Submitted January 8, 1996; File Number 0-14452
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRELIMINARY PROXY STATEMENT
AMENDMENT NO. 2
Solicitation of Consent To the Sale of All
Partnership Assets, Distribution of the Proceeds to
Partners, and Termination of the Partnership
With Exhibits
THIS CONSENT IS SOLICITED BY THE GENERAL PARTNER OF THE FUND
Payment of Fee:
$125 per Exchange Act Rule 0-11(c)(1)(ii)
No offsetting fee has been previously paid
Registrant:
Far West Electric Energy Fund, L.P.
921 Executive Park Drive
Salt Lake City, Utah 84117
Tel (801) 268-4444
Fax (801) 266-5155
Correspondent:
Stanford Stoddard Smith
2921 Devon Drive
Bountiful, Utah 84010
Tel/Fax (801) 295-1444
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Solicitation Statement For Far West Electric Energy Fund, L.P.
CONSENT SOLICITATION
This Solicitation of Consent is dated _____, 1996
Voting on the Proposed Transaction will close _____, 1996
Table of Contents
Summary 3
The Proposed Transaction 14
The Fund 29
Federal Tax Consequences 38
Opinion of Financial Advisor 46
Exhibits 53
1. Purchase and Sale Agreement (previously submitted)
2. Tax Opinion of Robison Hill & Co. (previously submitted)
3. Fairness Opinion of Corporate Capital Consultants, Inc.
(previously submitted)
4. Form 10-QSB for quarter ending September 30, 1995 (previously
submitted)
5. Reply Card (previously submitted)
6. Form 10-KSB for December 31, 1995 (revised)
7. Commitment Letter to U.S. Envirosystems, Inc. from Smith
Management Company (previously submitted)
8. Commitment Letter to U.S. Envirosystems, Inc. from Gaines
Berland, Inc. (previously submitted)
9. SB-1 appraisal of Ronald P. Baldwin (previously submitted)
10. SB-1 Forecast of Corporate Capital Consultants (previously
submitted)
11. Letter to James Budge of SEC (previously submitted)
12. Unaudited condensed balance sheet of Far West Capital, Inc.
(revised, now appearing at page 40 of Exhibit 6)
13. USE's Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 1995
SUMMARY
Far West Capital, Inc. ("FWC"), the general partner of the Far West
Electric Energy Fund, L.P., a Delaware limited partnership (the
"Fund"), hereby solicits from the limited partners of the Fund (the
"Limited Partners") written consent to-
The sale of substantially all of the Fund's assets (the
"Assets") for $1,250,000;
Distribution of the proceeds of sale to the Limited Partners
(estimated to be approximately $33 per limited partnership
unit - a "Unit"); and
Termination of the Fund (generally resulting in approximately
$33 of taxable gain per Unit).
These three steps are collectively referred to in this Consent
Solicitation as the "Proposed Transaction."
As it has reported to Limited Partners in periodic letters and
reports, FWC has been seeking a purchaser for the Assets since
early 1993. It recommends that the Limited Partners vote to approve
the Proposed Transaction.
The following summary of certain information contained in this
solicitation of consent (the "Consent Solicitation") is not
intended to be complete; it is qualified in its entirety by the
more detailed information contained elsewhere in this Consent
Solicitation and the Exhibits hereto. Limited Partners are urged to
read this Consent Solicitation and the Exhibits in their entirety.
FWC has fixed the close of business April 1, 1996, as the
record date for determining the Limited Partners entitled to vote
on approval or disapproval of the Proposed Transaction and for
determining the Limited Partners entitled to receive the final
liquidating distribution.
FWC has set _____, 1996, as the date by which properly completed
Reply Cards (Exhibit 5 hereto) must be received from Limited
Partners wishing to vote on the Proposed Transaction.
Special Factors
The purpose of the Proposed Transaction is to sell the Fund's
Assets before they are lost in foreclosure by the project lender.
In December, 1996, the income of the Fund's sole power
plant, SB-1, will drop below the level necessary to cover operating
expenses, royalties, and debt service . On that date
the rate paid by Sierra Pacific Power Company ("Sierra"), the local
utility which purchases the electrical output of SB-1, declines
from the current rate of 7.17 cents per kwh to short-term avoided
cost rates (currently estimated to be 2.8 cents or less per kwh)
under the terms of the Fund's power sales agreement with
Sierra. The probable result of this decrease is that the Fund
will be unable to service the debt on SB-1, and the project
will be taken over through foreclosure by Westinghouse Credit
Corporation ("WCC"), the primary project lender, resulting in
financial loss and possible adverse tax consequences to the Limited
Partners.
The Fund has been seeking a purchaser for the Power Plant for the
past 3 years, believing that a financially capable purchaser may
succeed in locating an alternative purchaser for the power plant's
electricity, improving plant equipment, purchasing plant
indebtedness, and buying-out overriding royalty interests in the
plant's production, steps the Fund lacks the resources to pursue.
(See "The Proposed Transaction-Prior Offers".) This is the
only alternative measures deemed practical, and explored, by the
Fund.
On December 31, 1995, FWC was able to reach agreement U.S.
Envirosystems, Inc. ("USE") for the sale of the Fund's Assets. The
Proposed Transaction, which this Consent Solicitation describes in
detail, is being undertaken at this time to give USE as much time
as possible to prevent foreclosure on the Power Plants, and to
maximize the return to the Limited Partners.
The amount of consideration to be paid to the Fund was determined
by USE after discussions with FWC and conducting a full examination
of the Fund and the Power Plants. The structure of purchase is
described in "The Proposed Transaction-Steps of the Sales
Transaction."
In addition, to purchasing SB-1, USE proposes to acquire for
$275,000 the adjacent SB-1A power plant ("SB-1A") from 1-A
Enterprises, a Nevada general partnership controlled by the
principals of FWC. Collectively, these plants are referred to as
the "Power Plants."
The Fund has received an opinion from an outside financial advisor
to the effect that the Proposed Transaction is fair to the Limited
Partners from a financial point of view. (see "Opinion of
Financial Advisor" which is provided to Limited Partners as Exhibit
3 hereto). The method of selection and role of this firm is
described in "Opinion of Financial Advisor."
The effects of the Proposed Transaction upon FWC and the
Fund's unaffiliated security holders (the Limited Partners), and
the potential benefits and detriments of the Proposed Transaction,
are described in "The Proposed Transaction"; tax effects are
discussed in "Federal Tax Consequences."
In brief, if the Proposed Transaction is completed, the Fund will
sell its Assets and terminate, and the Limited Partners will
receive a final liquidating distribution of approximately $33 per
Unit. The financial position of FWC will be improved in that it
will no longer advance cash and services to the Fund (see "The
Fund-Moneys Owed to FWC."
Cash Offer for Fund Assets
The Fund has received a cash offer to purchase the Fund's Assets
for $1.25 million (plus assumption of liability to Westinghouse
Credit Corporation in the amount of $4,346,848) from U.S.
Envirosystems, Inc., a Delaware corporation ("USE"), on the terms
set forth in a draft Purchase and Sale Agreement (the "Sales
Agreement," appended as Exhibit 1). This agreement was executed by
the parties on December 31, 1995. On August 9, 1995, USE delivered
to FWC a non-refundable deposit of $50,000 as a show of
serious intent to complete the Proposed Transaction. Upon receipt
of these funds, FWC initiated work on the Consent Solicitation,
including contracting with legal, accounting, and financial
advisors.
Conditions of Sale
Performance of the Sales Agreement is subject to certain
pre-conditions (the "Conditions of Sale"):
The Fund's Limited Partners must approve the Proposed
Transaction; and
USE must raise the capital necessary to fund the purchase of
the Power Plants through an offering of its shares; USE shares
are publicly traded on the NASD OTC Bulletin Board.
Purchase Transaction Steps
To facilitate purchase of the Power Plants and related assets, USE
and FWC will create a Utah limited liability company to be called
Steamboat Envirosystems, L.L.C. ("SBE"), which will be owned 50% by
USE and 50% by FWC.
Under the terms of SBE's operating agreement, USE will receive on
a non-cumulative annual basis SBE's
net earnings up to 18%
(the "Preferred Return") of the amount USE will seek in public and
private offerings up to $10 million (see "Proposed
Transaction-Conditions of Sale"), to purchase the Power Plants and
related assets and pay off the balance of the Westinghouse loan.
SBE's net earnings in excess of this amount, if any, will
be divided equally with FWC. Because of the Preferred Return, FWC's
officers believe it is highly unlikely that FWC will receive any
income from SBE unless plant electrical output can be substantially
increased, a very favorable new power sales agreement can be
obtained, and/or the royalty load substantially reduced, all of
which appear very problematic .
The Westinghouse loan is described more fully in "Proposed
Transaction-Purchase of Debt"; the Preferred Return, in "Proposed
Transaction-The Purchaser."
The formation of SBE was negotiated by the parties as a way for USE
to retain
FWC's involvement with the Power Plants. FWC owns
other geothermal resource leases and power plants in the
area, and can provide operating expertise, assistance with
obtaining power sales agreements, aid in community relations, and
a uniform approach to resource management in the area.
The major steps of the transaction include the following:
FWC will establish an escrow account at a Utah bank in which it
will place executed instruments conveying to SBE the Power Plants
and related assets. This will occur if and when the Limited
Partners approve, and USE raises sufficient capital to complete,
the Proposed Transaction. FWC estimates that these events will
occur within 30 days of the date of this a favorable vote is
received pursuant to this Consent Solicitation.
Within approximately 5 days after the account is opened, USE will
deposit $2.525 million into the escrow account, SBE will be formed
and its operating agreement signed, and the escrowed documents and
moneys will be transferred to SBE.
Within approximately 5 days after the formation of SBE, it will
transfer $1.25 million to the Fund for purchase of the Assets and
$.275 million to 1-A for purchase of SB-1A and related assets.
Within approximately 5 days after transfer of moneys to the Fund,
the Fund shall make a final cash distribution to Limited Partners
of approximately $33 per Unit.
Tax Opinion
A tax opinion from Robison Hill & Co. Inc., Certified Public
Accountants (the "Tax Opinion"), addresses the significant tax
issues presented by the Proposed Transaction. It is summarized in
the section entitled "Federal Tax Consequences" and appended in
full as Exhibit 2 to this Consent Solicitation.
In brief, the authors of this opinion believe that a typical
Limited Partner able to utilize the Business credit would, over the
life of the Fund, have received approximately the following (per
unit of Fund ownership-a "Unit"):
A tax benefit of $299 for the Business credit;
Non-taxable cash distributions of $86;
If the Proposed Transaction is approved and completed, the
Limited Partner's Form K-1 will report, in the year of
closing, a cash distribution of approximately $33 and ordinary
taxable income of approximately $33. If the Fund's assets are
lost in foreclosure, the tax liability will be approximately
the same, but there will be no cash distributions to Limited
Partners.
Each Limited Partner's situation may vary; accordingly, partners
are encouraged to consult their own tax advisers.
Opinion of Financial Advisor
An opinion respecting the fairness of the Proposed Transaction (the
"Fairness Opinion") has been issued by the Fund's financial
advisor, Corporate Capital Consultants Inc. ("CCC"), and appended
hereto as Exhibit 3.
An independent appraiser of business assets, CCC concludes that the
Proposed Transaction is fair to the Limited Partners from a
financial point of view.
Vote Required to Approve the Proposed Transaction
Under sections 15.9 and 16.1 of the Fund's agreement of limited
partnership (the "Partnership Agreement"), the Proposed Transaction
must be approved by a majority of the Units casting votes, with a
quorum of at least 1% of the Units participating.
There are no arrangements relating to any security holder of the
Fund which are not identical to that relating to other security
holders of the same class of securities of the Fund.
The Proposed Transaction will not be completed unless a majority in
interest of Limited Partners participating by vote approve the
Proposed Transaction. No unaffiliated representative has been
retained by the Fund to act solely in behalf of the unaffiliated
security holders.
Recommendation of FWC
FWC will vote its 530 Units, 5.14% of the 10,306 total Fund Units,
in favor of the Proposed Transaction, and urges Limited Partners to
do likewise to prevent loss of the SB-1 Power Plant in foreclosure.
All directors of the general partner favor the Proposed
Transaction. No executive officer, director, or affiliate of the
Fund will receive any compensation or distributions in connection
with the Proposed Transaction or tender of Units.
