U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
<circle> ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June_30,_1997.
<circle> TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________TO______________
COMMISSION FILE NUMBER 1-12738
ONSITE ENERGY CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Delaware 33-0576371
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
701 Palomar Airport Road, Suite 200 92009
Carlsbad, California (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(760) 931-2400
(ISSUER'S TELEPHONE NUMBER)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Class A Common Stock OTC Bulletin Board
Check whether the issuer (1) filed all reports required to be filed by
Section_13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes <checked-box> No <square>
Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. <square>
State issuer's revenues for its most recent fiscal year.............$9,561,375
State the aggregate market value of the voting and non-voting common equity
held by non affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as
of a specified date within the past 60 days $1,835,946 as of September 22, 1997
The number of shares of Common Stock outstanding as of September 22, 1997, is
10,944,172.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS INCORPORATED BY REFERENCE 10-K PART AND ITEM WHERE INCORPORATED
Definitive Proxy Statement for Annual Part III: Items 9, 10, 11 and 12
Stockholders of the Registrant to be
held December 5, 1997.
<PAGE>2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION. Onsite Energy Corporation, a Delaware corporation ("Onsite"),
was formed pursuant to a business reorganization effective February 15, 1994
(the "Reorganization"), between Western Energy Management, Inc., a Delaware
corporation formed in 1991 ("Western"), and Onsite Energy, a California
corporation formed in 1982 ("Onsite-Cal"). Under the Reorganization,
Onsite-Cal merged with and into Onsite, and a newly formed subsidiary of Onsite
merged with and into Western, which survived and became a wholly owned
subsidiary of Onsite. This transaction was accounted for as a purchase of
Onsite-Cal by Onsite.
BUSINESS OF ISSUER. Onsite is an energy services company (an "ESCO") which
assists energy customers in lowering their energy bills by developing,
engineering, installing, owning and operating efficient, environmentally sound
energy efficiency and power supply projects. Onsite offers its services to
industrial, commercial and institutional customers. By combining development,
engineering, analysis, and project and financial management skills, Onsite
provides a complete package of services, ranging from feasibility assessment
through construction and operation for projects incorporating energy efficient
lighting, energy management systems, heating, ventilation and air conditioning
("HVAC") upgrades, cogeneration and other energy efficiency measures. In
addition, Onsite offers professional consulting services in the areas of direct
access planning, market assessment, business strategies, public policy
analysis, and environmental impact feasibility studies.
PARTNERSHIPS/SUBSIDIARIES. Substantially all of the revenues of Onsite are
generated through energy services and consulting services. Other partnerships
and subsidiaries are as follows:
WESTERN ENERGY MANAGEMENT, INC. As discussed above, via the
Reorganization, Western became the wholly owned subsidiary of Onsite. While
Western was engaged in the business of providing comprehensive energy
management services designed to reduce the utility costs of its customers,
Western's current primary function is to monitor its remaining contracts with
customers. Revenues from Western were immaterial.
TELEVISION CITY COGEN, L.P. Prior to February 1997, Onsite owned general
and limited partnership interests in Television City Cogen, L.P., a California
limited partnership ("TCC"). Onsite also owned all of the issued and
outstanding stock of Onsite/TCC Corp., a Delaware corporation ("Onsite/TCC"),
which is the other general partner in TCC. Thus, directly and indirectly,
Onsite owned 100% of TCC. TCC's major asset is a 1415-kilowatt (kW)
cogeneration system (the "System") located at CBS Studios ("CBS"), Television
City in Los Angeles, California. Onsite completed construction of the System
in 1988, and was responsible for the ownership, operation, maintenance, savings
verification and billing for the System, which provides electricity, chilled
water and thermal energy for the CBS Studios complex. CBS receives discounted
rates on electric and thermal energy provided by the System based on the Los
Angeles Department of Water and Power electricity rates and the Southern
California Gas rates over the 20 year term of the Energy Services Agreement
between TCC and CBS. For more information on cogeneration, see
COGENERATION/SMALL POWER DEVELOPMENT below. Onsite sold all of its interest in
TCC and Onsite/TCC, effective February 17, 1997.
Unless the context indicates otherwise, reference to Onsite shall include
its wholly owned subsidiary, Western.
<PAGE>3
MAJOR EVENTS AND CONTRACTS DURING THE YEAR.
SALE OF TCC. Late in 1995, Onsite decided to sell all of its interests in
TCC for the purpose of retiring certain existing long-term debt, which was
secured by substantially all of the assets of Onsite. Onsite completed the
sale of TCC, effective February 17, 1997. Onsite used the proceeds to pay off
its long-term notes payable as of June 30, 1997.
R.E. THOMASON GENERAL HOSPITAL ("THOMASON"). In 1996, Onsite entered
into an agreement with Thomason for the operation and maintenance ("O&M") of
the central utility plant. The contract runs for a 27-month period, which
commenced February 1996, with additional extensions at the option of Thomason.
In connection with this O&M contract, Onsite has staffed the central plant
facility with eight full-time positions including a supervisor, mechanic and
plant operators.
GENERAL MOTORS CORPORATION ("GM"). Onsite entered into an agreement with
GM to provide turnkey technical services for the installation of a strategic
energy management system at one of GM's plants. Onsite provided
state-of-the-art control technology for the North American Truck Group Assembly
Plant located in Wentzville, Missouri. In 1995, Onsite entered into another
agreement with GM's Linden, New Jersey, assembly plant to install high
efficiency lighting equipment, which was completed in 1996. Onsite has a
continuing contract to provide post-installation energy savings measurement and
verification services over a 10-year period. Onsite entered into another
agreement with GM to provide comprehensive audits for four GM facilities.
POWER RESOURCES MANAGERS, L.L.C. ("PRM")/ONSITE ENERGY ALLIANCE. Onsite
entered into a energy alliance with PRM to jointly offer direct access planning
services to industrial, commercial and institutional utility customers in
California, allowing such customers to participate in the newly restructured
California electric power marketplace. California Assembly Bill 1890, signed
into law on September 23, 1996, enables customers direct access to alternative
power suppliers. The alliance is intended to help consumers reduce both the
amount of energy consumed as well as the price paid for such energy. The
PRM/Onsite alliance helps customers understand more thoroughly the magnitude
and variance of their existing energy use, identify ways to implement
cost-effective energy efficiency and load-leveling projects, and identify
opportunities to maximize power purchase savings in the competitive market for
electricity. PRM, owned by Howard Energy Co., Inc., is a power marketing
company providing power management, electricity procurement services and
related consulting work.
CALIFORNIA STATE UNIVERSITY, FRESNO ("CSUF"). Onsite has entered into an
agreement with CSUF to provide energy efficiency services, including the
installation of high efficiency lighting retrofits and a "free cooling"
retrofit. The benefits to CSUF are anticipated to include over 1.6-million
kWh/year reduction in energy consumption, as well as fixture upgrades and
improved lighting and cooling equipment. CSUF should realize approximately
$120,000 per year in energy cost savings and a total of approximately $160,000
in incentive payments from Onsite through Onsite's Power Savings Partners
agreement with Pacific Gas and Electric Company ("PG&E"), the regional utility.
(See CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.)
SOUTHERN CALIFORNIA EDISON ("SCE") DEMAND SIDE MANAGEMENT ("DSM") ENERGY
EFFICIENCY AGREEMENTS. Onsite completed several projects in fiscal year 1997
under its DSM agreements with SCE, including a project with Mobil Oil
Corporation to provide energy efficiency equipment at Mobil's Torrance,
California, Refinery. The project resulted in approximately 2.1-million
kWh/year energy savings. Onsite installed lighting equipment, electronic
ballasts, optical reflectors and lamps. Onsite also entered into an agreement
with McDonnell Douglas Corporation under the SCE DSM agreements to install
energy efficient equipment at McDonnell Douglas', Long Beach, California
facility.
<PAGE>4
This project included the conversion of 2,552 Mercury vapor fixtures to 583
Metal Halide HID (High-Density Discharge) fixtures. The project resulted in
approximately 5.3-million kWh/year reduction in energy consumption. The SCE DSM
agreements also call for Onsite to provide monitoring and verification ("M&V")
services for a three-year period. Other projects installed under the DSM
contracts with SCE included Hughes Aircraft Company, Deutsch Metals, Tecstar,
Inc., Foothill Presbyterian Hospital and West Covina Unified School District.
MOVES TO REDUCE COSTS AND INCREASE CONSULTING FEES. As a result of
losses in the first two fiscal quarters, Onsite reduced its staff and closed
its Michigan office. In addition, Onsite has substantially increased its
reimbursable consulting activities, which has the benefit of more predictable
margins and cash flows.
INDUSTRY OF ISSUER. Following is a description of the ESCO industry and the
business of Onsite.
ENERGY EFFICIENCY SERVICES COMPANY. An ESCO is defined by the National
Association of Energy Service Companies ("NAESCO") as a full-service,
vertically integrated company that provides a complete range of energy
efficiency and power management services to its customers. In order to qualify
as an ESCO, a company must be able to offer a method of financing projects and
guaranteeing savings as services offered to customers. These elements generally
are what differentiate an ESCO from energy efficiency contractors and equipment
suppliers. Onsite provides such services and is an accredited ESCO member of
NAESCO. Onsite provides the customer with "one-stop shopping" for energy
efficiency. Such services include:
<circle> An initial energy audit
<circle> Detailed economic and feasibility analysis
<circle> Engineering and construction services
<circle> Management of project implementation
<circle> Verification of savings
<circle> Monitoring of performance and maintenance during the service
term
<circle> Guaranteed savings and/or shared savings programs
<circle> Performance contracting with utilities
<circle> Financing, direct loans and equipment leases
<circle> Professional consulting services in the areas of market
assessment, business strategy, public policy analysis and
environmental impact/feasibility studies
Through its systems integration program, Onsite provides various services to
the customer that focus on energy efficiency in commercial, institutional and
industrial facilities. Using multiple, proven energy efficiency technologies
provided by Onsite, today's building owners and operators can receive both cash
flow savings and environmental benefits while optimizing energy efficiency, in
most cases without any up front capital required from the customer. Onsite's
integrated energy measures work together to:
REDUCE energy consumption
SAVE energy dollars
PROMOTE efficient use of energy
IMPROVE the environment
INCREASE business profitability
By providing a complete package of services, including financing of projects,
Onsite becomes the energy partner with each of its customers.
<PAGE>5
THE CHANGING ENVIRONMENT FOR ENERGY SERVICES. The electric utility
industry currently is going through fundamental changes that largely are a
result of the more competitive environment for electric power generation
developed over the last decade. The restructuring of the electric utility
industry will have significant impacts on the method by which electric power is
delivered to customers in the future, and also will affect the way energy
efficiency services are valued and provided. In the restructured electric
industry, the competition of the new marketers in the industry is anticipated
to facilitate a rapid evolution of energy value added services in the new
marketplace. New energy supply marketers will move to diversify their
electricity supply services with other services, which will include energy
efficiency services.
Deregulation of the electric utility industry is likely to expand the
scope of services offered by ESCOs in the new marketplace. To purchase
electric power in the deregulated market, large consumers will need to collect
and analyze their past, present and future electrical consumption data and
profiles in order to identify their demand, and procure cost-effective and
reliable electric power in the new marketplace. Onsite currently is performing
and marketing these new energy services for large electricity consumers in
preparation for the emerging competitive marketplace.
Onsite is actively involved in monitoring the regulatory and legislative
process that will determine the rules for the restructured electricity market,
and firmly believes that the benefits and value of energy efficiency will
expand through the evolution of a more competitive market for electricity.
Onsite has registered with the California Public Utilities Commission as an
Electric Service Provider (ESP).
PERFORMANCE CONTRACTING. Performance contracting is the term used to
describe the terms and conditions under which an ESCO delivers energy services,
typically under a guarantee of energy savings to the customer. The ESCO's
payment is based upon delivery of actual energy savings to the customer. The
value of these energy savings are used to service the debt if the project is
financed or to provide positive cash flow to the customer, and to provide
payments to the ESCO. In short, the performance contracting process requires
payment for actual results, not for projections.
COGENERATION/DISTRIBUTED GENERATION. Onsite has experience as a
cogeneration/distributed generation developer in systems ranging from 60 kW to
20,000 kW at facilities such as industrial facilities, hospitals, multi-family
housing, nursing homes, recreational centers, health clubs and hotels.
"Cogeneration" is the sequential production of electricity and thermal energy
utilizing a single fuel source. The by-product thermal energy from the
production of electricity is utilized to provide heating, domestic hot water
and/or chilled water (through absorption chilling) to the host facility. As a
result, 60% to 90% of the input fuel's energy content can be utilized to
produce heat and electricity compared to only 25% to 40% of the fuel's energy
content to make electricity alone in a utility generating plant. The thermal
energy produced by the cogeneration system is used by the host facility to
reduce fuel consumption that otherwise would be needed to supply the thermal
energy produced by boilers or other fuel burning equipment. A typical system
consists of a reciprocating engine or gas turbine fueled by natural gas, which
drives an electrical generator. A heat recovery system reclaims the heat
produced by the engine generator set, yielding steam or hot water to be used in
the host facility for domestic, process or space heating/cooling needs.
Electrical controls, relays and switchgear protect the equipment from overload,
ensure proper voltage and frequency, and interconnect with the local utility's
power grid. Since completing its first cogeneration system in 1984, Onsite has
been associated with over 35 cogeneration projects.
Electric industry restructuring in California and throughout the U.S. is
creating a renewed interest in on-site (distributed) generation by customers
and utilities.
<PAGE>6
BUSINESS APPROACH. As an ESCO, Onsite provides its customers with a
comprehensive approach to improve the energy efficiency and/or reduce the cost
of energy for the customers' facilities. The services offered by Onsite
include direct access planning, energy audits, feasibility analyses,
engineering and construction services, project implementation, verification of
savings, performance monitoring, O&M, guaranteed savings and shared savings
programs, financing, direct loans and equipment leases. In addition, Onsite
offers professional consulting services in the areas of market assessments,
business strategies, public policy analysis (including utility restructuring)
and environmental impact/feasibility studies. Onsite is unique in the ESCO
marketplace in that it is able to offer customers a full range of energy
efficiency services for both supply side and demand side resource requirements.
Onsite's approach to marketing its energy efficiency services is to
provide a comprehensive energy efficiency project with financing alternatives
for the customer. Over the past several years, Onsite has been successful in
maximizing the incentives from public utilities in the form of rebates or
through utility DSM contracts, whereby the utility provides incentive payments
based on actual energy savings, which can offset a substantial portion of the
investment necessary to implement the energy efficiency measures. The utility
payments historically have been based upon the resource and environmental value
of the energy savings (as compared to the cost of building power plants). This
contribution from the utility toward the costs of the project enhances the
feasibility of the individual projects, thereby allowing more and larger
projects to qualify for implementation. Before undertaking a project, Onsite's
engineers analyze the customer's energy consumption and propose a comprehensive
solution that maximizes energy savings to the customer through the
implementation of the energy efficiency projects. The cost and profit of the
retrofit programs implemented by Onsite within the customer's facilities are
recouped by the savings in energy and maintenance costs of the project, with
net positive cash flow to the customer generated throughout the life of the
project.
During the last five years, Onsite has successfully completed several
utility DSM competitive bidding programs with PacifiCorp (April 1993); Southern
California Edison (SCE) (May 1994, and July 1995, by acquisition); Puget Sound
Power & Light Company (June 1994); and Pacific Gas & Electric Company (PG&E)
(August 1996).
Onsite generally does not supply actual construction labor or materials
in the implementation of projects; rather, Onsite relies primarily on
subcontractors and vendors to provide these services. The source of
subcontractors varies by project, but generally Onsite selects subcontractors
based upon experience, quality of work, price and other factors, including
previous relationship with the customer. In general, subcontractors are
solicited from the customer's local geographic area. Onsite's standard
agreements with subcontractors (usually in the form of an Engineering,
Procurement and Construction Agreement) contain general provisions standard for
the construction industry for the installation of energy efficiency measures.
For many projects, Onsite also provides ongoing operation and maintenance
services (O&M) and monitoring and verification of savings (M&V) services for
the installed systems. Onsite offers the benefits of energy efficient systems
through third party ownership or project financing repaid through savings
generated by the project, requiring little or no capital investment by the
energy customer.
A summary of the general process utilized by Onsite for implementation of
an energy efficiency project includes the following:
AUDIT/FEASIBILITY ANALYSIS: Upon execution of a Letter of Agreement by a
customer, Onsite's technical staff conducts an on-site analysis in sufficient
detail to establish the potential savings, capital cost estimates and scope of
the project. Onsite's engineers and technicians monitor energy use with data
logger equipment. This data is analyzed to determine savings opportunities and
energy efficiency measures appropriate for a particular facility. This
information also provides empirical data on which to base the rebate or DSM
application that will be made to the utility company, if applicable. These
findings are presented to the customer in the form of a technical
proposal/audit report for the project.
<PAGE>7
DETAILED ENGINEERING: Upon the execution by a customer and Onsite of an
Energy Efficiency Services Agreement (an "ESA") or similar contract, licensed
mechanical and specialty engineers design the installation of each element of
the approved proposal. The process of obtaining required permits from
regulatory agencies also begins at this point.
FINANCING: Once the ESA has been executed, Onsite arranges financing for
the project in cooperation with the customer. Financing can take many forms,
from energy savings-based agreements to equipment capital and operating leases,
to traditional loans. Onsite has experience in arranging such
financing for projects based upon anticipated annual savings. Financing
packages are negotiated for the customer in most cases such that the customer
is not required to invest its own funds.
PROCUREMENT AND CONSTRUCTION: This phase involves equipment purchasing,
subcontractor selection and construction management to final project
completion. Construction management consists of an experienced project
execution team under the overall direction of one of Onsite's experienced
project managers.
START UP: This step integrates the initial operation of the project,
including system start-up and programming, commissioning and final acceptance.
O&M SERVICES: This final phase assures a smooth handoff to operating
personnel of the customer, and includes training and documentation.
Maintenance contracts, where Onsite supplies maintenance services, are
available and incorporated into many projects. Guarantees of annual and total
savings are coupled with ongoing maintenance of the installed energy efficiency
equipment.
M&V SERVICES: Onsite provides verification of continuing energy savings,
both initially upon project completion and on an ongoing basis throughout the
term of the ESA. This verification is based upon protocols agreed upon between
the customer, Onsite and the utility, if applicable.
COMPETITION. In general, Onsite's competitors are other ESCOs that
provide similar comprehensive services to customers. Some of these competitors
are large companies with more assets, and a larger manpower and resource base
than Onsite. Utility companies and their affiliates can function as both
competitors and partners for Onsite. Many utilities now are entering the DSM
market through wholly owned subsidiaries of holding companies in direct
competition with ESCOs, including Onsite. However, Onsite sometimes teams with
utility DSM subsidiaries whereby the utility subsidiary functions as a source
of financing for energy efficiency services projects developed and implemented
by Onsite.
An important competitive advantage for any ESCO is its ability to provide
financing and performance guarantees to the customer. This is the area in
which many small, independent ESCOs are at a disadvantage when compared with
the larger companies and utilities. However, Onsite has successfully used
financing sources such as Academic Capital, L.L.C. ("Academic"), and ChiCorp
Financial Services, Inc. (nka ABN AMRO Chicago Corporation) ("ChiCorp"), among
others, to provide financing for qualified energy efficiency projects, thus
maintaining this important advantage for Onsite. Over the last four years,
Academic and/or ChiCorp has provided financing on most of Onsite's projects
that have been financed. More recently, though, Onsite has obtained financing
from other sources and has identified other potential sources of financing,
thereby reducing its overall dependence on a limited number of sources of
project financing. In addition, many of Onsite's customers have the ability to
obtain their own financing or to pay for the cost of the project themselves.
Onsite's competitive advantage historically has been its ability to offer
a broader range of services and equipment than other ESCOs can offer, who may
be limited to supplying their own equipment. In addition, Onsite has been in
the energy efficiency business for a longer period of time than most other
independent ESCO competitors.
<PAGE>8
RAW MATERIALS. Onsite obtains most of its material and equipment from
several suppliers. The items it purchases generally are available "off the
shelf" and from several vendors. Those items that Onsite may have custom built
also typically are available from several sources.
MAJOR PROJECTS AND CUSTOMERS. A summary of Onsite's major energy efficient
projects and utility DSM programs is as follows:
SOUTHERN CALIFORNIA EDISON (SCE). In April 1994, Onsite executed a DSM
contract with SCE after being selected as a result of a competitive bid
solicitation (the "SCE Agreement"). The SCE Agreement requires the
installation of energy efficiency measures to provide consistent, innovative
and verifiable energy savings in selected commercial, industrial and/or
institutional host customer facilities within a specific eligible SCE service
area market region. In July 1995, Onsite acquired an additional, similar DSM
contract with SCE via an assignment to Onsite by KENETECH Energy Management,
Inc. ("KEM"), of all of KEM's interest in the same (the "KEM SCE Agreement").
This acquisition augments the SCE Agreement. Both the SCE Agreement and the
KEM SCE Agreement (collectively, the "SCE Agreements") were approved by the
California Public Utility Commission in October 1994. The SCE Agreements call
for the implementation of energy efficiency projects for host customers within
SCE's service territory to provide up to approximately 53 million kWh per year
in measured energy savings. During the fiscal years ended June 30, 1996, and
1997, Onsite implemented projects that qualify for a contribution under the SCE
Agreements with the following host customers: Hughes Aircraft Company (El
Segundo, CA); West Covina Unified School District (West Covina, CA); McDonnell
Douglas Corporation (Long Beach, CA); Foothill Presbyterian Hospital (Glendora,
CA); Mobil Oil Corporation (Torrance, CA), and Tecstar, Inc. (City of Industry,
CA). Subsequent to June 30, 1997, Onsite executed an agreement to implement a
project with TRW, Inc. (Redondo Beach, CA).
