<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1995
REGISTRATION NO. 33-58393
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TENERA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8980 94-3213541
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2001 CENTER STREET
BERKELEY, CALIFORNIA 94704-1204
(510) 845-5200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JEFFREY R. HAZARIAN
2001 CENTER STREET
BERKELEY, CALIFORNIA 94704-1204
(510) 845-5200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
PAMELA M. SODERBECK, ESQ.
ELIZABETH A. KING, ESQ.
BRYAN CAVE
120 BROADWAY, SUITE 500
SANTA MONICA, CALIFORNIA 90401
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box: / /
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(2)
- ------------------------------------------------------------------------------------------------
Common Stock............ 10,743,024 Footnote(1) $7,082,179 $2,442.13
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</TABLE>
(1) Estimated solely for the purposes of computing the registration fee pursuant
to Rule 457(c) promulgated under the Securities Act of 1933, based upon the
average of the high and low sales prices of the Units on (i) March 24, 1995
($0.6563) with respect to the 10,541,153 shares for which the fee was
previously paid, and (ii) May 11, 1995 ($0.8125) with respect to the 201,871
shares for which the fee is paid herewith.
(2) $2,385.57 previously paid.
------------------------
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.
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<PAGE> 2
, 1995
Dear Unitholder:
Teknekron Technology MLP I Corporation, a Delaware corporation (the
"General Partner"), is soliciting the consents of unitholders (the
"Unitholders") of depositary units representing limited partners' interests (the
"Units") in TENERA, L.P. (the "Partnership") for conversion of the Partnership
and TENERA Operating Company, L.P. (the "Operating Partnership" and collectively
with the Partnership, the "Partnerships") to corporate form (the "Conversion").
The General Partner owns a 1% general partner interest in the Partnership and
the Unitholders own a 99% limited partnership interest. The General Partner owns
a 1% general partner interest in the Operating Partnership and the Partnership
owns a 99% limited partnership interest. The General Partner's and the
Unitholders' current equity ownership interests in the Partnership and the
Operating Partnership on a combined basis are 1.99% and 98.01%, respectively. If
approved, the Conversion would be effected by the merger of the Partnership, the
Operating Partnership and the General Partner with and into TENERA, Inc., a
newly formed Delaware corporation (the "Company"), which would succeed to their
assets and liabilities. Each Unit outstanding immediately prior to the
Conversion will be converted into one share of common stock, par value $0.01 per
share, of the Company (the "Common Stock"). As a result of the Conversion, the
Unitholders (including the principal stockholder of the General Partner, who
will be the sole stockholder of the General Partner immediately prior to the
consummation of the Conversion) will own an aggregate of 9,108,803 shares of
Common Stock in lieu of their 9,108,803 currently outstanding Units. The
principal stockholder of the General Partner will own 184,946 shares of Common
Stock in lieu of the General Partner's 1.99% general partner interest in the
Partnership and the Operating Partnership, which is equal to the General
Partner's current equity interest in the Partnerships. In addition, the
principal stockholder of the General Partner will own an additional
shares of Common Stock in consideration of the contribution of $1,000,000 in
cash to the Company through the merger of the General Partner into the Company,
which additional shares are based on the greater of the average closing sales
price of the Units as reported on the American Stock Exchange (AMEX) for the 60
calendar days immediately preceding and immediately following the public
announcement of the Conversion ($ per Unit).
THE CONVERSION INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" IN THE
ACCOMPANYING CONSENT SOLICITATION STATEMENT/PROSPECTUS FOR A DISCUSSION OF
CERTAIN RISKS WHICH UNITHOLDERS SHOULD CONSIDER PRIOR TO DECIDING WHETHER TO
GIVE OR WITHHOLD THEIR CONSENT.
As you know, TENERA originally converted from corporate to partnership form
in 1986. The prior conversion was consummated primarily to eliminate federal
income taxes at the entity level, thereby potentially increasing the
availability of distributions to investors of cash flow from operations.
Thereafter, significant changes in the federal income tax laws occurred in 1987.
In addition, the Partnership began experiencing operating losses in mid-1991
which resulted in a discontinuation of cash distributions to the Unitholders.
The Partnership is not required to make distributions and management currently
believes the Partnership will not resume distributions in the foreseeable
future, regardless of whether taxable income may be recognized by the
Unitholders in the future. If the Conversion is not consummated, the Partnership
and Unitholders will remain burdened by the cumbersome and complex tax reporting
requirements associated with partnership form. Moreover, the Partnership will be
taxed as a corporation beginning in 1998, whether or not the Conversion is
consummated.
As is more fully described in the accompanying Consent Solicitation
Statement/Prospectus, the General Partner believes that conversion to corporate
form is appropriate and in the best interests of the Partnership for the
following reasons: (i) the principal advantage of operating in partnership form
(i.e., one level of federal income tax) is not currently useful and is not
expected to be useful in the foreseeable future given the expectation that
TENERA will not resume distributions, regardless of whether taxable income may
be recognized by Unitholders; (ii) the fact that even without the Conversion the
Partnership will automatically be treated as a corporation and not as a
partnership for federal income tax purposes after 1997; (iii) the potential for
TENERA Common Stock to attain greater acceptance within the investment community
than the Partnership's Units and an expansion of the potential investor base in
TENERA; (iv) the complexities and costs of tax reporting associated with
partnership form (both to the Partnership and the Unitholders) will be
<PAGE> 3
reduced if TENERA is in corporate form; and (v) the merger of the General
Partner, the sole assets of which immediately prior to the consummation of the
Conversion will be $1,000,000 in cash, with and into the Company will provide
additional financial strength to the Company and added liquidity of $1,000,000
as TENERA strives to rebuild its business after the losses and decreased
earnings experienced since 1991.
The General Partner believes that the only significant disadvantages to
converting to corporate form are tax-related. The principal tax disadvantage to
converting to corporate form is that a corporation pays tax on its net income,
whereas a partnership pays no tax, enabling it to distribute cash flow from
operations as tax-efficiently as possible. The Partnership and the Unitholders
will forego this potential future tax benefit as a result of the Conversion.
However, regardless of whether taxable income is recognized by Unitholders in
the future, management does not intend to resume distributions until TENERA's
financial condition is significantly strengthened to position it for continued
growth. Another potential tax disadvantage would occur if there were a sale of
the assets of the Company followed by a liquidating distribution to
stockholders. In corporate form the Company would be taxed on a sale of such
assets, to the extent any gain was recognized.
The General Partner believes the Conversion is fair to the Unitholders,
that the Conversion will result in certain benefits to the Unitholders and to
TENERA and that such benefits outweigh the disadvantages of the Conversion. The
General Partner further believes that allocating the Common Stock that will be
issued in lieu of the General Partner's interest and the currently outstanding
Units 1.99% to the principal stockholder of the General Partner and 98.01% to
the Unitholders, which is exactly in accordance with the respective current
interests of the Unitholders and the General Partner in the Partnership and the
Operating Partnership, is fair, from a financial point of view, to the
Unitholders and the principal stockholder of the General Partner. Finally, the
General Partner believes that the issuance of shares of Common Stock
to the principal stockholder of the General Partner in consideration of the
contribution of $1,000,000 in cash to the Company through the merger of the
General Partner, which allocation is based on the greater of the average closing
sales price of the Units as reported on AMEX for the 60 calendar days
immediately preceding and immediately following the public announcement of the
Conversion, is fair, from a financial point of view, to the Unitholders and the
principal stockholder of the General Partner. No independent fairness opinion
has been rendered with respect to the fairness of the consideration to be
received by the Public Unitholders in the Conversion. However, the Board of
Directors of the General Partner has received the written opinion of an
independent financial advisor to the effect that, subject to the assumptions and
limitations set forth therein, (i) the receipt of 184,946 shares of Common Stock
by the principal stockholder of the General Partner in lieu of the General
Partner's 1.99% general partner interest in the Partnerships, and (ii) basing
the effective purchase price of the Common Stock to be issued to the principal
stockholder of the General Partner in connection with the merger of the General
Partner into the Company on the greater of the average closing price of the
Units as reported on AMEX for the 60 calendar days immediately preceding and
immediately following the public announcement of the Conversion, is fair to the
Public Unitholders from a financial point of view. The General Partner
recommends that the Unitholders approve the Conversion.
Approval of the Conversion requires the affirmative vote of a majority of
the outstanding Units. The accompanying Consent Solicitation
Statement/Prospectus contains detailed information with respect to the
Conversion and should be carefully reviewed in its entirety by Unitholders. In
view of the importance of the action to be taken, we urge you to complete, sign,
date and mail the enclosed consent card as soon as possible. The period for
solicitation of consents will terminate at 5:00 p.m., Pacific Standard Time, on
, 1995, unless extended by the General Partner.
Sincerely,
By: TEKNEKRON TECHNOLOGY MLP I
CORPORATION, the General Partner
By:
--------------------------------------
Michael D. Thomas
Chairman of the Board and
Chief Executive Officer
<PAGE> 4
, 1995
CONSENT SOLICITATION STATEMENT/PROSPECTUS
COMMON STOCK
------------------------
This Consent Solicitation Statement/Prospectus (first mailed to Unitholders
on , 1995) is being sent by TENERA, L.P., a Delaware limited
partnership (the "Partnership"), to holders ("Unitholders") of its depository
units representing limited partners' interests (the "Units") in connection with
the solicitation of consents by Teknekron Technology MLP I Corporation, a
Delaware corporation (the "General Partner"), to a proposal to convert the
Partnership and TENERA Operating L.P. (the "Operating Partnership") to corporate
form. If approved by Unitholders, the Partnership, the Operating Partnership and
the General Partner will merge with and into TENERA, Inc., a newly formed
Delaware corporation (the "Company"), which will succeed to their assets and
liabilities (the "Merger"). As a result of the Merger, the equity ownership
interest of each Unitholder which was previously represented by Units will
thereafter be represented by an identical number of shares of common stock, par
value $0.01 per share, of the Company (the "Common Stock"). The Merger and the
transactions contemplated thereby will hereinafter be collectively referred to
as the "Conversion." The General Partner currently owns a 1% general partner
interest in the Partnership and the Unitholders currently own a 99% limited
partner interest in the Partnership. The General Partner currently owns a 1%
general partner interest in the Operating Partnership and the Partnership
currently owns a 99% limited partner interest in the Operating Partnership. The
General Partner's and the Unitholders' current equity ownership interests in the
Partnership and the Operating Partnership (collectively, the "Partnerships") on
a combined basis are 1.99% and 98.01%, respectively.
As a result of the Conversion, the Unitholders (including the principal
stockholder of the General Partner, who will be the sole stockholder of the
General Partner immediately prior to the consummation of the Conversion) will
own an aggregate of 9,108,803 shares of Common Stock in lieu of their 9,108,803
currently outstanding Units and the principal stockholder of the General Partner
will own 184,946 shares of Common Stock in lieu of the 1.99% general partner
interest in the Partnerships, which is equal to the General Partner's current
equity interest in the Partnerships. In addition, as a result of the Merger, the
General Partner will cease to exist, the principal stockholder of the General
Partner will receive shares of Common Stock for the equity ownership of
the General Partner and TENERA will receive $1,000,000 in cash as additional
capital from the General Partner. The per share purchase price of the additional
shares issued to the principal stockholder of the General Partner in
consideration of the cash capital contribution to the Company was based on the
greater of the average closing sales price of the Units as reported on the
American Stock Exchange (AMEX) for the 60 calendar days immediately preceding
and immediately following the public announcement of the Conversion. The General
Partner will not receive any fees or other compensation in connection with the
Conversion.
THE CONVERSION INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" FOR A DISCUSSION
OF CERTAIN RISKS WHICH UNITHOLDERS SHOULD CONSIDER PRIOR TO DECIDING WHETHER TO
GIVE OR WITHHOLD THEIR CONSENT. IN PARTICULAR, UNITHOLDERS SHOULD CONSIDER THAT:
- THE GENERAL PARTNER HAS A CONFLICT OF INTEREST IN RECOMMENDING THE
CONVERSION AND MAY BE DEEMED TO BE RECEIVING A BENEFIT IN CONNECTION WITH
THE CONVERSION.
- UNITHOLDERS WILL NOT BE SEPARATELY REPRESENTED IN CONNECTION WITH THE
CONVERSION WHICH MAY RESULT IN THE RISK THAT THE BEST INTERESTS OF THE
UNITHOLDERS ARE NOT BEING PROTECTED IN CONNECTION WITH THE CONVERSION.
- BECAUSE OF THE CONVERSION, THE PARTNERSHIP AND THE UNITHOLDERS WILL FOREGO
THE POTENTIAL FUTURE TAX BENEFITS ASSOCIATED WITH OPERATING IN PARTNERSHIP
FORM (E.G., NO TAX PAID AT THE PARTNERSHIP LEVEL ON ITS TAXABLE INCOME.)
- IF THE REQUISITE NUMBER OF UNITHOLDERS APPROVE THE CONVERSION, ALL
UNITHOLDERS WILL BE BOUND BY SUCH APPROVAL, EVEN THOUGH THEY,
INDIVIDUALLY, MAY HAVE VOTED AGAINST THE CONVERSION.
- UNITHOLDERS WILL HAVE NO APPRAISAL, STATUTORY DISSENTERS', OR SIMILAR
RIGHTS IN CONNECTION WITH THE CONVERSION.
- THE GENERAL PARTNER AND ITS AFFILIATES, WHO CURRENTLY OWN 29.6% OF THE
PARTNERSHIP'S OUTSTANDING UNITS, WILL OWN % OF THE TOTAL OUTSTANDING
SHARES OF COMMON STOCK OF THE COMPANY UPON CONSUMMATION OF THE CONVERSION
(WHICH PERCENTAGES HAVE BEEN CALCULATED BASED ON UNITS ACTUALLY
OUTSTANDING WITHOUT REGARD TO OPTIONS OUTSTANDING), WHICH WOULD GIVE THE
PRINCIPAL STOCKHOLDER AND AFFILIATES OF THE GENERAL PARTNER AS A GROUP
SIGNIFICANT INFLUENCE OVER ALL CORPORATE DECISIONS REQUIRING APPROVAL OF
THE STOCKHOLDERS OF THE COMPANY.
- CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S ORGANIZATIONAL
DOCUMENTS MAY REDUCE THE LIKELIHOOD OF A TAKEOVER OF THE COMPANY WHICH, IF
SUCCESSFUL, MIGHT PERMIT STOCKHOLDERS TO RECEIVE A PREMIUM OVER THE MARKET
PRICE OF THE COMMON STOCK.
- THE GENERAL PARTNER IS UNABLE TO PREDICT THE MARKET PRICE OF THE COMMON
STOCK IN RELATION TO CURRENT MARKET PRICES OF THE UNITS.
IN ADDITION TO THE FACTORS NOTED ABOVE, AN INVESTMENT IN TENERA, WHETHER IN
PARTNERSHIP OR IN CORPORATE FORM, IS SUBJECT TO RISKS ASSOCIATED WITH OPERATING
CONDITIONS, COMPETITIVE FACTORS, ECONOMIC CONDITIONS, ENERGY INDUSTRY CONDITIONS
AND EQUITY MARKET CONDITIONS.
The Consent Solicitation Statement/Prospectus also constitutes a prospectus
in connection with the registration by the Company of the issuance of shares of
its Common Stock offered to Unitholders and the principal stockholder of the
General Partner in connection with the Conversion.
Application has been made to list the Common Stock on AMEX. Prior to this
offering, there has been no public market for the Common Stock.
As more fully described herein, the General Partner recommends that
Unitholders consent to the Conversion. For a discussion of the reasons
underlying the General Partner's recommendation, see "The
Conversion -- Recommendation of the General Partner."
The Conversion requires the approval of Unitholders of record holding a
majority of the Units outstanding as of the close of business on June 7, 1995.
The period for solicitation of consents will terminate at 5:00 p.m., Pacific
Standard Time, on , 1995, unless extended by the General Partner.
------------------------
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION.
NEITHER THE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS PASSED
UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE ACCURACY
OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS CONSENT
SOLICITATION STATEMENT/ PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
<PAGE> 5
AVAILABLE INFORMATION
The Partnership is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "SEC"). Following the Conversion, the Company will be
subject to these requirements and will file such reports and other information
with the SEC. Such reports and other information can be inspected and copied at
the public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its regional offices located at Northwestern
Atrium Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661 and
7 World Trade Center, New York, New York 10048. Copies of such materials can be
obtained from the Public Reference Section of the SEC, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed charges.
The Company has filed a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), with the SEC with
respect to the Common Stock. This Consent Solicitation Statement/Prospectus does
not contain all the information set forth in the Registration Statement or the
exhibits thereto. Statements contained in this Consent Solicitation
Statement/Prospectus concerning the provisions of documents are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable documents filed with the
SEC. Copies of the Registration Statement and the exhibits to such filing are on
file at the offices of the SEC and may be obtained upon payment of the fee
prescribed by the SEC, or may be examined without charge at the public reference
facilities of the SEC described above.
------------------------
UNTIL , 1995 (25 DAYS AFTER THE DATE OF THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE
COMPANY'S COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY
BE REQUIRED TO DELIVER A PROSPECTUS.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK TO WHICH IT RELATES,
OR AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME
SUBSEQUENT TO ITS DATE.
2
<PAGE> 6
TABLE OF CONTENTS
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AVAILABLE INFORMATION................. 2
SUMMARY............................... 5...
OVERVIEW.............................. 5
Overview of the Conversion.......... 5
Risk Factors and Other Special
Considerations................... 6
The Partnership and the Company..... 9
SUMMARY INFORMATION ABOUT THE
CONVERSION.......................... 10
Background of the Conversion........ 10
Reasons for the Conversion.......... 10
Disadvantages of the Conversion..... 11
Allocation of Common Stock Among the
Unitholders and the Principal
Stockholder of the General
Partner.......................... 12
Ownership of TENERA Before and After
the Conversion................... 13
Opinion of Independent Financial
Advisor.......................... 13
Recommendation of the General
Partner.......................... 13
No Appraisal or Dissenters Rights... 14
Unitholder Rights................... 14
Material Federal Income Tax
Consequences..................... 15
Comparative Rights of Stockholders
and Unitholders.................. 15
Consequences if Conversion is Not
Approved......................... 15
Conditions to the Conversion........ 16
Management Fees and Expenses........ 16
Management and Executive
Compensation..................... 16
Unit Option Plans................... 16
Record Date and Voting Securities... 16
Consents Required................... 16
Procedures for Giving and Revoking
Consents......................... 17
Solicitation of Consents............ 17
Exchange of Certificates............ 17
Distributions and Dividends......... 17
Market Price of Units............... 17
SUMMARY HISTORICAL AND
PRO FORMA FINANCIAL DATA............ 18
TENERA OWNERSHIP STRUCTURE............ 20
RISK FACTORS.......................... 21
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Conversion Risks.................... 21
Operating Risks..................... 25
THE CONVERSION........................ 26
Structure of the Conversion......... 26
Background of the Conversion........ 27
Reasons for the Conversion.......... 29
Disadvantages of Converting to
Corporate Form................... 32
Alternatives to the Conversion...... 33
Allocation of Common Stock Among the
Unitholders and the Principal
Stockholder of the General
Partner.......................... 34
Conflicts of Interest of the General
Partner.......................... 36
Opinion of Independent Financial
Advisor.......................... 39
Recommendation of the General
Partner.......................... 41
The Merger Agreement................ 46
Formation of the Company............ 48
Management Fees and Expenses........ 48
Management and Executive
Compensation..................... 49
Unit Option Plans................... 49
No Statutory Appraisal or
Dissenters' Rights............... 49
Unitholder Rights................... 50
Consequences if Conversion is Not
Approved......................... 50
Fiduciary Duties.................... 50
Accounting Treatment................ 51
Costs of the Conversion............. 51
THE CONSENT SOLICITATION.............. 52
Record Date and Voting Securities... 52
Consents Required................... 52
Procedures for Giving and Revoking
Consents......................... 52
Solicitation of Consents............ 52
Exchange of Certificates............ 53
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES........................ 53
Introduction........................ 53
Unitholders......................... 53
The Company......................... 55
The General Partner................. 56
</TABLE>
3
<PAGE> 7
TABLE OF CONTENTS -- (CONTINUED)
<TABLE>
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Other Taxation...................... 56
MARKET PRICES OF UNITS;
DISTRIBUTIONS....................... 57
CAPITALIZATION........................ 58
SELECTED COMBINED FINANCIAL DATA...... 59
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 60
Year Ended December 31, 1994 versus
Year Ended December 31, 1993..... 60
Year Ended December 31, 1993 versus
Year Ended December 31, 1992..... 61
Liquidity and Capital Resources..... 62
BUSINESS.............................. 64
General............................. 64
Background.......................... 64
Services and Products............... 64
Marketing and Clients............... 67
Operations.......................... 68
Backlog............................. 68
Competition......................... 68
Research and Development............ 68
Patents and Licenses................ 69
Personnel........................... 69
Properties.......................... 69
CERTAIN LEGAL PROCEEDINGS............. 69
MANAGEMENT............................ 69
Directors and Executive Officers.... 69
Executive Compensation.............. 71
<CAPTION>
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Directors Compensation.............. 72
Compensation Committee Interlocks
and Insider Participation........ 73
Effect of Merger on Unit Option
Plans............................ 73
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................ 73
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.... 74
Security Ownership of Certain
Beneficial Owners................ 74
Security Ownership of Management.... 75
SUMMARY COMPARISON OF UNITS AND COMMON
STOCK............................... 76
DESCRIPTION OF STOCK.................. 80
Common Stock........................ 80
Preferred Stock..................... 80
Anti-Takeover Provisions............ 80
Limitation of Liability............. 81
Resale of Common Stock.............. 81
Transfer Agent and Registrar........ 82
LEGAL OPINIONS........................ 82
EXPERTS............................... 82
INDEX TO FINANCIAL STATEMENTS......... F-1
ANNEX A: FORM OF AGREEMENT AND PLAN OF
MERGER.............................. A-1
ANNEX B: GLOSSARY OF SIGNIFICANT
TERMS............................... B-1
ANNEX C: OPINION OF INDEPENDENT
FINANCIAL ADVISOR................... C-1
</TABLE>
4
<PAGE> 8
SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information contained elsewhere herein.
Unitholders are urged to carefully read this Consent Solicitation
Statement/Prospectus in its entirety. A Glossary of frequently used capitalized
and other specialized terms is attached at page B-1.
OVERVIEW
OVERVIEW OF THE CONVERSION
This Consent Solicitation Statement/Prospectus relates to a proposal to
convert the Partnership and the Operating Partnership to corporate form. The
Company was recently formed to be the Partnership's and the Operating
Partnership's corporate successor. The term "TENERA" as used herein means the
Partnership and the Operating Partnership prior to the Conversion and/or the
Company after the Conversion. Additionally, as part of the Conversion, the
General Partner, which has acted solely as General Partner of the Partnerships
and has assets consisting entirely of cash and cash equivalents, will merge with
and into the Company.
If approved by the Unitholders, the Conversion will be effected as follows:
- The Partnership, the Operating Partnership and the General Partner will
merge with and into the Company, as a result of which the Partnerships
and the General Partner will thereafter cease to exist, and the Company
will succeed to all the assets and liabilities of the Partnerships and
the General Partner;
- Units issued and outstanding immediately prior to the Conversion will be
converted into an identical number of shares of Common Stock;
- The General Partner's aggregate 1.99% general partner interest in the
Partnerships will be converted into 184,946 shares of Common Stock and
distributed to the principal stockholder of the General Partner (who will
be the sole stockholder of the General Partner immediately prior to the
consummation of the Conversion);
- Immediately prior to the Conversion, the General Partner will repurchase
certain of its outstanding shares of common stock for cash, leaving the
principal stockholder of the General Partner the sole stockholder and
leaving assets of $1,000,000 in cash in the General Partner; and
- The common stock of the General Partner will be converted into
shares of Common Stock.
Consequently, immediately following the Conversion, as a result of the
merger of the Partnerships into the Company the Unitholders will own an
aggregate of 9,108,803 shares of Common Stock in lieu of their 9,108,803
currently outstanding Units and the principal stockholder of the General Partner
will own 184,946 shares of Common Stock in lieu of the 1.99% general partner
interest in the Partnerships. In addition, the principal stockholder of the
General Partner will own all shares of Common Stock issued with
respect to the merger of the General Partner into the Company. Upon completion
of the Conversion, the former Unitholders (including the principal stockholder
of the General Partner) will own % of the issued and outstanding shares of
Common Stock and the principal stockholder of the General Partner will own
% of the issued and outstanding shares of Common Stock (exclusive of shares
received as a Unitholder). The principal stockholder and affiliates of the
General Partner will own % of the outstanding shares of Common Stock, which
would give such persons as a group significant influence over all corporate
decisions requiring approval of the stockholders of the Company. See "Risk
Factors -- Control of TENERA by Principal Stockholder of the General Partner."
However, there are no voting arrangements or agreements among the current
stockholders and affiliates of the General Partner.
The General Partner used the percentages of the outstanding equity
ownership interests in the Partnership and the Operating Partnership, taken as a
whole, currently owned by the General Partner and the Unitholders, respectively,
to determine the allocation of percentages of Common Stock issued to the
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Unitholders and the principal stockholder of the General Partner with respect to
the merger of the Partnerships into the Company. The General Partner used the
greater of the average closing sales price of the Units as reported on AMEX for
the 60 calendar days immediately preceding and immediately following the public
announcement of the Conversion to determine the number of shares of Common Stock
issued to the principal stockholder of the General Partner with respect to the
merger of the General Partner into the Company. See "The
Conversion -- Allocation of Common Stock Among the Unitholders and the Principal
Stockholder of the General Partner."
The General Partner decided to convert the Partnership and Operating
Partnership to corporate form because of the factors listed in "The
Conversion -- Reasons for the Conversion." The General Partner did not consider
any alternatives to this transaction other than continuing in partnership form.
See "The Conversion -- Alternatives to the Conversion."
RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
In evaluating the Conversion, Unitholders should take into account the
following risk factors and other special considerations, which are discussed at
greater length in "Risk Factors:"
CONVERSION RISKS
- Conflicts of Interest: Terms of the Conversion. The General Partner has
determined the terms of the Conversion, including the consideration to be
received by Unitholders and by the principal stockholder of the General
Partner, both with respect to their respective interests in the
Partnerships and with respect to the merger of the General Partner into
the Company. Because the principal stockholder and affiliates of the
General Partner control the General Partner and, through the General
Partner, the Partnerships, the General Partner has a substantial conflict
of interest in determining the terms of the Conversion. Although the
Board of Directors of the General Partner believes that the terms of the
Conversion are fair to the Unitholders, such terms are not the result of
arm's length negotiations. See "Risk Factors -- Conflicts of Interest:
Terms of the Conversion."
- Conflicts of Interest: Elimination of Unlimited Liability. Under
Delaware partnership law, general partners of a limited partnership are
generally subject to unlimited liability for the obligations and
liabilities of the limited partnership. As a result of the Conversion,
the General Partner will no longer have such unlimited liability and any
liability the General Partner may have incurred during the time TENERA
operated as a partnership will be assumed by the Company through the
merger of the General Partner into the Company. This change in potential
liability may be deemed a benefit to the stockholders of the General
Partner, thereby presenting the General Partner with a conflict of
interest in connection with the Conversion and the transactions
contemplated thereby. See "Risk Factors -- Conflicts of Interest:
Elimination of Unlimited Liability."
- No Separate Representation of Unitholders. Unitholders are not
separately represented in connection with the Conversion. The terms of
the Conversion have been determined by the General Partner without
consultation with any separate representative of the Unitholders. Because
the Unitholders are not separately represented, there is a risk that the
best interests of the Unitholders are not being protected in connection
with the Conversion. See "Risk Factors -- No Separate Representation of
Unitholders."
- Nonconsenting Unitholders are Bound by Majority Approval. If the
requisite number of Unitholders approve the Conversion, all Unitholders
will be bound by such approval. If all of the current stockholders of the
General Partner and their affiliates, who currently own 29.6% of the
outstanding Units of the Partnership (not including the General Partner's
1.99% general partner interest in the Partnerships, which will not be
counted in determining whether the Conversion has been approved by the
required majority vote), voted in favor of the Conversion, holders of
less than 29.1% of the Units held by persons not affiliated with the
General Partner would be required to vote in favor of the Conversion to
achieve the required majority vote necessary. The effect of this risk is
that nonconsenting Unitholders' ownership interests in the Partnership
will be converted into an ownership interest in the
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Company even though they, individually, may have voted against the
Conversion. See "Risk Factors -- Nonconsenting Unitholders are Bound by
Majority Approval."
- No Statutory Appraisal or Dissenters' Rights. Under applicable Delaware
partnership law, Unitholders will have no statutory appraisal,
dissenters', or similar rights in connection with the Conversion.
Accordingly, the ability of Unitholders to obtain redress for an alleged
wrong in connection with the Conversion is limited to Delaware common
law. See "Risk Factors -- No Statutory Appraisal or Dissenters' Rights."
- Control of TENERA by Principal Stockholder of the General
Partner. Following the Conversion, the principal stockholder and
affiliates of the General Partner, who currently owns 29.6% of the
outstanding Units, will own % of the outstanding shares of Common
Stock, which would give such persons as a group significant influence
over all corporate decisions requiring approval of the stockholders of
the Company. Further, the Company's Board of Directors will initially
consist of the current members of the General Partner's Board of
Directors who will be able to exert significant influence over the
operations of the Company. See "Risk Factors -- Control of TENERA by
Principal Stockholder of the General Partner."
- Tax Considerations. The federal income tax consequences of the
Conversion to the Unitholders are uncertain in some respects. As a result
of the Conversion the taxable income of the Company will be subject to
two levels of taxation: a corporate level tax on any income earned by the
Company and a stockholder level tax with respect to any dividends paid by
the Company to its stockholders out of any after-tax earnings. There is a
risk that following the Conversion the Company will recognize taxable
income and be subject to corporate level income tax thereon. If the
Conversion did not take place, taxable income earned for taxable years
1995 through 1997 would probably not be subject to entity level taxation.
See "Risk Factors -- Tax Considerations" and "The Conversion -- Reasons
for the Conversion -- Automatic Taxation as Corporation After 1997."
- No Active Trading Market. Prior to the Conversion, there has been no
market for the Common Stock. Application has been made to list the Common
Stock on AMEX under the symbol TNR. There is a risk that if no active
trading market develops, the market value of the Common Stock could be
materially adversely affected and holders of the Common Stock may be
unable to sell their shares. See "Risk Factors -- No Active Trading
Market."
- Uncertainty Regarding Market Price of Common Stock. The General Partner
is unable to predict the market price of the Common Stock in relation to
current market prices of the Units. The Common Stock will be a new
security, reflecting the conversion of TENERA to corporate form and the
replacement of the Units with the Common Stock, as well as the capital
contribution and dilution of the voting power of the current Unitholders
resulting from the merger of the General Partner. If a market does
develop for the Common Stock there is a risk that the Common Stock
trading price will be lower than the Unit trading price immediately prior
to the Conversion. If the Common Stock trades at a price lower than the
Unit price, the market value of the Unitholder's ownership interest could
be materially reduced. See "Risk Factors -- Uncertainty Regarding Market
Price of Common Stock" and "Risk Factors -- Dilution."
- Differences between Units and Common Stock. There are certain inherent
differences between the Units and the Common Stock, including without
limitation differences in tax treatment and voting rights. The
differences arise primarily from provisions of the Internal Revenue Code
of 1986, as amended, and differences between the laws governing limited
partnerships and those governing corporations, as well as from their
respective governing instruments. See "Summary Comparison of Units and
Common Stock" for a description of these differences.
- Anti-Takeover Provisions. Certain provisions of Delaware law and the
Company's organizational documents may reduce the likelihood of a
takeover of the Company which, if successful, might permit stockholders
to receive a premium over the market price of the Common Stock. See "Risk
Factors -- Anti-Takeover Provisions."
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- Dilution. As a result of the merger of the General Partner into the
Company and the issuance of additional shares of Common Stock
to the principal stockholder of the General Partner, the voting power of
the Unitholders not affiliated with the General Partner will be reduced
from 70.4% to % (such percentage calculated without regard to the
General Partner interest in the Partnership which are non-voting
interests). Due to the infusion into the Company of $1,000,000 in cash
from the General Partner, the issuance of the additional shares of Common
Stock to the principal stockholder of the General Partner will not result
in dilution of the book value of the Common Stock issued to Unitholders
in exchange for Units in the Conversion. However, the issuance and sale
of such additional shares could adversely effect the market price of the
Common Stock. See "Risk Factors -- Uncertainty Regarding Market Price of
Common Stock."
- Fiduciary Duties. The fiduciary duties owed by the directors of the
Company after the Conversion may be less than those owed by the General
Partner of the Partnership before the Conversion. See "Risk
Factors -- Possible Reduction of Fiduciary Duties."
OPERATING RISKS
- Operating Results. Revenues of the Partnership have decreased each year
from the year ended December 31, 1990 to date ($51.2 million in 1990,
$44.1 million in 1991, $36.6 million in 1992, $29.3 million in 1993,
$23.6 million in 1994, and $5.3 million for the three months ended March
31, 1995 and $7.1 million for the three months ended March 31, 1994),
while net earnings (loss) from operations over the same periods declined
from $7.9 million in 1990, to $(6.4 million) in 1991, $0.8 million in
1992, $(0.3 million) in 1993, $(1.2 million) in 1994, and $0.2 million
for the three months ended March 31, 1995 and $0.1 million for the three
months ended March 31, 1994. There can be no assurance of the level of
earnings, if any, that the Company will be able to derive in the future.
See "Risk Factors -- Operating Results" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
- Industry Trends. Certain trends in the electric power industry have
caused some electric utilities to close power plants and to curtail
certain other activities traditionally supported by TENERA. This, in
turn, has resulted in reduced demand for TENERA's traditional engineering
services and software, and thus, a material adverse impact on operating
results. TENERA's profitability depends on its ability to successfully
adjust to these industry changes, of which there can be no assurance. See
"Risk Factors -- Industry Trends" and "Risk Factors -- Operating
Results."
- Access to Capital. Management currently believes that cash expected to
be generated from operations, and the Partnership's working capital, in
addition to the $1,000,000 in new capital resulting from the merger of
the General Partner into the Company as part of the Conversion, are
adequate to meet its anticipated needs through December 31, 1995. If cash
from operations is less than currently anticipated, TENERA may need to
seek other sources of capital. There can be no guarantee that such
sources will be available on terms favorable to TENERA, or at all. See
"Risk Factors -- Access to Capital" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources."
- Reliance on Key Personnel. Due to the nature of the consulting and
professional services business, the Company's success will depend, to a
significant extent, upon the continued services of its officers and key
technical personnel and the ability to recruit additional qualified
personnel. The Partnership experienced an historically high rate of
turnover as revenue and earnings began to decline in 1991 and thereafter
and the further loss of such officers and technical personnel and the
inability to recruit sufficient additional qualified personnel could have
an adverse effect on the Company. See "Risk Factors -- Reliance on Key
Personnel."
- Government Contracts Audits. The Company will assume the Partnership's
United States government contracts, which are subject in all cases to
audit by governmental authorities. The Partnership incurred a special
charge of $2.4 million in 1991 in connection with a then pending audit of
certain of its contracts with the Department of Energy ("DOE") relating
to the allowability of certain employee
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compensation costs. The resolution of the proposed rate adjustments which
were disputed by the Partnership resulted in the Partnership's
recognition of an increase to earnings of $500,000 in the second quarter
of 1994 and anticipated cash payments to clients associated with the
settlement, net of collections, estimated to be between $400,000 and
$500,000, over the balance of 1995 as government contracts with
individual clients are closed out. There can be no assurance that no
additional charges to earnings of the Company may result from future
audits of the Company's government contracts. See "Risk
Factors -- Government Contracts Audits."
- Litigation. PLM Financial Services, Inc. has filed an action seeking
damages in excess of $500,000 in unpaid equipment rent and other payments
allegedly owing to PLM under an equipment lease between PLM and a former
subsidiary of the Partnership's Predecessor Corporation. PLM has named
the Partnership in the action pursuant to a guaranty of the lease
obligations made by the Predecessor Corporation. Management believes it
has meritorious defenses in this legal proceeding and that the
Partnership will be able to defend this action successfully. Management
does not believe that eventual resolution of this matter will have a
material effect on the Partnership's results of operations or financial
position; however, an adverse outcome could have a material adverse
impact on the financial condition of the Partnership. See "Risk
Factors -- Litigation" and "Certain Legal Proceedings."
- Competition. The market for engineering and management services and
related software products and services is highly competitive and TENERA
competes with several larger firms with significantly greater resources.
This competition could have a material adverse impact on TENERA's
business. See "Risk Factors -- Competition" and
"Business -- Competition."
- Reliance on Major Customers. During fiscal 1994, one customer accounted
for approximately 29% of the Partnership's total revenues and during the
three months ended March 31, 1995, two customers accounted for
approximately 19% and 11%. The discontinuation of business relations with
these customers may have a material adverse impact on TENERA's business.
See "Risk Factors -- Reliance on Major Customers" and
"Business -- Marketing and Clients."
THE PARTNERSHIP AND THE COMPANY
The Partnership. The Partnership provides a broad range of professional
services and software products to solve complex engineering, environmental and
safety challenges associated with the design, construction, licensing and
maintenance of power plants and large scale industrial facilities. TENERA's
business is focused in engineering and management services and in software
services, products and systems. Since its formation in October 1986, it has been
TENERA's strategy to provide solutions to the complex technical and regulatory
issues facing the commercial electric power industry, particularly with respect
to nuclear facilities. See "Business." TENERA conducts its business through the
Operating Partnership, and both Partnerships are managed by the General Partner,
which has a 1% general partner interest in the Partnership and a 1% general
partner interest in the Operating Partnership. The limited partnership interests
are represented by the Units, which are traded on AMEX. The stockholders of the
General Partner elect the members of the Board of Directors of the General
Partner, which is responsible for the overall direction and control of the
Partnerships. See "Management." The principal executive offices of the
Partnerships are located at 2001 Center Street, Berkeley, California 94704 and
their telephone number is (510) 845-5200.
The General Partner. The General Partner is a Delaware corporation that
was organized in October 1986 in connection with the 1986 conversion of TENERA
from corporate to partnership form and has acted solely as the General Partner
of the Partnerships. The General Partner's sole assets, in addition to its
general partner interest in the Partnerships, consists of cash and cash
equivalents. The General Partner's principal executive offices are located at
P.O. Box 7370, Incline Village, Nevada 89450 and its telephone number is (702)
831-4920.
The Company. The Company is a Delaware corporation that was organized to
succeed to the assets and liabilities of the Partnership, the Operating
Partnership and the General Partner pursuant to the Conversion and has not been
engaged in any activities other than in connection with the Conversion and its
organization. Upon the consummation of the Conversion, the current Unitholders
and the principal stockholder of the
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General Partner will become the Company's stockholders. After the Conversion,
the Company's business strategy will be the same as the Partnership's business
strategy and the Company will continue to own the assets currently owned by the
Partnership plus $1,000,000 in additional cash from the General Partner. The
Company's principal executive offices are located at 2001 Center Street,
Berkeley, California 94704 and its telephone number is (510) 845-5200.
Diagrams illustrating the organizational structure of the Partnership, the
Operating Partnership, the General Partner, the Company and the interests of the
stockholders of the General Partner, both before and after the Conversion, are
set forth immediately following the Summary.
SUMMARY INFORMATION ABOUT THE CONVERSION
BACKGROUND OF THE CONVERSION
TENERA converted its operations from corporate form to its existing limited
partnership structure in 1986. That earlier conversion was consummated primarily
to eliminate federal income taxes at the entity level, thereby potentially
increasing the availability of distributions to investors of cash flow from
operations. The Units were designed to appeal to investors seeking a current
yield through distributions and to provide investors with passive income to
offset passive losses from other investments.
The anticipated benefits of partnership form have been reduced over the
years primarily as a result of two developments. First, significant changes in
the federal income tax laws occurred in 1987 which will cause the Partnership to
be taxed as a corporation beginning in 1998 and which also eliminated the
ability of Unitholders to offset passive losses from other investments with
passive income from the Partnership. See "Material Federal Income Tax
Consequences."
Secondly, and more significantly, the Partnership began experiencing
operating losses in mid-1991 which resulted in a discontinuation of cash
distributions to the Unitholders. The Partnership is not required to make
distributions and management currently believes the Partnership will not resume
distributions in the foreseeable future, regardless of whether taxable income
may be recognized by the Unitholders in the future. Meanwhile the administrative
burdens of tax reporting as a partnership remain complex and costly (both to the
Partnership and to the Unitholders). Management now believes that the
partnership structure no longer provides sufficient benefits to justify its
continued administrative costs and burdens and may even result in disadvantages
to the Unitholders as earnings are reinvested over the next several years and
Unitholders are taxed on their share of the Partnership's taxable income, if
any, without any cash distributions.
The General Partner was formed in connection with the prior 1986 conversion
of TENERA to partnership form and has acted solely as the General Partner of the
Partnerships. As such, the General Partner has had sole authority and
responsibility for the management of the Partnerships and has been liable for
all general obligations of the Partnerships to the extent not paid by the
Partnerships. In addition, to help assure treatment of the Partnerships as
partnerships for federal income tax purposes, the General Partner to the
Partnership agreed to and has maintained a net worth of not less than $2,500,000
(in addition to any interest in the Partnerships) and agreed not to withdraw
from the Partnership prior to December 31, 1996.
REASONS FOR THE CONVERSION
The Conversion will convert the Partnership and the Operating Partnership
to corporate form, replacing partnership units with stock of a corporation. The
General Partner believes there are several principal reasons for converting to
corporate form and merging the General Partner into the Company at this time.
- Absence of Distributions. Because cash distributions on the Units have
been eliminated since the quarter ended June 30, 1991, one of the
principal advantages to converting to partnership form, i.e., the
anticipated yield to investors from the payment of quarterly
distributions to Unitholders without double taxation, is no longer
beneficial, nor is it likely to be useful in the foreseeable future.
Moreover, continuance of the partnership form may be disadvantageous to
the Unitholders, who would be taxed
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on their allocable share of the Partnership's taxable income, if any,
without any cash distributions from the Partnership. See "The
Conversion -- Reasons for the Conversion -- Absence of Distributions."
- Automatic Taxation as Corporation after 1997. The General Partner
anticipates that, because of certain amendments to the federal tax laws
which were enacted after formation of the Partnership, the Partnership
will be treated as a corporation for tax purposes during the
Partnership's first taxable year beginning after December 31, 1997. See
"The Conversion -- Reasons for the Conversion -- Automatic Taxation as
Corporation after 1997."
- Potentially Greater Access to Equity Markets; Expansion of Potential
Investor Base. The General Partner believes that the Company may have
greater access to the public and private equity capital markets than does
the Partnership. The General Partner also believes that the conversion to
corporate form may expand TENERA's potential investor base over the long
term. However, TENERA has no plans at this time to issue additional
equity after the Conversion and does not believe that, given TENERA's
recent operating results, an offering of additional equity would be
successful. See "The Conversion -- Reasons for the
Conversion -- Potentially Greater Access to Equity Markets; Expansion of
Potential Investor Base."
- Tax Reporting. The General Partner believes that the cost to TENERA of
complying with tax reporting requirements when it is in partnership form
is approximately $120,000 more annually than it would be if it were in
corporate form and that the complexities of tax reporting associated with
partnership investments have become unduly burdensome for the Partnership
and most Unitholders. The Conversion would permit the Unitholders to
avoid the burdensome need to incorporate Partnership tax information in
their personal returns. See "The Conversion -- Costs of the Conversion."
- Capital Infusion from the General Partner. Management believes that the
merger of the General Partner, the sole assets of which, in addition to
its general partner interests in the Partnerships, are cash or cash
equivalents, will provide additional financial strength to the Company
and added liquidity of $1,000,000 as TENERA strives to rebuild its
business after the losses and decreased earnings. The General Partner,
formed in connection with TENERA's conversion to partnership form in
1986, has acted solely as general partner of the Partnerships. As such,
it is liable for the general obligations of the Partnerships to the
extent not paid by the Partnerships and its assets have been available
for that purpose. While the General Partner will be relieved of that
unlimited liability as a result of the Conversion, it has agreed to
invest a significant portion of its assets to the Company through the
Conversion, thereby increasing the asset base of the Company. See "The
Conversion -- Reasons for the Conversion -- Capital Infusion from the
General Partner."
DISADVANTAGES OF THE CONVERSION
The General Partner believes that the only significant disadvantages of
converting to corporate form are tax-related. The principal tax disadvantage is
that a corporation pays taxes on its net income and its stockholders generally
pay taxes with respect to distributions from the corporation, whereas a
partnership pays no tax itself on partnership income and its partners generally
pay tax on their shares of partnership net income and partnership distributions.
