steam project. The decrease in revenues at American Hydrotherm in 1993 was
primarily due to recessionary pressures and a change in product mix towards
smaller projects.
Domestic equipment sales and services for the years ended June 30, 1993,
1992 and 1991 also included $3,067,000, $144,000 and $123,000, respectively, of
sales and services by the Company's rental equipment subsidiary. The increase in
1993 was primarily the result of the Company expanding its domestic business in
the design and assembly of generator sets and switchgear.
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<PAGE>
The balance of equipment sales and services for the years ended June 30,
1993, 1992 and 1991 consisted of nonproject-related equipment activities and
operation and maintenance activities with third parties.
As a result of continued recessionary pressures at Puma and a continued
lack of large project activities at American Hydrotherm, management does not
envision an increase in equipment sales and services for the fiscal year ending
June 30, 1994.
Rental revenues were $3,636,000, $3,191,000 and $3,663,000 for the years
ended June 30, 1993, 1992 and 1991, respectively. The increase in rental
revenues in 1993 was attributable to the completion in May 1993, of the
Philadelphia Water Department project. The decrease in rental revenues in 1992
was primarily caused by a recession in the construction industry. Management
expects rental revenues to increase during the year ending June 30, 1994 as a
result of revenues recognized in connection with the Philadelphia Water
Department project.
Revenues from related parties for the years ended June 30, 1993, 1992 and
1991 were $515,000, $378,000 and $899,000, respectively. These revenues
consisted principally of equipment sales and services. Management does not
anticipate significant revenues from related parties in the future.
Development fee and other revenues were $9,450,000, $3,054,000 and
$1,616,000 for the years ended June 30, 1993, 1992 and 1991, respectively. The
increases for 1993 and 1992 were primarily the result of the sale of certain
contractual rights associated with various projects either under development
($4,866,000 in 1993) or in operation ($2,048,000 in 1992). Development fees and
other also increased in 1993 as a result of the Company supplying $3,989,000 of
fuel under a fuel management contract to the California Milk Producers project
at a negligible profit. In addition, the Company recognized $480,000, $779,000
and $1,326,000 of revenues for equipment supply agreements associated with the
Hartford Steam project for the years ended June 30, 1993, 1992 and 1991,
respectively. The balance of development fees and other consists of revenues
recognized in connection with management fee agreements associated with the
California Milk Producers and Hartford Steam projects.
COSTS AND EXPENSES
Cost of sales for the years ended June 30, 1993, 1992 and 1991, include
direct costs associated with the operation of projects of $44,889,000,
$46,101,000 and $13,145,000, respectively, as well as costs associated with
equipment sales and services for the years ended June 30, 1993, 1992 and 1991 of
$16,431,000, $17,746,000 and $21,134,000, respectively. Cost of energy revenues
increased as a percentage of energy revenues in 1993 versus 1992 primarily as a
result of higher gas prices at the Newark Boxboard and du Pont Parlin projects.
Approximately seventy percent of the operating costs of the Newark Boxboard and
du Pont Parlin projects consists of natural gas fuel costs. Due to market
conditions, these costs increased and became more volatile in fiscal 1993.
Management believes the Company's long-term exposure to fuel prices is generally
reduced through the price provisions of its power purchase agreements, which are
typically linked to the utility's cost of generating electricity or broader
economic indices. In addition, fuel risk can be significantly reduced by
entering into a long-term gas supply arrangement or hedge. In the short-term,
the unfavorable effects of higher gas prices can be mitigated through enhanced
operation performance and the volatility of gas prices can be mitigated through
hedging strategies. During the year ended June 30, 1993, unit gas prices
pursuant to the Newark Boxboard and du Pont Parlin projects' gas supply
agreements were approximately twenty-five percent higher than gas prices during
the year ended June 30, 1992. The Company partially mitigated the effects of
higher gas prices for this time period through the use of a gas swap agreement
and futures transactions. Under the terms of the gas swap agreement, the Company
agreed to levelize its gas costs for the three months ended December 31, 1992
and the three months ended September 30, 1993. As a result of the gas swap,
natural gas costs were approximately $1,000,000 lower during the year ended June
30, 1993 than they would have been otherwise. Conversely, natural gas costs for
the three months ended September 30, 1993 were approximately $1,000,000 higher
than they would have been otherwise. In addition, the Company also hedged
against gas price increases on a portion of its gas requirements for the
remainder of the fiscal year ending June 30, 1993 through the use of gas
futures. Gains of $510,000 on gas futures for the year ended June 30, 1993 were
offset against the underlying gas purchases. The Company intends to continue to
utilize the above risk management strategies, or similar strategies, to minimize
fuel price risk in the future. However, there is no assurance that the foregoing
will prevent a reduction in gross profit percentage for the year ending June 30,
1994 or for the interim periods within such year.
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<PAGE>
Cost of energy revenues decreased as a percentage of energy revenues in
1992 primarily as a result of a full year of operations at the Newark Boxboard
and du Pont Parlin projects. These projects have a higher gross profit
percentage than the Company's biogas projects.
Cost of equipment sales and services increased as a percentage of equipment
sales and services primarily as a result of the previously discussed change in
American Hydrotherm's product mix as well as the utilization of Puma's
facilities for internal projects such as the Philadelphia Water Department
project.
Cost of rental revenues for the years ended June 30, 1993, 1992 and 1991
was $2,458,000, $1,421,000 and $1,509,000, respectively. Cost of rental revenues
increased as a percentage of revenue in 1993 primarily as a result of
depreciation charges on equipment idled while being modified for use in the
Philadelphia Water Department project, as well as depreciation charges
associated with equipment recently placed in service. Cost of rental revenues
increased as a percentage of revenue in 1992 as a result of slightly lower fixed
costs being allocated to a lower revenue base.
Cost of revenues from related parties for the years ended June 30, 1993,
1992 and 1991 was $452,000, $320,000 and $692,000, respectively. These costs
consist principally of costs associated with equipment sales and services.
Cost of development and other fee revenue was $7,520,000, $1,408,000 and
$903,000, in the years ended June 30, 1993, 1992 and 1991, respectively. These
costs consist principally of costs associated with a gas supply agreement with
the California Milk Producers project, costs associated with the sale of various
projects either under development or in operation, costs associated with
equipment supply agreements for the Hartford Steam project and costs of
management agreements for the Hartford Steam and California Milk Producers
projects.
Selling, general and administrative expenses for the years ended June 30,
1993, 1992 and 1991 were $20,751,000, $13,133,000 and $13,311,000, respectively.
Selling, general and administrative expenses increased substantially in Fiscal
1993 primarily as a result of increased litigation activity and other legal
services (See 'Legal Proceedings'), the expensing of certain project development
costs (See Note 9 to the Company's Consolidated Financial Statements), the
charge associated with the Company's relinquishing general partner
responsibilities at the Hartford Steam Project (see 'Legal Proceedings' and Note
22 to the Company's Consolidated Financial Statements) and the establishment of
a reserve for certain uncollected receivables and slow-moving inventory.
Although some of the reasons for the increase in selling, general and
administrative expenses are not expected to recur in Fiscal 1994, management
expects that ongoing legal costs will continue to result in high levels of
selling, general and administrative expenses in the near future. These legal
charges are expected to be partially offset by the Company's ongoing overhead
reduction activities.
OTHER INCOME
Other income for the years ended June 30, 1993, 1992 and 1991 was $993,000,
$1,204,000 and $1,377,000, respectively. Fluctuations in other income were
primarily attributable to interest income on escrow accounts established in
connection with the Newark Boxboard and du Pont Parlin projects, as well as
exchange rate fluctuations on certain intercompany receivables denominated in
sterling.
INTEREST AND DEBT EXPENSE
Interest and debt expense for the years ended June 30, 1993, 1992 and 1991
was $15,696,000, $17,340,000 and $8,434,000, respectively. The decrease in
interest and debt expense in 1993 was primarily the result of interest rate
decreases on the Company's floating rate debt as well as debt amortization on
the Newark Boxboard and du Pont Parlin projects. Such decrease was partially
offset by additional borrowings incurred principally in connection with the
Philadelphia Water Department project. Primarily as a result of a full year's
impact of these additional borrowings, as well as the potential refinancing of
the Newark Boxboard project, management expects interest and debt expense to
increase during the June 30, 1994 fiscal year. The increase in interest and debt
expense for 1992 was principally due to the commencement of operations of the
Newark Boxboard and du Pont Parlin projects in November 1990 and June 1991,
respectively, as well as the interest expense associated with the Company's 11%
Convertible Senior Subordinated Debentures due 2010 and 2011. For the years
ended June 30, 1993, 1992 and 1991, interest and debt expense includes
$9,145,000, $11,284,000 and $2,704,000, respectively,
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<PAGE>
associated with the nonrecourse financing on the Newark Boxboard and du Pont
Parlin projects. See '--Liquidity and Capital Resources.'
LITIGATION SETTLEMENT COSTS
During the year ended June 30, 1991, the Company entered into a settlement
agreement with respect to litigation involving the Company and certain of its
officers. The expense of $538,000 is net of insurance reimbursement of $337,000.
See Note 22 to the Company's Consolidated Financial Statements.
INCOME TAXES
During the fourth quarter of 1993, the Company adopted SFAS 109 and elected
to apply the provisions of SFAS 109 retroactively to July 1, 1989. See Note 3 to
the Company's Consolidated Financial Statements.
Income tax expense for the years ended June 30, 1993, 1992 and 1991
resulted primarily from not recognizing the future benefit of net operating
losses ('NOLs'). As the Company continues to generate tax losses due mainly to
excess tax over book depreciation, future utilization of these NOLs is not
anticipated and therefore, these NOLs are not currently being recognized.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992
REVENUES
Energy revenues for the six months ended December 31, 1993 and 1992 were
$29,778,000 and $37,979,000, respectively. Energy revenues primarily reflect
billings associated with the Company's Newark Boxboard, du Pont Parlin and
biogas projects. The decrease in energy revenues from 1992 to 1993 was
attributable to reduced revenues as a result of the fire at the Company's Newark
Boxboard project and to reduced revenues at the Company's du Pont Parlin project
(as discussed below). Revenues recognized at the Newark Boxboard project in 1993
were $9,518,000 and consisted of business interruption insurance proceeds and
revenues from partial operations in August and September and full operations for
the period of October through December 1993. In comparison, the Newark Boxboard
project had revenues of $13,622,000 during the same period in 1992.
In full and final settlement of the Company's damage claim, the Company
received the sum of $36 million which covered a substantial majority of the
Company's costs of repair and loss of net profits due to business interruption.
In addition, the Company has the right to receive up to an additional $1,400,000
upon the recovery by the insurance carrier of its claims against third parties.
Revenues at the du Pont Parlin project were $19,196,000 and $23,435,000 for
the six months ended December 31, 1993 and 1992, respectively. The decrease in
revenues from 1992 to 1993 was primarily attributable to a gas turbine generator
being shut down for repairs from late September 1993 until the middle of
December 1993. In addition, $367,000 of business interruption proceeds relating
to an earlier period were recognized in the six month period ended December 31,
1992.
Energy revenues from the Company's biogas projects for the six months ended
December 31, 1993 and 1992 were $1,064,000 and $922,000, respectively. The
increase from 1992 to 1993 was primarily due to enhanced operating performance
at existing biogas projects as well as energy revenues from the Philadelphia
Water Department project through November 12, 1993, the date the project was
sold.
Equipment sales and services for the six months ended December 31, 1993 and
1992 were $11,805,000 and $9,242,000, respectively. Equipment sales from its
United Kingdom operations for the six months ended December 31, 1993 and 1992
were $7,270,000 and $7,426,000, respectively. The decrease in sales from 1992 to
1993 was primarily due to backlog fluctuations and the timing of order
completions. Domestic equipment sales and services for the six months ended
December 31, 1993 and 1992 were $4,535,000 and $1,816,000, respectively. The
increase in domestic equipment sales and services in 1993 was primarily due to
the Company's expanding its business in the design and assembly of generator
sets and switchgear.
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<PAGE>
Rental revenues were $3,189,000 and $2,020,000 for the six months ended
December 31, 1993 and 1992, respectively. The increase in rental revenues in
1993 as compared to 1992 was attributable to the startup in May 1993 of the
Philadelphia Water Department project.
Development fees and other revenues were $7,369,000 and $7,228,000 for the
six months ended December 31, 1993 and 1992, respectively. Development fees and
other revenues for 1993 include $5,171,000 of revenues recognized in connection
with the sale of the Company's contractual rights to develop certain coalbed
methane reserves. The selling price consisted of $2,000,000 of cash and a
production note receivable of $4,500,000. The Company has applied a discount
factor to the production note in order to reflect a lower anticipated net
realizable value in consideration of the Company's plan to monetize certain
assets and accelerate cash flow. Development fees for 1993 also include
$2,143,000 of revenue recognized in connection with an ongoing fuel management
agreement between the Company and the California Milk Producers project as
compared to $2,123,000 for the six months ended December 31, 1992. In 1992,
development fees included $4,601,000 of revenues recognized in connection with
the sale of various projects under development. Development fees and other for
1992 also include $456,000 of revenues recognized in connection with equipment
supply agreements associated with the Hartford Steam project. The balance of
development fees and other for 1993 and 1992 consists of revenues recognized in
connection with management fees agreements associated with the California Milk
Producers and Hartford Steam projects.
COSTS AND EXPENSES
Cost of sales for the six months ended December 31, 1993 and 1992 include
direct costs associated with the operation of projects of $22,923,000 and
$25,225,000, respectively, as well as costs associated with equipment sales and
services for the six months ended December 31, 1993 and 1992 of $10,223,000 and
$7,918,000, respectively. Cost of energy revenues increased as a percentage of
energy revenues in 1993 as compared to 1992 primarily as a result of higher fuel
costs. Approximately seventy percent of the operating costs of the Newark
Boxboard and du Pont Parlin projects consists of natural gas fuel costs which
fluctuate in response to market conditions. Management believes the Company's
long-term exposure to fuel prices is partially reduced through the price
provisions of its power purchase agreements, which are generally linked to the
utility's cost of generating electricity or broader economic indices. In
addition, fuel risk can be significantly reduced by entering into a long-term
gas supply arrangement or hedge. In the short-term, the unfavorable effects of
higher gas prices can be mitigated through enhanced operational performance, and
the volatility of gas prices can be mitigated through hedging strategies.
However, there is no assurance that any of the foregoing will prevent a
reduction in gross profit percentage for the year ending June 30, 1994 or for
the remaining interim periods within such year. The Company entered into a gas
swap agreement whereby the Company agreed to levelize its gas costs for the
three months ended December 31, 1992 and the three months ended September 30,
1993. As a result of the gas swap, natural gas costs were approximately
$1,000,000 lower during the six months ended December 31, 1992 than they would
have been otherwise. Conversely, natural gas costs were approximately $1,000,000
higher than they would have been otherwise for the six months ended December 31,
1993.
Cost of equipment sales and services increased primarily as a result of the
increased business associated with the Company's domestic activity in the design
and assembly of generator sets and switchgear business.
Cost of rental revenues for the six months ended December 31, 1993 and 1992
was $1,227,000 and $1,110,000, respectively. Costs of rental revenues decreased
as a percentage of revenue from 1992 to 1993 primarily as a result of the
substantial margins associated with the Philadelphia Water Department project.
Cost of development fees and other revenue was $7,399,000 and $5,492,000
for the six months ended December 31, 1993 and 1992, respectively. In 1993,
these costs consist principally of costs associated with the sale of the
Company's rights to develop certain coalbed methane reserves and costs
associated with a fuel management agreement with the California Milk Producers
project. In 1992, these costs consist principally of costs associated with an
equipment supply agreement for the Hartford Steam project and costs associated
with the sale of various projects under development. The balance of costs in
1993 and 1992 consist of costs of management fees charged to project
partnerships in which the Company has or had a minority interest.
Selling, general and administrative expenses for the six months ended
December 31, 1993 and 1992 were $8,872,000 and $7,026,000, respectively. This
increase was primarily attributable to increased legal fees as a
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<PAGE>
result of litigation with a project contractor and increased costs associated
with the Company's expansion of its business in the design and assembly of
generator sets and switchgear, and was partially offset by the Company's ongoing
overhead reduction activities.
INTEREST AND OTHER INCOME
Fluctuations in interest and other income are primarily attributable to
interest income on escrow accounts established in connection with the Newark
Boxboard and du Pont Parlin projects, as well as exchange rate fluctuations on
certain intercompany receivables denominated in sterling.
INTEREST AND DEBT EXPENSE
Interest and debt expense for the six months ended December 31, 1993 and
1992 was $8,703,000 and $7,781,000, respectively. The increase in interest
expense in 1993 as compared to 1992 was primarily the result of debt incurred in
connection with the construction of the Philadelphia Water Department project
and was partially offset by debt amortization on the Newark Boxboard and du Pont
Parlin projects.
INCOME TAXES
Income tax expense for the six month periods ended December 31, 1993 and
1992 consists primarily of deferred income taxes associated with certain of the
Company's wholly-owned subsidiaries, charges associated with net operating
losses that cannot be utilized, and taxable temporary differences. The Company
has established a full valuation allowance for temporary deductible amounts,
including net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 1993 totalled approximately
$2,548,000 as compared to approximately $5,213,000 at June 30, 1993. Cash
equivalents consist primarily of short-term money market instruments. The
decrease in cash was primarily due to recurring debt amortization and the
September 1993 semi-annual interest payments on the Company's convertible senior
subordinated debentures. The decrease was partially offset by operating cash
flow from the Newark Boxboard and du Pont Parlin projects. However, such cash
flow was not available to the Company due to restrictions in the project's
financing agreement.
Restricted cash at December 31, 1993 totalled approximately $2,115,000 as
compared to approximately $5,064,000 at June 30, 1993. The increase was
primarily due to the transfer of approximately $2,300,000 into a debt service
reserve fund required by the du Pont Parlin project financing agreement. This
was offset by the use of approximately $3,300,000 of restricted cash needed to
fund the December 1993 semi-annual principal and interest payment. This funding
from the restricted cash account was required primarily as a result of a gas
turbine generator being shutdown for repairs during the three months ended
December 1993, as discussed in 'Results of Operations'. In addition, restricted
cash decreased as a result of a release to the Company of $2,000,000 at the
Newark Boxboard project in accordance with project agreements. In the future,
the Company expects restricted cash to increase because of the debt service
reserve funds required by the Newark Boxboard and du Pont Parlin projects.
The Company's working capital deficiency at December 31, 1993 was
approximately $23,623,000 as compared to a working capital deficiency of
approximately $11,119,000 at June 30, 1993. Changes in working capital are
primarily due to, in addition to the items discussed above, balloon payments
that will be due on equipment financing prior to December 31, 1994. Management
intends to refinance or restructure certain of these balloon payments. There can
be no assurance as to the success of these intended refinancings. In addition,
accounts receivable increased primarily as a result of the fully operational
status of the Newark Boxboard project at December 31, 1993, as compared to its
non-operational status at June 30, 1993 as a result of the fire.
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CAPITAL RESOURCES--WORKING CAPITAL REQUIREMENTS
During the year ended June 30, 1993 and the period from June 30, 1993 to
the present, the Company has suffered certain setbacks. Among these were the
Newark Boxboard project fire, the expenses and significant diversion of
management focus required to repair the Newark Boxboard plant and by the
intensification of the Hawker litigation. All of these have impacted the
Company's liquidity and made it difficult for the Company to refinance or sell
equity in its Newark Boxboard project and thus deprived the Company of access to
significant capital which would otherwise have been available for project
development.
In response to these developments, the Board of Directors of the Company
initiated a plan to address the short, intermediate and long-term working
capital needs of the Company. Management expects the short-term (fiscal 1994)
needs of the Company to be met through the monetization of assets or other means
of accelerating cash flow. An example of this is the Philadelphia Water
Department project transaction (see 'Business--Recent Developments' and
'Business--Energy Segment--Sales of Projects in Operation'). Under its terms,
the Company will give up approximately $115,000 a month of project income in
exchange for an up front payment of $5,000,000. The Company may repurchase
approximately eighty-three percent of this project for $5,000,000 in May 1994.
The Company has the option upon the payment of extension fees, to extend the
repurchase period through August 1994. The Company recently extended its
repurchase option until June 1994.
In order to further enhance short-term cash flow, management has also
offered discounts to certain debtors of the Company for early payment. In the
aggregate, during the period July 1, 1993 through February 1994, the Company has
received $1,500,000 in satisfaction of notes receivable of $1,768,000. Under the
terms of the notes, cash would not have been received until periods ranging from
three months to over two years from the date of actual funding.
In November 1993, the Company entered into a letter of intent with Stewart
& Stevenson, a major equipment supplier and operation and maintenance company
for a $7,000,000 credit facility to be disbursed upon the completion of certain
milestones. The first disbursement of $1,000,000 was funded on January 13, 1994
based on the agreement of the parties to the terms and conditions of operation
and maintenance contracts for the Company's Newark Boxboard and du Pont Parlin
projects. The second disbursement of $3,500,000 was funded on March 16, 1994. Of
this amount, $2,300,000 was disbursed to the Company and $1,200,000 remained in
the Newark Boxboard project to prepay project debt, pay certain expenses of the
project and create a capital improvement fund. A third disbursement of
$2,500,000 is expected to be available to the Company in the near future based
upon approval of loan documentation and the obtaining of necessary consents.
This disbursement is intended to be utilized for prepayment of debt at the
Newark Boxboard project level. It is expected that the proceeds of the Stewart &
Stevenson credit facility will be repaid upon the refinancing of the Newark
Boxboard term loan.
The Company has retained NatWest Markets to evaluate and market a partial
sale of equity and/or a refinancing of the Newark Boxboard project term loan for
an aggregate principal amount of approximately $50,000,000. The current debt
outstanding on this project is approximately $32,000,000. In addition, the
Company is currently evaluating a partial sale of equity in its du Pont Parlin
and Newark Boxboard projects. Management's objective is to complete these
transactions in the near future. Management may, prior to a refinancing of the
Newark Boxboard project, choose to sell a partial equity interest in the Newark
Boxboard and/or the du Pont Parlin project in order to generate additional cash
flow or enhance its ability to enter into a strategic alliance with a larger
entity. There can be no assurance that the above mentioned transactions will
occur. In order to facilitate these financing arrangements, or other financing
alternatives, the Company reacquired in January 1994 a twelve and one-half
percent equity interest in the Newark Boxboard project which it has previously
sold in March 1993.
With respect to satisfying the Company's long-term working capital
requirements, management intends to proceed with a plan to (i) restructure or
divest some of its businesses, (ii) exchange its three series of convertible
debentures for one preferred stock instrument or other alternative which would
have a more liquid market, and (iii) enter into a strategic alliance with a
third party interested in investing equity into existing projects or projects as
they are developed in the future. The restructuring of the Company's businesses
will involve selective domestic and international cogeneration project
development, an increased emphasis on the Company's niche markets, such as its
standby power generation and rental businesses, stack recovery project
development, and a
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change in emphasis on wholly-owned biogas projects in order to concentrate on
developing, acquiring and selling gas producing Section 29 tax credits. In the
United Kingdom, the Company will continue to develop normal biogas projects as
electric prices justify. If terms and conditions are appropriate, the Company's
restructuring plan may involve the sale or shutdown of certain biogas facilities
and equipment manufacturing subsidiaries.
The Company's long-term strategic plan involving an alliance with a third
party may include a party who can enhance the Company's existing business,
development efforts, or both. Such enhancement may involve development capital,
project equity, fuel enhancement, construction or equipment services or any
combination of the above.
Despite the losses to date and the liquidity problems of the Company,
management believes that it can be successful in these various plans primarily
because the equity values in its portfolio of projects have not yet been fully
recognized or accounted for in the Company's market capitalization.
There can be no assurance that the above plan will ultimately be
successful. If the Company is unable to effect any of these options, the
Company's operations would be materially adversely affected.
On March 14, 1994 the Company announced that it had elected to take
advantage of the 30-day grace period allowable with respect to the payment of
interest on its three bond indentures relating to its convertible senior
subordinated debentures. The amount of the interest due at the end of the grace
period, April 14, 1994, is $2,519,000. The Company also announced that it had
engaged Jefferies & Company, Inc. as advisor to develop a proposal for the
exchange of the Company's three series of convertible senior subordinated
debentures and to provide other advisory services. The Board of Directors
determined that a modification of the Company's capital structure was advisable
in order to strengthen the Company's working capital position and to provide a
stronger foundation for growth. Accordingly, the Board of Directors elected not
to make the March 15, 1994 interest payment, with respect to each of the
Company's three series of convertible senior subordinated debentures. Further,
they instructed the officers of the Company and the Company's financial advisor,
Jefferies & Company, Inc. to implement a program under which the Company will
offer to all Holders of its debentures an opportunity to exchange their existing
debentures for a new issuance of securities of the Company.
COGENERATION AND WASTE HEAT RECOVERY PROJECTS--CAPITAL RESOURCES
The Company has previously and expects to continue to arrange for the
construction and permanent funding of its projects through long-term nonrecourse
debt. Depending upon the specifics of the project and the economic alternatives
available, the Company either retains all of the ownership of a project or
participates in project finance structures involving leases, corporate joint
ventures, and limited partnerships. In the latter instances, the Company sells
all or a portion of a project during its development or construction state to
third parties, and then participates in the various profit centers of such
project throughout the construction stage as well as the long-term (20+year)
life of the project.
Alternatively, the Company may use a debt/equity structure, whereby the
Company retains 100% ownership of the project. In such instances, the Company's
equity position in the project, funded either internally, from borrowings or the
sale of securities, or from financial arrangements with other parties, will
enable it to retain all of the long-term (20+year) revenues of the project.
CAPITAL RESOURCES--OTHER CAPITAL REQUIREMENTS
In addition to the development and construction of projects, the Company's
principal nonoperating expenditures over the next twelve months are expected to
consist of the repayment of various short-term and long-term debt instruments
primarily associated with equipment activities. In such instances, management
anticipates that the sale of the underlying equipment or the refinancing of such
equipment will provide the funds for repayment.
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STANDBY/PEAK SHAVING AND BIOGAS FUEL PROJECTS--CAPITAL RESOURCES
Generally, because the capital requirements of standby/peak shaving and
biogas fuel projects are substantially less than those required by most
industrial cogeneration and waste heat recovery projects, the Company finances
the construction and permanent funding of these demand side management and
biogas projects primarily through the use of recourse lines of credit or loans
with commercial banks and other lending institutions. Financing terms generally
extend from one to seven years. Project assets are also leased by the Company on
a medium to long-term basis. In most cases, wholly-owned subsidiaries are
established for each project. Projects may also be structured in such a fashion
as to allow the Company, or other participants, to take advantage of various tax
credits that continue to exist.
At December 31, 1993, the Company had nominal availability under existing
lines of credit. Although the Company has refinanced over $6,000,000 of debt
subsequent to June 30, 1993, there can be no assurance that the Company will be
successful in extending its current lines of credit or obtaining new lines of
credit. Additionally, the Indenture governing one series of the Company's
convertible senior subordinated debentures restricts the ability of the Company
to incur new long-term indebtedness under certain circumstances.
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MANAGEMENT
The following table sets forth certain information regarding the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
AGE POSITION
--- HELD SINCE POSITION
------------- -----------------------------------------------------
<S> <C> <C> <C>
Frank L. O'Brien III.......... 54 1981 Chairman of the Board, Chief Executive Officer and
Class B Director
Larry Zalkin.................. 51 1994 President and Chief Operating Officer
Ronald R. Rominiecki.......... 40 1994 Vice President/Finance and Chief Financial Officer
Joel D. Cooperman............. 40 1983 Vice President, Treasurer and Class B Director
George L. Bernstein........... 62 1994 Class B Director
Robert Smallacombe............ 60 1994 Class A Director
Sanders D. Newman............. 63 1994 Class A Director
Robert A. Shinn............... 45 1989 Vice President
Richard Sidkoff............... 47 1994 Secretary
</TABLE>
Frank L. O'Brien III, the Company's founder, has been Chairman of the
Board, Chief Executive Officer and a director of the Company since its formation
in 1981. Mr. O'Brien was President of the Company from 1991 to 1994. Outside
directorships include Philadelphia-based museums, private corporations and
educational, cultural and charitable organizations.
Mr. Zalkin was elected President and Chief Operating Officer in March,
1994. He was Executive Vice President and Chief Financial and Administrative
Officer of Westmoreland Coal Company in Philadelphia, Pennsylvania from 1988 to
August 1993. Mr. Zalkin was a private investor from August 1993 to April 1994.
Mr. Rominiecki was elected Vice President/Finance and Chief Financial
Officer in March, 1994. He was Corporate Controller of Westmoreland Coal Company
in Philadelphia, Pennsylvania from 1988 to March, 1994.
Mr. Cooperman, a certified public accountant, has been associated with the
Company since its formation in 1981. He is currently Vice President and
Treasurer of the Company. Mr. Cooperman was Vice President/Finance, Treasurer
and Chief Financial Officer of the Company from 1983 to 1994. Mr. Cooperman was
elected a director in 1992.
Mr. Bernstein was elected director in March 1994. He has been Chief
Operating Officer of Dilworth, Paxson, Kalish & Kauffman, Attorneys at Law, in
Philadelphia, Pennsylvania since November 1991. Mr. Bernstein was an independent
management consultant from December 1990 until November 1991 and was the
executive partner and Chief Executive Officer of Laventhol & Horwath (a national
public accounting firm in Philadelphia, Pennsylvania which filed for protection
under the bankruptcy laws in November 1990) for more than five years, through
May 1990. Other directorships include R&B, Inc., a supplier of 'hard-to-find'
parts for the automotive after market; Cencor, Inc., a Company engaged in
consumer financing; and Century Acceptance Corporation, a wholly owned
subsidiary of Cencor, Inc.
Mr. Smallacombe was elected director in April 1994. He has been President
of Executive Advisory Group Ltd. located in Princeton, New Jersey since 1986.
Mr. Smallacombe has been Chief Executive Officer of Cardinal Printing Co. in
Pennington, New Jersey since February, 1993. Other directorships include Emons
Transportation Group, Inc., a freight transportation and distribution services
company in York, Pennsylvania; Quipp, Inc., a producer of automated material
handling equipment in Miami, Florida and Technology Marketing, Inc., a producer
of test equipment for the computer industry in Irvine, California.
Mr. Newman was elected a Director in March, 1994 and has served as General
Counsel of the Company on a part-time basis since December, 1992. From January
of 1985 to November of 1992 Mr. Newman was a Director, Senior Vice President,
Secretary and General Counsel of the Company. Mr. Newman is also a Director of
Emons Transportation Group, Inc., a freight transportation and distribution
services company in York, Pennsylvania; Regal Communications Corporation, an
infomercial and retail distribution company in Fort Washington, Pennsylvania and
R&B, Inc., a supplier of 'hard-to-find' parts for the automotive after market in
Colmar, Pennsylvania.
Mr. Shinn has been associated with the Company since January 1988 and was
elected Vice President in March 1989. He was a principal of Interstate Energy
Consultants, Inc. from 1987 to 1988 and Executive Director of the Governor's
Energy Council (Pennsylvania) from 1979 to 1987.
Mr. Sidkoff has been associated with the Company as in-house counsel since
September 1990 and was elected Secretary in April 1994. He was a Vice President
and General Counsel of Wall to Wall Sound and Video, Inc. in Cinnaminson, New
Jersey from June 1988 until 1990.
61
<PAGE>
COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the
compensation awarded during the Company's last three fiscal years to Frank L.
O'Brien III, the Company's Chairman of the Board, President and Chief Executive
Officer, and to the Company's other three most highly compensated executive
officers as of June 30, 1993.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------
AWARDS
ANNUAL COMPENSATION --------------------------
--------------------------------------- RESTRICTED
OTHER ANNUAL STOCK ALL OTHER
COMPENSATION AWARD(S) OPTIONS/ SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) ($) (#) ($)
- ---------------------------- --------- ----------- ----------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank L. O'Brien III,
Chairman of the Board, 1993 305,769 -- --
President and Chief 1992 300,000 -- --
Executive Officer(1) 1991 300,000 -- --
Joel D. Cooperman,
Vice President/Finance, 1993 218,570 -- 78,571(2)
Treasurer and Chief 1992 177,053 -- --
Financial Officer(3) 1991 213,615 -- 133,928
Bruce Levy,
Vice President/ 1993 170,693 -- --
Marketing(4) 1992 168,402 -- 60,000
1991 153,126 -- --
Robert A. Shinn,
Vice President/Project 1993 214,038 40,000 50,000
Development 1992 210,000 -- --
1991 210,000 -- --
</TABLE>
- ------------------
(1) Mr. O'Brien resigned as President in March 1994. Mr. O'Brien is currently
Chairman of the Board and Chief Executive Officer.
(2) 53,571 of these options were granted subsequent to the expiration of options
previously granted for the same number of shares at fair market value.
(3) Mr. Cooperman resigned as Vice President/Finance and Chief Financial Officer
in April 1994. Mr. Cooperman is currently Vice President and Treasurer.
(4) Mr. Levy resigned in August 1993.
62
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options to
purchase Class A Common Stock granted in the fiscal year ended June 30, 1993 to
Frank L. O'Brien III and to the Company's other three most highly compensated
executive officers. The table shows, among other data, hypothetical potential
gains from stock options granted in the fiscal year ended June 30, 1993, which
are based entirely on assumed annual growth rates of 0%, 5% and 10% in the value
of the Company's Class A Common Stock over the five-year life of the options.
The assumed rates of growth were selected by the Securities and Exchange
Commission and are intended for illustration purposes only. They are not
intended to predict future stock prices, which will depend upon market
conditions and the Company's future performance and prospects.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------------------------------------------------- AT ASSUMED ANNUAL RATES OF
PERCENT OF TOTAL EXERCISE STOCK PRICE APPRECIATION
OPTIONS GRANTED OR BASE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE(1) 0%($) 5%($) 10%($)
- ---------------------------- ---------- ---------------- ----------- ---------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Frank L. O'Brien III........ -- -- -- -- -- -- --
Joel D. Cooperman........... 53,571(2)(3) 24.9% 4.75 11/12/97 0% 70,303 155,352
25,000(2) 11.6% 4.75 12/14/02 0% 74,681 189,257
Bruce Levy(4)............... -- -- -- -- -- -- --
Robert A. Shinn............. 20,000(2) 9.3% 4.75 11/12/97 0% 26,247 57,998
30,000(5) 14.0% 4.25 7/01/97 0% 35,226 77,840
</TABLE>
- ------------------
(1) In the event of the resignation of a director: (a) If the director elects to
become a member of an advisory board, the options which such director owns
will expire on the earlier of (i) 18 months following termination as an
advisory board member and (ii) the original expiration date; (b) If the
director does not elect to become a member of an advisory board, the options
which such director owns will expire on the earlier of (i) 18 months
following resignation and (ii) the original expiration date.
(2) These options are currently exercisable.
(3) These options were granted subsequent to the expiration of options
previously granted for the same number of shares at fair market value.
(4) Mr. Levy resigned in August 1993 and his options were forfeited in December
1993.
(5) These options vest at the rate of 25% per year and become fully vested at
the end of four years.
63
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
The following table sets forth certain information concerning the exercise
of options to purchase Class A Common Stock in the fiscal year ended June 30,
1993 by Frank L. O'Brien III and the Company's other three most highly
compensated executive officers, the aggregate dollar value realized upon such
exercise, the unexercised options held by such individuals at June 30, 1993 and
the values for 'in-the-money' options which represent the positive spread
between the exercise price and the year-end price of the Class A Common Stock.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FY-END(#) FY-END($)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank L. O'Brien III............... 0 -- 0 0 -- --
Joel D. Cooperman.................. 20,000 15,718.75 212,499 0 0 --
Bruce Levy(1)...................... 2,000 1,375 68,000 0 0 --
Robert A. Shinn.................... 0 -- 150,000 30,000 0 0
</TABLE>
- ------------------
(1) Mr. Levy resigned in August 1993 and his options were forfeited in December
1993.
COMPENSATION OF DIRECTORS
Directors do not receive fees for attending Board or Committee meetings.
Notwithstanding the foregoing, George L. Bernstein, as current chairman of the
Audit Committee and Robert Smallacombe, as current chairman of the Mergers and
Acquisitions and Divestitures Committee, are each entitled to receive fees of up
to $20,000 per annum.
EMPLOYMENT AGREEMENTS
The Company has an agreement with Mr. Shinn which provides for his
employment as Vice President until such time as either party terminates the
relationship.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a compensation committee or other board committee
performing equivalent functions. Mr. O'Brien and Mr. Cooperman have participated
in deliberations of the Board concerning executive compensation during the
fiscal year ended June 30, 1993. Mr. Cooperman's participation, however, has
been limited to deliberations concerning the granting of stock options.
64
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of May 10, 1994 by (i) each director, (ii) each person known by
the Company to be the beneficial owner of five percent or more of the Common
Stock, (iii) the Company's Chief Executive Officer and each of its five other
most highly compensated executive officers, and (iv) all directors and officers
as a group. The address of each beneficial owner is 225 South Eighth Street,
Philadelphia, Pennsylvania 19106.
<TABLE>
<CAPTION>
AMOUNT OF NATURE OF
BENEFICIAL OWNERSHIP(1)(2)
--------------------------------------
TITLE NUMBER PERCENT
OF CLASS OF SHARES OF CLASS
-------- --------- --------
<S> <C> <C> <C>
CLASS B COMMON STOCK
Frank L. O'Brien III............................................ B 3,905,770(3)(4)(5) 95.9(3)(4)(5)
All Officers and directors as a group (9 persons)............... B 3,905,770 95.9
CLASS A COMMON STOCK
Frank L. O'Brien III............................................ A 0 0
Larry Zalkin.................................................... A 330,000(6) 2.5
Ronald R. Rominiecki............................................ A 160,000(6) 1.2
George L. Bernstein............................................. A 200,000(6) 1.5
Robert Smallacombe.............................................. A 200,000(6) 1.5
Joel D. Cooperman............................................... A 212,499(6) 1.6
Sanders D. Newman............................................... A 55,000(6) *
Robert A. Shinn................................................. A 150,000(6) 1.1
Richard Sidkoff................................................. A 0 0
All officers and directors as a group (9 persons)............... A 1,307,499(6) 9.1
</TABLE>
- ------------------
* Less than 1%
(1) Beneficial ownership is determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934.
(2) Based on information provided to the Company.
(3) These shares are registered in the name of III Enterprises, an entity
controlled by Frank L. O'Brien III. The remaining 165,000 shares of Class B
Common Stock are beneficially owned by the Company through its wholly-owned
subsidiary, O'Brien Energy Services Company, and are not presently entitled
to vote. Accordingly, Frank L. O'Brien III beneficially owns 100% of the
shares of Class B Common Stock entitled to vote. On October 5, 1993, III
Enterprises filed for bankruptcy protection under Chapter 11 of the Federal
Bankruptcy Code.
(4) Frank L. O'Brien III's beneficial ownership constitutes approximately 75% of
the Company's voting power which allows him to control the affairs and
policies of the Company and elect 75% of the Company's Board.
(5) Pueblo Chemical, Inc. has claimed that it has the option to purchase a
majority of these shares. See 'Business--Recent Developments.'
(6) Represents shares of Class A Common Stock subject to presently exercisable
options.
65
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases space under two leases from Pennsport Partnership, a
Pennsylvania partnership in which Frank L. O'Brien III, Chairman of the Board
and Chief Executive Officer of the Company has a 50% ownership interest. The
lease terms expire in November 1999. The rental expense for the premises was
$293,000, plus real estate taxes, in 1993. The Company also leases office space
from Christiana River Holdings, Ltd., an entity owned by Frank L. O'Brien III.
Rental expense for 1993 was $75,000, plus real estate taxes (based on an annual
rental expense of $150,000.).
At June 30, 1993, the Company held notes receivable totalling approximately
$238,000 from certain officers of the Company. The notes are unsecured loans
bearing interest at rates ranging from 8% to 10 3/4% per annum. The notes in the
amounts of $140,000 and $97,500 made by Joel D. Cooperman, Vice President and
Treasurer, mature in the fiscal year ending June 30, 1996 and June 30, 1997,
respectively. The loan program was instituted by the Board as an incentive
benefit to certain officers of the Company who have served the Company since its
inception. In October 1993, indebtedness in the amount of $71,000 owing by Bruce
Levy, Vice President/Marketing of the Company until his resignation in September
1993, was forgiven.
In 1993, the Company recognized $156,000 of revenue by selling equipment
and related services to PoweRent.
In addition, the Company has had transactions with projects structured as
limited partnerships in which the Company retains a general partnership
interest.
The Company believes that the transactions set forth above are on terms no
less favorable than those which could reasonably have been obtained from
unaffiliated parties.
66
<PAGE>
PROPOSED AMENDMENTS AND WAIVERS
THE PROPOSED AMENDMENTS
The following is a summary of certain changes to each of the 1987
Indenture, the 1990 Indenture and the 1991 Indenture that would be effected by
the Proposed Amendments. Holders are urged to read Appendix A hereto for a
comparison of the provisions of each of the Indentures as currently in effect
and each of the Indentures as it would read if the Proposed Amendments were
adopted. The following descriptions do not purport to be complete and are
qualified in their entirety by reference to Appendix A and to each of the
Indentures and Supplemental Indentures (the 'Supplemental Indentures'). The
Proposed Amendments will include all conforming changes, including without
limitation, changes to Section references and the use of defined terms, required
by such proposed Amendments. The Proposed Amendments include amendments to the
certificates representing the Debentures corresponding to the amendments being
made to the Indentures.
1987 INDENTURE
Deletion of Covenant Regarding Maintenance of Consolidated Stockholders'
Equity
The Proposed Amendments would delete the covenant entitled 'Maintenance of
Consolidated Stockholders' Equity' (Section 3.10). Currently, if the Company's
Consolidated Stockholders' Equity at the end of each of any two consecutive
fiscal quarters is less than $7,500,000 then on the last day of the fiscal
quarter next following such second consecutive fiscal quarter (the 'Purchase
Date') the Company is required to offer to purchase the lesser of 7.5% of the
aggregate principal amount of 1987 Debentures or the then outstanding principal
amount of 1987 Debentures. In any such event the purchase price shall be 100% of
the principal amount plus accrued interest to the Purchase Date. The Company may
credit against its obligations to offer to repurchase 1987 Debentures under this
provision the principal amount of (i) 1987 Debentures acquired by the Company
through exchange or otherwise and surrendered for cancellation and (ii) 1987
Debentures redeemed or called for redemption otherwise than through operation of
the sinking fund (but only to the extent that such 1987 Debentures have not
already been credited toward a sinking fund payment).
Deletion of Covenant Limiting Funded Indebtedness
The Proposed Amendments would delete the covenant entitled 'Limitation on
Funded Indebtedness' (Section 4.02). Currently, the Company may not, and may not
permit any consolidated subsidiary to, incur or create any Funded Indebtedness
(as defined in the 1987 indenture) if after giving effect to the incurrence or
creation of such Funded Indebtedness, the total outstanding Funded Indebtedness
of the Company on a consolidated basis would exceed 75% of the sum of
Consolidated Stockholders' Equity (as defined in the 1987 Indenture) and Funded
Indebtedness. Notwithstanding the foregoing, the Company may amend, renew,
extend or refund any Indebtedness (as defined in the 1987 Indenture) outstanding
from time to time in an amount not greater than the principal amount of such
Indebtedness at the date of original incurrence or creation.