As a result of the executed contracts, Onsite has sold approximately 44
million of the 53 million kWh in annual energy savings committed to in the SCE
Agreements. As a forward-looking statement, Onsite expects that it will
fulfill its obligations under the SCE Agreements, subject to successful
negotiation and implementation of currently identified projects. (See
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.) If, however, Onsite does
not deliver the energy savings required per the SCE Agreements, Onsite is
subject to forfeiture of portions of certain milestone and performance security
funds.
Revenues earned by Onsite under these projects were approximately $4.0
and $7.1 million for the fiscal years ended June 30, 1997, and 1996,
respectively.
PACIFIC GAS AND ELECTRIC COMPANY (PG&E). In December, 1995, Onsite
signed a contract with PG&E for the development and implementation of
demand-side resources for customers in the PG&E service territory (the "PG&E
Agreement"). Under the terms of the PG&E Agreement, Onsite will identify,
design, contract for and complete energy efficiency projects that are estimated
to supply energy savings of approximately 30 million kWh per year for up to
seven years. In general, the price paid by PG&E to Onsite for savings will be
approximately $0.02/kWh for energy savings and $20/kW for demand savings. Each
host customer project is subject to approval by PG&E and Onsite. The PG&E
Agreement was approved by the California Public Utilities Commission, effective
August 1, 1996. Onsite has signed contracts for energy services with CSUF and
a shopping mall in Northern California, a portion of which projects are
eligible for funds under the PG&E Agreement.
No revenues were earned under the PG&E Agreement in fiscal 1997 or 1996.
<PAGE>9
CALIFORNIA STATE UNIVERSITY, FRESNO (CSUF). Onsite's first project
implemented under the PG&E Agreement was with CSUF. Onsite has completed the
first phase lighting retrofit of the project for $600,000. The second lighting
phase for approximately $1 million has been initiated. Phases three and four
are planned for fiscal year ending 1998, and may include lighting, mechanical
and a substation transformer.
GENERAL MOTORS CORPORATION (GM). Onsite has signed a number of
agreements with GM to provide a variety of services at several GM facilities.
GM LINDEN, NEW JERSEY ASSEMBLY PLANT. In December 1995, Onsite
signed an agreement with GM to provide energy efficiency equipment purchases
and services at GM's Linden, New Jersey Assembly Plant. Onsite completed the
project by June 30, 1996. The project was sponsored by Onsite through the
Public Service Electric and Gas Company ("PSE&G") Standard Offer DSM program
and includes a 10-year commitment for M&V services.
GM AUDITS. Onsite also received a purchase order for GM to provide
engineering and technical services to complete detailed plant energy audits for
four GM facilities located in Lordstown, Ohio (two plant sites), Linden, New
Jersey, and Ft. Wayne, Indiana. The project was substantially completed in
this fiscal period. The revenues were approximately $152,522 for this fiscal
year.
GM WENTZVILLE, MISSOURI ASSEMBLY PLANT. In July 1996, Onsite
received a purchase order from GM to provide for the installation of a
Strategic Energy Management System ("EMS") at the assembly plant in Wentzville,
Missouri. The EMS provides for computer-based control and monitoring of plant
operating systems. The project was substantially completed by the end of this
fiscal period and represents approximately $519,312 of revenue.
Revenues to Onsite for the GM projects were approximately $811,000 and $4
million for the fiscal years ended June 30, 1997, and 1996, respectively.
OTHER PROJECTS. Onsite contracted with a major equipment manufacturer in
Illinois to perform a comprehensive energy audit and engineering study. The
$119,000 study addressed lighting, heating, ventilation, process measures and
on-site generation. An implementation proposal was submitted in August 1997.
CONSULTING. In addition to energy efficiency retrofit/construction services,
Onsite also provides professional energy efficiency consulting services within
various target markets such as utilities, product suppliers and government.
These consulting services include engineering design, project feasibility and
development, market assessments, business strategy, public policy analysis and
environmental impact/feasibility studies. Consulting contracts include, but
are not limited to, projects for the Gas Research Institute (Chicago, IL);
Solar Turbines (San Diego, CA); R.E. Thomason General Hospital (Thomason) (El
Paso, TX); American Gas Cooling Center (Arlington, VA); Tokyo Gas Co. (Japan);
Martin Marietta Energy Systems, Inc. (Oak Ridge, TN); Electric Power Research
Institute (Palo Alto, CA); Volvo (Stockholm, Sweden); and Caterpillar Inc.
(Lafayette, IN).
Consulting revenues to Onsite were approximately $1.4 million and $ .5
million for the fiscal years ended June 30, 1997, and 1996, respectively.
<PAGE>10
GOVERNMENT REGULATION/ENVIRONMENTAL LAWS. Onsite is subject to rules and
regulations of the Environmental Protection Agency, the Occupational Safety and
Health Administration and other federal, state, county and municipal agencies.
Onsite's business entails "indirect" environmental risks from its
subcontractors' handling and removal of polychlorinated biphenals (PCBs)
ballasts, asbestos or asbestos-containing materials (ACMs), urea-formaldehyde
paneling, fluorescent lamps or HID lamps, and air quality compliance for
emissions from its cogeneration facilities. Onsite contracts with certified
hazardous waste removal companies or requires its subcontractors to contract
with certified hazardous waste removal companies. Onsite obtains
indemnification from applicable customers and subcontractors as to liability
Onsite might incur in connection with hazardous materials or environmental
concerns.
Onsite has not to date incurred unanticipated material capital expenditures to
comply with environmental laws and regulations. However, Onsite was required
by the South Coast Air Quality Management District to comply with the Regional
Clean Air Incentives Market ("RECLAIM") rules and regulations for the TCC
project, which required an additional capital investment of approximately
$170,000. This requirement was fulfilled in fiscal 1996. Presently no actions
are pending against Onsite concerning environmental matters. However, no
assurances can be given that proposed or future laws and regulations will not
adversely impact Onsite's operations. Onsite's management believes that it is
currently in compliance with all applicable government regulations.
EMPLOYEES. As of October 6, 1997, Onsite employed approximately 37 persons in
regular full-time or part-time positions. Western has no employees.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. With the exception of
historical facts stated herein, the matters discussed in this report are
"forward looking" statements that involve risks and uncertainties that could
cause actual results to differ materially from projected results. The "forward
looking" statements contained herein are cross-referenced to this paragraph.
Such "forward looking" statements include, but are not necessarily limited to,
statements regarding anticipated levels of future revenue and earnings from
operations of Onsite, projected costs and expenses related to Onsite's energy
services agreements, and the availability of future debt and equity capital on
commerically reasonable terms. Factors that could cause actual results to
differ materially include, in addition to the other factors identified in this
report, the cyclical and volatile price of energy, the inability to continue to
contract sufficient customers to replace contracts as they become completed,
unanticipated delays in the approval of proposed energy efficiency measures by
Onsite's customers, delays in the receipt of, or failure to receive necessary
governmental or utility permits, or approvals, or the renewals thereof, risks
and uncertainties relating to general economic and political conditions, both
domestically and internationally, changes in the law and regulations governing
Onsite's activities as an ESCO and the activities of the nation's public
utilities seeking energy efficiency as a cost effective alternative to
constructing new power generation facilities, results of project specific and
company working capital and financing efforts and market conditions, and other
risk factors detailed in Onsite's Securities and Exchange Commission filings
including the risk factors set forth in Onsite's Registration Statement on Form
S-4, SEC File No. 33-66010. Readers of this report are cautioned not to put
undue reliance on "forward looking" statements which are, by their nature,
uncertain as reliable indicators of future performance. Onsite disclaims any
intent or obligation to publicly update these "forward looking" statements,
whether as a result of new information, future events or otherwise.
<PAGE>11
ITEM 2. DESCRIPTION OF PROPERTY.
Onsite's corporate headquarters is located at 701 Palomar Airport Road,
Suite 200, Carlsbad, CA 92009, on a five-year lease expiring in April 1998, and
covering approximately 10,000 square feet. Onsite also leases approximately
640 square feet of office space at 16400 South Center Parkway, Suite 204,
Seattle (Tukwila), WA, on a month-to-month lease (regional office). Onsite has
terminated this lease effective October 31, 1997. In addition, Onsite leases
approximately 2400 square feet of separate industrial space at 6102 Avenida
Encinas, Suite I, Carlsbad, CA, on a five-year lease expiring July 1998, to
maintain and store its inventory, parts and records. No other office or
warehouse space is leased or owned by Onsite.
ITEM 3. LEGAL PROCEEDINGS.
Onsite is involved in certain legal actions and claims arising in the
ordinary course of business. Management believes, based on discussions with
legal counsel, that such litigation and claims will be resolved without
material effect on Onsite's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None.
[Remainder of page intentionally left blank]
<PAGE>12
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since August 2, 1995, Onsite's Class A Common Stock (the "Common Stock")
has traded on the National Association of Securities Dealers (NASD)
Over-the-Counter (OTC) Electronic Bulletin Board under the symbol "ONSE." The
following table sets forth the high and low prices per share of the Common
Stock for the quarters ended September 30, 1995 (from August 2, 1995), December
31, 1995, March 31, 1996, June 30, 1996, September 30, 1996, December 31, 1996,
March 31, 1997, and June 30, 1997:
QUARTER ENDED HIGH LOW
September 30, 1995 $ 1 $1/4
December 31, 1995 $3/4 $3/8
March 31, 1996 $1-3/4 $1/2
June 30, 1996 $2-1/2 $1-3/8
September 30, 1996 $1-5/8 $1-7/16
December 31, 1996 $1/2 $1/2
March 31, 1997 $1/4 $1/4
June 30, 1997 $1/4 $1/2
The high and low market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
As of September 23, 1997, there were approximately 217 holders of record
of the Common Stock.
Onsite has not paid dividends on the Common Stock, nor does Onsite
anticipate paying dividends on the Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
GENERAL. As discussed in ITEM 1. DESCRIPTION OF BUSINESS, Onsite was formed
pursuant to the Reorganization (that is, the reorganization pursuant to which
Onsite-Cal merged with and into Onsite, and a newly formed subsidiary of Onsite
merged with and into Western, which survived and became a wholly-owned
subsidiary of Onsite). As stated previously, the Reorganization was accounted
for as a purchase of Onsite-Cal by Onsite.
SUBSIDIARIES/PARTNERSHIPS.
WESTERN ENERGY MANAGEMENT, INC. (WESTERN) As discussed in ITEM 1.
DESCRIPTION OF BUSINESS, via the Reorganization, Western became a wholly owned
subsidiary of Onsite. Western's current primary business is to monitor its
existing contracts with customers.
TELEVISION CITY COGEN, L.P. (TCC) As discussed in ITEM 1. DESCRIPTION OF
BUSINESS, prior to February 1997, Onsite owned general and limited partnership
interests in TCC. Onsite also owned all of the stock of Onsite/TCC, the other
general partner in TCC. Thus, directly and indirectly, Onsite owned 100% of
TCC. Effective February 17, 1997, Onsite sold all of its interest in TCC and
Onsite/TCC. As a result of the sale, Onsite incurred a loss of $425,240.
<PAGE>13
RESULTS OF OPERATIONS.
1997 COMPARED TO 1996. Net income (loss) for the year ended June 30,
1997, was a loss of $1,388,598, or $.13 per share, compared to net income for
the year ended June 30, 1996, of $819,264, or $.03 per share, a decrease of
$2,207,862 from 1996 to 1997.
Per share earnings were reduced in fiscal year 1996 as a result of an
accounting requirement to reduce net earnings by preferred dividends in
calculating the earnings per share. As a result of the negative impact the
declaration of preferred dividends had on the per share earnings, the
shareholders of the Series A and Series B Convertible Preferred Stock agreed to
convert their preferred shares to Class A Common Stock immediately. The
conversion of the preferred shares resulted in the issuance of approximately
4.2 million shares of Class A Common Stock on July 1, 1996.
Revenues for the fiscal year ended June 30, 1997, were $9,561,375
compared to revenues in fiscal 1996 of $22,722,728, a decrease of $13,161,353
or 58%. The decrease in revenues was primarily attributable to the recognition
of revenues from one significant contract in fiscal year 1997 compared to three
significant contracts in fiscal year 1996.
Gross margin for the fiscal year ended June 30, 1997, was $2,869,177, or
30% of revenues, compared to a gross margin of $5,155,740, or 22.7% of revenues
in fiscal 1996. The increase in margin was primarily attributed to a larger
percentage of consulting revenues in fiscal year 1997, which contracts
generally provide higher gross margins.
Deregulation of the electric utility industry in California and
throughout the U.S. has created a more competitive environment for electric
power generation. This has and will continue to expand the scope of services
offered by Onsite. Onsite continues to market new energy services for larger
consumers in preparation for the emerging competitive marketplace created by
deregulation.
Selling, general and administrative ("SG&A") expenses were $3,726,095 for
the year ended June 30, 1997, compared to $3,748,988 for fiscal year ended June
30, 1996, a decrease in SG&A expenses of $22,893. Goodwill amortization
included in SG&A in the fiscal year ended June 30, 1997, was $400,000 compared
to $490,000 in the fiscal year ended June 30, 1996. Goodwill amortization
arises primarily out of the acquisition of Onsite-Cal, which resulted in
goodwill of $1,600,000 that is being amortized over a four-year period.
Amortization relating to this goodwill was $400,000 in each of the fiscal years
1996 and 1997. The unamortized balance at June 30, 1997, was $266,667, which
will be amortized in fiscal year 1998.
Income (loss) from operations for the fiscal year ended June 30, 1997,
was a loss of $1,264,472, compared to income from operations of $1,110,624 for
the previous fiscal year, a decrease in operating income of $2,375,096.
Other income (expense) was a net expense of $115,626 in fiscal 1997,
compared to a net expense of $240,360 for the fiscal year ended June 30, 1996,
a decrease in net other expense of $124,734. The decrease in other income
(expense) was due to the decrease in interest expense for fiscal year ended
June 30, 1997.
<PAGE>14
1996 COMPARED TO 1995. Net income for the year ended June 30, 1996, was
$819,264, or $.03 per share, compared to a loss for the year ended June 30,
1995, of $929,607, or $.26 per share, an improvement of $1,748,871 from 1995 to
1996. Per share earnings were reduced as a result of an accounting requirement
to reduce net earnings by preferred dividends in calculating the earnings per
share. For the fiscal year ending June 30, 1996, the reduction to earnings
attributable to the dividends for the Series A and B Convertible Preferred
Stock utilized in calculating the earnings per share aggregated $608,439, or
$.09 per share.
As a result of the negative impact the declaration of preferred dividends
had on the per share earnings, the shareholders of the Series A and Series B
Convertible Preferred Stock agreed to convert their preferred shares to Class A
Common Stock immediately. The conversion of the preferred shares resulted in
the issuance of approximately 4.2 million shares of Class A Common Stock.
Revenues for the fiscal year ended June 30, 1996, were $22,722,728,
compared to revenues in fiscal 1995 of $11,996,571, an increase of $10,726,157,
or 89.4%. The increase in revenues in 1996 was primarily attributable to the
addition of three large contracts that contributed approximately $11 million in
revenue for the year ended June 30, 1996. Also contributing to the earnings
growth was the implementation of new projects under Onsite's DSM agreement
with PacifiCorp, which was successfully completed in fiscal 1996.
Gross margin for the fiscal year ended June 30, 1996, was $5,155,740, or
22.7% of revenues, compared to a gross margin of $2,825,278, or 23.6% of
revenues in fiscal 1995.
Selling, general and administrative ("SG&A") expenses were $3,748,988 for
the year ended June 30, 1996, compared to $4,337,323 for fiscal year ended June
30, 1995, a decrease in SG&A expenses of $588,335. Contributing to the overall
decrease in SG&A expenses was a decrease in legal and accounting expense of
$553,185 from 1995 to 1996. The decrease in legal and accounting expense was
expected and was the result of a substantial decline in legal expenses relating
to litigation that was settled during the fiscal year ended June 30, 1995. In
addition, the SG&A decline was partially attributable to the sale of Lanikai
Lighting, Inc. a Hawaii corporation ("Lanikai"), whereby Lanikai SG&A was
included for approximately half of the current year, whereas the previous year
included a full year impact on SG&A. Goodwill amortization included in SG&A in
the fiscal year ended June 30, 1996, was $490,000 compared to $416,174 in the
fiscal year ended June 30, 1995. Goodwill amortization arises primarily out of
the acquisition of Onsite-Cal, which resulted in goodwill of $1,600,000 that is
being amortized over a four-year period. Amortization relating to this goodwill
was $400,000 in each of the fiscal years 1995 and 1996. The unamortized
balance at June 30, 1996, was $666,667, of which $400,000 will be amortized in
fiscal 1997, and $266,667 will be amortized in fiscal 1998.
Income from operations for the fiscal year ended June 30, 1996, was
$1,110,624, compared to a loss from operations of $1,512,045 for the previous
fiscal year, an improvement in operating income of $2,622,669.
Other income (expense) was a net expense of $240,360 in fiscal 1996,
compared to net other income of $582,438 for the fiscal year ended June 30,
1995, an increase in net other expense of $822,798. Contributing to this
increase of net expense in fiscal 1996 was the loss on the disposition of
Lanikai of $296,128 in the fiscal year 1996. Also, fiscal year 1995 had
substantial net other income attributable to the $800,000 gain on the sale by
Onsite of its interest in EUA/Onsite L.P., a California Limited Partnership.
<PAGE>15
LIQUIDITY AND CAPITAL RESOURCES. Onsite's cash and cash equivalents were
$526,894 as of June 30, 1997, compared to $976,470, a decrease of $449,576 as
of June 30, 1996. Working capital was a negative $30,333 as of June 30, 1997,
compared to $354,544 as of June 30, 1996, a decrease in working capital of
$384,877. The decrease in working capital was attributable to the operating
performance of Onsite, and the sale of TCC. Cash flows used in operating
activities for the year ended June 30, 1997, was a negative $357,735, compared
to $1,302,999 for the year ended June 30, 1996.
Cash flows provided by investing activities for the fiscal year ended
June 30, 1997, were $535,608, compared to $170,519 for the fiscal year ended
June 30, 1996, an increase of $365,089. The primary reason for the increase in
cash flows was Onsite's sale of TCC and a decrease in purchases of property and
equipment during fiscal year ended June 30, 1997. Cash flows from financing
activities were a negative $1,026,481 for the fiscal year ended June 30, 1997,
compared to a negative $509,053 for the same period in fiscal 1996, an increase
of $517,428. The principal reason for the change from year-to-year was due to
the repayment of $1,071,571 of long-term debt during fiscal year ended June 30,
1997.
ITEM 7. FINANCIAL STATEMENTS.
Onsite's consolidated financial statements are attached as pages F-1
through F-19.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(B) OF THE EXCHANGE ACT.
The information included under the headings "Election of Directors,"
"Directors and Executive Officers" and "Compliance with Section 16 of the
Securities Exchange Act of 1934" in Onsite's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on December 5, 1997, is incorporated
herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information included under the heading "Directors and Executive
Officers" in Onsite's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on December 5, 1997, is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information included under the heading "Voting Securities and
Principal Stockholders Thereof" in Onsite's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on December 5, 1997, is incorporated
herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related
transactions, appearing under the heading "Certain Relationships and Related
Transactions" in Onsite's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on December 5, 1997, is incorporated herein by
reference.
<PAGE>16
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibit
NO.