In December, 1996, the income of the Fund's sole power plant, SB-1,
will drop below the level necessary to cover operating expenses,
royalties, and debt service. On that date the rate
paid by Sierra Pacific Power Company ("Sierra"), the local utility
which purchases the electrical output of SB-1, declines from the
current rate of 7.17 cents per kwh to short-term avoided cost rates
(currently estimated to be 2.8 cents or less per kwh) under the
terms of the Fund's power sales agreement with Sierra. The probable
result of this decrease is that the Fund will be unable to service
the debt on SB-1, and the project will taken over through
foreclosure by Westinghouse Credit Corporation ("WCC"), the primary
project lender, resulting in financial loss and possible adverse
tax consequences to the limited partners.
Incentive to Limited Partners to Approve
As an incentive to the Limited Partners to vote in favor of the
Proposed Transaction, and contingent upon such approval, FWC will-
Transfer to SBE all obligations owed by the Fund to FWC (as of
December 31, 1995, approximately $2,276,000,
consisting of $1,117,000 in cash advances, $488,000 interest
on those cash advances, and $671,000 owed for uncompensated
services provided by FWC); and
Decline its 6.09% share of the final liquidating distribution,
allocating these moneys (an estimated $19,898) to other
limited partners. (For the calculation of FWC's interest, see
"The Fund-Interest of FWC in the Fund.")
This combination of transfer of debt and declination of
distribution, a total of approximately $2,296,000, will make it
possible for the Limited Partners to receive approximately $33 in
liquidating distributions if the Proposed Transaction is
consummated (see "The Proposed Transaction-Cash to be
Distributed)."
Neither FWC nor any affiliate has purchased Units since the
commencement of the Fund's second full fiscal year preceding the
date of this Consent Solicitation.
Interest of FWC and its Principals
FWC is subject to conflicts of interest in connection with the
Proposed Transaction because (i) it will own a 50% interest in SBE,
the purchaser of the Power Plants, and (ii) its principals will
continue to own SB Geo, Inc., the operator of the Power Plants.
Because of the Preferred Return to USE under SBE's operating
agreement, FWC's officers and directors believe it is highly
unlikely that FWC will receive any income from SBE unless plant
electrical output can be substantially increased, a very
favorable new power sales agreement can be obtained, and/or the
royalty load substantially reduced, any of which will be
very difficult to accomplish.
The SBG operating agreement will provide, among other things, that
SBG will operate the Power Plants at rates competitive with those
charged by other independent operators. FWC officers expect
that SBG will be able to realize a profit from these operations.
Cash to be Distributed
FWC estimates that if the Proposed Transaction is approved, the
final distribution will be approximately $326,730, or a total of
approximately $33 per limited partnership Unit.
The exact amount to be distributed will depend in part upon (i) the
payments made to third-party creditors of the Fund at the time the
business of the Fund is wound up (currently $832,195), and (ii) the
final amount of expenses associated with this Consent Solicitation
(estimated to be $91,075),
. See "The Proposed Transaction
- -Cash to be Distributed."
Purchaser's Plans
USE is willing to enter the Sales Agreement despite the impending
drop in the power sales rate based on its belief that it can,
within 2-5 years, terminate the agreement with Sierra and locate
another purchaser for the projects' power at rate higher than
Sierra will pay.
Further, USE plans to improve SB-1's profitability by:
Buying out the WCC loan (with a balance of approximately
$4,346,848 as of January 2, 1996) at a discount; and
Spending approximately $1 million to make plant improvements
and to buy out royalty interests in SB-1 at a discount.
USE plans to take similar steps to improve the profitability of
1-A. The Fund is unable to take such action because:
The Fund lacks the resources to search for another purchaser
and put together any wheeling arrangements necessary to
deliver the power to the purchaser.
The Fund lacks the resources to cover Power Plant operating
expenses while the search is in progress.
The Fund lacks the resources to buy out the Westinghouse loan
at a discount, and hence must carry the full debt-service
burden. After the power sales rate decline in December 1996,
it is probable that the Fund will be unable to cover any debt
service, and the Power Plant will be lost in foreclosure.
The Fund lacks the resources to improve the Power Plants or
attempt to buy out royalty interests in the revenues of the
Power Plants.
Unit Holdings of FWC
The table below sets forth the Unit holdings of FWC, general
partner of the Fund, the only holder of more than 5% of the Fund's
Units.
Title of Class Name and address Amount and Percent of
of beneficial owner nature of class
beneficial
ownership
Units of FWC, 921 530 Units 5.14%
limited Executive Park
partnership Drive, Salt Lake
interest City, Utah 84117
No Units are held by individual FWC officers, directors, or
shareholders. To the best of FWC's knowledge, there are no
arrangements which may result in a change in control of the Fund.
No Principals or affiliates of FWC, or any pension or profit
sharing plans of the foregoing, have any other interest in the
Fund. No transaction in Units has been effected during the past 3
years by FWC or any affiliate or Principal.
Costs of Consent Solicitation
All costs associated with this Consent Solicitation will be borne
by the Fund. A cost breakdown is set forth in "The Proposed
Transaction -Cash Distributions." All expenses will be paid
by the Fund; if the Proposed Transaction is completed, these
expenses will be paid from proceeds of the sale of the Power Plant.
Management's Interest in Matters Voted On
FWC owns 6.09% of the total Fund interest (see "The Fund-Interest
of FWC in the Fund").
Messrs. Alan O. Melchior and Thomas A. Quinn, each owns 40% of FWC,
37.5% of 1-A Enterprises (owner of SB-1A), and 37.5% of SB Geo,
Inc. (operator of SB-1 and SB-1A). Ronald E. Burch, president of
FWC, owns 20% of FWC and 15% of SBG.
Financial and Other Information
The Fund's annual report on Form 10-KSB for the period ended
December 31, 1995 (containing audited financial statements) is
appended hereto as Exhibit 6 and incorporated herein by reference.
Limited Partners may obtain additional copies of any of these
reports upon request.
Responding to this Consent Solicitation
It is important that you review this proposal carefully and vote
either to approve or disapprove the Proposed Transaction. Please
use the stamped, self-addressed postcard (the "Reply Card")
contained in this package to convey your vote to the Fund. To be
counted, your vote must be postmarked no later than _____, 1996.
The Reply Card must be dated and signed with the name or names
appearing on the original subscription agreement submitted to the
Fund at the time of the initial investment in the Fund. Consents
may be revoked or changed by providing written notice to FWC at 921
Executive Park Drive, Salt Lake City, Utah 84117, on or before the
date voting is closed.
Voting & Termination
Under the terms of the Fund's Limited Partnership Agreement, each
Unit, the only class of Fund security, will have one vote; a
majority vote of the Units voting will bind all Partners.
Dissenting Partners have no right under Utah or Delaware law to
compel the Fund or FWC to refund their investment or purchase their
Units should the Proposed Transaction be approved.
The Fund's 10,306 outstanding Units are held by 1,103 investors. If
a majority of the votes cast favor the Proposed Transaction, the
Fund shall proceed as outlined in this Consent Solicitation. A copy
of this Consent Solicitation will be mailed to all Limited
Partners.
Reply cards will be tallied by FWC's clerical staff on _____, 1996;
no card bearing a postmark later than _____, 1996, will be counted.
No other persons shall be engaged to make solicitations or
recommendations to the Limited Partners. No oral solicitation will
be made by the Fund or any affiliate. The minority shall be bound
by vote of the majority of those voting (abstentions will be
counted as not participating).
The Fund's principals have directed preparation of the Fund's proxy
statement and Schedule 13e-3, and will, if the Proposed Transaction
is approved by Limited Partners, direct the completion of the
Proposed Transaction as described in the Consent Solicitation
section entitled "The Proposed Transaction."
Limited Partners have no dissenter's rights of appraisal under Utah
or Delaware law, nor will any be accorded. If a security holder
opposes the Proposed Transaction, such holder may vote against it
and seek to influence others to do likewise. The Proposed
Transaction does not involve the exchange of any debt securities.
FWC knows of no Units held by brokers.
Upon request of a Limited Partner, the Fund
will provide a
list of names and addresses of all Limited Partners. The Fund
knows of no legal impediments to the Proposed Transaction,
but understands that a court may block a transaction it determines
involves fraud, misrepresentation, breach of duty, or violation of
securities laws or regulations.
The Fund's agreement of limited partnership provides that
a Limited Partner may examine the Fund's records upon
reasonable notice. No provision has been made for any Limited
Partner to order an appraisal or obtain counsel at the expense of
the Fund or an affiliate.
If a majority of votes approves the Proposed Transaction, FWC will
proceed to sell the Fund's assets as described in this Consent
Solicitation. All Unit holders (except FWC), regardless of how they
voted, will be treated alike for cash distribution and all other
purposes. If less than a majority approves the Proposed
Transaction, FWC will terminate its arrangement with USE and seek
another purchaser. FWC doubts that another purchaser willing to
offer terms as favorable as USE can be found.
If Limited Partners approve the sale, but USE fails to raise the
necessary capital or the Proposed Transaction is not completed for
any other reason, FWC will seek another purchaser for the Assets.
If one is found, the Fund will again seek consent from Limited
Partners.
If the Proposed Transaction is approved, certificates evidencing
ownership of Units will become void at the time the final cash
distributions are mailed to Limited Partners of record as of April
1, 1996. This mailing shall occur with 15 days of the Fund's
receipt of the Power Plant purchase price from SBE. Limited
Partners will not be required to surrender Unit certificates to the
Fund.
Please act promptly. Return the enclosed, stamped postcard after
checking the appropriate box to indicate your approval or
disapproval of the Proposed Transaction, dating the consent form,
and signing your name.
THE PROPOSED TRANSACTION
FWC proposes that the Fund sell its assets, distribute the proceeds
of sale to Limited Partners, and terminate the Fund. As a result of
the dissolution, the Fund's registration pursuant to the Securities
Exchange Act of 1934 and its obligation to file reports thereunder
will terminate.
The Fund has received a cash offer to purchase substantially all
the assets of the Fund by U.S. Envirosystems, Inc. ("USE") on the
terms and conditions set forth in the Sales Agreement. This
agreement was executed by the parties on December 31, 1995.
Reasons for the Proposed Transaction
FWC believes the Fund should complete the Proposed Transaction for
the following reasons:
In December, 1996, the income of the Fund's sole power
plant, SB-1, will drop below the level necessary to cover
operating expenses, royalties, and debt service, probably
resulting in foreclosure by the project lender with
associated financial loss and possible adverse tax
consequences to the limited partners. If, however, the
Proposed Transaction is completed, Limited Partners will
receive approximately $33 per Unit. FWC's officers and
directors believe that it is highly unlikely that the
Fund will receive a comparable or more favorable offer to
purchase the Power Plant.
FWC is no longer willing (nor will it be indefinitely
able) to subsidize Fund operations. At present, the Fund
owes FWC more than $2.5 million for unpaid services and
cash advances to cover operating expenses. As described
below, FWC will waive payment for these services and
repayment of these advances as an incentive for Limited
Partners to approve the Proposed Transaction.
Prior Offers
In 1993, the Fund was approached by two companies which offered to
purchase the Power Plant solely for stock in these
companies . These approaches were rejected by FWC before any
formal negotiations began because (i) the firms were start-up
companies with no significant assets or public market for their
stock, (ii) initial public offerings with no guarantee of success
would have been required to provide cash for plant operations,
(iii) and such transactions may have created taxable income
for the Limited Partners without providing cash distributions to
pay the tax.
The contacts with USE described below represent the only
significant contacts, arrangements, or understandings respecting
sale of Fund Assets since the Fund was organized.
Negotiations with Purchaser
FWC first became acquainted with USE during early 1994. FWC and an
unaffiliated third party, Suma Corporation, had purchased a 17 mw
gas-powered power plant in Lehi, Utah out of a Utah bankruptcy
court proceeding in April, 1993. They formed Lehi Independent Power
Associates, L.C. ("LIPA"), to own and operate the plant. Mr. Carl
Clark, a person not affiliated with USE or FWC, introduced USE to
FWC, and USE subsequently purchased a 50% interest in LIPA; FWC and
Suma Corporation currently own 25% each.
In subsequent conversations with USE principals, FWC became
aware that USE wished to acquire additional power plants, and
suggested that USE consider SB-1 and SB-1A. A series of
conversations respecting the Power Plants followed during 1994 and
early 1995. USE principals Theodore Rosen (Chairman of the Board)
and Richard Nelson (President) visited the plant site in the Spring
of 1995.
On July 26, 1995, FWC officers Melchior and Quinn met with Messrs.
Rosen and Nelson in Chicago to negotiate terms for the possible
sale of the SB-1 and SB-1A. A preliminary understanding was reached
on that date which culminated in a letter of intent signed by the
parties on August 2, 1995; a Purchase and Sale Agreement entered
into as of December 31, 1995.