Deletion of Covenant Limiting Dividends, Stock Purchases and Certain Loans and
Advances by the Company and its Subsidiaries
The Proposed Amendments would delete the covenant entitled 'Limitations on
Dividends, Stock Purchases and Certain Loans and Advances by the Company and its
Subsidiaries' (Section 4.04). Currently, the Company may not, with certain
exceptions, declare or pay any dividend or make any distribution on its Capital
Stock (other than dividends or distributions payable solely in its Capital
Stock) or acquire, or permit any Subsidiary to acquire any Capital Stock of the
Company (i) if any Event of Default has occurred and is continuing or (ii) if
after giving effect to such action, the aggregate amount expended for all such
purposes subsequent to December 31, 1986 would exceed the sum of (a) 25% of the
Consolidated Net Income accrued on a cumulative basis subsequent to December 31,
1986 (or, in case such Consolidated Net Income shall be a deficit, minus 100% of
such deficit), (b) the aggregate net proceeds received by the Company from the
issue or sale subsequent to December 31, 1986 of its Capital Stock and (c)
$500,000.
67
<PAGE>
Amendment of Provision Regarding Acceleration
The Proposed Amendments would amend the section entitled 'Acceleration'
(Section 6.02) so that, the Trustee, acting alone, would no longer be entitled
to accelerate upon an Event of Default (as defined in the 1987 Indenture).
Currently, if an Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of 1987 Debentures then outstanding,
by a notice in writing to the Company, may declare the principal amount and all
accrued interest on all 1987 Debentures to be due and payable immediately. Upon
such declaration all such 1987 Debentures shall become due and payable
immediately.
1990 INDENTURE
Deletion of Covenant Regarding Maintenance of Consolidated Stockholders'
Equity
The Proposed Amendments would delete the covenant entitled 'Maintenance of
Consolidated Stockholders' Equity' (Section 3.10). Currently, if the Company's
Consolidated Stockholders' Equity at the end of each of any two consecutive
fiscal quarters is less than $10 million then on the last day of the fiscal
quarter next following such second consecutive fiscal quarter (the 'Purchase
Date') the Company is required to offer to purchase the lesser of 7.5% of the
aggregate principal amount of 1990 Debentures or the then outstanding principal
amount of 1990 Debentures. In any such event the purchase price shall be 100% of
the principal amount plus accrued interest to the Purchase Date. The Company may
credit against its obligations to offer to repurchase 1990 Debentures under this
provision the principal amount of (i) 1990 Debentures, acquired by the Company
through exchange or otherwise and surrendered for cancellation and (ii) 1990
Debentures repurchased or redeemed or called for redemption (but only to the
extent that such 1990 Debentures have not already been used as a credit under
the 1990 Indenture).
Deletion of Covenant Limiting Dividends and Stock Purchases by the Company and
its Subsidiaries
The Proposed Amendments would delete the covenant entitled 'Limitations on
Dividends, Stock Purchases by the Company and its Subsidiaries' (Section 4.03).
Currently, the Company may not, with certain exceptions, declare or pay any
dividend or make any distribution on its Capital Stock (other than dividends or
distributions payable solely in its Capital Stock) or acquire, or permit any
Subsidiary to acquire any Capital Stock of the Company (i) if any Event of
Default has occurred and is continuing or (ii) if after giving effect to such
action, the aggregate amount expended for all such purposes subsequent to
December 31, 1989 would exceed the sum of (a) 25% of the Consolidated Net Income
accrued on a cumulative basis subsequent to December 31, 1989 (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit), except
that in the event that the Company's Consolidated Stockholders' Equity is
$60,000,000 or more, such percentage shall be 50%, (b) the aggregate net
proceeds, including the fair market value of property other than cash (as
determined solely by the Board of Directors) received by the Company from the
issue or sale subsequent to December 31, 1989 of its Capital Stock, (c) the
aggregate net proceeds, including the fair market value of property other than
cash (as determined solely by the Board of Directors) received by the Company
from the issue or sale of Indebtedness which is converted into or exchanged for
Capital Stock of the Company after December 31, 1989 and (d) $2,000,000.
Amendment of Provision Regarding Acceleration
The Proposed Amendments would amend the Section entitled 'Acceleration'
(Section 6.02) so that, the Trustee, acting alone, would no longer be entitled
to accelerate upon an Event of Default (as defined in the 1990 Indenture).
Currently, if an Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the 1990 Debentures then
outstanding, by a notice in writing to the Company, may declare the principal
amount and all accrued interest on all 1990 Debentures to be due and payable
immediately. Upon such declaration all such 1990 Debentures shall become due and
payable immediately.
68
<PAGE>
1991 INDENTURE
Deletion of Covenant Regarding Maintenance of Consolidated Stockholders'
Equity
The Proposed Amendments would delete the covenant entitled 'Maintenance of
Consolidated Stockholders' Equity' (Section 3.10). Currently, if the Company's
Consolidated Stockholders' Equity at the end of each of any two consecutive
fiscal quarters is less than $10,000,000 then on the last day of the fiscal
quarter next following such second consecutive fiscal quarter (the 'Purchase
Date') the Company is required to offer to purchase the lesser of 7.5% of the
aggregate principal amount of 1991 Debentures or the then outstanding principal
amount of 1991 Debentures. In any such event the purchase price shall be 100% of
the principal amount plus accrued interest to the Purchase Date. The Company may
credit against its obligations to offer to repurchase 1991 Debentures under this
provision the principal amount of (i) 1991 Debentures acquired by the Company
through exchange or otherwise and surrendered for cancellation and (ii) 1991
Debentures repurchased or redeemed or called for redemption (but only to the
extent that such 1991 Debentures have not already been used as a credit under
the 1991 Indenture).
Deletion of Covenant Limiting Dividends and Stock Purchases by the Company and
its Subsidiaries
The Proposed Amendments would delete the covenant entitled 'Limitations on
Dividends, Stock Purchases by the Company and its Subsidiaries' (Section 4.03).
Currently, the Company may not, with certain exceptions, declare or pay any
dividend or make any distribution on its Capital Stock (other than dividends or
distributions payable solely in its Capital Stock) or acquire, or permit any
Subsidiary to acquire any Capital Stock of the Company (i) if any Event of
Default has occurred and is continuing or (ii) if after giving effect to such
action, the aggregate amount expended for all such purposes subsequent to
December 31, 1990 would exceed the sum of (a) 25% of the Consolidated Net Income
accrued on a cumulative basis subsequent to December 31, 1990 (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such deficit), except
that in the event that the Company's Consolidated Stockholders' Equity is
$60,000,000 or more, such percentage shall be 50%, (b) the aggregate net
proceeds, including the fair market value of property other than cash (as
determined solely by the Board of Directors) received by the Company from the
issue or sale subsequent to December 31, 1990 of its Capital Stock, (c) the
aggregate net proceeds, including the fair market value of property other than
cash (as determined solely by the Board of Directors) received by the Company
from the issue or sale of Indebtedness which is converted into or exchanged for
Capital Stock of the Company after December 31, 1990 and (d) $2,000,000.
Amendment of Provision Regarding Acceleration
The Proposed Amendments would amend the Section entitled 'Acceleration'
(Section 6.02) so that, the Trustee, acting alone, would no longer be entitled
to accelerate upon an Event of Default (as defined in the 1991 Indenture).
Currently, if an Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the 1991 Debentures then
outstanding, by notice in writing to the Company, may declare the principal
amount of and all accrued interest on all 1991 Debentures to be due and payable
immediately. Upon such declaration all such 1991 Debentures shall become due and
payable immediately.
THE WAIVERS
In addition to soliciting Consents with respect to the Proposed Amendments,
the Company is soliciting Consents with respect to the Waivers in order to seek
to ensure that the 1987 Debentures, 1990 Debentures and/or 1991 Debentures
cannot be accelerated as a result of occurrences on or prior to the Exchange
Offer Expiration Date. The Waivers with respect to the 1987 Debentures, 1990
Debentures and 1991 Debentures would waive any and all defaults and Events of
Default and their consequences under the 1987 Debentures and Indenture, 1990
Debentures and Indenture and 1991 Debentures and Indenture, respectively,
whether such defaults or Events of Default are known or unknown, arising out of
any actions, omissions or events occurring on or prior to the Exchange Offer
Expiration Date that could be construed as defaults or Events of Default under
the 1987 Debentures and Indenture, 1990 Debentures and Indenture or 1991
Debentures and Indenture, as applicable, including, but not limited to, any
defaults or Events of Default and their consequences relating to certain
actions, omissions or events described below or any other matter whether or not
described in this Prospectus and Consent
69
<PAGE>
Solicitation that could be construed to be a default or an Event of Default
under the 1987 Debentures and Indenture, 1990 Debentures and Indenture or 1991
Debentures and Indenture, as applicable. If, on or prior to the Exchange Offer
Expiration Date, there is an acceleration of the 1987 Debentures, 1990
Debentures and/or 1991 Debentures based upon any Event of Default, the Waiver
with respect to such series of Debentures would rescind such acceleration and
its consequences if such Event of Default has been waived by the Waiver or has
been cured.
If any action, omission or event were construed to be a default and, after
any appropriate notice and cure period provided in the applicable Indenture,
such default were to become an Event of Default under such Indenture, the
Holders of at least 25% in principal amount of then outstanding 1987 Debentures,
1990 Debentures or 1991 Debentures, as the case may be, or the appropriate
Trustee could attempt to declare the principal of and accrued and unpaid
interest on all of the applicable series of Debentures immediately due and
payable. If any series of Debentures were successfully accelerated and such
acceleration were not rescinded, the Company would face severe liquidity
problems and does not expect to have sufficient cash to purchase or repay all
outstanding Debentures issued pursuant to any such series. While the Company
would examine all of its options at the time, such liquidity problems could
force the Company to seek protection under Chapter 11 of the Bankruptcy Code.
If the Requisite Consents are obtained with respect to the Waivers and the
Exchange Offer and Solicitation is consummated, the Trustees and the Holders
(including Holders who do not consent) will be precluded from accelerating the
Debentures based upon any action, omission or event that has occurred or that
occurs on or prior to the Exchange Offer Expiration Date, whether known or
unknown. In addition, the Waivers would rescind any acceleration and its
consequences even if such acceleration were initiated by the applicable Trustee
or by Holders who do not consent. The Waivers, by their terms, provide that if
the Waiver with respect to any default or Event of Default and its consequences
is found to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the Waiver with respect to any other defaults or Events of
Default and their consequences shall not in any way be affected or impaired
thereby.
In addition to the Waivers of defaults and Events of Default, the Waivers
would waive the right to the March 15, 1994 interest payment. With respect to
such Waiver of interest, the Waivers would only affect those Holders tendering
Consents and Waivers. If any holders do not tender their Consents and Waivers,
such Holders will retain the right to receive the March 15, 1994 interest
payment.
70
<PAGE>
THE EXCHANGE OFFER AND SOLICITATION
TERMS OF THE EXCHANGE OFFER AND SOLICITATION
Upon the terms and subject to the conditions set forth herein and in the
Letter of Transmittal and Consent (including, if the Exchange Offer and
Solicitation is extended or amended, the terms and conditions of any such
extension or amendment), the Company hereby offers to exchange (i) $11,419,000
aggregate amount of 1987 Debentures for 456,760 shares of Series A Cumulative
Senior Preferred Stock, 1,370,280 warrants to purchase Class A Common Stock and
228,380 shares of Class A Common Stock; (ii) $11,500,000 aggregate amount of
1990 Debentures for 460,000 shares of Series A Cumulative Senior Preferred
Stock, 1,380,000 warrants to purchase Class A Common Stock and 230,000 shares of
Class A Common Stock; and (iii) $26,255,000 aggregate amount of 1991 Debentures
for 1,050,200 shares of Series A Cumulative Senior Preferred Stock, 3,150,600
warrants to purchase shares of Class A Common Stock and 525,100 shares of Class
A Common Stock. The Company will accept all Debentures properly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the Exchange Offer
Expiration Date. Holders may tender some or all of the Debentures, in integral
multiples of $1,000, pursuant to the Exchange Offer. The entire principal amount
of Debentures delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated in the Letter of Transmittal and Consent. By
executing and delivering the Letter of Transmittal and Consent to tender
Debentures, a Holder will also be delivering a Consent to the Proposed
Amendments and the Waivers. All Consents which have been properly delivered and
not validly revoked (by the proper withdrawal of Debentures to which such
Consent relates) shall be valid, and shall be counted in determining whether the
Requisite Consents have been received, whether or not all of the tendered
Debentures with respect to which such Consents have been delivered are accepted
for payment and exchange.
If the Requisite Consents are not received, the Company will accept no
Debentures for exchange.
As of the date of this Prospectus, there are outstanding $11,419,000,
$11,500,000 and $26,255,000 aggregate principal amount of 1987 Debentures, 1990
Debentures and 1991 Debentures, respectively, held by approximately 800, 800 and
1,600 registered Holders, respectively. This Prospectus, together with the
Letter of Transmittal and Consent, is being sent to all such registered Holders.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted validly tendered Debentures when, as and if the Company has given oral
or written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering Holders for the purposes of receiving the New Securities
and shares of Class A Common Stock from the Company.
If any tendered Debentures are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for such unaccepted Debentures will be returned, without
expense, to the tendering Holder thereof (or, in the case of Debentures tendered
by book entry transfer, to an account maintained at the appropriate Book Entry
Transfer Facility (the 'Book Entry Transfer Facility') as promptly as
practicable after the Exchange Offer Expiration Date.
Holders of Debentures who tender in the Exchange Offer and thereby deliver
a Consent with respect to such Debentures in the Solicitation will not be
required to pay brokerage commissions or fees, or subject to the instructions in
the Letter of Transmittal and Consent, transfer taxes with respect to the
exchange of Debentures pursuant to the Exchange Offer and Solicitation. The
Company will pay all charges and expenses, other than certain applicable taxes,
in connection with the Exchange offer. See '--Fees and Expenses.'
POSITION OF THE COMPANY WITH RESPECT TO THE EXCHANGE OFFER
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT HOLDERS OF DEBENTURES
CONSENT TO THE PROPOSED AMENDMENTS AND THE WAIVERS AND ACCEPT THE EXCHANGE
OFFER.
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EXPIRATION DATE; EXTENSIONS; TERMINATIONS; AMENDMENTS
The term 'Exchange Offer Expiration Date' and 'Solicitation Expiration
Date' shall mean 5:00 P.M., New York City time, on , 1994 and 5:00
p.m. New York City time on , 1994 respectively, unless and until the
Company, in its sole discretion, extends the period of time for which the
Exchange Offer and Solicitation remains open, in which case the terms 'Exchange
Offer Expiration Date' and 'Solicitation Expiration Date' shall mean the latest
time and date on which the Exchange Offer and Solicitation as so extended shall
expire. The Company reserves the right to extend the Exchange Offer and
Solicitation at any time and from time to time until the Requisite Consents have
been received. In order to extend the Exchange Offer Expiration Date and
Solicitation Expiration Date, the Company must notify the Exchange Agent of any
extension by oral or written notice, and must make a public announcement
thereof, prior to 9:30 A.M., New York City time, on the next business day after
the previously scheduled expiration date.
The Company reserves the right (i) to delay accepting any Debentures and
Consents, to extend the Exchange Offer and Solicitation or to terminate the
Exchange Offer and Solicitation and not accept for exchange Debentures and
Consents not previously accepted if any of the conditions set forth herein under
'--Conditions' shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer and Solicitation in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by public
announcement thereof. The Company confirms that its reservation of the right to
delay acceptance of Debentures for exchange is limited by Rules 13e-4(f) and
14e-1 under the Exchange Act, which require the Company to pay the consideration
offered or return the tendered securities promptly after the termination or
withdrawal of an exchange offer. Without limiting the manner in which the
Company may choose to make a public announcement of any extension, amendment or
termination of the Exchange Offer and Solicitation, the Company shall have no
obligation to publish, advertise, or otherwise communicate any such public
announcement, other than by making a timely release to the Dow Jones News
Service. For purposes of the Exchange Offer and Solicitation, a 'business day'
means any day other than a Saturday, Sunday or federal holiday, and consists of
the time period from 12:01 A.M. through 12:00 midnight, New York City time.
PROCEDURE FOR TENDERING DEBENTURES AND DELIVERING CONSENTS
A tender of Debentures (and delivery thereby of a Consent with respect
thereto) pursuant to one of the procedures set forth below will constitute an
agreement between such Holder and the Company in accordance with the terms and
subject to the conditions set forth in this Prospectus and in the Letter of
Transmittal and Consent.
A Holder electing to tender Debentures in the Exchange Offer (and thereby
deliver a Consent with respect to such Debentures in the Solicitation) should
either (i) complete and sign the Letter of Transmittal and Consent or a
facsimile thereof, have the signature thereon guaranteed if required by
Instruction 1 or 7 of the Letter of Transmittal and Consent and mail or deliver
the Letter of Transmittal and Consent, or such manually signed facsimile, for
receipt by the Exchange Agent at its address set forth on the back cover of this
Prospectus on or prior to the Exchange Offer Expiration Date, together with (a)
the certificates for the tendered Debentures and any other documents required by
the Letter of Transmittal and Consent or (b) a Book-Entry Confirmation
('Book-Entry Confirmation') pursuant to the procedure for book-entry transfer
set forth below, (ii) comply with the guaranteed delivery procedures set forth
in '--Guaranteed Delivery Procedures' or (iii) request his broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
him.
Delivery of all documents must be made to the Exchange Agent at its address
set forth on the back cover of this Prospectus. The method of delivery of
Debentures, Letters of Transmittal and Consent and all other required documents
to the Exchange Agent is at the election and risk of the Holders. Instead of
delivery by mail, it is recommended that Holders use an overnight or hand
delivery service. If, however, such delivery is by mail, it is recommended that
Holders use registered mail, properly insured, with return receipt requested.
Except as otherwise provided herein, such delivery will be deemed made only when
actually received by the Exchange Agent. In all cases, sufficient time should be
allowed to assure timely delivery. NO LETTERS OF TRANSMITTAL AND CONSENT OR
DEBENTURES SHOULD BE SENT TO THE COMPANY OR TO ANY TRUSTEE.
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<PAGE>
The Exchange Agent will make a request to establish an account with respect
to the Debentures at each of the Book-Entry Transfer Facilities for the purpose
of the Exchange Offer promptly after the date of this Prospectus and any
financial institution that is a participant in the Book-Entry Transfer Facility
system may make book-entry delivery of Debentures by causing the Book-Entry
Transfer Facility to transfer such Debentures into the Exchange Agent's
applicable account in accordance with the Book-Entry Transfer Facility's
procedure for such transfer. Although delivery of Debentures may be effected
through book-entry transfer into the Exchange Agent's account at a Book-Entry
Transfer Facility, the executed Letter of Transmittal and Consent (or manually
signed facsimile thereof), with any required signature guarantees and any other
required documents must, in any case, be transmitted to and received, and a
Book-Entry Confirmation must be received, by the Exchange Agent at one of its
addresses set forth on the back cover of this Prospectus on or prior to the
Exchange Offer Expiration Date or, if the guaranteed delivery procedure
described below is complied with, on or prior to the time provided under such
procedure. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Only the registered Holder of Debentures (or his legal representative or
attorney-in-fact), or a person who has obtained a properly completed,
irrevocable proxy that authorizes such person (or the person's legal
representative or attorney-in-fact) to vote such Debentures on behalf of such
registered Holder, may deliver a Consent with respect to such Debentures. Only
the registered Holder of Debentures, or a person who has obtained a properly
completed bond power from such registered Holder, may tender such Debentures.
Any beneficial owner whose Debentures are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
and consent should contact such registered Holder promptly and instruct such
registered Holder to tender and consent on his behalf. If such beneficial owner
wishes to tender and consent on his own behalf or such registered Holder will
not tender and consent on such beneficial owner's behalf, such beneficial owner
must, prior to completing and executing the Letter of Transmittal and Consent
and delivering his Debentures, either arrange for the registered transfer of the
Debentures to his name or obtain such a proxy and such a bond power from the
registered Holder. Any person who acquires Debentures from the registered Holder
of such Debentures and who wishes to tender and consent must, prior to tendering
and consenting, either arrange for the registered transfer of the Debentures to
his name or obtain such a bond power and such a proxy from the registered
Holder. The transfer of record ownership may take considerable time. All
signatures on such proxies and bond powers must be guaranteed if required by
Instruction 7 of the Letter of Transmittal and Consent.
Signatures on a Letter of Transmittal and Consent or a notice of withdrawal
of tender of Debentures and revocation of Consents must be guaranteed by a firm
that is a member of a registered national securities exchange or the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office in the United States (an 'Eligible Institution'), unless the
Debentures tendered pursuant to the Letter of Transmittal and Consent are
tendered by a registered Holder who has not completed the box entitled 'Special
Issuance and Payment Instructions' or 'Special Delivery Instructions' on the
Letter of Transmittal and Consent or for the account of an Eligible Institution.
If the Letter of Transmittal and Consent is signed by a person other than the
registered Holder of the certificates listed therein, the certificates must be
endorsed or accompanied by appropriate powers of attorney, a valid bond power,
and a valid proxy, in all cases signed exactly as the name or names of the
registered Holder or Holders appear on the certificates and in form satisfactory
to the Company and the signatures thereon must be guaranteed by an Eligible
Institution, unless signed by an Eligible Institution. If the Letter of
Transmittal and Consent or any certificates, powers of attorney, bond powers or
proxies are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
By executing and delivering a Letter of Transmittal and Consent as set
forth above, a tendering Holder will be consenting to the Proposed Amendments
and the Waivers. The Letter of Transmittal and Consent, when delivered to the
Trustee by the Exchange Agent, shall constitute the Holder's notice to the
Trustee pursuant to the Indentures and, together with other Letters of
Transmittal and Consent and Notices of Guaranteed Delivery executed and
delivered by the Holders of a majority of the outstanding aggregate principal
amount of each of the 1987 Debentures, 1990 Debentures and 1991 Debentures when
so delivered to the Trustee, shall constitute notice to the Trustee that the
Proposed Amendments and the Waivers have been consented to. Subject to and
effective upon acceptance of any Debentures tendered therewith for exchange, a
tendering Holder irrevocably sells, assigns
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<PAGE>
and transfers to or upon the order of the Company all right, title and interest
in and to the Debentures tendered thereby and accepted for exchange, together
with all rights to any accrued and unpaid interest thereon. The tendering Holder
also thereby irrevocably constitutes and appoints the Exchange Agent its true
and lawful agent and attorney in-fact (with full knowledge that the Exchange
Agent also acts as the agent of the Company) with respect to the tendered
Debentures with full power of substitution to (i) deliver certificates for all
such Debentures accepted for exchange to the Company or transfer ownership of
such Debentures on the account books maintained by the Book-Entry Transfer
Facility and deliver all accompanying evidences of transfer and authenticity to
or upon the order of the Company upon receipt by the Exchange Agent, as the
tendering Holder's agent, of the New Securities and shares of Class A Common
Stock exchanged for such Debentures upon the acceptance by the Company of such
Debentures tendered pursuant to the Exchange Offer for exchange; (ii) present
such Debentures for transfer or cancellation on the books of the Company, (iii)
deliver to the Trustee, with a copy to the Company, the Letter of Transmittal
and Consent as evidence of the tendering Holder's consent to the Proposed
Amendments and the Waivers with respect to all tendered Debentures (regardless
of whether all such tendered Debentures are accepted for exchange) and as
certification that Requisite Consents to the Proposed Amendments and the Waiver
duly executed by the Holders have been received, and (iv) receive all benefits
and otherwise exercise all rights of beneficial ownership of such Debentures,
all in accordance with the terms and conditions of the Exchange Offer and
Solicitation.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance for exchange of tendered Debentures and Consents,
withdrawal of tendered Debentures and revocation of Consents will be resolved by
the Company, whose determination will be final and binding on all parties. The
Company reserves the absolute right to reject any or all tenders and Consents
that are not in proper form or the acceptance of or the exchange of the New
Securities and shares of Class A Common Stock for which would, in the opinion of
counsel for the Company, be unlawful and to consent to any withdrawal of
tendered Debentures and revocation of Consents. The Company also reserves the
absolute right to waive any defects or irregularities or conditions of tender as
to particular Debentures or delivery of particular Consents. The Company's
interpretation of the terms and conditions of the Exchange Offer and
Solicitation (including the instructions in the Letter of Transmittal and
Consent) will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Debentures or delivery of Consents
must be cured within such time as the Company shall determine. Neither the
Company, the Exchange Agent, the Information Agent nor any other person shall be
under any duty to give notice of any defects or irregularities in tenders and
Consents, nor shall any of them incur any liability for failure to give any such
notice. Tenders of Debentures and delivery of Consents will not be deemed to
have been made until all such defects and irregularities have been cured or
waived. Any Debentures received by the Exchange Agent that are not validly
tendered or as to which a Consent has not been properly delivered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders of Debentures, unless
otherwise provided in the Letter of Transmittal and Consent, as soon as
practicable following the Exchange Offer Expiration Date.
Mutilated, Lost, Stolen or Destroyed Debentures. If a Holder desires to
tender a Debenture in the Exchange Offer (and thereby deliver a Consent with
respect to such Debenture in the Solicitation), but the Debenture has been
mutilated, lost, stolen or destroyed, such Holder should write to or telephone
the appropriate Trustee at the address listed below, about procedures for
obtaining replacement certificates for such Debentures, arranging for
indemnification or any other matter that requires handling by the Trustee at the
following address and telephone number: With respect to the 1987 Debentures,
United Jersey Bank, 210 Main Street, Hackensack, New Jersey 07602, (201)
646-5060. With respect to the 1990 Debentures, First Fidelity Bank, 123 S. Broad
Street, Philadelphia, Pennsylvania 19109, (215) 985-6061. With respect to the
1991 Debentures, Meridian Trust Company, P.O. Box 16003, Reading, Pennsylvania
19601.
GUARANTEED DELIVERY PROCEDURES
If a Holder desires to tender Debentures in the Exchange Offer (and thereby
deliver a Consent with respect to such Debentures in the Solicitation) and the
certificate(s) representing such Debentures are not immediately available, or
time will not permit such Holder's certificate(s) or other required documents to
reach the Exchange Agent before the Exchange Offer Expiration Date, or the
procedures for book-entry transfer cannot be completed on a timely basis, a
tender and consent may be effected if:
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<PAGE>
(a) The tender is made through an Eligible Institution;
(b) On or prior to the Exchange Offer Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (containing a Consent to the
Proposed Amendments and the Waivers) setting forth the name and address of
the Holder of such Debentures and the principal amount of Debentures
tendered, stating that the tender is being made thereby and guaranteeing
that, within five AMEX trading days after the date of the Notice of
Guaranteed Delivery (the 'Notice of Guaranteed Delivery') a Letter of
Transmittal and Consent (or a manually signed facsimile thereof), together
with the certificates representing the Debentures or a Book-Entry
Confirmation and any required signature guarantees and any other documents
required by the Letter of Transmittal and Consent, will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) The certificates for all tendered Debentures, or Book-Entry
Confirmation, the Letter of Transmittal and Consent (or a manually signed
facsimile thereof) properly completed and duly executed, with any required
signature guarantees, and all other documents required by the Letter of
Transmittal and Consent, are received by the Exchange Agent within five
AMEX trading days after the date of the Notice of Guaranteed Delivery.
A Notice of Guaranteed Delivery may be delivered by hand or mailed to the
Exchange Agent. The Consent contained in the Notice of Guaranteed Delivery
described in (b) will be effective upon receipt thereof by the Exchange Agent,
and will authorize the Exchange Agent to deliver to the applicable Trustee, with
a copy to the Company, the Notice of Guaranteed Delivery as evidence of the
Holder's consent to the Proposed Amendments and the Waivers with respect to all
Debentures covered by the Notice of Guaranteed Delivery, regardless of whether
or when the certificate for the tendered Debentures (or Book-Entry
Confirmation), the executed Letter of Transmittal and Consent and the other
required documents are received. Such Notice of Guaranteed Delivery, when
delivered to the applicable Trustee by the Exchange Agent, shall constitute the
Holder's notice to the Trustees pursuant to the Indentures and, together with
Letters of Transmittal and Consent and other Notices of Guaranteed Delivery
executed and delivered by the Holders of a majority of the outstanding aggregate
principal amount of each of the 1987 Debentures, 1990 Debentures, and 1991
Debentures, respectively, not owned by the Company, when so delivered to the
applicable Trustees, shall constitute the Waivers.
Notwithstanding any other provision hereof, the exchange of Debentures
accepted for exchange pursuant to the Exchange Offer will in all cases be made
only after timely receipt by the Exchange Agent of certificates for such
Debentures (or Book-Entry Confirmation), and a properly completed and duly
executed Letter of Transmittal and Consent (or a manually signed facsimile
thereof), with any required signature guarantees and any other required
documents.
WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS
Tenders of Debentures may be withdrawn (and Consents with respect thereto
may thereby be revoked) at any time prior to the Exchange Offer Expiration Date.
To withdraw a tender of Debentures and thereby revoke the Consent with
respect to such Debentures, a written notice of withdrawal and revocation must
be received prior to the Exchange Offer Expiration Date (or as set forth in the
preceding paragraph) by the Exchange Agent at its address set forth on the back
cover of this Prospectus. Any such notice of withdrawal and revocation must (i)
specify the name of the person who tendered the Debentures to be withdrawn and
as to which a Consent is to be revoked, (ii) specify the aggregate principal
amount of Debentures to be withdrawn and as to which a Consent is to be revoked,
and if the certificates representing Debentures to be withdrawn and as to which
a Consent is to be revoked have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the serial
numbers shown on the particular certificates evidencing such Debentures must be
submitted, together with a signed notice of withdrawal and revocation with such
signature guaranteed by an Eligible Institution (except in the case of
Debentures tendered for the account of an Eligible Institution), or, if
Debentures have been tendered pursuant to the procedures for book-entry transfer
as described above, any notice of withdrawal and revocation must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Debentures and (iii) signed by the Holder in the
same manner as the original signature on the Letter of Transmittal and Consent
by which such Debentures were tendered (including any required signature
guarantees)
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<PAGE>
or be accompanied by documents of transfer sufficient to have the Trustee
register the transfer of such Debentures into the name of the person withdrawing
the tender and revoking the Consent.
Any Debentures withdrawn and as to which Consents have been revoked will
thereafter be deemed not validly tendered and delivered for purposes of the
Exchange Offer and Solicitation, and no New Securities and shares of Class A
Common Stock will be issued with respect thereto unless the Debentures so
withdrawn are retendered (and the Consents with respect thereto are thereby
delivered) and accepted for exchange. Properly withdrawn Debentures and revoked
Consents may be retendered and redelivered by following one of the procedures
described above under '--Procedure for Tendering Debentures and Delivering
Consents' at any time prior to the Exchange Offer Expiration Date and
Solicitation Expiration Date.
EFFECTIVENESS OF PROPOSED AMENDMENTS AND WAIVERS
Immediately upon the Solicitation Expiration Date, assuming the Requisite
Consents have been received, (i) the Company and each of the Trustees will
execute the Supplemental Indentures amending each of the Indentures to contain
the Proposed Amendments and (ii) the Exchange Agent or the Company will deliver
the Letters of Transmittal and Consent and Notices of Guaranteed Delivery to the
Trustees as notice of the Waivers thereby effecting the Waivers. Upon the
execution of each such Supplemental Indenture, the Proposed Amendments and the
Waivers will become effective. The Proposed Amendments and the Waivers will not
become operative, however, unless and until validly tendered Debentures are
accepted for exchange in accordance with the terms hereof, which the Company
plans to do immediately after each of the Supplemental Indentures are executed.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Securities and shares of
Class A Common Stock for, any Debentures, and may terminate or amend the
Exchange Offer as provided herein, if (i) prior to the Exchange Offer Expiration
Date, the Requisite Consents shall not have been received or (ii) prior to
payment for any tendered Debentures, any of the following shall occur:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company, or
any material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(c) any law, statute, rule or regulation (or interpretation by the
staff of the Commission) is proposed, adopted or enacted, which, in the
sole judgment of the Company, might materially impair the ability of the
Company to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Company; or
(d) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances (including any action or
inaction by the Company) giving rise to any such conditions or may be waived by
the Company in whole or in part at any time and from time to time in its sole
discretion. The failure by the Company at any time to exercise any of the
foregoing rights shall not be deemed a waiver thereof, and each such right shall
be deemed an ongoing right that may be asserted at any time and from time to
time. Any determination by the Company concerning the events described above
will be final and binding on all parties.
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<PAGE>
PROCEDURE FOR OBTAINING REVISED CERTIFICATES FOR DEBENTURES FOLLOWING
CONSUMMATION OF THE EXCHANGE OFFER AND SOLICITATION
Holders of Debentures that remain outstanding following consummation of the
Exchange Offer and Solicitation may submit their certificates representing the
Debentures to American Stock Transfer and Trust Company, as Registrar, in
exchange for revised certificates representing the Debentures as amended by the
Proposed Amendments. In addition, whenever the Debentures are submitted by a
Holder for transfer or conversion, revised certificates, if any, representing
the Debentures as amended by the Proposed Amendments will be returned to such
Holder. Until such time as the certificate representing any Debenture is so
exchanged, such old certificate will represent the Debenture as amended by the
Proposed Amendments and shall be entitled to the same rights, benefits and
privileges as such revised certificates. The procedures outlined in this
paragraph relate only to the exchange of Debenture certificates for revised
certificates following consummation of the Exchange Offer and Solicitation.
Holders desiring to tender Debentures for payment and exchange pursuant to the
Exchange Offer and Solicitation must comply with the procedures outlined above
under '--Procedure for Tendering Debentures and Delivering Consents' and should
not send their Debenture certificates to the Registrar.
EXCHANGE AGENT
American Stock Transfer and Trust Company has been appointed as the
Exchange Agent for the Exchange Offer and Solicitation. Completed Letters of
Transmittal and Consent, as well as all correspondence in connection with the
Exchange Offer and Solicitation, should be addressed to the Exchange Agent at
its address set forth on the back cover of this Prospectus.
INFORMATION AGENT AND PROXY SOLICITOR
Georgeson & Company, Inc. has been appointed as the Information Agent and
the Proxy Solicitor for the Exchange Offer and Solicitation. All questions in
connection with the Exchange Offer and Solicitation, as well as requests for
information or additional copies of this Prospectus and the Letter of
Transmittal and Consent, should be directed to the Information Agent at its
telephone number or its address set forth on the back cover of this Prospectus.
FINANCIAL ADVISOR
The Company has retained Jefferies & Company, Inc. ('Jefferies'), an
investment banking firm, to advise the Company from the Company's perspective
with respect to the Exchange Offer, including the appropriate terms thereof and
assist in preparation of required offer documents, to the extent they relate to
the terms of the transaction, and advise the Company of procedures to be used in
connection with the transaction. Jefferies has not been retained to render an
opinion as to the fairness of the Exchange Offer.
For financial advisory services, the Company has paid Jefferies a
non-refundable retainer of $100,000. In addition to such retainer, the Company
has agreed to pay Jefferies the following (which the retainer will be credited
against): (i) a $5,000 monthly advisory fee, (ii) upon consummation of the
Exchange Offer, an amount equivalent to 1.5% of the aggregate principal amount
of Debentures tendered and (iii) upon consummation of the Exchange Offer,
250,000 Warrants. In addition, the Company will reimburse Jefferies for its
out-of-pocket expenses, including reasonable fees and expenses of its counsel.
The Company has also agreed to indemnify Jefferies against certain liabilities
and expenses, including liabilities under federal securities laws.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates, who will not receive additional
compensation. Arrangements may also be made with brokerage houses and other
custodians, nominees and fiduciaries to forward the Exchange Offer and the
solicitation material to the beneficial owners of the Debentures. The Company
will reimburse such forwarding agents for reasonable out-of-pocket expenses
incurred by them, but no
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compensation will be paid for their services. The Company has also agreed to pay
certain fees and expenses of Jefferies, as set forth under '--Financial
Advisor.'
The cash expenses to be incurred in connection with the Exchange Offer and
the Solicitation, excluding the fees and expenses of Jefferies, but including
the fees and expenses of the Exchange Agent and the Information Agent and Proxy
Solicitor and printing, accounting and legal fees, will be paid by the Company
and are estimated to be approximately $500,000.
The Company will pay all transfer taxes, if any, applicable to the tender
of Debentures to it or its order pursuant to the Exchange Offer. If, however,
New Securities and shares of Class A Common Stock or Debentures for principal
amounts not tendered or not accepted for payment and exchange, or both, are to
be registered or issued in the name of any person other than the registered
Holder of the Debentures tendered, or if tendered certificates are registered in
the name of any person other than the person signing the Letter of Transmittal
and Consent, or if a transfer tax is imposed for any reason other than the
tender of Debentures to the Company or its order pursuant to the Exchange Offer,
the amount of any transfer taxes (whether imposed on the registered Holder or
any other person) will be payable by the tendering Holder.
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MARKET, TRADING AND OWNERSHIP INFORMATION
DEBENTURES
The Debentures are listed and traded on the AMEX. The following table sets
forth, for each of the quarterly periods indicated, the high and low sale prices
for each $100 principal amount of the Debentures on the AMEX:
<TABLE>
<CAPTION>
1987 DEBENTURES HIGH LOW
- ---------------------------------------------------------------------------------------- ---- ----
<S> <C> <C>
Fiscal Year Ended June 30, 1992
Quarter ended September 30, 1991...................................................... $129 $103
Quarter ended December 31, 1991....................................................... 116 88
Quarter ended March 31, 1992.......................................................... 119 90
Quarter ended June 30, 1992........................................................... 113 1/2 98
Fiscal Year Ended June 30, 1993
Quarter ended September 30, 1992...................................................... 109 1/2 99 1/2
Quarter ended December 31, 1992....................................................... 112 102
Quarter ended March 31, 1993.......................................................... 112 99
Quarter ended June 30, 1993........................................................... 110 1/2 99
Fiscal Year Ending June 30, 1994
Quarter ended September 30, 1993...................................................... 105 5/8 72 1/2
Quarter ended December 31, 1993....................................................... 91 73 1/2
Quarter ended March 31, 1994.......................................................... 80 51
Quarter ending June 30, 1994 (through April 29, 1994)................................. 52 36
<CAPTION>
1990 DEBENTURES HIGH LOW
- ---------------------------------------------------------------------------------------- ---- ----
<S> <C> <C>
Fiscal Year Ended June 30, 1992
Quarter ended September 30, 1991...................................................... $117 $101 1/2
Quarter ended December 31, 1991....................................................... 113 97
Quarter ended March 31, 1992.......................................................... 114 100
Quarter ended June 30, 1992........................................................... 110 102 1/2
Fiscal Year Ended June 30, 1993
Quarter ended September 30, 1992...................................................... 109 103
Quarter ended December 31, 1992....................................................... 112 104 1/2
Quarter ended March 31, 1993.......................................................... 112 104 1/2
Quarter ended June 30, 1993........................................................... 112 105 1/2
Fiscal Year Ending June 30, 1994
Quarter ended September 30, 1993...................................................... 110 83
Quarter ended December 31, 1993....................................................... 97 85
Quarter ended March 31, 1994.......................................................... 89 52
Quarter ending June 30, 1994 (through April 29, 1994)................................. 58 33
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
1991 DEBENTURES HIGH LOW
- ---------------------------------------------------------------------------------------- ---- ----
<S> <C> <C>
Fiscal Year Ended June 30, 1992
Quarter ended September 30, 1991...................................................... $116 $101 1/2
Quarter ended December 31, 1991....................................................... 113 100
Quarter ended March 31, 1992.......................................................... 114 1/2 100
Quarter ended June 30, 1992........................................................... 112 103 1/2
Fiscal Year Ended June 30, 1993
Quarter ended September 30, 1992...................................................... 112 104
Quarter ended December 31, 1992....................................................... 116 108 1/4
Quarter ended March 31, 1993.......................................................... 114 105 1/2
Quarter ended June 30, 1993........................................................... 113 1/2 107
Fiscal Year Ending June 30, 1994
Quarter ended September 30, 1993...................................................... 112 83 3/4
Quarter ended December 31, 1993....................................................... 99 84
Quarter ended March 31, 1994.......................................................... 90 52
Quarter ending June 30, 1994 (through April 29, 1994)................................. 58 33
</TABLE>
On April 29, 1994, the closing sale price for each $100 principal amount of
1987 Debentures, 1990 Debentures and 1991 Debentures on the AMEX was $43, $44
and $44, respectively. As of such date, there were approximately 800, 800 and
1,600 holders of record of the 1987 Debentures, 1990 Debentures and 1991
Debentures, respectively.
Depending on the amount of Debentures tendered pursuant to the Exchange
Offer, there may no longer be a sufficient amount of such Debentures outstanding
to meet the minimum listing requirements of the AMEX, in which event the listing
on the AMEX of such Debentures is likely to be terminated. There can be no
assurance that any trading market for the Debentures will exist after
consummation of the Exchange Offer.
Application will be made to list the New Securities on the AMEX. However,
listing will depend upon the satisfaction of the AMEX listing requirements with
respect to the New Securities.
COMMON STOCK
The Company's Class A Common Stock is principally traded on the AMEX under
the symbol 'OBS' and is also listed on the Philadelphia Stock Exchange.
The following table sets forth, for each of the quarterly periods
indicated, the high and low sale prices for the Class A Common Stock as reported
on the AMEX.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal Year Ended June 30, 1992
Quarter ended September 30, 1991......................................................... $6 1/4 $4 1/2
Quarter ended December 31, 1991.......................................................... 5 7/8 3 3/4
Quarter ended March 31, 1992............................................................. 5 5/8 3 3/4
Quarter ended June 30, 1992.............................................................. 5 1/4 3 7/8
Fiscal Year Ended June 30, 1993
Quarter ended September 30, 1992......................................................... 4 15/16 3 7/8
Quarter ended December 31, 1992.......................................................... 5 1/4 4 1/8
Quarter ended March 31, 1993............................................................. 5 1/4 3 1/2
Quarter ended June 30, 1993.............................................................. 4 15/16 3 11/16
Fiscal Year Ending June 30, 1994
Quarter ended September 30, 1993......................................................... 4 5/16 2
Quarter ended December 31, 1993.......................................................... 3 5/16 2
Quarter ended March 31, 1994............................................................. 2 13/16 15/16
Quarter ending June 30, 1994 (through April 29, 1994).................................... 1 7/16
</TABLE>
On April 29, 1994, the closing sale price of the Company's Class A Common
Stock on the AMEX was $ 1/2 per share and there were 13,055,597 shares of Class
A Common Stock outstanding.
80
<PAGE>
The approximate number of stockholders of record of the Class A Common
Stock of the Company at April 29, 1994 was 1,454 not including beneficial owners
whose shares are held by banks, brokers and other nominees. Frank L. O'Brien
III, through his ownership of III Enterprises, Inc., is the owner of all of the
outstanding voting shares of Class B Common Stock of the Company. In October
1993, III Enterprises filed for bankruptcy protection under Chapter 11 of the
Federal Bankruptcy Code. See 'Risk Factors--Risk Factors For All Holders.'
The Company presently intends to retain all earnings for the operation and
expansion of its business and does not anticipate paying cash dividends on its
common stock in the foreseeable future. Any future determination as to the
payment of dividends on the common stock will depend upon future earnings,
results of operations, capital requirements, the financial condition of the
Company and any other factors the Board of Directors of the Company may
consider.