See "Material Federal Income Tax Consequences." The Partnership and the
Unitholders will forego this potential future tax benefit as a result of the
Conversion. However, there is no advantage absent distributions to the
Unitholders. Regardless of whether or not taxable income may be recognized by
the Unitholders, management does not intend to make further cash distributions
in the foreseeable future. Given the operating losses and decreased earnings
experienced by the Partnerships since mid-1991, there have been no distributions
since June 1991 and management intends to retain and reinvest earnings of
TENERA, if any, until such time as its financial position has been strengthened
and its operating income restored to levels more similar to those of the
Partnerships prior to June 1991.
Another tax disadvantage of converting to corporate form would occur if
there were a sale of the assets of TENERA followed by a liquidating distribution
to stockholders. In corporate form, TENERA would be taxed on a sale of such
assets to the extent any gain was recognized, and the stockholders would be
taxed on any subsequent liquidating distribution to the extent such
distributions exceed the stockholders' tax basis in their
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stock. However, any operating losses accumulated between the date the Conversion
is consummated and the date of any sale of the assets would reduce the gain
recognized on any sale of assets, which would reduce any tax paid by the
Company. The Unitholders would be taxed, however, on their share of any gain
recognized by the Partnership and on any subsequent liquidating distributions to
the extent such distributions exceeded the Unitholders' tax basis in their Units
(after adjustment for their allocable share of any gain or loss recognized by
the Partnership on the sale).
Another disadvantage of the Conversion is that the issuance of
additional shares of Common Stock to the principal stockholder of the General
Partner in connection with the merger of the General Partner into the Company
will reduce the voting power of the Unitholders not affiliated with the General
Partner from 70.4% to %. The Board of Directors of the General Partner
believes that this disadvantage to the Unitholders is offset by the infusion
into the Company of $1,000,000 in cash from the General Partner. As a result of
this capital infusion, the issuance of such additional shares of Common Stock
will not result in dilution of the book value of the Common Stock issued to
Unitholders in exchange for Units in the Conversion. However, the issuance and
sale of such additional shares could adversely effect the market price of the
Common Stock.
Another potential disadvantage of the Conversion is the loss of the
unlimited personal liability of the General Partner for the liabilities of the
Partnerships, which loss management believes is offset to some degree by the
decrease in the management rights of the General Partner (and its stockholders)
and the relative increase in the management rights of the holders of the Common
Stock (as compared to their rights as former Unitholders). Moreover, the General
Partner does not believe that this is relevant to the fairness of the Conversion
to the Unitholders since the elimination of liability will not result in any
increase or decrease of the Unitholders' obligations or liabilities as equity
investors in TENERA.
ALLOCATION OF COMMON STOCK AMONG THE UNITHOLDERS AND THE PRINCIPAL STOCKHOLDER
OF THE GENERAL PARTNER
The Common Stock issued in the Conversion with respect to the merger of the
Partnerships into the Company will be allocated 1.99% to the principal
stockholder of the General Partner (who will be the sole stockholder of the
General Partner immediately prior to the consummation of the Conversion) and
98.01% to the Unitholders, which is exactly in accordance with the current
respective equity ownership interests of the Unitholders and the General Partner
in the Partnerships. The interests of the General Partner in the Partnerships
were purchased at the time of the formation of the Partnerships for $253,200
each, a sum equal to 1% of the total capital contributed to each Partnership.
The General Partner's 1% general partner interest in the Partnership will be
converted into that number of shares of Common Stock equal to 0.99% of the
shares of Common Stock to be issued in connection with the merger of the
Partnerships and the General Partner's 1% general partner interest in the
Operating Partnership will be converted into that number of shares of Common
Stock equal to 1% of the shares of Common Stock to be issued in connection with
the merger of the Partnerships.
The determination of the amount of Common Stock to be issued with respect
to the merger of the General Partner into the Company was made by the General
Partner based on the amount of cash to be received by the Company from the
General Partner and the greater of the average closing sales price of the Units
as reported on AMEX for the 60 calendar days immediately preceding and
immediately following the April 4, 1995 public announcement of the Conversion
($ per Unit). The aggregate cash consideration to be received by the
Company ($1,000,000) was divided by this $ per Unit amount to determine
the number of shares of Common Stock to be issued to the principal stockholder
of the General Partner. This per share valuation was calculated to approximate
the current market valuation of the Units and the Common Stock on the assumption
that, upon consummation of the Conversion, one share of Common Stock would be
equal in value to one Unit immediately prior to the Conversion. This per share
valuation exceeds the per Unit book value of the Partnership, which was $0.51
per Unit as of March 31, 1995. See "Summary Historical and Pro Forma Financial
Information."
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OWNERSHIP OF TENERA BEFORE AND AFTER THE CONVERSION
Upon consummation of the Conversion, through the merger of the Partnerships
and the General Partner into the Company, the former Unitholders and the former
principal stockholder of the General Partner will own the Company. The
Unitholders who are not stockholders or affiliates of the General Partner
("Public Unitholders") currently own 69.0% of the equity in the Partnership and
will own % of the equity of the Company after the Conversion. The Board of
Directors of the General Partner believes that this reduction in percentage
ownership is justified by the capital contribution of $1,000,000 in cash from
the merger of the General Partner. See "The Conversion -- Ownership of TENERA
Before and After the Conversion."
OPINION OF INDEPENDENT FINANCIAL ADVISOR
The Board of Directors of the General Partner has retained Wilson
Associates (sometimes referred to herein as the "Financial Advisor") to evaluate
the fairness to the Public Unitholders from a financial point of view of the
consideration to be received in connection with the Conversion by the principal
stockholder of the General Partner (who will be the sole stockholder of the
General Partner immediately prior to the consummation of the Conversion). While
no independent fairness opinion has been rendered with respect to the fairness
of the consideration to be received by the Public Unitholders in the Conversion,
the Board of Directors has received an opinion from the Financial Advisor dated
March 27, 1995 to the effect that, as of the date of the opinion, (i) the
receipt of 184,946 shares of Common Stock by the principal stockholder of the
General Partner in lieu of the General Partner's 1.99% general partner interest
in the Partnerships, and (ii) basing the effective purchase price of the Common
Stock to be issued to the principal stockholder of the General Partner in
connection with the merger of the General Partner into the Company on the
greater of the average closing price of the Units as reported on AMEX for the 60
calendar days immediately preceding and immediately following the public
announcement of the Conversion, is fair to the Public Unitholders from a
financial point of view. This opinion is subject to certain limitations and
assumptions stated therein. The Financial Advisor's opinion is set forth in full
as Annex C to this Consent Solicitation Statement/Prospectus, and should be read
in its entirety. Any description of or reference to the Financial Advisor's
opinion is subject to, and qualified in its entirety by reference to, the full
text of such fairness opinion as set forth in Annex C. See, "The
Conversion -- Opinion of Independent Financial Advisor."
RECOMMENDATION OF THE GENERAL PARTNER
From time to time since 1993, the General Partner has considered to varying
degrees the desirability of converting the Partnership and Operating Partnership
to corporate form. Until recently, the General Partner did not view the
arguments in favor of conversion to be sufficiently compelling to recommend a
conversion. See "The Conversion -- Recommendation of the General Partner" and
"The Conversion -- Decision to Propose Conversion." After fully considering both
the advantages and the disadvantages in late 1994 and early 1995, the General
Partner has concluded that, on balance, implementing the Conversion is
preferable to continuing the partnership structure.
The Board of Directors of the General Partner has unanimously determined
that the Conversion is fair to the Unitholders, and the General Partner
recommends that the Unitholders approve the Conversion. The General Partner
believes that the Conversion will result in the benefits to the Unitholders and
to TENERA described above under "Reasons for the Conversion." The General
Partner further believes that these advantages outweigh the disadvantages
described above under "Disadvantages of the Conversion." The General Partner
also believes that allocating the Common Stock that will be issued in lieu of
the General Partner's interest in the Partnerships and the currently outstanding
Units 1.99% to the principal stockholder of the General Partner and 98.01% to
the Unitholders, which is exactly in accordance with the current respective
equity ownership interests of the Unitholders and the General Partner in the
Partnerships, is fair, from a financial point of view, to the Unitholders and
the principal stockholder of the General Partner. The General Partner further
believes that the allocation of shares of Common Stock to the
principal stockholder of the General Partner in consideration of the additional
$1,000,000 in capital received upon the merger of the General Partner into the
Company, which allocation is based on the greater of the average closing sales
price of the Units as reported on AMEX for the 60 calendar days immediately
preceding and immediately following
13
<PAGE> 17
the public announcement of the Conversion, is fair, from a financial point of
view, to the Unitholders and the stockholders of the General Partner.
The General Partner's recommendation and conclusions are based on an
analysis of the advantages and disadvantages of converting from a partnership to
corporate form, discussed herein, as well as the recommendations of the Advisory
Committee discussed below and the opinion of the Financial Advisor described
above. The General Partner determined the terms of the Conversion, after
consultation with the Partnership's management. No special committee or other
entity was formed or engaged to negotiate or make recommendations on behalf of
the Unitholders.
However, because of the potential conflicts of interest between the General
Partner and the Unitholders with respect to the allocation of Common Stock to be
issued to the principal stockholder of the General Partner in the Conversion,
the standing Advisory Committee of the Board of Directors of the General Partner
(consisting of three individuals, two of which are Disinterested Persons)
retained separate outside legal counsel and reviewed the proposed terms of the
Conversion with respect to the consideration to be received by the Unitholders
and the principal stockholder of the General Partner with a view to minimizing
the conflicts of interest inherent in the Conversion. The Advisory Committee did
not, however, separately evaluate the desirability of converting the
Partnerships to corporate form, or undertake the representation of the interests
of the Unitholders in the Conversion. The Advisory Committee has advised the
Board of Directors that it believes that an investment in the Company by the
General Partner of $1,000,000 in cash would be desireable and that the method of
allocating the Common Stock described above was fair from a financial point of
view to the Unitholders. It should be noted, however, that members of the
Advisory Committee are subject to certain conflicts of interest regarding the
elimination of unlimited liability of the General Partner to the same extent as
the other members of the Board of Directors of the General Partner. See "The
Conversion -- Conflicts of Interest of the General Partner" and "The
Conversion -- Fiduciary Duties" and "Risk Factors -- Conflicts of Interest:
Terms of Conversion" and "Risk Factors -- Conflicts of Interest: Elimination of
Unlimited Liability."
Unitholders must evaluate the Conversion in the context of their personal
financial and tax positions and are urged to consult with their own business,
legal and tax advisors. Unitholders should carefully consider the factors
discussed under "Risk Factors" before deciding whether to vote in favor of the
Conversion.
The Partnership has been advised that the stockholders and affiliates of
the General Partner intend to vote all of their Units (representing
approximately 29.6% of the outstanding Units) in favor of the Conversion.
NO APPRAISAL OR DISSENTERS' RIGHTS
Unitholders who object to the Conversion will have no statutory appraisal,
dissenters' or similar rights (i.e., the right, instead of receiving Common
Stock, to seek a judicial determination of the "fair value" of their Units and
to compel TENERA to purchase their Units for cash in that amount) under state
law or the Partnership Agreement, nor will such rights be voluntarily accorded
to Unitholders by TENERA. Thus, approval of the Conversion by the majority of
Unitholders will bind all holders, and a Unitholder's right to obtain redress
will be limited to Delaware common law. Objecting Unitholders will have no
alternative to receipt of Common Stock other than selling their Units (or shares
of Common Stock) in the market. The Units are currently traded on AMEX under the
symbol TLP, and application has been made to list the Common Stock on AMEX. See
"Market Prices of Units; Distributions."
UNITHOLDER RIGHTS
The Exchange Act requires that, in connection with the Conversion, the
Partnership, at the request of any Unitholder, provide a list of, or mail
soliciting material to, Unitholders. The Partnership will mail copies of proxy
statements or other soliciting materials furnished by a requesting Unitholder to
Unitholders of record. The requesting Unitholder must provide the materials to
be mailed and is responsible for the postage and other reasonable expenses of
effecting such a mailing. In the alternative, the Partnership will deliver to a
requesting Unitholder, within five business days of the receipt of such request,
a reasonably current list of the names,
14
<PAGE> 18
addresses and security positions of Unitholders or any more limited group of
Unitholders designated by the requesting Unitholder if available to the
Partnership.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The Unitholders and the Company generally will not recognize any gain or
loss in connection with the Conversion, except to the extent the Partnership's
aggregate tax basis in its assets is less than the liabilities assumed or with
respect to a Unitholder whose tax basis in his Units is less than his share of
Partnership liabilities. See "Material Federal Income Tax Consequences."
After the Conversion, the Company will be subject to tax on any net taxable
income subsequently derived. Stockholders of the Company will realize taxable
income from the ownership of stock in the Company to the extent the Company pays
dividends to stockholders that are made out of the Company's current or
accumulated earnings and profits or that are in excess of a stockholder's basis
in his stock.
The passive loss limitations generally provide that individuals, estates,
trusts and certain closely held corporations and personal service corporations
can only deduct losses from passive activities (generally, activities in which
the taxpayer does not materially participate) that are not in excess of the
taxpayer's income from such passive activities or investments. Although
definitive regulations have not yet been issued regarding the treatment of
suspended passive activity losses upon dispositions, TENERA's tax counsel is of
the opinion that, more probably than not, suspended passive losses can be used
after the Conversion only if a stockholder sells all of his shares of Common
Stock to an unrelated person in a transaction in which all realized gain or loss
is otherwise recognized. It is also likely, under current authority, that such
losses cannot be used to offset dividend income from the Company. However,
before the Conversion, suspended passive losses may be used even upon a partial
sale of a Unitholder's Units but only to the extent of gain realized and
recognized by the holder of such Units upon such sale.
COMPARATIVE RIGHTS OF STOCKHOLDERS AND UNITHOLDERS
The shares of Common Stock to be issued in the Conversion will be fully
paid and non-assessable and will entitle the holders thereof to one vote per
share. The stockholders of the Company will have the right to elect one-third of
the Board of Directors of the Company annually. Directors can be removed from
office only for cause by the vote of at least 75% of the outstanding shares of
Common Stock and vacancies may be filled only by the remaining directors and not
by the stockholders. The Unitholders do not currently elect the directors of the
General Partner, although they have the right to remove and replace the General
Partner at any time by the affirmative vote of the holders of more than 50% of
the Units. See "Summary Comparison of Units and Common Stock -- Voting Rights."
There are certain other material differences between the rights of holders
of Units and holders of Common Stock. These differences include, among others,
taxation, voting rights, and the right to compel dissolution. These differences
arise from the differences between laws governing limited partnerships and laws
governing corporations, as well as from their respective governing instruments.
For a summary of certain of these differences, see "Summary Comparison of Units
and Common Stock" and "Description of Common Stock."
CONSEQUENCES IF CONVERSION IS NOT APPROVED
If the Conversion is not approved by the Unitholders, or if the Conversion
is not consummated for any other reason, the Partnership intends to continue to
operate as an ongoing business in its current form, although the General Partner
does not anticipate resuming cash distributions in the foreseeable future. The
Unitholders would be taxed on their allocable share of taxable income of the
Partnerships, if any, whether or not cash distributions are made. If for any
reason the General Partner elects not to consummate the merger of the General
Partner into the Company, the balance of the Conversion, i.e., the conversion of
the Partnerships to corporate form, will go forward if the Conversion is
approved by the Unitholders. No other transaction is currently being considered
by the Partnership as an alternative to the Conversion.
15
<PAGE> 19
CONDITIONS TO THE CONVERSION
The principal conditions to the Conversion are (i) approval of the
Conversion by the holders of a majority of the outstanding Units, and (ii)
approval of the Common Stock for listing on the AMEX. Approval of the Conversion
by the stockholders of the General Partner is a not a condition to the Merger of
the Partnerships into the Company.
MANAGEMENT FEES AND EXPENSES
The General Partner is not entitled to and does not receive any management
or other types of fees from the Partnership or the Operating Partnership, but is
entitled to be reimbursed for any direct or indirect expenses it incurs on
behalf of the Partnership and a portion of the General Partner's expenses and
costs which are necessary or appropriate to the conduct of the Partnership.
However, during the term of the Advisory Services Agreement between the
Operating Partnership and Teknekron Corporation, an affiliate of the General
Partner, the General Partner has agreed to incur no material reimbursable costs
or expenses. Following the Conversion, the General Partner will cease to exist
and, thus, will not receive any management or other fees from the Company.
Further, neither the General Partner nor any affiliate of the General Partner
will be entitled to any fees or other expenses as a result of the Conversion.
The Advisory Services Agreement, pursuant to which the Partnership currently
pays Teknekron Corporation monthly fees of $25,000 for certain administrative
and management services, will terminate effective upon the consummation of the
Conversion. See "The Conversion -- Management Fees and Expenses" and "Certain
Relationships and Related Transactions."
MANAGEMENT AND EXECUTIVE COMPENSATION
The directors and executive officers of the Company are identical to the
directors and executive officers of the General Partner and the compensation of
the directors and executive officers of the Company will be substantially
identical to the compensation of the directors and executive officers of the
General Partner immediately preceding the Conversion (subject to changes to
compensation that would occur whether or not the Conversion is consummated). See
"Management -- Executive Compensation."
UNIT OPTION PLANS
Pursuant to the Conversion, the Company will adopt and amend the
Partnership's 1992 Unit Option Plan and its 1993 Outside Director Compensation
and Unit Option Plan to reflect the change to corporate form. Except for such
changes and minor conforming changes, the amended 1992 Unit Option Plan and the
amended 1993 Outside Director Compensation and Unit Option Plan will be
identical to the existing plans and all outstanding options for Units will be
automatically converted to options for Common Stock at the original exercise
price and on the same terms and conditions as the original Unit options. See
"Management -- Effect of Merger on Unit Option Plans." Such changes will not
result in increased compensation to the executive officers or directors of
Company.
RECORD DATE AND VOTING SECURITIES
The Board of Directors of the General Partner has fixed the close of
business on June 7, 1995 as the record date (the "Record Date") for the
determination of the Unitholders entitled to give or withhold consent to the
Conversion. The Units are the only class of voting securities of the Partnership
outstanding. As of the Record Date, there were 9,108,803 Units issued and
outstanding. Of the total Units outstanding on the Record Date, 2,695,469 Units
were held by the General Partner and its affiliates and 6,413,334 Units were
held by approximately other Unitholders of record. The holders of Units
outstanding on the Record Date are entitled to cast one vote per Unit held with
respect to the Conversion.
CONSENTS REQUIRED
The consent of the holders of record of more than 50% of the issued and
outstanding Units is required for approval of the Conversion. In the event the
Conversion is adopted, each Unitholder will be bound by the
16
<PAGE> 20
Conversion whether or not such Unitholder consented to its adoption. Under
applicable partnership law, Unitholders have no statutory appraisal or
dissenters' rights in connection with the adoption and consummation of the
Conversion. The Partnership has been advised that the stockholders and
affiliates of the General Partner intend to vote all of their Units
(representing approximately 29.6% of the outstanding Units) in favor of the
Conversion.
PROCEDURES FOR GIVING AND REVOKING CONSENTS
Unitholders may consent to the Conversion by indicating their approval on
the accompanying consent form. The period for solicitation of consents will
terminate at 5:00 p.m. Pacific Standard Time, on , 1995, unless
extended by the Board of Directors of the General Partner. The Partnership
Agreement does not limit the ability of the Board of Directors of General
Partner to extend the solicitation period. Each Unitholder is urged to sign,
date and return promptly the enclosed consent form in the enclosed envelope to
TENERA, L.P., 2001 Center Street, Berkeley, California 94704-1204, Attention:
Corporate Secretary. Any consent given pursuant to the solicitation of consents
may be revoked by the person giving it at any time before termination of the
solicitation period. Any consent may be revoked by filing with the Secretary of
the General Partner a written notice of revocation or a duly executed written
consent bearing a later date than the prior consent. Any written notice revoking
a consent to the Conversion should be sent to TENERA, L.P., 2001 Center Street,
Berkeley, California 94704-1204, Attention: Corporate Secretary.
SOLICITATION OF CONSENTS
Consents are being solicited on behalf of the General Partner. Consents are
being solicited by mail, and certain directors, officers and regular employees
of the General Partner may also solicit consents by telephone, telegram,
facsimile or personal interviews. Such persons will receive no additional
compensation for performing such services. All expenses of the solicitation of
consents, including the cost of preparing and mailing this Consent Solicitation
Statement/Prospectus to Unitholders, will be borne by the Partnership.
EXCHANGE OF CERTIFICATES
SURRENDER AND EXCHANGE OF CERTIFICATES REPRESENTING UNITS IS NOT REQUIRED.
From and after the Effective Time, each depositary receipt evidencing ownership
of Units will be deemed to evidence ownership of an identical number of shares
of Common Stock. However, as promptly as practicable following the Effective
Time of the Merger, the Company will make available to Chemical Mellon
Shareholder Services (the "Exchange Agent") certificates representing shares of
Common Stock and a letter of transmittal will be furnished to holders of
depositary receipts for Units containing instructions relating to the surrender
of such depositary receipts in exchange for the appropriate number of shares of
Common Stock. See "The Consent Solicitation -- Exchange of Certificates."
DISTRIBUTIONS AND DIVIDENDS
No distributions have been declared or paid by the Partnership since June
1991. Whether or not the Conversion is consummated, cash distributions will not
be resumed unless and until there are significant improvements in TENERA's
operating results and overall financial condition and the General Partner does
not anticipate such improvements in the foreseeable future.
MARKET PRICE OF UNITS
Effective January 28, 1988, the Units began trading on, and high and low
sales prices are currently reported by, AMEX under the symbol TLP. See "Market
Prices of Units; Distributions."
17
<PAGE> 21
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical financial data set forth herein is based upon the
combined financial statements included elsewhere in this Consent Solicitation
Statement/Prospectus. See "Selected Combined Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the Combined Financial Statements of the Partnership appearing elsewhere in this
Consent Solicitation Statement/Prospectus.
TENERA, L.P. HISTORICAL
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- ---------------------
1994 1993 1992 1991 1990 1995 1994
------- ------- ------- ------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER UNIT AND STATISTICAL
AMOUNTS) (UNAUDITED) (UNAUDITED)
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA
Revenue........................ $23,600 $29,340 $36,648 $44,128 $51,161 $ 5,344 $ 7,079
Operating Income (Loss)........ (1,239) (315) 826 (6,176) 8,291 196 132
Net Earnings (Loss)............ (1,202) (294) 795 (6,434) 7,922 196 145
Earnings (Loss) per Equivalent
Unit(1)...................... (0.13) (0.03) 0.08 (0.66) 0.85 0.02 0.02
Cash Distributions per
Equivalent Unit(1)........... -- -- -- 0.31 0.81 -- --
Portion of Cash Distributions
per Equivalent Unit
Representing a Return of
Capital for Original
Unitholders.................. -- -- -- 0.14 0.33 -- --
Ratio of Earnings to Fixed
Charges...................... -- -- 11.89 -- 77.17 13.25 146.00
Weighted Average Equivalent
Units(1)..................... 9,555 9,646 9,710 9,736 9,366 9,541 9,588
CASH FLOW DATA
Net Cash Provided by Operating
Activities................... 17 1,472 (626) 6,632 7,409 (483) 166
Cash Distributions............. -- -- -- 5,021 7,506 -- --
Net Increase (Decrease) in Cash
and Cash Equivalents......... 363 1,085 (1,418) 774 (1,425) (504) (19)
FINANCIAL POSITION AT DECEMBER
31, MARCH 31, RESPECTIVELY
Cash and Cash Equivalents...... 1,943 1,580 495 1,913 1,139 1,439 1,561
Working Capital................ 4,024 5,196 5,383 5,109 9,001 4,277 5,253
Total Assets................... 8,616 9,345 11,111 13,402 19,943 8,810 9,952
Total Liabilities.............. 4,069 3,524 4,932 7,727 10,259 4,067 4,055
Partners' Capital.............. 4,547 5,821 6,179 5,675 9,273 4,743 5,897
Book Value per Equivalent
Unit(1)(2)................... 0.48 0.60 0.64 0.58 0.99 0.50 0.62
OTHER INFORMATION
Number of Employees (actual)... 170 202 263 361 372 160 201
</TABLE>
- ---------------
(1) Equivalent Units represent both the general and limited partners' interest
in earnings.
(2) Calculated using the Equivalent Units outstanding at March 31 and December
31, respectively.
18
<PAGE> 22
THE FOLLOWING PRO FORMA RESULTS DO NOT PURPORT TO BE INDICATIVE OF THE
RESULTS OF OPERATIONS WHICH ACTUALLY WOULD HAVE OCCURRED HAD THE
CORPORATION ACTUALLY BEEN FORMED AT THE BEGINNING OF EACH PERIOD OR
WHICH MAY BE EXPECTED TO OCCUR IN THE FUTURE.
The following table sets forth a summary of unaudited pro forma financial
data of the Company, as adjusted, as of the dates or for the periods indicated
to give effect to the Conversion as if it had occurred as of January 1 of the
period presented for the operations information and at December 31, 1994 for the
financial position data. The table should be read in conjunction with the
unaudited pro forma financial statements and notes thereto of TENERA, Inc.
included elsewhere in this Consent Solicitation Statement/Prospectus.
TENERA, INC. PRO FORMA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1994 1995
(UNAUDITED) (UNAUDITED)
-------------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
OPERATIONS DATA
Revenue.......................................................... $ 23,600 $ 5,344
OPERATING INCOME (LOSS).......................................... (1,124) 225
NET EARNINGS (LOSS).............................................. (1,087) 127
NET EARNINGS (LOSS) AFTER TRANSACTIONAL EXPENSES OF THE
CONVERSION..................................................... (1,237) (23)
NET EARNINGS (LOSS) PER SHARE.................................... (0.10) 0.01
NET EARNINGS (LOSS) AFTER TRANSACTIONAL EXPENSES OF THE
CONVERSION PER SHARE........................................... (0.12) --
WEIGHTED AVERAGE SHARES(1)....................................... 10,555 10,541
FINANCIAL POSITION
Cash and Cash Equivalents........................................ 2,439
WORKING CAPITAL.................................................. 5,058
TOTAL ASSETS..................................................... 9,810
SHAREHOLDERS' EQUITY............................................. 5,524
BOOK VALUE PER SHARE(1)(2)....................................... $ $ 0.52
</TABLE>
- ---------------
(1) Pro forma shares include 1,000,000 shares assumed to be issued in exchange
for the General Partner's capital infusion of $1,000,000 at an assumed price
of $1.00 per share. Actual number of shares to be issued will be based on
the per share purchase price, which is the greater of the average closing
sales price of the Units as reported on AMEX for the 60 calendar days
immediately preceding and immediately following the public announcement of
the Conversion (see "The Conversion -- Allocation of Common Stock Among the
Unitholders and the Principal Stockholder of the General Partner").
(2) Calculated as March 31, 1995 pro forma Partners' Capital divided by March
31, 1995 pro forma weighted average shares.
19
<PAGE> 23
TENERA OWNERSHIP STRUCTURE
20
<PAGE> 24
RISK FACTORS
UNITHOLDERS SHOULD CAREFULLY EXAMINE THE ENTIRE CONSENT SOLICITATION
STATEMENT/PROSPECTUS AND SHOULD GIVE PARTICULAR ATTENTION TO THE FOLLOWING RISK
FACTORS:
CONVERSION RISKS
Conflicts of Interest: Terms of Conversion. In considering the
recommendation of the Board of Directors of the General Partner with respect to
the Conversion, Unitholders should be aware that the current members of the
Partnership's management and the Board of Directors of the General Partner have
certain interests which may present them with conflicts of interests in
connection with the Conversion and the transactions contemplated thereby. The
Board of Directors of the General Partner has determined the terms of the
Conversion, including the consideration to be received by Unitholders and by the
principal stockholder of the General Partner, both with respect to their
respective interests in the Partnerships and with respect to the merger of the
General Partner into the Company. Because the stockholders and affiliates of the
General Partner control the General Partner and, through the General Partner,
the Partnerships, the Board of Directors has a substantial conflict of interest
in determining the terms of the Conversion. Although the Board of Directors
believes that the terms of the Conversion are fair to the Unitholders, such
terms are not the result of arm's-length negotiations. In light of this
conflict, the Advisory Committee of the Board of Directors has advised the Board
of Directors of the General Partner that it believes the method of allocating
the Common Stock between the Unitholders and the principal stockholder of the
General Partner is fair, from a financial point of view to the Unitholders and
the principal stockholder of the General Partner, but there can be no assurance
that the terms of the Conversion are as favorable as could be obtained absent
such potential conflicts of interest. However, the Board of Directors has
received the opinion of the Financial Advisor as to the fairness to the Public
Unitholders from a financial point of view of the consideration to be received
in connection with the Conversion by the principal stockholder of the General
Partner (who will be the sole stockholder of the General Partner immediately
prior to the consummation of the Conversion). For additional information
concerning the potential conflicts of interest between the General Partner and
the Unitholders in the Conversion, see "The Conversion -- Background of the
Conversion," "-- Allocation of Common Stock Among the Unitholders and the
Principal Stockholder of the General Partner," "-- Conflicts of Interest of the
General Partner," and "-- Recommendation of the General Partner."
Conflicts of Interest: Elimination of Unlimited Liability. Under the
Delaware Revised Uniform Limited Partnership Act (the "Delaware Act"), general
partners are generally subject to unlimited liability with respect to
partnership obligations and liabilities. Thus, the General Partner would
normally be liable for acts of the Partnership and the Operating Partnership.
The Partnership Agreement, however, provides broad indemnity to the General
Partner and its affiliates and their respective directors, officers, employees
and agents for liabilities they may incur by reason of serving in such
capacities. Nonetheless, as a result of the Conversion, the General Partner will
no longer be liable for acts of the Partnership and the Operating Partnership
either on a going forward basis or with respect to any liability that the
General Partner may have incurred during the period TENERA has operated as a
partnership, because the Company, will assume all liabilities of the General
Partner through the merger of the General Partner into the Company. The General
Partner has not instituted any procedure or procedures to eliminate or minimize
the potential conflicts of interest identified above. However, the General
Partner has a fiduciary duty to the Unitholders to exercise good faith, fairness
and loyalty in handling the affairs of the Partnership. Moreover, the Advisory
Committee of the Board of Directors of the General Partner, a majority of which
are Disinterested Persons, advised the General Partner regarding the terms of
the Conversion with a view to minimizing the conflicts of interest inherent in
the Conversion, and has advised the Board of Directors that it believes that the
method of allocating the Common Stock between the Unitholders and the principal
stockholder of the General Partner is fair, from a financial point of view, to
Unitholders and the General Partner, notwithstanding this conflict of interest.
It should be noted, however, that members of the Advisory Committee are subject
to conflicts of interest relating to the elimination of unlimited liability to
the same extent as the other members of the Board of Directors of the General
Partner. See "The Conversion -- Conflicts of Interest of the General Partner"
and "The Conversion -- Fiduciary Duties."
21
<PAGE> 25
No Separate Representation of Unitholders. The terms of the Conversion
were evaluated and determined by the General Partner without independent
representation of the Unitholders, and the Partnerships, the General Partner and
the Company have been represented by the same legal counsel, although the
Advisory Committee did retain separate legal counsel. The Public Unitholders
will not be separately represented in connection with the Conversion. The
General Partner's decision not to have separate representation for the Public
Unitholders in connection with the Conversion was based on the following: (i)
the fact that the principal stockholder of the General Partner and the
Unitholders will receive the exact percentage of the Common Stock issued with
respect to the merger of the Partnerships into the Company as the Unitholders
and the General Partner currently own in the Partnership and the Operating
Partnership, on a combined basis; (ii) the Advisory Committee of the Board of
Directors (comprised of three individuals, two of which are Disinterested
Persons) retained separate outside legal counsel and has advised the Board of
Directors of the General Partner that it believes that the method of allocating
the Common Stock to the principal stockholder of the General Partner with
respect to the merger of both the Partnerships and the General Partner into the
Company, is fair from a financial point of view to the Unitholders and the
principal stockholder of the General Partner; (iii) the Board of Directors
received the opinion of the Financial Advisor as to the fairness to the Public
Unitholders from a financial point of view of the consideration to be received
in connection with the Conversion by the principal stockholder of the General
Partner (who will be the sole stockholder of the General Partner immediately
prior to the consummation of the Conversion); and (iv) the Board of Directors is
comprised of a majority of directors who are not stockholders, officers,
employees, agents or otherwise affiliates of the General Partner, except for
their positions as directors of the General Partner.
Because the Unitholders are not separately represented in the Conversion,
there is a risk that the best interests of the Unitholders are not being
protected in connection with the Conversion and that, had independent
representation been obtained, it is possible that the terms and conditions of
the Conversion could be different. However, the General Partner has a fiduciary
duty to the Unitholders to exercise good faith, fairness and loyalty in handling
the affairs of the Partnership. See "The Conversion -- Fiduciary Duties."
Unitholders considering the Conversion are advised to consult with their own
representatives regarding the advisability of their giving or withholding
consent.
Nonconsenting Unitholders are Bound by Majority Approval. The consent of
the holders of record of more than 50% of the outstanding Units is required for
approval of the Conversion. If the Conversion receives the approval of the
requisite percentage of outstanding Units, all of the existing Units will be
converted into shares of Common Stock. If all of the current stockholders and
affiliates of the General Partner, who currently own 29.6% of the outstanding
Units, voted in favor of the Conversion, less than 27.8% of the Public
Unitholders would be required to vote in favor of the Conversion to achieve the
required majority vote necessary. However, there are no voting arrangements or
agreements among the current stockholders or affiliates of the General Partner.
If the Conversion is adopted, each Unitholder will be bound by the Conversion,
even though such Unitholder did not consent, and the non-consenting Unitholders
will thereafter own shares of Common Stock.
No Statutory Appraisal or Dissenters' Rights. Under the Delaware Act,
Unitholders will have no statutory appraisal, dissenters' or similar rights in
connection with the Conversion (nor will such rights be voluntarily accorded to
the Unitholders by the Partnership). This is distinguishable from Delaware
corporate law whereby dissenting stockholders of a corporation, in certain
transactions, may have the statutory right to have their shares appraised and to
receive payment of the "fair value" of such shares in cash. Accordingly,
non-consenting Unitholders will have no alternative to the receipt of Common
Stock upon approval of the Conversion other than selling their Units prior to
the consummation of the Conversion and the ability of Unitholders to obtain
redress for an alleged wrong in connection with the Conversion is limited to
Delaware common law. For a discussion of certain of a Unitholder's rights under
Delaware law and the fiduciary obligations owed to a Unitholder, see "The
Conversion -- Fiduciary Duties."
Tax Considerations. The federal income tax consequences of the Conversion
to the Unitholders are uncertain in some respects. The Partnership, as such, is
generally not subject to federal income tax. Instead, Unitholders and the
General Partner report their allocable share of Partnership income and, subject
to certain
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limitations, the losses of the Partnership in their respective tax returns,
whether or not any cash is actually distributed to the Unitholders. As a
corporation, the Company will be subject to federal income taxes on any income
it recognizes. As stockholders of the Company after the Conversion, former
Unitholders generally will also be subject to income tax on receipt of
dividends, if any, from the Company. In the aggregate, therefore, the total tax
burden on the Company and its stockholders with respect to amounts actually
distributed to stockholders could exceed the total tax burden if TENERA were to
remain a partnership. Nonetheless, TENERA, whether in corporate or partnership
form, does not anticipate paying distributions or dividends for the foreseeable
future. See "Risk Factors -- Operating Risks -- No Distributions or Dividends."
Regardless of whether the Conversion is implemented, distributions made by
the Partnership would become subject to double taxation after January 1, 1998
because of current tax laws applicable to publicly-traded partnerships.
As a result of the Conversion, TENERA will be relieved of the cost of
complying with the tax-reporting requirements associated with partnership form
which are significantly greater than the cost of complying with reporting
requirements associated with corporate form. The General Partner believes that
the Partnership may realize annual savings of tax-reporting costs of
approximately $120,000 for 1996 and 1997 if the Conversion is consummated. These
savings will partially offset the non-recurring transaction costs of the
Conversion which are expected to be approximately $370,000. See "The
Conversion -- Costs of the Conversion."
Although definitive regulations have not yet been issued, temporary
Treasury regulations suggest that suspended passive activity losses attributable
to Units can be used after the Conversion only if the holder of such Units sells
all of such holder's Common Stock to an unrelated person in a fully taxable
transaction.
For a discussion of other tax considerations, Unitholders should carefully
review the information contained in "Material Federal Income Tax Consequences."
Unitholders are urged to consult with their own tax advisors with respect to the
specific tax consequences to them, including the application and effect of
foreign, state or local income tax and other laws.
Control of TENERA by Principal Stockholder of the General
Partner. Following the Conversion, the control of the Company will be vested in
the stockholders who will be entitled annually to elect one-third of the Board
of Directors. However, the principal stockholder and affiliates of the General
Partner, who currently own 29.6% of the outstanding Units, will own % of
the outstanding shares of Common Stock upon consummation of the Conversion,
which would give such persons as a group significant influence over all
corporate decisions requiring approval of the stockholders of the Company.
However, there are no voting arrangements or agreements among the current
stockholders or affiliates of the General Partner. Moreover, the Company's Board
of Directors will initially consist of the current members of the General
Partner's Board of Directors who will be able to exert significant influence
over the operations of the Company. Currently, control of TENERA is vested in
the General Partner and Unitholders have limited rights to vote only in special
circumstances. See "Summary Comparison of Units and Common Stock -- Voting
Rights."
No Active Trading Market. Prior to the Conversion there has been no market
for the Common Stock. The Units currently trade on AMEX. See "Market Prices of
Units; Distributions." Application has been made to list the Common Stock on
AMEX under the symbol TNR. Upon issuance, it is anticipated that the Common
Stock will be traded on the AMEX but there can be no guarantee that an active
trading market for the Common Stock will develop. If no active trading market
develops for the Common Stock, there is a risk to Unitholders that they may be
unable to sell the shares of Common Stock they receive in the Conversion.
Uncertainty Regarding Market Price of Common Stock. The General Partner is
unable to predict the market price of the Common Stock in relation to current
market prices of the Units. The Common Stock will be a new security, reflecting
the conversion of TENERA to corporate form and the replacement of the Units with
Common Stock, as well as the capital contribution and dilution of the voting
power of the current Unitholders resulting from the merger of the General
Partner. If a market does develop for the Common Stock there is a risk that the
Common Stock trading price will be lower than the Unit trading price immediately
prior to the Conversion. If the Common Stock trades at a price lower than the
Unit price, the market value of the Unitholder's ownership interest could be
materially reduced. See " -- Dilution."
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<PAGE> 27
Anti-Takeover Provisions. The Partnership Agreement contains many
provisions which are designed to vest in the General Partner the right to manage
the business of the Partnership and to restrict the right of the Unitholders to
change management and to approve transactions of a type which are generally
subject to stockholder approval in the case of a corporation. The Partnership
does not hold annual meetings of Unitholders and does not permit the Unitholders
to vote on many of the matters upon which stockholders of the Company will be
permitted to vote. Upon consummation of the Conversion, the Partnership will
cease to exist and the stockholders of the Company will have the rights
described under "Description of Common Stock" and "Summary Comparison of Units
and Common Stock."
Certain provisions of the Company's Certificate of Incorporation and
By-Laws and the Delaware General Corporation Law may reduce the likelihood of a
takeover of the Company which, if successful, might permit stockholders to
receive a premium over the market price of the Common Stock. These provisions
include a classified Board of Directors, authorization for the Board of
Directors to issue classes or series of Preferred Stock, a prohibition on
stockholder action by written consent, a requirement that stockholders notify
the Company in advance of any director nominees to be proposed at any meeting of
stockholders, and a provision that directors can be removed from office only for
cause by the vote of at least 75% of the outstanding shares of Common Stock and
vacancies may be filled only by the remaining directors and not by the
stockholders. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Company's Board of Directors
and management and in the policies formulated by the Board of Directors and to
discourage an unsolicited takeover of the Company if the Board of Directors
determines that such takeover is not in the best interests of the Company and
its stockholders. However, these provisions could have the effect of
discouraging certain attempts to acquire the Company or remove incumbent
management even if some or a majority of stockholders deemed such an attempt to
be in their best interests. See "Description of Capital Stock -- Anti-Takeover
Provisions."
Dilution. As a result of the Conversion and the merger of the General
Partner into the Company and the issuance of additional shares of
Common Stock to the principal stockholder of the General Partner, the principal
stockholder and affiliates of the General Partner, who currently own 29.6% of
the outstanding Units, will own % of the outstanding shares of Common Stock
upon consummation of the Conversion. Accordingly, upon consummation of the
Conversion, the voting power of the public Unitholders will be reduced from
70.4% to %. Due to the infusion into the Company of $1,000,000 in cash from
the General Partner in connection with the merger of the General Partner, the
issuance of the additional shares of Common Stock to the principal stockholder
of the General Partner will not result in dilution of the book value of the
Common Stock issued to Unitholders in exchange for Units in the Conversion.
However, the issuance and sale of such additional shares could adversely effect
the market price of the Common Stock. See "-- Uncertainty Regarding Market Price
of Common Stock."
Differences Between Units and Common Stock. There are certain inherent
differences between the Units and the Common Stock, including without limitation
differences in tax treatment and voting rights. The differences arise primarily
from provisions of the Internal Revenue Code of 1986, as amended, and
differences between the laws governing limited partnerships and those governing
corporations, as well as from their respective governing instruments. See
"Summary Comparison of Units and Common Stock" for a description of these
differences.
Possible Reduction of Fiduciary Duties. At least one Delaware court has
stated that the fiduciary duties of a general partner to limited partners are
comparable to those of a director to stockholders. Other courts, however, have
indicated that the fiduciary duties of a general partner are greater than those
of a director to stockholders. Therefore, although it is unclear whether or to
what extent there are any differences in such fiduciary duties, it is possible
that the fiduciary duties of the directors of the Company to its stockholders
could be less than those of the General Partner to the Unitholders, which may
result in decreased potential liability of the directors of the Company. See
"The Conversion -- Fiduciary Duties."
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<PAGE> 28
OPERATING RISKS
The following risk factors are relevant to an investment in TENERA, whether
in partnership or corporate form. See also "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Except for the infusion of
$1,000,000 of capital from the General Partner, the Conversion will not
generally affect TENERA's financial condition and the Company will continue to
be subject to the following risks.
Operating Results. Revenues of the Partnership have decreased each year
from the year ended December 31, 1990 to date ($51.2 million in 1990, $44.1
million in 1991, $36.6 million in 1992, $29.3 million in 1993, $23.6 million in
1994, and $5.3 million for the three months ended March 31, 1995 and $7.1
million for the three months ended March 31, 1994), while net earnings (loss)
from operations over the same periods declined from $7.9 million in 1990, to
$(6.2 million) in 1991, $0.8 million in 1992, $(0.3 million) in 1993, $(1.2
million) in 1994, and $0.2 million for the three months ended March 31, 1995 and
$0.1 million for the three months ended March 31, 1994. There can be no
assurance of the level of earnings, if any, that the Company will be able to
derive in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Industry Trends. As a result of the recent slowdown in the construction of
power plants and the absence of new power plants scheduled for construction, the
market for engineering services and software relating to initial licensing and
construction of power plants has contracted, and the market for services and
software related to efficient and profitable operation of existing capacity has
expanded. This trend has caused some electric utilities to close power plants
and to curtail certain other activities traditionally supported by TENERA. This
reduced demand for TENERA's traditional engineering services and software, which
has caused TENERA to discontinue certain business units and related facilities
and to downsize and realign engineering staff, has had a material adverse impact
on operating results. TENERA's profitability depends on its ability to
successfully adjust to these industry changes through continued downsizing and
realignment of engineering staff and through the successful development and
marketing of new engineering services and software. There can be no assurance
that TENERA will be able to fully adjust its services and products to meet the
changing needs of the industry. See "-- Operating Results," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
"Business -- Background."
Access to Capital. Management currently believes that cash expected to be
generated from operations, the Partnership's working capital and borrowings
currently outstanding under its loan facility, in addition to the $1,000,000 in
new capital resulting from the merger of the General Partner into the Company as
a part of the Conversion, are adequate to meet its anticipated near-term needs.
If cash from operations is less than currently anticipated, TENERA may need to
seek other sources of capital. There can be no guarantee that such sources will
be available on terms favorable to TENERA, or at all, and given TENERA's recent
operating results, the General Partner does not believe that an offering of
additional equity would be successful at this time or in the immediately
foreseeable future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Reliance on Key Personnel. Due to the nature of the consulting and
professional services business, the Company's success will depend, to a
significant extent, upon the continued services of its officers and key
technical personnel and the ability to recruit additional qualified personnel.
The Partnership experienced an historically high rate of turnover as revenue and
earnings began to decline in 1991 and thereafter, and the further loss of such
officers and technical personnel and the inability to recruit sufficient
additional qualified personnel could have an adverse effect on the Company.