FWC determined to recommend limited partner acceptance of
the USE offer because FWC did not and does not believe it can
obtain another comparable or more favorable offer.
Fairness Determination
FWC, each of its officers and directors (see "The
Fund-Management"), and the Fund, believes the Proposed Transaction
is fair to the Limited Partners for the following reasons:
In December, 1996, the income of the Fund's sole power
plant, SB-1, will drop below the level necessary to cover
operating expenses, royalties, and debt service
, probably resulting in foreclosure by the project
lender with associated financial loss and possible
adverse tax consequences to the limited partners.
The Fund has received an opinion from Corporate Capital
Consultants, Inc., stating that the Proposed Transaction
is fair from a financial point of view. Messrs. Burch,
Quinn, and Melchior concur in the CCC analyses.
It is highly unlikely that the Fund will receive a
comparable or more favorable offer to purchase the Power
Plant. FWC has been attempting to locate a purchaser
since 1993 and has found that the market for the Power
Plant is extremely limited given the imminent drop in
power sales rates and the limited number of potential
buyers with knowledge of or interest in geothermal power
plants.
If the Proposed Transaction is completed, Limited
Partners will receive approximately $33 per Unit. If the
Power Plant is not sold before December, 1996, there will
be no cash distribution.
These four factors are stated in the order of relative weight given
to them by FWC, with such weight allocated among them 90%, 5%, 3%,
and 2% respectively.
The Power Plant was appraised by Ronald P. Baldwin on September 20,
1993 (see Exhibit 9 appended hereto). At the time of this
appraisal, the contract price for the sale of power to Sierra had
just over three years to run. At a price of 7.17 cents per kwh, the
plant was covering its mortgage payment obligation by accruing and
deferring substantial amounts of other interest and obligations to
the general partner. The Baldwin appraisal concluded that the
plant's gross value of $5,000,000 was offset by $5,000,000 in debt,
resulting in a net value of zero.
Because the Power Plant is facing a substantial reduction in its
revenue generating capability , other potential valuation
factors, such as market prices, book value, going concern value,
liquidation value, and comparable transactions , were not
deemed significant by FWC or its officers and directors.
At the present time, with the power sales rate scheduled to drop
more than 60% in December of 1996, the Power Plant is worth less
than at the time of the Baldwin appraisal. FWC believes that the
Power Plant has value only to a buyer knowledgeable in the
alternative energy business with resources to buy out project debt
and royalty obligations, make plant improvements, and carry the
project (for years if necessary), while seeking another purchaser
for the project's electricity and a way to deliver the power to
such purchaser. USE is the only such buyer FWC has been able to
locate in more than 3 years of searching.
Overview Steps of the Proposed Transaction
The sale of substantially all of the Fund's assets (the
"Assets") for $1,250,000;
Distribution of the proceeds of sale to the Limited
Partners (estimated to be approximately $33 per limited
partnership unit - a "Unit"); and
Termination of the Fund (generally resulting in
approximately $33 of taxable gain per Unit).
If the Proposed Transaction is approved, funded, and completed, the
Power Plant will be sold, the Fund terminated, and a final
liquidating cash distribution will be made to Limited Partners.
From an accounting standpoint, the Proposed Transaction will be
treated as a sale of assets.
The Fund has not provided pro forma data disclosing the effect of
the Proposed Transaction; if the Proposed Transaction is completed,
all the Fund's assets will be sold, the proceeds will be
distributed to Limited Partners, and the Fund will be terminated.
Limited Partners have no dissenter's rights of appraisal under Utah
or Delaware law, nor will any be accorded. If a security holder
opposes the Proposed Transaction, such holder may vote against it
and seek to influence others to do likewise. Upon request of a
Limited Partner, the Fund will provide a list of names and
addresses of all Limited Partners.
The Fund's agreement of limited partnership provides that a Limited
Partner may examine the Fund's records upon reasonable notice. No
provision has been made for any Limited Partner to order an
appraisal or obtain counsel at the expense of the Fund or an
affiliate.
The structure of the Proposed Transaction was determined by
negotiations between U.S. Envirosystems, Inc. and FWC. The Proposed
Transaction is being undertaken at this time to give the purchaser
of the Fund's assets as much time as possible to complete the
transaction before Power Plant's power sales rate drops in
December, 1996, and to maximize the return to the Limited Partners.
The information below summarizes certain portions of the Sales
Agreement which FWC believes to be significant; reference must be
made to the complete copy of the Sales Agreement appended to this
Consent Solicitation as Exhibit 1.
The Purchaser
Under the terms of the Sales Agreement, USE and FWC will form
Steamboat Envirosystems, L.C., a Utah limited liability company
("SBE") to acquire and operate the Power Plants. Although USE will
provide all funds for the purchase of the Power Plants, the actual
purchase of the Power Plants will be made by SBE.
Under the terms of SBE's operating agreement, USE will receive on
a non-cumulative annual basis the first SBE net earnings of up to
18% of the amount USE raises in its public and private offerings to
purchase the Power Plants (not to exceed $10 million); earnings
above this amount, if any, will be divided equally with FWC.
As a condition of its purchase, USE required, and FWC agreed, that
this Preferred Return will be based on USE's total capital raised,
up to $10 million, even though less than all of this amount may be
spent to purchase the Power Plants, pay off the Westinghouse loan,
make project improvements, and buy out royalty interests in the
project. USE expects that a portion of moneys raised will be
retained by USE for working capital. Such retained moneys, if any,
will not affect the purchase price to be paid for the Power Plant
or the final, liquidating cash distribution to Limited Partners.
Because of the Preferred Return to USE under SBE's operating
agreement, it is highly unlikely that FWC will receive any income
from SBE unless plant electrical output can be substantially
increased, a very favorable new power sales agreement can
be obtained, and/or the royalty load substantially reduced, all of
which appear very problematic to FWC's officers or
directors.
The formation of SBE, in which FWC would have an interest, was
required by USE as a way of retaining FWC involvement with the
Power Plants. FWC owns other geothermal resource leases and power
plants in the area, and can provide operating expertise, assistance
with obtaining power sales agreements, community relations aid, and
a uniform approach to resource management in the area.
USE will contribute to SBE the following:
$1.25million to purchase SB-1 and related assets;
$.275 million to purchase SB-1A and related assets;
$1 million to fund improvements in the power plants and
the purchase, at a discount, of royalty interests held by
third parties in the Power Plants (these funds will be
used as a reserve for operations if the royalty interests
are not purchased); and
Purchase and cancellation of the Westinghouse loan (the
"Loan") on SB-1, receiving from the Fund the $1,016,774
reserve for debt service. (If the Loan cannot be
purchased for an acceptable price, USE shall make all
Loan payments out of USE's share of SBE's earnings).
FWC will contribute to SBE transfer of its loans and deferred fees
incurred with respect to the Power Plants, and all its interest in
the Fund. As of December 31, 1995, The Fund owed FWC
approximately $2,276,000, consisting of $1,117,000 in cash
advances, $488,000 interest on those cash advances, and $671,000
owed for uncompensated services provided by FWC. 1A owed FWC in
excess of $950,000, consisting of construction loans with an
approximate principal balance of $632,000, cash advances of
approximately $88,000, and interest on the foregoing.
If the Proposed Transaction is completed, FWC will lose its
interest in the Fund (as a holder of both a 1% general partner's
interest and 530 Units), will no longer bear the burden of
providing administrative services for the Fund, and will in effect
exchange the $2,276,000 owed to it by the Fund for an interest in
SBE (from which it expects little or no income because of the
Preferred Return to USE).
Parties to the Sales Agreement
Listed below are the parties to the Sales Agreement, together with
a brief description of each.
Far West Electric Energy Fund, L.P. (the "Fund") is a Delaware
limited partnership with its principal place of business at 921
Executive Park Drive, Suite B, Salt Lake City, Utah 84117 (see "The
Fund"). The Fund is publicly held by approximately 1,100 Unit
holders; Fund Units are not publicly traded. The Fund is the owner
of SB-1 and related assets, and owns a royalty interest in SB-1A.
Far West Capital, Inc. ("FWC") is a privately held Utah corporation
with its principal place of business at 921 Executive Park Drive,
Suite B, Salt Lake City, Utah 84117. It is the general partner of
the Fund. Its shareholders are Alan O. Melchior, Thomas A. Quinn,
and Ronald E. Burch, who are also the major stockholders in SB Geo,
Inc., and partners in 1-A Enterprises, described below.
U.S. Envirosystems, Inc. ("USE"), is a Delaware corporation
engaging in the business of developing, owning and operating
co-generation and independent power facilities in the United States
and overseas. Its offices are located at 515 North Flagler Drive,
Suite 202, West Palm Beach, Florida 33401. Its stock is publicly
traded on the NASDAQ OTC Bulletin Board under the symbol "USEN."
Steamboat Envirosystems, L.C. ("SBE"), will be a Utah limited
liability company, qualified to do business in Nevada, with its
principal place of business located at 921 Executive Park Drive,
Suite B, Salt Lake City, UT 84117. SBE will be formed by USE and
FWC to purchase the Fund's Assets.
1-A Enterprises ("1-A") is a Nevada general partnership which owns
a geothermal power plant commonly referred to as SB-1A which is
located adjacent to the SB-1 power plant. The SB-1A power plant,
put on line in 1989, utilizes the tail stream from the SB-1 plant
to produce power. It has a nominal capacity of approximately 1.6
kwh, and on average produces approximately 14 million kwh per year.
Because SB-1A utilizes brine produced from SB-1 wells to produce
power, SB-1A pays a pumping charge and royalty to the Fund, which
constitute part of the Assets which SBE will purchase from the
Fund. The Fund received $144,000 in pumping charges and royalties
from 1-A in 1995.
SB Geo, Inc. ("SBG") is a Utah corporation with its principal place
of business at 921 Executive Park Drive, Suite B, Salt Lake City,
Utah 84117. SBG currently operates SB-1 and SB-1A without making a
profit because the operating agreement provides that SBG cannot
make a profit. This provision is enforced by WCC, which under the
terms of the project loan agreement must approve all
disbursements made from project income. In 1995, the
accrued obligations to SBG of $419,200 for fixed operations
and maintenance expenses and $158,872 for variable
expenses.
If the Proposed Transaction is consummated, SBE and SBG will
execute an operating agreement pursuant to which SBG will operate
the SB-1 and SB-1A geothermal power plants for SBE at rates
competitive with rates charged by other independent power plant
operators. Under this arrangement, it is probable that SBG may
realize a profit on its operation of the plants.
Purchase of Assets
Under the Sales Agreement, SBE proposes to purchase the Power
Plants and all related assets.
SB-1
The Fund owns a geothermal power plant located within the Steamboat
Springs Known Geothermal Resource Area located roughly 10 miles due
south of downtown Reno, Nevada near the intersection of U.S. 395
and the Mount Rose Highway. This SB-1 plant has a nominal net
capacity of approximately 4 MW and produces on the average
approximately 37.8 million kwh per year.
SB-1 sells its output under a twenty year power purchase agreement
with Sierra Pacific Power Company ("Sierra"), the local public
utility. That power purchase agreement provides in part that SB-1
will be paid 7.17 cents per kwh for the first ten years of
commercial operation and short-term avoided cost for the second ten
years of operation.
When SB-1 began commercial operations in December of 1986, it was
estimated by the parties that short-term avoided cost at the
beginning of the second ten years of commercial operation would be
in the 5-6 cents per kwh range. At present, however, Sierra's
short-term avoided cost is approximately 2.8 cents per kwh.
It is the opinion of FWC that the SB-1 plant cannot sell its output
at 2.8 cents and generate sufficient revenues to pay operating
expenses and royalties, and service project debt.
As of January 2, 1996, there was a balance of $4,346,848 on the
Westinghouse loan on SB-1 and a $1,016,774 debt reserve for the
loan held in escrow. In addition the Fund owes FWC approximately
$2,276,000 .
SB-1A
SB-1A sells its output to Sierra under a thirty year power purchase
agreement. Pursuant to that agreement during the first ten years of
commercial operation, which began in December of 1988, SB-1A is
paid a floating rate for energy and capacity based on the movement
of two different indices.
At present SB-1A is paid one rate for capacity and another for
energy. These rates vary at different times of the year. During
1995 the annual blended rate paid for SB-1A's output has been
0.05433 cents per kwh. During the balance of the power purchase
agreement beginning December of 1998, SB-1A will be paid for its
output at Sierra's short-term avoided cost which presently
approximates 2.8 cents per kwh.