Some of the Company's commercial bank lines of credit restrict the payment
of dividends. In addition, the 1987 Debentures, 1990 Debentures and 1991
Debentures impose limitations on the payment of dividends (which limitations
will be deleted if the Proposed Amendments are adopted).
The Company's project subsidiaries may declare and pay dividends to the
Company only to the extent of surplus cash flow and subject to certain other
restrictions.
81
<PAGE>
DESCRIPTION OF NEW SECURITIES
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock,
$.01 par value, none of which is outstanding. The Board of Directors of the
Company is authorized, without action by the stockholders, to issue Preferred
Stock from time to time in one or more series and to fix, for each series, the
number of shares, designation, dividend rights, liquidation preferences and any
other rights and restrictions. The issuance of Preferred Stock could adversely
affect the interest of the Holders of Common Stock.
On April 28, 1994, the Board of Directors approved the issuance of
1,966,960 shares of Series A Cumulative Senior Preferred Stock of the Company to
be issued pursuant to this Exchange Offer. The following is a summary of certain
terms of the Series A Cumulative Senior Preferred Stock as contained in the form
of Certificate of Designation Preferences and Rights of the Series A Cumulative
Senior Preferred Stock and is qualified in its entirety by reference thereto.
Dividends. Holders of Preferred Stock are entitled to cumulative
semi-annual dividends at the annual rate of 12% of $25.00 per share (the
'Exchange Value'). Such dividends must be paid before the payment of any
dividends on Common Stock. At the election of the Company, dividends on the
Preferred Stock declared prior to , 1997, may be payable in cash, in
the Company's Class A Common Stock or any combination thereof. For the purpose
of paying dividends in Class A Common Stock, the Class A Common Stock will be
valued at the average closing price for the ten days before the Company
announces the dividend.
Liquidation Rights. On liquidation, holders of Preferred Stock will have a
preference over the holders of Common Stock equal to the Exchange Value per
share plus all accrued and unpaid dividends whether declared or undeclared.
Ranking. The Preferred Stock will rank senior to any and all other series
of preferred stock issued by the Company, but junior to all indebtedness of the
Company.
Voting Rights. The holders of Preferred Stock will be entitled to one vote
per share and will vote as a single class with the Holders of the Company's
Class A Common Stock.
If at any time, dividends payable on the Preferred Stock are in arrears in
an aggregate amount, equal to at least four full semi-annual dividends (which
need not be consecutive):
(i) the number of directors constituting the Board of Directors of the
Company shall be increased by two and (ii) the holders of the Preferred
Stock shall have the right to call a special meeting of holders of
Preferred Stock, and at such meeting (or, if no such special meeting is
called, at the next succeeding annual or special meeting of shareholders)
the right, voting separately as a single voting group, to elect two
directors of the Company to fill such newly created directorships. Such
rights shall continue until there are no dividends in arrears on the
Preferred Stock.
Optional Redemption. Shares of Preferred Stock are subject to redemption
at the Company's election, in whole or in part, at any time or from time to time
(whether or not there is an arrearage in the payment of dividends) out of funds
legally available for such redemption, at a redemption price equal to the
Exchange Value per share plus accrued and unpaid dividends.
Mandatory Redemption. The Company will be obligated to redeem 15% of the
outstanding shares of Preferred Stock upon the later of (a) one year after
consummation of the Exchange Offer; and (b) 45 days after the sale of all or
part of the Company's Newark and/or Parlin Cogeneration projects and (c) 45 days
after the Refinancing of the Company's Newark and/or Parlin Cogeneration
projects (the 'Redemption Date'). Notice of redemption will be mailed by the
Company at least days before the Redemption Date to the address of each holder
of the Preferred Stock. The Preferred Stock shall be redeemed on a pro rata
basis. IN NO EVENT WILL THE COMPANY BE OBLIGATED TO REDEEM PURSUANT TO THIS
MANDATORY REDEMPTION SECTION PRIOR TO THE OCCURRENCE OF EACH OF THE EVENTS
LISTED IN (A), (B) AND (C) ABOVE.
The Company may reduce the amount to be redeemed by subtracting 100% of the
face amount of any Preferred Stock which has been redeemed other than pursuant
to this mandatory redemption obligation or
82
<PAGE>
otherwise acquired by the Company, through open market or privately negotiated
purchases, optional redemption or otherwise, and surrendered for cancellation
and not previously credited.
For purposes of this Section, 'Refinancing' shall mean the incurrence of
additional new indebtedness by the Company in exchange for the refinancing,
replacement or substitution of existing indebtedness.
DESCRIPTION OF WARRANTS
In connection with the issuance of the Series A Cumulative Senior Preferred
Stock, the Company will issue 5,900,880 Warrants to purchase Class A Common
Stock. Each Warrant will entitle the holder to purchase one share of Class A
Common Stock for $2.50, subject to adjustment against dilution (as set forth in
the Warrant Agreement) (the 'Exercise Price').
Exercise. The Warrants will be exercisable at any time on or after the
date of issuance.
Expiration. The Warrants will expire three years after the date of
issuance unless redeemed earlier.
Redemption. At any time on or after , 1995, if the closing
price of the Class A Common Stock on its principal trading market is at least
150% of the then effective Exercise Price for at least thirty consecutive
trading days ending within fifteen days prior to the Company's notice of
redemption, the Company may redeem the Warrants, in whole or in part, at a price
of $.50 per Warrant (subject to adjustment as set forth in the Warrant
Agreement).
Transferability. The Warrants will not be transferable separately from the
Series A Cumulative Senior Preferred Stock.
The Warrants are subject to the terms and conditions of a warrant agreement
(the 'Warrant Agreement') between the Company and American Stock Transfer and
Trust Company.
For a description of certain anti-takeover provisions contained in the
Company's Certificate of Incorporation and By-Laws, See 'Description of Capital
Stock--Certain Anti-Takeover Effects.'
For a description of the Class A Common Stock, see 'Description of Capital
Stock--Class A Common Stock and Class B Common Stock.'
83
<PAGE>
DESCRIPTION OF DEBENTURES
DESCRIPTION OF 1987 DEBENTURES
GENERAL
The 7 3/4% Convertible Senior Subordinated Debentures due March 15, 2002
(the '1987 Debentures') were issued in fully registered form under an Indenture
dated as of March 15, 1987 (the 'Indenture'), between the Company and United
Jersey Bank, as Trustee (the 'Trustee'). The 1987 Debentures bear interest at
the rate of 7 3/4% per annum, payable on March 15 and September 15 in each year
to holders of record at the close of business on February 28 and August 31 next
preceding the interest payment date. The 1987 Debentures will mature on March
15, 2002 and were issued in denominations of $1,000 and integral multiples
thereof.
The 1987 Debentures are general unsecured obligations of the Company and
are convertible into Class A Common Stock of the Company, as described under
'Conversion' and are subordinate in right of payment to Senior Indebtedness of
the Company, as described under 'Subordination.'
The terms of the 1987 Debentures include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(the 'Trust Indenture Act') as in effect on the date of the Indenture. The 1987
Debentures are subject to all such terms, and holders of the 1987 Debentures are
referred to the Indenture and the Trust Indenture Act for a statement of them.
The statements under this caption relating to the Indenture and the 1987
Debentures are summaries and do not purport to be complete. Such summaries make
use of certain terms defined in the Indenture and are qualified in their
entirety by express reference to the Indenture.
CONVERSION
The holder of any 1987 Debenture is entitled at any time up to and
including March 15, 2002, subject to prior redemption, to convert the 1987
Debentures (or portions thereof which are $1,000 or integral multiples thereof)
at the principal amount thereof, into shares of Class A Common Stock of the
Company, at the conversion price of $4.75 per share, subject to adjustment as
described below. No payment or adjustment will be made for interest accrued on a
converted 1987 Debenture or dividends on any Class A Common Stock issued.
However, if a 1987 Debenture is converted subsequent to any record date with
respect to the payment of interest and on or prior to the date for the payment
of such interest, the interest falling due on such date shall be paid to the
record holder of the 1987 Debenture on such record date. The Company is not
required to issue fractional shares of Class A Common Stock upon conversion of
1987 Debentures and, in lieu thereof, will pay a cash adjustment based upon the
market price of the Class A Common Stock on the last trading day prior to the
date of conversion. In the case of 1987 Debentures called for redemption,
conversion rights will expire at the close of business five days prior to the
redemption date.
The conversion price is subject to adjustment as set forth in the Indenture
in certain events, including: (i) the issuance of Class A Common Stock as a
dividend or distribution on existing Class A Common Stock; (ii) subdivisions,
combinations and/or reclassifications of Class A Common Stock; (iii) certain
mergers, consolidations and sales of assets; (iv) the issuance for no
consideration to all holders of Class A Common Stock of certain rights or
warrants entitling them to subscribe for Class A Common Stock at less than the
current market price (as defined); (v) the distribution for no consideration to
all holders of Class A Common Stock of assets or debt securities of the Company
or rights or warrants to purchase assets, debt securities or other securities of
the Company (excluding cash dividends or distributions from retained earnings);
(vi) the issuance, in certain circumstances, of shares of Class A Common Stock
for consideration less than the current market price; (vii) and the issuance, in
certain circumstances, of securities convertible into or exchangeable or
exercisable for shares of Class A Common Stock (other than pursuant to
transactions described above) for a consideration per share of Class A Common
Stock deliverable on such conversion, exchange or exercise that is less than the
current market price of the Class A Common Stock on the date of issuance of such
security. No adjustment in the conversion price is required until cumulative
adjustments amount to at least one percent of the conversion price then in
effect.
84
<PAGE>
The Company may at any time reduce the conversion price by any amount,
provided, however, that such price reduction shall remain in effect for a
minimum period of ten business days and that the conversion price is not less
than the par value of a share of Class A Common Stock. If the Company
consolidates with or merges into or transfers or leases all or substantially all
of its assets to any person or entity, the 1987 Debentures will become
convertible into the kind and amount of securities, cash or other assets which
the holders of the 1987 Debentures would have owned immediately after the
transaction if the holders had converted the 1987 Debentures immediately before
the effective date of the transaction.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the 1987
Debentures is subordinated in right of payment, in the manner and to the extent
set forth in the Indenture, to the prior payment in full of all Senior
Indebtedness, as defined in the Indenture, whether outstanding on the date of
the Indenture or thereafter created, incurred or assumed. Upon (i) the maturity
of any Senior Indebtedness by lapse of time, acceleration or otherwise or (ii)
any distribution of the assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company, the holders of Senior Indebtedness
will be entitled to receive payment in full before the Debentureholders are
entitled to receive any payment, provided that the restriction contained in (i)
above shall not prevent a sinking fund payment in respect of the 1987 Debentures
made in 1987 Debentures acquired by the Company prior to the occurrence or
notice of any such maturity. During the continuance of any default under any
agreement governing Senior Indebtedness permitting acceleration of the maturity
thereof (other than a default relating to payment of principal, premium, if any,
or interest, which constitutes a situation governed by clause (i) above) no
payment may be made on the 1987 Debentures for a period of 270 days after the
earlier of the date the Company or the Trustee received notice of such default
from a person entitled to give such notice, but payments may thereafter be
resumed unless such payments are prohibited under clause (i) above or otherwise.
No new 270-day period of suspension of payments relating to the same default on
the same issue of Senior Indebtedness may be commenced within nine months after
the first such notice relating thereto. If in any of the situations referred to
above a payment is made to the Trustee or to holders of 1987 Debentures before
all Senior Indebtedness has been paid in full or provision has been made for
such payment, the payment to the Trustee or holders of 1987 Debentures must be
paid over to the holders of Senior Indebtedness.
'Senior Indebtedness' means: the principal of, premium, if any, and any
accrued and unpaid interest on all Indebtedness of the Company outstanding at
any time; provided that 'Senior Indebtedness' shall not include (i) any
Indebtedness if the terms of the instrument creating or evidencing such
Indebtedness provide that such Indebtedness is not senior or superior in right
of payment to the 1987 Debentures or (ii) any Indebtedness of the Company to a
Subsidiary for money borrowed or advanced from such Subsidiary.
'Indebtedness' means: (a) any debt of the Company (i) for borrowed money,
(ii) evidenced by a note, debenture, or similar instrument (including
capitalized lease and purchase money obligations) given in connection with the
acquisition of any property or assets, including securities, or (iii) evidenced
by performance bonds; (b) any debt of others described in the preceding clause
(a) which the Company has guaranteed or for which it is otherwise liable; and
(c) any amendment, renewal, extensions, restructuring, or refunding of any such
debt.
At December 31, 1993 the amount of Senior Indebtedness outstanding was
approximately $40,370,000.
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS
The Company may not incur, directly or indirectly, any Indebtedness which,
by its terms is both (i) subordinate or junior in right of payment to any Senior
Indebtedness and (ii) senior or superior in right of payment to the 1987
Debentures. The amount of Senior Indebtedness the Company may incur is limited
by the Funded Indebtedness restrictions applicable to the Company under the
Indenture. (THE FUNDED INDEBTEDNESS RESTRICTIONS WILL BE REMOVED IF THE PROPOSED
AMENDMENTS ARE ADOPTED.)
85
<PAGE>
LIMITATION ON DIVIDENDS AND STOCK PURCHASES
The Company may not declare or pay any dividend or make any distribution on
its capital stock or to its stockholders other than dividends and distributions
payable solely in shares of its capital stock, and the Company and its
Subsidiaries may not purchase, redeem or otherwise acquire or retire for value
any capital stock of the Company (such dividends, distributions, purchases,
redemptions and other acquisitions and retirements being collectively referred
to as 'Stock Payments'), unless (a) at the time of such Stock Payment no Event
of Default under the Indenture has occurred and is continuing, and (b) after
giving effect thereto the aggregate amount expended for all Stock Payments
subsequent to December 31, 1986 does not exceed the sum of: (i) 25% of the
Consolidated Net Income accrued on a cumulative basis subsequent to December 31,
1986 (or, in case such Consolidated Net Income shall be a deficit, minus 100% of
such deficit), (ii) the aggregate net proceeds received by the Company from the
issue or sale subsequent to December 31, 1986 of its capital stock (including
capital stock issued upon the conversion of Indebtedness) and (iii) $500,000;
provided, however, that such provisions shall not prevent (A) the payment of any
dividend within 60 days after the date of declaration thereof if the payment
would have been permitted on the date of declaration or (B) the retirement of
any shares of the Company's capital stock in exchange for, or out of the
proceeds of the substantially concurrent sale of, other shares of its capital
stock, or (C) the call for redemption of any convertible preferred stock of the
Company under an agreement with a responsible underwriter designed to insure
that all such stock is converted rather than redeemed.
'Consolidated Net Income' for any period means the consolidated net income
of the Company and its consolidated subsidiaries, determined in accordance with
generally accepted accounting principles, excluding the following: (a) any net
income of any person acquired by the Company or any of its consolidated
subsidiaries in a pooling of interests transaction for any period prior to the
date of such transaction; (b) the portion of net income allocable to any
minority interests in any subsidiaries; and (c) the net income of any person in
which the Company or any Subsidiary has a joint interest with a third party
except to the extent actually paid or distributed to the Company.
'Subsidiary' means a corporation, a majority of whose voting stock is owned
by the Company or its other Subsidiaries and which has assets equal to at least
5% of the consolidated total assets of the Company and its Subsidiaries.
THE RESTRICTIONS DESCRIBED IN THIS SECTION WILL BE REMOVED IF THE PROPOSED
AMENDMENTS ARE ADOPTED.
LIMITATION ON FUNDED INDEBTEDNESS
The Company may not, and may not permit any consolidated subsidiary to,
incur or create any Funded Indebtedness if after giving effect to the incurrence
or creation of such Funded Indebtedness, the total outstanding Funded
Indebtedness of the Company on a consolidated basis would exceed 75% of the sum
of Consolidated Stockholders' Equity and Funded Indebtedness.
Notwithstanding the foregoing, the Company may amend, renew, extend or
refund any Indebtedness outstanding from time to time in an amount not greater
than the principal amount of such Indebtedness at the date of original
incurrence or creation.
'Funded Indebtedness' means (i) any Indebtedness, other than Indebtedness
of a Subsidiary to the extent not guaranteed by the Company and other than
Indebtedness the proceeds of which are used solely to redeem or repurchase 1987
Debentures, which is due and payable more than one year from the date of
determination; (ii) any Indebtedness, other than Indebtedness of a Subsidiary to
the extent not guaranteed by the Company and other than Indebtedness the
proceeds of which are used solely to redeem or repurchase 1987 Debentures,
regardless of its term, if such Indebtedness is renewable or extendable, at the
sole option of the obligor of such Indebtedness pursuant to the terms thereof,
to a date more than one year from the date of determination; and (iii) any
Indebtedness, other than Indebtedness of a Subsidiary to the extent not
guaranteed by the Company and other than Indebtedness the proceeds of which are
used solely to redeem or repurchase 1987 Debentures, regardless of its term,
which by its terms or by the terms of the agreement or instrument pursuant to
which it is issued may be paid with the proceeds of other Indebtedness which may
be incurred pursuant to the terms of such first mentioned
86
<PAGE>
Indebtedness or of such agreement, which other Indebtedness is due and payable
more than one year from the date of determination.
THE RESTRICTIONS DESCRIBED IN THIS SECTION WILL BE REMOVED IF THE PROPOSED
AMENDMENTS ARE ADOPTED.
MAINTENANCE OF CONSOLIDATED STOCKHOLDERS' EQUITY
If the Company's Consolidated Stockholders' Equity at the end of each of
any two consecutive fiscal quarters is less than $7,500,000 then on the last day
of the fiscal quarter next following such second consecutive fiscal quarter (the
'Purchase Date') the Company is obligated to offer to purchase the lesser of
7.5% of the aggregate principal amount of 1987 Debentures or the then
outstanding principal amount of 1987 Debentures. In any such event the purchase
price shall be 100% of the principal amount plus accrued interest to the
Purchase Date. The Company may credit against its obligations to offer to
repurchase 1987 Debentures under this provision the principal amount of (i) 1987
Debentures acquired by the Company through exchange or otherwise and surrendered
for cancellation and (ii) 1987 Debentures redeemed or called for redemption
otherwise than through operation of the sinking fund (but only to the extent
that such 1987 Debentures have not already been credited toward a sinking fund
payment). Any offer to acquire 1987 Debentures must be mailed by the Trustee not
less than 30 days nor more than 60 days prior to the Purchase Date to the
holders of the 1987 Debentures to be redeemed at their last registered address.
If an offer to acquire the 1987 Debentures is oversubscribed, the Company shall
acquire 1987 Debentures pro rata.
'Consolidated Stockholders' Equity' shall mean the amount shown as Total
Stockholders' Equity on the then current Consolidated Balance Sheet of the
Company, determined in accordance with generally accepted accounting principles.
THE RESTRICTIONS DESCRIBED IN THIS SECTION WILL BE REMOVED IF THE PROPOSED
AMENDMENTS ARE ADOPTED.
REDEMPTION
Optional. The Company may redeem all or any portion of the 1987 Debentures
at any time at the following redemption prices (expressed in percentages of
principal amount), plus accrued interest to the redemption date:
<TABLE>
<CAPTION>
PERCENTAGE OF
IF REDEEMED DURING THE TWELVE-MONTH PERIOD BEGINNING MARCH 15, PRINCIPAL AMOUNT
- ---------------------------------------------------------------------------- ----------------
<S> <C>
1994........................................................................ 101.722%
1995........................................................................ 100.861
1996 and thereafter......................................................... 100.000
</TABLE>
Sinking Fund. The Company is obligated to redeem a principal amount of
1987 Debentures equal to 7.5% of the aggregate amount of 1987 Debentures
originally issued, on each March 15 through March 15, 2001 at a redemption price
of 100% of principal amount, plus accrued interest to the redemption date. The
Company may reduce the principal amount to be redeemed by subtracting 100% of
the principal amount of any 1987 Debentures that have been converted into Class
A Common Stock of the Company or that the Company has delivered to the Trustee
for cancellation or has redeemed other than pursuant to the sinking fund.
Notice. Notice of redemption must be mailed at least 30 days but not more
than 60 days before the redemption date to the address of the holder of each
1987 Debenture to be redeemed. If less than all 1987 Debentures are to be
redeemed, the Trustee shall select the 1987 Debentures to be redeemed in
accordance with the rules of any securities exchange on which the 1987
Debentures are listed, or if they are not so listed, pro rata or by lot. 1987
Debentures in a denomination larger than $1,000 may be redeemed in part in
$1,000 multiples. On and after the redemption date, interest ceases to accrue on
1987 Debentures or portions thereof, called for redemption.
87
<PAGE>
TRANSFER AND EXCHANGE
The 1987 Debentures are in registered form without coupons in denominations
of $1,000 and integral multiples of $1,000. A Debentureholder may transfer or
exchange 1987 Debentures in accordance with the Indenture. In connection
therewith, the registrar may require a Debentureholder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The registrar need not
transfer or exchange any previously selected 1987 Debenture for redemption. In
addition, the registrar need not transfer or exchange any 1987 Debentures for a
period of 15 days before a selection of 1987 Debentures to be redeemed. A
registered Debentureholder may be treated as the owner of its 1987 Debentures
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the 1987 Debentures may be
amended or supplemented with the consent of the holders of at least a majority
in principal amount of the 1987 Debentures, and any past default or
noncompliance with any provision may be waived with the consent of the holders
of a majority in principal amount of the 1987 Debentures. However, without the
consent of each Debentureholder affected, (a) the Company may not amend or
supplement the Indenture or the 1987 Debentures to, among other things, reduce
the rate or extend the time for payment of interest on the 1987 Debentures or
reduce the principal or extend the maturity of any 1987 Debenture, make any
change in the conversion or subordination provisions of the Indenture that is
materially adverse to the Debentureholders, make any change in the sinking fund
requirements or reduce the percentage of principal amount of 1987 Debentures
required for a modification and (b) no default in the payment of principal of or
interest on any 1987 Debentures may be waived. Without the consent of any
Debentureholder, the Company may amend or supplement the Indenture or the 1987
Debentures to cure any ambiguity, defect or inconsistency or to provide for
uncertificated 1987 Debentures in addition to or in place of certificated 1987
Debentures or to make any change that does not have a materially adverse effect
on the rights of any Debentureholder.
MERGERS
The Company may not consolidate with or merge with or into, or sell or
transfer all or substantially all of the its assets to, another entity unless
(i) either the Company is the surviving person or the successor or transferee is
a United States corporation, (ii) the successor entity assumes all the
obligations of the Company under the 1987 Debentures and the Indenture, (iii)
each of the total assets and stockholders' equity of the successor entity is not
less than the total assets and stockholders' equity of the Company prior to such
consolidation, merger or sale, (iv) after such transaction the Company could
incur an additional one dollar ($1) of indebtedness and (v) after such
transaction no Event of Default exists. Thereafter all such obligations of the
Company shall terminate.
DEFAULTS AND REMEDIES
An Event of Default occurs in the event of any one of the following:
default for 30 days in payment of interest on the 1987 Debentures; default in
the payment of principal on the 1987 Debentures; failure by the Company for 30
days after notice to it to comply with any of its other agreements in the
Indenture or the 1987 Debentures; the occurrence of any event of default under
an instrument evidencing or securing other Indebtedness of the Company or any
Subsidiary for borrowed money which event of default, either individually or in
the aggregate, results in acceleration of such Indebtedness in any amount
exceeding $1,000,000, which acceleration is not rescinded, annulled or stayed
within 60 days after notice to the Company; rendering of final judgment against
the Company in an amount in excess of $250,000, which judgment is not rescinded,
annulled or stayed within a period of 60 days after such judgment becomes final
and nonappealable; and certain events of bankruptcy, insolvency or
reorganization. If an Event of Default occurs and is continuing, the Trustee or
the holders of at least 25% in principal amount of the 1987 Debentures then
outstanding, by notice in writing to the Company, may declare the principal
amount of and all accrued interest on all 1987 Debentures to be due and payable
immediately. Upon such declaration all such 1987 Debentures shall become due and
payable immediately.
THIS SECTION WILL BE MODIFIED IF THE PROPOSED AMENDMENTS ARE ADOPTED.
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The Indenture provides that the Trustee shall within 90 days after the
occurrence of a default give to the Debentureholders notice of all uncured
defaults known to it (the term 'default' to include the events specified above,
without grace or notice) provided that the Trustee may withhold from
Debentureholders notice of any continuing default (except a default in payment
of principal or interest or a default in sinking fund payments) if it determines
in good faith that withholding notice is in their interest. The Company is
required to file periodic reports with the Trustee as to the absence of default.
SATISFACTION AND DISCHARGE OF INDENTURE
The Company may terminate its obligations (with certain exceptions) under
the 1987 Debentures and the Indenture if all 1987 Debentures previously
authenticated and delivered (other than destroyed, lost or stolen 1987
Debentures which have been replaced or paid) have been delivered to the Trustee
for cancellation or if (1) the 1987 Debentures mature within six months or all
of them are to be called for redemption within six months under arrangements
satisfactory to the Trustee for giving the notice of redemption and (2) the
Company irrevocably deposits in trust with the Trustee money or United States
Government obligations sufficient to pay the principal of and interest on the
outstanding 1987 Debentures to maturity or redemption, as the case may be, and
to pay all sums payable to the Trustee under the Indenture.
THE TRUSTEE
United Jersey Bank is Trustee under the Indenture.
The holders of a majority in principal amount of all outstanding 1987
Debentures have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee. The Indenture
provides that in case an Event of Default shall occur (which shall not be
cured), the Trustee is required to use the degree of care of a prudent person in
the conduct of his own affairs in the exercise of its power. Subject to such
provisions, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request of any of the Debentureholders, unless
they shall have offered to the Trustee security and indemnity satisfactory to
it.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
See 'Certain Federal Income Tax Consequences.'
DESCRIPTION OF 1990 DEBENTURES
GENERAL
The 11% Convertible Senior Subordinated Debentures due March 15, 2010 (the
'1990 Debentures') were issued in fully registered form under an Indenture dated
as of March 15, 1990 (the '1990 Indenture') between the Company and Fidelity
Bank, National Association, as Trustee (the 'Trustee'). The 1990 Debentures bear
interest at the rate of 11% per annum, payable on March 15 and September 15 in
each year to holders of record at the close of business on February 28 and
August 31 next preceding the interest payment date. The 1990 Debentures will
mature on March 15, 2010 and were issued in denominations of $1,000 and integral
multiples thereof.
The 1990 Debentures are general unsecured obligations of the Company and
are convertible into Class A Common Stock of the Company, as described under
'Conversion,' and are subordinate in right of payment to Senior Indebtedness of
the Company, as described under 'Subordination.' The Company's 1987 Debentures
impose restrictions on the Company which in certain circumstances are more
restrictive than those contained in the 1990 Debentures offered hereby. See
'Description of 1987 Debentures.'
The terms of the 1990 Debentures include those stated in the 1990 Indenture
and those made part of the 1990 Indenture by reference to the Trust Indenture
Act of 1939 (the 'Trust Indenture Act') as in effect on the date of the 1990
Indenture. The 1990 Debentures are subject to all such terms, and holders of the
1990 Debentures are referred to the 1990 Indenture and the Trust Indenture Act
for a statement of them. The statements under this caption relating to the 1990
Indenture and the 1990 Debentures are summaries and do not
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purport to be complete. Such summaries make use of certain terms defined in the
1990 Indenture and are qualified in their entirety by express reference to the
1990 Indenture.
CONVERSION
The holder of any 1990 Debentures is entitled at any time up to and
including March 15, 2010, subject to prior redemption or repurchase, to convert
the 1990 Debentures (or portions thereof which are $1,000 or integral multiples
thereof) at the principal amount thereof, into shares of Class A Common Stock of
the Company, at the conversion price of $5.55 per share, subject to adjustment
as described below. No payment or adjustment will be made for interest accrued
on a converted 1990 Debenture or dividends on any Class A Common Stock. However,
if a 1990 Debenture is converted subsequent to any record date with respect to
the payment of interest and on or prior to the date for the payment of such
interest, the interest falling due on such date shall be paid to the record
holder of the 1990 Debenture on such record date. The Company is not required to
issue fractional shares of Class A Common Stock upon conversion of 1990
Debentures and, in lieu thereof, will pay a cash adjustment based upon the
market price of the Class A Common Stock on the last trading day prior to the
date of conversion. In the case of 1990 Debentures called for redemption,
conversion rights will expire at the close of business 15 days prior to the
redemption date.
The conversion price is subject to adjustment as set forth in the Indenture
in certain events, including the issuance of stock of the Company as a dividend
or distribution on the Class A Common Stock; subdivisions, combinations and
reclassifications of the Class A Common Stock; the issuance to all holders of
Class A Common Stock of certain rights, options or warrants entitling them to
subscribe for Class A Common Stock, or securities convertible into or
exchangeable for Class A Common Stock or rights, options or warrants to
subscribe for or purchase such convertible or exchangeable securities at a price
per share (as defined in the Indenture) less than the current market price (as
defined in the Indenture) and the distribution to all holders of Class A Common
Stock of assets or debt securities of the Company or rights or warrants (other
than as referred to above) to purchase assets or debt securities of the Company.
The Company's Board of Directors shall make all determinations of the fair
market value of all distributions and dividends. No adjustment in the conversion
price is required unless such adjustment would require a change of at least 1%
in the conversion price then in effect.
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock, or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing, in exchange
for cash, property or services.
The Company may at any time reduce the conversion price by any amount,
provided, however, that such price reduction shall remain in effect for a
minimum period of ten Business Days or so long as required under applicable law
and that the conversion price is not less than the par value of a share of Class
A Common Stock at the time such reduction is made. If the Company consolidates
with or merges into or transfers all or substantially all of its assets to any
person or entity, the 1990 Debentures will become convertible into the kind and
amount of securities, cash or other assets which the holders of the 1990
Debentures would have owned immediately after the transaction if the holders had
converted the 1990 Debentures immediately before the effective date of the
transaction.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the 1990
Debentures is subordinated in right of payment, in the manner and to the extent
set forth in the 1990 Indenture, to the prior payment in full of all Senior
Indebtedness as defined in the 1990 Indenture, whether outstanding on the date
of the 1990 Indenture or thereafter created, incurred or assumed. Upon (i) the
maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise
or (ii) any distribution of the assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company, the holders of Senior
Indebtedness will be entitled to receive payment in full before the
Debentureholders are entitled to receive any payment. During the continuance of
any default under any agreement governing Senior Indebtedness permitting
acceleration of the maturity thereof (other than a default relating to payment
of principal, premium, if any, or interest, which constitutes a situation
governed by clause (i) above) no payment may be made on the 1990 Debentures for
a period of 179 days after the earlier of the date the Company or the Trustee
receives notice of such default from a person entitled to give such
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notice, but payments may thereafter be resumed unless such payments are
prohibited under clause (i) above or otherwise. No new 179-day period of
suspension of payments relating to the same default on the same issue of Senior
Indebtedness may be commenced within nine months after the first such notice
relating thereto. If in any of the situations referred to above a payment is
made to the Trustee or to holders of 1990 Debentures before all Senior
Indebtedness has been paid in full or provision has been made for such payment,
the payment to the Trustee or holders of 1990 Debentures must be paid over to
the holders of Senior Indebtedness.
Subject to the payments in full of all Senior Indebtedness, the rights of
the holders of the 1990 Debentures are subrogated to the rights of the holders
of Senior Indebtedness to receive payments or distributions applicable to Senior
Indebtedness until all amount owing on the 1990 Debentures are paid in full.
'Senior Indebtedness' means the principal of, premium, if any, and any
accrued and unpaid interest on all Indebtedness of the Company outstanding at
any time; provided that 'Senior Indebtedness' shall not include (i) any
Indebtedness if the terms of the instrument creating or evidencing such
Indebtedness provide that such Indebtedness is not senior or superior in right
of payment to the 1990 Debentures or (ii) any Indebtedness of the Company to a
Subsidiary for money borrowed or advanced from such Subsidiary.
'Indebtedness' means (a) any debt of the Company (i) for borrowed money,
(ii) evidenced by a note, debenture, or similar instrument (including
capitalized lease and purchase money obligations) given in connection with the
acquisition of any property or assets, including securities, or (iii) evidenced
by performance bonds; (b) any debt of others described in the preceding clause
(a) which the Company has guaranteed or for which it is otherwise liable; and
(c) any amendment, renewal, extensions, restructuring, or refunding of any such
debt.
At December 31, 1993, the amount of Senior Indebtedness outstanding was
approximately $40,370,000. The 1987 Debentures rank on the same level of
Indebtedness as the 1990 Debentures.
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS
The Company may not incur, directly or indirectly, any Indebtedness which,
by its terms is both (i) subordinate or junior in right of payment to any Senior
Indebtedness and (ii) senior or superior in right of payment to the 1990
Debentures.
LIMITATION ON DIVIDENDS AND STOCK PURCHASES
The Company may not declare or pay any dividend or make any distribution on
its capital stock to its stockholders other than dividends and distributions
payable solely in shares of its capital stock, and the Company and its
Subsidiaries may not purchase, redeem or otherwise acquire or retire for value
any capital stock of the Company (such dividends, distributions, purchases,
redemptions and other acquisitions and retirements being collectively referred
to as 'Stock Payments'), unless (a) at the time of such Stock Payment no Event
of Default under the 1990 Indenture has occurred and is continuing, and (b)
after giving effect thereto the aggregate amount expended for all Stock Payments
subsequent to December 31, 1989 does not exceed the sum of: (i) 25% of the
Consolidated Net Income accrued on a cumulative basis subsequent to December 31,
1989 (or, in case such Consolidated Net Income shall be a deficit, minus 100% of
such deficit), except that in the event the Company's Consolidated Stockholders'
Equity is $60,000,000 or more such percentage shall be 50%, (ii) the aggregate
net proceeds received by the Company from the issue or sale subsequent to
December 31, 1989 of its capital stock; (iii) the aggregate net proceeds from
the issuance of any Indebtedness of the Company (including the 1990 Debentures)
which has been converted into Capital Stock of the Company subsequent to
December 31, 1989 and (iv) $2,000,000; provided, however, that such provisions
shall not prevent (A) the payment of any dividend within 60 days after the date
of declaration thereof if the payment would have been permitted on the date of
declaration or (B) the acquisition or retirement of any shares of the Company's
capital stock in exchange for, or out of the proceeds of the substantially
concurrent sale of, other shares of its capital stock or (C) the call for
redemption of any convertible preferred stock or convertible debt of the Company
under an agreement with a responsible underwriter designed to insure that all
such stock or debt is converted rather than redeemed.
The Company's 1987 Debentures further restrict the ability of the Company
to declare or pay dividends or make other distributions or Stock Payments. See
'Description of 1987 Debentures.'
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'Consolidated Net Income' for any period means the consolidated net income
of the Company and its consolidated subsidiaries, determined in accordance with
generally accepted accounting principles, excluding the following: (a) any net
income of any person acquired by the Company or any of its consolidated
subsidiaries in a pooling of interests transaction for any period prior to the
date of such transaction; (b) the portion of net income allocable to any
minority interests in any subsidiaries; and (c) the net income of any person in
which the Company or any Subsidiary has a joint interest with a third party
except to the extent actually paid or distributed to the Company.
'Subsidiary' means a corporation, a majority of whose voting stock is owned
by the Company or its other Subsidiaries and which has assets equal to at least
5% of the consolidated total assets of the Company and its Subsidiaries.
THE RESTRICTIONS DESCRIBED IN THIS SECTION WILL BE REMOVED IF THE PROPOSED
AMENDMENTS ARE ADOPTED.
MAINTENANCE OF CONSOLIDATED STOCKHOLDERS' EQUITY
If the Company's Consolidated Stockholders' Equity at the end of each of
any two consecutive fiscal quarters is less than $10 million then on the last
day of the fiscal quarter next following such second consecutive fiscal quarter
(the 'Purchase Date') the Company is obligated to offer to purchase the lesser
of 7.5% of the aggregate principal amount of 1990 Debentures or the then
outstanding principal amount of 1990 Debentures. In any such event the purchase
price shall be 100% of the principal amount plus accrued interest to the
Purchase Date. The Company may credit against its obligations to offer to
repurchase 1990 Debentures under this provision the principal amount of (i) 1990
Debentures, acquired by the Company through exchange or otherwise and
surrendered for cancellation and (ii) 1990 Debentures repurchased or redeemed or
called for redemption (but only to the extent that such 1990 Debentures have not
already been used as a credit under the 1990 Indenture). Any offer to acquire
1990 Debentures will be mailed by the Trustee not less than 30 days nor more
than 60 days prior to the Purchase Date to the holders of the 1990 Debentures to
be redeemed at their last registered address. If an offer to acquire the 1990
Debentures is oversubscribed, the Company shall acquire 1990 Debentures pro
rata.
The Company's 1987 Debentures provide further restrictions relating to the
maintenance of Consolidated Stockholders' Equity. See 'Description of 1987
Debentures.'
If the option granted to holders to require the repurchase of the 1990
Debentures upon the failure of the Company to maintain a minimum Consolidated
Stockholders' Equity is deemed to constitute a tender offer under then current
interpretations of the Exchange Act and rules and regulations thereunder, the
Company will comply with all applicable tender offer rules as then in effect,
including Rules 13e-4 and 14e-1 under the Exchange Act, in connection with the
repurchase of the 1990 Debentures.
'Consolidated Stockholders' Equity' shall mean the amount shown as Total
Stockholders' Equity on the then current Consolidated Balance Sheet of the
Company, determined in accordance with generally accepted accounting principles.
THE RESTRICTIONS DESCRIBED IN THIS SECTION WILL BE REMOVED IF THE PROPOSED
AMENDMENTS ARE ADOPTED.
REDEMPTION
Optional. The Company may redeem all or any portion of the 1990 Debentures
at any time at the following redemption prices (expressed in percentages of
principal amount), plus accrued interest to the redemption date:
<TABLE>
<CAPTION>
PERCENTAGE OF
IF REDEEMED DURING THE TWELVE-MONTH PERIOD BEGINNING MARCH 15, PRINCIPAL AMOUNT
- ---------------------------------------------------------------------------- ----------------
<S> <C>
1994........................................................................ 105.5%
1995........................................................................ 104.4
1996........................................................................ 103.3
1997........................................................................ 102.2
1998........................................................................ 101.1
1999 and thereafter......................................................... 100.0
</TABLE>
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Sinking Fund. The Company is obligated to redeem a principal amount of
1990 Debentures equal to 5% of the aggregate amount of 1990 Debentures
originally issued, on March 15, 2000 and on each March 15 thereafter through
March 15, 2009 at a redemption price of 100% of principal amount, plus accrued
interest to the redemption date. The Company may reduce the principal amount to
be redeemed by subtracting 100% of the principal amount of any 1990 Debentures
which have been redeemed other than pursuant to the sinking fund or converted
into Class A Common Stock of the Company or otherwise acquired by the Company
and surrendered for cancellation and not previously credited.
Notice. Notice of redemption must be mailed at least 30 days but not more
than 60 days before the redemption date to the address of the holder of each
1990 Debenture to be redeemed. If less than all 1990 Debentures are to be
redeemed, the Trustee shall select the 1990 Debentures to be redeemed in
accordance with the rules of any securities exchange on which the 1990
Debentures are listed, or if they are not so listed, pro rata or by lot or such
other method as the Trustee shall deem fair and appropriate. 1990 Debentures in
a denomination larger than $1,000 may be redeemed in part in $1,000 multiples.
On and after the redemption date, interest ceases to accrue on 1990 Debentures
or portions thereof, called for redemption.
REPURCHASE AT OPTION OF HOLDERS UPON CHANGE OF CONTROL
If there occurs any Change of Control (as defined below) with respect to
the Company, each holder of 1990 Debentures has the right, at the holder's
option, to require the Company to repurchase all of such holder's 1990
Debentures, or a portion of the principal amount thereof that is an integral
multiple of $1,000, on the date (the 'Repurchase Date') that is no earlier than
60 days and no later than 100 days after the occurrence of a Change of Control
(as defined below) at a price equal to 100% of principal amount of the 1990
Debentures to be repurchased (the 'Repurchase Price'), together with accrued
interest to the Repurchase Date. If the Repurchase Date is on or after an
interest payment record date and on or before the related interest payment date,
the interest payable with respect to the 1990 Debentures submitted for
repurchase shall be paid on said interest payment date to the registered holder
thereof on the related interest payment record date and no additional interest
will be payable to holders who submit 1990 Debentures for repurchase.
Within 30 days after the occurrence of a Change of Control, the Company is
obligated to mail to all holders of record of the 1990 Debentures a notice (the
'Company Notice') of the occurrence of such Change of Control and of the
repurchase right arising as a result thereof. The Company must deliver a copy of
the Company Notice to the Trustee. To exercise the repurchase right, holders of
1990 Debentures must deliver on or before the tenth business day prior to the
Repurchase Date irrevocable written notice to the Company (or an agent
designated by the Company for such purpose) and the Trustee of the holder's
exercise of such right, together with the 1990 Debentures with respect to which
the right is being exercised, duly endorsed for transfer.
A 'Change of Control' of the Company shall be deemed to have occurred at
such time as any Person (including any syndicate or group deemed to be a person
under Section 13(d)(3) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of all or substantially all of the shares
of the Company's Capital Stock; provided, however, that a Change of Control
shall not be deemed to have occurred if substantially all of the consideration
(excluding cash payments for fractional shares) to be paid for the Common Stock
in the transaction or transactions constituting the Change of Control consists
of shares of common stock (i) traded on a national securities exchange or
through NASDAQ or another comparable quotation system and (ii) of which there
would be at least 1,000,000 shares of common stock held by at least 300
beneficial owners. 'Beneficial owner' shall be determined in accordance with
Rule 13d-3 promulgated by the Commission under the Exchange Act, as in effect on
the date of the execution of the 1990 Indenture.
Since the events described in this Section could be expected to occur in
connection with certain forms of takeover attempts, these provisions could deter
hostile or friendly acquisitions of the Company where the person attempting the
acquisition views itself as unable to finance the purchase of the principal
amount of 1990 Debentures which may be tendered to the Company upon occurrence
of a Change of Control.
If the option granted to holders to require the repurchase of the 1990
Debentures upon the occurrence of a Change of Control is deemed to constitute a
tender offer under then current interpretations of the Exchange Act
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and rules and regulations thereunder, the Company will comply with all
applicable tender offer rules as then in effect, including Rules 13e-4 and 14e-1
under the Exchange Act, upon the occurrence of a Change of Control.
TRANSFER AND EXCHANGE
The 1990 Debentures are in registered form without coupons in denominations
of $1,000 and integral multiples of $1,000. A Debentureholder may transfer or
exchange 1990 Debentures in accordance with the 1990 Indenture. In connection
therewith, the registrar may require a Debentureholder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the 1990 Indenture. The registrar need not
transfer or exchange any previously selected 1990 Debenture for redemption. In
addition, the registrar need not transfer or exchange any 1990 Debentures for a
period of 15 days before a selection of 1990 Debentures to be redeemed. A
registered Debentureholder may be treated as the owner of its 1990 Debenture for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the 1990 Indenture or the 1990 Debentures
may be amended or supplemented with the consent of the holders of at least a
majority in principal amount of the 1990 Debentures, and any past default or
noncompliance with any provision may be waived with the consent of the holders
of a majority in principal amount of the 1990 Debentures. However, without the
consent of each Debentureholder affected, the Company may not amend or
supplement the 1990 Indenture or the 1990 Debentures to, among other things,
reduce the rate or extend the time for payment of interest on the 1990
Debentures or reduce the principal or extend the maturity of any 1990 Debenture,
or reduce the percentage of principal amount of 1990 Debentures required for a
modification. Without the consent of any Debentureholder, the Company may amend
or supplement the 1990 Indenture or the 1990 Debentures to cure any ambiguity,
omission, defect or inconsistency or to provide for uncertificated 1990
Debentures in addition to or in place of certificated 1990 Debentures or to make
any change that does not have a materially adverse effect on the rights of any
Debentureholder.