Government Contracts Audits. The Company will assume the Partnership's
United States government contracts, which are subject in all cases to audit by
governmental authorities. The Partnership earlier in 1994 concluded an audit
begun in 1991 of certain of its government contracts with the DOE relating to
the allowability of certain employee compensation costs. The Partnership made a
special charge to earnings in 1991 for a $2.4 million provision for the
potential rate adjustments then disputed by the Partnership and the government.
As a result of resolving the dispute, the Partnership recognized an increase to
earnings of $500,000 in the second quarter of 1994. Cash payments to clients
associated with the settlement, which are estimated to be between $400,000 and
$500,000, which were accrued for in the 1991 Special Charge to
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searnings, are expected to be made over the balance of 1995, as government
contracts with individual clients are closed out. There can be no assurance that
no additional charges to earnings of the Company may result from future audits
of the Company's government contracts.
Litigation. PLM Financial Services, Inc. has filed an action in the
Superior Court of California for the County of Alameda seeking damages in excess
of $500,000 in unpaid equipment rent and other payments allegedly owing to PLM
under an equipment lease between PLM and TERA Power Corporation, a former
subsidiary of TERA Corporation, the Partnership's Predecessor Corporation. PLM
has named the Partnership in the action pursuant to a guaranty of the lease
obligations made by the Predecessor Corporation. Management believes that the
guaranty has been exonerated and the Partnership will be able to defend this
action successfully. Management does not believe that eventual resolution of
this matter will have a material effect on the Partnership's results of
operations or financial position; however, an adverse outcome could have a
material adverse impact on the financial condition of the Partnership. See
"Certain Legal Proceedings."
Competition. The market for engineering and management services and
related software products and services is highly competitive and TENERA competes
with several larger firms with significantly greater resources. The primary
competitive factor in the market for engineering and management services is
price, and a number of TENERA's competitors are able to offer such services at
prices that are lower than those offered by TENERA. This competition has had,
and is expected to continue to have, a material adverse impact on TENERA's
business. See "Business -- Competition."
Reliance on Major Customers. During fiscal 1994, one customer,
Westinghouse Hanford Co. ("Westinghouse"), accounted for approximately 29% of
the Partnership's total revenues and during 1995, two customers, Westinghouse
and Martin Marietta Energy Systems, Inc. ("Martin"), accounted for approximately
19% and 11%, respectively, of the Partnership's total revenues. All outstanding
customer contracts are cancelable upon notice by either party, and therefore,
there can be no assurance that relationships with customers will be maintained.
The discontinuation of business relations with this customer could have a
material adverse impact on TENERA's business. See "Business -- Marketing and
Clients."
THE CONVERSION
STRUCTURE OF THE CONVERSION
If approved by the Unitholders and implemented, the Conversion will be
effected as follows:
- The Partnership, the Operating Partnership and the General Partner will
merge with and into the Company, as a result of which the Partnerships
and the General Partner will thereafter cease to exist, and the Company
will succeed to all the assets and liabilities of the Partnerships and
the General Partner;
- Units issued and outstanding immediately prior to the Conversion will be
converted into an identical number of shares of Common Stock;
- The General Partner's aggregate 1.99% general partner interest in the
Partnerships will be converted into 184,946 shares of Common Stock of the
Company and distributed to the principal stockholder of the General
Partner (who will be the sole stockholder of the General Partner
immediately prior to the consummation of the Conversion);
- Immediately prior to the Conversion, the General Partner will repurchase
certain of its outstanding shares of common stock for cash, leaving the
current principal stockholder of the General Partner the sole stockholder
and leaving assets of $1,000,000 in cash in the General Partner; and
- The common stock of the General Partner will be converted into
shares of Common Stock.
Consequently, immediately following the Conversion, as a result of the
merger of the Partnerships into the Company the Unitholders will own an
aggregate of 9,108,803 shares of Common Stock in lieu of their 9,108,803
currently outstanding Units and the principal stockholder of the General Partner
will own 184,946
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<PAGE> 30
shares of Common Stock in lieu of the 1.99% general partner interest in the
Partnerships. In addition, the principal stockholder of the General Partner will
own all shares of Common Stock attributable to the merger of the
General Partner into the Company. Upon completion of the Conversion, the
Unitholders will own % of the issued and outstanding shares of Common Stock
and the principal stockholder of the General Partner will own % of the
issued and outstanding shares of Common Stock (exclusive of shares received as a
Unitholder). The principal stockholder and affiliates of the General Partner
will own % of the outstanding shares of Common Stock, which would give such
persons as a group significant influence over all corporate decisions requiring
approval of the stockholders of the Company. See "Risk Factors -- Control of
TENERA by Principal Stockholder of the General Partner." However, there are no
voting arrangements or agreements among the current stockholders and affiliates
of the General Partner.
The General Partner used the percentages of the outstanding equity
ownership interests in the Partnership and the Operating Partnership, taken as a
whole, currently owned by the General Partner and the Unitholders, respectively,
to determine the allocation of percentages of Common Stock issued to the
Unitholders and the principal stockholder of the General Partner with respect to
the merger of the Partnerships into the Company. The General Partner used the
greater of the average closing sales price of the Units as reported on AMEX for
the 60 calendar days immediately preceding and immediately following the public
announcement of the Conversion to determine the number of shares of Common Stock
issued to the principal stockholder of the General Partner with respect to the
merger of the General Partner into the Company. See "-- Allocation of Common
Stock Among the Unitholders and the Principal Stockholder of the General
Partner."
The General Partner decided to convert the Partnership and Operating
Partnership to corporate form because of the factors listed in "-- Reasons for
the Conversion." The General Partner did not consider any alternatives to this
transaction other than continuing in partnership form. See "-- Alternatives to
the Conversion."
BACKGROUND OF THE CONVERSION
Original Conversion to Partnership Form. The Partnerships succeeded to the
business and operations of TERA Corporation (the "Predecessor Corporation") on
December 30, 1986. On that date, the Predecessor Corporation transferred
substantially all of its assets, subject to substantially all of its
liabilities, to the Partnerships. Upon the Predecessor Corporation's dissolution
and liquidation, its stockholders received one Unit for each share of common
stock of the Predecessor Corporation. That earlier conversion was consummated
primarily to eliminate federal income taxes at the entity level, thereby
potentially increasing the availability of distributions to investors of cash
flow from operations (with the cash which would otherwise be used to pay taxes
incurred by the corporation then available for distribution to equity holders).
The Units were designed to appeal to investors seeking a current yield through
distributions and to provide investors with passive income to offset passive
losses from other investments.
The General Partner was formed in connection with the prior 1986 conversion
to partnership form to act solely as the General Partner of the Partnerships. As
such, the General Partner has had sole authority and responsibility for the
management of the Partnerships and has been liable for all general obligations
of the Partnerships to the extent not paid by the Partnerships. In addition, to
help assure treatment of the Partnerships as partnerships for federal income tax
purposes, the General Partner agreed to maintain a net worth of not less than
$2,500,000 (in addition to any interest in the Partnerships) and agreed not to
withdraw from the Partnership prior to December 31, 1996.
While the Partnership achieved many of its objectives in the initial four
years of its existence, the anticipated benefits of partnership form have been
reduced over the years primarily as a result of two developments. First,
significant changes in the federal income tax laws occurred in 1987 which will
cause the Partnership to be taxed as a corporation beginning in 1998 and which
also eliminated the ability of Unitholders to offset passive losses from other
investments with passive income from the Partnership and the ability of most
Unitholders to derive current tax benefits from net operating losses. Initially
management believed these changes would likely cause the Partnerships to convert
to corporate form in late 1997, which would permit the
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<PAGE> 31
Partnerships to obtain the tax benefits of a single level of taxation for as
long a period as possible. See "Material Federal Income Tax Consequences."
Secondly, and more significantly, however, the Partnership began
experiencing operating losses in mid-1991 which resulted in the discontinuation
of cash distributions to the Unitholders. See " -- Performance of TENERA as a
Partnership." The Partnership is not required to make distributions and
management currently believes the Partnership will not resume distributions in
the foreseeable future, regardless of whether taxable income may be recognized
by the Unitholders, as TENERA continues to reinvest its earnings until there is
a material and sustained increase in operating profits. Thus, the Units are no
longer of interest to investors seeking current yields.
Meanwhile, the administrative burdens of tax reporting as a partnership
remain complex and costly (both to the Partnership and to the Unitholders).
Management now believes that the partnership structure no longer provides
sufficient benefits to justify its continued administrative costs and burdens
and may even result in disadvantages to the Unitholders as earnings are
reinvested over the next several years and Unitholders are taxed on their share
of the Partnership's taxable income, if any, without any cash distributions.
Performance of TENERA as a Partnership. In the years following its
formation, the Partnerships achieved many of their original objectives in
converting to the limited partnership structure. From January 1987 through the
second quarter of 1991, cash distributions were made to the Unitholders ranging
from $0.77 per Unit in 1987 to $0.81 per Unit in 1990, and $0.21 per Unit for
the quarter ended March 31, 1991 to $0.10 per Unit for the quarter ended June
30, 1991. At the same time, the trading price of the Units rose from $3.00 per
Unit on December 31, 1986 to a high of $8.625 per Unit in the second quarter of
1991. During the initial four year period since the 1986 conversion, the
Partnership's revenues ranged from a low of $31,812,000 in 1988 to $51,161,000
in 1990, while net earnings of the Partnership, which were a high of $8,966,000
in 1987, thereafter ranged from a low of $5,844,000 in 1989 to $7,922,000 in
1990.
Beginning in 1988, the Partnership expanded its management services to
include consulting for the DOE and its contractors, providing operational,
safety, and environmental assistance at DOE-owned nuclear reactor sites. During
this growth period, the Partnership's government-related billings increased from
approximately $550,000 in 1988, to $12,800,000 in 1990. While this new
government contract work developed, the existing management services,
environmental services, and software systems and services also continued to
expand their revenue and earnings. During this period of rapidly expanding
backlog, the Partnership more than doubled in size its employee base from 170
employees in 1987, to 372 employees in 1990, and grew from four offices in three
states to twelve offices in nine states, in order to service the needs of the
Partnership's clients.
Revenue in 1991 declined to $44,128,000 and the Partnership experienced a
net loss of $6,434,000 of which $7,534,000 were special charges. Included in
special charges was $3,712,000 of certain non-cash compensation costs incurred
in connection with the compromise of certain employee claims under TENERA's
Entrepreneurial Equity Incentive Plan ("EEIP"). Also included in special charges
was a $2,400,000 provision established for potential rate adjustments asserted
on certain contracts in connection with the dispute between the Company and the
United States government with respect to the allowability of certain costs. See
"Risk Factors -- Government Contracts Audit." Additional special charges in the
fourth quarter of 1991 included a net amount of $1,293,000 incurred for various
costs and expenses principally associated with management and organizational
restructuring and downsizing programs.
The Partnership's principal market, the electric utility industry, has
undergone considerable changes in the past five years, which have had a negative
impact on the Partnership's revenues. Electric utilities in the United States
face a complex mix of economic and regulatory pressures. As a result of gradual
deregulation, as well as a desire to meet projected growth in demand for
electricity through higher operating efficiency rather than investment in new
plants, utilities and regulatory authorities are concentrating on increasing
operational efficiency and implementing detailed operational guidelines instead
of new plant construction. As a result of the slowdown in construction of power
plants and the absence of new power plants scheduled for construction, the
market for services and software related to efficient and profitable operation
of existing capacity has expanded and the market for services and software
relating to initial licensing and construction has contracted.
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<PAGE> 32
This trend has caused some electric utilities to close power plants and curtail
certain activities TENERA has traditionally supported. See
"Business -- Background."
Primarily as a result of these adverse changes in demand for engineering
services and products traditionally provided by TENERA, revenues continued to
decline during 1992, 1993, and 1994, to $23,600,000 in 1994 and the total number
of clients decreased from over 250 in 1991, to approximately 73 at December 31,
1994 and approximately 53 at March 31, 1995. Revenue concentration from
government clients increased from approximately 15% in 1991 to 27% of total
revenue in 1993, to 36% of total revenue in 1994 and to approximately 34% of
total revenue in the three months ended March 31, 1995.
In response to these energy industry changes, the Partnership has downsized
its operations significantly. At March 31, 1995 the Partnership had 160
employees. Additionally, the number of offices has been reduced to nine in 1995,
from fifteen in 1991 and since 1991, and the Company has instituted a number of
on-going cost-reduction programs, to further reduce its direct and indirect
costs, including travel expenses and outside professional services. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Decision to Propose Conversion. The General Partner and the Partnership's
management began considering the desirability of converting the Partnerships to
corporate form in mid-1993 in light of the continued absence of any cash
distributions due to the operating results of the Partnerships since 1991. At
that time the Board of Directors of the General Partner elected to defer further
consideration of such conversion to permit management to concentrate its efforts
solely on returning the Partnerships to profitability.
In September 1994, management resumed its review of the desirability of a
conversion to corporate form and proceeded to identify and evaluate advantages,
disadvantages, consequences and legal matters associated with a corporate
conversion. With the results of this analysis increasingly supporting, on
balance, the advisability of proposing the Conversion to the Unitholders,
management presented its initial analysis to the Board of Directors at its
meeting on September 13, 1994. The Board of Directors concurred in this analysis
and asked management to proceed with further investigation of the advisability
of the Conversion and the preparation of all necessary materials to submit the
proposed Conversion for consideration by the Unitholders.
Management also analyzed the desirability of the General Partner merging
into the Company as part of the Conversion and explored the willingness of the
principal stockholder of the General Partner, through such a merger to, in
essence, invest all or a portion of the assets of the General Partner in the
Company, thereby providing additional capital and liquidity to the Company.
Management concluded that a cash infusion of $1,000,000 would provide additional
resources to the Company as it continues to work towards increasing
profitability, rebuilding revenues and strengthening the overall financial
condition of the TENERA.
In the judgment of the General Partner, the reasons to convert to corporate
form have become increasingly compelling. This judgment is based on the fact
that, regardless of whether the Conversion is consummated, TENERA will not
resume distributions in the foreseeable future, and if TENERA is able to
generate and sustain operating earnings and has taxable income, it is possible
that the Unitholders will incur taxable income without any cash distributions
from the Partnership; if TENERA instead incurs losses, it will forego the
opportunity to accumulate operating losses in the new corporate entity for each
period it remains in partnership form. In addition, the General Partner believes
that if TENERA is going to convert, it is preferable to do so sooner rather than
later, so that the benefits of conversion, including relief from the
complexities and costs of tax reporting associated with partnership form, may
begin to be realized by TENERA and the Unitholders. For a discussion of the
alternatives which were considered, see
"-- Alternatives to the Conversion" below.
REASONS FOR THE CONVERSION
The General Partner believes there are several principal reasons for
converting to corporate form and merging the General Partner into the Company at
this time: (i) the principal advantage of operating in partnership form (i.e.,
one level of federal income tax) is not currently useful and is not expected to
be useful in the foreseeable future, given the expectation that TENERA will not
resume distributions, regardless of
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<PAGE> 33
whether taxable income may be recognized by Unitholders; (ii) the fact that even
without the Conversion the Partnership will automatically be treated as a
corporation and not as a partnership for federal income tax purposes after 1997;
(iii) the potential for TENERA Common Stock to attain greater acceptance within
the investment community than the Partnership's Units and an expansion of the
potential investor base in TENERA; (iv) the complexities and costs of tax
reporting associated with partnership form (both to the Partnership and the
Unitholders) will be reduced if TENERA is in corporate form; and (v) the merger
of the General Partner, the sole assets of which are cash or cash equivalents,
will provide additional financial strength to the Company and added liquidity of
$1,000,000 as TENERA strives to rebuild its business after the losses and
decreased earnings experienced since 1991. These factors are closely
interrelated, and relative weights were not assigned to them.
Absence of Distributions. Because of the operating losses and continuing
decline in revenues experienced by the Partnership since 1991, the Partnership
has not made cash distributions to Unitholders since the quarter ended June 30,
1991, and does not expect to do so in the foreseeable future. The ability to
distribute income free of corporate income tax, combined with the expectation
that TENERA could sustain a policy of making substantial cash distributions, was
a primary reason TENERA converted to partnership form beginning in 1987. Thus,
the principal advantage of being structured as a partnership is not currently
available to TENERA or its Unitholders, nor is it likely to be available in the
foreseeable future. Subject to the discretion of the Board of Directors to
declare distributions from time to time, cash distributions will not be resumed
unless and until there are significant improvements in TENERA's operating
results and overall financial condition, and the General Partner does not
anticipate resuming any distributions, whether or not there may be taxable
income of the Partnership, in the foreseeable future. To the extent that the
Partnership has taxable income, the Unitholders will be taxed on their allocable
share of such income, without any cash distributions from the Partnership.
Automatic Taxation as Corporation After 1997. Bryan Cave, special tax
counsel to the Company and the Partnership in connection with the Conversion,
has delivered an opinion that the Partnership, more likely than not, will be
automatically taxable as a corporation for taxable years beginning after
December 31, 1997 assuming that the Partnership continues (i) to derive over 10%
of its gross income from sources other than investments, real estate, and
natural resource activity for its first taxable year beginning after December
31, 1997 and (ii) to be publicly traded. Tax counsel's opinion is also based
upon their review of the relevant provisions of the Internal Revenue Code of
1986, as amended (the "Code"), existing and proposed regulations thereunder and
current administrative rulings and court decisions, all of which are subject to
change.
The effect of the Partnership being automatically converted to, and taxed
as, a corporation is particularly relevant to the Unitholders and TENERA if
TENERA begins generating income which is subject to federal income taxes. See
"Alternatives to the Conversion."
The Revenue Act of 1987 (the "1987 Tax Act") amended the Code by adding
Section 7704, which provides that certain publicly traded partnerships will be
treated as corporations and not as partnerships for federal income tax purposes.
Tax counsel's opinion is based on the conclusions that the Partnership's gross
income from operations would, more likely than not, not be treated as
"qualifying income" for purposes of the safe-harbor provisions of Section 7704
of the Code. Section 7704 generally requires a publicly traded partnership to be
treated as a corporation unless 90% of its gross income consists of certain
qualifying passive-type income and certain income relating to natural resources.
Tax counsel has concluded that the Partnership's gross income from operations,
which are more active in nature, would more likely than not, not be considered
qualifying income. As a consequence, the Partnership would not be able to
qualify for the "qualifying income" exception to the general rule which taxes
publicly traded partnerships as corporations.
Under a transition rule, however, the Partnership will not be treated as a
corporation for tax purposes until the earlier of (i) the Partnership's first
taxable year beginning after December 31, 1997, or (ii) the time at which the
Partnership adds a substantial new line of business after December 17, 1987. In
addition, a partnership otherwise qualifying for relief under this transition
rule will no longer qualify if it elects to be taxed as a corporation after
December 17, 1987. The Partnership has not made such an election.
30
<PAGE> 34
Under the deemed conversion rules, at such time as the Partnership is first
treated as a corporation, the Partnership will be treated as if it had
transferred all of its assets to a newly-formed corporation in exchange for the
stock of the corporation and the assumption of all its liabilities (including
the Partnership's share, pursuant to Section 752 of the Code, of the Operating
Partnership's liabilities), and then distributed such stock to the Unitholders
in exchange for their Units.
The deemed conversion of the Partnership into a corporation, like the
actual Conversion proposed by the General Partner, would generally be tax-free
to the Unitholders except to the extent the Partnership's aggregate tax basis in
its assets is less than the liabilities assumed (or (i) if as a result of a
Section 743(b) adjustment, a Unitholder's tax basis in his share of Partnership
assets is less than his share of Partnership liabilities assumed or (ii) with
respect to a Unitholder whose tax basis in his Units is less than his share of
Partnership liabilities as determined pursuant to Section 752).
To the extent a Unitholder recognized any gain from a deemed conversion
occurring at the end of 1997, such gain would be offset by his share of the
Partnership losses from prior years that were previously suspended by the
at-risk, basis or passive loss limitations. Consequently the only Unitholders
who might recognize gain on a deemed conversion that cannot be offset by
previously suspended losses are corporations which previously utilized their
share of Partnership losses (because corporations are not generally subject to
the passive loss limitations).
Potentially Greater Access to Equity Markets: Expansion of Potential
Investor Base. Because certain types of investors do not typically invest in
limited partnership securities, the Company may in the future have greater
access to the public and private equity capital markets than does the
Partnership, potentially enabling the Company to raise equity capital on more
favorable terms than are now available to the Partnership. This greater access
may be of benefit if TENERA proposes to issue equity securities in the future.
TENERA has no plans, however, at this time to issue additional equity after the
Conversion and the General Partner does not believe that, given TENERA's recent
operating results, an offering of additional equity would be successful.
The Conversion may also lead to expansion of TENERA's potential investor
base over the long term to include institutional investors, tax exempt entities
(including employee benefit plans, individual retirement accounts, Keogh plans
and other retirement plans) and foreign persons that do not typically invest in
partnership equity securities because of various tax and administrative reasons.
Such potential investors prefer investment in corporate stock instead of
partnership units for the following reasons: (i) many institutional investors
avoid investment in limited partnership units because of the increased
complexity of partnership tax reporting; (ii) virtually all of the income
derived by a Unitholder which is a tax-exempt entity will be unrelated business
taxable income, and thus will be taxable to such Unitholder; and (iii) a
Unitholder who is a nonresident alien, foreign corporation or other foreign
person will be regarded as being engaged in a trade or business in the United
States as a result of ownership of a Unit and thus will be required to file
federal income tax returns and pay tax on such Unitholders' share of the
Partnership's taxable income. An expanded investor base could result in a more
active and diversified trading market for the Common Stock than currently exists
for the Units.
No assurances can be given that the Company will be able to issue
additional equity securities, or that the Conversion will result in any increase
in the Company's investor base or the receipt of any additional investor
interest.
Tax Reporting. The General Partner believes that tax reporting as a
corporation would save TENERA approximately $120,000 annually over the current
cost of tax reporting as a partnership. This would represent an aggregate
savings of $240,000 to TENERA for the years 1996 and 1997. The General Partner
believes that the additional costs which accompany reporting as a partnership
would be justifiable if operating in partnership form was currently, or
anticipated in the future to be, advantageous to the Unitholders. However, the
principal reasons for operating in partnership form, namely the ability to make
distributions which are not taxed at the entity level and to provide investors
with passive income that could be offset by passive losses from other
investments, are not currently available to the Partnership, nor can the
Unitholders utilize any pass-through of net operating losses.
31
<PAGE> 35
Because of certain amendments to the federal tax laws since the formation
of the Partnership, most investors in publicly traded partnerships cannot offset
passive activity income from such partnerships by passive losses from other
investments. Accordingly, even if the Partnership were to generate income,
Unitholders generally could not use passive losses from other investments to
offset such income. Moreover, most Unitholders cannot derive current tax
benefits from net operating losses. The General Partner believes that most
current Unitholders are subject to the passive loss rules and, therefore, cannot
use net operating losses of the Partnership ("passive activity" losses) either
to reduce their share of net portfolio income of the Partnership or to offset
any of their income from other sources. Under these rules, unless a Unitholder
is a certain type of corporation, the Unitholder is generally permitted to
deduct losses incurred by the Partnership only to the extent they offset passive
income from the Partnership and cannot use such losses to offset other income.
In addition, the Partnership's organization as a limited partnership makes
the preparation of tax returns by Unitholders and the Partnership more complex
and expensive than it would be if TENERA were a corporation. The General Partner
believes that the complexities of tax reporting associated with partnership
investments have become unduly burdensome for most Unitholders under current
conditions. The ownership of Common Stock rather than Units will greatly
simplify tax reporting with respect to an investment in TENERA on each holder's
individual federal tax returns.
The reporting burden associated with partnership investments would be
reduced, but not eliminated, if certain significant proposals currently pending
before Congress are enacted. However, even if simplification legislation is
enacted, it appears unlikely to affect the current limitation on the ability of
limited partners to use passive losses.
Capital Infusion from the General Partner. Management believes that the
merger of the General Partner, the sole assets of which, in addition to its
general partner interests in the Partnerships, are cash or cash equivalents,
with and into the Company will provide additional financial strength to the
Company and added liquidity of $1,000,000. Management further believes that such
additional financial strength and liquidity will enhance TENERA's ability to
rebuild its business after the losses and decreased earnings experienced since
1991. The General Partner, formed in connection with TENERA's conversion to
partnership form in 1986, has acted solely as general partner of the
Partnerships. As such, it is liable for the general obligations of the
Partnerships to the extent not paid by the Partnerships and its assets have been
available for that purpose. While the General Partner will be relieved of that
unlimited liability as a result of the Conversion, it has agreed to invest a
significant portion of its assets to the Company through the merger of the
General Partner into the Company, thereby increasing the asset base of the
Company. Moreover, this elimination of liability will not increase or decrease
the Unitholder's obligations or liabilities as equity investors in TENERA.
DISADVANTAGES OF CONVERTING TO CORPORATE FORM
The General Partner believes that the only significant disadvantages of
converting to corporate form are tax-related. The principal tax disadvantage is
that a corporation pays taxes on its net income and its stockholders generally
pay taxes on any dividends from the corporation, whereas a partnership pays no
entity-level tax and its partners pay tax on their share of partnership net
income and on distributions that exceed their tax basis in their partnership
interests. The Partnership and the Unitholders will forego this potential future
tax benefit as a result of the Conversion. However, there is no advantage absent
distributions to the Unitholders. Regardless of whether or not taxable income
may be recognized by the Unitholders, management does not intend to make further
cash distributions in the foreseeable future. There have been no distributions
since June 1991, given the operating losses and decreased earnings experienced
by the Partnerships in the interim. Management intends to retain and reinvest
earnings of TENERA until such time as its financial position has been
strengthened and its operating income restored to levels more akin to those of
the Partnerships prior to June 1991. The disadvantage in corporate form of the
added entity taxation described above could have significant adverse economic
effect (i) at such time as the Company both has net taxable income and pays
dividends, or (ii) if the Company disposes of its assets at a time when the
value of its assets exceeds its basis in such assets. The higher that operating
revenues are, the more significant the first adverse effect could be.
32
<PAGE> 36
Another tax disadvantage of converting to corporate form would occur if
there were a sale of the assets of TENERA followed by a liquidating distribution
to stockholders. In corporate form, TENERA would be taxed on a sale of such
assets, to the extent any gain was recognized, and each stockholder would be
taxed on any subsequent liquidating distributions to the extent such
stockholder's share of the liquidating distributions exceeds the stockholder's
tax basis in its stock. By contrast, so long as no actual or deemed conversion
occurs, any gain recognized by TENERA on a sale of its assets would be "passed
through" to the Unitholders, who would then be able to use any accumulated
losses to reduce the taxable amount payable by them on such gain.
After consummation of the Conversion, any operating losses accumulated
between the date the Conversion is consummated and the date of a sale of the
assets would reduce the gain recognized on the sale of the assets. Any reduction
in the amount of gain recognized on the sale would reduce the tax paid by the
Company. If TENERA remained in partnership form and consummated a similar
transaction, there would not be any tax at the partnership level. However, the
Unitholders would be taxed on their share of any gain recognized by the
Partnership and on any subsequent liquidating distributions, to the extent such
distributions exceed the Unitholders' tax basis in their Units (after adjustment
for any gain or loss recognized by the Partnership on the sale).
Once TENERA converts to corporate form, it will not be able, for tax
purposes, to return to being taxed as a partnership.
Another disadvantage of the Conversion is that the issuance of
additional shares of Common Stock to the principal stockholder of the General
Partner in connection with the merger of the General Partner into the Company
will reduce the voting power of the public Unitholders from 69.1% to %. The
Board of Directors of the General Partner believes that this disadvantage to the
Unitholders is offset by the infusion into the Company of $1,000,000 in cash
from the General Partner. As a result of this capital infusion, the issuance of
such additional shares of Common Stock will not result in dilution of the book
value of the Common Stock issued to Unitholders in exchange for Units in the
Conversion. However, the issuance and sale of such additional shares could
adversely effect the market price of the Common Stock.
Another potential disadvantage of the Conversion is the loss of the
unlimited personal liability of the General Partner for the liabilities of the
Partnerships, which loss management believes is offset to some degree by the
decrease in the management rights of the General Partner (and its stockholders)
and the relative increase in the management rights of the holders of the Common
Stock (as compared to their rights as former Unitholders). See "The
Conversion -- Conflicts of Interest of the General Partner." Moreover, the Board
of Directors of the General Partner does not believe that this is relevant to
the fairness of the Conversion to the Unitholders since the elimination of
liability will not result in any increase or decrease of the Unitholders'
obligations or liabilities as equity investors in TENERA.
ALTERNATIVES TO THE CONVERSION
The only alternative to the Conversion considered by the General Partner
was continuing the existence of the Partnership as a limited partnership. The
benefit of continuing the existence of the Partnership as a limited partnership
is the possible reduction of aggregate federal taxes payable by the Partnership
and its Unitholders compared to the possible aggregate federal taxes payable by
the Company and its stockholders with respect to the taxable income of TENERA,
if the Partnership and the Company were to make significant current
distributions to their equity holders, or with respect to any gain recognized on
the disposition of assets or otherwise, if such a transaction were to occur. See
"Material Federal Income Tax Consequences." The Board of Directors of the
General Partner believes that, because the Partnership is unlikely to make any
distributions in the near future and no sale of assets transaction is currently
contemplated, this benefit is outweighed by the benefits of the Conversion
described above in "-- Reasons for the Conversion."
The General Partner did not attempt to quantify the value of TENERA were it
to remain in partnership form because the General Partner believes that those
values, whatever they are, may be preserved and enhanced through the Conversion.
See " -- Reasons for the Conversion." The Board of Directors of the General
Partner considered the trading price of the Units on the AMEX in establishing
the allocation of the Common Stock for the merger of the General Partner and the
capital contribution resulting from that merger.
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<PAGE> 37
Based on a trading price of $0.8125 per unit (as reported on the AMEX on January
31, 1995), the market value of the Partnership as a going concern was
$7,597,918. The General Partner further believes that, unless TENERA's financial
results and business prospects improve significantly, and unless cash
distributions were resumed, it is not likely that the market price of the Units
would increase materially. The Board of Directors of the General Partner also
believes that initially upon Conversion, the market price of the Common Stock of
the Company would likely approximate the market price of the Units, and
accordingly, established the allocation of Common Stock to be received by the
principal stockholder of the General Partner upon the merger of the General
Partner into the Company, based on the greater of the average closing sales
price of the Units as reported on the AMEX for the 60 trading-day period
immediately preceding and immediately following the public announcement of the
Conversion. See "-- Allocation of Common Stock Among the Unitholders and the
Stockholder of the General Partner."
The General Partner did not consider liquidation of the Partnership as an
alternative to the Conversion because the General Partner believes that the
continued operation of TENERA, whether in corporate or partnership form, is more
beneficial to Unitholders than liquidation. The General Partner believes
liquidation is not a viable alternative, because of the nature of TENERA's
business, i.e., professional services, and the resulting nature of its assets.
At December 31, 1994, the Partnerships' current assets consist principally of
cash and cash equivalents ($1,943,000 at December 31, 1994), billed and unbilled
receivables ($5,469,000 net of allowances at December 31, 1994) and other
current operating assets ($681,000 at December 31, 1994). The remaining
noncurrent assets, are principally property and equipment ($523,000 at December
31, 1994), consisting primarily of office furnishings and computer equipment.
Management believes in a liquidation, the net proceeds of these assets, after
payment of current liabilities consisting of bank loan payable in default,
accounts payable and accrued compensation ($4,069,000 at December 31, 1994), are
not likely to exceed, and may be less than, their book value ($4,547,000 at
December 31, 1994). The Partnership's intangible assets are principally its
ongoing contracts and the professional capabilities of its employees. The
General Partner believes that termination of its existing contracts, as part of
a liquidation of the Partnerships, could result in liabilities under those
contracts which could require the payment of a significant portion of the
current assets and proceeds from the sale of the capital assets to the other
parties to such contracts as creditors of the Partnership, leaving very little,
if anything, to be distributed to the Unitholders. Consequently, the Board of
Directors of the General Partner believes that in the long-term, the value of
the Common Stock of the Company will equal or exceed the value of the
Partnership's Units and that both the value of the Common Stock and the Units
would exceed the amount that would be distributed to Unitholders if the
Partnership were liquidated.
The sale of the Partnerships at a price resulting in a per Unit
distribution to the Unitholders in excess of the then market value of the Units
could be more beneficial to the Unitholders than the continued operation of
TENERA in partnership or corporate form. However, the General Partner does not
believe that the sale of the Partnerships is a viable alternative to the
Conversion because it believes that the Partnerships are not an attractive
candidate for acquisition at this time. This belief is based on the operating
losses and declining revenues of TENERA since 1991 and the fact that, although
the General Partner has not made inquiries as to potential buyers of the
Partnerships, there have been no inquiries by third parties regarding such a
transaction in the last four years.
ALLOCATION OF COMMON STOCK AMONG THE UNITHOLDERS AND THE PRINCIPAL
STOCKHOLDER OF THE GENERAL PARTNER
Allocation of Common Stock: Merger of the Partnerships. The Common Stock
issued in the Conversion with respect to the merger of the Partnerships into the
Company will be allocated 1.99% to the principal stockholder of the General
Partner (who will be the sole stockholder of the General Partner immediately
prior to consummation of the Conversion) and 98.01% to the Unitholders, which is
exactly in accordance with the respective equity ownership interests of the
Unitholders and the General Partner in the Partnership and the Operating
Partnership, on a combined basis. The General Partner currently owns a 1%
general partner interest in the Partnership and the Unitholders currently own a
99% limited partnership interest in the Partnership. The General Partner
currently owns a 1% general partner interest in the Operating Partnership and
the
34
<PAGE> 38
Partnership owns a 99% limited partnership interest. The interests of the
General Partner in the Partnerships were purchased at the time of the formation
of the Partnerships for $253,200 each, a sum equal to 1% of the total capital
contributed to each Partnership. The General Partner's 1% general partner
interest in the Partnership will be converted into that number of shares of
Common Stock equal to 0.99% of the shares of Common Stock to be issued in
connection with the merger of the Partnerships because the Partnership owns 99%
of the Operating Partnership, which holds the assets of TENERA, and 1% of 99%
equals 0.99%. The General Partner's 1% general partner interest in the Operating
Partnership will be converted into that number of shares of Common Stock equal
to 1% of the shares of Common Stock to be issued in connection with the merger
of the Partnerships. The sole reason for the allocation of Common Stock
described above is to ensure that the equity ownership percentages that the
former Unitholders and the principal stockholder of the General Partner will
hold in the Common Stock issued with respect to the merger of the Partnerships
into the Company are the same as the equity ownership percentages currently held
by the Unitholders and the General Partner in the Partnerships. The General
Partner did not consider any alternative methods to such allocation provisions.
Allocation of Common Stock: Merger of the General Partner. The
determination of the amount of Common Stock to be issued with respect to the
merger of the General Partner into the Company was made by the General Partner,
after consultation with the Advisory Committee of the Board of Directors of the
General Partner, based on the amount of cash to be received by the Company from
the General Partner and the greater of the average closing sales price of the
Units as reported on AMEX for the 60 calendar days immediately preceding and
immediately following the public announcement of the Conversion ($ per
Unit). The aggregate cash consideration to be received by the Company
($1,000,000) was divided by this $ per Unit amount to determine the
number of shares of Common Stock to be issued to the principal stockholder of
the General Partner. This per share valuation was calculated to approximate the
current market valuation of the Units and the Common Stock on the assumption
that, upon consummation of the Conversion, one share of Common Stock would have
the same market value as one Unit immediately prior to the Conversion. The sole
reason the General Partner used the method described above for determining the
amount of Common Stock to be issued with respect to the merger of the General
Partner into the Company was to minimize the conflicts of interest inherent in
the General Partner merger by using the valuation method that would most likely
be used in an arm's-length transaction. Although there are a number of variables
which may influence the price paid for the common stock of a publicly traded
company in an arm's-length transaction, the Board of Directors of the General
Partner believes that using the market value of the Common Stock to determine
the amount of Common Stock to be issued most closely approximates the price that
would be paid for newly issued shares of the Company by an independent third
party in an arm's-length transaction. The Board of Directors of the General
Partner considered the per Unit book value of the Partnership as a method for
determining the amount of Common Stock to be issued, but determined not to use
book value because the per share valuation of the Common Stock based on market
value significantly exceeds the per Unit book value of the Partnership, which
was $0.48 per Unit as of December 31, 1994. See "Summary Historical and Pro
Forma Financial Information," " -- Opinion of Independent Financial Advisor,"
"-- Conflicts of Interest of the General Partner," and "Risk
Factors -- Conflicts of Interest: Terms of the Conversion."
Ownership of TENERA Before and After the Conversion. Upon consummation of
the Conversion, through the merger of the Partnerships and the General Partner
into the Company, the former Unitholders and the principal stockholder of the
General Partner will own the Company. The Public Unitholders (i.e., Unitholders
who are not stockholders or affiliates of the General Partner) currently own a
greater percentage interest in the Partnership than they will own in the equity
of the Company after the Conversion. The Board of Directors of the General
Partner believes that this reduction in percentage ownership is justified by the
capital contribution of $1,000,000 in cash from the merger of the General
Partner. The following table compares the ownership of the Partnerships by the
Public Unitholders, the General Partner, affiliates of the General Partner, and
the principal stockholder of the General Partner prior to the Conversion to the
ownership of the Company by such persons after the Conversion.
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<PAGE> 39
OWNERSHIP OF TENERA
<TABLE>
<CAPTION>
BEFORE CONVERSION AFTER CONVERSION
--------------------- --------------------------
UNITS OWNERSHIP COMMON STOCK OWNERSHIP
---------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Public Unitholders......................... 6,413,334 69.01% 6,413,334 .%
Teknekron Technology MLP I Corp.
(General Partner)........................ 0 1.99% 0 0%
Affiliates of the General Partner Other
than its Principal Stockholder........... 257,891 2.77% 257,891 .%
---------- --------- ------------ ---------
Subtotal................................. 6,671,225 71.78% , , .%
Principal Stockholder of the General
Partner.................................. 2,437,578 26.23% , , .%
---------- --------- ------------ ---------
Total...................................... 9,108,803 100.00% , , 100.00%
======== ========= =========== =========
</TABLE>
CONFLICTS OF INTEREST OF THE GENERAL PARTNER
The Board of Directors of the General Partner has not retained an
unaffiliated representative to act solely on behalf of the Public Unitholders
for purposes of negotiating or making recommendations with respect to the terms
of the Conversion and/or preparing a report concerning the fairness of such
Conversion. Therefore, Public Unitholders will not be separately represented in
connection with the Conversion. In considering the recommendation of the Board
of Directors of the General Partner with respect to the Conversion, Unitholders
should be aware that the current members of the Partnership's management, the
Board of Directors of the General Partner and the principal stockholder of the
General Partner have certain interests which present them with conflicts of
interests in connection with the Conversion and the transactions contemplated
thereby.
Terms of the Conversion: Allocation of Common Stock. The General Partner
has determined the terms of the Conversion, including the consideration to be
received by Unitholders and by the principal stockholder of the General Partner,
both with respect to their respective interests in the Partnerships and with
respect to the merger of the General Partner into the Company. Because the
principal stockholder and affiliates of the General Partner control the General
Partner and, through the General Partner, the Partnerships, the Board of
Directors has a substantial conflict of interest in determining the terms of the
Conversion. Although the Board of Directors believes that the terms of the
Conversion are fair to the Unitholders, such terms are not the result of
arm's-length negotiations. Because of this conflict of interest between the
General Partner and the Unitholders, both with respect to the allocation of
Common Stock to be issued in the merger of the Partnerships and with respect to
the merger of the General Partner, the standing Advisory Committee of the Board
(consisting of three individuals, two of which are Disinterested Persons)
reviewed the proposed terms of the Conversion with respect to the consideration
to be received by the Unitholders and the principal stockholder of the General
Partner and provided their advice to the Board. Pursuant to the terms of the
Partnership Agreement, the Advisory Committee advises the Board of Directors
from time to time with respect to any conflict of interest between the General
Partner and the Partnership or the Unitholders.
The Advisory Committee met several times between November 1994 and March
1995, to review and evaluate the proposed terms of the Conversion in view of the
conflicts of interest among the General Partner, the Partnership and the
Unitholders. In the course of its investigation the Advisory Committee retained
the services of Howard, Rice, Nemerovski, Canady, Falk & Rabkin, A Professional
Corporation, as independent legal counsel to the Advisory Committee. The
Advisory Committee advised the Board of Directors that securing an evaluation of
the fairness of the proposed transaction by an independent financial advisor
would help assure the Board that it was taking appropriate steps to mitigate the
effect of conflicts of interests. Based upon this recommendation, the Board of
Directors retained the Financial Advisor and the Committee considered the
Financial Advisor's opinion and analysis in making its recommendations.
The Committee considered the effect of conflicts of interest on (a) the
fairness to the Unitholders, from a financial point of view, of the allocation
of Common Stock to be received by the Unitholders and the principal stockholder
of the General Partner, and (b) the merger of the General Partner into the
Company and the issuance of Common Stock to the principal stockholder of the
General Partner in exchange for $1,000,000 in additional capital provided by the
General Partner as a part of the merger. The Advisory Committee's role was
limited to advising the Board on minimizing the effects of conflicts of
interest. The Advisory Committee did
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<PAGE> 40
not evaluate the desirability of converting the Partnership to corporate form or
the alternatives to the Conversion. Similarly, the Advisory Committee did not
undertake the representation of the Public Unitholders in the Conversion, did
not assess whether terms more advantageous to the Unitholders might be
negotiated with the General Partner and its affiliates, and did not negotiate
any of the terms of the Conversion on behalf of the Unitholders or any other
party.
The Advisory Committee advised the Board of Directors that the proposed
method of allocating the shares of Common Stock to be issued upon conversion of
the Unitholder's and the General Partner's respective interests in the
Partnerships helps to reduce the effect of conflicts of interest present in the
contemplated transaction since it effectively continues all such parties
respective interests unchanged, and further advised that it believes that such a
method of allocation was a fair apportioning of Common Stock of the Company in
respect of interests in the Partnership. The Advisory Committee considered and
relied on the Financial Advisor's opinion which concluded in effect that the
receipt of 184,946 shares of Common Stock by the principal stockholder of the
General Partner in lieu of the General Partner's 1.99% general partner interest
in the Partnerships is fair to Public Unitholders from a financial point of
view. The Advisory Committee further recognized that the Unitholders' interests
in TENERA were not diluted as a result of the merger of the Partnerships into
the Company. The percentages of the Company's Common Stock that the Unitholders
and the principal stockholder of the General Partner will receive in respect of
their current interests in the Partnerships, will be the same as their
respective percentage interests (direct or indirect) in the collective
distributions and allocations of the Partnerships on a combined basis prior to
the Conversion. Although this allocation differs from an allocation of shares
based upon the parties' respective capital accounts, an allocation based on
capital accounts would only have reduced the Unitholders' allocation of Common
Stock. The proposed transaction reflects the Committee's position on this method
of allocation.
The Advisory Committee further advised the Board of Directors that the
proposed method of allocating the Common Stock to be issued in connection with
the merger of the General Partner into the Company, which merger will result in
$1,000,000 in additional capital to the Company helps to reduce the effect of
conflicts of interest present in the contemplated transaction since it bases the
effective purchase price for such shares on a value determined by reference to
an independent trading market rather than a price specified by the Board of
Directors, and further advised that it believed that such a method of allocation
would be fair to the Public Unitholders from a financial point of view. The
foregoing, however, does not constitute a position by the Advisory Committee as
to the fairness of the effective price that will be paid for the shares in such
merger. The Advisory Committee considered and relied on the Financial Advisor's
opinion which concluded that basing the effective purchase price of the shares
issued in exchange for such additional capital on the greater of the average
closing sales price of the Units as reported on AMEX for the 60 calendar days
immediately preceding and immediately following the public announcement of the
Conversion was fair to the Unitholders from a financial point of view. The
proposed transaction had originally provided that the effective price be based
on the average closing sales prices for 30-day periods, however, the Committee
suggested extending the period to 60 days, which suggestion was adopted by the
Board of Directors. The Committee further believed that this market valuation
represents a fair approach for establishing the amount an independent third
party would pay for newly issued shares in an arm's-length transaction. By
linking the effective price to be paid by the principal stockholder of the
General Partner to an independent market price, the effect of the conflict of
interest resulting from the acquisition of additional shares by the sole
stockholder of the General Partner is mitigated. The Committee was cognizant of
the fact that it may be the case that a single buyer could not acquire for
$1,000,000 through open market purchases the same percentage interest as will be
allocated to the General Partner and that TENERA has not sought equity financing
on similar terms from other sources. However, the Committee was also aware,
based on the Company's financial position and the advice of management, that
additional financing was required by the Company and that TENERA's current bank
lender was unwilling to provide additional financing. The Committee concluded,
based on the analysis of the Financial Advisor presented to the Board of
Directors of the General Partner, that the Company could not obtain equity
financing on terms more favorable than those offered by the General Partner. The
Board of Directors agreed with the Committee's positions and adopted its advice
on these issues. The Committee also noted that the infusion of the additional
$1,000,000 of capital could conceivably have been accomplished through a direct
sale of stock to the General Partner rather than its merger into the Company,
and advised that
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<PAGE> 41
such a structure would effectively reduce the effect of conflicts of interest
relating to the elimination of the General Partner's liability for the
Partnership's obligations and the Company's assumption through the merger of any
other liabilities of the General Partner. The Board did not adopt that revised
structure since, for tax reasons, the General Partner would only make the
investment through a merger. See "Opinion of Independent Financial Advisor" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Furthermore, it should be noted that members of the Advisory Committee are
subject to conflicts of interest regarding the elimination of the General
Partner's unlimited liability to the same extent as the other members of the
Board of Directors of the General Partner and there can be no assurance that the
terms of the Conversion are as favorable as could be obtained absent such
conflicts of interest. See "Risk Factors -- Conflicts of Interest: Terms of
Conversion" and "-- Conflicts of Interest: Elimination of Unlimited Liability."