1-A does not believe that SB-1A can sell its output at 2.8 cents
per kwh and generate sufficient revenues to pay operating expenses,
pumping charges, royalties, and debt service.
As of October 1, 1995 there was a balance due on the Westinghouse
loan on SB-1A of $1,746,470 and a debt reserve held in escrow of
$79,869. In addition 1-A owes FWC in excess of $950,000
representing (i) the balance and accrued interest due on a loan
made in connection with the construction of the SB-1A plant with a
principal balance of approximately $632,000), (ii) cash advances of
approximately $88,000, and (iii) interest on the foregoing.
Other Assets
The assets to be sold also include, without limitation, supplies,
inventory, plant, equipment, receivables and property; tangible and
intangible, real and personal including without limitation permits,
licenses, policies, contracts, choses in action, records, reports,
documents, computer records, power sales agreements, leases,
subleases, designs, operating records, bank accounts, escrow
accounts, funds, wells, rights to brine, and any other rights held
by the Fund or 1-A which are used or useful or pertain to the
ownership, operation and maintenance of the SB-1 and SB-1A
geothermal power plants owned by the Fund and 1-A.
Negotiations to Modify the Power Sales Agreements
FWC has initiated discussions with Sierra concerning renegotiating
the power purchase agreements applicable to the SB-1 and SB-1A
power plants, in an attempt to increase the rate to be paid for the
power generated by those plants during the period following the
first ten years of commercial operations. At this point FWC is not
optimistic that attempts to renegotiate the power purchase
agreement will be successful.
It may be possible for the owner of the Power Plants to terminate
the power purchase agreement with Sierra and find another market
for the output of SB-1 and SB-1A at a price that would exceed
Sierra's short-term avoided cost rate, but the possibility of that
result is unknown.
Cash Deposit
On August 9, 1995, USE paid to FWC a non-refundable deposit of
$50,000 to begin the consent solicitation process. FWC required
these moneys from USE as a show of serious intent to complete the
Proposed Transaction. Upon receipt of these funds, FWC initiated
work on the Consent Solicitation, including contracting with legal,
accounting, and financial advisors.
Conditions of Sale
Performance of the Sales Agreement is subject to certain conditions
precedent ("Conditions of Sale"):
USE raises approximately $10,000,000 in public and
private securities offerings; and
A majority of the Fund's Limited Partnership interest
which votes in response to this Consent Solicitation
approves the Proposed Transaction.
To raise the $10 million necessary to finance the Proposed
Transaction, USE has obtained a $3.5 million commitment from Smith
Management Company a private investment firm for a private
placement of USE's preferred stock (Exhibit 7), and an
underwriter's letter of intent from Gaines Berland, Inc. for a
public offering of $6.5 million of USE common stock and warrants
(Exhibit 8).
Steps of the Sales Transaction
The Proposed Transaction consists of the following steps:
The Fund will sell substantially all its Assets for
$1,250,000. FWC will establish an escrow account at a
Utah bank in which it will place executed instruments
conveying to SBE Power Plants and related assets. These
assets shall be free and clear of all claims or
encumbrances except those identified in the Sales
Agreement.
USE will deposit $2.525 million into the escrow account,
SBE will be formed, its operating agreement will be
executed by USE and FWC, and the moneys and instruments
of conveyance will be released to SBE.
SBE will (i) transfer $1.25 to the Fund for purchase of
the Assets, (ii) transfer $.275 million to 1-A for
purchase of SB-1A and related assets, and (iii) retain $1
million for plant improvements and possible buy-out of
royalty rights in the Power Plants.
All Fund and 1-A receivables, payables, and liabilities
shall be prorated as of the closing date. SBE shall
immediately assume responsibility for all direct
obligations and liabilities associated with the ownership
and operation of the SB-1 and SB-1A power plants
including, without limitation, operating costs,
royalties, debt service (if any), back feed electricity,
interconnect fees, etc.
SBG will begin operating the SB-1 and SB-1A power plants
at rates competitive with those charged by independent
operators.
The Fund will pay its obligations to third parties,
distribute the balance of the purchase price to the
Limited Partners (resulting in a cash distribution of
approximately $33 per Unit), and the Fund will be
terminated (resulting in taxable income of approximately
$33 per Unit). Certificates evidencing ownership of Units
will become void; Limited Partners will not be required
to surrender them to the Fund.
Incentive Offered to Limited Partners
As an incentive to the Limited Partners to vote in favor of the
Proposed Transaction, and contingent upon such approval, FWC will:
Transfer to SBE all obligations owed by the Fund to FWC
(as of December 31, 1995, approximately
$2,276,000, consisting of $1,117,000 in cash
advances, $488,000 interest on those cash
advances, and $671,000 owed for uncompensated
services provided by FWC); and
Decline its share of any final distribution. But for this
declination, FWC as a general partner and holder of Units
would be entitled to receive 6.09% of the cash to
be distributed in the final distribution (see "The
Fund-Interest of FWC in the Fund"), representing
approximately $19,898 .
By re-directing these moneys from itself to the other Fund unit
holders, FWC believes it is doing everything in its power to
maximize the cash distributions to the Limited Partners.
Cash to be Distributed
The Fund will (i) deduct from the purchase price the debts owed by
the Fund to third parties and the costs of this Consent
Solicitation, (ii) eliminate payments due to FWC but for its waiver
of moneys due it as described below, then (iii) distribute the
balance to the Limited Partners of the Fund.
As of February 1, 1996, the Fund's estimated third party
debts (debts not owed to FWC) and accounts payable were as follows:
Creditor Amount
First Security Bank $470,649
Royalties 34,226
Freedman, Levy & Kroll 172,519
Gardiner & Hintze 60,083
Coombs & Greely 4,484
Valley Foods 21,936
Robison Hill & Co. 27,876
SBG 40,422
Total $832,195
Estimated expenses of this Consent Solicitation are as follows:
Service Provider Estimated Cost
Corporate Capital Consultants, Inc. $43,000
Stanford Smith, attorney 30,000
Robison Hill & Co., accountants 13,000
Printing, postage and filing 5,075
Total $91,075
Deducting these costs ($832,195 in third party debts and $91,075 of
consent solicitation expenses) from the purchase price of $1.25
million leaves a balance of $326,730. Dividing this number by the
9,776 Units outstanding (10,306 total Units less the 530 Units held
by FWC) yields final liquidating cash distributions to Limited
Partners of approximately $33 per Unit.
All expenses of this Consent Solicitation will be paid by the Fund;
if the Proposed Transaction is completed, expenses will be paid
from the proceeds of sale. No part of such funds or other
consideration will be directly or indirectly loaned in the ordinary
course of business by a bank or otherwise borrowed.
FWC will attempt to reduce the amounts paid to third-party
creditors through negotiations. If these efforts are successful,
the final cash distribution to Limited Partners may be increased.
Improvement of Power Plants and Purchase of Royalty Interests
A total of $1,000,000 of the $2,525,000 contributed to SBE by USE
shall be used to finance improvements in the Power Plants and
attempt to buy at a discount the gross royalties and net revenue
royalties owned by GDA, Benson, Helzel and Schwartzoff and Ormat,
Inc. in the projects (see Exhibit 1). Any amounts not utilized for
those purposes shall be retained in the accounts of SBE to be used
in the operation and maintenance of the SB-1 and SB-1A power
plants.
Purchase of Debt
USE has negotiated to purchase the position of Westinghouse Credit
Corporation, the primary lender on both the SB-1 and SB-1A
projects. USE expects to acquire the total Westinghouse loan
balance ($6,456,012 as of October 1, 1995) at a discount.
At its election, USE may contribute that debt position to SBE as a
part of its capital contribution to SBE. If that is done, SBE may
cancel the debt and all related encumbrances on the SB-1 and SB-1A
projects. If so contributed and canceled, SBE shall immediately
assign to USE all of its right, title and interest in and to the
funds held in the SB-1 and SB-1A loan reserves. These reserves are
required under the terms of the WCC loan so that the Power Plants
can continue debt service in periods of low project income. As of
December 31, 1995, these reserves totaled
$1,122,022.
The Fund borrowed $8 million from Westinghouse Credit Corporation
on January 16, 1990, levelly amortized over 10 years, with payments
due quarterly at 11.5% interest. The proceeds were used to
refinance an initial project loan and establish a
reserve account for payment of debt service obligations
during periods of low project income.
Liabilities Not Assumed
Respecting Fund liabilities, the Agreement provides as follows:
All operating expenses, royalties, taxes, and other Fund
obligations shall be prorated between the SBE, the Fund,
and 1-A as of the closing date.
The parties to the Sales Agreement are not assuming any
of the following liabilities, contracts, commitments and
other obligations of any other party to the Sales
Agreement.
Any obligations or liabilities of any other party arising
under the Sales Agreement;
Any obligation of any other party to the Sales Agreement
for federal, state or local tax liability (including
interest and penalties) arising from the operation of
SB-1 or SB-1A by SBG, FWC, the Fund or 1-A up to the
closing date or arising out of the sale by the Fund or
1-A of their assets;
Any obligation of the Fund or 1-A for any transfer, sales
or other taxes, fees or levies arising out of the sale of
assets;
Any obligation of the Fund or 1-A for expenses incurred
in connection with the sale of the assets.
All real or personal property taxes attributable to any
of the assets shall be prorated as of the closing date;
any transfer, sales, use or other tax, including any real
estate excise tax or transfer, filing or recording fees,
payable upon or with respect to the sale of the assets
hereunder shall be paid when due by SBE.
Warranties of the Fund
As required by the Sales Agreement, the Fund and 1-A warrant that
to the best of their knowledge:
The assets will be duly and validly transferred to SBE
and upon the delivery to SBE of appropriate documents;
SBE will have good and marketable title to the assets,
free and clear of all liens, claims, encumbrances and
other rights of third parties except for certain
interests listed in Exhibit B to the Sales Agreement.
There are no pending or threatened claims that are or
could be asserted against the Fund which relate to any
toxic or hazardous substance having been improperly
generated, handled, released (or threatened to be
released), treated, stored or disposed of, or otherwise
deposited in, on, beneath or in close proximity to the
real property upon which the Power Plants are constructed
including, without limitation, the surface waters and
subsurface waters thereof. There are no underground tanks
that are or have been located on, in or in close
proximity to the plant site. There are no pending or
threatened environmental claims that are or could be
asserted against the Fund or 1-A or its predecessors,
which relate to the plant site.
There is no suit, action or proceeding pending or
threatened against the Fund or 1-A, and there is no
judgment, order, injunction, decree, regulation or ruling
of any court or governmental department, commission,
agency, instrumentality or arbitration outstanding
against the Fund or 1-A having or which, insofar as can
be foreseen in the future, may have any adverse effect on
the operation and use of the Power Plants.
There are no existing conditions at the Power Plant sites
that could cause those sites to become in violation of,
or in noncompliance with, any governmental rule or
regulation.
The Fund and 1-A have complied in all material respects
with all of the applicable rules, regulations and
requirements of all governmental licenses, permits and
authorizations held by each entity in connection with the
ownership, development and operation of their respective
power plants. All information and disclosures made on any
applications for licenses, permits or authorizations were
true when made. Neither the Fund nor 1-A has any
knowledge of any claimed violations from any governmental
agency or any other person with respect to the licenses,
permits and authorizations held by them in connection
with the operation of the Power Plants and neither the
Fund nor 1-A has any knowledge that any condition exists
which may give rise to a claim of violation in the
future.
All of the permits and contracts associated with the
ownership and operation of the Power Plants are in good
standing and in full force and effect, and there has been
no material adverse change in the status of the permits
and contracts which threatens, restricts or prohibits the
operation of the power plants.
Warranties of USE
Under the terms of the Agreement, USE warrants as follows:
USE is a corporation duly organized, validly existing and
in good standing under the laws of the state of Delaware
and is authorized or licensed to do business in all other
jurisdictions in which the failure so to qualify would
have a material and adverse impact on its business or
properties. USE has the power and authority to carry on
its business as now conducted and as proposed to be
conducted.
All necessary actions on the part of USE necessary for
the authorization, execution, delivery and performance of
the Sales Agreement and the consummation of the
transactions contemplated in the Sales Agreement will be
taken prior to closing. The Sales Agreement shall
constitute the legal, valid and binding obligation of
USE, enforceable against USE in accordance with its
terms.