MERGERS
The Company may not consolidate with or merge with or into, or sell or
transfer all or substantially all of its assets to another entity unless (i)
either the Company is the surviving person or the successor or transferee is a
United States corporation, (ii) the successor entity assumes all the obligations
of the Company under the 1990 Debentures and the 1990 Indenture, (iii) the
successor corporation has Consolidated Stockholders' Equity immediately after
such transaction equal to or greater than the Consolidated Stockholders' Equity
of the Company prior to such transaction and (iv) after such transaction no
Default or Event or Event of Default exists. Thereafter all such obligations of
the Company shall terminate.
DEFAULTS AND REMEDIES
An Event of Default occurs in the event of any one of the following:
default for 30 days in payment of interest on the 1990 Debentures; default in
the payment of principal on the 1990 Debentures; failure by the Company for 30
days after notice to it to comply with any of its other agreements in the 1990
Indenture or 1990 Debentures; the occurrence of any event of default under an
instrument evidencing or securing other Indebtedness of the Company or any
Subsidiary for borrowed money which event of default, either individually or in
the aggregate, results in acceleration of such Indebtedness in any amount
exceeding $2,000,000 which acceleration is not rescinded, annulled, refinanced,
secured or stayed within 90 days after notice to the Company; rendering of final
judgment against the Company in an amount in excess of $250,000, which judgment
is not rescinded, annulled or stayed within a period of 60 days after such
judgment becomes final and nonappealable; and certain events of bankruptcy,
insolvency or reorganization. If an Event of Default occurs and is continuing,
the Trustee or the holders of at least 25% in principal amount of the 1990
Debentures then outstanding, by notice in writing to the Company, may declare
the principal amount of and all accrued interest on all 1990 Debentures to be
due and payable immediately. Upon such declaration all such 1990 Debentures
shall become due and payable immediately.
THIS SECTION WILL BE MODIFIED IF THE PROPOSED AMENDMENTS ARE ADOPTED.
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The 1990 Indenture provides that Trustee shall within 90 days after the
occurrence of a default give to the Debentureholders notice of all uncured
defaults known to it (the term 'default' to include the events specified above,
without grace or notice) provided that the Trustee may withhold from
Debentureholders notice of any continuing default (except a default in payment
of principal or interest or a default in sinking fund payments) if it determines
in good faith that withholding notice is in their interest. The Company is
required to file periodic reports with the Trustee as to the absence of default.
SATISFACTION AND DISCHARGE OF INDENTURE
The Company may terminate its obligations (with certain exceptions) under
the 1990 Debentures and the 1990 Indenture if all 1990 Debentures previously
authenticated and delivered (other than destroyed, lost or stolen 1990
Debentures which have been replaced or paid) have been delivered to the Trustee
for cancellation or if (1) the 1990 Debentures mature within six months or all
of them are to be called for redemption within six months under arrangements
satisfactory to the Trustee for giving the notice of redemption and (2) the
Company irrevocably deposits in trust with the Trustee money or United States
Government obligations sufficient to pay the principal of and interest on the
outstanding 1990 Debentures to maturity or redemption, as the case may be, and
to pay all sums payable to the Trustee under the 1990 Indenture.
THE TRUSTEE
First Fidelity Bank, National Association is Trustee under the 1990
Indenture.
The holders of a majority in principal amount of all outstanding 1990
Debentures have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee. The 1990
Indenture provides that in case an Event of Default shall occur (which shall not
be cured), the Trustee is required to use the degree of care of a prudent person
in the conduct of his own affairs in the exercise of its power. Subject to such
provisions, the Trustee is under no obligation to exercise any of its rights or
powers under the 1990 Indenture at the request of any of the Debentureholders,
unless they shall have offered to the Trustee security and indemnity
satisfactory to it.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
See 'Certain Federal Income Tax Consequences.'
DESCRIPTION OF 1991 DEBENTURES
GENERAL
The 11% Convertible Senior Subordinated Debentures due March 15, 2011 (the
'1991 Debentures') were issued in fully registered form under an Indenture dated
as of March 15, 1991 (the '1991 Indenture'), between the Company and United
Jersey Bank, as Trustee. Meridian Bancorp is currently the Trustee under the
1991 Indenture (the 'Trustee'). The 1991 Debentures bear interest at the rate of
11% per annum, payable on March 15, and September 15 in each year to holders of
record at the close of business on February 28 and August 31 next preceding the
interest payment date commencing September 15, 1991. The 1991 Debentures will
mature on March 15, 2011 and were issued in denominations of $1,000 and integral
multiples thereof.
The 1991 Debentures are general unsecured obligations of the Company. The
1991 Debentures are convertible into Class A Common Stock of the Company, as
described under 'Conversion,' and are subordinate in right of payment to Senior
Indebtedness of the Company, as described under 'Subordination.' The Company's
1987 Debentures (as hereinafter defined) and the 1990 Debentures (as hereinafter
defined) impose restrictions on the Company which in certain circumstances are
more restrictive than those contained in the 1991 Debentures and the related
1991 Indenture.
The terms of the 1991 Debentures include those stated in the 1991 Indenture
and those made part of the 1991 Indenture by reference to the Trust Indenture
Act of 1939, as amended (the 'Trust Indenture Act'), as in effect on the date of
the 1991 Indenture. The 1991 Debentures are subject to all such terms, and
holders of the 1991 Debentures are referred to the 1991 Indenture and the Trust
Indenture Act for a statement of them. The
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statements under this caption relating to the 1991 Indenture and the 1991
Debentures are summaries and do not purport to be complete. Such summaries make
use of certain terms defined in the 1991 Indenture and are qualified in their
entirety by express reference to the 1991 Indenture. Wherever particular
sections or defined terms of the 1991 Indenture are referred to or used herein,
such sections or defined terms shall be incorporated herein by reference as part
of the statements made.
CONVERSION
The holder of any 1991 Debenture is entitled at any time up to and
including March 15, 2011, subject to prior redemption or repurchase, to convert
the 1991 Debentures (or portions thereof which are $1,000 or integral multiples
thereof) at the principal amount thereof, into shares of Class A Common Stock of
the Company, at the conversion price of $5.46 per share (the 'Conversion
Price'), subject to adjustment as described below. No payment or adjustment will
be made for interest accrued on a converted 1991 Debenture or dividends on any
Class A Common Stock issued. However, if a 1991 Debenture is converted
subsequent to any record date with respect to the payment of interest and on or
prior to the date for the payment of such interest, the interest falling due on
such date shall be paid to the record holder of the 1991 Debenture on such
record date. The Company is not required to issue fractional shares of Class A
Common Stock upon conversion of 1991 Debentures and, in lieu thereof, will pay a
cash adjustment based upon the market price of the Class A Common Stock on the
last trading day prior to the date of conversion. In the case of 1991 Debentures
called for redemption, conversion rights will expire at the close of business 15
days prior to the redemption date.
The conversion price is subject to adjustment as set forth in the 1991
Indenture in certain events, including the issuance of stock of the Company as a
dividend or distribution on the Class A Common Stock; subdivisions, combinations
and reclassifications of the Class A Common Stock; the issuance to all holders
of Class A Common Stock of certain rights, options or warrants entitling them to
subscribe for Class A Common Stock, or securities convertible into or
exchangeable for Class A Common Stock or rights, options or warrants to
subscribe for or purchase such convertible or exchangeable securities at a price
per share (as defined in the 1991 Indenture) less than the current market price
(as defined in the 1991 Indenture) and the distribution to all holders of Class
A Common Stock of assets or debt securities of the Company or rights or warrants
(other than as referred to above) to purchase assets or debt securities of the
Company. The Company's Board of Directors shall make all determinations of the
fair market value of all distributions and dividends. No adjustment in the
conversion price is required unless such adjustment would require a change of at
least 1% in the conversion price then in effect.
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock, or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing, in exchange
for cash, property or services.
The Company may at any time reduce the conversion price by any amount,
provided, however, that such price reduction shall remain in effect for a
minimum period of ten business days or so long as required under applicable law
and that the conversion price is not less than the par value of a share of Class
A Common Stock at the time such reduction is made. If the Company consolidates
with or merges into or transfers all or substantially all of its assets to any
person or entity, the 1991 Debentures will become convertible into the kind and
amount of securities, cash or other assets which the holders of the 1991
Debentures would have owned immediately after the transaction if the holders had
converted the 1991 Debentures immediately before the effective date of the
transaction.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the 1991
Debentures is subordinated in right of payment, in the manner and to the extent
set forth in the 1991 Indenture, to the prior payment in full of all Senior
Indebtedness as defined in the 1991 Indenture, whether outstanding on the date
of the 1991 Indenture or thereafter created, incurred or assumed. Upon (i) the
maturity of any Senior Indebtedness by lapse of time, acceleration or otherwise
or (ii) any distribution of the assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company, the holders of Senior
Indebtedness will be entitled to receive payment in full before the 1991
Debentureholders are entitled to receive any payment. During the continuance of
any default under any agreement governing Senior Indebtedness permitting
acceleration of the maturity thereof
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(other than a default relating to payment of principal, premium, if any, or
interest, which constitutes a situation governed by clause (i) above) no payment
made be made on the 1991 Debentures for a period of 179 days after the earlier
of the date the Company or the Trustee receives notice of such default from a
person entitled to give such notice, but payments may thereafter be resumed
unless such payments are prohibited under clause (i) above or otherwise. No new
179-day period of suspension of payments relating to the same default on the
same issue of Senior Indebtedness may be commenced within nine months after the
first such notice relating thereto. If in any of the situations referred to
above a payment is made to the Trustee or to holders of 1991 Debentures before
all Senior Indebtedness has been paid in full or provision has been made for
such payment, the payment to the Trustee or holders of 1991 Debentures must be
paid over to the holders of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, the rights of
the holders of the 1991 Debentures are subrogated to the rights of the holders
of Senior Indebtedness to receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on the 1991 Debentures are paid in full.
'Senior Indebtedness' means the principal of, premium, if any, and any
accrued and unpaid interest on all Indebtedness of the Company outstanding at
any time; provided that 'Senior Indebtedness' shall not include (i) any
Indebtedness if the terms of the instrument creating or evidencing such
Indebtedness provide that such Indebtedness is not senior or superior in right
of payment to the 1991 Debentures or (ii) any Indebtedness of the Company to a
Subsidiary for money borrowed or advanced from such Subsidiary.
'Indebtedness' means: (a) any debt of the company (i) for borrowed money,
(ii) evidenced by a note, debenture, or similar instrument (including
capitalized lease and purchase money obligations) given in connection with the
acquisition of any property or assets, including securities, or (iii) evidenced
by performance bonds; (b) any debt of others described in the preceding clause
(a) which the Company has guaranteed or for which it is otherwise liable; and
(c) any amendment, renewal, extensions, restructuring, or refunding of any such
debt.
At December 31, 1993, the amount of Senior Indebtedness outstanding was
approximately $40,370,000. The 1987 Debentures and 1990 Debentures rank pari
passu with the 1991 Debentures.
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS
The Company may not incur, directly or indirectly, any Indebtedness which,
by its terms is both (i) subordinate or junior in right of payment to any Senior
Indebtedness and (ii) senior or superior in right of payment to the 1991
Debentures. The amount of Senior Indebtedness the Company presently may incur is
limited by the Funded Indebtedness restrictions applicable to the Company under
the 1987 Indenture. (The Funded Indebtedness restrictions under the 1987
Indenture will be removed if the Proposed Amendments are adopted.)
LIMITATION ON DIVIDENDS AND STOCK PURCHASES
The Company may not declare or pay any dividend or make any distribution on
its capital stock or to its stockholders other than dividends and distributions
payable solely in shares of its capital stock, and the Company and its
Subsidiaries may not purchase, redeem or otherwise acquire or retire for value
any capital stock of the Company (such dividends, distributions, purchases,
redemptions and other acquisitions and retirements being collectively referred
to as 'Stock Payments'), unless (a) at the time of such Stock Payment no Event
of Default under the 1991 Indenture has occurred and is continuing, and (b)
after giving effect thereto the aggregate amount expended for all Stock Payments
subsequent to December 31, 1990 does not exceed the sum of: (i) 25% of the
Consolidated Net Income accrued on a cumulative basis subsequent to December 31,
1990 (or, in case such Consolidated Net Income shall be a deficit, minus 100% of
such deficit), except that in the event the Company's Consolidated Stockholders'
Equity is $60,000,000 or more such percentages shall be 50%; (ii) the aggregate
net proceeds received by the Company from the issue or sale subsequent to
December 31, 1990 of its capital stock (including capital stock issued upon the
conversion of Indebtedness); (iii) the aggregate net proceeds from the issuance
or sale of any indebtedness of the Company which has been converted into Capital
Stock of the Company subsequent to December 31, 1990 and (iv) $2,000,000;
provided, that in all events and without regard to the foregoing the Company may
make Stock Payments subsequent to December 31, 1990 which in the aggregate do
not exceed $2,000,000. Notwithstanding the foregoing the Company may (a) pay any
dividend within 60 days after the date of declaration thereof if the payment
would have been permitted on the date of
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declaration or (b) acquire or retire any shares of the Company's capital stock
in exchange for, or out of the proceeds of the substantially concurrent sale of,
other shares of its capital stock or (c) call for redemption any convertible
preferred stock or convertible debt of the Company under an agreement with a
responsible underwriter designed to insure that all such stock or debt is
converted rather than redeemed.
The Company's 1987 Debentures and 1990 Debentures further restrict the
ability of the Company to declare or pay dividends or make other distributions
or stock purchases. See 'Description of 1987 Debentures' and 'Description of
1990 Debentures.'
'Consolidated Net Income' for any period means the consolidated net income
of the Company and its consolidated subsidiaries, determined in accordance with
generally accepted accounting principles, excluding the following: (a) any net
income of any person acquired by the Company or any of its consolidated
subsidiaries in a pooling of interests transaction for any period prior to the
date of such transaction; (b) the portion of net income allocable to any
minority interests in any subsidiaries; and (c) the net income of any person in
which the Company or any Subsidiary has a joint interest with a third party
except to the extent actually paid or distributed to the Company.
'Subsidiary' means a corporation, a majority of whose voting stock is owned
by the Company or its other Subsidiaries and which has assets equal to at least
5% of the consolidated total assets of the Company and its Subsidiaries.
THE RESTRICTIONS DESCRIBED IN THIS SECTION WILL BE REMOVED IF THE PROPOSED
AMENDMENTS ARE ADOPTED.
MAINTENANCE OF CONSOLIDATED STOCKHOLDERS' EQUITY
If the Company's Consolidated Stockholders' Equity at the end of each of
any two consecutive fiscal quarters is less than $10,000,000 then on the last
day of the fiscal quarter next following such second consecutive fiscal quarter
(the 'Purchase Date') the Company is obligated to offer to purchase the lesser
of 7.5% of the aggregate principal amount of 1991 Debentures or the then
outstanding principal amount of 1991 Debentures. In any such event the purchase
price shall be 100% of the principal amount plus accrued interest to the
Purchase Date. The Company may credit against its obligations to offer to
repurchase 1991 Debentures under this provision the principal amount of (i) 1991
Debentures acquired by the Company through exchange or otherwise and surrendered
for cancellation and (ii) 1991 Debentures repurchased or redeemed or called for
redemption (but only to the extent that such 1991 Debentures have not already
been used as a credit under the 1991 Indenture). Any offer to acquire 1991
Debentures will be mailed by the Trustee not less than 30 days nor more than 60
days prior to the Purchase Date to the holders of the 1991 Debentures to be
redeemed at their last registered address. If an offer to acquire the 1991
Debentures is oversubscribed, the Company shall acquire 1991 Debentures pro
rata.
If the option granted to holders to require the repurchase of the 1991
Debentures upon the failure of the Company to maintain a minimum Consolidated
Stockholders' Equity is deemed to constitute a tender offer under then current
interpretations of the Exchange Act and rules and regulations thereunder, the
Company will comply with all applicable tender offer rules as then in effect,
including Rules 13e-4 and 14e-1 under the Exchange Act, in connection with the
repurchase of the 1991 Debentures.
'Consolidated Stockholders' Equity' shall mean the amount shown as Total
Stockholders' Equity on the then current Consolidated Balance Sheet of the
Company, determined in accordance with generally accepted accounting principles.
For a discussion of certain Senior Indebtedness which may limit the effect
of this provision, see 'Description of 1991 Debentures--Subordination.'
THE RESTRICTIONS DESCRIBED IN THIS SECTION WILL BE REMOVED IF THE PROPOSED
AMENDMENTS ARE ADOPTED.
REDEMPTION
Optional. The Company may redeem all or any portion of the 1991 Debentures
at any time at the following redemption prices (expressed in percentages of
principal amount), plus accrued interest to the redemption date:
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<TABLE>
<CAPTION>
PERCENTAGE OF
IF REDEEMED DURING THE TWELVE-MONTH PERIOD BEGINNING MARCH 15, PRINCIPAL AMOUNT
- ---------------------------------------------------------------------------- -----------------
<S> <C>
1994........................................................................ 106.6%
1995........................................................................ 105.5%
1996........................................................................ 104.4%
1997........................................................................ 103.3%
1998........................................................................ 102.2%
1999........................................................................ 101.1%
2000 and thereafter......................................................... 100.0%
</TABLE>
Sinking Fund. The Company is obligated to redeem a principal amount of
1991 Debentures equal to 5% of the aggregate amount of 1991 Debentures
originally issued, on March 15, 2001 and on each March 15 thereafter through
March 15, 2010 at a redemption price of 100% of principal amount, plus accrued
interest to the redemption date. The Company may reduce the principal amount to
be redeemed by subtracting 100% of the principal amount of any 1991 Debentures
which have been redeemed other than pursuant to the sinking fund or converted
into Class A Common Stock of the Company or otherwise acquired by the Company
and surrendered for cancellation and not previously credited.
Notice. Notice of redemption must be mailed at least 30 days but not more
than 60 days before the redemption date to the address of the holder of each
1991 Debentures to be redeemed. If less than all 1991 Debentures are to be
redeemed, the Trustee shall select the 1991 Debentures to be redeemed in
accordance with the rules of any securities exchange on which the 1991
Debentures are listed, or if they are not so listed, pro rata or by lot or such
other method as the Trustee shall deem fair and appropriate. 1991 Debentures in
a denomination larger than $1,000 may be redeemed in part in $1,000 multiples.
On and after the redemption date, interest ceases to accrue on 1991 Debentures
or portions thereof, called for redemption.
REPURCHASE AT OPTION OF HOLDERS UPON CHANGE OF CONTROL
If there occurs any Change of Control (as defined below) with respect to
the Company, each holder of 1991 Debentures has the right, at the holder's
option, to require the Company to repurchase all of such holder's 1991
Debentures, or a portion of the principal amount thereof that is an integral
multiple of $1,000, on the date (the 'Repurchase Date') that is no earlier than
60 days and no later than 100 days after the occurrence of a Change of Control
(as defined below) at a price equal to 100% of principal amount of the 1991
Debentures to be repurchased (the 'Repurchase Price'), together with accrued
interest to the Repurchase Date. If the Repurchase Date is on or after an
interest payment record date and on or before the related interest payment date,
the interest payable with respect to the 1991 Debentures submitted for
repurchase shall be paid on said interest payment date to the registered holder
thereof on the related interest payment record date and no additional interest
will be payable to holders who submit 1991 Debentures for repurchase.
Within 30 days after the occurrence of a Change of Control, the Company is
obligated to mail to all holders of record of the 1991 Debentures a notice (the
'Company Notice') of the occurrence of such Change of Control and of the
repurchase right arising as a result thereof. The Company must deliver a copy of
the Company Notice to the Trustee. To exercise the repurchase right, holders of
1991 Debentures must deliver on or before the tenth business day prior to the
Repurchase Date irrevocable written notice to the Company (or an agent
designated by the Company for such purpose) and the Trustee of the holder's
exercise of such right, together with the 1991 Debentures with respect to which
the right is being exercised, duly endorsed for transfer.
A 'Change of Control' of the Company shall be deemed to have occurred at
such time as any Person (including any syndicate or group deemed to be a person
under Section 13(d)(3) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of 95% of the shares of the Company's
Capital Stock; provided, however, that a Change of Control shall not be deemed
to have occurred if substantially all of the consideration (excluding cash
payments for fractional shares) to be paid for the Capital Stock in the
transaction or transactions constituting the Change of Control consists of
shares of comon stock (i) traded on a national securities exchange or through
NASDAQ or another comparable quotation system and (ii) of which there would be
at least 1,000,000 shares of common stock held by at least 300 beneficial
owners. 'Beneficial owner' shall be determined in accordance with Rule 13d-3
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promulgated by the Commission under the Exchange Act, as in effect on the date
of the execution of the 1990 Indenture. Under the present capital structure of
the Company, 'Capital Stock' of the Company includes both Class A Common Stock
and Class B Common Stock. Accordingly, the right of the holders of 1991
Debentures to require the Company to repurchase the 1991 Debentures may be
limited and will not be available where a person acquires a simple majority of
the voting control of the Company.
Since the events described in this Section could be expected to occur in
connection with certain form of takeover attempts, these provisions could deter
hostile or friendly acquisitions of the Company where the person attempting the
acquisition views itself as unable to finance the purchase of the principal
amount of 1991 Debentures which may be tendered to the Company upon occurrence
of a Change of Control.
If the option granted to holders to require the repurchase of the 1991
Debentures upon the occurrence of a Change of Control is deemed to constitute a
tender offer under then current interpretations of the Exchange Act and rules
and regulations thereunder, the Company will comply with all applicable tender
offer rules as then in effect, including Rules 13e-4 and 14e-1 under the
Exchange Act, upon the occurrence of a Change of Control.
While this provision relating to the repurchase of the 1991 Debentures at
the option of the holders upon a Change of Control of the Company affords some
protection to holders in the event of a highly leveraged transaction, there are
no other provisions set forth in the 1991 Indenture designed for such event risk
protection.
For a discussion of certain Senior Indebtedness which may limit the effect
of this provision, see 'Description of 1991 Debentures--Subordination.'
TRANSFER AND EXCHANGE
The 1991 Debentures are in registered form without coupons in denominations
of $1,000 and integral multiples of $1,000. A 1991 Debentureholder may transfer
or exchange 1991 Debentures in accordance with the 1991 Indenture. In connection
therewith, the registrar may require a 1991 Debentureholder, among other things,
to furnish appropriate endorsements and transfer documents and to pay any taxes
and fees required by law or permitted by the 1991 Indenture. The registrar need
not transfer or exchange any 1991 Debenture previously selected for redemption.
In addition, the registrar need not transfer or exchange any 1991 Debentures for
a period of 15 days before a selection of 1991 Debentures to be redeemed. A
registered 1991 Debentureholder may be treated as the owner of its 1991
Debenture for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the 1991 Indenture or the 1991 Debentures
may be amended or supplemented with the consent of the holders of at least a
majority in principal amount of the 1991 Debentures, and any past default or
noncompliance with any provision may be waived with the consent of the holders
of a majority in principal amount of the 1991 Debentures. However, without the
consent of each 1991 Debentureholder affected, the Company may not amend or
supplement the 1991 Indenture or the 1991 Debentures to, among other things,
reduce the rate or extend the time for payment of interest on the 1991
Debentures or reduce the principal or extend the maturity of any 1991 Debenture,
or reduce the percentage of principal amount of 1991 Debentures required for a
modification. Without the consent of any 1991 Debentureholder, the Company may
amend or supplement the 1991 Indenture or the 1991 Debentures to cure any
ambiguity, defect or inconsistency or to provide for uncertificated 1991
Debentures in addition to or in place of certificated 1991 Debentures or to make
any change that does not have a materially adverse effect on the rights of any
1991 Debentureholder.
MERGERS
The Company may not consolidate with or merge with or into, or sell or
transfer all or substantially all of its assets to another entity unless (i)
either the Company is the surviving person or the successor or transferee is a
United States corporation, (ii) the successor entity assumes all the obligations
of the Company under the 1991 Debentures and the 1991 Indenture, and (iii) the
successor corporation has Consolidated Stockholders' Equity immediately after
such transaction equal to or greater than the Consolidated Stockholders' Equity
of the Company prior to such transaction and (iv) after such transaction no
Default or Event of Default exists. Thereafter all such obligations of the
Company shall terminate.
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DEFAULTS AND REMEDIES
An Event of Default occurs in the event of any one of the following:
default for 30 days in payment of interest on the 1991 Debentures; default in
the payment of principal on the 1991 Debentures; failure by the Company for 30
days after notice to it to comply with any of its other agreements in the 1991
Indenture or 1991 Debentures; the occurrence of any event of default under an
instrument evidencing or securing other Indebtedness of the Company or any
Subsidiary for borrowed money which event of default, either individually or in
the aggregate, result in acceleration of the maturity of at least an aggregate
of $2,000,000 in Indebtedness, which acceleration is not rescinded, annulled,
refinanced, secured or stayed within 90 days after notice to the Company;
rendering of final judgment against the Company in an amount in excess of
$250,000, excluding any amount covered by insurance, which judgment is not
rescinded, annulled, stayed or discharged within a period of 60 days after such
judgment becomes final and nonappealable; and certain events of bankruptcy,
insolvency or reorganization. If an Event of Default occurs and is continuing,
the Trustee or the holders of at least 25% in principal amount of the 1991
Debentures then outstanding, by notice in writing to the Company, may declare
the principal amount of and all accrued interest on all 1991 Debentures to be
due and payable immediately. Upon such declaration all such 1991 Debentures
shall become due and payable immediately.
THIS SECTION WILL BE MODIFIED IF THE PROPOSED AMENDMENTS ARE ADOPTED.
The 1991 Indenture provides that the Trustee shall within 90 days after the
occurrence of a default give to the 1991 Debentureholders notice of all uncured
defaults known to it (the term 'default' to include the events specified above,
without grace or notice) provided that the Trustee may withhold from 1991
Debentureholders notice of any continuing default (except a default in payment
of principal or interest of a default in sinking fund payments) if it determines
in good faith that withholding notice is in their interest. The Company is
required to file periodic reports with the Trustee as to the absence of default.
SATISFACTION AND DISCHARGE OF 1991 INDENTURE
The Company may terminate its obligations (with certain exceptions) under
the 1991 Debentures and the 1991 Indenture if all 1991 Debentures previously
authenticated and delivered (other than destroyed, lost or stolen 1991
Debentures which have been replaced or paid) have been delivered to the Trustee
for cancellation or if (1) the 1991 Debentures mature within one year or all of
them are to be called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption and (2) the
Company irrevocably deposits in trust with the Trustee money or United States
Government obligations sufficient to pay the principal of and interest on the
outstanding 1991 Debentures to maturity or redemption, as the case may be, and
to pay all sums payable to the Trustee under the 1991 Indenture.
THE TRUSTEE
Meridian Trust Company is Trustee under the 1991 Indenture.
The holders of a majority in principal amount of all outstanding 1991
Debentures have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee. The 1991
Indenture provides that in case an Event of Default shall occur (which shall not
be cured), the Trustee is required to use the degree of care of a prudent person
in the conduct of his own affairs in the exercise of its power. Subject to such
provisions, the Trustee is under no obligation to exercise any of its rights or
powers under the 1991 Indenture at the request of any of the 1991
Debentureholders, unless they shall have offered to the Trustee security and
indemnity satisfactory to it.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
See 'Certain Federal Income Tax Consequences.'
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DESCRIPTION OF CAPITAL STOCK
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The authorized common stock of the Company consists of 40,000,000 shares of
Class A Common Stock, par value $.01 per share and 10,000,000 shares of Class B
Common Stock, par value $.01 per share. All shares of common stock currently
outstanding are fully paid and non-assessable, not subject to redemption and
without preemptive or other rights to subscribe for or purchase any
proportionate part of any new or additional issues of stock of any class or of
securities convertible into stock of any class.
Voting. Holders of Class A Common Stock are entitled to one vote per share.
Holders of Class B Common Stock are entitled to 10 votes per share. All action
submitted to a vote of stockholders are voted on by holders of Class A and Class
B Common Stock voting together as a single class, except for the election of
directors and as otherwise set forth below. With respect to the election of
directors, holders of the Class A Common Stock vote as a separate class and are
entitled to elect 25% of the total number of directors constituting the entire
Board of Directors and, if such 25% is not a whole number, then the holders of
the Class A Common Stock are entitled to elect the nearest higher whole number
of directors that is at least 25% of the total number of directors, so long as
the number of outstanding shares of Class A Common Stock is at least 10% of the
total number of outstanding shares of both classes of common stock. Holders of
the Class B Common Stock, voting as a separate class, are entitled to elect the
remaining directors.
If, however, on the record date for any stockholder meeting at which
directors are to be elected the number of outstanding shares of the Class A
Common Stock is less than 10% of the total number of outstanding shares of both
classes of common stock, the holders of the Class A and Class B Common Stock
would vote together as a single class with respect to the election of all
directors and the holders of the Class A Common Stock would not have the right
to elect 25% of the number of the directors, but would have one vote per share
for all directors, and the holders of the Class B Common Stock would have 10
votes per share for all directors.
If, on the record date for any stockholder meeting at which directors are
to be elected, the number of outstanding shares of the Class B Common Stock is
less than 12 1/2% of the total number of outstanding shares of both classes of
common stock, the holders of the Class A Common Stock, voting as a separate
class, would continue to elect a number of directors equal to 25% of the number
of directors constituting the entire Board of Directors and, in addition, would
vote together with the holders of the Class B Common Stock to elect the
remaining directors to be elected at such meeting with the holders of the Class
A Common Stock entitled to one vote per share and the holders of the Class B
Common Stock entitled to 10 votes per share.
In addition, the affirmative vote or consent of the holders of at least
66 2/3% of the outstanding shares of Class B Common Stock, voting separately as
a class is required for the authorization or issuance of any additional shares
of Class B Common Stock and for any amendment to the Company's Certificate of
Incorporation which would affect adversely the powers, privileges or rights of
the holders of the Class B Common Stock. The Company's Certificate of
Incorporation does not provide for cumulative voting.
Conversion. The Class A Common Stock has no conversion rights. The Class B
Common Stock is convertible into Class A Common Stock in whole or in part at any
time and from time to time on the basis of one share of Class A Common Stock for
each share of Class B Common Stock.
Dividends. Holders of Class A and Class B Common Stock are entitled to
receive dividends equally on a per share basis if and when such dividends are
declared by the Board of Directors of the Company from funds legally available
therefor. No dividend may be declared or paid in cash or property on shares of
either Class A or Class B Common Stock unless the same dividend is paid
simultaneously on each share of the other class of common stock. In the case of
any stock dividend, holders of Class A Common Stock are entitled to receive the
same percentage dividend (payable in shares of Class A Common Stock) as the
holders of Class B Common Stock receive (payable in shares of Class B Common
Stock). Some of the Company's commercial bank lines of credit restrict the
payment of dividends. In addition, the 1987 Debentures, 1990 Debentures and 1991
Debentures impose limitations on the payment of dividends. The Company's project
subsidiaries may declare and pay dividends to the Company only to the extent of
surplus cash flow and subject to certain other restrictions.
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Liquidation. Holders of Class A and Class B Common Stock share with each
other on a ratable Debentures basis as a single class in the net assets of the
Company available for distribution in respect of Class A Common Stock and Class
B Common Stock in the event of liquidation.
Other Terms. Neither the Class A nor the Class B Common Stock may be
subdivided, consolidated, reclassified or otherwise changed unless
contemporaneously therewith the other class of shares if subdivided,
consolidated, reclassified or otherwise changed in the same proportion and in
the same manner.
In any merger, consolidation or business combination the consideration to
be received per share by holders of either Class A or Class B Common Stock must
be identical to that received by holders of the other class of common stock,
except that in any such transaction in which shares of capital stock are
distributed, such shares may differ as to voting rights only to the extent that
voting rights now differ between Class A and Class B Common Stock.
Disparate Voting Rights and Control by Frank L. O'Brien III. Principally
all shares of Class B Common Stock are held indirectly by Frank L. O'Brien III.
After giving effect to the shares of common stock offered hereby, Mr. O'Brien
controls approximately 22.5% of the Company's common equity (17% assuming the
exercise of all of the Warrants) and approximately 71% of its voting power (65%
assuming the exercise of all of the Warrants). See 'Security Ownership of
Certain Beneficial Owners and Management.' In October 1993, III Enterprises,
which is wholly owned by Mr. O'Brien and directly owns the controlling voting
interest in the Company, filed for bankruptcy protection under Chapter 11 of the
Federal Bankruptcy Code. See 'Risk Factors--Risk Factors For All Holders.'
PREFERRED STOCK
The authorized Preferred Stock of the Company consists of 10,000,000
shares, par value $.01 per share. The Board of Directors of the Company without
further action of the stockholders is authorized to issue shares of the
Preferred Stock in one or more series and to determine the voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends, and liquidation, conversion, redemption and other rights of each
series. The Board of Directors could issue a series with rights more favorable
with respect to dividends, liquidation and voting than those held by the holders
of common stock. The Preferred Stock could also be used as an anti-takeover
device by the Company since the Preferred Stock could be issued with
'super-voting' rights and placed in the control of parties friendly to the
current management, thus prolonging management's control of the Company. There
are no shares of Preferred Stock issued or outstanding on the date of this
Prospectus. On April 28, 1994, the Company's Board of Directors authorized the
creation of 1,966,960 shares of Series A Cumulative Senior Preferred Stock for
issuance in connection with the Exchange Offer. See 'Description of New
Securities--Description of Preferred Stock.'
TRANSFER AGENT AND REGISTRAR
American Stock Transfer and Trust Co. serves as the Company's transfer
agent and registrar for its shares of Common Stock.
LIMITATION OF LIABILITY OF DIRECTORS
The Certificate of Incorporation provides that a director will not be
personally liable for monetary damages to the Company or its stockholders for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law (which prohibits the payment of dividends and approval of stock
repurchases in certain circumstances), or (iv) for any transaction from which
the director derived an improper personal benefit.
While the Certificate of Incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Certificate of Incorporation will have no
effect on the availability of equitable remedies, such as an injunction or
rescission based on a director's breach of such director's duty of care. The
provisions of the Certificate of Incorporation described above apply to an
officer of the Company only if such person is also a director of the Company and
is acting in
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his or her capacity as director, and do not apply to officers of the Company who
are also directors, when acting in their capacity as officers.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-Laws (the 'By-Laws') provide for mandatory indemnification
to the full extent permitted by the laws of the State of Delaware against and
with respect to threatened, pending or completed actions, suits or proceedings,
whether civil, criminal, administrative or investigative, arising from or
alleged to arise from, a party's actions or omissions as a director, officer,
employee or agent of the Company or of any subsidiary of the Company or of any
other corporation, partnership, joint venture, trust or other enterprise which
has served in such capacity at the request of the Company if such acts or
omissions occurred or were or are alleged to have occurred, while such party was
a director or officer of the Company. In any situation in which indemnification
is not mandatory, the Company may, to the full extent permitted by applicable
law, indemnify all other persons whom it has the power to indemnify. Generally,
under Delaware law, indemnification will only be available where an officer or
director can establish that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company.
The Company maintains a director's and officer's liability insurance policy
which indemnifies directors and officers for certain losses arising from a claim
by reason of a wrongful act, as defined, under certain circumstances where the
Company does not provide indemnification.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Subject to certain exclusions summarized below, Section 203 of the Delaware
General Corporation Law ('Section 203') prohibits any Interested Stockholder
from engaging in a 'business combination' with a Delaware corporation for three
years following the date such person became an Interested Stockholder.
Interested Stockholder generally includes (i) any person who is the beneficial
owner of 15% or more of the outstanding voting stock of the corporation and (ii)
any person who is an affiliate or associate of the corporation and who held 15%
or more of the outstanding voting stock of the corporation at any time within
three years before the date on which such person's status as an Interested
Stockholder is determined. Subject to certain exceptions, a 'business
combination' includes, among other things, (i) any merger or consolidation
involving the corporation, (ii) the sale, lease, exchange, mortgage, pledge,
transfer or other disposition of assets having an aggregate market value equal
to 10% or more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market value of
all the outstanding stock of the corporation, (iii) any transaction that results
in the issuance or transfer by the corporation of any stock of the corporation
to the Interested Stockholder, except pursuant to a transaction that effects a
pro rata distribution to all stockholders of the corporation, (iv) any
transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series, or securities
convertible into the stock of any class or series, of the corporation that is
owned directly or indirectly by the Interested Stockholder, and (v) any receipt
by the Interested Stockholder of the benefit (except proportionately as a
stockholder) of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation.
Section 203 does not apply to a business combination if (i) before a person
became an Interested Stockholder, the board of directors of the corporation
approved the transaction in which the Interested Stockholder became an
Interested Stockholder or the business combination, (ii) upon consummation of
the transaction that resulted in the person becoming an Interested Stockholder,
the Interested Stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commences (other than
certain excluded shares), or (iii) following a transaction in which the person
became an Interested Stockholder, the business combination is (a) approved by
the board of directors of the corporation and (b) authorized at a regular or
special meeting of stockholders (and not by written consent) by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the Interested Stockholder.
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CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Certificate of Incorporation and the By-Laws
summarized in the succeeding paragraphs may be deemed to have anti-takeover
effects and may delay, defer or prevent a tender offer or takeover attempt that
a stockholder might consider to be in such stockholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
Voting Rights. Pursuant to the Certificate of Incorporation of the Company,
holders of Class A Common Stock are each entitled to one (1) vote for each share
of Class A Common Stock outstanding and holders of Class B Common Stock are each
entitled to ten (10) votes for each share of Class B Common Stock outstanding.
With regard to the election of directors, holders of Class A Common Stock vote
as a separate class and are entitled to elect 25% of the Board and holders of
Class B Common Stock, voting as a separate class, are entitled to elect the
remaining directors. The above mentioned voting requirements may have the effect
of delaying, deferring or preventing a change of control of the Company not
favored by the holders of the Class B Common Stock of the Company.
Authorized but Unissued Preferred Stock. The authorized but unissued shares
of Preferred Stock are available for future issuance without stockholder
approval. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans.
The existence of authorized but unissued and unreserved Preferred Stock may
enable the Board of Directors to issue shares to persons friendly to current
management, which could render more difficult or discourage any attempt to
obtain control of the Company by means of a proxy contest, tender offer, merger,
or otherwise, and thereby protect the continuity of the Company's management.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The By-Laws establish advance notice procedures with regard to
stockholder proposals and the nomination, other than by or at the direction of
the Board of Directors, of candidates for election as directors. These
procedures provide that the notice of stockholder proposals and stockholder
nominations for the election of directors at any annual meeting of stockholders
must be in writing and be received by the Secretary of the Company within 240
days next following the Company's most recent Annual Meeting or, in the case of
a special meeting, no later than 5 days prior to the date of the special
meeting. The Company may reject a stockholder proposal or nomination that is not
made in accordance with such procedures.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of certain of the expected
federal income tax consequences of the Exchange Offer. The summary is based on
the Internal Revenue Code of 1986, as amended (the 'Code'), and published
regulations, rulings and judicial decisions now in effect, all of which are
subject to change. The summary does not discuss all aspects of federal income
taxation that may be relevant to a particular Holder in light of his personal
investment circumstances or to certain types of Holders subject to special
treatment under the federal income tax laws, such a life insurance companies,
tax-exempt organizations and foreign taxpayers and does not discuss any aspects
of state and local tax laws, which may not follow federal tax law. Moreover,
substantial uncertainties exist with respect to various federal income tax
consequences of the Exchange Offer. No opinion of counsel or ruling from the
Internal Revenue Service ('IRS') has been obtained or will be requested by the
Company on any tax issue connected with the Exchange Offer. Accordingly, no
assurance can be given that the IRS will not challenge certain of the tax
positions described herein or that such a challenge would not be successful. The
discussion below is limited to those persons who hold the Debentures as capital
assets within the meaning of Section 1221 of the Code and who also will hold the
New Securities as capital assets. Holders are strongly urged to consult their
own tax advisors as to the particular tax consequences to them of the Exchange
and the ownership of New Securities and shares of Class A Common Stock,
including the application of federal, state, local and foreign tax laws and
possible changes in tax laws.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The analysis of the federal income tax consequences of the Exchange Offer
is the same for Holders of the 1987 Debentures, the 1990 Debentures and the 1991
Debentures.
Holders of Debentures Who Participate in the Exchange Offer
The exchange of the Debentures for New Securities will be treated as part
of a 'recapitalization' of the Company within the meaning of Section
368(a)(1)(E) of the Code. Except as discussed below with respect to the possible
receipt of interest, a Holder will realize gain or loss on the exchange equal to
the difference between (a) the aggregate fair market value of the New Securities
received by the Holder in exchange for the Debentures and (b) the Holder's
adjusted tax basis of the Debentures. Holders of Debentures who participate in
the Exchange Offer who realize a gain on the exchange of Debentures will
recognize such gain for federal income tax purposes to the extent of the fair
market value of the Warrants received on the exchange. Holders of Debentures who
participate in the Exchange Offer who realize a loss on the exchange of the
Debentures will not recognize such loss for federal income tax purposes.
Generally, any gain recognized on the exchange should be taxable as capital
gain unless the Holder's Debentures have accrued market discount (See 'Federal
Income Tax Consequences of the Exchange Offer-- Accrued Market Discount',
below), in which case the amount of such gain up to a maximum amount equal to
the accrued market discount should be taxable as ordinary income and the balance
of such gain, if any, should be taxable as capital gain. Except as discussed
below with respect to the possible receipt of interest, the tax basis of the
Class A Common Stock and the Preferred Stock in the hands of a Holder of
Debentures will, in the aggregate, be equal to such Holder's adjusted tax basis
in the Debentures transferred in exchange therefor, increased by any gain
recognized by such Holder and decreased by the fair market value of the Warrants
received. The holding period of the Class A Common Stock and the Preferred Stock
received will include the period during which the Holder held the Debentures
exchanged therefor. The aggregate basis of the Preferred Stock and the Class A
Common Stock will be allocated between those two classes of stock based upon
their relative fair market values at the time of the exchange. A holder's
initial basis in any Warrant received in the exchange will be the Warrant's fair
market value at the time of the exchange, and the holding period for the Warrant
will begin the day after the date of the closing of the Exchange Offer.
Under Treasury Regulation Section1.368-3(b), each holder who exchanges
Debentures for Class A Common Stock, Preferred Stock and Warrants pursuant to
the Exchange Offer is required to file an information statement with his federal
income tax return for his tax year including the date of the exchange. The
information statement must set forth (i) the tax basis of the Debentures
surrendered and (ii) the fair market value, on the date of the exchange, of the
Class A Common Stock, Preferred Stock and Warrants received in the exchange.