2.1 The Amended and Restated Agreement and Plan of Reorganization by and
between Western Energy Management, Inc. and Onsite Energy, as amended*
3.1 Certificate of Incorporation*
3.2 Form of Bylaws*
10.1 1993 Stock Option Plan*
10.2 Form of Employment Agreement between Onsite Energy Corporation and
Richard T. Sperberg*
10.3 Form of Employment Agreement between Onsite Energy Corporation and
William M. Gary III*
10.4 Form of Employment Agreement between Onsite Energy Corporation and Frank
J. Mazanec*
10.5 Form of Employment Agreement between Onsite Energy Corporation and Hector
A. Esquer*
10.11 Energy Services Agreement (between Western Energy Management, Inc. and
Tustin Unified School District dated October 1992)*
10.29 Television City Cogen L.P. Energy Services Agreement (between Onsite
Energy and CBS Operations & Engineering, a division of CBS Inc., dated
5/20/87)*
10.32 A. Extension and Amendment to Agreement for $2,000,000 Note dated
9/27/93 (between Television City Cogen, L.P. and Shawmut Bank
N.A.)*
B. Amended and Restated Term Loan for $2,000,000 dated 9/27/93
(between Television City Cogen, L.P. and Shawmut Bank, N.A.)*
10.46 EUA/Onsite, L.P., and Santa Ana Unified School District, as amended*
10.47 EUA/Onsite, L.P., and Chino Unified School District, as amended*
10.48 Energy Services Agreement between Western Energy Management, Inc., and
R._E._Thomason General Hospital*
10.50 Agreement between Onsite Energy and EUA Cogenex Corporation**
10.51 Agreement for the Sale and Purchase of Stock (to acquire Lanikai
Lighting, Inc.)**
10.52 Debt Conversion and Preferred Stock Purchase Agreement**
<PAGE>17
10.53 Settlement Agreement and Release with George T. McLaughlin, dated July
21, 1995***
10.54 Master Energy Efficiency Services Agreement between Onsite and Hercules
Incorporated, predecessor-in-interest to Alliant Techsystems Inc., dated
February 8, 1995***
10.55 Master Energy Efficiency Services Agreement between Onsite and IHC
Hospitals, Inc., dated February 28, 1995***
10.56 Master Energy Efficiency Services Agreement between Onsite and First
Security Bank of Utah, N.A., dated February 17, 1995***
10.57 Master Energy Efficiency Services Agreement between Onsite and Utah
National Guard, dated December 30, 1994***
10.58 Master Energy Efficiency Services Agreement between Onsite and The Boyer
Company, dated August 18, 1995***
10.59 Southern California Edison Company Demand Side Management Bidding Pilot
Industrial & Large Commercial Energy Efficiency Agreement between Onsite
and Southern California Edison Company, dated May 4, 1994***
10.60 Southern California Edison Company Demand Side Management Bidding Pilot
Industrial & Large Commercial Energy Efficiency Agreement between
KENETECH Energy Management, Inc., and Southern California Edison Company,
dated May 4, 1994, acquired by Onsite on June 20, 1995***
10.61 Energy Service Agreement between Onsite and Ford Motor Company, dated
August 2, 1995***
10.62 Standard Energy Savings Agreement between Onsite and Public Service
Electric and Gas Company, dated July 21, 1995***
10.63 Purchase Order No. B11 PO95 470871, from Ford Motor Company to Onsite,
dated August 30, 1995
10.64 Conservation Purchase Agreement with Puget Sound Power & Light Company,
dated June 21, 1994***
10.65 Peak Load Reduction Agreement with Nevada Power Company, dated May 31,
1994***
10.66 Agreement to Accept Proceeds from Sale of Stock for Services Rendered,
dated January 30, 1995***
10.67 Purchase Order No. 7-6R0212 to Onsite from Hughes Aircraft Company, dated
October 20, 1995****
10.68 Purchase Order No. 7-6R0213 to Onsite from Hughes Aircraft Company, dated
October 20, 1995****
10.69 Engineering, Procurement and Construction Agreement between Onsite and
Parke Industries, Inc., dated November 21, 1995****
10.70 Engineering, Procurement and Construction Agreement between Onsite and
General Motors Corporation, Truck & Bus Division, dated December 20,
1995****
10.71 Master Lease Agreement between Onsite and General Motors Corporation,
Truck & Bus Division, dated December 20, 1995****
<PAGE>18
10.72 Master Lease Agreement, Supplemental Terms, between Onsite and General
Motors Corporation, Truck & Bus Division, dated December 20, 1995****
10.73 Equipment Schedule No. 1 to Master Lease Agreement, between Onsite and
General Motors Corporation, Truck & Bus Division, dated December 20,
1995****
10.74 Financing Agreement, Agreement for Purchase and Sale of Equipment and
Assignment of Rights between Onsite and ChiCorp Financial Services, Inc.,
dated December 1995****
10.76 Engineering, Procurement and Construction Agreement between Onsite and
Geissenberger Manufacturing Corp. dba The Robert Group, dated January 11,
1996****
10.77 Master Engineering, Procurement and Construction Agreement between Onsite
and Ram Air Engineering, dated September 30, 1995****
10.78 Acquisition and Release Agreement for Lanikai Lighting, Inc. among Joel
Hemington, Tom Halvorsen, Onsite and Lanikai Lighting, Inc., dated
February 20, 1996*****
10.79 Contract Change Order No. 1 [Amendment No. 1] to Engineering, Procurement
and Construction Agreement between Onsite and General Motors Corporation,
Truck & Bus Division, dated March 1, 1996*****
10.80 Amendment No. 1 dated March 1, 1996, to Equipment Schedule No. 1 to
Master Lease Agreement, between Onsite and General Motors Corporation,
Truck & Bus Division, dated March 1, 1996*****
10.81 Pacific Gas & Electric Company Demand Side Management Agreement between
Onsite and Pacific Gas & Electric Company, dated March 5, 1996*****
10.82 Purchase and Assignment Agreement between Onsite and KENETECH Energy
Management, Inc., dated March 20, 1996*****
10.83 Operation and Maintenance Agreement between Onsite and El Paso County
Hospital District dated June 1996 (executed March 1, 1996)*****
10.84 Master Energy Efficiency Services Agreement between Onsite and West
Covina Unified School District, dated June 3, 1996******
10.85 Financing Agreement, Agreement for Purchase and Sale of Equipment and
Assignment of Rights between Onsite and ChiCorp Financial Services, Inc.,
dated June 3, 1996******
10.86 Master Energy Efficiency Services Agreement between Onsite and California
State University, Fresno, dated June 28, 1996******
10.87 Energy Services Agreement No. 97-031 A, dated January 27, 1997, between
Onsite Energy Corporation and State of Washington, Department of General
Administration, Energy Conservation Services, Northern State
Multi-Service Center, Sedro Woolley, Washington
A. Energy Services Agreement Amendment No. 1 dated July 14, 1997
B. Energy Services Agreement Amendment No. 2 dated August 4, 1997
<PAGE>19
11 Statement Regarding Computation of Per Share Earnings
21 Subsidiaries of the Registrant
* Previously filed as exhibits to Onsite's Registration Statement, Form
S-4, Registration No. 33-66010, filed with the Securities and Exchange
Commission on December 20, 1993.
** Previously filed as exhibits to Onsite's Form 10-KSB, as amended and
restated on July 19, 1995.
*** Previously filed as exhibits to Onsite's Form 10-KSB, as filed for the
year ended June 30, 1995.
**** Previously filed as exhibits to Onsite's Form 10-QSB, as filed for the
quarter ended December 31, 1995.
***** Previously filed as exhibits to Onsite's Form 10-QSB, as filed for the
quarter ended March 31, 1996.
****** Previously filed as exhibits to Onsite's Form 10-KSD, as filed for the
year ended June 30, 1996
b) REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Onsite has duly caused this Form 10-KSB to be signed on
its behalf by the undersigned, thereunto duly authorized.
ONSITE ENERGY CORPORATION
Date: October 8, 1997 By: RICHARD T. SPERBERG
Richard T. Sperberg, President
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Onsite has duly caused this Form 10-KSB to be signed on
its behalf by the undersigned, thereunto duly authorized.
ONSITE ENERGY CORPORATION
Date: October 8, 1997 By: CHARLES C. MCGETTIGAN
Charles C. McGettigan
Chairman of the Board and Outside Director
Date: October 8, 1997 By: RICHARD T. SPERBERG
Richard T. Sperberg
President, Chief Executive Officer, Chief
Financial Officer, Principal Accounting
Officer and Director
Date: October 8, 1997 By: WILLIAM M. GARY III
William M. Gary, III
Executive Vice President, Chief Operating
Officer, Corporate Secretary and Director
Date: October 8, 1997 By: TIMOTHY G. CLARK
Timothy G. Clark
Outside Director
Date: October 8, 1997 By: H. TATE HOLT
H. Tate Holt
Outside Director
<PAGE>F-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITOR'S REPORT - Hein + Associates LLP.......................F-2
CONSOLIDATED BALANCE SHEET - June 30, 1997.................................F-3
CONSOLIDATED STATEMENTS OF OPERATIONS - For the Years ended
June 30, 1997 and 1996...............................................F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) - For the
Years ended June 30, 1997 and 1996...................................F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Years ended
June 30, 1997 and 1996...............................................F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENT..................................F-7
<PAGE>F-2
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Onsite Energy Corporation
Carlsbad, California
We have audited the accompanying consolidated balance sheet of Onsite Energy
Corporation and subsidiaries (the "Company") as of June 30, 1997 and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the years ended June 30, 1997 and 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Onsite Energy
Corporation and subsidiaries at June 30, 1997 and the results of their
operations and their cash flows for the years ended June 30, 1997 and 1996 in
conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
August 28, 1997
<PAGE>F-3
ONSITE ENERGY CORPORATION
Consolidated Balance Sheet
June 30, 1997
Assets
Current Assets:
Cash $ 526,894
Cash-restricted 194,764
Accounts receivable, net of allowance for doubtful
accounts of $40,000 864,954
Costs and estimated earnings in excess of billings
on uncompleted contracts 100,738
Other assets 20,732
-----------------
TOTAL CURRENT ASSETS 1,708,082
Cash-restricted 78,403
Costs incurred on future projects 1,409
Property and equipment, net of accumulated depreciation
and amortization 44,627
Goodwill, net of amortization of $933,333 266,667
Other 24,155
----------------
TOTAL ASSETS $ 2,123,343
================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 971,396
Billings in excess of costs and estimated earnings
on uncompleted contracts 149,853
Current portion of notes payable 111,872
Accrued expenses and other liabilities 505,294
---------------
TOTAL CURRENT LIABILITIES 1,738,415
Long-Term Liabilities:
Related party notes payable 46,804
Accrued future operation and maintenance costs
associated with energy services agreements 421,432
--------------
TOTAL LIABILITIES 2,206,651
--------------
Commitments and contingencies (Notes 4, 12 and 13)
Shareholders' Equity (Deficit):
Preferred Stock, Series A, 4,000 shares authorized,
none issued and outstanding
Preferred Stock, Series B, 625,000 shares authorized,
none issued and outstanding
Common Stock, $.001 par value, 24,000,000 shares authorized:
Class A common stock, 23,999,000 shares
authorized, 10,944,172 issued and outstanding 10,942
Class B common stock, 1,000 shares authorized,
none issued and outstanding
Additional paid-in capital 17,052,963
Accumulated deficit (17,147,213)
----------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (83,308)
----------------
TOTAL LIABILTIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 2,123,343
================
The accompanying notes are an integral part of the financial statements
<PAGE>F-4
ONSITE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
1997 1996
Revenues $ 9,561,375 $ 22,722,728
Cost of sales 6,692,198 17,566,988
--------------- ---------------
Gross Margin 2,869,177 5,155,740
Selling, General, and Administrative Expenses 3,726,095 3,748,988
Loss on disposition of partnership interests 425,240 -
Loss on disposition of Lanakai - 296,128
Gain on sale of assets (17,686) -
--------------- --------------
Operating income (loss) (1,264,472) 1,110,624
--------------- --------------
Other income (expense):
Interest (expense) (159,028) (270,088)
Interest income 43,402 29,728
--------------- --------------
Total other income (expense) (115,626) (240,360)
--------------- --------------
Income (loss) before provision
for income taxes (1,380,098) 870,264
Provision for income taxes 8,500 51,000
--------------- --------------
Net income (loss) $ (1,388,598) $ 819,264
=============== ==============
Net income (loss) per Class A common share $ (0.13) $ 0.03
=============== ==============
Weighted average shares outstanding 10,818,498 6,639,837
=============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>F-5
ONSITE ENERGY CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Preferred Stock
Class A Series A Series B
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 5,418,995 $ 5,418 3,910 $ 4 617,436 $ 617
Issued to Onsite 401k plan 50,989 51
Conversion of accounts
payable to Class A common stock 162,796 163
Issued pursuant to legal settlement 158,416 158
Common shares issued for
Series A and B preferred dividends 283,445 284
Conversion of Series A
preferred stock 93,740 94 (100)
Conversion of Series B
preferred stock 11,795 12 (11,795) (12)
Exercise of stock options 83,287 83
Common shares issuable for Series
A and B preferred dividends
Net Income
- ----------------------------------------------------------------------------------------------------
Balance June 30, 1996 6,263,463 6,263 3,810 4 605,641 605
Issued to Onsite 401k plan 48,562 49
Conversion of accounts payable
to Class A common stock 62,077 63
Common shares issued for Series
A and B preferred dividends 347,048 347
Conversion of Series A
preferred stock 3,571,494 3,571 (3,810) (4)
Conversion of Series B
preferred stock 605,641 605 (605,641) (605)
Exercise of stock options 45,887 44
Net Loss
- -----------------------------------------------------------------------------------------------------
Total to June 30, 1997 10,944,172 10,942 - $ - - $ -
- -----------------------------------------------------------------------------------------------------
</TABLE>
ONSITE ENERGY CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
(CONTINUED)
<TABLE>
<CAPTION>
Additional
Common Shares Paid-In Accumulated
Issuable Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1995 $ 44,161 $15,388,386 $(15,365,854) $ 72,732
Issued to Onsite 401k plan (44,161) 44,110 -
Conversion of accounts
payable to Class A common stock 146,114 146,277
Issued pursuant to legal settlement 124,842 125,000
Common shares issued for
Series A and B preferred dividends 603,302 (603,586) -
Conversion of Series A
preferred stock (94) -
Conversion of Series B
preferred stock - -
Exercise of stock options 29,809 29,892
Common shares issuable for Series
A and B preferred dividends 608,439 - (608,439) -
Net Income 819,264 819,264
- --------------------------------------------------------------------------------------------------------------
Balance June 30, 1996 608,439 16,336,469 (15,758,615) 1,193,165
Issued to Onsite 401k plan 24,931 24,980
Conversion of accounts payable
to Class A common stock 66,972 67,035
Common shares issued for Series
A and B preferred dividends (608,439) 608,092
Conversion of Series A
preferred stock (3,567)
Conversion of Series B
preferred stock - -
Exercise of stock options 20,066 20,110
Net Loss (1,388,598) (1,388,598)
- ------------------------------------------------------------------------------------------
Total to June 30, 1997 $ - $ 17,052,963 $(17,147,213) $ (83,308)
- ------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
<PAGE>F-6
ONSITE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
1997 1996
Cash flows from operating activities:
Net income (loss) $ (1,388,598) $ 819,264
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Amortization of goodwill 400,000 490,000
Amortization of acquired contract costs 399,032 205,681
Additions (reductions) to reserve
for future operation and
maintenance costs (45,925) 104,652
Provision for bad debts 37,093 18,700
Depreciation and amortization 187,077 209,570
Loss on disposition of
partnership interests 425,240 -
(Gain) on sale of assets (17,686) -
Change in operating assets and
liabilities:
Accounts receivable 747,923 (1,255,552)
Increase (decrease) in billings
related to costs and estimated earnings
on uncompleted contracts 921,512 (1,538,301)
Other assets 260,322 50,769
Cash-restricted (50,467) 206,366
Accounts payable (1,464,594) 1,914,323
Accrued expenses and other liabilities (344,632) 402,527
Deferred income (25,000) (325,000)
--------------------------
Net cash provided by operating activities 41,297 1,302,999
--------------------------
Cash flows from investing activities:
Purchases of property and equipment (4,473) (43,907)
Proceeds from sale of assets 540,081 214,426
-------------------------
Net cash provided by investing activities 535,608 170,519
-------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 45,090 29,892
Repayment of long-term debt (1,071,571) (535,356)
Repayment of capital lease obligations - (3,589)
-------------------------
Net cash provided by financing activities (1,026,481) (509,053)
-------------------------
Net increase (decrease) in cash (449,576) 964,465
Cash, beginning of year 976,470 (85,751)
Less: Cash in Lanikai and cash included in net
assets held for sale - (73,746)
-------------------------
Cash, end of year $ 526,894 $ 976,470
=========================
Supplemental disclosures of non-cash
transactions:
Payment of Series A and Series B
preferred dividends with common stock $ 347 $ 608,439
Payment of accounts payable with
common stock 67,035 146,277
Payment of legal settlement with
common stock - 125,000
Conversion of preferred stock to
common stock 4,176 -
Supplemental disclosures of cash
transactions:
Interest paid 159,028 258,267
Income taxes paid 41,290 9,100
The accompanying notes are an integral part of the financial statements
<PAGE>F-7
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
1. BUSINESS ACTIVITY
BACKGROUND
Onsite Energy Corporation ("Onsite") is an energy efficiency services company
(ESCO) that develops, designs, constructs, owns and operates comprehensive
energy efficiency projects and assists customers in reducing the cost of
purchased electricity and fuel. Onsite also offers professional consulting
services in the areas of market assessment, business strategies, public policy
analysis, environmental studies and utility deregulation. It is Onsite's
mission to be a premier provider of energy efficiency solutions for
institutional, commercial and industrial customers.
Onsite was formed pursuant to a reorganization between Western Energy
Management, Inc., a Delaware corporation ("Western"), and Onsite Energy, a
California corporation formed in 1982 ("Onsite Energy"), which was effective
February 15, 1994. Under the reorganization, Onsite Energy merged with and into
Onsite and a newly formed subsidiary of Onsite merged with and into Western,
which survived and became a wholly owned subsidiary of Onsite. This
transaction was accounted for as a purchase of Onsite Energy by Onsite.
Onsite also owned general and limited partnership interests in Television City
Cogen, L.P., a California limited partnership ("TCC"). Onsite owned all the
stock of Onsite/TCC Corp., a Delaware Corporation ("Onsite/TCC"), which was the
other partner in TCC. Thus, directly and indirectly, Onsite owned 100% of TCC.
Effective February 17, 1997, Onsite sold its interests in TCC and Onsite/TCC.
As a result of the sale, Onsite incurred a loss of $425,240.
Onsite also owns a general partnership interest in Onsite Partners, a
California general partnership, and a general partnership interest in American
Private Power II, a California general partnership, both of which are inactive.
Onsite also owned Lanikai Lighting, Inc. ("Lanikai"). Effective February 20,
1996, Onsite sold its interests in Lanikai in exchange for a royalty earnout of
up to $400,000 with payments due monthly calculated as a percentage of gross
sales. Such amount will be recorded as income to Onsite when received. During
the fiscal year ended June 30, 1997, Onsite did not receive any such payments.
Unless the context indicates otherwise, reference to Onsite shall include all
of its wholly owned subsidiaries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Onsite and all of
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
<PAGE>F-8
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
REVENUE RECOGNITION
Revenues on development and construction of energy efficiency projects
requiring contract performance prior to commencement of deliveries are recorded
using the percentage of completion method. Under this method, the revenue
recognized is that portion of the total contract price that the cost expended
to date bears to the anticipated final total costs based on current estimates
of the costs to complete the project. When the total estimated costs to
complete a project exceed the total contract amount, thereby indicating a loss,
the entire anticipated loss is recognized currently.
GUARANTEED SAVINGS
Ongoing revenues on contracts containing guaranteed savings to customers are
recognized when the guaranteed savings are achieved. No warranties or reserves
are applicable to these contracts.
SERVICE REVENUE
Revenues for development, management, marketing and similar services are
recognized as the services are performed.
OPERATION AND MAINTENANCE AGREEMENTS
Commencing July 1, 1993, Onsite began entering into long term operation and
maintenance agreements with its customers. In instances where estimated costs
exceed estimated revenue, Onsite discounts the estimated future deficit cash
flows at an appropriate long-term interest rate and recognizes expense and a
related liability in its financial statements. For the year ended June 30,
1997, the liability for deferred operations and maintenance was $421,432.
RESTRICTED CASH
Restricted cash consists of amounts on deposit with financial institutions for
the purpose of securing performance milestones under several of Onsite's demand
side management ("DSM") contracts. Funds become available to Onsite over a
period of 24 to 36 months following completion of the last contract provided
certain conditions and milestones are achieved. In the event that conditions
or milestones are not achieved, Onsite will be required to forfeit its right to
some or all of the funds on deposit. As of June 30, 1997, Onsite believes that
all conditions and milestones will be achieved and that no funds under these
DSM contracts will be subject to forfeiture.
<PAGE>F-9
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
COSTS INCURRED ON FUTURE PROJECTS
Costs incurred on future projects include Onsite's investment in contracts
pending approval, and its cost to purchase projects from third parties, which
are in the implementation process. Costs are charged to expense in relation to
the progress towards completion of the implementation of the various projects.
Some of the costs incurred on future projects are for projects pending
regulatory approval. In the event the regulatory authority rejects those
projects, costs incurred will be charged to expense. For the fiscal year ended
June 30, 1997, Onsite charged to expense approximately $486,924 in previously
capitalized acquisition costs for projects that will likely be rejected by the
governing regulatory authority.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Replacements and improvements are
capitalized, while repairs and maintenance are charged to expense as incurred.
Depreciation and amortization are provided using the straightline method with
estimated useful lives ranging from five to 20 years for office equipment,
equipment, tools and vehicles. Leasehold improvements and leased equipment are
amortized over the useful life or term of the respective lease, whichever is
less. When an asset is sold or otherwise disposed of, the cost and accumulated
depreciation or amortization is removed from the accounts and any resulting
gain or loss is recognized currently.
CASH AND CASH EQUIVALENTS
Onsite considers all short-term, highly liquid investments with an original
maturity of three months or less to be cash equivalents.
GOODWILL
Goodwill consists of certain intangible assets acquired in connection with the
purchase of Onsite Energy and represents the purchase price in excess of the
fair value of the assets acquired adjusted to net realizable value. Goodwill
is being amortized over four years using the straightline method beginning in
February 1994. The carrying value of Goodwill is evaluated at least annually.
Onsite considers current facts and circumstances, including expected future
operating income and cash flows to determine whether it is probable that
impairment has occurred.
INCOME TAXES
Onsite accounts for income taxes under the liability method, which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the financial statements or
tax returns. Deferred tax assets and liabilities are determined based on the
difference between financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
<PAGE>F-10
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Primary earnings per share is computed by subtracting the applicable year's
required preferred dividends from the net income in order to determine net
income attributable to common shareholders. In 1996, the required dividend was
subtracted from the net income in order to determine net income attributable to
common shareholders. Earnings (loss) per share and common equivalent share are
then computed based on the weighted average number of shares of common stock
and, if dilutive, common equivalent shares (preferred stock, options and
warrants) outstanding during the period. Common stock equivalents as of June
30, 1997, were antidilutive and excluded from the earnings per share
computation.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the cost of assets may
be impaired, an evaluation of recoverability would be performed. If an
evaluation were required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount to
determine if a write-down to market value or discounted cash flow is required.