Other Factors Considered. The Advisory Committee, in its review,
identified several other conflicts of interest in connection with the Conversion
that may be relevant to the determination of the fairness of the allocation of
Common Stock among the Unitholders and the principal stockholder of the General
Partner from a financial point of view. These included the fact that a portion
of the initial capital contributions made to the General Partner by its
stockholders at the time of the Partnership's formation would be returned to the
stockholders immediately prior to the Conversion and the fact that the General
Partner's liability for the obligations of the Partnerships would be eliminated
through the Conversion. Under the Delaware Act, general partners are generally
subject to unlimited liability with respect to partnership obligations and
liabilities to the extent not paid by the Partnerships. Thus, the General
Partner would normally be liable for acts of the Partnership and the Operating
Partnership. The Partnership Agreement, however, provides broad indemnity to the
General Partner and its affiliates and their respective directors, officers,
employees and agents for liabilities they may incur by reason of serving in such
capacities. Nonetheless, as a result of the Conversion, the General Partner will
no longer be liable for acts of the Partnership and the Operating Partnership on
a going forward basis. In addition, as a result of the merger of the General
Partner into the Company, the Company will assume the liability, if any, that
the General Partner may have incurred during the period TENERA has operated as a
limited partnership.
In considering these factors, the Advisory Committee concluded that the
elimination of the General Partner's liability for obligations of the
Partnership occurring after the Conversion, the Company's assumption of such
liability for obligations occurring prior to the Conversion and the distribution
of some of the General Partner's assets to its stockholders immediately prior to
the Conversion were not relevant to a determination of the fairness to the
Unitholders from a financial point of view, of the allocation of Common Stock in
the Conversion. The Advisory Committee noted that the elimination of the General
Partner's liability will result solely as an incidence of changing from
partnership to corporate form and will not result in any increase or decrease of
the Unitholders' obligations or liabilities as equity investors in TENERA.
Likewise, the return of some of the General Partner's net assets to its
stockholders immediately prior to the Conversion, including a portion of the
original capital contributions made to the General Partner at the time of its
formation, will not affect the fairness of the allocation of Common Stock in the
Conversion from a financial point of view because the Unitholders have no right
as investors to any portion of such capital contribution in the General Partner,
whether or not the Conversion is consummated.
The Advisory Committee also considered the relevance of the elimination of
the General Partner's liability for the obligations of the Partnership in
considering the desirability of the merger of the General Partner into the
Company as part of the Conversion and the allocation of the Common Stock to the
principal stockholder of the General Partner in connection therewith. The
Advisory Committee again concluded that such elimination of liability will not
result in any increase or decrease of the Unitholders' obligations or
liabilities as equity investors in TENERA and is not relevant to the
consideration of whether the Company could benefit from the infusion of
additional capital and liquidity of $1,000,000 in exchange for the issuance of
an additional shares of Common Stock.
In recognizing the incidental benefit to the General Partner of the release
of general partner liability, the Committee also was aware that the Advisory
Services Agreement will be terminated upon consummation of
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<PAGE> 42
the Conversion resulting in a loss of fees to an affiliate of the General
Partner and a savings to the Company. While these fees are not, to the
Committee's knowledge, being exchanged for the elimination of liability, the
Committee was aware that this loss of fees will represent an incremental
disadvantage to the General Partner and advantage to the Company.
As a result of its deliberations, the Advisory Committee concluded that,
assuming the Conversion were to proceed, the fairness of the allocation of
Common Stock from a financial point of view would not be affected by these
conflicts of interest, which will not change the ownership percentages of the
Unitholders and the General Partner (and indirectly its stockholders) in the
Common Stock issued with respect to the merger of the Partnerships from the
ownership percentages currently held by the Unitholders and the General Partner
in the Partnerships.
OPINION OF INDEPENDENT FINANCIAL ADVISOR
The Board of Directors of the General Partner has retained Wilson
Associates to evaluate the fairness to the Public Unitholders from a financial
point of view of the consideration to be received in connection with the
Conversion by the principal stockholder of the General Partner (who will be the
sole stockholder of the General Partner immediately prior to the consummation of
the Conversion). Wilson Associates, an independent corporate valuation firm, was
selected by the General Partner upon the recommendation of the Advisory
Committee based on the experience of the principals of the Financial Advisor in
the valuation of businesses and their securities in connection with mergers and
acquisitions, and in valuations for estate, corporate and other purposes.
The Board of Directors has received an opinion from the Financial Advisor
dated March 27, 1995 to the effect that, as of the date of the opinion, (i) the
receipt of 184,946 shares of Common Stock by the principal stockholder of the
General Partner in lieu of the General Partner's 1.99% general partner interest
in the Partnerships, and (ii) basing the effective purchase price of the Common
Stock to be issued to the principal stockholder of the General Partner in
connection with the merger of the General Partner into the Company on the
greater of the average closing price of the Units as reported on AMEX for the 60
calendar days immediately preceding and immediately following the public
announcement of the Conversion, is fair to the Public Unitholders from a
financial point of view. This opinion is subject to certain limitations and
assumptions stated therein. The Financial Advisor's opinion is set forth in full
as Annex C to this Consent Solicitation Statement/Prospectus, and should be read
in its entirety. Any description of or reference to the Financial Advisor's
opinion is subject to, and qualified in its entirety by reference to, the full
text of such fairness opinion as set forth in Annex C.
In requesting the opinion from the Financial Advisor, the General Partner
did not impose any limitations upon the scope of the investigation that the
Financial Advisor deemed necessary to enable it to deliver its opinion. In
connection with its opinion, however, the Financial Advisor was not requested to
solicit, and did not solicit, indications of interest from persons with respect
to the sale in whole or in part of the Partnership, its securities or any of its
business or assets. In addition, the terms of the merger of the General Partner
into the Company were determined by the General Partner. The Financial Advisor
was not requested to, and did not, consider or investigate alternative
structures for, or alternatives to, the merger of the General Partner into the
Company. Moreover, the Financial Advisor expressed no opinion as to the price at
which the Common Stock will trade after the consummation of the Conversion, or
the fairness of the consideration to be received by the Public Unitholders in
the Conversion.
In connection with rendering its opinion and as more fully set forth
therein, the Financial Advisor reviewed draft documents related to the
Conversion and various financial and other information regarding the Partnership
that was publicly available or furnished by the General Partner.
On March 30, 1995, the Financial Advisor delivered to the Board of
Directors of the General Partner its written opinion concerning, and its
analyses of, the fairness to the Public Unitholders from a financial point of
view of the consideration to be received in connection with the Conversion by
the principal stockholder of the General Partner. In rendering its opinion, the
Financial Advisor considered, among other things (i) certain of the
Partnership's historical financial statements, (ii) the recent trading history
of the Units, (iii) projected
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<PAGE> 43
cash flows of the Partnership for the period 1995 to 1999, (iv) certain analysis
based on a discounted debt-free cash flow valuation of the Partnership, (v)
certain analysis based on selected financial data of certain publicly-traded
companies comparable to the Partnership, and the market value of the securities
of such companies, (vi) certain risks to which the business of the Partnership
is subject, (vii) the appropriateness of a control premium, (viii) the
elimination of the unlimited liability of the General Partner as a result of the
Conversion and the Merger, and (ix) certain information regarding the business
of the Partnership and the industry in which it operates.
The Financial Advisor's analysis of the recent trading history of the Units
focused on the period from September 1, 1994 through March 31, 1995. The
Financial Advisor presented the following information with respect to the
foregoing period:
<TABLE>
<CAPTION>
AVERAGE PRICE
SHARES TRADING UNITS ---------------
MONTH TRADED DAYS TRADED HIGH LOW
---------------------------------------- ------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
March 1995.............................. 84,500 20 4,225 $ .81 $ .50
February 1995........................... 68,300 13 5,253 $ .81 $ .56
January 1995............................ 55,600 14 3,971 $ .94 $ .63
December 1994........................... 192,600 20 9,630 $ .94 $ .63
November 1994........................... 46,600 17 2,741 $1.06 $ .75
October 1994............................ 96,600 21 4,600 $1.31 $1.00
September 1994.......................... 60,200 17 3,541 $1.13 $ .69
</TABLE>
The Financial Advisor's review of the historical financial statements of
the Partnerships focused on the years 1992 through 1994 and included a review of
the Partnerships' annual financial results for such years, and the quarterly
financial results for the quarters ended March 31, June 30, and September 30,
1994, as compared to the results for the comparable periods of 1993. The
projected cash flows for the Partnerships for the period 1995 through 1999
considered by the Financial Advisor were based on economic projections developed
by the Financial Advisor in consultation with representatives of the
Partnership. The discounted debt-free cash flow analysis performed by the
Financial Advisor focused on these projected cash flows to determine the
valuation of TENERA as of March 1995 by adding the present value of these cash
flows to the present value of the Partnership's capitalized projected 1999 net
income. The Partnership's 1999 projected net income was capitalized with a
price/earnings multiple of 12 times, the estimated price/earnings multiple of
the industrial services industry in the 1997-1999 period. A discount rate of 35%
was used to determine the present value of the cash flows. A 35% discount rate
was applied to that valuation because the Units are thinly traded (the "blockage
discount"). The discounted debt-free cash flow valuation of the Partnership
produced a valuation of TENERA as of March 1995 of $.76 per Unit with the
blockage discount and $1.17 per Unit without the blockage discount.
The Financial Advisor's analysis of certain comparable publicly traded
companies was developed to test the valuation derived from its discounted
debt-free cash flow analysis. The comparable companies analysis focused on:
Comarco, Inc., a provider of engineering and computer services deriving a
significant portion of its revenues from government contracts, principally the
Department of Defense; TRC Companies, a company providing environmental
engineering, testing and consulting services to industry and government; and VSE
Corp., a company providing engineering, development, manufacturing, testing and
management services, with a significant portion of its revenues generated by
sales to the U.S. government. The Financial Advisor determined the market value
of each of the foregoing companies by multiplying its recent trading price with
the number of shares outstanding. The Financial Advisor also obtained for each
company its revenues, book value, earnings per share for the last twelve months
and estimated earnings for 1995. Computations were then made of TENERA's market
value to revenues, market value to book value, market value to earnings per
share for the last twelve months and market value to 1995 estimated earnings
using the average multiples of the comparable companies for each of the
foregoing valuation parameters (i.e., .52, 2.3, 14.8 and 11.0, respectively).
The foregoing analysis yielded a comparable companies valuation of TENERA of
$.67 per Unit
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<PAGE> 44
with the blockage discount, and $1.03 without the discount. The Financial
Advisor then averaged the values derived from the discounted debt-free cash flow
valuation and the comparable companies valuation to achieve a final valuation of
TENERA of $.72 to $1.10 per Unit.
The Financial Advisor also analyzed the value of the General Partner's
1.99% general partner interest in the Partnerships based on projected cash flows
to the General Partner for the years 1995 through 1999. Discounting this cash
flow stream at 20% (approximately double the prime rate on bank loans) yielded a
present value of $149,533 for this cash flow. The Financial Advisor then
compared the present value of the General Partner's cash flow (i.e., $149,533)
to the value of the Common Stock to be received by the principal stockholder of
the General Partner for the 1.99% general partner interest in the Partnerships
based on the then current market price of the Units of approximately $.75 per
Unit (i.e., $136,800).
The preparation of a fairness opinion is a complex process and is not
susceptible to a partial analysis or summary description. Accordingly, the
summary set forth above does not purport to be a complete description of the
analyses underlying the Financial Advisor's opinion. The Financial Advisor
believes that its analyses must be considered as a whole and that the selection
of portions of its analysis and the factors considered by it, without
considering all factors and analyses, could create an incomplete view of the
processes underlying its opinion. In its analysis, the Financial Advisor made
numerous assumptions including, among other things, the accuracy and
completeness of all financial and other information provided to the Financial
Advisor, including the assurances of management of the General Partner that they
were unaware of any facts that would make such information provided to the
Financial Advisor incomplete or misleading. The Financial Advisor did not
undertake any independent verification of such information or perform or obtain
an independent evaluation or appraisal of the assets or earnings of the
Partnership. Any projections or estimates contained in the Financial Advisor's
analyses are not necessarily indicative of future results, prices or values,
which may be significantly more or less favorable than as set forth in such
analyses.
For its services in connection with its opinion, the Financial Advisor has
received a fee of $10,000 (which fee was payable whether or not such opinion was
favorable). Such fee was negotiated between the General Partner and the
Financial Advisor. The Partnership also agreed to reimburse the Financial
Advisor for certain out-of-pocket expenses and to indemnify the Financial
Advisor against certain liabilities, including certain liabilities under the
federal securities laws.
RECOMMENDATION OF THE GENERAL PARTNER
The General Partner believes the Conversion is fair and in the best
interests of the Partnership and the Unitholders. For purposes of the General
Partner's belief as to fairness, the term Conversion includes the process by
which the decision to propose the Conversion was made. After fully considering
both the advantages and the disadvantages in late 1994 and early 1995, the Board
of Directors of the General Partner has unanimously concluded that, on balance,
implementing the Conversion is preferable to continuing the partnership
structure and the Board of Directors of the General Partner unanimously
recommends that the Unitholders approve the Conversion.
In reaching its recommendation, the General Partner considered several
factors. The General Partner considered the fact that TENERA has not made
distributions since mid-1991 and is not likely to make distributions in the
foreseeable future and that, if TENERA is able to generate and sustain operating
earnings and has taxable income, it is possible that the Unitholders will incur
taxable income without any cash distributions. The General Partner also
considered the fact that any continuing operating losses are unlikely to benefit
the Unitholders given the passive loss limitations now in effect and that TENERA
would be foregoing the opportunity to accumulate any such operating losses in
the new corporate entity while it remains a partnership. Additionally, TENERA
could save an estimated $120,000 per year if it were to report for tax purposes
as a corporation rather than as a partnership. This annual savings represents an
aggregate savings of approximately $240,000 for the tax reporting periods of
1996 and 1997. Thereafter the savings would not be available because the
Partnership will be automatically converted into a corporation for tax reporting
purposes. See "-- Reasons for the Conversion -- Automatic Taxation as a
Corporation After 1997."
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<PAGE> 45
The General Partner also considered the alternative to the Conversion of
continuing the existence of the Partnership as a limited partnership. The
General Partner considered that the principal advantage of operating in
partnership form (i.e., one level of federal income tax) is not currently useful
and is not expected to be useful in the foreseeable future, given the
expectation that TENERA will not resume distributions, regardless of whether
taxable income may be recognized by Unitholders. Accordingly, continuation of
TENERA in partnership form could be detrimental to investors in the event that
TENERA generates taxable income without making distributions. The General
Partner further considered the complexities and costs of tax reporting
associated with partnership form, the fact that the Partnership will
automatically be treated as a corporation and not as a partnership for federal
income tax purposes after 1997 and the potential for the Common Stock to attain
greater acceptance within the investment community than the Units and for an
expanded investor base. The General Partner concluded that the Conversion would
be more beneficial to the Unitholders than continuing the existence of the
Partnership as a limited partnership and a recommendation to that effect was
fair.
The General Partner also considered that converting to corporate form would
result in TENERA being treated as a separate taxpayer whose income, gains,
losses and deductions would be reported on its own tax return, rather than being
passed on directly to Unitholders in the context of possible operating losses.
Such operating losses, if accumulated at the corporate level, could be used to
offset, partially or wholly, any future taxable income of TENERA. The General
Partner concluded therefore that conversion to a corporation would probably not
have a significant detrimental economic impact on the Unitholders.
The General Partner did not consider the liquidation of the Partnership as
an alternative to the Conversion because the General Partner believes that the
continued operation of TENERA, whether in corporate or partnership form, is more
beneficial to Unitholders than a liquidation. The General Partner believes
liquidation is not a viable alternative because, due to the nature of TENERA's
business, the net proceeds of its assets in liquidation are not likely to
exceed, and may be less than, their book value ($4,547,000 at December 31,
1994), and less than the market value of the Partnership based on the current
market price of the Units. The General Partner did not consider a sale of the
Partnerships as a viable alternative to the Conversion because given the
operating losses and declining revenues and earnings since 1991, the General
Partner believes the Partnerships are not an attractive candidate for
acquisition by third parties as a going concern at this time and, although the
General Partner has not made inquiries as to potential buyers of the
Partnerships, there have been no inquiries by third parties regarding such a
transaction in the last four years.
The General Partner believes that the allocation of Common Stock in the
Conversion among the Unitholders and principal stockholder of the General
Partner (who will be the sole stockholder of the General Partner immediately
prior to the consummation of the Conversion) is fair. This belief is principally
based on the analyses and conclusions of the General Partner after careful
review of the factors discussed below, the factors considered by the Advisory
Committee (see "-- Conflicts of Interest of the General Partner" above), the
recommendations of the Advisory Committee, and the opinion of the Financial
Advisor.
In considering the terms of the Merger regarding the allocation of the
Common Stock to be issued in connection with the merger of the Partnerships into
the Company, the General Partner determined that the equity ownership
percentages that the former Unitholders and the principal stockholder of the
General Partner will hold in such Common Stock, should be the same as the equity
ownership percentages currently held by the Unitholders and the General Partner
in the Partnerships and the sole purpose of the allocation provisions was to
preserve such equity ownership interests. The percentage equity ownership
interests of the General Partner and the Unitholders are approximately equal to
their respective initial aggregate capital contributions. The General Partner
reviewed the substantially similar treatment of the interests of the Unitholders
and the principal stockholder of the General Partner and concluded that for
fairness purposes there were no material differences between the Unitholders and
the principal stockholder of the General Partner in the allocation of the Common
Stock with respect to the merger of the Partnerships. There were no other
methods of allocating the shares of Common Stock presented or considered because
the General Partner determined that preservation of the parties' equity
ownership interests in the Common Stock issued with respect to the merger of the
Partnerships was equitable and appropriate in light of the Conversion's primary
purpose to change the form of organization. The fact that there was no
independent fairness opinion regarding the amount of
42
<PAGE> 46
Common Stock to be issued to the Unitholders in connection with the merger of
the Partnerships was considered by the General Partner. The absence of such a
fairness opinion on this aspect of the Conversion means that Unitholders will
not receive any assurances from an independent third party that these terms of
the Conversion are fair to the Unitholders. However, the Common Stock issued to
the Unitholders with respect to the merger of the Partnerships into the Company
is based on a one-for-one exchange of Units for Common Stock and will be
allocated among the Unitholders and the principal stockholder of the General
Partner exactly in accordance with the respective equity ownership interests of
the Unitholders and the General Partner in the Partnerships. In addition, the
General Partner did receive an opinion of the Financial Advisor as to the
fairness, from a financial point of view, to the Public Unitholders of the
amount of Common Stock issued to the principal stockholder of the General
Partner in connection with the merger of the Partnerships in lieu of the General
Partner's 1.99% general partner interest in the Partnerships. Moreover, under
the Delaware Act the General Partner recognized that it has a duty to exercise
fairness in handling the affairs of the Partnership. See "The
Conversion -- Fiduciary Duties." The General Partner therefor concluded that
even in the absence of an independent fairness opinion on this issue, the terms
of the Conversion regarding the amount of Common Stock to be issued to the
Unitholders in connection with the merger of the Partnerships are fair to the
Unitholders.
In considering the terms of the Merger regarding the amount of Common Stock
to be issued in connection with the merger of the General Partner, the Board of
Directors of the General Partner reviewed the proposed method of calculating the
number of shares to be issued based on dividing the amount of cash to be
received by the Company from the General Partner ($1,000,000) by the per share
price which is the greater of the average closing sales price of the Units as
reported on AMEX for the 60 calendar days immediately preceding ($0.69 per Unit)
and immediately following ($ per Unit) the April 4, 1995 public announcement
of the Conversion. The average closing sales prices of the Units for these
periods was derived from the closing sales prices as reported on AMEX, which
were the same as the closing sales prices for the Units as reported on the
consolidated transaction reporting system. This $ per share valuation was
calculated to approximate the current market valuation of the Units and the
Common Stock on the assumption that, upon consummation of the Conversion, one
share of Common Stock would have the same market value as one Unit immediately
prior to the Conversion. The General Partner recognized that the market price of
the Common Stock after the Conversion may not be the same as the market price of
the Units before the Conversion, but the General Partner concluded that
determining the market price of the Units was the best way to determine what the
market price of the Common Stock is likely to be given the fact that Company
will succeed to the business, assets and liabilities of the Partnerships. The
sole reason the General Partner used this method of determining the amount of
Common Stock to be issued with respect to the merger of the General Partner into
the Company was to minimize the conflicts of interest inherent in the General
Partner merger by using the valuation method that would most likely be used in
an arm's-length transaction. The General Partner recognized that there are a
number of variables which may influence the price paid for the common stock of a
publicly traded company in an arm's-length transaction. However, after
consultation with the Advisory Committee of the Board of Directors, the Board of
Directors of the General Partner concluded that using the market value of the
Common Stock to determine the amount of Common Stock to be issued most closely
approximates the price that would be paid for newly issued shares of the Company
by an independent third party in an arm's-length transaction and was fair to the
Unitholders and the principal stockholder of the General Partner from a
financial point of view. Moreover, in reaching its conclusions the Board of
Directors has reviewed and relied upon the opinion of the Financial Advisor
described above. The Board of Directors of the General Partner also considered
the per Unit book value of the Partnership as a method for determining the
amount of Common Stock to be issued, but determined not to use book value
because the per share valuation of the Common Stock based on market value
significantly exceeds the per Unit book value of the Partnership, which was
$0.48 per Unit as of December 31, 1994. See "Summary Historical and Pro Forma
Financial Information," "-- Conflicts of Interest of the General Partner" and
"Risk Factors -- Conflicts of Interest: Terms of the Conversion."
The General Partner also considered that the merger of the General Partner
(the sole assets of which, in addition to its general partner interests in the
Partnerships, are cash or cash equivalents), will provide additional financial
strength to the Company and added liquidity of $1,000,000 which may enhance
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<PAGE> 47
TENERA's ability to rebuild its business after the losses and decreased earnings
experienced since 1991. The Board of Directors of the General Partner considered
that the General Partner was formed in connection with TENERA's conversion to
partnership form in 1986 and has acted solely as general partner of the
Partnerships. As such, it is liable for the general obligations of the
Partnerships to the extent not paid by the Partnerships and its assets have been
available for that purpose. In addition, to help assure treatment of the
Partnerships as partnerships for federal income tax purposes, the General
Partner agreed to and has maintained a net worth of not less than $2,500,000.
While the General Partner will be relieved of unlimited liability as a result of
the Conversion and will no longer be required to maintain a $2,500,000 net worth
after the Conversion, the Unitholders will neither increase nor decrease their
obligations as equity investors in TENERA as a result of that elimination of
liability. Further, the General Partner has agreed to transfer a significant
portion of its assets to the Company through the merger of the General Partner
into the Company, which will increase the asset base of the Company. The General
Partner considered that the issuance of additional shares of Common Stock
to the principal stockholder of the General Partner in connection with the
merger of the General Partner will reduce the voting power of the Public
Unitholders from 69.1% to %. The Board of Directors of the General Partner
believes, however, that this disadvantage to the Public Unitholders is offset by
the infusion into the Company of $1,000,000 in cash from the General Partner. As
a result of this capital infusion, the issuance of such additional shares of
Common Stock will not result in dilution of the book value of the Common Stock
issued to Public Unitholders in exchange for Units in the Conversion. Although
the issuance and sale of such additional shares could adversely effect the
market price of the Common Stock, the General Partner concluded that this risk
was minimized by the fact that, as discussed immediately above, the price paid
for such additional shares is based on the market value of the Units, which is
expected to approximate the market price of the Common Stock.
The General Partner considered that if all of the current stockholders of
the General Partner and their affiliates, who currently own 29.6% of the
outstanding Units of the Partnership, voted in favor of the Conversion, the
holders of less than 29.1% of the Units held by persons not affiliated with the
General Partner would be required to vote in favor of the Conversion to achieve
the required majority vote necessary. However, there are no voting arrangements
or agreements among the current stockholders or affiliates of the General
Partner. The General Partner also considered that the principal stockholder of
the General Partner will own % of the outstanding shares of Common Stock of
the Company upon consummation of the Conversion and the initial Board of
Directors of the Company will consist of the current members of the General
Partner's Board of Directors. As a result, the principal stockholder of the
General Partner will be able to exercise significant influence over matters
requiring stockholder approval for as long as he continues to hold such shares,
and the Company's Board of Directors will initially consist of the current
members of the General Partner's Board of Directors who will be able to exert
significant influence over the operations of the Company. The General Partner
concluded that the continuing influence of the General Partner, both as
stockholders and members of the Board of Directors of the Company, is not a
distinction which affects the fairness of the Conversion because stockholders of
the General Partner currently control the General Partner, which in turn
controls the management and affairs of the Partnership and, thus, corporate
governance of the Company would be similar to current governance of the
Partnership. Further, with respect to the influence of the Board of Directors of
the Company, such members would have a fiduciary duty to the stockholders of the
Company. See "-- Fiduciary Duties." The General Partner's 1% equity ownership
interest in the Partnership is a general partner interest and is not being
solicited to approve the Conversion.
In reaching its recommendations and conclusions, the General Partner also
considered the fact that the Unitholders will have no separate representation in
connection with the Conversion. While the lack of such representation could
increase the risk that the best interests of the Unitholders are not being
protected in connection with the Conversion, the General Partner considered that
(i) the principal stockholder of the General Partner and the Unitholders will
receive that exact percentage of the Common Stock issued with respect to the
merger of the Partnerships into the Company as the Unitholders and the General
Partner currently hold in the Partnerships'; (ii) the Advisory Committee of the
Board of Directors (comprised of individuals, two of which are Disinterested
Persons) retained separate outside legal counsel, has advised the Board of
Directors of the General Partner that it believes that the method of allocating
the Common Stock between the Unitholders and the principal stockholder of the
General Partner with respect to the merger of
44
<PAGE> 48
the General Partner and the Partnerships into the Company, is fair from a
financial point of view to the Unitholders and the principal stockholder of the
General Partner; (iii) the Board of Directors received the opinion of the
Financial Advisor as to the fairness to the Public Unitholders from a financial
point of view of the consideration to be received in connection with the
Conversion by the principal stockholder of the General Partner (who will be the
sole stockholder of the General Partner immediately prior to the consummation of
the Conversion); and (iv) the Board of Directors is comprised of a majority of
directors who are not stockholders, officers, employees, agents or otherwise
affiliates of the General Partner, except for their positions as directors of
the General Partner, and who in the aggregate own less than 1% of the
outstanding Units. The General Partner also recognized its fiduciary duty to the
Unitholders to exercise good faith, fairness and loyalty in handling the affairs
of the Partnership and concluded that by fulfilling its fiduciary duty any
possibility that the Unitholders' best interests were not being protected should
be minimized and the lack of separate representation should not affect the
fairness of the Conversion.
In reaching the recommendations to Unitholders to approve the Conversion,
the General Partner considered the conflicts of interest to which it is subject,
as described under "Risk Factors -- Conflicts of Interest: Elimination of
Unlimited Liability" and "-- Conflicts of Interest: Terms of the Conversion."
The General Partner has not instituted any procedures to eliminate or minimize
the potential conflicts of interest. However, the General Partner believes it
has satisfied its fiduciary duty to the Unitholders to exercise good faith,
fairness and loyalty in handling the affairs of the Partnership. The General
Partner further believes that the conflict of interest to which it is subject
with respect to the elimination of unlimited liability for Partnership
obligations to the extent not paid by the Partnership does not affect the
fairness of the terms of the Conversion.
Moreover, as required by the Section 6.11(a) of the Partnership Agreement,
in connection with the formation of the Partnership in 1986, the Board of
Directors formed the standing Advisory Committee of the Board and appointed
members to the Committee, a majority of which members have been and continue to
be Disinterested Persons, as required by the Partnership Agreement. The
Committee currently consists of William A. Hasler (appointed to the Committee by
the full Board in May 1992) and Barry L. Williams (appointed to the Committee by
the full board in November 1994), both of whom are Disinterested Persons, and
Michael D. Thomas, Chairman and Chief Executive Officer of the General Partner
(appointed to the Committee by the full Board in November 1994). The Board of
Directors of the General Partner consulted with the Advisory Committee with
respect to the conflicts of interest inherent in the allocation of the Common
Stock to be issued in connection with the Merger. The Advisory Committee
reviewed the proposed terms of the Conversion with respect to the consideration
to be received by the Unitholders and the principal stockholder of the General
Partner with a view to minimizing the conflicts of interest inherent in the
Conversion, but did not separately evaluate the desirability of converting the
Partnerships to corporate form. The Advisory Committee has advised the Board of
Directors that it believes that an investment in the Company by the General
Partner of $1,000,000 in cash would be desirable and the method of allocating
the Common Stock to be issued in connection with the Conversion between the
Unitholders and the principal stockholder of the General Partner is fair from a
financial point of view to the Unitholders. It should be noted, however, that
members of the Advisory Committee are subject to conflicts of interest regarding
the elimination of unlimited liability to the same extent as the other members
of the Board of Directors of the General Partner. See "Conversion -- Conflicts
of Interest of the General Partner" and "-- Fiduciary Duties."
The General Partner also considered the absence of statutory appraisal and
similar rights available to the Unitholders, as described under "Risk
Factors -- No Statutory Appraisal or Dissenters' Rights." The absence of
statutory appraisal rights does not affect the underlying fairness of the
Conversion, but does limit a Unitholder's ability to obtain redress. The General
Partner noted a Unitholder's ability to obtain redress under the common law of
Delaware and concluded that the absence of statutory appraisal rights does not
affect its recommendation to Unitholders to approve the Conversion.
All of the factors listed above were considered by the General Partner as a
whole in reaching its belief with respect to the overall fairness of the
Conversion (including the process by which its decision was made), and it was
impracticable to assign relative weights to the factors considered.
45
<PAGE> 49
THE MERGER AGREEMENT
The Conversion will be effected pursuant to an Agreement and Plan of
Merger, dated as of , 1995 (the "Merger Agreement"), among the
Company, the Partnership, the Operating Partnership and the General Partner. The
following is a summary of certain provisions of the Merger Agreement, which is
attached as Annex A hereto and is hereby incorporated by reference. Such summary
is qualified in its entirety by reference to the Merger Agreement.
The Merger. Subject to the terms and conditions of the Merger Agreement,
the Partnership, the Operating Partnership and the General Partner will be
merged with and into the Company. Upon consummation of the Merger, all of the
assets and liabilities held by the Partnership, the Operating Partnership and
the General Partner at the time of the Merger will be transferred to the Company
by operation of law; the Partnership, the Operating Partnership and the General
Partner will thereafter cease to exist; and every issued and outstanding Unit
will automatically be converted into one share of Common Stock and the right to
receive, upon exchange therefor of the depositary receipt representing such
Units, a certificate representing such share of Common Stock. The General
Partner's 1% general partner interest in each of the Partnership and the
Operating Partnership will be converted into that number of shares of Common
Stock equal to 1.99% of the shares of Common Stock to be issued in connection
with the merger of the Partnerships and the right to receive a certificate or
certificates representing such shares of Common Stock. The common stock of the
General Partner will be converted into shares of Common Stock, which
amount of additional shares was determined by dividing the $1,000,000 of cash to
be received by the Company from the General Partner in the Merger by $
per share, which per share amount is the greater of the average closing sales
price of the Units as reported on AMEX for the 60 calendar days immediately
preceding and immediately following the public announcement of the Conversion.
Effective Time. The Merger will become effective after all of the
conditions to consummation of the Merger have been satisfied or waived, where
permissible, or on such later date as the parties may mutually agree (the
"Effective Time"), by filing with the Secretary of State of the State of
Delaware a certificate of merger as required by applicable Delaware law. See
"-- Conditions to the Merger." It is presently anticipated that the Effective
Time of the Merger will be 12:01 a.m. on , 1995.
Exchange of Units. SURRENDER AND EXCHANGE OF DEPOSITARY RECEIPTS
REPRESENTING UNITS FOR CERTIFICATES REPRESENTING COMMON STOCK IS NOT REQUIRED.
However, at, or as promptly as practicable following the Effective Time, (i) the
Company will make available or cause to be made available to the Exchange Agent
certificates representing shares of Common Stock, and (ii) a letter of
transmittal will be furnished to holders of depositary receipts that formerly
represented Units containing instructions relating to the surrender of such
depositary receipts in exchange for the appropriate number of shares of Common
Stock. The signatures on each letter of transmittal accompanying depositary
receipts must be guaranteed by a firm that is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States. The Company and the Partnership expect that the certificates
representing shares of Common Stock will be issuable approximately 15 business
days following the Effective Time. Unitholders should not submit their
depositary receipts for exchange until such letter of transmittal is received.
UNITHOLDERS SHOULD NOT SEND ANY DEPOSITARY RECEIPTS WITH THE CONSENT CARD THAT
ACCOMPANIES THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS.
After the Effective Time, there will be no further transfers on the
transfer books of the Partnership of Units that were outstanding immediately
prior to the Effective Time. If a depositary receipt is presented for transfer
after the Effective Time, it will be canceled and the appropriate number of
shares of Common Stock will be issued in exchange therefor.
Although the Partnership has made arrangements for Unitholders to promptly
surrender depositary receipts in exchange for certificates evidencing shares of
the Common Stock upon receipt of a letter of transmittal, such surrender and
exchange is not required. From and after the Effective Time, each depositary
receipt evidencing ownership of Units will be deemed to evidence ownership of an
identical number of shares of Common Stock. The Company will be entitled to
treat each registered holder of a Unit or Units as the
46
<PAGE> 50
owner of an identical number of shares of Common Stock, notwithstanding any
failure of such Unitholder to surrender the depositary receipt representing such
Units.
If any certificate for shares of Common Stock is to be issued to a person
other than a person in whose name a surrendered depositary receipt is
registered, it will be a condition to such issuance that the depositary receipt
so surrendered be properly endorsed and otherwise in proper form for transfer.
It will also be a condition to issuance that the person requesting such issuance
shall have paid any transfer and other taxes required by reason of such issuance
in a name other than that of the registered holder of the depositary receipt
surrendered, or shall have established to the satisfaction of the Company that
such tax either has been paid or is not payable.
Agreements of the Company, the Partnerships and the General Partner. The
Merger Agreement provides that the Company, the Partnerships and the General
Partner will, upon the terms and subject to the conditions thereof, use their
best efforts to take or cause to be taken all actions necessary, proper or
advisable to consummate and make effective the transactions contemplated by the
Merger Agreement, including making all necessary filings and seeking all
necessary consents. The Company has also agreed to take such action as
reasonably may be required under applicable state securities laws in connection
with issuance of the Common Stock pursuant to the Merger.
The Merger Agreement provides that the Company, the Partnership and the
Operating Partnership must to the fullest extent permitted under applicable law
and under the Partnership's and the Operating Partnership's Certificate of
Limited Partnership and Partnership Agreement and the Company's Certificate of
Incorporation and By-Laws, as the case may be, indemnify, defend and hold
harmless the present and former general partners, officers, directors,
stockholders, employees, fiduciaries and agents of the Partnership, the
Operating Partnership and the General Partner and their respective subsidiaries
and affiliates against all costs and/or expenses, judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement arising out of
actions or omissions occurring prior to the Effective Time.
Unit Option Plans. At the Effective Time, the Company will adopt and amend
the Partnership's 1992 Unit Option Plan and the 1993 Outside Directors
Compensation and Unit Option Plan to reflect the fact that the option holders'
options will relate to shares of Common Stock instead of Units and all
outstanding options for Units will be automatically converted to options for
Common Stock at the original exercise price and on the same terms and conditions
as the original Unit options. Except for the changes from Units to Common Stock
and minor conforming changes, the amended 1992 Unit Option Plan and the 1993
Outside Directors Compensation and Unit Option Plan will be identical to the
existing plans. See "Management -- Effect of Merger on Unit Option Plans."
Conditions to the Merger. The obligations of each party to effect the
Merger are subject, among other things, to the following conditions: (i)
approval of the Conversion by the affirmative vote of the holders of a majority
of the outstanding Units; (ii) approval of the Common Stock for listing on AMEX;
(iii) no statute, rule or regulation will have been enacted or promulgated by
any government authority, and there will be no order or injunction of a United
States or state court of competent jurisdiction in effect, which prohibits the
consummation of the Merger and the transactions contemplated thereby; (iv)
receipt of all required consents; (v) counsel to the Partnership will have
rendered an opinion to the effect that the distribution of Common Stock to
Unitholders pursuant to the Merger will generally not produce recognizable gain
or loss to Unitholders; and (vi) receipt of all permits, qualifications and
other governmental approvals as are required under applicable law in connection
with the Merger and the transactions contemplated thereby.
Termination and Amendment. The Merger Agreement may be terminated at any
time prior to consummation of the Merger: (i) by mutual written consent of the
Boards of Directors of the Company and the General Partner or (ii) by either the
Company, the Partnership, the Operating Partnership or the General Partner if
any court of competent jurisdiction in the United States or other United States
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger. Additionally, the General Partner
has the right to terminate the Merger Agreement solely with respect to the
merger of the General Partner into the Company upon the determination of the
Board of Directors of the General Partner prior to the Effective Time.
47
<PAGE> 51
In the event of termination of the Merger Agreement, the Merger Agreement
will become void and have no effect, except that the obligations pursuant to the
Merger Agreement relating to (i) indemnification, (ii) fees and expenses and
(iii) confidentiality will survive such termination. In the event of termination
of the Merger Agreement solely with respect to the merger of the General Partner
into the Company, the Merger Agreement will remain in full force and effect
except for the provisions relating to the merger of the General Partner into the
Company and the issuance of additional shares of Common Stock to the principal
stockholder of the General Partner in connection therewith.
At any time before or after approval of the Conversion by the Unitholders,
the Merger Agreement may be amended in any manner (except the right of
Unitholders to receive one share of Common Stock in exchange for every
outstanding Unit) as may be determined in the judgment of the respective Boards
of Directors of the Company and the General Partner to be necessary, desirable
or expedient in order to clarify the intention of the parties thereto or to
effect or facilitate the purposes and intent of the Merger Agreement. If any
amendment to the Merger Agreement is material to the Unitholder's decision to
vote for or against the Conversion, the Company will distribute to the
Unitholders information regarding the amendment prior to the expiration of the
solicitation period.
FORMATION OF THE COMPANY
The Company was recently formed for the purpose of effecting the Merger.
Prior to the Merger, the Company will have substantially no assets and no
operations. Upon consummation of the Merger, the Company will succeed to all of
the assets and liabilities of the Partnership, the Operating Partnership and the
General Partner and will own and manage the properties and assets that are
currently held by the Partnerships and the General Partner to the same extent
the Partnerships and the General Partner does, except that immediately prior to
the Merger, the General Partner, which currently has assets consisting of
approximately $2,500,000 in cash and cash equivalents, will repurchase certain
of its outstanding shares of common stock for cash, leaving assets of $1,000,000
in cash which will become assets of the Company pursuant to the Merger. See
"Business." The Board of Directors and officers of the Company are exactly the
same as the Board of Directors and officers of the General Partner. Upon
consummation of the Merger, the Company will adopt the compensation policies and
plans of the Partnership and adopt and amend the Partnership's 1992 Unit Option
Plan and 1993 Outside Directors Compensation and Unit Option Plan. See
"Management -- Effect of Merger on Unit Option Plans." The Board of Directors
and officers of the Company will not receive any compensation for serving in
such capacities prior to the Merger. The level of compensation of the Company's
officers and directors upon consummation of the Merger will be the same as that
of the officers and directors of the General Partner (subject to changes to
compensation that would occur whether or not the Merger is consummated). The
Company will be bound by the terms and conditions of the employment agreements
with Joe C. Turnage, Senior Vice President of the General Partner, and Anthony
R. Buhl, also a director of the General Partner, to the same degree as the
Partnership is bound. See "Management -- Executive Compensation." Neither the
General Partner nor any affiliate of the Partnership will receive fees or other
payments solely because of the Merger.
MANAGEMENT FEES AND EXPENSES
The General Partner is not entitled to and does not receive any management
or other types of fees from the Partnership or the Operating Partnership. Under
the Partnership Agreement, the General Partner is entitled to be reimbursed for
any direct or indirect expenses it incurs on behalf of the Partnership and a
portion of the General Partner's expenses and costs which are necessary or
appropriate to the conduct of the Partnership. However, during the term of the
Advisory Services Agreement between the Operating Partnership and Teknekron
Corporation, whereby Teknekron Corporation, an affiliate of the General Partner,
provides management and administrative services to the Partnership for a monthly
fee of $25,000 effective January 1, 1995, the General Partner has agreed to
incur no material costs or expenses which are reimbursable by the Partnership or
the Operating Partnership. The Advisory Services Agreement will terminate
effective upon the consummation of the Conversion. See "Certain Relationships
and Related Transactions." Following the Conversion, the General Partner will
cease to exist and will not be entitled to, nor will it receive, any
48
<PAGE> 52
management or other fees from the Company. Further, neither the General Partner
nor any affiliate of the General Partner will be entitled to any fees or other
expenses as a result of the Conversion.
The table below sets forth the actual amount of fees, distributions and
reimbursed expenses paid by the Partnership or the Operating Partnership to the
General Partner and its affiliates for the fiscal years ending December 31,
1994, 1993, and 1992 and the three months ended March 31, 1995 and 1994. The
table also sets forth the pro forma amount of reimbursed expenses and fees that
would have been paid if the Conversion would have been in effect during such
periods.
MANAGEMENT FEES AND EXPENSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
---------------------------------- MARCH 31,
1994 1993 1992 --------------------
-------- -------- -------- 1995 1994
------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Actual Amount Paid to General
Partner............................ $ 0 $ 0 $ 0 $ 0 $ 0
Actual Amount Paid to Affiliates*.... 600,000 600,000 600,000 75,000 150,000
Pro Forma Amount to General
Partner............................ 0 0 0 0 0
Pro Forma Amount to Affiliates*...... 600,000 600,000 600,000 75,000 150,000
</TABLE>
- ---------------
* Represents amount paid to Teknekron Corporation, an affiliate of the principal
stockholder of the General Partner, pursuant to the Advisory Services
Agreement.
MANAGEMENT AND EXECUTIVE COMPENSATION
The directors and executive officers of the Company are identical to the
directors and executive officers of the General Partner and the compensation of
the directors and executive officers of the Company upon consummation of the
Conversion, will be substantially identical to the compensation of the directors
and executive officers of the General Partner immediately preceding the
Conversion (subject to changes to compensation that would occur whether or not
the Conversion is consummated). See "Management -- Directors and Executive
Officers."
UNIT OPTION PLANS
Pursuant to the Conversion, the Company will adopt and amend the
Partnership's 1992 Unit Option Plan and the 1993 Outside Director Compensation
and Unit Option Plan to reflect the change to corporate form. Except for such
changes and minor conforming changes, the amended 1992 Unit Option Plan and 1993
Outside Director Compensation and Unit Option Plan will be identical to the
existing plans and all outstanding options for Units will be automatically
converted to options for Common Stock at the original exercise price and on the
same terms and conditions as the original Unit options. See
"Management -- Effect of Merger on the Unit Option Plans." Such changes will not
result in increased compensation to the executive officers or directors of
Company.
NO STATUTORY APPRAISAL OR DISSENTERS' RIGHTS
Under Delaware law and the terms of the Partnership Agreement, if the
Conversion is approved, objecting Unitholders will have no statutory appraisal,
dissenters' or similar rights (i.e., the right, instead of receiving Common
Stock, to seek a judicial determination of the "fair value" of the Units and to
compel TENERA to purchase their Units for cash in that amount), nor will such
rights be voluntarily accorded to Unitholders by TENERA. Thus, approval of the
Conversion by the requisite majority of Unitholders will bind all holders.