Additional Documents of Transfer
Upon the reasonable request of SBE the parties shall execute,
acknowledge, and deliver all such further documents as may be
required to convey and transfer to and vest in SBE and protect its
right, title and interest in all of the assets purchased pursuant
to the Sales Agreement, and as may be otherwise appropriate to
carry out the transactions contemplated by the Sales Agreement.
At closing SBE shall receive a report from First American Title
Company of Reno indicating that there are no mortgages, claims,
liens, charges, encumbrances security interests, restrictions on
use or transfer or other defects of record with respect to the
Power Plants other than as set forth in Exhibit B to the Sales
Agreement.
Other Provisions
The Sales Agreement contains several other provisions, among which
are the following:
The Sales Agreement may not be amended or modified except
in a writing signed by each of the parties.
Each party to the Sales Agreement will indemnify and hold
harmless each other party from any commission, fee or
claim of any person, firm or corporation employed or
retained by, or claiming to be employed or retained by,
the indemnifying party to bring about, or to represent it
in, the transactions contemplated therein. The Proposed
Transaction involves no other indemnification
arrangements.
Each party will pay all expenses incurred by it and in
connection with the negotiation, execution and
performance of the Sales Agreement, whether or not the
transactions contemplated therein are consummated,
including the fees and expenses of agents,
representatives, accountants and counsel for each party.
Time is of the essence of the Sales Agreement and each
and every covenant, condition and provision of the Sales
Agreement.
Any dispute arising under the Sales Agreement which the
parties cannot resolve amicably, will first be mediated
and if that process does not resolve the dispute, the
dispute will be submitted to binding arbitration. Such
mediation and arbitration will take place in Salt Lake
City, Utah in accordance with the Rules of the American
Arbitration Association and the prevailing party shall be
entitled to reasonable attorney's fees in addition to any
other relief to which that party may be entitled.
THE FUND
Organization
Far West Electric Energy Fund L.P., a Delaware limited partnership
(the "Fund"), was originally organized in September 1984 under the
Uniform Limited Partnership Act of Utah as Far West Hydroelectric
Fund, Ltd. Its general partners were Far West Capital, Inc.
("FWC"), Alan O. Melchoir, and Thomas A. Quinn.
The Fund's principal business office is located at 921 Executive
Park Drive, Suite B, Salt Lake City, Utah 84117. Its 10,306 Units
are publicly held by 1,103 Unit holders as of March 15, 1996. The
Units are not publicly traded. During the past 3 years no public
offering of the Units has been made, nor has the Fund or any
affiliate purchased any Units. There are no arrangements relating
to any security holder of the Fund which are not identical to that
relating to other security holders of the same class of securities
of the Fund.
The principal revenue-producing activities of the Fund commenced as
of December 31, 1985, following the completion in November 1985 of
a public offering of its Units of limited partnership interests
registered under the Securities Act of 1933.
On December 20, 1988, the Fund changed its name to Far West
Electric Energy Fund, L.P. and changed its domicile to Delaware.
Messrs. Melchior and Quinn resigned as individual general partners
of the Fund effective January 1, 1995, leaving FWC as the sole
general partner.
Since 1986, the Fund has realized significant revenues from its
business of selling power generated by its plants to public
utilities pursuant to the Public Utility Regulatory Policies Act
("PURPA"), and in accordance with regulations of the Federal Energy
Regulatory Commission ("FERC") and of the state public utility
commissions of Idaho and Nevada.
No cash distributions to Limited Partners have been made during the
past two years. The sole income producing asset of the Fund, a
thermal-hydroelectric plant located near Reno, Nevada, (the "Power
Plant") has been unable to operate profitably.
The following table presents certain historical data respecting the
Fund's limited partnership Units as well as comparative equivalent
data after giving effect to the sale.
Per Unit Fund Data (in Dollars)
For the Year Ended December 31, 1995
Item Historical Pro Forma (1)
Book value per Unit 499 33
Cash Dividends 0 33
Income (loss) from
continuing operations 27 0
(1) Pro Forma information is presented as if the sale had taken
place at the beginning of the period for which information is
presented.
No transactions outside the ordinary course of business have
occurred between the Fund and any affiliate thereof since the
commencement of the Fund's second full fiscal year preceding the
date of this Schedule. No contacts, negotiations, or transactions
outside the ordinary course of business have occurred between the
Fund and any affiliate thereof since the commencement of the Fund's
second full fiscal year preceding the date of this Schedule. Except
as described in this Consent Solicitation, no material contacts or
negotiations have occurred since the commencement of the Fund's
second full fiscal year preceding the date of this Schedule between
(i) the Fund or any of its affiliates, or (ii) between the Fund (or
any affiliate) and any person who is not affiliated with the Fund.
Management
The Fund has no employees, but relies on the staff of FWC and
Messrs. Melchoir, Quinn, and Burch, who are officers, directors,
and shareholders of FWC and SBG.
The following individuals are the principal officers and directors,
and sole shareholders of FWC. Each is a full-time employee of FWC.
Ronald Burch, President and Director of FWC, age 44,
joined the company in July, 1991, having been previously
employed by Calpine Corporation, a California
corporation, as a Business Development Manager. He was
named president of FWC on March 19, 1996.
Alan O. Melchior, Chief Financial Officer and Director of
FWC, age 48. Mr. Melchior was a founder of FWC, which was
organized in May, 1983. He has been its President from
its inception until March 19, 1996. From December, 1981
to May, 1983, he was an account executive with Westlake
Securities, Inc., of Angora Hills, California. Mr.
Melchior received a B.S. in business from Brigham Young
University in 1971 and an M.B.A. degree from the
University of Utah in 1974.
Thomas A. Quinn, Vice President, General Counsel and
Director of FWC, age 60. Mr. Quinn was also a founder of
FWC. Since February, 1985, Mr. Quinn has been serving
full-time in his capacities with FWC. From 1968 to
February, 1985, he was engaged in the private practice of
law in Salt Lake City, Utah. He received a B.S. degree in
political science from Brigham Young University in 1959,
and a Juris Doctor, with honors, from George Washington
University Law School in 1963.
Messrs. Melchior and Quinn each own 40% of FWC, 37.5% of 1-A
Enterprises (owner of SB-1A), and 37.5% of SB Geo, Inc. (operator
of SB-1 and SB-1A). Ronald E. Burch owns 20% of FWC and 15% of SBG.
Messrs. Burch, Quinn, and Melchior The remaining 10% interest in
SBG is owned by Mr. Eric Call, SBG's operations supervisor. An
additional 4% of SBG ownership will be granted to Mr. Bill Price,
another supervisor, over a 4-year period, with the interest of the
other owners to be proportionately decreased.
The FWC board of directors consists of Messrs. Burch, Quinn, and
Melchior, as well as John S. Bo, Robert K. Mouritsen, Kenneth R.
Beck, and Richard V. Francis. The latter four persons have been
employed as officers of a FWC affiliate, FWC Properties, Inc.,
since its formation in 1994. Before their employment by FWC
Properties, Inc., Messrs. Bo, Mouritsen, and Francis were employed
by FWC. Before joining FWC properties, Inc. in 1994, Mr. Beck was
employed by Innkeepers, International, Inc. as CFO (1993) and
Transcontinental Properties, Inc. as executive vice president
(1986-92).
None of these individuals, the Fund, or FWC, has been convicted of
any criminal action during the past 5 years. Details of legal
proceedings are reported the attached Form 10-KSB and the section
herein entitled "The Fund-Legal Proceedings." The Fund and FWC are
entities organized in the United States; FWC's officers and
directors are United States Citizens.
The principal asset of the Fund is the single electric power
generation plant described below. The Fund previously owned a small
hydroelectric plant near Twin Falls, Idaho, known as the Crystal
Springs Hydroelectric Plant which was sold in March, 1995.
Interest of FWC in the Fund
Under the terms of the Fund's Limited Partnership Agreement, the
total Fund interest is allocated 1% to the general partner and 99%
to the limited partners. The limited partnership interest is
divided into Units (10, 306 outstanding as of March 1, 1996). In
addition to its FWC, the general partner of the Fund, is granted a
1% general partner's interest in net income of the Fund, FWC owns
plus 530 Fund Units (representing 5.14% of the Units). FWC thus
owns a total of 6.09% of the partnership interest calculated as
follow: 1% of the total interest as general partner, and 5.09% of
the total interest as a limited partner (5.14% times 99%).
The Steamboat Springs Thermal-hydroelectric Plant
The Steamboat Springs Plant ("SB-1") is described in "The Proposed
Transaction-Purchase of Assets" above. The present operating
agreement provides for SB Geo, Inc. ("SBG"), an affiliate of FWC,
to operate and maintain the SB-1 plant for a period of 10 years.
Under the terms of its operating agreement, SBG operates the plant
on a non-profit basis (salaries and expenses only).
While this change of operators generally has brought increased
power production and lower operating costs, the Fund incurred
increased cost associated with equipment repairs that otherwise
would have been covered by the Ormat warranty.
In October 1991, the Fund assigned its 77% ownership interest in
SBG, and 1-A Enterprises assigned its 23% ownership in SBG, to
Messrs. Melchior and Quinn, who accepted the assignments and SBG's
liabilities. These individuals later assigned a 15% interest to Mr.
Burch (officer of SBG and FWC), a 10% interest to Mr. Call (SBG
plant supervisor), and a 4% interest (full vesting in 1999) to Mr.
Price (SBG supervisor). FWC and SBG are thus controlled by Messrs.
Melchior, Quinn, and Burch.
According to an independent valuation firm, SBG had no value as of
the transfer date due to its obligations and its cost basis
operating status. Consequently, no gain or loss was recognized as
a result of the assignment.
Fund Revenues from the 1-A Plant
The 1-A geothermal plant ("1-A") is located adjacent to the
Steamboat Springs Plant. 1-A consists of two separate modules,
utilizing binary rankine cycle turbines with a combined net output
of 1.6 megawatts.
1-A was originally a Steamboat Springs expansion project, but was
sold in 1988 to a general partnership entitled 1-A Enterprises
which is owned 75% by Alan O. Melchior and Thomas A. Quinn. Until
their resignation effective January 1, 1995, these gentlemen were
individual general partners of the Fund; they are currently
officers and shareholders of FWC.
Use of the geothermal resource by 1-A has no adverse effect on the
operation or earnings of SB-1.
In a Second Amendment to Geothermal Resources Lease, provision was
made to accommodate 1-A on the SB-1 lease. A Geothermal Resources
Sublease was entered into granting rights and defining terms and
conditions for the siting and operation of 1-A and setting forth a
method of calculating royalty payments to be made to the Fund. This
Sublease was Revised and Restated on October 9, 1989.
As consideration for the sale of 1-A rights to 1-A Enterprises, the
Fund received a royalty interest in the net operating income of
1-A. Such royalties equal 10% in 1988 through 1992, 15% in 1993
through 1998, 40% in 1999 through 2010, and 45% in 2011, and
thereafter.
The Fund is paid an amount equivalent to the net profit that would
be realized by the Fund if 1-A were bearing 150 kwh of parasitic
power load (power consumed by the plant itself).
The net profit equivalent is calculated as follows: 1,200,000 kwh
x the rate at which power is sold to Sierra Pacific Power Company
under the power purchase agreement applicable to 1-A, less any
royalties, note payments, or net revenue interest or other expenses
associated with or payable out of such additional revenues assuming
that 1-A produced an additional 1,200,000 kwh per annum.
The total royalty payments and pumping charges paid by 1-A to the
Fund were $95,000 in 1989, $94,000 in 1990, $115,000 in 1991,
$102,000 in 1992, $135,000 in 1993, $144,000 in 1994, and $144,000
in 1995.
As described in the Sales Agreement, SBE will also purchase the
SB-1A power plant, which currently pays pumping charges and
royalties to the Fund, as described above. These rights to
royalties and pumping charges are included in the assets being sold
by the Fund, and were included in calculating the value of the
assets being sold.
Long-term Debt
In January 1990, the Fund received the proceeds of an $8,000,000
non-recourse refinancing of SB-1 with Westinghouse Credit
Corporation ("WCC"). The WCC loan, which is secured by the
Fund's assets including the resource lease, plant and equipment and
related contract rights, bears interest at 11.5% per annum and must
be repaid over ten years in 40 quarterly payments of principal and
interest.
On October 23, 1992 WCC gave the Fund a notice of default with
regard to the long-term financing of the project. The default
occurred because-
The Fund allowed the debt reserve account to fall below
$1 million plus an additional $70,000 annually for 7
years (together with interest) as required by the terms
of the loan; and
The Ormat arbitration award exceeded $25,000, breaching
a loan requirement.