There were no impairments of long-lived assets for the year ended June 30,
1997.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. Onsite currently accounts for its stock-based compensation plans
using the accounting prescribed by Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (See Note 9). FAS 123 encourages, but
does not require, companies to recognize compensation expense for grants of
stock, stock options, and other equity instruments to employees based on fair
value. Transactions in equity instruments with non-employees for goods or
services must be accounted for on the fair value method. Since Onsite is not
required to adopt the fair value based recognition provisions prescribed under
SFAS No. 123, it has elected only to comply with the disclosure requirements
set forth in the Statement, which includes disclosing pro forma net income as
if the fair value based method of accounting had been applied. (See Note 9.)
IMPACT OF RECENTLY ISSUED STANDARDS
In February 1997, the Financial Accounting Standards Board issued a new
statement titled "Earnings per Share" ("FAS 128"). The new statement is
effective for both interim and annual periods ending after December 15, 1997.
FAS 128 replaces the presentation of primary and fully diluted earnings per
share with the presentation of basic and diluted earnings per share. Basic
earnings per share excludes dilution and is calculated by dividing income by
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
Had this new statement been in effect for the periods presented, Onsite would
report basic earnings per share for the fiscal years ended June 30, 1997, and
1996, of $(.13) and $.03. Diluted earnings per share for the fiscal years
ended June 30, 1997, and 1996, would be $(.10) and $.08.
<PAGE>F-11
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
USE OF ESTIMATES
The preparation of Onsite's consolidated financial statements in conformity
with generally accepted accounting principles requires Onsite's management to
make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates.
Onsite's financial statements are based upon a number of significant estimates,
including the allowance for doubtful accounts, estimates in costs and earnings
in excess of billings on uncompleted contracts, the estimated useful lives
selected for property and equipment and intangible assets, realizability of
deferred tax assets, and accrued future operation and maintenance costs
associated with energy services agreements. Due to the uncertainties inherent
in the estimation process, it is at least reasonably possible that these
estimates will be further revised in the near term and such revisions could be
material.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values for financial instruments under SFAS No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, are determined at
discrete points in time based on relevant market information. These estimates
involve uncertainties and cannot be determined with precision. The estimated
fair values of Onsite's financial instruments, which includes all cash,
accounts receivables, accounts payable, long-term debt and other debt,
approximates the carrying value in the consolidated financial statements at
June 30, 1997.
CONCENTRATIONS OF CREDIT RISK
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or groups of counterparties
when they have similar economic characteristics that would cause their ability
to meet contractual obligations to be similarly effected by changes in economic
or other conditions. In accordance with SFAS No. 105, DISCLOSURE OF
INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, the credit risk
amounts shown do not take into account the value of any collateral or security.
<PAGE>F-12
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. ACCOUNTS RECEIVABLE
Accounts Receivable consisted of the following as of June 30, 1997:
Contract receivables
Completed contracts $ 281,260
Contracts in progress 148,600
----------
429,860
Trade receivables 475,094
----------
904,954
Less: Allowance for doubtful accounts (40,000)
----------
$ 864,954
==========
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on contracts as of June 30, 1997, consisted
of the following:
Costs incurred $ 7,646,678
Estimated earnings 1,918,101
------------
$ 9,564,779
Less: Billings to date (9,613,894)
------------
$ (49,115)
============
Included in the accompanying Balance Sheet under
the following captions:
Costs and estimated earnings
in excess of billings on
uncompleted contracts $ 100,738
Billings in excess of costs
and earnings on
uncompleted contracts (149,853)
-----------
$ (49,115)
===========
<PAGE>F-13
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997, consisted of:
Office furniture $ 64,305
Equipment and Tools 463,193
Vehicles 2,450
Cogeneration Systems 65,756
Leasehold improvements 17,778
------------
613,482
Less: Accumulated depreciation and amortization (568,855)
------------
$ 44,627
============
6. NOTES PAYABLE
Notes payable at June 30, 1997, consisted of the following:
Notes payable to a third party, interest at 10.00%, with all
unpaid interest and principal due February 2, 1998. $ 111,872
Unsecured notes payable to related parties consisting of four
separate notes; Interest at prime rate plus 1.00% to 2.00%
(totaling 11% to 12% at June 30, 1997) due monthly, maturing
July 1998. 46,804
------------
Total: 158,676
Less: Current portion (111,872)
------------
$ 46,804
============
Maturities of the longterm debt as of June 30, 1997,
are as follows:
Fiscal year ending June 30,
1999 $ 46,804
7. ACCRUED EXPENSES AND OTHER LIABILITIES
At June 30, 1997, accrued expenses and other liabilities consisted of the
following:
Payroll and Related $ 215,698
Deferred Salary 64,238
Accrued Interest 13,205
Accrued Commission 31,500
Accrued Other 180,653
-----------
$ 505,294
===========
<PAGE>F-14
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. SHAREHOLDERS' EQUITY (DEFICIT)
Class A Common Stock
Holders of Class A Common Stock are entitled to one vote per share for the
election of directors and other corporate matters which shareholders are
entitled or permitted to vote. Holders are entitled to receive dividends when
and as declared by the Board of Directors.
WARRANTS
No warrants were issued or exercised during the fiscal year ended June 30,
1997.
As of June 30, 1997, Onsite has issued and outstanding a total of 430,311
warrants to purchase shares of its Class A Common Stock. The exercise prices
range from $.88 to $18.79 per share with expiration dates ranging from
September 1997 through June 1999.
9. STOCK OPTION PLANS:
WESTERN 1990 NONSTATUTORY STOCK OPTION PLAN (FORMERLY WESTERN STOCK OPTION
PLAN)
Effective February 15, 1994, Onsite adopted the Western 1990 NonStatutory Stock
Option Plan (the "1990 Plan"). The 1990 Plan provides for the granting of
options to directors, officers, employees and consultants to purchase up to
100,000 shares of Onsite Class A Common Stock. The 1990 Plan is administered by
a committee appointed by the Board of Directors.
As of June 30, 1997, the status of the 1990 Plan was as follows:
Outstanding Exercise Price Exercisable
Options Per Share Options
July 1, 1995 500 $6.10 500
-----
July 1, 1996 500 $6.10 500
Options Granted 500 $0.2956
Options Canceled (500) $6.10
-----
June 30, 1997 500 $0.2956 500
=====
At June 30, 1997, no additional options have been provided for granting.
WESTERN 1991 NONSTATUTORY STOCK OPTION PLAN
Effective February 15, 1994, Onsite adopted the Western 1991 NonStatutory Stock
Option Plan (the "1991 Plan"). The 1991 Plan provides for the granting of
options to nonemployee directors, officers, employees and consultants to
purchase up to 160,000 shares of Onsite Class A Common Stock. The 1991 Plan is
administered by a committee appointed by the Board of Directors.
<PAGE>F-15
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
As of June 30, 1997, the status of the 1991 Plan was as follows:
Outstanding Exercise Price Exercisable
Options Per Share Options
July 1, 1995 90,000 $5.3125 - $29.70 90,000
------
July 1, 1996 90,000 $5.3125 - $29.70 90,000
Options canceled (5,000) $29.70
------
June 30, 1997 85,000 $5.3125 85,000
======
At June 30, 1997, no additional options have been provided for granting.
NONPLAN OPTIONS
During fiscal year 1993, Western issued stock options that were not part of the
1990 Plan or the 1991 Plan (the "Non-Plan Options"). Effective February 15,
1994, Onsite adopted the NonPlan Options, and has provided for the granting of
options to various parties to purchase up to 113,000 shares of Onsite Class A
Common Stock.
As of June 30, 1997, the status of the NonPlan Options was as follows:
Outstanding Exercise Price Exercisable
Options Per Share Options
July 1, 1995 106,500 $5.3125 - $6.10
Options canceled (1,500) $6.10 103,142
-------
July 1, 1996 105,000 $5.3125 - $6.10
Options Canceled (1,000) $5.3125 105,000
Options Granted 104,000 $0.2956
Options Canceled (104,000) $5.3125 - $6.10
--------
June 30, 1997 104,000 $0.2956 104,000
========
At June 30, 1997, no additional options have been provided for granting.
THE ONSITE 1993 STOCK OPTION PLAN
During fiscal 1994, Onsite adopted the Onsite 1993 Stock Option Plan (the "1993
Plan"). The 1993 Plan, as amended, provides for the granting of options to
directors, officers, employees and consultants to purchase up to 2,950,000
shares of Class A Common Stock and is administered by a committee appointed by
the Board of Directors.
<PAGE>F-16
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
As of June 30, 1997, the status of the 1993 Plan was as follows:
Outstanding Exercise Price Exercisable
Options Per Share Options
July 1, 1995 1,399,426 $0.8125 - $5.625 233,765
Options granted 1,754,677 $0.25 - $2.25
Options canceled (1,263,333) $0.25 - $0.875
Options exercised (83,287) $0.25 - $0.875
----------
July 1, 1996 1,807,483 $0.25 - $5.625 1,395,901
Options granted 1,508,440 $0.24 - $5.3125
Options canceled (816,645) $0.25 - $0.50
Options exercised (42,553) $0.25 - $0.50
----------
June 30, 1997 2,456,725 $0.24 - $5.3125 1,729,593
==========
At June 30, 1997, additional options may be granted to purchase 493,275 shares
of Class A Common Stock.
A summary of option transactions during the years ended June 30, 1996, and
1997, is as follows:
Fixed Options Shares Weighted-Average
Exercise Price
July 1, 1995 1,399,426 $2.0544
Granted 1,754,677 $0.6115
Exercised (83,287) $0.3595
Canceled (1,263,333) $2.0178
-----------
June 30, 1996 1,807,483 $0.7573
===========
Fixed Options Shares Weighted-Average
Exercise Price
July 1, 1996 1,807,483 $0.7573
Granted 1,508,440 $0.2909
Exercised (42,553) $0.4628
Canceled (816,645) $0.4764
----------
June 30, 1997 2,456,725 $0.5789
==========
<PAGE>F-17
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
During fiscal year ended June 30, 1997, the Compensation Committee and Board of
Directors approved a price reduction for 400,440 options with original exercise
prices ranging between $1.94 and $6.10 to $0.2956. This was accounted for as a
reprice of options to the fair market value on the date of the repricing. The
weighted average contractual life for all options as of June 30, 1997, was
approximately 5.5 years, with exercise prices ranging from $0.24 to $5.31.
Proforma Information
As stated in Note 2, Onsite has not adopted the fair value accounting
prescribed by FAS 123 for employees. Had compensation cost for stock options
issued to employees been determined based on the fair value at grant date for
awards in 1997 and 1996 consistent with the provisions of FAS 123, Onsite's net
income (loss) and net income (loss) per share would have been adjusted to the
proforma amounts indicated below:
June 30,
1997 1996
Net Income (Loss) $(1,471,328) $(170,732)
Per Common Share Income (Loss) $(0.14) $(0.02)
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model using the following weighted-average
assumptions: expected volatility of 101.93%, an expected life of three years
for option shares, no dividends would be declared during the expected term of
the options, and a risk-free interest rate using the monthly US Treasury
T-Strip Rate at the option grant date for fiscal years ended 1997, and 1996,
respectively.
The weighted-average fair value of stock options granted to employees during
the years ended June 30, 1997, and June 30, 1996, was $0.19 and $0.40,
respectively.
10. INCOME TAXES
Income tax expense for the years ended June 30, 1997, and 1996, is as follows:
1997 1996
Federal $ $ 21,000
State 8,500 30,000
-------- ------------
$ 8,500 $ 51,000
======== ============
<PAGE>F-18
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Income tax expense for the years ended June 30, 1997, and 1996, differed from
the amount computed by applying the U.S. Federal income tax rate of 34% to
pretax income as a result of the following:
1997 1996
Computed expected tax expense (benefit) $ (469,200) $ 295,800
Effect of alternative minimum tax - 21,000
State taxes, net 5,600 13,300
Other 4,400 5,600
Change in valuation allowance for
deferred tax assets 467,700 (284,700)
----------- ----------
$ 8,500 $ 51,000
=========== ==========
The components of the deferred tax accounts at June 30, 1997, and 1996, are as
follows:
1997 1996
Net deferred tax assets:
Litigation settlement accrual $ 6,700 $ 49,500
Deferred operation & maintenance
Reserve 169,200 185,100
Net Operating Loss carry forwards 4,504,600 3,983,400
Alternative minimum tax credit 15,200 26,500
Goodwill due to difference in
amortization 392,500 271,100
Other 35,500 25,900
Capital Loss Carry Forward 66,100 -
Vacation Accrual 29,100 35,200
Deferred Compensation 27,300 -
Valuation allowance (5,246,200) (4,576,700)
------------- -------------
$ - $ -
============= =============
At June 30, 1997, Onsite has a net operating loss carryforward of approximately
$12,110,800, which would expire through 2011. As a result of various stock
transactions, certain of these net operating loss carry forwards are subject to
annual limitations of approximately $726,000 to be used in future periods.
Also, Onsite has a California net operating loss for the year ended June 30,
1997, of $4,160,100, which is also subject to annual limitations of
approximately $726,000.
<PAGE>F-19
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. RELATED PARTIES
During the fiscal year ended June 30, 1997, Onsite paid H. Tate Holt, a
Director of Onsite, approximately $23,500 for consulting services rendered. In
addition, Onsite has borrowed funds from two officers and directors. As of
June 30, 1997, the balance outstanding on these loans was $46,804. These notes
bear interest at 1.00% to 2.00% above the prime rate with interest payable
monthly. For the year ended June 30, 1997, the officers and directors earned
$6,433 in interest, of which $1,421 had been paid.
12. COMMITMENTS AND CONTINGENCIES
LEASES
Onsite leases its administrative facility under a noncancellable operating
lease expiring in 1998 with a five-year renewal option.
Future minimum lease payments under this operating lease is as follows:
YEAR ENDING JUNE 30,
1998 $ 180,680
1999 15,056
----------
Total minimum lease payments $ 195,736
==========
Total rent expense, including monthtomonth equipment rentals, was $272,641 and
$272,591 in 1997, and 1996, respectively.
ENVIRONMENTAL COSTS
Onsite is subject to federal, state and local environmental laws and
regulations. Environmental expenditures are expensed or capitalized depending
on their future economic benefit. Expenditures that relate to an existing
condition caused by past operations and that have no future economic benefits
are expensed. Liabilities for expenditures of a non-capital nature are
recorded when environmental assessments are probable, and the costs can be
reasonably estimated. At June 30, 1997, there is no known pending actions or
related notices with respect to environmental matters. Although the level of
future expenditures for environmental matters cannot be determined with any
degree of certainty, it is management's opinion that such costs when determined
will not have a material adverse effect on the financial position or results of
operations of Onsite.
GUARANTEED SAVINGS
Onsite is contingently liable to its customers pursuant to contractual terms in
the event annual guaranteed savings are not achieved by the customer.
LITIGATION
Onsite is involved in certain legal actions and claims arising in the ordinary
course of business. Management believes, based on discussions with legal
counsel, that such litigation and claims will be resolved without material
effect on Onsite's consolidated financial position.
<PAGE>F-20
ONSITE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. DEFINED CONTRIBUTION PLAN
Onsite sponsors a 401(k) defined contribution plan, which covers substantially
all employees. Onsite contributions are determined annually at the discretion
of management and vest at the rate of 20% per year of employment. During the
years ended June 30, 1997 and 1996, Onsite's matching contribution was $43,088
and $37,977, respectively.
14. SIGNIFICANT CUSTOMERS
Revenues from three customers accounted for 32% (10%, 9%, 13% each) of total
revenues in fiscal 1997, and revenues from three other customers accounted for
53% (22%, 18%, 13%) of total revenues in fiscal 1996.
15. CONCENTRATION OF CREDIT RISK
Onsite operates in one industry segment, energy services. Onsite's customers
generally are located in the Western United States. Financial instruments that
subject Onsite to credit risk consist principally of accounts receivable and
costs and estimated earnings in excess of billings.
At June 30, 1997, accounts receivable, and costs and estimated earnings in
excess of billings totaled $1,005,692, and Onsite has provided an allowance for
doubtful accounts of $40,000.
For the years ended June 30, 1997, and 1996, bad debts totaled $37,093 and
$18,700 respectively.
Onsite performs periodic credit evaluations on its customers' financial
condition and believes that the allowance for doubtful accounts is adequate.
At June 30, 1997, Onsite maintained cash balances with a commercial bank, which
were approximately $405,000 in excess of FDIC insurance limits.
16. SUBSEQUENT EVENTS
On September 11, 1997, Onsite issued warrants to acquire common stock to an
officer/director and another board member in exchange and as consideration for
posting the necessary collateral and personal guarantees for a payment and
performance bond required on a construction project. The exercise of the
warrants will result in the right of the related parties to acquire 525,988
shares of Onsite's Class A Common Stock.
EXHIBIT 10.87
ENERGY SERVICES AGREEMENT FOR:
ENERGY CONSERVATION SERVICES AGREEMENT NO. 97-031-A
NORTHERN STATE MULTI-SERVICE CENTER
SEDRO WOOLLEY, WASHINGTON JANUARY 27, 1997
The owner and the Energy Services Company (ESCO) named below do hereby enter
into an agreement under terms described in the following sections:
Authorization (this sheet)
Project Conditions
Conditions of the Energy Services Agreement
AUTHORIZATION TO PROCEED
Energy Services Company Owner: Department of General Administration
Firm Onsite Energy Corporation Division of Property Development
Address 16400 South Center Parkway, No. 204 acting through the Department of
Tukwila, Washington 98188 General Administration
Division of Engineering
Phone (206) 575-9035 & Architectural Services
BY /s/ Richard T. Sperberg BY /s/ R. G. Anderson
NAME NAME RAYMOND G. ANDERSON
TITLE TITLE Energy Program Manager
DATE DATE
State of Washington Revenue Registration Number ONSITEC051C4
Federal Tax Identification Number 33-0576371
<PAGE>
PROJECT CONDITIONS
RECITALS:
WHEREAS, Owner own or leases the Facility;
WHEREAS, ESCO provides certain services and equipment intended to reduce Energy
and Utility Consumption in buildings and facilities;
WHEREAS, ESCO will have made a preliminary assessment of the Energy Consumption
characteristics of the Facility and has expressed a willingness to provide
certain services and equipment, all as described in the Energy Services
Proposal to be attached hereto.
WHEREAS, ESCO is willing to be compensated for ESCO Services and ESCO Equipment
out of Energy Cost Savings; Utility Payments; and/or through Lease/Purchase
Arrangements;
NOW THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, it is agreed that:
The ESCO shall provide Energy Services called for in Section 2 of the
"Conditions of the Energy Services Agreement" for:
Agreement No. 97-031 A
Project Title: Energy Conservation Services
Facility Name: Northern State Multi-Service Center
Facility Address: Sedro Woolley, Washington
A. COMPENSATION FOR ENERGY SERVICES
As Compensation for developing and submitting a written Energy Audit Report and
Energy Services Proposal, the ESCO shall be reimbursed in accordance with
Section 2.B., 2.C., and 2.D. of the Conditions of the Energy Services
Agreement.
Compensation for the audit phase and Energy Services Proposal(s) is based on
the ESCO's Proposal dated January 14, 1997 with attached list of facility
buildings and audits and shall not exceed:
Boiler Plant Automation $11,000
Buildings on List $41,000
-------
TOTAL $52,000
<PAGE>
PROJECT CONDITIONS
A. COMPENSATION FOR ENERGY SERVICES (CONTINUED)
There shall be separate Energy Services Proposals for the Boilers and the rest
of the facility.
In the event that the ESCO fails to conduct a Detailed Energy Audit or fails to
present to the Owner a written Energy Services Proposal within the time
specified in Section B. of these Project Conditions and does not propose to
finance the ESCO Equipment, the Owner may terminate the Energy Services
Agreement.
Notwithstanding the attached Conditions of the Energy Services Agreement ("the
Conditions") it is the understanding of the parties that all of the payments to
the ESCO are dependent on energy savings grants, loans, and/or incentive
payments from utilities and other Funding Sources and that ESCO shall be paid
in accordance with the provisions of Section 5, paragraph B of the Conditions.
It is also the understanding of the parties that the Owner desires that ESCO
guarantee Energy Savings and that ESCO provide ongoing monitoring services and
that the cost of such guarantee and monitoring shall be paid using Energy
Savings.
In the event that the Owner elects to finance the project in whole or in part,
Owner reserves the right to amend the terms, or to add new terms, to the
Conditions that Owner deems necessary to obtain financing.
ESCO fees for Owner financed project shall not exceed:
8% of labor and materials for mechanical and control design
6% of labor and materials for lighting and efficient motor design
4% of labor and materials for construction management
4% of labor and materials for bonding
15% of labor and materials for overhead and profit
Monitoring phase shall not exceed:
8% of savings for annual savings guarantee and engineering services commencing
in year two.
The first year guarantee of savings in included in the ESCO's overhead and
profit.
<PAGE>
PROJECT CONDITIONS
B. SCHEDULE FOR ENERGY SERVICES PROPOSAL COMPLETION
Energy Services Proposal for the boiler project is due within 60 calendar days
after Authorization to Proceed. Energy Services Proposal for the building
portion of the project is due within 90 calendar days after Authorization to
Proceed.
C. COST EFFECTIVENESS CRITERIA
The following criteria will be used by the Owner and the ESCO to determine the
Cost Effectiveness of Energy Conservation Measures (ECM's) proposed in the
Energy Services Proposal:
1. Boilers
a) The ESCO must propose a boiler system upgrades in the ESCO's Energy Services
Proposal which will be financed by the Owner. The upgrades must have a
simple payback of five (5) years or less and may include labor and
maintenance cost savings as well as energy savings in the financial
analysis. Additional automation over and above the amount to be financed by
the Owner must meet the criteria described in 2. below.
b) The cost of the boiler system upgrades shall include the costs detailed in
2c) below.
c) Monitoring costs must be paid from Energy Cost Savings as described in
2.d) below.