Objecting Unitholders will have no alternative to receipt of Common Stock other
than selling their Units (or shares of Common Stock) in the market. The Units
are currently traded on AMEX under the symbol TLP, and application has been made
to list the Common Stock on AMEX. See "Market Prices of Units." The ability of
Unitholders to obtain redress for an alleged wrong in connection with the
Conversion is limited to Delaware common law. See "Risk Factors -- No Statutory
Appraisal or Dissenters' Rights." For a
49
<PAGE> 53
discussion of certain of a Unitholder's rights under Delaware law and the
fiduciary obligations owned to a Unitholder see "-- Fiduciary Duties."
UNITHOLDER RIGHTS
The Exchange Act requires that, in connection with the Conversion, the
Partnership, at a requesting Unitholder's option, provide a list of, or mail
soliciting material to, Unitholders. The Partnership will mail copies of proxy
statements or other soliciting materials furnished by a requesting Unitholder to
record Unitholders. The requesting Unitholder must provide the materials to be
mailed and is responsible for the postage and other reasonable expenses of
effecting such a mailing. In the alternative, the Partnership will deliver to a
requesting Unitholder, within five business days of the receipt of such request,
a reasonably current list of the names, addresses and security positions of
Unitholders or any more limited group of Unitholders designated by the
requesting Unitholder if available to the Partnership.
CONSEQUENCES IF CONVERSION IS NOT APPROVED
If the Conversion is not approved by the Unitholders, or if the Conversion
is not consummated for any other reason, the Partnership intends to continue to
operate as an ongoing business in its current form, although the General Partner
does not anticipate resuming cash distributions in the foreseeable future. The
Unitholders would be taxed on their allocable share of taxable income of the
Partnerships, if any, whether or not cash distributions are made. If for any
reason the General Partner elects not to consummate the merger of the General
Partner into the Company, the balance of the Conversion, i.e., the conversion of
the Partnerships to corporate form pursuant to the merger of the Partnerships
with and into the Company, will go forward if the Conversion has been approved
by the Unitholders. No other transaction is currently being considered by the
Partnership as an alternative to the Conversion.
FIDUCIARY DUTIES
As a general partner of a limited partnership, under Delaware law the
General Partner owes the Unitholders the fiduciary duties of good faith,
fairness and loyalty in handling the affairs of the Partnership. This fiduciary
duty also includes a duty to refrain from self-dealing to the advantage of the
General Partner at the expense of the Partnership. The Partnership Agreement
provides that the Board of Directors of the General Partner must maintain an
Advisory Committee, a majority of which must be Disinterested Persons. The
Advisory Committee, whose purpose is solely advisory in nature, advises the
General Partner regarding matters as to which possible conflicts of interest may
arise and periodically reviews the policies and procedures of the General
Partner and the Partnership in order to avoid or mitigate possible conflicts of
interest. The Partnership Agreement further generally provides that whenever a
conflict of interest exists or arises between the General Partner or any of its
affiliates, on the one hand, and the Partnership, the Operating Partnership or
any Unitholder, on the other hand, the General Partner must, upon the advice of
the Advisory Committee, resolve such conflict of interest considering in each
case, (i) the relative interests of each party to such conflict, and agreement,
transaction or situation and the benefits and burdens relating to such interest;
(ii) any customary or accepted industry practices, and (iii) any applicable
generally accepted accounting practices or principles. Additionally, the
Partnership Agreement provides that in the absence of bad faith by the General
Partner, any determination made by the General Partner in accordance with the
foregoing provision will not constitute a breach of the Partnership Agreement.
The General Partner believes that it has satisfied its fiduciary duties to
Unitholders in connection with the proposal of the Conversion by resolving any
potential conflicts as provided in the Partnership Agreement. See "-- Conflicts
of Interest." For a discussion of the particular factors the General Partner
considered in the satisfaction of its fiduciary duties, see "-- Recommendation
of General Partner."
The General Partner may also have obligations under securities and state
corporate laws to disclose all material information concerning the Partnership's
affairs at certain times. The General Partner believes that through quarterly
and annual filings on Forms 10-Q and 10-K, annual tax reporting on Form K-1 and
disclosing the information contained herein, it has satisfied its duties to
disclose all material information to the Unitholders.
50
<PAGE> 54
Following consummation of the Conversion, the directors and officers of the
General Partner will serve as directors and officers of the Company. Under
Delaware law, a director's fiduciary duties to the stockholders of the Company
will likely be held to be substantially similar to those currently owed by the
General Partner to Unitholders under Delaware law. At least one Delaware court
has stated that the fiduciary duties of a general partner to limited partners
are comparable to those of a director to stockholders. Other courts, however,
have indicated that the fiduciary duties of a general partner are greater than
those of a director to stockholders.
The Partnership Agreement provides that neither the General Partner nor any
of its affiliates will be liable to the Partnership or the Unitholders for
errors in judgment or for acts or omissions taken in good faith. Thus, the
General Partner and its affiliates may have a more limited liability to the
Unitholders than would otherwise be the case absent such provisions. Similarly,
the Company's Certificate of Incorporation provides that a director of the
Company shall not be liable for any act or omission in the director's capacity
as director except to the extent the director is found liable for (i) a breach
of the duty of loyalty, (ii) an act or omission not in good faith or which
involves intentional misconduct or a knowing violation of law, (iii) a
transaction in which the director receives an improper personal benefit or (iv)
an act or omission for which the liability of a director is expressly provided
for under Section 174 of the Delaware General Corporation Law (governing
distributions to stockholders). Furthermore, under the Partnership Agreement,
the Partnership is required to indemnify the General Partner and any officer,
director, employee and agent of the General Partner against liabilities and
expenses incurred by the General Partner or such persons if (i) the General
Partner or such persons acted in good faith and in a manner it or they
reasonably believed to be in, or not opposed to, the best interests of the
Partnership, and, with respect to any criminal proceeding, had no reasonable
cause to believe their conduct was unlawful, and (ii) the General Partner's or
such persons' conduct did not constitute gross negligence or willful misconduct,
unless a court determines that such person is fairly and reasonably entitled to
indemnification despite such negligence or misconduct. The partnership agreement
of the Operating Partnership contains provisions equivalent to the
above-described provisions of the Partnership Agreement of the Partnership. In
addition, the Company's By-Laws provide indemnification to all its directors,
officers, employees and agents.
Based upon a recent Delaware Chancery Court decision, the directors of the
General Partner owe fiduciary duties to the Unitholders under the Partnership
Agreement. The scope of such fiduciary duties, however, has not yet been clearly
established. The nature of fiduciary duties is an evolving area of the law and
it is unclear whether or to what extent there are differences in such fiduciary
duties. However, it is possible that the fiduciary duties of the directors of
the Company to its stockholders could be less than those of the General Partner
to the Unitholders. Unitholders who have questions concerning fiduciary duties
should consult with their legal counsel.
ACCOUNTING TREATMENT
For financial accounting purposes, the Conversion will be treated as a
reorganization of affiliated entities, with the assets and liabilities recorded
at their historical costs.
COSTS OF THE CONVERSION
The Partnership estimates that the total costs and expenses of the
Conversion will be approximately $370,000 whether or not successfully completed.
Such costs and expenses include registration and filing fees, legal and
accounting fees and expenses, stock exchange and exchange agent fees and
printing fees and expenses. The costs of the Conversion, whether or not
successfully completed, will be paid by the Partnership. Therefore, the General
Partner and the Unitholders will ultimately absorb the cost of the proposal to
effect the Conversion, whether or not the Conversion is approved or completed.
51
<PAGE> 55
The following is a statement of certain estimated fees and expenses
incurred in connection with the Conversion:
<TABLE>
<S> <C>
Securities and Exchange Commission fees........................... $ 2,500
AMEX filing fee................................................... 20,000
Legal fees and expenses........................................... 200,000
Accounting fees and expenses...................................... 96,500
Printing, engraving, and mailing expenses......................... 30,000
Miscellaneous..................................................... 21,000
--------
TOTAL................................................... $370,000
========
</TABLE>
THE CONSENT SOLICITATION
RECORD DATE AND VOTING SECURITIES
The Board of Directors of the General Partner has fixed the close of
business on June 7, 1995 as the Record Date for the determination of the
Unitholders entitled to give or withhold consent to the Conversion. The Units
are the only class of voting securities of the Partnership outstanding. As of
the Record Date, there were 9,108,803 Units issued and outstanding held by
approximately Unitholders of record. The holders of Units outstanding on
the Record Date are entitled to cast one vote per Unit held with respect to the
Conversion.
CONSENTS REQUIRED
The consent of the holders of record of more than 50% of the issued and
outstanding Units is required for approval of the Conversion. In the event the
Conversion is adopted, each Unitholder will be bound by the Conversion whether
or not such Unitholder consented to its adoption. Under applicable Delaware law,
Unitholders have no statutory appraisal or dissenters' rights in connection with
the adoption and consummation of the Conversion. The Partnership has been
advised that the stockholders and affiliates of the General Partner intend to
vote all of their Units (representing approximately 29.6% of the outstanding
Units), in favor of the Conversion.
PROCEDURES FOR GIVING AND REVOKING CONSENTS
Unitholders may consent to the Conversion by indicating their approval on
the accompanying consent form. The period for solicitation of consents will
terminate at 5:00 p.m., Pacific Standard time, on , 1995, unless
extended by the Board of Directors of the General Partner. Each Unitholder is
urged to sign, date and return promptly the enclosed consent form in the
enclosed envelope to TENERA, L.P. at 2001 Center Street, Berkeley, California
94704-1204, Attention: Corporate Secretary. Any consent given pursuant to the
solicitation of consents may be revoked by the person giving it at any time
before termination of the solicitation period. Consents may be revoked by filing
with the Secretary of the General Partner, a written notice of revocation or a
duly executed written consent bearing a later date than the consent. Any written
notice revoking a consent to the Conversion should be sent to TENERA, L.P. at
2001 Center Street, Berkeley, California 94704-1204, Attention: Corporate
Secretary.
SOLICITATION OF CONSENTS
Consents are being solicited by and on behalf of the General Partner.
Consents are being solicited by mail, and certain directors, officers and
regular employees of the General Partner may also solicit consents by telephone,
telegram, facsimile or personal interviews. Such persons will receive no
additional compensation for performing such services. All expenses of the
solicitation of consents, including the cost of preparing and mailing this
Consent Solicitation Statement/Prospectus to Unitholders, will be borne by the
Partnership.
52
<PAGE> 56
EXCHANGE OF CERTIFICATES
Promptly after the Effective Time, the Company will mail to all Unitholders
of record a letter of transmittal containing instructions with respect to the
surrender of certificates for Units in exchange for certificates representing
shares of Common Stock. Upon surrender to the Exchange Agent of one or more
certificates for Units, together with a properly completed letter of
transmittal, there will be issued and mailed to former Unitholders a certificate
or certificates representing the number of shares of Common Stock to which such
holder is entitled.
UNITHOLDERS SHOULD NOT SEND ANY CERTIFICATES WITH THE ENCLOSED FORM OF
CONSENT. THEY SHOULD RETAIN SUCH CERTIFICATES UNTIL THEIR RECEIPT OF THE LETTER
OF TRANSMITTAL AFTER THE EFFECTIVE TIME. THE SURRENDER AND
EXCHANGE OF CERTIFICATES FOR UNITS FOR CERTIFICATES REPRESENTING SHARES OF
COMMON STOCK IS NOT REQUIRED. FROM AND AFTER THE EFFECTIVE TIME, CERTIFICATES
FOR UNITS WILL BE DEEMED TO EVIDENCE SHARES OF COMMON STOCK.
If any certificate representing Common Stock is to be issued in a name
other than that in which the certificate for Units surrendered in exchange
therefor is registered on the books of the Partnership as of the Effective Time,
it will be a condition of such issuance that (i) that certificate so surrendered
be properly endorsed and otherwise in proper form for transfer, and (ii) the
person requesting such exchange pay to the Company any transfer or other taxes
required by reason of the issuance of a certificate representing Common Stock in
any name other than that of the registered owner of the certificate surrendered,
or the person requesting such exchange establish to the satisfaction of the
Company that such tax has been paid or is not applicable.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
INTRODUCTION
This section is a summary of the material federal income tax matters of
general application that should be considered by Unitholders in light of the
proposed Conversion. Unless noted otherwise, the federal income tax consequences
applicable to Unitholders set forth herein constitute the opinion of Bryan Cave,
special counsel to the Partnership. This summary is based on the provisions of
the Code, existing and proposed regulations thereunder, current administrative
rulings and court decisions, and certain factual assumptions set forth herein.
There can be no assurance that the legal authorities on which this discussion is
based will not change, perhaps retroactively, that the factual assumptions
underlying this discussion are accurate, or that there will not be a change in
the future in the circumstances of TENERA that would affect this discussion. It
is impractical to comment on all aspects of federal, state, local and foreign
law that may affect the tax consequences of the Conversion. There can be no
assurance that the Internal Revenue Service (the "IRS") will not take a view
contrary to the statements of legal conclusions described below. NO RULING FROM
THE IRS HAS BEEN OR WILL BE SOUGHT WITH RESPECT TO THE CONVERSION. UNITHOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE CONSEQUENCES TO THEM OF THE
CONVERSION.
UNITHOLDERS
Pre-Conversion Operations of the Partnership. The income and deductions of
the Partnership incurred during 1995 prior to the Conversion will be allocated
among the Unitholders, and each Unitholder's basis in its Units will be adjusted
by such allocations, in essentially the same manner they would have been
allocated and adjusted apart from the Conversion. Under current plans, the
conversion will be effective at 12:01 a.m. on , 1995. Each
Unitholder will receive a Schedule K-1 or K-1 substitute for 1995 reflecting the
income and deductions allocated to him during the period in 1995 he owned such
Units, even if he sells his Units prior to the Conversion.
53
<PAGE> 57
Pre-Conversion Sale of Units. The tax consequences to a Unitholder who
sells Units prior to the Conversion are not affected by the Conversion. They are
as follows:
Character and Amount of Gain or Loss. The Unitholder may recognize
both ordinary income and capital gain or loss. The ordinary income amount
will be approximately the amount of ordinary income that would have been
allocated to the Unitholder in respect of the sold Units if the Partnership
had sold all its assets. This amount will vary depending upon certain
factors, including the amount paid for the Units, the date acquired and the
types of assets held by the Partnership. The capital gain or loss amount
will normally be the difference between the Unitholder's adjusted tax basis
in the Unit and the amount realized from the sale of the Unit (reduced by
the portion resulting in ordinary income).
Suspended Deductions. Any losses previously allocated to a Unitholder
that the Unitholder has not been able to use because of the basis or
at-risk limitations can be used to the extent of any gain recognized on the
sale of Units; ability to use these suspended losses will cease after the
Conversion. Any losses previously allocated to a Unitholder that the
Unitholder has not been able to use because of the passive loss limitations
("suspended passive losses") can be used in full if a Unitholder sells all
Units owned to an unrelated person in a transaction in which all realized
gain or loss is recognized. A Unitholder who sells less than all of the
Units owned will be entitled to deduct suspended passive losses to the
extent of gain realized and recognized on the sale.
The Conversion. The Conversion, although a merger under state law, should
be treated for federal tax purposes as a two-step process. The first step is a
contribution by the Partnership of its assets to the Company in exchange for (i)
a constructive issuance of Common Stock to the Partnership plus (ii) the
assumption by the Company of the Partnership's liabilities. The second step is a
constructive distribution of the Common Stock issued by the Company to the
Unitholders and principal stockholder of the General Partner (who will be the
sole stockholder of the General Partner immediately prior to the Conversion), in
proportion to the respective interests of the Unitholders and the General
Partner in the Partnership.
The tax consequences to a Unitholder who receives shares of Common Stock as
a result of the Conversion will be as follows:
General Non-Recognition. The Conversion will generally be taxfree to
the Unitholders. However, in the event that the aggregate adjusted tax
basis of the assets transferred by the Partnership to the Company is less
than the total liabilities assumed by the Company (excluding certain
liabilities for items not yet deductible by the Partnership at the time of
the Conversion but deductible by the Company thereafter), the Partnership
will recognize gain and such gain will pass through to the Unitholders and
the General Partner in proportion to their respective interests at the time
as an item of Partnership gain. This pass through will be the same to all
partners, without regard for differences in their individual tax basis for
Units. The General Partner currently believes that the Partnership's
aggregate tax basis in its assets is more than the liabilities assumed,
excluding liabilities for items not deductible by TENERA but deductible by
the Company only when paid. However, this calculation is subject to change
prior to the Effective Time of the Merger. To the extent a Unitholder
recognizes any gain by reason of the foregoing, such gain will be offset by
his share of the Partnership losses from prior years that were previously
suspended by the at-risk, basis or passive loss limitations. Consequently,
the only Unitholders who may recognize gain on the Conversion that cannot
be offset by previously suspended losses are corporations which previously
fully utilized their share of Partnership losses (because corporations are
generally not subject to the passive loss limitations). See "-- Sale of
Shares" below.
Tax Basis and Holding Period. A Unitholder's aggregate tax basis in
all shares received in the Conversion will equal his aggregate tax basis in
his Units, as adjusted for 1995 operations and any gain recognized on the
Conversion, reduced by his share of Partnership liabilities immediately
before the Conversion. This basis will be prorated among all shares of
Common Stock received by the Unitholder. The holding period required for
long-term capital gains treatment is more than one year. For holding period
purposes, the holding period for the Units will be "tacked" to the holding
period for the Common Stock received in the Conversion.
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<PAGE> 58
Suspended Deductions. Any loss previously allocated to a Unitholder
in prior years or during 1995 that has not been used because of the at-risk
limitations or because of lack of adequate basis to absorb the loss can be
used only to the extent of any income or gain recognized on the Conversion,
as discussed under "-- General Non-Recognition" above. A Unitholder will
also be entitled to deduct suspended passive losses to the extent of gain
realized and recognized on the Conversion. Any passive losses not so used
may subsequently be used only as provided below under "-- Sale of Shares."
Any suspended losses attributable to the basis and at-risk rules that
remain after the Conversion will disappear.
Control Assumption. The above conclusions are based on the assumption
that not more than 20% of the shares of Common Stock transferred to
Unitholders pursuant to the Conversion will be subsequently sold pursuant
to contracts entered into prior to the Conversion (the "Control
Assumption"). Neither the Partnership nor the General Partner is aware of
any contracts that have been or will be entered into prior to the
Conversion which would make the Control Assumption incorrect. If the
Control Assumption were not correct, each Unitholder might be required to
recognize gain or loss on the transfer by the Partnership of its assets to
the Company as if the Partnership had sold the assets for an amount equal
to the value of the Common Stock received in the Conversion, plus the
amount of liabilities assumed by the Company in the Conversion. Moreover,
each Unitholder's basis in the Common Stock received might be increased (or
reduced) by the gain (or loss) recognized, and each Unitholder's holding
period in the shares of Common Stock received would begin on the day after
the Conversion.
Sale of Shares. A Unitholder who receives shares in the Conversion
and thereafter sells those shares will recognize gain or loss measured by
the difference between the amount realized on the sale and his tax basis in
his shares sold. Although definitive Treasury Regulations have not yet been
issued concerning dispositions, available authority including Congressional
Committee Reports implies that no part of a suspended passive loss can be
used on a sale of only some of the shares, not even to the extent of any
gain realized on the sale, but that all of the suspended passive loss can
be used if a stockholder sells all shares to an unrelated person in a
transaction in which all realized gain or loss is otherwise recognized. As
to when a loss is otherwise recognized, see "-- Pre-Conversion Sale of
Units -- Suspended Deductions."
Ownership of Shares. After the Conversion, a stockholder will be
taxable only on distributions received from the Company, if any.
Non-liquidating distributions will be taxable as dividends to the extent of
any current or accumulated earnings of the Company. See " -- The Company"
below. Any non-liquidating distributions in excess of current or
accumulated earning and profits of the Company, or any liquidating
distributions will be treated as a tax-free return of capital to the extent
of the stockholder's basis in the shares and as capital gain to the extent
of the balance, assuming that the shares are held as capital assets. Except
on the sale of all shares, a stockholder probably will not be entitled to
use any passive loss, even to offset any dividends thereafter received from
the Company (see "-- Sale of Shares" above).
THE COMPANY
The Conversion. Following the Conversion, substantially all the assets and
liabilities formerly owned by the Partnership, the Operating Partnership, and
the General Partner immediately prior to the Conversion, will be owned by the
Company. The Company will not recognize any gain or loss on the Conversion.
Although there is no direct authority governing the federal income tax treatment
of transactions (such as the Conversion) involving a merger of a partnership
into a corporation, the aggregate tax basis the Company will have in the assets
at the Effective Time should equal the Operating Partnership's tax basis in its
assets on such date plus the General Partner's basis in its assets immediately
prior to the Conversion, other than its interest in the Partnerships. Such basis
will be increased by any gain recognized by the Operating Partnership on the
Conversion in the unlikely event that any such gain is recognized. The Company's
basis in its assets will generate future tax deductions to the Company to the
extent that the assets are depreciable or amortizable, or when they are sold.
The holding period of each asset currently held by the Operating Partnership
will carry over to the Company.
55
<PAGE> 59
Control Assumption. The foregoing analysis of the tax consequences to the
Company of the Conversion assumes the validity of the Control Assumption. If the
Control Assumption were not valid, the Company still would not recognize gain or
loss, but the Company's tax basis in the assets acquired from the Partnership
would equal the value of the shares issued in the Conversion plus the amount of
the Partnership's liabilities assumed in the Conversion.
Post-Conversion Operations. Following the Conversion, the income and
deductions attributable to the assets and liabilities previously held by the
Operating Partnership will be included in the tax return filed by the Company,
and the Company will pay taxes on any taxable profits it recognizes from time to
time. Additionally, net operating losses incurred by the Company after the
Conversion will generally be available to offset the Company's income in
subsequent years.
THE GENERAL PARTNER
The General Partner will experience the same tax consequences upon the
Conversion as a Unitholder with respect to its general partner interests in the
Partnership and the Operating Partnership. The General Partner will not
recognize gain on its merger into the Company.
OTHER TAXATION
After the Conversion, the Company will be subject to state franchise taxes
and other state and local taxes. Neither the Partnership nor its advisers have
independently attempted to (i) determine the amount of transfer or excise taxes
that will be imposed upon the Partnership or the Company as a result of the
Conversion, (ii) determine the state or local tax that may be imposed on the
Partnership or the Company as a result of the Conversion or (iii) determine any
tax that may be imposed on a Unitholder by the country, state or other
jurisdiction in which he resides or is a citizen.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS
INTENDED TO BE A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE
CONVERSION. UNITHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES TO THEM OF THE CONVERSION.
56
<PAGE> 60
MARKET PRICES OF UNITS; DISTRIBUTIONS
The Units are listed for trading on AMEX under the symbol TLP. The first
trading day on AMEX was January 28, 1988, at which time 8,699,447 Units were
outstanding. There were approximately 600 Unitholders of record as of January
31, 1995. On April 28, 1995, the high and low sales prices of the Units as
traded on AMEX were $0.875 and $0.875, respectively.
<TABLE>
<CAPTION>
1995 1994 1993 1992
----------------- ------------------- ------------------- ------------------
PRICE RANGE OF PRICE RANGE OF PRICE RANGE OF PRICE RANGE OF
TENERA, L.P. TENERA, L.P. TENERA, L.P. TENERA, L.P.
UNITS UNITS UNITS UNITS
----------------- ------------------- ------------------- ------------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
------- ----- ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter................ $0.9375 $0.50 $1.6875 $1.25 $3.125 $1.25 $3.75 $2.00
Second Quarter............... -- -- 1.4375 1.0625 2.50 1.5625 3.375 2.00
Third Quarter................ -- -- 1.1875 0.50 2.1875 1.375 3.00 2.00
Fourth Quarter............... -- -- 1.3125 0.625 1.6875 1.25 2.00 1.0625
</TABLE>
The Board of Directors of the General Partner determines the amount of cash
distributions which the Partnership may make to Unitholders after consideration
of projected cash requirements and a determination of the amount of retained
funds necessary to provide for growth of the Partnership's business. The
Partnership has made no distributions since June 1991. Whether or not the
Conversion is consummated, cash distributions will not be resumed unless and
until there are significant improvements in the operating results and overall
financial condition of TENERA. The General Partner does not anticipate such an
improvement in the foreseeable future.
The Partnership made no cash distributions to Unitholders in 1992, 1993,
1994 or for the three months ended March 31, 1995.
57
<PAGE> 61
CAPITALIZATION
The following table sets forth the capitalization of the Partnership as of
March 31, 1995 and as adjusted to reflect the Conversion, assuming the
conversion had occurred on such date. The information presented below should be
read in conjunction with the combined financial statements of the Partnership
and the unaudited pro forma financial information included elsewhere in this
Consent Solicitation Statement/Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1995
-------------------------------------------
THE THE
PARTNERSHIP COMPANY
(HISTORICAL) ADJUSTMENTS (PRO FORMA)
----------- ----------- -----------
(IN THOUSANDS, EXCEPT UNIT/SHARE AMOUNTS)
<S> <C> <C> <C>
PARTNERS' CAPITAL
General Partner................................... $ 316 $ (316) $ --
Limited Partners' equity, (9,108,803 Units issued
and outstanding................................. 5,568 (5,568) --
Treasury Units (425,636 Units).................... (1,141) 1,141 --
SHAREHOLDERS' EQUITY
Preferred Stock, (10,000,000 Shares authorized; 0
shares issued prior to and after Conversion).... -- -- --
Common Stock, (25,000,000 Shares authorized; 1,000
shares issued prior to Conversion(1), 10,541,153
after Conversion(2)(3))......................... -- 105 105
Additional Paid-In-Capital........................ -- 5,419 5,419
----------- ----------- -----------
TOTAL PARTNERS'/SHAREHOLDERS' EQUITY.............. 4,743 781 5,524
----------- ----------- -----------
TOTAL CAPITALIZATION.............................. $ 4,743 $ 781 $ 5,524
========== =========== ===========
</TABLE>
- ---------------
(1) The Partnership contributed $1,000 to the Company on November 10, 1994 as
consideration for the receipt of 1,000 shares of Common Stock. Pursuant to
the terms of the Agreement and Plan of Merger (a form of which is attached
hereto as Annex A), the 1,000 shares of Common Stock will be retired and
canceled and shall cease to be outstanding upon consummation of the Merger.
(2) To record the Company's initial capitalization through the issuance of
9,541,153 shares of the Company's common stock, $0.01 par value, in respect
of the outstanding units of the Partnership and outstanding General Partner
interests, 9,108,803 shares will be issued in exchange for Limited
Partnership interests, 184,946 shares will be issued for General Partner
interests. This reflects their approximate current respective ownership
interests in the Partnership.
(3) To record the merger of the General Partner's cash assets of $1,000,000
after the Conversion, into the Company in exchange for the issuance of
1,000,000 shares of the Company's Common Stock at a pro forma price per
share of $1.00. The actual number of shares to be issued will be based on
the per share purchase price (see "The Conversion -- Structure of the
Conversion"). This amount shown is net of transactional expenses that are
charged to expenses and closed to equity through the additional paid in
capital account.
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<PAGE> 62
SELECTED COMBINED FINANCIAL DATA
The following selected combined financial data set forth herein present
selected data of the Partnership for the years ended December 31, 1994, 1993,
1992, 1991, and 1990 and selected unaudited data of the Partnership for the
period ended March 31, 1995 and 1994, respectively. The selected historical
financial data for the five years through December 31, 1994 are derived from
financial statements of the Partnership. The selected historical financial data
for the three months ended March 31, 1995 and 1994, have been derived from
unaudited combined financial statements. The unaudited combined financial
statements include all adjustments, consisting of only normal recurring
adjustments, which the Partnership considers necessary for a fair statement of
results of operations data, and financial position for the unaudited periods.
The selected combined financial data presented herein is qualified in its
entirety by, and should be read in conjunction with, the Combined Financial
Statements and related notes thereto of the Partnership, for the three years
ended December 31, 1994 and for the three months ended March 31, 1995 and 1994,
appearing elsewhere in this Consent Solicitation Statement/Prospectus.
TENERA, L.P.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH
----------------------------------------------- 31,
1994 1993 1992 1991 1990 -------------------------
------- ------- ------- ------- ------- 1995 1994
----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AND STATISTICAL AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA
Revenue............................. $23,600 $29,340 $36,648 $44,128 $51,161 $ 5,344 $ 7,079
Operating Income (Loss)............. (1,239) (315) 826 (6,176) 8,291 196 132
Net Earnings (Loss)................. (1,202) (294) 795 (6,434) 7,922 196 145
Earnings (Loss) per Equivalent
Unit(1)........................... (0.13) (0.03) 0.08 (0.66) 0.85 0.02 0.02
Cash Distributions per Equivalent
Unit(1)........................... -- -- -- 0.31 0.81 -- --
Portion of Cash Distributions per
Equivalent Unit Representing a
Return of Capital for Original
Unitholders....................... -- -- -- 0.14 0.33 -- --
Ratio of Earnings to Fixed
Charges........................... -- -- 11.89 -- 77.17 13.25 146.00
Weighted Average Equivalent
Units(1).......................... 9,555 9,646 9,710 9,736 9,366 9,541 9,588
CASH FLOW DATA
Net Cash Provided by Operating
Activities........................ 17 1,472 (626) 6,632 7,409 (483) 166
Cash Distributions.................. -- -- -- 5,021 7,506 -- --
Net Increase (Decrease) In Cash and
Cash Equivalents.................. 363 1,085 (1,418) 774 (1,425) (504) (19)
FINANCIAL POSITION AT DECEMBER 31
Cash and Cash Equivalents........... 1,943 1,580 495 1,913 1,139 1,439 1,561
Working Capital..................... 4,024 5,196 5,383 5,109 9,001 4,277 5,253
Total Liabilities................... 4,069 3,524 4,932 7,727 10,259 8,810 9,952
Total Assets........................ 8,616 9,345 11,111 13,402 19,943 4,067 4,055
Partners' Capital................... 4,547 5,821 6,179 5,675 9,273 4,743 5,897
Book Value per Equivalent
Unit(1)(2)........................ 0.48 0.60 0.64 0.58 0.99 0.50 0.62
OTHER INFORMATION
Number of Employees (actual)........ 170 202 263 361 372 160 201
</TABLE>
- ---------------
(1) Equivalent Units represent both the general and limited partners' interest
in earnings.
(2) Calculated as Partners' Capital divided by Equivalent Units outstanding at
December 31 and at March 31, respectively.
59
<PAGE> 63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TENERA, L.P.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
----------------------------------------------------------- ---------------------------------
1994 1993 1995
----------------------- ----------------------- 1992 ----------------------- 1994
% INCREASE % INCREASE ------- % INCREASE -------
% OF (DECREASE) % OF (DECREASE) % OF % OF (DECREASE) % OF
REVENUE TO PRIOR YEAR REVENUE TO PRIOR YEAR REVENUE REVENUE TO PRIOR YEAR REVENUE
------- ------------- ------- ------------- ------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100 (20) 100 (20) 100 100 (25) 100
Direct Costs............ 62 (22) 63 (13) 58 60 (26) 61
General and
Administrative
Expenses.............. 45 (6) 39 (22) 40 37 (26) 37
Other Income
(Expenses)............ 0 (124) 1 345 0 1 (600) 0
Special Item............ 2 -- -- 0 -- -- -- --
------- ----- ------- ----- ------- ------- ----- -------
Operating Income
(Loss).............. (5) 293 (1) (138) 2 4 49 2
Interest Income
(Expense)............. 0 76 0 168 0 0 (100) 0
------- ----- ------- ----- ------- ------- ----- -------
Net Earnings (Loss)..... (5) 309 (1) (137) 2 4 35 2
======= ============ ======= ============ ======= ======= ============ =======
</TABLE>
YEAR ENDED DECEMBER 31, 1994 VERSUS YEAR ENDED DECEMBER 31, 1993
Lower revenue in 1994 was not offset by the pace of lowered general and
administrative expenses, which included costs associated with additional
downsizing of the organization and consideration of conversion in company
structure, resulting in a net loss of $1,702,000, before the special item,
versus a net loss of $294,000 in 1993.
The revenue decrease is primarily a result of significantly reduced
technical services sales in the engineering services group compared to 1993, and
the closure of non-utility environmental operations in mid-1993. The number of
clients continued to decrease from 117 to 73, primarily reflecting the
discontinuation of non-utility environmental consulting, and further increases
in the concentration of revenue from the government sector to 36% of total
revenue in 1994, from 27% in 1993. During 1994, the Partnership reallocated a
number of its engineering resources to government, commercial consulting, and
software services, while shutting down certain traditional engineering business
units facing significant pricing pressure from transformations in the electric
utility marketplace. The shift of resources to government services supported an
increased revenue stream from the DOE site contractors through the first three
quarters of the year. However 1995 fiscal year funding setbacks, within DOE site
contractors' budgets, led to government services work stoppages and procurement
slowdowns during the Partnership's fourth quarter, resulting in excess technical
staff. Work began to resume at the end of the year, but was not sufficient to
maintain a profitable level of employee utilization in the final months of 1994
for government operations.
Direct costs were lower overall reflecting the reduced revenue levels and a
reduction in the contract completion in the second quarter of 1994 and a
reduction of warranty accruals established in 1993, that resulted from improved
performance on these fixed-price projects.
General and administrative expenses decreased by $634,000, versus 1993,
primarily due to overall reduced staff size, facility costs, and professional
services, partially offset by costs ($220,000) associated with analyzing whether
to convert the Company structure from a partnership to corporate form in 1995.
Although reduced in total, general and administrative expense as a percentage of
revenue increased by 6 points to 45% in 1994, primarily resulting from
maintaining key elements of technical resources on overhead during the fourth
quarter government services work stoppage, incurring additional downsizing costs
related to reducing operations staffing and facilities throughout TENERA, and
the incremental activities of the Partnership conversion project.
60
<PAGE> 64
Other expense in 1994, primarily relates to the Partnership's interest
($34,000) in the estimated loss of Individual Plant Evaluation Partnership
(IPEP), a technical services partnership in which it is an operating
participant, and the trade-in loss on the upgrade of personal computer assets in
1994 ($24,000), as compared to other income in 1993 from a gain on the sale of
assets related to facility downsizing ($42,000), a one-time fee charged to TERA
Liquidating Trust (the "Trust") for accounting and administrative services over
the life of the Trust ($228,000), and a gain on the sale of assets related to
certain commercial environmental services ($42,000). The Trust was established
in 1986 by the Partnership's Predecessor to wind down the operations not
transferred to the Partnership.
The special item of $500,000 in 1994, reflects the estimated settlement of
specific disputed costs on certain U.S. Government contracts with the DOE. This
positive earnings adjustment resulted from a partial reduction of the reserve
for sales adjustment established in 1991. The reserve was established to provide
for a dispute between the Partnership and the DOE with respect to the
allowability and amount of potential rate adjustments on U.S. Government
contracts for certain employee compensation costs. See "Risk Factors --
Government Contracts Audit."
Net interest income represents earnings from the investment of cash
balances in short-term, high-quality, corporate debt instruments.
YEAR ENDED DECEMBER 31, 1993 VERSUS YEAR ENDED DECEMBER 31, 1992
Lower revenue and gross margin were partially offset by lower general and
administrative expenses, resulting in a loss of $294,000 in 1993, versus net
earnings of $795,000 in 1992.
The revenue decrease is primarily a result of reduced sales of certain
engineering services, closure of commercial environmental operations, and
reduced sales of software licensing contracts, partially offset by increased
sales to U.S. Government clients. Additionally, revenue was lower than 1992 as a
result of project completion issues on certain fixed-price contracts which
utilized substantial non-revenue generating resources in the delivery of the
finished products. The total number of clients decreased from 210 to 117,
primarily as a result of the decision in 1993 to discontinue commercial
environmental consulting, which had not been profitable for some time. The
commercial environmental consulting business had historically consisted of a
large number of small contracts. Revenue concentration from government clients
in 1993 increased to 27% of total revenue from 17% in 1992, representing an
increase of approximately $1,600,000. The Partnership decreased revenue
concentration with its largest client of 1992 (EG&G) from 12% to below 10%,
however another government contractor-client, Westinghouse, increased
concentration to 15% of total revenue in 1993 and became the largest client,
followed by revenue with the nation's largest nuclear utility Commonwealth
Edison Company (CECo) which accounted for 10% of total revenue.
While direct costs were lower overall, reflecting lower revenue, they were
higher as a percentage of revenue primarily due to cost overruns on certain
fixed-price projects ($658,000), in addition to accruals for estimated contract
losses and post-delivery warranties ($298,000), settlement costs of a contract
dispute with a public utility client ($155,000), reduced license fees reflecting
fewer sales ($252,000), and an increase in the proportion of revenue derived
from outside services and from government clients where project margins are
typically lower. These items were partially offset by the reduction in certain
employee benefit costs primarily related to a reduction of the sick leave
accrual to current experience ($380,000).
General and administrative costs decreased to $11,296,000 in 1993 from
$14,472,000 in 1992. The overall decrease in expense was primarily due to
reduced staff size, facility costs, and travel costs. During the year, general
and administrative expense as a percentage of revenue decreased to 38.5% from
39.5% in 1992. General and administrative expenses for 1993 include costs of
facility downsizing ($100,000), severance costs primarily related to the
curtailment of commercial environmental consulting services, and the downsizing
of certain administrative functions ($159,000), partially offset by the
reduction of certain employee benefit costs ($245,000). In 1993, the Partnership
changed the classification of the allowance for sales adjustments from general
and administrative expenses to a revenue adjustment. In 1992, this change would
have decreased general and administrative expenses by $265,000.
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Other income for the year includes a gain on the sale of assets related to
facility downsizing ($42,000), fees charged to the Trust for accounting and
administrative services since inception to the trust ($228,000), and a gain on
the sale of assets related to certain environmental services ($42,000). Other
expenses consist of the amortization of certain non-cash compensation costs in
connection with the forgiveness of certain employee Limited Partners' notes.
Interest income represents earnings during the year through the investment
of cash balances in short-term money market instruments, partially offset by
interest charges on borrowing (maximum of $500,000 borrowed) during the fourth
quarter under the Partnership's revolving line of credit. The borrowing was
repaid prior to year end.
THREE MONTHS ENDED MARCH 31, 1995 VERSUS THREE MONTHS ENDED MARCH 31, 1994
Lower revenue in the first quarter of 1995 was offset by lower direct costs
and general and administrative expenses, resulting in an increase in net
earnings to $196,000 in 1995 from $145,000 in 1994.
The revenue decrease is primarily a result of significantly reduced overall
technical services sales and staffing throughout the Company compared to 1994.
The number of clients served during the respective quarters, however, remained
relatively constant at 53 in 1995 compared to 50 in 1994. Concentration of
revenue from the government sector rose only slightly to 34% of total revenue in
1995 from 32% in 1994, while software revenue remained level at 17% of total
revenue for the respective quarters.
Direct costs were lower overall reflecting the reduced revenue levels.
Gross margin contribution from overall project activity increased slightly to
approximately 40% in 1995 from 39% in 1994, primarily reflecting improved
pricing and percentage of completion efforts in software services slightly
offset by lowered pricing rate structures in the government sector.
General and administrative expenses decreased by $680,000 versus 1994,
primarily due to overall reduced staff size, professional services, travel and
office equipment costs in 1995. General and administrative expenses as a
percentage of revenue also dropped slightly to 36.6% from 37.2% in 1994.
Other income includes a gain on the sale of assets related to facility
downsizing ($7,000).
Net interest income represents earnings from the investment of cash
balances in short-term, high-quality, corporate debt instruments, offset by
interest charges on borrowing under the Partnership's line of credit. The
Partnership had outstanding borrowing of $750,000 under its line of credit at
the end of the period in 1995 and no outstanding borrowing at the end of the
period in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Three Months Ended March 31, 1995. Cash and cash equivalents decreased by
$504,000 during the first quarter of 1995. The decrease was due to cash used by
operations ($490,000) and net acquisition of equipment ($14,000).
Receivables increased by $678,000 from December 31, 1994, primarily due to
an increase in revenue of $1,198,000 during the first quarter of 1995 compared
to the fourth quarter of 1994. The allowance for sales adjustments remained
unchanged from December 31, 1994.
Accounts payable and accrued compensation and related expenses remained
essentially unchanged from December 31, 1994.
Partners' capital increased by $196,000 in the period from the net
earnings.
No cash distribution was declared in 1995.
The impact of inflation on revenue and projects of the Partnership was
minimal.
At March 31, 1995, the Partnership had a $5,000,000 revolving loan facility
which expires in May 1995. The Partnership has outstanding borrowing against the
line totaling $750,000; and in addition, $175,000 was assigned to support
standby letters of credit. Under the agreement, the Partnership is obligated to
comply with
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certain covenants related to equity, current ratio, debt/equity ratio, and
profits. At December 31, 1994 and March 31, 1995, the Partnership was unable to
obtain waivers from the lender with respect to certain financial covenants in
the loan agreement concerning annual profitability and partner's capital, which
the Partnership did not satisfy as of these dates. The lender has notified the
Partnership that no further advances under the agreement will be made without
their approval.
Management believes that cash expected to be generated by operations, and
the Partnership's working capital, are adequate to meet its anticipated
liquidity needs through December 31, 1995. The Partnership has received a
commitment from a new lender to provide a loan facility upon expiration of the
current facility.
Year Ended December 31, 1994. Cash and cash equivalents increased by
$363,000 in 1994. The increase was due to cash provided by operations ($17,000)
and borrowings under bank loan ($750,000), partially offset by net equipment
acquisitions ($328,000), and net repurchases of Units ($76,000).
Receivables decreased by $1,919,000 from December 31, 1993, primarily due
to lower revenue and improved processing of invoices and payments by clients.
The allowance for sales adjustments decreased by $1,820,000 from December 31,
1993, primarily due to the estimated DOE settlement, as discussed above
($500,000), and the reclassification of prepaid project activity to deferred
revenue which is included in accounts payable ($479,000).
Accounts payable and accrued compensation and related expenses decreased by
$205,000 during the period, primarily due to a decrease in overall direct costs
and general and administrative expenses, as well as the reduction of reserves
established in 1993 related to completion and warranty costs for certain
fixed-price projects. These decreases were partially offset by an increase in
deferred revenue for prepaid project activity.
Partners' capital decreased by $1,274,000 in the period primarily due to a
net loss ($1,202,000) and repurchase of Units ($76,000), partially offset by
amortization of Limited Partners' notes ($4,000).
No cash distributions were declared in 1994.
The impact of inflation on revenue and projects of the Partnership was
minimal.
At December 31, 1994, the Partnership had a $5,000,000 revolving loan
facility which expires in May 1995. The Partnership has outstanding borrowings
against the line totaling $750,000; and in addition, $175,000 was assigned to
support standby letters of credit. Under the agreement, the Partnership is
obligated to comply with certain covenants related to equity, current ratio,
debt/equity ratio, and profits. At December 31, 1994, the Partnership was unable
to obtain waivers from the lender with respect to certain financial covenants in
the loan agreement concerning annual profitability and partners' capital, which
the Partnership did not satisfy as of that date. The lender has notified the
Partnership that no further advances under the agreement will be made without
prior written approval.
With respect to the special item settlement with the DOE, as discussed
above, the Partnership expects to reimburse certain government contractors
approximately $400,000 to $500,000, net of collections, over the next several
quarters as contracts with these contractors are closed out.
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BUSINESS
GENERAL
The Partnership provides a broad range of professional services and
software products to solve complex engineering, environmental, and safety
challenges associated with the design, construction, licensing, operation, and
maintenance of power plants and large scale industrial facilities. Its services
and products cover the following general areas: engineering and management
services and software services, products, and systems.
In the area of engineering and management services, TENERA provides
services and software to assist its commercial electric power industry clients
with respect to nuclear and fossil plant engineering design review and
verification, operations and maintenance, nuclear safety and licensing,
management audits, utility and project management, risk management and certain
environmental engineering tasks, and also provides expert witness and analysis
support for regulatory and legal proceedings. For its governmental clients,
TENERA provides the DOE and DOE prime contractors with assistance in devising,
implementing, and monitoring strategies to upgrade from an operational, safety,
and environmental perspective at DOE owned nuclear reactor sites. The software
services, products and systems area complements the management and engineering
services areas providing software services and information management products,
specialized data bases and systems which support electric utilities, industrial
clients and mass transit systems in areas such as regulatory compliance,
facility operations, and equipment maintenance and data management.