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Accrued But Unpaid Interest
The Exchange Offer provides, and the Company intends to take the position,
that the consideration received by Holders of Debentures will be allocated
solely to principal and that accrued but unpaid interest will not be paid and
instead will be cancelled. As a result, no portion of the consideration received
by an exchanging Holder of Debentures should be attributable to accrued but
unpaid interest. Consequently, accrual basis Holders that have accrued the
interest for federal income tax purposes will recognize a loss in an amount
equal to the accrued interest, which loss probably should be characterized as an
ordinary loss. It is unclear whether the IRS will accept such an allocation or
will assert that a different allocation should be made. If a portion of the
consideration received were treated as allocable to accrued but unpaid interest,
then a Holder should recognize interest income or an ordinary loss to the extent
that the consideration allocable to accrued but unpaid interest is greater or
lesser respectively than the amount of accrued but unpaid interest previously
included in income. Any portion of the New Securities treated as received in
exchange for accrued but unpaid interest would have a tax basis equal to the
amount of interest deemed received and the holding period would begin on the day
after the date of the closing of the Exchange Offer.
Accrued Market Discount
A holder of a Debenture who acquired the Debenture on the secondary market
at a discount from its principal amount generally will have acquired the
Debenture with 'market discount,' unless the discount was less than 0.25% of the
principal amount of the Debenture multiplied by the number of complete years to
maturity after the date of acquisition. Market discount generally accrues
ratably during the period from the date of acquisition to the maturity date of a
Debenture unless the holder elects to accrue the discount on the basis of a
constant interest rate. The holder of a Debenture with market discount generally
must treat as ordinary income the amount of any gain realized on a disposition
of the Debenture to the extent of the accrued market discount, unless the holder
has elected to include the market discount in income as it accrues. However, the
Code requires the issuance of regulations that are expected to provide, in
effect, that (a) the amount of accrued market discount recognized as income on
the exchange of a Debenture for Class A Common Stock, Preferred Stock and
Warrants will not exceed the amount of gain otherwise recognized on the exchange
(that is, not more than the fair market value of the Warrants received), (b) the
amount of gain recognized on the exchange will constitute ordinary income
(generally taxable as interest), rather than capital gain, to the extent of the
accrued market discount on the Debenture exchanged and (c) any excess of the
accrued market discount over the amount of gain recognized will attach to the
shares of Class A Common Stock and Preferred Stock received in the exchange and
ordinarily will be recognized as ordinary income upon the disposition (other
than conversion) of such Class A Common Stock and Preferred Stock.
Holders of Debentures Who do not Participate in the Exchange Offer
Holders of Debentures who do not exchange their Debentures in the Exchange
Offer should not recognize any income, gain or loss for federal income tax
purposes as a result of the proposed modifications to the Debentures. The
Debentures will be modified upon effectiveness of the Proposed Amendments. Under
current law, a material modification of a debt instrument will be treated as an
exchange of the pre-modified debt instrument for the modified debt instrument.
Although current case law is not certain on this issue, it is not likely that
the modifications to the Debentures will be treated as a material modification
under current law. Proposed regulations were published in December 1992
regarding when a modification of a debt instrument will be deemed to be an
exchange. Under the proposed regulations, a modification will be treated as an
exchange if the modification is a significant modification. The modifications of
the Debentures in connection with the Consent Solicitations probably would not
constitute a significant modification and therefore probably would not
constitute an exchange under the proposed regulations. However, final
regulations will apply only to modifications made on or after the date that is
30 days after the publication of the final regulations in the Federal Register.
It is not presently known if or when final regulations will be published.
Further, no assurances can be given that the regulations will be adopted as
currently proposed. In any event, it is unlikely that the modifications to the
Debentures pursuant to the Consent Solicitations will result in a taxable
exchange.
If the modifications to the Debentures constitute an exchange, then Holders
of Debentures who do not participate in the Exchange Offer would be treated as
receiving new notes in exchange for their Debentures and
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would realize gain or loss equal to the difference between the fair market value
of the new notes and the adjusted tax basis of the Debentures. However, the
deemed exchange should constitute a 'recapitalization' within the meaning of
Section 368(a)(1)(E) of the Code and the Holders of the Debentures should not
recognize any gain or loss in the deemed exchange. Additionally, the Holders
would have a basis in the new notes equal to their basis in the Debentures.
Nevertheless, under such circumstances, assuming that the Debentures are still
traded on the AMEX or another established securities market upon consummation of
the Exchange Offer, the excess of the stated redemption price of each Debenture
over its fair market value on the date of the consummation of the Exchange Offer
will constitute original issue discount ('OID'). If the Holder's adjusted basis
in the Debenture is less than the stated redemption price of the Debenture, then
a Holder will generally be required to include in gross income an amount equal
to all or a portion of the OID of the Debenture.
For federal income tax purposes, gain or loss will not be recognized
(except to the extent that cash received in lieu of fractional shares exceeds
the proportionate basis) by a Holder upon the exchanage of a Debenture for Class
A Common Stock of the Company upon conversion. The Holder's tax basis in the
Class A Common Stock of the Company received will be the same as the Holder's
basis in the Debenture exchanged, and the holding period of the Class A Common
Stock of the Company will include the period the Debenture was held, provided
the Debenture was a capital asset in the hands of the holder.
Stated interest on a Debenture will be includable in the holder's income
for federal income tax purposes in accordance with his tax method of accounting.
The Company believes, based on proposed regulations that were in existence at
the time the Debentures were originally issued, that the Debentures should not
be considered to be issued with original issue discount, notwithstanding the
fact that the Debentures may be redeemed under certain circumstances for amounts
in excess of their stated principal amount and that a portion of the amount paid
for a Debenture could be allocable to the conversion option. However, see the
discussion of OID earlier in this subsection if the modifications to the
Debentures are deemed to constitute an exchange. (See 'Federal Income Tax
Consequences of the Exchange Offer--Accrued Market Discount' above.)
The Debentures are subject to the market discount provisions of Section
1276 of the Code. A holder of a Debenture who acquired it at a market discount
may be required to defer the deduction of a portion of the interest on any
indebtedness incurred or continued to purchase or carry the Debenture until such
holder disposes of the Debenture in a taxable transaction. A holder of such
Debenture may elect to include such market discount in income on a current
basis, in which event the limitations on the deductibility of interest set forth
above will not apply. If a Debenture that was acquired at a market discount is
converted into Class A Common Stock of the Company, any accrued market discount
with respect to the Debenture will be treated as ordinary income of the holder
upon a subsequent disposition of such Class A Common Stock. Upon any partial
redemption of the Debentures, a holder of Debentures acquired at a market
discount would be required to treat the partial principal payment as ordinary
income to the extent of the amount of accrued market discount on the Debentures.
A Holder will recognize gain or loss on the sale or redemption of a
Debenture equal to the difference between (i) the amount of cash and the fair
market value of property received (exclusive of any amount received for accrued
intrest) and (ii) the Holder's adjusted tax basis in the Debenture. If the
Debenture is a capital asset in the hands of the Holder, such gain or loss will
constitute a capital gain or loss (except to the extent amounts realized
represent accrued market discount) and will be long-term capital gain or loss if
such Holder's holding period on the date of the disposition is more than one
year. If the Holder's holding period on the date of the sale or redemption is
one year or less, such capital gain or loss will be short-term capital gain or
loss. In general, capital gains are currently taxed at the same rates as
ordinary income; provided that long-term capital gains are subject to a maximum
federal income tax rate of 28% while ordinary income and short-term capital
gains may be taxed at a maximum federal income tax rate of 39.6%. However, the
limitation on itemized deductions can create a higher effective federal income
tax rate.
The conversion price of the Debentures may be adjusted if the Company makes
certain disbtributions of stock or other property to its stockholders as is more
fully described in 'Description of 1987 Debentures-- Conversion,' 'Description
of 1990 Debentures--Conversion,' and 'Descripton of 1991 Debentures--
Conversion,' above. In such event, the holders of Debentures may, in certain
circumstances, be deemed to have received a distribution taxable to them as a
dividend under Section 305 of the Code. In certain other
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circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock of the Company.
FEDERAL INCOME TAX TREATMENT OF THE PREFERRED STOCK AND CLASS A COMMON STOCK
Dividends with respect to the Preferred Stock and Class A Common Stock
should be treated as distributions subject to Section 301 of the Code,
regardless of whether such dividends are paid in cash or, in the case of
distributions on the Preferred Stock, in additional shares of Class A Common
Stock. Thus, such dividends should (a) be taxable as ordinary income to the
extent of the Company's current or accumulated earnings and profits, (b)
thereafter, be applied against and reduce the adjusted tax basis of the Holder's
stock to the extent of such basis and (c) finally, be taxable as gain from the
sale or exchange of the stock. In the case of distributions of shares of Class A
Common Stock on the Preferred Stock, an amount equal to the fair market value of
such stock on the date of distribution will be treated as the amount distributed
for purposes of Section 301 of the Code.
Subject to certain limitations, dividends received by corporate
shareholders will be eligible for the 70% (80% for certain corporations)
dividends received deduction under Section 243 of the Code. Pursuant to Section
1059 of the Code, in the event of an 'extraordinary dividend,' a corporate
shareholder will, in certain circumstances, be required to reduce its tax basis
(but not below zero) in an amount equal to the amount excluded from income
pursuant to the dividends received deduction under Section 243 of the Code.
Any Class A Common Stock received as a dividend distribution on the
Preferred Stock will have a tax basis equal to its fair market value on the date
of distribution and a holding period that commences on the date of distribution.
The Preferred Stock is redeemable by the Company after , 1997. As a
result, Section 305 of the Code could apply to create deemed distributions to
which Section 301 of the Code applies. In particular, if the redemption price
exceeds the issue price of the Preferred Stock on the date of the exchange by
more than a reasonable redemption premium, then the IRS could seek to treat such
excess as a distribution to which Section 301 of the Code applies. In such case,
the deemed distribution would accrue over the period during which the Preferred
Stock cannot be redeemed. In general, the Preferred Stock's issue price will be
equal to its fair market value on the date of issuance and its redemption price
will be equal to the price at which it may be redeemed. Since the redemption
price of the Preferred Stock under certain circumstances can exceed its
liquidation preference, there is a factual issue as to whether the Preferred
Stock has more than a reasonable redemption premium. Treasury Regulations
provide that a redemption premium of less than 10% of the issue price of
preferred stock is reasonable where the preferred stock cannot be redeemed for
at least five years after issuance. However, the Preferred Stock may be redeemed
at a premium at a date earlier than 5 years after the date of issuance. Since
the application of Section 305 of the Code to stock such as the Preferred Stock
is uncertain, each prospective Holder of Preferred Stock is urged to consult his
or her tax advisor regarding the potential applicability of Section 305 of the
Code.
A sale or other disposition (other than a retirement or redemption) of the
Preferred Stock or the Class A Common Stock will result in gain or loss to the
Holder in an amount equal to the difference between the amount received in
exchange for such stock and the Holder's adjusted tax basis in the stock that
was sold or otherwise disposed.
A redemption or retirement of the Preferred Stock or Class A Common Stock
for cash will be a taxable event. If the stock is redeemed for cash or property,
such redemption will be treated as a distribution taxable as a dividend under
Section 302 of the Code to the extent of the current or accumulated earnings and
profits of the Company allocable to such Stock, unless the redemption (a)
'completely terminates' the stockholder's equity interest in the Company
pursuant to Section 302(b)(3), (b) is 'substantially disproportionate' with
respect to the stockholder under Section 302(b)(2), or (c) is treated as a
distribution 'not essentially equivalent to a dividend' with respect to the
stockholder under Section 302(b)(1). In determining whether any of these tests
has been met, there must generally be taken into account shares owned by the
stockholder by reason of certain constructive ownership rules set forth in
Section 318 of the Code. A distribution will be 'not essentially equivalent to a
dividend' as to a particular stockholder only if it results in a 'meaningful
reduction' in the stockholder's interest in the Company. If any of these three
tests is met as to a particular stockholder, the redemption of the stock would
be treated as to that stockholder as an exchange under Section 302(a) of the
Code giving rise to
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capital gain or loss, provided such stock is held as a capital asset. The
measure of such gain or loss would be the difference between the amount of cash
or property received and the redeemed stockholder's adjusted tax basis in the
shares of the stock redeemed. However, payments received upon redemption which
represent accrued dividends which have been declared but not paid may be taxed
as dividend distributions. Additionally, gain attributable to accrued market
discount will be treated as ordinary income (See 'Federal Income Tax
Consequences of the Exchange Offer--Accrued Market Discount', above).
BACKUP WITHHOLDING AND REPORTING
A noncorporate Holder of Preferred Stock, the Debentures or Class A Common
Stock may be subject to backup withholding at the rate of 31% with respect to
'reportable payments' which include dividends or interest paid on, or the
proceeds of a sale, exchange or redemption of, Preferred Stock, Debentures or
Class A Common Stock, as the case may be. The payor will be required to deduct
and withhold the prescribed amounts if (a) the payee fails to furnish a taxpayer
identification number ('TIN') to the payor in the manner required, (b) the IRS
notifies the payor that the TIN furnished by the payee is incorrect, or (c)
there has been a failure of the payee to certify under penalty of perjury that
the payee is not subject to withholding under Section 3406(a)(1)(C) of the Code.
In general, if any one of the events listed above occurs, the Company may be
required to withhold an amount equal to 31% from any dividend payment made with
respect to Preferred Stock or Class A Common Stock, any payment of interest or
principal pursuant to the terms of the Debentures, or any payment of proceeds
for the redemption of the Preferred Stock or Class A Common Stock, Warrants or
the retirement of Debentures, as the case may be, to a noncorporate Holder.
Amounts paid as backup withholding do not constitute an additional tax and will
be credited against the Holder's federal income tax liabilities, so long as the
required information is provided to the IRS. The Company will report to the
Holders of the Preferred Stock, the Debentures, Warrants and Class A Common
Stock and to the IRS the amount of any 'reportable payments' for each calendar
year and the amount of tax withheld, if any, with respect to payment on the
securities.
HOLDING AND DISPOSING OF WARRANTS
Exercise of Warrants
The Exercise of a Warrant generally will not be a taxable event to a
Warrant holder, except with respect to the receipt of cash in lieu of a
fractional share of Class A Common Stock. The receipt of cash in lieu of a
fractional share of Class A Common Stock will be taxable as if the fractional
share had been issued and then redeemed for the cash, so a holder will recognize
gain or loss equal to the difference between the amount of cash received and the
holder's basis in the fractional share. A holder's initial basis in shares of
Class A Common Stock acquired upon the exercise of a Warrant (including a
fractional share interest) will equal the holder's adjusted basis in the Warrant
at the time of exercise, plus the amount of any cash paid upon exercise. The
holding period for shares of Class A Common Stock (including any fractional
share interest) acquired upon the exercise of a Warrant will begin with the date
on which the Warrant is exercised.
Adjustments to Warrant Price
Adjustments to the Exercise Price pursuant to the terms of the Warrants
generally will not constitute a taxable event for a holder. However, under
certain circumstances, an adjustment to the Exercise Price would be treated as a
taxable constructive distribution to holders despite the fact that the Warrant
holders receive no cash or property. Such circumstances, for example, include
adjustments resulting from the Company's distribution of cash, assets or
evidences of indebtedness on Class A Common Stock, taxable stock dividends on
Class A Common Stock and taxable distributions of rights, options or warrants to
acquire Class A Common Stock. If the Warrant holders receive such a taxable
distribution, their bases in the Warrants will be increased by an amount equal
to the taxable distribution.
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Gain or Loss on Disposition or Expiration of Warrants
Any gain or loss recognized on a sale or other taxable disposition of a
Warrant, and any loss recognized on the expiration of a Warrant, generally will
constitute capital gain or loss.
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY
Cancellation of Indebtedness Income
The Exchange Offer will result in cancellation of indebtedness ('COI')
income to the Company in an amount equal to the excess of (a) the aggregate
adjusted issue price of the Debentures transferred to the Company plus accrued
but unpaid interest over (b) the aggregate fair market value of the New
Securities received in exchange therefor. For example, if the fair market value
of the New Securities issued in exchange for each $1,000 principal amount of
Debentures is $450, and assuming that all of the Debentures are exchanged, the
exchange will result in approximately $550 of COI income. For regular federal
income tax purposes, the Company expects to offset such COI with net operating
loss carryforwards. However, for purposes of the 20% corporate alternative
minimum tax, the Company may not use net operating loss carryforwards to offset
more than 90% of its alternative minimum taxable income. As a result, the
Company expects to incur some alternative minimum tax because of the COI
resulting from consummation of the Exchange Offer.
Additionally, the IRS may take the position that with respect to the
Holders of Debentures who do not participate in the Exchange Offer, the Proposed
Amendments may cause there to be a deemed exchange of the Debentures for 'new
notes'. (See 'Federal Income Tax Consequences of the Exchange Offer-Holder of
Debentures who do not Participate in the Exchange Offer,' above). If the IRS is
successful in that contention, then the Company will have additional COI in an
amount equal to the excess of (a) the aggregate adjusted issue price of the 'new
notes' as of the consummation of the Exchange Offer over (b) the aggregate issue
price of the Debentures which were not exchanged. For example, if the aggregate
principal amount of the Debentures which were not exchanged is [$ ], and
assuming that the fair market value of the 'new notes' as of the consummation of
the exchange offer is [$ ] per $1,000 of principal amount, the deemed
exchange will result in approximately [$ ] of COI income.
Limitation on Utilization of Losses Following an Ownership Change
Generally, a change in 50% of the equity holdings of a corporation results
in an 'ownership change' of the corporation for purposes of Sections 382 and 383
of the Code. Although the Holders of Debentures who exchange their Debentures
for New Securities will obtain a substantial equity interest in the Company, it
is not anticipated that the consummation of the Exchange Offer, even if
participated in by all of the Holders of Debentures, will result in an
'ownership change'. However, such a shift in the owners of the equity of the
Company will be combined with certain other changes in stockholders in the past
as well as those which may occur in the future. In the event that an ownership
change occurs, the Company's use of its net operating loss carryforwards
('NOLs'), capital loss carryovers and certain other tax attribute carryovers and
certain built-in losses (collectively, 'tax attributes') generally would be
limited to an annual amount equal to the fair market value of the Company's
capital stock immediately before the ownership change multiplied by the
'long-term tax-exempt rate' (5.42% for April, 1994).
If the consummation of the Exchange Offer, when aggregated with certain
past and future changes in the Company's stockholders, results in an 'ownership
change' of the Company, the application of Sections 382 and 383 of the Code
could severely limit the ability of the Company to enjoy the benefit of its tax
attributes and thus increase the amount of federal income tax the Company would
otherwise owe in future years. However, the application of the provisions of
Section 382 and 383 of the Code to the proposed transactions is unclear in a
number of respects. In particular, because the determination of whether an
ownership change has occurred depends on the value of the various classes of
stock (and interests treated as stock) of the Company and on the identity of the
holders of such stock (both before and after the consummation of the Exchange
Offer), it is difficult to determine with precision the consequences of the
application of Sections 382 and 383 of the Code at this time.
111
<PAGE>
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE ARE FOR GENERAL
INFORMATION ONLY. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE EXCHANGE AND THE OWNERSHIP OF NEW
DEBENTURES INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS AND POSSIBLE CHANGES IN TAX LAWS.
SHARES ELIGIBLE FOR FUTURE SALE
If 51% of the aggregate principal amount of each of the 1987 Debentures,
1990 Debentures and 1991 Debentures are validly tendered and accepted for
exchange pursuant to the Exchange Offer, upon consummation of the Exchange Offer
the Company will issue 501,575 shares of Class A Common Stock (983,480 shares,
if 100% of the aggregate principal amount of each of the 1987 Debentures, 1990
Debentures and 1991 Debentures are validly tendered and accepted for exchange
pursuant to the Exchange Offer). All of the Shares issued in connection with the
Exchange Offer will be freely tradeable without registration or other
restriction under the Securities Act, except for any shares owned by an
'affiliate' of the Company. Pursuant to Rule 144 under the Securities Act, an
'affiliate' of the Company is defined as a person who directly or indirectly
controls, or is controlled by, or is under common control with the Company. In
addition, any shares of Class A Common Stock outstanding which are deemed to be
'restricted shares' under Rule 144 may be sold only pursuant to an effective
registration statement filed by the Company or an applicable exemption,
including an exemption under Rule 144.
In general, under Rule 144 as currently in effect, any person, or group of
persons whose shares are aggregated in accordance with Rule 144, that has
beneficially owned restricted shares for at least two years, as well as any
person who is deemed to be an affiliate of the Company, is entitled to sell
within any three-month period a number of shares of Common Stock that does not
exceed the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume of such stock during the four calendar weeks
preceding the sale. After restricted shares are held for three years, a person
who is not deemed to be an affiliate of the Company is entitled to sell such
shares under Rule 144 without regard to the volume limitations described above.
LEGAL OPINIONS
The validity of the issuance of the New Securities and shares of Class A
Common Stock offered hereby will be passed upon for the Company by Sills Cummis
Zuckerman Radin Tischman Epstein & Gross, P.A.
EXPERTS
The financial statements and financial statements schedules of the Company
as of June 30, 1993 and 1992 and for each of three years in the period ended
June 30, 1993 included in this Prospectus and elsewhere in the Registration
Statement have been audited, to the extent stated in their report (which
includes explanatory paragraphs regarding (a) litigation for which the ultimate
outcome cannot presently be determined, (b) the change in the Company's method
of accounting for income taxes and (c) the Company's ability to continue as a
going concern) by Coopers & Lybrand, independent accountants. The financial
statements and financial statement schedules audited by Coopers & Lybrand have
been included in this Prospectus and elsewhere in the Registration Statement in
reliance upon their report given on their authority as experts in accounting and
auditing.
112
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Index to Consolidated Financial Statements............................................................... F-1
AUDITED FINANCIAL STATEMENTS
Independent Accountants Report........................................................................... F-2
Consolidated Balance Sheets as of June 30, 1993 and 1992................................................. F-3
Consolidated Statements of Operations for the years ended June 30, 1993, 1992, and 1991.................. F-5
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1993, 1992 and 1991......... F-6
Consolidated Statements of Cash Flows for the years ended June 30, 1993, 1992 and 1991................... F-9
Notes to Consolidated Financial Statements............................................................... F-10
UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 31, 1993 and June 30, 1993 (unaudited)........................... F-35
Consolidated Statements of Operations for the six months ended December 31,
1993 and 1992 (unaudited)................................................................................ F-37
Consolidated Statements of Cash Flows for the six months ended December 31,
1993 and 1992 (unaudited)................................................................................ F-38
Notes to Consolidated Financial Statements (unaudited)................................................... F-39
</TABLE>
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS REPORT
The Board of Directors and Stockholders
O'Brien Environmental Energy, Inc.
We have audited the consolidated financial statements and the financial
statement schedules of O'Brien Environmental Energy, Inc. and subsidiaries
listed in the indexes on pages F-1 and S-1, respectively. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
O'Brien Environmental Energy, Inc. and subsidiaries as of June 30, 1993 and
1992, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended June 30, 1993 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in Note 29 to the consolidated financial statements, the
Company is a defendant in several lawsuits. The ultimate outcome of the
litigations cannot presently be determined. Accordingly, no provisions for any
liabilities that may result has been made in the accompanying consolidated
financial statements.
As discussed in Notes 2 and 3 to the consolidated financial statements, in
fiscal 1993 the Company changed its method of accounting for income taxes by
adopting Statement of Financial Accounting Standards No. 109, and retroactively
restated the 1992 and 1991 consolidated financial statements for the change.
The 1993 consolidated financial statements have been prepared assuming that
O'Brien Environmental Energy, Inc. and subsidiaries will continue as a going
concern. As discussed in Note 1 to the consolidated financial statements, the
Company has experienced certain setbacks which have contributed to its recent
losses and liquidity problems, which raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1 to the consolidated financial statements.
The 1993 consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 19, 1994, except for certain information
presented in Notes 15 and 17 for which
the date is March 1, 1994
F-2
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1993 AND 1992
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1993 1992*
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 5,213 $ 8,824
Restricted cash and cash equivalents.................................................... 5,064 3,208
Accounts receivable, net................................................................ 12,394 17,087
Receivable from related parties......................................................... 1,175 1,272
Notes receivable, current............................................................... 2,564 287
Inventories............................................................................. 4,196 3,430
Insurance claims receivable............................................................. 5,255 --
Other current assets.................................................................... 1,631 1,878
---------- ----------
Total current assets................................................................. 37,492 35,986
Property, plant and equipment, net........................................................ 194,217 195,677
Coalbed methane gas properties held for sale.............................................. 4,464 2,341
Project development costs................................................................. 5,136 9,258
Notes receivable, noncurrent.............................................................. 9,315 1,438
Notes receivable from officers............................................................ 246 841
Investments in equity affiliates.......................................................... 2,515 3,079
Excess of cost of investment in subsidiaries over net assets at date of acquisition, net 2,085 2,185
Deferred financing costs, net............................................................ 5,728 6,173
Other assets............................................................................. 1,331 2,076
---------- ----------
$ 262,529 $ 259,054
---------- ----------
---------- ----------
</TABLE>
- ------------------
*Restated to retroactively reflect change in accounting for income taxes.
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1993 AND 1992
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1993 1992*
---------- ----------
<S> <C> <C>
Current liabilities:
Accounts payable........................................................................ $ 19,175 $ 12,330
Current maturities of recourse long-term debt........................................... 10,419 6,633
Current maturities of nonrecourse project financing..................................... 10,758 9,920
Short-term borrowings................................................................... 2,199 1,898
Other current liabilities............................................................... 6,060 4,389
---------- ----------
Total current liabilities............................................................ 48,611 35,170
Recourse long-term debt, net of current maturities........................................ 28,012 20,003
Convertible senior subordinated debentures................................................ 49,174 49,174
Nonrecourse project financing, net of current maturities.................................. 97,140 107,898
Construction costs payable................................................................ 5,100 8,900
Deferred income taxes..................................................................... 10,895 7,817
Other liabilities......................................................................... 7,922 687
---------- ----------
Commitments and contingencies............................................................. 246,854 229,649
---------- ----------
Stockholders' equity:
Preferred stock, par value $.01; shares authorized, 10,000,000; none issued
Class A common stock, par value $.01, one vote per share; 40,000,000 shares authorized;
issued 13,055,597 in 1993 and 12,711,232 in 1992..................................... 130 126
Class B common stock, par value $.01, ten votes per share; 10,000,000 shares authorized;
issued 4,070,770 in 1993 and 4,320,770 in 1992....................................... 39 42
Additional paid-in capital.............................................................. 40,053 39,659
Accumulated deficit..................................................................... (23,932) (10,221)
Other................................................................................... (615) (201)
---------- ----------
Total stockholders' equity........................................................... 15,675 29,405
---------- ----------
Total liabilities and stockholders' equity........................................... $ 262,529 $ 259,054
---------- ----------
---------- ----------
</TABLE>
- ------------------
*Restated to retroactively reflect change in accounting for income taxes.
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1992* 1991*
--------- ---------- ---------
<S> <C> <C> <C>
Energy revenues.......................................................... $ 65,136 $ 71,638 $ 19,881
Equipment sales and services............................................. 18,955 21,854 25,321
Rental revenues.......................................................... 3,636 3,191 3,663
Revenues from related parties............................................ 515 378 899
Development fees and other............................................... 9,450 3,054 1,616
--------- ---------- ---------
97,692 100,115 51,380
--------- ---------- ---------
Cost of energy revenues.................................................. 44,889 46,101 13,145
Cost of equipment sales and services..................................... 16,431 17,746 21,134
Cost of rental revenues.................................................. 2,458 1,421 1,509
Cost of revenues from related parties.................................... 452 320 692
Cost of development fees and other....................................... 7,520 1,408 903
--------- ---------- ---------
71,750 66,996 37,383
--------- ---------- ---------
Gross profit........................................................ 25,942 33,119 13,997
Selling, general and administrative expenses............................. 21,872 13,133 13,311
--------- ---------- ---------
Income from operations.............................................. 4,070 19,986 686
Interest and other income................................................ 993 1,204 1,377
Interest and debt expense................................................ (15,696) (17,340) (8,434)
Litigation settlement cost............................................... -- -- (538)
--------- ---------- ---------
Income (loss) before income taxes................................... (10,633) 3,850 (6,909)
Provision for income taxes............................................... 3,078 2,438 1,676
Net income (loss)........................................................ $ (13,711) $ 1,412 $ (8,585)
--------- ---------- ---------
--------- ---------- ---------
Net income (loss) per share.............................................. $ (.82) $ .09 $ (.67)
--------- ---------- ---------
--------- ---------- ---------
Weighted average shares outstanding...................................... 16,821 14,911 12,756
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
- ------------------
* Restated to retroactively reflect change in accounting for income taxes.
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS CLASS
A B ADDITIONAL TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT OTHER EQUITY
------ ------ ---------- ----------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1990.................... $ 80 $ 47 $ 25,171 $ (719) $ 52 $24,631
Restatement for change in accounting
principle for income taxes............... (2,329) (2,329)
------ ------ ---------- ----------- ----- -------------
Balances, June 30, 1990, as restated....... 80 47 25,171 (3,048) 52 22,302
Issuance of 15,000 shares of Class A Common
Stock upon the exercise of stock
options.................................. 1 42 43
Issuance of 120,000 shares of Class A
Common Stock in connection with
litigation settlement, net of issuance
costs.................................... 1 548 549
Purchase of 15,200 shares of Class A Common
Stock at cost............................ (64) (64)
Currency translation adjustment............ (10) (10)
Net loss, as restated...................... (8,585) (8,585)
------ ------ ---------- ----------- ----- -------------
Balances, June 30, 1991.................... $ 82 $ 47 $ 25,761 $ (11,633) $(22) $14,235
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS CLASS
A B ADDITIONAL TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT OTHER EQUITY
------ ------ ---------- ----------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1991.................... $ 82 $ 47 $ 25,761 $ (11,633) $ (22) $14,235
Issuance of 3,858,028 shares of Class A
Common Stock in connection with an
offering, net of issuance costs.......... 38 13,562 13,600
Conversion of 515,620 shares of Class B
Common Stock into Class A Common Stock in
connection with an offering.............. 5 (5) --
Issuance of 65,464 shares of Class A Common
Stock upon the exercise of stock
options.................................. 1 261 262
Issuance of 16,840 shares of Class A Common
Stock upon the conversion of debentures,
net of deferred financing costs.......... 75 75
Currency translation adjustment............ (179) (179)
Net income, as restated.................... 1,412 1,412
------ ------ ---------- ----------- ----- -------------
Balances, June 30, 1992.................... $126 $ 42 $ 39,659 $ (10,221) $(201) $29,405
------ ------ ---------- ----------- ----- -------------
------ ------ ---------- ----------- ----- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS CLASS
A B ADDITIONAL TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT OTHER EQUITY
------ ------ ---------- ----------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1992.................... $126 $ 42 $ 39,659 $ (10,221) $(201) $29,405
Issuance of 94,365 shares of Class A Common
Stock upon the exercise of stock
options.................................. 1 386 387
Conversion of 250,000 shares of Class B
Common Stock into Class A Common Stock... 3 (3)
Currency translation adjustment............ (414) (414)
Other...................................... 8 8
Net loss................................... (13,711) (13,711)
------ ------ ---------- ----------- ----- -------------
Balances, June 30, 1993.................... $130 $ 39 $ 40,053 $ (23,932) $(615) $15,675
------ ------ ---------- ----------- ----- -------------
------ ------ ---------- ----------- ----- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992* 1991*
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................ $(13,711) $ 1,412 $ (8,585)
Adjustments to reconcile net income (loss) to net cash provided by (used for)
operating activities:
Depreciation, depletion and amortization.................................. 10,550 9,448 3,936
Deferred income tax expense............................................... 3,078 2,303 1,676
Equity interest in unconsolidated entities................................ 290 66 28
Project development costs expensed........................................ 1,782 125 1,000
Gain on sale of projects.................................................. (1,691) -- --
Non-cash litigation costs................................................. 621 -- 538
Changes in operating assets and liabilities:
Accounts receivable..................................................... 4,424 (5,661) (6,154)
Inventories............................................................. (766) (94) (393)
Receivables from related parties........................................ 97 (444) 188
Notes receivable........................................................ (314) (1,725) --
Accounts payable........................................................ 508 4,886 1,709
Other..................................................................... 2,312 1,012 (34)
-------- -------- --------
Net cash provided by (used for) operating activities.................... 7,180 11,328 (6,091)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures, net................................................. (7,207) (7,534) (25,167)
Capital expenditure to repair Newark Plant................................ (2,641) -- --
Insurance proceeds for Newark Plant....................................... 2,000 -- --
Project development costs................................................. (764) (2,752) (3,055)
Proceeds from the sale of projects, net of notes receivable............... 1,318 -- --
(Deposits into) withdrawals from restricted cash accounts................. (1,856) (1,685) 251
Other..................................................................... (437) (1,894) (985)
-------- -------- --------
Net cash used for investing activities.................................. (9,587) (13,865) (28,956)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt................................................. 21,816 13,501 60,850
Repayments of long-term debt................................................. (23,708) (24,485) (17,295)
Proceeds from stock issuances................................................ 387 13,862 43
Increase in deferred financing costs......................................... -- -- (3,048)
Net proceeds (repayments) of short-term borrowings........................... 301 (1,964) (3,521)
Other........................................................................ -- (176) (64)
-------- -------- --------
Net cash provided by (used for) financing activities...................... (1,204) 738 36,965
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........................... (3,611) (1,799) 1,918
Cash and cash equivalents at beginning of year................................. 8,824 10,623 8,705
-------- -------- --------
Cash and cash equivalents at end of year....................................... $ 5,213 $ 8,824 $ 10,623
-------- -------- --------
-------- -------- --------
</TABLE>
- ------------------
*Restated to retroactively reflect change in accounting for income taxes.
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BUSINESS; LIQUIDITY AND CAPITAL RESOURCES:
O'Brien Environmental Energy, Inc. (the Company) develops, owns and
operates biogas projects and develops and owns cogeneration, and waste-heat
recovery projects which produce electricity and thermal energy for sale to
industrial and commercial users and public utilities. In addition, the Company
sells and rents power generation cogeneration and standby/peak shaving equipment
and services.
It has been management's intention to refinance its projects with more
permanent long-term debt, and/or to sell off equity positions in its major
projects in order to generate working capital to be used primarily to develop
additional projects. For the past several years, the Company has not been able
to restructure or refinance its major projects because of prolonged and
expensive litigation with the turnkey contractor associated with the completion
dates of all of the Company's major cogeneration projects.
During the year ended June 30, 1993, the Company has suffered certain
setbacks which have contributed significantly to the Company's net loss in
fiscal 1993. Among these setbacks were a fire at its Newark Boxboard Project
(resulting in an insurance claim of approximately $40,000), the expenses and
diversion of management focus required to repair the project and deal with
insurance recovery and the continuing substantial legal expenses and other costs
attributable to the various contractor litigations discussed above. (See Note
29.) These issues have had a negative impact on the Company's cash flow, ability
to finance its operations and its ongoing development activities.
In response to these developments, management developed a plan to address
the working capital needs of the Company. This plan includes the refinancing of
major projects (such as the Newark Project, whose litigation with the turnkey
contractor was settled in May 1993 and which is now fully operational after
reconstruction), the settlement of the Newark insurance claims, the sale of
certain interests in its development projects, cost reductions, restructuring of
its operations and the settlement of the balance of litigation with the turnkey
contractor (See Note 29).
In implementing this plan, to date:
(i) In November 1993, the Company entered into a transaction under
which it sold its interest in its Philadelphia Water Department project for
$5,000 subject to a right of repurchase (See Note 31.)
(ii) In November 1993, the Company entered into a letter of intent
with Stewart & Stevenson, a major equipment supplier and operation and
maintenance company, for a credit facility to be disbursed upon the
completion of certain milestones, including, among other things, the
appointment of Stewart & Stevenson as operation and maintenance contractor
for the Company's Newark Boxboard and du Pont Parlin cogeneration projects.
(The first disbursement consisting of $1 million was funded on January 13,
1994).
(iii) In December 1993, the Company executed an exclusive option
agreement with a developer to purchase one of the Company's biogas projects
and granted the purchaser a right of first refusal to purchase certain of
the Company's other biogas projects.
(iv) In January 1994, the Company and NatWest Markets ('NatWest')
executed an engagement letter pursuant to which NatWest was engaged as
financial advisor to the Company and O'Brien Newark in connection with
identifying and assisting the Company and O'Brien Newark in negotiating and
entering into agreements to refinance the Newark Boxboard Cogeneration
project for approximately $50,000. As of December 31, 1993, the debt
outstanding on this project was approximately $33,000.
(v) The Company has collected early payments on certain of its notes
receivable in consideration of discounts offered (See Note 7.)
Although the Company believes its efforts will be adequate to meet its
fiscal 1994 operating and capital needs, there can be no assurance that the
Company may not experience liquidity problems because of adverse
F-10
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BUSINESS; LIQUIDITY AND CAPITAL RESOURCES:--(CONTINUED)
market conditions or other unfavorable events or if the Company is not able to
obtain sufficient financing on the Newark Project on a timely basis. These
liquidity problems could affect the Company's ability to pay its obligations
when they are due and therefore, could impair the Company's ability to continue
as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
The consolidated financial statements include the accounts of the Company
and all significant subsidiaries which are more than 50 percent owned and
controlled. Intercompany transactions have been eliminated in consolidation.
Foreign subsidiaries with fiscal years ending on March 31 are included in the
consolidated financial statements. If events occurred between March 31 and June
30 which materially affect the consolidated financial position or results of
operations, they would be reflected in the consolidated financial statements.
Investments in less than majority-owned entities are recorded at cost plus
equity in their undistributed earnings or losses since acquisition.
Certain reclassifications have been made to conform prior years' data to
the current presentation.
Revenue Recognition:
Energy revenues from cogeneration and biogas projects are recognized as
billed over the term of the contract. Profits and losses from sales and rental
of power generation equipment, including sales to projects in which the Company
retains less than a 100% interest, are recognized as the equipment is sold or
over the term of the rental. Development fee revenue is recognized on a cost
recovery basis as cash is received (without future lending provisions), or
equity interest in the partnership increases, whereby revenues are recognized
subsequent to the recovery of all project development costs.
Inventories:
Inventories, consisting principally of power generation equipment and
related parts held for sale, are valued at the lower of cost (determined
primarily by the specific identification method) or market.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the assets which
range from five to thirty years. Depreciation on equipment held for future
projects is not provided until the equipment is placed in service. For income
tax purposes, the Company uses accelerated depreciation methods.
Cost of maintenance and repairs is charged to expense as incurred. Renewals
and improvements are capitalized. Upon retirement or other disposition of items
of plant and equipment, cost of items and related accumulated depreciation are
removed from the accounts and any gain or loss is included in operations.
Coalbed Methane Gas Properties Held For Sale:
The Company used the full cost method of accounting for its coalbed methane
gas properties. Under the full cost method, all productive and nonproductive
costs incurred in the acquisition, exploration and development of coalbed
methane gas properties were capitalized. Upon commencement of production,
depletion of coalbed methane gas properties were computed on the units-of
production method based on future gross revenues from the proved reserves
underlying the properties. Unevaluated properties were excluded from depletion
until a determination has been made as to the existence of proved reserves or an
impairment has occurred. Gains and
F-11
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
losses on the sale or other disposition of properties were not recognized unless
such adjustments would significantly alter the relationship between capitalized
costs and proved reserves. Capitalized costs were limited to the lower of cost
or fair value of unproved properties.
Project Development Costs:
Project development costs consist of fees, licenses and permits, site
testing, bids and other charges, including salary and interest charges, incurred
by the Company in developing projects. For wholly-owned projects, these costs
are transferred to property, plant and equipment upon commencement of
construction and depreciated over the contract term upon commencement of
operations. For projects structured as partnerships, these costs may be
recovered through development cost reimbursements from the partnership or third
parties, or may be transferred to an investment in the partnership. It is the
Company's policy to expense these costs in any period in which management
determines the costs to be unrecoverable.
Deferred Financing Costs:
Deferred financing costs are being amortized on a straight-line basis over
the terms of the related financing.
Recourse Long-term Debt and Nonrecourse Project Financing:
Recourse long-term debt consists of collateralized long-term debt for which
repayment is a general obligation of the Company. Nonrecourse project financing
consists of long-term debt for which repayment obligations are limited to
specific project subsidiaries.
Income Taxes and Accounting Change:
The Company adopted Statement of Financial Accounting Standards No. 109,
'Accounting for Income Taxes' (SFAS No. 109) in the fourth quarter of 1993 (See
Note 3), which requires a change from the deferred method to the asset and
liability method of accounting for income taxes. Under the asset and liability
method, deferred income taxes are recognized for the tax consequences of
'temporary differences' by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Under SFAS No. 109, the effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. Under the deferred method, deferred taxes were
recognized using the tax rate applicable to the respective year of the
calculation and were not adjusted for subsequent changes in tax rates.
Investment and other tax credits are accounted for under the flow-through
method, whereby current federal income tax expense is reduced by such credits as
they are utilized.
Gas Swap Agreements:
The Company has entered into gas swap agreements to reduce the impact of
changes in gas prices on its operating income. The differentials to be paid or
received under such agreements are accrued and are recorded as increments or
decrements to gas expense.
Interest Rate Swap Agreement:
The Company has entered into an interest rate swap agreement to reduce the
impact of changes in interest rates on its variable rate debt. The differentials
to be paid or received under such agreements are accrued and are recorded as
increments or decrements to interest and debt expense.
F-12
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
Amortization of Excess Cost:
Excess of cost of investment in subsidiaries over net assets at date of
acquisition is being amortized by charges to operations on a straight-line basis
over twenty-five years.
Net Income (Loss) per Share:
Net Income (Loss) per share is calculated by dividing net income (loss) by
the weighted average shares of Common Stock and Common Stock equivalents
outstanding. Fully diluted net income (loss) per share is not presented because
conversion of the convertible senior subordinated debentures would be
antidilutive.
Foreign Currency Accounting:
The financial statements of foreign subsidiaries have been translated in
accordance with Statement of Financial Accounting Standards No. 52, whereby
assets and liabilities are translated at year-end rates of exchange and
statements of operations are translated at the average rates of exchange for the
year. Currency translation adjustments are accumulated in the other component of
stockholders' equity until the entity is substantially sold or liquidated.
Transaction gains and losses associated with foreign activities are
reflected in operations.
Statements of Cash Flows:
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with maturities of three months or less
at the time of purchase to be cash equivalents.
Concentration of Credit Risk:
The Company primarily sells electricity and steam to public utilities and
corporations on the east and west coasts of the United States under long-term
contractual agreements. Also, the Company services, sells and rents equipment to
various entities worldwide. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been within
management's expectations.
The Company invests its excess cash in deposits with financial
institutions. Those securities typically mature within ninety days and,
therefore, bear minimal risk. The Company has not experienced any losses on
these deposits.
3. ACCOUNTING CHANGE:
During the fourth quarter of 1993, the Company adopted SFAS 109 and elected
to apply the provisions of SFAS 109 retroactively to July 1, 1989. Accordingly,
the beginning balance of accumulated deficit as of July 1, 1990 has been
restated to reflect an increase of $2,329. In addition, the financial statements
for the years ended June 30, 1992 and 1991 and the unaudited quarterly data
presented in Note 28 have been restated to comply with the provisions of SFAS
109. The following summarizes the impact of applying SFAS 109 on net income
(loss) and net income (loss) per share.