2. Buildings and Grounds
a) The ESCO must propose to finance the Energy Conservation Measures in the
ESCO's Energy Services Proposal and to be compensated only from utility
grants and from Energy Cost Savings. The financing term may not exceed
ten years.
b) Labor or maintenance cost savings shall not be included in Energy Cost
Savings for the purpose of determining Cost Effectiveness.
c) The cost of the Energy Conservation Measure(s) shall include the cost of the
Detailed Energy Audit, preparation of Energy Services Proposal, design,
labor an materials, ESCO's construction management, ESCO's overhead and
profit, bonding, commissioning, permits, taxes, training, equipment
metering for monitoring and verification, and other costs which the ESCO
and Owner may agree to.
d) Any monitoring cost the ESCO may incur to ensure energy savings are being
achieved and equipment is performing must be paid from Energy Cost
Savings.
<PAGE>
PROJECT CONDITIONS
D. MWBE UTILIZATION
The ESCO was selected for this project based on a commitment to include the
involvement of certified Minority and Women Owned Business Enterprises (MWBE).
The ESCO will document efforts to encourage the participation of certified
MWBE's. The ESCO's goals for this project are based on the following
percentage of the Energy Services Proposal:
Minority Business Enterprise(s) To be determined as part of Energy
Services Proposal
Women Business Enterprise(s) To be determined as part of Energy Services
Proposal
E. INDOOR AIR QUALITY
Installation of Energy Conservation Measures shall not sacrifice acceptable
indoor air quality. ESCO shall look for evidence of poor indoor air quality as
part of the audit and design phases. Improvements shall be proposed which
ensure that minimum outside air is supplied to occupied areas in accordance
with the WASHINGTON STATE VENTILATION AND INDOOR AIR QUALITY CODE.
(Note: Washington State Department of Labor & Industries is currently
developing a WAC: INDOOR AIR QUALITY IN NON-INDUSTRIAL WORK ENVIRONMENTS.
When this proposal becomes effective, this Item will reference the new
standard.)
F. WATER CONSERVATION
Water conservation opportunities in both buildings and grounds shall be
aggressively investigated and analyzed. Water conservation opportunities will
be described in the Energy Audit Report and Cost Effective water conservation
projects will be included in the Energy Services Proposal.
G. POWER QUALITY
The establishment of a power quality baseline and the maintenance of acceptable
power quality before, during and after installation of Energy Conservation
Measures (ECM's) shall be included in the scope of the Energy Services Proposal
if sensitive equipment is served by transformers to which non-linear devices
will be added.
<PAGE>
PROJECT CONDITIONS
H. STANDARDS OF COMFORT
The Standards of Comfort for the facility are as follows:
1. Indoor Temperatures:
Occupied:
Winter Minimum - 68 degrees F
Winter maximum - 74 degrees F
Summer Minimum - 73 degrees F (where mechanical cooling systems are employed)
Summer Maximum - 74 degrees F (where mechanical cooling systems are employed)
Unoccupied:
Minimum - 40 degrees F
Maximum - 85 degrees F (where mechanical cooling systems are employed)
2. Relative Humidity: (If humidity control provided)
Minimum - 40%
Maximum - 60%
3. Minimum outside air per occupant:
In accordance with ASHRAE standards and WASHINGTON STATE VENTILATION AND INDOOR
AIR QUALITY CODE
4. Illumination Levels:
Illumination levels shall be as recommended by the Illuminating Engineer's
Society (IES) and shall be calculated using a 70% lamp depreciation/maintenance
factor.
<PAGE>
ESCO PROPOSAL
JANUARY 14, 1997
REVISED FEBRUARY 11, 1997
This proposal is submitted to the State of Washington, Department of General
Administration, Division of Engineering and Architecture (the "State") for
energy conservation measure implementation at the Northern State Multi Service
Center at Sedro Woolley, Washington. Onsite Energy Corporation ("Onsite")
having been selected by the State to provide ESCO services at the above
facility, makes the following proposal:
Onsite will proceed with the energy analysis and audit, feasibility study,
conceptual design and financial proposal for applicable energy efficiency
technologies at the Sedro Woolley Multi Service Facility. The scope of
services to be performed by Onsite will be:
1. Conduct an energy audit and analysis of the facility's lighting
systems for all of the buildings listed on attachment 1. The audit will be
presented in a spread sheet format listing the existing lighting, the
recommended improvements, the savings to be achieved, and the fixed price quote
to implement the changes.
2. Conduct an energy audit and analysis of all of the facility's 3 HP
and above motors and determine
where energy savings can be obtained by replacing the motors with variable
frequency drives, energy efficient motors, and/or down sizing the motors. The
audit will be in a spread sheet format with a listing of the existing
conditions, the recommended changes, the energy savings to be achieved, and the
fixed price quote to implement the changes.
3. Conduct an energy audit and assessment of selected buildings in the
facility, as noted on attachment 1, to determine what HVAC energy conservation
changes are recommended. The energy assessment will include a spread sheet/bin
model of the facilities, the existing conditions, recommended changes, estimated
existing energy usage, the energy savings, and the fixed price quote to
implement the changes.
4. Conduct an energy audit and assessment of the boiler operation to
determine what energy measures can be effectively implemented. The assessment
will include at least the following options:
a. Installation of a new automated boiler to operate as the
primary source of steam.
b. Installation of two new automated boilers to provide the total
source of steam for summer and winter operation.
c. Installation of a new stack on one of the 16,000 pph existing
boilers with O2 control modifications to the existing control system.
d. Installation of new O2 controls to the existing stack/breaching
system for one of the existing 16,000 pph boilers with modifications to the
existing control system.
5. Present a proposal to the State within 60 days from notice to proceed
to include a construction and funding plan with financing provided through
Onsite for those ECMs whose simple payback is seven (7) years or less. Also
included will be descriptions of the operation of the recommended changes and a
project management plan including a project schedule, identification of the
permitting requirements, the guaranteed savings, and a verification and
monitoring program.
If the proposal presented in the scope of work does not include any ECMs that
Onsite is willing to finance based on a seven year simple pay back, then the
State does not have any obligations to Onsite for the audit, analysis, and
proposal work completed by Onsite. If however, Onsite is willing to provide
financing for ECMs that have a simple payback of seven years or less and Onsite
is willing to guarantee the savings for these ECMs, then the State agrees to
enter into an agreement with Onsite to permit Onsite to proceed with the
implementation of the recommended ECMs. If the State decides not to permit
Onsite to implement the recommended ECMs, then the State agrees to compensate
Onsite $41,000 for the audit and analysis of the facility's buildings and
$11,000 for the audit and analysis of the boiler systems.
In the agreement to proceed with the implementation of the ECMs, Onsite agrees
to provide to the State copies of Onsite's insurance certificates as indicated
in the December 6, 1996 transmittal from the State to Onsite. Prior to
commencement of construction, Onsite will provide a construction performance
bond in the form requested by the state in its transmittal of December 6, 1996.
In connection with this proposal, Onsite shall provide to the State certain
confidential information regarding the business (including but not limited to
marketing, sales, financial, operating and performance information). The State
agrees to (i) hold in confidence and not disclose such confidential information
to any third party without prior written consent of Onsite: and (ii) use such
confidential information only for the purposes of deciding on the
implementation of the ECMs. Onsite will identify the material which is deemed
to be confidential and this material will be separate from the energy services
proposal.
This proposal is good until April 14, 1997.
Signed By:
ONSITE ENERGY CORPORATION
/s/ Hugh E. Schall
Hugh E. Schall, PE
Vice President
Attachment 1. List of Facility Buildings and Audits
<PAGE>
ATTACHMENT 1
BUILDINGS AUDIT COMMENTS
BUILDING Lighting Motor HVAC REMARKS
AUDIT AUDIT AUDIT
#2 Coleman Yes Yes No Tamper proof fixtures
#4 Douglas No Yes Yes New lighting installed
# 10 Recreation Bldg. Yes Yes No Hot Water Boiler Review
#12 Smith Yes Yes Note 1 Dormitory
#13 Kitchen Yes Yes No
#14 Hub Ground Floor No No No Upper floor not used
#15 Thompson Yes Yes Note 1 Dormitory
#16 Valdez Yes Yes Note 1 Dormitory
#17 Wilks Yes Yes Note 1 Dormitory
#19 Powerhouse Yes Yes Note 2 Separate boiler audit
#22 Plumbing Shop Yes Yes No
#23 Carpender Shop Yes Yes No
#24 Paint Shop Yes Yes No Clerical class rooms
#25 Planer Shop No No No Being remodeled
#26 VST Building Yes No No
#27 Commissary Yes Yes No
#28 Garage Yes Yes No
#30 Cultural Center Yes Yes No Direct gas fired heat
#31 Trades Building Yes Yes No
#32 Admin. Bldg. Yes Yes Yes
#33 Landscape Classrms Yes Yes No All electric heat
#34 Cottage #6 Security No No No All electric
#42 Apt Building A Yes No No Hot water boiler heat
#43 Apt Building B Yes No No Hot water boiler heat
#45 Cottage # 7 No No No Residential, Steam heat
#46 Cottage # 8 No No No Residential, Steam Heat
#47 RSN Building No No No Independent entity
Yard Lighting Yes No No
NOTE 1: Only one of the dormitories will be analyzed. The energy consumption
of the other buildings will be estimated based on square footage from the model.
NOTE 2:A separate analysis will be conducted of the boiler operations including
the instrument air system.
<PAGE>
STATE OF WASHINGTON
DEPARTMENT OF GENERAL ADMINISTRATION
DIVISION OF ENGINEERING AND ARCHITECTURAL SERVICES
CONDITIONS OF THE
ENERGY SERVICES AGREEMENT
<PAGE>
TABLE OF CONTENTS
SECTION TITLE
1 Definitions
2 Energy Services Proposal
3 Installation and Operation of ESCO Equipment
4 Energy Baseline Modifications
5 Payment for ESCO Equipment and Services
6 Agreement Term
7 Equipment Maintenance and Owner Training
8 Equipment Operation
9 Assignment of Contract
10 Prevailing Wages
11 Equipment Insurance
12 Liability Insurance
13 Bonding
14 Indemnification
15 Events of Default
16 Termination for Convenience of Owner
17 Mediation and Arbitration
18 Choice of Law
19 Representations and Warranties
20 Agreement Subject to Legislative Appropriation
ATTACHMENT: BOND FORM
<PAGE>
SECTION 1
DEFINITIONS
A. Addendum" means a written modification to the Energy Services Agreement,
authorized and signed by the Owner, ESCO and the Facility. The purpose
of the Addendum shall be the incorporation of the ESCO's Energy Services
Proposal(s) and other modifications to the Energy Services Agreement that
are agreed to by all parties.
B. "Baseline Energy Consumption" for any Billing Period means the Energy
Consumption that would have been incurred by the Facility but for the
ESCO Services and ESCO Equipment, as calculated by utilizing the data,
methodology and variables set forth in the Energy Services Proposal.
C. "Billing Period" means the time period as set forth in the Energy
Services Proposal (e.g. month, quarter, year) which will be used to
calculate Energy Savings for the Facility.
D. "Construction Cost" means the actual cost of purchasing and installing
the ESCO Equipment as demonstrated by the installation price quotes or
construction contracts.
E. "Cost Effective" ESCO Equipment, ESCO Services, and Energy Conservation
Measures(ECMs) means Equipment, Services, and ECMs that meet the economic
criteria described in Project Conditions.
F. "Detailed Energy Audit" means the Facility energy analysis conducted by
the ESCO to identify Cost Effective ECMs and to facilitate preparation of
the Energy Services Proposal.
G. "Energy Services Agreement" means the signed Agreement, Project
Conditions and authorized Addenda.
H. "Energy Services Proposal" means the energy conservation report and
financial proposal required by Section 2 of these Conditions. The
negotiated Energy Services Proposal(s) will be incorporated into the
Energy Services Agreement by execution of Addenda.
I. "ESCO Equipment" means the equipment installed or caused to be installed
by the ESCO, as set forth in the Energy Services Proposal.
J. "ESCO Service" means all the services to be provided by the ESCO, as set
forth in the Energy Services Proposal.
K. "Energy Audit Documentation" means an appendix to the Energy Services
Proposal describing the findings of the Detailed Energy Audit. The
appendix will provide detailed documentation of field work for the
Detailed Energy Audit, calculation input and output in support of the
recommendations made in the Energy Services Proposal, economic and
engineering assumptions, sketches, floor plans and any other information
developed in the course of the Audit.
L. "Energy Consumption" means the amount of electrical energy and demand,
natural gas, oil, propane, or other fuel, consumed in the Facility in any
Billing Period, as calculated by utilizing the data, methodology and
variables set forth in the Energy Services Proposal. Energy consumption
may also include other utilities such as water and sewer.
M. "Energy Conservation Measure (ECM)" means an installation or modification
of an installation in a facility which is primarily intended to reduce
Energy Consumption or to allow use of an alternative energy source and
includes ESCO Equipment.
N. "Energy Cost Savings" means savings in units of consumption (e.g. kWH, kW
demand, therms, gallons) in a Billing Period times the cost per unit of
consumption for the Billing Period, as set forth in the Energy Services
Proposal.
<PAGE>
O. "Energy Equipment" means equipment or structural components that
influence Energy Consumption in the Facility.
P. "Energy Savings" means, for each form of energy for each Billing Period,
the difference between the Baseline Energy Consumption for that Billing
Period and the Energy Consumption actually incurred in that Billing
Period as set forth in the Energy Services Proposal.
Q. "Existing Equipment and Operating Conditions" means the Energy Equipment
and operating conditions that are identified in the Energy Services
Proposal as existing at the time of the Energy Services Proposal.
R. "Facility" means the building(s) or facility(s) included in the Energy
Services Agreement and described in the Energy Services Proposal.
S. "Funding Source" means the private or public entity, other than the ESCO,
providing funding for the project. Funding Sources may include
utilities, federal agencies, state agencies, or local entities. The
Funding Sources may provide funding in the form of budgeted funds,
grants, loans, and/or long-term incentive payments.
T. "Maximum Allowable Project Cost" means the guaranteed not-to-exceed cost
of purchasing and installing the ESCO Equipment, as set forth in the
Energy Services Proposal, including, but not limited to, the cost of
preparing the Energy Services Proposal and associated engineering and
construction management costs.
U. "Notice of Commencement of Energy Cost Savings" means written notice from
the ESCO to the Owner that the ESCO has substantially completed
installation of ESCO Equipment and/or that it has provided ESCO Services
and that such equipment or services are now providing Energy Savings
sufficient for the Owner to begin making payments as set forth in the
Energy Services Proposal.
V. "Project Conditions" means those Facility specific conditions or
constraints described in the Energy Services Agreement, including the
Cost Effectiveness criteria; the agreed upon ESCO fee for the Energy
Services Proposal; the Schedule of Performance; and, other conditions
included in the Energy Services Agreement.
W. "Termination Value" means the amount that the Owner may pay to the ESCO
in any year to terminate the Energy Services Agreement, as set forth in
the Energy Services Proposal.
X. "Payback" means the cost of the project including audit, design,
construction and management costs divided by the annual Energy Cost
Savings. The project cost is not offset by any utility contribution for
the purposes of this calculation.
SECTION 2
ENERGY SERVICES PROPOSAL
A. ESCO shall undertake a Detailed Energy Audit of the Facility at its sole
expense. The Energy Audit shall identify all cost effective Energy
Conservation Measures as specified in the Project Conditions. ESCO shall
present to the Owner a written Energy Services Proposal, including the
Energy Audit Documentation, within the time specified in the Project
Conditions and commencing on the date of the Authorization to Proceed.
The Energy Services Proposal shall set forth at least the following:
1. A description of the Facility and a description of those buildings and
systems which shall receive ESCO Equipment and ESCO Services;
2. The Cost Effective ECMs to be installed or caused to be installed by the
ESCO and a description of the ECM's analyzed but disqualified under the
cost effectiveness criteria.
<PAGE>
3. The services that the ESCO will perform or cause to be performed on or in
the Facility, including but not limited to engineering, construction
management, the operations and maintenance procedures for use on ESCO
Equipment, training for Facility personnel, providing warranty service,
and equipment maintenance;
4. The Maximum Allowable Project Cost, itemized in detail, which may be
amended to represent actual costs;
5. Recommendations for replacement of Existing Equipment, along with
recommendations for improvements to Existing Equipment and Operating
Conditions;
6. The standards of comfort and service appropriate for the Facility;
7. The Baseline Energy Consumption for the Facility, including the data,
methodology and variables used to compute the Baseline, and the Baseline
calendar period which shall not be less than twelve (12) months;
8. The estimated Energy Savings and Energy Cost Savings that are expected to
result from the installation of the ESCO Equipment and from the ESCO
Service, and an explanation of the method used to make the estimate;
9. The method by which Energy Savings and Energy Cost Savings will be
calculated during the term of the Energy Services Agreement;
10. A description of how the ESCO will finance its acquisition of the ESCO
Equipment and when title to the ESCO Equipment will pass to the Owner;
11. A description of how the Energy Cost Savings will be guaranteed by the
ESCO;
12. A description of how the ESCO proposes to be compensated;
13. The term of the Energy Services Agreement;
14. The Termination Value for each year during the term of the Energy
Services Agreement;
15. The schedule for project completion;
16. The nature and extent of the work and equipment that the ESCO anticipates
it will receive from other firms under subcontract.
B. The parties intend for the ESCO to be compensated for the Energy Services
Proposal out of Energy Cost Savings and utility company payments, as
provided under Section 5, if the parties can agree on the content and
form of the Energy Services Proposal. Agreement on the content and form
of the Energy Services Proposal will be evidenced by executing an
Addendum to the Energy Services Agreement.
C. Notwithstanding paragraph B. of this section, the Energy Services
Agreement shall terminate and there will be no compensation for the
Energy Services Proposal unless the ESCO proposes in the Energy Services
Proposal to:
1. Finance and install, or cause to be installed, Cost Effective ECMs; and,
2. Be compensated only out of Energy Cost Savings and utility payments
during the term of the Energy Services Agreement; and,
<PAGE>
3. Provide ESCO Equipment and ESCO Services which maintain standards of
comfort and service acceptable to the Owner.
D. If the ESCO meets the conditions of paragraph C. of this section and the
Owner requests changes to the Energy Services Proposal, the parties shall
in good faith negotiate the requested changes and shall modify the Energy
Services Proposal accordingly. If the parties cannot agree on a modified
Energy Services Proposal within one hundred twenty (120) days after the
Owner's receipt of the Energy Services Proposal, the Energy Services
Agreement shall be deemed terminated, and the Owner shall pay to the ESCO
not more than the amount specified in the Project Conditions, as
compensation for the preparation of the Energy Services Proposal. Such
payment shall entitle the Owner to utilize the Energy Services Proposal
for its benefit after termination of the Energy Services Agreement.
E. If the ESCO fails to conduct a Detailed Energy Audit or fails to present
to the Owner a written Energy Services Proposal within the time specified
in the Project Conditions or if such Proposal does not include Cost
Effective ESCO Services and ECMs, the Energy Services Agreement may be
terminated by the Owner. The ESCO shall pay to the Owner an amount
specified in the Project Conditions and there will be no compensation to
the ESCO.
F. To enable the ESCO to prepare the Energy Services Proposal, the Owner
will provide:
1. Access to the Facility for the ESCO's staff;
2. The Facility's energy bills for the two year period immediately preceding
the execution of the Energy Services Agreement;
3. Data on the Facility's variables, such as occupancy rate, which may
affect the Facility's Energy Consumption;
4. Any energy audits that have been conducted within the last five
years;
5. A description of the energy management practices presently in use at
the Facility; and,
6. A description of future plans for the Facility including planned
remodels, additions, demolition and other major Facility changes.
G. Following the submission of the Energy Services Proposal, the Owner and
the ESCO shall meet to decide how subcontractors, if any, will be
selected. For all subcontractors, final selection and price will be
subject to the Owner's approval before a contract is awarded, which
approval shall not be unreasonably withheld.
H. It is the intent of the parties to hold periodic meetings between the
ESCO and the Owner to review the ESCO's progress under the Energy
Services Agreement, to agree on any re-direction, to coordinate any
outside work with the schedule of the Facility, and to generally maintain
quality control. Owner will designate one overall project manager and
one employee located at the facility to coordinate ESCO's activities
under the Energy Services Agreement. Owner will designate the areas of
authority of each. ESCO shall be entitled to rely upon statements or
decisions made by such persons for all purposes under the Energy Services
Agreement.
I. Design review meetings shall be held at the Design Development (DD, 50%
complete) and Construction Documents (CD, ready for bid) stages. ESCO
shall provide two (2) complete sets of documents for Owner review at the
DD and CD phases. A fourteen (14) calendar day review period shall be
allowed at the DD and CD phases for ESCO quality control and to receive
Owner's comments. An additional seven (7) calendar days (beyond the
review period) shall be allowed for incorporation of Owner comments.
<PAGE>
SECTION 3
INSTALLATION AND OPERATION OF ESCO EQUIPMENT
A. Within the period provided for completion and within the Maximum
Allowable Project Cost as set forth in the Energy Services Proposal, the
ESCO shall:
1. Implement the ESCO Services; and
2. Acquire and install the ESCO equipment, or cause the ESCO equipment to
be installed.