TENERA has developed expertise in providing solutions to the complex
technical and regulatory issues facing the commercial electric power industry,
particularly with respect to nuclear facilities. Over the past several years,
commercial electric utilities have experienced increased competitive pressure
due to a gradual deregulation of electric power production. For example,
utilities continue to find it more difficult to recover total capital
expenditures through rate increases, as well as facing increased competition
from independent power producers, alternative energy production, and
cogeneration. During the same period, utilities have responded to continued
regulatory pressures to comply with complex safety and environmental guidelines.
Safety problems and environmental issues have also emerged at government-owned
production facilities. A massive program is underway throughout the DOE complex
of nuclear facilities to comply with the same health, safety, and environmental
requirements applicable to commercial facilities, principally in the areas of
hazardous wastes, decontamination, decommissioning, and remediation. Electric
utilities, as well as a variety of other industries, have been subjected to
extensive regulation regarding environmentally safe handling of hazardous
materials. Since its formation in October 1986, it has been TENERA's strategy to
provide solutions to these issues by providing clients with a high level of
professional skills and a broad range of scientific, technological, and
management resources, including software and data bases which are used either in
support of consulting projects or as the basis for development of stand alone
software products and systems. The Partnership assists its clients in the
initial identification and analysis of a problem, the implementation of a
technologically feasible solution that client management believes will be
sensitive to business and public interest constraints and the ongoing monitoring
of that solution.
BACKGROUND
The Partnership's principal market, the electric utility industry, has
undergone considerable change in the past few years. Electric utilities in the
United States are facing a complex mix of economic and regulatory pressures. As
a result of gradual deregulation of their historic monopoly to produce and
distribute electricity as well as a desire to meet projected growth in demand
for electricity through higher operating efficiency rather than investment in
new plants, utilities and regulatory authorities are concentrating on increasing
levels of operational efficiency and implementing detailed operational
guidelines. Some of the Partnership's large clients have stepped up their
response to a more competitive environment by implementing significant cost
control measures. Such measures include reducing their use of outside
engineering support services. Electric utilities, as well as a variety of other
industries, are also facing increased regulatory pressures of a differing
variety resulting from public concern over health, safety, and the environment.
An expanding scope of environmental laws and regulations affect nearly every
industrial activity and government-owned nuclear facility, as well as the
agencies of the federal, state, and local governments charged with their
enforcement.
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The Partnership believes that there is a clear trend toward increased regulation
and enforcement at all levels of government, prompted by increased publicity and
public awareness of environmental problems and health hazards posed by hazardous
materials and toxic wastes. In addition, state regulatory commissions and the
public expect electric utilities to take a leading role in these areas and
electric utilities are often targets of litigation associated with such issues.
Accordingly, electric utilities in general have been at the forefront of efforts
to comply with environmental guidelines.
The market for electric utility professional services and software products
for both nuclear and fossil fuel facilities covers a broad range of activities.
The typical market includes waste management, outage support, operating plant
services, licensing support, safety management, maintenance and information
services, decommissioning consulting, risk assessment, quality assurance and
control, engineering support, records management, fuel related services, and
plant security. In recent years, emphasis in the electric utility market has
been shifting primarily as a result of the slowdown in construction of power
plants and the absence of new power plants scheduled for construction.
Accordingly, it is TENERA's belief that the market for services and software
related to efficient and profitable operation of existing capacity has expanded
and the market for services and software relating to initial licensing and
construction has contracted. This trend has caused some electric utilities to
close power plants and curtail certain activities TENERA has traditionally
supported, which, in turn, has had an adverse impact on the demand for certain
engineering services and products historically provided by TENERA. TENERA has
responded to these industry changes by downsizing its operations significantly.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Economic pressures and regulation have resulted in certain changes in the
focus of utility management. For example, the rate-making process, both for
plant construction and annual operation, now represents a significant risk to
utilities. This has increased the importance of careful planning and
documentation in connection with rate case preparation. Furthermore, rate base
decisions are evolving from an emphasis on prudence reviews of plant
construction costs to ongoing performance reviews related to such measures as
plant capacity factors. This has resulted in substantial penalties for extended
plant outages and has stimulated actions to assure more reliable operations.
Also, in addition to the year-to-year economics of plant operation, the high
capital cost of new plants places a premium on extending existing plant life.
This can be accomplished through greater attention to management systems for
preventive maintenance and improved methods of plant operation.
SERVICES AND PRODUCTS
The Partnership provides its services by utilizing its professional skills
and technological resources in an integrated approach which combines technical
and project management capabilities with sophisticated software systems and data
bases. Services performed by the Partnership typically include one or more of
the following: consultation with the client to determine the nature and scope of
the problem, identification and evaluation of the problem and its impact,
development and design of a process for correcting the problem, preparation of
business plans, preparation of reports for obtaining regulatory agency permits,
and provision for expert witnesses and analysis in support of regulatory and
legal proceedings. The Partnership operates in one business segment providing
services which cover these general areas: engineering and management services,
and software services, products, and systems.
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The following table reflects the percentage of revenues derived for each of
these areas for the period indicated during the fiscal years ended December 31,
1992 through 1994 and the three months ended March 31, 1995 and 1994:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER ENDED
31, MARCH 31,
---------------------- -------------
1994 1993 1992 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Engineering and Management Services................. 83.6% 83.7% 76.8% 82.6% 82.6%
Commercial Environmental Services*.................. -- 3.7% 11.0% -- --
Software Services, Products, and Systems............ 16.4% 12.6% 12.2% 17.4% 17.4%
</TABLE>
- ---------------
* Commercial Environmental Services was curtailed in mid-1993.
The majority of the Partnership's contracts are entered into as a result of
existing client relationships. In many cases, contracts are also part of
continuing support agreements. The Partnership believes that these factors give
it a competitive advantage by expediting contracting and minimizing marketing
costs.
Engineering and Management Services. The Partnership's engineering and
management services involve the determination of a solution to its client's
problems and challenges arising in the design, operation, and management of
large facilities. Focus is also placed on providing expertise in the wide range
of disciplines required to resolve complex legal and regulatory issues and
offering executives guidance in planning and implementing a coordinated,
effective response to such issues. The Partnership applies its professional
skills, software, and specialized data bases to all aspects of problems and
challenges in the following general areas:
- Engineering design review and verification
- Operations and maintenance
- Nuclear safety and licensing
- Management audits
- Project management
- Expert witness and analysis support for regulatory and legal proceedings
- Nuclear safety at DOE facilities
- Environmental engineering issues at DOE and electric utility facilities
Software Services, Products and Systems. To complement its professional
services, the Partnership offers a wide range of software services, products and
systems including data bases designed to support electric utilities and
industrial clients in areas such as regulatory compliance, facility operations,
and equipment maintenance and data management related to management consulting,
engineering, and environmental engineering requirements. The principal
proprietary aspect of the software business lies in the ability to utilize it to
solve client problems and to market this capability. Software applications for a
variety of industrial sectors and requirements have been developed for PC, mini,
and mainframe hardware installations. In addition, the Partnership offers
customized, interactive software applications for power plant or large facility
information management requirements, which are designed for use with IBM
mainframe and networked personal computer environments. Major core products
which are customized to the client's specifications include:
- An on-line interactive system for coordinating and controlling all
aspects of maintenance for large manufacturing, industrial facilities and
mass transit systems;
- A complete plant information management system that addresses nuclear and
fossil plant maintenance requirements and features modules for managing
employee radiological information and regulatory compliance issues; and
- Networked PC software to manage nuclear safety-related data bases and
engineering processes in conformance with rigorous software quality
assurance requirements.
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MARKETING AND CLIENTS
Marketing. The Partnership's marketing strategy emphasizes its ability to
offer a broad range of services and software designed to meet the needs of its
clients in a timely and cost-efficient manner. The Partnership has the
organization and capability to undertake not only small tasks requiring a few
professionals but also the management, staffing, design, and implementation of
major projects which may last for several years and involve over 150
professionals in several geographic locations. Characteristic of TENERA's
marketing strategy are significant projects in which initial contracts have been
only a small fraction of the ultimate sale. Historically, TENERA has experienced
a high retention rate of existing clients.
The Partnership provides financial incentives to attract senior technical
professionals with extensive utility and industry experience and to encourage
these individuals to market the complete range of TENERA's services and software
throughout existing and potential customer organizations. Incentives for senior
technical staff to crosssell the range of TENERA's capabilities is of particular
importance to the Partnership's business. A software sale, for example, may
provide the opportunity to market an engineering or management consulting
contract. Likewise, a technical services or management consulting contract may
result in software product development and the sale of a software system or data
base.
TENERA's marketing efforts are facilitated by the technical reputation and
industry recognition enjoyed by its professional staff. TENERA's reputation in
the electric power industry often leads to invitations to participate at an
early stage in the conceptualization of a project. During this phase, the
Partnership assists clients in developing an approach for efficiently and
productively solving a problem. This assistance can lead, in turn, to a request
for TENERA to use existing software or to develop software systems to solve the
problem. If new services or products are developed for a client, they generally
are marketed to other clients with similar needs.
TENERA's marketing efforts are led by account managers with specific
marketing and sales accountability. They are charged with the responsibility of
better understanding the market and their clients so that TENERA can tailor its
technology, products and services to meet client needs and challenges. In many
instances, new contracts are acquired by the account managers and other senior
technical and management professionals who are responsible for staffing and
managing projects, monitoring the quality of deliverables, and integrating the
delivery of TENERA's services and software products. Senior professionals are
also responsible for developing and maintaining long-term working relationships
between clients' management and the Partnership, including marketing additional
services to existing clients.
Clients. During the three months ended March 31, 1995, TENERA provided
services and software to over 53 clients involving over 150 contracts. During
the year ended December 31, 1994, TENERA provided services and software to over
73 clients involving over 200 contracts. During the year ended December 31,
1993, TENERA provided services and software to over 117 clients involving over
275 different contracts. Over 90% of TENERA's clients during the three months
ended March 31, 1995, had previously used its services or software.
During the three months ended March 31, 1995, two customers, Westinghouse
(19%) and Martin Marietta Energy Systems, Inc. (Martin; 11%), accounted for
approximately 30% of the Partnership's total revenue. During the year ended
December 31, 1994, one customer, Westinghouse, accounted for approximately 29%
of the Partnership's total revenue. During the year ended December 31, 1993, two
customers, Westinghouse (15%) and CECo (10%), accounted for approximately 25% of
the Partnership's total revenue. The Partnership has maintained working
relationships with Westinghouse, CECo and Martin for over 3, 5 and 6 years,
respectively, during which time various contracts have been completed and
replaced with new or follow-on contacts. The Partnership anticipates that these
working relationships will continue beyond the current contracts; however, there
can be no assurance that such relationships will be maintained, and the loss of
such clients could have a material adverse effect on the Partnership.
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OPERATIONS
The Partnership contracts for the billing of its services in one of three
ways: time and materials ("T & M"), cost plus fixed fee ("CPFF"), or fixed
price. T & M and CPFF contracts, which cover a substantial amount of TENERA's
revenues, are generally billed monthly by applying a multiplier factor to
specific labor costs or by use of a fixed labor rate per hour charged to each
project. T & M and CPFF contracts are generally structured to include
"not-to-exceed" ceilings; however, if after initial review or after work has
started it is noted that additional work beyond the initial scope of work is
required, the contract normally can be renegotiated to include such additional
work and to increase the contract ceiling accordingly. The Partnership also
receives license and annual maintenance fees from contracts involving software
products. During the three months ended March 31, 1995, such fees amounted to
$70,000. During the year ended December 31, 1994, such fees amounted to
$518,000. During the year ended December 31, 1993, such fees amounted to
$183,000.
Fixed price contracts are generally applicable to instances in which TENERA
has been requested to deliver services and/or products previously developed or
products and/or services deliverable to multiple customers. Certain fixed price
contracts are established where TENERA is furthering the development of existing
software products or transferring the technology to a new market or platform.
TENERA generally receives payments on amounts billed 30 to 90 days after
billing, except for retention under contracts. Since the majority of TENERA's
clients are utility companies, DOE, DOE prime contractors, or major industrial
concerns, TENERA historically has experienced a low percentage of losses due to
poor credit risks.
BACKLOG
As of March 31, 1995, TENERA had contracted a backlog of approximately $9.4
million, all of which is cancelable by the clients. Contracted backlog
represents the aggregate of the residual (unspent) value of those active
contracts entered into by TENERA for services which are limited by a contractual
amount and does not include any estimates of open-ended services contracts or
unfunded backlog that may result from additions to existing contracts.
Since all outstanding contracts are cancelable, there is no assurance that
the revenues from these contracts will be realized by the Partnership. If any
contract is canceled, there is no assurance that the Partnership will be
successful in replacing such contracts.
COMPETITION
The market for engineering and management services and related software
products and services is highly competitive and TENERA competes with several
larger firms with significantly greater resources. The primary competitive
factor in the market for engineering and management services is price, and a
number of TENERA's competitors are able to offer such services at prices that
are lower than those offered by TENERA.
RESEARCH AND DEVELOPMENT
It has been TENERA's policy to undertake development projects of software,
systems, and data bases only if they can be expected to lead directly to
proprietary products that may be generally marketable. A portion of TENERA's
research and development effort may be funded through customer-sponsored
projects, although the rights to the systems and data bases generally remain
with TENERA. Because TENERA's research and development activities involve the
integration of customer-funded, cost sharing, and TENERA-funded projects, it is
not possible to segregate on a historical basis all of the specific costs
allocable as research and development costs. In 1994 however, TENERA expended in
excess of $84,000 of its funds on software development designed to meet
customers needs in 1994 and beyond.
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PATENTS AND LICENSES
The Partnership does not hold any patents material to its business. TENERA
relies upon trade secret laws and contracts to protect its proprietary rights in
software systems and data bases. The license agreements under which customers
acquire the rights to use TENERA's products generally restrict the customers'
use of the products to their own operations and prohibit disclosure to others.
PERSONNEL
At March 31, 1995, the Partnership employed a total of 125 engineers and
scientists and a supporting administrative staff of over 35 employees. Seven
employees hold doctorates and 35 hold master's degrees. TENERA also retains the
services of independent contractors in order to fulfill specific needs for
particular projects. None of TENERA's employees are represented by a labor
union.
PROPERTIES
The Partnership's headquarters are located in Berkeley, California, and
consist of approximately 10,000 square feet of leased office space. TENERA also
leases approximately 9,000 square feet of office space in Rockville, Maryland.
These leases expire in 1995 and 1997. Additionally, TENERA maintains leases
covering approximately 25,100 square feet in total in San Jose, California;
Boulder, Colorado; Shelton, Connecticut; Idaho Falls, Idaho; Holbrook, New York;
Knoxville, Tennessee; and Richland, Washington which expire at various dates
through 1999.
The Partnership believes that its facilities are well maintained and
adequate for its current needs.
CERTAIN LEGAL PROCEEDINGS
On November 4, 1994, PLM Financial Services, Inc. ("PLM") filed an action
against the Partnership and the General Partner, among others, in the Superior
Court of California for the County of Alameda. The action entitled PLM Financial
Services, Inc. v. TERA Corporation, et al., Case No. 743 439-0, seeks damages in
excess of $500,000 in unpaid equipment rent and other payments allegedly owing
to PLM under an equipment lease dated September 29, 1984 between PLM and TERA
Power Corporation ("TERA Power"), a former subsidiary of the Partnership's
Predecessor Corporation, TERA Corporation. PLM has named the Partnership in the
action pursuant to a Guaranty dated September 24, 1984 of the lease obligations
of TERA Power made by the Predecessor Corporation. Upon the liquidation of the
Predecessor Corporation in late 1986, the stock of TERA Power was transferred to
the TERA Corporation Liquidating Trust and was thereafter sold to Delta Energy
Projects Phases II, IV, and VI pursuant to a stock purchase agreement dated May
31, 1991. Management understands that TERA Power intends to assert certain
defenses to the claims asserted by PLM in the action. Moreover, management
believes that, even if there is liability under the lease, the Guaranty has been
exonerated and the Partnership will be able to defend this action successfully.
Management does not believe that eventual resolution of this matter will have a
material effect on the Partnership's results of operations or financial
position; however, an adverse outcome could have a material adverse impact on
the financial condition of the Partnership. See "Risk Factors -- Litigation."
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Teknekron Technology MLP I Corporation, a Delaware corporation, is the
General Partner of the Partnership. The only business of the General Partner
currently is to act as general partner of the Partnership and manage the
business thereof. The General Partner has exclusive management and control of
the affairs of the Partnership. The directors and executive officers of the
General Partner will be the directors and executive officers of the Company.
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The directors of the General Partner are as follows:
Michael D. Thomas, 46, named Chairman of the Board of the General
Partner effective August 1991, and named Chief Executive Officer of the
General Partner in September 1994, was President of Teknekron Corporation
from 1991 until December 31, 1994. Mr. Thomas was Vice President of
Marketing and Corporate Business Development for Teknekron Corporation from
1989 to 1991.
Susan T. Cheng, Ph.D., 39, was elected as a Director of the General
Partner in February 1993 and named Treasurer of Teknekron Corporation in
September 1992 and Vice President in November 1994. Previously, Ms. Cheng
was Portfolio Manager of Teknekron Corporation. Ms. Cheng was formerly a
professor at Columbia University School of Business from 1986 to 1991, and
at the Walter A. Haas School of Business at the University of California,
Berkeley from 1989 to 1990.
William A. Hasler, 52, was elected as a Director of the General
Partner in March 1992. Mr. Hasler is dean of the Walter A. Haas School of
Business at the University of California, Berkeley. Prior to his
appointment as dean in 1991, Mr. Hasler was Vice Chairman of Management
Consulting for KPMG Peat Marwick from 1986 to 1991. Mr. Hasler is also a
director of The Gap, Inc., ESCAgenetics Corporation, Aphton Corporation,
and TCSI Corporation (an affiliated company of the General Partner).
George L. Turin, Sc.D., 65, was elected as a Director of the General
Partner in March 1995. Previously, Mr. Turin served as a Professor of
Electrical Engineering and Computer Science at the University of California
at Berkeley from 1960 to 1990. Mr. Turin also served as Vice President,
Technology for Teknekron Corporation from 1988 to 1994.
Barry L. Williams, J.D., 50, was elected as a Director of the General
Partner in September 1993. Mr. Williams has been President of Williams
Pacific Venture, Inc., a venture capital consulting company, since 1987.
From 1988 until its sale in 1992, Mr. Williams was also President of C.N.
Flagg Power, Inc., a company that provides construction services primarily
to the electric utility industry. Mr. Williams is also a director of
American President Companies, Pacific Gas and Electric Company, and Simpson
Manufacturing Co. Inc.
In addition to Mr. Thomas, the executive officers of the General Partner are as
follows:
Donald R. Ferguson, Ph.D., 49, was elected Senior Vice President of
the General Partner in July 1993. Previously, Mr. Ferguson served in the
position of Vice President of the General Partner from 1989 to 1993.
Bradley C. Geddes, 38, was elected President of the General Partner
in September 1994 and named Chief Operating Officer of the General Partner
in June 1993. Previously, Mr. Geddes was a Vice President and Regional
Manager from 1991 to 1993, and Division Manager in Washington, D.C. from
1988 to 1991 for ABB Environmental Services, Inc.
Jeffrey R. Hazarian, 39, is Chief Financial Officer, Vice President
of Finance, and Corporate Secretary of the General Partner. Previously, Mr.
Hazarian served in the position of Vice President, Planning and Analysis of
the General Partner from 1990 to 1992; and Vice President and Controller of
the General Partner from 1988 to 1990.
Robert C. McKay, Jr., 42, was elected Senior Vice President of the
General Partner in December 1992. Previously, Mr. McKay was a Vice
President of the General Partner from 1991 to 1992 and Section Manager of
the Partnership from 1990 to 1991. Formerly Mr. McKay was Manager,
Management Systems for the Tennessee Valley Authority from 1988 to 1990.
Joe C. Turnage, Ph.D., 48, has been a Senior Vice President of the
General Partner since his arrival at the Partnership in 1988.
Officers of the General Partner hold office at the pleasure of the Board of
Directors of the General Partner. There are no familial relationships between or
among any of the executive officers or directors of the General Partner.
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<PAGE> 74
EXECUTIVE COMPENSATION
The following tables set forth certain information covering compensation
paid by TENERA to the CEO and each of the four most highly compensated executive
officers, other than the CEO of the General Partner, for services to TENERA in
all their capacities during the fiscal years ended December 31, 1994, 1993, and
1992.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL -------------------------
COMPENSATION AWARDS
------------------ ---------- PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ---------- COMPENSATION(1)
- ---------------------------- ---- -------- ----- OPTIONS/ ---------------
SARS LTP
(UNITS)(2) PAYOUTS(3)
<S> <C> <C> <C> <C> <C> <C>
Michael D. Thomas(4)........ 1994 -- -- -- -- --
Chief Executive Officer
Anthony R. Buhl(5).......... 1994 $179,080 -- -- -- $ 2,958
Chief Executive Officer 1993 184,999 -- -- $113,994 72,964(6)
1992 184,999 -- -- 113,994 12,818
Bradley C. Geddes........... 1994 160,000 -- 120,000 -- 32,701(7)
President 1993 81,231 -- -- --
1992(8)
Joe C. Turnage.............. 1994 155,000 -- 35,000 55,751 3,100
Senior Vice President 1993 155,000 -- -- 55,750 19,226
1992(8)
Donald R. Ferguson.......... 1994 135,000 -- 35,000 27,793 3,297
Senior Vice President....... 1993 128,750 -- -- 27,793 10,433
1992(8)
Robert C. McKay, Jr......... 1994 135,000 -- 65,000 -- 3,531
Senior Vice President 1993 135,000 -- -- -- 12,230
1992 125,902 -- 20,000 -- 4,252
</TABLE>
- ---------------
(1) These amounts represent the amounts accrued for the Partnership's Profit
Sharing/401(k) Plan for 1994, 1993, and 1992, respectively, and allocated
to the named executive officers, in addition to compensation for overtime
and in lieu of vacation and sick leave benefit timeoff.
(2) Reflects options granted under the 1992 Unit Option Plan; no SARs have been
issued.
(3) These amounts reflect forgiveness of certain indebtedness pursuant to notes
executed by the individual in payment for units acquired pursuant to the
Entrepreneurial Equity Incentive Plan (EEIP). The EEIP was discontinued in
March 1992 upon the adoption of the 1992 Unit Option Plan. Additional
forgiveness of indebtedness with respect to such notes may occur through
December 31, 1995, under awards made prior to the termination of the EEIP.
(4) Mr. Thomas was President of Teknekron until December 31, 1994. He assumed
the position of Chief Executive Officer of the Partnership in September
1994 for which he received no compensation.
(5) Mr. Buhl resigned from the positions of Chief Executive Officer and
President, effective September 1994, and resigned from the positions of
Director of the General Partner and as an employee of the Partnership,
effective April 1995.
(6) This amount includes relocation reimbursement pursuant to company policy
($56,840).
(7) This amount includes relocation reimbursement pursuant to company policy
($32,271).
(8) Denotes years in which the individual was not an executive officer.
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<PAGE> 75
AGGREGATED OPTION/SAR EXERCISES IN 1994 AND
DECEMBER 31, 1994 OPTION/SAR VALUES
<TABLE>
<CAPTION>
EXERCISABLE/UNEXERCISABLE
----------------------------
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
UNITS ACQUIRED VALUE OPTIONS/SARS OPTIONS/SARS
NAME ON EXERCISE REALIZED 12/31/94 12/31/94(1)
- --------------------------------------------- -------------- -------- -------------- ------------
<S> <C> <C> <C> <C>
Michael D. Thomas............................ None -- 25,000/75,000 0
Anthony R. Buhl.............................. -- -- -- 0
Bradley C. Geddes............................ None -- 55,000/65,000 0
Joe C. Turnage............................... None -- 18,750/36,250 0
Donald R. Ferguson........................... None -- 25,000/20,000 0
Robert C. McKay, Jr.......................... None -- 43,750/46,250 0
</TABLE>
- ---------------
(1) The market closing price at December 31, 1994, was less than the exercise
price.
Anthony R. Buhl, the Chief Executive Officer of the General Partner through
September 1994 and Joe C. Turnage, Senior Vice President of the General Partner,
executed employment agreements with the Operating Partnership upon joining the
Operating Partnership in 1988. The employment agreements provided for purchases
of Units by Messrs. Buhl and Turnage at the fair market value upon the date of
issuance, dependent upon meeting various objectives set forth in the agreements.
Pursuant to the Agreement and the EEIP, Messrs. Buhl and Turnage purchased an
aggregate of 301,833 and 289,371 Units, respectively, the purchase price of
which was payable by notes, which notes were to be forgiven over specified
periods, provided Messrs. Buhl and Turnage remained in the employ of the
Operating Partnership. In late 1991, the terms of the EEIP awards made to
Messrs. Buhl and Turnage and others with similar arrangements were modified and
the period over which the remaining balance of the notes was extended and the
conditions for future forgiveness modified. The amount of indebtedness forgiven
is included in the Summary Compensation Table under the captions "LTIP Payouts."
Mr. Turnage's employment may be terminated at any time by the Company under the
terms of the employment agreements. Mr. Buhl executed an employment letter on
September 9, 1994, with the Operating Partnership upon resigning as Chief
Executive Officer and President. The employment letter provided for continuing
as a full-time employee, no longer an executive officer, and with the same
benefits accorded all full-time employees. It also provided for incentive
compensation equal to a percentage of fees which may be received by the
Partnership from a potential future contract award. The arrangement provided for
a severance payment in addition to a two-week pay in lieu of notice, to be
calculated based upon the years of service (one week of pay per year) if Mr.
Buhl's employment is terminated without cause. In February, 1995, the terms of
the employment arrangement with Mr. Buhl were modified to set the incentive
compensation amount for the potential future contract award at $215,000, which
would be paid upon his resignation from the Partnership. Mr. Buhl resigned as a
full-time employee in April 1995 and was paid the incentive compensation award
upon meeting the conditions of the arrangement.
The 1992 Unit Option Plan provides that options may become exercisable over
such periods as provided in the agreement evidencing the option award. Options
granted to date, including options granted to executive officers and set forth
in the above tables, generally call for vesting over a four-year period. The
1992 Unit Option Plan provides that a change in control of the Partnership will
result in immediate vesting of all options granted and not previously vested.
The Conversion is not a change in control as such term is defined in such Plan.
DIRECTORS COMPENSATION
Except as described below, the directors of the General Partner are paid no
compensation by the General Partner, the Partnership or the Operating
Partnership for their services as directors. William A. Hasler, George L. Turin,
and Barry L. Williams as directors, are paid a retainer of $500 per month.
Messrs. Hasler, Turin, and Williams are also paid a fee of $1,000 for each
meeting of the Board and any Board Committee which they attend. Robert K. Dahl,
a director until his resignation in November 1994, received the same fees
72
<PAGE> 76
noted above for his services during the year. The 1993 Outside Directors
Compensation and Unit Option Plan was approved by the Board effective March 1,
1994, which provides for the annual issuance of Unit options for outside
directors (Messrs. Hasler, Turin, and Williams) in lieu of a reduced retainer.
During 1994, 10,000 Unit options were issued to each of Messrs. Hasler and
Williams. During March 1995, 15,000 Unit options were issued to each of Messrs.
Hasler, Turin, and Williams. The options expire ten (10) years after, and vest
on (1) year after the date of grant, and have an exercise price equal to the
fair market value of units on date of grant. Upon exercise of the options, a
director may not sell or otherwise transfer more than 50% of the Units until six
(6) months after the date on which the director ceases to be a director of the
General Partner, see "-- Effect of Merger on Unit Option Plans".
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1994, the Compensation Committee was composed of Susan T. Cheng,
Barry L. Williams, and Michael D. Thomas. A former outside director, Mr. Robert
K. Dahl, also served on the Compensation Committee in 1994, until his
resignation in November 1994. Mr. Thomas was the President, and Ms. Cheng is the
Treasurer, of Teknekron Corporation, which is a party to a Advisory Services
Agreement with the Operating Partnership and an affiliate of the General
Partner.
EFFECT OF MERGER ON UNIT OPTION PLANS
The Merger Agreement provides that, in connection with the Merger, the
Company will amend the Partnership's 1992 Unit Option Plan and 1993 Outside
Director Compensation and Unit Option Plan to reflect the fact that options will
relate to shares of Common Stock instead of Units. Except for the changes from
Units to Common Stock and minor conforming changes, the amended 1992 Unit Option
Plan and the 1993 Outside Director Compensation and Unit Option Plan will be
identical to the existing plans and all outstanding options for Units will be
automatically converted to options for Common Stock at the original exercise
price and on the same terms and conditions as the original Unit options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain members of management or stockholders of the General Partner have
certain direct or indirect interests in certain transactions involving the
Partnership, separate from their interests as Unitholders, as follows:
(i) The General Partner holds a 1% interest in the Partnership and the
Operating Partnership, which interest it purchased at the time of the
formation of the Partnerships for $253,200 each, a sum equal to 1% of the
total capital contributed to each Partnership. Mr. Harvey E. Wagner, as the
principal stockholder of the General Partner, participates in the General
Partner's 1.99% share of the profit, losses, and distributions of the
Partnership and the Operating Partnership on a combined basis;
(ii) The Operating Partnership has entered into an Advisory Services
Agreement with Teknekron Corporation, whereby Teknekron Corporation
provides management and other administrative services to the Partnership
and through December 31, 1994, paid a monthly management services fee
thereunder of $50,000 directly to Teknekron Corporation, an affiliate of
the General Partner. Effective January 1, 1995 the Advisory Services
Agreement has been modified to provide that the compensation of Mr. Thomas,
Chairman of the Board and Chief Executive Officer of the General Partner,
will be paid directly by the Operating Partnership instead of Teknekron
Corporation and, as a result, the monthly fee has been reduced to $25,000
beginning January 1, 1995. The Advisory Services Agreement will terminate
effective upon the consummation of the Conversion. Additionally, the
agreement is cancelable by either party on 90 days notice. Mr. Wagner, the
Partnership's largest Unitholder, is the sole stockholder and a director of
Teknekron Corporation;
(iii) The Operating Partnership pays directly the compensation of the
officers of the General Partner in their capacity as employees of the
Operating Partnership, and has agreed to reimburse the General Partner for
all of the expenses incurred or accrued by the General Partner in
connection with the
73
<PAGE> 77
business and affairs of the Partnership and the Operating Partnership.
However, during the term of the Advisory Services Agreement with Teknekron
Corporation, the General Partner has agreed to incur no material costs or
expenses which are reimbursable by the Partnership or Operating
Partnership;
(iv) TENERA has made, or was assigned by its Predecessor Corporation,
certain loans to various employees, including officers and directors,
generally pursuant to employee benefit plan(s) and generally in connection
with the purchase of stock or Units. In making loans to officers, the
Operating Partnership retains the right to offset all or some portion of
any cash bonuses due to recipients against the balance of the loans and
holds the Units as collateral for such loans. As of April 30, 1995, the
Operating Partnership had notes receivables from its executive officers
evidencing loans in the following amounts: Mr. Turnage -- $375,559, and Mr.
Ferguson -- $27,790. The largest amount outstanding during 1994 was
$403,139 and $55,580, respectively.
(v) Michael D. Thomas, Chairman of the Board of the General Partner,
was President of Teknekron Corporation until December 31, 1994.
(vi) Susan T. Cheng, a director of the General Partner, is Treasurer
and Vice President of Teknekron Corporation.
(vii) William A. Hasler, a director of the General Partner, is a
director of TCSI Corporation, of which Harvey E. Wagner owns 28.4% of the
outstanding stock.
(viii) The Partnership is an equal participant in a partnership, IPEP,
with Westinghouse Electric Corporation and Fauske & Associates, Inc. IPEP
provides executive consulting services to commercial utility companies.
Revenue recognized for services provided through IPEP represented less than
1% of total revenue in 1994 and for the three months ended March 31, 1995.
Billed amounts receivable by the Partnership from IPEP for services was
$21,000 at December 31, 1994. The participants pay a royalty to IPEP of 2%
to 4% of billed fees on certain projects, for administrative services.
Royalties paid to IPEP amounted to $4,000 in 1994 and none for the three
months ended March 31, 1995. Each of the participants shares equally in the
earnings or losses of IPEP. For 1994, the Partnership recognized $34,000 as
its share of IPEP's 1994 estimated losses and none for the three months
ended March 31, 1995.
(ix) The Operating Partnership entered into a lease for its Berkeley
facilities with Toltec Development Corporation, an affiliate of Teknekron
Corporation.
(x) George L. Turin, a director of the General Partner since March
1995, was Vice President, Technology for Teknekron Corporation until
December 31, 1994.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of April 30, 1995,
with respect to beneficial ownership of Units by each person who is known by the
Partnership to own beneficially more than 5% of the Units:
<TABLE>
<CAPTION>
APPROXIMATE
UNITS PERCENT
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED OWNED(1)
- ------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Harvey E. Wagner(2)................................................ 2,437,578 26.8%
P.O. Box 7463
Incline Village, NV 89450
Dr. Michael John Keaton............................................ 1,106,887 12.2%
1950 Manzanita Drive
Oakland, CA 94611
</TABLE>
- ---------------
(1) The persons named above have sole voting and investment power with respect
to all Units shown as beneficially owned by them, subject to community
property laws where applicable and to the information contained in the other
footnotes in this table.
(2) Mr. Wagner is the majority stockholder of the General Partner and sole
stockholder of Teknekron Corporation, an affiliate of the General Partner.
74
<PAGE> 78
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of April 30, 1995, with
respect to current beneficial ownership of Units by (i) each of the directors of
the General Partner, (ii) each of the executive officers named in the Summary
Compensation Table (see "-- Executive Officers"), and (iii) all current
directors and executive officers as a group.
<TABLE>
<CAPTION>
UNITS
BENEFICIALLY PERCENTAGE
NAME OWNED(1) OWNERSHIP(2)
- --------------------------------------------------------------------- ------------ ---------
<S> <C> <C>
Susan T. Cheng....................................................... -0- -0-
William A. Hasler.................................................... 20,000(3) *
Robert C. McKay, Jr.................................................. 45,539(4) *
Michael D. Thomas.................................................... 44,400(4) *
George L. Turin...................................................... 45,504 *
Joe C. Turnage....................................................... 110,671(4) 1.2%
Barry L. Williams.................................................... 10,000(3) *
All Current Directors and Executive Officers as a Group (11
persons)........................................................... 465,391(4) 5.0%
</TABLE>
- ---------------
(1) The persons named above have sole voting and investment power with respect
to all Units shown as beneficially owned by them, subject to community
property laws where applicable.
(2) Asterisks represent less than 1% ownership.
(3) Includes options under the Partnership's 1993 Outside Directors Compensation
and Unit Option Plan which are exercisable on April 30, 1995, or within 60
days thereafter.
(4) Includes options under the Partnership's 1992 Unit Option Plan which are
exercisable on April 30, 1995, or within 60 days thereafter.
Beneficial ownership as shown in the tables above has been determined in
accordance with Rule 13d-3 under the Exchange Act. Under this Rule, certain
securities may be deemed to be beneficially owned by more than one person (such
as where persons share voting power or investment power). In addition,
securities are deemed to be beneficially owned by a person if the person has the
right to acquire the securities (for example, upon exercise of an option or the
conversion of a debenture) within 60 days of the date as of which the
information is provided; in computing the percentage of ownership of any person,
the amount of securities outstanding is deemed to include the amount of
securities beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding Units of
any person as shown in the preceding tables do not necessarily reflect the
person's actual voting power at any particular date.
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<PAGE> 79
SUMMARY COMPARISON OF UNITS AND COMMON STOCK
The following summary compares a number of differences between ownership of
Units and ownership of shares of Common Stock. This summary is qualified in its
entirety by the more complete legal description of the Common Stock contained
under "Description of Common Stock" and the information contained in the
Partnership Agreement of the Partnership and Certificate of Incorporation of the
Company included as exhibits to the Registration Statement of which this Consent
Solicitation Statement/Prospectus is a part.
<TABLE>
<CAPTION>
UNITS COMMON STOCK
- -------------------------------------------- --------------------------------------------
<S> <C>
TAXATION
Under current law, the Partnership is not a The Company will be a taxable entity with
taxpaying entity. Each holder of Units respect to its income after allocable
includes his share of the income and, deductions and credits. Stockholders will
subject to certain limitations, the losses not be taxed with respect to Company income,
of the Partnership in computing taxable but will generally be taxed with respect to
income without regard to the cash any dividends received from the Company.
distributed to the Unitholder. Operating losses will be carried forward to
offset future taxable income for up to 15
years.
A tax-exempt Unitholder's share of the No portion of the earnings of, or any
Partnership's taxable income constitutes dividends received from, the Company will
unrelated business taxable income to the constitute unrelated business taxable income
tax-exempt Unitholder. to tax-exempt stockholders except to the
extent their investment in stock of the
Company is debt-financed.
DISTRIBUTIONS AND DIVIDENDS
Distributions may be paid if, as and when Dividends may be paid if, as and when
determined by the General Partner in its declared by the Board of Directors in its
discretion, subject to legal limitations. discretion. The Company does not expect to
The Partnership has not paid cash pay dividends on the Common Stock unless and
distributions in respect of the Units since until there are significant improvements in
June 1991. If the Partnership were to TENERA's operating results and overall
continue in existence, it would not expect financial condition and the General Partner
to resume cash distributions unless and does not anticipate such improvement in the
until there are significant improvements in foreseeable future.
TENERA's operating results and overall
financial condition and the General Partner
does not anticipate such improvement in the
foreseeable future.
</TABLE>
76
<PAGE> 80
<TABLE>
<CAPTION>
UNITS COMMON STOCK
- -------------------------------------------- --------------------------------------------
<S> <C>
MANAGEMENT
The business and affairs of the Partnership The business and affairs of the Company are
are managed by the General Partner, the managed by or under the direction of the
Board of Directors of which, pursuant to the Board of Directors of the Company, the
Partnership Agreement, must consist of at members of which will initially be the same
least two Disinterested Persons. as the Board of Directors of the General
Partner. Although the Company's Certificate
of Incorporation or By-Laws do not require
that the Board of Directors consist of at
least two Disinterested Persons, the members
of the Board of Directors of the General
Partner, currently consisting of a majority
of Disinterested Persons, will become the
members of the Board of Directors of the
Company after the Conversion, and AMEX, on
which application has been made to list
Common Stock, requires that a listed company
have two disinterested persons on its board
of directors.
The General Partner may be removed only by The Board of Directors of the Company are
vote of the holders of more than 50% of the divided into three classes serving staggered
outstanding Units. Unitholders neither elect three- year terms. Approximately one-third
nor remove any member of the Board of of the Board of Directors will be elected
Directors of the General Partner. annually by the stockholders to serve for
three-year terms. Directors can be removed
from office only for cause by vote of at
least 75% of the outstanding shares of
Common Stock. Vacancies on the Board of
Directors may be filled only by the
remaining directors and not by the
stockholders.
VOTING RIGHTS
Under Delaware law, the Partnership Under Delaware law and the Company's
Agreement and the Operating Partnership Certificate of Incorporation, stockholders
Agreement, limited partners have voting have voting rights with respect to (i) the
rights with respect to (i) the removal and annual election of directors, (ii) the
replacement of the General Partner, (ii) the removal of directors, (iii) certain mergers
merger of the Partnership or the Operating and share exchanges involving the Company,
Partnership, (iii) the sale of all or (iv) the sale of all or substantially all of
substantially all of the assets of the the assets of the Company other than in the
Partnership or the Operating Partnership regular course of business, (v) the
outside of the ordinary course of business, dissolution of the Company, and (vi)
(iv) the dissolution of the Partnership or amendments to the Company's Certificate of
Operating Partnership, and (v) material Incorporation.
amendments to the Partnership Agreement or
the Operating Partnership Agreement.
Each Unit entitles each holder thereof who Each share of Common Stock entitles its
is admitted as a limited partner to the holder to cast one vote on all matters
Partnership to cast one vote on each matter presented to stockholders.
presented to Unitholders.
</TABLE>
77
<PAGE> 81
<TABLE>
<CAPTION>
UNITS COMMON STOCK
- -------------------------------------------- --------------------------------------------
<S> <C>
Limited partners owning at least 10% of the Stockholders are not permitted to call a
Units may call a meeting and submit special meeting or require that the Board of
matters to a vote of the limited partners, Directors call a special meeting of
provided such matters are not proposed stockholders. Therefore, the ability of
amendments to the Partnership Agreement. stockholders to act is limited to regular
meetings, special meetings called by the
Board of Directors or by unanimous consent.
Approval of any matter submitted to limited Approval of any matter submitted to
partners generally requires the affirmative stockholders generally requires the
vote of holders of more than 50% of the affirmative vote of holders of more than 50%
Units then outstanding or voting (or, as to of the Common Stock outstanding or voting,
any class entitled to vote separately except for certain amendments to the
thereon, holders of more than 50% of the Company's Certificate of Incorporation and
Units of such class then outstanding or By- Laws which require 75% approval.
voting).
All Units vote together as a single class. If the Company has more than one class of
shares outstanding in the future, class
voting will be required on certain matters
that generally have a material adverse
effect on shares of a class.
LIQUIDATION RIGHTS
In the event of liquidation, Unitholders and In the event of liquidation of the Company,
the General Partner would be entitled to the holders of Common Stock would be
share ratably in any assets remaining after entitled to share ratably in any assets
the satisfaction of obligations to remaining after satisfaction of obligations
creditors. to creditors and any liquidation preferences
on any series of preferred stock of the
Company that may be then outstanding.
RIGHT TO COMPEL DISSOLUTION
Holders of at least a majority of the Under Delaware law, dissolution of a
outstanding Units may approve an election corporation may be authorized (i) without
to dissolve and liquidate the Partnership, the action of the directors if all the
with or without the concurrence of the stockholders entitled to vote thereon shall
General Partner. consent in writing, or (ii) by the election
of the directors if a majority of
stockholders entitled to vote thereon
approve of such dissolution.
LIMITED LIABILITY
Generally, Unitholders are limited partners Shares of Common Stock will be fully paid
in a Delaware limited partnership. Units and non-assessable. Stockholders generally
are fully paid and non-assessable. will not have personal liability for
Unitholders generally do not have personal obligations of the Company.
liability for obligations of the
Partnership.
LIQUIDITY AND MARKETABILITY
The Units are freely transferable and are The Common Stock will be freely transferable
currently listed on AMEX. After the and application has been made to list the
Effective Time, the Units will cease to be Common Stock on AMEX.
publicly traded.
</TABLE>
78
<PAGE> 82
<TABLE>
<CAPTION>
UNITS COMMON STOCK
- -------------------------------------------- --------------------------------------------
<S> <C>
CONTINUITY OF EXISTENCE
The Partnership Agreement provides for the The Company's Certificate of Incorporation
Partnership to continue in existence until provides for perpetual existence, subject to
December 31, 2036, unless earlier terminated Delaware law.
or extended in accordance with the
Partnership Agreement.
FINANCIAL REPORTING
The Partnership is subject to the reporting The Company will be subject to the reporting
requirements of the Exchange Act and files requirements of the Exchange Act and will
annual and quarterly reports thereunder. file annual and quarterly reports
The Partnership also provides annual and thereunder. The Company will also provide
quarterly information to its Unitholders. annual and quarterly information to its
stockholders.
CERTAIN LEGAL RIGHTS
Delaware law allows a Unitholder to Delaware law will afford stockholders of the
institute legal action on behalf of the Company similar rights to bring stockholder
Partnership (a derivative action) to recover derivative actions when the Board of
damages from a third party or the General Directors of the Company has failed to
Partner where the General Partner has failed institute an action against third parties or
to institute the action. In addition, a directors of the Company, and class actions
Unitholder may institute legal action on to recover damages from directors for
behalf of himself or all other similarly violations of their fiduciary duties.
situated Unitholders (a class action) to Stockholders may also have rights to bring
recover damages from the General Partner for actions in federal courts to enforce federal
violations of its fiduciary duties to the rights.
Unitholders. Unitholders may also have
rights to bring actions in federal courts to
enforce federal rights.
RIGHT TO LIST OF HOLDERS; INSPECTION OF BOOKS AND RECORDS
Upon written request, at his own expense and Under Delaware law, upon written request,
for a purpose reasonably related to his and for a proper purpose, any person who is
partnership interest, a Unitholder may have a stockholder of record of the Company shall
access, at reasonable times, to certain have the right to examine and copy relevant
nonconfidential, nonproprietary information, books of account, minutes and share transfer
including tax returns, financial statements records, including a list of current
and governing instruments of the Partnership stockholders.
as well as a current list of Unitholders.
APPRAISAL OR DISSENTERS' RIGHTS
Unitholders who object to the Conversion Under Delaware law, a holder of Common Stock
will have no appraisal, dissenters' or who does not vote in favor of a merger or
similar rights under state law or the consolidation of the Company may, upon
Partnership Agreement, nor will such rights compliance with certain procedures, be
be voluntarily accorded to Unitholders by entitled to receive the fair value of the
TENERA. shares in cash in lieu of the consideration
that would otherwise be received in the
merger or consolidation. Appraisal rights
are not available in certain mergers,
including mergers in which the Company is
the surviving corporation and no vote of its
stockholders was required.