Since that date the parties have met in negotiations on several
occasions. There has been no resolution of the default, but
Westinghouse has taken no action.
Simultaneously with its January 17, 1990 loan to the Fund, WCC made
a $3 million non-recourse loan to 1-A on the same terms as the loan
made to the Fund, but secured by the assets associated with 1-A. Of
this amount, $400,000 has been reloaned by 1-A Enterprises to the
Fund on the same terms the Fund received from WCC.
As of January 2, 1996, the outstanding principal balance of the
Westinghouse loan is $4,346,848.
Fund Financial Position
Summary financial information for the Fund is presented in the
following table:
Selected Fund Financial Data: 1991-1995 (in dollars)
Item 1995 1994 1993 1992 1991
Revenues 2,674,000 2,879,000 3,784,000 3,443,000 3,530,000
Net Income
(loss) before
extraordinary
item 283,000 73,000 527,000(1,141,000) (437,000)
- --Per Unit 27 7 51 (110) (42)
Distributions
to LPs 0 0 0 0 0
Total Assets 13,370,000 15,320,000 15,677,000 16,090,000 17,469,000
Long-Term
Debt 725,000 230,000 268,000 673,000 12,181,000
The Westinghouse loan was reclassified from long-term to current
debt in 1992 as a result of the Fund's default in that year.
Fund Operations
In 1987 the Steamboat Springs Plant produced electric power and
generated revenues at approximately 75% of expected operating
levels. The production shortfall was primarily due to shutdowns
required to effect certain equipment changes and modifications, and
to operation of that plant at a lower level than expected.
FWC determined that to achieve the expected capacity and the
performance requirements specified in the plant's purchase
contract, the vendor/operator would have to install additional
equipment and make some modifications to existing equipment. These
corrections were made at no cost to the Fund (although the
down-time for modifications and testing impacted revenues). The
modifications and repairs were completed in the summer of 1988, and
the Fund was informed by Ormat that the plant was performing at a
level that would produce 42,000,000 kwh per year.
The Steamboat Springs Plant increased production of electric power
from 32,797,000 kwh in 1987 to 36,142,000 kwh in 1988. Ormat, the
vendor/operator of the plant, installed additional equipment and
made equipment modifications which increased the plant's capacity
and performance. These additions and modifications were made at no
additional cost to the Fund.
In 1989 the Steamboat Springs Plant produced $2,564,000 in gross
revenues which was $448,000 and $576,000 less than would have been
received under the Ormat projected 42,000,000 kwh and 43,800,000
kwh agreed to under the purchase agreement per year respectively.
After reviewing plant performance with independent consultants, FWC
concluded that the deficiencies in plant performance were
attributable to both poor operating practices employed by Ormat,
the former operator, and certain problems in plant design.
Consequently, FWC notified Ormat that the Fund believed that Ormat
was in default under both its Operating and Purchase Agreements
with the Fund. FWC replaced Ormat as plant operator on October 11,
1990, and sought redress for plant deficiencies under the
arbitration clause of the Purchase Agreement. Arbitration
proceedings began October 29, 1990.
The arbitration panel denied the bulk of the Fund's claims and
Ormat's counter claims. The Fund was awarded $175,000 for well
field problems, and Ormat was awarded $254,000 for unpaid operating
and warranty service, the payment of which had been withheld
pending the completion of the Arbitration. The parties have all
complied with the ruling of the Arbitrators, including payment of
all awards.
In 1990 the plant produced $2,765,000 in gross revenues which was
an increase over 1989's revenues, but about $247,000 and $376,000
less than would have been received under the projected 42,000,000
and 43,800,000 kwh per year respectively.
In 1991 the plant produced $2,791,000 in gross revenues which was
$220,000 and $349,000 less than would have been received under the
projected 42,000,000 and 43,800,000 kwh per year respectively.
In 1992 the plant produced about $2,360,000 in gross revenues which
was $651,400 and $780,460 less than would have been received under
the projected 42,000,000 and 43,800,000 kwh per year respectively.
The poor performance in 1992 was directly due to excessive
equipment failures and breakdowns which resulted in plant downtime.
In 1993 the plant produced $2,625,000 in gross revenues which was
an increase over 1992's revenues but about $386,391 and $515,451
less than would have been received under the projected 42,000,000
and 43,800,000 kwh per year respectively.
In 1994 the plant produced $2,564,000 in gross revenues, a decrease
of $446,906 from the prior year and $575,966 less than projected.
In 1995 production was $2,580,000, an increase of $431,060 over the
prior year, but $560,120 less than projected.
The following table shows the annual production for SB-1; it does
not include SB-1A production:
SB-1 Output
Year Kwh's Produced Gross Revenues ($) % Change from
Prior Year
1987 32,797,000 2,352,000
1988 36,142,000 2,591,000 +10.16%
1989 35,760,000 2,564,000 -1.04%
1990 38,563,000 2,765,000 +7.84%
1991 38,926,000 2,791,000 +.94%
1992 32,915,000 2,360,000 -15.44%
1993 36,611,000 2,625,000 +11.23%
1994 35,988,000 2,564,000 -2.32%
1995 35,988,000 2,580,000 +0.62%
Compensation of the General Partner
Pursuant to the Amended and Restated Agreement of Limited
Partnership of Far West Electric Energy Fund, L.P., as
consideration for providing management services to the Fund, FWC is
entitled to the following compensation:
A one percent (1%) interest in the profits, losses, and
net income of the Fund; and
Units equal to five percent (5%) of the Units
outstanding, to be increased proportionately if and as
additional Units are issued in the future (as a result of
purchase of Units, FWC currently owns 530 Units
representing 5.14% of the total Units);
If and when Units are listed for public trading, or the
Limited Partners have received an amount equal to their
capital contributions to the Fund (reduced by the amount
of tax credits allocated to the Limited Partners)
together with a sum equal to a cumulative annual return
of 8%, FWC shall receive additional Units equal to ten
percent (10%) of the Units outstanding, and a total of
15% of any new Units issued.
Reasonable compensation in connection with the purchase
of projects from FWC or its affiliates, and provision of
services to the Fund which are normally provided by
outside consultants, provided any such payments are
competitive with charges for similar projects or
services. (No such payments were earned by or made to FWC
in fiscal 1995.)
Reimbursement on a monthly basis for all direct expenses
it incurs on behalf of the Fund and for that portion of
its administrative expenses allocable to the Fund.
Moneys Owed To FWC
Because SB-1 output has been below anticipated levels, and because
of higher than anticipated operating expenses, FWC has deferred
compensation due to it from the Fund, and has advanced moneys to
the Fund, as shown on the following table:
Fund Obligations to FWC (in dollars)
Year of Operation Unpaid Fees Earned by
FWC FWC Loans to the Fund
1988 -- --
1989 -- --
1990 42,000 16,000
1991 173,000 385,000
1992 170,000 350,000
1993 70,000 171,000
1994 118,000 83,000
1995 98,000 112,000
Total 671,000 1,117,000
The FWC loans to the Fund are unsecured, accrue interest at 13%,
and are payable upon demand.
Legal Proceedings
On January 29, 1993, a permanent injunction was entered by the
United States District Court, District of Utah, Central Division,
enjoining the Fund, FWC, and Principal Melchior (previously a
general partner of the Fund until his resignation effective January
1, 1995) from violating Sections 5(a), (b), and (c), and Sections
17(a)(2) and (3), of the Securities Act of 1933. No monetary awards
were granted by the Court. Details of this proceeding were reported
to Unit holders in the December 31, 1992 Form 10-K.
An action filed against the Fund, FWC, Principal Melchior and
others by the Arizona Corporation Commission was settled on May 19,
1993, without any expense to the Fund. The defendants were ordered
to cease and desist from offering or selling securities in Arizona
absent appropriate registration or an available exemption, or
making any material misrepresentations or omissions in connection
with offers or sales of securities. FWC, Principal Melchior, and
others were ordered to pay $86,690 in restitution to Arizona
investors in Little Wood Hydroelectric Ltd. Details of this
proceeding were reported to Unit holders in the December 31, 1993
Form 10-K.
FEDERAL INCOME TAX CONSEQUENCES
This description of certain federal income tax consequences of the
proposed sale of the assets of the Fund is included solely for the
information of the Limited Partners. No information is provided
with respect to the consequences of any applicable state, local or
foreign tax laws.
Applicability of the minimum tax and other tax consequences of the
proposed sale to a Limited Partner may depend upon the individual
situation of the Partner. Therefore, each Partner is urged to
consult his or her own tax adviser concerning the specific tax
consequences of the proposed sale to such Partner.
General Considerations
The following summary of the major income tax consequences of the
proposed sale is based, with respect to U.S. tax consequences, on
the pertinent provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the applicable regulations promulgated by the
Treasury Department under the Code (the "Regulations"), judicial
and administrative interpretations of the Code and Regulations.
Each Partner of the Fund should be aware that the Code, the
Regulations and interpretations are subject to change and that such
changes may be given retroactive effect.
The Revenue Reconciliation Act of 1990 (the "1990 Act") changes the
tax rates imposed upon individuals commencing January 1, 1991. The
new tax law imposes a 36% marginal tax rate plus a surtax resulting
in a 39.6% rate rather than a generally imposed 28% marginal tax
bracket on individual taxpayers, increases the alternative minimum
tax rate to 24% (rather than the previous rate of 21%), and phases
out personal exemptions and itemized deductions for persons with
substantial income.
The 1990 Act also limits the tax rate on long-term capital gains to
28% The 1990 Act itself does not have an effect upon the opinion of
the Tax Advisor items (a) through (g) set forth below, but owners
of limited partnership Units should be aware that the changes set
forth in the 1990 Act could have an effect on the rates imposed on
the taxpayer.
The Partners in the Fund are variously; corporations, individuals,
partnerships and nominees. Each type of entity may be taxed at
different rates or be taxed based on different sections of the Code
or Regulations. It is not feasible to comment on all of the federal
income tax consequences of the proposed sale.
This summary has been prepared based on the opinion of the Fund's
tax advisor, the Code, and the Regulations as now in effect and the
current judicial and administrative interpretations thereof.
There can be no assurance that the Internal Revenue Service will
agree with the interpretations of the Code and the Regulations set
forth below. The following summary does not include any discussion
with respect to the consequences of the proposed sale under state
and local taxation laws and regulations.
Opinion of Tax Advisor
The Tax Advisor to the Fund, Robison, Hill & Co. (a professional
corporation), has issued an opinion addressing certain tax
consequences of the proposed sale of the assets of the Fund. A
complete copy of the Tax Advisor's opinion is included in the
exhibits to this proxy statement. The opinion is to the effect that
if the sale occurs as set forth in the Purchase and Sale Agreement
and as described herein, it is more likely than not:
(a) The proposed sale will result in dissolution of the
partnership under the Certificate and Agreement of
Limited Partnership of Far West Hydroelectric Fund L.P.
(b) Any cash received by the Limited Partners of the Fund
will be treated as having been received in redemption of
the limited partner Units so cashed out, and will result
in taxable gain or loss. The amount of such gain or loss
will be the difference between the cash received and the
basis of the Units surrendered in exchange thereof.
(c) The partnership is not a "generic" tax shelter under
the two-pronged test and loss if any will be allowed.
(d) The $100,000 cancellation of indebtedness from First
Security Bank will result in taxable income and increase
earnings and profits to the Fund.
(e) The debt to FWC will be transferred to equity in the
new entity and is not forgiveness of debt and should not
be recognized as a distribution of money by the
partnership to the Limited Partners.
(f) Partners that did not receive tax benefits from the
energy tax credit are entitled to 50% of the basis
reduction as a credit on their income tax return.
(g) Because the Fund records income on an accrual basis
for tax purposes there will not be any unrealized
receivables or appreciated inventory sold that should be
recognized as ordinary income.
An opinion of a tax practitioner is not binding upon the IRS or the
Courts. It is uncertain whether the IRS would issue a favorable
ruling on the Proposed Sale. An opinion of Tax Advisors does not
provide the same degree of assurance with respect to the
consequences of a transaction as would a private letter ruling from
the IRS.
The Tax Advisor's opinion is subject to a number of assumptions and
qualifications that are critical to the opinion and is based on
certain factual assumptions, and upon certain representations and
assurances made by FWC, the Fund, USE and SBE. If such factual
information or the representations, warranties, or assumptions are
not true when made or subsequently change, the Tax Advisor's
opinion may be inapplicable. Robison, Hill & Co. has expressed no
opinion concerning the consequences of the proposed sale on the
Limited Partners under applicable state or local income tax laws.