B. If, after the date the Energy Services Proposal becomes a part of the
Energy Services Agreement, the ESCO desires to add to the ESCO Services
or the ESCO Equipment a component that is not identified in the initial
Energy Services Proposal, the ESCO shall identify that component in a
supplement to the Energy Services Proposal, which upon the written
agreement of the Owner shall be added to the Energy Services Proposal as
an Addendum to the Energy Services Agreement.
C. Once a piece of ESCO Equipment is installed at the Facility, the Owner
may not thereafter refuse to allow the ESCO Equipment to operate unless
there is an emergency or the ESCO commits an event of default under
Section 15.
D. The Owner will allow the ESCO to have access to the Facility in order to
provide ESCO Services, to review Owner's operating methods and
procedures, and to monitor the ongoing duties and obligations of Owner
and ESCO under the Energy Services Agreement. In the event that title to
the ESCO Equipment remains with the ESCO during the term of the Energy
Services Agreement, the Owner will provide mutually satisfactory rent
free space for the ESCO Equipment.
SECTION 4
ENERGY BASELINE MODIFICATIONS
A. The Baseline Energy Consumption data, methodology and variables set forth
in the Energy Services Proposal may be modified if the Energy Consumption
of the Facility changes due to:
1. A change in the operating hours of the Facility;
2. A change in the occupancy of the Facility;
3. Building additions, remodels or closures;
4. A change in the Facility's Energy Equipment or operating parameters
other than the ESCO Equipment;
5. Energy Equipment other than ESCO Equipment malfunctions, or is
repaired or replaced in a way that increases or decreases Energy
Consumption;
6. Other actions taken by the Owner that may reduce or increase Facility
energy use; or,
7. An error in the original Baseline is discovered. If such an error is
discovered, the change shall be retroactive.
B. The Owner will notify the ESCO of any change in the Facility's Existing
Equipment or Operating Conditions that may reasonably be expected to
cause the Facility's annual Energy Consumption to change, within fifteen
(15) days of the time that the change becomes known to the Owner, with
confirmation in writing to the ESCO within thirty (30) days.
<PAGE>
C. Baseline Energy Consumption modifications will be accomplished through
negotiation between the Owner and the ESCO. Each party shall bear its
own costs in these negotiations. If the parties cannot agree, the
parties shall follow the procedures described in Section 17, Mediation
and Arbitration.
SECTION 5
PAYMENT FOR ESCO EQUIPMENT AND SERVICES
The Owner may use any combination of the following payment options to discharge
its obligations under the Energy Services Agreement.
A. In the event that ESCO finances or causes the project to be financed, in
whole or in part, ESCO may be paid using Energy Cost Savings as follows:
1. Payment to ESCO will begin after ESCO delivers, and Owner accepts, in
writing, the Notice of Commencement of Energy Cost Savings. The Notice
shall be written notification to the Owner that the ESCO has
substantially completed installation of ESCO Equipment and/or that it has
provided ESCO Services and that such Equipment or Services are now
providing Energy Savings sufficient for the Owner to begin making
payments as set forth in the ESCO's Energy Services Proposal.
2. The Owner will instruct each of its energy suppliers to provide the ESCO
with the Facility's energy bills or will otherwise provide the ESCO with
the energy bills within fourteen (14) calendar days of the date the bills
are received by the Owner.
3. The ESCO shall calculate the Energy Savings and Energy Cost Savings for
each form of energy in accordance with the compensation arrangement set
forth in the Energy Services Proposal.
4. At any point the Owner may challenge the Energy Savings or Energy Cost
Savings calculations made by the ESCO. If the parties cannot agree, the
parties shall attempt mediation. If the parties still cannot agree, the
parties shall follow the procedures described in Section 17, Mediation
and Arbitration.
5. Within thirty (30) days after each anniversary of the date the Owner
begins making payments to the ESCO, ESCO shall effect an annual
reconciliation of Energy Cost Savings achieved in the Facility during the
previous year. The annual reconciliation of Energy Cost Savings,
including the data and methodology used to calculate the savings, shall
be documented in a written report and provided to the Owner not more than
thirty (30) days after the ESCO received the Facility's last monthly
energy bill for the twelve (12) month period being reported.
In the event that the actual savings are less than the amount guaranteed
by the ESCO as stated in the ESCO's Energy Services Proposal, ESCO shall
pay Owner the difference between the guaranteed amount and the actual
amount within thirty (30) days of submittal of the ESCO's annual
reconciliation report.
6. The payments to ESCO under the Energy Services Agreement are due and
payable within thirty (30) days of the date the Owner receives the
invoice.
B. In the event that all or a portion of the payments to the ESCO are
dependent on grants, loans and/or incentives from utilities or other
Funding Sources, ESCO may be paid using the grant, loan and/or incentive
payments from these Funding Sources as follows:
<PAGE>
1. Payments to ESCO will begin after ESCO delivers, and Owner and
Funding Source accepts, in writing, the Notice of Commencement of
Energy Cost Savings. The Notice shall be the written notification
to the Owner and the Funding Source that the ESCO has substantially
completed the installation of ESCO Equipment and/or that it has
provided ESCO Services and that such Equipment or Services are now
providing Energy Savings sufficient for the Funding Source to begin
making payments.
2. The portion of the payments to the ESCO that are dependent on these
Funding Sources shall be due and payable within thirty (30) days of the
date Owner receives the grant, loan and/or incentive funds.
3. Construction progress payments may be made in accordance with the terms
of the Funding Source. In no event, however, will progress payments
exceed 95% of the total in place construction.
4. Owner will retain 5% of the amount of each progress payment until
forty-five (45) days after the acceptance of the final Notice of
Commencement of Energy Cost Savings and receipt of all documents required
by law or the Energy Services Agreement.
C. In the event that ongoing monitoring services are required to provide the
Energy Savings Guarantee, ESCO may be paid using Energy Cost Savings in
accordance with the provision of paragraph A. 1. through A. 6.
SECTION 6
AGREEMENT TERM
The Energy Services Agreement shall run consecutively from the date of the
Authorization to Proceed, and shall terminate as defined in the Energy Services
Proposal unless the Energy Services Agreement is terminated sooner under
Sections 2.C., 2.D., 2.E., 15, 16, or unless the Owner chooses to terminate the
Agreement sooner by paying the ESCO the Termination Value upon ninety (90) days
prior written notice.
SECTION 7
EQUIPMENT MAINTENANCE AND OWNER TRAINING
A. The ESCO shall provide the maintenance and training services set forth in
the Energy Services Proposal.
B. If Energy Equipment other than ESCO Equipment breaks down, the Owner will
be responsible for arranging and paying for its repair or replacement.
The ESCO shall have the right to inspect the repaired or replaced Energy
Equipment.
SECTION 8
EQUIPMENT OPERATION
The ESCO shall at all times attempt to attain the maximum Energy Savings from
the Facility's Energy Equipment. However, the ESCO shall, under no
circumstances, operate and maintain any Energy Equipment in a manner that
reduces the Facility's standards of comfort, health and safety.
<PAGE>
SECTION 9
ASSIGNMENT OF CONTRACT
The ESCO may not assign or transfer its rights and obligations stated herein
without the prior written consent of the Owner. The ESCO may not assign or
sell any financing contracts used to fund the ESCO Energy Equipment and/or ESCO
Services without the prior written consent of the Owner.
SECTION 10
PREVAILING WAGES
The ESCO, its subcontractors and agents shall pay wages to all employees
performing work under the Energy Services Agreement which shall not be less
than the prevailing wages for such work as set forth by the Washington State
Department of Labor and Industries for the county in which the work is
performed. The ESCO, its subcontractors and agents shall be solely responsible
for determining wage classifications and shall pay all penalties for violations
thereof.
SECTION 11
EQUIPMENT INSURANCE
Owner represents and warrants that in state-owned facilities it is self-insured
and assumes the risk of loss, theft or damage to the ESCO Equipment, whether or
not covered by insurance and no such loss, theft or damage shall relieve the
Owner of its obligations hereunder. In the event of loss, theft or damage to
the ESCO Equipment or other acts which may render the ESCO Equipment
unserviceable, the Owner shall promptly notify ESCO and shall place such ESCO
Equipment in good condition or working order or replace such ESCO Equipment
with like equipment in good condition and working order and furnish ESCO with
necessary documents to provide ESCO with title or security interest in such
equipment. This Owner obligation shall not apply to liability, losses, claims
and damages caused or created by ESCO, its agents, officers, employees, or
subcontractors.
SECTION 12
LIABILITY INSURANCE
A. Prior to commencement of any construction, the ESCO shall obtain all the
insurance required by this section. Further, the ESCO shall not allow
any subcontractor to commence work on a matter related to the Energy
Services Agreement until the subcontractor has obtained similar
insurance. Companies and agents writing the insurance required under
this section shall be licensed to do business under Chapter 48 RCW or
comply with the Surplus Lines Law of the State of Washington. Insurance
carriers providing insurance shall be rated "A + VII" or better by A.M.
Best and ratings shall be indicated on the insurance certificates.
B. ESCO shall maintain the following insurance coverage during the work and
for a period of one year after the Owner accepts the work.
1. General liability on the ISO 1986 New Occurrence Form, or its
equivalent, which shall include:
a. Completed operations / products liability;
b. Explosion, collapse, and underground; and
c. Employer's liability coverage.
2. Automobile liability.
C. The ESCO shall comply with the Washington State Industrial Insurance Act,
and, if applicable, the Federal Longshoremen's and Harbor Worker's Act,
and the Jones Act.
<PAGE>
D. All insurance coverages shall protect against claims for damages for
personal and bodily injury or death, as well as claims for property
damage, which may arise from operations in connection with the work
whether such operations are by ESCO or any ESCO subcontractor.
E. All insurance coverages shall be endorsed to include the Owner as an
additional named insured.
F. The coverage limits shall be as follows:
1. Limits of Liability shall not be less than $1,000,000 Combined Single
Limit for Bodily Injury and Property Damage (other than Automobile
liability) Each Occurrence; Personal Injury and Advertising Liability
Each Occurrence.
2. $2,000,000 Combined Single Limit Annual General Aggregate.
3. $2,000,000 Annual Aggregate for Products and Completed Operations
Liability.
4. $1,000,000 Combined Single Limit for Automobile Bodily Injury and
Property Damage Liability, Each Accident or Loss.
G. All insurance certificates shall specifically require forty-five (45)
days prior written notice to Owner of cancellation or any material
change, except thirty (30) days for Surplus Lines insurance.
SECTION 13
BONDING
The ESCO shall provide a payment and performance bond in the amount of 100% of
the construction cost, as defined in the Energy Services Agreement Addendum.
The amount shall include all authorized changes and state sales tax. The Bond
shall be in the form attached to these "Conditions." The Contract listed on
the bond form shall be the Addendum No. and Agreement No. which incorporates
the work and the "Contract Date" shall be the date of the Addendum. The full
and just sum of the Bond shall be as defined in the Energy Services Agreement
Addendum and shall include the actual cost of purchasing and installing the
ESCO Equipment, job superintendent and state sales tax. The Bond shall
specifically exclude coverage for those portions of the Energy Services
Agreement and/or Energy Services Agreement Addendum pertaining to design
services, energy cost savings guarantee, maintenance guarantee, utility
incentives, efficiency guarantees, and any other clauses which do not relate
specifically to construction management and supervision of work for purchasing
and installing of ESCO Equipment, or for work to be accomplished by the Owner.
The Bond shall be with a Surety or Bonding Company that is registered with the
State of Washington Insurance Commissioner's Office.
SECTION 14
INDEMNIFICATION
A. The ESCO shall indemnify, defend and hold the Owner harmless from any and
all claims, actions, costs, expenses, damages and liabilities, including
attorney's fees, arising out of, connected with or resulting from
negligence or misconduct of the ESCO, agents, officers, employees, or
subcontractors in connection with its activities within the scope of the
Energy Services Agreement. The duty to indemnify will continue in full
force and effect notwithstanding the expiration or early termination of
the Energy Services Agreement with respect to any claims based on facts
or conditions which occurred prior to the termination.
B. If the claims, actions, costs, expenses, damage or liabilities, as
provided in paragraph A. of this section, are caused by or result from
the concurrent negligence of the Owner or its agents or employees, and
the ESCO, its agents, officers, employees, or subcontractors; the
indemnity provisions provided in paragraph A. shall be valid and
enforceable only to the extent of the ESCO's negligence.
<PAGE>
C. The ESCO shall further hold harmless the Owner from all fees, taxes, and
assessments which may be levied upon or with respect to the ESCO
Equipment installed under the Energy Services Agreement, and shall hold
the Owner harmless from any other charges which may be imposed or
incurred by any public or private authority with respect to the ESCO or
its operation.
SECTION 15
EVENTS OF DEFAULT
A. Each of the following events or conditions shall constitute an "Event of
Default" by the Owner:
1. Any failure by the Owner to pay the ESCO compensation as required by
Section 5 within a period of ninety (90) days after the Owner receives
the invoice;
2. Any intentionally false or misleading material representation or warranty
furnished by the Owner in connection with the Energy Services Proposal or
the Energy Services Agreement;
3. The Baseline Energy Consumption is reduced, through changes in the
Existing Equipment or Operating Conditions, such that energy savings as
guaranteed by ESCO cannot be produced and Owner fails to pay the ESCO as
set forth in the Energy Services Proposal; or
4. Any material failure by the Owner to comply with the terms and conditions
of the Energy Services Agreement, including breach of any covenant
contained herein, providing that such failure continues for thirty (30)
days after notice to the Owner requesting that such failure to perform be
remedied, or if a remedy cannot be effected in such thirty (30) days,
with a good faith effort by the Owner to perform in that period and
diligent subsequent performance.
B. Each of the following events or conditions shall constitute an "Event of
Default" by the ESCO;
1. The ESCO fails to propose to finance Cost Effective ECMs;
2. The ESCO fails to provide an energy cost savings guarantee in the
Energy Services Proposal;
3. The ESCO fails to submit an Energy Services Proposal within the time
specified in the project conditions or fails to install the ESCO
Equipment or provide the ESCO services within the schedule for project
completion specified in the Energy Services Proposal;
4. The ESCO fails to produce the guaranteed energy savings and fails to pay
the Owner the guarantee payment as set forth in the Energy Services
Proposal, in any consecutive twelve (12) month period during the term of
the Energy Services Agreement.
5. The standards of comfort and service set forth in the Energy Services
Agreement are not provided due to failure of the ESCO to maintain,
repair, or adjust the ESCO Equipment, or failure to provide other ESCO
Services as described in the Energy Services Proposal and said failure
continues for thirty (30) days after written notice to the ESCO without
good faith efforts by ESCO to make the necessary repairs or adjustments.
6. Any intentionally false or misleading material representation or warranty
furnished by the ESCO in connection with the Energy Services Proposal or
the Energy Services Agreement;
7. Any material failure by the ESCO to comply with the terms and conditions
of the Energy Services Agreement, including breach of any covenant
contained herein, providing that such failure continues for thirty (30)
days after notice to the ESCO requesting that such failure to perform be
remedied, or if a remedy cannot be effected in such thirty days, with a
good faith effort of the ESCO to perform in that period and diligent
subsequent performance.
<PAGE>
C. Upon the occurrence of an event of default by the Owner, ESCO may
exercise all remedies at law or at equity or other appropriate
proceedings for recovery of amounts due and owing and unpaid by the Owner
for damages and/or for specific performance; and if the Energy Services
Proposal provides that ESCO shall retain title to the ESCO Equipment
during the term of the Energy Services Agreement, without recourse to
legal process, terminate the Energy Services Agreement by delivery of a
notice declaring termination and remove the ESCO Equipment.
D. In the event of default by the ESCO, the Owner may exercise all remedies
available at law or at equity including bringing action for recovery of
amounts due to the Owner for damages and/or specific performance. Also,
the Owner may exercise its option to terminate the contract by paying the
Termination Value to the ESCO, without the otherwise required ninety (90)
day notice. Further, if the Energy Services Proposal provides that ESCO
shall retain title to the ESCO Equipment during the term of the Energy
Services Agreement, the Owner may, without recourse to the legal process,
terminate the Energy Services Agreement by delivery of notice declaring
termination, whereupon the ESCO shall remove the ESCO Equipment and
reconnect and restore the Owner's original equipment or equivalent to the
condition which existed prior to the inception of the Energy Services
Agreement, normal wear and tear excepted.
E. In the event of default by the Owner, the Owner shall be liable to the
ESCO, as liquidated damages in lieu of all other claims for damages, the
Termination Value as set forth in the Energy Services Proposal.
F. In the event of default by the ESCO, in addition to other damages, the
ESCO shall be liable to the Owner for energy savings that would have
occurred over the term of the Energy Services Agreement, but for default,
which shall be determined based on the estimated Energy Cost Savings
described in the Energy Services Proposal.
SECTION 16
TERMINATION FOR CONVENIENCE OF OWNER
A. The Owner may, upon written notice, terminate (without prejudice to any
right or remedy of Owner) the Energy Services Agreement.
B. Unless Owner directs otherwise, after receipt of a written notice of
termination, ESCO shall promptly:
1. Stop performing work on the date and as specified in the notice of
termination;
2. Place no further orders or subcontracts for materials, equipment,
services, or facilities;
3. Cancel all orders or subcontracts, upon terms acceptable to Owner, to the
extent they relate to the performance of work terminated;
4. Assign to Owner all of the right, title, and interest of ESCO in all
orders and subcontracts;
5. Take such action as may be necessary or as directed by Owner to preserve
and protect the work, project site, and any other property related to
this project in which the Owner has an interest; and
6. Continue performance only to the extent not terminated.
C. If Owner terminates the work or any portion thereof for convenience, ESCO
shall be entitled to make a request for an equitable adjustment for its
reasonable direct costs incurred prior to the effective date of
termination, plus a reasonable allowance for overhead and profit on work
performed prior to termination, plus the reasonable administrative costs
of the termination, but shall not be entitled to any other costs or
damages, whatsoever, provided however, the total sum payable upon
termination shall not exceed the Energy Services Agreement value reduced
by prior payments.
<PAGE>
SECTION 17
MEDIATION AND ARBITRATION
The ESCO and Owner shall attempt to settle through mediation any controversy or
claim arising out of or in relation to the Energy Services Agreement or the
refusal to perform the whole or part thereof. Negotiation or mediation shall
be conducted under the Voluntary Construction Mediation Rules of the American
Arbitration Association. If mediation fails to settle the controversy or
claim, it shall be settled by arbitration in accordance with the Construction
Industry Arbitration Rules of the American Arbitration Association. If the
parties cannot agree on an arbitrator, he or she shall be chosen by the
Presiding Judge of the Thurston County Superior Court. Judgment upon the award
rendered by the arbitrator may be entered in the courts of the State of
Washington or in any other court having jurisdiction thereof. The prevailing
party at arbitration shall be entitled to reasonable attorney's fees and costs,
as well as other reasonable costs that are incurred as a result of the
controversy or claim.
SECTION 18
CHOICE OF LAW
The Energy Services Agreement shall be interpreted, construed and enforced in
all respects in accordance with the laws of the State of Washington. In case of
any lawsuit, venue will be in Thurston County.
SECTION 19
REPRESENTATIONS AND WARRANTIES
Each Party warrants and represents to the other that:
A. It has all requisite power, authority, licenses, permits, and franchises,
corporate or otherwise, necessary to execute and deliver the Energy
Services Agreement and to perform its obligations;
B. Its execution, delivery and performance of the Energy Services Agreement
has been duly authorized by, and is in accordance with, its organic
instruments, and the Energy Services Agreement has been duly executed and
delivered for it by the signatories and constitutes its legal, valid and
binding obligation;
C. Its execution, delivery and performance of the Energy Services Agreement
will not result in a breach of or violation of or constitute a default
under any agreement, lease or instrument to which it is a party or by
which it or its properties may be bound to be affected; and
D. It has received no notice nor, to the best of its knowledge, is there
pending or threatened any notice, decree, award, permit or order which
would materially adversely affect its ability to perform hereunder.
SECTION 20
AGREEMENT SUBJECT TO LEGISLATIVE APPROPRIATION
A. The Owner's obligation to pay any amounts due under the Energy Services
Agreement or to perform any covenants requiring or resulting in
expenditure of money are contingent and expressly limited to the extent
of legislative appropriations made to fund the Facility and its
obligations. Nothing contained in any other Section of the Energy
Services Agreement shall be construed as creating any monetary obligation
on the part of the Owner beyond such current and specific legislative
appropriations.
<PAGE>
B. In the event that the Legislature fails to appropriate the funds
necessary to continue the Energy Services Agreement, the Energy Services
Agreement shall be terminated as to the end of the last fiscal year for
which such appropriation is available. In such event, all obligations of
the Owner will cease so long as all payments previously approved or
appropriated have been paid, and all interest of the Owner in the ESCO
Equipment will terminate and the Energy Services Agreement shall be
terminated.
C. Notwithstanding the foregoing, the Owner agrees not to terminate the
Energy Services Agreement under this provision for the fiscal year in
which the Energy Services Agreement is executed. If any future funds are
appropriated in order to continue the operation of the Facility, the
Owner will use its best efforts to obtain inclusion of Energy Service
Agreement funds in its budget.
<PAGE>
Bond No. _______________
______________________________________
Bonding Company's Name
______________________________________
Address
______________________________________
City State
KNOW ALL MEN BY THESE PRESENTS:
That we, _________________________________________________________
As Principal and ________________________________________________________, a
corporation, organized and existing under and by virtue of the laws of the
State of _________________________ and legally doing business in the State of
Washington as Surety, are held and firmly bound and obligated unto the State of
Washington, in the full and just sum of _______________________________________
___________________ Dollars, lawful money of the United States, for the payment
of which sum well and truly to be made, we do bind ourselves, our and each of
our heirs, executors and administrators, successors and assigns, jointly and
severally, firmly by these presents.