</TABLE>
79
<PAGE> 83
<TABLE>
<CAPTION>
UNITS COMMON STOCK
- -------------------------------------------- --------------------------------------------
<S> <C>
AMENDMENT OF PARTNERSHIP AGREEMENT AND CERTIFICATE OF INCORPORATION
The Partnership Agreement provides that Amendment of provisions of the Company's
amendments to the Partnership Agreement may Certificate of Incorporation regarding the
be proposed only by the General Partner or election of directors requires the
Limited Partners holding at least 10% of affirmative vote of more than 75% of the
Units. Such proposed amendments shall be outstanding shares entitled to vote thereon;
effective upon the approval of a majority of any amendment of any other provision
Units, unless the Partnership Agreement requires the affirmative vote of a majority
provision requires a greater percentage for of the outstanding shares entitled to vote
amendment. thereon.
</TABLE>
DESCRIPTION OF STOCK
Upon consummation of the Conversion, the authorized capital stock of the
Company will consist of 25,000,000 shares of Common Stock, par value $0.01 per
share, and 10,000,000 shares of preferred stock, issuable in series. Of such
authorized shares approximately shares of Common Stock will be issued and
outstanding immediately following the consummation of the Conversion. All such
outstanding shares of Common Stock will be fully paid and nonassessable.
COMMON STOCK
Each share of Common Stock is entitled to one vote at all meetings of
stockholders of the Company for the election of directors and all other matters
submitted to stockholder vote. The Common Stock does not have cumulative voting
rights. The Common Stock has no preemptive or similar rights. Holders of Common
Stock are not liable to further call or assessment. Upon the liquidation,
dissolution or winding up of the affairs of the Company, any assets remaining
after provision for payment of creditors (and the liquidation preference of any
preferred stock then outstanding), would be distributed pro rata among holders
of Common Stock.
PREFERRED STOCK
The Board of Directors, without further action by the stockholders, is
authorized to issue up to 10,000,000 shares of preferred stock in one or more
series and to fix and determine as to any series all the relative rights and
preferences of shares in such series, including, without limitation,
preferences, limitations or relative rights with respect to redemption rights,
conversion rights, if any, voting rights, if any, dividend rights and
preferences on liquidation. The Company has no present intention to issue any
preferred stock, but may determine to do so in the future.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and
By-Laws and the Delaware General Corporation Law ("DGCL") may reduce the
likelihood of a takeover of the Company which, if successful, might permit
stockholders to receive a premium over the market price of the Common Stock.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the Company's Board of Directors and management
and in the policies formulated by the Board of Directors and to discourage an
unsolicited takeover of the Company if the Board of Directors determines that
such takeover is not in the best interests of the Company and its stockholders.
However, these provisions could have the effect of discouraging certain attempts
to acquire the Company or remove incumbent management even if some or a majority
of stockholders deemed such an attempt to be in their best interests.
Certificate of Incorporation Provisions. Pursuant to the Company's
Certificate of Incorporation, the Board of Directors of the Company is divided
into three classes serving staggered three-year terms. Directors can be removed
from office only for cause and only by the affirmative vote of the holders of
75% of the then-outstanding shares of capital stock entitled to vote generally
in the election of directors. Vacancies on the Board of Directors may be filled
only by the remaining directors and not by the stockholders.
80
<PAGE> 84
The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company may be effected only at
an annual or special meeting of stockholders and prohibits stockholder action by
less than unanimous written consent in lieu of a meeting. Stockholders are not
permitted to call a special meeting or to require that the Board of Directors
call a special meeting of stockholders.
By-Law Provisions. The Company's By-Laws establish an advance notice
procedure for the nomination of candidates for election as directors, other than
by or at the direction of the Board of Directors. In general, notice of intent
to nominate a director must be received by the Company not less than 14 nor more
than 50 days prior to any meeting called for the election of directors and must
contain certain specified information concerning the person to be nominated.
Section 203 of the Delaware Law. Section 203 of the DGCL prevents an
"interested stockholder" (defined in Section 203 of the DGCL, generally, as a
person owning 15% or more of a corporation's outstanding voting stock), from
engaging in a "business combination" (as defined in Section 203 of the DGCL)
with a publicly held Delaware corporation for three years following the date
such person became an interested stockholder, unless (i) before such 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 approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer); or (iii) following the transaction
in which such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of two-third of
the outstanding voting stock of the corporation not owned by the interested
stockholder.
LIMITATION OF LIABILITY
The Certificate of Incorporation contains a provision that limits the
liability of the Company's directors as permitted by the DGCL. The provision
eliminates the personal liability of directors to the Company and its
stockholders for monetary damages for breach of fiduciary duty as directors.
Thus, the stockholders may be unable to recover monetary damages against
directors for negligent or grossly negligent acts or omissions in violation of
their duty of care. The provision does not change the liability of a director
for breach of his duty of loyalty to the Company or to stockholders, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, an act or omission for which the liability of a director is
expressly provided for under Section 174 of the DGCL (governing distributions to
stockholders), or in respect of any transaction from which a director received
an improper personal benefit. Pursuant to the Certificate of Incorporation, the
liability of directors will be further limited or eliminated without action by
stockholders if Delaware law is amended to further limit or eliminate the
personal liability of directors.
RESALE OF COMMON STOCK
Shares of Common Stock received by persons who may be deemed to be
"affiliates" of the Company may be sold by those persons only in accordance with
the provisions of Rule 144. Rule 144 generally provides that shares of Common
Stock may be sold by the affiliate only if there is available adequate public
information with respect to the Company for the period specified in Rule 144,
and only if (i) the number of shares of Common Stock sold within any three-month
period does not exceed the greater of 1% of the total number of outstanding
shares of Common Stock or the average weekly trading volume of the Common Stock
during the four calendar weeks immediately preceding the date on which the
notice of sale is filed with the SEC and (ii) the shares of Common Stock are
sold in transactions directly with a "market maker" or in "brokers'
transactions" within the meaning of Rule 144 under the Securities Act.
81
<PAGE> 85
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Chemical Mellon
Shareholder Services, 50 California Street, 10th Floor, San Francisco, CA 94111.
LEGAL OPINIONS
Certain legal matters in connection with the Common Stock offered hereby,
and the opinion contained in "Material Federal Income Tax Consequences," will be
passed upon for the Company by Bryan Cave, Santa Monica, California.
EXPERTS
The combined financial statements of TENERA, L.P., at December 31, 1994 and
1993, and for each of the three years in the period ended December 31, 1994,
included in this Consent Solicitation Statement/Prospectus, which is referred to
and made part of this Statement/Prospectus, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
82
<PAGE> 86
INDEX TO FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TENERA, L.P. COMBINED FINANCIAL STATEMENTS............................................ F-2
REPORT OF INDEPENDENT AUDITORS...................................................... F-3
TENERA, L.P., COMBINED STATEMENTS OF OPERATIONS..................................... F-4
TENERA, L.P., COMBINED BALANCE SHEETS............................................... F-5
TENERA, L.P., COMBINED STATEMENTS OF CHANGES IN
PARTNERS' CAPITAL................................................................ F-6
TENERA, L.P., COMBINED STATEMENTS OF CASH FLOWS..................................... F-7
TENERA, L.P., NOTES TO COMBINED FINANCIAL STATEMENTS................................ F-8
TENERA, INC. AUDITED BALANCE SHEET AS OF DECEMBER 31, 1994............................ F-13
REPORT OF INDEPENDENT AUDITORS...................................................... F-14
TENERA, INC., BALANCE SHEET......................................................... F-15
TENERA, INC., NOTE TO BALANCE SHEET, DECEMBER 31, 1994.............................. F-16
TENERA, INC. UNAUDITED PRO FORMA FINANCIAL INFORMATION................................ F-17
TENERA, INC., UNAUDITED PRO FORMA FINANCIAL INFORMATION............................. F-18
TENERA, INC., UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS, FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND YEAR ENDED DECEMBER 31, 1994............................ F-19
TENERA, INC., UNAUDITED PRO FORMA BALANCE SHEET, MARCH 31, 1995..................... F-20
TENERA, INC., UNAUDITED PRO FORMA STATEMENTS OF CASH FLOWS, FOR THE THREE MONTHS
ENDED MARCH 31, 1995 AND YEAR ENDED DECEMBER 31, 1994............................ F-21
TENERA, INC., NOTES TO UNAUDITED PRO FORMA FINANCIAL
STATEMENTS....................................................................... F-22
</TABLE>
F-1
<PAGE> 87
TENERA, L.P. COMBINED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
AND
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
F-2
<PAGE> 88
REPORT OF INDEPENDENT AUDITORS
To General Partner and Limited Partners of TENERA, L.P.
We have audited the accompanying combined balance sheets of TENERA, L.P. as
of December 31, 1994 and 1993, and the related combined statements of
operations, changes in partners' capital, and cash flows for each of the three
years in the period ended December 31, 1994. Our audits also included the
combined financial statement schedule listed in the index at Item 14(a). These
financial statements and schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of TENERA,
L.P. as of December 31, 1994 and 1993, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
Also, in our opinion, the related combined financial statement schedule when
considered in relation to the basic combined financial statements, taken as a
whole, present fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
San Francisco, California
February 3, 1995
F-3
<PAGE> 89
TENERA, L.P.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------- MARCH 31,
1994 1993 1992 ---------------------------
------- ------- ------- 1995 1994
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.............................. $23,600 $29,340 $36,648 $ 5,344 $ 7,079
Direct Costs......................... 14,612 18,626 21,410 3,199 4,312
General and Administrative
Expenses........................... 10,662 11,296 14,472 1,956 2,636
Other Income (Expenses).............. (65) 267 60 7 1
Special Item......................... 500 -- -- -- --
------- ------- ------- ----------- -----------
Operating Income (Loss)............ (1,239) (315) 826 196 122
Interest Income (Expense)............ 37 21 (31) -- 13
------- ------- ------- ----------- -----------
Net Earnings (Loss)................ $(1,202) $ (294) $ 795 $ 196 $ 145
======= ======= ======= ========= =========
Net Earnings (Loss) per Unit......... $ (0.13) $ (0.03) $ 0.08 $ 0.02 $ 0.02
======= ======= ======= ========= =========
Weighted Average Number of Equivalent
Units Outstanding.................. 9,555 9,646 9,710 9,541 9,588
======= ======= ======= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE> 90
TENERA, L.P.
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1994 1993 1995
------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.................................. $ 1,943 $1,580 $ 1,439
Receivables, less allowances of $2,897, $3,717, and $2,897
at December 31, 1994, 1993 and March 31, 1995,
respectively
Billed.................................................. 3,448 4,171 3,641
Unbilled................................................ 2,021 2,397 2,506
Other current assets....................................... 681 572 758
------- ------ -----------
Total Current Assets............................... 8,093 8,720 8,344
Property and Equipment, Net.................................. 476 555 419
Other Assets................................................. 47 70 47
------- ------ -----------
Total Assets....................................... $ 8,616 $9,345 $ 8,810
======= ====== =========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Bank loan payable, agreement in default.................... $ 750 $ -- $ 750
Accounts payable........................................... 1,665 1,379 1,439
Accrued compensation and related expenses.................. 1,654 2,145 1,878
------- ------ -----------
Total Current Liabilities.......................... 4,069 3,524 4,067
Partners' Capital
General Partner............................................ 312 335 316
Limited Partners, units issued and
outstanding -- 9,351,284, 9,402,791 and 9,351,284 at
December 31, 1994, 1993, and March 31, 1995,
respectively............................................ 5,376 6,555 5,568
Treasury units -- 425,636, 374,129 and 425,636 at December
31, 1994, 1993 and March 31, 1995, respectively......... (1,141) (1,065) (1,141)
Notes from Limited Partners................................ -- (4) --
------- ------ -----------
Total Partners' Capital............................ 4,547 5,821 4,743
------- ------ -----------
Total Liabilities and Partners' Capital............ $ 8,616 $9,345 $ 8,810
======= ====== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 91
TENERA, L.P.
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
NOTES
FROM
GENERAL LIMITED TREASURY LIMITED
PARTNER PARTNERS UNITS PARTNERS TOTAL
-------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1991....................... $325 $ 6,062 $ (508) $ (204) $ 5,675
Repurchase of 168,580 Units............. -- -- (432) -- (432)
Amortization of Notes................... -- -- -- 64 64
Payments on Notes....................... -- -- -- 77 77
Net Earnings............................ 16 779 -- -- 795
-------- -------- -------- ---------- -------
DECEMBER 31, 1992....................... 341 6,841 (940) (63) 6,179
Repurchase of 64,778 Units.............. -- -- (125) -- (125)
Payment on Notes........................ -- -- -- 13 13
Amortization of Notes................... -- 2 -- 46 48
Net Loss................................ (6) (288) -- -- (294)
-------- -------- -------- ---------- -------
DECEMBER 31, 1993....................... 335 6,555 (1,065) (4) 5,821
Repurchase of 51,507 Units.............. -- -- (76) -- (76)
Amortization of Notes................... -- -- -- 4 4
Net Loss................................ (23) (1,179) -- -- (1,202)
-------- -------- -------- ---------- -------
DECEMBER 31, 1994....................... 312 5,376 (1,141) -- 4,547
Net Earnings (Unaudited)................ 4 192 -- -- 196
-------- -------- -------- ---------- -------
MARCH 31, 1995.......................... $316 $ 5,568 $ (1,141) $ -- $ 4,743
====== ======= ======= ======== =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 92
TENERA, L.P.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ----------------
1994 1993 1992 1995 1994
------- ------ ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss).............................. $(1,202) $ (294) $ 795 $ 196 $ 145
Adjustments to reconcile net earnings (loss) to
cash provided (used) by operating activities
Depreciation.................................. 383 403 404 78 100
Loss (Gain) on sale of equipment.............. 24 (84) -- (7) --
Increase (Decrease) in allowance for sales
adjustments................................. (820) (152) 595 -- (368)
Amortization of Limited Partners' notes....... 4 48 64 -- 4
Changes in operating assets and liabilities
Receivables................................. 1,919 2,929 337 (678) (265)
Other current assets........................ (109) (97) 171 (77) 26
Other assets................................ 23 127 (197) -- (7)
Accounts payable............................ 286 (509) (2,519) (226) 579
Accrued compensation and related expenses... (491) (899) (276) 224 (48)
------- ------ ------- ------ ------
Net Cash Provided (Used) by Operating
Activities............................. 17 1,472 (626) (490) 166
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment......................... (361) (367) (437) (21) (112)
Proceeds from sale of equipment.................. 33 92 -- 7 --
------- ------ ------- ------ ------
Net Cash Used in Investing Activities.... (328) (275) (437) (14) (112)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under bank loan agreement............. 750 -- -- -- --
Payments on Limited Partners' notes.............. -- 13 77 -- --
Net repurchase of units.......................... (76) (125) (432) -- (73)
------- ------ ------- ------ ------
Net Cash Provided (Used) by Financing
Activities............................. 674 (112) (355) -- (73)
------- ------ ------- ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 363 1,085 (1,418) (504) (19)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..... 1,580 495 1,913 1,943 1,580
------- ------ ------- ------ ------
CASH AND CASH EQUIVALENTS AT END OF YEAR........... $ 1,943 $1,580 $ 495 $1,439 $1,561
======= ====== ======= ====== ======
</TABLE>
See accompanying notes.
F-7
<PAGE> 93
TENERA, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1994 IS UNAUDITED)
NOTE 1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING POLICIES
Partnership. TENERA, L.P. (the Partnership) provides a broad range of
professional services and software products to solve complex engineering,
environmental, and safety challenges associated with the design, construction,
licensing, and maintenance of power plants, large scale industrial and mass
transit facilities. During 1994, the Partnership conducted its business through
TENERA Operating Company, L.P. (the Operating Partnership), a Delaware limited
partnership. In January 1994, the Partnership filed for dissolution of TENERA,
S.A., the wholly owned subsidiary in Paris, France. Teknekron Technology MLP I
Corporation, a Delaware corporation (the General Partner) holds a 1% general
partners' ownership interest in the Partnership and the Operating Partnership,
representing a 1.99% interest in the profits, losses, and distributions of such
partnerships on a combined basis.
Basis of Presentation. The combined financial statements include the
accounts of the Partnership consolidated with its former foreign subsidiary,
TENERA, S.A., and the Operating Partnership. All intercompany accounts and
transactions have been eliminated.
Interim Financial Information. The consolidated financial statements for
the three months ended March 31, 1995 and 1994 are unaudited but include all
adjustments (consisting of normal recurring entries) which the Company considers
necessary for fair presentation. Operating results for the three months ended
March 31, 1995 are not necessarily indicative of the results that may be
expected for any future periods.
Cash and Cash Equivalents. Cash and cash equivalents consist of demand
deposits with major banks. The Partnership's policy is to invest its excess cash
in certificates of deposit and bank acceptances or repurchase agreements of
financial institutions with strong credit ratings. The Partnership includes in
cash and cash equivalents, all short-term, highly liquid investments which
mature within three months of acquisition.
Property and Equipment. Property and equipment are stated at cost
($2,493,000, $2,746,000 and $2,593,000 at December 31, 1994, 1993 and March 31,
1995, respectively), net of accumulated depreciation ($2,017,000, $2,191,000 and
$2,094,000 at December 31, 1994, 1993 and March 31, 1995, respectively).
Depreciation is calculated using the straight line method over the estimated
useful lives, which range from three to five years.
Revenue. Revenue from time-and-material and cost plus fixed-fee contracts
is recognized when costs are incurred; from fixed-price contracts, on the basis
of percentage of work completed (measured by costs incurred relative to total
estimated project costs); from software license fees at time of delivery and
customer acceptance; and from software maintenance agreements, equally over the
period of the maintenance support agreement. The Company's revenue recognition
policy for its software contracts is in compliance with the American Institute
of Certified Public Accounts' Statement of Position 91-1, "Software Revenue
Recognition." The Company accounts for all costs relating to insignificant
vendor and post-contract support obligations at the time of shipment by accruing
such costs. The Partnership primarily offers its services and software products
to the electric power industry and the U.S. Department of Energy in North
America. The Partnership performs ongoing credit evaluations of these customers
and normally does not require collateral. Reserves are maintained for potential
sales adjustments and credit losses; such losses to date have been within
management's expectations.
During the year ended December 31, 1994, one client accounted for 29% of
the Partnership's total revenue. During the years ended December 31, 1993 and
1992, two clients accounted for 15% and 10%, and two clients accounted for 12%
and 10%, respectively, of the Partnership's total revenue. During the three
months ended March 31, 1995 and 1994, two clients accounted for 19% and 11%, and
two clients accounted for 27% and 10%, respectively, of the Partnership's total
revenue.
F-8
<PAGE> 94
Taxes. For state and federal income tax purposes, the Partnerships are not
taxpaying entities. Accordingly, the taxable income or loss of the Partnerships,
which may vary substantially from income or loss reported for financial
reporting purposes, is includable in the state and federal tax returns of the
individual partners. The tax returns of the Partnerships are subject to
examination by state and federal taxing authorities. If such examinations result
in changes to taxable income or loss, the tax liability of the partners would be
changed accordingly.
Earnings per Unit. Earnings per unit are computed on the basis of the
weighted average number of equivalent units outstanding during each period.
Limited partner units total approximately 9.4 million units at December 31,
1994, and represent 98.01% of the partnership interest, with the remaining 1.99%
being represented by the General Partner's interest. In 1994, equivalent units
of approximately 9.6 million units were used to calculate net earnings per unit,
representing both the General and Limited Partners' interest in the net loss.
During the three months ended March 31, 1995 and 1994, equivalent units of
approximately 9.5 million units and 9.8 million units, respectively, were used
to calculate net earnings per unit, representing both the General and Limited
Partner's interest in the net earnings.
NOTE 2. RELATED PARTY TRANSACTIONS
Teknekron. The principal shareholder of both Teknekron Corporation
(Teknekron) and Teknekron Technology MLP I Corporation, owned approximately 26%
of the Partnership's outstanding units at December 31, 1994. Teknekron provides
management and related services, including strategic planning, budgeting, and
executive recruiting services to the Operating Partnership under an advisory
services agreement, which is renewable annually and cancelable by either party
on 90-days notice. Charges to earnings for the services amounted to $600,000 in
1994, 1993, and 1992. Charges to earnings for the three months ended March 31,
1995 and 1994 were $75,000 and $150,000, respectively.
IPEP. The Partnership is an equal participant in a partnership, Individual
Plant Evaluation Partnership (IPEP), with Westinghouse Electric Corporation and
Fauske & Associates, Inc. IPEP provides executive consulting services to
commercial utility companies. Revenue recognized for services provided through
IPEP amounted to $173,000, $2,329,000 and $3,707,000 in 1994, 1993 and 1992,
respectively. For the three months ended March 31, 1995 and 1994 revenue
recognized for services provided through IPEP amounted to $9,000 and $43,000,
respectively. These revenues represent less than 1%, 8% and 10% of total
revenues in 1994, 1993 and 1992, respectively. For the three months ended March
31, 1995 and 1994 these revenues represent less than 1% and 1%, respectively.
Billed amounts receivable by the Partnership from IPEP for services provided was
$21,000, $169,000 and $15,000 at December 31, 1994, 1993 and March 31, 1995,
respectively.
The participants pay a royalty to IPEP, of from 2% to 4% of billed fees on
certain projects, for administrative services. Royalties paid to IPEP amounted
to $4,000, $42,000, and $6,000 in 1994, 1993 and 1992, respectively. No
royalties were paid for the three months ended March 31, 1995 and royalties paid
for the three months ended March 31, 1994 amounted to $1,000.
The Partnership's interest in IPEP is accounted for under the equity
method. Each of the participants shares equally in the earnings of IPEP. For
1994, the Partnership recognized $34,000 as its share of IPEP's 1994 estimated
losses ($23,000 of earnings in 1993 and $15,000 in 1992, and in addition, the
Partnership recorded its share of IPEP's 1989, 1990, and 1991 earnings in 1992,
amounting to $182,000). For the three months ended March 31, 1995 and 1994, the
Partnership recognized no amounts for its share of IPEP's estimated losses or
earnings.
Notes Receivable. The Partnership includes in other current assets, notes
receivables from executive officers of $319,639, $323,940 and $319,639 at
December 31, 1994, 1993 and March 31, 1995.
TERA Liquidating Trust. The Partnership recognized $228,000 in other
income for administrative services provided to the TERA Liquidating Trust (the
Trust) in 1993 (none in 1994) and the three months ended March 31, 1995 and
1994. The Trust was established by TERA Corporation (the Predecessor Company) to
facilitate the orderly sale or other disposition of the remaining assets and
satisfaction of all remaining debts and liabilities.
F-9
<PAGE> 95
Toltec. The Operating Partnership entered into a lease for approximately
10,000 square feet of office space during 1993 for its Berkeley facilities with
Toltec Development Corporation (Toltec), an affiliate of Teknekron. The lease
expires in 1995, and contains a renewal option for three years. Lease payments
to Toltec totaling $224,000, $79,000 and none in 1994, 1993 and 1992,
respectively. Lease payments to Toltec totaled $52,000 and $56,000 for the three
months ended March 31, 1995 and 1994, respectively.
NOTE 3. EMPLOYEE BENEFIT PLANS
Incentive Bonus Plans. The Partnership has incentive plans based on
financial performance. Bonus awards of cash and units are discretionary and are
determined annually by the Board of Directors. During the year ended December
31, 1994, there were no charges to earnings for incentive bonuses (none in 1993,
and $200,000 in 1992, and none for the three months ended March 31, 1995 and
1994).
Unit Option Plan. Under the provisions of the Unit Option Plan, which was
approved at a Special Meeting of Unitholders on June 23, 1992, the Partnership
reserved 1,500,000 units for issuance upon the exercise of options granted to
key employees and consultants to the Partnership. During 1994, options were
granted for 315,000 units at an exercise price of $1.31 and 290,000 units at an
exercise price of $0.6875, the then fair market values, expiring on February 7,
2004, and December 30, 2004, respectively (in 1993, no options were granted and
in 1992, options were granted for 623,000 units at an exercise price of $1.75,
the then fair market value expiring on October 13, 2002). As of December 31,
1994, 866,500 options were outstanding and 425,750 options were exercisable.
During the three months ended March 31, 1995 no options were granted. As of
March 31, 1995, 866,500 options were outstanding and 425,750 options were
exercisable.
Director's Option Plan. Under the provisions of the 1993 Outside Directors
Compensation and Unit Option Plan, which was approved by the Board of Directors,
effective March 1, 1994, the Partnership reserved 150,000 units for issuance
upon the exercise of options granted to Outside Directors. During 1994, options
were granted for 30,000 units at an exercise price of $1.31, the then fair
market value, expiring on March 1, 2004. As of December 31, 1994, 20,000 options
were outstanding and zero options were exercisable. During the three months
ended March 31, 1995, options were granted for 45,000 units at an exercise price
of $0.6875, the then fair market value, expiring on March 1, 2005. As of March
31, 1995, 65,000 options were outstanding and 20,000 options were exercisable.
Entrepreneurial Equity Incentive Plan (EEIP). Under the provisions of the
EEIP, the Partnership could have issued up to 2,500,000 units at their then fair
market value in exchange for cash and notes to employees whose organizations
fulfilled various financial objectives. At December 31, 1994 and March 31, 1995,
3,500 units at $6.18 per unit remained outstanding pursuant to the EEIP. The
EEIP was terminated in March 1992.
Profit Sharing Plan (PSP). The PSP is administered through a trust that
covers substantially all employees. Amounts contributed to the plan, which range
through from 0 - 10% of salary, are discretionary and are determined annually by
the General Partner. During the years ended December 31, 1994, 1993, and 1992
and the three months ended March 31, 1995 and 1994, there were no charges to
earnings due to the results of operations.
401(k) Plan (401k). As part of the PSP, a 401(k) Plan is administered
through a trust that covers substantially all employees. As of April 1, 1993,
employees could contribute amounts to the plan, not exceeding 10% of salary.
Through 1992, employees contributed amounts to the plan, not exceeding 5% of
salary. In 1993, the Partnership matched these amounts with a 25% contribution
on a matching contribution base, not exceeding 5% of salary. Effective January
1, 1994, the Partnership's matching contribution amounts to 50% of a matching
contribution base, not exceeding 6% of salary.
Money Purchase Plan (MPP). The MPP is administered through a trust that
covers substantially all employees. The Partnership, which through 1993,
contributed 5% of eligible employees' salaries to the plan annually. As of
January 1, 1994, the Partnership's contribution amount was reduced to 3% of
eligible employees annual salaries. Charges to earnings for the Money Purchase
Plan amounted to $276,000, $529,000
F-10
<PAGE> 96
and $555,000 in 1994, 1993 and 1992, respectively. Charges to earnings for the
MPP amounted to $154,000 and $181,000 for the three months ended March 31, 1995
and 1994, respectively.
NOTE 4. COMMITMENTS AND CONTINGENCIES
Leases. The Partnerships occupy facilities under noncancelable operating
leases expiring at various dates through 1999. The leases call for proportionate
increases due to property taxes and certain other expenses. Rent expense
amounted to $850,000, $1,331,000 and $1,689,000 in 1994, 1993 and 1992. Rent
expense amounted to $191,000 and $218,000 for the three months ended March 31,
1995 and 1994, respectively.
Minimum rental commitments under operating leases, principally for real
property, are as follows:
<TABLE>
<CAPTION>
(YEARS ENDING
DECEMBER 31)
-------------
<S> <C>
1995............................................................ $ 570,000
1996............................................................ 271,000
1997............................................................ 142,000
1998............................................................ 97,000
1999............................................................ 67,000
2000 and Thereafter............................................. --
-------------
Total Minimum Payments Required................................. $ 1,147,000
==========
</TABLE>
Revolving Loan Agreement. A loan agreement with a bank provides for a
revolving line of credit of $5,000,000, through May 1995. At December 31, 1994
and March 31, 1995, $4,075,000 was available under the credit line from which
the Partnership had borrowings totaling $750,000, and in addition, $175,000 was
assigned to support standby letters of credit. Amounts advanced under the line
of credit are secured by the Company's accounts receivable. Under the agreement,
the Partnership is obligated to comply with certain covenants related to equity,
current ratio, debt/equity ratio and profits. At December 31, 1994 and March 31,
1995, the Partnership was unable to obtain waivers from the lender with respect
to violation of certain financial covenants in the loan agreement concerning
annual profitability and partners' capital, which the Partnership did not
satisfy as of that date. The lender notified the Partnership that no further
advances under the agreement will be made without prior written approval of the
Bank. Interest is payable monthly based on the bank's prime rate (8.5% and
% at December 31, 1994 and March 31, 1995, respectively).
Contingent Liabilities. In December 1986, the Partnership received a
substantial portion of its predecessor company's net assets and operations in
connection with a restructuring plan approved by shareholders. The balance of
the Predecessor Company's assets and liabilities were transferred to the Trust
for the benefit of the shareholders to facilitate the orderly sale or other
disposition of the remaining assets and satisfaction of all remaining debts and
liabilities. The Partnership has assumed such contingent liabilities of the
Trust to the extent they exceed the assets of the Trust. Management believes
that adequate assets exist to satisfy all liabilities of the Trust, contingent
or otherwise, not specifically transferred to the Partnership.
F-11
<PAGE> 97
NOTE 5. SELECTED QUARTERLY COMBINED FINANCIAL DATA (UNAUDITED)
A summary of the Partnership's quarterly financial results follows:
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
-------------------------------------------------- --------------------------------------------
12/31/94(1) 9/30/94 6/30/94(2) 3/31/94 12/31/93 9/30/93 6/30/93 3/31/93
----------- -------- ----------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue...................... $ 4,196 $5,907 $ 6,418 $7,079 $6,830 $6,917 $7,443 $8,150
Direct Costs................. 2,944 3,666 3,690 4,312 4,301 4,155 5,120 5,050
General and Administrative
Expenses................... 2,774 2,231 3,021 2,636 2,339 2,898 3,007 3,052
Other Income (Expenses)...... (49) (13) (4) 1 56 18 223 (30)
Special Item................. -- -- 500 -- -- -- -- --
----------- -------- ----------- -------- -------- -------- -------- --------
Operating Income (Loss)...... (1,571) (3) 203 132 246 (118) (461) 18
Interest Income (Expense).... 8 7 9 13 (11) 5 17 10
----------- -------- ----------- -------- -------- -------- -------- --------
Net Earnings (Loss).......... (1,563) 4 212 145 235 (113) (444) 28
========= ======= ========= ======= ======= ======= ======= =======
Net Earnings (Loss) Per
Unit....................... $ (0.16) $ -- $ 0.02 $ 0.02 $ 0.02 $(0.01) $(0.04) $ --
========= ======= ========= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) The loss for the three months ended December 31, 1994 reflects the decrease
in revenue as a result of government service work stoppages. The direct
costs and general and administrative expense reductions were not
commensurate with the reduced revenue.
(2) The special item reflects the estimated settlement of specific disputed
costs on certain government contracts. This positive earnings adjustment
resulted from a partial reduction of the reserve for sales allowance
established in 1991.
NOTE 6. LEGAL PROCEEDINGS
PLM Financial Services, Inc. has filed an action on November 4, 1994, in
the Superior Court of California for the County of Alameda seeking damages in
excess of $500,000 in unpaid equipment rent and other payments allegedly owing
to PLM under an equipment lease between PLM and TERA Power Corporation, a former
subsidiary of TERA Corporation, the Partnership's Predecessor Corporation. PLM
has named the Partnership in the action pursuant to a guaranty of the lease
obligations made by the Predecessor Corporation. Management believes that the
guaranty has been exonerated and will be able to defend this action
successfully. Management does not believe that eventual resolution of this
matter will have a material effect on the Partnership's results of operations or
financial position; however, an adverse outcome could have a material adverse
impact on the financial condition of the Partnership.
A civil complaint was filed in October 1991 against the Partnership,
Teknekron Technology MLP I Corporation, its general partner, and certain former
employees, and was successfully settled in late July 1992, by stipulation of the
parties. The complaint sought compensatory damages and other forms of relief
with respect to alleged misstatements and omissions of material facts in various
public statements made by the defendants. Based upon the recommendation of the
Court, the Partnership paid $125,000 in complete settlement of the action, an
amount which is significantly less than the Partnership's anticipated defense
costs had the matter gone to trial. The cost of the settlement was charged to
earnings in the third quarter and was formally approved by the Court in October
1992.
NOTE 7. SPECIAL ITEM
The special item in 1994 reflects the estimated settlement of specific
disputed costs on certain U.S. Government contracts with the DOE. This positive
earnings adjustment resulted from a partial reduction of the reserve for sales
adjustment established in 1991. The reserve related to a dispute between the
Partnership and the DOE with respect to the allowability and amount of potential
rate adjustments on U.S. Government contracts for certain employee compensation
costs.
F-12
<PAGE> 98
TENERA, INC. AUDITED BALANCE SHEET AS OF
DECEMBER 31, 1994
F-13
<PAGE> 99
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of TENERA, Inc.
We have audited the accompanying balance sheet of TENERA, Inc. as of
December 31, 1994. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material aspects, the financial position of TENERA, Inc. as of December 31,
1994, in accordance with generally accepted accounting principles.
ERNST & YOUNG LLP
San Francisco, California
February 3, 1995
F-14
<PAGE> 100
TENERA, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
ASSETS
Cash............................................................................ $1,000
------------
Total Assets............................................................... $1,000
==========
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued
and
outstanding................................................................ $ --
Common stock, $0.01 par value, 25,000,000 shares authorized, 1,000 issued, and
outstanding................................................................ 10
Additional paid-in-capital.................................................... 990
------------
Total Shareholders' Equity................................................. $1,000
==========
</TABLE>
See accompanying note.
F-15
<PAGE> 101
TENERA, INC.
NOTE TO BALANCE SHEET
DECEMBER 31, 1994
NOTE 1. ORGANIZATION
TENERA, Inc. (the Company), a Delaware corporation, was incorporated on
October 24, 1994, and has conducted no business activity since inception. The
Company's common stock is held by TENERA, L.P., pending consummation on the
Conversion described in this Consent Solicitation.
F-16
<PAGE> 102
TENERA, INC. UNAUDITED PRO FORMA FINANCIAL INFORMATION
F-17
<PAGE> 103
TENERA, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
For financial accounting and reporting purposes, the Conversion will be
treated as a reorganization of affiliated entities. Accordingly, the assets and
liabilities transferred to the Corporation in accordance with the Conversion
will be recorded at their historical costs.
The accompanying unaudited pro forma financial statements of the
Corporation are based upon the historical financial statements of the
Partnership. The pro forma statements of operations and the pro forma statements
of cash flows for the year ended December 31, 1994 and the three months ended
March 31, 1995, present the results of operations of the Corporation as if the
Conversion had been consummated on January 1, 1994 and January 1, 1995,
respectively.
The pro forma balance sheet as of March 31, 1995, presents the financial
position of the Corporation as if the Conversion had been consummated on the
balance sheet date.
The Conversion is more fully discussed elsewhere in this Consent
Solicitation. These unaudited pro forma financial statements of the Corporation
should be read in conjunction with the historical financial statements of the
Partnership. The unaudited pro forma financial statements are not necessarily
indicative of the financial results that would have occurred had the Conversion
been consummated on the above indicated dates, nor are they necessarily
indicative of future results.
F-18
<PAGE> 104
TENERA, INC.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
DECEMBER 31, 1994 AND MARCH 31, 1995
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 THREE MONTHS ENDED MARCH 31, 1995
---------------------------------------- ----------------------------------------
TENERA, L.P. PRO FORMA TENERA, INC. TENERA, L.P. PRO FORMA TENERA, INC.
(HISTORICAL) ADJUSTMENTS (PRO FORMA) (HISTORICAL) ADJUSTMENTS (PRO FORMA)
------------ ----------- ------------ ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue..................... $ 23,600 $ -- $ 23,600 $5,344 $ -- $ 5,344
Direct Costs................ 14,612 -- 14,612 3,199 -- 3,199
General and Administrative
Expenses.................. 10,662 (115)(D) 10,547 1,956 (29)(d) 1,927
Other Income (Expenses)..... (65) -- (65) 7 -- 7
Special Item................ 500 -- 500 -- -- --
------------ ----- ------------ ------ ----------- ------------
Operating Income (Loss)... (1,239) 115 (1,124) 196 29 225
Interest Income............. 37 -- 37 -- -- --
------------ ----- ------------ ------ ----------- ------------
Income (Loss) Before
Taxes................... (1,202) 115 (1,087) 196 29 225
Provision for Income
Taxes..................... -- --(A) -- -- 98(a) 98
------------ ----- ------------ ------ ----------- ------------
Net Earnings (Loss)......... $ (1,202) $ 115 $ (1,087) $ 196 $ (69) $ 127
============== =========== ============= ============== =========== =============
Estimated Transactional
Expenses of the
Conversion................ 150(E) 150 150(e) 150
============= =========== =============
-----
Net Loss After Transactional
Expenses of the
Conversion................ $ (35) $ (1,237) $(219) $ (23)
=========== ============= =========== =============
Net Earnings (Loss) Per
Unit...................... $ (0.13) $ 0.02
============== ==============
Weighted Average Number
of Equivalent Units
Outstanding............... 9,555 9,541
============== ==============
Net Earnings (Loss) per
Share..................... $ (0.10) $ 0.01
============= =============
Net Loss After Transactional
Expenses of the Conversion
per Share................. $ (0.12) $ --
============= =============
Weighted Average Shares
Outstanding............... 10,555(F) 10,541(f)
============= =============
Ratio of Earnings to Fixed
Charges................... -- --
============= =============
</TABLE>
See accompanying notes to unaudited pro forma financial information.
F-19
<PAGE> 105
TENERA, INC.
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1995
<TABLE>
<CAPTION>
TENERA, L.P. PRO FORMA TENERA, INC.
(HISTORICAL) ADJUSTMENTS (PRO FORMA)
------------ ----------- ------------
(IN THOUSANDS, EXCEPT UNIT/SHARE AMOUNTS)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents......................... $ 1,439 $ 1,000(c) $2,439
Receivables, less allowance for sales adjustments
of $2,897
Billed......................................... 3,641 3,641
Unbilled....................................... 2,506 2,506
Other current assets.............................. 758 758
------------ ----------- ------------
Total Current Assets...................... 8,344 1,000 9,344
Property and Equipment, Net......................... 419 419
Other Assets........................................ 47 47
------------ ----------- ------------
Total Assets.............................. $ 8,810 $ 1,000 $9,810
=========== ========= ===========
LIABILITIES, PARTNERS' CAPITAL, AND SHAREHOLDERS'
EQUITY
Current Liabilities
Bank loan payable, agreement in default........... $ 750 $ -- $ 750
Accounts payable.................................. 1,439 121 1,560
Accrued compensation and related expenses......... 1,878 1,878
Income taxes payable.............................. -- 98 98
------------ ----------- ------------
Total Current Liabilities................. 4,067 219 4,286
Partners' Capital
General Partner................................... 316 (b) (316)
Limited Partners'................................. 5,568 (b) (5,568)
Treasury Units...................................... (1,141) 1,141(b) --
------------ ----------- ------------
Total Partners' Capital................... 4,743 (4,743) --
Shareholders' Equity
Common Stock, par value $0.01....................... -- 105 105
Paid in Capital, in excess of par................... -- 5,419 5,419
------------ ----------- ------------
Total Shareholders' Equity................ -- 5,524 5,524
Total Liabilities, Partners' Capital, and
Shareholders' Equity.................... $ 8,810 $ 1,000 $9,810
=========== ========= ===========
</TABLE>
See accompanying notes to unaudited pro forma financial information.
F-20
<PAGE> 106
TENERA, INC.
UNAUDITED PRO FORMA STATEMENTS OF CASH FLOWS
DECEMBER 31, 1994 AND MARCH 31, 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, 1994 MARCH 31, 1995
---------------------------------- ----------------------------------
PRO TENERA, PRO TENERA,
TENERA, FORMA INC. TENERA, FORMA INC.
L.P. ADJUST- (PRO L.P. ADJUST- (PRO
(HISTORICAL) MENTS FORMA) (HISTORICAL) MENTS FORMA)
------------ ------- ------- ------------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss).......................... $ (1,202) $ (35 ) $(1,237) $ 196 $ (219 ) $ (23 )
Adjustments to reconcile net loss to cash
provided by operating activities
Depreciation............................... 383 -- 383 78 -- 78
Loss (Gain) on sale of equipment........... 24 -- 24 (7) -- (7 )
Decrease in allowance for sales
adjustments.............................. (820) -- (820 ) -- -- --
Amortization of Limited Partners' notes.... 4 -- 4 -- -- --
Changes in operating assets and
liabilities:
Receivables.............................. 1,919 -- 1,919 (678) -- (678 )
Other current assets..................... (109) -- (109 ) (77) -- (77 )
Other assets............................. 23 -- 23 -- -- --
Accounts payable......................... 286 35 321 (226) 121 (105 )
Accrued compensation and related
expenses............................... (491) -- (491 ) 224 -- 224
Income taxes payable..................... -- -- -- -- 98 98
------------ ------- ------- ------ ------- -------
Net Cash Provided By Operating
Activities........................... 17 -- 17 (490) -- (490 )
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment..................... (361) -- (361 ) (21) -- (21 )
Proceeds from sale of equipment.............. 33 -- 33 7 -- 7
------------ ------- ------- ------ ------- -------
Net Cash Used in Investing
Activities........................... (328) -- (328 ) (14) -- (14 )
CASH FLOWS FROM FINANCING ACTIVITIES
Bank loan payable............................ 750 -- 750 -- -- --
Proceeds from issuance of Common Stock....... -- 1,000 (C) 1,000 -- 1,000 (c) 1,000
Net repurchase of Units...................... (76) -- (76 ) -- -- --
------------ ------- ------- ------ ------- -------
Net Cash Provided (Used) By Financing
Activities........................... (674) 1,000 1,674 -- 1,000 1,000
------------ ------- ------- ------ ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS...... 363 1,000 1,363 (504) 1,000 496
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 1,580 -- 1,580 1,943 -- 1,943
------------ ------- ------- ------ ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..... $ 1,943 $1,000 $2,943 $1,439 $1,000 $2,439
=========== ======= ========= =========== ======= =========
</TABLE>
See accompanying notes to unaudited pro forma financial information.
F-21
<PAGE> 107
TENERA, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The accompanying pro forma financial statements were derived from the
historical financial records of the Partnership and should be read in
conjunction with the financial statements of the Partnership. The following is a
summary of the pro forma adjustment:
(a) A tax provision for financial accounting purposes has been
analyzed in the periods for which a pro forma statement of operations has
been prepared. The pro forma balance sheet assumes the Conversion occurred
at March 31, 1995. The Company will adopt SFAS 109, Accounting for Income
Taxes, at the Conversion date due to the change in taxpayer status.
Deferred income taxes reflect no step-up in tax basis and do not show the
tax benefit of adopting external unitholder tax basis, if higher, at the
Conversion date. The provision for income taxes was $98,000 for the three
months ended March 31, 1995. No current income taxes are provided for on
the net loss for the year ended December 31, 1994. No pro forma deferred
tax provisions were reflected in the financial statements for the periods
shown as the net deferred tax assets of approximately $680,000 and $660,000
at March 31, 1995 and December 31, 1994, respectively, would be offset by a
valuation allowance.
TENERA has adopted SFAS 109 as of January 1, 1993, and did not elect
to restate prior years for the effect of SFAS 109. The cumulative effect of
adopting SFAS 109 is not material to the financial statements.
(b) To record the Company's initial capitalization through the
issuance of 9,541,153 shares of the Company's common stock, $0.01 par
value, in respect of the outstanding units of the Partnership and
outstanding General Partner interests, 9,108,803 shares will be issued in
exchange for Limited Partnership interests, 184,946 shares will be issued
for General Partner interests. This reflects their approximate current
respective ownership interests in the Partnership.
(c) To record the merger of the General Partner's cash assets of
$1,000,000 after the Conversion, into the Company in exchange for the
issuance of 1,000,000 shares of the Company's Common Stock at a pro forma
price per share of $1.00. The actual number of shares to be issued will be
based on the per share purchase price (see "The Conversion -- Structure of
the Conversion"). The amount shown is net of transactional expenses that
are charged to expenses and closed to equity through the additional paid in
capital account.
(d) The net impact of the assumed elimination of Partnership tax
reporting expenses is nominally offset by the assumed incurrence of
additional proxy and financial reporting for the period presented.
(e) Transactional expenses related to the Conversion have been
estimated at $370,000. These nonrecurring charges will be expensed by the
Partnership and are expected to be incurred whether or not the Conversion
is completed. Only transactional expenses not yet recorded in historical
results related to the Conversion are reflected in the pro forma statement
of operations for the year ended December 31, 1994 and for three months
ended March 31, 1995.