Calculation of Individual Partner Per Unit Cost Basis
Based on the information provided from the Schedule K of Form 1065
as was filed by the Fund, a per-Unit basis of original issued Units
($1,000 per Unit) would be as indicated on the table below.
Tax Consequences of Fund Ownership Per Unit (in dollars)
Year of Cash Schedule K Cumulative Cumulative
Operation Distribution Income (Loss) Suspended Basis
Loss
Initial
purchase
of Unit 1,000
1985 (business
credit of $279) (28) 972
1986 (business
credit of $20) (386) 604
1987 31 (374) 199
1988 22 (420) (243)
1989 (366) (609)
1990 (297) (906)
1991 (6) (912)
1992 325 (587)
1993 125 (462)
1994 58 (404)
1995 158 (246)
1996 (Projected
without sale of
SB-1) 166 (80)
1996 (Projected
with sale of
SB-1) 33 743 630
The preceding table assumes that the Limited Partner is an
individual and was unable to deduct some of the losses at the times
they were incurred either because of the basis limitations or the
passive loss limitations.
In summary, assuming that the partner was able to utilize the
Business credit, the partner should have-
Received a tax benefit of $299 for the Business credit
Received non-taxable cash distributions of $86
If the proposed transaction is approved and completed, this Limited
Partner's Form K-1 will report ordinary income of approximately
$33.
Each Limited Partner's situation may vary from the above
assumptions, accordingly, partners are encouraged to consult their
own tax advisers.
Reduction of Basis
The Fund elected to reduce basis of property for which the energy
credit was claimed by 50% of the energy credit (Code Sec. 50). The
reduced basis was used in determining depreciation and gain on the
disposition of property.
In the event that a partner did not realize a tax benefit from the
investment credit for which a downward basis adjustment was made,
a deduction is allowed under Code Sec. 196 to the taxpayer for 50%
of the unused energy credit attributable to the basis reduction.
The Code also imposes an alternative minimum tax and excise taxes
on certain types of transactions. Applicability of such taxes is
usually controlled, in whole or part, by other matters unrelated to
the Proposed Sale or by unique characteristics of the particular
taxpayer.
Accordingly, partners are encouraged to consult their tax advisers
if they are or might be subject to such taxes.
Taxation of Partnerships in General
The partnership is not subject to federal income tax, it is an
entity which income or loss "flows through" to partners who are
taxable in their individual capacities on their distributive shares
of partnership taxable income. However, the partnership is a tax
reporting entity that must make an annual return of partnership
income or loss.
Each partner is required to treat partnership items on its return
in a manner consistent with the treatment of such items on the
partnership return and may be penalized for intentional disregard
of the consistency requirement (Code Sec. 6222).
The consistency requirement may be waived if the partner files a
statement (Form 8082) identifying the inconsistency or shows that
it resulted from an incorrect schedule furnished by the
partnership.
A partner is generally not taxed on distribution of cash or
property received from the partnership, except to the extent that
any money distributed exceeds the partner's adjusted basis in its
partnership interest immediately before the distribution (Code
Section 706(a)).
Each partner generally must account for its distributive share of
partnership taxable income in computing its income tax; thus, the
basis in its partnership interest is increased by its distributive
share of partnership taxable income.
It is this basis increase that generally allows distributions of
taxable income to be made without recognition of gain, since the
basis increase generally offsets corresponding decreases in basis
that result from such distributions (Code Secs. 705 and 731(a)).
Deductibility of Losses
The benefit of the net operating loss deduction is not allowed to
the partnership, but only to the partners. For purposes of
determining its individual net operating loss, each partner takes
into account its distributive share of income, gain, losses,
deductions, or credits of the partnership as if each item were
realized directly from the source from which realized by the
partnership, or incurred in the same manner as incurred by the
partnership (Reg. 1.702-2).
Limitations on Deductibility of Losses
There are three commonly encountered limitations on a partner's
ability to take into account its share of a partnership's loss in
computing its individual tax liability. A partner is entitled to
deduct its share of the partnership's loss only after satisfying
all three of these rules.
Since the adoption of the 1954 Code through the present, the
partnership taxation rules have limited a partner's deductible
share of losses to its basis in its partnership interest.
Since 1976, the at-risk rules have limited a partner's deduction
for its share of losses to the amount it is considered to be
economically at-risk in the venture.
Beginning with the effective date of the Tax reform Act of 1986, if
a partner's share of the partnership's losses are considered
"passive losses," the partner must combine them with its passive
losses from other sources and is allowed to deduct the total only
to the extent of its passive income from all sources.
Losses that are disallowed due to any of these three limitations
are deductible in the year of the termination of a partnership
interest.
Capital Gain or Loss
A decrease in a partner's share of partnership liabilities is
treated as a distribution of money by the partnership, which
decreases the distributee partner's basis in its partnership
interest (but not below zero) (Code Secs. 733 and 752(b)). When a
partner's basis has been reduced to zero, such "deemed
distributions" can result in the recognition of gain.
Partners' shares of partnership liabilities (and corresponding
allocations of basis) depend upon whether the liability is
"recourse" or "nonrecourse." In addition, separate rules apply in
the case of nonrecourse debts of the partnership if a partner is
the lender or has guaranteed repayment of the debt.
A limited partner cannot be allocated recourse liabilities in
excess of its capital contribution unless it has agreed to restore
any deficit in its capital account. Article VIII of the partnership
agreement states that the "Units are not subject to assessment."
Nonrecourse liabilities are those for which no partner bears the
economic risk of loss.
Cancellation of Indebtedness
Cancellation of indebtedness usually results in taxable income and
increases earnings and profits. However, where the creditor's
adjusted basis in the debt is at least equal to the principal
amount of the debt forgiven, the forgiveness of debt by a
creditor-shareholder may be a capital contribution that does not
increase earnings and profits.
Where the amount of cancellation of indebtedness (COD) income
allocated to the partner is the same as his share of the liability
for the canceled debt, as in the Proposed Transaction, the partner
will recognize no gain, because the COD income will increase the
partner's basis sufficiently to cover the deemed distribution of
money to that partner.
But, in the absence of evidence indicating an intent to make a
capital contribution, the cancellation of indebtedness increases
earnings and profits (Rev. Rul. 58-546).
The Fund's tax advisor is of the opinion that the Limited Partners
will suffer no adverse tax consequences as a result of the Proposed
Transaction.
Termination of the Fund
The tax year of the partnership closes if there has been a
termination of the partnership. Article XVII (ii) of the
Certificate and Agreement of Limited Partnership states that the
sale of substantially all the assets of the Fund shall work an
immediate dissolution of the Fund.
The partnership agreement of the Fund states that the "holders of
the Units shall continue to share profits and or losses during the
period of liquidation in the same proportion as before the
dissolution.
Upon the completion of the liquidation of the partnership, the
partnership must file a short-period return for the resulting short
tax year. Code Section 708 provides that termination occurs only if
the business activities of the partnership are no longer carried on
by any of the partners or that at least one-half of the total
interest in partnership capital and profits is sold within a
12-month period.
Such sale or exchange includes a sale or exchange to another member
of the partnership and the exchange of the interest in one
partnership for an interest in another partnership (or limited
liability company).
A partnership is considered a continuing entity and observes its
regular tax year unless it is terminated under the rules above,
accordingly, the dissolution or liquidation of the partnership
under state law does not necessarily cause a partnership's tax year
to close (Reg. 1.706-1(c)).
Effect of Liquidation
In the case of a liquidating partnership, a relatively simple set
of rules governs the distributee's gain, loss, and basis in
distributed assets, if there are no disproportionate distributions
of unrealized receivables and substantially appreciated inventory
items. There are no tax consequences to the partnership.
If unrealized receivables and substantially appreciated inventory
are not distributed, a liquidation results in gain only to the
extent that a partner receives money in excess of its partnership
interest's adjusted basis (Code Sec. 731(a)).
Liquidating distributions always involve a complete termination of
liability for any share of partnership debt because the partnership
ceases to exist. The termination of partnership requires that
decreases in the partner's share of partnership liabilities be
netted with any liabilities the partner takes over from the
partnership (Reg. 1.752-1(f)).
Net debt relief is treated as additional money received (Code Sec.
752 (b) and Reg. 1.752-1(f)). If a partner takes over only its pro
rata share of the partnership debt, there will be no deemed cash
receipt or payment.
A loss may be recognized when only one or more of three types of
assets, and no other property, are distributed in the liquidation.
If the liquidated partner receives only cash, inventory, and/or
unrealized receivables and their bases to the partnership are less
than its basis in its partnership interest, it is allowed to deduct
the difference as a capital loss (Code Sec. 731(a)(2)).
Partner's Cost Basis
A partner's basis in its partnership interest must be adjusted
periodically to ensure that the partnership remains a conduit for
tax purposes. Income and deductions are to be taxed only once (Code
Sec. 701).
Tax-exempt income, nondeductible expenditures, and distributions
made from previously taxed income and contributions are not to be
taken into account in computing tax liability at all.
The transferor partner's adjusted basis in its partnership interest
at the time of the transfer is the sum of its basis on the day it
acquired its interest plus adjustments reflecting operations during
its holding period.
The calculation of a partner's initial basis varies according to
whether it acquired its interest through a contribution to the
partnership or by transfer from another partner (Code Sec. 742 and
Reg.1.742-1).
The original basis of a partner's interest is the amount of money
and the adjusted basis of property contributed to a partnership
when the partnership interest is acquired (Code Secs. 705(a) and
722). This basis is increased by any further capital contributions
and by the sum of the partner's distributive share of taxable
income of the partnership, tax-exempt receipts of the partnership,
and The excess of depletion deductions over basis of the depletable
property. Code Sec. 705(a)(1) and Reg. 1.705-1(a)(2).
The basis is decreased (but not below zero) by distributions from
the partnership as provided under Code Sec. 733, and by the sum of
the partner's distributive share of:
Fund losses, including capital losses (Code Sec.
705(a)(2)(A)),
Nondeductible partnership expenditures which are not
capital expenditures (Code Sec. 705(a)(2) and Reg.
1.705-1(a)(3)),
The amount of the partner's deduction for depletion for
partnership oil and gas property to the extent the
deduction does not exceed the partner's share of the
adjusted basis of the property (Code Sec. 705(a)(3) and
Reg. 1.705-1(a)(4), and
Loss from the disposition by the partnership of a
domestic oil or gas property (Reg. 1.705-1(a)(5)).
In all cases when downward adjustments to basis are required, the
statute expressly provides that basis is not to be reduced below
zero (Code Sec. 705(b)). A basis in a partnership interest never
has a value below zero. While a negative capital account is very
common, a negative basis is impossible.
The preceding is intended to be only a summary of income tax
consequences relating to the Proposed Sale.
Limited Partners of the Fund should consult their own tax advisors
with respect to issues not covered by the opinion or regarding
their own particular circumstances.
OPINION OF FINANCIAL ADVISOR
Far West Capital, Inc. retained Corporate Capital Consultants, Inc.
("CCC") as financial advisor to the Far West Electric Energy Fund,
L.P. in connection with determining whether the offer by U.S.
Envirosystems, Inc. for the SB-1 plant and certain other assets of
the Fund liabilities, was fair, from a financial point of view, to
the limited partners of the Fund.
In its capacity as an investment banking firm, CCC is regularly
engaged in the valuation of business and their securities in
connection with mergers and acquisitions and other corporate
transactions. CCC is a New York City-based investment banking firm
organized in 1974 which specializes in providing corporate
valuations, often in conjunction with pending purchase offers. It
has issued many "fairness opinions" to public companies and others.
This firm was recommended to the Fund by Mr. Theodore Rosen,
Chairman of the Board of U.S. Envirosystems, Inc. There is no
material relationship between CCC and the Fund or its affiliates,
or, to the best of FWC's knowledge, between CCC and USE.
The amount of consideration to be paid was determined by U.S.
Envirosystems, Inc., after discussions with FWC and conducting a
full examination of the Fund and the Power Plants. CCC did not take
part in the discussions between FWC and USE or otherwise make any
recommendations.
The procedures followed by CCC are set forth in detail in its
opinion (see Exhibit 3 to the Consent Solicitation-"Fairness
Opinion," which is incorporated herein by reference). A copy of
this opinion is appended to this Consent Solicitation.
No limitations were imposed by FWC with respect to the
investigations made or procedures followed by CCC in rendering its
opinion. CCC has not in the past provided investment banking
services to either the Fund or FWC and does not have any equity
interest in either company.