F-13
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. ACCOUNTING CHANGE:--(CONTINUED)
<TABLE>
<CAPTION>
1992 1991
------- -------
<S> <C> <C>
Net income (loss) as previously reported......................................... $ 3,296 $(5,798)
Effect of SFAS 109............................................................. (1,884) (2,787)
------- -------
As restated...................................................................... $ 1,412 $(8,585)
------- -------
------- -------
Net income (loss) per common share as previously reported........................ $ .22 $ (.45)
Effect of SFAS 109............................................................. (.13) (.22)
------- -------
As restated...................................................................... $ .09 $ (.67)
------- -------
------- -------
</TABLE>
4. RESTRICTED CASH:
The Company has classified certain cash and cash equivalents that are not
fully available for use in its operations as restricted.
The restricted cash and cash equivalents relate to debt service reserve
accounts for O'Brien (Newark) Cogeneration, Inc. and O'Brien (Parlin)
Cogeneration, Inc. (See Note 17), and compensating balances maintained by the
Company at financial institutions in connection with lines of credit extended to
its United Kingdom subsidiaries (See Note 14).
The restricted cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
O'Brien (Newark) Cogeneration, Inc............................................... $ 2,500 $ 2,000
O'Brien (Parlin) Cogeneration, Inc............................................... 1,233 --
United Kingdom subsidiaries...................................................... 1,280 1,208
Other............................................................................ 51 --
------- -------
$ 5,064 $ 3,208
------- -------
------- -------
</TABLE>
Additionally, due to restrictions in the Newark and Parlin project
financing agreements, $2,822 and $2,442 of cash and cash equivalents at June 30,
1993 and 1992, respectively, is generally available for use only by those
projects.
5. NEWARK COGENERATION PLANT:
On December 25, 1992, a fire disabled the Newark cogeneration plant. The
damage to the plant caused by the fire has been repaired. The plant returned to
partial operations in August 1993 and resumed full operation in October 1993.
The Newark cogeneration plant generated revenues of $19,629 (including net
business interruption proceeds of $5,880), $27,532, and $15,453 in 1993, 1992
and 1991, respectively. As of June 30, 1993, the Company incurred approximately
$7,455 (of which approximately $4,614 is included in accounts payable) to repair
the plant. As of June 30, 1993, the Company has received $2,000 in property
damage insurance proceeds. The capital expenditures to repair the plant are
offset by the property insurance claim proceeds and is reflected as insurance
claims receivable in the accompanying balance sheet at June 30, 1993. During
1993, the Company received approximately $5,880 of net business interruption
insurance claim proceeds from the insurance carrier which is reflected as energy
revenues in the accompanying statements of operations. The Company is presently
negotiating a settlement with the insurance company regarding the property
insurance claim as well as the business interruption claim. No loss has been
recorded as of June 30, 1993 as insurance proceeds are expected to exceed the
recorded net book value of the assets destroyed.
Effective March 31, 1993, the Company sold a 12.5% interest in all proceeds
received by the Company in its capacity as a stockholder of O'Brien (Newark)
Cogeneration, Inc., a wholly-owned subsidiary, to a third party for
F-14
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. NEWARK COGENERATION PLANT:--(CONTINUED)
a promissory note in the amount of $6,250. The $6,250 promissory note was
payable on May 12, 1996 with interest payable annually at 8%. The costs
associated with the sale amounted to $1,667 which resulted in a net gain of
$4,583 recognized in the third quarter of 1993. As part of management's plan to
refinance its operations, on January 18, 1994, the Company repurchased the 12.5%
interest from the third party for the $6,250 and the forgiveness of accrued
interest. In addition, on January 18, 1994, the Company entered into a
consulting agreement with the third party to provide fuel management services as
requested by the Company up to certain limitations, as defined in the agreement,
for twenty semi-annual payments of $65,000 through December 2004. Also, the
consulting agreement allows for the payment of the semi-annual consulting fee in
common stock at the option of the third party. As a result of repurchasing the
12.5% interest in O'Brien (Newark) Cogeneration, Inc., the Company recorded a
charge in the fourth quarter of 1993 of $4,583 to defer the net gain recognized
in the third quarter. The minority interest of $1,667 established in the third
quarter and the deferred gain of $4,583 recorded in the fourth quarter are in
other liabilities in the accompanying consolidated balance sheet at June 30,
1993. The Company will offset the $6,250 note receivable, $1,667 minority
interest and $4,583 deferred income in January 1994 in connection with the
effective date of the repurchase agreement for the 12.5% interest in O'Brien
(Newark) Cogeneration, Inc.
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Equipment related to energy revenues.......................................... $171,515 $179,925
Rental equipment.............................................................. 34,737 15,642
Furniture and fixtures........................................................ 1,649 1,593
Land, buildings and improvements.............................................. 1,663 1,277
Other equipment............................................................... 823 2,185
-------- --------
$210,387 $200,622
Accumulated depreciation and amortization..................................... (27,911) (19,685)
-------- --------
182,476 180,937
Equipment held for future projects............................................ 11,741 14,740
-------- --------
$194,217 $195,677
-------- --------
-------- --------
</TABLE>
Depreciation expense was $9,643, $8,561 and $3,578 in 1993, 1992 and 1991,
respectively.
Equipment related to energy revenues includes the property and equipment of
the Newark and Parlin cogeneration plants and the biogas projects.
The Newark project consists of a 52 megawatt cogeneration power plant in
Newark, New Jersey which commenced operations in November 1990 and is supplying
electricity and steam pursuant to 25-year supply contracts. The facility was
financed utilizing nonrecourse project financing. On December 25, 1992, a fire
disabled the Newark cogeneration plant (see Note 5).
The Parlin project consists of a 122 megawatt cogeneration power plant in
Parlin, New Jersey which commenced operations on June 26, 1991 and is supplying
101 megawatts of electricity pursuant to a 20-year electric supply contracts and
steam pursuant to a 30-year supply contract. The facility was financed utilizing
nonrecourse project financing.
F-15
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Note receivable with interest payments due annually at 8% in May, and a
principal payment of $6,250 due May 12, 1996 (a)............................ $ 6,250 --
Note receivable, non-interest bearing, due in annual principal installments of
$800 through June 1996. At June 30, 1993 face value and discount are $3,200
and $430, respectively, assuming an interest rate
of 5.95% (b)................................................................ 2,770 --
Notes receivable due in quarterly installments of $110 including interest at
9 1/2% to 10% per annum through March 15, 1994 with a final payment of
$1,236 due on June 15, 1994 (c)............................................. $ 1,438 $ 1,725
Other (d)..................................................................... 1,421 --
-------- --------
11,879 1,725
Current portion............................................................... 2,564 287
-------- --------
$ 9,315 $ 1,438
-------- --------
-------- --------
</TABLE>
- ------------------
(a) Note receivable associated with the sale of a 12.5% interest in O'Brien
(Newark) Cogeneration, Inc. The note was used to repurchase the 12.5%
interest in O'Brien (Newark) Cogeneration, Inc. in January 1994. (See Note
5).
(b) Note receivable associated with the termination of a power purchase contract
(See Note 21). The note is collateralized by an irrevocable letter of
credit.
(c) Notes receivable associated with the sale of two biogas projects in 1992.
The notes receivable are collateralized by the assets of the biogas projects
and guaranteed by the general partner of each limited partnership. (See Note
21). In January 1994, these notes were satisfied with a payment based on an
offer by the Company to discount the notes by $202 for early repayment.
(d) Notes receivable associated with the sale of two biogas projects in
development in 1993 (See Note 21) and a direct finance lease relating to
power generation equipment. In October 1993, a $331 note receivable was
satisfied with a payment of $265 based on an offer by the Company to
discount the notes for early repayment.
8. COALBED METHANE GAS PROPERTIES HELD FOR SALE:
On August 27, 1993 the Company entered into an agreement with an unrelated
third party to sell substantially all proved and unproved coalbed methane gas
properties for $6,500. The $6,500 will be paid in $2,000 of cash and a
production payment note receivable of $4,500. In addition, the Company has
agreed to contribute up to $800 to complete non-producing wells into commercial
wells. The production payment note receivable will be paid from a percentage of
net revenues from the coalbed methane properties until the earlier of (1) the
note is paid in full or (2) 10 years.
The Company's coalbed methane gas operations primarily consisted of
exploration and development of coalbed methane gas projects conducted through
wholly-owned subsidiaries.
F-16
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. COALBED METHANE GAS PROPERTIES HELD FOR SALE:--(CONTINUED)
Capital expenditures relating to the coalbed methane gas properties
consisted of the following:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Property acquisition, unproved..................................................... $ 167 $ 71
Exploration........................................................................ 1,552 778
Capitalized Interest............................................................... 335 152
Other.............................................................................. 116 115
------ ------
$2,170 $1,116
------ ------
------ ------
</TABLE>
9. PROJECT DEVELOPMENT COSTS:
During the years ended June 30, 1993, 1992 and 1991, the Company determined
that certain project development costs should be expensed. The resulting
charges, net of any recoveries, of $1,782, $125 and $1,000 for 1993, 1992 and
1991, respectively, are included in selling, general and administrative expenses
in the accompanying consolidated statements of operations.
10. NOTES RECEIVABLE FROM OFFICERS:
At June 30, 1993 and 1992, the Company had notes receivable totalling $246
and $841, respectively, from certain officers of the Company. The notes are
unsecured, and bear interest at rates ranging from 8% to 10 3/4% per annum.
In September 1992, the Company assigned approximately $655 of notes
receivable from an officer to the former shareholders of American Hydrotherm
Corporation in satisfaction for $1,500 of non-interest bearing notes payable due
August 1999 with a net present value of $770 at September 1992. American
Hydrotherm Corporation is a wholly-owned subsidiary that was acquired in
September 1989; the shareholders are currently officers of American Hydrotherm
Corporation. The net gain of approximately $115 due to the extinguishment of the
debt is included in interest and other income in the accompanying consolidated
statements of operations.
11. INVESTMENTS IN EQUITY AFFILIATES:
Investment in equity affiliates consist of the following:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Gray's Ferry....................................................................... $1,590 $1,243
Hartford........................................................................... -- 684
Artesia............................................................................ 356 357
PoweRent Limited................................................................... 342 368
Intrag, Joint Venture.............................................................. 227 427
------ ------
$2,515 $3,079
------ ------
------ ------
</TABLE>
Gray's Ferry:
In October 1991, O'Brien (Schuylkill) Cogeneration, Inc., (O'Brien
Schuylkill) a wholly-owned subsidiary, executed a partnership agreement with
Adwin Equipment Company (Adwin) to develop a qualifying cogeneration facility
located in Philadelphia, Pennsylvania. The partnership will be known as Grays
Ferry Cogeneration Partnership and will develop, own and operate the
cogeneration facility. The partnership intends to develop this project in two
phases, Phase 1 of which will consist of approximately 40 megawatts. The
partnership has a 25-year steam supply contract and a 20-year electric supply
contract. O'Brien Schuylkill contributed its development activities to the
partnership for a 50% initial interest. Future contributions may have to be made
in
F-17
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. INVESTMENTS IN EQUITY AFFILIATES:--(CONTINUED)
accordance with approved operating budgets. O'Brien Schuylkill and Adwin may be
required to sell a one-third interest in the partnership to the operator of the
cogeneration facility under the provisions of a project services and development
agreement.
Hartford:
In September 1993, the Company settled litigation with Hawker Siddeley
Power Engineering, Inc., the turnkey contractor for the Hartford project.
Pursuant to the settlement agreement, the Company relinquished its interest in
the O'Brien (Hartford) Cogeneration Limited Partnership which owns and operates
the Hartford Project. (See Note 22.) The Hartford project consisted of a 54
megawatt cogeneration facility in Hartford, Connecticut which commenced
operations in 1991 and is supplying electricity and steam pursuant to 20 year
supply contracts.
Artesia:
The Artesia project consists of a 32 megawatt cogeneration facility in
Artesia, California which commenced operations in 1990 and is supplying
electricity and steam pursuant to 30 year supply contracts. The project is owned
and operated by O'Brien California Cogen Limited, a limited partnership. O'Brien
Cogeneration, Inc. II, a wholly-owned subsidiary of the Company, is the managing
general partner. The Company's initial equity interest of 3% can increase to a
maximum of 50% on the basis of project performance and returns to the limited
partner. In addition to its share of the limited partnership's operations, the
Company receives annual management fees of approximately $100 and participates
in a fuel supply partnership.
PoweRent Limited:
PoweRent Limited, an entity in which a subsidiary of the Company owns a 50%
interest, is a United Kingdom company that sells and rents power generation
equipment. The remaining 50% of PoweRent is owned by an officer of a
wholly-owned United Kingdom subsidiary.
Intrag, Joint Venture:
Intrag, Joint Venture was formed for the purpose of developing power
generation projects in Pakistan; and the manufacture, sale and/or rental of
power generation equipment in Pakistan. The joint venture agreement expires in
June 1995.
The Company's investment in the equity affiliates has been accounted for
using the equity method.
12. COST IN EXCESS OF NET ASSETS ACQUIRED:
Excess of cost of investment in subsidiaries over net assets at date of
acquisition consists of the following:
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Excess of investment in subsidiaries over net assets at date of acquisition........ $2,466 $2,466
Accumulated amortization........................................................... (381) (281)
------ ------
$2,085 $2,185
------ ------
------ ------
</TABLE>
Amortization expense amounted to approximately $100 in each of 1993, 1992
and 1991, respectively.
F-18
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. DEFERRED FINANCING COSTS:
Deferred financing costs consist of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Deferred financing costs...................................................... $ 7,087 $ 7,080
Accumulated amortization...................................................... (1,359) (907)
-------- --------
$ 5,728 $ 6,173
-------- --------
-------- --------
</TABLE>
Amortization expense amounted to $452, $452 and $204 in 1993, 1992 and
1991, respectively and is included in interest and debt expense in the
accompanying consolidated statements of operations.
14. SHORT-TERM BORROWINGS:
As of June 30, 1993 and 1992 short-term borrowings consist of foreign lines
of credit payable to financial institutions bearing interest at foreign (U.K.)
short term rates. Collateral for the lines of credit consists primarily of
certain restricted cash balances.
15. RECOURSE LONG-TERM DEBT:
Recourse long-term debt consist of the following:
<TABLE>
<CAPTION>
1993 1992
-------- -------
<S> <C> <C>
Notes payable to financial institutions, due in monthly installments of
principal plus interest at floating rates ranging from 1% to 3% over the
prime rate (prime rate at June 30, 1993 was 6%) maturing at various dates
through December 1999, collateralized by certain energy equipment having a
net book value of $40,734 at June 30, 1993................................... $ 27,113 $19,325
Capital lease obligations, due in monthly installments at rates up to 13.25%,
maturing at various dates through December 2000, collateralized by certain
energy and rental equipment having a net book value of $13,267 at June 30,
1993......................................................................... 10,828 5,837
Other.......................................................................... 490 1,474
-------- -------
38,431 26,636
Less current maturities........................................................ (10,419) (6,633)
-------- -------
$ 28,012 $20,003
-------- -------
-------- -------
</TABLE>
F-19
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. RECOURSE LONG-TERM DEBT:--(CONTINUED)
Scheduled maturities of recourse long-term debt and capital lease
obligations, including interest, for the next five years and thereafter are as
follows:
<TABLE>
<CAPTION>
RECOURSE
YEAR ENDING JUNE 30 LONG-TERM DEBT CAPITAL LEASES
- ---------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
1994.................................................................. 8,336 3,331
1995.................................................................. 10,066 3,197
1996.................................................................. 5,221 3,180
1997.................................................................. 2,466 2,995
1998.................................................................. 779 1,337
Thereafter............................................................ 735 152
Interest component on capital leases.................................. -- (3,364)
-------------- --------------
$ 27,603 $ 10,828
-------------- --------------
</TABLE>
The Company incurred interest charges, exclusive of interest charges on
nonrecourse project financing, of $8,265, $8,423 and $7,735 in 1993, 1992 and
1991, respectively. Of these amounts, $1,873, $2,690 and $2,740 were capitalized
(See Note 17 for interest capitalized under nonrecourse project financing
arrangements).
Subsequent to June 30, 1993, the Company refinanced on a long-term basis
approximately $4,300 of recourse long-term debt that was originally scheduled to
be repaid during fiscal 1994. These amounts have been classified as noncurrent
at June 30, 1993.
Certain of the recourse long-term debt agreements contain requirements that
the Company will (1) not incur a net loss during any fiscal year; and (2) not
default on other debt agreements. In addition, the agreements prohibit the
declaration of dividends on common stock.
At June 30, 1993, the Company was not in compliance with financial
covenants arising under approximately $1,600 of recourse long-term debt due to
incurring a net loss for 1993. On March 1, 1994, the bank granted a waiver for
the event of default.
16. CONVERTIBLE SENIOR SUBORDINATED DEBENTURES:
Convertible senior subordinated debentures consist of the following:
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
7 3/4% Convertible Senior Subordinated Debentures due in March 2002. Conversion
price $4.75 per share......................................................... $11,419 $11,419
11% Convertible Senior Subordinated Debentures due in March 2010. Conversion
price $5.55 per share......................................................... 11,500 11,500
11% Convertible Senior Subordinated Debentures due in March 2011. Conversion
price $5.46 per share......................................................... 26,255 26,255
------- -------
$49,174 $49,174
------- -------
------- -------
</TABLE>
The debentures are subordinated in right of payment, in the manner and to
the extent set forth in the indenture agreements, to the prior payment in full
of all Senior Indebtedness, as defined in the indenture agreements, whether
outstanding on the date the debentures were issued or thereafter created,
incurred or assumed.
F-20
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
16. CONVERTIBLE SENIOR SUBORDINATED DEBENTURES:--(CONTINUED)
The debentures are convertible, at any time prior to maturity, into shares
of Class A Common Stock of the Company as provided in the Indenture agreements.
Prior to maturity, the debentures may be redeemed at the option of the Company,
subject to certain conditions.
Commencing March 1992, the 7 3/4% debenture sinking fund requirements,
which may be satisfied with converted bonds, are scheduled to retire 75% of the
issue prior to maturity. Based on conversions to date, the Company does not have
to make cash payments to satisfy these requirements until 1999.
Commencing March 2000, the 11% debentures sinking fund requirements, which
may be satisfied with converted bonds, are scheduled to retire 50% of each issue
prior to maturity.
The 7 3/4% indenture agreement contains a requirement that the Company will
not, and will not permit any consolidated subsidiary to, incur or create any
Funded Indebtedness, as defined in the agreement, if after giving effect to the
incurrence or creation of such Funded Indebtedness the total outstanding Funded
Indebtedness of the Company on a consolidated basis would exceed 75% of the sum
of the consolidated stockholders' equity and Funded Indebtedness.
Notwithstanding the foregoing, the Company may amend, renew, extend or refund
any Indebtedness, as defined in the agreement, outstanding from time to time in
an amount not greater than the principal amount of such Indebtedness at the date
of original incurrence, provided that in the event any such amendment, renewal,
extension or refunding takes place at a date when the Funded Indebtedness of the
Company on a consolidated basis would exceed the applicable maximum permitted
percentage set forth above, the Company will not permit such amendment, renewal,
extension or refunding to increase the cumulative mandatory redemptions due
prior to the maturity of the 7 3/4% Convertible Senior Subordinated Debentures.
The operating results during the fourth quarter of 1993 and charges
applicable to the adoption of SFAS 109 have resulted in the Company's total
outstanding Funded Indebtedness on a consolidated basis exceeding 75% of the sum
of consolidated stockholders' equity and Funded Indebtedness as of June 30,
1993. As a result, the Company and its subsidiaries are generally restricted
from creating or incurring any new Indebtedness.
In accordance with the terms of the Indenture agreements, the Company is
restricted, under certain circumstances, from declaring or paying cash
dividends, making cash distributions, or acquiring or retiring for value any
capital stock of the Company.
During 1992, $80 of the 7 3/4% debentures were converted into Class A
Common Stock. No debentures were converted during 1993 or 1991.
17. NONRECOURSE PROJECT FINANCING:
Nonrecourse project financing consists of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Newark project (a)............................................................ $ 35,088 $ 39,213
Parlin project (b)............................................................ 72,810 78,605
-------- --------
107,898 117,818
Less current maturities....................................................... (10,758) (9,920)
-------- --------
$ 97,140 $107,898
-------- --------
-------- --------
</TABLE>
-----------------------
(a) The Newark project financing is an obligation of O'Brien (Newark)
Cogeneration, Inc., a wholly-owned subsidiary of the Company. The
project financing was converted from a nonrecourse construction loan
to a nonrecourse 12-year term loan in October 1990. The term loan
provides for a variable interest rate tied to either LIBOR or the
prime rate. The subsidiary has the option to fix the interest rate for
this term loan at prevailing long-term market rates. At June 30, 1993,
the subsidiary
F-21
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
17. NONRECOURSE PROJECT FINANCING:--(CONTINUED)
had $35,088 outstanding under the term loan. The floating rate as of
that date was 4.5%. During 1993, 1992 and 1991, $1,759, $2,790 and
$4,057, respectively, of interest costs were incurred pursuant to the
project financing. Of these amounts, $1,494 was capitalized to the
project in 1991.
The sole collateral for the term loan is the common stock of O'Brien
(Newark) Cogeneration, Inc., which has net assets of approximately
$39,454 excluding the nonrecourse financing at June 30, 1993.
(b) The Parlin financing is an obligation of O'Brien (Parlin)
Cogeneration, Inc., a wholly-owned subsidiary of the Company. The
project financing was converted from a nonrecourse construction loan
to a nonrecourse 12-year term loan in December 1990. Through the use
of an interest rate swap agreement, up to $51,000 of the term loan has
a fixed interest rate of approximately 11% per annum for a period of
10 years. The Company is exposed to credit loss in the event of
nonperformance by the other party to the swap. However, the Company
does not anticipate nonperformance. The balance of the loans have a
variable interest rate tied to LIBOR or the prime rate unless the
Company chooses to fix the interest rate at prevailing long-term
market rates. At June 30, 1993, approximately $21,491 of this loan had
a floating rate of 4.4%. During 1993, 1992 and 1991 $7,166, $8,357 and
$8,352 of interest costs were incurred pursuant to the construction
loan. Of these amounts, $7,803 was capitalized to the project in 1991.
The sole collateral for the term loan is the common stock of O'Brien
(Parlin) Cogeneration, Inc., which has net assets of approximately
$74,231 excluding the nonrecourse financing at June 30, 1993.
Scheduled maturities of nonrecourse project financing for the next five
years are as follows:
<TABLE>
<S> <C>
1994.......................................................................... $ 10,758
1995.......................................................................... 10,820
1996.......................................................................... 11,280
1997.......................................................................... 11,905
1998.......................................................................... 12,956
Thereafter.................................................................... 50,179
--------
$107,898
--------
--------
</TABLE>
The nonrecourse project financing agreements contain various covenants, the
most restrictive of which are the maintenance of positive working capital,
limitation on the payment of dividends or other distributions to the Company and
a restriction on additional borrowings by the project subsidiaries. At June 30,
1993, the Newark project was in compliance with the covenants in the nonrecourse
project financing agreements; however, the Parlin project was in default of the
covenant which requires the maintenance of positive working capital. On March 1,
1994, the project lender agreed to waive this covenant through July 1, 1994
provided that during the period that this waiver is in effect no distribution of
any nature whatsoever will be made to the Company by the Parlin wholly-owned
subsidiary and that this waiver shall cease to be effective in the event that
the wholly-owned subsidiary is in compliance with the requirement to maintain
positive working capital at any time prior to June 30, 1994. The Company has
classified the project financing as noncurrent since the conditions of the
waiver are expected to be complied with during 1994.
F-22
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
18. STOCKHOLDERS' EQUITY:
Preferred Stock
The Board of Directors of the Company is authorized to issue shares of
Preferred stock in one or more series and to determine the rights and
preferences of each series.
Common Stock
In January 1992, the Company completed an offering of 3,858,028 shares of
Class A Common Stock at $4.00 per share. Proceeds from the offering amounted to
$13,600, net of issuance costs. In addition, a principal stockholder, controlled
by the President of the Company, converted 515,620 shares of Class B Common
Stock into Class A Common Stock and sold the Class A Common Stock shares at
$4.00 per share in connection with this offering.
Except for voting and conversion privileges, shares of Class A and Class B
common stock are identical. Class A stockholders are entitled to one vote per
share while Class B stockholders are entitled to ten votes per share. Class B
common stock is convertible into Class A common stock on the basis of one share
of Class A common stock for each share of Class B common stock. All outstanding
shares of Class B common stock are owned by III Enterprises, Inc., a company
wholly owned by the President of the Company, which has controlling voting
interest in the Company.
In August 1993, Pueblo Chemical, Inc. (Pueblo) filed a Schedule 13D with
the Securities and Exchange Commission. In the Schedule 13D, Pueblo asserts that
it currently has the option to purchase three million shares of the Company's
Class B Common Stock from an affiliate of III Enterprises, Inc. Any such
purchase by Pueblo would result in a change in control of the Company. III
Enterprises has advised the Company that it believes Pueblo's assertions are
without merit. In a decision rendered in a U.S. Bankruptcy Court case involving
an affiliate of III Enterprises, Inc., the judge determined that no option
contract existed between the parties. Pueblo has appealed this decision.
In October 1993, III Enterprises, Inc. filed for bankruptcy protection
under Chapter 11 of the Federal Bankruptcy Code. In connection with any
reorganization of III Enterprises, Inc., the stock ownership of III Enterprises
which owns the controlling shares of Class B Common Stock of the Company may be
sold to a third party.
Outstanding shares amounted to the following:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Class A common stock...................................................... 12,965,397 12,621,068
---------- ----------
---------- ----------
Class B common stock...................................................... 3,905,770 4,155,770
---------- ----------
---------- ----------
</TABLE>
At June 30, 1993, the Company had 11,426,574 Class A common stock shares
reserved for issuance in connection with its stock option plans (2,141,894) and
its convertible senior subordinated debentures (9,284,680).
Other
The other component of stockholders' equity includes a foreign currency
translation adjustment of ($551), ($137) and $42 at June 30, 1993, 1992 and
1991, respectively, and treasury stock of $64 at June 30, 1993, 1992 and 1991.
Treasury stock is recorded at cost and consists of 90,200 shares of Class A
common stock and 165,000 shares of Class B common stock, including 75,000 shares
of Class A common stock and 165,000 shares of Class B common stock held by
O'Brien Energy Services at the date of its acquisition by the Company.
F-23
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
19. STOCK OPTIONS:
The Company's stock option plans provide for the granting of qualified
and/or nonqualified options on Class A common stock to officers, directors and
key employees. Qualified options are exercisable after one year from the date of
the grant and expire no more than ten years after grant. These options become
exercisable over a 36 month period. Pertinent information concerning the option
plans is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at beginning of year............................... 1,400,868 1,279,832 1,172,201
Options exercised.............................................. (94,365) (65,464) (15,000)
Options expired................................................ (258,075) (142,500) (54,797)
Options granted-nonqualified................................... 316,213 160,000 143,928
Options granted-qualified...................................... 52,233 169,000 33,500
--------- --------- ---------
Outstanding at end of year..................................... 1,416,874 1,400,868 1,279,832
--------- --------- ---------
--------- --------- ---------
Exercisable.................................................... 1,279,516 1,246,779 1,047,470
--------- --------- ---------
--------- --------- ---------
</TABLE>
Exercise prices range from $4.25 to $4.75 per share for options granted in
1993; $4.25 to $4.75 per share for options granted in 1992, and $3.875 to $5.00
per share for options granted in 1991. The price of options exercised ranged
from $3.75 to $4.75 per share in 1993 and $1.87 to $4.75 per share in 1992 and
was $1.87 per share in 1991.
20. BUSINESS INTERRUPTION INSURANCE CLAIMS:
During 1993 and 1992, energy revenues includes approximately $6,247 and
$483 received under net business interruption insurance claims associated with
the Newark and Parlin cogeneration plants (see Note 5 for Newark claims).
21. DEVELOPMENT FEES AND OTHER:
In December 1992, the Company and a utility entered into an agreement
pursuant to which the electric contract previously entered into was terminated
for $4,000 from the utility, payable in five annual installments of $800 without
interest. The payments are collateralized by a standby letter of credit. The net
present value of the $4,000 was determined to be $3,462, assuming an interest
rate of 5.95%, and is reflected as development fees and other in the
accompanying consolidated statements of operations. The associated project
development costs amounted to $2,386 which resulted in a net gain of $1,076.
In December 1992, the Company sold a biogas project located in the United
Kingdom for $821, of which $331 is being paid pursuant to a promissory note with
an interest rate of 8% and is reflected as development and other fees in the
accompanying consolidated statements of operations. In October 1993, the
promissory note was satisfied for $265, which reflects a $66 discount for early
payment offered by the Company. The associated project development costs
amounted to $564 which resulted in a net gain of $257.
In September 1992, the Company sold a 50% interest in a biogas project
pursuant to a stock purchase agreement. The remaining 50% interest was sold on
June 30, 1993. The aggregate sale price was $625 of which $555 is being paid
pursuant to a promissory note with an interest rate of 8%. The costs associated
with the sale amounted to $267 which resulted in a net gain of $358.
During 1993, the Company recognized approximately $3,989 of revenues
associated with the sale of natural gas to the Artesia project under a fuel
management contract. The costs associated with the fuel transactions amounted to
$3,989.
F-24
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
21. DEVELOPMENT FEES AND OTHER:--(CONTINUED)
In June 1992, the Company sold the power purchase, landfill gas and other
agreements associated with two biogas projects that were operated by the Company
to two unrelated limited partnerships for $323 in cash and $1,725 in notes
receivable with interest rates of 9.5% and 10%. The cost associated with the
agreements sold amounted to $503 which resulted in a gain of $1,545. The sales
price of $2,048 and the related costs of $503 are reflected in development and
other fees and cost of development and other fees, respectively, in the
accompanying consolidated statements of operations. In January 1994, these notes
receivable were satisfied for $1,100, which reflects a $202 discount for early
payment offered by the Company. In addition, the Company entered into equipment
rental agreements with the respective buyers of those projects to lease certain
power generation equipment for annual rentals of $185 through December 31, 2002.
The leases may be extended for six years at the option of the lessee. Also, the
annual rentals may be reduced if equipment is removed from the project sites by
the Company in accordance with provisions in the rental agreements.
In 1992 and 1991, the Company recognized revenues of $779 and $1,326,
respectively, in connection with equipment agreements associated with the
Hartford project. Associated costs were $701 and $635, respectively. During
1993, 1992 and 1991, the Company also recognized $125, $227 and $290,
respectively, of revenues pursuant to management fee and other agreements with
the Hartford and Artesia projects. Associated costs were $112, $204 and $268,
respectively.
22. LITIGATION SETTLEMENT COSTS:
In January 1991, the Company reached a settlement with the plaintiffs who
brought a stockholder class action lawsuit which alleged certain violations
under the Securities Exchange Act of 1934. Under the terms of the settlement,
the Company paid $275 in cash and issued 120,000 shares of Class A common stock
of the Company (valued for these purposes at $5.00 per share). The Company's
insurance carrier contributed $338 to this settlement, as well as reimbursing
the Company for approximately $300 of legal costs incurred in connection with
the litigation.
In May 1993, O'Brien (Newark) Cogeneration, Inc. and O'Brien Newark Supply
Corporation, wholly-owned subsidiaries, entered into a settlement agreement with
Hawker Siddeley Power Engineering Inc. and related entities, the turnkey
contractor for the Newark cogeneration project, with regards to litigation
relating to the construction of the Newark cogeneration plant. The settlement
agreement dismissed all claims between all parties. As a result of the
settlement, the $3,800 construction costs payable relating to retained payment
under the construction contract has been adjusted by reducing property, plant
and equipment by $3,200 with the remainder representing payments made by the
Company.
In September 1993, the Company and certain subsidiaries and an equity
affiliate entered into a settlement agreement with Hawker Siddeley Power
Engineering, Inc. and related entities, the turnkey contractor for the Hartford
cogeneration plant, with regards to litigation relating to the construction of
the Hartford cogeneration plant. Pursuant to the settlement agreement, the
Company relinquished its 5 percent general partner interest, paid Hawker $250
and issued a promissory note for $250 to the succeeding general partner, which
resulted in a total charge of $1,121 for 1993, which is included in selling,
general and administrative expenses in the accompanying Consolidated Statement
of Operations.
F-25
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
23. INCOME TAXES:
Income (loss) from continuing operations before income taxes consists of:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
United States..................................................... $ (10,272) $ 3,973 $ (6,894)
Foreign........................................................... (361) (123) (15)
--------- --------- ---------
$ (10,633) $ 3,850 $ (6,909)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The income tax provision (benefit) consists of:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Current income taxes:
Federal......................................................... -- 100 --
State........................................................... -- 35 --
Foreign......................................................... -- -- --
--------- --------- ---------
-- 35 --
Deferred income taxes............................................. 3,078 2,303 1,676
--------- --------- ---------
$ 3,078 $ 2,438 $ 1,676
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of the net deferred income tax liabilities are as follows:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Deferred income tax liabilities:
Property, plant and equipment............................................. $ 15,073 $ 12,928
--------- ---------
Deferred income tax assets:
Net operating loss carryforwards.......................................... 18,325 11,848
Alternative minimum tax credits........................................... 110 110
Investment tax credits.................................................... 1,623 1,623
Miscellaneous............................................................. 328 240
Valuation allowance....................................................... (16,208) (8,710)
--------- ---------
Total deferred tax assets............................................ 4,178 5,111
--------- ---------
Net deferred income tax liabilities....................................... $ 10,895 $ 7,817
--------- ---------
--------- ---------
</TABLE>
The increase in the valuation allowance from June 30, 1992 to June 30, 1993
is due primarily to the uncertainty of realizing the benefit of loss
carryforwards generated in 1993.
A reconciliation between the U.S. Federal statutory tax rate and the
effective tax rate follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Income tax (benefit) on the amount at federal statutory rate...... $ (3,615) $ 1,309 $ (2,349)
State income taxes................................................ 282 538 289
Operating income tax losses with no current tax benefit........... 6,248 419 3,666
Other............................................................. 163 172 70
--------- --------- ---------
Total income tax provision........................................ $ 3,078 $ 2,438 $ 1,676
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-26
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
23. INCOME TAXES:--(CONTINUED)
At June 30, 1993, the Company has tax basis net operating loss
carryforwards available to offset future regular taxable income, and investment
tax credit carryfowards available to offset future regular or alternative
minimum federal income taxes payable. These carryforwards expire as follows:
<TABLE>
<CAPTION>
NET OPERATING INVESTMENT TAX CREDIT
LOSS CARRYFORWARDS CARRYFORWARDS
------------------ ---------------------
<S> <C> <C>
1998..................................................... $ -- $ 58
1999..................................................... -- 138
2000..................................................... 400 255
2001..................................................... 792 240
2002..................................................... 2,325 409
2003..................................................... 3,733 82
2004..................................................... 2,071 174
2005..................................................... 5,022 52
2006..................................................... 12,677 215
2007..................................................... 4,002 --
2008..................................................... 16,430 --
------------------ -------
$ 47,452 $ 1,623
------------------ -------
------------------ -------
</TABLE>
In addition, the Company has $3,108 of unused net operating loss
carryforwards for United Kingdom income tax purposes. These credits can be
carried forward for United Kingdom tax purposes indefinitely.
An alternative minimum tax is imposed at a 20% rate on the Company's
alternative minimum taxable income which is determined by making statutory
adjustments to the Company's regular taxable income. Net operating loss
carryforwards may be used to offset only 90% of the Company's alternative
minimum taxable income. The net operating loss carryforwards for alternative
minimum tax purposes are approximately $26,805 for income tax purposes at June
30, 1993. The Company is subject to the alternative minimum tax resulting in an
alternative minimum tax expense of $100 in 1992. This amount will be allowed as
a credit carryover against regular tax in the future in the event the regular
tax expense exceeds the alternative minimum tax expense.
24. TRANSACTIONS WITH RELATED PARTIES:
PoweRent Limited is 50% owned by the Company and 50% by an officer of a
wholly-owned subsidiary. Amounts receivable from or payable to related parties
are noninterest-bearing and are classified as current, as settlement is expected
to occur within one year.
A summary of activity with related parties is as follows:
(1) The Company leases office space from Pennsport Partnership, a
Pennsylvania partnership in which the President of the Company has a 50%
ownership interest. Rental expense for 1993, 1992 and 1991 was $293, $290
and $284, respectively. The Company also leases office space from River
Holdings, Ltd., an entity owned by the President of the Company. Rental
expense for 1993 was $75. In addition, a subsidiary of the Company leases
offices and manufacturing space from an affiliate of the President of the
Company. Rental expense for 1993, 1992 and 1991 was $156, $155 and $167,
respectively.
(2) In 1993 and 1992, the Company recognized $156 and $143,
respectively, of revenue by selling equipment and related services to
PoweRent. The cost of the equipment and related services was $130 and $96,
respectively.
(3) In 1993 and 1992, the Company recognized $346 and $235,
respectively, of revenue by selling equipment and related services to
O'Brien Power Systems, Inc., a company controlled by a relative of the
F-27
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
24. TRANSACTIONS WITH RELATED PARTIES:--(CONTINUED)
President of the Company. The cost of the equipment and related services
was $322 and $224, respectively. The Company also was charged commissions
by O'Brien Power Systems, Inc. of $169 in 1993 in connection with equipment
sales and services provided to third parties.
(4) In 1991, the Company recognized $831 of revenue by selling
equipment and related services to O'Brien Machinery Company, a company that
was wholly-owned and managed by the brother of the President of the
Company. The cost of the equipment and related services was $687.
In addition, the Company has had transactions with projects structured as
partnerships in which the Company retains a general partnership interest (Note
11).
25. SEGMENT INFORMATION AND MAJOR CUSTOMERS:
The Company operates principally in two industry segments: the developing,
owning and operating biogas projects and the development and ownership of
cogeneration and waste heat recovery projects (energy) and the selling and
renting of power generation, cogeneration and standby/peak shaving equipment and
services (equipment sales, rental and services). Information with respect to the
segments of the business is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Energy........................................................ $ 74,587 $ 74,692 $ 21,497
Equipment sales, rental and services.......................... 23,105 25,423 29,883
---------- ---------- ----------
$ 97,692 $ 100,115 $ 51,380
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
Energy........................................................ $ 224,352 $ 222,070 $ 208,010
Equipment sales, rental and services.......................... 29,557 26,722 25,184
Corporate assets.............................................. 8,620 10,262 16,013
---------- ---------- ----------
$ 262,529 $ 259,054 $ 249,207
---------- ---------- ----------
---------- ---------- ----------
Operating income (loss):
Energy........................................................ $ 14,468 $ 24,520 $ 4,495
Equipment sales, rental and services.......................... (1,799) 1,283 1,599
General corporate expenses.................................... (8,599) (5,817) (5,408)
---------- ---------- ----------
$ 4,070 $ 19,986 $ 686
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization expense:
Energy........................................................ $ 8,008 $ 8,106 $ 2,538
Equipment sales, rental and services.......................... 1,446 751 752
Not allocable................................................. 1,096 591 646
---------- ---------- ----------
$ 10,550 $ 9,448 $ 3,936
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Revenue by segment consists of sales to unaffiliated customers;
intersegment sales are not significant. For the purposes of this presentation,
development and other fees are considered revenues of the energy segment.
Identifiable assets by segment are those assets that are used in the
operations of each segment. Corporate assets are those assets not used in the
operations of a specific segment and consist primarily of cash, notes receivable
from officers and deferred financing costs. Investments in limited partnerships
are included in the identifiable assets of the energy segment.
F-28
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
25. SEGMENT INFORMATION AND MAJOR CUSTOMERS:--(CONTINUED)
Selling, general and administrative expenses have been allocated to the
individual segments on the basis of segment revenues and geographical location.
Capital expenditures for 1993 are primarily associated with the equipment
sales, rental and services segment. Capital expenditures for 1992 and 1991 are
primarily associated with the energy segment.
Information with respect to the Company's geographical areas of business is
as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
United States................................................. $ 83,797 $ 84,560 $ 31,358
United Kingdom................................................ 13,895 15,555 20,022
---------- ---------- ----------
$ 97,692 $ 100,115 $ 51,380
---------- ---------- ----------
---------- ---------- ----------
Net income (loss):
United States................................................. $ (13,350) $ 1,535 $ (8,570)
United Kingdom................................................ (361) (123) (15)
---------- ---------- ----------
$ (13,711) $ 1,412 $ (8,585)
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
United States................................................. $ 252,863 $ 249,544 $ 238,723
United Kingdom................................................ 9,666 9,510 10,484
---------- ---------- ----------
$ 262,529 $ 259,054 $ 249,207
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Revenues from one energy customer accounted for 65%, 67% and 31% of 1993, 1992
and 1991 revenues, respectively.
26. OPERATING LEASES:
The Company leases equipment and primarily conducts its operations in
leased facilities which expire on various dates through the year 2000. Under the
terms of most of the lease agreements, the Company is required to pay taxes,
insurance, maintenance and other operating costs of the facilities. The total
minimum annual lease payments under non-cancellable operating lease agreements
are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C>
1994......................................................... $ 1,098
1995......................................................... 960
1996......................................................... 882
1997......................................................... 848
1998......................................................... 713
Thereafter...................................................... 502
---------
$ 5,003
---------
---------
</TABLE>
Total rental expense under various operating leases was approximately
$1,434, $1,182 and $1,207 in 1993, 1992 and 1991.