This bond is executed in pursuance of Chapter 39.08, Revised Code of
Washington.
THE CONDITIONS OF THIS OBLIGATION ARE SUCH, That whereas the principal
entered into a certain contract with __________________________________________
_______________________________________________________________________________
dated _____________ day of ____________________, 19________,
for __________________________________________________________________________
______________________________________________________________________________
<PAGE>
Bond No. _______________
NOW, THEREFORE, if the Principal shall faithfully perform all the provisions of
such contract with specifically relate to equipment installation and related
construction and pay all laborers, mechanics and subcontractors and
materialmen, and all persons who shall supply such person or persons, or
subcontractors, with materials, provisions, and supplies for the carrying on of
such work, then this obligation is void, otherwise to remain in full force and
effect.
This bond excludes coverage for those portions of the Energy Services
Agreement and/or Energy Agreement Addendum pertaining to design services,
energy cost savings guarantee, maintenance guarantee, utility incentives,
efficiency guarantees, and other clauses which do not relate specifically to
construction management and supervision of work for purchasing and installing
of ESCO equipment.
Provided, however, that the conditions of this obligation shall not apply
to any money loaned or advanced to the principal or to any subcontractor other
person in the performance of any such work.
Signed and Sealed this ________________ day of ________________, 19_____.
Countersigned:
__________________________________
__________________________________
_____________________________________ (Seal)
__________________________________________
Principal
_____________________________________ (Seal)
Surety
By________________________________________
Attorney-in-Fact
Approved as to Form
__________________________________
Assistant Attorney General
__________________________________
<PAGE>
ENERGY SERVICES AGREEMENT AMENDMENT
Energy Conservation Services Amendment No. 1
Project No. 97-031 Agreement No. 97-031 A
Northern State Multi Service Center Date July 14, 1997
Sedro Wooley, Washington
THIS AMENDMENT, WHEN PROPERLY SIGNED, SHALL BE THE BASIS ON WHICH THE SUBJECT
AGREEMENT SHALL BE MODIFIED.
AUTHORIZATION (THIS SHEET)
PROJECT COMPLETION AND COMPENSATION
SCOPE OF WORK OPTIONS
OPTION #2: INCORPORATE ENERGY SERVICES PROPOSAL
OPTION #4: ADD OR MODIFY EXTRA SERVICES
APPROVALS: Energy Services Company Facility
Firm/Agency: Onsite Energy Corporation Northern State Multi-Service Center
Address: 16400 Southcenter Parkway, Div. of Property Development
No. 308 230 General Administration Bldg.
Tukwila, Washington 98188 Olympia, WA 98504-1015
By: /s/ Hugh E. Schall /s/ Tim Arnold
Name:
Title:
Date:
Authorization to Proceed
Dept. of General Administration By: /s/ R. G. Anderson
Engineering & Architectural Services Name: Raymond G. Anderson, P.E.
PO Box 41012 Title: Energy Program Manager
Olympia WA 98504-1012 Date:
360-902-7272
<PAGE>
PROJECT COMPLETION AND COMPENSATION
<TABLE>
<CAPTION>
Energy service completion sched fee Compensation
Compensation
<S> <C> <C> <C> <C> <C>
new previous new previous
Energy Services Proposal (Boiler) $0.00/sq ft $ 11,000.00
Energy Services Proposal (Energy) $ 41,000.00
Design 8% $ 28,160.00
Construction Management 4% $ 14,080.00
Bond 4% $ 14,080.00
General Contracting Overhead & 15% $ 52,800.00
Profit
MACC or Actual Construction Sub's cost + ohp = ins $352,000.00
Costs
Construction Contingency $ 23,300.00
State Sales Tax 7.8% $ 38,643.00
Energy Service Sub-total= $523,063.00 $ 52,000.00
Maximum Energy Service Fee Amount (New + Previous) = A = $575,063.00
</TABLE>
Compensation
New Previous
Extra Service Boiler/Asbestos Removal Engineering $3,000.00 $-0-
Extra Service (describe)
Extra Services Total (New + Previous) = B =
Energy Services Agreement Total = A + B = $575,063.00 + $3,000.00 + $578,063.00
Total Compensation for the Energy Services:
Compensation:
New Previous
1. Boiler Plant Automation = $534,063.00 $11,000.00
2. Buildings on List = $ 41,000.00 $41,000.00
3. Extra Services = $ 3,000.00 $ -0-
1 + 2 + 3 = (A) Maximum Energy Service
Fee Amount $578,063.00 $52,000.00
Value of this Amendment = $526,063.00
<PAGE>
SCOPE OF WORK
OPTION #2: INCORPORATE ENERGY SERVICES PROPOSAL
A. In accordance with Section 2.D of the Conditions of the Agreement, the
Energy Services Proposal submitted under Project number 97-031 by ONSITE
ENERGY CORPORATION and dated June 12, 1997 is hereby incorporated into
Energy Services Agreement number 97-031 A and is made part thereof by
this reference.
B. The following modifications are made to the Energy Services Proposal:
Washington State Sales Tax changed to 7.8%.
Annual Steamplant Cost Savings changed to $124,689.00
OPTION #4: ADD OR MODIFY EXTRA SERVICES
Provide the services as described below, which shall be invoiced directly
against this Addendum.
A. Provide engineering assistance and project oversight for the removal
of asbestos material and boilers #1 and #2.
B. Identify points for removal of boilers from existing system.
C. After removal, inspect site for installation of new boilers.
D. Work shall be accomplished on a time and material basis in accordance
with the rate schedule attached to Onsite Energy letter of July 8, 1997.
The cost shall not exceed Three Thousand and no/100 dollars ($3,000.00).
Automobile travel will be reimbursed at $0.315 per mile outside a 50 mile
radius from office.
<PAGE>
ONSITE ENERGY
ENERGY SERVICES PROPOSAL
BOILER SYSTEM UPGRADES
MULTI-SERVICE CENTER
SEDRO WOOLLEY, WASHINGTON
May 12, 1997
Revised June 12, 1997
INTRODUCTION:
Onsite Energy Corporation ("Onsite") and the State of Washington ("State")
signed an Energy Services Agreement (Agreement No. 97-031) for Energy
Conservation Services at Northern State Multi-Service Center at Sedro Woolley,
dated January 27, 1997(the Agreement). A requirement of the Agreement was that
Onsite submit a proposal for Energy Services for the boiler systems to the
State within 60 days. Due to changes in the operating conditions, this date
was extended by 14 days at a meeting on April 1, 1997. As a part of this
proposal, if the terms of this proposal are in conflict with the terms of the
Agreement, then the terms of this proposal will supersede and control over the
terms in the Agreement.
1. EXISTING FACILITY:
This project is to be constructed at the power plant at the Multi-Service
Center in Sedro Woolley, Washington. The power plant consists of four B&W
power boilers. Three of the boilers, Nos. 1, 2 and 3, are 1955 vintage and
produce steam at 16,000 pph at 100 psig. The fourth boiler, No. 4, is a 1962
vintage boiler that produces steam at 25,000 pph at 100psig. The boiler
steaming rate varies from approximately 1,700 pph in the summer to 17,000 pph
during cold snaps in the winter. Boiler Nos. 1, 2 and 3 share a tall stack,
while boiler No. 4 has its own short stack. The tall stack was part of the
original installation at the facility and the ability of the stack to meet
current structural standards is unknown. All of the boilers have constant
speed ID and FD fans with one set for each boiler.
2. PROPOSED ENERGY CONSERVATION MEASURES(ECMS):
Existing boilers Nos. 1 and 2 will be removed and replaced with two (one 250 HP
and one 300 HP) automated boilers. Each of the new boilers will have its own
short stack and will be tied into all of the existing steam, condensate, gas,
oil and air systems. The existing breaching for existing boilers Nos. 1 and 2
will be removed along with the associated auxiliary equipment. Boiler No. 4
will have its controls modified so that it will qualify as an automated boiler
and will be available as a stand by source of steam.
Other ECMs that were reviewed were: (1) Installation of a single boiler(either
250 HP or 300 HP) for summer loads, (2) Installing three new 150 HP boilers for
operating during lighter loads, and (3) Automating the existing boiler controls
and burners so that the boiler efficiency would improve.
<PAGE>
Of these additional ECMs reviewed, both alternative numbers (1) and (2) would
not fully automate the power plant and permit the operator to be assigned
additional duties. Without this feature, the facility would not achieve the
$110,950 per year in operation and maintenance savings that will be achieved
thorough the proposed ECM. Alternative number (3) was not feasible in that the
boiler control retrofit would cost approximately $30,000 per boiler for the
controls. In addition, high efficiency burner conversions on the boilers would
cost $40,000 per boiler for boiler Nos. 1, 2 and 3 and approximately $80,000
for boiler No. 4. The current boiler burner system is "grandfathered" with
regards to emission limits, but after this conversion the boilers would have to
meet the new emission standards of 30 ppm of NOX. With the age of the boilers
and the potential for discovering casing leaks that could not be economically
repaired, no guarantee could be made that the boilers would meet the emission
requirements after this conversion.
3. SERVICES PROPOSED:
Onsite proposes to design, construct, commission, train the facility's staff on
the proposed ECM, provide a contractor's warranty service for one year
(warranties beyond one year will be provided by the equipment manufacturer per
the purchase orders), and provide monitoring and savings verification services
for the replacement of boiler Nos. 1 and 2 for ten years. These boilers and
the associated asbestos will be removed by the State of Washington based on
removal points identified by Onsite, and two fully automated boilers(one 250 HP
and one 300 HP) will be installed by Onsite. In addition the controls to
boiler No. 4 will be reworked so that it will be a fully automated stand by
source of steam. The two new boilers and existing boiler No. 4 will be tied
together so that they will operate as a fully integrated package. Existing
boiler No. 3 will be abandoned in place.
Training on the new boiler systems will consist of two eight hour class room
sessions with the State's operating personnel, and on the job training of eight
hours (to include one start up) with each of the four operating shifts.
One four hour follow up training session will be held with each shift within
the first month of operation.
Monitoring and verification services will be accomplished quarterly with a site
visit by Onsite personnel to review the plant's operation and a computation and
reconciliation of the energy savings. Onsite will provide this service monthly
for the first quarter after operation, quarterly for the remainder of year one,
semi-annually for year two, and annually for years three through ten.
4. MAXIMUM ALLOWABLE PROJECT COST:
The maximum allowable project cost will be $541,000. The actual project cost
will be established based on the final design and the equipment installed. The
maximum allowable project cost is established from the below table:
Energy Audit $ 11,000
Subcontractor Costs
Demolition: $ 6,500
Boiler and Asbestos Removal By the State
Building modifications $ 15,000
Boiler Equipment $ 238,000
Boiler Equipment Installation $ 12,500
Piping Modifications $ 72,500
Electrical & Controls installation $ 7,500
Subtotal Subcontractor cost $ 352,000
Engineering $ 28,160
Construction management @ 4% $ 14,080
Bonding Expense @ 4% $ 14,080
Onsite overhead and profit @ 15% $ 52,800
Contingency $ 23,300
Onsite's price to the State without taxes $ 495,420
Taxes at 8.2% of construction $ 40,700
E&AS PROJECT MANAGEMENT FEES $ 4,800
Total price $ 540,920
SAY $ 541,000
The above pricing was established by competitive biding of the scope of work.
Once the design is completed, the successful bidder will be requested to modify
their price based on the final design of the project. The actual costs of the
work will be based upon the final lump sum price for the work as designed and
the invoicing based on the bid price. Supporting documentation will be
supplied for the cost of the major equipment installed.
5. RECOMMENDATIONS TO EXISTING EQUIPMENT AND OPERATIONS:
It is recommended, and the guaranteed savings have assumed that the existing
boiler operating pressure be reduced to 50 psig. It is also recommended that
as soon as possible, boiler No. 3 be removed and that the tall stack be
removed.
6. STANDARDS OF COMFORT AND SERVICE APPROPRIATE FOR THE FACILITY:
There will not be any changes in the comfort of the facility resulting from the
proposed ECM. The service level at the facility will improve, since the boiler
plant operators can now be assigned to other duties within the facility, such
as building maintenance.
7. BASELINE ENERGY CONSUMPTION FOR THE ECM:
The baseline energy use of the facility for the purposes of the proposed ECM
will be the measure of boiler efficiency as determined by dividing the (pounds
of steam produced per month X BTU gained per pound for saturated steam at 100
psig) by the (BTU of fuel input), expressed as in decimal form to three places,
i.e. .xxx. Boiler operations during that baseline period were 365 days. The
steam produced will be from the power plant records and the fuel input will be
from the gas supplier's records with the given gas heating value.
8. THE ESTIMATED ENERGY SAVINGS AND ENERGY COST SAVINGS:
Baseline Energy Use (BEU):
The baseline energy use of the facility for the purposes of the proposed ECM
will be the measure of boiler efficiency as determined by dividing the (pounds
of steam produced X [hg-hfw at 100 psig]) by the (BTU of fuel input), expressed
as in decimal form to three places, i.e. .xxx. The baseline period will be for
the year ending April, 30, 1997. For the purpose of this agreement, the
efficiency for the baseline period will be derived from the average of the four
month period ending December 1996. This percentage was .575.
CURRENT ENERGY USE (CEU):
The current energy use of the facility for the purposes of the proposed ECM
will be the measure of the boiler efficiency as determined for the baseline
energy use using only the current operating year's data.
ENERGY SAVINGS (ES):
The energy use reduction in dollars caused by this ECM will be calculated using
the following formula:
<PAGE>
SAVINGS IN BTU:
[(% New/% Existing)-1] X current Fuel Bill in BTU X [Degree Days Current/
Degree Days Baseline]
SAVINGS IN $:
[(% New/% Existing)-1] X current Fuel Bill in $ X [Degree Days Current/
Degree Days Baseline]
The bill's unit costs will be normalized to the costs established by the
baseline year.
9. THE METHOD BY WHICH ENERGY SAVINGS AND ENERGY COST SAVINGS
WILL BE CALCULATED DURING THE TERM OF THE ENERGY AGREEMENT:
The energy savings will be calculated annually per the methods described in
paragraph 8.
10. FINANCING OF THE ESCO'S IMPROVEMENTS:
Onsite proposes to finance the improvements through a municipal lease. The
proposed form will be Onsite's standard form of tax exempt municipal lease with
the accompanying documentation. Depending on the documentation, the ownership
of the improvements will pass to the State upon acceptance of the Notice of the
Commencement of Energy Cost Savings or upon payment of the last lease payment.
Onsite will take a secured interest with regards to the improvements. Onsite
shall have the right to assign its interest for financing purposes. The term
of the proposed financing is five years at the following rate: 6.75% for
partial funding and 6.52% for total project funding. For funding of ten (10)
years duration, the above rates will increase by 0.16. The quoted rate is
fixed for 14 days from May 12, 1997. After 14 days the rate will be adjusted
to reflect any rate changes in like term Treasury Notes. The lease or
financing agreement will indicate the moneys that the State will pay to Onsite
on a monthly basis.
10A. FINANCING OF THE ESCO'S IMPROVEMENTS:
The Owner will provide financing of the improvements through a capital
appropriation and State Treasurer Lease/Purchase financing.
11. ENERGY COST SAVINGS GUARANTEE:
Guaranteed Savings:
(Guaranteed Energy Savings The energy savings that Onsite will guarantee is
80% of the base line year savings. This is calculated as follows: fuel bill
for the 12 months ending April 1997 X the improvement in efficiency of the
boilers X 80% or for the 12 months ending October 1996 this calculation is
$171,892 X .244 X 80% or $ 33,500/year.
OPERATIONAL AND MAINTENANCE SAVINGS AND GUARANTEE:
The State has identified annual operations and maintenance savings of
$110,953.92. Onsite does not guarantee any of these savings.
Savings available = Guaranteed energy savings + operational and maintenance
savings
= (Energy Savings ) + $110,953.92
= $33,500 + $110,953.92
= $144,453.92
<PAGE>
12. ESCO's Compensation
CONSTRUCTION PROGRESS PAYMENTS WILL BE MADE BASED ON THE PERCENTAGE COMPLETION
OF THE PROJECT. ONSITE WILL PROVIDE THE STATE WITH A SCHEDULE OF VALUES
SIMILAR TO THE COST ESTIMATE SHOWN IN PARAGRAPH 4 OF THIS PROPOSAL AND WILL
INVOICE MONTHLY BASED ON THE COMPLETION OF EACH LINE ITEM. IN NO EVENT,
HOWEVER, WILL PROGRESS PAYMENTS EXCEED 95% OF THE TOTAL IN PLACE CONSTRUCTION.
PROGRESS PAYMENTS WILL BE MADE WITHIN 30 DAYS OF SUBMISSION OF ONSITE'S INVOICE
OR WITHIN 30 DAYS OF THE OWNER RECEIVING TREASURER'S LOAN FUNDING. OWNER WILL
RETAIN 5% OF THE AMOUNT OF EACH PROGRESS PAYMENT UNTIL FORTY-FIVE (45) DAYS
AFTER THE ACCEPTANCE BY THE STATE OF THE NOTICE OF COMMENCEMENT OF ENERGY COST
SAVINGS AND RECEIPT OF ALL DOCUMENTS REQUIRED BY LAW AND/OR THE ENERGY SERVICES
AGREEMENT. IF ONSITE FINANCES THE TOTAL PROJECT COST, CONSTRUCTION PAYMENTS
WILL BE MADE UPON RECEIPT BY ONSITE OF DISBURSEMENT AUTHORIZATION FROM THE
STATE PURSUANT TO A CONSTRUCTION SCHEDULE.
Payment for monitoring and verification for the first year is included in the
construction costs. Monitoring and verification costs for years two through
ten will be 8% of the previous year's savings in energy. Payment will be made
within 30 days of Onsite submitting an invoice for the services at the end of
the year.
In addition, it is recognized by both parties that Onsite has guaranteed 80% of
the energy savings of these improvements, and if the guaranteed savings are not
achieved that Onsite will pay the difference.
13. Term of the Energy Agreement:
Onsite proposes that the term of the agreement be established to last through
the construction period plus ten years unless terminated sooner.
14 TERMINATION VALUES FOR EACH YEAR OF THE AGREEMENT:
Prior to Completion:
The Termination Value prior to completion will be the reasonable costs incurred
by Onsite for completed work that has been approved but not yet completed,
which costs shall be subject to reasonable verification by Customer and shall
include:
<circle> Audit costs at $0.10 per square foot, times the number of square feet
audited.
<circle> Actual subcontractor and vendor costs, including required termination
costs of subcontractors.
<circle> Actual engineering and project management costs on a
time-and-materials basis at Onsite's normal billing rates.
<circle> Actual costs incurred by Onsite in connection with procuring
financing.
<circle> Reasonable de-mobilization costs.
<circle> Interest.
Such costs shall not exceed the approved Total Project Cost.
Since the State is funding the project, after completion and acceptance by the
State, the costs for early termination of this agreement as long as all
outstanding invoices are paid in full will be $0.00.
15. PROJECT SCHEDULE:
To be added later but not to exceed 120 days after completion of the final
design for substantial completion and 150 days after completion of the final
design for final completion.
16. SUBCONTRACTED WORK:
Onsite anticipates that it will have the following subcontractors:
<PAGE>
Engineering Design of the Improvements: HNTB Corporation
Mechanical Installation of the Improvements: The G. L. Griffin Co., Inc.
Electrical Installation of the Improvements: The G. L. Griffin Co., Inc.
17. MODIFICATIONS TO THE CONDITIONS OF THE ENERGY SERVICES AGREEMENT:
Equipment Maintenance and Owner Training
Onsite is proposing to accomplish training only. No maintenance work is
anticipated by Onsite other than that covered by warranties. The owner will be
responsible for operating and maintaining the equipment in accordance with the
requirements of the manufacturers of the specific equipment.
EQUIPMENT OPERATION
It is understood that these improvements will be at all times operated by the
State.
LIABILITY INSURANCE
Onsite's insurance policy will be endorsed to name the State as an additional
insured. This will apply to all of the required insurance except for Onsite's
professional liability and workman's comprehensive insurance. All insurance
certificates shall require a 45 day prior written notice to the owner prior to
cancellation. Onsite does not carry property insurance on the proposed ECM
after the State accepts the notice of the commencement of Energy Savings.
EVENTS OF DEFAULT
In the event of default by the State, all moneys owed will be deemed to have
accrued interest at 1.0% per month. In the event of default by the Onsite, the
owner recognizes that restoration of the boiler plant to its original
configuration is not possible. The State agrees that the only remedy available
to it to resolve this issue is to have the proposed improvements completed.
ENVIRONMENTAL REQUIREMENTS.
The State recognizes that in connection with the performance of the proposed
ECM, Onsite may encounter, but is not responsible for (i) asbestos or materials
containing asbestos; (ii) pollutants, hazardous wastes, hazardous materials or
contaminants, including without limitation ballasts that may contain PCBs
(collectively clauses (i) and (ii), "Hazardous Materials"); and (iii) the
storage, handling, use, transportation, treatment, disposal, discharge,
leakage, detection, removal or containment thereof. The materials and
activities listed in the foregoing sentence are referred to as "Excluded
Materials and Activities." The State agrees that if performance of work under
this Agreement involves any Excluded Materials and Activities, Onsite will
perform or arrange for the performance of such work and the Onsite
subcontractor and the State shall bear the sole risk and responsibility
therefor. Furthermore, in handling any of the State's Hazardous Materials,
Onsite neither takes title to any such property nor assumes any responsibility
for the transportation, handling or disposal of such property. Onsite's
subcontractor shall be solely responsible for disposing of the State's
property, including Hazardous Materials, in accordance with all federal, state
and local laws, statutes and regulations applicable thereto and shall provide
written evidence of the same to Onsite. All costs associated with work related
to Excluded Materials and Activities necessary for the implementation of ECMs
shall be included in the project cost. Where Onsite is aware that Excluded
Materials and Activities are involved with the implementation of the ECMs, it
shall be identified in the audit report. In furtherance of the foregoing, the
State agrees to release, indemnify, defend and hold harmless Onsite, its
assigns, consultants, officers, agents and employees of and from all costs,
claims, damages and liabilities arising out of or relating to Excluded
Materials and Activities, acts or omissions of Onsite or third parties relating
<PAGE>
thereto, or injury caused thereby, excepting only such costs, claims, damages
or liabilities as are the result of any willful misconduct and/or gross
negligence of Onsite.