Investigation By CCC
In connection with its opinion CCC reviewed, among other things:
A draft of the Purchase and Sale Agreement concerning the
SB-1 power plant, with attendant documents;
Annual Reports on Form 10-K of the Fund for the five
years ended December 31, 1994, as well as tax returns for
the same period;
Certain Quarterly Reports on Form 10-Q of the Fund;
Certain Power Plant revenue and expense information
prepared by the management of the Fund;
Certain internal financial analyses and forecasts for the
assets if operated by SBE, as prepared by the management
of USE;
The Geothermal Resources Lease, as amended between Sierra
Pacific Power Company and Geothermal Development
Associates;
The Agreement for the Purchase and Sale of Electricity,
as amended, between Sierra and Geothermal Development
Associates;
The Operating Agreement between the Fund, 1-A
Enterprises, and SB Geo, Inc.;
The Term Loan Agreement among Westinghouse Credit
Corporation and the Fund, as well as the Term Loan
Agreement among WCC and 1-A, along with various Loan
Modification Agreements pertaining thereto;
The Revised and Restated Geothermal Resources Sublease
between the Fund and FWC;
The Long-Term Agreement for Purchase and Sale of Energy
between Sierra and FWC;
The Purchase Agreement between Bonneville Pacific
Corporation and FWC dated September, 1985;
The Certificate of Limited Partnership and the
Partnership Agreement of the Fund; and
Various documents pertaining to a loan from the First
Security Bank of Utah, N.A., including the Third
Extension and Modification Agreement pertaining thereto.
In addition, CCC held discussions with members of the senior
management of the Fund and USE regarding the past and current
business operations, financial condition, and future prospects of
the SB-1 plant and the Fund. CCC also held discussions with WCC and
Sierra.
Management of CCC also visited the SB-1 facility and met with
operating and management personnel at the site. Additionally, CCC
reviewed a two-year old appraisal of SB-1, a draft to the proposed
Form SB-2 prepared by USE, certain internal financial information
prepared by FWC, and information regarding certain other companies
in the independent power production industry specifically and in
other industries generally, and considered such other information,
held such other discussions, and performed such other studies and
analyses as it considered appropriate.
CCC relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed
by it for purposes of its opinion.
In addition, CCC did not make an independent valuation or appraisal
of the assets and liabilities of the Fund, FWC, or the SB-1
facility and, aside from the two-year old appraisal mentioned
above, was not furnished with any such evaluation or appraisal.
Terms of Engagement
The terms of the engagement of CCC by FWC are set forth in a letter
agreement dated September 15, 1995, between CCC and FWC (the
"Engagement Letter"). Pursuant to the Engagement Letter, FWC has
agreed to pay CCC a fee based on CCC's hourly rate of $300, with a
minimum fee of $10,000. It is anticipated that CCC's total fees
will aggregate approximately $43,000. This fee will be paid by the
Fund; if the Proposed Transaction is completed, the fee will be
paid from the proceeds of the Power Plant sale.
FWC has also agreed to reimburse CCC for its out-of-pocket
expenses, and to indemnify CCC against certain liabilities in
connection with its engagement, including certain liabilities under
the federal securities laws.
Financial Analyses Used
The following is a summary of the material financial analyses
utilized by CCC in connection with providing its opinion to FWC.
Stock Trading Analysis. Owing to the fact that the limited
partnership interests of the Fund have no public market and have
had virtually no trading activity since inception of the Fund ten
years ago, CCC considered this approach to be inappropriate.
Selected Company Analysis. CCC examined certain financial,
operating, and stock market information for selected companies in
the independent power production industry, specifically, the AES
Corporation, Destec Energy, Inc., KENETECH Corporation, and Sithe
Energies, Inc.
CCC noted that all of these companies have revenues of at least
$100 million and are considerably diversified. By contrast, the
Fund's single SB-1 facility has been generating revenues of under
$3 million and has been incurring losses before extraordinary items
steadily during the current year and in three of the last five
fiscal years.
Consequently, CCC concluded that a selected company analysis, under
these circumstances, was not a meaningful approach to employ,
except for terminal values in the discounted cash flow discussed
below.
Selected Transactions Analysis. CCC reviewed the recent acquisition
of Magna Power Company by California Energy Company, Inc. Owing to
the enormous size of both companies and their substantial
diversification, as well as the fact that this transaction was
accomplished partly through the issuance of stock by the acquirer,
CCC concluded that this analysis did not provide any reliable
indication of value of the SB-1 facility, and, accordingly, CCC did
not rely on this approach. CCC is not aware of any other similar
recent transactions.
Replacement Cost Analysis. CCC took into account estimates from
various industry sources regarding the replacement cost for
geothermal plants, with new plants generally valued at
approximately $2,000 per kilowatt.
This would imply a value of $7.5 million for a new plant with the
power-generation aspects of SB-1. However, CCC noted that the SB-1
plant is ten years old and subject to market conditions governing
the sale of power, which sharply limit the profitability on
investment in the facility. Therefore, CCC considered this approach
to have little or no probative value for purposes of this
valuation.
Appraisal of the SB-1 Plant by Ronald P. Baldwin Dated September
20, 1993. At the time of this appraisal, the contract price for the
sale of power to Sierra had just over three years to run. At a
price of 7.17 cents per kwh, the plant was covering its mortgage
payment obligation by accruing and deferring substantial amounts of
other interest and general partner obligations. The Baldwin
appraisal concluded that the plant's gross value of $5,000,000 was
offset by $5,000,000 in debt, for a net value of zero.
There was a possibility that, at the expiration of the contract,
market forces might permit a renegotiated price with Sierra which
would allow a reasonable operating cash flow which would continue
to service the mortgage, particularly if the mortgage lender would
renegotiate the loan terms. But even with that optimistic chain of
events, the appraiser determined that SB-1 had a $5 million value
against an approximately $5 million mortgage. Consequently, he
opined that there was effectively no equity in the plant.
Mr. Baldwin, of Los Angeles, California, was selected by FWC to
appraise the Power Plant because of his extensive experience in the
geothermal industry. He has had no material relationship with the
Fund or FWC. No limitations were placed on his investigation, nor
were any special instructions issued to him. As stated in his
appraisal, Mr. Baldwin visited the project site, met with the
responsible officers of FWC, and reviewed Fund records. The
appraisal relies on a cash flow analysis; after noting that the
power sales rate will decline in December, 1996, he concluded that
plant operations could not continue beyond that date unless somehow
plant efficiency were significantly improved, royalty reductions
made, or the power sales rate remained constant. Concluding that
none of these possibilities was realistic, he determined that the
plant had no value in excess of its liabilities.
That appraisal has not been updated. While CCC considers that
appraisal to have some credibility at the time, since it was
prepared by a person with considerable background in the geothermal
industry, the market for such power has become more competitive.
It is now highly likely that at the time the ten-year power
contract must be repriced at short-term avoided cost (January 1,
1997), both market and short-term avoided cost will be well below
break-even after debt service. A renegotiation of debt service also
seems unlikely. Thus, CCC concludes that the Baldwin appraisal is
optimistic in today's environment and with tomorrow's prospects.
Discounted Cash Flow Analysis. The change in selling price to
Sierra that is likely to occur requires an evaluation of the plant
based on what it will receive in 1996 and over the ten-year life of
the contract that starts January 1, 1997 compared to its operating
costs and debt service. The net cash flow after debt service should
then be discounted to present value at rates that reflect the risk,
and a terminal value should be determined at the end of the year
2006 based on a multiple of projected net cash flows.
CCC's discounted cash flow analysis was based upon estimates of
financial performance as prepared by FWC, but adjusted by CCC based
on due diligence conducted by CCC on the plant, its power market,
and its secured lender. CCC ran various projections of prices per
kwh, from 2.58 cents to 4.2 cents, with expenses at their current
level, discounted to the present.
No change in working capital and no capital expenditures were
assumed. Debt obligations were calculated at their present
projected levels according to the loan agreement, and also at
levels that assumed a voluntary reduction in interest and principal
as well as a revised long-term payout level.
The reduction in principal was assumed to be on the same basis as
currently being negotiated by USE to pay off the lender entirely.
It should be noted, however, that the lender had advised CCC that
it will not consider such a reduction and revision by the Fund
without a total payoff. The Fund has no independent means of
accomplishing this restructuring.
These forecasts, even in their most optimistic form, were
discounted at rates of 10% to 12% and 14%. The projected terminal
value was based upon a multiple of 10 times net cash flow in 2006,
discounted back at the above rates. The discount rates and terminal
value multiple used by CCC in its analyses were based upon its own
judgment as to required rates for the risk involved, and a discount
from average multiples of the group of power companies described
above.
CCC made a number of adjustments to Far West Capital's SB 1
projections. CCC used two different projections of revenues to
reflect the average gross kilowatt hours produced by SB-1 from
1987-1994, as well as a high salable kilowatt hours that assumed
that generator overhauls are able to increase output just over 5%.
The lowest energy rate used by FWC (2.8 cents or less /kwh) was
reduced to the rate estimated by CCC that would be actually paid by
the buyer starting January 1, 1997 (2.587 cents). CCC also used the
higher rate of 4.2 cents used by FWC in alternative iterations for
each scenario.
Operating expenses were modified from FWC's forecast to reflect the
higher of the Fund's projected operating and maintenance expenses
for 1997 and the annualization of the latest 6-month maintenance
expenses per the June 30, 1995 Form 10-QSB. From 1997 forward,
various expense items were increased annually from 1% to 4% to
account for inflation. Some items were lower than FWC's forecast.
The results do not vary greatly from FWC's forecast. Lease
royalties to Sierra Pacific Power which were used by CCC were
provided by FWC subsequent to the preparation of its forecast.
General & Administrative expenses were increased 3% by CCC to
account for inflation, a slightly lower rate than the one used by
FWC.
Debt service was modified to reflect different scenarios as
projected by CCC - the current debt service, a renegotiated debt
service extending the term to 10 years, and a reduction in
principal balance to reflect USE's discussions with Westinghouse.
The Net Royalty Payable changes from FWC as the forecasts change -
this is a function of the royalty agreements.
As a further check on its results, CCC computed the sales price of
power per kwh required to reach a value of $1,250,000 (the price
offered for purchase of SB-1 and associated assets) on a discounted
cash flow basis. This was determined to be 4.1 to 4.3 cents per kwh
for the most optimistic debt payment level. CCC is of the opinion
that achievement of such a price range is highly unlikely at the
start of 1997 due to the number of plants selling electricity in
the region at prices under 2 cents, the unlikely chance that that
short-term avoided cost (currently estimated to be 2.8 cents
per kwh) would change materially in the near future, the
fact that Sierra can buy power for less than that price and has
been for several years, and the likelihood that demand, while
improving, is not projected to exceed supply in the near future.
Conclusion
In arriving at the CCC opinion, CCC reviewed all of the above
analyses, relying most heavily on the discounted cash flow
analysis, and concluded that the results of such analyses, when
considered as a whole supports its opinion that the sale of SB-1
and associated assets on the terms contemplated is fair, from a
financial point of view, to the limited partners of the Fund.
Any estimates incorporated in such analyses, particularly in
discounted cash flow, are not necessarily indicative of actual past
or future results or values, which may be significantly more or
less favorable than such estimates, and which are inherently
subject to uncertainty.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Consent Solicitation to
be signed on its behalf by the undersigned duly authorized persons
on the date indicated.
Far West Electric Energy Fund, L.P.,
By Far West Capital, Inc., its general partner
May 7, 1996
/s/_______________________________________
Thomas A. Quinn, Authorized Officer
EXHIBITS
1. Purchase and Sale Agreement (previously submitted)
2. Tax Opinion of Robison Hill & Co. (previously submitted)
3. Fairness Opinion of Corporate Capital Consultants, Inc.
(previously submitted)
4. Form 10-QSB for quarter ending September 30, 1995 (previously
submitted)
5. Reply Card (previously submitted)
6. Form 10-KSB for December 31, 1995 (revised)
7. Commitment Letter to U.S. Envirosystems, Inc. from Smith
Management Company (deleted)
8. Commitment Letter to U.S. Envirosystems, Inc. from Gaines
Berland, Inc. (deleted)
9. SB-1 appraisal of Ronald P. Baldwin (previously submitted)
10. SB-1 Forecasts of Corporate Capital Consultants (revised)
11. Letter to James Budge of SEC (previously submitted)
12. Unaudited Condensed Balance Sheet of Far West Capital, Inc.
(revised, now appearing at page 40 of Exhibit 6)
13. USE's Pro Forma Condensed Combined Statement of Operations for
the year ended December 31, 1995