F-29
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
27. STATEMENTS OF CASH FLOWS:
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ----------
<S> <C> <C> <C>
Interest paid during the year, net of amounts capitalized.......... $ 15,287 $ 16,898 $ 6,586
Income taxes paid.................................................. $ -- 63 --
</TABLE>
Supplemental schedule of noncash investing and financing activities:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ----------
<S> <C> <C> <C>
Transfer of project development costs to property, plant and
equipment........................................................ $ -- $ 230 $ 49
Capital expenditures included in accounts payable and construction
costs payable.................................................... 6,986 (74) 9,492
Project development costs recovered by receipt of equipment........ -- 1,501 --
Other assets included in accounts payable and other liabilities.... -- 719 675
Conversion of 7 3/4% convertible subordinated debentures........... -- 80 --
Restricted cash used to directly reduce nonrecourse project
financing........................................................ -- -- 12,800
Property, plant and equipment reduced by accounts receivable for
commissioning revenue............................................ -- -- 991
Reduction of property, plant and equipment resulting from the
settlement of litigation......................................... 3,232 -- --
Notes receivables in connection with the sale of projects.......... 3,590 -- --
Capital expenditures acquired by capital leases.................... 4,546 -- --
Exchange of note receivable for note payable....................... 655 -- --
</TABLE>
28. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
---------------------- ----------------------
AS AS
PREVIOUSLY AS PREVIOUSLY AS
FISCAL 1993 QUARTER END REPORTED RESTATED REPORTED RESTATED
- -------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Total revenue........................................... $ 27,184 $ 27,184 $ 29,285 $ 29,285
Gross profit............................................ 10,632 10,632 6,092 6,092
Net income (loss)....................................... 3,331 2,944 (716) (1,759)
Net income (loss) per share:
Income (loss) before extraordinary item............... $ .13 $ .18 $ (.03) $ (.10)
Extraordinary item.................................... .07 -- (.01) --
----------- --------- ----------- ---------
Net income (loss) per share........................... $ .20 $ .18 $ (.04) $ (.10)
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
F-30
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
28. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):--(CONTINUED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
---------------------- -----------
AS
PREVIOUSLY AS
FISCAL 1993 QUARTER END REPORTED RESTATED
- ------------------------------------------------------- ----------- ---------
<S> <C> <C> <C>
Total revenue.......................................... $ 20,036 $ 20,036 $ 21,187
Gross profit........................................... 5,384 5,384 3,834
Net income (loss)...................................... 1,623 1,471 (16,367)
Net income (loss) per share:
Income (loss) before extraordinary item.............. $ .07 $ .09 $ (.98)
Extraordinary item................................... .03 -- --
----------- --------- -----------
Net income (loss) per share.......................... $ .10 $ .09 $ (.98)
----------- --------- -----------
----------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
---------------------- ----------------------
AS AS
PREVIOUSLY AS PREVIOUSLY AS
FISCAL 1992 QUARTER END REPORTED RESTATED REPORTED RESTATED
- -------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Total revenue........................................... $ 24,233 $ 24,233 $ 22,338 $ 22,338
Gross profit............................................ 9,016 9,016 6,421 6,421
Net income (loss)....................................... 1,324 910 (475) (1,139)
Net income (loss) per share:
Income (loss) before extraordinary item............... $ .07 $ .07 $ (.02) $ (.09)
Extraordinary item.................................... .03 -- (.01) --
----------- --------- ----------- ---------
Net income (loss) per share........................... $ .10 $ .07 $ (.03) $ (.09)
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
---------------------- ----------------------
AS AS
PREVIOUSLY AS PREVIOUSLY AS
FISCAL 1992 QUARTER END REPORTED RESTATED REPORTED RESTATED
- -------------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Total revenue........................................... $ 27,212 $ 27,212 $ 26,332 $ 26,332
Gross profit............................................ 8,644 8,644 9,038 9,038
Net income (loss)....................................... 1,354 785 1,093 856
Net income (loss) per share:
Income (loss) before extraordinary item............... $ .05 $ .05 $ .04 $ .05
Extraordinary item.................................... .03 -- .03 --
----------- --------- ----------- ---------
Net income (loss) per share........................... $ .08 $ .05 $ .07 $ .05
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
- ------------------
(1) Quarterly financial information for 1993 and 1992 has been restated to
reflect the retroactive adoption of SFAS 109 'Accounting for Income Taxes.'
(2) During the quarter ended March 31, 1993, the Company recognized a net gain
of $4,583 in connection with the sale of a 12.5% interest in the Newark
Cogeneration project. On January 18, 1994, the Company repurchased the 12.5%
interest and recorded a charge of $4,583 in quarter ended June 30, 1993 to
defer the net gain previously recognized on the sale.
(3) Net loss for the quarter ended June 30, 1993 includes charges for the
following:
o $1,782 for certain project development costs.
o $1,121 associated with the Hartford litigation settlement with
Hawker Siddeley.
o $600 associated with bad debt expense.
F-31
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
29. LITIGATION:
Hawker Siddeley:
The Company is involved in litigation with Hawker Siddeley Power
Engineering, Inc. ('Hawker'), the turnkey contractor for the Parlin and former
Salinas projects. In the aggregate, Hawker's lawsuits, as amended, seek
compensatory damages of $15,000 and $3,000 from the Parlin and former Salinas
Projects, respectively. In addition, Hawker seeks $12,000 in punitive damages.
The Company regards Hawker's claims to be without merit. Although the Company
cannot give definitive assurance regarding the ultimate resolution of the
various remaining claims, the Company does not presently believe the resolution
of the litigations will have a material impact on the Company's financial
statements. At this time the Company's legal counsel is unable to determine
whether the outcome of the litigation will have a material impact on the
Company. Accordingly, no provision has been made in the consolidated financial
statements for any liability that may result.
The Company commenced action against Hawker and Hawker Siddeley Group,
P.L.C. (parent company of Hawker) for breach of a contract pursuant to which
Hawker was to construct and deliver a cogeneration facility for the Parlin
project to the Company for a fixed price on a date certain. The Company seeks
liquidated damages, as discussed below in excess of $11 million as well as other
damages in an unspecified amount.
The construction contract for the Parlin project provides for daily
liquidated damages in the event of delayed completion of construction. Such
damages aggregated approximately $11 million at June 30, 1993. Due to the
contingent nature of the damages and subject to the resolution of litigation
with the turnkey contractor, no effect has been given to the liquidated damages
in the accompanying consolidated financial statements.
As of June 30, 1993 and 1992, the Company has retained payment from Hawker
of $5,100 associated with the construction of the Parlin project until certain
items are completed and liquidated damages for delayed completion of
construction, as specified in the turnkey construction agreements, are resolved.
The trial proceedings were rescheduled until October 17, 1994, therefore the
Company has classified this retained payment as noncurrent.
The parties have reached a settlement in principle and have agreed to cease
actively litigating these matters while settlement negotiations continue and
final approval of senior management is confirmed.
In May 1993, the Company settled the outstanding litigation with Hawker
regarding the Newark project that is further discussed in Note 22. In addition,
in September 1993, the Company settled the outstanding litigation on the
Hartford project (a project that was formed as a limited partnership) that is
further discussed in Note 22.
During 1993, 1992 and 1991, the Company incurred $1,607, $617 and $300,
respectively, of costs associated with the above litigation which is included in
selling, general and administrative expenses in the accompanying consolidated
statements of operations.
Other Proceedings:
In September 1993, an action was filed by Gulfgen Limited ('Gulfgen') and
TransAndean International S.A. ('TransAndean') against the Company in the United
States District Court, District of Delaware. The complaint alleges the Company
repudiated its obligation to close a proposed transaction which, among other
things, involved a proposed transfer by Gulfgen and TransAndean of an interest
in a pipeline project to the Company in exchange for certain stock of the
Company and an option to purchase additional stock of the Company. The complaint
also alleges that the Company is now obligated to pay a break-up fee of $200 and
that the Company has repudiated its alleged contractual obligation to pay such
$200 break-up fee. Gulfgen and TransAndean are asking for damages of $200,
together with prejudgment interest, costs and other relief. The Company has
filed an answer to the complaint and a counterclaim. The Company believes that
this claim is without merit and has vigorously denied that it has any obligation
to pay the $200 break-up fee.
F-32
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
29. LITIGATION:--(CONTINUED)
During September 1993 to November 1993, three actions were filed against
O'Brien (Newark) Cogeneration, Inc., a wholly-owned subsidiary, by survivors of
three employees of the operator of the Newark Cogeneration facility who were
killed as the result of a fire which occurred at the facility in December 1992.
The actions seek the recovery of damages in an unspecified amount. The Company
believes that these claims will not have a material adverse financial effect on
the Company because (1) the Company has sufficient liability insurance coverage
and (2) the operator of the Facility has agreed to indemnify the Company for any
liability arising out of the operator's operation and maintenance of the
facility.
In January 1994, an action was filed by Pueblo Chemical, Inc. ('Pueblo')
against the Company and certain officers and directors of the Company in the
Court of Chancery of the State of Delaware-New Castle County. The Complaint
alleges, among other things, fraud and breach of fiduciary duties in connection
with a certain agreement allegedly entered into by Pueblo and an affiliate of
Frank O'Brien, President of the Company.
Although the Company cannot give definitive assurance regarding the
ultimate resolution of the various claims described above, the Company does not
presently believe the matters described above or the resolution thereof will
have a material adverse impact on the Company's financial statements.
30. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
As of June 30, 1993, the Company adopted Statement of Financial Accounting
Standards No. 107 'Disclosures about Fair Value of Financial Instruments' which
requires certain disclosures concerning the estimated fair value of financial
instruments. The following disclosures of the estimated fair value amounts have
been determined based on the Company's assessment of available market
information and appropriate valuation methodologies.
<TABLE>
<CAPTION>
CARRYING FAIR
JUNE 30, 1993 AMOUNT VALUE
- ------------- --------- ---------
<S> <C> <C>
Assets:
Cash and cash equivalents (1).............................................. $ 5,213 $ 5,213
Restricted cash and cash equivalents (1)................................... 5,064 5,064
Accounts receivable (1).................................................... 12,394 12,394
Receivable from related parties (1)........................................ 1,534 1,534
Notes receivable (2)....................................................... 11,278 11,299
Notes receivable from officers (1)......................................... 246 246
Liabilities:
Accounts payable (1)....................................................... 19,175 19,175
Short-term borrowings (1).................................................. 2,199 2,199
Recourse long-term debt (1)................................................ 28,017 28,017
Non-recourse long-term debt (1)............................................ 107,898 107,898
Convertible senior subordinated debentures (3)............................. 49,174 53,669
Off-Balance Sheet Financial Instruments:
Interest Rate Swap (4)..................................................... -- 9,966
Gas Swap (4)............................................................... 355 427
</TABLE>
- ------------------
(1) The carrying amount of these items are a reasonable estimate of their value.
(2) The fair value of notes receivable is estimated based on discounted future
cash flows at an assumed discount rate 7.5%.
(3) The fair value of convertible senior subordinated debentures are determined
based on market quotes as of June 30, 1993. The fair value of the Company's
convertible senior subordinated debentures as of January 28, 1994 was
$37,433.
(4) The fair value of interest rate and gas swaps in the amount at which they
could be settled, based on estimates obtained from dealers.
F-33
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
30. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matter of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
31. SALE OF PHILADELPHIA WATER DEPARTMENT PROJECT:
On November 12, 1993, the Company sold the capital stock of O'Brien
(Philadelphia) Cogeneration, Inc. ('OPC') and Philadelphia BioGas Supply, Inc.
('Biogas'), wholly-owned subsidiaries to entities controlled by an unrelated
private investor for $5,000 in cash of which $525 was placed in an escrow
account in accordance with the agreement. The primary assets of OPC and Biogas
are a 20-year energy service agreement and digester gas supply agreement with
the Philadelphia Municipal Authority ('Authority'). The project commenced
operations in May 1993. The Company has the right to repurchase 83% percent of
OPC and Biogas in May 1994 for $5,000. The Company has the right to extend the
repurchase option through August 1994 upon the payment of $350 for each one
month extension. The Company continues to guaranty the performance of OPC and
Biogas to the Authority. In addition, the Company will rent to OPC and Biogas
the facilities and all related generation and associated equipment for the
project. The annual rent is approximately $2,350. Also, the Company will
continue to operate the project for an annual fee of approximately $250 subject
to adjustment. If the Company does not exercise its repurchase option, OPC and
Biogas has the right to (1) purchase the facilities and all related equipment
and (2) terminate the operation and maintenance contract upon payment of certain
consideration. The Company would recognize a gain associated with the sale if
the repurchase option is allowed to expire.
F-34
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND JUNE 30, 1993
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1993 1993
------------ --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................................... $ 2,548 $ 5,213
Restricted cash and cash equivalents.............................................. 2,115 5,064
Accounts receivable, net.......................................................... 16,004 12,394
Receivable from related parties................................................... 612 1,175
Notes receivable, current......................................................... 2,361 2,564
Inventories....................................................................... 6,010 4,196
Insurance claims receivable....................................................... 2,769 5,255
Other current assets.............................................................. 2,242 1,631
Assets held under contractual arrangement......................................... 98 --
------------ --------
Total current assets.............................................................. 34,759 37,492
Property, plant and equipment, net.................................................. 191,992 194,217
Coalbed methane gas properties held for sale........................................ -- 4,464
Project development costs........................................................... 5,674 5,136
Notes receivable, noncurrent........................................................ 11,533 9,315
Notes receivable from officers...................................................... 237 246
Investments in equity affiliates.................................................... 2,734 2,515
Excess of cost of investment in subsidiaries over net assets at date of acquisition,
net............................................................................... 2,036 2,085
Deferred financing costs, net....................................................... 5,489 5,728
Other assets........................................................................ 902 1,331
------------ --------
Total assets...................................................................... $255,356 $262,529
------------ --------
------------ --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND JUNE 30, 1993
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1993 1993
------------ --------
<S> <C> <C>
Current liabilities:
Accounts payable.................................................................. $ 18,842 $ 19,175
Current maturities of recourse long-term debt..................................... 15,387 10,419
Current maturities of nonrecourse project financing............................... 10,890 10,758
Short-term borrowings............................................................. 2,992 2,199
Other current liabilities......................................................... 6,246 6,060
Deferred credits.................................................................. 4,025 --
------------ --------
Total current liabilities...................................................... 58,382 48,611
Recourse long-term debt, net of current maturities.................................. 21,991 28,012
Convertible senior subordinated debentures.......................................... 49,174 49,174
Nonrecourse project financing, net of current maturities............................ 91,820 97,140
Construction costs payable.......................................................... 5,100 5,100
Deferred income taxes............................................................... 12,008 10,904
Other liabilities................................................................... 7,892 7,913
------------ --------
246,367 246,854
------------ --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01; shares authorized 10,000,000; none issued........
Class A common stock, par value $.01, one vote per share; 40,000,000 shares
authorized; issued 13,055,597 at December 31, 1993 and June 30, 1993........... 130 130
Class B common stock, par value $.01, ten votes per share; 10,000,000 shares
authorized; issued 4,070,770 at December 31, 1993 and June 30, 1993............ 39 39
Additional paid-in capital........................................................ 41,353 40,053
Accumulated deficit............................................................... (31,887) (23,932)
Other............................................................................. (646) (615)
------------ --------
Total stockholders' equity..................................................... 8,989 15,675
------------ --------
Total liabilities and stockholders' equity.......................................... $255,356 $262,529
------------ --------
------------ --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Energy revenues.......................................................................... $29,778 $37,979
Equipment sales and services............................................................. 11,805 9,242
Rental revenues.......................................................................... 3,189 2,020
Development and other fees............................................................... 7,369 7,228
------- -------
52,141 56,469
------- -------
Cost of energy revenues.................................................................. 22,923 25,225
Cost of equipment sales and services..................................................... 10,223 7,918
Cost of rental revenues.................................................................. 1,227 1,110
Cost of development and other fees....................................................... 7,399 5,492
------- -------
41,772 39,745
------- -------
Gross profit............................................................................. 10,369 16,724
Selling, general and administrative expenses............................................. 8,872 7,026
------- -------
Income from operations................................................................. 1,497 9,698
Interest and other income................................................................ 330 808
Interest and debt expense................................................................ (8,703) (7,781)
------- -------
Income (loss) before income taxes...................................................... (6,876) 2,725
Provision for income taxes............................................................... 1,079 1,540
------- -------
Net loss................................................................................. $(7,955) $ 1,185
------- -------
------- -------
Net loss per share....................................................................... $ (.47) $ .08
------- -------
------- -------
Weighted average shares outstanding...................................................... 16,871 16,847
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1993 AND 1992
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................................ $(7,955) $ 1,185
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating
activities:
Depreciation and amortization....................................................... 5,133 4,230
Deferred income taxes............................................................... 1,104 1,490
Equity interest in unconsolidated entities.......................................... (219) 4
Changes in assets and liabilities:
Accounts receivable................................................................. (3,610) 2,569
Inventories......................................................................... (1,814) (415)
Receivables from related parties.................................................... 563 (430)
Notes receivable.................................................................... -- (4,573)
Accounts payable.................................................................... (333) 2,008
Other............................................................................... (251) 1,157
------- -------
Net cash provided by (used for) operating activities.............................. (7,382) 7,225
------- -------
Cash flows from investing activities:
Capital expenditures, net.............................................................. (1,862) (2,163)
Capital expenditures to repair damaged plants.......................................... (17,548) --
Insurance proceeds for damaged plants.................................................. 20,034 --
Proceeds from sale of project net of note receivable................................... 2,000 --
Project development costs.............................................................. (593) (1,596)
Payments on notes receivable........................................................... 246 142
(Deposits) withdrawals into restricted cash accounts................................... 2,949 (3,524)
Other.................................................................................. (61) (1,274)
------- -------
Net cash provided by (used for) investing activities................................ 5,165 (8,415)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt........................................................... 14,013 10,362
Repayments of long-term debt........................................................... (20,254) (9,399)
Net proceeds of short-term borrowings.................................................. 5,793 509
Proceeds from stock issuances.......................................................... -- 270
Other.................................................................................. -- (200)
------- -------
Net cash provided by (used for) financing activities................................ (448) 1,542
------- -------
Net increase (decrease) in cash and cash equivalents..................................... (2,665) 352
Cash and cash equivalents at the beginning of the period................................. 5,213 8,824
------- -------
Cash and cash equivalents at the end of the period....................................... $ 2,548 $ 9,176
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION:
In the opinion of management, all adjustments (which consist primarily of
normal recurring adjustments necessary for the fair presentation of the results
of operations for the interim periods) have been included in the accompanying
financial statements.
The interim financial statements should be read in conjunction with the
financial statements for the year ended June 30, 1993 as presented in the annual
report on Form 10-K of the Company.
2. NEWARK PROJECT:
On December 25, 1992, a fire disabled the Company's Newark Boxboard
cogeneration plant. The fire has been classified by the local fire commissioner
as accidental. The plant returned to partial operation in August 1993 and full
operation in October 1993.
During the six month periods ended December 31, 1993 and 1992, revenues
associated with the project were $9,518 and $13,622, respectively. During the
three month periods ended December 31, 1993 and 1992, revenues associated with
the project were $7,361 and $6,276, respectively. Revenues for the six months
ended December 31, 1993 consisted of business interruption insurance proceeds
and revenues from partial operations in August and September and full operations
for the period of October through December 1993. See 'Results of Operations for
the Six Months ended December 31, 1993 and 1992' and 'Liquidity and Capital
Resources' for further discussion and analysis of the impact of the fire.
At December 31, 1993, nonrecourse debt associated with this project was
$32,900, with a floating rate of approximately 4.5%.
3. PARLIN PROJECT:
During the six month periods ended December 31, 1993 and 1992, revenues
associated with this project were $19,196 and $23,435, respectively. During the
three months ended December 31, 1993 and 1992, revenues associated with the
project were $5,866 and $9,606, respectively. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of Operations
for the Six Months ended December 31, 1993 and 1992.'
At December 31, 1993, nonrecourse debt associated with this project was
$69,810. The floating rate on approximately $20,442 of debt as of that date was
approximately 4.4%, with the remainder of the debt as of that date having a
fixed rate of approximately 11.1%.
4. SALE OF PROJECTS UNDER DEVELOPMENT:
On August 27, 1993, the Company entered into an agreement with an unrelated
third party to sell substantially all its proved and unproved coalbed methane
gas properties for $6,500. The $6,500 consists of a $2,000 cash payment and a
production payment note with a face value of $4,500. The $4,500 production
payment note has been discounted on the books of the Company in order to reflect
a lower anticipated net realizable value in consideration of the Company's plan
to monetize certain assets and accelerate cash flow. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources--Working Capital Requirements'. Costs and other
commitments associated with this transaction amounted to approximately $5,100,
which resulted in no gain being recognized. The production payment note will be
paid from a percentage of net revenues from the coalbed methane gas properties
until the earlier of (1) the note being paid in full or (2) 10 years.
F-39
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. SALE OF PROJECTS UNDER DEVELOPMENT:--(CONTINUED)
During the six months ended December 31, 1992, the Company recognized
$4,600 of revenues upon the sale of certain contractual rights associated with
projects under development. Costs associated with these sales aggregated
approximately $3,000.
5. PHILADELPHIA WATER DEPARTMENT TRANSACTION:
On November 12, 1993, the Company sold, subject to the repurchase option
discussed below, the capital stock of O'Brien (Philadelphia) Cogeneration, Inc.
('OPC') and Philadelphia BioGas Supply, Inc. ('Biogas'), wholly-owned
subsidiaries, and issued 5.5 million warrants for Class A Common Stock to
entities controlled by an unrelated private investor for $5,000 in cash, of
which $525 was set aside for the purpose of funding capital improvements to the
equipment in accordance with the sales agreement. The warrants are exercisable
at prices ranging from $4.00 to $6.00 per share, and have been assigned a value
of $1,300 which has been reflected in additional paid-in capital. The primary
assets of OPC and Biogas are a 20-year Energy Service Agreement and a 10-year
Digester Gas Supply Agreement with the Philadelphia Municipal Authority
('Authority'). The project commenced operations in May 1993. The proceeds of
$5,000, net of the assigned value of the warrants, are considered to be
discounted borrowings and have been classified as Deferred credits on the
Company's balance sheet since the Company has the right to repurchase OPC and
Biogas in May 1994 for $5,000 plus a 17% minority interest in the project. The
$1,300 value assigned to the warrants is being amortized through May 1994 using
the effective interest method. The Company has the right to extend the
repurchase option through August 1994 upon the payment of $350 for each one
month extension. The net assets of OPC and Biogas have been presented as Assets
held under contractual arrangement in the accompanying Balance Sheet. The
Company continues to guarantee the performance of OPC and Biogas to the
Authority. In addition, the Company continues to rent to OPC and Biogas the
facilities and all related power generation and associated equipment for the
project. The annual rent is approximately $2,350. Also, the Company will
continue to operate and maintain the project for an annual fee of approximately
$250, subject to adjustment. If the Company does not exercise its repurchase
option, OPC and Biogas have the right to (1) purchase the facilities and all
related equipment and (2) terminate the operation and maintenance contract upon
payment of certain consideration. The Company would recognize a gain associated
with the sale if the repurchase option is allowed to expire.
6. EARNINGS PER SHARE:
The weighted average number of shares used to compute primary earnings per
share were 16,871,000 and 16,862,000 for the three month periods ended December
31, 1993 and 1992, respectively and 16,871,000 and 16,847,000 for the six month
periods ended December 31, 1993 and 1992 respectively. Fully diluted earnings
per share for the three month and six month periods ended December 31, 1993 and
1992 are not presented because conversion of the convertible senior subordinated
debentures would be antidilutive.
7. INCOME TAXES:
Income tax expense for the three month and six month periods ended December
31, 1993 and 1992 consists primarily of deferred income taxes associated with
certain of the Company's wholly-owned subsidiaries, charges associated with net
operating losses that cannot be utilized, and taxable temporary differences. The
Company has established a full valuation allowance for temporary deductible
amounts, including net operating loss carryforwards.
8. SUBSEQUENT EVENTS:
As a result of the losses experienced by the Company, the Company's
Consolidated Stockholders' Equity (as defined in the 1987 Indenture, 1990
Indenture and 1991 Indenture) was $8,989,000 at December 31, 1993. As
F-40
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. SUBSEQUENT EVENTS:--(CONTINUED)
a result the Company could be required, pursuant to a covenant in each of the
1987 Indenture, 1990 Indenture and 1991 Indenture that is triggered if the
Company's Consolidated Stockholders' Equity is less than $7,500,000, $10,000,000
and $10,000,000, respectively at the end of each of any two consecutive fiscal
quarters, to purchase 7.5% of the outstanding 1987 Debentures, 1990 Debentures
and 1991 Debentures, as applicable. Purchasing Debentures pursuant to these
Covenants could cause severe liquidity problems for the Company. The Company
does not presently expect to be in a position to comply with these covenants if
any or each of them becomes applicable.
The Company did not make the March 15, 1994 interest payments on the
Debentures which is an event of default. In the event that the 1987 Debentures,
1990 Debentures and/or 1991 Debentures are accelerated and such acceleration is
not rescinded, the Company does not expect to be in a position to comply with
the requirements of an acceleration. As a consequence of the event of default,
when the March 31, 1993 interim financial statements are released, the
Debentures and possible other debt aggregating $71,165, will be classified as
current liabilities. Had this event occurred as of December 31, 1993, the
working capital deficiency at that date would have been $94,788.
F-41
<PAGE>
APPENDIX A
COMPARISON OF INDENTURE PROVISIONS
The following summarizes (i) in the left column, certain provisions of each
of the 1987 Indenture, 1990 Indenture and 1991 Indenture as currently in effect,
and (ii) in the right column, certain provisions of each of the 1987 Indenture,
1990 Indenture and 1991 Indenture substantially as they would read if the
Proposed Amendments were adopted. The Proposed Amendments, if adopted, will be
set forth in the 1987 Supplemental Indenture, 1990 Supplemental Indenture and
1991 Supplemental Indenture to be executed by the Company and the applicable
Trustees. The Proposed Amendments shall include all conforming changes,
including, without limitation, changes to section references and the use of
defined terms.
1987 INDENTURE
<TABLE>
<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Section 3.10 Maintenance of Consolidated Stockholders' Deleted
Equity.
If the Company's Consolidated Stockholders' Equity at
the end of each of any two consecutive fiscal quarters
is less than $7,500,000, then the Company shall make an
offer to purchase (the 'Offer') on the last Business Day
of the fiscal quarter next following such second fiscal
quarter (the 'Purchase Date') 7.5% of the initial
outstanding aggregate principal amount of Securities or
such lesser amount then outstanding (the 'Offer Amount')
at a purchase price equal to their principal amount plus
accrued interest to the Purchase Date. The Company may
credit against its obligation to offer to repurchase
Securities on a Purchase Date the principal amount of
(i) Securities acquired by the Company and surrendered
for cancellation at least 60 days before such Purchase
Date and (ii) Securities redeemed at least 60 days
before such Purchase Date pursuant to paragraph 5 of the
Securities and that were not previously used as a credit
hereunder. In no event shall the failure to meet the
minimum Consolidated Stockholders' Equity stated above
at the end of any fiscal quarter be counted toward the
making of more than one Offer. The Company shall notify
the Trustee and each Agent promptly after the occurrence
of any of the events specified in this Section 3.10. Any
purchases made pursuant to an Offer may be used to
reduce the Company's obligations under the Sinking Fund
provisions of Paragraph 6 of the Securities.
The Company shall provide the Trustee and Paying Agent
with notice of the Offer at least 60 days before any
such Purchase Date and at least 10 days before the
notice of any Offer is mailed to Holders accompanied by
an Officer's Certificate certifying the status of the
Company's balance sheet, other financial statements and
any and all calculations attendant upon the Offer.
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Such notice shall state whether the Company elects to
credit its obligation to repurchase Securities as
provided above and set forth the amount of the credit
and the basis provided above for such credit (including
identification of any previously cancelled Securities
not theretofore made the basis for the credit to an
Offer Amount), and shall be delivered together with any
Securities required to be delivered to the Trustee for
cancellation as provided above that are to be made the
basis for such credit to an Offer Amount.
Notice of an Offer shall be mailed by the Trustee to all
Holders not less than 30 days nor more than 60 days
before the Purchase Date at the last address which
appears on the Security register. The Offer shall remain
open from the time of mailing until 5 days before the
Purchase Date. Each such notice shall be accompanied by
a copy, furnished to the Trustee by the Company, of the
information regarding the Company required to be
contained in a Quarterly Report on Form 10-Q for (x) the
second fiscal quarter referred to above if such second
fiscal quarter is the Company's second or third fiscal
quarter or (y) for the Company's third fiscal quarter if
such second fiscal quarter is the Company's last fiscal
quarter. If such second fiscal quarter is the Company's
first fiscal quarter, a copy, furnished to the Trustee
by the Company, of the information required to be
contained in an Annual Report to Shareholders pursuant
to Rule 14a-3 under the Exchange Act for the fiscal year
ending with such second fiscal quarter and in a
Quarterly Report on Form 10-Q for the such first fiscal
quarter shall accompany the notice. The notice shall
contain all instructions and materials necessary to
enable such Holders to tender Securities pursuant to the
Offer, which instructions and materials shall be
furnished to the Trustee by the Company as necessary.
The notice, which shall govern the terms of the Offer,
shall state:
(1) that the Offer is being made pursuant to this
Section 3.10;
(2) the Offer Amount, the purchase price and the
Purchase Date;
(3) that any Security not tendered or accepted for
payment will continue to accrue interest;
(4) that any Security accepted for payment pursuant to
the Offer shall cease to accrue interest after the
Purchase Date;
(5) that Holders electing to have a Security purchased
pursuant to an Offer will be required to surrender the
Security, with the form entitled 'Option
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
of Holder to Elect Purchase' on the reverse of the
Security completed, to the Paying Agent at the address
specified in the notice at least 5 days before the
Purchase Date;
(6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than
three days prior to the Purchase Date, a telegram,
telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the
Security the Holder delivered for purchase and a
statement that such Holder is withdrawing his election
to have the Security purchased;
(7) that if Securities in a principal amount in excess
of the Offer Amount with respect to the Securities are
tendered pursuant to the Offer, the Company shall
purchase Securities on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company
so that only Securities in denominations of $1,000 or
integral multiples of $1,000 shall be acquired); and
(8) that Holders whose Securities were purchased only in
part will be issued new Securities equal in principal
amount to the unpurchased portion of the Securities
surrendered.
Before a Purchase Date, the Company shall (i) accept for
payment Securities or portions thereof tendered pursuant
to the Offer (on a pro rata basis if required pursuant
to paragraph (7) above), (ii) deposit with the Paying
Agent money in immediately available legal tender funds
sufficient to pay the purchase price of all Securities
or portions thereof so accepted and (iii) deliver to the
Trustee Securities so accepted together with an
Officer's Certificate stating the Securities or portions
thereof accepted for payment by the Company. The Paying
Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new
Security equal in principal amount to any unpurchased
portion of the Security surrendered. Any Securities not
so accepted shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company will publicly
announce by press release the results of the Offer on
the Purchase Date. For purposes of this Section 3.10,
neither the Company nor any of its Subsidiaries shall
act as the Paying Agent.
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Section 4.02. Limitation on Funded Indebtedness. Deleted
Prior to June 30, 1988 the Company will not, and will
not permit any consolidated Subsidiary to, incur or
create any Funded Indebtedness if after giving effect to
the incurrence or creation of such Funded Indebtedness
the total outstanding Funded Indebtedness of the Company
on a consolidated basis would exceed 85% of the sum of
Consolidated Stockholders' Equity and Funded
Indebtedness.
Between July 1, 1988 and June 30, 1989 the Company will
not, and will not permit any consolidated Subsidiary to,
incur or create any Funded Indebtedness if after giving
effect to the incurrence or creation of such Funded
Indebtedness the total outstanding Funded Indebtedness
of the Company on a consolidated basis would exceed 80%
of the sum of Consolidated Stockholders' Equity and
Funded Indebtedness.
Subsequent to June 30, 1989 the Company will not, and
will not permit any consolidated Subsidiary to, incur or
create any Funded Indebtedness if after giving effect to
the incurrence or creation of such Funded Indebtedness
the total outstanding Funded Indebtedness of the Company
on a consolidated basis would exceed 75% of the sum of
Consolidated Stockholders' Equity and Funded
Indebtedness.
Notwithstanding the foregoing, the Company may amend,
renew, extend or refund any Indebtedness outstanding
from time to time in an amount not greater than the
principal amount of such Indebtedness at the date of
original incurrence, provided that in the event any such
amendment, renewal, extension or refunding takes place
at a date when the Funded Indebtedness of the Company on
a consolidated basis would exceed the applicable maximum
permitted percentage set forth above, the Company will
not permit such amendment, renewal, extension or
refunding to increase the cumulative mandatory
redemptions due prior to the maturity of the Securities.
Section 4.04. Limitations on Dividends, Stock Purchases Deleted
and Certain Loans and Advances by the Company and its
Subsidiaries.
The Company shall not (a) declare or pay any dividend or
make any distribution on its capital stock to its
shareholders (other than dividends or distributions
payable solely in its Capital Stock) or (b) purchase,
redeem or otherwise acquire or retire for value, or
permit any Subsidiary to purchase, redeem or otherwise
acquire or retire for value, any Capital Stock
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
of the Company so long as any Securities shall be
outstanding, (i) if at the time of such action an Event
of Default under the Indenture has occurred and is
continuing, or (ii) if immediately after giving effect
to such action the aggregate amount expended for all
such purposes subsequent to December 31, 1986 would
exceed the sum of: (a) 25% of the Consolidated Net
Income accrued on a cumulative basis subsequent to
December 31, 1986 (or, in case such Consolidated Net
Income shall be a deficit, minus 100% of such deficit),
(b) the aggregate net proceeds received by the Company
from the issue or sale subsequent to December 31, 1986
of its capital stock (including capital stock issued
upon the conversion of Indebtedness) and (c) $500,000;
provided, however, that such provisions shall not
prevent (A) the payment of any dividend within 60 days
after the date of declaration thereof if the payment
would have been permitted on the date of declaration or
(B) the retirement of any shares of the Company's
capital stock in exchange for, or out of the proceeds of
the substantially concurrent sale of other shares of its
capital stock, or (C) the call for redemption of any
convertible preferred stock or convertible debt of the
Company under an agreement with a responsible
underwriter designed to insure that all such stock or
debt is converted rather than redeemed.
Section 6.02. Acceleration. Section 6.02. Acceleration.
If an Event of Default (other than an Event of Default If an Event of Default (other than an Event of Default
specified in Section 6.01(6) or Section 6.01(7)), occurs specified in Section 6.01(6) or Section 6.01(7)), occurs
and is continuing, the Trustee by notice to the Company, and is continuing, the Holders of at least 25% in
or the Holders of at least 25% in principal amount of principal amount of the outstanding Securities by notice
the outstanding Securities by notice to the Company and to the Company and to the Trustee, may declare the
to the Trustee, may declare the principal of and accrued principal of and accrued interest on all the Securities
interest on all the Securities to be due and payable to be due and payable immediately. If requested by the
immediately. If requested by the Holders of not less Holders of not less than 25% in principal amount of
than 25% in principal amount of Securities outstanding, Securities outstanding, the Trustee shall on behalf of
the Trustee shall on behalf of and as Agent for such and as Agent for such Holders, give such notice. Upon
Holders, give such notice. Upon such declaration such such declaration such principal and interest shall be
principal and interest shall be due and payable due and payable immediately. If an Event of Default
immediately. If an Event of Default specified in Section specified in Section 6.01(6) or Section 6.01(7) occurs,
6.01(6) or Section 6.01(7) occurs, all unpaid principal all unpaid principal of and accrued interest on the
of and accrued interest on the Securities then Securities then outstanding shall ipso facto become and
outstanding shall ipso facto become and be immediately be immediately due and payable without any declaration
due and payable without any declaration or other act on or other act on the part of the Trustee or any
the part of the Trustee or any Securityholder. The Securityholder. The Holders of a majority in principal
Holders of a majority in principal amount of the amount of the outstanding Securities on behalf of the
outstanding Securities on behalf of the Holders of all Holders of all Securities by notice to the Trustee may
Securities by notice to the Trustee may rescind an rescind an acceleration and its consequences if all
acceleration and its consequences if all existing Events of Default have
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
existing Events of Default have been cured or waived been cured or waived (other than the nonpayment of
(other than the nonpayment of principal of and accrued principal of and accrued interest on the Securities
interest on the Securities which shall have become due which shall have become due by acceleration) and if the
by acceleration) and if the rescission would not rescission would not conflict with any judgment or
conflict with any judgment or decree. decree.
</TABLE>
<TABLE>
<S> <C>
1990 INDENTURE
Section 3.10. Maintenance of Consolidated Stockholders' Deleted
Equity.
If the Company's Consolidated Stockholders' Equity at
the end of each of any two consecutive fiscal quarters
is less than $10,000,000, then the Company shall make an
offer to purchase (the 'Offer') on the last Business Day
of the Fiscal quarter next following such second fiscal
quarter (the 'Purchase Date') 7.5% of the aggregate
principal amount of Securities issued hereunder or such
lesser amount then outstanding (the 'Offer Amount') at a
purchase price equal to their principal amount plus
accrued interest to the Purchase Date. The Company may
credit against its obligation to offer to repurchase
Securities on a Purchase Date the principal amount of
(i) Securities acquired by the Company through exchange
or otherwise and surrendered for cancellation at least
60 days before such Purchase Date and (ii) Securities
repurchased or redeemed or called for redemption and
that were not previously used as a credit hereunder. In
no event shall the failure to meet the minimum
Consolidated Stockholders' Equity stated above at the
end of any fiscal quarter be counted toward the making
of more than one Offer. The Company shall notify the
Trustee and each Agent promptly after the occurrence of
any of the events specified in this Section 3.10. Any
purchases made pursuant to an Offer may be used to
reduce the Company's obligations under the Sinking Fund
provisions of paragraph 6 of the Securities.
The Company shall provide the Trustee and Paying Agent
with notice of the Offer at least 60 days before any
such Purchase Date and at least 10 days before the
notice of any Offer is mailed to Holders accompanied by
an Officer's Certificate certifying the status of the
Company's balance sheet, other financial statements and
any and all calculations attendant upon the Offer. Such
notices shall state whether the Company elects to credit
its obligation to repurchase Securities as provided
above and set forth the amount of the credit and the
basis provided above for such credit (including
identification of any previously cancelled Securities
not theretofore made the basis for the credit to an
Offer Amount), and shall be delivered together with any
</TABLE>
A-6
<PAGE>
<TABLE>
<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Securities required to be delivered to the Trustee for
cancellation as provided above that are to be made the
basis for such credit to an Offer Amount.
Notice of an Offer shall be mailed by the Trustee to all
Holders not less than 30 days nor more than 60 days
before the Purchase Date at the last address which
appears on the Security register. The Offer shall remain
open from the time of mailing until 5 days before the
Purchase Date. Each such notice shall be accompanied by
a copy, furnished to the Trustee by the Company, of the
information regarding the Company required to be
contained in a Quarterly Report on Form 10-Q for (x) the
second fiscal quarter referred to above if such second
fiscal quarter is the Company's second or third fiscal
quarter or (y) for the Company's third fiscal quarter if
such second fiscal quarter is the Company's last fiscal
quarter. If such second fiscal quarter is the Company's
first fiscal quarter, a copy, furnished to the Trustee
by the Company, of the information required to be
contained in an Annual Report to Shareholders pursuant
to Rule 14a-3 under the Exchange Act for the fiscal year
ending with the first of the two consecutive fiscal
quarters and in a Quarterly Report on Form 10-Q for the
such first quarter shall accompany the notice. The
notice shall contained all instruments and materials
necessary to enable such Holders to tender Securities
pursuant to the Offer, which instructions and materials
shall be furnished to the Trustee by the Company as
necessary. The notice, which shall govern the terms of
the Offer, shall state:
(1) that the Offer is being made pursuant to this
Section 3.10;
(2) the Offer amount, the purchase price and the
Purchase Date;
(3) that any Security not tendered or accepted for
payment will continue to accrue interest;
(4) that any Security accepted for payment pursuant to
the offer shall cease to accrue interest after the
Purchase Date;
(5) that Holders electing to have a Security purchased
pursuant to an Offer will be required to surrender the
Security, with the form entitled 'Option of Holder to
Elect Purchase' on the reverse of the Security
completed, to the Paying Agent at the address specified
in the notice at least 5 days before the Purchase Date;
(6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than
</TABLE>
A-7
<PAGE>
<TABLE>
<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
three days prior to the Purchase Date, a telegram,
telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the
Security delivered for purchase and a statement that
such Holder is withdrawing his election to have the
Security purchased;
(7) that if Securities in a principal amount in excess
of the Offer Amount with respect to the Securities are
tendered pursuant to the Offer, the Company shall
purchase Securities on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company
so that only Securities in denominations of $1,000 or
integral multiples of $1,000 shall be acquired); and
(8) that Holders whose Securities were purchased only in
part will be issued new Securities equal in principal
amount to the unpurchased portion of the Securities
surrendered.
The Company shall (i) accept for payment Securities or
portions thereof tendered pursuant to the Offer (on a
pro rata basis if required pursuant to paragraph (7)
above) on the Purchase Date, (ii) deposit with the
Paying Agent money in immediately available legal tender
funds sufficient to pay the purchase price of all
Securities or portions thereof to be accepted one
Business Day prior to the Purchase Date and (iii)
deliver to the Trustee Securities so accepted together
with an Officer's Certificate stating the Securities or
portions thereof accepted for payment by the Company on
the Purchase Date. The Paying Agent shall promptly mail
or deliver to Holders of Securities so accepted payment
in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail or deliver
to such Holders a new Security equal in principal amount
to any unpurchased portion of the Security surrendered.
Any Securities not so accepted shall be promptly mailed
or delivered by the Company to the Holder thereof. The
Company will publicly announce by press release the
results of the Offer on the Purchase Date. For purposes
of this Section 3.10, neither the Company nor any of its
Subsidiaries shall act as the Paying Agent.
If the offer to purchase the Securities upon the failure
of the Company to maintain a minimum Consolidated
Stockholder's Equity is determined to constitute a
tender offer, the Company will comply with all
applicable tender offer rules, including Rules 13e-4 and
14e-1 under the Exchange Act, in connection with the
redemption of Securities as provided in this Section
3.10.
</TABLE>
A-8
<PAGE>
<TABLE>
<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Section 4.03. Limitations on Dividends, Stock Purchasers Deleted
by the Company and its Subsidiaries.
The Company shall not (a) declare or pay any dividend or
make any distribution on its Capital Stock to its
shareholders (other than dividends or distributions
payable solely in its Capital Stock) or (b) purchase,
redeem or otherwise acquire or retire for value, or
permit any Subsidiary to purchase, redeem or otherwise
acquire or retire for value, any Capital Stock of the
Company so long as any Securities shall be outstanding,
(i) if at the time of such action an Event of Default
under the Indenture has occurred and is continuing, or
(ii) if immediately after giving effect to such action
the aggregate amount expended for all such purposes
subsequent to December 31, 1989 would exceed the sum of:
(a) 25% of the Consolidated Net Income accrued on a
cumulative basis subsequent to December 31, 1989 (or, in
case such Consolidated Net Income shall be a deficit,
minus 100% of such deficit), except that in the event
the Company's Consolidated Stockholders' Equity is
$60,000,000 or more, such percentage shall be 50%; (b)
the aggregate net proceeds, including the fair market
value of property other than cash (the amount, if other
than cash, to be determined by the Board of Directors,
whose determination shall be conclusive), received by
the Company from the issue or sale subsequent to
December 31, 1989 of its capital stock; (c) the
aggregate net proceeds, including the fair market value
of property other than cash (the amount, if other than
cash, to be determined by the Board of Directors, whose
determination shall be conclusive), received by the
Company from the issue or sale of Indebtedness
(including the Securities) which is converted into or
exchanged for Capital Stock of the Company after
December 31, 1989; and (d) $2,000,000; provided,
however, that such provisions shall not prevent (A) the
payment of any dividend within 60 days after the date of
declaration thereof if the payment would have been
permitted on the date of declaration or (B) the
acquisition or retirement of any shares of the Company's
Capital Stock in exchange for, or out of the proceeds of
the substantially concurrent sale of, other shares of
its Capital Stock, or (C) the call for redemption of any
convertible preferred stock or convertible debt of the
Company under an agreement with a responsible
underwriter designed to insure that all such stock or
debt is converted rather than redeemed.
</TABLE>
A-9
<PAGE>
<TABLE>
<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Section 6.02. Acceleration. Section 6.02. Acceleration.