<PAGE>
ENERGY SERVICES AGREEMENT AMENDMENT
Energy Conservation Services Amendment No. 2
Project No. 97-031 Agreement No. 97-031 A
Northern State Multi Service Center Date August 4, 1997
Sedro Wooley, Washington
This Amendment, when properly signed, shall be the basis on which the Subject
Agreement shall be modified.
Authorization (this sheet)
Project Completion and Compensation
Scope of Work Options
Option #2: Incorporate energy services proposal
APPROVALS: Energy Services Company Facility
Firm/Agency: Onsite Energy Corporation Northern State Multi-Service Center
Address: 16400 Southcenter Parkway, Div. of Property Development
No. 308 230 General Administration Bldg.
Tukwila, Washington 98188 Olympia, WA 98504-1015
By: /s/ Hugh E. Schall /s/ Tim Arnold
Name: Hugh E. Schall Tim Arnold
Title: Vice President Program Manager
Date:
Authorization to Proceed
Dept. of General Administration
Engineering & Architectural Services By: /s/ R. G. Anderson
PO Box 41012 Name: Raymond G. Anderson, P.E.
Olympia WA 98504-1012 Title: Energy Program Manager
360-902-7272 Date:
<PAGE>
PROJECT COMPLETION AND COMPENSATION
<TABLE>
<CAPTION>
Energy service completion sched fee Compensation
Compensation
new previous new previous
<S> <C> <C> <C> <C> <C>
Energy Services Proposal (Boiler) $0.00/sq ft $ 11,000.00
Energy Services Proposal (Energy) $ 41,000.00
Design 8% $ 37,600.00 $ 28,160.00
Construction Management 4% $ 18,800.00 $ 14,080.00
Bond 4% $ 18,800.00 $ 14,080.00
General Contracting Overhead & 15% $ 70,500.00 $ 52,800.00
Profit
MACC or Actual Construction Sub's cost + ohp = ins $470,000.00 $352,000.00
Costs
Construction Contingency $ 47,000.00 $ 23,300.00
State Sales Tax 7.8% $ 54,889.00 $ 38,643.00
Energy Service Sub-total= $717,589.00 $523,063.00
Maximum Energy Service Fee Amount (New + Previous) = A = $1,292,652.00
</TABLE>
Extra Services compensation Compensation
New Previous
Extra Service Boiler/Asbestos Removal Engineering $ -0- $3,000.00
Extra Service (describe)
Extra Services Total (New + Previous) = B = $3,000.00
Energy Services Agreement Total = A + B = $1,292,652.00 + $3,000.00 +
$1,295,625.00
Total Compensation for the Energy Services:
Total Compensation:
New Previous
1. Boiler Plant Automation = $ 534,063.00 $ 534,063.00
2. Buildings on List = $ 758,589.00 $ 41,000.00
3. Extra Services = $ 3,000.00 $ 3,000.00
1 + 2 + 3 = (A) Maximum Energy Service
Fee Amount $1,295,652.00 $ 578,063.00
Value of this Amendment = $717,589.00
<PAGE>
SCOPE OF WORK
OPTION #2: INCORPORATE ENERGY SERVICES PROPOSAL
A. In accordance with Section 2.D of the Conditions of the Agreement, the
Energy Services Proposal submitted under Project number 97-031 by Onsite
ENERGY CORPORATION and dated July 17, 1997, [and amended as requested on
August 4, 1997], is hereby incorporated into Energy Services Agreement
number 97-031 A and is made part thereof by this reference.
<PAGE>
ONSITE ENERGY
ENERGY SERVICES PROPOSAL
ELECTRICAL SYSTEM UPGRADES
NORTHERN STATE MULTI-SERVICE CENTER
SEDRO WOOLLEY, WASHINGTON
July 17, 1997
INTRODUCTION:
Onsite Energy Corporation ("Onsite") and the State of Washington ("State")
signed an Energy Services Agreement (Agreement No. 97-031) for Energy
Conservation Services at Northern State Multi-Service Center at Sedro Woolley,
dated January 27, 1997 (the "Agreement"). A requirement of the Agreement was
that Onsite submit a proposal for Energy Services for the Electrical Project to
the State within 120 days. If the terms of this proposal are in conflict with
the terms of the original Energy Services Agreement, then the terms of this
proposal will supersede and control over the terms in the Agreement.
1. EXISTING FACILITIES:
This project is to be constructed in Building Numbers 2, 4, 10, 12, 13, 15, 16,
17, 19, 22, 27, 30, 32, and 33, the steam tunnels and various outdoor areas.
2. PROPOSED ENERGY CONSERVATION MEASURES (ECMS):
The existing lighting systems in the facilities listed in Paragraph 1. Above,
with the exception of Building Number 4, consisting mostly of core and coil
magnetic ballasts and T12 fluorescent lamps, will be replaced with electronic
ballasts and T8 fluorescent lamps. All exit signs will be replaced with new
LED exit signs with battery packs. The incandescent lighting fixtures will be
replaced with compact fluorescent fixtures and the Mercury Vapor street light
fixtures will be replaced with Metal Halide fixtures.
Old inefficient electric motors over three horsepower running twenty four hours
per day will be replaced with new high efficient electric motors.
An Energy Management System will be installed in Building Numbers 4, 12, 13,
15, 16, 17, and 32. HVAC improvements will be implemented in Building Number
32.
3. SERVICES PROPOSED:
Onsite proposes to design, construct, commission, and administer contractor's
warranty service for one year (warranties beyond one year will be provided by
the equipment manufacturer per the purchase orders and will be passed through
to the State), and provide monitoring and savings verification services for
<PAGE>
electrical system upgrades for up to ten years. All hazardous material will be
handled in accordance with Paragraph 16. Environmental Requirements.
Monitoring and verification services will be accomplished through a site visit
by Onsite personnel to review the operation of the systems that were upgraded
and a computation and reconciliation of the energy savings. Onsite will
provide this service, quarterly for year one, annually thereafter.
4. PROJECT COST:
Based on the engineered savings and debt service payments, the maximum
allowable project cost will be $890,414. The actual project cost will be
established based on the final design and the equipment installed. The
estimated project cost is established from the below table:
Energy Audit $ 41,000
Subcontractor Costs
Lighting $ 142,390
Electric Motors $ 22,970
EMS and HVAC Modifications $ 304,640
Subtotal Subcontractor costs $470,000
Markup (per the Energy Services Agreement)
Engineering @ 8% $ 37,600
Construction management @ 4% $ 18,800
Bonding Expense @ 4% $ 18,800
Onsite overhead and profit @ 15% $ 70,500
Contingency @ 10% $ 47,000
SUBTOTAL MARKUP $192,700
Onsite's price to the State without taxes $703,700
Taxes at 7.8% of construction $ 54,889
E &AS PROJECT MANAGEMENT FEES $ 11,850
TOTAL PRICE TO THE STATE $770,439
Project costs were established from firm bids for labor and materials for the
lighting and electric motor retrofits. Project costs for the EMS and HVAC
modifications are Means estimates.
A Project Book will be maintained with copies of all bids and Means estimates
for the Electrical Project. Individual budgets for lighting, electric motors,
EMS and HVAC will be prepared detailing labor and materials projected costs.
Actual costs will be reconciled on a line item basis for each budget.
5. STANDARDS OF COMFORT AND SERVICE APPROPRIATE FOR THE FACILITY:
The comfort and habitability of the facilities resulting from the installation
of the proposed ECM's will be improved as follows: full spectrum lamps will
reduce eye strain and produce consistent lighting levels throughout the
facilities retrofit; temperature variance within a facility and within a room
will be reduced; and, outside air percentages of ventilation air will be
maintained within the standard for the facility use.
6. RECOMMENDATIONS FOR REPLACEMENT OF EXISTING EQUIPMENT AND RECOMMENDATIONS
FOR IMPROVEMENTS TO EXISTING EQUIPMENT AND OPERATING CONDITIONS.
The existing HVAC system in both sections of Administration Building #32 should
be replaced as soon as practical.
The existing maintenance program monitoring electric motor current draw to
indicate the need for filter maintenance and indicate abnormalities in air
handlers should be expanded to include all air handler motors. In addition to
<PAGE>
the EMS proposed, thermostats in other buildings should be installed with
"night set-back" capabilities for periods when buildings are unoccupied.
7. BASELINE ENERGY CONSUMPTION FOR THE ECM:
The baseline energy use for the various systems in the facilities was
determined using commonly accepted engineering practices and basic spreadsheet
and bin analysis. Spreadsheets for each system retrofitted in each facility
are included in Attachment 2, Energy Audit.
The energy baseline period is the same as the boiler upgrades, the 12 month
period ending April 1997.
8. THE ESTIMATED ENERGY SAVINGS AND ENERGY COST SAVINGS:
Baseline Energy Use (BEU):
LIGHTING. The baseline energy use of the facility for the purposes of the
proposed ECM was determined by spreadsheet analysis. The existing kW use for
each lighting fixture was determined from manufacturer's published data. The
operating hours for each lighting fixture was determined from lighting logger
run time data and from the current facility operating hours as provided by
state personnel. The kWh is the product of the kW and operating hours.
MOTORS. The baseline energy use of each individual motor was determined by
spreadsheet analysis. Each motor's energy use was measured while operating
with a multi-meter. Each motor operates continuously, twenty four hours per
day, three hundred sixty five days a year.
EMS/HVAC. The energy baseline consists of a computer bin model of the existing
six buildings that were audited. The model simulates the existing conditions
as described in the narrative section of the audit. Currently, the time clocks
for building occupancy setbacks are either missing or in need or repair. The
building HVAC systems need to be reconfigured to more closely follow the need
of the building occupants. In some cases, 100% outside air systems need to be
modified to permit partial recirculation. Finally, the control systems need to
more accurately control the HVAC systems to define how the buildings are
occupied and used.
The baseline model was made using the conditions that were noted in the energy
audit. The baseline period is the 12 month period ending April 1997. The
computer models were then compared to the energy bill of the facility and
analyzed both on a square footage basis and on the percentage of the occupied
space that the buildings represent. The model to represents a good
approximation of the energy usage.
ENERGY SAVINGS (ES):
The energy use reduction in kW, annual kWh savings, annual kbtu savings and
annual dollar savings resulting from the installation of each ECM is calculated
on the spreadsheets using the current Puget Power rate schedule and current
natural gas costs for the ECM's is detailed on the spreadsheets in Attachment 2
and is summarized below:
ECM KW REDUCTION KWH SAVINGS kbtu savings $ SAVINGS
Lighting 128.12 464,029 0 $ 27,420
Motors 14.90 239,059 0 $ 10,980
EMS/HVAC N/A * 9,907,872 $ 44,060**
EXCESS SAVINGS FROM BOILER PROJECT $ 33,500
TOTALS 143.02 703,088 9,907,872 $115,960
* Included in Motors
<PAGE>
** Based on the existing boiler plant. After the boiler project is
complete, the EMS/HVAC savings will be $31,370.
The total dollar savings above, $115,960 is the amount of money available
annually for debt service payments and monitoring costs. With $115,960
available annually for debt service, the maximum allowable project cost is
$890,414 at an interest rate of 5.5% and is indicated in Paragraph 4. above.
9. THE METHOD BY WHICH ENERGY SAVINGS AND ENERGY COST SAVINGS WILL BE
CALCULATED DURING THE TERM OF THE ENERGY AGREEMENT:
The energy savings will be calculated annually per the methods described in
paragraph 7. Condensate meters will be installed to validate the EMS/HVAC
savings.
10. FINANCING OF THE ESCO'S IMPROVEMENTS:
Onsite proposes to finance the improvements through a municipal lease. The
proposed form will be Onsite's standard form of tax exempt municipal lease with
the accompanying documentation. Depending on the documentation, the ownership
of the improvements will pass to the State upon acceptance of the Notice of the
Commencement of Energy Cost Savings or upon payment of the last lease payment.
Onsite will take a secured interest with regards to the improvements. Onsite
shall have the right to assign its interest for financing purposes. The term
of the proposed financing is ten years at a rate of 6.45%. The quoted rate is
fixed for 30 days. The lease or financing agreement will indicate the moneys
that the State will pay to Onsite on a monthly basis.
10A. FINANCING OF THE ESCO'S IMPROVEMENTS: THE OWNER WILL PROVIDE FINANCING
OF THE IMPROVEMENTS THROUGH STATE TREASURER LEASE/PURCHASE FINANCING.
11. ENERGY COST SAVINGS GUARANTEE:
Guaranteed Savings: The energy savings that Onsite will guarantee $67,692 per
year ($33,500 is guaranteed in the boiler project bringing the total guarantee
to $101,192 which is the annual debt service payments for the $770,439 project
cost in paragraph 4 above) based on the analysis spreadsheets with the
operating hours as indicated in the spreadsheet analyses. Onsite will
guarantee the kW reduction. Onsite will not guarantee the annual operating
hours with the operation of the systems in the control of the State.
The energy savings guarantee is based on energy savings that will be achieved
with the current use of the facilities and the kW, kWh and kbtu savings in the
table in Paragraph 8. above. Using the cost for energy during the baseline
period, the year ended April 1997, the dollar savings are $67,692 per year.
The owner will be responsible for any shortfall in energy savings caused by any
change of use of any of the facilities retrofit and any fluctuations in the
price the State pays for energy.
12. ESCO'S COMPENSATION.
Construction progress payments will be made through the State Treasurer's
Lease/Purchase program upon receipt of approved invoices and loan agreements in
even numbered months. Onsite will provide the State with a schedule of values
similar to the cost estimate shown in paragraph 4 of this proposal and will
provide invoices on a bi-monthly basis upon the completion of each line item
and the commencement of energy cost savings. In no event, however, will
progress payments exceed 95% of the total in place construction until final
completion and acceptance by the State. Progress payments will be made upon
execution of the appropriate disbursement authorization. Owner will retain 5%
of the amount of each progress payment until forty-five (45)days after the
acceptance by the State of the Notice of Commencement of Energy Cost Savings
and receipt of all documents required by law and/or the Energy Services
Agreement.
<PAGE>
Payment for monitoring and verification for the first year is included in the
construction costs. Monitoring and verification costs will be 8% of the
previous year's savings in energy per year for a period of up to ten years.
Payment will be made by the State within 30 days of Onsite submitting an
invoice for the services at the end of the year. If the overall savings from
the project are insufficient to pay the annual debt service plus the monitoring
costs, then the monitoring costs will be reduced to four-sevenths (4/7) of
difference between the actual savings and the annual debt service.
In addition, it is recognized by both parties that Onsite has guaranteed that
the energy savings will be sufficient to pay the annual debt service of these
improvements, and if the guaranteed savings are not achieved, that Onsite will
pay the difference.
13. TERM OF THE ENERGY AGREEMENT:
Onsite proposes that the term of the agreement be established to last through
the construction period plus ten years unless terminated sooner.
14. TERMINATION VALUES FOR EACH YEAR OF THE AGREEMENT:
PRIOR TO COMPLETION:
The Termination Value prior to completion will be the reasonable costs incurred
by Onsite for work that has been approved, which costs shall be subject to
reasonable verification by Customer and shall include:
<circle> Audit costs at $41,000.
<circle> Actual subcontractor and vendor costs, including required termination
costs of subcontractors.
<circle> Actual engineering and project management costs on a
time-and-materials basis at Onsite's normal billing rates.
<circle> Actual costs incurred by Onsite in connection with procuring
financing.
<circle> Reasonable de-mobilization costs.
<circle> Interest.
Such costs shall not exceed the approved Total Project Cost.
UPON COMPLETION :
With State Treasurer Lease/Purchase Financing, Zero Dollars ($0.00) after all
payments have been received from the State Treasurer.
15. PROJECT SCHEDULE:
Not to exceed 180 days after approval of this proposal and amendment to the
Energy Services Agreement.
16. SUBCONTRACTED WORK:
Onsite anticipates that it will have the following subcontractors:
Electrical Installation of the Improvements: Ed Rosendin Electric, Inc.
Lighting and Control Systems
Johnson Controls
M.L. Griffin Co., Inc.
<PAGE>
17. MODIFICATIONS TO THE CONDITIONS OF THE ENERGY SERVICES AGREEMENT:
Equipment Maintenance and Owner Training
No maintenance work is anticipated by Onsite other than that covered by
warranties. The owner will be responsible for operating and maintaining the
equipment in accordance with the requirements of the manufacturers of the
specific equipment. Onsite is proposing to accomplish training only for the
EMS system. Onsite will develop a training program to include initial training
for owner designated personnel, refresher training after one year.
EQUIPMENT OPERATION
It is understood that these improvements will be at all times operated by the
State.
LIABILITY INSURANCE
Onsite's insurance policy will be endorsed to name the State as an additional
insured. This will apply to all of the required insurance except for Onsite's
professional liability and workman's comprehensive insurance. All insurance
certificates shall require a 45 day prior written notice to the owner prior to
cancellation. Onsite dose not carry property insurance on the proposed ECM
after the State accepts the notice of the commencement of Energy Savings.
EVENTS OF DEFAULT
In the event of default by the State, all moneys owed will be deemed to have
accrued interest at 1.0% per month. The State agrees that the only remedy
available to it to resolve this issue is to have the proposed improvements
completed.
TERMINATION FOR THE CONVENIENCE OF THE OWNER
Moneys owed to Onsite upon termination will be determined by the termination
schedule in Section 14 of this proposal.
ENVIRONMENTAL REQUIREMENTS.
The State recognizes that in connection with the performance of the proposed
ECM, Onsite may encounter, but is not responsible for (i) asbestos or materials
containing asbestos; (ii) pollutants, hazardous wastes, hazardous materials or
contaminants, including without limitation ballasts that may contain PCBs
(collectively clauses (i) and (ii), "Hazardous Materials"); and (iii) the
storage, handling, use, transportation, treatment, disposal, discharge,
leakage, detection, removal or containment thereof. The materials and
activities listed in the foregoing sentence are referred to as "Excluded
Materials and Activities." The State agrees that if performance of work under
this Agreement involves any Excluded Materials and Activities, Onsite will
perform or arrange for the performance of such work and the Onsite
subcontractor and the State shall bear the sole risk and responsibility
therefor. Furthermore, in handling any of the State's Hazardous Materials,
Onsite neither takes title to any such property nor assumes any responsibility
for the transportation, handling or disposal of such property. Onsite's
subcontractor shall be solely responsible for disposing of the ballasts that
may contain PCB's and the recycling of fluorescent lamps, in accordance with
all federal, state and local laws, statutes and regulations applicable thereto
and shall provide written evidence of the same to Onsite. All costs associated
with work related to Excluded Materials and Activities necessary for the
implementation of ECMs shall be included in the project cost. Where Onsite is
aware that Excluded Materials and Activities are involved with the
implementation of the ECMs, it shall be identified in the audit report. In
furtherance of the foregoing, the State agrees to release, indemnify, defend
and hold harmless Onsite, its assigns, consultants, officers, agents and
employees of and from all costs, claims, damages and liabilities arising out of
or relating to Excluded Materials and Activities, acts or omissions of Onsite
or third parties relating thereto, or injury caused thereby, excepting only
such costs, claims, damages or liabilities as are the result of any willful
misconduct and/or gross negligence of Onsite.
EXHIBIT 11
STATEMENT RE PER SHARE EARNINGS
1997 1996
Net income (loss) $ (1,388,598) $ 819,264
Preferred dividends 0 608,438
Earnings available for common $ (1,388,598) $ 210,826
shareholders
Weighted average number of
shares outstanding 10,818,498 5,918,003
Common stock equivalents 0 721,834
Shares used to calculate per
share earnings 10,818,498 6,639,837
Per share earnings (loss) $ (0.13) $ 0.03
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. Western Energy Management, Inc., is a Delaware corporation and is a wholly
owned subsidiary of Onsite.
2. Onsite/TCC Corp. ("Onsite/TCC") is a Delaware corporation and was a wholly
owned subsidiary of Onsite until February 1997.
3. Television City Cogen, L.P. ("TCC"), is a California Limited Partnership.
Onsite, directly or through Onsite/TCC, owned all of the general and
limited partnership interests in TCC until February 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-KSB
FOR THE PERIOD ENDED JUNE 30, 1997, FOR ONSITE ENERGY CORPORATION AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 800,061
<SECURITIES> 0
<RECEIVABLES> 904,954
<ALLOWANCES> (40,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,708,082
<PP&E> 613,482
<DEPRECIATION> (568,855)
<TOTAL-ASSETS> 2,123,343
<CURRENT-LIABILITIES> 1,738,415
<BONDS> 0
0
0
<COMMON> 10,942
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,123,343
<SALES> 9,561,375
<TOTAL-REVENUES> 9,561,375
<CGS> 6,692,198
<TOTAL-COSTS> 6,692,198
<OTHER-EXPENSES> 4,249,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,380,098)
<INCOME-TAX> 8,500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,388,598)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.10)
</TABLE>