(f) Weighted average shares outstanding includes shares issued in
exchange for weighted average limited partnership units outstanding,
weighted average general partner's interest in the Partnerships, and a pro
forma number of shares to be issued in exchange for capital infusion by the
General Partner based on a pro forma price of $1.00 per share.
F-22
<PAGE> 108
ANNEX A
FORM OF AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of , 1995 (the
"Merger Agreement"), is entered into by and between TENERA, L.P., a Delaware
limited partnership (the "Partnership"), TENERA Operating Company, L.P., a
Delaware limited partnership (the "Operating Partnership" and, collectively with
the Partnership, the "Partnerships"), Teknekron Technology MLP I Corporation, a
Delaware corporation and the general partner of the Partnership and the
Operating Partnership (the "General Partner"), and TENERA, Inc., a Delaware
corporation (the "Company").
WHEREAS, the Partnerships are limited partnerships duly organized and
existing under the laws of the State of Delaware;
WHEREAS, the General Partner is a corporation duly organized and existing
under the laws of the State of Delaware;
WHEREAS, the Company is a newly organized corporation duly organized and
existing under the laws of the State of Delaware;
WHEREAS, the Board of Directors of the General Partner, believes that it is
in the best interests of the Partnership and its Unitholders (as hereinafter
defined) and the Operating Partnership to reorganize from partnership to
corporate form; and
WHEREAS, in order to effect such reorganization from partnership to
corporate form, each of the Board of Directors of the General Partner, on its
own behalf and on behalf of the Partnerships, and the Board of Directors of the
Company believes that it is in the best interest of the Partnership, the
Operating Partnership, the General Partner, the Company and their respective
Unitholders and stockholders to provide for the merger of the Partnership, the
Operating Partnership and the General Partner with and into the Company (the
"Merger") upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants, representations,
agreements and warranties herein contained, it is agreed that the Partnership,
the Operating Partnership and the General Partner shall be merged with and into
the Company and that the terms and conditions of the Merger, the mode of
carrying the Merger into effect and certain other provisions relating thereto
shall be as hereinafter set forth.
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time (as hereinafter defined), and in
accordance with the provisions of this Merger Agreement, the Delaware Revised
Uniform Limited Partnership Act (the "Delaware RULPA") and the General
Corporation Law of the State of Delaware (the "DGCL"), the Partnership, the
Operating Partnership and the General Partner shall be merged with and into the
Company, which shall be the surviving entity and which shall continue its
existence under the laws of the State of Delaware, including, without
limitation, the provisions of the DGCL.
1.2 Effective Time. The Merger shall be consummated after all of the
conditions to consummation of the Merger have been satisfied or waived, where
permissible, or on such later date as the parties may mutually agree, by filing
with the Secretary of State of Delaware a duly executed and verified certificate
of merger, as required by the Delaware RULPA and the DGCL, and the parties shall
file such other certificates and instruments and shall take such other and
further actions as may be required by law to make the Merger effective. The date
and time of such filing, or such later time as is specified in the certificate
of merger, shall be the "Effective Time."
A-1
<PAGE> 109
1.3 Effects of the Merger. At the Effective Time, the effects of the
Merger shall be as provided in the applicable provisions of the laws of the
State of Delaware. Without limiting the generality of the foregoing and subject
thereto, at the Effective Time:
(a) all the properties, rights, privileges, powers and franchises of
the Partnership, the Operating Partnership and the General Partner and the
Company shall vest in the Company, and all debts, liabilities, obligations
and duties of the Partnerships, the General Partner and the Company shall
become the debts, liabilities, obligations and duties of the Company;
(b) the Company hereby expressly assumes, as of the Effective Time,
all the rights, privileges, liabilities and obligations of the Partnership,
the Operating Partnership, and the General Partner under each and every
note, license, agreement, contract, arrangement or other instrument or
obligation of the Partnership, the Operating Partnership, the General
Partner and the Company.
1.4 Certificate of Incorporation and By-Laws. From and after the Effective
Time, and pursuant to the Merger, the Certificate of Incorporation and By-Laws
of the Company as in effect immediately prior to the Effective Time shall
continue to be the Certificate of Incorporation and By-Laws of the Company as
the surviving entity without change or amendment until further amended in
accordance with the provisions thereof and applicable law.
1.5 Board of Directors and Officers. The Board of Directors and officers
of the Company immediately prior to the Effective Time shall, from and after the
Merger, constitute the Board of Directors and officers of the Company as the
surviving entity until their respective successors are duly elected or appointed
and qualified.
1.6 Conversion of Units and Common Stock
1.6.1 Conversion of Units
(a) Every depositary unit representing limited partners' interests in
the Partnership (the "Units"), issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on
the part of the holders of Units (the "Unitholders"), be converted at the
Effective Time into one share of common stock, $0.01 par value, of the
Company (the "Common Stock") and the right to receive, upon exchange
therefor of the depositary receipt representing such Units, a certificate
representing such share of Common Stock.
(b) The 1% general partnership interest in the Partnership held by the
General Partner and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the
General Partner, be converted at the Effective Time to shares of
Common Stock (representing 0.99% of the shares of Common Stock to be issued
with respect to the merger of the Partnerships) and the right to receive a
certificate or certificates representing such shares of Common Stock.
(c) The 1% general partnership interest in the Operating Partnership
held by the General Partner and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the
part of the General Partner, be converted at the Effective Time to
approximately shares of Common Stock (representing 1% of the
shares of Common Stock to be issued with respect to the merger of the
Partnerships) and the right to receive a certificate or certificates
representing such shares of Common Stock.
(d) Each share of Common Stock issued in the Merger pursuant to this
Section 1.6.1 shall be fully paid and nonassessable.
1.6.2. Conversion of Common Stock
(a) All shares of common stock, par value $0.01 per share, of the
General Partner issued and outstanding immediately prior to the Effective
Time shall, by virtue of the Merger and without any action on the part of
the of the sole stockholder of the General Partner, be converted at the
Effective Time into shares of Common Stock (representing the
number of shares issuable at a per share price equal
A-2
<PAGE> 110
to (i) $1,000,000 (the amount of cash contributed by the General Partner to
the Company as a result of the Merger) divided by (ii) the greater of the
average closing sales price of the Units as reported on the American Stock
Exchange ("AMEX") for the 60 calendar days immediately preceding and
immediately following the public announcement of the Merger ($ per
share)), and the right to receive, upon exchange of the certificate or
certificates representing such common stock of the General Partner, a
certificate representing such shares of Common Stock.
(b) Each share of Common Stock issued in the Merger pursuant to this
Section 1.6.2 shall be fully paid and nonassessable.
1.7 Cancellation of Partnership Interests and Common Stock
(a) Each limited partnership interest in the Partnership outstanding
immediately prior to the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, shall cease to be
outstanding, shall be retired and canceled without payment of any
consideration therefor and shall cease to exist.
(b) The general partnership interest in the Partnership held by the
General Partner and outstanding immediately prior to the Effective Time, by
virtue of the Merger and without any action on the part of the General
Partner, shall cease to be outstanding, shall be retired and canceled
without payment of any consideration therefor and shall cease to exist.
(c) The limited partnership interest in the Operating Partnership held
by the Partnership and outstanding immediately prior to the Effective Time,
by virtue of the Merger and without any action on the part of the
Partnership, shall cease to be outstanding, shall be retired and canceled
without payment of any consideration therefor and shall cease to exist.
(d) The general partnership interest in the Operating Partnership held
by the General Partner and outstanding immediately prior to the Effective
time, by virtue of the Merger and without any action on the part of the
General Partner, shall cease to be outstanding, shall be retired and
canceled without payment of any consideration therefor and shall cease to
exist.
(e) Each share of common stock of the General Partner issued and
outstanding immediately prior to the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof, shall
cease to be outstanding, shall be retired and canceled without repayment of
any consideration paid therefor and shall thereafter cease to exist.
1.8 Cancellation of Common Stock. Each share of Common Stock issued and
outstanding immediately prior to the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, shall cease to be
outstanding, shall be retired and canceled shall thereafter cease to exist.
1.9 Consent Solicitation. In order to consummate the Merger, the
Partnership, acting through its General Partner, shall, subject to the General
Partner's fiduciary duties under applicable laws:
(a) prepare and distribute a Consent Solicitation Statement/Prospectus
(as hereinafter defined) to be filed with the Securities and Exchange
Commission (the "SEC") on Form S-4 to the Unitholders for the purpose of
considering and taking action upon the Merger and the transactions
contemplated thereby (the "Conversion");
(b) include in the Consent Solicitation Statement/Prospectus the
recommendation of its Board of Directors that Unitholders vote in favor of
the approval of the Conversion; and
(c) use its best efforts (i) to obtain and furnish the information
required to be included by it in the Consent Solicitation
Statement/Prospectus and, in conjunction with the General Partner and the
Company, respond promptly to any comments made by the SEC with respect to
the Consent Solicitation Statement/Prospectus and any preliminary versions
thereof and cause the Consent Solicitation Statement/Prospectus to be
mailed to Unitholders at the earliest practicable time, and (ii) to obtain
the necessary approval of the Conversion by Unitholders holding a majority
of the outstanding Units.
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1.10 Federal Income Tax Considerations. Notwithstanding any provision to
the contrary contained herein, it is intended that the Merger shall be treated
for federal income tax purposes as if (i) the Partnership transferred all of its
assets to the Company in exchange for all of the outstanding capital stock of
the Company or an amount of capital stock constituting control (as that term is
defined in Section 368(c) of the Internal Revenue Code of 1986, as amended (the
"Code"), of the Company and the assumption by the Company of all the
Partnership's liabilities, and (ii) immediately following such exchange, the
Partnership distributed all of the capital stock received from the Company in
the exchange to the Unitholders in proportion to their interests in the
Partnership in liquidation.
ARTICLE 2
ADDITIONAL AGREEMENTS
2.1 Best Efforts. Upon the terms and subject to the conditions hereof,
each of the parties hereto shall use its best efforts to take, or cause to be
taken, all actions or to do, or cause to be done, all other things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Merger Agreement and to obtain in a timely
manner all necessary waivers, consents and approvals and to effect all necessary
registrations and filings. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Merger Agreement and the transactions contemplated hereby, the proper officers
and/or directors of the Company shall take all such necessary action and shall
be fully authorized to take such action in the name and on behalf of the
Company, the Partnership, the Operating Partnership, the General Partner or
otherwise.
2.2 Consent Solicitation Statement/Prospectus; Solicitation of Consents
(a) The Partnership, the Operating Partnership, the General Partner
and the Company shall cooperate with each other and use all reasonable
efforts so that, as promptly as practicable following the date hereof, the
Partnership, the Operating Partnership, the General Partner and the Company
shall prepare and file with the SEC the Consent Solicitation
Statement/Prospectus, all other solicitation materials and any necessary
amendments thereto. The parties hereto shall use all reasonable efforts to
have the Consent Solicitation Statement/Prospectus and other solicitation
materials declared effective by the SEC as promptly as practicable after
filing. As promptly as practicable after the Consent Solicitation
Statement/Prospectus has been so declared effective, the Partnership shall
mail the Consent Solicitation Statement/Prospectus to the Unitholders as of
the record date for the consent solicitation. The Consent Solicitation
Statement/Prospectus shall, subject to the fiduciary obligations of the
General Partner's Board of Directors under applicable law, contain the
recommendation of the General Partner's Board of Directors in favor of the
approval and adoption by the Unitholders of this Merger Agreement and the
Merger.
(b) The Partnership shall, as promptly as practicable after the date
hereof, take all action necessary in accordance with applicable laws and
its Agreement of Limited Partnership to distribute the Consent Solicitation
Statement/Prospectus. The Partnership shall use its best efforts subject to
the fiduciary duties of its General Partner to obtain the necessary
approvals by the Unitholders of this Merger Agreement, the Merger and the
transactions contemplated hereby.
2.3 The American Stock Exchange. The Partnership shall, as promptly as
practicable after the date hereof, make all filings and take all actions
necessary to ensure that the shares of Common stock issued in the Merger will be
approved for listing upon issuance with AMEX.
2.4 Indemnification
(a) To the fullest extent permitted under applicable law, the
Company's Certificate of Incorporation and By-Laws, the General Partner's
Certificate of Incorporation and By-Laws, and the Partnership and the
Operating Partnership's Agreement of Limited Partnership, the Company, the
General Partner, the Partnership and the Operating Partnership shall,
jointly and severally, indemnify and hold harmless, each present and former
general partner, director, officer, employee, fiduciary and agent of the
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Partnership, the Operating Partnership, the General Partner and affiliates
(collectively, the "Indemnified Parties") against any costs or expenses
(including attorneys' fees and expenses), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
pending, threatened or completed claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission, at or prior to the
Effective time, in connection with the Indemnified Party's employment by or
relationship with the Partnership, the Operating Partnership, the General
Partner or affiliates.
(b) This Section 2.4, which shall survive the consummation of the
Merger and the other transactions contemplated hereby, is expressly
intended to benefit the Partnership and the Indemnified Parties (whether or
not parties to this Agreement) and shall be binding on all successors and
assigns of the Company.
2.5 Options. Upon and after the Effective Time, each option outstanding
immediately prior to the Effective Time under the 1992 Unit Option Plan and the
1993 Outside Directors Plan shall, by virtue of the Merger and without any
action on the part of the option holder, be deemed to be an option to purchase a
share of Common Stock at the same exercise price and on the same vesting
schedule in effect with respect to such option prior to the Effective Time. A
number of shares of Common Stock shall be reserved for purposes of the amended
1992 Unit Option Plan and 1993 Outside Directors Plan equal to the number of
Units so reserved under such plans immediately prior to the Effective Time. The
Company shall amend the 1992 Unit Option Plan and the 1993 Outside Directors
Plan to reflect the fact that options outstanding at the Effective Time or
granted thereafter will relate to shares of Common Stock instead of Units.
Except for such change and minor conforming changes, the amended 1992 Unit
Option Plan and the amended 1993 Outside Directors Plan will be identical to the
existing plans.
2.6 Other Employee Benefit Plans. As of the Effective Time, the Company
hereby adopts and assumes all obligations of the Partnership and the Operating
Partnership under any and all employee benefit plans in effect as of said date
or with respect to which employee rights or accrued benefits are outstanding as
of said date.
2.7 Qualification to do Business. The Company covenants and agrees that it
will, on or before the Effective Time, qualify to do business as a foreign
corporation in the State of California, as required under the provisions of
Section 2105 of the California General Corporation Law, and in each other
jurisdiction in which the failure to so qualify would have a material adverse
impact on the Company.
2.8 Expenses. The Partnership will pay and be responsible for its own
costs and expenses and the costs and expenses of the General Partner and the
Company paid or incurred in connection with the Merger, including, without
limitation, fees and disbursements of counsel, financial institutions, financial
advisors and accountants.
ARTICLE 3
CONDITIONS TO CONSUMMATION OF THE MERGER
3.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver, where permissible, prior to the Effective Time of the
following conditions:
(a) Unitholder Approval. This Merger Agreement and the transactions
contemplated herein shall have been approved and adopted by the Unitholders
holding more than 50% of the outstanding Units as of the record date;
(b) No Conflicts of Laws. No statute, rule or regulation shall have
been enacted or promulgated by any governmental authority which prohibits
the consummation of the Merger or the transactions contemplated thereby;
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(c) No Injunctions. There shall be no order or injunction of a United
States or state court of competent jurisdiction in effect prohibiting the
consummation of the Merger or the transactions contemplated thereby;
(d) Amendment of Loan Agreements. The Partnership's and the Operating
Partnership's lenders shall have agreed, if necessary, to amend the
Partnership's and the Operating Partnership's loan agreements and all
related agreements, promissory notes and instruments on terms and
conditions satisfactory to the Partnership and the Operating Partnership to
provide for the Merger and the transactions consummated thereby;
(e) Opinion of Counsel. Counsel to the Partnership shall have
rendered an opinion to the effect that the distribution of Common Stock to
Unitholders pursuant to the Merger will generally not produce recognizable
gain or loss to Unitholders;
(f) Consents; Governmental Approvals. All consents of third parties
as may be required in connection with the Merger and the transactions
contemplated thereby shall have been obtained. All permits, qualifications
and other governmental approvals as are required under applicable law in
connection with the Merger and the transactions contemplated thereby shall
have been obtained and no "stop order" or other equivalent order shall have
been issued or threatened with respect thereto.
(g) AMEX. The Common Stock issued by the Company pursuant to this
Merger Agreement shall have been approved for listing on AMEX upon notice
of issuance.
3.2 Additional Conditions to Obligations of the Partnership, the Operating
Partnership and the General Partner. The Obligations of the Partnership, the
Operating Partnership and the General Partner to effect the Merger are also
subject to the performance or compliance in all material respects on or prior to
the Effective Time, unless waived by the Partnership, the Operating Partnership
and the General Partner, of all agreements and covenants required by this Merger
Agreement to be performed or complied with by the Company.
3.3 Additional Conditions to Obligations of the Company. The obligations
of the Company to effect the Merger are also subject to the performance or
compliance in all material respects on or prior to the Effective Time, unless
waived by the Company, of all agreements and covenants required by this Merger
Agreement to be performed or complied with by the Partnership, the Operating
Partnership and the General Partner.
ARTICLE 4
TERMINATION; AMENDMENTS
4.1 Amendment. At any time before or after approval and adoption of this
Merger Agreement by the sole shareholder of the Company, the Unitholders, and
the shareholders of the General Partner, this Merger Agreement may be amended in
any manner (except that Section 1.6 may not be amended without the approval of
the Unitholders) as may be determined in the judgment of the respective Boards
of Directors of the Company, the General Partner of the Partnership and the
Operating Partnership, and the General Partner on its own behalf to be
necessary, desirable or expedient in order to clarify the intention of the
partners hereto or to effect or facilitate the purposes and intent of this
Merger Agreement.
4.2 Termination and Abandonment. This Merger Agreement may be terminated
and the Merger contemplated hereby may be abandoned at any time notwithstanding
approval thereof by the Unitholders, the sole shareholder of the Company, and
the shareholders of the General Partner, but prior to the Effective Time:
(a) by mutual or written consent duly authorized by the Board of
Directors of the General Partner of the Partnership and the Operating
Partnership, the Board of Directors of the General Partner on its own
behalf, and the Board of Directors of the Company; or
(b) by the Company, the Partnership, the Operating Partnership or the
General Partner if any court of competent jurisdiction in the United States
or other United States governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action restraining or enjoining or otherwise prohibiting the Merger.
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(c) by the General Partner solely with respect to the merger of the
General Partner into the Company upon the determination of the Board of
Directors of the General Partner.
4.3 Effect of Termination. In the event of the termination and abandonment
of this Merger Agreement pursuant to Section 4.2 (a) or (b) hereof, this Merger
Agreement shall forthwith become void and have no effect, and there shall be no
liability on the part of any party, or its directors, officers, partners,
Unitholders or stockholders, except that the obligations set forth in Sections
2.4 and 2.8 shall survive such termination. In the event of termination of the
Merger Agreement pursuant to Section 4.2 (c) solely with respect to the merger
of the General Partner into the Company, the Merger Agreement shall remain in
full force and effect except for the provisions relating to the merger of the
General Partner into the Company and the issuance of shares of Common Stock to
the sole stockholder of the General Partner in connection therewith.
ARTICLE 5
MISCELLANEOUS
5.1 Survival of Representations and Warranties. The representations and
warranties made in this Merger Agreement shall not survive beyond the Effective
Time.
5.2 Governing Law. This Merger Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
5.3 Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference only and are not to be part of or to affect the meaning
or interpretation of this Merger Agreement.
5.4 Counterparts. This Merger Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
5.5 Entire Agreement; Assignment. This Merger Agreement (i) constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, among the parties or any of them with respect to the subject matter hereof
and (ii) shall not be assigned by operation of law or otherwise without the
prior written consent of the other parties hereto.
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IN WITNESS WHEREOF, each of the parties has caused this Merger Agreement to
be executed on its behalf by its officers, or the officers of its General
Partner, as the case may be, thereunto duly authorized, all as of the day and
year first above written.
TENERA, L.P.
By: Teknekron Technology MLP I
Corporation, as
General Partner
By:
------------------------------------
Michael D. Thomas
Chief Executive Officer
TENERA OPERATING COMPANY, L.P.
By: Teknekron Technology MLP I
Corporation, as
General Partner
By:
------------------------------------
Michael D. Thomas
Chief Executive Officer
TEKNEKRON TECHNOLOGY MLP I CORPORATION
By:
------------------------------------
Michael D. Thomas
Chief Executive Officer
TENERA, INC.
By:
------------------------------------
Michael D. Thomas
Chief Executive Officer
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ANNEX B
GLOSSARY OF SIGNIFICANT TERMS
"Affiliate" means any Person (i.e., any individual, corporation,
partnership, trust, unincorporated organization, association, or other entity)
that directly or indirectly controls, is controlled by, or is under common
control with the Person in question. As used in the definition "Affiliate," the
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract or otherwise.
"AMEX" means The American Stock Exchange.
"Certificate" means the Company's certificate of incorporation.
"Common Stock" means shares of common stock, par value $0.01 per share, of
the Company.
"Company" means TENERA, Inc., a newly-formed Delaware corporation which
will succeed to the assets and liabilities of the Partnerships and the General
Partner in the Merger.
"Control Assumption" means the assumption that not more than 20% of the
shares of Common Stock transferred to Unitholders pursuant to the Conversion
will be subsequently sold pursuant to contracts entered into prior to the
Conversion.
"Conversion" means the conversion of the Partnership and the Operating
Partnership to corporate form pursuant to the Merger.
"Disinterested Person" means any individual who is not an Affiliate of the
Partnership, the Operating Partnership, or the General Partner, nor officers,
employees, or agents of the Partnership, the Operating Partnership, or the
General Partner, nor officers or directors of the Affiliates thereof, except by
reason of their position on the Board of Directors of the General Partner, and
except for employees of the Affiliates who are not also directors or officers of
such Affiliates.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act.
"DGCL" means the Delaware General Corporation Law.
"DOE" means the United States Department of Energy.
"Effective Time" means the date the Merger becomes effective, after all of
the conditions to consummation of the Merger have been satisfied or waived,
where permissible, or such later date as the parties may mutually agree.
"EEIP" means the Partnership's Entrepreneurial Equity Incentive Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means Chemical Banking Corporation, the agent appointed by
the Company to exchange certificates representing shares of Common Stock for
depository receipts representing Units.
"General Partner" means Teknekron Technology MLP I Corporation, the General
Partner of the Partnerships.
"IPEP" means the Individual Plant Evaluation Partnership, a technical
services partnership in which the Partnership is an equal participant.
"IRS" means the Internal Revenue Service.
"Merger" means the merger of the Partnership, the Operating Partnership,
and the General Partner with and into TENERA, Inc., a Delaware corporation,
which will succeed to their assets and liabilities.
"Merger Agreement" means the Agreement and Plan of Merger among the
Company, the Partnership, the Operating Partnership and the General Partner.
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"Operating Partnership" means TENERA Operating Company, L.P.
"Partnership" means TENERA, L.P.
"Partnerships" means TENERA, L.P. and TENERA Operating Company, L.P.
"Predecessor Corporation" means TERA Corporation, the predecessor of the
Partnership.
"Public Unitholders" means Unitholders who are not stockholders or
affiliates of the General Partner.
"Record Date" means the date for determination of the Unitholders entitled
to give or withhold consent to the Conversion.
"SEC" means the Securities and Exchange Commission.
"Trust" means TERA Corporation Liquidating Trust, established in 1988 by
the Predecessor Corporation to wind down operations not transferred to the
Partnership in the prior conversion.
"1987 Tax Act" means the Revenue Act of 1987.
"Unitholders" means holders of depositary units representing limited
partners' interests in the Partnership.
"Units" means depositary units representing limited partners' interests in
the Partnership.
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ANNEX C
OPINION OF INDEPENDENT FINANCIAL ADVISOR
March 27, 1995
The Board of Directors
Teknekron Technology MLP I Corporation
As General Partner of
Tenera, L.P.
2001 Center Street
Berkeley, CA 94704-1204
Dear Sirs/Madam:
I understand that Teknekron Technology MLP I Corporation, a Delaware
corporation (the "General Partner"), is soliciting the consents of unitholders
(the "Unitholders") of depositary units representing limited partners' interests
(the "Units") in Tenera, L.P. ("Tenera" or the "Partnership") for conversion of
the Partnership and Tenera Operating Company, L.P. (the "Operating Partnership"
and collectively with the Partnership, the "Partnerships") to corporate form
(the "Conversion"). The General Partner owns a 1% general partner interest in
the Partnership and the Unitholders own a 99% limited partnership interest. The
General Partner owns a 1% general partner interest in the Operating Partnership
and the Partnership owns a 99% limited partnership interest. The General
Partner's and the Unitholders' current equity ownership interests in the
Partnership and the Operating Partnership on a combined basis are 1.99% and
98.01%, respectively. If approved, the Conversion would be effected by the
merger of the Partnership, the Operating Partnership and the General Partner
with and into Tenera, Inc., a newly formed Delaware corporation (the "Company"),
which would succeed to their assets and liabilities. Each Unit outstanding
immediately prior to the Conversion will be converted into one share of common
stock, par value $0.01 per share, of the Company (the "Common Stock"). As a
result of the Conversion, the Unitholders (including the principal stockholder
of the General Partner, who will be the sole stockholder of the General Partner
upon the consummation of the Conversion) will own an aggregate number of shares
of Common Stock equal to the number of Units outstanding immediately prior to
the consummation of the Conversion. The principal stockholder of the General
Partner will own a number of shares of Common Stock equal to 1.99% of the total
number of shares of Common Stock to be issued in connection with the merger of
the Partnerships into the Company in lieu of the General Partner's 1.99% general
partner interest in the Partnership and the Operating Partnership, which is
equal to the General Partner's current equity interest in the Partnerships.
In addition, the principal stockholder of the General Partner will receive
additional shares of Common Stock in consideration of the contribution of
$1,000,000 in cash to the Company through the merger of the General Partner into
the Company (the "New Shares"). The number of additional shares to be received
by the principal stockholder of the General Partner in such merger will be based
on a per share price equal to the greater of the average closing price of the
Units as reported on the American Stock Exchange ("AMEX") for the 60 calendar
days immediately preceding and immediately following the public announcement of
the Conversion.
You have asked Wilson Associates whether, in our opinion, (i) the receipt
by the principal stockholder of the General Partner of 1.99% of the total number
of shares of Common Stock to be issued in connection with the merger of the
Partnerships into the Company in lieu of the General Partner's 1.99% general
partner interest in the Partnerships, and (ii) basing the effective purchase
price of the New Shares issued to the principal stockholder of the General
Partner in connection with the merger of the General Partner into the Company on
the greater of the average closing price of the Units as reported on AMEX for
the 60 calendar days immediately preceding the immediately following the public
announcement of the Conversion, is fair, from a financial point of view, to the
Public Unitholders (as such term is defined in the Prospectus). In
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rendering our opinion with respect to the purchase price of the New Shares, you
have specifically requested that we consider the impact of fact that the General
Partner will be relieved of its liability for the obligations of the
Partnerships as a result of the Conversion.
In arriving at our opinion set forth below, we have:
1. Reviewed a draft of the Registration Statement on Form S-4 dated
March 10, 1995 relating to the Conversion (the "Registration Statement"),
including the Consent Solicitation Statement/Prospectus ("Prospectus")
included therein;
2. Reviewed the quarterly reports of the Partnership for March, June
and September 1994;
3. Reviewed press releases of the Partnership;
4. Reviewed Minutes of Board of Directors of the General Partner for
1994;
5. Reviewed the Certificate of Partnership;
6. Reviewed Annual Reports of the Partnership for 1990, 1991, 1992
and 1993;
7. Reviewed monthly market statistics on the Units;
8. Reviewed the Bloomberg trading history of the Units;
9. Reviewed selected financial data for, including recent trading
prices of the securities of, a list of comparable public companies prepared
by Towers Perrin;
10. Reviewed Tenera's Business Plan for calendar year 1995;
11. Conducted discussions with senior management of Tenera with
respect to the business, properties, financial condition, results of
operations, and prospects of the Partnership and the Company after the
Conversion;
12. Considered the financial terms of selected recent business
conversions we consider to be comparable;
13. Conducted such other financial studies, analysis, and
investigations as we deemed appropriate.
In the course of our review, we have relied upon the accuracy and
completeness of the financial and other information provided by the General
Partner and the Partnership and the assurances of management of the General
Partner and the Partnership that they are unaware of any information or factors
regarding the Partnerships that would make the information supplied to us
incomplete or misleading. We did not undertake any independent verification of
such information or any independent appraisal or evaluation of any of the assets
or earnings of the Partnership. Moreover, we were not requested to solicit, and
did not solicit, indications of interest from persons with respect to the sale
in whole or in part of the Partnership, its securities or any of its business or
assets. In addition, we were not requested to, and did not, consider or
investigate alternative structures for, or alternatives to, the merger of the
General Partner into the Company. Our opinion is based on conditions as they
existed and could be evaluated on the date hereof. In addition, we have relied
as to all legal matters on advice of counsel, including counsel to the General
Partner and the Partnership. Without limiting the foregoing, we have relied on
the opinion of Bryan Cave as to the tax treatment of the Conversion as it
pertains to the General Partner, the Partnership, the Company, and the Public
Unitholders as set forth in the Prospectus.
Our opinion is limited in that it relates solely to the fairness to the
Public Unitholders, from a financial point of view, of the consideration to be
received by the General Partner in connection with the Conversion. Without
limiting the foregoing, we specifically have not addressed the fairness of the
consideration to be received by the Public Unitholders in the Conversion. We
express no opinion as to the price at which the Common Stock will trade after
consummation of the Conversion.
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On the basis of and subject to the foregoing, we are of the opinion that
(i) the receipt by the principal stockholder of the General Partner of 1.99% of
the total number of shares of Common Stock to be issued in connection with the
merger of the Partnerships into the Company in lieu of the General Partner's
1.99% general partner interest in the Partnerships, and (ii) basing the
effective purchase price of the New Shares issued to the principal stockholder
of the General Partner in connection with the merger of the General Partner into
the Company on the greater of the average closing price of the Units as reported
on AMEX for the 60 calendar days immediately preceding and immediately following
the public announcement of the Conversion, is fair, from a financial point of
view, to the Public Unitholders. We hereby consent to the filing of this opinion
in the Registration Statement and the reference to us and this opinion in the
Prospectus.
Very truly yours,
WILSON ASSOCIATES
John C. Wilson, Jr.
--------------------------------------
John C. Wilson, Jr.
President
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers the Company to
indemnify, subject to the standards set forth therein, any person who is a party
in any action in connection with any action, suit or proceeding brought or
threatened by reason of the fact that the person was a director, officer,
employee or agent of the Company, or is or was serving as such with respect to
another entity at the request of the Company. The Delaware General Corporation
Law also provides that the Company may purchase insurance on behalf of any such
director, officer, employee or agent.
The Company's Certificate of Incorporation provides in effect for the
indemnification by the Company of each director and officer of the Company to
the fullest extent permitted by applicable law. The Company's Certificate of
Incorporation provides that a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages 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 knowing
violation of law, (iii) for acts described under Section 174 of the Delaware
General Corporation Law (governing distributions to stockholders), or (iv) for
any transaction for which the director derived an improper personal benefit.
The Company may purchase and maintain insurance on behalf of the officers
and directors and agents against any liability which may be asserted against or
expense which may be incurred by such person in connection with the activities
of the Company whether or not the Company would have the power to indemnify such
person against such liability under the provisions of the Certificate of
Incorporation.
ITEM 21. EXHIBITS
<TABLE>
<S> <C>
2(1) Form of Agreement and Plan of Merger (included as Annex A to Consent
Solicitation Statement/Prospectus which is a part of this Registration
Statement).
3.1 Agreement of Limited Partnership, as amended (filed as Exhibit 3.1 to Form 10-K
filed with the SEC on March 8, 1991, and incorporated by reference herein ("1990
Form 10-K")).
3.2 Third Amendment to Restated Certificate and Agreement of Limited Partnership of
TENERA, L.P., dated as of June 23, 1992 (filed as Exhibit 3.2 to Form 10-K filed
with the SEC on March 26, 1993, and incorporated by reference herein ("1992 Form
10-K")).
3.3(1) Certificate of Incorporation of TENERA, Inc.
3.4(1) By-Laws of TENERA, Inc.
4.1 Agreement of Limited Partnership of the Partnership, as amended (filed by
incorporation by reference to Exhibit 3.1 to 1990 Form 10-K).
4.2 Third Amendment to Restated Certificate and Agreement of Limited Partnership of
TENERA, L.P., dated as of June 23, 1992 (filed by incorporation by reference to
Exhibit 4.2 to 1992 Form 10-K).
4.3 Deposit Agreement between the Partnership and Chemical Trust Company of
California (assigned from Bank of America NT&SA as of September 19, 1991), dated
December 30, 1986 (filed as Exhibit 4.2 to Form 10-K filed with the SEC on March
24, 1987, and incorporated by reference herein ("1986 Form 1-K")).
4.4 Form of Depositary Receipt of the Partnership (filed by incorporation by
reference to Exhibit 4.3 to 1986 Form 10-K).
4.5(1) Form of Certificate of Common Stock of TENERA, Inc.
5 (2) Opinion and Consent of Bryan Cave: Legality.
</TABLE>
II-1
<PAGE> 122
<TABLE>
<S> <C>
8 Opinion of Bryan Cave: Tax Matters (included in Consent Solicitation
Statement/Prospectus which is a part of this Registration Statement under the
heading "Material Federal Income Tax Consequences").
10.1 Conveyance Agreement between TERA and the Operating Partnership, dated December
30, 1986 (filed as Exhibit 2.2 to the Partnership's Form 8-K filed with the SEC
on January 9, 1987, and incorporated by reference herein).
10.2 Registrant's lease on its Berkeley, California properties (filed as Exhibit 10.2
to Form 10-K filed with SEC on March 25, 1994 and incorporated herein by
reference ("1993 Form 10-K")).
10.3 Registrant's lease on its Rockville, Maryland properties (filed as Exhibit 10.3
to 1994 Form 10-K filed with SEC on March 29, 1995, and incorporated herein by
reference ("1994 Form 10-K")).
10.4 Registrant's lease on its Knoxville, Tennessee properties (filed by
incorporation by reference to Exhibit 10.4 to 1993 Form 10-K).
10.5 Advisory Services Agreement between the Partnership and Teknekron Corporation
(filed by incorporation by reference to Exhibit 10.5 to 1993 Form 10-K).
10.6 Employment Agreement of Anthony R. Buhl, dated August 31, 1988, including
Compensation Plan, and related Unit Acquisition Agreements, dated December 15,
1988, March 29, 1990, and March 26, 1991, and Amendment of Unit Acquisition
Agreements, Promissory Notes and Release, dated October 15, 1991 (filed as
Exhibit 10.6 to Form 10-K filed with the SEC on March 27, 1992, and incorporated
by reference herein ("1991 Form 10-K")).
10.7 Employment Letter of Anthony R. Buhl, dated September 9, 1994 (filed by
incorporation by reference to Exhibit 10.11 to 1994 Form 10-K).
10.8 1992 Unit Option Plan effective March 11, 1992 (filed as Exhibit 4 to
Registration Statement on Form S-8 (No. 33-58982) filed with the SEC on March 3,
1993, and incorporated by reference herein).
10.9 Standard form of Unit Option Agreement pursuant to the 1992 Unit Option Plan
(filed by incorporation by reference to Exhibit 10.8 to 1992 Form 10-K).
10.10 Written description of Cash Bonus Plan (filed by incorporation by reference to
Exhibit 10.9 to 1992 Form 10-K).
10.11 1993 Outside Directors Compensation and Unit Option Plan, effective March 1,
1994 (filed by incorporation by reference to Exhibit 10.10 to 1993 Form 10-K).
23.1(2) Consent of Independent Auditors.
23.2(2) Consent of Bryan Cave (included in the opinion filed as Exhibit 5).
23.3(1) Consent of Financial Advisor (included in Annex C to the Consent Solicitation
Statement/Prospectus which is a part of this Registration Statement).
24 (1) Power of Attorney (included on Page II-4).
99 (1) Form of Consent Card.
</TABLE>
- ---------------
(1) Previously filed.
(2) Filed herewith.
ITEM 22. UNDERTAKINGS
1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
II-2
<PAGE> 123
2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
3) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Berkeley, State of California, on May
12, 1995.
TENERA, INC.
By: JEFFREY R. HAZARIAN
--------------------------------------
Jeffrey R. Hazarian
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ----------------------------- ---------------
<S> <C> <C>
MICHAEL D. THOMAS* Chairman of the Board of May 12, 1995
- --------------------------------------------- Directors and
(Michael D. Thomas) Chief Executive Officer
(Principal Executive Officer)
SUSAN T. CHENG* Director May 12, 1995
- ---------------------------------------------
(Susan T. Cheng)
WILLIAM A. HASLER* Director May 12, 1995
- ---------------------------------------------
(William A. Hasler)
GEORGE L. TURIN* Director May 12, 1995
- ---------------------------------------------
(George L. Turin)
BARRY L. WILLIAMS* Director May 12, 1995
- ---------------------------------------------
(Barry L. Williams)
JEFFREY R. HAZARIAN Chief Financial Officer May 12, 1995
- --------------------------------------------- (Principal Financial Officer
Jeffrey R. Hazarian and
Principal Accounting Officer)
</TABLE>
*By: JEFFREY R. HAZARIAN
- --------------------------------------
Jeffrey R. Hazarian
Attorney-in-Fact
II-4
<PAGE> 125
INDEX TO FINANCIAL STATEMENT SCHEDULES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TENERA, L.P.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES..................... S-2
</TABLE>
S-1
<PAGE> 126
SCHEDULE VIII
TENERA, L.P.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
ADDITIONS
------------------------- DEDUCTIONS
BALANCE CHARGED TO CHARGED TO --------------------
BEGINNING COST AND OTHER CREDITED TO BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS(1) SPECIAL ITEM OTHER END OF YEAR
- ----------------------------------- --------- ---------- ------------ ------------ ----- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1992
Reserve for Sales Adjustment..... $ 3,274 $264 $475 $ -- $ 144 $ 3,869
1993
Reserve for Sales Adjustment..... 3,869 85 312 -- 549 3,717
1994
Reserve for Sales Adjustment..... 3,717 271 -- 500 591 2,897
</TABLE>
- ---------------
(1) Represents amounts previously written-off, but reinstated to Accounts
Receivables.
S-2
<PAGE> 127
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ----------- --------------------------------------------------------------------- ------------
<S> <C> <C>
2(1) Form of Agreement and Plan of Merger (included as Annex A to Consent
Solicitation Statement/Prospectus which is a part of this
Registration Statement).
3.1 Agreement of Limited Partnership, as amended (filed as Exhibit 3.1 to
Form 10-K filed with the SEC on March 8, 1991, and incorporated by
reference herein ("1990 Form 10-K")).
3.2 Third Amendment to Restated Certificate and Agreement of Limited
Partnership of TENERA, L.P., dated as of June 23, 1992 (filed as
Exhibit 3.2 to Form 10-K filed with the SEC on March 26, 1993, and
incorporated by reference herein ("1992 Form 10-K")).
3.3(1) Certificate of Incorporation of TENERA, Inc.
3.4(1) By-Laws of TENERA, Inc.
4.1 Agreement of Limited Partnership of the Partnership, as amended
(filed by incorporation by reference to Exhibit 3.1 to 1990 Form
10-K).
4.2 Third Amendment to Restated Certificate and Agreement of Limited
Partnership of TENERA, L.P., dated as of June 23, 1992 (filed by
incorporation by reference to Exhibit 4.2 to 1992 Form 10-K).
4.3 Deposit Agreement between the Partnership and Chemical Trust Company
of California (assigned from Bank of America NT&SA as of September
19, 1991), dated December 30, 1986 (filed as Exhibit 4.2 to Form 10-K
filed with the SEC on March 24, 1987, and incorporated by reference
herein ("1986 Form 1-K")).
4.4 Form of Depositary Receipt of the Partnership (filed by incorporation
by reference to Exhibit 4.3 to 1986 Form 10-K).
4.5(1) Form of Certificate of Common Stock of TENERA, Inc.
5 (2) Opinion and Consent of Bryan Cave: Legality.
8 Opinion of Bryan Cave: Tax Matters (included in Consent Solicitation
Statement/Prospectus which is a part of this Registration Statement
under the heading "Material Federal Income Tax Consequences").
10.1 Conveyance Agreement between TERA and the Operating Partnership,
dated December 30, 1986 (filed as Exhibit 2.2 to the Partnership's
Form 8-K filed with the SEC on January 9, 1987, and incorporated by
reference herein).
10.2 Registrant's lease on its Berkeley, California properties (filed as
Exhibit 10.2 to Form 10-K filed with SEC on March 25, 1994 and
incorporated herein by reference ("1993 Form 10-K")).
10.3 Registrant's lease on its Rockville, Maryland properties (filed as
Exhibit 10.3 to 1994 Form 10-K filed with SEC on March 29, 1995, and
incorporated herein by reference ("1994 Form 10-K")).
10.4 Registrant's lease on its Knoxville, Tennessee properties (filed by
incorporation by reference to Exhibit 10.4 to 1993 Form 10-K).
10.5 Advisory Services Agreement between the Partnership and Teknekron
Corporation (filed by incorporation by reference to Exhibit 10.5 to
1993 Form 10-K).
</TABLE>
<PAGE> 128
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ----------- --------------------------------------------------------------------- ------------
<S> <C> <C>
10.6 Employment Agreement of Anthony R. Buhl, dated August 31, 1988,
including Compensation Plan, and related Unit Acquisition Agreements,
dated December 15, 1988, March 29, 1990, and March 26, 1991, and
Amendment of Unit Acquisition Agreements, Promissory Notes and
Release, dated October 15, 1991 (filed as Exhibit 10.6 to Form 10-K
filed with the SEC on March 27, 1992, and incorporated by reference
herein ("1991 Form 10-K")).
10.7 Employment Letter of Anthony R. Buhl, dated September 9, 1994 (filed
by incorporation by reference to Exhibit 10.11 to 1994 Form 10-K).
10.8 1992 Unit Option Plan effective March 11, 1992 (filed as Exhibit 4 to
Registration Statement on Form S-8 (No. 33-58982) filed with the SEC
on March 3, 1993, and incorporated by reference herein).
10.9 Standard form of Unit Option Agreement pursuant to the 1992 Unit
Option Plan (filed by incorporation by reference to Exhibit 10.8 to
1992 Form 10-K).
10.10 Written description of Cash Bonus Plan (filed by incorporation by
reference to Exhibit 10.9 to 1992 Form 10-K).
10.11 1993 Outside Directors Compensation and Unit Option Plan, effective
March 1, 1994 (filed by incorporation by reference to Exhibit 10.10
to 1993 Form 10-K).
23.1(2) Consent of Independent Auditors.
23.2(2) Consent of Bryan Cave (included in the opinion filed as Exhibit 5).
23.3(1) Consent of Financial Advisor (included in Annex C to the Consent
Solicitation Statement/Prospectus which is a part of this
Registration Statement).
24 (1) Power of Attorney (included on Page II-4).
99 (1) Form of Consent Card.
</TABLE>
- ---------------
(1) Previously filed.
(2) Filed herewith.
<PAGE> 1
EXHIBIT 5
May 12, 1995
TENERA, Inc.
2001 Center Street
Berkeley, California 94704-1204
Gentlemen:
We have acted as counsel to TENERA, Inc. (the "Company") in connection with
the issuance by the Company of up to 10,743,024 shares (the "Shares") of the
Common Stock, par value $.01 per share, of the Company in connection with the
conversion of TENERA, L.P. from partnership to corporate form pursuant to the
Company's Registration Statement on Form S-4 under the Securities Act of 1933
(the "Registration Statement"). In that capacity, we are familiar with the
proceedings, corporate and other, relating to the authorization and issuance of
the Shares.
Based on the foregoing, and such other examination of law and fact as we
have deemed necessary, we are of the opinion that, when issued as described in
the Registration Statement, the Shares will be legally issued, fully paid and
non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us under the caption "Legal Opinions" in the
Consent Solicitation Statement/Prospectus ("Prospectus") which is a part of the
Registration Statement. We also consent to the reference to us and to the
inclusion of our opinion set forth under the caption "Material Federal Income
Tax Consequences" in the Prospectus.
Very truly yours,
BRYAN CAVE
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 3, 1995 on the combined financial
statements and schedule of TENERA L.P. and the balance sheet of TENERA, Inc., in
the Registration Statement (Form S-4 No. 33-58393) and related Prospectus of
TENERA, Inc. dated May 15, 1995.
ERNST & YOUNG LLP
San Francisco, California
May 15, 1995