If an Event of Default (other than an Event of Default If an Event of Default (other than an Event of Default
specified in Section 6.01(6) or Section 6.01(7)) occurs specified in Section 6.01(6) or Section 6.01(7)) occurs
and is continuing, the Trustee by notice to the Company, and is continuing, the Holders of at least 25% in
or the Holders of at least 25% in principal amount of principal amount of the outstanding Securities by notice
the outstanding Securities by notice to the Company and to the Company and to the Trustee, may declare the
to the Trustee, may declare the principal of and accrued principal of and accrued interest on all the Securities
interest on all the Securities to be due and payable to be due and payable immediately. If requested by the
immediately. If requested by the Holders of not less Holders of not less than 25% in principal amount of
than 25% in principal amount of Securities outstanding, Securities outstanding, the Trustee shall on behalf of
the Trustee shall on behalf of and as Agent for such and as Agent for such Holders, give such notice. Upon
Holders, give such notice. Upon such declaration such such declaration such principal and interest shall be
principal and interest shall be due and payable due and payable immediately. If an Event of Default
immediately. If an Event of Default specified in Section specified in Section 6.01(6) or Section 6.01(7) occurs,
6.01(6) or Section 6.01(7) occurs, all unpaid principal all unpaid principal of and accrued interest on the
of and accrued interest on the Securities then Securities then outstanding shall ipso facto become and
outstanding shall ipso facto become and be immediately be immediately due and payable without any declaration
due and payable without any declaration or other act on or other act on the part of the Trustee or any
the part of the Trustee or any Securityholder. The Securityholder. The Holders of a majority in principal
Holders of a majority in principal amount of the amount of the outstanding Securities on behalf of the
outstanding Securities on behalf of the Holders of all Holders of all Securities by notice to the Trustee may
Securities by notice to the Trustee may rescind an rescind an acceleration and its consequences if all
acceleration and its consequences if all existing Events existing Events of Default have been cured or waived
of Default have been cured or waived (other than the (other than the nonpayment of principal of and accrued
nonpayment of principal of and accrued interest on the interest on the Securities which shall have become due
Securities which shall have become due by acceleration) by acceleration) and if the rescission would not
and if the rescission would not conflict with any conflict with any judgment or decree.
judgment or decree.
1991 INDENTURE
Section 3.10. Maintenance of Consolidated Stockholders' Deleted
Equity.
If the Company's Consolidated Stockholders' Equity at
the end of each of any two consecutive fiscal quarters
is less than $10,000,000, then the Company shall make an
offer to purchase (the 'Offer') on the last Business Day
of the fiscal quarter next following such second fiscal
quarter (the 'Purchase Date') 7.5% of the aggregate
principal amount of Securities issued hereunder or such
lesser amount then outstanding (the 'Offer Amount') at a
purchase price equal to their principal amount plus
accrued interest to the Purchase Date. The Company may
credit against its obligation to offer to repurchase
Securities on a Purchase Date the principal amount of
(i) Securities acquired by the Company through exchange
or otherwise and surrendered for cancellation at least
60 days before such Purchase Date and (ii) Securities
repurchased or redeemed or called for redemption and
that were not previously used as a credit hereunder. In
no event shall
</TABLE>
A-10
<PAGE>
<TABLE>
<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
the failure to meet the minimum Consolidated
Stockholders' Equity stated above at the end of any
fiscal quarter be counted toward the making of more than
one Offer. The Company shall notify the Trustee and each
Agent promptly after the occurrence of any of the events
specified in this Section 3.10. Any purchases made
pursuant to an Offer may be used to reduce the Company's
obligations under the Sinking Fund provisions of
paragraph 6 of the Securities.
The Company shall provide the Trustee and Paying Agent
with notice of the Offer at least 60 days before any
such Purchase Date and at least 10 days before the
notice of any Offer is mailed to Holders accompanied by
an Officer's Certificate certifying the status of the
Company's balance sheet, other financial statements and
any and all calculations attendant upon the offer. Such
notice shall state whether the Company elects to credit
its obligation to repurchase Securities as provided
above and set forth the amount of the credit and the
basis provided above for such credit (including
identification of any previously cancelled Securities
not theretofore made the basis for the credit to an
Offer Amount), and shall be delivered together with any
Securities required to be delivered to the Trustee for
cancellation as provided above that are to be made the
basis for such credit to an Offer Amount.
Notice of an Offer shall be mailed by the Trustee to all
Holders not less than 30 days nor more than 60 days
before the Purchase Date at the last address which
appears on the Security register. The Offer shall remain
open from the time of mailing until 5 days before the
Purchase Date. Each such notice shall be accompanied by
a copy, furnished to the Trustee by the Company, of the
information regarding the Company required to be
contained in a Quarterly Report on Form 10-Q for (x) the
second fiscal quarter referred to above if such second
fiscal quarter is the Company's second or third fiscal
quarter or (y) for the Company's third fiscal quarter if
such second fiscal quarter is the Company's last fiscal
quarter. If such second fiscal quarter is the Company's
first fiscal quarter, a copy, furnished to the Trustee
by the Company, of the information required to be
contained in an Annual Report to Shareholders pursuant
to Rule 14a-3 under the Exchange Act for the fiscal year
ending with the first of the two consecutive fiscal
quarters and in a Quarterly Report on Form 10-Q for the
second consecutive fiscal quarter shall accompany the
notice. The notice shall contain all instructions and
materials necessary to enable such Holders to tender
Securities
</TABLE>
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<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
pursuant to the Offer, which instructions and materials
shall be furnished to the Trustee by the Company as
necessary. The notice, which shall govern the terms of
the Offer, shall state:
(1) that the Offer is being made pursuant to this
Section 3.10;
(2) the Offer Amount, the purchase price and the
Purchase Date;
(3) that any Security not tendered or accepted for
payment will continue to accrue interest;
(4) that any Security accepted for payment pursuant to
the Offer shall cease to accrue interest after the
Purchase Date;
(5) that Holders electing to have a Security purchased
pursuant to an Offer will be required to surrender the
Security, with the form entitled 'Option of Holder to
Elect Purchase' on the reverse of the Security
completed, to the Paying Agent at the address specified
in the notice at least 5 days before the Purchase Date;
(6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than
three days prior to the Purchase Date, a telegram,
telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the
Security delivered for purchase and a statement that
such Holder is withdrawing his election to have the
Security purchased;
(7) that if Securities in a principal amount in excess
of the Offer Amount with respect to the Securities are
tendered pursuant to the Offer, the Company shall
purchase Securities on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company
so that only Securities in denominations of $1,000 or
integral multiples of $1,000 shall be acquired); and
(8) that Holders whose Securities were purchased only in
part will be issued new Securities equal in principal
amount to the unpurchased portion of the Securities
surrendered.
The Company shall (i) accept for payment Securities or
portions thereof tendered pursuant to the Offer (on a
pro rata basis if required pursuant to paragraph (7)
above) on the Purchase Date, (ii) deposit with the
Paying Agent money in immediately available legal tender
funds sufficient to pay the purchase price of all
Securities or portions thereof to be accepted one
Business Day prior to the Purchase Date and (iii)
deliver to the Trustee Securities so accepted
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<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
together with an Officer's Certificate stating the
Securities or portions thereof accepted for payment by
the Company on the Purchase Date. The Paying Agent shall
promptly mail or deliver to Holders of Securities so
accepted payment in an amount equal to the purchase
price, and the Trustee shall promptly authenticate and
mail or deliver to such Holders a new Security equal in
principal amount to any unpurchased portion of the
Security surrendered. Any Securities not so accepted
shall be promptly mailed or delivered by the Company to
the Holder thereof. The Company will publicly announce
by press release the results of the Offer on the
Purchase Date. For purposes of this Section 3.10,
neither the Company nor any of its Subsidiaries shall
act as the Paying Agent.
If the Offer to purchase the Securities upon the failure
of the Company to maintain a minimum Consolidated
Stockholders' Equity is determined to constitute a
tender offer, the Company will comply with all
applicable tender offer rules, including Rules 13e-4 and
14e-1 under the Exchange Act, in connection with the
redemption of Securities as provided in this Section
3.10.
Section 4.03. Limitations on Dividends, Stock Purchases Deleted
by the Company and its Subsidiaries.
The Company shall not declare or pay any dividend or
make any distribution on its Capital Stock to its
shareholders (other than dividends or distributions
payable solely in its Capital Stock) or purchase, redeem
or otherwise acquire or retire for value, or permit any
Subsidiary to purchase, redeem or otherwise acquire or
retire for value, any Capital Stock of the Company (such
dividends, distributions, purchases, redemptions and
other acquisitions and retirements being collectively
referred to as 'Stock Payments') so long as any
Securities shall be outstanding, (a) if at the time of
such action an Event of Default under the Indenture has
occurred and is continuing, or (b) if immediately after
giving effect to such action the aggregate amount
expended for all such purposes subsequent to December
31, 1990 would exceed the sum of: (i) 25% of the
Consolidated Net Income accrued on a cumulative basis
subsequent to December 31, 1990 (or, in case such
Consolidated Net Income shall be a deficit, minus 100%
of such deficit) except that in the event the Company's
Consolidated Stockholders' Equity is $60,000,000 or
more, such percentage shall be 50%; (ii) the aggregate
net proceeds, including the fair market value of
property other than cash (the amount, if other than
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<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
cash, to be determined by the Board of Directors, whose
determination shall be conclusive), received by the
Company from the issue or sale subsequent to December
31, 1990 of its capital stock; (iii) the aggregate net
proceeds, including the fair market value of property
other than cash (the amount, if other than cash, to be
determined by the Board of Directors, whose
determination shall be conclusive), received by the
Company from the issue or sale of Indebtedness
(including the Securities) which is converted into or
exchanged for Capital Stock of the Company after
December 31, 1990; and (iv) $2,000,000; provided, that
in all events and without regard to the foregoing the
Company may make Stock Payments subsequent to December
31, 1990 which in the aggregate do not exceed
$2,000,000. Notwithstanding the foregoing, the Company
may (A) pay any dividend within 60 days after the date
of declaration thereof if the payment would have been
permitted on the date of declaration or (B) acquire or
retire any shares of the Company's Capital Stock in
exchange for, or out of the proceeds of the
substantially concurrent sale of, other shares of its
Capital Stock, or (C) call for redemption any
convertible preferred stock or convertible debt of the
Company under an agreement with a responsible
underwriter designed to insure that all such stock or
debt is converted rather than redeemed.
Section 6.02. Acceleration. Section 6.02. Acceleration.
If an Event of Default (other than an Event of Default If an Event of Default (other than an Event of Default
specified in Section 6.01(6) or Section 6.01(7)) occurs specified in Section 6.01(6) or Section 6.01(7)) occurs
and is continuing, the Trustee by written notice to the and is continuing, the Holders of at least 25% in
Company, or the Holders of at least 25% in principal principal amount of the outstanding Securities by
amount of the outstanding Securities by written notice written notice to the Company and to the Trustee, may
to the Company and to the Trustee, may declare the declare the principal of and accrued interest on all the
principal of and accrued interest on all the Securities Securities to be due and payable immediately, If
to be due and payable immediately, If requested by the requested by the Holders of not less than 25% in
Holders of not less than 25% in principal amount of principal amount of Securities outstanding, the Trustee
Securities outstanding, the Trustee shall on behalf of shall on behalf of and as Agent for such Holders, give
and as Agent for such Holders, give such notice. Upon such notice. Upon such declaration such principal and
such declaration such principal and interest shall be interest shall be due and payable immediately. If an
due and payable immediately. If an Event of Default Event of Default specified in Section 6.01(6) or Section
specified in Section 6.01(6) or Section 6.01(7) occurs, 6.01(7) occurs, all unpaid principal of and accrued
all unpaid principal of and accrued interest on the interest on the Securities then outstanding shall ipso
Securities then outstanding shall ipso facto become and facto become and be immediately due and payable without
be immediately due and payable without any declaration any declaration or other act on the part of the Trustee
or other act on the part of the Trustee or any or any Securityholder. The Holders of a majority in
Securityholder. The Holders of a majority in principal principal amount of the outstanding Securities on behalf
amount of the outstanding Securities on behalf of the of the Holders of all Securities by notice to the
Holders of all Securities by notice to the Trustee may Trustee may rescind an acceleration and its consequences
rescind an acceleration and its if all existing Events of Default have
</TABLE>
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<CAPTION>
INDENTURE TERMS AND INDENTURE TERMS AND
PROVISIONS AS PROVISIONS AFTER
CURRENTLY IN EFFECT PROPOSED AMENDMENTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
consequences if all existing Events of Default have been been cured or waived (other than the nonpayment of
cured or waived (other than the nonpayment of principal principal of and accrued interest on the Securities
of and accrued interest on the Securities which shall which shall have become due by acceleration) and if the
have become due by acceleration) and if the rescission rescission would not conflict with any judgment or
would not conflict with any judgment or decree. decree.
</TABLE>
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's By-Laws provide for mandatory indemnification to the full
extent permitted by the laws of the State of Delaware against and with respect
to threatened, pending or completed actions, suits or proceedings, whether
civil, criminal, administrative or investigative, arising from or alleged to
arise from, a party's actions or omissions as a director, officer, employee or
agent of the Company or of any subsidiary of the Company or of any other
corporation, partnership, joint venture, trust or other enterprise which has
served in such capacity at the request of the Company if such acts or omissions
occurred or were or are alleged to have occurred, while such party was a
director or officer of the Company. In any situation in which indemnification is
not mandatory, the Company may, to the full extent permitted by applicable law,
indemnify all other persons whom it has the power to indemnify. Generally, under
Delaware law, indemnification will only be available where an officer or
director can establish that he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company.
The Company maintains a director's and officer's liability insurance policy
which indemnifies directors and officers for certain losses arising from a claim
by reason of a wrongful act, as defined, under certain circumstances where the
Company does not provide indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS
<TABLE>
<S> <C>
1.1(21) Form of Exchange Agency Agreement
1.2(21) Form of Letter of Transmittal and Consent
1.3(21) Form of Notice of Guaranteed Delivery
1.4(21) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees
1.5(21) Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and other
Nominees
3.1(14) Restated Certificate of Incorporation of the Company and amendments thereto
3.2(19) Amended Bylaws of the Company
4.1(1) Loan and Security Agreement with First Pennsylvania Bank N.A. dated August 5, 1985
4.1.1(10) Amendments to Loan and Security Agreement with First Pennsylvania Bank N.A.
4.2(2) Loan and Security Agreement with Fidelity Bank dated December 31, 1986
4.3(6) Revolving Credit and Security Agreement with Carteret Savings Bank, F.A. dated February 3, 1989
4.4(6) Revolving Term Loan Commitment Letter from First Peoples Bank of New Jersey dated February 16, 1989
4.4.1(6) Amendment to Commitment Letter from First Peoples Bank of New Jersey dated April 21, 1989
4.4.2(18) Amendment No. 2 to Commitment Letter from First Peoples Bank of New Jersey dated January 21, 1992
4.4.3(18) Equipment Credit Facility Commitment Letter from Heller Financial, Inc. dated February 6, 1992
4.5(13) Loan and Security Agreement with Barclays Bank of New York, N.A. dated July 30, 1990
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
4.5.1(18) Amendment to Loan and Security Agreement with Barclays Bank of New York, N.A. dated February 24,
1992
4.6(19) Letter of Credit Agreement with Meridian Bank dated as of January 21, 1993
4.6.1(19) Loan and Security Agreement with Meridian Bank dated as of September 29, 1992
4.8(19) Term Loan Agreement dated as of February 26, 1993 with The Bank of New York
4.10(19) Master Security Agreement dated as of December 23, 1992 with General Electric Capital Corporation
4.13(2) Indenture under which the Company's 7 % Convertible Senior Subordinated Debentures due March 15,
2002 are issued
4.13.1(6) Indenture under which the Company's 11% Convertible Senior Subordinated Debentures due March 15,
2010 are issued
4.13.2(13) Indenture under which the Company's 11% Convertible Senior Subordinated Debentures due March 15,
2011 are issued
4.14(2) Specimen of Debenture Certificate relating to Indenture dated as of March 15, 1987
4.14.1(6) Specimen of Debenture Certificate relating to Indenture dated as of March 15, 1990
4.14.2(12) Specimen of Debenture Certificate relating to Indenture dated as of March 14, 1991
5.1(21) Opinion and Consent of Sills Cummis Zuckerman Radin Tischman Epstein & Gross, P.A., regarding the
legality of the securities being registered
10.1 Gas Rights Agreements
10.1.1(1) Gas Rights Agreement between City of Corona and Watson Biogas Systems ('Watson') dated December 31,
1981 (Corona Project)
10.1.2(1) Assignment of Gas Rights Agreement between Watson and O'Brien Energy Products, Inc. ('OEP') dated
December 20, 1983 (Corona Project)
10.1.3(1) Assignment of Gas Rights Agreement between Watson and the Company dated December 31, 1984 (Corona
Project)
10.1.4(1) Methane Gas Agreement between SmithKline Beckman Corporation, Montgomery County and OEP dated
October 13, 1983 (SmithKline Project)
10.1.5(1) Landfill Gas Lease between FR&S Landfill, AVM Nursery Corporation ('AVM') and OEP dated December
11, 1982 (Atochem Project-Phase I)
10.1.6(1) Gas Rights Agreement between the Redevelopment Agency of the City of Duarte and Watson dated
November 11, 1980 (Duarte Project)
10.1.7(1) Assignment of Gas Rights Agreement between Watson and the Company dated December 30, 1985 (Duarte
Project)
10.1.8(1) Permit Agreement between the City of New York and Wehran Energy Corporation ('Wehran') dated
September 1, 1981 with attached Amendment dated January 10, 1986 (Pelham Bay Project)
10.1.9(1) Subpermit Agreement between the Company and Wehran dated January 10, 1986 (Pelham Bay Project)
10.1.10(1) Assignment Agreement between Wehran and the Company dated January 10, 1986 (Pelham Bay Project)
10.1.11(2) Landfill Gas Agreement between SCA Disposal Services of New England, Inc. ('SCA') and the Company
dated March 1986 (Amesbury Project)
10.1.12(1) Landfill Gas Purchase and Sales Agreement between Manus Corporation and the Company dated April 2,
1986 (Mazzaro Project)
</TABLE>
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<S> <C>
10.1.13(2) Amendment to Landfill Gas Purchase and Sales Agreement dated November 5, 1986 (Mazzaro Project)
(See 10.1.12)
10.1.14(2) Landfill Gas Rights Agreement between the County of Volusia and the Company dated April 1986
(Volusia Project)
10.1.15(2) Landfill Gas Agreement between Joseph R. Amity & the Company dated September 4, 1986 (Amity
Project)
10.1.16(2) Landfill Gas Agreement between Northwest Jersey Development Company and the Company dated September
2, 1986 (Hamms Project)
10.1.17(3) Amended and Restated Landfill Gas Agreement between SCA and the Company dated March 27, 1987
(Amesbury Project)
10.1.18(6) Landfill Gas Agreement between Harold Herbert and the Company dated February 8, 1989 (Edgeboro
Project)
10.1.19(6) Landfill Gas Agreement among Nuodex, Inc., Industrial Land Reclaiming, Incorporated and the Company
dated February 25, 1988 (ILR-Edison Project)
10.1.20(18) Landfill Gas Agreement between Southwestern Public Service Authority of Virginia ('SPSA') and the
Company dated October 23, 1991 (SPSA Project)
10.1.21(18) Gas Supply Agreement between The Philadelphia Municipal Authority ('PMA') and the Company dated
June 30, 1992 regarding the NE Plant (Philadelphia Water Project)
10.1.22(18) Gas Supply Agreement between the PMA and the Company dated June 30, 1992 regarding the SW Plant
(Philadelphia Water Project)
10.2 Thermal Supply Agreements
10.2.1(1) Steam Supply Agreement between the Hartford Steam Company and the Company dated September 19, 1985
(Hartford Steam Project)
10.2.2(18) Steam Purchase Agreement among Philadelphia Thermal Energy Corporation, Adwin Equipment
Corporation, Grays Ferry Cogeneration Partnership and the Company dated November 11, 1991
(Schuylkill Project)
10.3 Power Purchase Agreements
10.3.1(1) Power Purchase Contract between Southern California Edison Company ('SCE') and the Company dated
October 2, 1984 (Corona Project)
10.3.2(1) Parallel Generation Agreement between Watson and SCE dated December 31, 1981 (Duarte Project)
10.3.3(1) Amendment to Power Purchase Agreement between SCE and Watson dated May 20, 1985 (Duarte Project)
10.3.3.2(19) Amendment No. 3 to Power Purchase Agreement between SCE and the Company dated June 16, 1993 (Duarte
Project)
10.3.4(1) Assignment between Watson and the Company dated December 30, 1985 (Duarte Project) (See 10.1.7)
10.3.5(1) Purchased Power Contract between the Company and Unitil Power Corp. dated December 17, 1985
(Amesbury Project)
10.3.6(1) Electricity Purchase Agreement between the Connecticut Light and Power Company and the Company
dated September 18, 1985 (Hartford Steam Project)
10.3.7(1) Power Purchase Agreement between the Company and SCE dated June 14, 1985 (California Milk Project)
10.3.8(1) Power Purchase Agreement between the Company and Pacific Gas and Electric Company ('PG&E') dated
June 18, 1985 (Salinas Project)
</TABLE>
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<TABLE>
<S> <C>
10.3.9(1) First Amendment to Power Purchase Agreement between the Company and PG&E dated January 2, 1986
(Salinas Project)
10.3.10(2) Power Purchase Agreement between County Sanitation District No. 1 and the Company dated October 1,
1986 (Orange County Project)
10.3.11(2) Long Term Power Purchase Contract for Cogeneration and Small Power Production between the Company
and Jersey Central Power and Light ('JCP&L') dated March 10, 1986 (Newark Boxboard Project)
10.3.12(2) Agreement for Purchase and Sale of Electric Power between the Company and JCP&L dated October 20,
1986 (E.I. du Pont Parlin Project)
10.3.13(2) Agreement for Purchase and Sale of Electric Power between the Company and JCP&L dated January 15,
1987 (Hamms Project)
10.3.14(3) Amended and Restated Power Purchase Agreement between the Company and SCE dated April 15, 1987
(California Milk Project)
10.3.14.1(6) Amendment No. 1 to the Amended and Restated Power Purchase Contract between SCE and the Company
dated October 4, 1988 (California Milk Project)
10.3.15(3) Agreement between Pennsylvania Power & Light Company ('PP&L') and the Company dated April 15, 1987
(Amity Project)
10.3.15.1(7) Agreement between PP&L and the Company dated July 20, 1989 (Amity Project)
10.3.16(6) Parallel Generation Agreement between the Company and Long Island Lighting Company dated February
2, 1990 (Ruco Polymer Project)
10.3.17(18) Power Purchase and Interconnection Agreement between Public Service Electric and Gas ('PSE&G') and
the Company dated April 9, 1992 (ILR-Edison Project)
10.3.18(18) Power Purchase and Interconnection Agreement between PSE&G and the Company dated April 9, 1992
(Edgeboro Project)
10.3.19(18) Agreement for the Sale of Electrical Output to Virginia Electric and Power Company ('VEPC') between
VEPC and the Company dated April 15, 1992 (SPSA Project)
10.3.20(18) Energy Service Agreement between PMA and the Company dated June 30, 1992, regarding the NE Plant
(Philadelphia Water Project)
10.3.21(18) Energy Service Agreement between PMA and the Company dated June 30, 1992 regarding the SW Plant
(Philadelphia Water Project)
10.3.22(18) Agreement for Purchase of Electric Output between Philadelphia Electric Company and Grays Ferry
Cogeneration Partnership dated July 28, 1992 (Schuylkill Project)
10.3.23(18) Power Purchase Agreement among Non-Fossil Purchasing Agency Limited, Norweb plc and the Company
dated November 6, 1991
10.3.24(19) Energy Service Agreement dated December 24, 1993 between the City of Philadelphia and O'Brien
(Tinicum) Standby Power, Inc. (Tinicum Project)
10.3.25(19) Energy Service Agreement dated February 28, 1994 between SmithKline Beecham Corporation and O'Brien
Standby Power Energy, Inc. (SmithKline Project)
10.4 Employment Agreements
10.4.1(14) Employment Agreement with Sanders D. Newman, dated January 1, 1985 and amendment thereto
10.4.2(6) Employment Agreement with Robert Shinn dated May 25, 1989
10.5 Stock Option Plans
10.5.1(1) 1984 Stock Option Plan
10.5.2(4) 1987 Stock Option Plan
</TABLE>
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<TABLE>
<S> <C>
10.5.3(16) 1991 Stock Option Plan
10.6 Leases
10.6.1(1) Lease Agreement for premises located at 225 South Eighth Street, Philadelphia, Pennsylvania dated
August 14, 1984
10.6.2(6) Lease Agreement for premises located at 231 South Eighth Street, Philadelphia, Pennsylvania dated
March 17, 1989
10.6.3(13) Lease Agreement for premises located at 470 Park Avenue South, New York, New York dated May 1, 1990
10.6.4(13) Lease Agreement for premises located at 37 Sandwich Road, Ash, Canterbury, Kent dated June 1, 1990
10.6.5(14) Lease Agreement for premises located in Indiana County, Pennsylvania dated January 30, 1991
10.8 Construction and Term Loan Agreements
10.8.1(6) Construction and Term Loan Agreement between the CIT Group/Equipment Financing, Inc. and O'Brien
California Cogen Limited dated March 1, 1988 (California Milk Project)
10.8.2(6) Construction and Term Loan Agreement between the CIT Group/Equipment Financing, Inc. and O'Brien
California Cogen II Limited dated June 30, 1988 (Salinas Project)
10.8.3(6) Construction and Term Loan Agreement between National Westminster Bank PLC and O'Brien (Newark)
Cogeneration, Inc. dated July 18, 1988 (Newark Boxboard Project)
10.8.3.1(13) Amendment No. 1 to Construction and Term Loan Agreement between National Westminster Bank PLC and
O'Brien (Newark) Cogeneration, Inc. dated April 1, 1989 (Newark Boxboard Project)
10.8.4(6) Construction and Term Loan Agreement between National Westminster Bank PLC and O'Brien (Parlin)
Cogeneration, Inc., dated December 1, 1988 (E.I. du Pont Parlin Project)
10.8.4.1(13) Amendment No. 1 to Construction and Term Loan Agreement between National Westminster Bank PLC and
O'Brien (Parlin) Cogeneration, Inc. dated March 1, 1989 (E.I. du Pont Parlin Project)
10.8.4.2(13) Amendment No. 2 to Construction and Term Loan Agreement between National Westminster Bank PLC and
O'Brien (Parlin) Cogeneration, Inc. dated January 1, 1990 (E.I. du Pont Parlin Project)
10.8.5(14) Term Loan and Working Capital Agreement between The Mitsui Bank, Limited, New York Branch and
O'Brien California Cogen Limited dated March 29, 1990 (California Milk Project)
10.9 Turnkey Construction Agreements
10.9.1(6) Turnkey Construction Agreement between Hawker Siddeley Power Engineering Inc. and O'Brien
California Cogen Limited Partnership dated February 18, 1988 (California Milk Project)
10.9.2(6) Turnkey Construction Agreement between Hawker Siddeley Power Engineering Inc. and O'Brien
California Cogen II Limited dated June 23, 1988 (Salinas Project)
10.9.3(6) Turnkey Construction Agreement between Hawker Siddeley Power Engineering Inc. and O'Brien (Newark)
Cogeneration, Inc. dated July 8, 1988 (Newark Boxboard Project)
10.9.4(6) Turnkey Construction Agreement between Hawker Siddeley Power Engineering Inc. and O'Brien (Parlin)
Cogeneration, Inc. dated November 30, 1988 (E.I. du Pont Parlin Project)
10.9.5(13) Turnkey Construction Agreement between Century Contractors West Inc. and O'Brien California Cogen
II Limited dated August 14, 1990 and Amendment thereto dated October 26, 1990 (Salinas Project)
10.10 Operation and Maintenance Contracts
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
10.10.1(6) Operation and Maintenance Contract between California Cogeneration Operators Inc. and O'Brien
California Cogen Limited dated April 6, 1988 (California Milk Project)
10.10.2(6) Operation and Maintenance Contract between California Cogeneration Operators Inc. and O'Brien
Cogeneration, Inc. I dated June 1, 1988 (Salinas Project)
10.10.3(6) Operation and Maintenance Contract between John Brown Power Limited and O'Brien (Newark)
Cogeneration, Inc. dated October 24, 1988 (Newark Boxboard Project)
10.10.4(6) Operation and Maintenance Contract between John Brown Power Limited and O'Brien (Parlin)
Cogeneration, Inc. dated October 24, 1988 (E.I. du Pont Parlin Project)
10.10.5 Operation and Maintenance Contract between John Brown Power Limited and O'Brien (Hartford)
Cogeneration Limited Partnership dated October 12, 1988 (Hartford Project)
10.10.6(18) Partnership Agreement of Grays Ferry Cogeneration Partnership dated October 29, 1991 (Schuylkill
Project)
10.11 Agreements for the Sale of Project Assets or Stock
10.11.1(18) Agreement for the Sale and Purchase of Certain Assets of Westwanda Energy, Inc. ('Westwanda') among
Westwanda, Lafayette Energy Partners, L.P. and the Company dated June 30, 1992 (Hamms Project)
10.11.2(18) Agreement for the Sale and Purchase of Certain Assets of O'Brien Environmental Energy, Inc. between
Taylor Energy Partners, L.P. and the Company dated June 30, 1992 (Amity Project)
10.11.3(19) Supplemented and Restated Agreement between O'Brien Methane Production, Inc. and BBC/DRI Blacklick
Joint Venture dated August 27, 1993 (Coalbed Methane)
10.11.4(19) Exclusive Option Agreement dated as of December 16, 1993 with Zahren Financial Corporation and
Memorandum of Understanding related thereto dated January 31, 1994
10.11.5(19) Stock Purchase Agreement dated November 12, 1993 by and among OPC Acquisition, Inc., BioGas
Acquisition, Inc. and the Company (Philadelphia Water Department Project)
10.11.6(19) Stock Purchase Agreement dated September 30, 1992 with Zahren Financial Corporation (SPSA Project)
10.11.7(19) Stock Purchase Agreement dated June 30, 1993 with ZFC Energy, Inc. (SPSA Project)
10.11.8(19) Agreement of Sale and Purchase dated December 31, 1992 between O'Brien Energy Europe Limited,
Combined Landfill Projects Limited and the Company (Rowley Project)
10.12 Miscellaneous
10.12(6) Amended and Restated Agreement between Atochem, Inc. and the Company dated October 12, 1987
18.1(6) Letter re change in accounting principles
21.1(19) List of Subsidiaries of Registrant
23.1(20) Consent of Coopers & Lybrand
23.2 Consent of Sills Cummis Zuckerman Radin Tischman Epstein & Gross, P.A. (included in
Opinion--Exhibit 5.1)
24.1 Powers of Attorney (included on page II-9)
</TABLE>
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(1) Incorporated by reference to the Company's Registration Statement (File No.
33-6463) ordered effective by the Commission on July 25, 1986.
(2) Incorporated by reference to the Company's Registration Statement (File No.
33-11789) ordered effective by the Commission on March 19, 1987.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K filed
for the fiscal year ended June 30, 1987.
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<PAGE>
(4) Incorporated by reference to the Company's Annual Report on Form 10-K filed
for the fiscal year ended June 30, 1988.
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed
on September 22, 1989.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K filed
for the fiscal year ended June 30, 1989.
(7) Incorporated by reference to the Company's Registration Statement (File No.
33-32338) ordered effective by the Commission on March 14, 1990.
(8) Incorporated by reference to Amendment No. 1 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1990.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K filed
for the fiscal year ended June 30, 1990.
(10) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement (File No. 33-38940) ordered effective by the Commission on March
7, 1991.
(11) Incorporated by reference to the Company's Registration Statement (File No.
33-38940) filed with the Commission on February 7, 1991.
(12) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement (File No. 33-38940) filed with the Commission on February 12,
1991.
(13) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement (File No. 33-38940) filed with the Commission on March 1, 1991.
(14) Incorporated by reference to the Company's Annual Report on Form 10-K filed
for the fiscal year ended June 30, 1991.
(15) Incorporated by reference to the Company's Registration Statement (File No.
33-43733) filed with the Commission on November 1, 1991.
(16) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement (File No. 33-43733) filed with the Commission on December 17,
1991.
(17) Incorporated by reference to Amendment No. 1 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1991.
(18) Incorporated by reference to the Company's Annual Report on Form 10-K filed
for the fiscal year ended June 30, 1992.
(19) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993.
(20) Filed herewith.
(21) To be filed by amendment.
B. FINANCIAL STATEMENT SCHEDULES
Index to Financial Statement Schedules
Schedule II--Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees other than Related Parties
Schedule V--Property, Plant and Equipment
Schedule VI--Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment
Schedule IX--Short-Term Borrowings
II-7
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the 'Act') may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, that was not
the subject of and included in the Registration Statement when it became
effective.
(c) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PHILADELPHIA, STATE OF
PENNSYLVANIA, ON THE 12TH DAY OF MAY, 1994.
O'BRIEN ENVIRONMENTAL ENERGY, INC.
By: /s/ FRANK L. O'BRIEN III
Frank L. O'Brien III
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Frank L. O'Brien III, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
/s/ FRANK L. O'BRIEN III Chairman of the Board, May 12, 1994
Frank L. O'Brien III Chief Executive Officer,
Class B Director
/s/ LARRY ZALKIN President and Chief Operating May 12, 1994
Larry Zalkin Officer
/s/ RONALD R. ROMINIECKI Vice President/Finance and Chief May 12, 1994
Ronald R. Rominiecki Financial Officer
/s/ JOEL D. COOPERMAN Vice President, Treasurer and May 12, 1994
Joel D. Cooperman Class B Director
/s/ GEORGE BERNSTEIN Class B Director May 12, 1994
George Bernstein
Class A Director May 12, 1994
Robert Smallacombe
/s/ SANDERS D. NEWMAN Class A Director May 12, 1994
Sanders D. Newman
</TABLE>
II-9
<PAGE>
O'BRIEN ENVIRONMENTAL ENERGY, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Index to Financial Statement Schedules...................................................................... S-1
Schedule II--Amounts Receivable From Related Parties and Underwriters, Promoters and Employees Other Than
Related Parties........................................................................................... S-2
Schedule V--Property, Plant and Equipment................................................................... S-3
Schedule VI--Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment.......... S-4
Schedule IX--Short-Term Borrowings.......................................................................... S-5
</TABLE>
S-1
<PAGE>
SCHEDULE II
O'BRIEN ENVIRONMENTAL ENERGY, INC.
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------------------------- ------------ ----------- ---------------------------- --------------------------------
FOR DEDUCTIONS BALANCE AT END OF PERIOD
THE ---------------------------- --------------------------------
YEAR BALANCE AT (1) (2) (2)
ENDED BEGINNING AMOUNTS AMOUNTS (1) NOT
JUNE 30 NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF CURRENT CURRENT
- ------- -------------------------- ------------- ----------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
1991 O'Brien Machinery Co. 16 925 464 477
Joel D. Cooperman (A) 140 -- --
Sanders D. Newman (B) 486 105 --
III Enterprises, Inc. -- 284 190 94 140
Hartford Partnership 829 442 1,190 81 591
1992 O'Brien Machinery Co. 477 646 1,048 --
Joel D. Cooperman (A) 140 -- --
Sanders D. Newman (B) 591 49 --
III Enterprises, Inc. 94 262 307 49
Hartford Partnership 81 1,073 539 615 140
Artesia Partnership 40 342 40 75 342 640
1993 Joel D. Cooperman (A) 140 98
Sanders D. Newman (B) 640 15 655
III Enterprises, Inc. 49 122 57 114
Hartford Partnership 615 559 1,105 69
Artesia Partnership 342 4,791 4,896 237 238
O'Brien Power -- 839 465 374 --
</TABLE>
- ------------------
(A) The loan is an unsecured, full recourse loan bearing interest at 8 1/4% per
annum and maturing in May 1991. In 1991, at the option of the Company, the
maturity date was extended to May 1996.
(B) The loans were unsecured, full recourse loans bearing interest at 9% per
annum and maturing in 1992.
S-2
<PAGE>
SCHEDULE V
O'BRIEN ENVIRONMENTAL ENERGY, INC.
PROPERTY, PLANT AND EQUIPMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------------------------------------------------ --------- -------- ----------- --------
FOR THE BALANCE
YEAR AT ADDITIONS
ENDED BEGINNING AT OTHER
JUNE 30 CLASSIFICATION OF PERIOD COST(1) RETIREMENTS CHANGES
- ------- ------------------------------------------------------ --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
1991 Equipment related to Energy Revenues.................. $ 29,625 $ 133 $ (189)(4) $145,136
Furniture and Fixtures................................ 1,166 299 11 (3)
Rental Equipment...................................... 11,629 40 (99)
Construction in Progress.............................. 127,389 33,138 (145,136)
Land, Building and Improvements....................... 1,231 145
Other Equipment....................................... 1,988 288 (174) 68 (3)
--------- -------- ----------- --------
TOTAL................................................. $ 173,028 $34,043 $ (462) $ 79
--------- -------- ----------- --------
--------- -------- ----------- --------
1992 Equipment related to Energy Revenues.................. $ 174,705 $ 6,699 $ (789)(4) $ (690)
Furniture and Fixtures................................ 1,476 134 (17)
Rental Equipment...................................... 11,570 746 (35) 3,361
Equipment held for future projects.................... 15,391 1,950 (2,601)
Land, Building and Improvements....................... 1,376 155 (254)(4)
Other Equipment....................................... 2,170 30 (15)
--------- -------- ----------- --------
TOTAL................................................. $ 206,688 $ 9,714 $(1,110) $ 70
--------- -------- ----------- --------
--------- -------- ----------- --------
1993 Equipment related to Energy Revenues.................. $ 179,925 $ 1,948 $(1,263) $ (9,095)(2)
Furniture and Fixtures................................ 1,593 133 (13) (64)(2)
Rental Equipment...................................... 15,642 9,049 (1,128) 11,174 (2)
Equipment held for future projects.................... 14,740 1,783 (122) (4,660)(2)
Land, Building and Improvements....................... 1,277 188 (18) 216 (2)
Other Equipment....................................... 2,185 189 (334) (1,217)(2)
--------- -------- ----------- --------
TOTAL................................................. $ 215,362 $13,290 $(2,878) $ (3,646)
--------- -------- ----------- --------
--------- -------- ----------- --------
<CAPTION>
COLUMN F
FOR THE ----------
YEAR BALANCE AT
ENDED END OF
JUNE 30 PERIOD
- ------- ----------
<S> <C>
1991 $ 174,705
1,476
11,570
15,391
1,376
2,170
----------
$ 206,688
----------
----------
1992 $ 179,925
1,593
15,642
14,740
1,277
2,185
----------
$ 215,362
----------
----------
1993 $ 171,515
1,649
34,737
11,741
1,663
823
----------
$ 222,128
----------
----------
</TABLE>
- ---------------
(1) Additions in the normal course of business for additional cogeneration and
alternative fuel projects.
(2) Include transfers between classifications, $3,232 adjustment as a result of
the Newark litigation settlement and fluctuation in exchange rates.
(3) Fluctuation in exchange rates.
(4) Includes building and equipment sales.
S-3
<PAGE>
SCHEDULE VI
O'BRIEN ENVIRONMENTAL ENERGY, INC.
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
FOR THE ----------------------------------------------- ----------- ----------- ----------- ----------- --------------
YEAR BALANCE AT
ENDED BEGINNING OTHER BALANCE AT END
JUNE 30 CLASSIFICATION OF PERIOD ADDITIONS RETIREMENTS CHANGES OF PERIOD
- ------- ----------------------------------------------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1991 Equipment related to Energy Revenues........... 3,820 $ 2,579 $ 6,399
Furniture and Fixtures......................... 497 240 $ 5 (1) 742
Rental Equipment............................... 2,333 487 $ (71) 2,749
Land, Building and Improvements................ 411 108 519
Other Equipment................................ 734 164 (84) 13 (1) 827
----------- ----------- ----------- ----------- --------------
TOTAL.......................................... $ 7,795 $ 3,578 $ (155) $ 18 $ 11,236
----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- --------------
1992 Equipment related to Energy Revenues........... $ 6,399 $ 7,564 $ (149) $ (404) $ 13,410
Furniture and Fixtures......................... 742 171 (2) 911
Rental Equipment............................... 2,749 505 (2) 404 3,656
Land, Building and Improvements................ 519 100 619
Other Equipment................................ 827 221 (10) 51 1,089
----------- ----------- ----------- ----------- --------------
TOTAL.......................................... $ 11,236 $ 8,561 $ (163) $ 51 $ 19,685
----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- --------------
1993 Equipment related to Energy Revenues........... $ 13,410 $ 8,008 $ (864) $ (556)(2) $ 19,998
Furniture and Fixtures......................... 911 188 (42)(2) 1,057
Rental Equipment............................... 3,656 1,149 (251) 1,011 (2) 5,565
Land, Building and Improvements................ 619 150 (4) 28 (2) 793
Other Equipment................................ 1,089 148 (310) (429)(2) 498
----------- ----------- ----------- ----------- --------------
TOTAL.......................................... $ 19,685 $ 9,643 $ (1,429) $ 12 $ 27,911
----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- --------------
</TABLE>
- ------------------
(1) Relates to difference in exchange rates at the end of prior period to
beginning of current period. Also includes differences between average
exchange rate and the exchange rate at the end of the related period.
(2) Includes transfers between classifications, $(127) adjustment as a result
of the Newark litigation settlement and difference in exchange rates at the
end of prior period to beginning of current period. Also includes
differences between average exchange rate and the exchange rate at the end
of the related period.
S-4
<PAGE>
SCHEDULE IX
O'BRIEN ENVIRONMENTAL ENERGY, INC.
SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
----------------------------------- ------------- ------------- -------------- -----------------
MAXIMUM AMOUNT
FOR THE WEIGHTED OUTSTANDING AVERAGE AMOUNT
YEAR ENDED CATEGORY OF AGGREGATE BALANCE AT AVERAGE DURING THE OUTSTANDING
JUNE 30 SHORT-TERM BORROWINGS END OF PERIOD INTEREST RATE PERIOD DURING THE PERIOD
- ---------- ----------------------------------- ------------- ------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
1991 Banks.............................. $ 3,862 14.1% $8,417 $ 6,773
1992 Banks.............................. $ 1,898 13.4% $3,862 $ 2,100
1993 Banks.............................. $ 2,199 9.1% $2,620 $ 2,213
<CAPTION>
COLUMN F
----------------
WEIGHTED AVERAGE
FOR THE INTEREST RATE
YEAR ENDED DURING THE
JUNE 30 PERIOD
- ---------- ----------------
<S> <C>
1991 13.5%
1992 14.9%
1993 11.7%
</TABLE>
- ---------------
The average borrowings were determined based on amounts outstanding at each
month's end.
The weighted average interest rates during the period were computed by dividing
actual interest expense for the period by average short-term borrowings for the
period.
S-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. ITEM PAGE NO.
- --------- ------------------------------------------------------------------------------------------- ---------
<S> <C> <C>
23.1 Consent of Coopers & Lybrand
</TABLE>
<PAGE>
INDEPENDENT ACCOUNTANTS CONSENT
We consent to the inclusion in this registration statement on Form S-4 of
our report (which includes explanatory paragraphs regarding 1) litigation for
which the ultimate outcome cannot presently be determined, 2) the change in the
Company's method of accounting for income taxes and 3) the Company's ability to
continue as a going concern) dated February 19, 1994, except for certain
information presented in Notes 15 and 17 for which the date is March 1, 1994, on
our audits of the consolidated financial statements and financial statement
schedules of O'Brien Environmental Energy, Inc. as of June 30, 1993 and 1992,
and for the years ended June 30, 1993, 1992 and 1991. We also consent to the
reference to our firm under the caption 'experts' in the registration statement.
COOPERS & LYBRAND
2400 Eleven Penn Center
Philadelphia, Pennsylvania
May 12, 1994
